SOURCE: Sun Healthcare Group, Inc.

August 06, 2008 16:30 ET

Sun Healthcare Group, Inc. Reports Second Quarter Earnings; Skilled Mix Growth Continues to Drive Results

IRVINE, CA--(Marketwire - August 6, 2008) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the second quarter ended June 30, 2008.

Consolidated Results

Total net revenue for the quarter ended June 30, 2008, was $454.2 million, up 5.6 percent compared to $430.0 million for the same period one year ago. On a normalized basis, income from continuing operations for the quarter ended June 30, 2008, was $11.1 million, up 44.2 percent compared to $7.7 million of normalized income from continuing operations for the same period one year ago. Normalized diluted earnings per share from continuing operations for the quarter ended June 30, 2008, was $0.25 compared to $0.18 for the same period one year ago.


 (Dollars in thousands)                              Quarter Ended June 30,
                                                      --------------------
                                                        2008       2007
                                                      ---------  ---------

 Revenue                                              $ 454,192  $ 429,979

 Depreciation and amortization                            9,818      9,659

 Interest expense, net                                   13,643     11,999

 Income from continuing operations                       12,727     10,634

 (Loss) income from discontinued operations              (3,042)     2,406
                                                      ---------  ---------

                                                      ---------  ---------
 Net income                                           $   9,685  $  13,040
                                                      =========  =========

                                                      ---------  ---------
 Diluted earnings per share                           $    0.22  $    0.30
                                                      =========  =========

                                                      ---------  ---------
 EBITDAR                                              $  63,430  $  58,882
                                                      =========  =========
    Margin - EBITDAR                                       14.0%      13.7%
                                                      =========  =========
 EBITDAR normalized                                   $  60,780  $  53,791
                                                      =========  =========
    Margin - EBITDAR normalized                            13.4%      12.5%
                                                      =========  =========

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

                                                      ---------  ---------
 EBITDA                                               $  44,673  $  38,020
                                                      =========  =========
    Margin - EBITDA                                         9.8%       8.8%
                                                      =========  =========
 EBITDA normalized                                    $  42,023  $  32,929
                                                      =========  =========
    Margin - EBITDA normalized                              9.3%       7.7%
                                                      =========  =========

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

                                                      ---------  ---------
 Income from continuing operations - normalized       $  11,137  $   7,725
                                                      =========  =========
 Diluted earnings per share - normalized              $    0.25  $    0.18
                                                      =========  =========

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

                                                      ---------  ---------
 Net income - normalized                              $   7,873  $   8,152
                                                      =========  =========
 Diluted earnings per share - normalized              $    0.18  $    0.19
                                                      =========  =========

Normalized results for the quarter ended June 30, 2008, include pre-tax adjustments for $3.0 million of income from adjustments of prior period self-insurance reserves ($0.4 million of which were related to discontinued operations). Normalized results for the quarter ended June 30, 2007, include pre-tax adjustments for $9.0 million of income from adjustments of prior period self-insurance reserves ($3.0 million of which were related to discontinued operations), a $0.9 million charge related to integration costs associated with the acquisition of Harborside Healthcare Corporation ("Harborside") and a $0.6 million charge associated with the refinancing of debt agreements.

On a normalized basis, comparing the quarter ended June 30, 2008, to the same period in 2007:

--  revenue increased $24.2 million, or 5.6 percent;
--  EBITDAR increased $7.0 million, or 13.0 percent;
--  EBITDAR margin improved 90 basis points to 13.4 percent;
--  EBITDA increased $9.1 million, or 27.6 percent;
--  EBITDA margin improved 160 basis points to 9.3 percent; and
--  income from continuing operations increased $3.4 million, or 44.2
    percent.
    

Commenting on the results, Richard K. Matros, chairman and chief executive officer of Sun, stated, "We continue to generate strong operating results and are achieving our goals regarding improving same store margins. Our second quarter produced our highest margins to date, and our margin growth continues to be one of the strongest in the industry. Our positive operating results were somewhat tempered by the severe flood damage to our center in Terre Haute, Indiana. I am very proud of how our employees quickly responded to this natural disaster to ensure a safe evacuation of all residents and employees from the center in a responsible and caring manner."

As a result of the flood damage, operating results for the Terre Haute center have been reclassified to discontinued operations for all periods presented, and a related $1.8 million pre-tax impairment charge was recorded in the quarter. In addition, during the quarter a lease of a Tennessee nursing center was not renewed. Operating results for this center have also been reclassified to discontinued operations for all periods presented. The combined quarterly impact of the reclassification of both the Terre Haute center and the Tennessee center on the previously reported 2007 second quarter was a $4.6 million decrease in revenue, a $0.8 million decrease in EBITDAR and a $0.7 million decrease in EBITDA.

On July 1, 2008, Sun received $9.5 million in cash proceeds from the sale of two stand-alone hospitals. The sale was recorded in the second quarter and resulted in a pre-tax loss of $2.7 million to discontinued operations.

Sun realized $3.2 million in synergies in the second quarter from the integration of Harborside's operations. To date, these synergies have aggregated $14.1 million. Management expects to complete the 2008 year by achieving synergies closer to its high-end estimate of $15.0 million.

Inpatient Business

For its core inpatient business, on a normalized basis comparing the quarter ended June 30, 2008, to the same period in 2007:

Quarter ended June 30, 2008:

--  revenue increased $21.8 million, or 5.7 percent, to $402.9 million
    from $381.1 million;
--  net segment EBITDAR increased $5.9 million, or 9.1 percent, to $71.3
    million from $65.4 million;
--  net segment EBITDAR margin for 2008 was 17.7 percent compared to 17.2
    percent in 2007;
--  net segment EBITDA increased $8.1 million, or 18.1 percent, to $52.9
    million from $44.8 million;
--  net segment EBITDA margin for 2008 was 13.1 percent compared to 11.8
    percent in 2007;
--  net segment income increased $7.2 million, or 21.2 percent, to $40.9
    million from $33.7 million;
--  rehabilitation RUGS utilization increased 180 basis points to 84.2
    percent as a percent of total Medicare days; and
--  Rehabilitation Extensive Service (REX) days as a percent of total
    Medicare days increased 190 basis points to 39.3 percent.
    

The revenue gain of $21.8 million in the quarter was primarily attributed to an:

--  $11.2 million increase in Medicare revenue due principally to Medicare
    part A rate growth of 8.2 percent, customer base growth, and part B volume
    growth;
--  $8.4 million increase in managed care/commercial insurance revenue due
    principally to an increased customer base;
--  $1.3 million increase in Medicaid revenue resulting from rate
    improvement of $7.5 million or 4.3 percent partially offset by a $6.2
    million impact from a decrease in customer base; and
--  $0.9 million increase in private revenue due principally to improved
    rates.
    

Matros also stated, "I am pleased with the shift in acuity we continue to experience in our skilled nursing beds. Our skilled mix at quarter end was 20.5 percent, our highest to date. Skilled mix growth and Rehab Recovery Suites™ continue to be our primary growth drivers. Compared with the same quarter prior year, our overall dependency on Medicaid declined by 220 basis points to 44.8 percent, our lowest percentage of Medicaid revenues reported to date."

Ancillary Businesses

For its rehabilitation and staffing services ancillary businesses, comparing the quarter ended June 30, 2008, to the same period in 2007:

--  revenue increased $6.2 million, or 10.2 percent, to $66.5 million from
    $60.3 million;
--  EBITDA increased $0.7 million, or 14.5 percent, to $5.3 million from
    $4.6 million; and
--  EBITDA margin for 2008 was 8.0 percent, up 30 basis points compared to
    a margin of 7.7 percent in 2007.
    

Conference Call

Sun's senior management will hold a conference call to discuss the Company's 2008 second-quarter operating results on Thursday, Aug. 7, 2008, at 10 a.m. Pacific / 1 p.m. Eastern. To listen to the conference call, dial (888) 656-7420 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on Aug. 7, 2008, until midnight Eastern on Aug. 14, 2008, by calling (888) 203-1112 and using access code 6346558.

About Sun Healthcare Group, Inc.

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

Statements made in this release that are not historical facts are "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate," "believe," "plan," "estimate," "expect," "hope," "intend," "may" and similar expressions. Factors that could cause actual results to differ are identified in the public filings made by the company with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements; our ability to maintain the occupancy rates and payor mix at our long-term care centers; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; the significant amount of our indebtedness, covenants in our debt agreements that may restrict our activities and our ability to incur more indebtedness; our ability to integrate the operations of Harborside Healthcare Corporation and realize anticipated synergies; increasing labor costs and the shortage of qualified healthcare personnel; and our ability to receive increases in reimbursement rates from government payors to cover increased costs. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Forms 10-Q, copies of which are available on Sun's web site, www.sunh.com.

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

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

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

                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                        CONSOLIDATED BALANCE SHEETS
                    (in thousands, except share data)


                                                  June 30,    December 31,
                                                    2008          2007
                                                ------------  ------------

                     ASSETS

Current assets:
   Cash and cash equivalents                    $     68,369  $     55,832
   Restricted cash                                    34,850        37,365
   Accounts receivable, net                          201,587       188,882
   Prepaid expenses and other assets                  28,902        13,290
   Assets held for sale                                4,218         9,924
   Deferred tax assets                                33,268        35,354
                                                ------------  ------------
   Total current assets                              371,194       340,647

Property and equipment, net                          587,432       585,972
Intangible assets, net                                54,640        57,044
Goodwill                                             324,277       324,277
Restricted cash, non-current                           3,281         3,829
Deferred tax assets                                   45,707        51,892
Other assets                                           6,317        10,165
                                                ------------  ------------
      Total assets                              $  1,392,848  $  1,373,826
                                                ============  ============


     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable                             $     51,379  $     52,836
   Accrued compensation and benefits                  59,118        61,956
   Accrued self-insurance obligations, current        46,423        48,646
   Income taxes payable                                3,397         3,000
   Liabilities held for sale                              78         3,181
   Other accrued liabilities                          60,822        58,002
   Current portion of long-term debt and
    capital lease obligations:
      Company obligations                             11,325        28,480
      Clipper partnerships                               859           825
                                                ------------  ------------
   Total current liabilities                         233,401       256,926

Accrued self-insurance obligations, net of
 current portion                                     108,578       106,534
Long-term debt and capital lease obligations,
 net of current portion:
      Company obligations                            669,843       651,403
      Clipper partnerships                            48,120        48,560
Unfavorable lease obligations, net                    17,282        18,960
Other long-term liabilities                           47,820        44,717
                                                ------------  ------------
   Total liabilities                               1,125,044     1,127,100

   Minority interest                                   1,167           470

Stockholders' equity:
   Preferred stock of $.01 par value,
    authorized 10,000,000 shares, no shares
    were issued and outstanding as of June 30,
    2008 and December 31, 2007                             -             -
   Common stock of $.01 par value, authorized
    125,000,000 shares, 43,197,359 and
    43,016,042 shares issued and outstanding as
    of June 30, 2008 and December 31, 2007,
    respectively                                         432           430
   Additional paid-in capital                        602,457       600,199
   Accumulated deficit                              (333,708)     (351,970)
   Accumulated other comprehensive loss, net          (2,544)       (2,403)
                                                ------------  ------------
                                                     266,637       246,256
                                                ------------  ------------
      Total liabilities and stockholders'
       equity                                   $  1,392,848  $  1,373,826
                                                ============  ============




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                  For the       For the
                                                Three Months  Three Months
                                                    Ended         Ended
                                                  June 30,       June 30,
                                                    2008           2007
                                                ------------  -------------
                                                (unaudited)    (unaudited)

Total net revenues                              $    454,192  $     429,979
                                                ------------  -------------
Costs and expenses:
  Operating salaries and benefits                    253,498        242,021
  Self-insurance for workers' compensation and
   general and professional liability insurance       11,892          7,959
  Operating administrative costs                      12,944         10,497
  Other operating costs                               93,354         89,922
  Center rent expense                                 18,757         20,862
  General and administrative expenses                 16,111         17,297
  Depreciation and amortization                        9,818          9,659
  Provision for losses on accounts receivable          2,963          3,401
  Interest, net of interest income of $569 and
   $1,136, respectively                               13,643         11,999
  Loss on sale of assets, net                              -              3
Total costs and expenses                             432,980        413,620
                                                ------------  -------------

Income before income taxes and discontinued
 operations                                           21,212         16,359
Income tax expense                                     8,485          5,725
                                                ------------  -------------
Income from continuing operations                     12,727         10,634
                                                ------------  -------------

Discontinued operations:
  (Loss) income from discontinued operations,
   net of related taxes                               (1,235)         2,059
  (Loss) gain on disposal of discontinued
   operations, net of related taxes                   (1,807)           347
                                                ------------  -------------
(Loss) income from discontinued operations, net       (3,042)         2,406
                                                ------------  -------------

Net income                                      $      9,685  $      13,040
                                                ============  =============


Basic income per common and common equivalent
 share:
  Income from continuing operations             $       0.29  $        0.25
  (Loss) income from discontinued operations,
   net                                                 (0.07)          0.05
                                                ------------  -------------
Net income                                      $       0.22  $        0.30
                                                ============  =============

Diluted income per common and common equivalent
 share:
  Income from continuing operations             $       0.29  $        0.24
  (Loss) income from discontinued operations,
   net                                                 (0.07)          0.06
                                                ------------  -------------
Net Income                                      $       0.22  $        0.30
                                                ============  =============

Weighted average number of common and
 common equivalent shares outstanding:
  Basic                                               43,188         42,993
  Diluted                                             43,928         43,735





                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,      June 30,
                                                    2008          2007
                                                ------------  ------------
                                                (unaudited)   (unaudited)

Total net revenues                              $    907,757  $    689,701
                                                ------------  ------------
Costs and expenses:
  Operating salaries and benefits                    509,913       392,985
  Self-insurance for workers' compensation
   and general and professional liability
   insurance                                          26,862        18,059
  Operating administrative costs                      24,883        18,086
  Other operating costs                              187,453       141,272
  Center rent expense                                 37,412        34,136
  General and administrative expenses                 32,696        30,131
  Depreciation and amortization                       19,462        13,530
  Provision for losses on accounts receivable          6,312         5,488
  Interest, net of interest income of $1,114
   and $2,325, respectively                           28,074        14,061
  (Gain) loss on sale of assets, net                     (76)           10
Total costs and expenses                             872,991       667,758
                                                ------------  ------------

Income before income taxes and discontinued
 operations                                           34,766        21,943
Income tax expense                                    13,906         7,680
                                                ------------  ------------
Income from continuing operations                     20,860        14,263
                                                ------------  ------------

Discontinued operations:
  (Loss) income from discontinued operations,
   net of related taxes                                 (729)        2,703
  Loss on disposal of discontinued
   operations, net of related taxes                   (1,869)           (3)
                                                ------------  ------------
(Loss) income from discontinued operations, net       (2,598)        2,700
                                                ------------  ------------

Net income                                      $     18,262  $     16,963
                                                ============  ============


Basic income per common and common equivalent
 share:
  Income from continuing operations             $       0.48  $       0.33
  (Loss) income from discontinued operations,
   net                                                 (0.06)         0.06
                                                ------------  ------------
Net income                                      $       0.42  $       0.39
                                                ============  ============

Diluted income per common and common equivalent
 share:
  Income from continuing operations             $       0.47  $       0.33
  (Loss) income from discontinued operations,
   net                                                 (0.06)         0.06
                                                ------------  ------------
Net Income                                      $       0.41  $       0.39
                                                ============  ============

Weighted average number of common and
     common equivalent shares outstanding:
  Basic                                               43,122        42,951
  Diluted                                             44,034        43,761




                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,      June 30,
                                                    2008          2007
                                                ------------  ------------
                                                (unaudited)   (unaudited)

Cash flows from operating activities:
  Net income                                    $      9,685  $     13,040
  Adjustments to reconcile net income to net
   cash provided by operating activities,
   including discontinued operations:
    Depreciation and amortization                      9,883         9,809
    Amortization of favorable and unfavorable
     lease intangibles                                  (488)         (196)
    Provision for losses on accounts receivable        3,210         3,737
    Loss (gain) on sale of assets, including
     discontinued operations, net                      1,807          (347)
    Impairment charge for discontinued
     operation                                         1,800             -
    Stock-based compensation expense                   1,368           943
    Deferred taxes                                     6,442             -
    Minority interest                                    590            50
    Other                                                 79          (111)
  Changes in operating assets and liabilities,
   net of acquisitions:
    Accounts receivable                               (3,951)       (7,187)
    Restricted cash                                    3,058           896
    Prepaid expenses and other assets                 (1,856)       15,312
    Assets and liabilities held for sale                (516)            -
    Accounts payable                                  (1,528)       (2,918)
    Accrued compensation and benefits                 (4,020)        7,875
    Accrued self-insurance obligations                (2,130)       (5,982)
    Income taxes payable                               1,121         4,961
    Other accrued liabilities                        (10,173)       14,452
    Other long-term liabilities                        3,676        (3,571)
                                                ------------  ------------
      Net cash provided by operating activities       18,057        50,763
                                                ------------  ------------

Cash flows from investing activities:
  Capital expenditures                               (10,223)       (7,705)
  Purchase of leased real estate                        (727)      (30,236)
  Proceeds from sale of assets held for sale             180         2,251
  Acquisitions                                            (6)     (368,515)
  Accrued acquisition costs, net                           -         3,585
                                                ------------  ------------
      Net cash used for investing activities         (10,776)     (400,620)
                                                ------------  ------------

Cash flows from financing activities:
  Net borrowings under Credit Agreement                    -         5,000
  Principal payments of long-term debt and
   capital lease obligations                         (22,115)       (4,651)
  Borrowings under long-term debt and capital
   lease obligations                                  20,290       327,000
  Proceeds from issuance of common stock                  31            92
  Distribution of partnership equity                       -          (255)
  Release of third-party collateral                        -        25,640
  Distribution of minority interest                        -           (57)
  Deferred financing costs                                 -       (18,045)
                                                ------------  ------------
      Net cash (used for) provided by financing
       activities                                     (1,794)      334,724
                                                ------------  ------------

Net increase (decrease) in cash and cash
 equivalents                                           5,487       (15,133)
Cash and cash equivalents at beginning of
 period                                               62,882        99,670
                                                ------------  ------------
Cash and cash equivalents at end of period      $     68,369  $     84,537
                                                ============  ============



                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,      June 30,
                                                    2008          2007
                                                ------------  ------------
                                                (unaudited)   (unaudited)

Cash flows from operating activities:
  Net income                                    $     18,262  $     16,963
  Adjustments to reconcile net income to net
   cash provided by operating activities,
   including discontinued operations:
    Depreciation and amortization                     19,600        13,765
    Amortization of favorable and unfavorable
     lease intangibles                                  (991)         (409)
    Provision for losses on accounts receivable        6,511         6,260
    Loss (gain) on sale of assets, including
     discontinued operations, net                      1,792            13
    Impairment charge for discontinued
     operation                                         1,800             -
    Stock-based compensation expense                   2,333         1,694
    Deferred taxes                                     8,271             -
    Minority interest                                    697            50
    Other                                                 79          (112)
 Changes in operating assets and liabilities,
  net of acquisitions:
    Accounts receivable                              (19,452)       (9,237)
    Restricted cash                                    3,063         1,617
    Prepaid expenses and other assets                 (7,190)        9,291
    Assets and liabilities held for sale              (1,044)            -
    Accounts payable                                  (3,126)       (6,843)
    Accrued compensation and benefits                 (2,906)        6,209
    Accrued self-insurance obligations                  (179)       (6,828)
    Income taxes payable                               1,591         7,387
    Other accrued liabilities                         (3,645)       15,681
    Other long-term liabilities                        5,355        (3,167)
                                                ------------  ------------
      Net cash provided by operating activities       30,821        52,334
                                                ------------  ------------

Cash flows from investing activities:
 Capital expenditures                                (16,139)      (14,955)
 Purchase of leased real estate                         (727)      (30,236)
 Proceeds from sale of assets held for sale            3,957         5,489
 Acquisitions                                           (313)     (368,515)
 Accrued acquisition costs, net                            -         3,585
                                                ------------  ------------
      Net cash used for investing activities         (13,222)     (404,632)
                                                ------------  ------------

Cash flows from financing activities:
  Net borrowings under Credit Agreement                    -         5,006
  Principal payments of long-term debt and
   capital lease obligations                         (25,199)      (34,798)
  Borrowings under long-term debt and capital
   lease obligations                                  20,290       327,000
  Proceeds from issuance of common stock                  70           665
  Distribution of partnership equity                    (223)         (511)
  Release of third-party collateral                        -        25,640
  Distribution of minority interest                        -           (57)
  Deferred financing costs                                 -       (18,045)
                                                ------------  ------------
      Net cash (used for) provided by financing
       activities                                     (5,062)      304,900
                                                ------------  ------------

Net increase (decrease) in cash and cash
 equivalents                                          12,537       (47,398)
Cash and cash equivalents at beginning of
 period                                               55,832       131,935
                                                ------------  ------------
Cash and cash equivalents at end of period      $     68,369  $     84,537
                                                ============  ============



                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
                                                June 30, 2008 June 30, 2007
                                                ------------- -------------
                                                 (unaudited)   (unaudited)

 Total net revenues                             $     454,192 $     429,979
                                                ------------- -------------

 Net income                                     $       9,685 $      13,040
                                                ------------- -------------

  Income from continuing operations                    12,727        10,634

  Income tax expense                                    8,485         5,725

  Loss on sale of assets, net                               -             3

 Net segment income                             $      21,212 $      16,362

  Interest, net                                        13,643        11,999

  Depreciation and amortization                         9,818         9,659
                                                ------------- -------------

 EBITDA                                         $      44,673 $      38,020

  Center rent expense                                  18,757        20,862
                                                ------------- -------------

 EBITDAR                                        $      63,430 $      58,882

  Operating administrative costs                       12,944        10,497
  General and administrative expenses                  16,111        17,297
                                                ------------- -------------
 Total operating and general and admin expenses        29,055        27,794

 EBITDAM                                        $      73,728 $      65,814
 EBITDARM                                       $      92,485 $      86,676


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




               SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                  For the       For the
                                                 Six Months    Six Months
                                                    Ended         Ended
                                                  June 30,
                                                    2008      June 30, 2007
                                                ------------  -------------
                                                 (unaudited)   (unaudited)

 Total net revenues                             $    907,757  $     689,701
                                                ------------  -------------

 Net income                                     $     18,262  $      16,963
                                                ------------  -------------

  Income from continuing operations                   20,860         14,263

  Income tax expense                                  13,906          7,680

  (Gain) loss on sale of assets, net                     (76)            10

 Net segment income                             $     34,690  $      21,953

  Interest, net                                       28,074         14,061

  Depreciation and amortization                       19,462         13,530
                                                ------------  -------------

 EBITDA                                         $     82,226  $      49,544

  Center rent expense                                 37,412         34,136
                                                ------------  -------------

 EBITDAR                                        $    119,638  $      83,680

  Operating administrative costs                      24,883         18,086
  General and administrative expenses                 32,696         30,131
                                                ------------  -------------
 Total operating and general and admin expenses       57,579         48,217

 EBITDAM                                        $    139,805  $      97,761
 EBITDARM                                       $    177,217  $     131,897




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



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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


                          Rehabil-                      Elimina-
                          itation   Medical             tion of
                Inpatient Therapy   Staffing  Other &  Affiliated  Consol-
                Services  Services  Services  Corp Seg  Revenue    idated
                --------  --------  --------  --------  --------  --------
Nonaffiliated
 revenue        $402,945  $ 21,142  $ 30,096  $      9  $      -  $454,192
Affiliated
 revenue               -    14,462       794         -   (15,256)        -
                --------  --------  --------  --------  --------  --------
  Total revenue  402,945    35,604    30,890         9   (15,256)  454,192

Net segment
 income (loss)  $ 43,516  $  2,562  $  2,456  $(27,322) $      -  $ 21,212
Interest, net      3,263         -        (8)   10,388         -    13,643
Depreciation and
 amortization      8,769       132       200       717         -     9,818
                --------  --------  --------  --------  --------  --------

  EBITDA        $ 55,548  $  2,694  $  2,648  $(16,217) $      -  $ 44,673
Center rent
 expense          18,418        99       240         -         -    18,757
                --------  --------  --------  --------  --------  --------

  EBITDAR       $ 73,966  $  2,793  $  2,888  $(16,217) $      -  $ 63,430

Operating and
 general and
 administrative
 expenses         10,382     1,515     1,047    16,111         -    29,055
                --------  --------  --------  --------  --------  --------

  EBITDAM      $ 65,930  $  4,209  $  3,695  $   (106) $      -  $ 73,728
  EBITDARM     $ 84,348  $  4,308  $  3,935  $   (106) $      -  $ 92,485


   EBITDA margin   13.8%      7.6%      8.6%                          9.8%
  EBITDAM margin   16.4%     11.8%     12.0%                         16.2%
  EBITDAR margin   18.4%      7.8%      9.3%                         14.0%
 EBITDARM margin   20.9%     12.1%     12.7%                         20.4%



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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


                          Rehabil-                      Elimina-
                          itation   Medical             tion of
                Inpatient Therapy   Staffing  Other &  Affiliated  Consol-
                Services  Services  Services  Corp Seg  Revenue    idated
                --------  --------  --------  --------  --------  --------
Nonaffiliated
 revenue        $805,121  $ 42,851  $ 59,764  $     21  $      -  $907,757
Affiliated
 revenue               -    28,752     1,328         -   (30,080)        -
                --------  --------  --------  --------  --------  --------
  Total revenue  805,121    71,603    61,092        21   (30,080)  907,757

Net segment
 income (loss)  $ 81,425  $  4,690  $  4,388  $(55,813) $      -  $ 34,690
Interest, net      6,582        (1)       (9)   21,502         -    28,074
Depreciation and
 amortization     17,405       258       395     1,404         -    19,462
                --------  --------  --------  --------  --------  --------

  EBITDA        $105,412  $  4,947  $  4,774  $(32,907) $      -  $ 82,226
Center rent
 expense          36,739       185       488         -         -    37,412
                --------  --------  --------  --------  --------  --------

  EBITDAR       $142,151  $  5,132  $  5,262  $(32,907) $      -  $119,638

Operating and
 general and
 administrative
 expenses         19,891     3,132     1,858    32,698         -    57,579
                --------  --------  --------  --------  --------  --------

  EBITDAM       $125,303  $  8,079  $  6,632  $   (209) $      -  $139,805
  EBITDARM      $162,042  $  8,264  $  7,120  $   (209) $      -  $177,217


   EBITDA margin    13.1%      6.9%      7.8%                          9.1%
  EBITDAM margin    15.6%     11.3%     10.9%                         15.4%
  EBITDAR margin    17.7%      7.2%      8.6%                         13.2%
 EBITDARM margin    20.1%     11.5%     11.7%                         19.5%


                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 June 30, 2007
                                (unaudited)


                          Rehabil-                      Elimina-
                          itation   Medical             tion of
                Inpatient Therapy   Staffing  Other &  Affiliated  Consol-
                Services  Services  Services  Corp Seg  Revenue    idated
                --------  --------  --------  --------  --------  --------
Nonaffiliated
 revenue        $381,145  $ 20,789  $ 28,018  $     27  $      -  $429,979
Affiliated
 revenue               -    10,332     1,201         -   (11,533)        -
                --------  --------  --------  --------  --------  --------
  Total revenue  381,145    31,121    29,219        27   (11,533)  429,979

Net segment
 income (loss)  $ 39,663  $  2,281  $  2,057  $(27,639) $      -  $ 16,362
Interest, net      2,493         -        (1)    9,507         -    11,999
Depreciation and
 amortization      8,598       135       194       732         -     9,659
                --------  --------  --------  --------  --------  --------

  EBITDA        $ 50,754  $  2,416  $  2,250  $(17,400) $      -  $ 38,020
Center rent
 expense          20,579        53       230         -         -    20,862
                --------  --------  --------  --------  --------  --------

  EBITDAR       $ 71,333  $  2,469  $  2,480  $(17,400) $      -  $ 58,882

Operating and
 general and
 administrative
 expenses          8,457     1,245       794    17,298         -    27,794
                --------  --------  --------  --------  --------  --------

  EBITDAM       $ 59,211  $  3,661  $  3,044  $   (102) $      -  $ 65,814
  EBITDARM      $ 79,790  $  3,714  $  3,274  $   (102) $      -  $ 86,676


   EBITDA margin    13.3%      7.8%      7.7%                          8.8%
  EBITDAM margin    15.5%     11.8%     10.4%                         15.3%
  EBITDAR margin    18.7%      7.9%      8.5%                         13.7%
 EBITDARM margin    20.9%     11.9%     11.2%                         20.2%



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                  For the Six Months Ended June 30, 2007
                                (unaudited)


                          Rehabil-                      Elimina-
                          itation   Medical             tion of
                Inpatient Therapy   Staffing  Other &  Affiliated  Consol-
                Services  Services  Services  Corp Seg  Revenue    idated
                --------  --------  --------  --------  --------  --------
Nonaffiliated
 revenue        $596,433  $ 41,469  $ 51,765  $     34  $      -  $689,701
Affiliated
 revenue               -    20,594     1,388         -   (21,982)        -
                --------  --------  --------  --------  --------  --------
  Total revenue  596,433    62,063    53,153        34   (21,982)  689,701

Net segment
 income (loss)  $ 55,335  $  3,708  $  3,470  $(40,560) $      -  $ 21,953
Interest, net      4,976        10        14     9,061         -    14,061
Depreciation and
 amortization     11,747       251       364     1,168         -    13,530
                --------  --------  --------  --------  --------  --------

  EBITDA        $ 72,058  $  3,969  $  3,848  $(30,331) $      -  $ 49,544
Center rent
 expense          33,604       103       429         -         -    34,136
                --------  --------  --------  --------  --------  --------

  EBITDAR       $105,662  $  4,072  $  4,277  $(30,331) $      -  $ 83,680

Operating and
 general and
 administrative
 expenses         13,763     2,502     1,820    30,132         -    48,217
                --------  --------  --------  --------  --------  --------

  EBITDAM       $ 85,821  $  6,471  $  5,668  $   (199) $      -  $ 97,761
  EBITDARM      $119,425  $  6,574  $  6,097  $   (199) $      -  $131,897


   EBITDA margin    12.1%      6.4%      7.2%                          7.2%
  EBITDAM margin    14.4%     10.4%     10.7%                         14.2%
  EBITDAR margin    17.7%      6.6%      8.0%                         12.1%
 EBITDARM margin    20.0%     10.6%     11.5%                         19.1%



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                                                                PRO FORMA
                                                                  WITH
                                                AS REPORTED    HARBORSIDE

                                                  For the       For the
                                                 Six Months    Six Months
                                                    Ended         Ended
                                                  June 30,      June 30,
                                                    2008          2007
                                                ------------  ------------
                                                (unaudited)   (unaudited)

Total net revenues                              $    907,757  $    850,600
                                                ------------  ------------
Costs and expenses:
    Operating salaries and benefits                  509,913       481,179
    Self-insurance for workers' compensation
     and general and professional liability
     insurance                                        26,862        22,114
    Operating administrative costs                    24,883        21,079
    Other operating costs                            187,453       179,664
    Center rent expense                               37,412        41,090
    General and administrative expenses               32,696        35,527
    Depreciation and amortization                     19,462        18,230
    Provision for losses on accounts receivable        6,312        13,388
    Interest, net of interest income of $1,114
     and $2,640, respectively                         28,074        18,653
    (Gain) loss on sale of assets, net                   (76)           10
                                                ------------  ------------
Total costs and expenses                             872,991       830,934
                                                ------------  ------------

Income before income taxes and discontinued
 operations                                           34,766        19,666
Income tax expense                                    13,906         6,860
                                                ------------  ------------
Income from continuing operations                     20,860        12,806
                                                ------------  ------------

Discontinued operations:
    (Loss) income from discontinued operations,
     net of related taxes                               (729)        2,293
    Loss on disposal of discontinued
     operations, net of related taxes                 (1,869)           (3)
                                                ------------  ------------
(Loss) income from discontinued operations, net       (2,598)        2,290
                                                ------------  ------------

Net income                                      $     18,262  $     15,096
                                                ============  ============


Basic income per common and common equivalent
 share:
    Income from continuing operations           $       0.48  $       0.30
    (Loss) income from discontinued operations,
     net                                               (0.06)         0.05
                                                ------------  ------------
Net income                                      $       0.42  $       0.35
                                                ============  ============

Diluted income per common and common equivalent
 share:
    Income from continuing operations           $       0.47  $       0.29
    (Loss) income from discontinued operations,
     net                                               (0.06)         0.05
                                                ------------  ------------
Net Income                                      $       0.41  $       0.34
                                                ============  ============

Weighted average number of common and
 common equivalent shares outstanding:
    Basic                                             43,122        42,951
    Diluted                                           44,034        43,761


Note:  The pro forma table above and the pro forma table pages that follow
were prepared as if the acquisition of Harborside Healthcare Corporation,
which closed in April 2007, had occurred on January 1, 2007.




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                                                                PRO FORMA
                                                                  WITH
                                                AS REPORTED    HARBORSIDE

                                                  For the       For the
                                                 Six Months    Six Months
                                                    Ended         Ended
                                                  June 30,       June 30
                                                    2008          2007
                                                ------------  -------------
                                                (unaudited)   (unaudited)

 Total net revenues                             $    907,757  $     850,600
                                                ------------  -------------

 Net income                                     $     18,262  $      15,096
                                                ------------  -------------

  Income from continuing operations                   20,860         12,806

  Income tax expense                                  13,906          6,860

  (Gain) loss on sale of assets, net                     (76)            10
                                                ------------  -------------

 Net segment income                             $     34,690  $      19,676

  Interest, net                                       28,074         18,653

  Depreciation and amortization                       19,462         18,230
                                                ------------  -------------

 EBITDA                                         $     82,226  $      56,559

  Center rent expense                                 37,412         41,090
                                                ------------  -------------

 EBITDAR                                        $    119,638  $      97,649

  Operating administrative costs                      24,883         21,079
  General and administrative expenses                 32,696         35,527
                                                ------------  -------------
 Total operating and general and admin expenses       57,579         56,606

 EBITDAM                                        $    139,805  $     113,165
 EBITDARM                                       $    177,217  $     154,255



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



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                  For the Six Months Ended June 30, 2007
                                (unaudited)


                          Rehabil-                      Elimina-
                          itation   Medical             tion of
                Inpatient Therapy   Staffing  Other &  Affiliated  Consol-
                Services  Services  Services  Corp Seg  Revenue    idated
                --------  --------  --------  --------  --------  --------
Nonaffiliated
 revenue        $755,370  $ 41,469  $ 54,409  $     34  $   (682) $850,600
Affiliated
 revenue               -    20,594     1,388         -   (21,982)        -
                --------  --------  --------  --------  --------  --------
  Total revenue  755,370    62,063    55,797        34   (22,664)  850,600

Net segment
 income (loss)  $ 63,618  $  3,708  $  3,404  $(51,867) $    813  $ 19,676
Interest, net      9,851        10        13     8,765        14    18,653
Depreciation and
 amortization     16,123       251       379     1,477         -    18,230
                --------  --------  --------  --------  --------  --------

  EBITDA        $ 89,592  $  3,969  $  3,796  $(41,625) $    827  $ 56,559
Center rent
 expense          40,533       103       454         -         -    41,090
                --------  --------  --------  --------  --------  --------

  EBITDAR       $130,125  $  4,072  $  4,250  $(41,625) $    827  $ 97,649

Operating and
 general and
 administrative
 expenses         10,894     2,502     1,820    41,390         -    56,606
                --------  --------  --------  --------  --------  --------

  EBITDAM       $100,486  $  6,471  $  5,616  $   (235) $    827  $113,165
  EBITDARM      $141,019  $  6,574  $  6,070  $   (235) $    827  $154,255


   EBITDA margin    11.9%      6.4%      6.8%                          6.6%
  EBITDAM margin    13.3%     10.4%     10.1%                         13.3%
  EBITDAR margin    17.2%      6.6%      7.6%                         11.5%
 EBITDARM margin    18.7%     10.6%     10.9%                         18.1%



                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,
                                                              PRO FORMA
                       AS            AS            AS           WITH
                    REPORTED      REPORTED      REPORTED     HARBORSIDE
                    ----------------------      ----------------------
                      2008          2007          2008          2007
                    --------      --------      --------      --------
Consolidated Company

Revenues - Non-
 affiliated (in
 thousands)
  Inpatient Services 402,945       381,145       805,121       755,371
  Rehabilitation
   Therapy Services   21,142        20,789        42,851        41,469
  Medical Staffing
   Services           30,096        28,018        59,764        54,409
  Other - non-core
   businesses              9            27            21          (649)
                    --------      --------      --------      --------
    Total           $454,192      $429,979      $907,757      $850,600
                    ========      ========      ========      ========


Revenue Mix - Non-
 affiliated (in
 thousands)
   Medicare          130,313  29%  118,382  28%  260,518  29%  233,329  27%
   Medicaid          180,606  40%  179,051  42%  360,927  40%  356,914  42%
   Private & Other   115,729  25%  113,441  25%  233,065  25%  223,407  26%
   Managed Care /
    Comm Insur        23,815   5%   15,906   4%   45,977   5%   30,404   4%
   Veterans            3,729   1%    3,199   1%    7,270   1%    6,546   1%
                    -------- ---  -------- ---  -------- ---  -------- ---
     Total          $454,192 100% $429,979 100% $907,757 100% $850,600 100%
                    ======== ===  ======== ===  ======== ===  ======== ===


DSO (Days Sales
 Outstanding)
 Inpatient Services
  - LTC                   42            41            42            41
 Rehabilitation
  Therapy Services        73            74            73            74
 Medical Staffing
  Services                55            54            55            54

Inpatient Services
 Stats

 Number of centers:      211           211           211           211
 Number of available
  beds:               22,851        22,891        22,851        22,891
 Occupancy %:           88.6%         89.6%         88.8%         89.5%


 Payor Mix % based on
  patient days:
   Medicare - SNF
    Beds                16.5%         16.2%         16.6%         16.1%
   Managed care /
    comm. ins. - SNF
    Beds                 4.0%          2.9%          3.9%          2.8%
                    --------      --------      --------      --------
       Total SNF
        skilled mix     20.5%         19.1%         20.5%         18.9%
                    --------      --------      --------      --------
  Medicare              15.0%         14.7%         15.1%         14.7%
  Medicaid              59.4%         60.6%         59.2%         60.9%
  Private and other     21.0%         21.2%         21.2%         21.1%
  Managed care /
   commercial
   Insurance             3.7%          2.6%          3.6%          2.4%
  Veterans               0.9%          0.9%          0.9%          0.9%

 Revenue Mix % of
  revenues:
   Medicare - SNF
    Beds                32.7%         31.7%         32.7%         31.6%
   Managed care /
    comm. Ins. - SNF
    Beds                 6.2%          4.3%          6.0%          4.2%
                    --------      --------      --------      --------
       Total SNF
        skilled mix     38.9%         36.0%         38.7%         35.8%
                    --------      --------      --------      --------
  Medicare              31.7%         30.5%         31.7%         30.4%
  Medicaid              44.8%         47.0%         44.8%         47.2%
  Private and other     16.7%         17.6%         16.9%         17.5%
  Managed care /
   commercial
   Insurance             5.9%          4.1%          5.7%          4.0%
  Veterans               0.9%          0.8%          0.9%          0.9%


 Revenues PPD:
  LTC only Medicare
   (Part A)         $ 415.37      $ 383.97      $ 413.92      $ 382.86
  Medicare Blended
   Rate (Part A & B)$ 445.47      $ 414.03      $ 443.71      $ 412.45
  Medicaid          $ 166.69      $ 159.87      $ 166.61      $ 159.69
  Private and other $ 171.01      $ 165.81      $ 170.92      $ 165.22
  Managed care /
   commercial
   Insurance        $ 348.75      $ 321.36      $ 346.12      $ 338.00
  Veterans          $ 214.11      $ 191.48      $ 211.88      $ 205.38
                    --------      --------      --------      --------

Rehab contracts

 Affiliated              108            87           108            87
 Non-affiliated          317           292           317           292
                    --------      --------      --------      --------



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

             NORMALIZING ADJUSTMENTS - 2nd QUARTER COMPARISON
                  (in thousands, except per share data)


                               AS REPORTED - 2nd QUARTER 2008
                  ---------------------------------------------------------
                                                Income from
                                                Continuing
                                                  Operat-   Disc    Net
                  Revenue EBITDAR EBITDA  Pre-tax  ions      Ops   Income
                  ------- ------- ------- ------- ------- -------- -------

As Reported 2nd
 QUARTER 2008     454,192  63,430  44,673  21,212  12,727   (3,042)  9,685
Percent of Revenue           14.0%    9.8%    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     454,192  60,780  42,023  18,562  11,137   (3,264)  7,873
                  ======= ======= ======= ======= ======= ======== =======
        Percent of
           Revenue           13.4%    9.3%    4.1%    2.5%    -0.7%    1.7%

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



                               AS REPORTED - 2nd QUARTER 2007
                  ---------------------------------------------------------
                                                Income from
                                                Continuing
                                                  Operat-   Disc     Net
                  Revenue EBITDAR EBITDA  Pre-tax  ions      Ops   Income
                  ------- ------- ------- ------- ------- -------- -------
As Reported - 2nd
 QUARTER 2007     429,979  58,882  38,020  16,359  10,634    2,406  13,040
Percent of Revenue           13.7%    8.8%    3.8%    2.5%     0.6%    3.0%
Normalizing
 Adjustments:
Release of
 insurance
 reserves related
 to prior periods       -  (5,956) (5,956) (5,956) (3,871)  (1,979) (5,850)
Harborside
 integration costs      -     865     865     865     562        -     562
Write-off of
 deferred
 financing costs        -       -       -     615     400        -     400
                  ------- ------- ------- ------- ------- -------- -------

Adjusted As
 Reported - 2nd
 QUARTER 2007     429,979  53,791  32,929  11,883   7,725      427   8,152
                  ======= ======= ======= ======= ======= ======== =======
        Percent of
           Revenue           12.5%    7.7%    2.8%    1.8%     0.1%    1.9%

Diluted EPS:
       As Reported                                $  0.24 $   0.06 $  0.30
       As Adjusted                                $  0.18 $   0.01 $  0.19


See definitions of EBITDA and EBITDAR on Reconciliation of Net Income to
EBITDA(M) and EBITDAR(M) stated previously in the As Reported section for
the three and six months ended June 30.

Normalizing adjustments are transactions or adjustments not related to
ongoing operations, including integration costs related to the Harborside
acquisition, self-insurance reserve reclasses related to prior periods, and
charges associated with the refinancing of certain debt agreements.

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 2008
                   -------------------------------------------------------
                                                 Income from
                                                  Continuing
                                                    Opera-   Disc    Net
                   Revenue EBITDAR EBITDA  Pre-tax  tions    Ops   Income
                   ------- ------- ------- ------- ------- ------- -------

As Reported - Six
 Months 2008       907,757 119,638  82,226  34,766  20,860  (2,598) 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       907,757 118,457  81,045  33,585  20,151  (2,820) 17,331
                   ======= ======= ======= ======= ======= ======= =======
Percent of Revenue            13.0%    8.9%    3.7%    2.2%   -0.3%    1.9%

Diluted EPS:
        As Reported                                $  0.47 $ (0.06)$  0.41
        As Adjusted                                $  0.46 $ (0.07)$  0.39




                                AS REPORTED - SIX MONTHS 2007
                   -------------------------------------------------------
                                                 Income from
                                                  Continuing
                                                    Opera-   Disc    Net
                   Revenue EBITDAR EBITDA  Pre-tax  tions    Ops   Income
                   ------- ------- ------- ------- ------- ------- -------
As Reported - Six
 Months 2007       689,701  83,680  49,544  21,943  14,263   2,700  16,963
 Percent of Revenue           12.1%    7.2%    3.2%    2.1%    0.4%    2.5%

Normalizing Adjustments:
Release of insurance
 reserves related
 to prior periods        -  (5,956) (5,956) (5,956) (3,871) (1,979) (5,850)
Harborside
 integration costs       -   1,014   1,014   1,014     659       -     659
Write-off of deferred
 financing costs         -       -       -     615     400       -     400
                   ------- ------- ------- ------- ------- ------- -------

Adjusted As
 Reported - Six
 Months 2007       689,701  78,738  44,602  17,616  11,451     721  12,172
                   ======= ======= ======= ======= ======= ======= =======
         Percent of
            Revenue           11.4%    6.5%    2.6%    1.7%    0.1%    1.8%

Diluted EPS:
        As Reported                                $  0.33 $  0.06 $  0.39
        As Adjusted                                $  0.26 $  0.02 $  0.28



See definitions of EBITDA and EBITDAR on Reconciliation of Net Income to
EBITDA(M) and EBITDAR(M) stated previously in the As Reported section for
the three and six months ended June 30.

Normalizing adjustments are transactions or adjustments not related to
ongoing operations, charges associated with the refinancing of certain debt
agreements, self-insurance reserve releases related to prior periods, 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.




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


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

As Reported - Six
 Months 2008       907,757 119,638  82,226  34,766  20,860  (2,598) 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 Pro Forma
 Sun & Harborside -
 Six Months 2008   907,757 118,457  81,045  33,585  20,151  (2,820) 17,331
                   ======= ======= ======= ======= ======= ======= =======
         Percent of
            Revenue           13.0%    8.9%    3.7%    2.2%   -0.3%    1.9%

Diluted EPS:
          Pro Forma                                $  0.47 $ (0.06)$  0.41
 Adjusted Pro Forma                                $  0.46 $ (0.07)$  0.39




                         PRO FORMA SUN & HARBORSIDE - SIX MONTHS 2007
                   -------------------------------------------------------
                                                 Income from
                                                 Continuing
                                                    Opera-   Disc    Net
                   Revenue EBITDAR EBITDA  Pre-tax  tions    Ops   Income
                   ------- ------- ------- ------- ------- ------- -------
Pro Forma Sun &
 Harborside - Six
 Months 2007       850,600  97,649  56,559  19,666  12,806   2,290  15,096
 Percent of Revenue           11.5%    6.6%    2.3%    1.5%    0.3%    1.8%

Normalizing Adjustments:
Release of insurance
 reserves related
 to prior periods        -  (5,956) (5,956) (5,956) (3,871) (1,979) (5,850)
Harborside
 integration costs       -   1,014   1,014   1,014     659       -     659
Write-off of deferred
 financing costs         -       -       -     615     400       -     400
Harborside merger
 costs                   -     192     192     192     125       -     125
Harborside investor
 fees                    -     275     275     275     179       -     179
Harborside bad debt
 expense                 -   5,860   5,860   5,860   3,809       -   3,809
                   ------- ------- ------- ------- ------- ------- -------
Adjusted Pro Forma
 Sun & Harborside -
 Six Months 2007   850,600  99,034  57,944  21,666  14,107     311  14,418
                   ======= ======= ======= ======= ======= ======= =======
         Percent of
            Revenue          11.6%    6.8%    2.5%    1.7%    0.0%    1.7%

Diluted EPS:
          Pro Forma                                $  0.29 $  0.05 $  0.34
 Adjusted Pro Forma                                $  0.32 $  0.01 $  0.33



See definitions of EBITDA and EBITDAR on Reconciliation of Net Income to
EBITDA(M) and EBITDAR(M) stated previously in the As Reported section for
the three and six months ended June 30.

Normalizing adjustments are transactions or adjustments not related to
ongoing operations, including charges associated with the refinancing of
certain debt agreements, self-insurance reserve releases related to prior
periods, a bad debt charge recorded by Harborside prior to the acquisiton,
integration costs related to the Harborside acquisition, and investor fees
and merger costs recorded by Harborside prior to the acquisition.

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

Contact Information

  • Contact:
    Investor Inquiries
    (505) 468-2341

    Media Inquiries
    (505) 468-4582