SOURCE: Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc.

March 01, 2011 16:30 ET

Sun Healthcare Group, Inc. Reports 2010 Fourth-Quarter Results and Normalized EPS of $0.43; Achieves High-End of EBITDAR Guidance for the Year

IRVINE, CA--(Marketwire - March 1, 2011) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced its operating results for the fourth quarter and year ended Dec. 31, 2010.

Normalized results for the fourth-quarter period ended Dec. 31, 2010:

--  consolidated revenues rose 2.0 percent to $483.4 million, compared
    to the same period in 2009, driven by rate growth in nursing center
    business and volume growth in hospice and rehabilitation therapy
    business;
--  consolidated adjusted EBITDAR increased 3.3 percent to $66.0 million
    and adjusted EBITDAR margin grew 10 basis points to 13.6 percent
    compared to the same period in 2009;
--  diluted earnings per share from continuing operations was $0.43 on
    25.8 million weighted-average diluted shares;
--  normalized free cash flow was $5.5 million, bringing full year 2010
    normalized free cash flow to $68.4 million; and
--  results have been normalized to exclude $74.8 million of pre-tax
    restructuring costs, acquisition and disposal costs, and additions
    to reserves for prior-periods' self-insurance and general liability
    matters.

Commenting on the Company's fourth-quarter results, William A. Mathies, Sun's chairman and chief executive officer, remarked, "I am pleased with our reported revenue and EBITDAR growth for the quarter and the year given the environmental challenges we faced in 2010 with the weak economy, soft census trends, reimbursement pressures and various regulatory changes affecting our sector. Our caregivers and leadership teams did an outstanding job embracing these challenges while maintaining their commitment to deliver quality care and achieving $250.6 million of normalized adjusted EBITDAR for fiscal 2010. In addition, we experienced positive admissions trends and rate growth in our nursing center business in alignment with our initiatives associated with caring for high-acuity short-stay patients."

Mathies added, "Our successful fourth-quarter completion of our previously announced restructuring was a milestone event for the Company in terms of creating stockholder value. With the restructuring now complete, I look forward to leading the Company in further value creation activities as we continue to grow our clinical capabilities and outcomes to assist our acute hospital partners in transitioning patients more quickly from acute care settings to our nursing centers. We remain committed to expanding our Rehab Recovery Suites® (RRS) footprint along with more aggressively investing in selected nursing centers to meet the needs of our markets and customer base. Our focus on growth will also include targeted acquisitions that expand our hospice business in synergistic markets and nursing center acquisitions that leverage our infrastructure."

Segment Updates

On a year-over-year basis, revenue growth for the quarter in Sun's inpatient services business totaled $8.2 million, or 1.9 percent. The inpatient services business reported normalized adjusted EBITDAR of $75.9 million for the quarter, with a normalized adjusted EBITDAR margin of 17.6 percent, up 40 basis points from the prior year. Our overall census and skilled mix for the quarter were down on a year-over-year basis by 150 basis points and 120 basis points, respectively, although our ability to capture Medicare and managed care rate growth allowed us to improve our skilled revenue mix by 70 basis points.

Included in the inpatient segment, the SolAmor hospice business experienced same-store revenue growth of 2.1 percent with revenues increasing from $11.7 million in the fourth quarter of 2009 to $11.9 million in the fourth quarter of 2010, due to census expansion. SolAmor contributed $2.9 million of normalized adjusted EBITDAR for the quarter and a normalized adjusted EBITDAR margin of 24.7 percent. On Dec. 29, 2010, SolAmor completed the acquisition of Countryside Hospice Care, Inc., a Medicare-certified hospice company that provides services to approximately 200 hospice patients in Alabama and Georgia. With this acquisition, SolAmor expanded its hospice services to 10 states serving approximately 1,050 patients daily.

SunBridge continues to expand its RRS portfolio which targets short stay, high-acuity patients. At Dec. 31, 2010, RRS centers aggregated 1,992 beds, representing sequential quarter and year-over-year quarter bed increases of 20.9 percent and 30.3 percent, respectively. In 2011, the Company remains committed to this strategy and expects to develop an additional 600 beds, both in new locations and in existing RRS units.

SunDance, Sun's rehabilitation therapy services business, experienced revenue growth of $6.5 million, or 14.0 percent, in the quarter on the strength of the 3.9 percent growth in revenue per contract coupled with growth in total contracts. For the quarter, SunDance reported adjusted EBITDAR of $2.6 million, down 4.9 percent from the prior year quarter due to the anticipated change in concurrent therapy reimbursement. For the fourth quarter, SunDance's adjusted EBITDAR margin was down 100 basis points to 5.0 percent.

As expected, the implementation of the new Medicare payment system, the 1.7 percent market basket increase, the changes to concurrent therapy and the elimination of the look-back period were overall positive to the revenue growth and EBITDAR of the Company on a consolidated basis, notwithstanding the negative impact on SunDance's EBITDAR margin. Experience to date affirms the Company's positive view of the opportunity that these changes in the reimbursement system afford it, given its strategy of serving high-acuity patients, as well as the overall savings the changes should achieve for the Medicare program.

In line with the medical staffing industry as a whole, Sun's medical staffing services business, CareerStaff, continued to be impacted negatively by the slow national economy. Accordingly, revenues from CareerStaff were down 3.5 percent to $22.7 million compared to revenues in the same quarter of 2009. Even with the challenging business environment, CareerStaff achieved adjusted EBITDAR of $1.5 million and an EBITDAR margin of 6.7 percent for the quarter.

Cash Flow and Capital Structure

Sun ended 2010 with $81.2 million in cash and cash equivalents and $156.0 million of long-term debt. Sun's normalized free cash flow for 2010 was $68.4 million after taking into account $53.5 million of cash used for capital expenditures in 2010 and after excluding the $15.1 million of cash used for debt redemption fees associated with the restructuring, the $26.9 million of cash used for professional fees associated with the restructuring and broker fees associated with the acquisition of Countryside.

Normalizing Items

Following approval by the stockholders of Sun's former parent ("Old Sun") in November, Old Sun successfully completed its previously announced restructuring involving the separation of its real estate assets and its operating assets into two separate, publicly traded companies. In connection with the restructuring transaction, the Company incurred pre-tax transaction costs totaling $29.1 million, consisting of legal, accounting and investment banker fees and related costs. The Company also incurred $29.2 million in pre-tax costs associated with the extinguishment of long-term debt in conjunction with the restructuring.

Normalization adjustments also include, on a pre-tax basis, the impact of $15.3 million of additions to reserves for prior periods' self-insurance and general liabilities, $0.4 million of costs associated with the acquisition of Countryside, and $0.8 million of costs associated with the disposition of three nursing centers in the fourth quarter.

Affirmation of 2011 Guidance

The Company also announced that it is reaffirming its previously announced guidance for 2011.

Conference Call

As previously announced, investors and the general public are invited to listen to a conference call with Sun's senior management on Wednesday, March 2, 2011, at 10 a.m. Pacific / 1 p.m. Eastern, to discuss the Company's results for the fourth quarter and year end of 2010.

To listen to the conference call, dial (888) 299-7236 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on March 2, 2011, until 11:59 p.m. Eastern on April 1, 2011, by calling (888) 203-1112 and using access code 3702327.

About Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc. (NASDAQ: SUNH) is a healthcare services company, serving principally the senior population, with consolidated annual revenues in excess of $1.9 billion and approximately 30,000 employees in 46 states. Sun's services are provided through its subsidiaries: as of Dec. 31, 2010, SunBridge Healthcare and its subsidiaries operate 164 skilled nursing centers, 16 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and eight mental health centers with an aggregate of 23,053 licensed beds in 25 states; SunDance Rehabilitation provides rehabilitation therapy services to affiliated and non-affiliated centers in 36 states; CareerStaff Unlimited provides medical staffing services in 39 states; and SolAmor Hospice provides hospice services in 10 states. For more information, go to www.sunh.com.

Forward-looking Statements

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. Forward-looking statements in this release include all statements regarding the expected results of operations, growth opportunities and plans and objectives of management for future operations, including expectations concerning the expansion of the Company's RRS portfolio, acquisitions and the impact of changes in the Medicare payment system. Factors that could cause actual results to differ are identified in filings made by the Company with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements; the impact that healthcare reform legislation will have on the Company's business; the ability to maintain the occupancy rates and payor mix at the Company's healthcare centers; potential liability for losses not covered by, or in excess of, insurance; the effects of government regulations and investigations; the ability of the Company to collect its accounts receivable on a timely basis; the significant amount of the Company's indebtedness; covenants in debt agreements that may restrict the Company's activities, including the Company's ability to make acquisitions and incur more indebtedness on favorable terms; the impact of the current economic downturn on the business; increasing labor costs and the shortage of qualified healthcare personnel; and the Company's ability to receive increases in reimbursement rates from government payors to cover increased costs. More information on factors that could affect the Company's business and financial results are included in Sun's filings made with the Securities and Exchange Commission, including its Annual Report on Forms 10-K and Quarterly Reports on Form 10-Q, copies of which are available on Sun's web site, www.sunh.com. There may be additional risks of which the Company is presently unaware or that it currently deems immaterial.

The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company's control. Sun cautions 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. Sun disclaims 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.

Adjusted EBITDA, adjusted EBITDAR and free cash flow, as used in this press release and in the accompanying tables, which are non-GAAP financial measures, are each reconciled to their respective GAAP recognized financial measures in the accompanying tables. In addition, the normalizing adjustments to adjusted EBITDAR, earnings per share and free cash flow as discussed in this press release and shown, together with normalizing adjustments to other financial measures, in the accompanying tables, are non-GAAP adjustments, and are reconciled to GAAP financial measures in the accompanying tables.



                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,
                                                   2010           2009
                                               ------------   ------------

Revenue                                        $    483,418   $    473,827

Depreciation and amortization                        10,276         12,125

Interest expense, net                                 8,698         11,905

Pre-tax income (loss)                               (48,956)        16,631

Income tax (benefit) expense                        (17,026)         6,821

(Loss) income from continuing operations            (31,930)         9,810

Loss from discontinued operations                      (446)        (1,135)
                                               ------------   ------------

Net (loss) income                              $    (32,376)  $      8,675
                                               ============   ============

Diluted earnings per share                     $      (1.26)  $       0.59
                                               ============   ============

Adjusted EBITDAR                               $     28,114   $     59,465
Margin - Adjusted EBITDAR                               5.8%          12.5%

Adjusted EBITDAR normalized                    $     65,977   $     63,870
Margin - Adjusted EBITDAR normalized                   13.6%          13.5%

Adjusted EBITDA                                $         86   $     41,093
Margin - Adjusted EBITDA                                0.0%           8.7%

Adjusted EBITDA normalized                     $     37,949   $     45,498
Margin - Adjusted EBITDA normalized                     7.9%           9.6%

Pre-tax income continuing operations
 - normalized                                  $     18,975   $     21,468

Income tax expense - normalized                $      7,779   $      8,804

Income from continuing operations
 - normalized                                 $     11,196   $     12,664

Diluted earnings per share from continuing
 operations - normalized                       $       0.43   $       0.86

Net income - normalized                        $     10,750   $     11,842

Diluted earnings per share - normalized        $       0.42   $       0.80


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,
                                                   2010           2009
                                               ------------   ------------

Revenue                                        $  1,906,861   $  1,880,776

Depreciation and amortization                        48,008         45,453

Interest expense, net                                43,064         49,327

Pre-tax income                                          248         72,696

Income tax expense                                    2,964         29,616

(Loss) income from continuing operations             (2,716)        43,080

Loss from discontinued operations                    (1,934)        (4,409)
                                               ------------   ------------

Net (loss) income                              $     (4,650)  $     38,671
                                               ============   ============

Diluted earnings per share                     $      (0.24)  $       2.63
                                               ============   ============

Adjusted EBITDAR                               $    205,722   $    241,950
Margin - Adjusted EBITDAR                              10.8%          12.9%

Adjusted EBITDAR normalized                    $    250,581   $    250,655
Margin - Adjusted EBITDAR normalized                   13.1%          13.3%

Adjusted EBITDA                                $    121,388   $    168,822
Margin - Adjusted EBITDA                                6.4%           9.0%

Adjusted EBITDA normalized                     $    166,247   $    177,527
Margin - Adjusted EBITDA normalized                     8.7%           9.4%

Pre-tax income continuing operations -
 normalized                                    $     75,175   $     82,705

Income tax expense - normalized                $     30,637   $     33,720

Income from continuing operations
 - normalized                                  $     44,538   $     48,985

Diluted earnings per share from continuing
 operations - normalized                       $       2.31   $       3.33

Net income - normalized                        $     42,604   $     45,237

Diluted earnings per share - normalized        $       2.21   $       3.07


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,
                                                   2010           2009
                                               ------------   ------------
                                                 (audited)      (audited)
                   ASSETS

Current assets:
  Cash and cash equivalents                    $     81,163   $    104,483
  Restricted cash                                    15,329         24,034
  Accounts receivable, net                          218,040        220,319
  Prepaid expenses and other assets                  16,859         21,757
  Deferred tax assets                                69,800         68,415
                                               ------------   ------------
    Total current assets                            401,191        439,008

Property and equipment, net                         139,860        622,682
Intangible assets, net                               41,967         38,628
Goodwill                                            348,047        338,296
Restricted cash, non-current                            350          3,317
Deferred tax assets                                 126,540        108,999
Other assets                                         23,803         20,264
                                               ------------   ------------
    Total assets                               $  1,081,758   $  1,571,194
                                               ============   ============


     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                             $     49,993   $     57,109
  Accrued compensation and benefits                  61,518         58,953
  Accrued self-insurance obligations,
   current portion                                   52,093         45,661
  Other accrued liabilities                          53,945         55,265
  Current portion of long-term debt and
   capital lease obligations                         11,050         46,416
                                               ------------   ------------
    Total current liabilities                       228,599        263,404

Accrued self-insurance obligations,
 net of current portion                             133,405        121,948
Long-term debt and capital lease obligations,
 net of current portion                             144,930        654,132
Unfavorable lease obligations, net                    9,815         12,663
Other long-term liabilities                          52,566         69,983
                                               ------------   ------------
    Total liabilities                               569,315      1,122,130

Stockholders' equity:
  Preferred stock of $.01 par value,
   authorized 3,333,333 shares, zero shares
   were issued and outstanding as of
   December 31, 2010 and authorized
   10,000,000 shares, zero shares were issued
   and outstanding as of December 31, 2009                -              -

  Common stock of $.01 par value, authorized
   41,666,667 shares, 24,973,693 shares
   issued and outstanding as of
   December 31, 2010 and authorized
   125,000,000 shares, 43,764,240 shares
   issued and outstanding as of
   December 31, 2009                                    250            438
  Additional paid-in capital                        720,854        655,666
  Accumulated deficit                              (208,661)      (204,011)
  Accumulated other comprehensive loss, net               -         (3,029)
                                               ------------   ------------
                                                    512,443        449,064
                                               ------------   ------------
    Total liabilities and stockholders'
     equity                                    $  1,081,758   $  1,571,194
                                               ============   ============



                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,
                                                   2010           2009
                                               ------------   ------------
                                                (unaudited)    (unaudited)

Total net revenues                             $    483,418   $    473,827
                                               ------------   ------------
Costs and expenses:
  Operating salaries and benefits                   273,556        266,522
  Self-insurance for workers' compensation and
   general and professional liability insurance      27,104         18,122
  Operating administrative costs                     13,011         12,693
  Other operating costs                              98,660         97,422
  Center rent expense                                28,028         18,372
  General and administrative expenses                16,273         14,011
  Depreciation and amortization                      10,276         12,125
  Provision for losses on accounts receivable         4,583          5,592
  Interest, net of interest income of $92 and
   $74, respectively                                  8,698         11,905
  Loss on extinguishment of debt, net                29,221              -
  Transaction costs                                  22,117              -
  Loss on sale of assets, net                           847              -
  Restructuring costs                                     -            432
                                               ------------   ------------
Total costs and expenses                            532,374        457,196
                                               ------------   ------------

(Loss) income before income taxes and
 discontinued operations                            (48,956)        16,631
Income tax (benefit) expense                        (17,026)         6,821
                                               ------------   ------------
(Loss) income from continuing operations            (31,930)         9,810
                                               ------------   ------------

Discontinued operations:
  Loss from discontinued operations,
   net of related taxes                                (446)        (1,136)
  Gain on disposal of discontinued operations,
   net of related taxes                                   -              1
                                               ------------   ------------
Loss from discontinued operations, net                 (446)        (1,135)
                                               ------------   ------------

Net (loss) income                              $    (32,376)  $      8,675
                                               ============   ============

Basic income per common and common
 equivalent share:
  (Loss) income from continuing operations     $      (1.24)  $       0.67
  Loss from discontinued operations, net              (0.02)         (0.08)
                                               ------------   ------------
Net (loss) income                              $      (1.26)  $       0.59
                                               ============   ============

Diluted income per common and common
 equivalent share:
  (Loss) income from continuing operations     $      (1.24)  $       0.67
  Loss from discontinued operations, net              (0.02)         (0.08)
                                               ------------   ------------
Net (loss) income                              $      (1.26)  $       0.59
                                               ============   ============

Weighted average number of common and common
 equivalent shares outstanding:
  Basic                                              25,791         14,648
  Diluted                                            25,791         14,746



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                  For the        For the
                                                Year Ended     Year Ended
                                                   Ended          Ended
                                               December 31,   December 31,
                                                   2010           2009
                                               ------------   ------------
                                                 (audited)      (audited)

Total net revenues                             $  1,906,861   $  1,880,776
Costs and expenses:
  Operating salaries and benefits                 1,077,859      1,056,265
  Self-insurance for workers' compensation and
   general and professional liability insurance      70,806         63,740
  Operating administrative costs                     51,943         50,924
  Other operating costs                             390,008        384,655
  Center rent expense                                84,334         73,128
  General and administrative expenses                60,842         62,068
  Depreciation and amortization                      48,008         45,453
  Provision for losses on accounts receivable        20,568         21,174
  Interest, net of interest income of $315 and
   $383, respectively                                43,064         49,327
  Loss on extinguishment of debt, net                29,221              -
  Transaction costs                                  29,113              -
  Loss on sale of assets, net                           847             42
  Restructuring costs                                     -          1,304
                                               ------------   ------------
Total costs and expenses                          1,906,613      1,808,080
                                               ------------   ------------

Income before income taxes and discontinued
 operations                                             248         72,696
Income tax expense                                    2,964         29,616
                                               ------------   ------------
(Loss) income from continuing operations             (2,716)        43,080
                                               ------------   ------------

Discontinued operations:
  Loss from discontinued operations,
   net of related taxes                              (1,934)        (4,076)
  Loss on disposal of discontinued operations,
   net of related taxes                                   -           (333)
                                               ------------   ------------
Loss from discontinued operations, net               (1,934)        (4,409)
                                               ------------   ------------

Net (loss) income                              $     (4,650)  $     38,671
                                               ============   ============

Basic income per common and common equivalent
 share:
  (Loss) income from continuing operations     $      (0.14)  $       2.95
  Loss from discontinued operations, net              (0.10)         (0.30)
                                               ------------   ------------
Net (loss) income                              $      (0.24)  $       2.65
                                               ============   ============

Diluted income per common and common
 equivalent share:
  (Loss) income from continuing operations     $      (0.14)  $       2.93
  Loss from discontinued operations, net              (0.10)         (0.30)
                                               ------------   ------------
Net (Loss) income                              $      (0.24)  $       2.63
                                               ============   ============

Weighted average number of common and common
 equivalent shares outstanding:
  Basic                                              19,280         14,614
  Diluted                                            19,280         14,714



                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,
                                                   2010           2009
                                               ------------   ------------
                                                (unaudited)    (unaudited)

Cash flows from operating activities:
  Net income                                   $    (32,376)  $      8,675
  Adjustments to reconcile net income to net
   cash provided by operating activities,
   including discontinued operations:
     Loss on extinguishment of debt                  14,126              -
     Depreciation and amortization                   10,279         12,128
     Amortization of favorable and
      unfavorable lease intangibles                    (493)          (474)
     Provision for losses on accounts
      receivable                                      4,747          5,597
     Loss on sale of assets, including
      discontinued operations, net                      847             (2)
     Stock-based compensation expense                 1,552          1,425
     Deferred taxes                                 (16,566)         8,984
  Changes in operating assets and liabilities,
   net of acquisitions:
     Accounts receivable                             (6,445)       (12,959)
     Restricted cash                                    331          1,817
     Prepaid expenses and other assets               (2,341)         2,795
     Accounts payable                                 1,786          3,433
     Accrued compensation and benefits                  574         (7,916)
     Accrued self-insurance obligations              12,849          6,504
     Income taxes payable                            (1,605)             -
     Other accrued liabilities                       (8,643)       (11,721)
     Other long-term liabilities                       (872)        (1,401)
                                               ------------   ------------
       Net cash (used for) provided by
        operating activities                        (22,250)        16,885
                                               ------------   ------------

Cash flows from investing activities:
  Capital expenditures                              (12,040)       (12,854)
  Acquisitions, net of cash acquired                (13,894)       (14,936)
                                               ------------   ------------
     Net cash used for investing activities         (25,934)       (27,790)
                                               ------------   ------------

Cash flows from financing activities:
  Borrowings of long-term debt                      415,000         (2,043)
  Principal repayments of long-term debt
   and capital lease obligations                   (322,041)             -
  Distribution to non-controlling interest              (36)             -
  Distribution to Sabra Heatlh Care REIT, Inc.      (66,862)             -
  Dividends to stockholders                          (9,996)             -
  Proceeds from issuance of common stock               (608)            26
  Deferred financing costs                          (24,460)             -
                                               ------------   ------------
     Net cash used for financing activities          (9,003)        (2,017)
                                               ------------   ------------

Net (decrease) increase in cash and cash
 equivalents                                        (57,187)       (12,922)
Cash and cash equivalents at beginning of
 period                                             138,350        117,405
                                               ------------   ------------
Cash and cash equivalents at end of period     $     81,163   $    104,483
                                               ============   ============

Reconciliation of net cash provided by
 operating activities to free cash flow:

   Net cash (used for) provided by
    operating activities                       $    (22,250)  $     16,885
   Capital expenditures                             (12,040)       (12,854)
   Cash used for professional fees on
    restructuring                                    24,232              -
   Cash used for early redemption fees               15,095              -
   Cash used for broker fees on acquisitions            446              -
                                               ------------   ------------
     Normalized free cash flow                 $      5,483   $      4,031
                                               ============   ============

Normalized free cash flow is defined as net cash flow provided by operating
activities less cash used for capital expenditures. Normalized free cash
flow is used by management to evaluate discretionary cash flow potentially
available for debt service and other financing activities.



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


                                                 For the        For the
                                                  Twelve         Twelve
                                               Months Ended   Months Ended
                                               December 31,   December 31,
                                                   2010           2009
                                               ------------   ------------
                                                 (audited)      (audited)

Cash flows from operating activities:
  Net income                                   $     (4,650)  $     38,671
  Adjustments to reconcile net income to net
   cash provided by operating activities,
   including discontinued operations:
     Loss on extinguishment of debt                  14,126              -
     Depreciation and amortization                   48,023         45,465
     Amortization of favorable and
      unfavorable lease intangibles                  (1,945)        (1,824)
     Provision for losses on accounts
      receivable                                     21,175         21,196
     Loss on sale of assets, including
      discontinued operations, net                      847            605
     Stock-based compensation expense                 6,300          5,810
     Deferred taxes                                  (1,590)        27,003
  Changes in operating assets and liabilities,
   net of acquisitions:
     Accounts receivable                            (18,945)       (33,547)
     Restricted cash                                  3,176         10,628
     Prepaid expenses and other assets                5,671          2,940
     Accounts payable                                (1,842)        (8,390)
     Accrued compensation and benefits                2,519         (2,989)
     Accrued self-insurance obligations              17,890          7,759
     Other accrued liabilities                       (9,919)        (3,196)
     Other long-term liabilities                       (928)        (1,223)
                                               ------------   ------------
       Net cash provided by operating
        activities                                   79,908        108,908
                                               ------------   ------------

Cash flows from investing activities:
  Capital expenditures                              (53,528)       (54,312)
  Purchase of leased real estate                          -         (3,275)
  Proceeds from sale of assets held for sale              -          2,174
  Acquisitions, net of cash acquired                (13,894)       (14,936)
                                               ------------   ------------
     Net cash used for investing activities         (67,422)       (70,349)
                                               ------------   ------------

Cash flows from financing activities:
  Borrowings of long-term debt                      435,500         20,822
  Principal repayments of long-term debt
   and capital lease obligations                   (590,939)       (46,292)
  Payment to non-controlling interest                (2,025)          (311)
  Distribution to non-controlling interest             (105)          (549)
  Distribution to Sabra Heatlh Care REIT, Inc.      (66,862)             -
  Dividends to stockholders                          (9,996)             -
  Proceeds from issuance of common stock            225,393            101
  Deferred financing costs                          (26,772)             -
                                               ------------   ------------
     Net cash used for financing activities         (35,806)       (26,229)
                                               ------------   ------------

Net increase in cash and cash equivalents           (23,320)        12,330
Cash and cash equivalents at beginning of
 period                                             104,483         92,153
                                               ------------   ------------
Cash and cash equivalents at end of period     $     81,163   $    104,483
                                               ============   ============

Reconciliation of net cash provided by
 operating activities to free cash flow:
   Net cash provided by operating
    activities                                 $     79,908   $    108,908
   Capital expenditures                             (53,528)       (54,312)
   Cash used for professional fees on
    restructuring                                    26,436              -
   Cash used for early redemption fees               15,095              -
   Cash used for broker fees on acquisitions            446              -
                                               ------------   ------------
     Normalized free cash flow                 $     68,357   $     54,596
                                               ============   ============

Normalized free cash flow is defined as net cash flow provided by operating
activities less cash used for capital expenditures. Normalized free cash
flow is used by management to evaluate discretionary cash flow potentially
available for debt service and other financing activities.



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                 For the        For the
                                               Three Months   Three Months
                                                   Ended          Ended
                                               December 31,   December 31,
                                                   2010           2009
                                               ------------   ------------
                                                (unaudited)    (unaudited)

Total net revenues                             $    483,418   $    473,827
                                               ------------   ------------

Net (loss) income                              $    (32,376)  $      8,675
                                               ------------   ------------

  (Loss) income from continuing operations          (31,930)         9,810

  Income tax (benefit) expense                      (17,026)         6,821

  Interest, net                                       8,698         11,905

  Depreciation and amortization                      10,276         12,125
                                               ------------   ------------

EBITDA                                         $    (29,982)  $     40,661

  Loss on extinguishment of debt, net                29,221              -

  Loss on sale of assets, net                           847              -

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

Adjusted EBITDA                                $         86   $     41,093

  Center rent expense                                28,028         18,372
                                               ------------   ------------

Adjusted EBITDAR                               $     28,114   $     59,465
                                               ============   ============

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 on extinguishment of debt, restructuring
costs and loss on sale of assets, net. Adjusted EBITDAR is defined as
Adjusted EBITDA before center 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 finance 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
EBTIDAR 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 EBITDA and ADJUSTED EBITDAR
                              (in thousands)


                                                  For the        For the
                                                Year Ended     Year Ended
                                                   Ended          Ended
                                               December 31,   December 31,
                                                   2010           2009
                                               ------------   ------------
                                                 (audited)      (audited)

Total net revenues                             $  1,906,861   $  1,880,776
                                               ------------   ------------

Net (loss) income                              $     (4,650)  $     38,671
                                               ------------   ------------

  (Loss) income from continuing operations           (2,716)        43,080

  Income tax expense                                  2,964         29,616

  Interest, net                                      43,064         49,327

  Depreciation and amortization                      48,008         45,453
                                               ------------   ------------

EBITDA                                         $     91,320   $    167,476

  Loss on extinguishment of debt, net                29,221              -

  Loss on sale of assets, net                           847             42

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

Adjusted EBITDA                                $    121,388   $    168,822

  Center rent expense                                84,334         73,128
                                               ------------   ------------

Adjusted EBITDAR                               $    205,722   $    241,950
                                               ============   ============

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 on extinguishment of debt, restructuring
costs and loss on sale of assets, net. Adjusted EBITDAR is defined as
Adjusted EBITDA before center 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 finance 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
EBTIDAR 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, 2010
                                (unaudited)


                         Rehabil-                     Elimination
                         itation  Medical                 of
              Inpatient  Therapy  Staffing  Other &   Affiliated  Consoli-
              Services   Services Services  Corp Seg   Revenue     dated
             ----------  -------- -------- ---------  --------  ----------
Nonaffiliated
 revenue     $  431,464  $ 29,889 $ 22,053 $      12  $      -  $  483,418

Affiliated
 revenue              -    22,892      672         -   (23,564)          -
             ----------  -------- -------- ---------  --------  ----------
  Total
   revenue   $  431,464  $ 52,781 $ 22,725 $      12  $(23,564) $  483,418
             ----------  -------- -------- ---------  --------  ----------

Income (loss)
 from
 continuing
 operations  $   36,547  $  2,315 $  1,116 $ (71,908) $      -  $  (31,930)

Income tax
 expense              -         -        -   (17,026)        -     (17,026)

Interest, net     1,406         -        -     7,292         -       8,698
Depreciation
 and
 amortization     9,013       194      189       880         -      10,276
             ----------  -------- -------- ---------  --------  ----------

  EBITDA     $   46,966  $  2,509 $  1,305 $ (80,762) $      -  $  (29,982)

Loss on
 extinguishment
 of debt, net         -         -        -    29,221         -      29,221

Loss on sale
 of assets,
 net                847         -        -         -         -         847
             ----------  -------- -------- ---------  --------  ----------

  Adjusted
   EBITDA    $   47,813  $  2,509 $  1,305 $ (51,541) $      -  $       86

Center rent
 expense         27,667       133      228         -         -      28,028
             ----------  -------- -------- ---------  --------  ----------

  Adjusted
   EBITDAR   $   75,480  $  2,642 $  1,533 $ (51,541) $      -  $   28,114
             ==========  ======== ======== =========  ========  ==========

  Normalized
   Adjusted
   EBITDA    $   48,259  $  2,509 $  1,305 $ (14,124) $      -  $   37,949
  Normalized
   Adjusted
   EBITDAR   $   75,926  $  2,642 $  1,533 $ (14,124) $      -  $   65,977


    Adjusted
      EBITDA
      margin       11.1%      4.8%     5.7%                            0.0%

    Adjusted
     EBITDAR
      margin       17.5%      5.0%     6.7%                            5.8%

  Normalized
    Adjusted
      EBITDA
      margin       11.2%      4.8%     5.7%                            7.9%

  Normalized
    Adjusted
     EBITDAR
      margin       17.6%      5.0%     6.7%                           13.6%

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, 2010
                                (audited)


                         Rehabil-                     Elimination
                         itation  Medical                 of
              Inpatient  Therapy  Staffing  Other &   Affiliated  Consoli-
              Services   Services Services  Corp Seg   Revenue     dated
             ----------  -------- -------- ---------  --------  ----------
Nonaffiliated
 revenue     $1,697,444  $119,612 $ 89,765 $      40  $      -  $1,906,861

Affiliated
 revenue              -    86,476    2,036         -   (88,512)          -
             ----------  -------- -------- ---------  --------  ----------
  Total
   revenue   $1,697,444  $206,088 $ 91,801 $      40  $(88,512) $1,906,861
             ----------  -------- -------- ---------  --------  ----------

Income (loss)
 from
 continuing
 operations  $  149,900  $ 14,073 $  5,595  (172,284) $      -  $   (2,716)

Income tax
 expense              -         -        -     2,964         -       2,964

Interest,
 net              9,493         -       (1)   33,572         -      43,064

Depreciation
 and
 amortization    43,333       678      732     3,265         -      48,008
             ----------  -------- -------- ---------  --------  ----------

  EBITDA     $  202,726  $ 14,751 $  6,326 $(132,483) $      -  $   91,320

Loss on
 extinguish-
 ment of
 debt, net            -         -        -    29,221         -      29,221

Loss on sale
 of assets,
 net                847         -        -         -         -         847
             ----------  -------- -------- ---------  --------  ----------

  Adjusted
   EBITDA    $  203,573  $ 14,751 $  6,326 $(103,262) $      -  $  121,388

Center rent
 expense         82,994       496      844         -         -      84,334
             ----------  -------- -------- ---------  --------  ----------

  Adjusted
   EBITDAR   $  286,567  $ 15,247 $  7,170 $(103,262) $      -  $  205,722
             ==========  ======== ======== =========  ========  ==========

  Normalized
   Adjusted
   EBITDA    $  204,019  $ 14,751 $  6,326 $ (58,849) $      -  $  166,247
  Normalized
   Adjusted
   EBITDAR   $  287,013  $ 15,247 $  7,170 $ (58,849) $      -  $  250,581


    Adjusted
      EBITDA
      margin       12.0%      7.2%     6.9%                            6.4%

    Adjusted
     EBITDAR
      margin       16.9%      7.4%     7.8%                           10.8%

  Normalized
    Adjusted
      EBITDA
      margin       12.0%      7.2%     6.9%                            8.7%

  Normalized
    Adjusted
     EBITDAR
      margin       16.9%      7.4%     7.8%                           13.1%

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, 2009
                                (unaudited)


                         Rehabil-                     Elimination
                         itation  Medical                 of
              Inpatient  Therapy  Staffing  Other &   Affiliated  Consoli-
              Services   Services Services  Corp Seg   Revenue     dated
             ----------  -------- -------- ---------  --------  ----------
Nonaffiliated
 revenue     $  423,228  $ 27,303 $ 23,289 $       7  $      -  $  473,827

Affiliated
 revenue              -    18,998      262         -   (19,260)          -
             ----------  -------- -------- ---------  --------  ----------
  Total
   revenue   $  423,228  $ 46,301 $ 23,551 $       7  $(19,260) $  473,827
             ----------  -------- -------- ---------  --------  ----------

Income (loss)
 from
 continuing
 operations  $   36,144  $  2,506 $  2,209 $ (31,049) $      -  $    9,810

Income tax
 expense              -         -        -     6,821         -       6,821

Interest,
 net              2,881         -       (1)    9,025         -      11,905

Depreciation
 and
 amortization    11,004       141      179       801         -      12,125
             ----------  -------- -------- ---------  --------  ----------

  EBITDA     $   50,029  $  2,647 $  2,387 $ (14,402) $      -  $   40,661

Restructuring
 costs              143         -        -       289         -         432
             ----------  -------- -------- ---------  --------  ----------

  Adjusted
   EBITDA    $   50,172  $  2,647 $  2,387 $ (14,113) $      -  $   41,093

Center
 rent
 expense         18,021       131      220         -         -      18,372
             ----------  -------- -------- ---------  --------  ----------

  Adjusted
   EBITDAR   $   68,193  $  2,778 $  2,607 $ (14,113) $      -  $   59,465
             ==========  ======== ======== =========  ========  ==========

  Normalized
   Adjusted
   EBITDA    $   54,577  $  2,647 $  2,387 $ (14,113) $      -  $   45,498
  Normalized
   Adjusted
   EBITDAR   $   72,598  $  2,778 $  2,607 $ (14,113) $      -  $   63,870


    Adjusted
      EBITDA
      margin       11.9%      5.7%    10.1%                            8.7%

    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       17.2%      6.0%    11.1%                           13.5%

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-                     Elimination
                         itation  Medical                 of
              Inpatient  Therapy  Staffing  Other &   Affiliated  Consoli-
              Services   Services Services  Corp Seg   Revenue     dated
             ----------  -------- -------- ---------  --------  ----------
Nonaffiliated
 revenue     $1,674,752  $105,366 $100,624 $      34  $      -  $1,880,776

Affiliated
 revenue              -    74,166    1,930         -   (76,096)          -
             ----------  -------- -------- ---------  --------  ----------
  Total
   revenue   $1,674,752  $179,532 $102,554 $      34  $(76,096) $1,880,776
             ----------  -------- -------- ---------  --------  ----------

Income (loss)
 from
 continuing
 operations  $  156,537  $ 11,078 $  8,610 $(133,145) $      -  $   43,080

Income tax
 expense              -         -        -    29,616         -      29,616

Interest,
 net             12,226        (2)      (2)   37,105         -      49,327

Depreciation
 and
 amortization    41,325       540      780     2,808         -      45,453
             ----------  -------- -------- ---------  --------  ----------

  EBITDA     $  210,088  $ 11,616 $  9,388 $ (63,616) $      -  $  167,476

Loss on sale
 of assets,
 net                  8        34        -         -         -          42

Restructuring
 costs              143         -        -     1,161         -       1,304
             ----------  -------- -------- ---------  --------  ----------

  Adjusted
   EBITDA    $  210,239  $ 11,650 $  9,388 $ (62,455) $      -  $  168,822

Center rent
 expense         71,728       480      920         -         -      73,128
             ----------  -------- -------- ---------  --------  ----------

  Adjusted
   EBITDAR   $  281,967  $ 12,130 $ 10,308 $ (62,455) $      -  $  241,950
             ==========  ======== ======== =========  ========  ==========

  Normalized
   Adjusted
   EBITDA    $  218,944  $ 11,650 $  9,388 $ (62,455) $      -  $  177,527
  Normalized
   Adjusted
   EBITDAR   $  290,672  $ 12,130 $ 10,308 $ (62,455) $      -  $  250,655


    Adjusted
      EBITDA
      margin       12.6%      6.5%      9.2%                           9.0%

    Adjusted
     EBITDAR
      margin       16.8%      6.8%     10.1%                          12.9%

  Normalized
    Adjusted
      EBITDA
      margin       13.1%      6.5%      9.2%                           9.4%

  Normalized
    Adjusted
     EBITDAR
      margin       17.4%      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
                      Selected Operating Statistics
                          Continuing Operations


                       For the                        For the
                  Three Months Ended            Twelve Months Ended
                     December 31,                  December 31,
                ----------------------      --------------------------
                  2010          2009           2010            2009

Consolidated Company

Revenues - Non-affiliated (in thousands)
-----------------
  Skilled Nursing
   and similar
   facilities   $418,993      $411,019       1,649,677       1,641,571
  Hospice         11,901        11,654          45,533          30,903
  Other -
   Inpatient
   Services          570           555           2,234           2,278
                --------      --------      ----------      ----------
    Inpatient
     Services    431,464       423,228       1,697,444       1,674,752

  Rehabilitation
   Therapy
   Services       29,889        27,303         119,612         105,366
  Medical
   Staffing
   Services       22,053        23,289          89,765         100,624
  Other -
   non-core
   businesses         12             7              40              34
                --------      --------      ----------      ----------
      Total     $483,418      $473,827      $1,906,861      $1,880,776
                ========      ========      ==========      ==========


Revenue Mix - Non-affiliated (in thousands)
----------------
  Medicare      $145,477  30% $137,511  29%    566,874  30%    554,570  29%
  Medicaid       196,272  41%  194,035  41%    771,128  40%    753,393  40%
  Private and
   Other         112,815  23%  112,702  24%    452,309  24%    454,126  25%
  Managed Care /
   Insurance      23,518   5%   25,004   5%     96,153   5%    101,595   5%
  Veterans         5,336   1%    4,575   1%     20,397   1%     17,092   1%
                ------------  ------------  --------------  --------------
      Total     $483,418 100% $473,827 100% $1,906,861 100% $1,880,776 100%
                ============  ============  ==============  ==============


Inpatient Services Stats

Number of
 centers:            200           200             200             200
Number of
 available
 beds:            22,243        22,166          22,243          22,166
Occupancy %:        86.6%         88.1%           87.0%           88.5%


Payor Mix % based on patient days:
    Medicare - SNF
     Beds           14.1%         14.9%           14.9%           15.6%
    Managed care /
     Ins. - SNF
     Beds            3.7%          4.1%            3.9%            4.1%
                --------      --------      ----------      ----------
      Total SNF
       skilled
       mix          17.8%         19.0%           18.8%           19.7%
                --------      --------      ----------      ----------

  Medicare          12.9%         13.5%           13.6%           14.2%
  Medicaid          63.1%         61.7%           62.4%           60.7%
  Private and
   Other            19.3%         20.0%           19.2%           20.3%
  Managed Care /
   Insurance         3.4%          3.7%            3.6%            3.8%
  Veterans           1.3%          1.1%            1.2%            1.0%


Revenue Mix % of revenues:

    Medicare - SNF
     Beds           32.3%         31.1%           32.0%           32.4%
    Managed care /
     Ins. - SNF
     Beds            5.8%          6.3%            6.0%            6.4%
                --------      --------      ----------      ----------
      Total SNF
       skilled
       mix          38.1%         37.4%           38.0%           38.8%
                --------      --------      ----------      ----------

  Medicare          32.6%         31.5%           32.3%           32.1%
  Medicaid          45.5%         45.8%           45.4%           45.0%
  Private and
   Other            15.3%         15.7%           15.5%           15.9%
  Managed Care /
   Insurance         5.4%          5.9%            5.6%            6.0%
  Veterans           1.2%          1.1%            1.2%            1.0%


Revenues PPD:
  Medicare
   (Part A)     $ 515.62      $ 457.79      $   476.59      $   455.02
  Medicare
   Blended Rate
   (Part A & B) $ 558.85      $ 494.01      $   517.05      $   492.44
  Medicaid      $ 174.59      $ 173.57      $   173.62      $   171.55
  Private and
   Other        $ 184.23      $ 178.17      $   184.77      $   176.40
  Managed Care /
   Insurance    $ 390.15      $ 370.11      $   374.02      $   372.93
  Veterans      $ 239.33      $ 235.19      $   240.88      $   231.33


Rehab contracts

Affiliated           162           127             162             127
Non-affiliated       346           337             346             337

Average Qtrly
 Revenue per
 Contract
 (in thousands) $    104      $    100      $      101      $       97



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                             AS REPORTED - 4th QUARTER 2010
            --------------------------------------------------------------
                                              Income from
                                               Continuing
                    Adjusted Adjusted           Opera-   Disc      Net
            Revenue  EBITDAR  EBITDA  Pre-tax    tions     Ops     Income
            -------- ------- -------  -------  --------  -------  --------
As Reported
 4th
 QUARTER
 2010       $483,418 $28,114 $    86 $(48,956) $(31,930) $  (446) $(32,376)
            -------- ------- -------  -------  --------  -------  --------

   Percent
        of
   Revenue               5.8%    0.0%   -10.1%     -6.6%    -0.1%     -6.7%

Normalizing
 Adjustments:

  Loss on sale
   of property     -       -       -      847       500        -       500
  Loss on
   extinguish-
   ment of debt    -       -       -   29,221    17,240        -    17,240
  Transaction
   costs
   related to
   acquisition     -     446     446      446       263        -       263

  Prior
   periods'
   self-
   insurance
   costs and
   other
   general
   liability
   matters         -  15,300  15,300   15,300     9,027        -     9,027
  REIT
   separation
   transaction
   costs           -  22,117  22,117   22,117    16,096        -    16,096
            -------- ------- -------  -------  --------  -------  --------

Normalized
 As Reported
 - 4th
 QUARTER
 2010       $483,418 $65,977 $37,949  $18,975  $ 11,196  $  (446) $ 10,750
            ======== ======= =======  =======  ========  =======  ========
   Percent
        of
   Revenue              13.6%    7.9%     3.9%      2.3%    -0.1%      2.2%

  Diluted
   EPS:

        As
  Reported                                     $  (1.24) $ (0.02) $  (1.26)

        As
Normalized                                     $   0.43  $ (0.01) $   0.42




                           AS REPORTED - 4th QUARTER 2009
            --------------------------------------------------------------
                                              Income from
                                              Continuing
                    Adjusted Adjusted            Opera-   Disc      Net
            Revenue  EBITDAR  EBITDA  Pre-tax    tions     Ops     Income
            -------- ------- -------  -------  --------  -------  --------
As Reported
 - 4th
 QUARTER
 2009       $473,827 $59,465 $41,093  $16,631  $  9,810  $(1,135) $  8,675

   Percent
        of
   Revenue              12.5%    8.7%     3.5%      2.1%    -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-
   insurance
   costs           -   3,920   3,920    3,920     2,313      313     2,626
            -------- ------- -------  -------  --------  -------  --------

Normalized
 As Reported
 - 4th
 QUARTER
 2009       $473,827 $63,870 $45,498  $21,468  $ 12,664  $  (822) $ 11,842
            ======== ======= =======  =======  ========  =======  ========
   Percent
        of
   Revenue              13.5%    9.6%     4.5%      2.7%    -0.2%      2.5%

  Diluted
   EPS:

        As
  Reported                                     $   0.67  $ (0.08) $   0.59

        As
Normalized                                     $   0.86  $ (0.06) $   0.80


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 consist of: loss on sale of property, loss on
extinguishment of debt, transaction costs related to acquisition, prior
periods' self-insurance costs and other general liability matters, REIT
separation transaction costs and restructuring costs.

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 2010
           ---------------------------------------------------------------
                                              Income from
                                              Continuing
                     Adjusted  Adjusted          Opera-   Disc      Net
            Revenue   EBITDAR   EBITDA  Pre-tax  tions     Ops     Income
           ---------- -------- -------- ------- -------  -------  --------
As Reported
 - Twelve
 Months
 2010      $1,906,861 $205,722 $121,388 $   248 $(2,716) $(1,934) $ (4,650)
   Percent
        of
   Revenue                10.8%     6.4%    0.0%   -0.1%    -0.1%     -0.2%

Normalizing
 Adjustments:

  Loss on sale
   of property      -        -        -     847     500        -       500
  Loss on
   extinguish-
   ment of debt     -        -        -  29,221  17,240        -    17,240
  Transaction
   costs
   related to
   acquisition      -      446      446     446     263        -       263
  Prior
   periods'
   self-
   insurance
   costs and
   other
   general
   liability
   matters          -   15,300   15,300  15,300   9,027        -    9,027
  REIT
   separation
   transaction
   costs            -   29,113   29,113  29,113  20,224        -    20,224
           ---------- -------- -------- ------- -------  -------  --------

Normalized
 As Reported
 - Twelve
 Months
 2010      $1,906,861 $250,581 $166,247 $75,175 $44,538  $(1,934) $ 42,604
           ========== ======== ======== ======= =======  =======  ========
   Percent
        of
   Revenue                13.1%     8.7%    3.9%    2.3%    -0.1%      2.2%

  Diluted
   EPS:

        As
  Reported                                      $ (0.14) $ (0.10) $  (0.24)

        As
Normalized                                      $  2.31  $ (0.10) $   2.21


                          AS REPORTED - TWELVE MONTHS 2009
           ---------------------------------------------------------------
                                              Income from
                                              Continuing
                     Adjusted  Adjusted         Opera-    Disc      Net
            Revenue   EBITDAR   EBITDA  Pre-tax  tions     Ops     Income
           ---------- -------- -------- ------- -------  -------  --------
As Reported
 - Twelve
 Months
 2009      $1,880,776 $241,950 $168,822 $72,696 $43,080  $(4,409) $ 38,671
   Percent
        of
   Revenue                12.9%     9.0%    3.9%    2.3%    -0.2%      2.1%

Normalizing
Adjustments:

  Restructur-
   ing costs        -        -        -   1,304     769        -       769
  Transaction
   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      $1,880,776 $250,655 $177,527 $82,705 $48,985  $(3,748) $ 45,237
           ========== ======== ======== ======= =======  =======  ========
   Percent
        of
   Revenue                13.3%     9.4%    4.4%    2.6%    -0.2%      2.4%


Diluted
 EPS:

        As
  Reported                                      $  2.93  $ (0.30) $   2.63

        As
Normalized                                      $  3.33  $ (0.26) $   3.07

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 consist of: loss on sale of property, loss on
extinguishment of debt, transaction costs related to acquisition, prior
periods' self-insurance costs and other general liability matters, REIT
separation transaction costs and restructuring costs.

Normalizing adjustments do not include any adjustment for the August 2010
equity offering or the use of proceeds to pay down debt, avoiding interest
expense.

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.

Contact Information

  • Contact:

    Investor Inquiries
    (505) 468-2341

    Media Inquiries
    (505) 468-4582