SOURCE: Sun Healthcare Group, Inc.

May 02, 2007 16:05 ET

Sun Healthcare Group, Inc. Reports First-Quarter Results; Margin Expansion Continues; Updates Guidance to Reflect Harborside Acquisition

IRVINE, CA -- (MARKET WIRE) -- May 2, 2007 -- Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the first quarter ended March 31, 2007.

Consolidated Earnings

For the quarter ended March 31, 2007, Sun reported total net revenues of $273.6 million and net income of $3.9 million or $0.09 per fully-diluted share, based on 44.0 million weighted-average shares outstanding. For the comparable quarter ended March 31, 2006, total net revenues were $256.8 million and net income was $1.1 million or $0.04 per fully-diluted share, based on 31.2 million weighted-average shares outstanding.

From continuing operations for the quarter ended March 31, 2007, Sun reported income of $4.4 million or $0.10 per fully-diluted share, as compared to income from continuing operations of $0.8 million or $0.03 per fully-diluted share for the same period in 2006. Sun's results included approximately $0.1 million of integration costs associated with its acquisition of Harborside Healthcare Corporation, which closed on April 19, 2007. Sun expects to incur further costs over the next several quarters as the operations of Harborside and Sun are integrated.

Comparing the quarter ended March 31, 2007, to the same period in 2006, Sun reported:

--  revenue increased $16.8 million, or 6.5 percent, to $273.6 million
    from $256.8 million;
--  EBITDAR increased $6.4 million, or 30.9 percent, to $27.1 million from
    $20.7 million;
--  EBITDAR margin for 2007 was 9.9 percent compared to 8.1 percent in
    2006;
--  EBITDA increased $5.4 million, or 74.0 percent, to $12.7 million from
    $7.3 million;
--  EBITDA margin for 2007 was 4.6 percent compared to 2.9 percent in
    2006;
--  pre-tax income increased $6.6 million to $6.7 million from $0.1
    million; and
--  income from continuing operations increased $3.6 million to $4.4
    million from $0.8 million.
    
"I am pleased with the continued strength of our operating results as shown by our first-quarter numbers. For the quarter, we have met the expectations established with our initial 2007 guidance and are encouraged by what we are seeing in the industry environment for the remainder of 2007," said Richard K. Matros, Sun's chairman and chief executive officer. "Our acquisition of Harborside last month was completed as planned. We are now in the integration process and look forward to the rest of 2007 as we operate the combined company," Matros continued.

Inpatient Business

Comparing the quarter ended March 31, 2007, to the same period in 2006, Sun reported:

--  revenue increased $13.7 million, or 6.4 percent, to $229.1 million
    from $215.4 million;
--  net segment EBITDAR increased $4.1 million, or 12.6 percent, to $36.6
    million from $32.5 million;
--  net segment EBITDAR margin for 2007 was 16.0 percent compared to 15.1
    percent in 2006;
--  net segment EBITDA increased $3.1 million, or 15.9 percent, to $22.5
    million from $19.4 million;
--  net segment EBITDA margin for 2007 was 9.8 percent compared to 9.0
    percent in 2006; and
--  net segment income increased $3.1 million, or 22.6 percent, to $16.8
    million from $13.7 million.
    
The revenue gain of $13.7 million was primarily attributable to:
--  an increase of $4.3 million in commercial revenue driven by higher
    rates and higher customer base which drove $3.4 million and $0.9 of the
    increase, respectively;
--  a 7.6 percent increase in our LTC Part A Medicare rates from $338.03
    in the first quarter 2006 to $363.87 in the first quarter 2007, or $4.1
    million in revenues;
--  a 4.2 percent increase in Medicaid rates or $4.2 million in revenue;
    and
--  a $1.1 million increase in Medicare part B revenue.
    

"The margin in our core business continued to expand primarily as a result of the increase in the acuity of the patients admitted to our facilities. Although the Medicare census increase was moderate, the increase in our rates was significant, resulting in an 80 basis-point improvement in Medicare revenues as a percent of total revenues. In addition, we are seeing positive movement in our commercial census and rates as well, reflecting the increasing acuity in that population. Those factors, along with an increase in the private pay category, improved our quality mix by 130 basis points. Sun on a stand-alone basis has opened 12 short-term rehabilitation units with eight more in development. Inclusive of Harborside, Sun has opened 29 short-term rehabilitation units with 11 more scheduled to open this year expanding our opportunity to improve mix going forward," said Matros.

Updated 2007 Guidance

The table below represents full year 2007 guidance for Sun. Sun has updated its 2007 guidance to incorporate the acquisition of Harborside in April 2007. The updated guidance is based on (1) Sun's previous guidance for 2007 results combined with (2) the anticipated results from the nine months of Harborside operations for 2007. Sun's updated guidance includes expected realization of approximately $6 million in synergies over the remaining nine months of 2007. Sun expects to realize synergies in the first 12 months after the acquisition of approximately $10 million, and synergies in the first 24 months of approximately $12 million to $15 million.

                        Guidance

                                      Low          High
                                  -----------  -----------
 Revenue
   Sun                            $   1,100.0  $   1,110.0
   Harborside                           505.0        509.0
                                  -----------  -----------
      Total                           1,605.0      1,619.0
                                  -----------  -----------

 EBITDAR
   Sun                                  110.0        114.0
   Harborside                            71.0         73.0
   Synergies                              6.0          6.0
                                  -----------  -----------
      Total                             187.0        193.0
                                  -----------  -----------

 EBITDA
   Sun                                   54.0         58.0
   Harborside                            51.0         53.0
   Synergies                              6.0          6.0
                                  -----------  -----------
      Total                             111.0        117.0
                                  -----------  -----------

 Depreciation and amortization           33.0         34.0

 Interest expense, net                   44.0         45.0

 Pre-tax                                 34.0         38.0

 Income taxes @ 35%                      11.9         13.3
                                  -----------  -----------

 Net Income                       $      22.1  $      24.7
                                  ===========  ===========

 Diluted weighted-average shares         44.0         44.0

 Diluted earnings per share       $      0.50  $      0.56

 EBITDAR Margin                          11.7%        11.9%

 EBITDA Margin                            6.9%         7.2%
As stated above, Sun's 2007 full-year guidance includes only nine months of impact from the Harborside acquisition. As such, Sun anticipates annual 12-month run rates for depreciation and amortization to be approximately $39 to $41 million and annual 12-month run rates for net interest expense to be approximately $56 to $59 million.

Conference Call

Sun's senior management will hold a conference call to discuss the Company's 2007 first-quarter operating results on Thursday, May 3, 2007, at 1 p.m. EDT / 10 a.m. PDT. To listen to the conference call, dial (877) 516-8526 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. EDT on May 3, 2007, until midnight EDT on May 10, 2007, by calling (800) 642-1687 and using access code 5416821.

About Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc., with executive offices in Irvine, California, owns SunBridge Healthcare Corporation and other affiliated companies that operate long-term and postacute care facilities in many states. In addition, the Sun Healthcare Group family of companies provides therapy through SunDance Rehabilitation Corporation, hospice services through SolAmor Hospice and medical staffing through CareerStaff Unlimited, Inc.

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. Factors that could cause actual results to differ are identified in the public filings made by the company with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; our ability to generate cash flow sufficient to operate our business and pay interest and other costs of the indebtedness incurred in our acquisition of Harborside Healthcare Corporation; our ability to integrate the operations of Harborside; increasing labor costs and the shortage of qualified healthcare personnel; and our ability to receive increases in reimbursement rates from government payors to cover increased costs. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which are available on Sun's web site, www.sunh.com.

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

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

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




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                        CONSOLIDATED BALANCE SHEETS
                              (in thousands)



                                                  March 31,   December 31,
                                                    2007          2006
                                                ------------- -------------

                        ASSETS

Current assets:
 Cash and cash equivalents                      $      99,670 $     131,935
 Restricted cash                                       28,081        32,752
 Accounts receivable, net                             114,499       117,091
 Assets held for sale                                   4,500         7,172
 Other current assets                                  14,495        10,324
                                                ------------- -------------

  Total current assets                                261,245       299,274

Property and equipment, net                           221,324       217,544
Restricted cash, non-current                           33,033        29,083
Goodwill                                               54,605        55,092
Intangible assets, net                                 12,309        13,691
Other assets, net                                       7,146         6,739
                                                ------------- -------------

  Total assets                                  $     589,662 $     621,423
                                                ============= =============


          LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable                               $      39,090 $      43,400
 Accrued compensation and benefits                     40,663        42,723
 Accrued self-insurance obligations, current           40,281        48,689
 Liabilities held for sale                              1,826         1,672
 Other accrued liabilities                             43,278        42,535
 Capital leases, current                                  618           494
 Current portion of long-term debt:
  Company obligations                                  12,815        22,780
  Clipper partnerships                                    786           736
                                                ------------- -------------

 Total current liabilities                            179,357       203,029

Accrued self-insurance obligations, net of
 current                                               89,121        81,559
Long-term debt, net of current portion:
 Company obligations                                   81,172       100,763
 Clipper partnerships                                  49,181        49,392
Other long-term liabilities                            42,112        42,547
                                                ------------- -------------

 Total liabilities                                    440,943       477,290

Stockholders' equity                                  148,719       144,133
                                                ------------- -------------
  Total liabilities and stockholders' equity    $     589,662 $     621,423
                                                ============= =============




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                               CONSOLIDATED
                         STATEMENTS OF OPERATIONS
                  (in thousands, except per share data)


                                                For the         For the
                                             Three Months    Three Months
                                                Ended           Ended
                                            March 31, 2007  March 31, 2006
                                            --------------  --------------
                                              (unaudited)     (unaudited)

Total net revenues                          $      273,569  $      256,756
                                            --------------  --------------
Costs and expenses:
 Operating salaries and benefits                   156,426         146,920
 Self-insurance for workers' compensation
  and general and professional liability
  insurance                                         10,564          12,672
 Operating administrative costs                      7,591           7,874
 Other operating costs                              56,612          55,465
 Facility rent expense                              14,379          13,390
 General and administrative expenses                12,832          11,645
 Depreciation                                        2,402           1,395
 Amortization                                        1,518           1,472
 Provision for losses on accounts
  receivable                                         2,440           1,448
 Interest, net                                       2,059           4,367
 Loss on extinguishment of debt, net                    19               -
 Loss on sale of assets, net                             7              13
                                            --------------  --------------
Total costs and expenses                           266,849         256,661
                                            --------------  --------------

Income before income taxes and discontinued
 operations                                          6,720              95
Income tax expense (benefit)                         2,368            (727)
                                            --------------  --------------
Income from continuing operations                    4,352             822
                                            --------------  --------------

Discontinued operations:
 (Loss) income from discontinued
  operations, net of related taxes                     (79)            383
 Loss on disposal of discontinued
  operations, net of related taxes                    (350)            (66)
                                            --------------  --------------
(Loss) income from discontinued operations,
 net                                                  (429)            317
                                            --------------  --------------

Net income                                  $        3,923  $        1,139
                                            ==============  ==============


Basic income per common and common
 equivalent share:
  Income from continuing operations         $         0.10  $         0.03
  (Loss) income from discontinued
   operations, net                                   (0.01)           0.01
                                            --------------  --------------
Net income                                  $         0.09  $         0.04
                                            ==============  ==============

Diluted income per common and common
 equivalent share:
  Income from continuing operations         $         0.10  $         0.03
  (Loss) income from discontinued
   operations, net                                   (0.01)           0.01
                                            --------------  --------------
Net Income                                  $         0.09  $         0.04
                                            ==============  ==============

Weighted average number of common and
 common equivalent shares outstanding:
  Basic                                             42,908          31,174
  Diluted                                           44,029          31,228



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


                                                For the         For the
                                             Three Months    Three Months
                                                Ended           Ended
                                            March 31, 2007  March 31, 2006
                                            --------------  --------------
                                              (unaudited)     (unaudited)

Cash flows from operating activities:
 Net income                                 $        3,923  $        1,139
 Adjustments to reconcile net income to net
  cash provided by operating activities,
  including discontinued operations:
    Depreciation                                     2,434           1,613
    Amortization                                     1,522           1,636
    Amortization of favorable and
     unfavorable lease intangibles                    (213)           (379)
    Provision for losses on accounts
     receivable                                      2,523           1,948
    Loss (gain) on disposal of discontinued
     operations, net                                   350              66
    Loss (gain) on sale of assets, net                   7              13
    Restricted stock and stock option
     compensation                                      750             544
    Other, net                                           2              25
    Changes in operating assets and
     liabilities, net of acquisitions               (9,727)        (13,724)
                                            --------------  --------------
    Net cash provided by operating
     activities                                      1,571          (7,119)
                                            --------------  --------------

Cash flows from investing activities:
 Capital expenditures, net                          (7,250)         (3,333)
 Proceeds from sale of assets held for sale          3,238               -
 Insurance proceeds received                             -            (236)
 Acquisitions, net                                       -             838
                                            --------------  --------------
    Net cash provided by (used for)
     investing activities                           (4,012)         (2,731)
                                            --------------  --------------

Cash flows from financing activities:
 Net payments under Revolving Loan
  Agreement                                              6          17,720
 Long-term debt repayments                         (29,607)         (7,694)
 Distribution of partnership equity                   (256)           (123)
 Principal payments under capital lease
  obligation                                          (540)              -
 Net proceeds from issuance of common stock
  from the exercise of employee
  stock options                                        573               -
                                            --------------  --------------
    Net cash provided by financing
     activities                                    (29,824)          9,903
                                            --------------  --------------

Net increase in cash and cash equivalents          (32,265)             53
Cash and cash equivalents at beginning of
 period                                            131,935          16,641
                                            --------------  --------------
Cash and cash equivalents at end of period  $       99,670  $       16,694
                                            ==============  ==============



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                For the         For the
                                             Three Months    Three Months
                                                Ended           Ended
                                            March 31, 2007  March 31, 2006
                                            --------------- --------------
                                              (unaudited)     (unaudited)

 Total net revenues                         $       273,569 $      256,756
                                            --------------- --------------

 Net income                                 $         3,923 $        1,139
                                            --------------- --------------

  Income from continuing operations                   4,352            822

  Income tax expense (benefit)                        2,368           (727)

  Loss on sale of assets, net                             7             13
                                            --------------  --------------

 Net segment income                         $         6,727 $          108

  Interest, net                                       2,059          4,367

  Depreciation and amortization                       3,920          2,867
                                            --------------- --------------

 EBITDA                                     $        12,706 $        7,342

  Facility rent expense                              14,379         13,390
                                            --------------- --------------

 EBITDAR                                    $        27,085 $       20,732

  Operating administrative costs                      7,591          7,874
  General and administrative expenses                12,832         11,645
                                            --------------- --------------
 Total operating and general and admin
  expenses                                           20,423         19,519

 EBITDAM                                    $        33,129 $       26,861
 EBITDARM                                   $        47,508 $       40,251



EBITDA is defined as earnings before income (loss) on discontinued
operations, income taxes, loss (gain) on sale of assets, net, loss on asset
impairment, restructuring costs, net, loss on contract termination,
interest, net, depreciation and amortization. EBITDAM is defined as EBITDA
before operating and general and administrative expenses. EBITDAR is
defined as EBITDA before facility rent expense. EBITDARM is defined as
EBITDAR before operating and general and administrative expenses. EBITDA,
EBITDAM, EBITDAR and EBITDARM 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. EBITDA, EBITDAM, EBITDAR and EBITDARM
are commonly used as analytical indicators within the healthcare industry
and also serve as measures of leverage capacity and debt service ability.
EBITDA, EBITDAM, EBITDAR and EBITDARM should not be considered as measures
of financial performance under generally accepted accounting principles.
As the items excluded from EBITDA, EBITDAM, EBITDAR and EBITDARM are
significant components in understanding and assessing financial
performance, EBITDA, EBITDAM, EBITDAR and EBITDARM should not be considered
in isolation or as alternatives to net income (loss), 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 EBITDA,
EBITDAM, EBITDAR and EBITDARM are not measurements determined in accordance
with U.S. generally accepted accounting principles and are thus susceptible
to varying calculations, EBITDA, EBITDAM, EBITDAR and EBITDARM as
presented may not be comparable to other similarly titled measures of other
companies.





             SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

  RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA(M) and EBITDAR(M)
                             ($ in thousands)

                For the Three Months Ended March 31, 2007
                                (unaudited)



                                                        Elimin-
                                                         ation
                                                          of
                         Rehab     Medical              Affili-
              Inpatient  Therapy   Staffing   Other &    ated     Consol-
              Services   Services  Services  Corp Seg   Revenue   idated
              ---------  --------  --------  ---------  -------  ---------

Nonaffiliated
 revenue      $ 229,135  $ 20,680  $ 23,747  $       7  $     -  $ 273,569

Affiliated
 revenue              -    10,262       187          -  (10,449)         -
              ---------  --------  --------  ---------  -------  ---------
  Total
   revenue      229,135    30,942    23,934          7  (10,449)   273,569

Net segment
 income
 (loss)       $  16,809  $  1,427  $  1,413  $ (12,922) $     -  $   6,727

Interest, net     2,480        10        15       (446)       -      2,059

Depreciation
 and
 amortization     3,199       116       169        436        -      3,920
              ---------  --------  --------  ---------  -------  ---------

  EBITDA      $  22,488  $  1,553  $  1,597  $ (12,932) $     -  $  12,706

Facility rent
 expense         14,130        50       199          -        -     14,379
              ---------  --------  --------  ---------  -------  ---------

  EBITDAR     $  36,618  $  1,603  $  1,796  $ (12,932) $     -  $  27,085

Operating and
 general and
 administrative
 expenses         5,306     1,257     1,026     12,834        -     20,423
              ---------  --------  --------  ---------  -------  ---------

   EBITDAM    $  27,794  $  2,810  $  2,623  $     (98) $     -  $  33,129
   EBITDARM   $  41,924  $  2,860  $  2,822  $     (98) $     -  $  47,508


EBITDA margin       9.8%      5.0%      6.7%                           4.6%

EBITDAM
 margin            12.1%      9.1%     11.0%                          12.1%

EBITDAR
 margin            16.0%      5.2%      7.5%                           9.9%

EBITDARM
 margin            18.3%      9.2%     11.8%                          17.4%





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

  RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA(M) and EBITDAR(M)
                             ($ in thousands)

                For the Three Months Ended March 31, 2006
                                (unaudited)



                                                         Elimi-
                                                         nation
                                                          of
                          Rehab     Medical              Affil-
              Inpatient   Therapy   Staffing  Other &    iated   Consolid-
              Services    Services  Services  Corp Seg   Revenue   ated
              ---------  ---------  --------  ---------  ------  ---------

Nonaffiliated
 revenue      $ 215,435  $  20,000  $ 21,318  $       3  $    -  $ 256,756

Affiliated
 revenue              -      9,384       129          -  (9,513)         -
              ---------  ---------  --------  ---------  ------  ---------
  Total
   revenue      215,435     29,384    21,447          3  (9,513)   256,756

Net segment
 income
 (loss)       $  13,732  $  (1,550) $    972  $ (13,046) $    -  $     108

Interest, net     3,433         (6)       36        904       -      4,367

Depreciation
 and
 amortization     2,189         89       187        402       -      2,867
              ---------  ---------  --------  ---------  ------  ---------

  EBITDA      $  19,354  $  (1,467) $  1,195  $ (11,740) $    -  $   7,342

Facility rent
 expense         13,118         58       214          -       -     13,390
              ---------  ---------  --------  ---------  ------  ---------

  EBITDAR     $  32,472  $  (1,409) $  1,409  $ (11,740) $    -  $  20,732

Operating and
 general and
 administrative
 expenses         4,309      2,667       895     11,648       -     19,519
              ---------  ---------  --------  ---------  ------  ---------

   EBITDAM    $  23,663  $   1,200  $  2,090  $     (92) $    -  $  26,861
   EBITDARM   $  36,781  $   1,258  $  2,304  $     (92) $    -  $  40,251


EBITDA margin       9.0%      -5.0%      5.6%                          2.9%

EBITDAM
 margin            11.0%       4.1%      9.7%                         10.5%

EBITDAR
 margin            15.1%      -4.8%      6.6%                          8.1%

EBITDARM
 margin            17.1%       4.3%     10.7%                         15.7%





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

    RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA AND EBITDAR
                          INPATIENT SERVICES ONLY
                             ($ in thousands)

                For the Three Months Ended March 31, 2007
                                (unaudited)


                                           Inpatient
                                Inpatient  Services                Total
                     Inpatient  Services-    before              Inpatient
                     Services   Overhead    Clipper   Clipper(1) Services
                     ---------  ---------  ---------  ---------  ---------

Non affiliated
 revenues            $ 229,135  $       -  $ 229,135  $       -  $ 229,135
                     ---------  ---------  ---------  ---------  ---------

Net segment income
 (loss)              $  22,436  $  (5,157) $  17,279  $    (470)    16,809

Interest, net            1,845          -      1,845        635      2,480

Depreciation and
 amortization            2,818          -      2,818        381      3,199
                     ---------  ---------  ---------  ---------  ---------
   EBITDA            $  27,099  $  (5,157) $  21,942  $     546  $  22,488

Facility rent
 expense                14,555          -     14,555       (425)    14,130
                     ---------  ---------  ---------  ---------  ---------

   EBITDAR           $  41,654  $  (5,157) $  36,497  $     121  $  36,618
                     =========  =========  =========  =========  =========

        EBITDA margin     11.8%                  9.6%                  9.8%
       EBITDAR margin     18.2%                 15.9%                 16.0%


(1) Clipper represents our interest of less than 16 percent in nine
    entities that are consolidated pursuant to the Financial Accounting
    Standards Board's revised Interpretation No. 46 Consolidation of
    Variable Interest Entities.  Sun began consolidating Clipper on
    July 1, 2004.




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

    RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA AND EBITDAR
                          INPATIENT SERVICES ONLY
                             ($ in thousands)

                For the Three Months Ended March 31, 2006
                                (unaudited)


                                           Inpatient
                                Inpatient  Services                Total
                     Inpatient  Services-    before              Inpatient
                     Services   Overhead    Clipper   Clipper(1) Services
                     ---------  ---------  ---------  ---------  ---------

Non affiliated
 revenues            $ 215,435  $       -  $ 215,435  $       -  $ 215,435
                     ---------  ---------  ---------  ---------  ---------

Net segment income
 (loss)              $  18,516  $  (4,365) $  14,151  $    (419) $  13,732

Interest, net            2,457          -      2,457        976      3,433

Depreciation and
 amortization            1,868          -      1,868        321      2,189
                     ---------  ---------  ---------  ---------  ---------
   EBITDA            $  22,841  $  (4,365) $  18,476  $     878  $  19,354

Facility rent
 expense                13,994          -     13,994       (876)    13,118
                     ---------  ---------  ---------  ---------  ---------

   EBITDAR           $  36,835  $  (4,365) $  32,470  $       2  $  32,472
                     =========  =========  =========  =========  =========

        EBITDA margin     10.6%                  8.6%                  9.0%
       EBITDAR margin     17.1%                 15.1%                 15.1%


(1) Clipper represents our interest of less than 12 percent in nine
    entities that are consolidated pursuant to the Financial Accounting
    Standards Board's revised Interpretation No. 46 Consolidation of
    Variable Interest Entities.  Sun began consolidating Clipper on
    July 1, 2004.



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


                                                      For the
                                                 Three Months Ended
                                                      March 31,
                                              ------------------------
                                                  2007         2006
                                              -----------  -----------
Number of available beds:
  Long Term Care                                   14,534       14,517
  Hospitals                                           192          192

Number of facilities:
  Long Term Care                                      138          145
  Hospitals                                             3            3


Occupancy %:
  Long Term Care                                     88.1%        88.1%
  Hospitals                                          54.3%        56.9%
  Inpatient Services                                 87.7%        87.7%




Payor Mix % based on patient days - LTC:
   Medicare - SNF only                               15.4%        15.3%
  Medicare                                           13.8%        13.8%
  Medicaid                                           59.8%        60.7%
  Private and other                                  23.1%        22.3%
  Commercial Insurance                                2.3%         2.2%
  Veterans                                            1.0%         1.0%


Payor Mix % based on patient days -
 Hospitals:
  Medicare                                           66.8%        68.8%
  Medicaid                                            6.8%         9.7%
  Private and other                                   0.0%         0.2%
  Commercial Insurance                               26.4%        21.3%
  Veterans                                            0.0%         0.0%


Payor Mix % based on patient days - Inpatient
 Services:
  Medicare                                           14.3%        14.2%
  Medicaid                                           59.4%        60.2%
  Private and other                                  22.8%        22.3%
  Commercial Insurance                                2.5%         2.3%
  Veterans                                            1.0%         1.0%




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

                                                      For the
                                                 Three Months Ended
                                                      March 31,
                                              ------------------------
                                                  2007         2006
                                              -----------  -----------

Revenue Mix % of revenues - LTC:
  Medicare                                           29.1%        28.3%
  Medicaid                                           47.2%        48.6%
  Private and other                                  18.7%        19.2%
  Commercial Insurance                                3.9%         2.9%
  Veterans                                            1.1%         1.0%


Revenue Mix % of revenues - Hospitals:
  Medicare                                           62.6%        73.2%
  Medicaid                                            5.5%         7.7%
  Private and other                                   0.9%         0.7%
  Commercial Insurance                               31.0%        18.4%
  Veterans                                            0.0%         0.0%



Revenue Mix % of revenues - Inpatient
 Services:
  Medicare                                           31.5%        31.3%
  Medicaid                                           44.6%        45.9%
  Private and other                                  17.5%        18.0%
  Commercial Insurance                                5.3%         3.8%
  Veterans                                            1.1%         1.0%



Revenues PPD - LTC:
  Medicare (Part A)                           $    363.87  $    338.03
  Medicaid                                    $    147.86  $    141.56
  Private and other                           $    146.88  $    144.19
  Commercial Insurance                        $    314.87  $    241.67
  Veterans                                    $    205.75  $    184.28


Revenues PPD - Hospitals:
  Medicare (Part A)                           $  1,175.37  $  1,222.41
  Medicaid                                    $  1,036.33  $    949.56
  Private and other                           $         -  $         -
  Commercial Insurance                        $  1,503.53  $  1,037.83
  Veterans                                    $         -  $         -


Revenues PPD - Inpatient Services:
  Medicare (Part A)                           $    405.10  $    380.21
  Medicaid                                    $    149.31  $    142.58
  Private and other                           $    146.94  $    144.27
  Commercial Insurance                        $    415.78  $    304.08
  Veterans                                    $    205.75  $    184.28




Revenues - Non-affiliated (in thousands):
 Inpatient Services:
  Medicare                                    $    72,226  $    67,336
  Medicaid                                        102,256       98,914
  Private and other                                54,653       49,185
                                              -----------  -----------
   Subtotal                                       229,135      215,435

  Rehabilitation Therapy Services                  20,680       20,000
  Medical Staffing Services                        23,747       21,318
                                              -----------  -----------
   Subtotal                                        44,427       41,318
                                              -----------  -----------

  Other - non-core businesses                           7            3
                                              -----------  -----------
    Total                                     $   273,569  $   256,756
                                              ===========  ===========



Rehab contracts:
 Affiliated - continuing                               87           98
 Non-affiliated                                       303          341

DSO (Days Sales Outstanding):
 Inpatient Services - LTC                              35           37
 Inpatient Services - Hospitals                        65           53
 Rehabilitation Therapy Services                       77           82
 Medical Staffing Services                             55           61

Contact Information

  • Contact:
    Investor Inquiries
    (505) 468-2341

    Media Inquiries
    (505) 468-4582