SOURCE: Sun Healthcare Group, Inc.

May 02, 2006 19:20 ET

Sun Healthcare Group, Inc. Reports Quarterly Income of $2.0 Million From Continuing Operations; On Track With 2006 Annual Guidance; Continued Improvement in Core Operations

IRVINE, CA -- (MARKET WIRE) -- May 2, 2006 -- Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the first quarter ended March 31, 2006.

Consolidated Earnings

For the quarter ended March 31, 2006, Sun reported total net revenues of $287.0 million and net income of $1.7 million (net income of $0.06 per fully-diluted share). For the comparable quarter ended March 31, 2005, total net revenues were $206.3 million with a net loss of $1.2 million (a net loss of $0.08 per fully-diluted share). Net revenues for the quarter ended March 31, 2006, increased $80.7 million, or 39.1 percent, as compared to net revenues for the quarter ended March 31, 2005, primarily as a result of the Peak Medical Corporation acquisition in December 2005.

For the quarter ended March 31, 2006, Sun reported income from continuing operations of $2.0 million (income from continuing operations of $0.06 per fully-diluted share), as compared to a loss from continuing operations of $1.6 million (a loss of $0.10 per fully-diluted share), for the same period in 2005. The 2006 first quarter EBITDAR from continuing operations was $22.6 million, or 7.9 percent of revenues, as compared to $12.8 million, or 6.2 percent of revenues, from continuing operations for the same period in 2005, an improvement of $9.8 million, or 76.6 percent. EBITDA from continuing operations for the first quarter of 2006 was $9.2 million, or 3.2 percent of revenues, as compared to $3.1 million, or 1.5 percent of revenues, for the same period in 2005, an improvement of $6.1 million, or 196.8 percent.

"The acquisition of Peak and our equity offering in December 2005 transformed the Company, as evidenced by our reported results," said Richard K. Matros, Sun's chairman and chief executive officer. "As a result, we are providing pro forma results for the quarter ended March 31, 2005, that show Peak's historical first quarter 2005 operating results combined with our historical results for that period," continued Matros.

On a pro forma basis, with the Peak results included for the first quarter of 2005, total net revenues would have been $267.0 million, income from continuing operations would have been $0.1 million, EBITDAR from continuing operations would have been $21.5 million, or 8.0 percent of revenues, and EBITDA from continuing operations would have been $8.1 million, or 3.0 percent of revenues. When compared to pro forma net revenues, net income from continuing operations, EBITDAR from continuing operations and EBITDA from continuing operations for the quarter ended March 31, 2005, net revenues for the quarter ended March 31, 2006, increased $20.0 million, or 7.5 percent, income from continuing operations increased $1.9 million, EBITDAR increased $1.1 million, or 5.1 percent, and EBITDA increased $1.1 million, or 13.6 percent.

"Our focus in 2006 is improvement in consolidated margins, profitability and cash flow. Our initiatives are directed toward high acuity patients in our inpatient business, reductions in G&A and strategic evaluation of the Company's ancillary businesses. Our quarterly results have us on track with our 2006 annual guidance," Matros said.

Inpatient Business

Net revenues from inpatient services operations increased $72.0 million, or 48.4 percent, to $220.8 million for the quarter ended March 31, 2006, from $148.8 million for the same period in 2005. The revenue gain was due to the $62.8 million revenue attributable to Peak's operations and $9.2 million improvement in Sun's same store inpatient operations. This $9.2 million improvement was primarily attributable to (i) a 56-basis point improvement, or $1.8 million in revenue, in Medicare patient mix, to 14.4 percent from 13.9 percent of total occupancy, (ii) a 4.5 percent increase in our Medicare rates, or $1.9 million in revenue, and (iii) a 6.2 percent increase in our Medicaid rates or $4.3 million in revenues, and (iv) an increase in revenues from commercial insurance of $1.2 million.

Net segment income increased $6.2 million, or 79.5 percent, to $14.0 million for the quarter ended March 31, 2006, from $7.8 million for the quarter ended March 31, 2005. Net segment EBITDAR increased $12.2 million, or 60.7 percent, to $32.3 million for the quarter ended March 31, 2006, from $20.1 million for the same period in 2005, and net segment EBITDA increased $8.5 million, or 75.9 percent, to $19.7 million for the quarter ended March 31, 2006, from $11.2 million for the same period in 2005. Net segment EBITDAR margin increased to 14.6 percent for the quarter ended March 31, 2006, from 13.5 percent for the same period in 2005. Net segment EBITDA margin increased to 8.9 percent for the quarter ended March 31, 2006, from 7.5 percent for the same period in 2005.

On a pro forma basis with Peak results included for the first quarter of 2005, net revenues from inpatient services operations would have been $209.6 million and the increase in net revenues in the first quarter of 2006 would have been $11.2 million, or 5.3 percent. The revenue gain of $11.2 million was primarily attributable to: (i) a 71-basis point improvement, or $2.9 million in revenues, in Medicare patient mix, to 14.2 percent from 13.4 percent of total occupancy, (ii) a 4.8 percent increase in our Medicare rates, or $2.8 million in revenues, and (iii) a 5.8 percent increase in our Medicaid rates or $5.6 million in revenues.

On a pro forma basis with Peak results included for the first quarter of 2005, net segment income in the first quarter of 2005 would have been $11.1 million, net segment EBITDAR would have been $30.0 million and net segment EBITDA would have been $17.4 million. When compared to net segment income, net segment EBITDAR and net segment EBITDA for the quarter ended March 31, 2006, net segment income increased $2.9 million, or 26.1 percent, net segment EBITDAR increased $2.3 million, or 7.7 percent, and net segment EBITDA increased $2.3 million, or 13.2 percent. Pro forma net segment EBITDAR and EBITDA margins for the quarter ended March 31, 2005, would have been 14.3 percent and 8.3 percent, respectively.

"Improvement of our inpatient margins on both an as reported and pro forma basis reflects the successful execution of our acuity-based strategies," said Matros.

Ancillary Business

Net revenues from Sun's ancillary business operations, which include SunDance Rehabilitation Corporation, CareerStaff Unlimited, Inc. and SunPlus Home Health Services, Inc., net of affiliated revenues, increased $8.7 million, or 15.1 percent, to $66.2 million for the quarter ended March 31, 2006, from $57.5 million for the same period in 2005. Net segment income decreased $2.9 million, or 82.9 percent, to $0.6 million for 2006 from $3.5 million for 2005. Net segment EBITDAR for the ancillary operations for the quarter ended March 31, 2006, decreased $2.6 million, or 55.3 percent, over the same period in 2005, to $2.1 million from $4.7 million, and net segment EBITDA decreased $2.7 million, or 69.2 percent, to $1.2 million for the quarter ended March 31, 2006, from $3.9 million for the same period in 2005.

"The downturn in combined earnings for our ancillary businesses was essentially all in the rehabilitation therapy services segment. We implemented a restructuring plan for that segment during the first quarter of 2006 which we expect should result in significant financial improvement in the second quarter," Matros reported.

Corporate General

General and administrative expenses not directly attributed to operating segments decreased $0.2 million, or 1.7 percent, to $11.6 million for the quarter ended March 31, 2006, compared to $11.8 million for the same period in 2005. For the quarter ended March 31, 2006, as a percent of revenue, general and administrative expenses dropped to 4.0 percent from 5.7 percent for the same period in 2005.

On a pro forma basis with Peak results included in the first quarter of 2005, general and administrative expenses not directly attributed to operating segments would have decreased $1.4 million, or 10.8 percent, to $11.6 million for the quarter ended March 31, 2006, compared to pro forma $13.0 million for the same period in 2005.

"Our improvements in G&A are a reflection of the leverage we anticipated from the acquisition of Peak coupled with reductions related to our process improvement initiatives," said Matros.

Conference Call

Sun's senior management will hold a conference call to discuss the Company's first quarter operating results on Wednesday, May 3, 2006, at 1 p.m. EDT / 10 a.m. PDT. To listen to the conference call, dial (877) 516-8526 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. EDT on May 3 until midnight EDT on May 10 by calling (800) 642-1687 and using access code 8085839.

About Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc., with executive offices located in Irvine, California, owns SunBridge Healthcare Corporation and other affiliated companies that operate long-term and postacute care facilities in many states. In addition, the Sun Healthcare Group family of companies provides therapy through SunDance Rehabilitation Corporation, medical staffing through CareerStaff Unlimited, Inc. and home care through SunPlus Home Health Services, 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 Sun with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements, including the impact of the Deficit Reduction Act and regulations implementing it; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; our ability to generate cash flow sufficient to operate our business; our ability to identify, complete and integrate future acquisitions; increasing labor costs and the shortage of qualified healthcare personnel; and loss of key management personnel. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, a copy of which is 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 us 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. The accompanying tables also set forth the non-GAAP pro forma information referenced in this press release for the first quarter of 2005.

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 on its public reference room.

                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
                                CONDENSED
                        CONSOLIDATED BALANCE SHEETS
                              (in thousands)

                                                     March 31, December 31,
                                                        2006       2005
                                                      ---------- ---------
                                                      (unaudited)
                       ASSETS

Current assets:
 Cash and cash equivalents                            $   16,694 $  16,641
 Restricted cash                                          29,993    25,142
 Accounts receivable, net                                133,028   123,639
 Other current assets                                     25,447    15,795
                                                      ---------- ---------

 Total current assets                                    205,162   181,217

Property and equipment, net                              188,037   187,734
Restricted cash, non-current                              30,547    35,517
Goodwill                                                  82,188    81,265
Intangible assets, net                                    17,880    19,335
Other assets, net                                          7,319     7,238
                                                      ---------- ---------

   Total assets                                       $  531,133 $ 512,306
                                                      ========== =========


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
 Accounts payable                                     $   46,820 $  45,115
 Accrued compensation and benefits                        42,469    42,393
 Accrued self-insurance obligations, current              39,756    37,238
 Other accrued liabilities                                58,735    56,440
 Capital leases, current                                  11,204    11,204
 Current portion of long-term debt:
   Company obligations                                    18,089    21,237
   Clipper partnerships                                   34,167    34,415
                                                      ---------- ---------

 Total current liabilities                               251,240   248,042

Accrued self-insurance obligations, net of current       110,839   109,953
Long-term debt, net of current portion:
   Company obligations                                   128,565   115,094
   Clipper partnerships                                   15,761    15,829
Other long-term liabilities                               23,471    26,283
                                                      ---------- ---------

 Total liabilities                                       529,876   515,201

Stockholders' equity (deficit)                             1,257    (2,895)
                                                      ---------- ---------
   Total liabilities and stockholders'
    equity (deficit)                                  $  531,133 $ 512,306
                                                      ========== =========



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                                          For the           For the
                                    Three Months Ended  Three Months Ended
                                      March 31, 2006    March 31, 2005
                                    ------------------  ------------------
                                       (unaudited)        (unaudited)

Total net revenues                           $ 287,014           $ 206,266
                                             ---------           ---------
Costs and expenses:
  Operating salaries and benefits              164,886             123,839
  Self-insurance for workers' compensation
   and general and professional liability
   insurance                                    13,695               9,496
  Operating administrative costs                 8,172               5,796
  Other operating costs                         64,021              41,470
  Facility rent expense                         13,486               9,723
  General and administrative expenses           11,647              11,833
  Depreciation                                   1,613               1,057
  Amortization                                   1,636               1,061
  Provision for losses on accounts receivable    1,948                 582
  Interest, net                                  4,415               2,657
  Loss on extinguishment of debt, net                -                 408
  Loss on sale of assets, net                       13                 306
  Loss on asset impairment                           -                 361
  Restructuring costs, net                           -                  70
                                             ---------           ---------
Total costs and expenses                       285,532             208,659
                                             ---------           ---------

Income (loss) before income taxes and
 discontinued operations                         1,482              (2,393)
Income tax benefit                                (512)               (804)
                                             ---------           ---------
Income (loss) from continuing operations         1,994              (1,589)
                                             ---------           ---------

Discontinued operations:
  Loss from discontinued operations, net          (179)               (604)
  (Loss) gain on disposal of discontinued
   operations, net                                 (66)              1,025
                                             ---------           ---------
(Loss) income on discontinued operations,
  net                                             (245)                421
                                             ---------           ---------

Net income (loss)                            $   1,749           $  (1,168)
                                             =========           =========

Basic income (loss) per common and
 common equivalent share:
  Income (loss) before discontinued
   operations                                $    0.06           $   (0.10)
  Income on discontinued operations, net             -                0.02
                                             ---------           ---------
Net income (loss)                            $    0.06           $   (0.08)
                                             =========           =========

Diluted income (loss) per common and
 common equivalent share:
  Income (loss) before discontinued
   operations                                $    0.06           $   (0.10)
  Income on discontinued operations, net             -                0.02
                                             ---------           ---------
Net income (loss)                            $    0.06           $   (0.08)
                                             =========           =========

Weighted average number of common and
 common equivalent shares outstanding:
  Basic                                         31,174              15,320
  Diluted                                       31,228              15,320



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)

                                          For the            For the
                                    Three Months Ended  Three Months Ended
                                       March 31,2006       March 31, 2005
                                    ------------------  ------------------
                                       (unaudited)           (unaudited)
Cash flows from operating activities:
 Net income (loss)                            $  1,749            $ (1,168)
 Adjustments to reconcile net income
  (loss) to net cash used for operating
  activities, including discontinued
  operations:
    Depreciation                                 1,613               1,067
    Amortization                                 1,636               1,066
    Amortization of favorable and
     unfavorable lease intangibles                (379)               (508)
    Provision for losses on accounts
     receivable                                  1,948                 650
    Loss (gain) on disposal of discontinued
     operations, net                                66              (1,025)
    Loss on sale of assets, net                     13                 306
    Loss on asset impairment                         -                 361
    Loss on extinguishment of debt, net              -                 408
    Restricted stock and stock option
     compensation                                  544                 232
    Other, net                                      25                  23
 Changes in operating assets and liabilities,
  net of acquisitions:
    Accounts receivable, net                   (11,318)             (2,208)
    Inventories, net                               (14)                 16
    Other receivables, net                      (3,186)              1,978
    Restricted cash                                119                 497
    Prepaids and other assets                   (6,167)             (1,950)
    Accounts payable                             1,705              (3,209)
    Accrued compensation and benefits               67              (1,103)
    Accrued self-insurance obligations           3,404              (9,247)
    Income taxes payable                         1,856                 222
    Other accrued liabilities                     (800)             (2,218)
    Other long-term liabilities                      -                (405)
                                              --------            --------
      Net cash used for operating
       activities                               (7,119)            (16,215)
                                              --------            --------

Cash flows from investing activities:
 Capital expenditures, net                      (3,333)             (3,572)
 Proceeds from sale of assets held for sale          -                 766
 Acquisitions, net                                (236)                  -
 Repayment of long-term notes receivable             -                 237
 Proceeds from sale/leaseback                      838                   -
                                              --------            --------
      Net cash used for investing
       activities:                              (2,731)             (2,569)
                                              --------            --------

Cash flows from financing activities:
 Net borrowings under Revolving Loan
  Agreement                                     17,720              17,021
 Long-term debt repayments                      (7,694)             (3,305)
 Distribution of partnership equity               (123)               (302)
                                              --------            --------
      Net cash provided by financing
       activities                                9,903              13,414
                                              --------            --------
Net increase (decrease) in cash and cash
 equivalents                                        53              (5,370)
Cash and cash equivalents at beginning
 of period                                      16,641              22,596
                                              --------            --------
Cash and cash equivalents at end of period    $ 16,694            $ 17,226
                                              ========            ========



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                                                  For the       For the
                                                Three Months  Three Months
                                                    Ended         Ended
                                                  March 31,     March 31,
                                                    2006          2005
                                                ------------  ------------
                                                (unaudited)   (unaudited)

 Total net revenues                             $    287,014  $    206,266
                                                ------------  ------------

 Net income (loss)                              $      1,749  $     (1,168)
                                                ------------  ------------

  Income (loss) from continuing operations             1,994        (1,589)

  Income tax benefit                                    (512)         (804)

  Loss on sale of assets, net                             13           306

  Loss on asset impairment                                 -           361

  Restructuring costs, net                                 -            70
                                                ------------  ------------

 Net segment income                             $      1,495  $     (1,656)

  Interest, net                                        4,415         2,657

  Depreciation and amortization                        3,249         2,118
                                                ------------  ------------

 EBITDA                                         $      9,159  $      3,119

  Facility rent expense                               13,486         9,723
                                                ------------  ------------

 EBITDAR                                        $     22,645  $     12,842

  Operating administrative costs                       8,172         5,796
  General and administrative expenses                 11,647        11,833
                                                ------------  ------------
 Total operating and general and admin expenses       19,819        17,629

 EBITDAM                                        $     28,978  $     20,748
 EBITDARM                                       $     42,464  $     30,471

EBITDA is defined as earnings before income (loss) on discontinued operations, income taxes, loss (gain) on sale of assets, net, loss on asset impairment, restructuring costs, net, loss on lease termination, interest, net, depreciation and amortization. EBITDAM is defined as EBITDA before operating and general and administrative expenses. EBITDAR is defined as EBITDA before facility rent expense. EBITDARM is defined as EBITDAR before operating and general and administrative expenses. EBITDA, EBITDAM, EBITDAR and EBITDARM are used by management to evaluate financial performance and resource allocation for each entity within the operating units and for the Company as a whole. EBITDA, EBITDAM, EBITDAR and EBITDARM are commonly used as analytical indicators within the healthcare industry and also serve as measures of leverage capacity and debt service ability. EBITDA, EBITDAM, EBITDAR and EBITDARM should not be considered as measures of financial performance under generally accepted accounting principles. As the items excluded from EBITDA, EBITDAM, EBITDAR and EBITDARM are significant components in understanding and assessing financial performance, EBITDA, EBITDAM, EBITDAR and EBITDARM should not be considered in isolation or as alternatives to net income (loss), cash flows generated by or used in operating, investing or financing activities or other financial statement data presented in the consolidated financial statements as indicators of financial performance or liquidity. Because EBITDA, EBITDAM, EBITDAR and EBITDARM are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations, EBITDA, EBITDAM, EBITDAR and EBITDARM as presented may not be comparable to other similarly titled measures of other companies.


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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

                                           Rehabili-
                                            tation     Medical     Home
                                Inpatient  Therapy     Staffing    Health
                                Services   Services    Services   Services
                                ---------  ---------  ---------  ---------

Nonaffiliated revenue           $ 220,779  $  25,758  $  21,318  $  15,467

Affiliated revenue                      -      9,385        129          -
                                ---------  ---------  ---------  ---------
  Total revenue                   220,779     35,143     21,447     15,467

Net segment income (loss)       $  13,982  $    (546) $     972  $     218

Interest, net                       3,479         (6)        36          2

Depreciation and amortization       2,250         94        187        242
                                ---------  ---------  ---------  ---------

  EBITDA                        $  19,711  $    (458) $   1,195  $     462

Facility rent expense              12,608        107        214        479
                                ---------  ---------  ---------  ---------

  EBITDAR                       $  32,319  $    (351) $   1,409  $     941

Operating and general and
 administrative expenses            4,310      2,667        895        217
                                ---------  ---------  ---------  ---------

   EBITDAM                      $  24,021  $   2,209  $   2,090  $     679
   EBITDARM                     $  36,629  $   2,316  $   2,304  $   1,158


                  EBITDA margin       8.9%      -1.3%       5.6%       3.0%

                 EBITDAM margin      10.9%       6.3%       9.7%       4.4%

                 EBITDAR margin      14.6%      -1.0%       6.6%       6.1%

                EBITDARM margin      16.6%       6.6%      10.7%       7.5%


                                                     Elimination
                               Laboratory &               of
                                Radiology   Other &   Affiliated Consolid-
                                Services   Corp Seg    Revenue       ated
                                ---------  ---------  ---------  ---------

Nonaffiliated revenue           $   3,689  $       3  $       -  $ 287,014

Affiliated revenue                     59          -     (9,573)         -
                                ---------  ---------  ---------  ---------
  Total revenue                     3,748          3     (9,573)   287,014

Net segment income (loss)       $     (86) $ (13,045) $       -  $   1,495

Interest, net                           -        904          -      4,415

Depreciation and amortization          74        402          -      3,249
                                ---------  ---------  ---------  ---------

  EBITDA                        $     (12) $ (11,739) $       -  $   9,159

Facility rent expense                  78          -          -     13,486
                                ---------  ---------  ---------  ---------

  EBITDAR                       $      66  $ (11,739) $       -  $  22,645

Operating and general and
 administrative expenses               83     11,647          -     19,819
                                ---------  ---------  ---------  ---------

   EBITDAM                      $      71  $     (92) $       -  $  28,978
   EBITDARM                     $     149  $     (92) $       -  $  42,464


                  EBITDA margin      -0.3%                             3.2%

                 EBITDAM margin       1.9%                            10.1%

                 EBITDAR margin       1.8%                             7.9%

                EBITDARM margin       4.0%                            14.8%



                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 March 31, 2005
                                (unaudited)

                                           Rehabili-
                                            tation     Medical     Home
                                Inpatient  Therapy     Staffing    Health
                                Services   Services    Services   Services
                                ---------  ---------  ---------  ---------

Nonaffiliated revenue           $ 148,810  $  23,977  $  14,868  $  14,811

Affiliated revenue                      1      8,843        170          -
                                ---------  ---------  ---------  ---------
  Total revenue                   148,811     32,820     15,038     14,811

Net segment income (loss)       $   7,837  $   1,980  $     973  $     554

Interest, net                       1,864        (78)         1          3

Depreciation and amortization       1,466         54         48        193
                                ---------  ---------  ---------  ---------

  EBITDA                        $  11,167  $   1,956  $   1,022  $     750

Facility rent expense               8,906        126        170        447
                                ---------  ---------  ---------  ---------

  EBITDAR                       $  20,073  $   2,082  $   1,192  $   1,197

Operating and general and
 administrative expenses            3,125      1,846        562        263
                                ---------  ---------  ---------  ---------

   EBITDAM                      $  14,292  $   3,802  $   1,584  $   1,013
   EBITDARM                     $  23,198  $   3,928  $   1,754  $   1,460


                  EBITDA margin       7.5%       6.0%       6.8%       5.1%

                 EBITDAM margin       9.6%      11.6%      10.5%       6.8%

                 EBITDAR margin      13.5%       6.3%       7.9%       8.1%

                EBITDARM margin      15.6%      12.0%      11.7%       9.9%


                                                     Elimination
                               Laboratory &               of
                                Radiology   Other &   Affiliated Consolid-
                                Services   Corp Seg    Revenue       ated
                                ---------  ---------  ---------  ---------

Nonaffiliated revenue           $   3,794  $       6  $       -  $ 206,266

Affiliated revenue                     48          -     (9,062)         -
                                ---------  ---------  ---------  ---------
  Total revenue                     3,842          6     (9,062)   206,266

Net segment income (loss)       $      (5) $ (12,995) $       -  $  (1,656)

Interest, net                           -        867          -      2,657

Depreciation and amortization         136        221          -      2,118
                                ---------  ---------  ---------  ---------
  EBITDA                        $     131  $ (11,907) $       -  $   3,119

Facility rent expense                  74          -          -      9,723
                                ---------  ---------  ---------  ---------

  EBITDAR                       $     205  $ (11,907) $       -  $  12,842

Operating and general and
 administrative expenses                -     11,833          -     17,629
                                ---------  ---------  ---------  ---------

   EBITDAM                      $     131  $     (74) $       -  $  20,748
   EBITDARM                     $     205  $     (74) $       -  $  30,471


                  EBITDA margin       3.4%                             1.5%

                 EBITDAM margin       3.4%                            10.1%

                 EBITDAR margin       5.3%                             6.2%

                EBITDARM margin       5.3%                            14.8%



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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

                                           Inpatient  Inpatient
                                           Services   Services
                                Inpatient  w/o Peak     before
                                Services       -      Clipper &
                                w/o Peak   Overhead     Peak
                                ---------  ---------  ---------

Non affiliated revenues         $ 157,960  $       -  $ 157,960
                                ---------  ---------  ---------

Net segment income (loss)       $  12,774  $  (3,741) $   9,033

Interest, net                         749          -        749

Depreciation and amortization       1,588          -      1,588

                                ---------  ---------  ---------
  EBITDA                        $  15,111  $  (3,741) $  11,370

Facility rent expense               9,996          -      9,996
                                ---------  ---------  ---------

  EBITDAR                       $  25,107  $  (3,741) $  21,366
                                =========  =========  =========

                  EBITDA margin       9.6%                  7.2%
                 EBITDAR margin      15.9%                 13.5%


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

Non affiliated revenues         $       -  $ 157,960  $  62,819  $ 220,779
                                ---------  ---------  ---------  ---------

Net segment income (loss)       $    (419) $   8,614  $   5,368     13,982

Interest, net                         976      1,725      1,754      3,479

Depreciation and amortization         321      1,909        341      2,250

                                ---------  ---------  ---------  ---------
  EBITDA                        $     878  $  12,248  $   7,463  $  19,711

Facility rent expense                (876)     9,120      3,488     12,608
                                ---------  ---------  ---------  ---------

  EBITDAR                       $       2  $  21,368  $  10,951  $  32,319
                                =========  =========  =========  =========

                  EBITDA margin                  7.8%      11.9%       8.9%
                 EBITDAR margin                 13.5%      17.4%      14.6%


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



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                For the Three Months Ended March 31, 2005
                                (unaudited)

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

Non affiliated
 revenues            $ 148,810  $       -  $ 148,810  $       -  $ 148,810
                     ---------  ---------  ---------  ---------  ---------

Net segment income
 (loss)              $  12,007  $  (3,310) $   8,697  $    (860) $   7,837

Interest, net              797          -        797      1,067      1,864

Depreciation and
 amortization            1,128          -      1,128        338      1,466

                     ---------  ---------  ---------  ---------  ---------
  EBITDA             $  13,932  $  (3,310) $  10,622  $     545  $  11,167

Facility rent
 expense                 9,782          -      9,782       (876) $   8,906
                     ---------  ---------  ---------  ---------  ---------

  EBITDAR            $  23,714  $  (3,310) $  20,404  $    (331) $  20,073
                     =========  =========  =========  =========  =========

       EBITDA margin       9.4%                  7.1%                  7.5%
      EBITDAR margin      15.9%                 13.7%                 13.5%



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

                                                    For the
                                              Three Months Ended
                                                  March 31,
                                    --------------------------------------
                                           2006                2005
                                    ------------------  ------------------
Number of Licensed beds:
  Long Term Care                                16,633              10,407
  Hospitals                                        192                 192


Number of facilities:
  Long Term Care                                   155                 100
  Hospitals                                          3                   3


Occupancy % (mtd amount only):
  Long Term Care                                  87.2%               90.5%
  Hospitals                                       59.0%               60.4%
  Inpatient Services                              86.9%               89.9%


Payor Mix % based on patient days -
 LTC:
  Medicare                                        13.7%               13.1%
  Medicaid                                        61.1%               63.2%
  Private and other                               22.1%               21.1%
  Commercial Insurance & Veterans                  3.1%                2.6%

Payor Mix % based on patient days -
 Hospital:
  Medicare                                        68.8%               75.3%
  Medicaid                                         9.7%                7.2%
  Private and other                                0.2%                0.5%
  Commercial Insurance & Veterans                 21.3%               17.0%

Payor Mix % based on patient days -
 Inpatient Services:
  Medicare                                        14.2%               13.9%
  Medicaid                                        60.7%               62.5%
  Private and other                               21.9%               20.9%
  Commercial Insurance & Veterans                  3.2%                2.7%

Revenue Mix % of revenues - LTC:
  Medicare                                        28.2%               27.1%
  Medicaid                                        49.0%               50.1%
  Private and other                               18.9%               19.3%
  Commercial Insurance & Veterans                  3.9%                3.5%

Revenue Mix % of revenues -
 Hospitals:
  Medicare                                        73.2%               77.7%
  Medicaid                                         7.7%                6.3%
  Private and other                                0.7%                0.8%
  Commercial Insurance & Veterans                 18.4%               15.2%

Revenue Mix % of revenues -
 Inpatient Services:
  Medicare                                        31.1%               31.0%
  Medicaid                                        46.3%               46.8%
  Private and other                               18.0%               17.9%
  Commercial Insurance & Veterans                  4.6%                4.3%



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


                                                  For the
                                             Three Months Ended
                                                  March 31,
                                    --------------------------------------
                                           2006                2005
                                    ------------------  ------------------

Revenues PPD - LTC:
  Medicare (Part A)                 $           337.30  $           321.17
  Medicaid                          $           141.17  $           135.62
  Private and other                 $           144.06  $           148.75
  Commercial Insurance & Veterans   $           326.28  $           440.86

Revenues PPD - Hospitals:
  Medicare (Part A)                 $         1,222.41  $         1,016.19
  Medicaid                          $           899.83  $           818.89
  Private and other                 $         1,311.07  $         1,113.60
  Commercial Insurance & Veterans   $         1,037.83  $           921.85



Revenues - Non-affiliated (in
 thousands):
 Inpatient Services:
  Medicare                          $           68,604  $           46,086
  Medicaid                                     102,289              69,574
  Private and other                             49,886              33,150
                                    ------------------  ------------------
   Subtotal                                    220,779             148,810

  Rehabilitation Therapy Services               25,758              23,977
  Medical Staffing Services                     21,318              14,868
  Home Health Services                          15,467              14,811
  Laboratory & Radiology Services                3,689               3,794
                                    ------------------  ------------------
   Subtotal                                     66,232              57,450
                                    ------------------  ------------------

  Other - non-core businesses                        3                   6
                                    ------------------  ------------------
    Total                           $          287,014  $          206,266
                                    ==================  ==================



Rehab contracts:
 Affiliated - continuing                            93                  90
 Non-affiliated                                    346                 317


DSO (Days Sales Outstanding):
 Inpatient Services - SNF                           37                  32
 Inpatient Services - Hospitals                     53                  65
 Rehabilitation Therapy Services                    94                  99
 Medical Staffing Services                          61                  57
 Home Health Services                               63                  56
 Laboratory & Radiology Services                    65                  77



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                            PRO FORMA WITH PEAK
                               CONSOLIDATED
                          STATEMENT OF OPERATIONS
                  (in thousands, except per share data)

                                                               PRO FORMA
                                               AS REPORTED      W/ PEAK
                                                 For the        For the
                                              Three Months   Three Months
                                                  Ended          Ended
                                                March 31,      March 31,
                                                  2006           2005
                                              -------------  -------------
                                               (unaudited)    (unaudited)

Total net revenues                            $     287,014  $     267,015
                                              -------------  -------------
Costs and expenses:
 Operating salaries and benefits                    164,886        152,401
 Self-insurance for workers' compensation and
  general and professional liability
  insurance                                          13,695         12,488
 Operating administrative costs                       8,172          7,034
 Other operating costs                               64,021         59,123
 Facility rent expense                               13,486         13,428
 General and administrative expenses                 11,647         13,034
 Depreciation                                         1,613          1,989
 Amortization                                         1,636          1,206
 Provision for losses on accounts receivable          1,948          1,040
 Interest, net                                        4,415          4,811
 Loss on extinguishment of debt, net                      -            408
 Loss on sale of assets, net                             13            306
 Loss on asset impairment                                 -            361
 Restructuring costs, net                                 -             70
                                              -------------  -------------
Total costs and expenses                            285,532        267,699
                                              -------------  -------------

Income (loss) before income taxes and
 discontinued operations                              1,482           (684)
Income tax benefit                                     (512)          (804)
                                              -------------  -------------
Income from continuing operations                     1,994            120
                                              -------------  -------------

Discontinued operations:
 Loss from discontinued operations, net                (179)          (719)
 (Loss) gain on disposal of discontinued
  operations, net                                       (66)         1,025
                                              -------------  -------------
(Loss) income on discontinued operations, net          (245)           306
                                              -------------  -------------

Net income                                    $       1,749  $         426
                                              =============  =============


Basic income (loss) per common and common
 equivalent share:
 Income before discontinued operations        $        0.06              -
 Income on discontinued operations, net                   -           0.02
                                              -------------  -------------
Net income                                    $        0.06  $        0.02
                                              =============  =============

Diluted income (loss) per common and common
 equivalent share:
 Income before discontinued operations        $        0.06              -
 Income on discontinued operations, net                   -           0.02
                                              -------------  -------------
Net income                                    $        0.06  $        0.02
                                              =============  =============


Weighted average number of common and common
 equivalent shares outstanding:
 Basic                                               31,174         24,192
 Diluted                                             31,228         24,192



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                                                               PRO FORMA
                                               AS REPORTED      W/ PEAK
                                                 For the        For the
                                              Three Months   Three Months
                                                  Ended          Ended
                                                March 31,      March 31,
                                                  2006           2005
                                              -------------  -------------
                                               (unaudited)    (unaudited)

 Total net revenues                           $     287,014  $     267,015
                                              -------------  -------------

 Net income                                   $       1,749  $         426
                                              -------------  -------------

  Income from continuing operations                   1,994            120

  Income tax benefit                                   (512)          (804)

  Loss on sale of assets, net                            13            306

  Loss on asset impairment                                -            361

  Restructuring costs, net                                -             70
                                              -------------  -------------

 Net segment income                           $       1,495  $          53

  Interest, net                                       4,415          4,811

  Depreciation and amortization                       3,249          3,195
                                              -------------  -------------

 EBITDA                                       $       9,159  $       8,059

  Facility rent expense                              13,486         13,428
                                              -------------  -------------

 EBITDAR                                      $      22,645  $      21,487

  Operating administrative costs                      8,172          7,034
  General and administrative expenses                11,647         13,034
                                              -------------  -------------
 Total operating and general and admin
  expenses                                           19,819         20,068

 EBITDAM                                      $      28,978  $      28,127
 EBITDARM                                     $      42,464  $      41,555


See definitions of EBITDA, EBITDAR, EBITDAM, and EBITDARM on Reconciliation
of Net Income to EBITDA(M) and EBITDAR(M).

Pro Forma amounts were derived using our historical results as reported
combined with Peak historical results of operations for the three months
ended March 31, 2005.  Such amounts were reclassified to conform to our
historical presentation.  Purchase accounting and related adjustments
were not considered in this Pro Forma presentation.



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                For the Three Months Ended March 31, 2005
                                (unaudited)

                                        Rehabili-
                                        tation     Medical     Home
                             Inpatient  Therapy    Staffing   Health
                             Services   Services   Services  Services
                             ---------  ---------  --------  --------
Nonaffiliated revenue        $ 209,557  $  23,977  $ 14,868  $ 14,811
Affiliated revenue                   1      8,843       170         -
                             ---------  ---------  --------  --------
      Total revenue            209,558     32,820    15,038    14,811

Net segment income (loss)    $  11,129  $   1,980  $    973  $    554
Interest, net                    3,709        (78)        1         3
Depreciation and
 amortization                    2,512         54        48       193
                             ---------  ---------  --------  --------

      EBITDA                 $  17,350  $   1,956  $  1,022  $    750
Facility rent expense           12,611        126       170       447
                             ---------  ---------  --------  --------

      EBITDAR                $  29,961  $   2,082  $  1,192  $  1,197
Operating and general and
 administrative expenses         4,363      1,846       562       263
                             ---------  ---------  --------  --------

       EBITDAM               $  21,713  $   3,802  $  1,584  $  1,013
       EBITDARM              $  34,324  $   3,928  $  1,754  $  1,460


               EBITDA margin       8.3%       6.0%      6.8%      5.1%
              EBITDAM margin      10.4%      11.6%     10.5%      6.8%
              EBITDAR margin      14.3%       6.3%      7.9%      8.1%
             EBITDARM margin      16.4%      12.0%     11.7%      9.9%




                             Laboratory             Elimination
                                 &                      of
                             Radiology    Other &   Affiliated   Consolid-
                              Services   Corp Seg     Revenue      ated
                             ----------  ---------  -----------  ---------
Nonaffiliated revenue        $    3,794  $       8  $         -  $ 267,015
Affiliated revenue                   48          -       (9,062)         -
                             ----------  ---------  -----------  ---------
      Total revenue               3,842          8       (9,062)   267,015

Net segment income (loss)    $       (5) $ (14,578) $         -  $      53
Interest, net                         -      1,176            -      4,811
Depreciation and
 amortization                       136        252            -      3,195
                             ----------  ---------  -----------  ---------

      EBITDA                 $      131  $ (13,150) $         -  $   8,059
Facility rent expense                74          -            -     13,428
                             ----------  ---------  -----------  ---------

      EBITDAR                $      205  $ (13,150) $         -  $  21,487
Operating and general and
 administrative expenses              -     13,034            -     20,068
                             ----------  ---------  -----------  ---------

       EBITDAM               $      131  $    (116) $         -  $  28,127
       EBITDARM              $      205  $    (116) $         -  $  41,555


               EBITDA margin        3.4%                               3.0%
              EBITDAM margin        3.4%                              10.5%
              EBITDAR margin        5.3%                               8.0%
             EBITDARM margin        5.3%                              15.6%

                    SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                           Inpatient  Inpatient
                                           Services   Services
                                Inpatient      -        before
                                Services   Overhead    Clipper
                                ---------  ---------  ---------

Non affiliated revenues         $ 148,810  $       -  $ 148,810
                                ---------  ---------  ---------

Net segment income (loss)       $  12,006  $  (3,310) $   8,696
Interest, net                         797          -        797
Depreciation and amortization       1,128          -      1,128

                                ---------  ---------  ---------
  EBITDA                        $  13,931  $  (3,310) $  10,621

Facility rent expense               9,782          -      9,782
                                ---------  ---------  ---------

  EBITDAR                       $  23,713  $  (3,310) $  20,403
                                =========  =========  =========

                  EBITDA margin       9.4%                  7.1%
                 EBITDAR margin      15.9%                 13.7%



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

Non affiliated revenues         $       -  $ 148,810  $  60,747  $ 209,557
                                ---------  ---------  ---------  ---------

Net segment income (loss)       $    (860) $   7,836  $   3,293  $  11,129
Interest, net                       1,067      1,864      1,845      3,709
Depreciation and amortization         338      1,466      1,046      2,512

                                ---------  ---------  ---------  ---------
  EBITDA                        $     545  $  11,166  $   6,184  $  17,350

Facility rent expense                (876)     8,906      3,705     12,611
                                ---------  ---------  ---------  ---------

  EBITDAR                       $    (331) $  20,072  $   9,889  $  29,961
                                =========  =========  =========  =========

                  EBITDA margin                  7.5%      10.2%       8.3%
                 EBITDAR margin                 13.5%      16.3%      14.3%




                  SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
                        SELECTED OPERATING STATISTICS
                          Continuing Operations


                                                  For the
                                             Three Months Ended
                                                  March 31,

                                          AS
                                       REPORTED        PRO FORMA WITH PEAK
                                  -------------------  -------------------
                                         2006                 2005
                                  -------------------  -------------------
Number of Licensed beds:
  Long Term Care                               16,633               16,815
  Hospitals                                       192                  192


Number of facilities:
  Long Term Care                                  155                  156
  Hospitals                                         3                    3

Occupancy % (mtd amount only):
  Long Term Care                                 87.2%                86.7%
  Hospitals                                      59.0%                60.4%
  Inpatient Services                             86.9%                86.4%


Payor Mix % based on patient days
 - LTC:
  Medicare                                       13.7%                12.9%
  Medicaid                                       61.1%                61.7%
  Private and other                              22.1%                22.2%
  Commercial Insurance & Veterans                 3.1%                 3.2%

Payor Mix % based on patient days
 - Hospital:
  Medicare                                       68.8%                75.3%
  Medicaid                                        9.7%                 7.2%
  Private and other                               0.2%                 0.5%
  Commercial Insurance & Veterans                21.3%                17.0%

Payor Mix % based on patient days
 - Inpatient Services:
  Medicare                                       14.2%                13.4%
  Medicaid                                       60.7%                61.2%
  Private and other                              21.9%                22.1%
  Commercial Insurance & Veterans                 3.2%                 3.3%

Revenue Mix % of revenues - LTC:
  Medicare                                       28.2%                27.6%
  Medicaid                                       49.0%                49.7%
  Private and other                              18.9%                18.9%
  Commercial Insurance & Veterans                 3.9%                 3.8%

Revenue Mix % of revenues -
 Hospitals:
  Medicare                                       73.2%                77.7%
  Medicaid                                        7.7%                 6.3%
  Private and other                               0.7%                 0.8%
  Commercial Insurance & Veterans                18.4%                15.2%

Revenue Mix % of revenues -
 Inpatient Services:
  Medicare                                       31.1%                30.6%
  Medicaid                                       46.3%                46.5%
  Private and other                              18.0%                18.6%
  Commercial Insurance & Veterans                 4.6%                 4.3%




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


                                                  For the
                                            Three Months Ended
                                                 March 31,

                                          AS
                                       REPORTED        PRO FORMA WITH PEAK
                                  -------------------  -------------------
                                         2006                 2005
                                  -------------------  -------------------

Revenues PPD - LTC:
  Medicare (Part A)               $            337.30  $            322.45
  Medicaid                        $            141.17  $            133.63
  Private and other               $            144.06  $            142.31
  Commercial Insurance & Veterans $            326.28  $            302.66

Revenues PPD - Hospitals:
  Medicare (Part A)               $          1,222.41  $          1,016.19
  Medicaid                        $            899.83  $            818.89
  Private and other               $          1,311.07  $          1,113.60
  Commercial Insurance & Veterans $          1,037.83  $            921.85



Revenues - Non-affiliated (in
 thousands):
 Inpatient Services:
  Medicare                        $            68,604  $            64,028
  Medicaid                                    102,289               97,475
  Private and other                            49,886               48,054
                                  -------------------  -------------------
   Subtotal                                   220,779              209,557

  Rehabilitation Therapy Services              25,758               23,977
  Medical Staffing Services                    21,318               14,868
  Home Health Services                         15,467               14,811
  Laboratory & Radiology Services               3,689                3,794
                                  -------------------  -------------------
   Subtotal                                    66,232               57,450
                                  -------------------  -------------------

  Other - non-core businesses                       3                    8
                                  -------------------  -------------------
    Total                         $           287,014  $           267,015
                                  ===================  ===================



Rehab contracts:
 Affiliated - continuing                           93                   90
 Non-affiliated                                   346                  317


DSO (Days Sales Outstanding):
 Inpatient Services - SNF                          37                   32
 Inpatient Services - Hospitals                    53                   65
 Rehabilitation Therapy Services                   94                   99
 Medical Staffing Services                         61                   57
 Home Health Services                              63                   56
 Laboratory & Radiology Services                   65                   77

Contact Information

  • Contact:

    Investor Inquiries
    (505) 468-2341

    Media Inquiries
    (505) 468-4582