SOURCE: Sun Healthcare Group, Inc.

February 27, 2007 17:24 ET

Sun Healthcare Group, Inc. Reports Strong Fourth-Quarter and Annual Results

IRVINE, CA -- (MARKET WIRE) -- February 27, 2007 -- Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the fourth quarter and year ended Dec. 31, 2006.

Consolidated Earnings

For the quarter ended Dec. 31, 2006, Sun reported total net revenues of $268.3 million and net income of $20.5 million or $0.62 per fully-diluted share, based on 33.1 million weighted-average shares outstanding. For the comparable quarter ended Dec. 31, 2005, total net revenues were $216.5 million and net income was $11.7 million or $0.65 per fully-diluted share, based on 18.1 million weighted-average shares outstanding.

From continuing operations for the quarter ended Dec. 31, 2006, Sun reported income of $10.6 million or $0.32 per fully-diluted share, as compared to income from continuing operations of $2.7 million or $0.15 per fully-diluted share for the same period in 2005.

Comparing the quarter ended Dec. 31, 2006, to the same period in 2005, including the historical operating results for Peak Medical Corporation on a pro forma basis for the 2005 quarter and adjusting for charges and credits for releases of prior year insurance reserves and purchase accounting adjustments, Sun reported (see attached tables for 2005 pro forma results and such adjustments):

--  revenue increased $10.5 million, or 4.1 percent, to $268.3 million
    from $257.8 million;
--  EBITDAR increased $8.0 million, or 41.0 percent, to $27.4 million from
    $19.4 million;
--  EBITDAR margin for 2006 was 10.2 percent compared to 7.5 percent in
    2005;
--  EBITDA increased $6.6 million, or 96.1 percent, to $13.5 million from
    $6.9 million;
--  EBITDA margin for 2006 was 5.0 percent compared to 2.7 percent in
    2005;
--  pre-tax income increased $6.7 million to $5.9 million from a loss of
    $0.8 million; and
--  income from continuing operations increased $9.3 million to $8.5
    million from a loss of $0.8 million.
    
For the year ended Dec. 31, 2006, Sun reported total net revenues of $1,045.6 million and net income of $29.6 million or $0.93 per fully-diluted share, based on 31.8 million weighted-average shares outstanding. For the comparable year ended Dec. 31, 2005, total net revenues were $765.8 million with net income of $24.8 million or $1.55 per fully-diluted share, based on 16.0 million weighted-average shares outstanding.

From continuing operations for the year ended Dec. 31, 2006, Sun reported income of $17.2 million or $0.54 per fully-diluted share, as compared to a loss from continuing operations of $2.0 million or a loss of $0.12 per fully-diluted share, for the same period in 2005.

Comparing the year ended Dec. 31, 2006, to the same period in 2005, including the historical operating results for Peak on a pro forma basis for 2005 and adjusting for charges and credits for releases of prior year insurance reserves, purchase accounting adjustments, gains on sales of assets and other non-operating adjustments, as described in the attached tables, Sun reported:

--  revenue increased $54.7 million, or 5.5 percent, to $1,045.6 million
    from $990.9 million;
--  EBITDAR increased $14.2 million, or 17.0 percent, to $98.0 million
    from $83.8 million;
--  EBITDAR margin for 2006 was 9.4 percent compared to 8.5 percent in
    2005;
--  EBITDA increased $11.1 million, or 34.0 percent, to $43.8 million from
    $32.7 million;
--  EBITDA margin for 2006 was 4.2 percent compared to 3.3 percent in
    2005;
--  pre-tax income increased $10.7 million to $10.3 million from a loss of
    $0.4 million;
--  income from continuing operations increased $9.4 million to $9.8
    million from $0.4 million;
--  net income increased $6.0 million, or 151.1 percent, to $9.9 million
    from $3.9 million; and
--  income from continuing operations per fully-diluted share increased
    $0.29 to $0.31 from $0.02.
    
"The company finished the year with a strong fourth quarter. For the full year, we have exceeded the expectations established with our guidance even after our upward revision of that guidance in our third-quarter earnings release," said Richard K. Matros, Sun's chairman and chief executive officer. "The acquisition of Harborside Healthcare Corporation is proceeding as expected with an anticipated close in the next few months. Given the continued improvement in Sun's operating performance and Harborside's strong historical performance, we look forward to the opportunities presented by the new combined platform," Matros continued.

Inpatient Business

Comparing the quarter ended Dec. 31, 2006, to the same period in 2005, including the historical operating results for Peak on a pro forma basis for the 2005 quarter and adjusting for certain items as described above and in the accompanying tables, Sun reported:

--  revenue increased $9.6 million, or 4.4 percent, to $226.2 million from
    $216.6 million;
--  net segment EBITDAR increased $5.4 million, or 17.4 percent, to $36.4
    million from $31.0 million;
--  net segment EBITDAR margin for 2006 was 16.1 percent compared to 14.3
    percent in 2005;
--  net segment EBITDA increased $3.9 million, or 21.1 percent, to $22.7
    million from $18.8 million;
--  net segment EBITDA margin for 2006 was 10.1 percent compared to 8.7
    percent in 2005; and
--  net segment income increased $4.8 million, or 39.6 percent, to $17.1
    million from $12.3 million.
    
The revenue gain of $9.6 million was primarily attributable to:
--  a 60 basis point improvement in Medicare patient mix going from 13.3
    percent in fourth-quarter 2005 to 13.9 percent in fourth-quarter 2006, or
    $2.7 million in revenues;
--  a 6.9 percent increase in our LTC Part A Medicare rates from $335.57
    in fourth-quarter 2005 to $358.76 in fourth-quarter 2006, or $3.4 million
    in revenues; and
--  an increase of $3.7 million in revenue for Medicaid and commercial
    insurance from fourth-quarter 2005 as compared to fourth-quarter 2006.
    
"Our core inpatient business continues to show improvement in the margin primarily as a result of our initiatives to move up the acuity continuum. As our short-term rehabilitation units open in 2007, we expect to see this trend continue," said Matros.

2007 Guidance

For 2007, excluding the pending acquisition of Harborside Healthcare Corporation, Sun expects that its total revenues will be approximately $1,100 million to $1,110 million. EBITDAR is expected to be approximately $110 million to $114 million and EBITDA is expected to be approximately $54 million to $58 million. Annual depreciation and amortization is expected to be approximately $17 million to $18 million. Annual net interest expense is expected to be approximately $10 million, which includes estimated annual interest income on short-term investments anticipated to be used in the acquisition of Harborside. Pre-tax earnings are expected to be approximately $28 million to $30 million. Assuming an effective income tax rate of approximately 40 percent and no impact of possible net operating loss carry-forwards, net income is expected to be approximately $16.5 million to $18 million ($0.38 per basic share to $0.42 per basic share). This guidance does not include certain assets that were reclassified as held for sale in the fourth quarter of 2006 and had revenues of $49.5 million and EBITDA of $4.7 million during 2006. This guidance also assumes, among other things, no additional acquisitions, a stable Medicaid reimbursement environment and no net changes in the Medicare reimbursement environment.

Following the completion of the Harborside acquisition, Sun will update guidance to reflect Harborside's anticipated contribution through year end as well as the impact of the financings associated with the transaction.

Conference Call

Sun's senior management will hold a conference call to discuss the Company's 2006 operating results on Wednesday, Feb. 28, 2007, at 1 p.m. EST / 10 a.m. PST. To listen to the conference call, dial (877) 516-8526 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. EST on Feb. 28 until midnight EST on March 7, by calling (800) 642-1687 and using access code 8095156.

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 facilities 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; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; our ability to generate cash flow sufficient to operate our business; our ability to complete the acquisition of Harborside Healthcare Corporation and integrate its operations; 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 Form 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 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 on its public reference room.


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                        CONSOLIDATED BALANCE SHEETS
                              (in thousands)



                                                  December 31, December 31,
                                                      2006        2005
                                                  ------------ -----------

             ASSETS

Current assets:
  Cash and cash equivalents                       $    131,935 $    16,641
  Restricted cash                                       32,752      25,142
  Accounts receivable, net                             117,091     123,639
  Assets held for sale                                   7,172       1,897
  Other current assets                                  10,324      13,898
                                                  ------------ -----------

  Total current assets                                 299,274     181,217

Property and equipment, net                            217,544     187,734
Restricted cash, non-current                            29,083      35,517
Goodwill                                                55,092      81,265
Intangible assets, net                                  13,691      19,335
Other assets, net                                        6,739       7,238
                                                  ------------ -----------

  Total assets                                    $    621,423 $   512,306
                                                  ============ ===========


    LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
  Accounts payable                                $     43,400 $    45,115
  Accrued compensation and benefits                     42,723      42,393
  Accrued self-insurance obligations, current           48,689      37,238
  Liabilities held for sale                              1,672           -
  Other accrued liabilities                             42,607      52,401
  Capital leases, current                                  494      11,204
  Current portion of long-term debt:
    Company obligations                                 22,780      21,237
    Clipper partnerships                                   736      34,415

  Total current liabilities                            203,101     244,003

Accrued self-insurance obligations, net of
 current                                                81,559     109,953
Long-term debt, net of current portion:
    Company obligations                                100,763     115,094
    Clipper partnerships                                49,392      15,829
Other long-term liabilities                             34,905      30,322
                                                  ------------ -----------

  Total liabilities                                    469,720     515,201

Stockholders' equity (deficit)                         151,703      (2,895)
                                                  ------------ -----------
    Total liabilities and stockholders' equity
     (deficit)                                    $    621,423 $   512,306
                                                  ============ ===========





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


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

Total net revenues                                $   268,304  $   216,539
                                                  -----------  -----------
Costs and expenses:
   Operating salaries and benefits                    155,030      129,185
   Self-insurance for workers' compensation and
    general and professional liability
    insurance                                           2,783        2,105
   Operating administrative costs                       6,978        6,435
   Other operating costs                               54,661       43,983
   Facility rent expense                               14,435       10,755
   General and administrative expenses                 13,503       13,679
   Depreciation                                         1,735        1,332
   Amortization                                         1,521        1,317
   Provision for losses on accounts receivable          5,209        2,258
   Interest, net                                        4,364        3,321
   Loss (gain) on sale of assets, net                      17         (494)
   Restructuring costs, net                                 -           10
                                                  -----------  -----------
Total costs and expenses                              260,236      213,886
                                                  -----------  -----------

Income before income taxes and discontinued
 operations                                             8,068        2,653
Income tax benefit                                     (2,550)         (12)
                                                  -----------  -----------
Income from continuing operations                      10,618        2,665
                                                  -----------  -----------

Discontinued operations:
   Income from discontinued operations, net of
    related tax benefit of $1,627 for the three
    months ended December 31, 2006                      2,256        9,706
   Gain (loss) on disposal of discontinued
    operations, net of related tax expense
    of $919 for the three months ended
    December 31, 2006                                   7,579         (705)
                                                  -----------  -----------
Income from discontinued operations, net                9,835        9,001
                                                  -----------  -----------

Net income                                        $    20,453  $    11,666
                                                  ===========  ===========


Basic income per common and common equivalent
 share:
   Income from continuing operations              $      0.32  $      0.15
   Income from discontinued operations, net              0.30         0.50
                                                  -----------  -----------
Net income                                        $      0.62  $      0.65
                                                  ===========  ===========

Diluted income per common and common equivalent
 share:
   Income from continuing operations              $      0.32  $      0.15
   Income from discontinued operations, net              0.30         0.50
                                                  -----------  -----------
Net Income                                        $      0.62  $      0.65
                                                  ===========  ===========

Weighted average number of common and
 common equivalent shares outstanding:
   Basic                                               32,750       17,957
   Diluted                                             33,069       18,054






                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                    For the      For the
                                                  Year Ended   Year Ended
                                                  December 31, December 31,
                                                      2006        2005
                                                  ------------ -----------


Total net revenues                                $  1,045,637 $   765,782
                                                  ------------ -----------
Costs and expenses:
   Operating salaries and benefits                     598,516     461,425
   Self-insurance for workers' compensation and
    general and professional liability
    insurance                                           32,694      26,061
   Operating administrative costs                       27,986      23,552
   Other operating costs                               218,789     147,311
   Facility rent expense                                54,192      38,130
   General and administrative expenses                  49,856      47,195
   Depreciation                                          8,705       4,053
   Amortization                                          6,161       4,336
   Provision for losses on accounts receivable          11,124       3,369
   Interest, net                                        18,506      11,837
   Loss on extinguishment of debt, net                       -         408
   Loss on sale of assets, net                             172         383
   Loss on asset impairment                                  -         361
   Restructuring costs, net                                  -         122
   Loss on contract termination                            975           -
                                                  ------------ -----------
Total costs and expenses                             1,027,676     768,543
                                                  ------------ -----------

Income (loss) before income taxes and
 discontinued operations                                17,961      (2,761)
Income tax expense (benefit)                               803        (786)
                                                  ------------ -----------
Income (loss) from continuing operations                17,158      (1,975)
                                                  ------------ -----------

Discontinued operations:
   Income from discontinued operations                   5,226      17,847
   Gain on disposal of discontinued operations,
    net of related tax benefit of $785 for the
    year ended December 31, 2006                         7,204       8,889
                                                  ------------ -----------
Income from discontinued operations, net                12,430      26,736
                                                  ------------ -----------

Net income                                        $     29,588 $    24,761
                                                  ============ ===========


Basic income (loss) per common and common
 equivalent share:
   Income (loss) from continuing operations       $       0.54 $     (0.12)
   Income from discontinued operations, net               0.40        1.67
                                                  ------------ -----------
Net income                                        $       0.94 $      1.55
                                                  ============ ===========

Diluted income (loss) per common and common
 equivalent share:
   Income (loss) from continuing operations       $       0.54 $     (0.12)
   Income from discontinued operations, net               0.39        1.67
                                                  ------------ -----------
Net income                                        $       0.93 $      1.55
                                                  ============ ===========

Weighted average number of common and
 common equivalent shares outstanding:
   Basic                                                31,638      16,003
   Diluted                                              31,788      16,003






                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


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

Cash flows from operating activities:
  Net income                                      $    20,453  $    11,666
  Adjustments to reconcile net income to net cash
   provided by operating activities, including
   discontinued operations:
     Depreciation                                       1,924        1,572
     Amortization                                       1,669        1,495
     Amortization of favorable and unfavorable
      lease intangibles                                   321         (379)
     Provision for losses on accounts receivable        5,566        2,585
     (Gain) loss on disposal of discontinued
      operations, net                                  (7,579)         705
     Loss (gain) on sale of assets, net                    17         (493)
     Transaction costs                                      -        1,100
     Restricted stock and stock option
      compensation                                        587          320
     Other, net                                            53          911
     Changes in operating assets and
      liabilities, net of acquisitions                (16,483)     (12,922)
                                                  -----------  -----------
     Net cash provided by operating activities          6,528        6,560
                                                  -----------  -----------

Cash flows from investing activities:
  Capital expenditures, net                            (8,075)      (5,617)
  Proceeds from sale of assets held for sale           21,067        1,337
  Acquisitions, net                                         -      (12,411)
                                                  -----------  -----------
     Net cash provided by (used for) investing
      activities                                       12,992      (16,691)
                                                  -----------  -----------

Cash flows from financing activities:
  Net payments under Revolving Loan Agreement         (25,061)     (21,048)
  Long-term debt borrowings                            34,300            -
  Long-term debt repayments                           (35,021)      (1,459)
  Distribution of partnership equity                      (24)           -
  Principal payments under capital lease
   obligation                                            (251)           -
  Net proceeds from issuance of common stock          121,741            -
  Net proceeds from issuance of common stock
   from the exercise of employee stock options              -       38,428
                                                  -----------  -----------
    Net cash provided by financing activities          95,684       15,921
                                                  -----------  -----------

Net increase in cash and cash equivalents             115,204        5,790
Cash and cash equivalents at beginning of period       16,731       10,851
                                                  -----------  -----------
Cash and cash equivalents at end of period        $   131,935  $    16,641
                                                  ===========  ===========

Supplemental Disclosures:
Non-cash investing and financing activities:
  A capital lease obligation of $11,200 was
   converted in 2006 to an operating lease.
  A capital lease obligation of $879 was incurred
   in 2006 when we entered into a lease for new
   equipment.
  Capital lease obligations of $1,630 were
   incurred in 2006 when we entered into new
   equipment leases.
  Cash and cash equivalents at December 31, 2006
   includes $101.9 million in remaining proceeds
   received from the equity offering in December,
   2006.




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


                                                    For the      For the
                                                  Year Ended   Year Ended
                                                    December     December
                                                    31, 2006     31, 2005
                                                  -----------  -----------


Cash flows from operating activities:
  Net income                                      $    29,588  $    24,761
  Adjustments to reconcile net income to net cash
   provided by (used for) operating activities,
   including discontinued operations:
    Depreciation                                        9,569        4,876
    Amortization                                        6,822        5,101
    Amortization of favorable and unfavorable
     lease intangibles                                   (813)      (1,714)
    Provision for losses on accounts receivable        12,781        5,009
    (Gain) loss on disposal of discontinued
     operations, net                                   (7,204)      (8,889)
    Loss on sale of assets, net                           172          384
    Loss on extinguishment of debt, net                     -          408
    Loss on asset impairment                                -          361
    Transaction costs                                       -        1,100
    Restricted stock and stock option
     compensation                                       2,326        1,303
    Other, net                                             69        1,010
    Changes in operating assets and liabilities,
     net of acquisitions                              (43,491)     (42,023)
                                                  -----------  -----------
    Net cash provided by (used for) operating
     activities                                         9,819       (8,313)
                                                  -----------  -----------

Cash flows from investing activities:
  Capital expenditures, net                           (22,158)     (17,416)
  Proceeds from sale of assets held for sale           22,009       10,742
  Insurance proceeds received                             150            -
  Acquisitions, net                                    (3,356)     (17,816)
  Repayment of long-term notes receivable                   -          237
  Net proceeds from sale/leaseback                        838            -
                                                  -----------  -----------
    Net cash used for investing activities             (2,517)     (24,253)
                                                  -----------  -----------

Cash flows from financing activities:
  Net payments under Revolving Loan Agreement            (693)        (233)
  Long-term debt borrowings                            45,936       11,000
  Long-term debt repayments                           (58,240)     (19,495)
  Principal payments under capital lease
   obligation                                          (1,104)           -
  Distribution of partnership equity                     (147)        (327)
  Net proceeds from the issuance of common stock      121,741       38,428
  Net proceeds from the issuance of common stock
   from the exercise of employee stock options            499            -
                                                  -----------  -----------
    Net cash provided by financing activities         107,992       29,373
                                                  -----------  -----------

Net increase (decrease) in cash and cash
 equivalents                                          115,294       (3,193)
Cash and cash equivalents at beginning of period       16,641       19,834
                                                  -----------  -----------
Cash and cash equivalents at end of period        $   131,935  $    16,641
                                                  ===========  ===========

Supplemental Disclosures:
Non-cash investing and financing activities:
  A capital lease obligation of $11,200 was
   converted in 2006 to an operating lease.
  A capital lease obligation of $879 was incurred
   in 2006 when we entered into a lease for new
   equipment.
  Capital lease obligations of $1,630 were
   incurred in 2006 when we entered into new
   equipment leases.
  Cash and cash equivalents at December 31, 2006
   includes $101.9 million in remaining proceeds
   received from the equity offering in December,
   2006.




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


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

Total net revenues                                $   268,304  $   216,539
                                                  -----------  -----------

Net income                                        $    20,453  $    11,666
                                                  -----------  -----------

  Income from continuing operations                    10,618        2,665

  Income tax benefit                                   (2,550)         (12)

  Loss (gain) on sale of assets, net                       17         (494)

  Restructuring costs, net                                  -           10
                                                  -----------  -----------

Net segment income                                $     8,085  $     2,169

  Interest, net                                         4,364        3,321

  Depreciation and amortization                         3,256        2,649
                                                  -----------  -----------

EBITDA                                            $    15,705  $     8,139

  Facility rent expense                                14,435       10,755
                                                  -----------  -----------

EBITDAR                                           $    30,140  $    18,894

  Operating administrative costs                        6,978        6,435
  General and administrative expenses                  13,503       13,679
                                                  -----------  -----------
Total operating and general and admin expenses         20,481       20,114

EBITDAM                                           $    36,186  $    28,253
EBITDARM                                          $    50,621  $    39,008




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


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                    For the      For the
                                                  Year Ended   Year Ended
                                                  December 31, December 31,
                                                      2006        2005
                                                  ------------ -----------


Total net revenues                                $  1,045,637 $   765,782
                                                  ------------ -----------

Net income                                        $     29,588 $    24,761
                                                  ------------ -----------


  Income (loss) from continuing operations              17,158      (1,975)

  Income tax expense (benefit)                             803        (786)

  Loss on sale of assets, net                              172         383

  Loss on asset impairment                                   -         361

  Loss on contract termination                             975           -

  Restructuring costs, net                                   -         122
                                                  ------------ -----------

Net segment income (loss)                         $     19,108 $    (1,895)

  Interest, net                                         18,506      11,837

  Depreciation and amortization                         14,866       8,389
                                                  ------------ -----------

EBITDA                                            $     52,480 $    18,331

  Facility rent expense                                 54,192      38,130
                                                  ------------ -----------

EBITDAR                                           $    106,672 $    56,461

  Operating administrative costs                        27,986      23,552
  General and administrative expenses                   49,856      47,195
                                                  ------------ -----------
Total operating and general and admin expenses          77,842      70,747

EBITDAM                                           $    130,322 $    89,078
EBITDARM                                          $    184,514 $   127,208





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

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



                                              Rehabilitation    Medical
                                 Inpatient       Therapy       Staffing
                                 Services       Services       Services
                               -------------  -------------  -------------

Nonaffiliated revenue          $     226,208  $      20,263  $      21,819

Affiliated revenue                         -          9,940            246
                               -------------  -------------  -------------

  Total revenue                      226,208         30,203         22,065

Net segment income (loss)      $      19,331  $       1,504  $       2,451

Interest, net                          3,186             (1)            45

Depreciation and amortization          2,431             95            185
                               -------------  -------------  -------------

  EBITDA                       $      24,948  $       1,598  $       2,681

Facility rent expense                 14,181             53            201
                               -------------  -------------  -------------

  EBITDAR                      $      39,129  $       1,651  $       2,882

Operating and general and
 administrative expenses               4,992          1,661            325
                               -------------  -------------  -------------

   EBITDAM                     $      29,940  $       3,259  $       3,006
   EBITDARM                    $      44,121  $       3,312  $       3,207


     EBITDA margin                      11.0%           5.3%          12.2%

     EBITDAM margin                     13.2%          10.8%          13.6%

     EBITDAR margin                     17.3%           5.5%          13.1%

     EBITDARM margin                    19.5%          11.0%          14.5%



                                               Elimination
                               Other & Corp   of Affiliated
                                    Seg          Revenue     Consolidated
                               -------------  -------------  -------------

Nonaffiliated revenue          $          14  $           -  $     268,304

Affiliated revenue                         -        (10,186)             -
                               -------------  -------------  -------------

  Total revenue                           14        (10,186)       268,304

Net segment income (loss)      $     (15,201) $           -  $       8,085

Interest, net                          1,134              -          4,364

Depreciation and amortization            545              -          3,256
                               -------------  -------------  -------------

  EBITDA                       $     (13,522) $           -  $      15,705

Facility rent expense                      -              -         14,435
                               -------------  -------------  -------------

  EBITDAR                      $     (13,522) $           -  $      30,140

Operating and general and
 administrative expenses              13,503              -         20,481
                               -------------  -------------  -------------

   EBITDAM                     $         (19) $           -  $      36,186
   EBITDARM                    $         (19) $           -  $      50,621


     EBITDA margin                                                     5.9%

     EBITDAM margin                                                   13.5%

     EBITDAR margin                                                   11.2%

     EBITDARM margin                                                  18.9%


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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



                                                 Rehabilita-     Medical
                                    Inpatient    tion Thera-     Staffing
                                     Services    py Services     Services
                                   -----------   -----------   -----------
Nonaffiliated revenue              $   175,193   $    20,181   $    20,523
Affiliated revenue                           -         9,461            98
                                   -----------   -----------   -----------
  Total revenue                        175,193        29,642        20,621

Net segment income (loss)          $    14,546   $     1,067   $       950
Interest, net                            2,344            (3)           39
Depreciation and amortization            2,149            69           146
                                   -----------   -----------   -----------

  EBITDA                           $    19,039   $     1,133   $     1,135

Facility rent expense                   10,436            83           236
                                   -----------   -----------   -----------

  EBITDAR                          $    29,475   $     1,216   $     1,371

Operating and general and
 administrative expenses                 3,638         1,744         1,053
                                   -----------   -----------   -----------

   EBITDAM                         $    22,677   $     2,877   $     2,188
   EBITDARM                        $    33,113   $     2,960   $     2,424


       EBITDA margin                      10.9%          3.8%          5.5%
       EBITDAM margin                     12.9%          9.7%         10.6%
       EBITDAR margin                     16.8%          4.1%          6.6%
       EBITDARM margin                    18.9%         10.0%         11.8%



                                                 Elimination
                                                     of
                                     Other &     Affiliated    Consolidat-
                                     Corp Seg      Revenue         ed
                                   -----------   -----------   -----------
Nonaffiliated revenue              $       642   $         -   $   216,539
Affiliated revenue                           -        (9,559)            -
                                   -----------   -----------   -----------
  Total revenue                            642        (9,559)      216,539

Net segment income (loss)          $   (14,394)  $         -   $     2,169
Interest, net                              941             -         3,321
Depreciation and amortization              285             -         2,649
                                   -----------   -----------   -----------

  EBITDA                           $   (13,168)  $         -   $     8,139

Facility rent expense                        -             -        10,755
                                   -----------   -----------   -----------

  EBITDAR                          $   (13,168)  $         -   $    18,894

Operating and general and
 administrative expenses                13,679             -        20,114
                                   -----------   -----------   -----------

   EBITDAM                         $       511   $         -   $    28,253
   EBITDARM                        $       511   $         -   $    39,008


       EBITDA margin                                                   3.8%
       EBITDAM margin                                                 13.0%
       EBITDAR margin                                                  8.7%
       EBITDARM margin                                                18.0%


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                   For the Year Ended December 31, 2006




                                                  Rehabilita-    Medical
                                      Inpatient   tion Thera-    Staffing
                                       Services   py Services    Services
                                     -----------  -----------  -----------
Nonaffiliated revenue                $   879,112  $    80,623  $    85,866
Affiliated revenue                             -       38,663          998
                                     -----------  -----------  -----------
  Total revenue                          879,112      119,286       86,864

Net segment income (loss)            $    65,996  $     3,038  $     6,981
Interest, net                        $    13,418          (11)         158
Depreciation and amortization             11,893          365          749
                                     -----------  -----------  -----------

  EBITDA                             $    91,307  $     3,392  $     7,888

Facility rent expense                     53,160          219          813
                                     -----------  -----------  -----------

  EBITDAR                            $   144,467  $     3,611  $     8,701

Operating and general and
 administrative expenses                  18,764        6,696        2,526
                                     -----------  -----------  -----------

   EBITDAM                           $   110,071  $    10,088  $    10,414
   EBITDARM                          $   163,231  $    10,307  $    11,227


       EBITDA margin                        10.4%         2.8%         9.1%
       EBITDAM margin                       12.5%         8.5%        12.0%
       EBITDAR margin                       16.4%         3.0%        10.0%
       EBITDARM margin                      18.6%         8.6%        12.9%



                                                  Elimination
                                                      of
                                       Other &    Affiliated   Consolidat-
                                       Corp Seg     Revenue        ed
                                     -----------  -----------  -----------
Nonaffiliated revenue                $        36  $         -  $ 1,045,637
Affiliated revenue                             -      (39,661)           -
                                     -----------  -----------  -----------
  Total revenue                               36      (39,661)   1,045,637

Net segment income (loss)            $   (56,907) $         -  $    19,108
Interest, net                              4,941            -       18,506
Depreciation and amortization              1,859            -       14,866
                                     -----------  -----------  -----------

  EBITDA                             $   (50,107) $         -  $    52,480

Facility rent expense                          -            -       54,192
                                     -----------  -----------  -----------

  EBITDAR                            $   (50,107) $         -  $   106,672

Operating and general and

 administrative expenses                  49,856            -       77,842
                                     -----------  -----------  -----------

   EBITDAM                           $      (251) $         -  $   130,322
   EBITDARM                          $      (251) $         -  $   184,514


       EBITDA margin                                                   5.0%
       EBITDAM margin                                                 12.5%
       EBITDAR margin                                                 10.2%
       EBITDARM margin                                                17.6%


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                   For the Year Ended December 31, 2005


                                                  Rehabilita-    Medical
                                      Inpatient   tion Thera-    Staffing
                                       Services   py Services    Services
                                     -----------  -----------  -----------
Nonaffiliated revenue                $   614,913  $    79,674  $    70,534
Affiliated revenue                             -       36,952          613
                                     -----------  -----------  -----------
  Total revenue                          614,913      116,626       71,147

Net segment income (loss)            $    41,355  $     4,185  $     4,907
Interest, net                              7,344          (17)          49
Depreciation and amortization              6,813          234          376
                                     -----------  -----------  -----------

  EBITDA                             $    55,512  $     4,402  $     5,332

Facility rent expense                     37,056          336          738
                                     -----------  -----------  -----------

  EBITDAR                            $    92,568  $     4,738  $     6,070

Operating and general and
 administrative expenses                  13,453        7,351        2,748
                                     -----------  -----------  -----------

   EBITDAM                           $    68,965  $    11,753  $     8,080
   EBITDARM                          $   106,021  $    12,089  $     8,818


       EBITDA margin                         9.0%         3.8%         7.5%
       EBITDAM margin                       11.2%        10.1%        11.4%
       EBITDAR margin                       15.1%         4.1%         8.5%
       EBITDARM margin                      17.2%        10.4%        12.4%



                                                  Elimination
                                                      of
                                       Other &    Affiliated   Consolidat-
                                       Corp Seg     Revenue        ed
                                     -----------  -----------  -----------
Nonaffiliated revenue                $       661  $         -  $   765,782
Affiliated revenue                             -      (37,565)           -
                                     -----------  -----------  -----------
  Total revenue                              661      (37,565)     765,782

Net segment income (loss)            $   (52,342) $         -  $    (1,895)
Interest, net                              4,461            -       11,837
Depreciation and amortization                966            -        8,389
                                     -----------  -----------  -----------

  EBITDA                             $   (46,915) $         -  $    18,331

Facility rent expense                          -            -       38,130
                                     -----------  -----------  -----------

  EBITDAR                            $   (46,915) $         -  $    56,461

Operating and general and
 administrative expenses                  47,195            -       70,747
                                     -----------  -----------  -----------

   EBITDAM                           $       280  $         -  $    89,078
   EBITDARM                          $       280  $         -  $   127,208


       EBITDA margin                                                   2.4%
       EBITDAM margin                                                 11.6%
       EBITDAR margin                                                  7.4%
       EBITDARM margin                                                16.6%


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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


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

Non affiliated revenues     $  158,025  $        -  $  158,025  $        -
                            ----------  ----------  ----------  ----------

Net segment income (loss)   $   18,441  $   (4,006) $   14,435  $     (558)
Interest, net                      696           -         696       1,064
Depreciation and
 amortization                    1,605           -       1,605         375
                            ----------  ----------  ----------  ----------
  EBITDA                    $   20,742  $   (4,006) $   16,736  $      881

Facility rent expense           10,207           -      10,207        (884)
                            ----------  ----------  ----------  ----------

  EBITDAR                   $   30,949  $   (4,006) $   26,943  $       (3)
                            ==========  ==========  ==========  ==========

    EBITDA margin                 13.1%                   10.6%
    EBITDAR margin                19.6%                   17.0%



                            Inpatient                 Total
                             Services               Inpatient
                              before       Peak      Services
                            ----------  ----------  ----------

Non affiliated revenues     $  158,025  $   68,183  $  226,208
                            ----------  ----------  ----------

Net segment income (loss)   $   13,877  $    5,454      19,331
Interest, net                    1,760       1,426       3,186
Depreciation and
 amortization                    1,980         451       2,431
                            ----------  ----------  ----------
  EBITDA                    $   17,617  $    7,331  $   24,948

Facility rent expense            9,323       4,858      14,181
                            ----------  ----------  ----------

  EBITDAR                   $   26,940  $   12,189  $   39,129
                            ==========  ==========  ==========

    EBITDA margin                 11.1%       10.8%       11.0%
    EBITDAR margin                17.0%       17.9%       17.3%



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


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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


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

Non affiliated revenues         $ 154,701  $       -  $ 154,701  $       -
                                ---------  ---------  ---------  ---------

Net segment income (loss)       $  19,116  $  (3,707) $  15,409  $    (354)
Interest, net                         765        (17)       748        956
Depreciation and amortization       1,446          -      1,446        268
                                ---------  ---------  ---------  ---------
  EBITDA                        $  21,327  $  (3,724) $  17,603  $     870

Facility rent expense               9,927          -      9,927       (876)
                                ---------  ---------  ---------  ---------

  EBITDAR                       $  31,254  $  (3,724) $  27,530  $      (6)
                                =========  =========  =========  =========

    EBITDA margin                    13.8%                 11.4%
    EBITDAR margin                   20.2%                 17.8%



                                Inpatient               Total
                                Services              Inpatient
                                  before     Peak     Services
                                ---------  ---------  ---------

Non affiliated revenues         $ 154,701  $  20,492  $ 175,193
                                ---------  ---------  ---------

Net segment income (loss)       $  15,055  $    (509) $  14,546
Interest, net                       1,704        640      2,344
Depreciation and amortization       1,714        435      2,149
                                ---------  ---------  ---------
  EBITDA                        $  18,473  $     566  $  19,039

Facility rent expense               9,051      1,385  $  10,436
                                ---------  ---------  ---------

  EBITDAR                       $  27,524  $   1,951  $  29,475
                                =========  =========  =========

    EBITDA margin                    11.9%       2.8%      10.9%
    EBITDAR margin                   17.8%       9.5%      16.8%


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


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                   For the Year Ended December 31, 2006



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

Total revenues                  $ 620,475  $       -  $ 620,475  $       -
                                ---------  ---------  ---------  ---------

Net segment income (loss)       $  64,668  $ (15,601) $  49,067  $  (1,941)
Interest, net                       2,959          -      2,959      3,998
Depreciation and amortization       6,350          -      6,350      1,388
                                ---------  ---------  ---------  ---------
  EBITDA                        $  73,977  $ (15,601) $  58,376  $   3,445

Facility rent expense              40,329          -     40,329     (3,519)
                                ---------  ---------  ---------  ---------

  EBITDAR                       $ 114,306  $ (15,601) $  98,705  $     (74)
                                =========  =========  =========  =========

    EBITDA margin                    11.9%                  9.4%
    EBITDAR margin                   18.4%                 15.9%



                                Inpatient               Total
                                Services              Inpatient
                                  before     Peak     Services
                                ---------  ---------  ---------

Total revenues                  $ 620,475  $ 258,637  $ 879,112
                                ---------  ---------  ---------

Net segment income (loss)       $  47,126  $  18,870  $  65,996
Interest, net                       6,957      6,461     13,418
Depreciation and amortization       7,738      4,155     11,893
                                ---------  ---------  ---------
  EBITDA                        $  61,821  $  29,486  $  91,307

Facility rent expense              36,810     16,350     53,160
                                ---------  ---------  ---------

  EBITDAR                       $  98,631  $  45,836  $ 144,467
                                =========  =========  =========

    EBITDA margin                    10.0%      11.4%      10.4%
    EBITDAR margin                   15.9%      17.7%      16.4%

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


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                   For the Year Ended December 31, 2005


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

Total revenues                  $ 594,421  $       -  $ 594,421  $       -
                                ---------  ---------  ---------  ---------

Net segment income (loss)       $  57,701  $ (13,611) $  44,090  $  (2,226)
Interest, net                       2,715        (17)     2,698      4,006
Depreciation and amortization       5,161          -      5,161      1,217
                                ---------  ---------  ---------  ---------
  EBITDA                        $  65,577  $ (13,628) $  51,949  $   2,997

Facility rent expense              39,184          -     39,184     (3,513)
                                ---------  ---------  ---------  ---------

  EBITDAR                       $ 104,761  $ (13,628) $  91,133  $    (516)
                                =========  =========  =========  =========

    EBITDA margin                    11.0%                  8.7%
    EBITDAR margin                   17.6%                 15.3%



                                Inpatient               Total
                                Services              Inpatient
                                  before     Peak     Services
                                ---------  ---------  ---------

Total revenues                  $ 594,421  $  20,492  $ 614,913
                                ---------  ---------  ---------

Net segment income (loss)       $  41,864  $    (509) $  41,355
Interest, net                       6,704        640      7,344
Depreciation and amortization       6,378        435      6,813
                                ---------  ---------  ---------
  EBITDA                        $  54,946  $     566  $  55,512

Facility rent expense              35,671      1,385  $  37,056
                                ---------  ---------  ---------

  EBITDAR                       $  90,617  $   1,951  $  92,568
                                =========  =========  =========

    EBITDA margin                     9.2%       2.8%       9.0%
    EBITDAR margin                   15.2%       9.5%      15.1%

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


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


                                For the                   For the
                           Three Months Ended            Year Ended
                              December 31,              December 31,
                        ------------------------  ------------------------
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
Number of available
 beds:
  Long Term Care             14,534       14,562       14,534       14,562
  Hospitals                     192          192          192          192

Number of facilities:
  Long Term Care                138          145          138          145
  Hospitals                       3            3            3            3

Occupancy % (2005 is
 mtd only):
  Long Term Care               88.0%        87.7%        87.8%        87.7%
  Hospitals                    53.9%        52.4%        54.8%        52.4%
  Inpatient Services           87.5%        87.2%        87.4%        87.2%

Payor Mix % based on
 patient days - LTC:
  Medicare                     13.5%        13.1%        13.6%        13.2%
  Medicaid                     60.4%        62.2%        60.6%        62.6%
  Private and other            23.2%        21.9%        22.9%        21.6%
  Commercial Insurance
   & Veterans                   2.9%         2.8%         2.9%         2.6%

Payor Mix % based on
 patient days - Hospitals:
  Medicare                     66.6%        72.2%        69.4%        71.4%
  Medicaid                     10.7%        11.6%         8.3%        10.0%
  Private and other             0.3%         0.3%         0.1%         0.2%
  Commercial Insurance
   & Veterans                  22.4%        15.9%        22.2%        18.4%

Payor Mix % based on
 patient days -
 Inpatient Services:
  Medicare                     13.9%        13.7%        14.0%        13.9%
  Medicaid                     60.0%        61.7%        60.2%        62.0%
  Private and other            23.0%        21.7%        22.7%        21.3%
  Commercial Insurance
   & Veterans                   3.1%         2.9%         3.1%         2.8%

Revenue Mix % of
 revenues - LTC:
  Medicare                     28.7%        27.2%        28.4%        27.2%
  Medicaid                     48.3%        51.0%        48.6%        50.3%
  Private and other            18.6%        18.4%        18.8%        19.0%
  Commercial Insurance
   & Veterans                   4.4%         3.4%         4.2%         3.5%

Revenue Mix % of
 revenues - Hospitals:
  Medicare                     65.7%        74.4%        71.0%        74.3%
  Medicaid                      9.2%        10.0%         6.8%         8.5%
  Private and other             0.8%         0.7%         0.6%         0.8%
  Commercial Insurance
   & Veterans                  24.3%        14.9%        21.6%        16.4%

Revenue Mix % of
 revenues - Inpatient
 Services:
  Medicare                     31.2%        30.4%        31.1%        30.9%
  Medicaid                     45.8%        48.1%        45.9%        47.1%
  Private and other            17.7%        17.4%        18.0%        17.6%
  Commercial Insurance
   & Veterans                   5.3%         4.1%         5.0%         4.4%

Revenues PPD - LTC:
  Medicare (Part A)     $    358.76  $    335.41  $    344.45  $    326.28
  Medicaid              $    145.36  $    145.52  $    142.95  $    139.87
  Private and other     $    141.16  $    145.87  $    141.18  $    147.55
  Commercial Insurance
   & Veterans           $    272.00  $    219.64  $    254.75  $    235.32

Revenues PPD -
 Hospitals:
  Medicare (Part A)     $  1,115.15  $  1,095.49  $  1,171.44  $  1,063.24
  Medicaid              $    957.84  $    890.87  $    916.85  $    839.07
  Private and other     $  1,264.33  $  1,401.67  $  1,374.54  $  1,546.98
  Commercial Insurance
   & Veterans           $  1,264.69  $  1,021.14  $  1,152.24  $    944.22

Revenues PPD -
 Inpatient Services:
  Medicare (Part A)     $    397.88  $    378.53  $    385.27  $    373.16
  Medicaid              $    146.53  $    147.02  $    143.81  $    141.28
  Private and other     $    141.26  $    146.03  $    141.26  $    147.71
  Commercial Insurance
   & Veterans           $    330.56  $    267.41  $    307.78  $    292.95

Revenues -
 Non-affiliated (in
 thousands):
 Inpatient Services:
  Medicare              $    70,640  $    53,325  $   273,790  $   189,842
  Medicaid                  103,496       84,226      403,770      289,390
  Private and other          52,072       37,642      201,552      135,681
                        -----------  -----------  -----------  -----------
    Subtotal                226,208      175,193      879,112      614,913

  Rehabilitation
   Therapy Services          20,263       20,181       80,623       79,674
  Medical Staffing
   Services                  21,819       20,523       85,866       70,534
                        -----------  -----------  -----------  -----------
    Subtotal                 42,082       40,704      166,489      150,208
                        -----------  -----------  -----------  -----------

  Other - non-core
   businesses                    14          642           36          661
                        -----------  -----------  -----------  -----------
       Total            $   268,304  $   216,539  $ 1,045,637  $   765,782
                        ===========  ===========  ===========  ===========


Rehab contracts:
  Affiliated -
   continuing                    87           92           87           92
  Non-affiliated                295          332          295          332

DSO (Days Sales
 Outstanding):
  Inpatient Services -
   LTC                           37           44           37           44
  Inpatient Services -
   Hospitals                     67           54           67           54
  Rehabilitation Therapy
   Services                      92           98           92           98
  Medical Staffing
   Services                      54           60           54           60


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                                                                PRO FORMA
                                                  AS REPORTED   WITH PEAK
                                                For the Three For the Three
                                                 Months Ended  Months Ended
                                                    December     December
                                                    31, 2006     31, 2005
                                                  -----------  -----------
                                                  (unaudited)  (unaudited)

Total net revenues                                $   268,304  $   257,758
                                                  -----------  -----------
Costs and expenses:
  Operating salaries and benefits                     155,030      148,975
  Self-insurance for workers' compensation and
   general and professional liability insurance         2,783        3,611
  Operating administrative costs                        6,978        7,589
  Other operating costs                                54,661       56,378
  Facility rent expense                                14,435       12,554
  General and administrative expenses                  13,503       14,022
  Depreciation                                          1,735        1,988
  Amortization                                          1,521        1,433
  Provision for losses on accounts receivable           5,209        2,563
  Interest, net                                         4,364        4,795
  Loss (gain) on sale of assets, net                       17         (493)
  Restructuring costs, net                                  -            9
Total costs and expenses                              260,236      253,424
                                                  -----------  -----------

Income before income taxes and discontinued
 operations                                             8,068        4,334
Income tax benefit                                     (2,550)         (12)
                                                  -----------  -----------
Income from continuing operations                      10,618        4,346
                                                  -----------  -----------

Discontinued operations:
  Income from discontinued operations, net of
   related tax benefit of $1,627 for the
   three months ended December 31, 2006                 2,256        8,985
  Gain (loss) on disposal of discontinued
   operations, net of related tax expense
   of $919 for the three months ended
   December 31, 2006                                    7,579         (705)
                                                  -----------  -----------
Income from discontinued operations, net                9,835        8,280
                                                  -----------  -----------

Net income                                        $    20,453  $    12,626
                                                  ===========  ===========

Basic income per common and common equivalent
 share:
  Income from continuing operations               $      0.32  $      0.18
  Income from discontinued operations, net               0.30         0.33
                                                  -----------  -----------
Net income                                        $      0.62  $      0.51
                                                  ===========  ===========

Diluted income per common and common equivalent
 share:
  Income from continuing operations               $      0.32  $      0.18
  Income from discontinued operations, net               0.30         0.33
                                                  -----------  -----------
Net income                                        $      0.62  $      0.51
                                                  ===========  ===========

Weighted average number of common and
     common equivalent shares outstanding:
  Basic                                                32,750       24,611
  Diluted                                              33,069       24,753





               SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                                                                PRO FORMA
                                                  AS REPORTED   WITH PEAK
                                                    For the      For the
                                                  Year Ended   Year Ended
                                                  December 31, December 31,
                                                      2006         2005
                                                  ------------ -----------

Total net revenues                                $  1,045,637 $   991,220
                                                  ------------ -----------
Costs and expenses:
  Operating salaries and benefits                      598,516     567,644
  Self-insurance for workers' compensation and
   general and professional liability insurance         32,694      36,395
  Operating administrative costs                        27,986      29,632
  Other operating costs                                218,789     212,400
  Facility rent expense                                 54,192      51,082
  General and administrative expenses                   49,856      49,834
  Depreciation                                           8,705       7,531
  Amortization                                           6,161       4,914
  Provision for losses on accounts receivable           11,124       5,511
  Interest, net                                         18,506      19,764
  Loss on extinguishment of debt, net                        -         408
  Loss on sale of assets, net                              172         384
  Loss on asset impairment                                   -         361
  Restructuring costs, net                                   -         121
  Loss on contract termination                             975           -
                                                  ------------ -----------
Total costs and expenses                             1,027,676     985,981
                                                  ------------ -----------

Income before income taxes and discontinued
 operations                                             17,961       5,239
Income tax expense (benefit)                               803        (779)
                                                  ------------ -----------
Income from continuing operations                       17,158       6,018
                                                  ------------ -----------

Discontinued operations:
  Income from discontinued operations                    5,226      16,949
  Gain on disposal of discontinued operations,
   net of related tax expense of $785 for the
   year ended December 31, 2006                          7,204       8,889
                                                  ------------ -----------
Income from discontinued operations, net                12,430      25,838
                                                  ------------ -----------

Net income                                        $     29,588 $    31,856
                                                  ============ ===========


Basic income per common and common equivalent
 share:
  Income from continuing operations               $       0.54 $      0.25
  Income from discontinued operations, net                0.40        1.06
                                                  ------------ -----------
Net income                                        $       0.94 $      1.31
                                                  ============ ===========

Diluted income per common and common equivalent
 share:
  Income from continuing operations               $       0.54 $      0.25
  Income from discontinued operations, net                0.39        1.06
                                                  ------------ -----------
Net income                                        $       0.93 $      1.31
                                                  ============ ===========

Weighted average number of common and
     common equivalent shares outstanding:
  Basic                                                 31,638      24,316
  Diluted                                               31,788      24,386





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                                                                PRO FORMA
                                                  AS REPORTED   WITH PEAK
                                                For the Three For the Three
                                                 Months Ended  Months Ended
                                                    December     December
                                                    31, 2006     31, 2005
                                                  -----------  -----------
                                                  (unaudited)  (unaudited)

Total net revenues                                $   268,304  $   257,758
                                                  -----------  -----------

Net income                                        $    20,453  $    12,626
                                                  -----------  -----------

  Income from continuing operations                    10,618        4,346

  Income tax benefit                                   (2,550)         (12)

  Loss (gain) on sale of assets, net                       17         (493)

  Restructuring costs, net                                  -            9

Net segment income                                $     8,085  $     3,850

  Interest, net                                         4,364        4,795

  Depreciation and amortization                         3,256        3,421
                                                  -----------  -----------

EBITDA                                            $    15,705  $    12,066

  Facility rent expense                                14,435       12,554
                                                  -----------  -----------

EBITDAR                                           $    30,140  $    24,620

  Operating administrative costs                        6,978        7,589
  General and administrative expenses                  13,503       14,022
                                                  -----------  -----------
Total operating and general and admin expenses         20,481       21,611

EBITDAM                                           $    36,186  $    33,677
EBITDARM                                          $    50,621  $    46,231



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

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





                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                                                                PRO FORMA
                                                  AS REPORTED   WITH PEAK
                                                    For the      For the
                                                  Year Ended   Year Ended
                                                  December 31, December 31,
                                                      2006        2005
                                                  ------------ -----------


Total net revenues                                $  1,045,637 $   991,220
                                                  ------------ -----------

Net income                                        $     29,588 $    31,856
                                                  ------------ -----------

  Income from continuing operations                     17,158       6,018

  Income tax expense (benefit)                             803        (779)

  Loss on sale of assets, net                              172         384

  Loss on asset impairment                                   -         361

  Restructuring costs, net                                   -         121

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

Net segment income                                $     19,108 $     6,105

  Interest, net                                         18,506      19,764

  Depreciation and amortization                         14,866      12,445
                                                  ------------ -----------

EBITDA                                            $     52,480 $    38,314

  Facility rent expense                                 54,192      51,082
                                                  ------------ -----------

EBITDAR                                           $    106,672 $    89,396

  Operating administrative costs                        27,986      29,632
  General and administrative expenses                   49,856      49,834
                                                  ------------ -----------
Total operating and general and admin expenses          77,842      79,466

EBITDAM                                           $    130,322 $   117,780
EBITDARM                                          $    184,514 $   168,862


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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



                                              Rehabilitation     Medical
                                 Inpatient      Therapy         Staffing
                                 Services       Services        Services
                               -------------  -------------  -------------
Nonaffiliated revenue          $     216,612  $      20,181  $      20,523
Affiliated revenue                         -          9,461             98
                               -------------  -------------  -------------
  Total revenue                      216,612         29,642         20,621

Net segment income (loss)      $      17,452  $       1,067  $         950
Interest, net                          3,606             (3)            39
Depreciation and amortization          2,902             69            146
                               -------------  -------------  -------------

  EBITDA                       $      23,960  $       1,133  $       1,135
Facility rent expense                 12,235             83            236
                               -------------  -------------  -------------

  EBITDAR                      $      36,195  $       1,216  $       1,371
Operating and general and
 administrative expenses               4,366          1,744          1,053
                               -------------  -------------  -------------

   EBITDAM                     $      28,326  $       2,877  $       2,188
   EBITDARM                    $      40,561  $       2,960  $       2,424


EBITDA margin                           11.1%           3.8%           5.5%
EBITDAM margin                          13.1%           9.7%          10.6%
EBITDAR margin                          16.7%           4.1%           6.6%
EBITDARM margin                         18.7%          10.0%          11.8%



                                               Elimination
                               Other & Corp   of Affiliated
                                    Seg          Revenue     Consolidated
                               -------------  -------------  -------------
Nonaffiliated revenue          $         442  $           -  $     257,758
Affiliated revenue                         -         (9,559)             -
                               -------------  -------------  -------------
  Total revenue                          442         (9,559)       257,758

Net segment income (loss)      $     (15,619) $           -  $       3,850
Interest, net                          1,153              -          4,795
Depreciation and amortization            304              -          3,421
                               -------------  -------------  -------------

  EBITDA                       $     (14,162) $           -  $      12,066
Facility rent expense                      -              -         12,554
                               -------------  -------------  -------------

  EBITDAR                      $     (14,162) $           -  $      24,620
Operating and general and

 administrative expenses              14,448              -         21,611
                               -------------  -------------  -------------

   EBITDAM                     $         286  $           -  $      33,677
   EBITDARM                    $         286  $           -  $      46,231


EBITDA margin                                                          4.7%
EBITDAM margin                                                        13.1%
EBITDAR margin                                                         9.6%
EBITDARM margin                                                       17.9%


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                   For the Year Ended December 31, 2005




                                              Rehabilitation    Medical
                                 Inpatient       Therapy       Staffing
                                 Services       Services       Services
                               -------------  -------------  -------------
Nonaffiliated revenue          $     840,547  $      79,674  $      70,534
Affiliated revenue                         -         36,952            613
                               -------------  -------------  -------------
  Total revenue                      840,547        116,626         71,147

Net segment income (loss)      $      53,944  $       4,185  $       4,907
Interest, net                         14,195            (17)            49
Depreciation and amortization         10,759            234            376
                               -------------  -------------  -------------

  EBITDA                       $      78,898  $       4,402  $       5,332
Facility rent expense                 50,008            336            738
                               -------------  -------------  -------------

  EBITDAR                      $     128,906  $       4,738  $       6,070
Operating and general and

 administrative expenses              19,109          7,351          2,748
                               -------------  -------------  -------------

   EBITDAM                     $      98,007  $      11,753  $       8,080
   EBITDARM                    $     148,015  $      12,089  $       8,818


EBITDA margin                            9.4%           3.8%           7.5%
EBITDAM margin                          11.7%          10.1%          11.4%
EBITDAR margin                          15.3%           4.1%           8.5%
EBITDARM margin                         17.6%          10.4%          12.4%



                                               Elimination
                               Other & Corp   of Affiliated
                                    Seg          Revenue     Consolidated
                               -------------  -------------  -------------
Nonaffiliated revenue          $         465  $           -  $     991,220
Affiliated revenue                         -        (37,565)             -
                               -------------  -------------  -------------
  Total revenue                          465        (37,565)       991,220

Net segment income (loss)      $     (56,931) $           -  $       6,105
Interest, net                          5,537              -         19,764
Depreciation and amortization          1,076              -         12,445
                               -------------  -------------  -------------

  EBITDA                       $     (50,318) $           -  $      38,314
Facility rent expense                      -              -         51,082
                               -------------  -------------  -------------

  EBITDAR                      $     (50,318) $           -  $      89,396
Operating and general and

 administrative expenses              50,258              -         79,466
                               -------------  -------------  -------------

   EBITDAM                     $         (60) $           -  $     117,780
   EBITDARM                    $         (60) $           -  $     168,862


EBITDA margin                                                          3.9%
EBITDAM margin                                                        11.9%
EBITDAR margin                                                         9.0%
EBITDARM margin                                                       17.0%


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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


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

Non affiliated revenues         $ 154,700  $       -  $ 154,700  $       -
                                ---------  ---------  ---------  ---------

Net segment income (loss)       $  19,116  $  (3,707) $  15,409  $    (354)
Interest, net                         766        (17)       749        956
Depreciation and amortization       1,446          -      1,446        268

                                ---------  ---------  ---------  ---------
  EBITDA                        $  21,328  $  (3,724) $  17,604  $     870

Facility rent expense               9,927          -      9,927       (876)
                                ---------  ---------  ---------  ---------

  EBITDAR                       $  31,255  $  (3,724) $  27,531  $      (6)
                                =========  =========  =========  =========

    EBITDA margin                    13.8%                 11.4%
    EBITDAR margin                   20.2%                 17.8%



                                Inpatient               Total
                                Services              Inpatient
                                  before     Peak     Services
                                ---------  ---------  ---------

Non affiliated revenues         $ 154,700  $  61,912  $ 216,612
                                ---------  ---------  ---------

Net segment income (loss)       $  15,055  $   2,397  $  17,452
Interest, net                       1,705      1,901      3,606
Depreciation and amortization       1,714      1,188      2,902

                                ---------  ---------  ---------
  EBITDA                        $  18,474  $   5,486  $  23,960

Facility rent expense               9,051      3,184  $  12,235
                                ---------  ---------  ---------

  EBITDAR                       $  27,525  $   8,670  $  36,195
                                =========  =========  =========

    EBITDA margin                    11.9%       8.9%      11.1%
    EBITDAR margin                   17.8%      14.0%      16.7%

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


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                   For the Year Ended December 31, 2005



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

Non affiliated revenues         $ 594,422  $       -  $ 594,422  $       -
                                ---------  ---------  ---------  ---------

Net segment income (loss)       $  57,701  $ (13,611) $  44,090  $  (2,226)
Interest, net                       2,715        (17)     2,698      4,006
Depreciation and amortization       5,160          -      5,160      1,217
                                ---------  ---------  ---------  ---------
  EBITDA                        $  65,576  $ (13,628) $  51,948  $   2,997

Facility rent expense              39,184          -     39,184     (3,513)
                                ---------  ---------  ---------  ---------

  EBITDAR                       $ 104,760  $ (13,628) $  91,132  $    (516)
                                =========  =========  =========  =========

    EBITDA margin                    11.0%                  8.7%
    EBITDAR margin                   17.6%                 15.3%



                                Inpatient               Total
                                Services              Inpatient
                                  before     Peak     Services
                                ---------  ---------  ---------

Non affiliated revenues         $ 594,422  $ 246,125  $ 840,547
                                ---------  ---------  ---------

Net segment income (loss)       $  41,864  $  12,080     53,944
Interest, net                       6,704      7,491     14,195
Depreciation and amortization       6,377      4,382     10,759
                                ---------  ---------  ---------
  EBITDA                        $  54,945  $  23,953  $  78,898

Facility rent expense              35,671     14,337  $  50,008
                                ---------  ---------  ---------


  EBITDAR                       $  90,616  $  38,290  $ 128,906
                                =========  =========  =========

    EBITDA margin                     9.2%       9.7%       9.4%
    EBITDAR margin                   15.2%      15.6%      15.3%



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


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


                                For the                   For the
                           Three Months Ended            Year Ended
                              December 31,              December 31,
                                      PRO FORMA                 PRO FORMA
                        AS REPORTED   WITH PEAK   AS REPORTED   WITH PEAK
                        -----------  -----------  -----------  -----------
                            2006         2005         2006         2005
                        -----------  -----------  -----------  -----------
Number of available
 beds:
  Long Term Care             14,534       14,562       14,534       14,562
  Hospitals                     192          192          192          192


Number of facilities:
  Long Term Care                138          145          138          145
  Hospitals                       3            3            3            3


Occupancy %:
  Long Term Care               88.0%        87.7%        87.8%        87.7%
  Hospitals                    53.9%        57.4%        54.8%        58.7%
  Inpatient Services           87.5%        87.3%        87.4%        87.4%


Payor Mix % based on
 patient days - LTC:
  Medicare                     13.5%        12.8%        13.6%        12.9%
  Medicaid                     60.4%        61.2%        60.6%        61.3%
  Private and other            23.2%        22.8%        22.9%        22.6%
  Commercial Insurance
   & Veterans                   2.9%         3.2%         2.9%         3.2%


Payor Mix % based on
 patient days -
 Hospitals:
  Medicare                     66.6%        72.2%        69.4%        71.4%
  Medicaid                     10.7%        11.6%         8.3%        10.0%
  Private and other             0.3%         0.3%         0.1%         0.2%
  Commercial Insurance
   & Veterans                  22.4%        15.9%        22.2%        18.4%


Payor Mix % based on
 patient days -
 Inpatient Svcs:
  Medicare                     13.9%        13.3%        14.0%        13.4%
  Medicaid                     60.0%        60.8%        60.2%        60.9%
  Private and other            23.0%        22.6%        22.7%        22.4%
  Commercial Insurance
   & Veterans                   3.1%         3.3%         3.1%         3.3%


Revenue Mix % of
 revenues - LTC:
  Medicare                     28.7%        27.0%        28.4%        27.2%
  Medicaid                     48.3%        50.1%        48.6%        49.4%
  Private and other            18.6%        19.3%        18.8%        19.6%
  Commercial Insurance
   & Veterans                   4.4%         3.6%         4.2%         3.8%


Revenue Mix % of
 revenues - Hospitals:
  Medicare                     65.7%        74.4%        71.0%        74.3%
  Medicaid                      9.2%        10.0%         6.8%         8.5%
  Private and other             0.8%         0.7%         0.6%         0.8%
  Commercial Insurance
   & Veterans                  24.3%        14.9%        21.6%        16.4%


Revenue Mix % of
 revenues - Inpatient
 Services:
  Medicare                     31.2%        30.0%        31.1%        30.3%
  Medicaid                     45.8%        47.8%        45.9%        47.0%
  Private and other            17.7%        18.0%        18.0%        18.3%
  Commercial Insurance
   & Veterans                   5.3%         4.2%         5.0%         4.4%


Revenues PPD - LTC:
  Medicare (Part A)     $    358.76  $    335.57  $    344.45  $    326.98
  Medicaid              $    145.36  $    143.32  $    142.95  $    137.75
  Private and other     $    141.16  $    141.81  $    141.18  $    141.26
  Commercial Insurance
   & Veterans           $    272.00  $    198.71  $    254.75  $    200.76



Revenues PPD -
 Hospitals:
  Medicare (Part A)     $  1,115.15  $  1,095.49  $  1,171.44  $  1,063.24
  Medicaid              $    957.84  $    890.87  $    916.85  $    839.07
  Private and other     $  1,264.33  $  1,401.67  $  1,374.54  $  1,546.98
  Commercial Insurance
   & Veterans           $  1,264.69  $  1,021.14  $  1,152.24  $    944.22

Revenues PPD -
 Inpatient Services:
  Medicare (Part A)     $    397.88  $    375.97  $    385.27  $    368.60
  Medicaid              $    146.53  $    144.51  $    143.81  $    138.76
  Private and other     $    141.26  $    138.59  $    141.26  $    138.81
  Commercial Insurance
   & Veterans           $    330.56  $    232.88  $    307.78  $    236.88


Revenues -
 Non-affiliated (in
 thousands):
 Inpatient Services:
  Medicare              $    70,640  $    65,071  $   273,790  $   254,821
  Medicaid                  103,496      103,517      403,770      394,714
  Private and other          52,072       48,024      201,552      191,012
                        -----------  -----------  -----------  -----------
   Subtotal                 226,208      216,612      879,112      840,547

  Rehabilitation
   Therapy Services          20,263       20,181       80,623       79,674
  Medical Staffing
   Services                  21,819       20,523       85,866       70,534
                        -----------  -----------  -----------  -----------
   Subtotal                  42,082       40,704      166,489      150,208
                        -----------  -----------  -----------  -----------

  Other - non-core
   businesses                    14          442           36          465
                        -----------  -----------  -----------  -----------
    Total               $   268,304  $   257,758  $ 1,045,637  $   991,220
                        ===========  ===========  ===========  ===========


Rehab contracts:
 Affiliated -
  continuing                     87           92           87           92
 Non-affiliated                 295          332          295          332

DSO (Days Sales
 Outstanding):
 Inpatient Services -
  LTC                            37           36           37           36
 Inpatient Services -
  Hospitals                      67           54           67           54
 Rehabilitation Therapy
  Services                       92           98           92           98
 Medical Staffing
  Services                       54           60           54           60


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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



                                       AS REPORTED - QTD 2006
                          =================================================
                                                                  Income
                                                                   from
                                                                Continuing
                          Revenue  EBITDAR    EBITDA   Pre-tax  Operations
                          -------- --------  --------  -------  ----------

As Reported QTD 2006       268,304   30,140    15,705    8,068      10,618
    Percent of Revenue                 11.2%      5.9%     3.0%        4.0%

Normalizing Adjustments:
Release of insurance
 reserves related to
 prior periods                       (6,279)   (6,279)  (6,279)     (5,965)
Pre-acquisition
 adjustments for Peak                 3,556     4,080    4,080       3,876
                          -------- --------  --------  -------  ----------

 Adjusted As Reported QTD
  2006                     268,304   27,417    13,506    5,869       8,529
                          ======== ========  ========  =======  ==========
    Percent of Revenue                 10.2%      5.0%     2.2%        3.2%

          Diluted EPS:
           As Reported                                          $     0.32
           As Adjusted                                          $     0.26



                                  PRO FORMA SUN & PEAK - QTD 2005
                          =================================================
                                                                  Income
                                                                   from
                                                                Continuing
                          Revenue  EBITDAR    EBITDA   Pre-tax  Operations
                          -------- --------  --------  -------  ----------

As Reported - Pro Forma
 Sun & Peak QTD 2005       257,758   24,620    12,066    4,334       4,346
    Percent of Revenue                  9.6%      4.7%     1.7%        1.7%

Normalizing Adjustments:
Release of insurance
 reserves related to
 prior periods                       (6,279)   (6,279)  (6,279)     (6,279)
Pre-acquisition
 adjustments for Peak                 1,100     1,100    1,100       1,100
                          -------- --------  --------  -------  ----------

As Adjusted Pro Forma Sun
 & Peak QTD 2005           257,758   19,441     6,887     (845)       (833)
                          ======== ========  ========  =======  ==========
    Percent of Revenue                  7.5%      2.7%    -0.3%       -0.3%

          Diluted EPS:
           As Reported                                          $     0.18
           As Adjusted                                          $    (0.03)


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 months ended December 31.

Normalizing adjustments are transactions or adjustments not related to
continuing operations including self-insurance reserve releases related to
prior periods, adjustments to Peak's pre-acquisition balance sheet and
other non-operating charges.  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 - YTD COMPARISON
                  (in thousands, except per share data)



                                         AS REPORTED - YTD 2006
                               ============================================
                                  Revenue        EBITDAR         EBITDA
                               -------------- -------------  -------------

As Reported YTD 2006                1,045,637       106,672         52,480
    Percent of Revenue                                 10.2%           5.0%

Normalizing Adjustments:
Release of insurance reserves
 related to prior periods                           (11,649)       (11,649)
Pre-acquisition adjustments
 for Peak                                             2,779          2,779
Management contract
 termination fee                                          -              -
Other adjustments                                       185            185
Net gains on disc ops
                               -------------- -------------  -------------

 Adjusted As Reported YTD 2006      1,045,637        97,987         43,795
                               ============== =============  =============
    Percent of Revenue                                  9.4%           4.2%

            Diluted EPS:
             As Reported
             As Adjusted



                                         AS REPORTED - YTD 2006
                               ===========================================
                                               Income from
                                                Continuing
                                  Pre-tax       Operations     Net Income
                               -------------  -------------  -------------

As Reported YTD 2006                  17,961         17,158         29,588
    Percent of Revenue                   1.7%           1.6%           2.8%

Normalizing Adjustments:
Release of insurance reserves
 related to prior periods            (11,649)       (11,067)       (16,815)
Pre-acquisition adjustments
 for Peak                              2,779          2,640          2,640
Management contract
 termination fee                         975            926            926
Other adjustments                        185            176            176
Net gains on disc ops                                               (6,639)
                               -------------  -------------  -------------

 Adjusted As Reported YTD 2006        10,251          9,833          9,876
                               =============  =============  =============
    Percent of Revenue                   1.0%           0.9%           0.9%

            Diluted EPS:
             As Reported                      $        0.54  $        0.93
             As Adjusted                      $        0.31  $        0.31



                                     PRO FORMA SUN & PEAK - YTD 2005
                               ===========================================
                                  Revenue        EBITDAR         EBITDA
                               -------------  -------------  -------------

As Reported - Pro Forma Sun &
 Peak YTD 2005                       991,220         89,396         38,314
    Percent of Revenue                                  9.0%           3.9%

Normalizing Adjustments:
Release of insurance reserves
 related to prior periods                  -         (6,831)        (6,831)
Pre-acquisition adjustments
 for Peak                                  -          1,100          1,100
Management contract
 termination fee                           -              -              -
Other adjustments                       (300)           108            108
Net gains on disc ops                      -              -              -
                               -------------  -------------  -------------

 As Adjusted Pro Forma Sun &
  Peak YTD 2005                      990,920         83,773         32,691
                               =============  =============  =============
    Percent of Revenue                                  8.5%           3.3%

            Diluted EPS:
             As Reported
             As Adjusted



                                     PRO FORMA SUN & PEAK - YTD 2005
                               ===========================================
                                               Income from
                                                Continuing
                                  Pre-tax       Operations     Net Income
                               -------------  -------------  -------------

As Reported - Pro Forma Sun &
 Peak YTD 2005                         5,239          6,018         31,856
    Percent of Revenue                   0.5%           0.6%           3.2%

Normalizing Adjustments:
Release of insurance reserves
 related to prior periods             (6,831)        (6,831)       (21,431)
Pre-acquisition adjustments
 for Peak                              1,100          1,100          1,100
Management contract
 termination fee                           -              -              -
Other adjustments                        108            108            108
Net gains on disc ops                      -              -         (7,700)
                               -------------  -------------  -------------

 As Adjusted Pro Forma Sun &
  Peak YTD 2005                         (384)           395          3,933
                               =============  =============  =============
    Percent of Revenue                   0.0%           0.0%           0.4%

            Diluted EPS:
             As Reported                      $        0.25  $        1.31
             As Adjusted                      $        0.02  $        0.16



                            INPATIENT SERVICES

                 NORMALIZING ADJUSTMENTS - QTD COMPARISON
                              (in thousands)



                                          AS REPORTED - QTD 2006
                                ===========================================
                                                                    Net
                                                                  Segment
                                 Revenue    EBITDAR     EBITDA     Income
                                ---------- ---------  ---------  ---------

As Reported QTD 2006               226,208    39,129     24,948     19,331
    Percent of Revenue                          17.3%      11.0%       8.5%

Normalizing Adjustments:
Release of insurance reserves
 related to prior periods                -    (6,279)    (6,279)    (6,279)
Pre-acquisition adjustments for
 Peak                                    -     3,556      4,080      4,080
                                ---------- ---------  ---------  ---------

  Adjusted As Reported QTD 2006    226,208    36,406     22,749     17,132
                                ========== =========  =========  =========
    Percent of Revenue                          16.1%      10.1%       7.6%


                                      PRO FORMA SUN & PEAK - QTD 2005
                                ===========================================
                                                                    Net
                                                                  Segment
                                 Revenue    EBITDAR     EBITDA     Income
                                ---------- ---------  ---------  ---------

As Reported - Pro Forma Sun &
 Peak QTD 2005                     216,613    36,195     23,960     17,452
    Percent of Revenue                          16.7%      11.1%       8.1%

Normalizing Adjustments:
Release of insurance reserves
 related to prior periods                     (6,279)    (6,279)    (6,279)
Pre-acquisition adjustments for
 Peak                                          1,100      1,100      1,100
                                ---------- ---------  ---------  ---------

  As Adjusted Pro Forma Sun &
   Peak QTD 2005                   216,613    31,016     18,781     12,273
                                ========== =========  =========  =========
    Percent of Revenue                          14.3%       8.7%       5.7%

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