SOURCE: Sun Healthcare Group, Inc.

March 05, 2008 17:20 ET

Sun Healthcare Group, Inc. Reports Fourth Quarter Results; Ends Year on Strong Note

IRVINE, CA--(Marketwire - March 5, 2008) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the fourth quarter and year ended Dec. 31, 2007.

Consolidated Results and Consolidated Pro Forma Results

Total net revenue for the quarter ended Dec. 31, 2007, was $450.5 million, up 74 percent compared to $258.4 million for the comparable period one year ago. Net income for the quarter ended Dec. 31, 2007, was $35.4 million, compared to net income of $19.9 million for the comparable 2006 period. Diluted earnings per share for the quarter ended Dec. 31, 2007, was $0.79 compared to the $0.60 for the comparable period one year ago. In the quarter ended Dec. 31, 2007, the Company recorded a credit of $77.8 million associated with the partial reversal of a valuation allowance on a deferred tax asset. The $77.8 million credit included $30.7 million of income tax benefit reflected on the Company's income statement and $47.1 million of credits recorded directly to the balance sheet, principally increasing the Company's equity accounts. The partial reversal in 2007 was based on the Company's history of profitability and the continuation of this profitability in the foreseeable future. Sun's continued profitability in 2008 will likely result in additional income from the reversal of the remaining deferred tax asset valuation allowance. 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 Oct. 1, 2006. The information in the table also contains the normalizing adjustments described below.

                                          Actual Results
                                     ------------------------  -----------
 (Dollars in thousands)               Quarter Ended Dec. 31,    Pro Forma
                                     ------------------------  -----------
                                        2007         2006         2006
                                     -----------  -----------  -----------

 Revenue                             $   450,549  $   258,436  $   421,365

 Depreciation and amortization             7,893        3,212        7,943

 Interest expense, net                    15,479        4,364        8,980

 Pre-tax income                           14,298        6,390       11,636

 Income tax benefit                      (22,789)      (2,622)        (274)

 Income (loss) from continuing
  operations                              37,087        9,012       11,910

 Income (loss) from discontinued
  operations                              (1,735)      10,853       10,463
                                     -----------  -----------  -----------

                                     -----------  -----------  -----------
 Net income (loss)                   $    35,352  $    19,865  $    22,373
                                     ===========  ===========  ===========

                                     -----------  -----------  -----------
 Diluted earnings per share          $      0.79  $      0.60  $      0.50
                                     ===========  ===========  ===========

                                     -----------  -----------  -----------
 EBITDAR                             $    59,576  $    28,134  $    49,578
                                     ===========  ===========  ===========
    Margin - EBITDAR                       13.2%        10.9%        11.8%
                                     ===========  ===========  ===========
 EBITDAR normalized                  $    55,665  $    25,411  $    47,274
                                     ===========  ===========  ===========
    Margin - EBITDAR normalized            12.4%         9.8%        11.2%
                                     ===========  ===========  ===========

                                     -----------  -----------  -----------

                                     -----------  -----------  -----------
 EBITDA                              $    40,843  $    13,982  $    28,576
                                     ===========  ===========  ===========
    Margin - EBITDA                         9.1%         5.4%         6.8%
                                     ===========  ===========  ===========
 EBITDA normalized                   $    36,932  $    11,259  $    26,272
                                     ===========  ===========  ===========
    Margin - EBITDA normalized              8.2%         4.4%         6.2%
                                     ===========  ===========  ===========

                                     -----------  -----------  -----------
 Pre-tax income continuing
  operations - normalized            $    13,560  $     3,667  $     9,332
                                     ===========  ===========  ===========
 Income tax expense (benefit) -
  normalized                         $     4,779  $    (2,751) $      (288)
                                     ===========  ===========  ===========

                                     -----------  -----------  -----------
 Income from continuing operations -
  normalized                         $     8,781  $     6,418  $     9,620
                                     ===========  ===========  ===========
 Diluted earnings per share -
  normalized                         $      0.20  $      0.19  $      0.22
                                     ===========  ===========  ===========

                                     -----------  -----------  -----------
 Net income - normalized             $     6,489  $    14,011  $    16,823
                                     ===========  ===========  ===========
 Diluted earnings per share -
  normalized                         $      0.15  $      0.42  $      0.38
                                     ===========  ===========  ===========

Normalized actual results for the quarter ended Dec. 31, 2007 include pre-tax adjustments for $2.3 million of income from a settlement of a claim associated with a prior period acquisition, $3.5 million of income from adjustments of prior period self-insurance reserves ($0.9 million of which were related to discontinued operations), a $3.2 million charge associated with the refinancing of debt agreements and a charge of $1.0 million related to integration costs associated with the Harborside acquisition. Normalized actual results for the quarter ended Dec. 31, 2006 include

pre-tax adjustments for $9.7 million of income from adjustments of prior period self-insurance reserves ($3.4 million of which were related to discontinued operations), a $2.8 million bad debt charge associated with acquired accounts receivable from a prior period acquisition and a $0.8 million charge to write-down a management fee receivable associated with a terminated management agreement. Normalized pro forma results for the quarter ended Dec. 31, 2006 include the three 2006 adjustments referred to above and also include adjustments for $0.2 million of Harborside merger costs and $0.2 million of costs related to Harborside investor fees.

On a normalized pro forma basis, comparing the quarter ended Dec. 31, 2007, to the same period in 2006:

--  revenue increased $29.2 million, or 6.9 percent;
--  EBITDAR increased $8.4 million, or 17.7 percent;
--  EBITDAR margin improved 120 basis points to 12.4 percent;
--  EBITDA increased $10.7 million, or 40.6 percent;
--  EBITDA margin improved 200 basis points to 8.2 percent;
--  pre-tax income from continuing operations increased $4.2 million, or
    45.3 percent;
--  income tax expense increased $5.1 million, or more than 100 percent;
    and
--  income from continuing operations decreased by $0.8 million, or 8.7
    percent as a direct result of increased income tax expense.
    

Commenting on the results, Richard K. Matros, chairman and chief executive officer of Sun, stated, "We are pleased that we have ended our best year on a strong note with $0.20 normalized EPS for the fourth quarter. For the year, we came in a penny shy of the high end of our upwardly revised November 2007 guidance at $0.63 EPS, which was $0.11 better than the high side of our original 2007 guidance. The guidance we issued last month for 2008 reflects confidence in our ability to continue to move margins on a same store basis. Our first quarter 2008 skilled mix trends are strong. The Harborside integration is proceeding as expected with an additional $2.8 million in synergies hitting the bottom line in the fourth quarter of 2007, bringing our total synergies realized for the year to $6.4 million. We expect to have a total of $10 million in synergies by the end of the first quarter of 2008 and expect to hit the high end of our $12 to $15 million in synergies by year end 2008. We will continue to focus in 2008 on margin improvement, integration activities, company wide process improvement initiatives, and activities that will result in a deleveraging of the balance sheet."

Total net revenue for the year ended Dec. 31, 2007 was $1,587.3 million, up 58 percent compared to $1,004.9 million for the comparable 2006 period. Net income for the year ended Dec. 31, 2007 was $57.5 million compared to net income of $27.1 million for 2006. Diluted earnings per share for the year ended Dec. 31, 2007, was $1.33 compared to $0.85 in 2006. The pro forma information in the table below was prepared as if the Harborside acquisition had occurred on Jan. 1, 2006. The information in the table also contains the normalizing adjustments described below.

                             Actual Results           Pro Forma Results
                        ------------------------  ------------------------
 (Dollars in thousands)    Year Ended Dec. 31,       Year Ended Dec. 31,
                        ------------------------  ------------------------
                            2007         2006         2007         2006
                        -----------  -----------  -----------  -----------

 Revenue                $ 1,587,307  $ 1,004,897  $ 1,749,874  $ 1,647,838

 Depreciation and
  amortization               31,537       14,708       36,289       32,505

 Interest expense, net       44,380       18,504       49,025       33,851

 Pre-tax income              45,217       12,178       43,095       31,367

 Income tax expense
  (benefit)                 (11,458)        (214)     (12,278)       4,245

 Income from continuing
  operations                 56,675       12,392       55,373       27,122

 Income from
  discontinued
  operations                    835       14,726          271       12,885
                        -----------  -----------  -----------  -----------

                        -----------  -----------  -----------  -----------
 Net income             $    57,510  $    27,118  $    55,644  $    40,007
                        ===========  ===========  ===========  ===========

                        -----------  -----------  -----------  -----------
 Diluted earnings per
  share                 $      1.33  $      0.85  $      1.28  $      0.92
                        ===========  ===========  ===========  ===========

                        -----------  -----------  -----------  -----------
 EBITDAR                $   196,343  $    99,502  $   210,572  $   181,113
                        ===========  ===========  ===========  ===========
    Margin - EBITDAR          12.4%         9.9%        12.0%        11.0%
                        ===========  ===========  ===========  ===========
 EBITDAR normalized     $   189,964  $    90,817  $   210,520  $   175,582
                        ===========  ===========  ===========  ===========
    Margin - EBITDAR
     normalized               12.0%         9.0%        12.0%        10.7%
                        ===========  ===========  ===========  ===========

                        -----------  -----------  -----------  -----------
 EBITDA                 $   124,330  $    46,537  $   131,605  $    98,871
                        ===========  ===========  ===========  ===========
    Margin - EBITDA            7.8%         4.6%         7.5%         6.0%
                        ===========  ===========  ===========  ===========
 EBITDA normalized      $   117,951  $    37,852  $   131,553  $    93,340
                        ===========  ===========  ===========  ===========
    Margin - EBITDA
     normalized                7.4%         3.8%         7.5%         5.7%
                        ===========  ===========  ===========  ===========

                        -----------  -----------  -----------  -----------
 Pre-tax income
  continuing operations
  - normalized          $    42,626  $     5,509  $    46,831  $    27,852
                        ===========  ===========  ===========  ===========
 Income tax expense
  (benefit) -
  normalized            $    15,461  $      (531) $    16,855  $     4,792
                        ===========  ===========  ===========  ===========

                        -----------  -----------  -----------  -----------
 Income from continuing
  operations -
  normalized            $    27,165  $     6,040  $    29,976  $    23,060
                        ===========  ===========  ===========  ===========
 Diluted earnings per
  share - normalized    $      0.63  $      0.19  $      0.69  $      0.53
                        ===========  ===========  ===========  ===========

                        -----------  -----------  -----------  -----------
 Net income -
  normalized            $    25,464  $    15,007  $    27,711  $    30,186
                        ===========  ===========  ===========  ===========
 Diluted earnings per
  share - normalized    $      0.59  $      0.47  $      0.64  $      0.70
                        ===========  ===========  ===========  ===========

Normalized actual results for the 2007 fiscal year include pre-tax adjustments for $4.5 million of integration costs associated with the Harborside acquisition, $12.5 million of income from adjustments of prior period self-insurance reserves ($3.9 million of which were related to discontinued operations), $2.3 million of income from a settlement of a claim associated with a prior period acquisition, and $3.8 million in charges associated with the refinancing of debt agreements. Normalized actual results for the 2006 fiscal year include pre-tax adjustments consisting of $17.7 million of income from adjustments of prior period self-insurance reserves ($6.0 million of which were related to discontinued operations), $0.2 million of retroactive wage costs related to prior period rate increases in California, a $2.8 million bad debt charge associated with acquired accounts receivable from a prior period acquisition, a $0.8 million charge to write-down a management fee receivable associated with a terminated management agreement, a $0.8 million credit to workers' compensation expense as a result of the finalization of insurance reserves related to a prior period acquisition, a $1.0 million charge related to the termination of a hospice management contract and a $1.0 million charge related to additional depreciation associated with a prior period acquisition.

Normalized pro forma results for the 2007 fiscal year include the 2007 adjustments referred to above and also include a $5.9 million charge for losses on prior period Harborside accounts receivable and $0.5 million of costs related to Harborside investor fees and merger costs. Normalized pro forma results for the 2006 fiscal year include the 2006 adjustments referred to above and also include adjustments of $2.6 million for Harborside merger costs and $0.6 million for costs related to Harborside investor fees.

On a normalized pro forma basis, comparing the 2007 year to the 2006 year:

--  revenue increased $102.0 million, or 6.2 percent;
--  EBITDAR increased $34.9 million, or 19.9 percent;
--  EBITDAR margin improved 130 basis points to 12.0 percent;
--  EBITDA increased $38.2 million, or 40.9 percent;
--  EBITDA margin improved 180 basis points to 7.5 percent;
--  pre-tax income from continuing operations increased $19.0 million, or
    68.1 percent;
--  income tax expense increased $12.1 million, or more than 100 percent;
    and
--  income from continuing operations increased by $6.9 million, or 30.0
    percent.
    

Inpatient Business

For its core inpatient business, on a normalized pro forma basis (assuming the Harborside acquisition occurred at the beginning of the respective periods) comparing the quarter and year ended Dec. 31, 2007 to the same periods in 2006:

Quarter ended Dec. 31, 2007 (pro forma):

--  revenue increased $24.7 million, or 6.6 percent, to $401.3 million
    from $376.6 million;
--  net segment EBITDAR increased $5.3 million, or 8.6 percent, to $67.2
    million from $61.8 million;
--  net segment EBITDAR margin for 2007 was 16.7 percent compared to 16.4
    percent in 2006;
--  net segment EBITDA increased $7.6 million, or 18.5 percent, to $48.7
    million from $41.1 million;
--  net segment EBITDA margin for 2007 was 12.1 percent compared to 10.9
    percent in 2006;
--  net segment income increased $13.6 million, or 52.0 percent, to $39.8
    million from $26.2 million;
--  rehabilitation RUGS utilization increased 260 basis points to 84.9
    percent as a percent of total Medicare days; and
--  Rehabilitation Extensive Service ("REX") days as a percent of total
    Medicare days increased 240 basis points to 39.5 percent.
    

The revenue gain of $24.7 million in the quarter was primarily attributable to:

--  a $10.7 million increase in Medicare revenue due principally to
    Medicare part A rate growth and part B volume growth;
--  a $3.3 million increase in managed care/commercial insurance revenue
    due principally to a higher customer base;
--  a $5.3 million increase in Medicaid revenue resulting from a $8.3
    million rate improvement partially offset by a $3.0 million impact from a
    decrease in customer base; and
--  a $5.4 million increase in private revenue due principally to improved
    rates.
    

Year ended Dec. 31, 2007 (pro forma):

--  revenue increased $87.4 million, or 5.9 percent, to $1,557.6 million
    from $1,470.2 million;
--  net segment EBITDAR increased $28.9 million, or 12.3 percent, to
    $262.9 million from $234.1 million;
--  net segment EBITDAR margin for 2007 was 16.9 percent compared to 15.9
    percent in 2006;
--  net segment EBITDA increased $32.1 million, or 21.0 percent, to $185.1
    million from $152.9 million;
--  net segment EBITDA margin for 2007 was 11.9 percent compared to 10.4
    percent in 2006; and
--  net segment income increased $40.6 million, or 41.7 percent, to $137.9
    million from $97.3 million.
    

Matros further stated, "The shift in acuity continues to be our primary focus in our inpatient segment. This focus is across all of our nursing centers with a particular emphasis on the development of our Rehab Recovery Suites (RRS(SM)). The company had 33 RRS open at year end. We expect to have 38 open by the end of the first quarter with two more shortly thereafter, and anticipate at least 50 units open by the end of 2008. We are particularly pleased with the fourth quarter's growth in Medicare and skilled mix both in terms of occupancy and as a percent of revenues. As expected we rebounded from the slight softness in Medicare occupancy we experienced in the second and third quarters of last year. This positive mix trend is continuing in 2008. We will continue to refine and execute our quality of care initiatives with an intensity that reflects the highest of priorities."

Ancillary Businesses

For its ancillary businesses, on a pro forma basis (assuming the Harborside acquisition occurred at the beginning of the respective periods) comparing the quarter and year ended Dec. 31, 2007 to the same periods in 2006:

--  for the quarter, revenue increased $8.1 million, or 14.7 percent, to
    $62.9 million from $54.8 million;
--  for the quarter, EBITDA increased $0.9 million, or 21.2 percent, to
    $5.1 million from $4.2 million;
--  for the twelve month period, revenue increased $24.3 million, or 11.2
    percent, to $240.9 million from $216.7 million; and
--  for the twelve month period, EBITDA increased $6.0 million, or 53.2
    percent, to $17.2 million from $11.2 million.
    

Conference Call

Sun's senior management will hold a conference call to discuss the Company's 2007 fourth-quarter operating results on Thursday, Mar. 6, 2008, at 10 a.m. Pacific / 1 p.m. Eastern. 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. Eastern on Mar. 6, 2008, until midnight Eastern on Mar. 13, 2008, by calling (800) 642-1687 and using access code 33305495.

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; 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/A and Quarterly Reports on Forms 10-Q/A and 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)


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

                      ASSETS

Current assets:
   Cash and cash equivalents                    $      55,832 $     131,935
   Restricted cash                                     37,365        32,752
   Accounts receivable, net                           188,882       117,091
   Assets held for sale                                 9,924         7,172
   Other current assets                                48,644        10,324
                                                ------------- -------------
      Total current assets                            340,647       299,274

Property and equipment, net                           585,972       217,544
Restricted cash, non-current                            3,829        29,083
Goodwill                                              324,277        55,092
Intangible assets, net                                 57,044        13,691
Other assets, net                                      10,165         6,739
Deferred tax assets                                    51,892             -
                                                ------------- -------------
      Total assets                              $   1,373,826 $     621,423
                                                ============= =============


     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                             $      52,836 $      43,400
   Accrued compensation and benefits                   61,956        42,723
   Accrued self-insurance obligations, current         48,646        48,689
   Liabilities held for sale                            3,181         1,672
   Other accrued liabilities                           61,002        42,535
   Capital leases, current                                856           494
   Current portion of long-term debt:
      Company obligations                              27,624        22,780
      Clipper partnerships                                825           736
                                                ------------- -------------
   Total current liabilities                          256,926       203,029

Accrued self-insurance obligations, net of
 current                                              106,534        81,559
Long-term debt, net of current portion:
      Company obligations                             651,403       100,763
      Clipper partnerships                             48,560        49,392
Other long-term liabilities                            63,677        42,547
                                                ------------- -------------
   Total liabilities                                1,127,100       477,290

   Minority interest                                      470             -

Stockholders' equity                                  246,256       144,133
                                                ------------- -------------
      Total liabilities and stockholders'
       equity                                   $   1,373,826 $     621,423
                                                ============= =============



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


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

Total net revenues                              $    450,549  $    258,436
                                                ------------  ------------
Costs and expenses:
   Operating salaries and benefits                   255,657       150,970
   Self-insurance for workers' compensation and
    general and professional liability insurance      11,373         3,307
   Operating administrative costs                     11,601         6,977
   Other operating costs                              94,159        50,373
   Center rent expense                                18,733        14,152
   General and administrative expenses                17,826        13,504
   Depreciation                                        4,646         1,717
   Amortization                                        3,247         1,495
   Provision for losses on accounts receivable           357         5,171
   Interest, net                                      15,479         4,364
   Loss on extinguishment of debt, net                 3,173             -
   Loss on sale of assets, net                             -            16
                                                ------------  ------------
Total costs and expenses                             436,251       252,046
                                                ------------  ------------

Income before income taxes and discontinued
 operations                                           14,298         6,390
Income tax benefit                                   (22,789)       (2,622)
                                                ------------  ------------
Income from continuing operations                     37,087         9,012
                                                ------------  ------------

Discontinued operations:
   (Loss) income from discontinued operations,
    net of related taxes                                (909)        3,274
   (Loss) gain on disposal of discontinued
    operations, net of related taxes                    (826)        7,579
                                                ------------  ------------
(Loss) income from discontinued operations, net       (1,735)       10,853
                                                ------------  ------------

Net income                                      $     35,352  $     19,865
                                                ============  ============


Basic income per common and common equivalent
 share:
   Income from continuing operations            $       0.86  $       0.28
   (Loss) income from discontinued operations,
    net                                                (0.04)         0.33
                                                ------------  ------------
Net income                                      $       0.82  $       0.61
                                                ============  ============

Diluted income per common and common equivalent
 share:
   Income from continuing operations            $       0.83  $       0.27
   (Loss) income from discontinued operations,
    net                                                (0.04)         0.33
                                                ------------  ------------
Net Income                                      $       0.79  $       0.60
                                                ============  ============

Weighted average number of common and common
 equivalent shares outstanding:
   Basic                                              43,174        32,750
   Diluted                                            44,528        33,069



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                  For the       For the
                                                 Year Ended    Year Ended
                                                December 31,  December 31,
                                                    2007          2006
                                                ------------  ------------
                                                  (audited)     (audited)

Total net revenues                              $  1,587,307  $  1,004,897
                                                ------------  ------------
Costs and expenses:
   Operating salaries and benefits                   902,347       582,783
   Self-insurance for workers' compensation and
    general and professional liability insurance      45,878        32,271
   Operating administrative costs                     39,953        27,986
   Other operating costs                             328,535       201,509
   Center rent expense                                72,013        52,965
   General and administrative expenses                64,834        49,856
   Depreciation                                       21,878         8,640
   Amortization                                        9,659         6,068
   Provision for losses on accounts receivable         9,417        10,990
   Interest, net                                      44,380        18,504
   Loss on extinguishment of debt, net                 3,173             -
   Loss on sale of assets, net                            23           172
   Loss on contract termination                            -           975
                                                ------------  ------------
Total costs and expenses                           1,542,090       992,719
                                                ------------  ------------

Income before income taxes and discontinued
 operations                                           45,217        12,178
Income tax benefit                                   (11,458)         (214)
                                                ------------  ------------
Income from continuing operations                     56,675        12,392
                                                ------------  ------------

Discontinued operations:
   Income from discontinued operations, net of
    related taxes                                      1,035         7,522
   (Loss) gain on disposal of discontinued
    operations, net of related taxes                    (200)        7,204
                                                ------------  ------------
Income from discontinued operations, net                 835        14,726
                                                ------------  ------------

Net income                                      $     57,510  $     27,118
                                                ============  ============


Basic income per common and common equivalent
 share:
   Income from continuing operations            $       1.34  $       0.39
   Income from discontinued operations, net             0.02          0.47
                                                ------------  ------------
Net income                                      $       1.36  $       0.86
                                                ============  ============

Diluted income per common and common equivalent
 share:
   Income from continuing operations            $       1.31  $       0.39
   Income from discontinued operations, net             0.02          0.46
                                                ------------  ------------
Net Income                                      $       1.33  $       0.85
                                                ============  ============

Weighted average number of common and common
 equivalent shares outstanding:
   Basic                                              42,350        31,638
   Diluted                                            43,390        31,788



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


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

Cash flows from operating activities:
   Net income                                   $     35,352  $     19,865
   Adjustments to reconcile net income to net
    cash provided by (used for) operating
    activities, including discontinued
    operations:
   Loss on extinguishment of debt, net                 3,173             -
   Depreciation                                        4,646         1,717
   Amortization                                        3,247         1,495
   Amortization of favorable and unfavorable
    lease intangibles                                   (713)          321
   Provision for losses on accounts receivable           565         5,566
   Loss (gain) on disposal of discontinued
    operations, net                                      827        (7,562)
   Stock based compensation expense                      994           587
   Deferred taxes                                    (33,582)            -
   Other, net                                           (226)           53
   Changes in operating assets and liabilities,
    net of acquisitions                               (8,443)      (15,514)
                                                ------------  ------------
      Net cash provided by operating activities        5,840         6,528
                                                ------------  ------------

Cash flows from investing activities:
   Capital expenditures, net                         (10,123)       (8,075)
   Exercise of real estate purchase options          (23,242)            -
   Proceeds from sale of assets held for sale          1,600        21,067
   Acquisitions                                      (10,956)            -
                                                ------------  ------------
     Net cash (used for) provided by investing
      activities                                     (42,721)       12,992
                                                ------------  ------------

Cash flows from financing activities:
   Net repayments under credit agreement                   -       (25,061)
   Long-term debt borrowings                          20,000        34,300
   Long-term debt repayments                         (12,668)      (35,021)
   Principal payments under capital lease
    obligations                                         (204)         (251)
   Net proceeds from issuance of common stock            678       121,741
   Distribution of partnership equity and
    minority interest                                   (146)          (24)
                                                ------------  ------------
     Net cash provided by financing activities         7,660        95,684
                                                ------------  ------------

Net (decrease) increase in cash and cash
 equivalents                                         (29,221)      115,204
Cash and cash equivalents at beginning of
 period                                               85,053        16,731
                                                ------------  ------------
Cash and cash equivalents at end of period      $     55,832  $    131,935
                                                ============  ============



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


                                                  For the       For the
                                                   Twelve        Twelve
                                                Months Ended  Months Ended
                                                December 31,  December 31,
                                                    2007          2006
                                                ------------  ------------
                                                  (audited)     (audited)

Cash flows from operating activities:
   Net income                                   $     57,510  $     27,118
   Adjustments to reconcile net income to net
    cash provided by (used for) operating
    activities, including discontinued
    operations:
   Loss on extinguishment of debt, net                 3,173             -
   Depreciation                                       22,043         9,569
   Amortization                                        9,758         6,822
   Amortization of favorable and unfavorable
    lease intangibles                                 (1,315)         (813)
   Provision for losses on accounts receivable        10,345        12,781
   Loss (gain) on disposal of discontinued
    operations, net                                      224        (7,032)
   Stock based compensation expense                    3,678         2,326
   Deferred taxes                                    (33,581)            -
   Other, net                                           (766)           69
   Changes in operating assets and liabilities,
    net of acquisitions                               12,768       (41,021)
                                                ------------  ------------
      Net cash provided by operating activities       83,837         9,819
                                                ------------  ------------

Cash flows from investing activities:
   Capital expenditures, net                         (33,450)      (22,158)
   Exercise of real estate purchase options          (56,462)            -
   Proceeds from sale of assets held for sale          7,589        22,009
   Acquisitions                                     (368,454)       (3,356)
   Other investing                                         -           988
                                                ------------  ------------
      Net cash used for investing activities        (450,777)       (2,517)
                                                ------------  ------------

Cash flows from financing activities:
   Net repayments under credit agreement              (9,994)         (693)
   Long-term debt borrowings                         347,000        45,936
   Long-term debt repayments                         (53,376)      (58,240)
   Principal payments under capital lease
    obligations                                       (1,133)       (1,104)
   Net proceeds from issuance of common stock          1,459       122,240
   Release of cash collateral                         25,640             -
   Distribution of partnership equity and
    minority interest                                   (714)         (147)
   Deferred financing costs                          (18,045)            -
                                                ------------  ------------
      Net cash provided by financing activities      290,837       107,992
                                                ------------  ------------

Net (decrease) increase in cash and cash
 equivalents                                         (76,103)      115,294
Cash and cash equivalents at beginning of
 period                                              131,935        16,641
                                                ------------  ------------
Cash and cash equivalents at end of period      $     55,832  $    131,935
                                                ============  ============



                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
                                                December 31,  December 31,
                                                    2007          2006
                                                ------------  ------------
                                                (unaudited)   (unaudited)

 Total net revenues                             $    450,549  $    258,436
                                                ------------  ------------

 Net income                                     $     35,352  $     19,865
                                                ------------  ------------

    Income from continuing operations                 37,087         9,012

    Income tax benefit                               (22,789)       (2,622)

    Loss on extinguishment of debt, net                3,173             -

    Loss on sale of assets, net                            -            16
                                                ------------  ------------

 Net segment income                             $     17,471  $      6,406

    Interest, net                                     15,479         4,364

    Depreciation and amortization                      7,893         3,212
                                                ------------  ------------

 EBITDA                                         $     40,843  $     13,982

    Center rent expense                               18,733        14,152
                                                ------------  ------------

 EBITDAR                                        $     59,576  $     28,134

    Operating administrative costs                    11,601         6,977
    General and administrative expenses               17,826        13,504
                                                ------------  ------------
 Total operating and general and admin expenses       29,427        20,481

 EBITDAM                                        $     70,270  $     34,463
 EBITDARM                                       $     89,003  $     48,615


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 INCOME TO EBITDA(M) and EBITDAR(M)
                              (in thousands)


                                                  For the       For the
                                                 Year Ended    Year Ended
                                                December 31,  December 31,
                                                    2007          2006
                                                ------------  ------------
                                                  (audited)     (audited)

 Total net revenues                             $  1,587,307  $  1,004,897
                                                ------------  ------------

 Net income                                     $     57,510  $     27,118
                                                ------------  ------------

    Income from continuing operations                 56,675        12,392

    Income tax benefit                               (11,458)         (214)

    Loss on extinguishment of debt, net                3,173             -

    Loss on sale of assets, net                           23           172

    Loss on contract termination                           -           975
                                                ------------  ------------

 Net segment income                             $     48,413  $     13,325

    Interest, net                                     44,380        18,504

    Depreciation and amortization                     31,537        14,708
                                                ------------  ------------

 EBITDA                                         $    124,330  $     46,537

    Center rent expense                               72,013        52,965
                                                ------------  ------------

 EBITDAR                                        $    196,343  $     99,502

    Operating administrative costs                    39,953        27,985
    General and administrative expenses               64,834        49,857
                                                ------------  ------------
 Total operating and general and admin expenses      104,787        77,842

 EBITDAM                                        $    229,117  $    124,379
 EBITDARM                                       $    301,130  $    177,344


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 December 31, 2007
                                (unaudited)


                                                         Elimin-
                             Rehabi-                     ation of
                             litation Medical            Affili-
                  Inpatient  Therapy  Staffing  Other &  ated     Consoli-
                   Services  Services Services Corp Seg  Revenue   dated
                   --------  -------  -------  --------  -------  --------

Nonaffiliated
 revenue           $401,270  $20,149  $29,120  $     10  $     -  $450,549

Affiliated revenue        -   12,964      677         -  (13,641)        -
                   --------  -------  -------  --------  -------  --------
   Total revenue    401,270   33,113   29,797        10  (13,641)  450,549

Net segment income
 (loss)            $ 44,686  $ 2,348  $ 2,433  $(31,996) $     -  $ 17,471

Interest, net         3,402        -        3    12,074        -    15,479

Depreciation and
 amortization         5,573      146      196     1,978        -     7,893
                   --------  -------  -------  --------  -------  --------

   EBITDA          $ 53,661  $ 2,494  $ 2,632  $(17,944) $     -  $ 40,843

Center rent
 expense             18,425       54      254         -        -    18,733
                   --------  -------  -------  --------  -------  --------

   EBITDAR         $ 72,086  $ 2,548  $ 2,886  $(17,944) $     -  $ 59,576

Operating and
 general and
 administrative
 expenses             9,575    1,304      721    17,827        -    29,427
                   --------  -------  -------  --------  -------  --------

   EBITDAM         $ 63,236  $ 3,798  $ 3,353  $   (117) $     -  $ 70,270
   EBITDARM        $ 81,661  $ 3,852  $ 3,607  $   (117) $     -  $ 89,003


     EBITDA margin     13.4%     7.5%     8.8%                         9.1%
    EBITDAM margin     15.8%    11.5%    11.3%                        15.6%
    EBITDAR margin     18.0%     7.7%     9.7%                        13.2%
   EBITDARM margin     20.4%    11.6%    12.1%                        19.8%




                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 December 31, 2006
                                (unaudited)


                                                         Elimin-
                             Rehabi-                     ation of
                             litation Medical            Affili-
                  Inpatient  Therapy  Staffing  Other &  ated     Consoli-
                   Services  Services Services Corp Seg  Revenue   dated
                   --------  -------  -------  --------  -------  --------

Nonaffiliated
 revenue           $216,340  $20,263  $21,819  $     14  $     -  $258,436

Affiliated revenue        -    9,940      246         -  (10,186)        -
                   --------  -------  -------  --------  -------  --------
   Total revenue    216,340   30,203   22,065        14  (10,186)  258,436

Net segment income
 (loss)            $ 17,652  $ 1,504  $ 2,451  $(15,201) $     -  $  6,406

Interest, net         3,186       (1)      45     1,134        -     4,364

Depreciation and
 amortization         2,387       95      185       545        -     3,212
                   --------  -------  -------  --------  -------  --------

   EBITDA          $ 23,225  $ 1,598  $ 2,681  $(13,522) $     -  $ 13,982

Center rent
 expense             13,898       53      201         -        -    14,152
                   --------  -------  -------  --------  -------  --------

   EBITDAR         $ 37,123  $ 1,651  $ 2,882  $(13,522) $     -  $ 28,134

Operating and
 general and
 administrative
 expenses             4,992    1,661      325    13,503        -    20,481
                   --------  -------  -------  --------  -------  --------

    EBITDAM        $ 28,217  $ 3,259  $ 3,006  $    (19) $     -  $ 34,463
    EBITDARM       $ 42,115  $ 3,312  $ 3,207  $    (19) $     -  $ 48,615


      EBITDA margin    10.7%     5.3%    12.2%                         5.4%
     EBITDAM margin    13.0%    10.8%    13.6%                        13.3%
     EBITDAR margin    17.2%     5.5%    13.1%                        10.9%
    EBITDARM margin    19.5%    11.0%    14.5%                        18.8%



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                   For the Year Ended December 31, 2007
                                (audited)


                                                         Elimin-
                             Rehabi-                     ation of
                             litation Medical            Affili-
                  Inpatient  Therapy  Staffing  Other &  ated     Consoli-
                   Services  Services Services Corp Seg  Revenue   dated
                   --------  -------  -------  --------  -------  --------

Nonaffiliated
 revenue          $1,396,950 $82,198 $108,082 $      77 $     - $1,587,307

Affiliated revenue         -  44,857    3,150         - (48,007)         -
                  ---------- ------- -------- --------- ------- ----------
   Total revenue   1,396,950 127,055  111,232        77 (48,007) 1,587,307

Net segment income
 (loss)           $  134,472 $ 7,753 $  8,221 $(102,033)$     - $   48,413

Interest, net         11,520      11       16    32,833       -     44,380

Depreciation and
 amortization         26,313     528      749     3,947       -     31,537
                  ---------- ------- -------- --------- ------- ----------

   EBITDA         $  172,305 $ 8,292 $  8,986 $ (65,253)$     - $  124,330

Center rent
 expense              70,897     208      907         1       -     72,013
                  ---------- ------- -------- --------- ------- ----------

   EBITDAR        $  243,202 $ 8,500 $  9,893 $ (65,252)$     - $  196,343

Operating and
 general and
 administrative
 expenses             32,001   4,978    2,974    64,834       -    104,787
                  ---------- ------- -------- --------- ------- ----------

    EBITDAM       $  204,306 $13,270 $ 11,960 $    (419)$     - $  229,117
    EBITDARM      $  275,203 $13,478 $ 12,867 $    (418)$     - $  301,130


    EBITDA margin       12.3%    6.5%     8.1%                         7.8%
   EBITDAM margin       14.6%   10.4%    10.8%                        14.4%
   EBITDAR margin       17.4%    6.7%     8.9%                        12.4%
  EBITDARM margin       19.7%   10.6%    11.6%                        19.0%



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                   For the Year Ended December 31, 2006
                                (audited)


                                                         Elimin-
                             Rehabi-                     ation of
                             litation Medical            Affili-
                  Inpatient  Therapy  Staffing  Other &  ated     Consoli-
                   Services  Services Services Corp Seg  Revenue   dated
                   --------  -------  -------  --------  -------  --------

Nonaffiliated
 revenue         $838,372  $80,623  $85,866  $     36  $     -  $1,004,897

Affiliated
 revenue                -   38,663      998         -  (39,661)          -
                 --------  -------  -------  --------  -------  ----------
   Total revenue  838,372  119,286   86,864        36  (39,661)  1,004,897

Net segment
 income (loss)   $ 60,213  $ 3,038  $ 6,981  $(56,907) $     -  $   13,325

Interest, net      13,416      (11)     158     4,941        -      18,504

Depreciation and
 amortization      11,735      365      749     1,859        -      14,708
                 --------  -------  -------  --------  -------  ----------

   EBITDA        $ 85,364  $ 3,392  $ 7,888  $(50,107) $     -  $   46,537

Center rent
 expense           51,933      219      813         -        -      52,965
                 --------  -------  -------  --------  -------  ----------

   EBITDAR       $137,297  $ 3,611  $ 8,701  $(50,107) $     -  $   99,502

Operating and
 general and
 administrative
 expenses          18,764    6,696    2,526    49,856        -      77,842
                 --------  -------  -------  --------  -------  ----------

   EBITDAM       $104,128  $10,088  $10,414  $   (251) $     -  $  124,379
   EBITDARM      $156,061  $10,307  $11,227  $   (251) $     -  $  177,344


    EBITDA margin    10.2%     2.8%     9.1%                           4.6%
   EBITDAM margin    12.4%     8.5%    12.0%                          12.4%
   EBITDAR margin    16.4%     3.0%    10.0%                           9.9%
  EBITDARM margin    18.6%     8.6%    12.9%                          17.6%


                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 December 31, 2007
                                (unaudited)


                                         Inpatient   Inpatient
                             Inpatient   Services -   Services
                              Services    Overhead     before
                                 w/o         w/o     Clipper &    Clipper
                             Harborside  Harborside  Harborside     (1)
                             ----------  ----------  ----------  ---------

Non affiliated revenues      $  232,170  $        -  $  232,170  $       -
                             ----------  ----------  ----------  ---------

Net segment income (loss)    $   28,163  $   (7,768) $   20,395  $     (82)
Interest, net                     1,633           -       1,633        832
Depreciation and
 amortization                     3,904           -       3,904        100
                             ----------  ----------  ----------  ---------
  EBITDA                     $   33,700  $   (7,768) $   25,932  $     850

Center rent expense              14,621           -      14,621       (741)
                             ----------  ----------  ----------  ---------

  EBITDAR                    $   48,321  $   (7,768) $   40,553  $     109
                             ==========  ==========  ==========  =========

    EBITDA margin                  14.5%                   11.2%
    EBITDAR margin                 20.8%                   17.5%



                             Inpatient
                             Services               Total
                              before               Inpatient
                             Harborside Harborside Services
                             ---------  ---------- ---------

Non affiliated revenues      $ 232,170  $  169,100 $ 401,270
                             ---------  ---------- ---------

Net segment income (loss)    $  20,313  $   24,373    44,686
Interest, net                    2,465         937     3,402
Depreciation and
 amortization                    4,004       1,569     5,573
                             ---------  ---------- ---------
  EBITDA                     $  26,782  $   26,879 $  53,661

Center rent expense             13,880       4,545    18,425
                             ---------  ---------- ---------

  EBITDAR                    $  40,662  $   31,424 $  72,086
                             =========  ========== =========

    EBITDA margin                 11.5%                 13.4%
    EBITDAR margin                17.5%                 18.0%



(1) Clipper represents our interest of 15.5 percent at December 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

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

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


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

Non affiliated
 revenues            $ 216,340  $       -  $ 216,340  $       -  $ 216,340
                     ---------  ---------  ---------  ---------  ---------

Net segment income
 (loss)              $  23,178  $  (4,968) $  18,210  $    (558) $  17,652
Interest, net            2,122          -      2,122      1,064      3,186
Depreciation and
 amortization            2,012          -      2,012        375      2,387
  EBITDA             $  27,312  $  (4,968) $  22,344  $     881  $  23,225

Center rent expense     14,782          -     14,782       (884) $  13,898
                     ---------  ---------  ---------  ---------  ---------

  EBITDAR            $  42,094  $  (4,968) $  37,126  $      (3) $  37,123
                     =========  =========  =========  =========  =========

    EBITDA margin         12.6%                 10.3%                 10.7%
    EBITDAR margin        19.5%                 17.2%                 17.2%



(1) Clipper represents our interest of 11.5 percent at December 31, 2006 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 Year Ended December 31, 2007
                                (audited)


                                      Inpatient    Inpatient
                         Inpatient   Services -     Services
                          Services     Overhead     before
                            w/o          w/o       Clipper &
                        Harborside   Harborside   Harborside   Clipper (1)
                        -----------  -----------  -----------  -----------

Non affiliated revenues $   898,692  $         -  $   898,692  $         -
                        -----------  -----------  -----------  -----------

Net segment income
 (loss)                 $   104,621  $   (26,011) $    78,610  $    (1,295)
Interest, net                 6,758            -        6,758        3,155
Depreciation and
 amortization                12,156            -       12,156        1,256
                        -----------  -----------  -----------  -----------
  EBITDA                $   123,535  $   (26,011) $    97,524  $     3,116

Center rent expense          55,988            -       55,988       (2,647)
                        -----------  -----------  -----------  -----------

  EBITDAR               $   179,523  $   (26,011) $   153,512  $       469
                        ===========  ===========  ===========  ===========

    EBITDA margin              13.7%                     10.9%
    EBITDAR margin             20.0%                     17.1%



                         Inpatient
                         Services                    Total
                          before                    Inpatient
                        Harborside   Harborside     Services
                        -----------  ------------ -----------

Non affiliated revenues $   898,692  $    498,258 $ 1,396,950
                        -----------  ------------ -----------

Net segment income
 (loss)                 $    77,315  $     57,157     134,472
Interest, net                 9,913         1,607      11,520
Depreciation and
 amortization                13,412        12,901      26,313
                        -----------  ------------ -----------
  EBITDA                $   100,640  $     71,665 $   172,305

Center rent expense          53,341        17,556      70,897
                        -----------  ------------ -----------

  EBITDAR               $   153,981  $     89,221 $   243,202
                        ===========  ============ ===========

    EBITDA margin              11.2%                     12.3%
    EBITDAR margin             17.1%                     17.4%



(1) Clipper represents our interest of 15.5 percent at December 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

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

                   For the Year Ended December 31, 2006
                               (audited)

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

Non affiliated
 revenues            $ 838,372  $       -  $ 838,372  $       -  $ 838,372
                     ---------  ---------  ---------  ---------  ---------

Net segment income
 (loss)              $  81,029  $ (18,875) $  62,154  $  (1,941) $  60,213
Interest, net            9,418          -      9,418      3,998     13,416
Depreciation and
 amortization           10,347          -     10,347      1,388     11,735
  EBITDA             $ 100,794  $ (18,875) $  81,919  $   3,445  $  85,364

Center rent expense     55,452          -     55,452     (3,519) $  51,933
                     ---------  ---------  ---------  ---------  ---------

  EBITDAR            $ 156,246  $ (18,875) $ 137,371  $     (74) $ 137,297
                     =========  =========  =========  =========  =========

    EBITDA margin         12.0%                  9.8%                 10.2%
    EBITDAR margin        18.6%                 16.4%                 16.4%



(1) Clipper represents our interest of 11.5 percent at December 31, 2006 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
                                               December 31,
                                      ------------------------------
                                          2007               2006
                                      -----------        -----------
Consolidated Company

Revenues - Non-affiliated (in
 thousands)
  Inpatient Services                      401,270            216,340
  Rehabilitation Therapy Services          20,149             20,263
  Medical Staffing Services                29,120             21,819
  Other - non-core businesses                  10                 14
                                      -----------        -----------
    Total                             $   450,549        $   258,436
                                      ===========        ===========


Revenue Mix - Non-affiliated (in
 thousands)
   Medicare                               125,565    28%      65,744    25%
   Medicaid                               188,443    42%     102,518    40%
   Private & Other                        116,542    25%      80,437    31%
   Managed Care / Comm Insur               16,482     4%       7,443     3%
   Veterans                                 3,517     1%       2,294     1%
                                      -----------  ----  -----------  ----
    Total                             $   450,549   100% $   258,436   100%
                                      ===========  ====  ===========  ====


DSO (Days Sales Outstanding)
 Inpatient Services - LTC                      41                 37
 Rehabilitation Therapy Services               75                 81
 Medical Staffing Services                     55                 54

Inpatient Services Stats

 Number of centers:                           213                139
 Number of available beds:                 23,189             14,473
 Occupancy %:                                89.3%              88.5%


 Payor Mix % based on patient days:
   Medicare - SNF Beds                       15.6%              15.4%
   Managed care / comm. ins. - SNF
    Beds                                      2.9%               2.2%
                                      -----------        -----------
       Total SNF skilled mix                 18.5%              17.6%
                                      -----------        -----------
  Medicare                                   14.2%              13.5%
  Medicaid                                   60.8%              60.4%
  Private and other                          21.5%              23.1%
  Managed care / commercial insurance         2.6%               2.0%
  Veterans                                    0.9%               1.0%

 Revenue Mix % of revenues:
   Medicare - SNF Beds                       31.7%              31.3%
   Managed care / comm. ins. - SNF
    Beds                                      5.1%               4.8%
                                      -----------        -----------
       Total SNF skilled mix                 36.8%              36.1%
                                      -----------        -----------
  Medicare                                   30.7%              29.6%
  Medicaid                                   47.0%              47.4%
  Private and other                          17.3%              18.5%
  Managed care / commercial Insurance         4.1%               3.4%
  Veterans                                    0.9%               1.1%


 Revenues PPD:
  LTC only Medicare (Part A)          $    411.32        $    360.73
  Medicare Blended Rate (Part A & B)  $    446.42        $    394.18
  Medicaid                            $    164.17        $    145.34
  Private and other                   $    167.10        $    141.26
  Managed care / commercial Insurance $    329.34        $    317.01
  Veterans                            $    207.91        $    202.04


Rehab contracts

 Affiliated                                   107                 87
 Non-affiliated                               309                295



                                                  For the
                                            Twelve Months Ended
                                               December 31,
                                      ------------------------------
                                          2007               2006
                                      -----------        -----------
Consolidated Company
Revenues - Non-affiliated (in
 thousands)
  Inpatient Services                    1,396,950            838,372
  Rehabilitation Therapy Services          82,198             80,623
  Medical Staffing Services               108,082             85,866
  Other - non-core businesses                  77                 36
                                      -----------        -----------
    Total                             $ 1,587,307        $ 1,004,897
                                      ===========        ===========


Revenue Mix - Non-affiliated (in
 thousands)
   Medicare                               427,936    27%     251,003    25%
   Medicaid                               659,862    42%     400,878    40%
   Private & Other                        428,416    26%     317,214    31%
   Managed Care / Comm Insur               58,298     4%      27,032     3%
   Veterans                                12,795     1%       8,770     1%
                                      -----------  ----  -----------  ----
    Total                             $ 1,587,307   100% $ 1,004,897   100%
                                      ===========  ====  ===========  ====


DSO (Days Sales Outstanding)
 Inpatient Services - LTC                      41                 37
 Rehabilitation Therapy Services               75                 81
 Medical Staffing Services                     55                 54

Inpatient Services Stats

 Number of centers:                           213                139
 Number of available beds:                 23,189             14,473
 Occupancy %:                                89.3%              88.3%


 Payor Mix % based on patient days:
   Medicare - SNF Beds                       15.6%              15.5%
   Managed care / comm. ins. - SNF
    Beds                                      2.9%               2.2%
                                      -----------        -----------
       Total SNF skilled mix                 18.5%              17.7%
                                      -----------        -----------
  Medicare                                   14.1%              13.6%
  Medicaid                                   60.7%              60.7%
  Private and other                          21.7%              22.7%
  Managed care / commercial insurance         2.6%               2.0%
  Veterans                                    0.9%               1.0%

 Revenue Mix % of revenues:
   Medicare - SNF Beds                       31.2%              31.1%
   Managed care / comm. ins. - SNF
    Beds                                      5.2%               4.6%
                                      -----------        -----------
       Total SNF skilled mix                 36.4%              35.7%
                                      -----------        -----------
  Medicare                                   30.0%              29.2%
  Medicaid                                   47.2%              47.8%
  Private and other                          17.8%              18.8%
  Managed care / commercial Insurance         4.1%               3.2%
  Veterans                                    0.9%               1.0%


 Revenues PPD:
  LTC only Medicare (Part A)          $    390.28        $    346.74
  Medicare Blended Rate (Part A & B)  $    424.10        $    379.37
  Medicaid                            $    160.04        $    142.90
  Private and other                   $    163.06        $    141.22
  Managed care / commercial Insurance $    322.86        $    293.99
  Veterans                            $    202.82        $    191.76


Rehab contracts

 Affiliated                                   107                 87
 Non-affiliated                               309                295



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
                        PRO FORMA WITH HARBORSIDE
                               CONSOLIDATED
                            INCOME STATEMENTS
                  (in thousands, except per share data)


                                               AS REPORTED     PRO FORMA
                                                            WITH HARBORSIDE

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

Total net revenues                            $     450,549  $     421,365
                                              -------------  -------------
Costs and expenses:
   Operating salaries and benefits                  255,657        242,035
   Self-insurance for workers' compensation
    and general and professional liability
    insurance                                        11,373          4,874
   Operating administrative costs                    11,601          9,265
   Other operating costs                             94,159         87,015
   Center rent expense                               18,733         21,002
   General and administrative expenses               17,826         19,463
   Depreciation                                       4,646          6,449
   Amortization                                       3,247          1,494
   Provision for losses on accounts
    receivable                                          357          9,134
   Interest, net                                     15,479          8,981
   Loss on extinguishment of debt, net                3,173              -
   Loss on sale of assets, net                            -             16
                                              -------------  -------------
Total costs and expenses                            436,251        409,728
                                              -------------  -------------

Income before income taxes and discontinued
 operations                                          14,298         11,637
Income tax benefit                                  (22,789)          (273)
                                              -------------  -------------
Income from continuing operations                    37,087         11,910
                                              -------------  -------------

Discontinued operations:
   (Loss) income from discontinued
    operations, net of related taxes                   (909)         2,884
   (Loss) gain on disposal of discontinued
    operations, net of related                         (826)         7,579
                                              -------------  -------------
(Loss) income from discontinued operations,
 net                                                 (1,735)        10,463
                                              -------------  -------------

Net income                                    $      35,352  $      22,373
                                              =============  =============


Basic income per common and common equivalent
 share:
 Income from continuing operations            $        0.86  $        0.28
 (Loss) income from discontinued operations,
  net                                                 (0.04)          0.24
                                              -------------  -------------
Net income                                    $        0.82  $        0.52
                                              =============  =============

Diluted income per common and common
 equivalent share:
 Income from continuing operations            $        0.83  $        0.27
 (Loss) income from discontinued operations,
  net                                                 (0.04)          0.23
                                              -------------  -------------
Net Income                                    $        0.79  $        0.50
                                              =============  =============

Weighted average number of common and
 common equivalent shares outstanding:
  Basic                                              43,174         43,174
  Diluted                                            44,528         44,528





               SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
                        PRO FORMA WITH HARBORSIDE
                               CONSOLIDATED
                            INCOME STATEMENTS
                  (in thousands, except per share data)

                                             PRO FORMA WITH  PRO FORMA WITH
                                               HARBORSIDE      HARBORSIDE

                                                 For the        For the
                                                Year Ended     Year Ended
                                              December 31,   December 31,
                                                  2007            2006
                                              -------------  --------------
                                               (unaudited)    (unaudited)

Total net revenues                            $   1,749,874  $    1,647,838
                                              -------------  --------------
Costs and expenses:
   Operating salaries and benefits                  991,481         941,105
   Self-insurance for workers' compensation
    and general and professional liability
    insurance                                        49,974          46,851
   Operating administrative costs                    42,946          36,663
   Other operating costs                            367,331         347,497
   Center rent expense                               78,967          82,242
   General and administrative expenses               70,231          74,101
   Depreciation                                      26,630          26,436
   Amortization                                       9,659           6,069
   Provision for losses on accounts
    receivable                                       17,339          20,508
   Interest, net                                     49,025          33,851
   Loss on extinguishment of debt, net                3,173               -
   Loss on sale of assets, net                           23             173
   Loss on contract termination                           -             975
                                              -------------  --------------
Total costs and expenses                          1,706,779       1,616,471
                                              -------------  --------------

Income before income taxes and discontinued
 operations                                          43,095          31,367
Income tax (benefit) expense                        (12,278)          4,245
                                              -------------  --------------
Income from continuing operations                    55,373          27,122
                                              -------------  --------------

Discontinued operations:
   Income from discontinued operations, net
    of related taxes                                    471           5,681
   (Loss) gain on disposal of discontinued
    operations, net of related taxes                   (200)          7,204
                                              -------------  --------------
Income from discontinued operations, net                271          12,885
                                              -------------  --------------

Net income                                    $      55,644  $       40,007
                                              =============  ==============


Basic income per common and common equivalent
 share:
   Income from continuing operations          $        1.31  $         0.64
   Income from discontinued operations, net               -            0.30
                                              -------------  --------------
Net income                                    $        1.31  $         0.94
                                              =============  ==============

Diluted income per common and common
 equivalent share:
   Income from continuing operations          $        1.28  $         0.63
   Income from discontinued operations, net               -            0.29
                                              -------------  --------------
Net Income                                    $        1.28  $         0.92
                                              =============  ==============

Weighted average number of common and
 common equivalent shares outstanding:
   Basic                                             42,350          42,350
   Diluted                                           43,390          43,390




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

                                               AS REPORTED     PRO FORMA
                                                            WITH HARBORSIDE

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

 Total net revenues                           $     450,549  $     421,365
                                              -------------  -------------

 Net income                                   $      35,352  $      22,373
                                              -------------  -------------

  Income from continuing operations                  37,087         11,910

  Income tax benefit                                (22,789)          (273)

  Loss on extinguishment of debt, net                 3,173              -

  Loss on sale of assets, net                             -             16
                                              -------------  -------------

 Net segment income                           $      17,471  $      11,653

  Interest, net                                      15,479          8,980

  Depreciation and amortization                       7,893          7,943
                                              -------------  -------------

 EBITDA                                       $      40,843  $      28,576

  Center rent expense                                18,733         21,002
                                              -------------  -------------

 EBITDAR                                      $      59,576  $      49,578

  Operating administrative costs                     11,601          9,265
  General and administrative expenses                17,826         19,463
                                              -------------  -------------
 Total operating and general and admin
  expenses                                           29,427         28,728

 EBITDAM                                      $      70,270  $      57,304
 EBITDARM                                     $      89,003  $      78,306




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

                                             PRO FORMA WITH  PRO FORMA WITH
                                               HARBORSIDE      HARBORSIDE

                                                 For the        For the
                                                Year Ended     Year Ended
                                              December 31,   December 31,
                                                  2007            2006
                                              -------------  --------------
                                               (unaudited)    (unaudited)

 Total net revenues                           $   1,749,874  $    1,647,838
                                              -------------  --------------

 Net income                                   $      55,644  $       40,007
                                              -------------  --------------

  Income from continuing operations                  55,373          27,122

  Income tax (benefit) expense                      (12,278)          4,245

  Loss on extinguishment of debt, net                 3,173               -

  Loss on sale of assets, net                            23             173

  Loss on contract termination                            -             975
                                              -------------  --------------

 Net segment income                           $      46,291  $       32,515

  Interest, net                                      49,025          33,851

  Depreciation and amortization                      36,289          32,505
                                              -------------  --------------

 EBITDA                                       $     131,605  $       98,871

  Center rent expense                                78,967          82,242
                                              -------------  --------------

 EBITDAR                                      $     210,572  $      181,113

  Operating administrative costs                     42,946          36,663
  General and administrative expenses                70,231          74,101
                                              -------------  --------------
 Total operating and general and admin
  expenses                                          113,177         110,764

 EBITDAM                                      $     244,782  $      209,635
 EBITDARM                                     $     323,749  $      291,877



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 December 31, 2007
                                (unaudited)



                             Rehabi-                     Elimin-
                             litation Medical            ation of
                  Inpatient  Therapy  Staffing  Other & Affiliated Consoli-
                   Services  Services Services Corp Seg  Revenue   dated
                   --------  -------  -------  --------  -------  --------
Nonaffiliated
 revenue           $401,270  $20,149  $29,120  $     10  $     -  $450,549
Affiliated revenue        -   12,964      677         -  (13,641)        -
                   --------  -------  -------  --------  -------  --------
   Total revenue    401,270   33,113   29,797        10  (13,641)  450,549

Net segment income
 (loss)            $ 44,686  $ 2,348  $ 2,433  $(31,996) $     -  $ 17,471
Interest, net         3,402        -        3    12,074        -    15,479
Depreciation and
 amortization         5,573      146      196     1,978        -     7,893
                   --------  -------  -------  --------  -------  --------

   EBITDA          $ 53,661  $ 2,494  $ 2,632  $(17,944) $     -  $ 40,843
Center rent expense  18,425       54      254         -        -    18,733
                   --------  -------  -------  --------  -------  --------

   EBITDAR         $ 72,086  $ 2,548  $ 2,886  $(17,944) $     -  $ 59,576
Operating and
 general and
 administrative
 expenses             9,575    1,304      721    17,827        -    29,427
                   --------  -------  -------  --------  -------  --------

   EBITDAM         $ 63,236  $ 3,798  $ 3,353  $   (117) $     -  $ 70,270
   EBITDARM        $ 81,661  $ 3,852  $ 3,607  $   (117) $     -  $ 89,003


      EBITDA margin    13.4%     7.5%     8.8%                         9.1%
     EBITDAM margin    15.8%    11.5%    11.3%                        15.6%
     EBITDAR margin    18.0%     7.7%     9.7%                        13.2%
    EBITDARM margin    20.4%    11.6%    12.1%                        19.8%


                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 December 31, 2006
                                (unaudited)



                             Rehabi-                     Elimin-
                             litation Medical            ation of
                  Inpatient  Therapy  Staffing  Other & Affiliated Consoli-
                   Services  Services Services Corp Seg  Revenue   dated
                   --------  -------  -------  --------  -------  --------
Nonaffiliated
 revenue           $376,599  $20,262  $24,390  $    114  $     -  $421,365
Affiliated revenue        -    9,940      246         -  (10,186)        -
                   --------  -------  -------  --------  -------  --------
   Total revenue    376,599   30,202   24,636       114  (10,186)  421,365

Net segment income
 (loss)            $ 28,888  $ 1,504  $ 2,388  $(21,127) $     -  $ 11,653
Interest, net         8,170       (1)      44       767        -     8,980
Depreciation and
 amortization         6,785       95      200       863        -     7,943
                   --------  -------  -------  --------  -------  --------

   EBITDA          $ 43,843  $ 1,598  $ 2,632  $(19,497) $     -  $ 28,576
Center rent
 expense             20,722       53      227         -        -    21,002
                   --------  -------  -------  --------  -------  --------

   EBITDAR         $ 64,565  $ 1,651  $ 2,859  $(19,497) $     -  $ 49,578
Operating and
 general and
 administrative
 expenses             7,178    1,661      325    19,564        -    28,728
                   --------  -------  -------  --------  -------  --------

    EBITDAM        $ 51,021  $ 3,259  $ 2,957  $     67  $     -  $ 57,304
    EBITDARM       $ 71,743  $ 3,312  $ 3,184  $     67  $     -  $ 78,306


      EBITDA margin    11.6%     5.3%    10.7%                         6.8%
     EBITDAM margin    13.5%    10.8%    12.0%                        13.6%
     EBITDAR margin    17.1%     5.5%    11.6%                        11.8%
    EBITDARM margin    19.1%    11.0%    12.9%                        18.6%


                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 Year Ended December 31, 2007
                                (unaudited)



                             Rehabi-                    Elimin-
                             litation Medical           ation of
                  Inpatient  Therapy  Staffing  Other & Affiliated Consoli-
                   Services  Services Services Corp Seg Revenue    dated
                  ---------- ------- -------- --------- ------- ----------
Nonaffiliated
 revenue          $1,557,556 $82,197 $110,726 $      77 $  (682)$1,749,874
Affiliated revenue         -  44,859    3,149         - (48,008)         -
                  ---------- ------- -------- --------- ------- ----------
   Total revenue   1,557,556 127,056  113,875        77 (48,690) 1,749,874

Net segment income
 (loss)           $  142,909 $ 7,753 $  8,156 $(113,340)$   813 $   46,291
Interest, net         16,448      11       15    32,537      14     49,025
Depreciation and
 amortization         30,740     528      765     4,256       -     36,289
                  ---------- ------- -------- --------- ------- ----------

   EBITDA         $  190,097 $ 8,292 $  8,936 $ (76,547)$   827 $  131,605
Center rent
 expense              77,826     208      932         1       -     78,967
                  ---------- ------- -------- --------- ------- ----------

   EBITDAR        $  267,923 $ 8,500 $  9,868 $ (76,546)$   827 $  210,572

Operating and
 general and
 administrative
 expenses             29,133   4,978    2,974    76,092       -    113,177
                  ---------- ------- -------- --------- ------- ----------

   EBITDAM        $  219,230 $13,270 $ 11,910 $    (455)$   827 $  244,782
   EBITDARM       $  297,056 $13,478 $ 12,842 $    (454)$   827 $  323,749


     EBITDA margin      12.2%    6.5%     7.8%                         7.5%
    EBITDAM margin      14.1%   10.4%    10.5%                        14.0%
    EBITDAR margin      17.2%    6.7%     8.7%                        12.0%
   EBITDARM margin      19.1%   10.6%    11.3%                        18.5%


                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 Year Ended December 31, 2006
                                (unaudited)




                             Rehabi-                    Elimin-
                             litation Medical           ation of
                  Inpatient  Therapy  Staffing  Other & Affiliated Consoli-
                   Services  Services Services Corp Seg Revenue    dated
                    ---------- ------- ------- -------- ------- ----------
Nonaffiliated
 revenue            $1,470,166 $80,622 $96,375 $    675 $     - $1,647,838
Affiliated revenue           -  38,662     999        - (39,661)         -
                    ---------- ------- ------- -------- ------- ----------
   Total revenue     1,470,166 119,284  97,374      675 (39,661) 1,647,838

Net segment income
 (loss)             $  103,978 $ 3,038 $ 6,894 $(81,395)$     - $   32,515
Interest, net           29,539     (11)    154    4,169       -     33,851
Depreciation and
 amortization           28,113     365     803    3,224       -     32,505
                    ---------- ------- ------- -------- ------- ----------

   EBITDA           $  161,630 $ 3,392 $ 7,851 $(74,002)$     - $   98,871
Center rent expense     81,107     219     916        -       -     82,242
                    ---------- ------- ------- -------- ------- ----------

   EBITDAR          $  242,737 $ 3,611 $ 8,767 $(74,002)$     - $  181,113

Operating and
 general and
 administrative
 expenses               27,209   6,696   2,526   74,333       -    110,764
                    ---------- ------- ------- -------- ------- ----------

    EBITDAM         $  188,839 $10,088 $10,377 $    331 $     - $  209,635
    EBITDARM        $  269,946 $10,307 $11,293 $    331 $     - $  291,877


     EBITDA margin        11.0%    2.8%    8.1%                        6.0%
    EBITDAM margin        12.8%    8.5%   10.7%                       12.7%
    EBITDAR margin        16.5%    3.0%    9.0%                       11.0%
   EBITDARM margin        18.4%    8.6%   11.6%                       17.7%


                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 December 31, 2007
                                (unaudited)


                                         Inpatient   Inpatient
                             Inpatient   Services -   Services
                              Services    Overhead     before
                                 w/o         w/o     Clipper &    Clipper
                             Harborside  Harborside  Harborside     (1)
                             ----------  ----------  ----------  ---------

Non affiliated revenues      $  232,170  $        -  $  232,170  $       -
                             ----------  ----------  ----------  ---------

Net segment income (loss)    $   28,163  $   (7,768) $   20,395  $     (82)
Interest, net                     1,633           -       1,633        832
Depreciation and
 amortization                     3,904           -       3,904        100
                             ----------  ----------  ----------  ---------
  EBITDA                     $   33,700  $   (7,768) $   25,932  $     850

Center rent expense              14,621           -      14,621       (741)
                             ----------  ----------  ----------  ---------

  EBITDAR                    $   48,321  $   (7,768) $   40,553  $     109
                             ==========  ==========  ==========  =========

    EBITDA margin                  14.5%                   11.2%
    EBITDAR margin                 20.8%                   17.5%



                             Inpatient
                             Services               Total
                              before               Inpatient
                            Harborside  Harborside Services
                             ---------  ---------- ---------

Non affiliated revenues      $ 232,170  $  169,100 $ 401,270
                             ---------  ---------- ---------

Net segment income (loss)    $  20,313  $   24,373    44,686
Interest, net                    2,465         937     3,402
Depreciation and
 amortization                    4,004       1,569     5,573
                             ---------  ---------- ---------
  EBITDA                     $  26,782  $   26,879 $  53,661

Center rent expense             13,880       4,545    18,425
                             ---------  ---------- ---------

  EBITDAR                    $  40,662  $   31,424 $  72,086
                             =========  ========== =========

    EBITDA margin                 11.5%                 13.4%
    EBITDAR margin                17.5%                 18.0%



(1) Clipper represents our interest of 15.5 percent at December 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
                        PRO FORMA WITH HARBORSIDE
    RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA AND EBITDAR
                          INPATIENT SERVICES ONLY
                             ($ in thousands)

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


                                         Inpatient   Inpatient
                             Inpatient   Services -   Services
                              Services    Overhead     before
                                 w/o         w/o     Clipper &    Clipper
                             Harborside  Harborside  Harborside     (1)
                             ----------  ----------  ----------  ---------

Non affiliated revenues      $  216,340  $        -  $  216,340  $       -
                             ----------  ----------  ----------  ---------

Net segment income (loss)    $   23,178  $   (4,968) $   18,210  $    (558)
Interest, net                     2,122           -       2,122      1,064
Depreciation and
 amortization                     2,012           -       2,012        375
                             ----------  ----------  ----------  ---------
  EBITDA                     $   27,312  $   (4,968) $   22,344  $     881

Center rent expense              14,782           -      14,782       (884)
                             ----------  ----------  ----------  ---------

  EBITDAR                    $   42,094  $   (4,968) $   37,126  $      (3)
                             ==========  ==========  ==========  =========

    EBITDA margin                  12.6%                   10.3%
    EBITDAR margin                 19.5%                   17.2%



                             Inpatient
                             Services               Total
                              before               Inpatient
                            Harborside  Harborside Services
                             ---------  ---------- ---------

Non affiliated revenues      $ 216,340  $  160,259 $ 376,599
                             ---------  ---------- ---------

Net segment income (loss)    $  17,652  $   11,236 $  28,888
Interest, net                    3,186       4,984     8,170
Depreciation and
 amortization                    2,387       4,398     6,785
                             ---------  ---------- ---------
  EBITDA                     $  23,225  $   20,618 $  43,843

Center rent expense             13,898       6,824    20,722
                             ---------  ---------- ---------

  EBITDAR                    $  37,123  $   27,442 $  64,565
                             =========  ========== =========

    EBITDA margin                 10.7%                 11.6%
    EBITDAR margin                17.2%                 17.1%



(1) Clipper represents our interest of 11.5 percent at December 31, 2006 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 Year Ended December 31, 2007
                                (unaudited)


                                      Inpatient    Inpatient
                         Inpatient   Services -     Services
                          Services     Overhead     before
                            w/o          w/o       Clipper &
                        Harborside   Harborside   Harborside   Clipper (1)
                        -----------  -----------  -----------  -----------

Non affiliated revenues $   898,692  $         -  $   898,692  $         -
                        -----------  -----------  -----------  -----------

Net segment income
 (loss)                 $   104,621  $   (26,011) $    78,610  $    (1,295)
Interest, net                 6,758            -        6,758        3,155
Depreciation and
 amortization                12,156            -       12,156        1,256
                        -----------  -----------  -----------  -----------
  EBITDA                $   123,535  $   (26,011) $    97,524  $     3,116

Center rent expense          55,988            -       55,988       (2,647)
                        -----------  -----------  -----------  -----------

  EBITDAR               $   179,523  $   (26,011) $   153,512  $       469
                        ===========  ===========  ===========  ===========

    EBITDA margin              13.7%                     10.9%
    EBITDAR margin             20.0%                     17.1%



                         Inpatient
                          Services                  Total
                           before                  Inpatient
                         Harborside  Harborside    Services
                        -----------  ------------ -----------

Non affiliated revenues $   898,692  $    658,864 $ 1,557,556
                        -----------  ------------ -----------

Net segment income
 (loss)                 $    77,315  $     65,594 $   142,909
Interest, net                 9,913         6,535      16,448
Depreciation and
 amortization                13,412        17,328      30,740
                        -----------  ------------ -----------
  EBITDA                $   100,640  $     89,457 $   190,097

Center rent expense          53,341        24,485      77,826
                        -----------  ------------ -----------

  EBITDAR               $   153,981  $    113,942 $   267,923
                        ===========  ============ ===========

    EBITDA margin              11.2%                     12.2%
    EBITDAR margin             17.1%                     17.2%


(1) Clipper represents our interest of 15.5 percent at December 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
                        PRO FORMA WITH HARBORSIDE
    RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA AND EBITDAR
                          INPATIENT SERVICES ONLY
                             ($ in thousands)

                   For the Year Ended December 31, 2006
                                (unaudited)


                                      Inpatient    Inpatient
                         Inpatient   Services -     Services
                          Services     Overhead     before
                            w/o          w/o       Clipper &
                        Harborside   Harborside   Harborside   Clipper (1)
                        -----------  -----------  -----------  -----------

Non affiliated revenues $   838,372  $         -  $   838,372  $         -
                        -----------  -----------  -----------  -----------

Net segment income
 (loss)                 $    81,029  $   (18,875) $    62,154  $    (1,941)
Interest, net                 9,418            -        9,418        3,998
Depreciation and
 amortization                10,347            -       10,347        1,388
                        -----------  -----------  -----------  -----------
  EBITDA                $   100,794  $   (18,875) $    81,919  $     3,445

Center rent expense          55,452            -       55,452       (3,519)
                        -----------  -----------  -----------  -----------

  EBITDAR               $   156,246  $   (18,875) $   137,371  $       (74)
                        ===========  ===========  ===========  ===========

    EBITDA margin              12.0%                      9.8%
    EBITDAR margin             18.6%                     16.4%



                         Inpatient                   Total
                          Services                 Inpatient
                          before     Harborside     Services
                        -----------  ------------ -----------

Non affiliated revenues $   838,372  $    631,794 $ 1,470,166
                        -----------  ------------ -----------

Net segment income
 (loss)                 $    60,213  $     43,765 $   103,978
Interest, net                13,416        16,123      29,539
Depreciation and
 amortization                11,735        16,378      28,113
                        -----------  ------------ -----------
  EBITDA                $    85,364  $     76,266 $   161,630

Center rent expense          51,933        29,174      81,107
                        -----------  ------------ -----------

  EBITDAR               $   137,297  $    105,440 $   242,737
                        ===========  ============ ===========

    EBITDA margin              10.2%                     11.0%
    EBITDAR margin             16.4%                     16.5%



(1) Clipper represents our interest of 11.5 percent at December 31, 2006 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
                                               December 31,
                                                           PRO FORMA
                                        AS REPORTED       WITH HARBORSIDE
                                      ----------------- -------------------
                                            2007               2006
Consolidated Company

Revenues - Non-affiliated (in
 thousands)
  Inpatient Services                      401,270            376,599
  Rehabilitation Therapy Services          20,149             20,262
  Medical Staffing Services                29,120             24,390
  Other - non-core businesses                  10                114
                                      -----------        -----------
    Total                             $   450,549        $   421,365
                                      ===========        ===========


Revenue Mix - Non-affiliated (in
 thousands)
   Medicare                               125,565    28%     114,236    27%
   Medicaid                               188,443    42%     183,253    43%
   Private & Other                        116,542    25%     107,225    26%
   Managed Care / Comm Insur               16,482     4%      13,233     3%
   Veterans                                 3,517     1%       3,418     1%
                                      -----------  ----  -----------  ----
    Total                             $   450,549   100% $   421,365   100%
                                      ===========  ====  ===========  ====


DSO (Days Sales Outstanding)
 Inpatient Services - LTC                      41                 42
 Rehabilitation Therapy Services               75                 81
 Medical Staffing Services                     55                 54

Inpatient Services Stats

 Number of centers:                           213                213
 Number of available beds:                 23,189             23,210
 Occupancy %:                                89.3%              89.7%


 Payor Mix % based on patient days:
   Medicare - SNF Beds                       15.6%              15.6%
   Managed care / comm. ins. - SNF
    Beds                                      2.9%               2.4%
                                      -----------        -----------
       Total SNF skilled mix                 18.5%              18.0%
                                      -----------        -----------
  Medicare                                   14.2%              14.2%
  Medicaid                                   60.8%              61.6%
  Private and other                          21.5%              21.2%
  Managed care / commercial Insurance         2.6%               2.2%
  Veterans                                    0.9%               0.8%

 Revenue Mix % of revenues:
   Medicare - SNF Beds                       31.7%              30.9%
   Managed care / comm. Ins. - SNF
    Beds                                      5.1%               4.6%
                                      -----------        -----------
       Total SNF skilled mix                 36.8%              35.5%
                                      -----------        -----------
  Medicare                                   30.7%              29.9%
  Medicaid                                   47.0%              48.7%
  Private and other                          17.3%              17.0%
  Managed care / commercial Insurance         4.1%               3.5%
  Veterans                                    0.9%               0.9%


 Revenues PPD:
  LTC only Medicare (Part A)          $    411.32        $    377.99
  Medicare Blended Rate (Part A & B)  $    446.42        $    407.84
  Medicaid                            $    164.17        $    157.15
  Private and other                   $    167.10        $    155.41
  Managed care / commercial Insurance $    329.34        $    310.55
  Veterans                            $    207.91        $    221.58


Rehab contracts

 Affiliated                                   107                 87
 Non-affiliated                               309                295



                                                  For the
                                             Twelve Months Ended
                                                 December 31,
                                          PRO FORMA          PRO FORMA
                                       WITH HARBORSIDE    WITH HARBORSIDE
                                      ----------------- -------------------
                                            2007               2006
Consolidated Company

Revenues - Non-affiliated (in
 thousands)
  Inpatient Services                    1,557,556          1,470,166
  Rehabilitation Therapy Services          82,197             80,622
  Medical Staffing Services               110,726             96,375
  Other - non-core businesses                (605)               675
                                      -----------        -----------
    Total                             $ 1,749,874        $ 1,647,838
                                      ===========        ===========


Revenue Mix - Non-affiliated (in
 thousands)
   Medicare                               477,178    27%     440,566    27%
   Medicaid                               738,438    42%     716,982    44%
   Private & Other                        456,199    26%     428,868    25%
   Managed Care / Comm Insur               64,301     4%      48,570     3%
   Veterans                                13,758     1%      12,852     1%
                                      -----------  ----  -----------  ----
    Total                             $ 1,749,874   100% $ 1,647,838   100%
                                      ===========  ====  ===========  ====


DSO (Days Sales Outstanding)
 Inpatient Services - LTC                      41                 42
 Rehabilitation Therapy Services               75                 81
 Medical Staffing Services                     55                 54

Inpatient Services Stats

 Number of centers:                           213                213
 Number of available beds:                 23,189             23,210
 Occupancy %:                                89.5%              89.5%


 Payor Mix % based on patient days:
   Medicare - SNF Beds                       15.7%              15.8%
   Managed care / comm. ins. - SNF
    Beds                                      2.9%               2.3%
                                      -----------        -----------
       Total SNF skilled mix                 18.6%              18.1%
                                      -----------        -----------
  Medicare                                   14.3%              14.5%
  Medicaid                                   61.0%              61.6%
  Private and other                          21.2%              21.0%
  Managed care / commercial Insurance         2.6%               2.1%
  Veterans                                    0.9%               0.8%

 Revenue Mix % of revenues:
   Medicare - SNF Beds                       31.2%              30.7%
   Managed care / comm. Ins. - SNF
    Beds                                      5.1%               4.2%
                                      -----------        -----------
       Total SNF skilled mix                 36.3%              34.9%
                                      -----------        -----------
  Medicare                                   30.1%              29.6%
  Medicaid                                   47.4%              48.8%
  Private and other                          17.5%              17.4%
  Managed care / commercial Insurance         4.1%               3.3%
  Veterans                                    0.9%               0.9%


 Revenues PPD:
  LTC only Medicare (Part A)          $    391.59        $    363.25
  Medicare Blended Rate (Part A & B)  $    424.71        $    391.39
  Medicaid                            $    161.53        $    154.92
  Private and other                   $    166.08        $    158.10
  Managed care / commercial Insurance $    330.48        $    299.94
  Veterans                            $    206.39        $    211.99


Rehab contracts

 Affiliated                                   107                 87
 Non-affiliated                               309                295



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                            AS REPORTED - 4th QUARTER 2007
            ===============================================================
                                                  Income
                                                   from
                                                Continuing  Disc    Net
             Revenue  EBITDAR  EBITDA   Pre-tax Operations   Ops   Income
            --------- -------  -------  -------  --------  ------  -------
As Reported
 4th QUARTER
 2007         450,549  59,576   40,843   14,298    37,087  (1,735)  35,352
  Percent of
   Revenue               13.2%     9.1%     3.2%      8.2%   -0.4%     7.8%
Normalizing
 Adjustments:
Benefit for
 income
 taxes              -       -        -            (27,827)      -  (27,827)
Debt
 refinancing
 fee                -       -        -    3,173     2,062       -    2,062
Release of
 insurance
 reserves
 related to
 prior
 periods            -  (2,642)  (2,642)  (2,642)   (1,717)   (557)  (2,274)
Prior
 acqusition
 claim
 settlement         -  (2,276)  (2,276)  (2,276)   (1,479)      -   (1,479)
Harborside
 integration
 costs              -   1,007    1,007    1,007       655       -      655
            --------- -------  -------  -------  --------  ------  -------
Adjusted As
 Reported -
 4th QUARTER
 2007         450,549  55,665   36,932   13,560     8,781  (2,292)   6,489
            ========= =======  =======  =======  ========  ======  =======
  Percent of
   Revenue               12.4%     8.2%     3.0%      1.9%   -0.5%     1.4%
Diluted EPS:
  As
   Reported                                      $   0.83  $(0.04) $  0.79
  As
   Adjusted                                      $   0.20  $(0.05) $  0.15



                            AS REPORTED - 4th QUARTER 2006
            ===============================================================
                                                  Income
                                                   from
                                                Continuing  Disc    Net
             Revenue  EBITDAR  EBITDA   Pre-tax Operations   Ops   Income
            --------- -------  -------  -------  --------  ------  -------
As Reported
 - 4th QUARTER
 2006         258,436  28,134   13,982    6,390     9,012  10,853   19,865
  Percent of
   Revenue               10.9%     5.4%     2.5%      3.5%    4.2%     7.7%
Normalizing
 Adjustments:
Release of
 insurance
 reserves
 related to
 prior
 periods            -  (6,279)  (6,279)  (6,279)   (5,981) (3,260)  (9,241)
Prior
 acquisition
 aquired AR
 adjustment         -   2,800    2,800    2,800     2,667       -    2,667
Reserve
 management
 fee
 receivable         -     756      756      756       720       -      720
            --------- -------  -------  -------  --------  ------  -------

Adjusted As
 Reported -
 4th QUARTER
 2006         258,436  25,411   11,259    3,667     6,418   7,593   14,011
            ========= =======  =======  =======  ========  ======  =======
  Percent of
   Revenue                9.8%     4.4%     1.4%      2.5%    2.9%     5.4%
Diluted EPS:
  As
   Reported                                      $   0.27  $ 0.33  $  0.60
  As
   Adjusted                                      $   0.19  $ 0.23  $  0.42



                       PRO FORMA SUN & HARBORSIDE - 4th QUARTER 2006
            ===============================================================
                                                  Income
                                                   from
                                                Continuing  Disc    Net
             Revenue  EBITDAR  EBITDA   Pre-tax Operations   Ops   Income
            --------- -------  -------  -------  --------  ------  -------
Pro Forma
 Sun &
 Harborside
 - 4th QUARTER
 2006         421,365  49,578   28,576   11,637    11,910  10,463   22,373
Percent of
 Revenue                 11.8%     6.8%     2.8%      2.8%    2.5%     5.3%
Normalizing
 Adjustments:
Release of
 insurance
 reserves
 related to
 prior
 periods            -  (6,279)  (6,279)  (6,279)   (5,981) (3,260)  (9,241)
Prior
 acquisition
 aquired AR
 adjustment         -   2,800    2,800    2,800     2,667       -    2,667
Reserve
 management
 fee
 receivable         -     756      756      756       720       -      720
Harborside
 investor
 fees               -     225      225      225       163       -      163
Harborside
 merger
 costs              -     194      194      194       141       -      141
            --------- -------  -------  -------  --------  ------  -------

Adjusted
 Pro Forma
 Sun &
 Harborside
 - 4th QUARTER
 2006         421,365  47,274   26,272    9,333     9,620   7,203   16,823
            ========= =======  =======  =======  ========  ======  =======
  Percent of
   Revenue               11.2%     6.2%     2.2%      2.3%    1.7%     4.0%
Diluted EPS:
  Pro Forma                                      $   0.27  $ 0.23  $  0.50
  Adjusted
   Pro Forma                                     $   0.22  $ 0.16  $  0.38


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 income from a tax benefit associated with the
partial reversal of a valuation allowance on a deferred tax asset, a charge
associated with the refinancing of certain debt agreements, self-insurance
reserve releases related to prior periods, income from settlement of a
claim associated with a prior period acquisition, integration costs related
to the Harborside acquisition, a bad debt charge associated with acquired
accounts receivable from a prior period acquisition, a charge associated
with the termination of a nursing home management fee contract, 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.

                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                           AS REPORTED - TWELVE MONTHS 2007
            ===============================================================
                                                  Income
                                                   from
                                                Continuing  Disc    Net
             Revenue  EBITDAR  EBITDA   Pre-tax Operations   Ops   Income
            --------- -------  -------  -------  --------  ------  -------

As Reported
 - Twelve
 Months
 2007       1,587,307 196,343  124,330   45,217    56,675     835   57,510
  Percent of
   Revenue               12.4%     7.8%     2.8%      3.6%    0.1%     3.6%

Normalizing
 Adjustments:
Benefit for
 income
 taxes              -       -        -            (27,827)      -  (27,827)
Debt
 refinancing
 fee                -       -        -    3,173     2,062       -    2,062
Write-off
 of
 deferred
 financing
 costs              -       -        -      615       400       -      400
Prior
 acqusition
 claim
 settlement         -  (2,276)  (2,276)  (2,276)   (1,479)      -   (1,479)
Release of
 insurance
 reserves
 related to
 prior
 periods            -  (8,598)  (8,598)  (8,598)   (5,588) (2,536)  (8,124)
Harborside
 integration
 costs              -   4,495    4,495    4,495     2,922       -    2,922
            --------- -------  -------  -------  --------  ------  -------

Adjusted As
 Reported -
 Twelve
 Months
 2007       1,587,307 189,964  117,951   42,626    27,165  (1,701)  25,464
            ========= =======  =======  =======  ========  ======  =======
  Percent of
   Revenue               12.0%     7.4%     2.7%      1.7%   -0.1%     1.6%

Dilted EPS:
  As
   Reported                                      $   1.31  $ 0.02  $  1.33
  As
   Adjusted                                      $   0.63  $(0.04) $  0.59




                           AS REPORTED - TWELVE MONTHS 2006
            ===============================================================
                                                  Income
                                                   from
                                                Continuing  Disc    Net
             Revenue  EBITDAR  EBITDA   Pre-tax Operations   Ops   Income
            --------- -------  -------  -------  --------  ------  -------


As Reported
 - Twelve
 Months
 2006       1,004,897  99,502   46,537   12,178    12,392  14,726   27,118
Percent of
 Revenue                  9.9%     4.6%     1.2%      1.2%    1.5%     2.7%

Normalizing
 Adjustments:
Release of
 insurance
 reserves
 related to
 prior
 periods            - (11,649) (11,649) (11,649)  (11,096) (5,759) (16,855)
Retroactive
 wage costs
 associated
 with rate
 increase           -     185      185      185       176       -      176
Prior
 acquisition
 aquired AR
 adjustment         -   2,800    2,800    2,800     2,667       -    2,667
Reserve
 management
 fee
 receivable         -     756      756      756       720       -      720
Prior
 acquisition
 valuation
 workers comp
 recovery           -    (777)    (777)    (777)     (740)      -     (740)
Hospice
 management
 contract
 termination        -       -        -    1,041       992       -      992
Prior
 acquisition
 depreciation
 catch up           -       -        -      975       929       -      929
            --------- -------  -------  -------  --------  ------  -------

Adjusted As
 Reported -
 Twelve
 Months
 2006       1,004,897  90,817   37,852    5,509     6,040   8,967   15,007
            ========= =======  =======  =======  ========  ======  =======
Percent of
 Revenue                  9.0%     3.8%     0.5%      0.6%    0.9%     1.5%

Dilted EPS:
  As
   Reported                                      $   0.39  $ 0.46  $  0.85
  As
   Adjusted                                      $   0.19  $ 0.28  $  0.47



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 ended December 31.

Normalizing adjustments are transactions or adjustments not related to
ongoing operations, including income from a tax benefit associated with the
partial reversal of a valuation allowance on a deferred tax asset, charges
associated with the refinancing of certain debt agreements, income from
settlement of a claim associated with a prior period acquisition,
self-insurance reserve releases related to prior periods, integration costs
related to the Harborside acquisition, expense for retroactive wage costs
associated with prior period rate increases, a bad debt charge associated
with acquired accounts receivable from a prior period acquisition, a charge
associated with the termination of a nursing home management fee contract,
a credit to prior period workers compensation expense as a result of the
finalization of insurance reserves related to a prior period acquisition, a
charge resulting from the termination of a Hospice management fee contract
and a depreciation charge related to the finalization of the valuation of
owned property, plant and equipment associated with a prior period
acquisition.

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


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


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

Pro Forma Sun
 & Harborside
 - Twelve
 Months
 2007       1,749,874 210,572  131,605   43,095    55,373     271   55,644
  Percent of
   Revenue               12.0%     7.5%     2.5%      3.2%    0.0%     3.2%

Normalizing
 Adjustments:
Benefit for
 income
 taxes              -       -        -            (27,827)      -  (27,827)
Debt
 refinancing
 fee                -       -        -    3,173     2,062       -    2,062
Write-off
 of deferred
 financing
 costs              -       -        -      615       400       -      400
Prior
 acqusition
 claim
 settlement         -  (2,276)  (2,276)  (2,276)   (1,479)      -   (1,479)
Release of
 insurance
 reserves
 related to
 prior
 periods            -  (8,598)  (8,598)  (8,598)   (5,588) (2,536)  (8,124)
Harborside
 bad debt
 expense            -   5,860    5,860    5,860     3,809       -    3,809
Harborside
 integration
 costs              -   4,495    4,495    4,495     2,922       -    2,922
Harborside
 investor
 fees               -     275      275      275       179       -      179
Harborside
 merger
 costs              -     192      192      192       125       -      125
            --------- -------  -------  -------  --------  ------  -------
Adjusted
 Pro Forma
 Sun &
 Harborside
 - Twelve
 Months
 2007       1,749,874 210,520  131,553   46,831    29,976  (2,265)  27,711
            ========= =======  =======  =======  ========  ======  =======
  Percent of
   Revenue               12.0%     7.5%     2.7%      1.7%   -0.1%     1.6%

Diluted EPS:
   Pro Forma                                     $   1.28  $    -  $  1.28
   Adjusted
    Pro Forma                                    $   0.69  $(0.05) $  0.64




                    PRO FORMA SUN & HARBORSIDE - TWELVE MONTHS 2006
            ===============================================================
                                                  Income
                                                   from
                                                Continuing  Disc    Net
             Revenue  EBITDAR  EBITDA   Pre-tax Operations   Ops   Income
            --------- -------  -------  -------  --------  ------  -------

Pro Forma Sun
 & Harborside
 - Twelve
 Months
 2006       1,647,838 181,113   98,871   31,367    27,122  12,885   40,007
  Percent of
   Revenue               11.0%     6.0%     1.9%      1.6%    0.8%     2.4%

Normalizing
 Adjustments:
Release of
 insurance
 reserves
 related to
 prior
 periods            - (11,649) (11,649) (11,649)  (11,096) (5,759) (16,855)
Harborside
 merger
 costs              -   2,554    2,554    2,554     1,854       -    1,854
Retroactive
 wage costs
 associated
 with rate
 increase           -     185      185      185       176       -      176
Prior
 acquisition
 valuation
 workers comp
 recovery           -    (777)    (777)    (777)     (740)      -     (740)
Prior
 acquisition
 aquired AR
 adjustment         -   2,800    2,800    2,800     2,667       -    2,667
Reserve
 management
 fee
 receivable         -     756      756      756       720       -      720
Hospice
 management
 contract
 termination        -       -        -    1,041       992       -      992
Prior
 acquisition
 depreciation
 catch up           -       -        -      975       929       -      929
Harborside
 investor
 fees               -     600      600      600       436       -      436
            --------- -------  -------  -------  --------  ------  -------
Adjusted Pro
 Forma Sun &
 Harborside
 - Twelve
 Months
 2006       1,647,838 175,582   93,340   27,852    23,060   7,126   30,186
            ========= =======  =======  =======  ========  ======  =======
  Percent of
   Revenue               10.7%     5.7%     1.7%      1.4%    0.4%     1.8%

Diluted EPS:
  Pro Forma                                      $   0.63  $ 0.29  $  0.92
  Adjusted
   Pro Forma                                     $   0.53  $ 0.17  $  0.70



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 ended December 31.

Normalizing adjustments are transactions or adjustments not related to
ongoing operations, including income from a tax benefit associated with the
partial reversal of a valuation allowance on a deferred tax asset, charges
associated with the refinancing of certain debt agreements, income from
settlement of a claim associated with a prior period acquisition,
self-insurance reserve releases related to prior periods, a bad debt charge
recorded by Harborside prior to the acquisiton, integration costs related
to the Harborside acquisition, investor fees and merger costs recorded by
Harborside prior to the acquisition, expense for retroactive wage costs
associated with prior period rate increases, a bad debt charge associated
with acquired accounts receivable from a prior period acquisition, a charge
associated with the termination of a nursing home management fee contract,
a credit to prior period workers compensation expense as a result of the
finalization of insurance reserves related to a prior period acquisitition,
a charge resulting from the termination of a Hospice management fee
contract and a depreciation charge related to the finalization of the
valuation of owned property, plant and equipment associated with a
prior period 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.

Contact Information

  • Contact:
    Investor Inquiries
    (505) 468-2341

    Media Inquiries
    (505) 468-4582