SOURCE: Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc.

July 31, 2012 16:30 ET

Sun Healthcare Group, Inc. Reports 2012 Second-Quarter Operating Results; Normalized EPS From Continuing Operations of $0.15

IRVINE, CA--(Marketwire - Jul 31, 2012) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced its operating results for the second quarter ended June 30, 2012.

Highlights of continuing operations:

  • consolidated revenues were $457.1 million for the quarter, down 2.9 percent as compared to the same period in 2011;
  • consolidated normalized adjusted EBITDAR was $56.2 million for the quarter representing a normalized adjusted EBITDAR margin of 12.3 percent; and
  • normalized earnings per share was $0.15 for the quarter.

Segment Updates 

Revenue from Sun's inpatient services business totaled $405.1 million in the second quarter, down $13.4 million, or 3.2 percent, from the second quarter of 2011. The year-over-year decrease in revenues resulted principally from the reduction in Medicare rates as mandated by the CMS Final Rule and implemented on October 1, 2011. Overall patient volumes remained stable at 87.2 percent occupancy for the quarter, consistent with occupancy in both the year-over-year and sequential quarters. The decrease in revenues further resulted in a decrease in adjusted EBITDAR for inpatient services, partially offset by the company's ongoing cost mitigation activities. Adjusted EBITDAR for the quarter was $66.3 million, down $10.9 million or 14.1 percent from the prior year second quarter, while adjusted EBITDAR margin for the quarter was 16.4 percent, down 200 basis points from the prior year second quarter.

As previously disclosed, the Company classified certain operations within its inpatient services business as discontinued. Financial results from these operations are reflected in discontinued operations in Sun's income statement and excluded from its discussion of ongoing operations. Discontinued operations include eight skilled nursing centers and one assisted living center located in the Oklahoma and Rhode Island markets. Discontinued operations include the losses incurred from operating those discontinued centers. The Company is seeking to sell the discontinued centers to unaffiliated third-party operators. 

Included in the inpatient services business segment are $15.9 million of revenues from SolAmor, Sun's hospice division, which experienced year-over-year revenue growth of $1.0 million or 6.5 percent in the quarter. SolAmor's adjusted EBITDAR was $3.8 million in the second quarter and adjusted EBITDAR margin was 24.2 percent.

SunDance, Sun's rehabilitation therapy services business, reported second-quarter revenues of $62.0 million, adjusted EBITDAR of $4.0 million and an adjusted EBITDAR margin of 6.4 percent, up 40 basis points year over year. Ongoing changes to SunDance's therapy-delivery processes in response to the CMS Final Rule continued to mitigate the rule's impact.

CareerStaff, Sun's medical staffing services business, reported revenues of $23.5 million, up 3.6 percent year over year, adjusted EBITDAR of $2.0 million and adjusted EBITDAR margin of 8.6 percent, up 60 basis points year over year. On a sequential quarter basis, CareerStaff experienced 2.7 percent revenue growth while billable hours increased on both a sequential quarter and year-over-year basis for the second quarter in a row. 

Cash Flow

At June 30, 2012, Sun had $43.6 million in cash and cash equivalents and $89.2 million of long-term debt. During the second quarter, Sun generated cash flow from operations of $7.0 million and used $7.9 million of cash for capital investments. On a normalized basis, operating cash flow for the quarter was $12.9 million after adding back the $5.9 million of Medicaid funds which were temporarily held back by Massachusetts in June 2012 but which were subsequently received by Sun in July 2012. 

Transaction Update; Withdrawal of Guidance

The Company filed its definitive proxy statement concerning the transaction with Genesis HealthCare with the Securities and Exchange Commission on July 24, 2012. The Company has commenced mailing the proxy statement to stockholders of the Company and will hold a special stockholders meeting concerning the transaction on September 5, 2012. As previously announced, the closing is expected to occur in the fall. In connection with the transaction, the Company incurred $1.8 million of transaction costs through the six months ended June 30, 2012, which were primarily comprised of legal fees and financial advisory fees. Due to the pending transaction with Genesis HealthCare, the Company is withdrawing its 2012 financial guidance. As previously announced, the Company will not hold a quarterly conference call to discuss its second-quarter results.

Additional Information and Where to Find It

In connection with the proposed transaction with Genesis HealthCare, the Company has filed a proxy statement and other relevant documents concerning the transaction with the Securities and Exchange Commission ("SEC"). Investors and stockholders of the Company are urged to read the definitive proxy statement and other relevant documents because they will contain important information about the transaction. Copies of these documents may be obtained free of charge by making a request to the Company's Investor Relations Department either in writing to Sun Healthcare Group, Inc., 101 Sun Avenue, N.E., Albuquerque, New Mexico 87109, or by telephone to (505) 468-2341. In addition, documents filed with the SEC by the Company may be obtained free of charge at the SEC's website at www.sec.gov or by clicking on "SEC Filings" on the Company's website at www.sunh.com.

The Company and its directors, executive officers and certain employees may be deemed to be participants in the solicitation of proxies from the Company's stockholders in respect of the transaction. Information concerning the ownership of the Company's securities by the Company's directors and executive officers is included in their SEC filings on Forms 3, 4 and 5, and additional information is also available in the Company's definitive proxy statement in connection with the proposed transaction.

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 28,000 employees in 46 states. Sun's services are provided through its subsidiaries: as of June 30, 2012, SunBridge Healthcare and its subsidiaries' continuing operations include 158 skilled nursing centers, 13 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and seven mental health centers with an aggregate of 21,349 licensed beds in 23 states; SunDance Rehabilitation provides rehabilitation therapy services to affiliated and non-affiliated centers in 36 states; CareerStaff Unlimited provides medical staffing services in 40 states; and SolAmor Hospice provides hospice services in 11 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 continuing effect of the Company's cost-mitigation and therapy-delivery plans to mitigate the impact on the Company's business of the CMS Final Rule and the Company's expectations regarding the closing of the transaction with Genesis Healthcare. 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, including with respect to the CMS Final Rule, and the Company's ability to mitigate the impact of such changes; 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 amount of the Company's indebtedness; covenants in debt agreements and leases 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 economic downturn on the business; increasing labor costs and the shortage of qualified healthcare personnel; the Company's ability to receive increases in reimbursement rates from government payors to cover increased costs; delays in or failure to satisfy required conditions to the closing of the proposed merger with Genesis Healthcare, including the receipt of required regulatory approvals with respect to the transaction and approval of the acquisition by the Company's stockholders; failure to consummate or delay in consummating the transaction for other reasons; and disruption from the transaction making it more difficult to maintain relationships with customers and employees. 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 Form 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.

EBITDA, 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. 

   
   
   
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES  
   
KEY INCOME STATEMENT FIGURES  
CONSOLIDATED  
(in thousands, except per share data)  
   
For the
Three Months Ended
June 30, 2012
   
For the
Three Months Ended
June 30, 2011
 
                 
                 
Revenue   $ 457,142     $ 470,575  
                 
Center rent expense     36,522       35,750  
                 
Depreciation and amortization     8,504       7,629  
                 
Interest expense, net     4,429       4,854  
                 
Pre-tax income     4,874       19,339  
                 
Income tax expense     1,901       7,894  
                 
Income from continuing operations     2,973       11,445  
                 
Loss from discontinued operations     (3,953 )     (1,499 )
                 
Net (loss) income   $ (980 )   $ 9,946  
                 
                 
Diluted (loss) income per share   $ (0.04 )   $ 0.38  
                 
                 
                 
Adjusted EBITDAR   $ 54,329     $ 67,739  
Margin - Adjusted EBITDAR     11.9 %     14.4 %
                 
Adjusted EBITDAR normalized   $ 56,167     $ 67,739  
Margin - Adjusted EBITDAR normalized     12.3 %     14.4 %
                 
                 
                 
                 
Adjusted EBITDA   $ 17,807     $ 31,989  
Margin - Adjusted EBITDA     3.9 %     6.8 %
                 
Adjusted EBITDA normalized   $ 19,645     $ 31,989  
Margin - Adjusted EBITDA normalized     4.3 %     6.8 %
                 
                 
                 
                 
Pre-tax income continuing operations - normalized   $ 6,712     $ 19,339  
                 
Income tax expense - normalized   $ 2,618     $ 7,894  
                 
Income from continuing operations - normalized   $ 4,094     $ 11,445  
                 
Diluted earnings per share from continuing operations - normalized   $ 0.15     $ 0.44  
                 
 
See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss 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
Six Months Ended
June 30, 2012
    For the
Six Months Ended
June 30, 2011
 
                 
                 
Revenue   $ 915,635     $ 936,883  
                 
Center rent expense     72,899       71,442  
                 
Depreciation and amortization     16,934       15,077  
                 
Interest expense, net     8,839       9,853  
                 
Pre-tax income     7,921       35,575  
                 
Income tax expense     3,089       14,512  
                 
Income from continuing operations     4,832       21,063  
                 
Loss from discontinued operations     (5,599 )     (3,005 )
                 
Net (loss) income   $ (767 )   $ 18,058  
                 
                 
Diluted (loss) income per share   $ (0.03 )   $ 0.70  
                 
                 
                 
Adjusted EBITDAR   $ 106,593     $ 132,250  
Margin - Adjusted EBITDAR     11.6 %     14.1 %
                 
Adjusted EBITDAR normalized   $ 108,431     $ 132,250  
Margin - Adjusted EBITDAR normalized     11.8 %     14.1 %
                 
                 
                 
                 
Adjusted EBITDA   $ 33,694     $ 60,808  
Margin - Adjusted EBITDA     3.7 %     6.5 %
                 
Adjusted EBITDA normalized   $ 35,532     $ 60,808  
Margin - Adjusted EBITDA normalized     3.9 %     6.5 %
                 
                 
                 
                 
Pre-tax income continuing operations - normalized   $ 9,759     $ 35,575  
                 
Income tax expense - normalized   $ 3,806     $ 14,512  
                 
Income from continuing operations - normalized   $ 5,953     $ 21,063  
                 
Diluted earnings per share from continuing operations - normalized   $ 0.22     $ 0.81  
                 
 
See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss 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 per share data)  
   
   
    June 30, 2012     December 31, 2011  
    (unaudited)     (unaudited)  
ASSETS                
                 
Current assets:                
  Cash and cash equivalents   $ 43,648     $ 57,908  
  Restricted cash     14,330       15,706  
  Accounts receivable, net     212,831       202,229  
  Prepaid expenses and other assets     27,093       29,075  
  Assets held for sale     4,537       -  
  Deferred tax assets     63,018       63,170  
                 
    Total current assets     365,457       368,088  
                 
Property and equipment, net     145,673       148,298  
Intangible assets, net     33,991       35,294  
Goodwill     34,905       34,496  
Restricted cash, non-current     354       353  
Deferred tax assets     124,382       123,974  
Other assets     43,152       45,163  
                 
    Total assets   $ 747,914     $ 755,666  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
                 
Current liabilities:                
  Accounts payable   $ 44,603     $ 55,888  
  Accrued compensation and benefits     63,878       61,101  
  Accrued self-insurance obligations, current portion     57,628       57,810  
  Other accrued liabilities     47,638       43,139  
  Current portion of long-term debt and capital lease obligations     967       1,017  
                   
    Total current liabilities     214,714       218,955  
                 
Accrued self-insurance obligations, net of current portion     155,048       157,267  
Long-term debt and capital lease obligations, net of current portion     88,242       88,768  
Unfavorable lease obligations, net     5,880       7,110  
Other long-term liabilities     56,107       58,110  
                 
    Total liabilities     519,991       530,210  
                 
                 
Stockholders' equity:                
  Preferred stock of $.01 par value, authorized 3,333 shares, zero shares were issued and outstanding as of June 30, 2012 and December 31, 2011     -       -  
  Common stock of $.01 par value, authorized 41,667 shares, 25,535 and 25,146 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively     255       251  
  Additional paid-in capital     730,242       726,861  
  Accumulated deficit     (501,194 )     (500,427 )
  Accumulated other comprehensive loss, net     (1,380 )     (1,229 )
      227,923       225,456  
    Total liabilities and stockholders' equity   $ 747,914     $ 755,666  
                     
                     
                     
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES  
   
CONSOLIDATED INCOME STATEMENTS  
(in thousands, except per share data)  
   
    For the
Three Months Ended
June 30, 2012
    For the
Three Months Ended
June 30, 2011
 
    (unaudited)     (unaudited)  
                 
Total net revenues   $ 457,142     $ 470,575  
Costs and expenses:                
  Operating salaries and benefits     259,506       263,461  
  Self-insurance for workers' compensation and general and professional liability insurance     13,190       14,541  
  Operating administrative costs     11,703       13,305  
  Other operating costs     95,429       92,159  
  Center rent expense     36,522       35,750  
  General and administrative expenses     16,048       14,952  
  Depreciation and amortization     8,504       7,629  
  Provision for losses on accounts receivable     5,099       4,418  
  Interest, net of interest income of $67 and $82, respectively     4,429       4,854  
  Transaction costs     1,838       -  
  Restructuring costs     -       167  
Total costs and expenses     452,268       451,236  
                 
Income before income taxes and discontinued operations     4,874       19,339  
Income tax expense     1,901       7,894  
Income from continuing operations     2,973       11,445  
                 
Loss from discontinued operations, net     (3,953 )     (1,499 )
                 
Net (loss) income   $ (980 )   $ 9,946  
                 
                 
Basic loss per common and common equivalent share:                
  Income from continuing operations   $ 0.11     $ 0.44  
  Loss from discontinued operations, net     (0.15 )     (0.06 )
Net (loss) income   $ (0.04 )   $ 0.38  
                 
Diluted loss per common and common equivalent share:                
  Income from continuing operations   $ 0.11     $ 0.44  
  Loss from discontinued operations, net     (0.15 )     (0.06 )
Net (loss) income   $ (0.04 )   $ 0.38  
                 
Weighted average number of common and common equivalent shares outstanding:                
  Basic     27,039       26,146  
  Diluted     27,039       26,187  
                   
 
 
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES  
   
CONSOLIDATED INCOME STATEMENTS  
(in thousands, except per share data)  
   
    For the
Six Months Ended
June 30, 2012
    For the
Six Months Ended
June 30, 2011
 
    (unaudited)     (unaudited)  
                 
Total net revenues   $ 915,635     $ 936,883  
Costs and expenses:                
  Operating salaries and benefits     520,595       525,943  
  Self-insurance for workers' compensation and general and professional liability insurance     28,507       29,098  
  Operating administrative costs     24,110       26,372  
  Other operating costs     191,995       183,294  
  Center rent expense     72,899       71,442  
  General and administrative expenses     32,089       30,331  
  Depreciation and amortization     16,934       15,077  
  Provision for losses on accounts receivable     9,908       9,595  
  Interest, net of interest income of $135 and $140, respectively     8,839       9,853  
  Transaction costs     1,838       -  
  Restructuring costs     -       303  
Total costs and expenses     907,714       901,308  
                 
Income before income taxes and discontinued operations     7,921       35,575  
Income tax expense     3,089       14,512  
Income from continuing operations     4,832       21,063  
                 
Loss from discontinued operations, net     (5,599 )     (3,005 )
                 
Net (loss) income   $ (767 )   $ 18,058  
                 
                 
Basic loss per common and common equivalent share:                
  Income from continuing operations   $ 0.18     $ 0.81  
  Loss from discontinued operations, net     (0.21 )     (0.11 )
Net (loss) income   $ (0.03 )   $ 0.70  
                 
Diluted loss per common and common equivalent share:                
  Income from continuing operations   $ 0.18     $ 0.81  
  Loss from discontinued operations, net     (0.21 )     (0.11 )
Net (loss) income   $ (0.03 )   $ 0.70  
                 
Weighted average number of common and common equivalent shares outstanding:                
  Basic     26,542       25,899  
  Diluted     26,542       25,967  
 
 
 
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES  
   
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(in thousands)  
   
    For the
Three Months Ended
June 30, 2012
    For the
Three Months Ended
June 30, 2011
 
    (unaudited)     (unaudited)  
                 
Cash flows from operating activities:                
  Net (loss) income   $ (980 )   $ 9,946  
  Adjustments to reconcile net (loss) income to net cash provided by operating activities, including discontinued operations:                
    Depreciation and amortization     8,504       7,863  
    Amortization of favorable and unfavorable lease intangibles     (507 )     (490 )
    Provision for losses on accounts receivable     5,341       4,860  
    Loss on sale of assets, including discontinued operations, net     69       -  
    Stock-based compensation expense     1,576       1,352  
    Deferred taxes     103       7,944  
  Changes in operating assets and liabilities, net of acquisitions:                
    Accounts receivable     (11,428 )     (7,185 )
    Restricted cash     (6 )     18  
    Prepaid expenses and other assets     573       439  
    Accounts payable     (4,078 )     (1,582 )
    Accrued compensation and benefits     7,384       (4,018 )
    Accrued self-insurance obligations     68       (2,569 )
    Income taxes payable     -       (478 )
    Other accrued liabilities     2,892       (216 )
    Other long-term liabilities     (2,481 )     (492 )
      Net cash provided by operating activities     7,030       15,392  
                 
Cash flows from investing activities:                
  Capital expenditures     (7,868 )     (9,319 )
  Acquisitions, net of cash acquired     -       (356 )
    Net cash used for investing activities     (7,868 )     (9,675 )
                 
Cash flows from financing activities:                
  Principal repayments of long-term debt and capital lease obligations     (285 )     (2,800 )
    Net cash used for financing activities     (285 )     (2,800 )
                 
Net (decrease) increase in cash and cash equivalents     (1,123 )     2,917  
Cash and cash equivalents at beginning of period     44,771       85,572  
Cash and cash equivalents at end of period   $ 43,648     $ 88,489  
                 
Reconciliation of net cash provided by operating activities to free cash flow:                
                 
    Net cash provided by operating activities   $ 7,030     $ 15,392  
    Capital expenditures     (7,868 )     (9,319 )
      Free cash flow   $ (838 )   $ 6,073  
                 
 
Free cash flow is defined as net cash flow provided by operating activities less cash used for capital expenditures.
Free cash flow is used by management to evaluate discretionary cash flow potentially available for principal repayment and other financing activities.
 
 
 
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES  
   
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(in thousands)  
   
    For the
Six Months Ended
June 30, 2012
    For the
Six Months Ended
June 30, 2011
 
    (unaudited)     (unaudited)  
                 
Cash flows from operating activities:                
  Net (loss) income   $ (767 )   $ 18,058  
                 
  Adjustments to reconcile net (loss) income to net cash provided by operating activities, including discontinued operations:                
    Depreciation and amortization     17,086       15,544  
    Amortization of favorable and unfavorable lease intangibles     (1,020 )     (974 )
    Provision for losses on accounts receivable     10,463       10,504  
    Loss on sale of assets, including discontinued operations, net     69       -  
    Stock-based compensation expense     3,808       2,801  
    Deferred taxes     (157 )     9,976  
  Changes in operating assets and liabilities, net of acquisitions:                
    Accounts receivable     (21,209 )     (12,578 )
    Restricted cash     1,375       (1,928 )
    Prepaid expenses and other assets     2,325       190  
    Accounts payable     (10,114 )     (3,501 )
    Accrued compensation and benefits     2,777       (580 )
    Accrued self-insurance obligations     (2,401 )     (3,912 )
    Other accrued liabilities     4,423       (946 )
    Other long-term liabilities     (2,254 )     (1,218 )
      Net cash provided by operating activities     4,404       31,436  
                 
Cash flows from investing activities:                
  Capital expenditures     (17,829 )     (18,156 )
  Acquisitions, net of cash acquired     (260 )     (356 )
    Net cash used for investing activities     (18,089 )     (18,512 )
                 
Cash flows from financing activities:                
  Borrowings of long-term debt                
  Principal repayments of long-term debt and capital lease obligations     (575 )     (5,598 )
    Net cash used for financing activities     (575 )     (5,598 )
                 
Net decrease in cash and cash equivalents     (14,260 )     7,326  
Cash and cash equivalents at beginning of period     57,908       81,163  
Cash and cash equivalents at end of period   $ 43,648     $ 88,489  
                 
Reconciliation of net cash provided by operating activities to free cash flow:                
                 
    Net cash provided by operating activities   $ 4,404     $ 31,436  
    Capital expenditures     (17,829 )     (18,156 )
      Free cash flow   $ (13,425 )   $ 13,280  
                 
                 
Free cash flow is defined as net cash flow provided by operating activities less cash used for capital expenditures.
Free cash flow is used by management to evaluate discretionary cash flow potentially available for principal repayment and other financing activities.
 
 
 
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
 
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
(in thousands)
 
    For the
Three Months Ended
June 30, 2012
      For the
Three Months Ended
June 30, 2011
    (unaudited)       (unaudited)
                 
Total net revenues   $ 457,142       $ 470,575
                 
Net (loss) income   $ (980 )     $ 9,946
                 
                 
  Income from continuing operations     2,973         11,445
                 
  Income tax expense     1,901         7,894
                 
  Interest, net     4,429         4,854
                 
  Depreciation and amortization     8,504         7,629
                 
EBITDA   $ 17,807       $ 31,822
                 
                 
  Restructuring costs     -         167
                 
                 
Adjusted EBITDA   $ 17,807       $ 31,989
                 
  Center rent expense     36,522         35,750
                 
Adjusted EBITDAR    $ 54,329         $ 67,739
 
EBITDA is defined as earnings before loss on discontinued operations, income taxes, interest, net, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before restructuring costs. 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 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 LOSS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
(in thousands)
 
    For the
Six Months Ended
June 30, 2012
    For the
Six Months Ended
June 30, 2011
    (unaudited)     (unaudited)
               
Total net revenues   $ 915,635     $ 936,883
               
Net (loss) income   $ (767 )   $ 18,058
               
               
  Income from continuing operations     4,832       21,063
               
  Income tax expense     3,089       14,512
               
  Interest, net     8,839       9,853
               
  Depreciation and amortization     16,934       15,077
               
EBITDA   $ 33,694     $ 60,505
               
  Restructuring costs     -       303
               
               
Adjusted EBITDA   $ 33,694     $ 60,808
               
  Center rent expense     72,899       71,442
               
Adjusted EBITDAR   $ 106,593     $ 132,250
 
EBITDA is defined as earnings before loss on discontinued operations, income taxes, interest, net, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before restructuring costs. 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. 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 June 30, 2012  
(unaudited)  
   
      Inpatient Services     Rehabilitation Therapy Services     Medical Staffing Services     Other & Corp Seg     Elimination of Affiliated Revenue     Consolidated  
                                                   
Nonaffiliated revenue     $ 405,135     $ 29,197     $ 22,804     $ 6     $ -     $ 457,142  
Affiliated revenue       -       32,804       719       -       (33,523 )     -  
  Total revenue     $ 405,135     $ 62,001     $ 23,523     $ 6     $ (33,523 )   $ 457,142  
                                                   
Income (loss) from continuing operations     $ 22,975     $ 3,551     $ 1,676     $ (25,229 )   $ -     $ 2,973  
                                                   
Income tax expense       -       -       -       1,901       -       1,901  
                                                   
Interest, net       (8 )     -       (3 )     4,440       -       4,429  
                                                   
Depreciation and amortization       7,115       260       187       942       -       8,504  
                                                   
  EBITDA     $ 30,082     $ 3,811     $ 1,860     $ (17,946 )   $ -     $ 17,807  
                                                   
Restructuring costs       -       -       -       -       -       -  
                                                   
  Adjusted EBITDA     $ 30,082     $ 3,811     $ 1,860     $ (17,946 )   $ -     $ 17,807  
                                                   
Center rent expense       36,207       145       170       -       -       36,522  
                                                   
  Adjusted EBITDAR     $ 66,289     $ 3,956     $ 2,030     $ (17,946 )   $ -     $ 54,329  
                                                   
                                                   
  Normalized Adjusted EBITDA     $ 30,082     $ 3,811     $ 1,860     $ (16,108 )   $ -     $ 19,645  
  Normalized Adjusted EBITDAR     $ 66,289     $ 3,956     $ 2,030     $ (16,108 )   $ -     $ 56,167  
                                                   
                                                   
Adjusted EBITDA margin       7.4 %     6.1 %     7.9 %                     3.9 %
                                                   
Adjusted EBITDAR margin       16.4 %     6.4 %     8.6 %                     11.9 %
                                                   
Normalized Adjusted EBITDA margin       7.4 %     6.1 %     7.9 %                     4.3 %
                                                   
Normalized Adjusted EBITDAR margin       16.4 %     6.4 %     8.6 %                     12.3 %
 
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss 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 Six Months Ended June 30, 2012  
(unaudited)  
                   
    Inpatient Services   Rehabilitation Therapy Services   Medical Staffing Services   Other & Corp Seg     Elimination of Affiliated Revenue     Consolidated  
                                           
Nonaffiliated revenue   $ 810,923   $ 59,826   $ 44,873   $ 13     $ -     $ 915,635  
Affiliated revenue     -     66,267     1,550     -       (67,817 )     -  
  Total revenue   $ 810,923   $ 126,093   $ 46,423   $ 13     $ (67,817 )   $ 915,635  
                                           
Income (loss) from continuing operations   $ 42,323   $ 7,313   $ 3,108   $ (47,912 )   $ -     $ 4,832  
                                           
Income tax expense     -     -     -     3,089       -       3,089  
                                           
Interest, net     (28 )   -     (3 )   8,870       -       8,839  
                                           
Depreciation and amortization     14,144     511     371     1,908       -       16,934  
                                           
  EBITDA   $ 56,439   $ 7,824   $ 3,476   $ (34,045 )   $ -     $ 33,694  
                                           
                                           
Restructuring costs     -     -     -     -       -       -  
                                           
                                           
  Adjusted EBITDA   $ 56,439   $ 7,824   $ 3,476   $ (34,045 )   $ -     $ 33,694  
                                           
Center rent expense     72,282     279     338     -       -       72,899  
                                           
  Adjusted EBITDAR   $ 128,721   $ 8,103   $ 3,814   $ (34,045 )   $ -     $ 106,593  
                                           
                                           
  Normalized Adjusted EBITDA   $ 56,439   $ 7,824   $ 3,476   $ (32,207 )   $ -     $ 35,532  
  Normalized Adjusted EBITDAR   $ 128,721   $ 8,103   $ 3,814   $ (32,207 )   $ -     $ 108,431  
                                           
                                           
Adjusted EBITDA margin     7.0 %   6.2 %   7.5 %                   3.7 %
                                           
Adjusted EBITDAR margin     15.9 %   6.4 %   8.2 %                   11.6 %
                                           
Normalized Adjusted EBITDA margin     7.0 %   6.2 %   7.5 %                   3.9 %
                                           
Normalized Adjusted EBITDAR margin     15.9 %   6.4 %   8.2 %                   11.8 %
 
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDAR."
See normalizing adjustments in the table "Normalizing Adjustments - Year to Date 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 June 30, 2011  
(unaudited)  
   
    Inpatient Services   Rehabilitation Therapy Services   Medical Staffing Services   Other & Corp Seg     Elimination of Affiliated Revenue     Consolidated  
                                           
Nonaffiliated revenue   $ 418,584   $ 29,979   $ 21,998   $ 14     $ -     $ 470,575  
Affiliated revenue     -     33,225     699     -       (33,924 )     -  
  Total revenue   $ 418,584   $ 63,204   $ 22,697   $ 14     $ (33,924 )   $ 470,575  
                                           
Income (loss) from continuing operations   $ 35,202   $ 3,427   $ 1,462   $ (28,646 )   $ -     $ 11,445  
                                           
Income tax expense     -     -     -     7,894       -       7,894  
                                           
Interest, net     (31 )   -     -     4,885       -       4,854  
                                           
Depreciation and amortization     6,354     227     187     861       -       7,629  
                                           
  EBITDA   $ 41,525   $ 3,654   $ 1,649   $ (15,006 )   $ -     $ 31,822  
                                           
Restructuring costs     167     -     -     -       -       167  
                                           
  Adjusted EBITDA   $ 41,692   $ 3,654   $ 1,649   $ (15,006 )   $ -     $ 31,989  
                                           
Center rent expense     35,453     127     170     -       -       35,750  
                                           
  Adjusted EBITDAR   $ 77,145   $ 3,781   $ 1,819   $ (15,006 )   $ -     $ 67,739  
                                           
                                           
                                           
                                           
Adjusted EBITDA margin     10.0 %   5.8 %   7.3 %                   6.8 %
                                           
Adjusted EBITDAR margin     18.4 %   6.0 %   8.0 %                   14.4 %
 
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDAR."
 
 
 
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES  
   
RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA and ADJUSTED EBITDAR  
($ in thousands)  
   
For the Six Months Ended June 30, 2011  
(unaudited)  
   
    Inpatient Services   Rehabilitation Therapy Services   Medical Staffing Services   Other & Corp Seg     Elimination of Affiliated Revenue     Consolidated  
                                           
Nonaffiliated revenue   $ 832,471   $ 60,077   $ 44,314   $ 21     $ -     $ 936,883  
Affiliated revenue     -     65,920     1,321     -       (67,241 )     -  
  Total revenue   $ 832,471   $ 125,997   $ 45,635   $ 21     $ (67,241 )   $ 936,883  
                                           
Income (loss) from continuing operations   $ 68,541   $ 6,199   $ 2,861   $ (56,538 )   $ -     $ 21,063  
                                           
Income tax expense     -     -     -     14,512       -       14,512  
                                           
Interest, net     (37 )   -     1     9,889       -       9,853  
                                           
Depreciation and amortization     12,560     453     374     1,690       -       15,077  
                                           
  EBITDA   $ 81,064   $ 6,652   $ 3,236   $ (30,447 )   $ -     $ 60,505  
                                           
Restructuring costs     303     -     -     -       -       303  
                                           
  Adjusted EBITDA   $ 81,367   $ 6,652   $ 3,236   $ (30,447 )   $ -     $ 60,808  
                                           
Center rent expense     70,845     254     343     -       -       71,442  
                                           
  Adjusted EBITDAR   $ 152,212   $ 6,906   $ 3,579   $ (30,447 )   $ -     $ 132,250  
                                           
                                           
                                           
                                           
Adjusted EBITDA margin     9.8 %   5.3 %   7.1 %                   6.5 %
                                           
Adjusted EBITDAR margin     18.3 %   5.5 %   7.8 %                   14.1 %
 
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDAR."
 
 
 
Sun Healthcare Group, Inc. and Subsidiaries  
Selected Operating Statistics  
Continuing Operations  
   
    For the
Three Months Ended
June 30,
          For the
Six Months Ended
June 30,
     
    2012           2011           2012         2011      
Consolidated Company                                                    
                                                     
Revenues - Non-affiliated (in thousands)                                                    
  Skilled Nursing and similar facilities   $ 388,810           $ 403,221           $ 779,244         $ 802,775      
  Hospice     15,869             14,907             30,771           28,762      
  Other - Inpatient Services     456             456             908           934      
    Inpatient Services     405,135             418,584             810,923           832,471      
                                                     
  Rehabilitation Therapy Services     29,197             29,979             59,826           60,077      
  Medical Staffing Services     22,804             21,998             44,873           44,314      
  Other - non-core businesses     6             14             13           21      
    Total   $ 457,142           $ 470,575           $ 915,635         $ 936,883      
                                                     
                                                     
Revenue Mix - Non-affiliated (in thousands)                                                    
  Medicare   $ 133,399     29 %   $ 154,193     33 %   $ 269,688   29 %   $ 305,443   33 %
  Medicaid     188,851     41 %     179,578     38 %     375,293   41 %     357,223   38 %
  Private and Other     106,376     24 %     108,343     23 %     213,636   24 %     217,629   23 %
  Managed Care / Insurance     23,405     5 %     23,347     5 %     46,743   5 %     46,356   5 %
  Veterans     5,111     1 %     5,114     1 %     10,275   1 %     10,232   1 %
    Total   $ 457,142     100 %   $ 470,575     100 %   $ 915,635   100 %   $ 936,883   100 %
                                                     
                                                     
                                                     
Inpatient Services Stats                                                    
                                                     
  Number of centers:     190             190             190           190      
  Number of available beds:     20,756             20,820             20,756           20,820      
  Occupancy %:     87.2 %           87.2 %           87.2 %         87.4 %    
                                                     
                                                     
  Payor Mix % based on patient days:                                                    
      Medicare - SNF Beds     14.8 %           15.9 %           15.0 %         15.9 %    
      Managed care / Ins. - SNF Beds     4.1 %           4.0 %           4.0 %         4.1 %    
        Total SNF skilled mix     18.9 %           19.9 %           19.0 %         20.0 %    
                                                     
  Medicare     13.5 %           14.6 %           13.7 %         14.5 %    
  Medicaid     63.7 %           62.0 %           63.5 %         62.1 %    
  Private and Other     17.7 %           18.4 %           17.8 %         18.4 %    
  Managed Care / Insurance     3.8 %           3.7 %           3.7 %         3.7 %    
  Veterans     1.3 %           1.3 %           1.3 %         1.3 %    
                                                     
Revenue Mix % of revenues:                                                    
    Medicare - SNF Beds     30.8 %           35.2 %           31.2 %         35.1 %    
    Managed care / Ins. - SNF Beds     6.1 %           5.9 %           6.1 %         5.9 %    
      Total SNF skilled mix     36.9 %           41.1 %           37.3 %         41.0 %    
                                                     
  Medicare     31.8 %           35.8 %           32.1 %         35.6 %    
  Medicaid     46.6 %           42.9 %           46.3 %         42.9 %    
  Private and Other     14.6 %           14.6 %           14.6 %         14.8 %    
  Managed Care / Insurance     5.7 %           5.5 %           5.7 %         5.5 %    
  Veterans     1.3 %           1.2 %           1.3 %         1.2 %    
                                                     
                                                     
Revenues PPD:                                                    
  Medicare (Part A)   $ 461.80           $ 520.51           $ 462.46         $ 521.31      
  Medicare Blended Rate (Part A & B)   $ 508.06           $ 557.95           $ 507.02         $ 558.11      
  Medicaid   $ 180.08           $ 175.49           $ 179.36         $ 174.59      
  Medicaid, net of provider taxes   $ 162.91           $ 160.19           $ 162.26         $ 159.41      
  Private and Other   $ 190.00           $ 188.15           $ 190.09         $ 192.13      
  Managed Care / Insurance   $ 371.57           $ 380.42           $ 376.47         $ 374.50      
  Veterans   $ 245.54           $ 246.89           $ 248.31         $ 246.20      
                                                     
                                                     
Rehab contracts                                                    
                                                     
  Affiliated     178             179             178           179      
  Non-affiliated     332             342             332           342      
                                                     
  Average Qtrly Revenue per Contract (in thousands)   $ 122           $ 121           $ 124         $ 121      
   
   
   
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES  
   
NORMALIZING ADJUSTMENTS - QUARTER COMPARISON  
(in thousands, except per share data)  
   
   
    AS REPORTED - 2nd QUARTER 2012  
    Revenue   Adjusted EBITDAR     Adjusted EBITDA     Pre-tax     Income from Continuing Operations     Disc Ops     Net (Loss) Income  
                                                       
As Reported 2nd QUARTER 2012   $ 457,142   $ 54,329     $ 17,807     $ 4,874     $ 2,973     $ (3,953 )   $ (980 )
Percent of Revenue           11.9 %     3.9 %     1.1 %     0.7 %     -0.9 %     -0.2 %
                                                       
Normalizing Adjustments:                                                      
                                                       
  Transaction costs     -     1,838       1,838       1,838       1,121       -       1,121  
                                                       
Normalized As Reported - 2nd QUARTER 2012   $ 457,142   $ 56,167     $ 19,645     $ 6,712     $ 4,094     $ (3,953 )   $ 141  
Percent of Revenue           12.3 %     4.3 %     1.5 %     0.9 %     -0.9 %     0.0 %
                                                       
  Diluted EPS:                                                       
 As Reported                                 $ 0.11     $ (0.15 )   $ (0.04 )
As Normalized                                 $ 0.15     $ (0.14 )   $ 0.01  
   
   
   
    AS REPORTED - 2nd QUARTER 2011  
    Revenue   Adjusted EBITDAR     Adjusted EBITDA     Pre-tax   Income from Continuing Operations   Disc Ops     Net Income  
                                                   
As Reported - 2nd QUARTER 2011   $ 470,575   $ 67,739     $ 31,989     $ 19,339   $ 11,445   $ (1,499 )   $ 9,946  
Percent of Revenue           14.4 %     6.8 %     4.1 %   2.4 %   -0.3 %     2.1 %
                                                   
Normalizing Adjustments:                                                  
                                                   
  None     -     -       -       -     -     -       -  
                                                   
Normalized As Reported - 2nd QUARTER 2011   $ 470,575   $ 67,739     $ 31,989     $ 19,339   $ 11,445   $ (1,499 )   $ 9,946  
Percent of Revenue           14.4 %     6.8 %     4.1 %   2.4 %   -0.3 %     2.1 %
                                                   
                                                   
    Diluted EPS:                                                  
As Reported                               $ 0.44   $ (0.06 )   $ 0.38  
As Normalized                               $ 0.44   $ (0.06 )   $ 0.38  
 
See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDAR."
 
Normalizing adjustments are transactions or adjustments not related to ongoing operations and consist of transaction costs associated with the Company's sale to Genesis Healthcare.
 
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 - SIX MONTHS 2012  
    Revenue   Adjusted EBITDAR     Adjusted EBITDA   Pre-tax   Income from Continuing Operations   Disc Ops     Net (Loss) Income  
                                                 
As Reported - Six Months 2012   $ 915,635   $ 106,593     $ 33,694   $ 7,921   $ 4,832   $ (5,599 )   $ (767 )
Percent of Revenue           11.6 %     3.7 %   0.9 %   0.5 %   -0.6 %     -0.1 %
                                                 
Normalizing Adjustments:                                                
                                                 
  Transaction costs     -     1,838       1,838     1,838     1,121     -       1,121  
                                                 
Normalized As Reported - Six Months 2012   $ 915,635   $ 108,431     $ 35,532   $ 9,759   $ 5,953   $ (5,599 )   $ 354  
Percent of Revenue           11.8 %     3.9 %   1.1 %   0.7 %   -0.6 %     0.0 %
                                                 
    Diluted EPS:                                                
  As Reported                             $ 0.18   $ (0.21 )   $ (0.03 )
As Normalized                             $ 0.22   $ (0.21 )   $ 0.01  
                                                 
                                                 
                                                 
    AS REPORTED - SIX MONTHS 2011  
    Revenue   Adjusted EBITDAR     Adjusted EBITDA   Pre-tax   Income from Continuing Operations   Disc Ops