SOURCE: Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc.

August 05, 2009 16:15 ET

Sun Healthcare Group, Inc. Reports Second-Quarter Earnings; $0.30 Normalized EPS; Continuing Margin Growth

IRVINE, CA--(Marketwire - August 5, 2009) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the second quarter ended June 30, 2009.

Consolidated Results - Second Quarter

Total net revenue for the quarter ended June 30, 2009, was $468.9 million, up 4.0 percent compared to $450.9 million for the comparable period one year ago. On a normalized basis, income from continuing operations for the quarter ended June 30, 2009, was $13.4 million, compared to $11.0 million for the comparable 2008 period. Normalized diluted earnings per share from continuing operations for the quarter ended June 30, 2009, was $0.30 compared to $0.25 for the comparable period one year ago. The table below shows results of operations for the quarter ended June 30, 2009 and 2008, including certain normalized items that have been adjusted as discussed following the table.

                                                         Actual Results
                                                      --------------------
                                                         Quarter Ended
(Dollars in thousands)                                      June 30,
                                                      --------------------
                                                        2009       2008
                                                      ---------  ---------
Revenue                                              $ 468,884  $ 450,933

Depreciation and amortization                           11,153      9,782

Interest expense, net                                   12,465     13,643

Pre-tax income                                          18,334     21,078

Income tax expense                                       7,517      8,445

Income from continuing operations                       10,817     12,633

Loss from discontinued operations                         (721)    (2,948)
                                                     ---------  ---------

                                                     ---------  ---------
Net income                                           $  10,096  $   9,685
                                                     =========  =========

                                                     ---------  ---------
Diluted earnings per share                           $    0.23  $    0.22
                                                     =========  =========

                                                     ---------  ---------
EBITDAR                                              $  60,260  $  63,037
                                                     =========  =========
  Margin - EBITDAR                                        12.9%      14.0%
                                                     =========  =========
EBITDAR normalized                                   $  64,560  $  60,387
                                                     =========  =========
  Margin - EBITDAR normalized                             13.8%      13.4%
                                                     =========  =========

                                                     ---------  ---------
EBITDA                                               $  41,992  $  44,503
                                                     =========  =========
  Margin - EBITDA                                          9.0%       9.9%
                                                     =========  =========
EBITDA normalized                                    $  46,292  $  41,853
                                                     =========  =========
  Margin - EBITDA normalized                               9.9%       9.3%
                                                     =========  =========

                                                     ---------  ---------
Pre-tax income continuing operations - normalized    $  22,634  $  18,428
                                                     =========  =========
Income tax expense - normalized                      $   9,280  $   7,385
                                                     =========  =========

                                                     ---------  ---------
Income from continuing operations - normalized       $  13,354  $  11,043
                                                     =========  =========
Diluted earnings per share - normalized              $    0.30  $    0.25
                                                     =========  =========

                                                     ---------  ---------
Net income - normalized                              $  12,981  $   7,873
                                                     =========  =========
Diluted earnings per share - normalized              $    0.30  $    0.18
                                                     =========  =========

Normalized results for the quarter ended June 30, 2009, include the pre-tax expense of $4.9 million to increase prior period self-insurance reserves ($0.6 million of which were related to discontinued operations). Normalized results for the quarter ended June 30, 2008, include pre-tax income of $3.0 million to decrease prior period self-insurance reserves ($0.4 million of which were related to discontinued operations). Also during the 2009 quarter, we incurred non-recurring costs of $0.9 million associated with the implementation of a new clinical/billing platform and a labor management system but made no normalizing adjustments for these costs.

On a normalized basis, comparing the quarter ended June 30, 2009, to the same period in 2008:

-- revenue increased $18.0 million, or 4.0 percent;
-- EBITDAR increased $4.2 million, or 6.9 percent;
-- EBITDAR margin improved 40 basis points to 13.8 percent;
-- EBITDA increased $4.4 million, or 10.6 percent;
-- EBITDA margin improved 60 basis points to 9.9 percent; and
-- income from continuing operations increased by $2.3 million, or
   20.9 percent.

Commenting on the results, Richard K. Matros, Sun's chairman and chief executive officer, stated, "Both occupancy and skilled mix days were soft for the quarter, with skilled mix days lower on a year-over-year basis for the first time. The company experienced a precipitous drop in those numbers early in April and took some time to recover. We are encouraged by the fact that June was higher than May, contrary to normal trends. Skilled mix as a percent of revenues did show growth for the quarter. Cost controls were excellent for the quarter, enabling the company to meet expectations, despite a $1.5 million increase in the provision for losses on accounts receivable, to reflect the slow down in payment on certain of our receivables."

Inpatient Business

For our core inpatient business, comparing the quarters ended June 30, 2009 and 2008, on a normalized basis:

-- revenue increased $16.9 million, or 4.2 percent, to $416.6 million from
   $399.7 million;
-- net segment EBITDAR increased $3.3 million, or 4.7 percent, to
   $74.3 million from $70.9 million;
-- net segment EBITDAR margin for 2009 was 17.8 percent compared to
   17.7 percent in 2008;
-- net segment EBITDA increased $3.6 million, or 6.9 percent, to
   $56.3 million from $52.7 million;
-- net segment EBITDA margin for 2009 was 13.5 percent compared to
   13.2 percent in 2008;
-- rehabilitation RUGS utilization increased 440 basis points to
   88.5 percent as a percentage of total Medicare days; and
-- Rehabilitation Extensive Service ("REX") days as a percentage of total
   Medicare days was 42.1 percent, up 300 basis points from the same period
   in 2008.

The revenue gain of $16.9 million in the quarter was primarily attributable to:

-- an $8.8 million increase in Medicaid revenue resulting from a
   $6.8 million rate improvement (partially offsetting this rate
   improvement was $2.2 million of provider tax costs, which are recorded
   as an expense), coupled with a $2.0 million impact from an increase
   in customer base;
-- a $4.4 million increase in Medicare revenue due principally to Medicare
   Part A rate growth and Part B volume growth;
-- a $3.3 million increase in hospice revenue due to a combination of
   internal growth and the full-quarter impact of our September 2008
   hospice acquisition;
-- a $2.0 million increase in managed care/commercial insurance revenue
   due principally to rate growth; and
-- a ($1.6) million decrease in private and other revenue due principally
   to a decline in customer base.

Matros further stated, "We continue to have success in our strategy to provide care to higher-acuity patients, both as a result of our Rehab Recovery Suites® ('RRS') as well as execution in the portfolio generally. We currently have 51 centers with an RRS unit and we remain on target to have approximately 70 centers with an RRS unit by the end of 2009. As noted above, our case mix continued to show growth, pushing skilled mix revenues up for the quarter. I would also note that while we are taking care of these higher-acuity patients, our clinical outcomes, including those measured by external survey agencies, are the best the company has ever experienced."

Ancillary Businesses

For our ancillary businesses comparing the quarters ended June 30, 2009 and 2008:

-- revenue increased $4.7 million, or 7.0 percent, to $71.2 million from
   $66.5 million;
-- EBITDA increased $0.4 million, or 7.9 percent, to $5.8 million from
   $5.3 million; and
-- EBITDA margin for 2009 was 8.1 percent compared to 8.0 percent in 2008.

Conference Call

Sun invites investors to listen to a conference call with Sun's senior management on Thursday, Aug. 6, 2009, at 10 a.m. Pacific / 1 p.m. Eastern, to discuss the Company's second-quarter earnings for 2009.

To listen to the conference call, dial (877) 397-0250 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on Aug. 6, 2009, until midnight Eastern on Sept. 5, 2009, by calling (888) 203-1112 and using access code 1409737.

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 healthcare 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 healthcare 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 and refinance indebtedness on favorable terms; the impact of the current economic downturn on our business; 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 Forms 10-K and 10-K/A and Quarterly Reports on Form 10-Q and 10-QA, 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

                        CONSOLIDATED BALANCE SHEETS
                    (in thousands, except share data)


                                                    June 30,   December 31,
                                                      2009        2008
                                                  -----------  -----------
                                                  (unaudited)  (unaudited)
                             ASSETS

Current assets:
  Cash and cash equivalents                       $    95,672  $    92,153
  Restricted cash                                      25,150       34,676
  Accounts receivable, net                            216,795      205,620
  Prepaid expenses and other assets                    23,141       21,456
  Assets held for sale                                    959        3,654
  Deferred tax assets                                  58,534       57,261
                                                  -----------  -----------
    Total current assets                              420,251      414,820

Property and equipment, net                           611,403      603,645
Intangible assets, net                                 50,723       54,388
Goodwill                                              327,020      326,808
Restricted cash, non-current                            3,308        3,303
Deferred tax assets                                   121,015      134,807
Other assets                                            5,068        5,563
                                                  -----------  -----------
      Total assets                                $ 1,538,788  $ 1,543,334
                                                  ===========  ===========


              LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                $    56,821  $    62,000
  Accrued compensation and benefits                    61,031       60,660
  Accrued self-insurance obligations, current          48,619       45,293
  Other accrued liabilities                            55,831       56,857
  Current portion of long-term debt and capital
   lease obligations                                    8,260       17,865
                                                  -----------  -----------
  Total current liabilities                           230,562      242,675

Accrued self-insurance obligations, net of
 current portion                                      112,482      114,557
Long-term debt and capital lease obligations, net
 of current portion                                   696,022      707,976
Unfavorable lease obligations, net                     14,092       15,514
Other long-term liabilities                            59,045       58,903
                                                  -----------  -----------
  Total liabilities                                 1,112,203    1,139,625


Stockholders' equity:
  Preferred stock of $.01 par value, authorized
   10,000,000 shares, no shares were issued and
   outstanding as of June 30, 2009 and
   December 31, 2008                                        -            -
  Common stock of $.01 par value, authorized
   125,000,000 shares, 43,720,116 and
   43,544,765 shares issued and outstanding
   as of June 30, 2009 and December 31, 2008,
   respectively                                           437          435
  Additional paid-in capital                          652,773      650,543
  Accumulated deficit                                (222,344)    (242,683)
  Accumulated other comprehensive loss, net            (4,281)      (4,586)
                                                  -----------  -----------
                                                      426,585      403,709
                                                  -----------  -----------
  Total liabilities and stockholders' equity      $ 1,538,788  $ 1,543,334
                                                  ===========  ===========



                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
                                              June 30, 2009  June 30, 2008
                                              -------------  -------------
                                               (unaudited)    (unaudited)

Total net revenues                            $     468,884  $     450,933
                                              -------------  -------------
Costs and expenses:
  Operating salaries and benefits                   262,039        252,088
  Self-insurance for workers' compensation and
   general and professional liability
   insurance                                         16,815         11,697
  Operating administrative costs                     13,192         12,944
  Other operating costs                              94,563         92,179
  Center rent expense                                18,268         18,534
  General and administrative expenses                15,721         16,111
  Depreciation and amortization                      11,153          9,782
  Provision for losses on accounts receivable         6,294          2,877
  Interest, net of interest income of $96 and
   $569, respectively                                12,465         13,643
 Loss on sale of assets, net                             40              -
                                              -------------  -------------
Total costs and expenses                            450,550        429,855
                                              -------------  -------------

Income before income taxes and discontinued
 operations                                          18,334         21,078
Income tax expense                                    7,517          8,445
                                              -------------  -------------
Income from continuing operations                    10,817         12,633
                                              -------------  -------------

Discontinued operations:
  Loss from discontinued operations, net of
   related taxes                                       (714)        (1,141)
  Loss on disposal of discontinued operations,
   net of related taxes                                  (7)        (1,807)
                                              -------------  -------------
Loss from discontinued operations, net                 (721)        (2,948)
                                              -------------  -------------

Net income                                    $      10,096  $       9,685
                                              =============  =============


Basic income per common and common equivalent
 share:
  Income from continuing operations           $        0.25  $        0.29
  Loss from discontinued operations, net              (0.02)         (0.07)
                                              -------------  -------------
Net income                                    $        0.23  $        0.22
                                              =============  =============

Diluted income per common and common
 equivalent share:
  Income from continuing operations           $        0.25  $        0.29
  Loss from discontinued operations, net              (0.02)         (0.07)
                                              -------------  -------------
Net Income                                    $        0.23  $        0.22
                                              =============  =============

Weighted average number of common and
 common equivalent shares outstanding:
  Basic                                              43,851         43,188
  Diluted                                            43,960         43,928



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                 For the        For the
                                               Six Months     Six Months
                                                  Ended          Ended
                                              June 30, 2009  June 30, 2008
                                              -------------  -------------
                                               (unaudited)    (unaudited)

Total net revenues                            $     937,180  $     901,302
                                              -------------  -------------
Costs and expenses:
  Operating salaries and benefits                   525,023        507,019
  Self-insurance for workers' compensation and
   general and professional liability insurance      31,474         26,471
  Operating administrative costs                     25,769         24,880
  Other operating costs                             190,382        185,121
  Center rent expense                                36,683         36,975
  General and administrative expenses                32,471         32,697
  Depreciation and amortization                      21,876         19,389
  Provision for losses on accounts receivable        10,281          6,184
  Interest, net of interest income of $203 and
   $1,114, respectively                              25,191         28,074
  Loss (gain) on sale of assets, net                     41            (76)
                                              -------------  -------------
Total costs and expenses                            899,191        866,734
                                              -------------  -------------

Income before income taxes and discontinued
 operations                                          37,989         34,568
Income tax expense                                   15,575         13,833
                                              -------------  -------------
Income from continuing operations                    22,414         20,735
                                              -------------  -------------

Discontinued operations:
  Loss from discontinued operations, net of
   related taxes                                     (1,760)          (604)
  Loss on disposal of discontinued operations,
   net of related taxes                                (315)        (1,869)
                                              -------------  -------------
Loss from discontinued operations, net               (2,075)        (2,473)
                                              -------------  -------------

Net income                                    $      20,339  $      18,262
                                              =============  =============


Basic income per common and common equivalent
 share:
  Income from continuing operations           $        0.51  $        0.48
  Loss from discontinued operations, net              (0.05)         (0.06)
                                              -------------  -------------
Net income                                    $        0.46  $        0.42
                                              =============  =============

Diluted income per common and common
 equivalent share:
  Income from continuing operations           $        0.51  $        0.47
  Loss from discontinued operations, net              (0.05)         (0.06)
                                              -------------  -------------
Net Income                                    $        0.46  $        0.41
                                              =============  =============

Weighted average number of common and
 common equivalent shares outstanding:
  Basic                                              43,748         43,122
  Diluted                                            43,891         44,034




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)

                                                   For the       For the
                                                Three Months  Three Months
                                                    Ended         Ended
                                                June 30, 2009 June 30, 2008
                                                ------------- -------------
                                                 (unaudited)   (unaudited)

Cash flows from operating activities:
 Net income                                     $     10,096  $      9,685
 Adjustments to reconcile net income to net
  cash provided by operating activities,
  including discontinued operations:
    Depreciation and amortization                     11,153         9,883
    Amortization of favorable and unfavorable
     lease intangibles                                  (474)         (488)
    Provision for losses on accounts receivable        6,294         3,210
    Loss on sale of assets, including
     discontinued operations, net                         53         1,732
    Impairment charge for discontinued operation           -         1,800
    Stock-based compensation expense                   1,641         1,368
    Deferred taxes                                     6,345         6,442
    Other                                                  -            79
 Changes in operating assets and liabilities,
  net of acquisitions:
    Accounts receivable                              (11,599)       (3,512)
    Restricted cash                                    1,415         3,058
    Prepaid expenses and other assets                   (392)       (1,905)
    Accounts payable                                  (1,527)       (1,727)
    Accrued compensation and benefits                 (3,907)       (4,713)
    Accrued self-insurance obligations                   344        (2,268)
    Income taxes payable                                   -         1,121
    Other accrued liabilities                         (5,571)      (10,049)
    Other long-term liabilities                          885         4,266
                                                ------------  ------------
     Net cash provided by operating activities        14,756        17,982
                                                ------------  ------------

Cash flows from investing activities:
 Capital expenditures                                (13,137)      (10,223)
 Purchase of leased real estate                       (3,275)         (727)
 Proceeds from sale of assets held for sale                -           180
 Acquisitions, net of cash acquired                        -            (6)
 Insurance proceeds received for damaged property          -            75
                                                ------------  ------------
    Net cash used for investing activities           (16,412)      (10,701)
                                                ------------  ------------

Cash flows from financing activities:
 Borrowings of long-term debt                              -        20,290
 Principal repayments of long-term debt and
  capital lease obligations                           (2,075)      (22,115)
 Distribution to non-controlling interest               (549)            -
 Proceeds from issuance of common stock                    7            31
                                                ------------  ------------
    Net cash used for financing activities            (2,617)       (1,794)
                                                ------------  ------------

Net (decrease) increase in cash and cash
 equivalents                                          (4,273)        5,487
Cash and cash equivalents at beginning of period      99,945        62,882
                                                ------------  ------------
Cash and cash equivalents at end of period      $     95,672  $     68,369
                                                ============  ============



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)



                                                   For the       For the
                                                 Six Months    Six Months
                                                    Ended         Ended
                                                June 30, 2009 June 30, 2008
                                                ------------- -------------
                                                 (unaudited)   (unaudited)

Cash flows from operating activities:
 Net income                                     $     20,339  $     18,262
 Adjustments to reconcile net income to net
  cash provided by operating activities,
  including discontinued operations:
    Depreciation and amortization                     21,876        19,600
    Amortization of favorable and unfavorable
     lease intangibles                                  (876)         (991)
    Provision for losses on accounts receivable       10,281         6,511
    Loss on sale of assets, including
     discontinued operations, net                        575         1,716
    Impairment charge for discontinued operation           -         1,800
    Stock-based compensation expense                   2,909         2,333
    Deferred taxes                                    12,519         8,271
    Other                                                  -            79
 Changes in operating assets and liabilities,
  net of acquisitions:
    Accounts receivable                              (21,667)      (19,552)
    Restricted cash                                    9,521         3,063
    Prepaid expenses and other assets                   (238)       (5,321)
    Accounts payable                                  (5,063)       (3,130)
    Accrued compensation and benefits                    366        (3,651)
    Accrued self-insurance obligations                 1,251          (235)
    Income taxes payable                                   -         1,591
    Other accrued liabilities                           (825)       (3,617)
    Other long-term liabilities                        1,181         6,052
                                                ------------  ------------
     Net cash provided by operating activities        52,149        32,781
                                                ------------  ------------

Cash flows from investing activities:
 Capital expenditures                                (25,002)      (16,139)
 Purchase of leased real estate                       (3,275)         (727)
 Proceeds from sale of assets held for sale            2,174         3,957
 Acquisitions, net of cash acquired                        -          (313)
 Insurance proceeds received for damaged property          -            75
                                                ------------  ------------
    Net cash used for investing activities           (26,103)      (13,147)
                                                ------------  ------------

Cash flows from financing activities:
 Borrowings of long-term debt                              -        20,290
 Principal repayments of long-term debt and
  capital lease obligations                          (21,687)      (25,199)
 Payment to non-controlling interest                       -        (2,035)
 Distribution to non-controlling interest               (860)         (223)
 Proceeds from issuance of common stock                   20            70
                                                ------------  ------------
    Net cash used for financing activities           (22,527)       (7,097)
                                                ------------  ------------

Net increase in cash and cash equivalents              3,519        12,537
Cash and cash equivalents at beginning of period      92,153        55,832
                                                ------------  ------------
Cash and cash equivalents at end of period      $     95,672  $     68,369
                                                ============  ============




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                  For the       For the
                                                Three Months  Three Months
                                                    Ended         Ended
                                                June 30, 2009 June 30, 2008
                                                ------------- -------------
                                                 (unaudited)   (unaudited)

Total net revenues                              $     468,884 $     450,933
                                                ------------- -------------

Net income                                      $      10,096 $       9,685
                                                ------------- -------------

  Income from continuing operations                    10,817        12,633

  Income tax expense                                    7,517         8,445

  Loss on sale of assets, net                              40             -
                                                ------------- -------------

Net segment income                              $      18,374 $      21,078

  Interest, net                                        12,465        13,643

  Depreciation and amortization                        11,153         9,782
                                                ------------- -------------

EBITDA                                          $      41,992 $      44,503

  Center rent expense                                  18,268        18,534
                                                ------------- -------------

EBITDAR                                         $      60,260 $      63,037
                                                ============= =============


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. EBITDAR is defined as EBITDA before facility rent expense. EBITDA and EBITDAR are used by management to evaluate financial performance and resource allocation for each entity within the operating units and for the Company as a whole. EBITDA and EBITDAR are commonly used as analytical indicators within the healthcare industry and also serve as measures of leverage capacity and debt service ability. EBITDA and EBITDAR should not be considered as measures of financial performance under generally accepted accounting principles. As the items excluded from EBITDA and EBITDAR are significant components in understanding and assessing financial performance, EBITDA and EBITDAR 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 and EBITDAR are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations, EBITDA and EBITDAR 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 and EBITDAR
                              (in thousands)

                                                  For the       For the
                                                Six Months    Six Months
                                                   Ended         Ended
                                               June 30, 2009 June 30, 2008
                                               ------------- -------------
                                                (unaudited)   (unaudited)

Total net revenues                             $     937,180 $     901,302
                                               ------------- -------------

Net income                                     $      20,339 $      18,262
                                               ------------- -------------

  Income from continuing operations                   22,414        20,735

  Income tax expense                                  15,575        13,833

  Loss (gain) on sale of assets, net                      41           (76)
                                               ------------- -------------

Net segment income                             $      38,030 $      34,492

  Interest, net                                       25,191        28,074

  Depreciation and amortization                       21,876        19,389
                                               ------------- -------------

EBITDA                                         $      85,097 $      81,955

  Center rent expense                                 36,683        36,975
                                               ------------- -------------

EBITDAR                                        $     121,780 $     118,930
                                               ============= =============

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 EBITDAR is defined as EBITDA before facility rent expense. EBITDA and EBITDAR are used by management to evaluate financial performance and resource allocation for each entity within the operating units and for the Company as a whole. EBITDA and EBITDAR are commonly used as analytical indicators within the healthcare industry and also serve as measures of leverage capacity and debt service ability. EBITDA and EBITDAR should not be considered as measures of financial performance under generally accepted accounting principles. As the items excluded from EBITDA and EBITDAR are significant components in understanding and assessing financial performance, EBITDA and EBITDAR 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 and EBITDAR are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations, EBITDA and EBITDAR 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 and EBITDAR
                             ($ in thousands)

                 For the Three Months Ended June 30, 2009
                                (unaudited)



                                                     Elimination
                    Rehabilitation Medical               of
           Inpatient   Therapy    Staffing  Other &  Affiliated
           Services    Services   Services  Corp Seg   Revenue Consolidated
           ---------  ----------  --------  --------  ---------  ---------
Nonaffiliated
 revenue   $ 416,622  $   26,155  $ 26,097  $     10  $       -  $ 468,884
Affiliated
 revenue           -      18,360       563         -    (18,923)         -
           ---------  ----------  --------  --------  ---------  ---------
 Total
  revenue    416,622      44,515    26,660        10    (18,923)   468,884

Net
 segment
 income
 (loss)    $  38,816  $    3,111  $  2,289  $(25,842) $       -  $  18,374
Interest,
 net           3,111           -        (1)    9,355          -     12,465
Depreciation
and
amortization  10,118         131       232       672          -     11,153
           ---------  ----------  --------  --------  ---------  ---------

 EBITDA    $  52,045  $    3,242  $  2,520  $(15,815) $       -  $  41,992
Center
 rent
 expense      17,921         114       233         -          -     18,268
           ---------  ----------  --------  --------  ---------  ---------

 EBITDAR   $  69,966  $    3,356  $  2,753  $(15,815) $       -  $  60,260
           =========  ==========  ========  ========  =========  =========

 Normalized
  EBITDA   $  56,345  $    3,242  $  2,520  $(15,815) $       -  $  46,292
 Normalized
  EBITDAR  $  74,266  $    3,356  $  2,753  $(15,815) $       -  $  64,560


 EBITDA
  margin        12.5%        7.3%      9.5%                            9.0%
 EBITDAR
  margin        16.8%        7.5%     10.3%                           12.9%
 Normalized
  EBITDA
  margin        13.5%        7.3%      9.5%                            9.9%
 Normalized
  EBITDAR
  margin        17.8%        7.5%     10.3%                           13.8%

  See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net
   Income to EBITDA and EBITDAR"
  See normalizing adjustments in the table "Normalizing Adjustments -
   Quarter Comparison"




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                  For the Six Months Ended June 30, 2009
                                (unaudited)



                                                     Elimination
                    Rehabilitation Medical               of
           Inpatient   Therapy    Staffing  Other &  Affiliated
           Services    Services   Services  Corp Seg   Revenue Consolidated
           ---------  ----------  --------  --------  ---------  ---------
Nonaffiliated
 revenue   $ 832,025  $   51,670  $ 53,471  $     14  $       -  $ 937,180
Affiliated
 revenue           -      36,576     1,123         -    (37,699)         -
           ---------  ----------  --------  --------  ---------  ---------
 Total
  revenue    832,025      88,246    54,594        14    (37,699)   937,180

Net
 segment
 income
 (loss)    $  80,604  $    6,000  $  4,310  $(52,884) $       -  $  38,030
Interest,
 net           6,322          (2)       (1)   18,872          -     25,191
Depreciation
and
amortization  19,846         259       422     1,349          -     21,876
           ---------  ----------  --------  --------  ---------  ---------

 EBITDA    $ 106,772  $    6,257  $  4,731  $(32,663) $       -  $  85,097
Center
 rent
 expense      35,977         229       477         -          -     36,683
           ---------  ----------  --------  --------  ---------  ---------

 EBITDAR   $ 142,749  $    6,486  $  5,208  $(32,663) $       -  $ 121,780
           =========  ==========  ========  ========  =========  =========

 Normalized
  EBITDA   $ 111,072  $    6,257  $  4,731  $(32,663) $       -  $  89,397
 Normalized
  EBITDAR  $ 147,049  $    6,486  $  5,208  $(32,663) $       -  $ 126,080


 EBITDA
  margin        12.8%        7.1%      8.7%                            9.1%
 EBITDAR
  margin        17.2%        7.3%      9.5%                           13.0%
 Normalized
  EBITDA
  margin        13.3%        7.1%      8.7%                            9.5%
 Normalized
  EBITDAR
  margin        17.7%        7.3%      9.5%                           13.5%

  See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net
   Income to EBITDA and EBITDAR"
  See normalizing adjustments in the table "Normalizing Adjustments -
   Quarter Comparison"




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                 For the Three Months Ended June 30, 2008
                                (unaudited)



                                                     Elimination
                    Rehabilitation Medical               of
           Inpatient   Therapy    Staffing  Other &  Affiliated
           Services    Services   Services  Corp Seg   Revenue Consolidated
           ---------  ----------  --------  --------  ---------  ---------
Nonaffiliated
 revenue   $ 399,686  $   21,142  $ 30,096  $      9  $       -  $ 450,933
Affiliated
 revenue           -      14,462       794         -    (15,256)         -
           ---------  ----------  --------  --------  ---------  ---------
 Total
  revenue    399,686      35,604    30,890         9    (15,256)   450,933

Net
 segment
 income
 (loss)    $  43,382  $    2,562  $  2,456  $(27,322) $       -  $  21,078
Interest,
 net           3,263           -        (8)   10,388          -     13,643
Depreciation
and
amortization   8,733         132       200       717          -      9,782
           ---------  ----------  --------  --------  ---------  ---------

 EBITDA    $  55,378  $    2,694  $  2,648  $(16,217) $       -  $  44,503
Center
 rent
 expense      18,195          99       240         -          -     18,534
           ---------  ----------  --------  --------  ---------  ---------

 EBITDAR   $  73,573  $    2,793  $  2,888  $(16,217) $       -  $  63,037
           =========  ==========  ========  ========  =========  =========

 Normalized
  EBITDA   $  52,728  $    2,694  $  2,648  $(16,217) $       -  $  41,853
 Normalized
  EBITDAR  $  70,923  $    2,793  $  2,888  $(16,217) $       -  $  60,387


 EBITDA
  margin        13.9%        7.6%      8.6%                            9.9%
 EBITDAR
  margin        18.4%        7.8%      9.3%                           14.0%
 Normalizeded
  EBITDA
  margin        13.2%        7.6%      8.6%                            9.3%
 Normalized
  EBITDAR
  margin        17.7%        7.8%      9.3%                           13.4%

  See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net
   Income to EBITDA and EBITDAR"
  See normalizing adjustments in the table "Normalizing Adjustments -
   Quarter Comparison"




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                  For the Six Months Ended June 30, 2008
                                (unaudited)



                                                     Elimination
                    Rehabilitation Medical               of
           Inpatient   Therapy    Staffing  Other &  Affiliated
           Services    Services   Services  Corp Seg   Revenue Consolidated
           ---------  ----------  --------  --------  ---------  ---------
Nonaffiliated
 revenue   $ 798,666  $   42,851  $ 59,764  $     21  $       -  $ 901,302
Affiliated
 revenue           -      28,752     1,328         -    (30,080)         -
           ---------  ----------  --------  --------  ---------  ---------
 Total
  revenue    798,666      71,603    61,092        21    (30,080)   901,302

Net
 segment
 income
 (loss)    $  81,227  $    4,690  $  4,388  $(55,813) $       -  $  34,492
Interest,
 net           6,582          (1)       (9)   21,502          -     28,074
Depreciation
and
amortization  17,332         258       395     1,404          -     19,389
           ---------  ----------  --------  --------  ---------  ---------

 EBITDA    $ 105,141  $    4,947  $  4,774  $(32,907) $       -  $  81,955
Center
 rent
 expense      36,302         185       488         -          -     36,975
           ---------  ----------  --------  --------  ---------  ---------

 EBITDAR   $ 141,443  $    5,132  $  5,262  $(32,907) $       -  $ 118,930
           =========  ==========  ========  ========  =========  =========

 Normalized
  EBITDA   $ 103,438  $    4,947  $  4,774  $(32,385) $       -  $  80,774
 Normalized
  EBITDAR  $ 139,740  $    5,132  $  5,262  $(32,385) $       -  $ 117,749


 EBITDA
  margin        13.2%        6.9%      7.8%                            9.1%
 EBITDAR
  margin        17.7%        7.2%      8.6%                           13.2%
 Normalized
  EBITDA
  margin        13.0%        6.9%      7.8%                            9.0%
 Normalized
  EBITDAR
  margin        17.5%        7.2%      8.6%                           13.1%

  See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net
   Income to EBITDA and EBITDAR"
  See normalizing adjustments in the table "Normalizing Adjustments -
   Quarter Comparison"




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


                        For the                       For the
                   Three Months Ended             Six Months Ended
                        June 30,                      June 30,
                ------------------------      ------------------------
                  2009           2008           2009           2008
Consolidated
 Company
                --------- ---  --------- ---  --------- ---  --------- ---
Revenues -
 Non-affiliated
 (in thousands)
  Inpatient
   Services     $ 416,622      $ 399,686        832,025        798,666
  Rehabilitatiion
   Therapy
   Services        26,155         21,142         51,670         42,851
  Medical
   Staffing
   Services        26,097         30,096         53,471         59,764
  Other -
   non-core
   businesses          10              9             14             21
                ---------      ---------      ---------      ---------
    Total       $ 468,884      $ 450,933      $ 937,180      $ 901,302
                =========      =========      =========      =========


Revenue Mix -
 Non-affiliated
 (in thousands)
  Medicare      $ 137,863  29% $ 129,151  29%   279,739  30%   258,308  29%
  Medicaid        188,030  40%   179,166  40%   369,480  39%   358,083  40%
  Private and
   Other          112,955  24%   115,167  25%   227,619  24%   231,898  25%
  Managed Care
   / Insurance     25,789   6%    23,720   5%    52,198   6%    45,743   5%
  Veterans          4,247   1%     3,729   1%     8,144   1%     7,270   1%
                --------- ---  --------- ---  --------- ---  --------- ---
    Total       $ 468,884 100% $ 450,933 100% $ 937,180 100% $ 901,302 100%
                ========= ===  ========= ===  ========= ===  ========= ===



Inpatient
 Services Stats
                --------- ---  --------- ---  --------- ---  --------- ---
 Number of
  centers:            207            207            207            207
 Number of
  available
  beds:            22,527         22,529         22,527         22,529
 Occupancy %:        87.7%          89.0%          88.2%          89.2%


 Payor Mix %
  based on
  patient days:
   Medicare -
    SNF Beds         15.6%          16.6%          16.1%          16.6%
   Managed care
    / Ins. -
    SNF Beds          4.1%           4.1%           4.2%           3.9%
                ---------      ---------      ---------      ---------
    Total SNF
     skilled
     mix             19.7%          20.7%          20.3%          20.5%
                ---------      ---------      ---------      ---------
  Medicare           14.2%          15.1%          14.6%          15.1%
  Medicaid           60.8%          59.3%          60.3%          59.2%
  Private and
   Other             20.2%          20.9%          20.3%          21.2%
  Managed Care
   / Insurance        3.8%           3.7%           3.8%           3.6%
  Veterans            1.0%           1.0%           1.0%           0.9%

 Revenue Mix %
  of revenues:
   Medicare -
    SNF Beds         32.6%          32.7%          33.2%          32.7%
   Managed care
    / Ins. -
    SNF Beds          6.5%           6.2%           6.6%           6.0%
                ---------      ---------      ---------      ---------
    Total SNF
     skilled
     mix             39.1%          38.9%          39.8%          38.7%
                ---------      ---------      ---------      ---------
  Medicare           32.1%          31.6%          32.6%          31.7%
  Medicaid           45.1%          44.8%          44.4%          44.8%
  Private and
   Other             15.7%          16.8%          15.8%          16.9%
  Managed Care
   / Insurance        6.1%           5.9%           6.2%           5.7%
  Veterans            1.0%           0.9%           1.0%           0.9%


 Revenues PPD:
  LTC only
   Medicare
   (Part A)     $  454.42      $  415.73      $  452.39      $  414.31
  Medicare
   Blended Rate
   (Part A & B) $  494.37      $  444.96      $  489.93      $  443.35
  Medicaid      $  171.77      $  165.45      $  170.25      $  165.25
  Private and
   Other        $  174.63      $  170.06      $  175.46      $  169.80
  Managed Care
   / Insurance  $  376.44      $  348.64      $  375.17      $  345.87
  Veterans      $  234.73      $  213.59      $  227.45      $  211.23


Rehab contracts
                --------- ---  --------- ---  --------- ---  --------- ---
 Affiliated           121            108            121            108
 Non-affiliated       326            317            326            317




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                             AS REPORTED - 2nd QUARTER 2009
             -------------------------------------------------------------
                                               Income from
                                                Continuing  Disc     Net
             Revenue  EBITDAR  EBITDA   Pre-tax Operations  Ops     Income
             -------- -------  -------  -------  -------  -------  -------

As Reported -
 2nd QUARTER
 2009        $468,884 $60,260  $41,992  $18,334  $10,817  $  (721) $10,096
  Percent of
   Revenue               12.9%     9.0%     3.9%     2.3%    -0.2%     2.2%
Normalizing
 Adjustments:
 Prior periods'
  self-insurance
  costs             -   4,300    4,300    4,300    2,537      348    2,885
             -------- -------  -------  -------  -------  -------  -------

Adjusted As
 Reported -
 2nd QUARTER
 2009        $468,884 $64,560  $46,292  $22,634  $13,354  $  (373) $12,981
             ======== =======  =======  =======  =======  =======  =======
  Percent of
   Revenue               13.8%     9.9%     4.8%     2.8%    -0.1%     2.8%

Diluted EPS:
  As Reported                                    $  0.25  $ (0.02) $  0.23
  As Adjusted                                    $  0.30  $ (0.01) $  0.30



                             AS REPORTED - 2nd QUARTER 2008
             -------------------------------------------------------------
                                               Income from
                                                Continuing  Disc     Net
             Revenue  EBITDAR  EBITDA   Pre-tax Operations  Ops     Income
             -------- -------  -------  -------  -------  -------  -------
As Reported -
 2nd QUARTER
 2008        $450,933 $63,037  $44,503  $21,078  $12,633  $(2,948) $ 9,685
  Percent of
   Revenue               14.0%     9.9%     4.7%     2.8%    -0.7%     2.1%
Normalizing
 Adjustments:
 Release of
  insurance
  reserves
  related to
  prior periods     -  (2,650)  (2,650)  (2,650)  (1,590)    (222)  (1,812)
             -------- -------  -------  -------  -------  -------  -------

Adjusted As
 Reported -
 2nd QUARTER
 2008        $450,933 $60,387  $41,853  $18,428  $11,043  $(3,170) $ 7,873
             ======== =======  =======  =======  =======  =======  =======
  Percent of
   Revenue               13.4%     9.3%     4.1%     2.4%    -0.7%     1.7%

 Diluted EPS:
  As Reported                                    $  0.29  $ (0.07) $  0.22
  As Adjusted                                    $  0.25  $ (0.07) $  0.18


See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net
Income to EBITDA and EBITDAR".

Normalizing adjustments are transactions or adjustments not related to
ongoing operations and consist of prior periods' self-insurance costs.

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



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                             AS REPORTED -SIX MONTHS 2009
            --------------------------------------------------------------
                                               Income from
                                                Continuing  Disc     Net
            Revenue  EBITDAR   EBITDA   Pre-tax Operations  Ops    Income
            -------- --------  -------  -------  -------  -------  -------

As Reported -
 Six Months
 2009       $937,180 $121,780  $85,097  $37,989  $22,414  $(2,075) $20,339
  Percent of
   Revenue               13.0%     9.1%     4.1%     2.4%    -0.2%     2.2%

Normalizing
 Adjustments:
 Prior periods'
  self-insurance
  costs            -    4,300    4,300    4,300    2,537      348    2,885
            -------- --------  -------  -------  -------  -------  -------

Adjusted As
 Reported -
 Six Months
 2009       $937,180 $126,080  $89,397  $42,289  $24,951  $(1,727) $23,224
            ======== ========  =======  =======  =======  =======  =======
  Percent of
   Revenue               13.5%     9.5%     4.5%     2.7%    -0.2%     2.5%

 Diluted EPS:
  As Reported                                    $  0.51  $ (0.05) $  0.46
  As Adjusted                                    $  0.57  $ (0.04) $  0.53




                             AS REPORTED -SIX MONTHS 2008
            --------------------------------------------------------------
                                               Income from
                                                Continuing  Disc     Net
            Revenue  EBITDAR   EBITDA   Pre-tax Operations  Ops    Income
            -------- --------  -------  -------  -------  -------  -------

As Reported -
 Six Months
 2008       $901,302 $118,930  $81,955  $34,568  $20,735  $(2,473) $18,262
  Percent of
   Revenue               13.2%     9.1%     3.8%     2.3%    -0.3%     2.0%

Normalizing
 Adjustments:
 Release of
  insurance
  reserves
  related to
  prior periods    -   (2,650)  (2,650)  (2,650)  (1,590)    (222)  (1,812)
 Harborside
  integration
  costs            -    1,469    1,469    1,469      881        -      881
            -------- --------  -------  -------  -------  -------  -------

Adjusted As
 Reported -
 Six Months
 2008       $901,302 $117,749  $80,774  $33,387  $20,026  $(2,695) $17,331
            ======== ========  =======  =======  =======  =======  =======
  Percent of
   Revenue               13.1%     9.0%     3.7%     2.2%    -0.3%     1.9%

 Diluted EPS:
  As Reported                                    $  0.47  $ (0.06) $  0.41
  As Adjusted                                    $  0.45  $ (0.06) $  0.39



See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net
Income to EBITDA and EBITDAR".

Normalizing adjustments are transactions or adjustments not related to
ongoing operations and consist of prior periods' self-insurance costs and
integration costs related to the Harborside 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

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    (505) 468-4582