SOURCE: Sun Healthcare Group, Inc.

April 30, 2008 16:37 ET

Sun Healthcare Group, Inc. Reports First Quarter Results; Strongest Margins to Date

IRVINE, CA--(Marketwire - April 30, 2008) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the first quarter ended March 31, 2008.

Consolidated Results and Consolidated Pro Forma Results

Total net revenue for the quarter ended March 31, 2008, was $458.2 million, up 74 percent compared to $262.6 million for the same period one year ago. Net income for the quarter ended March 31, 2008, was $8.6 million, compared to net income of $3.9 million for the same period one year ago. Diluted earnings per share for the quarter ended March 31, 2008, was $0.19 ($0.21 normalized) compared to $0.09 ($0.14 normalized pro forma) for the same period one year ago.

The pro forma information in the table below was prepared as if the acquisition of Harborside Healthcare Corporation, which closed in April 2007, had occurred on Jan. 1, 2007. The table also contains the normalizing adjustments described in the text below.

                                            Actual Results
                                        -----------------------  ---------
 (Dollars in thousands)                 Quarter Ended March 31,  Pro Forma
                                        -----------------------  ---------
                                            2008        2007       2007
                                        -----------  ----------  ---------

 Revenue                                $   458,242  $  262,576  $ 425,143

 Depreciation and amortization                9,709       3,876      8,628

 Interest expense, net                       14,431       2,062      6,706

 Pre-tax income                              14,128       5,921      3,799

 Income tax expense                           5,654       2,368      1,548

 Income (loss) from continuing
  operations                                  8,474       3,553      2,251

 Income (loss) from discontinued
  operations                                    103         370       (195)
                                        -----------  ----------  ---------

                                        -----------  ----------  ---------
 Net income (loss)                      $     8,577  $    3,923  $   2,056
                                        ===========  ==========  =========

                                        -----------  ----------  ---------
 Diluted earnings per share             $      0.19  $     0.09  $    0.05
                                        ===========  ==========  =========


 EBITDAR                                $    56,995  $   25,296  $  39,524
                                        ===========  ==========  =========
    Margin - EBITDAR                           12.4%        9.6%       9.3%
                                        ===========  ==========  =========
 EBITDAR normalized                     $    58,464  $   25,445  $  46,000
                                        ===========  ==========  =========
    Margin - EBITDAR normalized                12.8%        9.7%      10.8%
                                        ===========  ==========  =========


 EBITDA                                 $    38,191  $   11,867  $  19,141
                                        ===========  ==========  =========
    Margin - EBITDA                             8.3%        4.5%       4.5%
                                        ===========  ==========  =========
 EBITDA normalized                      $    39,660  $   12,016  $  25,617
                                        ===========  ==========  =========
    Margin - EBITDA normalized                  8.7%        4.6%       6.0%
                                        ===========  ==========  =========


 Pre-tax income continuing operations -
  normalized                            $    15,597  $    6,070  $  10,275
                                        ===========  ==========  =========
 Income tax expense - normalized        $     6,242  $    2,420  $   3,814
                                        ===========  ==========  =========


 Income from continuing operations -
  normalized                            $     9,355  $    3,650  $   6,461
                                        ===========  ==========  =========
 Diluted earnings per share -
  normalized                            $      0.21  $     0.08  $    0.15
                                        ===========  ==========  =========


 Net income - normalized                $     9,458  $    4,020  $   6,266
                                        ===========  ==========  =========
 Diluted earnings per share -
  normalized                            $      0.21  $     0.09  $    0.14
                                        ===========  ==========  =========

Normalized actual results for the quarter ended March 31, 2008, include pre-tax adjustments for a $1.5 million charge related to integration costs associated with the Harborside acquisition. Normalized pro forma results for the quarter ended March 31, 2007, include pre-tax adjustments totaling $6.5 million, which were primarily related to a bad debt charge recorded by Harborside prior to the acquisition.

On a normalized pro forma basis, comparing the quarter ended March 31, 2008, to the same period in 2007:

--  revenue increased $33.1 million, or 7.8 percent;
--  EBITDAR increased $12.5 million, or 27.1 percent;
--  EBITDAR margin improved 200 basis points to 12.8 percent;
--  EBITDA increased $14.0 million, or 54.8 percent;
--  EBITDA margin improved 270 basis points to 8.7 percent;
--  pre-tax income from continuing operations increased $5.3 million, or
    51.8 percent;
--  our effective tax rate increased 290 basis points to 40.0 percent; and
--  income from continuing operations increased $2.9 million, or 44.8
    percent.
    

Commenting on the results, Richard K. Matros, chairman and chief executive officer of Sun, stated, "I am pleased with the continued strength of our operating results, particularly our ability to improve margins on a same store basis. Our margins are the strongest we've experienced to date, with normalized EBITDAR margins up 200 basis points to 12.8 percent and EBITDA margins up 270 basis points to 8.7 percent, resulting in normalized EPS for the quarter of $0.21, up 44.8 percent. These results were driven by our ongoing success in the execution of initiatives focused on providing care for patients with higher acuity, as well as the ongoing integration activities related to the Harborside acquisition. Throughout the quarter, these integration activities yielded $4.4 million in synergies, bringing our total synergies resulting from the acquisition of Harborside to $10.8 million. We expect to hit the high end of our $12 to $15 million in synergies by year end 2008."

Inpatient Business

For its core inpatient business, on a normalized pro-forma basis (assuming the Harborside acquisition occurred at the beginning of 2007) comparing the quarter ended March 31, 2008, to the same period in 2007:

Quarter ended March 31, 2008 (pro forma):

--  revenue increased $28.1 million, or 7.4 percent, to $406.8 million
    from $378.7 million;
--  net segment EBITDAR increased $10.4 million, or 17.5 percent, to $69.9
    million from $59.5 million;
--  net segment EBITDAR margin for 2008 was 17.2 percent compared to 15.7
    percent in 2007;
--  net segment EBITDA increased $12.0 million, or 30.5 percent, to $51.4
    million from $39.4 million;
--  net segment EBITDA margin for 2008 was 12.6 percent compared to 10.4
    percent in 2007;
--  net segment income increased $15.0 million, or 61.5 percent, to $39.4
    million from $24.4 million;
--  rehabilitation RUGS utilization increased 110 basis points to 84.2
    percent as a percent of total Medicare days; and
--  Rehabilitation Extensive Service ("REX") Days as a percent of total
    Medicare days increased 200 basis points to 40.6 percent.
    

The revenue gain of $28.1 million in the quarter was primarily attributed to a:

--  $14.2 million increase in Medicare revenue due principally to Medicare
    customer base, part A rate growth, and part B volume growth;
--  $7.7 million increase in managed care/commercial insurance revenue due
    principally to an increased customer base;
--  $2.9 million increase in Medicaid revenue resulting from an $8.1
    million rate improvement partially offset by a $5.2 million impact from a
    decrease in customer base; and
--  $3.3 million increase in private revenue due principally to improved
    rates.
    

Matros further stated, "The shift in acuity in our skilled nursing beds continues to yield positive results for the company with the current quarter showing our strongest Medicare and skilled mix to date at 16.6 percent and 20.4 percent, respectively. The company had 38 Rehab Recovery Suites(SM) open at the end of the quarter. We expect to have a minimum of 50 open by the end of 2008. In terms of other critical initiatives, the company has rolled out its new clinical systems. This roll-out was the result of a side-by-side analysis of Sun's and Harborside's systems, upgrading to a system that blends the best of both companies. Our inpatient operations will be further enhanced by the implementation of an electronic medical record system, which will be a major IT initiative beginning in the latter part of this year." Matros continued, "It is our firm belief that these initiatives will improve the clinical outcomes for our patients and residents, which is the right way to improve returns to all our stakeholders."

Ancillary Businesses

For its ancillary businesses, on a pro-forma basis (assuming the Harborside acquisition occurred at the beginning of 2007) comparing the quarter ended March 31, 2008, to the same period in 2007:

--  revenue increased $8.7 million, or 15.1 percent, to $66.2 million from
    $57.5 million; and
--  EBITDA increased $1.3 million, or 41.9 percent, to $4.4 million from
    $3.1 million.
    

Conference Call

Sun's senior management will hold a conference call to discuss the Company's 2008 first-quarter operating results on Thursday, May 1, 2008, at 10 a.m. Pacific / 1 p.m. Eastern. To listen to the conference call, dial (866) 288-0540 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on May 1, 2008, until midnight Eastern on May 15, 2008, by calling (888) 203-1112 and using access code 3387483.

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 centers 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; our ability to maintain the occupancy rates and payor mix at our long-term care centers; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; the significant amount of our indebtedness, covenants in our debt agreements that may restrict our activities and our ability to incur more indebtedness; our ability to integrate the operations of Harborside and realize anticipated synergies; 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 Forms 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 normalizing 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, except share data)

                                                   March 31,   December 31,
                                                     2008         2007
                                                  -----------  -----------

                    ASSETS

Current assets:
  Cash and cash equivalents                       $    62,882  $    55,832
  Restricted cash                                      37,926       37,365
  Accounts receivable, net                            201,082      188,882
  Other receivables, net                                1,256        1,635
  Prepaid expenses and other assets                    16,206       11,655
  Assets held for sale                                 10,727        9,924
  Deferred tax asset                                   36,579       35,354
                                                  -----------  -----------
    Total current assets                              366,658      340,647

Property and equipment, net                           583,090      585,972
Intangible assets, net                                 55,347       57,044
Goodwill                                              324,277      324,277
Restricted cash, non-current                            3,263        3,829
Deferred tax assets                                    48,838       51,892
Other assets                                            6,475       10,165
                                                  -----------  -----------
    Total assets                                  $ 1,387,948  $ 1,373,826
                                                  ===========  ===========


       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                               $     51,246 $     52,836
  Accrued compensation and benefits                    63,070       61,956
  Accrued self-insurance obligations, current          51,365       48,646
  Income taxes payable                                  3,480        3,000
  Liabilities held for sale                             3,411        3,181
  Other accrued liabilities                            64,500       58,002
  Current portion of long-term debt and capital
   lease obligations:
    Company obligations                                30,979       28,480
    Clipper partnerships                                  845          825
                                                  -----------  -----------
  Total current liabilities                           268,896      256,926

Accrued self-insurance obligations, net of
 current portion                                      105,766      106,534
Long-term debt and capital lease obligations, net
 of current portion:
  Company obligations                                 646,120      651,403
  Clipper partnerships                                 48,336       48,560
Unfavorable lease obligations, net                     18,148       18,960
Other long-term liabilities                            45,725       44,717
                                                  -----------  -----------
  Total liabilities                                 1,132,991    1,127,100

  Minority interest                                       577          470

Stockholders' equity:
  Preferred stock of $.01 par value, authorized
   10,000,000 shares, no shares were issued and
   outstanding as of March 31, 2008 and December
   31, 2007                                                 -            -
  Common stock of $.01 par value, authorized
   125,000,000 shares, 43,022,398 and
   43,016,042 shares issued and outstanding as
   of March 31, 2008 and December 31, 2007,
   respectively                                           430          430
  Additional paid-in capital                          601,467      600,199
  Accumulated deficit                                (343,393)    (351,970)
  Accunulated other comprehensive loss, net            (4,124)      (2,403)
                                                  -----------  -----------
                                                      254,380      246,256
                                                  -----------  -----------
    Total liabilities and stockholders' equity    $ 1,387,948  $ 1,373,826
                                                  ===========  ===========




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                For the         For the
                                             Three Months    Three Months
                                                Ended           Ended
                                            March 31, 2008  March 31, 2007
                                            --------------  --------------
                                              (unaudited)     (unaudited)

Total net revenues                          $      458,242  $      262,576
                                            --------------  --------------
Costs and expenses:
  Operating salaries and benefits                  258,737         152,275
  Self-insurance for workers' compensation
   and general and professional liability
   insurance                                        15,202          10,289
  Operating administrative costs                    11,939           7,591
  Other operating costs                             95,420          52,145
  Center rent expense                               18,804          13,429
  General and administrative expenses               16,586          12,832
  Depreciation and amortization                      9,709           3,876
  Provision for losses on accounts
   receivable                                        3,363           2,148
  Interest, net of interest income of $545
   and $1,186, respectively                         14,431           2,062
  (Gain) loss on sale of assets, net                   (77)              8
                                            --------------  --------------
Total costs and expenses                           444,114         256,655
                                            --------------  --------------

Income before income taxes and discontinued
 operations                                         14,128           5,921
Income tax expense                                   5,654           2,368
                                            --------------  --------------
Income from continuing operations                    8,474           3,553
                                            --------------  --------------

Discontinued operations:
  Income from discontinued operations, net
   of related taxes                                    165             720
  Loss on disposal of discontinued
   operations, net of related taxes                    (62)           (350)
                                            --------------  --------------
Income from discontinued operations, net               103             370
                                            --------------  --------------

Net income                                  $        8,577  $        3,923
                                            ==============  ==============


Basic income per common and common
 equivalent share:
  Income from continuing operations         $         0.20  $         0.08
  Income from discontinued operations, net               -            0.01
                                            --------------  --------------
Net income                                  $         0.20  $         0.09
                                            ==============  ==============

Diluted income per common and common
 equivalent share:
  Income from continuing operations         $         0.19  $         0.08
  Income from discontinued operations, net               -            0.01
                                            --------------  --------------
Net Income                                  $         0.19  $         0.09
                                            ==============  ==============

Weighted average number of common and
 common equivalent shares outstanding:
  Basic                                             43,067          42,908
  Diluted                                           44,474          44,029




                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, 2008  March 31, 2007
                                            --------------  --------------
                                              (unaudited)     (unaudited)

Cash flows from operating activities:
  Net income                                 $        8,577  $        3,923
  Adjustments to reconcile net income to
   net cash provided by operating
   activities, including discontinued
   operations:
    Depreciation and amortization                    9,717           3,956
    Amortization of favorable and
     unfavorable lease intangibles                    (503)           (213)
    Provision for losses on accounts
     receivable                                      3,301           2,523
    (Gain) loss on sale of assets,
     including discontinued operations, net            (15)            357
    Stock-based compensation expense                   965             750
    Deferred taxes                                   1,829               -
    Minority interest                                  107               -
    Other                                                -               2
  Changes in operating assets and
   liabilities:
    Accounts receivable                            (15,501)         (2,050)
    Other receivables                                  368             537
    Restricted cash                                      5             721
    Prepaid expenses and other assets               (5,702)         (6,558)
    Assets and liabilities held for sale              (528)              -
    Accounts payable                                (1,598)         (3,925)
    Accrued compensation and benefits                1,114          (1,666)
    Accrued self-insurance obligations               1,951            (846)
    Income taxes payable                               470           2,426
    Other accrued liabilities                        6,528           1,230
    Other long-term liabilities                      1,679             404
                                            --------------  --------------
      Net cash provided by operating
       activities                                   12,764           1,571
                                            --------------  --------------

Cash flows from investing activities:
  Capital expenditures                              (5,916)         (7,250)
  Proceeds from sale of assets held for sale         3,777           3,238
  Acquisitions                                        (307)              -
                                            --------------  --------------
    Net cash used for investing activities          (2,446)         (4,012)
                                            --------------  --------------

Cash flows from financing activities:
  Net borrowings under Credit Agreement                  -               6
  Long-term debt repayments                         (2,820)        (29,607)
  Principal payments under capital lease
   obligations                                        (264)           (540)
  Proceeds from issuance of common stock                39             573
  Distribution of partnership equity                  (223)           (256)
                                            --------------  --------------
    Net cash used for financing activities          (3,268)        (29,824)
                                            --------------  --------------

Net increase (decrease) in cash and cash
 equivalents                                         7,050         (32,265)
Cash and cash equivalents at beginning of
 period                                             55,832         131,935
                                            --------------  --------------
Cash and cash equivalents at end of period  $       62,882  $       99,670
                                            ==============  ==============




                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, 2008  March 31, 2007
                                            --------------  ---------------
                                              (unaudited)     (unaudited)

 Total net revenues                         $      458,242  $       262,576
                                            --------------  ---------------

 Net income                                 $        8,577  $         3,923
                                            --------------  ---------------

    Income from continuing operations                8,474            3,553

    Income tax expense                               5,654            2,368

    (Gain) loss on sale of assets, net                 (77)               8
                                            --------------  ---------------

 Net segment income                         $       14,051  $         5,929

    Interest, net                                   14,431            2,062

    Depreciation and amortization                    9,709            3,876
                                            --------------  ---------------

 EBITDA                                     $       38,191  $        11,867

    Center rent expense                             18,804           13,429
                                            --------------  ---------------

 EBITDAR                                    $       56,995  $        25,296

    Operating administrative costs                  11,939            7,591
    General and administrative expenses             16,586           12,832
                                            --------------  ---------------
 Total operating and general and admin
  expenses                                          28,525           20,423

 EBITDAM                                    $       66,716  $        32,290
 EBITDARM                                   $       85,520  $        45,719


EBITDA is defined as earnings before income (loss) on discontinued
operations, income taxes, loss (gain) on sale of assets, net, 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, 2008
                                (unaudited)


                          Rehabil-                     Elimination
                          itation    Medical               of
               Inpatient  Therapy   Staffing  Other &  Affiliated  Consoli-
                Services  Services  Services  Corp Seg  Revenue     dated
                --------  --------  --------  --------  --------  --------
Nonaffiliated
 revenue        $406,853  $ 21,710  $ 29,668  $     11  $      -  $458,242
Affiliated
 revenue               -    14,291       533         -   (14,824)        -
                --------  --------  --------  --------  --------  --------
  Total revenue  406,853    36,001    30,201        11   (14,824)  458,242

Net segment
 income (loss)  $ 38,481  $  2,128  $  1,932  $(28,490) $      -  $ 14,051
Interest, net      3,318         -        (1)   11,114         -    14,431
Depreciation and
 amortization      8,701       126       195       687         -     9,709
                --------  --------  --------  --------  --------  --------

  EBITDA        $ 50,500  $  2,254  $  2,126  $(16,689) $      -  $ 38,191
Center rent
 expense          18,470        86       248         -         -    18,804
                --------  --------  --------  --------  --------  --------

  EBITDAR       $ 68,970  $  2,340  $  2,374  $(16,689) $      -  $ 56,995

Operating and
 general and
 administrative
 expenses          9,512     1,617       811    16,585         -    28,525
                --------  --------  --------  --------  --------  --------

  EBITDAM       $ 60,012  $  3,871  $  2,937  $   (104) $      -  $ 66,716
  EBITDARM      $ 78,482  $  3,957  $  3,185  $   (104) $      -  $ 85,520


   EBITDA margin    12.4%      6.3%      7.0%                          8.3%
  EBITDAM margin    14.8%     10.8%      9.7%                         14.6%
  EBITDAR margin    17.0%      6.5%      7.9%                         12.4%
 EBITDARM margin    19.3%     11.0%     10.5%                         18.7%



                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)


                          Rehabil-                     Elimination
                          itation    Medical               of
               Inpatient  Therapy   Staffing  Other &  Affiliated  Consoli-
                Services  Services  Services  Corp Seg  Revenue     dated
                --------  --------  --------  --------  --------  --------
Nonaffiliated
 revenue        $218,142  $ 20,680  $ 23,747  $      7  $      -  $262,576
Affiliated
 revenue               -    10,262       187         -   (10,449)        -
                --------  --------  --------  --------  --------  --------
  Total revenue  218,142    30,942    23,934         7   (10,449)  262,576

Net segment
 income (loss)  $ 16,011  $  1,427  $  1,413  $(12,922) $      -  $  5,929
Interest, net      2,483        10        15      (446)        -     2,062
Depreciation and
 amortization      3,155       116       169       436         -     3,876
                --------  --------  --------  --------  --------  --------

  EBITDA        $ 21,649  $  1,553  $  1,597  $(12,932) $      -  $ 11,867
Center rent
 expense          13,180        50       199         -         -    13,429
                --------  --------  --------  --------  --------  --------

  EBITDAR       $ 34,829  $  1,603  $  1,796  $(12,932) $      -  $ 25,296
Operating and
 general and
 administrative
 expenses          5,306     1,257     1,026    12,834         -    20,423
                --------  --------  --------  --------  --------  --------

  EBITDAM       $ 26,955  $  2,810  $  2,623  $    (98) $      -  $ 32,290
  EBITDARM      $ 40,135  $  2,860  $  2,822  $    (98) $      -  $ 45,719


   EBITDA margin     9.9%      5.0%      6.7%                          4.5%
  EBITDAM margin    12.4%      9.1%     11.0%                         12.3%
  EBITDAR margin    16.0%      5.2%      7.5%                          9.6%
 EBITDARM margin    18.4%      9.2%     11.8%                         17.4%



                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, 2008
                                (unaudited)


                    Inpatient
                    Services
                        -     Inpatient
          Inpatient Overhead  Services          Inpatient           Total
           Services    w/o     before           Services          Inpatient
             w/o     Harbor- Clipper &  Clipper  before              Serv-
          Harborside  side   Harborside  (1)  Harborside Harborside  ices
           --------  -------  --------  -----  --------  -------- --------

Non
 affiliated
 revenues  $237,582  $     -  $237,582  $   -  $237,582  $169,271 $406,853
           --------  -------  --------  -----  --------  -------- --------

Net segment
 income
 (loss)    $ 28,133  $(7,783) $ 20,350  $(304) $ 20,046  $ 18,435 $ 38,481
Interest,
 net          1,590        -     1,590    830     2,420       898    3,318
Depreciation
 and amortiza-
 tion         3,763        -     3,763    316     4,079     4,622    8,701
           --------  -------  --------  -----  --------  -------- --------
  EBITDA   $ 33,486  $(7,783) $ 25,703  $ 842  $ 26,545  $ 23,955 $ 50,500

Center rent
 expense     14,505        -    14,505   (733)   13,772     4,698   18,470
           --------  -------  --------  -----  --------  -------- --------

  EBITDAR  $ 47,991  $(7,783) $ 40,208  $ 109  $ 40,317  $ 28,653 $ 68,970
           ========  =======  ========  =====  ========  ======== ========

     EBITDA
     margin    14.1%              10.8%            11.2%              12.4%
    EBITDAR
     margin    20.2%              16.9%            17.0%              17.0%

(1) Clipper represents our interest of 34.0 percent at March 31, 2008
    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, 2007
                                (unaudited)


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

Non affiliated
 revenues            $ 218,142  $       -  $ 218,142  $       -  $ 218,142
                     ---------  ---------  ---------  ---------  ---------

Net segment income
 (loss)              $  21,638  $  (5,157) $  16,481  $    (470) $  16,011
Interest, net            1,848          -      1,848        635      2,483
Depreciation and
 amortization            2,774          -      2,774        381      3,155
                     ---------  ---------  ---------  ---------  ---------
  EBITDA             $  26,260  $  (5,157) $  21,103  $     546  $  21,649

Center rent expense     13,605          -     13,605       (425) $  13,180
                     ---------  ---------  ---------  ---------  ---------

  EBITDAR            $  39,865  $  (5,157) $  34,708  $     121  $  34,829
                     =========  =========  =========  =========  =========

        EBITDA margin     12.0%                  9.7%                  9.9%
       EBITDAR margin     18.3%                 15.9%                 16.0%

(1) Clipper represents our interest of 15.5 percent at March 31, 2007 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,
                                            -------------------------
                                              2008            2007
Consolidated Company

Revenues - Non-affiliated (in thousands)
  Inpatient Services                          406,853         218,142
  Rehabilitation Therapy Services              21,710          20,680
  Medical Staffing Services                    29,668          23,747
  Other - non-core businesses                      11               7
                                            ---------       ---------
     Total                                  $ 458,242       $ 262,576
                                            =========       =========


Revenue Mix - Non-affiliated (in thousands)
   Medicare                                   131,639   29%    67,189   26%
   Medicaid                                   182,623   40%   101,650   39%
   Private & Other                            117,750   25%    82,621   31%
   Managed Care / Comm Insur                   22,607    5%     8,706    3%
   Veterans                                     3,623    1%     2,410    1%
                                            ---------  ---  ---------  ---
     Total                                  $ 458,242  100% $ 262,576  100%
                                            =========  ===  =========  ===


DSO (Days Sales Outstanding)
  Inpatient Services - LTC                         42              36
  Rehabilitation Therapy Services                  74              77
  Medical Staffing Services                        57              55


Inpatient Services Stats

  Number of centers:                              213             139
  Number of available beds:                    23,165          14,473
  Occupancy %:                                   89.1%           88.6%


  Payor Mix % based on patient days:
      Medicare - SNF Beds                        16.6%           15.8%
      Managed care / comm. ins. - SNF Beds        3.8%            2.7%
                                            ---------       ---------
        Total SNF skilled mix                    20.4%           18.5%
                                            ---------       ---------
    Medicare                                     15.1%           13.8%
    Medicaid                                     59.2%           59.9%
    Private and other                            21.3%           23.0%
    Managed care / commercial insurance           3.5%            2.3%
    Veterans                                      0.9%            1.0%

  Revenue Mix % of revenues:
      Medicare - SNF Beds                        32.7%           31.9%
      Managed care / comm. ins. - SNF Beds        5.8%            4.3%
                                            ---------       ---------
        Total SNF skilled mix                    38.5%           36.2%
                                            ---------       ---------
    Medicare                                     31.7%           30.0%
    Medicaid                                     44.9%           46.6%
    Private and other                            17.0%           18.3%
    Managed care / commercial Insurance           5.5%            4.0%
    Veterans                                      0.9%            1.1%

  Revenues PPD:
    LTC only Medicare (Part A)              $  411.37       $  365.70
    Medicare Blended Rate (Part A & B)      $  440.79       $  395.82
    Medicaid                                $  165.90       $  148.53
    Private and other                       $  170.70       $  146.90
    Managed care / commercial Insurance     $  343.15       $  320.43
    Veterans                                $  209.22       $  205.75


Rehab contracts

  Affiliated                                      106              87
  Non-affiliated                                  312             303


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                        PRO FORMA WITH HARBORSIDE
                               CONSOLIDATED
                            INCOME STATEMENTS
                  (in thousands, except per share data)

                                                            PRO FORMA WITH
                                              AS REPORTED     HARBORSIDE

                                                For the         For the
                                             Three Months    Three Months
                                                Ended           Ended
                                            March 31, 2008  March 31, 2007
                                            --------------  --------------
                                              (unaudited)     (unaudited)

Total net revenues                          $      458,242  $      425,143
                                            --------------  --------------
Costs and expenses:
   Operating salaries and benefits                 258,737         241,345
   Self-insurance for workers' compensation
    and general and professional liability
    insurance                                       15,202          14,386
   Operating administrative costs                   11,939          10,581
   Other operating costs                            95,420          91,006
   Center rent expense                              18,804          20,383
   General and administrative expenses              16,586          18,231
   Depreciation and amortization                     9,709           8,628
   Provision for losses on accounts
    receivable                                       3,363          10,070
   Interest, net                                    14,431           6,706
   (Gain) loss on sale of assets, net                  (77)              8
                                            --------------  --------------
Total costs and expenses                           444,114         421,344
                                            --------------  --------------

Income before income taxes and discontinued
 operations                                         14,128           3,799
Income tax expense                                   5,654           1,548
                                            --------------  --------------
Income from continuing operations                    8,474           2,251
                                            --------------  --------------

Discontinued operations:
   Income from discontinued operations, net
    of related taxes                                   165             155
   Loss on disposal of discontinued
    operations, net of related taxes                   (62)           (350)
                                            --------------  --------------
Income (loss) from discontinued operations,
 net                                                   103            (195)
                                            --------------  --------------

Net income                                  $        8,577  $        2,056
                                            ==============  ==============


Basic income per common and common
 equivalent share:
   Income from continuing operations        $         0.20  $         0.05
   Income from discontinued operations, net              -               -
                                            --------------  --------------
Net income                                  $         0.20  $         0.05
                                            ==============  ==============

Diluted income per common and common
 equivalent share:
   Income from continuing operations        $         0.19  $         0.05
   Income from discontinued operations, net              -               -
                                            --------------  --------------
Net Income                                  $         0.19  $         0.05
                                            ==============  ==============

Weighted average number of common and
 common equivalent shares outstanding:
   Basic                                            43,067          42,907
   Diluted                                          44,474          44,029



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
                        PRO FORMA WITH HARBORSIDE
         RECONCILIATION OF NET INCOME TO EBITDA(M) and EBITDAR(M)
                              (in thousands)

                                                            PRO FORMA
                                       AS REPORTED             WITH
                                                            HARBORSIDE

                                         For the              For the
                                    Three Months Ended   Three Months Ended
                                      March 31, 2008       March 31, 2007
                                    ------------------  -------------------
                                       (unaudited)          (unaudited)

 Total net revenues                 $          458,242  $           425,143
                                    ------------------  -------------------

 Net income                         $            8,577  $             2,056
                                    ------------------  -------------------

   Income from continuing
    operations                                   8,474                2,251

   Income tax expense                            5,654                1,548

   (Gain) loss on sale of assets,
    net                                            (77)                   8
                                    ------------------  -------------------

 Net segment income                 $           14,051  $             3,807

   Interest, net                                14,431                6,706

   Depreciation and amortization                 9,709                8,628
                                    ------------------  -------------------

 EBITDA                             $           38,191  $            19,141

   Center rent expense                          18,804               20,383
                                    ------------------  -------------------

 EBITDAR                            $           56,995  $            39,524

   Operating administrative costs               11,939               10,581
   General and administrative
    expenses                                    16,586               18,231
                                    ------------------  -------------------
 Total operating and general and
  admin expenses                                28,525               28,812

 EBITDAM                            $           66,716  $            47,953
 EBITDARM                           $           85,520  $            68,336


EBITDA is defined as earnings before income (loss) on discontinued
operations, income taxes, loss (gain) on sale of assets, net, 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, 2008
                               (unaudited)


                          Rehabil-                     Elimination
                          itation    Medical               of
               Inpatient  Therapy   Staffing  Other &  Affiliated  Consoli-
                Services  Services  Services  Corp Seg  Revenue     dated
                --------  --------  --------  --------  --------  --------
Nonaffiliated
 revenue        $406,853  $ 21,710  $ 29,668  $     11  $      -  $458,242
Affiliated
 revenue               -    14,291       533         -   (14,824)        -
                --------  --------  --------  --------  --------  --------
  Total revenue  406,853    36,001    30,201        11   (14,824)  458,242

Net segment
 income (loss)  $ 38,481  $  2,128  $  1,932  $(28,490) $      -  $ 14,051
Interest, net      3,318         -        (1)   11,114         -    14,431
Depreciation and
 amortization      8,701       126       195       687         -     9,709
                --------  --------  --------  --------  --------  --------

  EBITDA        $ 50,500  $  2,254  $  2,126  $(16,689) $      -  $ 38,191
Center rent
 expense          18,470        86       248         -         -    18,804
                --------  --------  --------  --------  --------  --------

  EBITDAR       $ 68,970  $  2,340  $  2,374  $(16,689) $      -  $ 56,995
Operating and
 general and
 administrative
 expenses          9,512     1,617       811    16,585         -    28,525
                --------  --------  --------  --------  --------  --------

  EBITDAM       $ 60,012  $  3,871  $  2,937  $   (104) $      -  $ 66,716
  EBITDARM      $ 78,482  $  3,957  $  3,185  $   (104) $      -  $ 85,520


   EBITDA margin    12.4%      6.3%      7.0%                          8.3%
  EBITDAM margin    14.8%     10.8%      9.7%                         14.6%
  EBITDAR margin    17.0%      6.5%      7.9%                         12.4%
 EBITDARM margin    19.3%     11.0%     10.5%                         18.7%



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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


                          Rehabil-                     Elimination
                          itation    Medical               of
               Inpatient  Therapy   Staffing  Other &  Affiliated  Consoli-
                Services  Services  Services  Corp Seg  Revenue     dated
                --------  --------  --------  --------  --------  --------
Nonaffiliated
 revenue        $378,748  $ 20,679  $ 26,391  $      7  $   (682) $425,143
Affiliated
 revenue               -    10,262       187         -   (10,449)        -
                --------  --------  --------  --------  --------  --------
  Total revenue  378,748    30,941    26,578         7   (11,131)  425,143

Net segment
 income (loss)  $ 24,447  $  1,427  $  1,348  $(24,228) $    813  $  3,807
Interest, net      7,410        10        14      (742)       14     6,706
Depreciation and
 amortization      7,581       116       185       746         -     8,628
                --------  --------  --------  --------  --------  --------

  EBITDA        $ 39,438  $  1,553  $  1,547  $(24,224) $    827  $ 19,141
Center rent
 expense          20,109        50       224         -         -    20,383
                --------  --------  --------  --------  --------  --------

  EBITDAR       $ 59,547  $  1,603  $  1,771  $(24,224) $    827  $ 39,524
Operating and
 general and
 administrative
 expenses          2,439     1,257     1,026    24,090         -    28,812
                --------  --------  --------  --------  --------  --------

  EBITDAM       $ 41,877  $  2,810  $  2,573  $   (134) $    827  $ 47,953
  EBITDARM      $ 61,986  $  2,860  $  2,797  $   (134) $    827  $ 68,336


   EBITDA margin    10.4%      5.0%      5.8%                          4.5%
  EBITDAM margin    11.1%      9.1%      9.7%                         11.3%
  EBITDAR margin    15.7%      5.2%      6.7%                          9.3%
 EBITDARM margin    16.4%      9.2%     10.5%                         16.1%



                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, 2008
                                (unaudited)


                    Inpatient
                    Services
                        -     Inpatient
          Inpatient Overhead  Services          Inpatient           Total
           Services    w/o     before           Services          Inpatient
             w/o     Harbor- Clipper &  Clipper  before              Serv-
          Harborside  side   Harborside  (1)  Harborside Harborside  ices
           --------  -------  --------  -----  --------  -------- --------

Non
 affiliated
 revenues  $237,582  $     -  $237,582  $   -  $237,582  $169,271 $406,853
           --------  -------  --------  -----  --------  -------- --------

Net segment
 income
 (loss)    $ 28,133  $(7,783) $ 20,350  $(304) $ 20,046  $ 18,435 $ 38,481
Interest,
 net          1,590        -     1,590    830     2,420       898    3,318
Depreciation
 and amortiz-
 ation        3,763        -     3,763    316     4,079     4,622    8,701
  EBITDA   $ 33,486  $(7,783) $ 25,703  $ 842  $ 26,545  $ 23,955 $ 50,500

Center rent
 expense     14,505        -    14,505   (733)   13,772     4,698   18,470
           --------  -------  --------  -----  --------  -------- --------

  EBITDAR  $ 47,991  $(7,783) $ 40,208  $ 109  $ 40,317  $ 28,653 $ 68,970
           ========  =======  ========  =====  ========  ======== ========

     EBITDA
     margin   14.1%              10.8%            11.2%              12.4%
    EBITDAR
     margin   20.2%              16.9%            17.0%              17.0%

(1) Clipper represents our interest of 34.0 percent at March 31, 2008
    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
                        PRO FORMA WITH HARBORSIDE
    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
                    Services
                        -     Inpatient
          Inpatient Overhead  Services          Inpatient           Total
           Services    w/o     before           Services          Inpatient
             w/o     Harbor- Clipper &  Clipper  before              Serv-
          Harborside  side   Harborside  (1)  Harborside Harborside  ices
           --------  -------  --------  -----  --------  -------- --------

Non
 affiliated
 revenues  $218,142  $     -  $218,142  $   -  $218,142  $160,606 $378,748
           --------  -------  --------  -----  --------  -------- --------

Net segment
 income
 (loss)    $ 21,638  $(5,157) $ 16,481  $(470) $ 16,011  $  8,436 $ 24,447
Interest,
 net          1,848        -     1,848    635     2,483     4,927    7,410
Depreciation
 and amortiz-
 ation        2,774        -     2,774    381     3,155     4,426    7,581
  EBITDA   $ 26,260  $(5,157) $ 21,103  $ 546  $ 21,649  $ 17,789 $ 39,438

Center rent
 expense     13,605        -    13,605   (425)   13,180     6,929   20,109
           --------  -------  --------  -----  --------  -------- --------

  EBITDAR  $ 39,865  $(5,157) $ 34,708  $ 121  $ 34,829  $ 24,718 $ 59,547
           ========  =======  ========  =====  ========  ======== ========

     EBITDA
     margin    12.0%               9.7%             9.9%              10.4%
    EBITDAR
     margin    18.3%              15.9%            16.0%              15.7%

(1) Clipper represents our interest of 15.5 percent at March 31, 2007 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,
                                                           PRO FORMA
                                                              WITH
                                        AS REPORTED        HARBORSIDE
                                        -----------       -----------
                                            2008              2007
Consolidated Company

Revenues - Non-affiliated (in
 thousands)
  Inpatient Services                        406,853           378,748
  Rehabilitation Therapy Services            21,710            20,679
  Medical Staffing Services                  29,668            26,391
  Other - non-core businesses                    11              (675)
                                        -----------       -----------
    Total                               $   458,242       $   425,143
                                        ===========       ===========


Revenue Mix - Non-affiliated (in
 thousands)
   Medicare                                 131,639   29%     116,431   27%
   Medicaid                                 182,623   40%     180,227   42%
   Private & Other                          117,750   25%     110,404   27%
   Managed Care / Comm Insur                 22,607    5%      14,709    3%
   Veterans                                   3,623    1%       3,372    1%
                                        -----------  ---  -----------  ---
    Total                               $   458,242  100% $   425,143  100%
                                        ===========  ===  ===========  ===


DSO (Days Sales Outstanding)
 Inpatient Services - LTC                        42                42
 Rehabilitation Therapy Services                 74                77
 Medical Staffing Services                       57                54

Inpatient Services Stats

 Number of centers:                             213               213
 Number of available beds:                   23,165            23,210
 Occupancy %:                                  89.1%             89.5%


 Payor Mix % based on patient days:
   Medicare - SNF Beds                         16.6%             16.0%
   Managed care / comm. ins. - SNF Beds         3.8%              2.7%
                                        -----------       -----------
       Total SNF skilled mix                   20.4%             18.7%
                                        -----------       -----------
  Medicare                                     15.1%             14.6%
  Medicaid                                     59.2%             61.3%
  Private and other                            21.3%             21.1%
  Managed care / commercial Insurance           3.5%              2.2%
  Veterans                                      0.9%              0.8%

 Revenue Mix % of revenues:
   Medicare - SNF Beds                         32.7%             31.5%
   Managed care / comm. Ins. - SNF Beds         5.8%              4.1%
                                        -----------       -----------
       Total SNF skilled mix                   38.5%             35.6%
                                        -----------       -----------
  Medicare                                     31.7%             30.3%
  Medicaid                                     44.9%             47.6%
  Private and other                            17.0%             17.3%
  Managed care / commercial Insurance           5.5%              3.9%
  Veterans                                      0.9%              0.9%


 Revenues PPD:
  LTC only Medicare (Part A)            $    411.37       $    381.14
  Medicare Blended Rate (Part A & B)    $    440.79       $    410.04
  Medicaid                              $    165.90       $    159.07
  Private and other                     $    170.70       $    164.54
  Managed care / commercial Insurance   $    343.15       $    316.35
  Veterans                              $    209.22       $    220.65


Rehab contracts

 Affiliated                                     106                87
 Non-affiliated                                 312               303


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

             NORMALIZING ADJUSTMENTS - 4th QUARTER COMPARISON
                  (in thousands, except per share data)


                             AS REPORTED - 1st QUARTER 2008
             ==============================================================
                                                 Income
                                                  from
                                               Continuing    Disc     Net
             Revenue EBITDAR  EBITDA  Pre-tax  Operations    Ops    Income
             ------- -------  ------  -------  ----------  -------  ------

As Reported
 1st QUARTER
 2008        458,242  56,995  38,191   14,128       8,474      103   8,577
Percent of
 Revenue                12.4%    8.3%     3.1%        1.8%     0.0%    1.9%
Normalizing
 Adjustments
Harborside
 integration
 costs             -   1,469   1,469    1,469         881        -     881
             ------- -------  ------  -------  ----------  -------  ------
Adjusted As
 Reported -
 1st QUARTER
 2008        458,242  58,464  39,660   15,597       9,355      103   9,458
             ======= =======  ======  =======  ==========  =======  ======
  Percent of
     Revenue            12.8%    8.7%     3.4%        2.0%     0.0%    2.1%

Diluted EPS:
 As Reported                                   $     0.19  $     -  $ 0.19
 As Adjusted                                   $     0.21  $     -  $ 0.21





                             AS REPORTED - 1st QUARTER 2007
             ==============================================================
                                                 Income
                                                  from
                                               Continuing    Disc     Net
             Revenue EBITDAR  EBITDA  Pre-tax  Operations    Ops    Income
             ------- -------  ------  -------  ----------  -------  ------

As Reported
 - 1st
 QUARTER
 2007        262,576  25,296  11,867    5,921       3,553      370   3,923
Percent of
 Revenue                 9.6%    4.5%     2.3%        1.4%     0.1%    1.5%
Normalizing
 Adjustments:
Harborside
 integration
 costs             -     149     149      149          97        -      97
             ------- -------  ------  -------  ----------  -------  ------

Adjusted As
 Reported -
 1st QUARTER
 2007        262,576  25,445  12,016    6,070       3,650      370   4,020
             ======= =======  ======  =======  ==========  =======  ======
  Percent of
     Revenue             9.7%    4.6%     2.3%        1.4%     0.1%    1.5%

Diluted EPS:
 As Reported                                   $     0.08  $  0.01  $ 0.09
 As Adjusted                                   $     0.08  $  0.01  $ 0.09







                     PRO FORMA SUN & HARBORSIDE - 1st QUARTER 2007
             ==============================================================
                                                 Income
                                                  from
                                               Continuing    Disc     Net
             Revenue EBITDAR  EBITDA  Pre-tax  Operations    Ops    Income
             ------- -------  ------  -------  ----------  -------  ------

Pro Forma
 Sun &
 Harborside
 - 1st
 QUARTER
 2007        425,143  39,524  19,141    3,799       2,251     (195)  2,056
Percent of
 Revenue                 9.3%    4.5%     0.9%        0.5%     0.0%    0.5%
Normalizing
 Adjustments:
Harborside
 integration
 costs             -     149     149      149          97        -      97
Harborside
 investor
 fees              -     275     275      275         179        -     179
Harborside
 bad debt
 expense           -   5,860   5,860    5,860       3,809        -   3,809
Harborside
 merger
 costs             -     192     192      192         125        -     125
             ------- -------  ------  -------  ----------  -------  ------

Adjusted Pro
 Forma Sun &
 Harborside
 - 1st
 QUARTER
 2007        425,143  46,000  25,617   10,275       6,461     (195)  6,266
             ======= =======  ======  =======  ==========  =======  ======
  Percent of
     Revenue            10.8%    6.0%     2.4%        1.5%     0.0%    1.5%

Diluted EPS:
 Pro Forma                                     $     0.05  $     -  $ 0.05
 Adjusted
  Pro Forma                                    $     0.15  $ (0.01) $ 0.14


See definitions of EBITDA and EBITDAR on Reconciliation of Net Income to
EBITDA(M) and EBITDAR(M) stated previously in the As Reported section for
the three and twelve months December 31.

Normalizing adjustments are transactions or adjustments not related to
ongoing operations, including integration costs related to the Harborside
acquisition, a bad debt charge associated with acquired accounts receivable
from a prior period acquisition, and investor fees and merger costs
recorded by Harborside prior to the acquisition.

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

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