SOURCE: Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc.

March 03, 2010 16:05 ET

Sun Healthcare Group, Inc. Reports 2009 Fourth-Quarter Earnings and Normalized EPS of $0.28 and 2009 Year-End Earnings and Normalized EPS of $1.10

IRVINE, CA--(Marketwire - March 3, 2010) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced its operating results for the fourth quarter and year ended Dec. 31, 2009.

Fourth-quarter Results:

On a normalized basis, comparing the quarter ended Dec. 31, 2009, to the same period in 2008 (unless otherwise stated):

--  consolidated revenues rose 1.6 percent to $474.1 million;
       -  rates continued to drive revenue growth;
--  consolidated adjusted EBITDAR increased 3.6 percent to $63.7 million;
       -  adjusted EBITDAR margin improved 20 basis points to 13.4 percent;
--  consolidated adjusted EBITDA increased 4.9 percent to $45.4 million;
       -  adjusted EBITDA margin improved 30 basis points to 9.6 percent;
--  diluted earnings per share from continuing operations reported at
    $0.28, up 7.7 percent;
--  free cash flow of $4.0 million for the quarter resulted in $54.6
    million of free cash flow for the year, an increase of $9.0 million,
    or 20 percent, year over year;
--  normalizing items in the fourth quarter consisted of a non-recurring
    pretax expense of $3.9 million related to prior year self-insurance
    reserves, $0.5 million of transaction costs related to a hospice
    acquisition and $0.4 million of restructuring costs, which consisted
    principally of employee severance payments; and
--  results included $0.5 million of non-recurring project costs associated
    with the continued implementation of a clinical/billing platform and
    labor management system.

The company is reaffirming its 2010 guidance issued earlier this year on Jan. 6, 2010. Commenting on the Company's fourth-quarter results, Richard K. Matros, Sun's chairman and chief executive officer, remarked, "The story of the quarter is the story of the year. Successful execution of our high acuity strategy drove rate growth, resulting in revenue growth for both the quarter and the year of 1.6 percent and 3.2 percent, respectively, accompanied by strong expense controls, our infrastructure cost reductions, and a favorable labor market. This revenue growth somewhat mitigated the continued softness we have experienced in occupancy and payor mix. I would note that we have managed to achieve consecutive revenue growth in all four quarters of 2009. I have always said that I have great faith in our management team's ability to execute, as illustrated by a 30 basis point expansion of normalized adjusted EBITDA for the quarter and a 50 basis-point expansion for the year. In an environment that has clearly tested us, our earnings growth of 7.7 percent for the quarter and 18.3 percent for the year was quite respectable. Our ability to convert our operating results into free cash flow continues to be a company strength. Our free cash flow for 2009 was a robust $54.6 million."

Segment Updates

The year-over-year revenue growth in Sun's inpatient services business, SunBridge, for the quarter of $9.5 million or 2.3 percent was principally driven by skilled rate growth and census expansion in the Company's hospice business, SolAmor. SunBridge's nursing center Medicare rate continued to demonstrate strong acuity growth, as evidenced by Rehab RUG utilization of 90.2 percent and REX utilization of 42.6 percent, resulting in a 2.6 percent increase in Medicare rates, despite a reduction from CMS in those rates effective Oct. 1, 2009. In addition, SunBridge experienced a 1.7 percent increase in managed care rates. SolAmor's revenues more than doubled, growing from $5.8 million to $11.7 million, due to census expansion derived from an October acquisition, combined with continued same store census growth. On a normalized basis, SolAmor contributed $2.7 million of adjusted EBITDA for the quarter and a margin of 23.4 percent, and for the full year 2009, SolAmor contributed $6.2 million of adjusted EBITDA and a margin of 20.1 percent. On an overall basis, inpatient services' normalized adjusted EBITDAR remained strong at $72.5 million for the quarter, with a margin of 17.1 percent. For the full year 2009, inpatient services' normalized adjusted EBITDAR margin was 17.3 percent.

Sun's rehabilitation therapy services business, SunDance, continued to experience revenue growth of $5.7 million, or 14.2 percent, in the quarter. Adjusted EBITDA margin also expanded in the quarter by 50 basis points, producing a 5.7 percent adjusted EBITDA margin. These results were favorably impacted by the 9.8 percent growth in revenue per contract. SunDance's adjusted EBITDA margin for the year was 6.5 percent, an increase of 50 basis points.

In line with the medical staffing industry as a whole, Sun's medical staffing services business, CareerStaff, continues to be impacted negatively by the slow national economy. Revenues from CareerStaff were down compared to revenues in the fourth quarter of 2008. Despite the decline in revenues, CareerStaff experienced an adjusted EBITDA margin of 10.1 percent for the quarter.

Looking ahead in 2010, Mr. Matros further stated, "We will continue to focus on short-stay high acuity patients and expect to increase our Rehab Recovery Suites® beds in excess of 35 percent. We have already begun preparing for the implementation by CMS in October of the new Resource Utilization Group categories (RUGS IV) from a strategic, educational and business development perspective. While we acknowledge the challenges posed by RUGS IV, which will determine the Medicare rates we receive for our services, we also recognize the opportunities. Hospice will be our most robust growth segment on a relative basis; however, we expect continued growth in our contract rehabilitation business as well. While our staffing segment will continue to be challenged, we expect it will weather the economic storm and be poised for growth once again."

Conference Call

As previously announced, investors and the general public are invited to listen to a conference call with Sun's senior management on Thursday, March 4, 2010, at 10 a.m. Pacific / 1 p.m. Eastern, to discuss the Company's earnings for the fourth-quarter and year-end of 2009.

To listen to the conference call, dial (888) 587-0614 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on March 4, 2010, until midnight Eastern on April 5, 2010, by calling (888) 203-1112 and using access code 2394889.

About Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc.'s (NASDAQ: SUNH) subsidiaries provide nursing, rehabilitative and related specialty healthcare services principally to the senior population in the United States. Sun's core business is providing inpatient services, primarily through 183 skilled nursing centers, 14 assisted and independent living centers and eight mental health centers. On a consolidated basis, Sun has annual revenues of more than $1.8 billion and approximately 30,000 employees in 46 states. At Dec. 31, 2009, SunBridge centers had 23,205 licensed beds located in 25 states, of which 22,423 were available for occupancy. Sun also provides rehabilitation therapy services to affiliated and non-affiliated centers through its SunDance subsidiary, medical staffing services through its CareerStaff Unlimited subsidiary and hospice services through its SolAmor subsidiary.

Forward-Looking Statement

Statements made in this release that are not historical facts are "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate," "believe," "plan," "estimate," "expect," "hope," "intend," "may" and similar expressions. Examples of forward-looking statements include all statements regarding our expected future financial position and results of operations, business strategy, the impact of reductions in reimbursements and other changes in government reimbursement programs, growth opportunities and plans and objectives of management for future operations. Factors that could cause actual results to differ are identified in the public filings made by the company with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements; the impact that any healthcare reform legislation will have on our business; our ability to maintain the occupancy rates and payor mix at our healthcare centers; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; the significant amount of our indebtedness, covenants in our debt agreements that may restrict our activities and our ability to make acquisitions, to incur more indebtedness and to refinance indebtedness on favorable terms; the impact of the current economic downturn on our business; increasing labor costs and the shortage of qualified healthcare personnel; and our ability to receive increases in reimbursement rates from government payors to cover increased costs. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission, including our Annual Report on Forms 10-K and 10-K/A and Quarterly Reports on Form 10-Q and 10-Q/A, copies of which are available on Sun's web site, www.sunh.com. There may be additional risks of which we are presently unaware or that we currently deem immaterial.

The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. We caution investors that any forward-looking statements made by Sun are not guarantees of future performance and are only made as of the date of this release. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.

EBITDA and EBITDAR and adjusted EBITDA and adjusted EBITDAR as used in this press release and in the accompanying tables, which are non-GAAP financial measures, are each reconciled to net income (loss) in the accompanying tables. In addition, the normalizing adjustments to EBITDA, adjusted EBITDA, EBITDAR, adjusted EBITDAR, pre-tax income and income from continuing operations discussed in this press release and shown in the accompanying tables are non-GAAP adjustments.

Any documents filed by Sun with the SEC may be obtained free of charge at the SEC's web site at www.sec.gov. In addition, investors and stockholders of Sun may obtain free copies of the documents filed with the SEC by contacting Sun's investor relations department at (505) 468-2341 (TDD users, please call (505) 468-4458) or by sending a written request to Investor Relations, Sun Healthcare Group, Inc. 101 Sun Avenue N.E., Albuquerque, N.M. 87109. You may also read and copy any reports, statements and other information filed by Sun with the SEC at the SEC public reference room at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 or visit the SEC's web site for further information.


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES                

                       KEY INCOME STATEMENT FIGURES
                               CONSOLIDATED
                  (in thousands, except per share data)


                                                  For the       For the
                                                Three Months  Three Months
                                                    Ended         Ended
                                                December 31,  December 31,
                                                    2009          2008
                                                ------------  ------------


Revenue                                         $    474,064  $    466,796

Depreciation and amortization                         12,128        10,801

Interest expense, net                                 11,905        13,459

Pre-tax income                                        16,499        16,360

Income tax expense (benefit)                           6,821       (67,466)

Income from continuing operations                      9,678        83,826

Loss from discontinued operations                     (1,003)       (1,405)
                                                ------------  ------------

Net income                                      $      8,675  $     82,421
                                                ============  ============


Diluted earnings per share                      $       0.20  $       1.88
                                                ============  ============


Adjusted EBITDAR                                $     59,340  $     57,996
Margin - Adjusted EBITDAR                               12.5%         12.4%

Adjusted EBITDAR normalized                     $     63,745  $     61,546
Margin - Adjusted EBITDAR normalized                    13.4%         13.2%


Adjusted EBITDA                                 $     40,964  $     39,719
Margin - Adjusted EBITDA                                 8.6%          8.5%

Adjusted EBITDA normalized                      $     45,369  $     43,269
Margin - Adjusted EBITDA normalized                      9.6%          9.3%



Pre-tax income continuing operations -
 normalized                                     $     21,336  $     19,010

Income tax expense - normalized                 $      8,804  $      7,606

Income from continuing operations normalized    $     12,532  $     11,404

Diluted earnings per share - normalized                 0.28          0.26

Net income - normalized                         $     11,842  $     10,449

Diluted earnings per share - normalized                 0.27          0.24


See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table
 "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR".
See normalizing adjustments in the table "Normalizing Adjustments -
 Quarter Comparison".





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                       KEY INCOME STATEMENT FIGURES
                               CONSOLIDATED
                  (in thousands, except per share data)


                                                  For the       For the
                                                 Year Ended    Year Ended
                                                December 31,  December 31,
                                                    2009          2008
                                                ------------  ------------


Revenue                                         $  1,881,799  $  1,823,503

Depreciation and amortization                         45,463        40,354

Interest expense, net                                 49,327        54,603

Pre-tax income                                        72,096        66,576

Income tax expense (benefit)                          29,616       (47,348)

Income from continuing operations                     42,480       113,924

Loss from discontinued operations                     (3,809)       (4,637)
                                                ------------  ------------

Net income                                      $     38,671  $    109,287
                                                ============  ============


Diluted earnings per share                      $       0.88  $       2.49
                                                ============  ============


Adjusted EBITDAR                                $    241,381  $    234,158
Margin - Adjusted EBITDAR                               12.8%         12.8%

Adjusted EBITDAR normalized                     $    250,086  $    236,527
Margin - Adjusted EBITDAR normalized                    13.3%         13.0%


Adjusted EBITDA                                 $    168,232  $    160,557
Margin - Adjusted EBITDA                                 8.9%          8.8%

Adjusted EBITDA normalized                      $    176,937  $    162,926
Margin - Adjusted EBITDA normalized                      9.4%          8.9%


Pre-tax income continuing operations -
 normalized                                     $     82,105  $     68,045

Income tax expense - normalized                 $     33,720  $     27,252

Income from continuing operations normalized    $     48,385  $     40,793

Diluted earnings per share - normalized                 1.10          0.93

Net income - normalized                         $     45,237  $     36,384

Diluted earnings per share - normalized                 1.03          0.83


See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table
 "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR".
See normalizing adjustments in the table "Normalizing Adjustments -
 Quarter Comparison".





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                        CONSOLIDATED BALANCE SHEETS
                    (in thousands, except share data)



                                                December 31,  December 31,
                                                    2009          2008
                                                ------------  ------------
                                                  (audited)     (audited)
                     ASSETS

Current assets:
   Cash and cash equivalents                    $    104,483  $     92,153
   Restricted cash                                    24,034        34,676
   Accounts receivable, net                          220,319       205,620
   Prepaid expenses and other assets                  21,757        21,456
   Assets held for sale                                    -         3,654
   Deferred tax assets                                68,415        57,261
                                                ------------  ------------
   Total current assets                              439,008       414,820

Property and equipment, net                          622,682       603,645
Intangible assets, net                                53,931        54,388
Goodwill                                             338,296       326,808
Restricted cash, non-current                           3,317         3,303
Deferred tax assets                                  108,999       134,807
Other assets                                           4,961         5,563
                                                ------------  ------------
      Total assets                              $  1,571,194  $  1,543,334
                                                ============  ============


        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                             $     57,109  $     62,000
   Accrued compensation and benefits                  58,953        60,660
   Accrued self-insurance obligations, current        45,661        45,293
   Other accrued liabilities                          55,265        56,857
   Current portion of long-term debt and
    capital lease obligations                         46,416        17,865
                                                ------------  ------------
   Total current liabilities                         263,404       242,675

Accrued self-insurance obligations, net of
 current portion                                     121,948       114,557
Long-term debt and capital lease obligations,
 net of current portion                              654,132       707,976
Unfavorable lease obligations, net                    12,663        15,514
Other long-term liabilities                           69,983        58,903
                                                ------------  ------------
   Total liabilities                               1,122,130     1,139,625


Stockholders' equity:
   Preferred stock of $.01 par value,
    authorized 10,000,000 shares,
    no shares were issued and outstanding as
    of December 31, 2009 and 2008                          -             -
   Common stock of $.01 par value, authorized
    125,000,000 shares, 43,764,240 and
    43,544,765 shares issued and outstanding
    as of December 31, 2009 and 2008,
    respectively                                         438           435
   Additional paid-in capital                        655,667       650,543
   Accumulated deficit                              (204,012)     (242,683)
   Accumulated other comprehensive loss, net          (3,029)       (4,586)
                                                ------------  ------------
                                                     449,064       403,709
                                                ------------  ------------
      Total liabilities and stockholders'
       equity                                   $  1,571,194  $  1,543,334
                                                ============  ============





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                               CONSOLIDATED
                            INCOME STATEMENTS
                  (in thousands, except per share data)


                                                  For the       For the
                                                Three Months  Three Months
                                                    Ended         Ended
                                                December 31,  December 31,
                                                    2009          2008
                                                ------------  ------------
                                                (unaudited)   (unaudited)

Total net revenues                              $    474,064  $    466,796
                                                ------------  ------------
Costs and expenses:
   Operating salaries and benefits                   266,842       262,764
   Self-insurance for workers' compensation and
    general and professional liability insurance      18,125        18,708
   Operating administrative costs                     12,693        13,498
   Other operating costs                              97,456        93,440
   Center rent expense                                18,376        18,277
   General and administrative expenses                14,011        15,774
   Depreciation and amortization                      12,128        10,801
   Provision for losses on accounts receivable         5,597         4,616
   Interest, net of interest income of $74 and
    $328, respectively                                11,905        13,459
   Gain on sale of assets, net                             -          (901)
   Restructuring costs                                   432             -
                                                ------------  ------------
Total costs and expenses                             457,565       450,436
                                                ------------  ------------

Income before income taxes and discontinued
 operations                                           16,499        16,360
Income tax expense (benefit)                           6,821       (67,466)
                                                ------------  ------------
Income from continuing operations                      9,678        83,826
                                                ------------  ------------

Discontinued operations:
   Loss from discontinued operations, net of
    related taxes                                     (1,004)         (927)
   Gain (loss) on disposal of discontinued
    operations, net of related taxes                       1          (478)
                                                ------------  ------------
Loss from discontinued operations, net                (1,003)       (1,405)
                                                ------------  ------------

Net income                                      $      8,675  $     82,421
                                                ============  ============


Basic income per common and common equivalent
 share:
   Income from continuing operations            $       0.22  $       1.92
   Loss from discontinued operations, net              (0.02)        (0.03)
                                                ------------  ------------
Net income                                      $       0.20  $       1.89
                                                ============  ============

Diluted income per common and common equivalent
 share:
   Income from continuing operations            $       0.22  $       1.91
   Loss from discontinued operations, net              (0.02)        (0.03)
                                                ------------  ------------
Net Income                                      $       0.20  $       1.88
                                                ============  ============

Weighted average number of common and
 common equivalent shares outstanding:
   Basic                                              43,944        43,602
   Diluted                                            44,062        43,873


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                               CONSOLIDATED
                            INCOME STATEMENTS
                  (in thousands, except per share data)


                                                    For the      For the
                                                  Year Ended   Year Ended
                                                    December     December
                                                    31, 2009     31, 2008
                                                  -----------  -----------
                                                   (audited)    (audited)

Total net revenues                                $ 1,881,799  $ 1,823,503
                                                  -----------  -----------
Costs and expenses:
   Operating salaries and benefits                  1,057,645    1,028,987
   Self-insurance for workers' compensation and
    general and professional liability
    insurance                                          63,752       59,694
   Operating administrative costs                      50,924       51,171
   Other operating costs                              384,832      373,084
   Center rent expense                                 73,149       73,601
   General and administrative expenses                 62,068       62,302
   Depreciation and amortization                       45,463       40,354
   Provision for losses on accounts receivable         21,197       14,107
   Interest, net of interest income of $383 and
    $1,781, respectively                               49,327       54,603
   Loss (gain) on sale of assets, net                      42         (976)
   Restructuring costs                                  1,304            -
                                                  -----------  -----------
Total costs and expenses                            1,809,703    1,756,927
                                                  -----------  -----------

Income before income taxes and discontinued
 operations                                            72,096       66,576
Income tax expense (benefit)                           29,616      (47,348)
                                                  -----------  -----------
Income from continuing operations                      42,480      113,924
                                                  -----------  -----------

Discontinued operations:
   Loss from discontinued operations, net of
    related taxes                                      (3,476)      (1,636)
   Loss on disposal of discontinued operations,
    net of related taxes                                 (333)      (3,001)
                                                  -----------  -----------
Loss from discontinued operations, net                 (3,809)      (4,637)
                                                  -----------  -----------

Net income                                        $    38,671  $   109,287
                                                  ===========  ===========


Basic income per common and common equivalent
 share:
   Income from continuing operations              $      0.97  $      2.63
   Loss from discontinued operations, net               (0.09)       (0.11)
                                                  -----------  -----------
Net income                                        $      0.88  $      2.52
                                                  ===========  ===========

Diluted income per common and common equivalent
 share:
   Income from continuing operations              $      0.97  $      2.59
   Loss from discontinued operations, net               (0.09)       (0.10)
                                                  -----------  -----------
Net Income                                        $      0.88  $      2.49
                                                  ===========  ===========

Weighted average number of common and
 common equivalent shares outstanding:
   Basic                                               43,841       43,331
   Diluted                                             43,963       43,963




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


                                                  For the       For the
                                                Three Months  Three Months
                                                    Ended         Ended
                                                December 31,  December 31,
                                                    2009          2008
                                                ------------  ------------
                                                (unaudited)   (unaudited)

Cash flows from operating activities:
  Net income                                    $      8,674  $     82,421
  Adjustments to reconcile net income to net
   cash provided by operating activities,
   including discontinued operations:
     Depreciation and amortization                    12,128        10,812
     Amortization of favorable and unfavorable
      lease intangibles                                 (474)         (436)
     Provision for losses on accounts receivable       5,597         5,312
     Gain on sale of assets, including
      discontinued operations, net                        (2)         (104)
     Stock-based compensation expense                  1,425         1,532
     Deferred taxes                                    8,984       (64,675)
     Other                                                 -           (22)
  Changes in operating assets and liabilities,
   net of acquisitions:
     Accounts receivable                             (12,959)      (17,335)
     Restricted cash                                   1,817        (1,227)
     Prepaid expenses and other assets                 2,795         1,487
     Accounts payable                                  3,433        11,145
     Accrued compensation and benefits                (7,916)       (1,238)
     Accrued self-insurance obligations                6,504         8,179
     Income taxes payable                                  -        (2,782)
     Other accrued liabilities                       (11,721)       (9,397)
     Other long-term liabilities                      (1,400)        2,019
                                                ------------  ------------
        Net cash provided by operating
         activities                                   16,885        25,691
                                                ------------  ------------

Cash flows from investing activities:
  Capital expenditures                               (12,854)      (14,011)
  Proceeds from sale of assets held for sale               -         4,557
  Acquisitions, net of cash acquired                 (14,936)       (2,326)
                                                ------------  ------------
       Net cash used for investing activities        (27,790)      (11,780)
                                                ------------  ------------

Cash flows from financing activities:
  Principal repayments of long-term debt and
   capital lease obligations                          (2,043)       (2,207)
  Distribution to non-controlling interest                 -           (65)
  Proceeds from issuance of common stock                  26            81
                                                ------------  ------------
       Net cash used for financing activities         (2,017)       (2,191)
                                                ------------  ------------

  Net (decrease) increase in cash and cash
   equivalents                                       (12,922)       11,720
  Cash and cash equivalents at beginning of
   period                                            117,405        80,433
                                                ------------  ------------
  Cash and cash equivalents at end of period    $    104,483  $     92,153
                                                ============  ============





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


                                                  For the       For the
                                                 Year Ended    Year Ended
                                                December 31,  December 31,
                                                    2009          2008
                                                ------------  ------------
                                                  (audited)     (audited)

Cash flows from operating activities:
  Net income                                    $     38,671  $    109,287
  Adjustments to reconcile net income to net
   cash provided by operating activities,
   including discontinued operations:
     Depreciation and amortization                    45,465        40,614
     Amortization of favorable and unfavorable
      lease intangibles                               (1,824)       (1,879)
     Provision for losses on accounts
      receivable                                      21,196        15,283
     Loss on sale of assets, including
      discontinued operations, net                       605         2,151
     Impairment charge for discontinued
      operation                                            -         1,800
     Stock-based compensation expense                  5,810         5,270
     Deferred taxes                                   27,003       (51,128)
     Other                                                 -           (10)
  Changes in operating assets and liabilities,
   net of acquisitions:
     Accounts receivable                             (33,547)      (35,136)
     Restricted cash                                  10,628         3,215
     Prepaid expenses and other assets                 2,940        (4,213)
     Accounts payable                                 (8,390)        4,032
     Accrued compensation and benefits                (2,989)       (2,367)
     Accrued self-insurance obligations                7,759         4,773
     Income taxes payable                                  -        (1,806)
     Other accrued liabilities                        (3,196)       (8,719)
     Other long-term liabilities                      (1,223)        7,020
                                                ------------  ------------
       Net cash provided by operating
        activities                                   108,908        88,187
                                                ------------  ------------

Cash flows from investing activities:
  Capital expenditures                               (54,312)      (42,543)
  Purchase of leased real estate                      (3,275)       (8,956)
  Proceeds from sale of assets held for sale           2,174        18,354
  Acquisitions, net of cash acquired                 (14,936)      (11,734)
  Insurance proceeds received for damaged
   property                                                -           628
                                                ------------  ------------
       Net cash used for investing activities        (70,349)      (44,251)
                                                ------------  ------------

Cash flows from financing activities:
  Borrowings of long-term debt                        20,822        20,290
  Principal repayments of long-term debt and
   capital lease obligations                         (46,292)      (29,627)
  Payment to non-controlling interest                   (311)         (418)
  Distribution to non-controlling interest              (549)         (353)
  Proceeds from issuance of common stock                 101         2,493
                                                ------------  ------------
       Net cash used for financing activities        (26,229)       (7,615)
                                                ------------  ------------

  Net increase in cash and cash equivalents           12,330        36,321
  Cash and cash equivalents at beginning of
   period                                             92,153        55,832
                                                ------------  ------------
  Cash and cash equivalents at end of period    $    104,483  $     92,153
                                                ============  ============





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

   RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA and ADJUSTED EBITDAR
                              (in thousands)


                                                For the         For the
                                              Three Months    Three Months
                                                  Ended           Ended
                                              December 31,    December 31,
                                                  2009            2008
                                              -------------   ------------
                                               (unaudited)     (unaudited)

Total net revenues                            $     474,064   $    466,796
                                              -------------   ------------

Net income                                    $       8,675   $     82,421
                                              -------------   ------------


   Income from continuing operations                  9,678         83,826

   Income tax expense (benefit)                       6,821        (67,466)

   Interest, net                                     11,905         13,459

   Depreciation and amortization                     12,128         10,801
                                              -------------   ------------

EBITDA                                        $      40,532   $     40,620

   Gain on sale of assets, net                            -           (901)

   Restructuring costs                                  432              -
                                              -------------   ------------

Adjusted EBITDA                               $      40,964   $     39,719


   Center rent expense                               18,376         18,277
                                              -------------   ------------

Adjusted EBITDAR                              $      59,340   $     57,996
                                              =============   ============


EBITDA is defined as earnings before loss on discontinued operations,
income taxes, interest, net, depreciation and amortization.  Adjusted
EBITDA is defined as EBITDA before loss (gain) on sale of assets, net, and
restructuring costs.  Adjusted EBITDAR is defined as Adjusted EBITDA
before facility rent expense.  Adjusted EBITDA and Adjusted EBITDAR are
used by management to evaluate financial performance and resource
allocation for each entity within the operating units and for the Company
as a whole.  Adjusted EBITDA and Adjusted EBITDAR are commonly used as
analytical indicators within the healthcare industry and also serve as
measures of leverage capacity and debt service ability. Adjusted EBITDA
and Adjusted EBITDAR should not be considered as measures of financial
performance under generally accepted accounting principles.  As the items
excluded from Adjusted EBITDA and Adjusted EBITDAR are significant
components in understanding and assessing financial performance, Adjusted
EBITDA and Adjusted EBITDAR should not be considered in isolation or as
alternatives to net income, cash flows generated by or used in operating,
investing or financing activities or other financial statement data
presented in the consolidated financial statements as indicators of
financial performance or liquidity.  Because Adjusted EBITDA and Adjusted
EBITDAR are not measurements determined in accordance with U.S.
generally accepted accounting principles and are thus susceptible to
varying calculations, Adjusted EBITDA and Adjusted EBITDAR as presented
may not be comparable to other similarly titled measures of other
companies.


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

   RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA and ADJUSTED EBITDAR
                              (in thousands)


                                                For the         For the
                                               Year Ended      Year Ended
                                              December 31,    December 31,
                                                  2009            2008
                                              -------------   ------------
                                                (audited)       (audited)

Total net revenues                            $   1,881,799   $  1,823,503
                                              -------------   ------------

Net income                                    $      38,671   $    109,287
                                              -------------   ------------


   Income from continuing operations                 42,480        113,924

   Income tax expense (benefit)                      29,616        (47,348)

   Interest, net                                     49,327         54,603

   Depreciation and amortization                     45,463         40,354
                                              -------------   ------------

EBITDA                                        $     166,886   $    161,533

   Gain on sale of assets, net                           42           (976)

   Restructuring costs                                1,304              -
                                              -------------   ------------

Adjusted EBITDA                               $     168,232   $    160,557


   Center rent expense                               73,149         73,601
                                              -------------   ------------

Adjusted EBITDAR                              $     241,381   $    234,158
                                              =============   ============


EBITDA is defined as earnings before loss on discontinued operations,
income taxes, interest, net, depreciation and amortization.  Adjusted
EBITDA is defined as EBITDA before loss (gain) on sale of assets, net, and
restructuring costs.  Adjusted EBITDAR is defined as Adjusted EBITDA
before facility rent expense.  Adjusted EBITDA and Adjusted EBITDAR are
used by management to evaluate financial performance and resource
allocation for each entity within the operating units and for the Company
as a whole.  Adjusted EBITDA and Adjusted EBITDAR are commonly used as
analytical indicators within the healthcare industry and also serve as
measures of leverage capacity and debt service ability. Adjusted EBITDA
and Adjusted EBITDAR should not be considered as measures of financial
performance under generally accepted accounting principles.  As the items
excluded from Adjusted EBITDA and Adjusted EBITDAR are significant
components in understanding and assessing financial performance, Adjusted
EBITDA and Adjusted EBITDAR should not be considered in isolation or as
alternatives to net income, cash flows generated by or used in operating,
investing or financing activities or other financial statement data
presented in the consolidated financial statements as indicators of
financial performance or liquidity.  Because Adjusted EBITDA and Adjusted
EBITDAR are not measurements determined in accordance with U.S. generally
accepted accounting principles and are thus susceptible to varying
calculations, Adjusted EBITDA and Adjusted EBITDAR as presented may not be
comparable to other similarly titled measures of other companies.




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

        RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO
                    ADJUSTED EBITDA and ADJUSTED EBITDAR
                              ($ in thousands)

                For the Three Months Ended December 31, 2009
                                (unaudited)


                          Rehabil-                      Elimina-
                          itation   Medical             tion of
                Inpatient Therapy   Staffing  Other &  Affiliated  Consoli-
                Services  Services  Services  Corp Seg  Revenue     dated
                --------  --------  --------  --------  --------  --------

Nonaffiliated
 revenue        $423,465  $ 27,303  $ 23,289  $      7  $      -  $474,064
Affiliated
 revenue               -    18,998       262         -   (19,260)        -
                --------  --------  --------  --------  --------  --------
  Total revenue $423,465  $ 46,301  $ 23,551  $      7  $(19,260) $474,064
                --------  --------  --------  --------  --------  --------

Income (loss)
 from
 continuing
 operations     $ 36,010  $  2,506  $  2,209  $(31,047) $      -  $  9,678
Income tax
 expense               -         -         -     6,821         -     6,821
Interest, net      2,881         -        (1)    9,025         -    11,905
Depreciation
 and
 amortization     11,007       141       179       801         -    12,128
                --------  --------  --------  --------  --------  --------

  EBITDA        $ 49,898  $  2,647  $  2,387  $(14,400) $      -  $ 40,532
Restructuring
 costs               143         -         -       289         -       432
                --------  --------  --------  --------  --------  --------

  Adjusted
   EBITDA       $ 50,041  $  2,647  $  2,387  $(14,111) $      -  $ 40,964
Center rent
 expense          18,025       131       220         -         -    18,376
                --------  --------  --------  --------  --------  --------

  Adjusted
   EBITDAR      $ 68,066  $  2,778  $  2,607  $(14,111) $      -  $ 59,340
                ========  ========  ========  ========  ========  ========

  Normalized
   Adjusted
   EBITDA       $ 54,446  $  2,647  $  2,387  $(14,111) $      -  $ 45,369
  Normalized
   Adjusted
   EBITDAR      $ 72,471  $  2,778  $  2,607  $(14,111) $      -  $ 63,745


Adjusted EBITDA
 margin             11.8%      5.7%     10.1%                          8.6%
Adjusted
 EBITDAR margin     16.1%      6.0%     11.1%                         12.5%
Normalized
 Adjusted
 EBITDA margin      12.9%      5.7%     10.1%                          9.6%
Normalized
 Adjusted
 EBITDAR
 margin             17.1%      6.0%     11.1%                         13.4%

   See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table
    "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR".
   See normalizing adjustments in the table "Normalizing Adjustments -
    Quarter Comparison".




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

       RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO
                   ADJUSTED EBITDA and ADJUSTED EBITDAR
                             ($ in thousands)

                   For the Year Ended December 31, 2009
                                (audited)

                       Rehabil-                       Elimina-
                       itation   Medical              tion of
            Inpatient  Therapy   Staffing  Other &   Affiliated  Consoli-
            Services   Services  Services  Corp Seg   Revenue     dated
           ----------  --------  --------  ---------  --------  ----------

Nonaffil-
 iated
 revenue   $1,675,775  $105,366  $100,624  $      34  $      -  $1,881,799
Affiliated
 revenue            -    74,166     1,930          -   (76,096)          -
           ----------  --------  --------  ---------  --------  ----------
  Total
   revenue $1,675,775  $179,532  $102,554  $      34  $(76,096) $1,881,799
           ----------  --------  --------  ---------  --------  ----------

Income
 (loss) from
 continuing
 opera-
 tions     $  155,937  $ 11,078  $  8,610   (133,145) $      -  $   42,480
Income tax
 expense            -         -         -     29,616         -      29,616
Interest,
 net           12,226        (2)       (2)    37,105         -      49,327
Depreciation
 and
 amortization  41,335       540       780      2,808         -      45,463
           ----------  --------  --------  ---------  --------  ----------

  EBITDA   $  209,498  $ 11,616  $  9,388  $ (63,616) $      -  $  166,886
Gain on
 sale of
 assets,
 net                8        34         -          -         -          42
Restruc-
 turing
 costs            143         -         -      1,161         -       1,304
           ----------  --------  --------  ---------  --------  ----------

  Adjusted
   EBITDA  $  209,649  $ 11,650  $  9,388  $ (62,455) $      -  $  168,232

Center
 rent
 expense       71,749       480       920          -         -      73,149
           ----------  --------  --------  ---------  --------  ----------

  Adjusted
   EBITDAR $  281,398  $ 12,130  $ 10,308  $ (62,455) $      -  $  241,381
           ==========  ========  ========  =========  ========  ==========

  Normalized
   Adjusted
   EBITDA  $  218,354  $ 11,650  $  9,388  $ (62,455) $      -  $  176,937
  Normalized
   Adjusted
   EBITDAR $  290,103  $ 12,130  $ 10,308  $ (62,455) $      -  $  250,086


Adjusted
 EBITDA
 margin          12.5%      6.5%      9.2%                             8.9%
Adjusted
 EBITDAR
 margin          16.8%      6.8%     10.1%                            12.8%
Normalized
 Adjusted
 EBITDA
 margin          13.0%      6.5%      9.2%                             9.4%
Normalized
 Adjusted
 EBITDAR
 margin          17.3%      6.8%     10.1%                            13.3%

   See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table
    "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR".
   See normalizing adjustments in the table "Normalizing Adjustments -
    Quarter Comparison".



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

       RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO
                    ADJUSTED EBITDA and ADJUSTED EBITDAR
                             ($ in thousands)

                For the Three Months Ended December 31, 2008
                               (unaudited)

                          Rehabil-                       Elimina-
                          itation   Medical              tion of
                Inpatient Therapy   Staffing  Other &   Affiliated Consoli-
                Services  Services  Services  Corp Seg   Revenue    dated
                --------  --------  --------  --------  --------  --------

Nonaffiliated
 revenue        $414,008  $ 24,012  $ 28,768  $      8  $      -  $466,796
Affiliated
 revenue               -    16,543       467         -   (17,010)        -
                --------  --------  --------  --------  --------  --------

  Total revenue $414,008  $ 40,555  $ 29,235  $      8  $(17,010) $466,796
                --------  --------  --------  --------  --------  --------

Income (loss)
 from
 continuing
 operations     $ 37,290  $  1,979  $  2,824  $ 41,733  $      -  $ 83,826
Income tax
 expense               -         -         -   (67,466)        -   (67,466)
Interest, net      3,540         -        (6)    9,925         -    13,459
Depreciation
 and
 amortization      9,646       137       195       823         -    10,801
                --------  --------  --------  --------  --------  --------

  EBITDA        $ 50,476  $  2,116  $  3,013  $(14,985) $      -  $ 40,620
Gain on sale of
 assets, net           -         -         -      (901)        -      (901)
                --------  --------  --------  --------  --------  --------

  Adjusted
   EBITDA       $ 50,476  $  2,116  $  3,013  $(15,886) $      -  $ 39,719
Center rent
 expense          17,926       108       243         -         -    18,277
                --------  --------  --------  --------  --------  --------

  Adjusted
   EBITDAR      $ 68,402  $  2,224  $  3,256  $(15,886) $      -  $ 57,996
                ========  ========  ========  ========  ========  ========

  Normalized
   Adjusted
   EBITDA       $ 54,026  $  2,116  $  3,013  $(15,886) $      -  $ 43,269
  Normalized
   Adjusted
   EBITDAR      $ 71,952  $  2,224  $  3,256  $(15,886) $      -  $ 61,546


Adjusted EBITDA
 margin             12.2%      5.2%     10.3%                          8.5%
Adjusted
 EBITDAR margin     16.5%      5.5%     11.1%                         12.4%
Normalized
 Adjusted
 EBITDA margin      13.0%      5.2%     10.3%                          9.3%
Normalized
 Adjusted
 EBITDAR
 margin             17.4%      5.5%     11.1%                         13.2%

   See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table
    "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR".
   See normalizing adjustments in the table "Normalizing Adjustments -
    Quarter Comparison".




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

       RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO
                   ADJUSTED EBITDA and ADJUSTED EBITDAR
                             ($ in thousands)

                   For the Year Ended December 31, 2008
                                (audited)

                        Rehabil-                       Elimina-
                        itation   Medical              tion of
             Inpatient  Therapy   Staffing  Other &   Affiliated  Consoli-
             Services   Services  Services  Corp Seg   Revenue     dated
            ----------  --------  --------  --------  --------  ----------

Nonaffil-
 iated
 revenue    $1,616,059  $ 89,619  $117,788  $     37  $      -  $1,823,503
Affiliated
 revenue             -    60,856     2,622         -   (63,478)          -
            ----------  --------  --------  --------  --------  ----------
  Total
   revenue  $1,616,059  $150,475  $120,410  $     37  $(63,478) $1,823,503
            ----------  --------  --------  --------  --------  ----------

Income (loss)
 from
 continuing
 operations $  154,281  $  8,462  $  9,690  $(58,509) $      -  $  113,924
Income tax
 expense             -         -         -   (47,348)        -     (47,348)
Interest,
 net            13,670        (1)      (20)   40,954         -      54,603
Depreciation
 and
 amortization   35,957       533       806     3,058         -      40,354
            ----------  --------  --------  --------  --------  ----------


  EBITDA    $  203,908  $  8,994  $ 10,476  $(61,845) $      -  $  161,533
Gain on
 sale of
 assets,
 net                 -         -         -      (976)        -        (976)
            ----------  --------  --------  --------  --------  ----------

  Adjusted
   EBITDA   $  203,908  $  8,994  $ 10,476  $(62,821) $      -  $  160,557
Center rent
 expense        72,231       394       976         -         -      73,601
            ----------  --------  --------  --------  --------  ----------

  Adjusted
   EBITDAR  $  276,139  $  9,388  $ 11,452  $(62,821) $      -  $  234,158
            ==========  ========  ========  ========  ========  ==========

  Normalized
   Adjusted
   EBITDA   $  205,755  $  8,994  $ 10,476  $(62,299) $      -  $  162,926
  Normalized
   Adjusted
   EBITDAR  $  277,986  $  9,388  $ 11,452  $(62,299) $      -  $  236,527


Adjusted
 EBITDA
 margin           12.6%      6.0%      8.7%                            8.8%
Adjusted
 EBITDAR
 margin           17.1%      6.2%      9.5%                           12.8%
Normalized
 Adjusted
 EBITDA
 margin           12.7%      6.0%      8.7%                            8.9%
Normalized
 Adjusted
 EBITDAR
 margin           17.2%      6.2%      9.5%                           13.0%

   See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table
    "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR".
   See normalizing adjustments in the table "Normalizing Adjustments -
    Quarter Comparison".




                Sun Healthcare Group, Inc. and Subsidiaries
                       Selected Operating Statistics
                           Continuing Operations

                    For the                       For the
               Three Months Ended                Year Ended
                  December 31,                   December 31,
            -----------------------       ---------------------------
              2009           2008            2009             2008

Consolidated Company

Revenues - Non-affiliated (in thousands)
 Inpatient
  Services  $423,465       $414,008       $1,675,775       $1,616,059
 Rehabili-
  tation
  Therapy
  Services    27,303         24,012          105,366           89,619
 Medical
  Staffing
  Services    23,289         28,768          100,624          117,788
 Other -
  non-core
  businesses       7              8               34               37
            --------       --------       ----------       ----------

    Total   $474,064       $466,796       $1,881,799       $1,823,503
            ========       ========       ==========       ==========


Revenue Mix - Non-affiliated (in thousands)
 Medicare   $137,748   29% $136,305   29% $  555,593   30% $  522,555   29%
 Medicaid    194,035   41%  186,478   40%    753,393   40%    729,014   40%
 Private
  and
  Other      112,702   24%  116,177   25%    454,126   24%    465,099   25%
 Managed
  Care /
  Insurance   25,004    5%   23,799    5%    101,595    5%     91,691    5%
 Veterans      4,575    1%    4,037    1%     17,092    1%     15,144    1%
            --------  ---  --------  ---  ----------  ---  ----------  ---

    Total   $474,064  100% $466,796  100% $1,881,799  100% $1,823,503  100%
            ========  ===  ========  ===  ==========  ===  ==========  ===



Inpatient Services Stats

 Number of
  centers:       205            205              205              205
 Number of
  available
  beds:       22,473         22,517           22,473           22,517
 Occupancy
  %:            87.8%          88.5%            88.1%            88.9%


 Payor Mix
  % based
  on patient
  days:
   Medicare
    - SNF
    Beds        14.9%          15.6%            15.6%            16.2%
   Managed
    care /
    Ins. -
    SNF
    Beds         4.0%           3.9%             4.1%             3.9%
            --------       --------       ----------       ----------
     Total
      SNF
      skilled
      mix       18.9%          19.5%            19.7%            20.1%
            --------       --------       ----------       ----------
 Medicare       13.5%          14.2%            14.2%            14.7%
 Medicaid       61.7%          60.2%            60.8%            59.7%
 Private
  and
  Other         20.0%          21.0%            20.2%            21.1%
 Managed
  Care /
  Insurance      3.7%           3.6%             3.8%             3.5%
 Veterans        1.1%           1.0%             1.0%             1.0%

 Revenue
  Mix % of
  revenues:
   Medicare
    - SNF
    Beds        31.1%          32.5%            32.4%            32.4%
   Managed
    care /
    Ins. -
    SNF
    Beds         6.3%           6.1%             6.4%             6.0%
            --------       --------       ----------       ----------
     Total
      SNF
      skilled
      mix       37.4%          38.6%            38.8%            38.4%
            --------       --------       ----------       ----------
 Medicare       31.5%          32.0%            32.2%            31.6%
 Medicaid       45.8%          45.0%            44.9%            45.1%
 Private
  and
  Other         15.8%          16.3%            15.9%            16.8%
 Managed
  Care /
  Insurance      5.8%           5.7%             6.0%             5.6%
 Veterans        1.1%           1.0%             1.0%             0.9%


 Revenues PPD:
 LTC only
 Medicare
  (Part A)  $ 457.75       $ 446.00       $   455.00       $   424.19
 Medicare
  Blended
  Rate
  (Part
  A & B)    $ 494.00       $ 482.06       $   492.36       $   456.00
 Medicaid   $ 173.57       $ 168.79       $   171.55       $   166.62
 Private
  and
  Other     $ 178.17       $ 170.24       $   176.40       $   170.49
 Managed
  Care /
  Insurance $ 370.11       $ 363.95       $   372.93       $   351.93
 Veterans   $ 235.19       $ 223.76       $   231.33       $   216.85

Rehab contracts

 Affiliated      127            118              127              118
 Non-affili-
  ated           337            327              337              327

 Average
  Qtrly
  Revenue
  per
  Contract
 (in
 thousands) $    100       $     91       $       97       $       85




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                NORMALIZING ADJUSTMENTS - QUARTER COMPARISON
                    (in thousands, except per share data)

                            AS REPORTED - 4th QUARTER 2009
             =============================================================
                                               Income from
                                               Continuing
                      Adjusted Adjusted           Opera-            Net
             Revenue  EBITDAR  EBITDA   Pre-tax   tions  Disc Ops  Income
             -------- -------  -------  -------  -------  -------  -------

As Reported -
 4th QUARTER
 2009        $474,064 $59,340  $40,964  $16,499  $ 9,678  $(1,003) $ 8,675
  Percent of
   Revenue               12.5%     8.6%     3.5%     2.0%    -0.2%     1.8%
Normalizing
 Adjustments:
 Restructur-
  ing costs         -       -        -      432      255        -      255
 Transaction
  costs
  related to
  acquisition       -     485      485      485      286        -      286
 Prior
  periods'
  self-insur-
  ance costs        -   3,920    3,920    3,920    2,313      313    2,626
             -------- -------  -------  -------  -------  -------  -------

Normalized
 As Reported -
 4th QUARTER
 2009        $474,064 $63,745  $45,369  $21,336  $12,532  $  (690) $11,842
             ======== =======  =======  =======  =======  =======  =======
  Percent of
   Revenue               13.4%     9.6%     4.5%     2.6%    -0.1%     2.5%

Diluted EPS:
   As Reported                                   $  0.22  $ (0.02) $  0.20
   As Normalized                                 $  0.28  $ (0.01) $  0.27





                            AS REPORTED - 4th QUARTER 2008
             =============================================================
                                               Income from
                                               Continuing
                      Adjusted Adjusted           Opera-            Net
             Revenue  EBITDAR  EBITDA   Pre-tax   tions  Disc Ops  Income
             -------- -------  -------  -------  -------  -------  -------

As Reported -
 4th QUARTER
 2008        $466,796 $57,996  $39,719  $16,360  $83,826  $(1,405) $82,421
  Percent of
   Revenue               12.4%     8.5%     3.5%    18.0%    -0.3%    17.7%
Normalizing
 Adjustments:
 Benefit for
  income
  taxes             -       -        -        -  (74,012)       -  (74,012)
 Gain on
  sale of
  property          -       -        -     (900)    (540)       -     (540)
 Prior
  periods'
  self-insur-
  ance costs        -   3,550    3,550    3,550    2,130      450    2,580
             -------- -------  -------  -------  -------  -------  -------

Normalized
 As Reported -
 4th QUARTER
 2008        $466,796 $61,546  $43,269  $19,010  $11,404  $  (955) $10,449
             ======== =======  =======  =======  =======  =======  =======
  Percent of
   Revenue               13.2%     9.3%     4.1%     2.4%    -0.2%     2.2%

Diluted EPS:
   As Reported                                   $  1.91  $ (0.03) $  1.88
   As Normalized                                 $  0.26  $ (0.02) $  0.24





See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table
"Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR".

Normalizing adjustments are transactions or adjustments not related to
ongoing operations and consists of restructuring costs, transaction costs
related to an acquisition, adjustments related to prior periods'
self-insurance costs, income from a tax benefit associated with the partial
reversal of a valuation allowance on deferred tax assets, gain on sale of a
non-core property, and integration costs related to an acquisition.

Since normalizing adjustments are not measurements determined in accordance
with U.S. generally accepted accounting principles and are thus susceptible
to varying calculations and interpretations, the information presented
herein may not be comparable to other similarly described information of
other companies.




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

             NORMALIZING ADJUSTMENTS - YEAR TO DATE COMPARISON
                   (in thousands, except per share data)


                           AS REPORTED - TWELVE MONTHS 2009
          ================================================================
                                               Income from
                                               Continuing
                     Adjusted  Adjusted           Opera-             Net
            Revenue  EBITDAR   EBITDA   Pre-tax   tions   Disc Ops  Income
          ---------- -------- --------  -------  -------  -------  -------

As Reported
 - Twelve
 Months
 2009     $1,881,799 $241,381 $168,232  $72,096  $42,480  $(3,809) $38,671
  Percent
   of
   Revenue               12.8%     8.9%     3.8%     2.3%    -0.2%     2.1%

Normal-
 izing
 Adjust-
 ments:
 Restruc-
  turing
  costs            -        -        -    1,304      769        -      769
 Transac-
  tion costs
  related to
  acquisition      -      485      485      485      286        -      286
 Prior
  periods'
  self-
  insurance
  costs            -    8,220    8,220    8,220    4,850      661    5,511
          ---------- -------- --------  -------  -------  -------  -------

Normalized
 As Reported
 - Twelve
 Months
 2009     $1,881,799 $250,086 $176,937  $82,105  $48,385  $(3,148) $45,237
          ========== ======== ========  =======  =======  =======  =======
  Percent
   of
   Revenue               13.3%     9.4%     4.4%     2.6%    -0.2%     2.4%

Diluted EPS:
   As Reported                                   $  0.97  $ (0.09) $  0.88
   As Normalized                                 $  1.10  $ (0.07) $  1.03



                           AS REPORTED - TWELVE MONTHS 2008
          ================================================================
                                               Income from
                                               Continuing
                     Adjusted  Adjusted           Opera-             Net
            Revenue  EBITDAR   EBITDA   Pre-tax   tions  Disc Ops  Income
          ---------- -------- --------  ------- -------- -------  --------

As Reported
 - Twelve
 Months
 2008     $1,823,503 $234,158 $160,557  $66,576 $113,924 $(4,637) $109,287
  Percent
   of
   Revenue                12.8%     8.8%     3.7%     6.2%  -0.3%      6.0%

Normal-
 izing
 Adjust-
 ments:
 Benefit
  for
  income
  taxes            -        -        -        -  (74,012)      -   (74,012)
 Gain on
  sale of
  property         -        -        -     (900)    (540)      -      (540)
 Release of
  insurance
  reserves
  related to
  prior
  periods          -   (2,650)  (2,650)  (2,650)  (1,590)   (222)   (1,812)
 Prior
  periods'
  self-in-
  surance
  costs            -    3,550    3,550    3,550    2,130     450     2,580
 Acquisi-
  tion
  integra-
  tion
  costs            -    1,469    1,469    1,469      881       -       881
          ---------- -------- --------  ------- -------- -------  --------

Normalized
 As Reported
 - Twelve
 Months
 2008     $1,823,503 $236,527 $162,926  $68,045  $40,793 $(4,409) $ 36,384
          ========== ======== ========  =======  ======= =======  ========
  Percent
   of
   Revenue               13.0%     8.9%     3.7%     2.2%    -0.2%     2.0%

Diluted EPS:
   As Reported                                   $  2.59  $ (0.10) $  2.49
   As Normalized                                 $  0.93  $ (0.10) $  0.83





See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table
"Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR".

Normalizing adjustments are transactions or adjustments not related to
ongoing operations and consists of restructuring costs, transaction costs
related to an acquisition, adjustments related to prior periods'
self-insurance costs, income from a tax benefit associated with the partial
reversal of a valuation allowance on deferred tax assets, gain on sale of a
non-core property, and integration costs related to an acquisition.

Since normalizing adjustments are not measurements determined in accordance
with U.S. generally accepted accounting principles and are thus susceptible
to varying calculations and interpretations, the information presented
herein may not be comparable to other similarly described information of
other companies.

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