SOURCE: Sun Healthcare Group, Inc.

August 01, 2006 19:44 ET

Sun Healthcare Group, Inc. Reports Strong Second Quarter; Quarterly Income of $6.4 Million From Continuing Operations; Continued Improvement in Core Operations

IRVINE, CA -- (MARKET WIRE) -- August 1, 2006 -- Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the second quarter ended June 30, 2006.

Consolidated Earnings

For the quarter ended June 30, 2006, Sun reported total net revenues of $288.1 million and net income of $7.9 million or $0.25 per fully-diluted share. For the comparable quarter ended June 30, 2005, total net revenues were $213.6 million with net income of $6.9 million or $0.45 per fully-diluted share. Net revenues for the quarter ended June 30, 2006, increased $74.5 million, or 34.9 percent, as compared to net revenues for the quarter ended June 30, 2005, primarily as a result of the Peak Medical Corporation acquisition in December 2005.

For the quarter ended June 30, 2006, Sun reported income from continuing operations of $6.4 million or $0.21 per fully-diluted share, as compared to income from continuing operations of $1.8 million or $0.12 per fully-diluted share, for the same period in 2005. The 2006 second quarter EBITDAR from continuing operations was $34.3 million, or 11.9 percent of revenues, as compared to $17.5 million, or 8.2 percent of revenues, from continuing operations for the same period in 2005, an improvement of $16.8 million, or 95.6 percent. EBITDA from continuing operations for the second quarter of 2006 was $20.3 million, or 7.0 percent of revenues, as compared to $7.7 million, or 3.6 percent of revenues, for the same period in 2005, an improvement of $12.6 million, or 162.6 percent.

The 2006 second quarter income from continuing operations included a reduction of reserves of $5.4 million for general and professional liability insurance related to incidents in prior periods in the inpatient services operations. The 2005 second quarter income from continuing operations included a reduction of $3.4 million of reserves for general and professional liability insurance, offset by a $2.8 million increase in reserves for workers' compensation insurance related to incidents in prior periods. Excluding the insurance adjustments related to prior period activity, the 2006 second quarter EBITDAR from continuing operations was $28.9 million, or 10.0 percent of revenues, as compared to $17.0 million, or 8.0 percent of revenues, in the 2005 second quarter, and the 2006 second quarter EBITDA from continuing operations was $14.9 million, or 5.2 percent, as compared to $7.2 million, or 3.4 percent of revenues, in the 2005 second quarter.

On a pro forma basis, including the historical operating results for Peak Medical Corporation, acquired in December 2005, and excluding the prior period insurance adjustments discussed above, total net revenues from continuing operations for the second quarter of 2005 would have been $274.8 million, income from continuing operations would have been $3.8 million or $0.16 per fully-diluted share, EBITDAR from continuing operations would have been $26.3 million, or 9.6 percent of revenues, and EBITDA from continuing operations would have been $12.8 million, or 4.7 percent of revenues. When compared to second quarter 2006 results from continuing operations, excluding the prior period insurance adjustments, revenue increased $13.4 million to $288.1 million or 4.9 percent; EBITDAR increased $2.6 million to $28.9 million or 10.0 percent; EBITDA increased $2.1 million to $14.9 million or 16.6 percent; and income from continuing operations decreased $0.6 million to $3.2 million or 15.9 percent, primarily as a result of a provision for income tax in the 2006 second quarter that was not required in the same quarter in 2005.

"Our 2006 initiatives focusing on improving consolidated margins, profitability and cash flow are producing results as evidenced by both the year over year comparisons as well as the strength of the quarter on a stand-alone basis," said Richard K. Matros, Sun's chairman and chief executive officer.

For the six months ended June 30, 2006, Sun reported total net revenues of $575.1 million and net income of $9.7 million or $0.31 per fully-diluted share. For the comparable six months ended June 30, 2005, total net revenues were $419.9 million with net income of $5.8 million or $0.38 per fully-diluted share. Net revenues for the six months ended June 30, 2006, increased $155.2 million, or 37.0 percent, as compared to net revenues for the six months ended June 30, 2005, primarily as a result of the Peak acquisition.

For the six months ended June 30, 2006, Sun reported income from continuing operations of $8.4 million or $0.27 per fully-diluted share, as compared to income from continuing operations of $0.2 million or $0.01 per fully-diluted share, for the same period in 2005. EBITDAR from continuing operations for the six months ended June 30, 2006, was $57.0 million, or 9.9 percent of revenues, as compared to $30.4 million, or 7.2 percent of revenues, from continuing operations for the same period in 2005, an improvement of $26.6 million, or 87.5 percent. EBITDA from continuing operations for the six months ended June 30, 2006, was $29.4 million, or 5.1 percent of revenues, as compared to $10.8 million, or 2.6 percent of revenues, for the same period in 2005, an improvement of $18.6 million, or 171.5 percent.

Inpatient Business

Net revenues from inpatient services operations increased $69.6 million, or 45.7 percent, to $221.8 million for the quarter ended June 30, 2006, from $152.2 million for the same period in 2005. The revenue gain was primarily due to the $63.1 million revenue attributable to Peak's operations and $6.5 million improvement in Sun's same store inpatient operations. Net segment income increased $9.6 million, or 91.2 percent, to $20.2 million for the quarter ended June 30, 2006, from $10.5 million for the quarter ended June 30, 2005. Net segment EBITDAR increased $17.3 million, or 76.1 percent, to $40.1 million for the quarter ended June 30, 2006, from $22.8 million for the same period in 2005, and net segment EBITDA increased $13.1 million, or 95.3 percent, to $26.9 million for the quarter ended June 30, 2006, from $13.8 million for the same period in 2005. Net segment EBITDAR margin increased to 18.1 percent for the quarter ended June 30, 2006, from 15.0 percent for the same period in 2005. Net segment EBITDA margin increased to 12.1 percent for the quarter ended June 30, 2006, from 9.0 percent for the same period in 2005.

Substantially all of the insurance adjustments related to prior periods discussed above were related to the inpatient business. Accordingly, excluding the insurance adjustments related to prior period activity, the 2006 second quarter net segment income for inpatient services from continuing operations was $14.8 million, or 6.7 percent of revenues, as compared to $10.0 million, or 6.6 percent of revenues in the second quarter of 2005; the 2006 second quarter net segment EBITDAR for inpatient services from continuing operations was $34.7 million, or 15.7 percent of revenues, as compared to $22.2 million, or 14.6 percent of revenues, in the second quarter of 2005; and the 2006 second quarter net segment EBITDA for inpatient services from continuing operations was $21.5 million, or 9.7 percent, as compared to $13.2 million, or 8.7 percent of revenues, in the second quarter of 2005.

On a pro forma basis with historical Peak results included for the second quarter of 2005, net revenues from inpatient services operations would have been $213.3 million and the increase in net revenues in the second quarter of 2006 would have been $8.5 million, or 4.0 percent. The revenue gain of $8.5 million was primarily attributable to:

          (i)    an 80 basis point improvement in Medicare patient mix
                 going from 13.6 percent in second quarter 2005 to
                 14.4 percent in second quarter 2006, or $3.0 million in
                 revenues;
         (ii)    a 3.7 percent increase in our LTC Part A Medicare rates
                 from $324.09 in second quarter 2005 to $336.13 in second
                 quarter 2006, or $1.9 million in revenues;
        (iii)    a 4.2 percent increase in our Medicaid rates from $135.65
                 in second quarter 2005 to $141.39 in second quarter 2006,
                 or $4.1 million in revenues; and
         (iv)    an increase in revenues from commercial insurance of
                 $1.6 million; offset by:
          (v)    a decrease in Medicaid occupancy driven by the increase
                 in Medicare mix that reduced revenues by $1.9 million; and
         (vi)    a decrease in Medicare Part B revenue of $0.2 million.
On a pro forma basis with Peak results included for the second quarter of 2005 and excluding the prior period insurance adjustments discussed above, net segment income in the second quarter of 2005 would have been $14.0 million, net segment EBITDAR would have been $32.8 million and net segment EBITDA would have been $20.1 million. When compared to net segment income, net segment EBITDAR and net segment EBITDA for the quarter ended June 30, 2006, excluding the prior period insurance adjustments: net segment income increased $0.8 million, or 5.8 percent; Net segment EBITDAR increased $1.9 million, or 5.7 percent; and net segment EBITDA increased $1.4 million, or 6.9 percent. Pro forma net segment EBITDAR and EBITDA margins for the quarter ended June 30, 2005, would have been 15.4 percent and 9.4 percent, respectively.

"We are pleased with our inpatient segment results in growing EBITDAR margin to 15.7 percent through expansion of our Medicare business. Our focus on attracting and retaining higher acuity patients is evidenced in our migration of 29.9 percent of our total Medicare patients and 38.5 percent of our Medicare rehab patients into one of the nine new RUGs categories. This positive shift has driven our LTC Medicare Part A rates up 3.7 percent when compared to the prior year quarter, from $324.09 to $336.13 on a pro forma basis," said Matros.

Ancillary Business

Net revenues from Sun's ancillary business operations, which include SunDance Rehabilitation Corporation, CareerStaff Unlimited, Inc. and SunPlus Home Health Services, Inc., net of affiliated revenues, increased $4.8 million, or 8.0 percent, to $66.3 million for the quarter ended June 30, 2006, from $61.5 million for the same period in 2005. Net segment income increased $0.5 million, or 11.8 percent, to $4.9 million for 2006 from $4.4 million for 2005. Net segment EBITDA increased $0.7 million, or 13.6 percent, to $5.6 million for the quarter ended June 30, 2006, from $4.9 million for the same period in 2005.

"Our staffing segment, CareerStaff, continues to produce robust results with second quarter 2006 net segment revenues increasing 28 percent over the prior year quarter and EBITDA margin improving 40 basis points from 9.1 percent to 9.5 percent. We are particularly pleased with the significant improvement in SunDance, our rehab segment. EBITDA margins had been declining through the first quarter 2006. Primarily as a result of the restructuring initiative that we discussed in the first quarter, we reported net segment EBITDA of $2.5 million or 7.0 percent of net segment revenues for the quarter ended June 30, 2006, a $2.9 million improvement over the prior quarter," Matros reported. "As a result of the restructuring of our rehab segment, we expect our revenues will be approximately $15 million less than our previous guidance. Accordingly we are revising our 2006 annual revenue guidance downward to $1.155 billion from $1.165 billion. We continue to be comfortable with the EBITDA, EBITDAR and earnings guidance that we provided in our February 27, 2006 earnings release," continued Matros.

Corporate General

General and administrative expenses not directly attributed to operating segments improved in the second quarter 2006 as a percent of revenue to 4.2 percent from 5.1 percent on year over year basis. On an as reported basis, general and administrative expenses increased $1.2 million, or 11.7 percent, to $12.1 million for the quarter ended June 30, 2006, compared to $10.9 million for the same period in 2005. On a pro forma basis with Peak results included in the second quarter of 2005, general and administrative expenses not directly attributed to operating segments were $12.1 million, effectively no change year over year, and 4.4 percent of revenues compared to 4.2 percent of revenues for the same period in 2006.

"Our management of our corporate general and administrative expenses proves our ability to leverage acquisitions. These expenses remained flat year over year on a pro forma basis while our general and administrative expenses as a percent of revenues continue to improve. As our process improvement initiatives continue to ramp up, we expect continued improvement in this area," said Matros.

Conference Call

Sun's senior management will hold a conference call to discuss the Company's second-quarter operating results on Wednesday, Aug. 2, 2006, at 1 p.m. EDT / 10 a.m. PDT. To listen to the conference call, dial (877) 516-8526 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. EDT on Aug. 2 until midnight EDT on Aug. 9 by calling (800) 642-1687 and using access code 2829519.

About Sun Healthcare Group, Inc.

Sun Healthcare Group, Inc., with executive offices located in Irvine, California, owns SunBridge Healthcare Corporation and other affiliated companies that operate long-term and postacute care facilities in many states. In addition, the Sun Healthcare Group family of companies provides therapy through SunDance Rehabilitation Corporation, medical staffing through CareerStaff Unlimited, Inc. and home care through SunPlus Home Health Services, Inc.

Statements made in this release that are not historical facts are "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate," "believe," "plan," "estimate," "expect," "hope," "intend," and similar expressions. Factors that could cause actual results to differ are identified in the public filings made by Sun with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements, including the impact of the Deficit Reduction Act and regulations implementing it; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; our ability to generate cash flow sufficient to operate our business; our ability to identify, complete and integrate future acquisitions; increasing labor costs and the shortage of qualified healthcare personnel; and loss of key management personnel. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, a copy of which is available on Sun's web site, www.sunh.com.

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

EBITDA and EBITDAR as used in this press release, and EBITDAM and EBITDARM as used in the accompanying tables, which are non-GAAP financial measures, are each reconciled to net income (loss) in the accompanying tables. The accompanying tables also set forth the non-GAAP pro forma information referenced in this press release for the three and six months ended June 30, 2005.

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


                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                        CONSOLIDATED BALANCE SHEETS
                              (in thousands)



                                                    June 30,   December 31,
                                                      2006         2005
                                                  ------------ -----------
                                                  (unaudited)
                  ASSETS

Current assets:
 Cash and cash equivalents                        $     15,957 $    16,641
 Restricted cash                                        29,781      25,142
 Accounts receivable, net                              137,013     123,639
 Other current assets                                   21,351      15,795
                                                  ------------ -----------

  Total current assets                                 204,102     181,217

Property and equipment, net                            181,316     187,734
Restricted cash, non-current                            31,166      35,517
Goodwill                                                82,188      81,265
Intangible assets, net                                  17,669      19,335
Other assets, net                                        7,026       7,238
                                                  ------------ -----------

  Total assets                                    $    523,467 $   512,306
                                                  ============ ===========


   LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
 Accounts payable                                 $     46,339 $    45,115
 Accrued compensation and benefits                      37,850      42,393
 Accrued self-insurance obligations, current            39,665      37,238
 Other accrued liabilities                              57,020      56,440
 Capital leases, current                                    95      11,204
 Current portion of long-term debt:
  Company obligations                                   23,215      21,237
  Clipper partnerships                                  33,929      34,415
                                                  ------------ -----------

 Total current liabilities                             238,113     248,042

Accrued self-insurance obligations, net of
 current                                                97,726     109,953
Long-term debt, net of current portion:
  Company obligations                                  131,393     115,094
  Clipper partnerships                                  15,692      15,829
Deferred taxes, net of current                           7,660       2,412
Other long-term liabilities                             23,268      23,871
                                                  ------------ -----------

 Total liabilities                                     513,852     515,201

Stockholders' equity (deficit)                           9,615      (2,895)
                                                  ------------ -----------
  Total liabilities and stockholders' equity
   (deficit)                                      $    523,467 $   512,306
                                                  ============ ===========




                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                    For the      For the
                                                     Three        Three
                                                    Months       Months
                                                     Ended        Ended
                                                    June 30,     June 30,
                                                      2006         2005
                                                  -----------  -----------
                                                  (unaudited)  (unaudited)

Total net revenues                                $   288,116  $   213,631
                                                  -----------  -----------
Costs and expenses:
 Operating salaries and benefits                      164,059      127,441
 Self-insurance for workers' compensation and
  general and professional liability insurance          6,003        7,690
 Operating administrative costs                         7,066        6,053
 Other operating costs                                 62,109       43,570
 Facility rent expense                                 14,037        9,826
 General and administrative expenses                   12,124       10,859
 Depreciation                                           2,451        1,087
 Amortization                                           1,720        1,211
 Provision for losses on accounts receivable            2,444          470
 Interest, net                                          5,146        3,052
 Loss on sale of assets, net                              230          562
 Restructuring costs, net                                   -           37
                                                  -----------  -----------
Total costs and expenses                              277,389      211,858
                                                  -----------  -----------

Income before income taxes and discontinued
 operations                                            10,727        1,773
Income tax expense (benefit)                            4,279          (12)
                                                  -----------  -----------
Income from continuing operations                       6,448        1,785
                                                  -----------  -----------

Discontinued operations:
 Income from discontinued operations, net of
  related tax expense of $1,055 for the
  three months ended June 30, 2006                      1,589        5,162
 Loss on disposal of discontinued operations, net
  of related tax benefit of $86 for the
  three months ended June 30, 2006                       (130)         (17)
                                                  -----------  -----------
Income from discontinued operations, net                1,459        5,145
                                                  -----------  -----------

Net income                                        $     7,907  $     6,930
                                                  ===========  ===========


Basic income per common and common equivalent
 share:
 Income from continuing operations                $      0.21  $      0.12
 Income from discontinued operations, net                0.04         0.33
                                                  -----------  -----------
Net income                                        $      0.25  $      0.45
                                                  ===========  ===========

Diluted income per common and common equivalent
 share:
 Income from continuing operations                $      0.21  $      0.12
 Income from discontinued operations, net                0.04         0.33
                                                  -----------  -----------
Net income                                        $      0.25  $      0.45
                                                  ===========  ===========

Weighted average number of common and
  common equivalent shares outstanding:
 Basic                                                 31,264       15,351
 Diluted                                               31,446       15,352



               SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                    For the      For the
                                                  Six Months   Six Months
                                                     Ended        Ended
                                                    June 30,     June 30,
                                                      2006         2005
                                                  -----------  -----------
                                                  (unaudited)  (unaudited)

Total net revenues                                $   575,130  $   419,897
                                                  -----------  -----------
Costs and expenses:
 Operating salaries and benefits                      328,945      251,277
 Self-insurance for workers' compensation and
  general and professional liability insurance         19,698       17,186
 Operating administrative costs                        15,238       11,852
 Other operating costs                                126,130       85,041
 Facility rent expense                                 27,523       19,549
 General and administrative expenses                   23,771       22,690
 Depreciation                                           4,063        2,144
 Amortization                                           3,357        2,273
 Provision for losses on accounts receivable            4,392        1,052
 Interest, net                                          9,561        5,709
 Loss on extinguishment of debt, net                        -          408
 Loss on sale of assets, net                              243          868
 Loss on asset impairment                                   -          361
 Restructuring costs, net                                   1          107
                                                   -----------  -----------
Total costs and expenses                              562,922      420,517
                                                  -----------  -----------

Income (loss) before income taxes and
 discontinued operations                               12,208         (620)
Income tax expense (benefit)                            3,767         (816)
                                                  -----------  -----------
Income from continuing operations                       8,441          196
                                                  -----------  -----------

Discontinued operations:
 Income from discontinued operations, net of
  related tax expense of $1,055 for the six
  months ended June 30, 2006                            1,410        4,558
 (Loss) gain on disposal of discontinued
  operations, net of related tax benefit of
  $86 for the six months ended June 30, 2006             (195)       1,008
                                                  -----------  -----------
Income from discontinued operations, net                1,215        5,566
                                                  -----------  -----------

Net income                                        $     9,656  $     5,762
                                                  ===========  ===========


Basic income per common and common equivalent
 share:
 Income from continuing operations                $      0.27  $      0.01
 Income from discontinued operations, net                0.04         0.37
                                                  -----------  -----------
Net income                                        $      0.31  $      0.38
                                                  ===========  ===========

Diluted income per common and common equivalent
 share:
 Income from continuing operations                $      0.27  $      0.01
 Income from discontinued operations, net                0.04         0.37
                                                  -----------  -----------
Net income                                        $      0.31  $      0.38
                                                  ===========  ===========

Weighted average number of common and
  common equivalent shares outstanding:
 Basic                                                 31,252       15,332
 Diluted                                               31,302       15,343



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


                                                  For the       For the
                                                Three Months  Three Months
                                                   Ended         Ended
                                                  June 30,      June 30,
                                                    2006          2005
                                                ------------  ------------
                                                (unaudited)   (unaudited)
Cash flows from operating activities:
 Net income                                     $      7,907  $      6,930
 Adjustments to reconcile net income to net
  cash used for operating activities, including
  discontinued operations:
    Depreciation                                       2,451         1,099
    Amortization                                       1,720         1,216
    Amortization of favorable and unfavorable
     lease intangibles                                  (379)         (448)
    Provision for losses on accounts receivable        2,444         1,018
    Loss on disposal of discontinued
     operations, net                                     130            17
    Loss on sale of assets, net                          230           562
    Restricted stock and stock option
     compensation                                        463           320
    Other, net                                             5            60
    Changes in operating assets and
     liabilities, net of acquisitions                (17,461)      (12,457)
                                                ------------  ------------
    Net cash used for operating activities            (2,490)       (1,683)
                                                ------------  ------------

Cash flows from investing activities:
 Capital expenditures, net                            (5,292)       (4,145)
 Proceeds from sale of assets held for sale                -           947
 Acquisitions, net                                         -        (1,205)
                                                ------------  ------------
    Net cash used for investing activities            (5,292)       (4,403)
                                                ------------  ------------

Cash flows from financing activities:
 Net borrowings under Revolving Loan Agreement         8,134        16,330
 Long-term debt borrowings                            11,636             -
 Long-term debt repayments                           (12,870)      (13,019)
 Principal payments under capital lease
  obligation                                             (34)            -
 Net proceeds from issuance of common stock
  from the exercise of employee stock options            179             -
                                                ------------  ------------
    Net cash provided by financing activities          7,045         3,311
                                                ------------  ------------

Net decrease in cash and cash equivalents               (737)       (2,775)
Cash and cash equivalents at beginning of
 period                                               16,694        17,226
                                                ------------  ------------
Cash and cash equivalents at end of period      $     15,957  $     14,451
                                                ============  ============

Supplemental Disclosures:
Non-cash investing and financing activities:
 A capital lease obligation of $11,200 was
  relieved upon the conversion to an operating
  lease.
 A capital lease obligation of $879 was
  incurred when we entered into a lease for new
  equipment.



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

                                CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)


                                                  For the       For the
                                                 Six Months    Six Months
                                                   Ended         Ended
                                                  June 30,      June 30,
                                                    2006          2005
                                                ------------  ------------
                                                (unaudited)   (unaudited)

Cash flows from operating activities:
 Net income                                     $      9,656  $      5,762
 Adjustments to reconcile net income to net
  cash used for operating activities, including
  discontinued operations:
    Depreciation                                       4,063         2,166
    Amortization                                       3,357         2,282
    Amortization of favorable and unfavorable
     lease intangibles                                  (758)         (956)
    Provision for losses on accounts receivable        4,392         1,668
    Loss (gain) on disposal of discontinued
     operations, net                                     195        (1,008)
    Loss on sale of assets, net                          243           868
    Loss on extinguishment of debt, net                    -           408
    Loss on asset impairment                               -           361
    Restricted stock and stock option
     compensation                                      1,007           552
    Other, net                                            31            83
    Changes in operating assets and
     liabilities, net of acquisitions                (31,795)      (30,084)
                                                ------------  ------------
    Net cash used for operating activities            (9,609)      (17,898)
                                                ------------  ------------

Cash flows from investing activities:
 Capital expenditures, net                            (8,625)       (7,717)
 Proceeds from sale of assets held for sale                -         1,713
 Acquisitions, net                                      (236)       (1,205)
 Repayment of long-term notes receivable                   -           237
 Net proceeds from sale/leaseback                        838             -
                                                ------------  ------------
    Net cash used for investing activities            (8,023)       (6,972)
                                                ------------  ------------

Cash flows from financing activities:
 Net borrowings under Revolving Loan Agreement        25,854        33,351
 Long-term debt borrowings                            11,636       (16,324)
 Long-term debt repayments                           (20,564)            -
 Principal payments under capital lease
  obligation                                             (34)            -
 Distribution of partnership equity                     (123)         (302)
 Net proceeds from issuance of common stock
  from the exercise of employee stock options            179             -
                                                ------------  ------------
    Net cash provided by financing activities         16,948        16,725
                                                ------------  ------------

Net decrease in cash and cash equivalents               (684)       (8,145)
Cash and cash equivalents at beginning of
 period                                               16,641        22,596
                                                ------------  ------------
Cash and cash equivalents at end of period      $     15,957  $     14,451
                                                ============  ============

Supplemental Disclosures:
Non-cash investing and financing activities:
 A capital lease obligation of $11,200 was
  relieved upon the conversion to an operating
  lease.
 A capital lease obligation of $879 was
  incurred when we entered into a lease for new
  equipment.



               SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                  For the       For the
                                                Three Months  Three Months
                                                   Ended         Ended
                                                  June 30,      June 30,
                                                    2006          2005
                                                ------------- ------------
                                                 (unaudited)   (unaudited)

 Total net revenues                             $     288,116 $    213,631
                                                ------------- ------------

 Net income                                     $       7,907 $      6,930
                                                ------------- ------------


  Income from continuing operations                     6,448        1,785

  Income tax expense (benefit)                          4,279          (12)

  Loss on sale of assets, net                             230          562

  Restructuring costs, net                                  -           37
                                                ------------- ------------

 Net segment income                             $      10,957 $      2,372

  Interest, net                                         5,146        3,052

  Depreciation and amortization                         4,171        2,298
                                                ------------- ------------

 EBITDA                                         $      20,274 $      7,722

  Facility rent expense                                14,037        9,826
                                                ------------- ------------

 EBITDAR                                        $      34,311 $     17,548

  Operating administrative costs                        7,066        6,053
  General and administrative expenses                  12,124       10,859
                                                ------------- ------------
 Total operating and general and admin expenses        19,190       16,912

 EBITDAM                                        $      39,464 $     24,634
 EBITDARM                                       $      53,501 $     34,460


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



              SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


                                                  For the       For the
                                                 Six Months    Six Months
                                                    Ended         Ended
                                                   June 30,      June 30,
                                                    2006          2005
                                                ------------- ------------
                                                 (unaudited)   (unaudited)

 Total net revenues                             $     575,130 $    419,897
                                                ------------- ------------

 Net income                                     $       9,656 $      5,762
                                                ------------- ------------

  Income from continuing operations                     8,441          196

  Income tax expense (benefit)                          3,767         (816)

  Loss on sale of assets, net                             243          868

  Loss on asset impairment                                  -          361

  Restructuring costs, net                                  1          107
                                                ------------- ------------

 Net segment income                             $      12,452 $        716

  Interest, net                                         9,561        5,709

  Depreciation and amortization                         7,420        4,417
                                                ------------- ------------

 EBITDA                                         $      29,433 $     10,842

  Facility rent expense                                27,523       19,549
                                                ------------- ------------

 EBITDAR                                        $      56,956 $     30,391

  Operating administrative costs                       15,238       11,852
  General and administrative expenses                  23,771       22,690
                                                ------------- ------------
 Total operating and general and admin expenses        39,009       34,542

 EBITDAM                                        $      68,442 $     45,384
 EBITDARM                                       $      95,965 $     64,933



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                 For the Three Months Ended June 30, 2006
                                (unaudited)



                           Rehabilitation   Medical
                 Inpatient     Therapy     Staffing    Home Health
                  Services     Services    Services     Services
                -----------  -----------  -----------  -----------

Nonaffiliated
 revenue        $   221,769  $    25,901  $    21,424  $    15,302
Affiliated
 revenue                  1        9,612          300            -
                -----------  -----------  -----------  -----------
  Total revenue     221,770       35,513       21,724       15,302

Net segment
 income (loss)  $    20,165  $     2,387  $     1,827  $       688

Interest, net         3,588           (2)          38            2

Depreciation
 and amortization     3,143           94          188          240
                -----------  -----------  -----------  -----------

  EBITDA        $    26,896  $     2,479  $     2,053  $       930

Facility rent
 expense             13,198           92          206          464
                -----------  -----------  -----------  -----------

  EBITDAR       $    40,094  $     2,571  $     2,259  $     1,394

Operating and
 general and
 administrative
  expenses            4,864        1,164          734          217
                -----------  -----------  -----------  -----------

   EBITDAM      $    31,760  $     3,643  $     2,787  $     1,147
   EBITDARM     $    44,958  $     3,735  $     2,993  $     1,611


    EBITDA
     margin            12.1%         7.0%         9.5%         6.1%

    EBITDAM
     margin            14.3%        10.3%        12.8%         7.5%

    EBITDAR
     margin            18.1%         7.2%        10.4%         9.1%

    EBITDARM
     margin            20.3%        10.5%        13.8%        10.5%



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

Nonaffiliated
 revenue        $     3,718  $         2  $         -  $   288,116
Affiliated
 revenue                 49            -       (9,962)           -
                -----------  -----------  -----------  -----------
  Total revenue       3,767            2       (9,962)     288,116

Net segment
 income (loss)  $       (31) $   (14,079) $         -  $    10,957

Interest, net            24        1,496            -        5,146

Depreciation
 and amortization       106          400            -        4,171
                -----------  -----------  -----------  -----------

  EBITDA        $        99  $   (12,183) $         -  $    20,274

Facility rent
 expense                 77            -            -       14,037
                -----------  -----------  -----------  -----------

  EBITDAR       $       176  $   (12,183) $         -  $    34,311

Operating and
 general and
 administrative
  expenses               87       12,124            -       19,190
                -----------  -----------  -----------  -----------

   EBITDAM      $       186  $       (59) $         -  $    39,464
   EBITDARM     $       263  $       (59) $         -  $    53,501


    EBITDA
     margin             2.6%                                   7.0%

    EBITDAM
     margin             4.9%                                  13.7%

    EBITDAR
     margin             4.7%                                  11.9%

    EBITDARM
     margin             7.0%                                  18.6%



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

  RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA(M) and EBITDAR(M)
                             ($ in thousands)
                 For the Three Months Ended June 30, 2005
                                (unaudited)



                           Rehabilitation   Medical
                 Inpatient     Therapy     Staffing    Home Health
                  Services     Services    Services     Services
                -----------  -----------  -----------  -----------

Nonaffiliated
 revenue        $   152,171  $    26,016  $    16,768  $    15,076
Affiliated
 revenue                  1        9,292          192            -
                -----------  -----------  -----------  -----------
  Total revenue     152,172       35,308       16,960       15,076

Net segment
 income (loss)  $    10,547  $     2,145  $     1,477  $       857

Interest, net         1,619           69            1            2

Depreciation
 and amortization     1,605           74           70          237
                -----------  -----------  -----------  -----------

  EBITDA        $    13,771  $     2,288  $     1,548  $     1,096

Facility rent
 expense              9,000          129          172          448
                -----------  -----------  -----------  -----------

  EBITDAR       $    22,771  $     2,417  $     1,720  $     1,544

Operating and
 general and
 administrative
 expenses             3,340        1,851          516          317
                -----------  -----------  -----------  -----------

   EBITDAM      $    17,111  $     4,139  $     2,064  $     1,413
   EBITDARM     $    26,111  $     4,268  $     2,236  $     1,861


    EBITDA
     margin             9.0%         6.5%         9.1%         7.3%

    EBITDAM
     margin            11.2%        11.7%        12.2%         9.4%

    EBITDAR
     margin            15.0%         6.8%        10.1%        10.2%

    EBITDARM
     margin            17.2%        12.1%        13.2%        12.3%



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

Nonaffiliated
 revenue        $     3,598  $         2  $         -  $   213,631
Affiliated
 revenue                 40            -       (9,525)           -
                -----------  -----------  -----------  -----------
  Total revenue       3,638            2       (9,525)     213,631

Net segment
 income (loss)  $      (121) $   (12,533) $         -  $     2,372

Interest, net             -        1,361            -        3,052

Depreciation
 and amortization        84          228            -        2,298
                -----------  -----------  -----------  -----------

  EBITDA        $       (37) $   (10,944) $         -  $     7,722

Facility rent
 expense                 77            -            -        9,826
                -----------  -----------  -----------  -----------

  EBITDAR       $        40  $   (10,944) $         -  $    17,548

Operating and
 general and
 administrative
 expenses                29       10,859            -       16,912
                -----------  -----------  -----------  -----------

   EBITDAM      $        (8) $       (85) $         -  $    24,634
   EBITDARM     $        69  $       (85) $         -  $    34,460


    EBITDA
     margin            -1.0%                                   3.6%

    EBITDAM
     margin            -0.2%                                  11.5%

    EBITDAR
     margin             1.1%                                   8.2%

    EBITDARM
     margin              1.9%                                 16.1%



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                  For the Six Months Ended June 30, 2006
                                (unaudited)



                           Rehabilitation   Medical
                 Inpatient     Therapy     Staffing    Home Health
                  Services     Services    Services     Services
                -----------  -----------  -----------  -----------

Nonaffiliated
 revenue        $   442,549  $    51,659  $    42,741  $    30,769
Affiliated
 revenue                  -       18,997          430            -
                -----------  -----------  -----------  -----------
  Total revenue     442,549       70,656       43,171       30,769

Net segment
 income (loss)  $    34,146  $     1,841  $     2,799  $       906

Interest, net         7,066           (8)          74            5

Depreciation
 and amortization     5,394          188          374          482
                -----------  -----------  -----------  -----------

  EBITDA        $    46,606  $     2,021  $     3,247  $     1,393

Facility rent
 expense             25,806          199          420          943
                -----------  -----------  -----------  -----------

  EBITDAR       $    72,412  $     2,220  $     3,667  $     2,336

Operating and
 general and
 administrative
 expenses             9,174        3,831        1,629          434
                -----------  -----------  -----------  -----------

   EBITDAM      $    55,780  $     5,852  $     4,876  $     1,827
   EBITDARM     $    81,586  $     6,051  $     5,296  $     2,770


    EBITDA
     margin            10.5%         2.9%         7.5%         4.5%

    EBITDAM
     margin            12.6%         8.3%        11.3%         5.9%

    EBITDAR
     margin            16.4%         3.1%         8.5%         7.6%

    EBITDARM
     margin            18.4%         8.6%        12.3%         9.0%



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

Nonaffiliated
 revenue        $     7,407  $         5  $         -  $   575,130
Affiliated
 revenue                108            -      (19,535)           -
                -----------  -----------  -----------  -----------
  Total revenue       7,515            5      (19,535)     575,130

Net segment
 income (loss)  $      (116) $   (27,124) $         -  $    12,452

Interest, net            24        2,400            -        9,561

Depreciation
 and amortization       180          802            -        7,420
                -----------  -----------  -----------  -----------

  EBITDA        $        88  $   (23,922) $         -  $    29,433

Facility rent
 expense                155            -            -       27,523
                -----------  -----------  -----------  -----------

  EBITDAR       $       243  $   (23,922) $         -  $    56,956

Operating and
 general and
 administrative
 expenses               170       23,771            -       39,009
                -----------  -----------  -----------  -----------

   EBITDAM      $       258  $      (151) $         -  $    68,442
   EBITDARM     $       413  $      (151) $         -  $    95,965


    EBITDA
     margin             1.2%                                   5.1%

    EBITDAM
     margin             3.4%                                  11.9%

    EBITDAR
     margin             3.2%                                   9.9%

    EBITDARM
     margin             5.5%                                  16.7%



                SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

                  For the Six Months Ended June 30, 2005
                                (unaudited)


                           Rehabilitation   Medical
                 Inpatient     Therapy     Staffing    Home Health
                  Services     Services    Services     Services
                -----------  -----------  -----------  -----------

Nonaffiliated
 revenue        $   300,981  $    49,992  $    31,636  $    29,887
Affiliated
 revenue                  -       18,136          363            -
                -----------  -----------  -----------  -----------
  Total revenue     300,981       68,128       31,999       29,887

Net segment
 income (loss)  $    18,383  $     4,125  $     2,450  $     1,411

Interest, net         3,481           (9)           3            5

Depreciation
 and amortization     3,073          128          118          430
                -----------  -----------  -----------  -----------

  EBITDA        $    24,937  $     4,244  $     2,571  $     1,846

Facility rent
 expense             17,909          254          341          894
                -----------  -----------  -----------  -----------

  EBITDAR       $    42,846  $     4,498  $     2,912  $     2,740

Operating and
 general and
 administrative
 expenses             6,467        3,697        1,078          580
                -----------  -----------  -----------  -----------

   EBITDAM      $    31,404  $     7,941  $     3,649  $     2,426
   EBITDARM     $    49,313  $     8,195  $     3,990  $     3,320


    EBITDA
     margin             8.3%         6.2%         8.0%         6.2%

    EBITDAM
     margin            10.4%        11.7%        11.4%         8.1%

    EBITDAR
     margin            14.2%         6.6%         9.1%         9.2%

    EBITDARM
     margin            16.4%        12.0%        12.5%        11.1%



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

Nonaffiliated
 revenue        $     7,393  $         8  $         -  $   419,897
Affiliated
 revenue                 88            -      (18,587)           -
                -----------  -----------  -----------  -----------
  Total revenue       7,481            8      (18,587)     419,897

Net segment
 income (loss)  $      (126) $   (25,527) $         -  $       716

Interest, net             -        2,229            -        5,709

Depreciation
 and amortization       219          449            -        4,417
                -----------  -----------  -----------  -----------

  EBITDA        $        93  $   (22,849) $         -  $    10,842

Facility rent
 expense                151            -            -       19,549
                -----------  -----------  -----------  -----------

  EBITDAR       $       244  $   (22,849) $         -  $    30,391

Operating and
 general and
 administrative
 expenses                30       22,690            -       34,542
                -----------  -----------  -----------  -----------

   EBITDAM      $       123  $      (159) $         -  $    45,384
   EBITDARM     $       274  $      (159) $         -  $    64,933


    EBITDA
     margin             1.2%                                   2.6%

    EBITDAM
     margin             1.6%                                  10.8%

    EBITDAR
     margin             3.3%                                   7.2%

    EBITDARM
     margin             3.7%                                  15.5%



                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 June 30, 2005
                                (unaudited)


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

Non affiliated revenues         $ 152,171  $       -  $ 152,171  $       -
                                ---------  ---------  ---------  ---------

Net segment income (loss)       $  14,251  $  (3,373) $  10,878  $    (331)

Interest, net                         637          -        637        982

Depreciation and amortization       1,304          -      1,304        301

                                ---------  ---------  ---------  ---------
  EBITDA                        $  16,192  $  (3,373) $  12,819  $     952

Facility rent expense               9,872          -      9,872       (872)
                                ---------  ---------  ---------  ---------

  EBITDAR                       $  26,064  $  (3,373) $  22,691  $      80
                                =========  =========  =========  =========

      EBITDA margin                  10.6%                  8.4%

     EBITDAR margin                  17.1%                 14.9%


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

Non affiliated revenues         $ 152,171  $  61,125  $ 213,296
                                ---------  ---------  ---------

Net segment income (loss)       $  10,547  $   3,991  $  14,538

Interest, net                       1,619      1,857      3,476

Depreciation and amortization       1,605      1,075      2,680

                                ---------  ---------  ---------
  EBITDA                        $  13,771  $   6,923  $  20,694

Facility rent expense               9,000      3,702  $  12,702
                                ---------  ---------  ---------

  EBITDAR                       $  22,771  $  10,625  $  33,396
                                =========  =========  =========

      EBITDA margin                   9.0%      11.3%       9.7%

     EBITDAR margin                  15.0%      17.4%      15.7%



                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 Six Months Ended June 30, 2005
                                (unaudited)


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

Non affiliated revenues         $ 300,981  $       -  $ 300,981  $       -
                                ---------  ---------  ---------  ---------

Net segment income (loss)       $  26,093  $  (6,519) $  19,574  $  (1,191)

Interest, net                       1,432          -      1,432      2,049

Depreciation and amortization       2,435          -      2,435        638
                                ---------  ---------  ---------  ---------
  EBITDA                        $  29,960  $  (6,519) $  23,441  $   1,496

Facility rent expense              19,657          -     19,657     (1,748)
                                ---------  ---------  ---------  ---------

  EBITDAR                       $  49,617  $  (6,519) $  43,098  $    (252)
                                =========  =========  =========  =========

      EBITDA margin                  10.0%                  7.8%

     EBITDAR margin                  16.5%                 14.3%



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

Non affiliated revenues         $ 300,981  $ 121,872  $ 422,853
                                ---------  ---------  ---------

Net segment income (loss)       $  18,383  $   7,284     25,667

Interest, net                       3,481      3,703      7,184

Depreciation and amortization       3,073      2,121      5,194
                                ---------  ---------  ---------
  EBITDA                        $  24,937  $  13,108  $  38,045

Facility rent expense              17,909      7,407  $  25,316
                                ---------  ---------  ---------

  EBITDAR                       $  42,846  $  20,515  $  63,361
                                =========  =========  =========

      EBITDA margin                   8.3%      10.8%       9.0%

     EBITDAR margin                  14.2%      16.8%      15.0%



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


                                         For The             For The
                                    Three Months Ended   Six Months Ended
                                        June 30,            June 30,

                                               PRO                 PRO
                                               FORMA               FORMA
                                      AS       WITH       AS       WITH
                                   REPORTED    PEAK    REPORTED    PEAK
                                   --------  --------  --------  --------
                                     2006      2005      2006      2005
                                   --------  --------  --------  --------
Number of available beds:
  Long Term Care                     15,709    15,893    15,709    15,893
  Hospitals                             192       192       192       192

Number of facilities:
  Long Term Care                        152       156       152       156
  Hospitals                               3         3         3         3

Occupancy %:
  Long Term Care                       87.4%     87.6%     87.7%     87.7%
  Hospitals                            56.3%     63.7%     56.6%     61.3%
  Inpatient Services                   87.0%     87.3%     87.3%     87.4%

Payor Mix % based on patient days -
 LTC:
  Medicare                             13.9%     13.1%     13.8%     13.0%
  Medicaid                             60.9%     61.7%     61.0%     61.7%
  Private and other                    22.4%     22.0%     22.2%     22.1%
  Commercial Insurance & Veterans       2.8%      3.2%      3.0%      3.2%

Payor Mix % based on patient days -
 Hospitals:
  Medicare                             71.7%     67.7%     70.2%     71.3%
  Medicaid                              6.8%     11.1%      8.3%      9.3%
  Private and other                     0.0%      0.1%      0.1%      0.3%
  Commercial Insurance & Veterans      21.5%     21.1%     21.4%     19.1%

Payor Mix % based on patient days -
 Inpatient Services:
  Medicare                             14.4%     13.6%     14.3%     13.5%
  Medicaid                             60.5%     61.4%     60.6%     61.3%
  Private and other                    22.1%     21.6%     22.0%     21.9%
  Commercial Insurance & Veterans       3.0%      3.4%      3.1%      3.3%

Revenue Mix % of revenues - LTC:
  Medicare                             28.7%     27.8%     28.4%     27.7%
  Medicaid                             48.6%     49.5%     48.8%     49.6%
  Private and other                    18.5%     18.7%     18.7%     18.8%
  Commercial Insurance & Veterans       4.2%      4.0%      4.1%      3.9%

Revenue Mix % of revenues -
 Hospitals:
  Medicare                             72.2%     72.5%     72.7%     75.0%
  Medicaid                              5.3%      9.2%      6.5%      7.8%
  Private and other                     0.6%      0.8%      0.6%      0.8%
  Commercial Insurance & Veterans      21.9%     17.5%     20.2%     16.4%

Revenue Mix % of revenues -
 Inpatient Services:
  Medicare                             31.5%     30.7%     31.3%     30.7%
  Medicaid                             45.8%     46.5%     46.0%     46.5%
  Private and other                    17.6%     18.2%     17.8%     18.4%
  Commercial Insurance & Veterans       5.1%      4.6%      4.9%      4.4%



    Sun Healthcare Group, Inc. and Subsidiaries - Pro Forma with Peak
                      Selected Operating Statistics
                          Continuing Operations


                                      For the               For the
                                 Three Months Ended     Six Months Ended
                                      June 30,              June 30,
                                    AS     PRO FORMA      AS     PRO FORMA
                                REPORTED   WITH PEAK  REPORTED   WITH PEAK
                                ---------- ---------- ---------- ----------
                                   2006       2005       2006       2005
                                ---------- ---------- ---------- ----------

Revenues PPD - LTC:
   Medicare (Part A)            $   336.13 $   324.09 $   336.91 $   323.40
   Medicaid                     $   140.62 $   134.39 $   141.05 $   134.17
   Private and other            $   139.49 $   141.29 $   141.85 $   141.89
   Commercial Insurance &
    Veterans                    $   404.04 $   310.50 $   362.59 $   306.65

Revenues PPD - Hospitals:
   Medicare (Part A)            $ 1,187.23 $ 1,090.13 $ 1,204.44 $ 1,052.83
   Medicaid                     $   897.31 $   810.77 $   898.79 $   813.80
   Private and other            $ 2,717.57 $ 1,348.95 $ 1,662.70 $ 1,189.25
   Commercial Insurance &
    Veterans                    $ 1,239.80 $   874.58 $ 1,139.32 $   894.69

Revenues PPD - Inpatient
 Services:
   Medicare (Part A)            $   376.67 $   367.07 $   377.60 $   365.62
   Medicaid                     $   138.16 $   135.14 $   138.87 $    94.64
   Private and other            $   139.51 $   137.95 $   141.81 $   139.92
   Commercial Insurance &
    Veterans                    $   478.05 $   358.74 $   427.06 $   351.69

Revenues - Non-affiliated (in
 thousands):
  Inpatient Services:
   Medicare                     $   69,949 $   65,588 $  138,554 $  129,616
   Medicaid                        101,486     99,265    203,775    196,740
   Private and other                50,334     48,443    100,220     96,497
                                ---------- ---------- ---------- ----------
     Subtotal                      221,769    213,296    442,549    422,853

   Rehabilitation Therapy
    Services                        25,901     26,016     51,659     49,992
   Medical Staffing Services        21,424     16,768     42,741     31,636
   Home Health Services             15,302     15,076     30,769     29,887
   Laboratory & Radiology
    Services                         3,718      3,598      7,407      7,393
                                ---------- ---------- ---------- ----------
     Subtotal                       66,345     61,458    132,576    118,908
                                ---------- ---------- ---------- ----------

   Other - non-core businesses           2          3          5         11
                                ---------- ---------- ---------- ----------
       Total                    $  288,116 $  274,757 $  575,130 $  541,772
                                ========== ========== ========== ==========

Rehab contracts:
 Affiliated - continuing                89         89         89         89
 Non-affiliated                        300        320        300        320


DSO (Days Sales Outstanding):
 Inpatient Services - SNF               39         35         39         35
 Inpatient Services - Hospitals         50         64         50         64
 Rehabilitation Therapy
  Services                              90        103         90        103
 Medical Staffing Services              56         56         56         56
 Home Health Services                   63         57         63         57
 Laboratory & Radiology
  Services                              65         78         65         78

Contact Information

  • Contact:

    Investor Inquiries
    (505) 468-2341

    Media Inquiries
    (505) 468-4582