form8k.htm

0000904978-07-000093.txt : 20070802 0000904978-07-000093.hdr.sgml : 20070802 20070802120105 ACCESSION NUMBER: 0000904978-07-000093 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20070801 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070802 DATE AS OF CHANGE: 20070802 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUN HEALTHCARE GROUP INC CENTRAL INDEX KEY: 0000904978 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 850410612 STATE OF INCORPORATION: DE FISCAL YEAR END: 1207 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12040 FILM NUMBER: 071019177 BUSINESS ADDRESS: STREET 1: 101 SUN AVENUE N E CITY: ALBUQUERQUE STATE: NM ZIP: 87109 BUSINESS PHONE: 5058213355 MAIL ADDRESS: STREET 1: 101 SUN LANE N E CITY: ALBUQERQUE STATE: NM ZIP: 87109 8-K 1 form8k.htm FORM 8-K form8k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): August 1, 2007

SUN HEALTHCARE GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	1-12040	85-0410612
(State of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

18831 Von Karman, Suite 400 Irvine, CA	92612
(Address of principal executive offices)	(Zip Code)

No Change

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition

On August 1, 2007, Sun Healthcare Group, Inc. issued the press release furnished herewith as Exhibit 99.1 reporting the results of operations for the quarter ended June 30, 2007.

Item 9.01. Financial Statements and Exhibits

99.1	Press Release dated August 1, 2007.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

SUN HEALTHCARE GROUP, INC.

/s/ Jeff Kreger

Name: Jeff Kreger

Title: Vice President and Corporate Controller

Dated: August 2, 2007

EX-99.1 2 ex991.htm EXHIBIT 99.1 ex991.htm

EXHIBIT 99.1

Sun Healthcare Group, Inc.

Reports Second-Quarter Results; Achieving Planned Integration and Synergy Goals
Associated With Harborside Acquisition

Contact: Investor Inquiries (505) 468-2341

Media Inquiries (505) 468-4582

Irvine, Calif. (Aug. 1, 2007) - Sun Healthcare Group, Inc. (NASDAQ GM: SUNH) today announced results for the second quarter ended June 30, 2007.

Consolidated and Consolidated Pro Forma Results

Total net revenue for the quarter ended June 30, 2007, was $446.7 million, up 73 percent compared to $258.5 million for the comparable period one year ago. Net income for the quarter ended June 30, 2007, was $13.0 million, compared to net income of $7.3 million for the comparable period one year ago, resulting in a 30 percent increase in diluted earnings per share to $0.30 from $0.23 for the comparable period one year ago (based on 43.735 million weighted-average shares outstanding as of June 30, 2007). The pro forma information in the table below was prepared as if the acquisition of Harborside Healthcare Corporation, which closed in April 2007, had occurred on April 1, 2006. The information in the table also contains the normalizing adjustments described below.


	Actual Results						Pro Forma
	Quarter Ended June 30,						Prior Yr Q2
	2007			2006			2006

Revenue	$	446,665		$	258,458		$	419,122

Depreciation and amortization		9,787			3,760			8,271

Interest expense, net		11,999			5,079			8,526

Income from continuing operations		11,326			5,495			9,778

Income from discontinued operations		1,714			1,812			1,247

Net income	$	13,040		$	7,307		$	11,025

Diluted earnings per share	$	0.30		$	0.23		$	0.25

EBITDAR	$	61,576		$	32,176		$	52,487
Margin - EBITDAR		13.8	%		12.4	%		12.5	%
EBITDAR normalized	$	56,485		$	26,806		$	47,242
Margin - EBITDAR normalized		12.6	%		10.4	%		11.3	%


EBITDA	$	39,278		$	18,207		$	30,620
Margin - EBITDA		8.8	%		7.0	%		7.3	%
EBITDA normalized	$	34,187		$	12,837		$	25,375
Margin - EBITDA normalized		7.7	%		5.0	%		6.1	%


Income from continuing operations - normalized	$	8,417		$	393		$	4,757
Diluted earnings per share - normalized	$	0.19		$	0.01		$	0.11


Net income - normalized	$	8,152		$	(294	)	$	3,505
Diluted earnings per share - normalized	$	0.19		$	(0.01	)	$	0.08

Pre-tax normalizing adjustments in the quarter ended June 30, 2007, consisted of a $0.6 million charge related to the write-off of certain deferred financing costs associated with a credit facility which was refinanced in April 2007, a $0.9 million charge for integration costs associated with the Harborside acquisition, and $9.0 million of income from adjustments of prior period self-insurance reserves ($3.0 million of which were related to discontinued operations). Pre-tax normalizing adjustments in the quarter ended June 30, 2006 consisted of $8.0 million of income from adjustments of prior period self-insurance reserves ($2.6 million of which were related to discontinued operations) and, in the pro forma results, $0.1 million of costs related to Harborside investor fees.

On a normalized pro forma basis, comparing the quarter ended June 30, 2007, to the same period in 2006, Sun reported:

·	revenue increased $27.5 million, or 6.6 percent;

·	EBITDAR increased $9.2 million, or 19.6 percent;

·	EBITDAR margin improved 130 basis points to 12.6 percent;

·	EBITDA increased $8.8 million, or 34.7 percent;

·	EBITDA margin improved 160 basis points to 7.7 percent;

·	income from continuing operations increased $3.7 million, or 76.9 percent, increasing diluted earnings per share from continuing operations by $0.08; and

·	net income increased $4.6 million, or 132.6 percent, increasing diluted earnings per share by $0.11.

Commenting on the results, Richard K. Matros, chairman and chief executive officer of Sun, stated, "While we have completed only one quarter since the close of the Harborside acquisition, we are very pleased with the margin improvement we have realized thus far. The integration itself is going as expected. The synergies in the quarter of approximately $1.0 million are in line with our expectations for the quarter as are the integration costs. Both the synergies and integration costs will ramp up as we have previously stated in the next two quarters. We believe this acquisition has completed the transformation of the company's asset base, thereby providing us with a platform from which we can generate respectable, organic growth on a go-forward basis."

Total net revenue for the six-month period ended June 30, 2007, was $720.2 million, up 40 percent compared to $515.2 million in the comparable period a year ago. Net income for the six-month period ended June 30, 2007, was $17.0 million compared to net income of $8.4 million for the comparable period one year ago, resulting in a 44 percent increase in diluted earnings per share to $0.39 from $0.27 a year ago (based on 43.761 million weighted-average shares outstanding at June 30, 2007). The pro forma information in the table below was prepared as if the Harborside acquisition had occurred on Jan.1, 2006. The information in the table also contains the normalizing adjustments described below.

	Actual Results						Pro Forma Results
	Six Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006

Revenue	$	720,233		$	515,215		$	884,077		$	833,626

Depreciation and amortization		13,708			6,628			18,484			15,425

Interest expense, net		14,058			9,446			18,703			16,205

Income from continuing operations		15,678			6,655			14,367			14,146

Income from discontinued operations		1,285			1,791			729			783

Net income	$	16,963		$	8,446		$	15,096		$	14,929

Diluted earnings per share	$	0.39		$	0.27		$	0.34		$	0.34

EBITDAR	$	88,662		$	52,909		$	102,929		$	92,020
Margin - EBITDAR		12.3	%		10.3	%		11.6	%		11.0	%
EBITDAR normalized	$	83,720		$	47,539		$	104,314		$	86,900
Margin - EBITDAR normalized		11.6	%		9.2	%		11.8	%		10.4	%


EBITDA	$	51,985		$	25,550		$	59,276		$	48,901
Margin - EBITDA		7.2	%		5.0	%		6.7	%		5.9	%
EBITDA normalized	$	47,043		$	20,180		$	60,661		$	43,781
Margin - EBITDA normalized		6.5	%		3.9	%		6.9	%		5.3	%


Income from continuing operations - normalized	$	12,866		$	1,553		$	15,668		$	9,282
Diluted earnings per share - normalized	$	0.29		$	0.05		$	0.36		$	0.21


Net income - normalized	$	12,172		$	846		$	14,418		$	7,566
Diluted earnings per share - normalized	$	0.28		$	0.03		$	0.33		$	0.17

Pre-tax normalizing adjustments in the six months of 2007 consist of a $0.6 million charge related to the write-off of certain deferred financing costs associated with a credit facility which was refinanced in April 2007, a $1.0 million charge for integration costs associated with the Harborside acquisition, $9.0 million of income from adjustments of prior period self-insurance reserves ($3.0 million of which were related to discontinued operations), and, in the pro forma results, a $5.9 million charge for losses on prior period Harborside accounts receivable and $0.5 million of costs related to Harborside investor fees and merger costs. Pre-tax normalizing adjustments in the six months of 2006 consist of $8.0 million of income from adjustments of prior period self-insurance reserves ($2.6 million of which were related to discontinued operations) and, in the pro forma results, $0.3 million of costs related to Harborside investor fees.

On a normalized pro forma basis, comparing the six-month period ended June 30, 2007, to the same period in 2006, Sun reported:

·	revenue increased $50.5 million, or 6.1 percent;

·	EBITDAR increased $17.4 million, or 20.0 percent;

·	EBITDAR margin improved 140 basis points to 11.8 percent;

·	EBITDA increased $16.9 million, or 38.6 percent;

·	EBITDA margin improved 160 basis points to 6.9 percent;

·	income from continuing operations increased $6.4 million or 68.8 percent, increasing diluted earnings per share from continuing operations by $0.15; and

·	net income increased $6.9 million, or 90.6 percent, increasing diluted earnings per share by $0.16.

Inpatient Business

For its core inpatient business, on a normalized pro forma basis (assuming the Harborside acquisition occurred at the beginning of the respective periods) comparing the quarter and six months ended

June 30, 2007 to the same periods in 2006, Sun reported:

Quarter ended June 30, 2007 (pro forma):

·	revenue increased $23.0 million, or 6.1 percent, to $397.8 million from $374.8 million;

·	net segment EBITDAR increased $7.9 million, or 13.1 percent, to $68.1 million from $60.2 million;

·	net segment EBITDAR margin for 2007 was 17.1 percent compared to 16.1 percent in 2006;

·	net segment EBITDA increased $7.4 million, or 19.2 percent, to $46.1 million from $38.6 million;

·	net segment EBITDA margin for 2007 was 11.6 percent compared to 10.3 percent in 2006;

·	net segment income increased $10.5 million, or 43.3 percent, to $34.8 million from $24.3 million;

·	rehabilitation RUGS utilization increased 340 basis points to 82.4 percent as a percent of total Medicare days; and

·	Rehabilitation Extensive Service Days (“REX days”) as a percent of total Medicare days increased

220 basis points to 37.2 percent.

The revenue gain of $23.0 million in the quarter was primarily attributable to:

·	a $7.5 million increase in Medicare Part A revenue principally due to increased SNF rates;

·	a $3.4 million increase in private revenue principally due to increased rates;

·	a $4.4 million increase in managed care/commercial insurance revenue due principally to higher customer base;

·	a $1.7 million increase in Medicare Part B revenue; and

·	a $6.0 million increase in Medicaid revenue resulting from a $7.0 million rate improvement which was partially offset by a $1.0 million decrease in Medicaid customer base.

Six months ended June 30, 2007 (pro forma):

·	revenue increased $43.6 million, or 5.8 percent, to $788.8 million from $745.3 million;

·	net segment EBITDAR increased $12.4 million, or 10.6 percent, to $129.5 million from $117.0 million;

·	net segment EBITDAR margin for 2007 was 16.4 percent compared to 15.7 percent in 2006;

·	net segment EBITDA increased $11.9 million, or 15.9 percent, to $86.4 million from $74.5 million;

·	net segment EBITDA margin for 2007 was 10.9 percent compared to 10.0 percent in 2006; and

·	net segment income increased $13.0 million, or 27.6 percent, to $60.1 million from $47.1 million.

Matros further stated, “A number of key metrics drove our inpatient margin expansion this quarter. While Medicare occupancy in our skilled nursing centers was down 10 basis points, inpatient occupancy was up 40 basis points on a pro forma basis to 89 percent. Medicare mix, as a percent of revenue in the company's skilled nursing centers, increased 70 basis points driven by a continued increase in acuity as evidenced by our 7.8 percent increase in Medicare Part A revenue. Additionally, when we look at our skilled mix, which includes managed care and commercial insurance with Medicare, the improvement in the quarter is 160 basis points to 35.6 percent. REX days increased 220 basis points to 37.2 percent of total Medicare days and Rehab RUGS utilization increased 340 basis points to 82.4 percent of total Medicare days. The company's Rehab Recovery Suites^SM (RRS) show dramatic differences when looking at some of these same statistics. Medicare occupancy in those centers with RRS is 18.6 percent as compared to 15.8 percent on a consolidated SNF basis. For these same centers, RUGS extensive service days are 47.5 percent of total Medicare days and Rehab RUGS utilization is 89.8 percent.”

Ancillary Businesses

For its ancillary businesses, on a pro forma basis (assuming the Harborside acquisition occurred at the beginning of the respective periods) comparing the quarter and six months ended June 30, 2007, to the same periods in 2006, Sun reported:

·	for the quarter, revenue increased $6.3 million, or 11.6 percent, to $60.3 million from $54.1 million;

·	for the quarter, EBITDA increased $0.8 million, or 23.5 percent, to $4.7 million from $3.8 million;

·	for the six-month period, revenue increased $10.3 million, or 9.6 percent, to $117.9 million from

$107.5 million; and

·	for the six-month period, EBITDA increased $4.3 million, or 122.7 percent, to $7.8 million from

$3.5 million.

Conference Call

Sun’s senior management will hold a conference call to discuss the Company’s 2007 second-quarter operating results on Thursday, Aug. 2, 2007, 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, 2007, until midnight EDT on Aug. 9, 2007, by calling (800) 642-1687 and using access code 6879959.

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; our ability to maintain the occupancy rates and payor mix at our long- term care facilities; 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 and pay interest and other costs of the indebtedness incurred in our acquisition of Harborside Healthcare Corporation; our ability to integrate the operations of Harborside; 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 normalizing adjustments to EBITDA, EBITDAR, pre-tax income and income from continuing operations discussed in this press release and shown in the accompanying tables are non-GAAP adjustments.

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

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands)


	June 30, 2007		December 31, 2006

ASSETS

Current assets:
Cash and cash equivalents	$	84,537	$	131,935
Restricted cash		38,015		32,752
Accounts receivable, net		201,410		117,091
Assets held for sale		2,418		7,173
Other current assets		20,083		10,323

Total current assets		346,463		299,274

Property and equipment, net		667,408		217,544
Restricted cash, non-current		8,767		29,083
Goodwill		232,013		55,092
Intangible assets, net		33,732		13,691
Other assets, net		9,927		6,739

Total assets	$	1,298,310	$	621,423


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	63,811	$	43,400
Accrued compensation and benefits		54,523		42,723
Accrued self-insurance obligations, current		41,398		48,689
Liabilities held for sale		332		1,672
Other accrued liabilities		86,831		42,535
Capital leases, current		703		494
Current portion of long-term debt:
Company obligations		31,341		22,780
Clipper partnerships		799		736

Total current liabilities		279,738		203,029

Accrued self-insurance obligations, net of current		119,078		81,559
Long-term debt, net of current portion:
Company obligations		640,402		100,763
Clipper partnerships		48,979		49,392
Other long-term liabilities		47,157		42,547

Total liabilities		1,135,354		477,290

Stockholders' equity		162,956		144,133
Total liabilities and stockholders' equity	$	1,298,310	$	621,423

1 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

		For the			For the
	Three Months Ended			Three Months Ended
		June 30, 2007			June 30, 2006
		(unaudited)			(unaudited)

Total net revenues		$	446,665		$	258,458
Costs and expenses:
Operating salaries and benefits			249,230			146,660
Self-insurance for workers' compensation and general and professional liability insurance			8,527			5,149
Operating administrative costs			10,497			6,762
Other operating costs			95,895			53,473
Facility rent expense			22,298			13,969
General and administrative expenses			17,297			12,124
Depreciation			7,288			2,222
Amortization			2,499			1,538
Provision for losses on accounts receivable			3,643			2,114
Interest, net			11,999			5,079
Loss on extinguishment of debt, net			-			-
Loss on sale of assets, net			3			230
Total costs and expenses			429,176			249,320

Income before income taxes and discontinued operations			17,489			9,138
Income tax expense			6,163			3,643
Income from continuing operations			11,326			5,495

Discontinued operations:
Income from discontinued operations, net of related taxes			1,367			1,942
Gain (loss) on disposal of discontinued operations, net of related taxes			347			(130	)
Income from discontinued operations, net			1,714			1,812

Net income		$	13,040		$	7,307


Basic income per common and common equivalent share:
Income from continuing operations		$	0.26		$	0.18
Income from discontinued operations, net			0.04			0.05
Net income		$	0.30		$	0.23

Diluted income per common and common equivalent share:
Income from continuing operations		$	0.26		$	0.17
Income from discontinued operations, net			0.04			0.06
Net Income		$	0.30		$	0.23

Weighted average number of common and common equivalent shares outstanding:
Basic			42,993			31,264
Diluted			43,735			31,446

2 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

	For the				For the
	Six Months Ended			Six Months Ended
	June 30, 2007				June 30, 2006
	(unaudited)				(unaudited)

Total net revenues	$	720,233			$	515,215
Costs and expenses:
Operating salaries and benefits		405,654				293,579
Self-insurance for workers' compensation and general and professional liability insurance		19,091				17,821
Operating administrative costs		18,087				14,633
Other operating costs		152,507				108,938
Facility rent expense		36,677				27,359
General and administrative expenses		30,130				23,772
Depreciation		9,690				3,617
Amortization		4,018				3,011
Provision for losses on accounts receivable		6,083				3,563
Interest, net		14,058				9,446
Loss on extinguishment of debt, net		19				-
Loss on sale of assets, net		10				244
Total costs and expenses		696,024				505,983

Income before income taxes and discontinued operations		24,209				9,232
Income tax expense		8,531				2,577
Income from continuing operations		15,678				6,655

Discontinued operations:
Income from discontinued operations, net of related taxes		1,288				1,986
Loss on disposal of discontinued operations, net of related taxes		(3	)			(195	)
Income from discontinued operations, net		1,285				1,791

Net income	$	16,963			$	8,446


Basic income per common and common equivalent share:
Income from continuing operations	$	0.37			$	0.21
Income from discontinued operations, net		0.02				0.06
Net income	$	0.39			$	0.27

Diluted income per common and common equivalent share:
Income from continuing operations	$	0.36			$	0.21
Income from discontinued operations, net		0.03				0.06
Net Income	$	0.39			$	0.27

Weighted average number of common and common equivalent shares outstanding:
Basic		42,951				31,252
Diluted		43,761				31,302

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SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		For the				For the
	Three Months Ended				Three Months Ended
		June 30, 2007				June 30, 2006
		(unaudited)				(unaudited)

Cash flows from operating activities:
Net income		$	13,040			$	7,307
Adjustments to reconcile net income to net cash provided by (used for)
operating activities, including discontinued operations:
Depreciation			7,305				2,451
Amortization			2,504				1,720
Amortization of favorable and unfavorable lease intangibles			(196	)			(379	)
Provision for losses on accounts receivable			3,737				2,444
(Gain) loss on disposal of discontinued operations, net			(347	)			130
Loss on sale of assets, net			2				230
Restricted stock and stock option compensation			943				463
Other, net			(113	)			5
Changes in operating assets and liabilities, net of acquisitions			23,888				(16,861	)
Net cash provided by operating activities			50,763				(2,490	)

Cash flows from investing activities:
Capital expenditures, net			(7,705	)			(5,292	)
Exercise of real estate purchase option			(30,236	)			-
Proceeds from sale of assets held for sale			2,251				-
Acquisitions, net			(368,515	)			-
Accrued acquisition costs, net			3,585				-
Net cash used for investing activities			(400,620	)			(5,292	)

Cash flows from financing activities:
Net borrowings under Revolving Credit Facility			5,000				8,134
Long-term debt borrowings			327,000				11,636
Long-term debt repayments			(4,533	)			(12,870	)
Principal payments under capital lease obligation			(118	)			(34	)
Net proceeds from exercise of employee stock options			92				-
Distribution of partnership equity			(255	)			-
Release of third-party collateral			25,640				-
Distribution of equity			(57	)			-
Deferred financing costs			(18,045	)			179
Net cash provided by financing activities			334,724				7,045

Net (decrease) increase in cash and cash equivalents			(15,133	)			(737	)
Cash and cash equivalents at beginning of period			99,670				16,694
Cash and cash equivalents at end of period		$	84,537			$	15,957

4 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

		For the				For the
	Six Months Ended				Six Months Ended
		June 30, 2007				June 30, 2006
		(unaudited)				(unaudited)

Cash flows from operating activities:
Net income		$	16,963			$	8,446
Adjustments to reconcile net income to net cash provided by (used for)
operating activities, including discontinued operations:
Depreciation			9,739				4,063
Amortization			4,026				3,357
Amortization of favorable and unfavorable lease intangibles			(409	)			(758	)
Provision for losses on accounts receivable			6,260				4,392
Loss on disposal of discontinued operations, net			3				195
Loss on sale of assets, net			9				243
Restricted stock and stock option compensation			1,694				1,007
Other, net			(111	)			31
Changes in operating assets and liabilities, net of acquisitions			14,160				(30,585	)
Net cash provided by operating activities			52,334				(9,609	)

Cash flows from investing activities:
Capital expenditures, net			(14,955	)			(8,625	)
Exercise of real estate purchase option			(30,236	)			-
Proceeds from sale of assets held for sale			5,489				-
Acquisitions, net			(368,515	)			(236	)
Accrued acquisition costs, net			3,585				-
Proceeds from sale/leaseback			-				838
Net cash used for investing activities			(404,632	)			(8,023	)

Cash flows from financing activities:
Net borrowings under Revolving Credit Facility			5,006				25,854
Long-term debt borrowings			327,000				11,636
Long-term debt repayments			(34,140	)			(20,564	)
Principal payments under capital lease obligation			(658	)			(34	)
Net proceeds from exercise of employee stock options			665				(123	)
Distribution of partnership equity			(511	)			-
Release of third-party collateral			25,640				-
Distribution of equity			(57	)			-
Deferred financing costs			(18,045	)			179
Net cash provided by financing activities			304,900				16,948

Net (decrease) increase in cash and cash equivalents			(47,398	)			(684	)
Cash and cash equivalents at beginning of period			131,935				16,641
Cash and cash equivalents at end of period		$	84,537			$	15,957

5 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

		For the			For the
	Three Months Ended			Three Months Ended
		June 30, 2007			June 30, 2006
		(unaudited)			(unaudited)

Total net revenues		$	446,665		$	258,458

Net income		$	13,040		$	7,307

Income from continuing operations			11,326			5,495

Income tax expense			6,163			3,643

Loss on sale of assets, net			3			230

Net segment income		$	17,492		$	9,368

Interest, net			11,999			5,079

Depreciation and amortization			9,787			3,760

EBITDA		$	39,278		$	18,207

Facility rent expense			22,298			13,969

EBITDAR		$	61,576		$	32,176

Operating administrative costs			10,497			6,762
General and administrative expenses			17,297			12,124
Total operating and general and admin expenses			27,794			18,886

EBITDAM		$	67,072		$	37,093
EBITDARM		$	89,370		$	51,062

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

6 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

	For the			For the
	Six Months Ended		Six Months Ended
	June 30, 2007			June 30, 2006
	(unaudited)			(unaudited)

Total net revenues	$	720,233		$	515,215

Net income	$	16,963		$	8,446

Income from continuing operations		15,678			6,655

Income tax expense		8,531			2,577

Loss on sale of assets, net		10			244

Net segment income	$	24,219		$	9,476

Interest, net		14,058			9,446

Depreciation and amortization		13,708			6,628

EBITDA	$	51,985		$	25,550

Facility rent expense		36,677			27,359

EBITDAR	$	88,662		$	52,909

Operating administrative costs		18,087			14,633
General and administrative expenses		30,130			23,772
Total operating and general and admin expenses		48,217			38,405

EBITDAM	$	100,202		$	63,955
EBITDARM	$	136,879		$	91,314

7 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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


	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated

Nonaffiliated revenue	$	397,830		$	20,790		$	28,018		$	27		$	-		$	446,665

Affiliated revenue		-			10,332			1,201			-			(11,533	)		-

Total revenue		397,830			31,122			29,219			27			(11,533	)		446,665

Net segment income (loss)	$	40,793		$	2,281		$	2,057		$	(27,639	)	$	-		$	17,492

Interest, net		2,493			-			(1	)		9,507			-			11,999

Depreciation and amortization		8,726			135			194			732			-			9,787

EBITDA	$	52,012		$	2,416		$	2,250		$	(17,400	)	$	-		$	39,278

Facility rent expense		22,015			53			230			-			-			22,298

EBITDAR	$	74,027		$	2,469		$	2,480		$	(17,400	)	$	-		$	61,576

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

EBITDAM	$	60,469		$	3,661		$	3,044		$	(102	)	$	-		$	67,072
EBITDARM	$	82,484		$	3,714		$	3,274		$	(102	)	$	-		$	89,370


EBITDA margin		13.1	%		7.8	%		7.7	%								8.8	%

EBITDAM margin		15.2	%		11.8	%		10.4	%								15.0	%

EBITDAR margin		18.6	%		7.9	%		8.5	%								13.8	%

EBITDARM margin		20.7	%		11.9	%		11.2	%								20.0	%

8 of 34

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)


	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated

Nonaffiliated revenue	$	216,897		$	20,135		$	21,424		$	2		$	-		$	258,458

Affiliated revenue		-			9,613			300			-			(9,913	)		-

Total revenue		216,897			29,748			21,724			2			(9,913	)		258,458

Net segment income (loss)	$	19,970		$	1,650		$	1,827		$	(14,079	)	$	-		$	9,368

Interest, net		3,547			(2	)		38			1,496			-			5,079

Depreciation and amortization		3,082			90			188			400			-			3,760

EBITDA	$	26,599		$	1,738		$	2,053		$	(12,183	)	$	-		$	18,207

Facility rent expense		13,713			50			206			-			-			13,969

EBITDAR	$	40,312		$	1,788		$	2,259		$	(12,183	)	$	-		$	32,176

Operating and general and administrative expenses		4,863			1,164			734			12,125			-			18,886

EBITDAM	$	31,462		$	2,902		$	2,787		$	(58	)	$	-		$	37,093
EBITDARM	$	45,175		$	2,952		$	2,993		$	(58	)	$	-		$	51,062


EBITDA margin		12.3	%		5.8	%		9.5	%								7.0	%

EBITDAM margin		14.5	%		9.8	%		12.8	%								14.4	%

EBITDAR margin		18.6	%		6.0	%		10.4	%								12.4	%

EBITDARM margin		20.8	%		9.9	%		13.8	%								19.8	%

9 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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


	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated

Nonaffiliated revenue	$	626,965		$	41,469		$	51,765		$	34		$	-		$	720,233

Affiliated revenue		-			20,594			1,388			-			(21,982	)		-

Total revenue		626,965			62,063			53,153			34			(21,982	)		720,233

Net segment income (loss)	$	57,601		$	3,708		$	3,470		$	(40,560	)	$	-		$	24,219

Interest, net		4,973			10			14			9,061			-			14,058

Depreciation and amortization		11,925			251			364			1,168			-			13,708

EBITDA	$	74,499		$	3,969		$	3,848		$	(30,331	)	$	-		$	51,985

Facility rent expense		36,145			103			429			-			-			36,677

EBITDAR	$	110,644		$	4,072		$	4,277		$	(30,331	)	$	-		$	88,662

Operating and general and administrative expenses		13,764			2,502			1,820			30,131			-			48,217

EBITDAM	$	88,263		$	6,471		$	5,668		$	(200	)	$	-		$	100,202
EBITDARM	$	124,408		$	6,574		$	6,097		$	(200	)	$	-		$	136,879


EBITDA margin		11.9	%		6.4	%		7.2	%								7.2	%

EBITDAM margin		14.1	%		10.4	%		10.7	%								13.9	%

EBITDAR margin		17.6	%		6.6	%		8.0	%								12.3	%

EBITDARM margin		19.8	%		10.6	%		11.5	%								19.0	%

10 of 34

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)


	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated

Nonaffiliated revenue	$	432,332		$	40,137		$	42,741		$	5		$	-		$	515,215

Affiliated revenue		-			18,997			430			-			(19,427	)		-

Total revenue		432,332			59,134			43,171			5			(19,427	)		515,215

Net segment income (loss)	$	33,702		$	100		$	2,799		$	(27,125	)	$	-		$	9,476

Interest, net		6,980			(8	)		74			2,400			-			9,446

Depreciation and amortization		5,272			179			374			803			-			6,628

EBITDA	$	45,954		$	271		$	3,247		$	(23,922	)	$	-		$	25,550

Facility rent expense		26,831			108			420			-			-			27,359

EBITDAR	$	72,785		$	379		$	3,667		$	(23,922	)	$	-		$	52,909

Operating and general and administrative expenses		9,174			3,831			1,629			23,771			-			38,405

EBITDAM	$	55,128		$	4,102		$	4,876		$	(151	)	$	-		$	63,955
EBITDARM	$	81,959		$	4,210		$	5,296		$	(151	)	$	-		$	91,314


EBITDA margin		10.6	%		0.5	%		7.5	%								5.0	%

EBITDAM margin		12.8	%		6.9	%		11.3	%								12.4	%

EBITDAR margin		16.8	%		0.6	%		8.5	%								10.3	%

EBITDARM margin		19.0	%		7.1	%		12.3	%								17.7	%

11 of 34

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 June 30, 2007
(unaudited)

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

Non affiliated revenues	$	232,870		$	-		$	232,870		$	-		$	232,870		$	164,960	$	397,830

Net segment income (loss)	$	31,111		$	(6,337	)	$	24,774		$	(386	)	$	24,388		$	16,405		40,793

Interest, net		1,552			-			1,552			845			2,397			96		2,493

Depreciation and amortization		2,994			-			2,994			387			3,381			5,345		8,726

EBITDA	$	35,657		$	(6,337	)	$	29,320		$	846		$	30,166		$	21,846	$	52,012

Facility rent expense		15,072			-			15,072			(741	)		14,331			7,684		22,015

EBITDAR	$	50,729		$	(6,337	)	$	44,392		$	105		$	44,497		$	29,530	$	74,027

EBITDA margin		15.3	%					12.6	%					13.0	%				13.1	%

EBITDAR margin		21.8	%					19.1	%					19.1	%				18.6	%

(1)

Clipper represents our interest of less than 16 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.

12 of 34

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 June 30, 2006
(unaudited)

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

Non affiliated revenues	$	216,897		$	-		$	216,897		$	-		$	216,897

Net segment income (loss)	$	25,377		$	(4,913	)	$	20,464		$	(494	)	$	19,970

Interest, net		2,561			-			2,561			986			3,547

Depreciation and amortization		2,741			-			2,741			341			3,082

EBITDA	$	30,679		$	(4,913	)	$	25,766		$	833		$	26,599

Facility rent expense		14,589			-			14,589			(876	)	$	13,713

EBITDAR	$	45,268		$	(4,913	)	$	40,355		$	(43	)	$	40,312

EBITDA margin		14.1	%					11.9	%					12.3	%

EBITDAR margin		20.9	%					18.6	%					18.6	%

(1)

13 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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

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

Non affiliated revenues	$	462,005		$	-		$	462,005		$	-		$	462,005		$	164,960	$	626,965

Net segment income (loss)	$	53,547		$	(11,494	)	$	42,053		$	(856	)	$	41,197		$	16,404		57,601

Interest, net		3,397			-			3,397			1,480			4,877			96		4,973

Depreciation and amortization		5,812			-			5,812			768			6,580			5,345		11,925

EBITDA	$	62,756		$	(11,494	)	$	51,262		$	1,392		$	52,654		$	21,845	$	74,499

Facility rent expense		29,627			-			29,627			(1,166	)		28,461			7,684		36,145

EBITDAR	$	92,383		$	(11,494	)	$	80,889		$	226		$	81,115		$	29,529	$	110,644

EBITDA margin		13.6	%					11.1	%					11.4	%				11.9	%

EBITDAR margin		20.0	%					17.5	%					17.6	%				17.6	%

(1)

14 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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

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

Non affiliated revenues	$	216,897		$	-		$	216,897		$	-		$	216,897

Net segment income (loss)	$	30,161		$	(9,278	)	$	20,883		$	(913	)	$	19,970

Interest, net		1,586			-			1,586			1,961			3,547

Depreciation and amortization		2,420			-			2,420			662			3,082

EBITDA	$	34,167		$	(9,278	)	$	24,889		$	1,710		$	26,599

Facility rent expense		15,465			-			15,465			(1,752	)	$	13,713

EBITDAR	$	49,632		$	(9,278	)	$	40,354		$	(42	)	$	40,312

EBITDA margin		15.8	%					11.5	%					12.3	%

EBITDAR margin		22.9	%					18.6	%					18.6	%

(1)

15 of 34

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,
	2007			2006			2007			2006
Number of available beds:
Long Term Care		23,373			14,517			23,373			14,517
Hospitals		192			192			192			192

Number of facilities:
Long Term Care		213			138			213			138
Hospitals		3			3			3			3


Occupancy %:
Long Term Care		89.2	%		87.5	%		88.8	%		87.8	%
Hospitals		59.5	%		56.3	%		56.9	%		56.6	%
Inpatient Services		89.0	%		87.1	%		88.5	%		87.4	%




Payor Mix % based on patient days - LTC:
Medicare - SNF only		15.8	%		15.4	%		15.6	%		15.3	%
Managed care / commercial insurance - SNF only		2.8	%		2.1	%		2.7	%		2.3	%
Total SNF skilled mix		18.6	%		17.5	%		18.3	%		17.6	%

Medicare		14.7	%		13.9	%		14.3	%		13.8	%
Medicaid		60.9	%		60.6	%		60.5	%		60.7	%
Private and other		20.9	%		22.6	%		21.8	%		22.5	%
Managed care / commercial Insurance		2.6	%		1.9	%		2.5	%		2.0	%
Veterans		0.9	%		1.0	%		0.9	%		1.0	%


Payor Mix % based on patient days - Hospitals:
Medicare		65.9	%		71.7	%		66.3	%		70.2	%
Medicaid		7.7	%		6.8	%		7.3	%		8.3	%
Private and other		0.5	%		0.0	%		0.3	%		0.1	%
Managed care / commercial Insurance		25.9	%		21.5	%		26.1	%		21.4	%
Veterans		0.0	%		0.0	%		0.0	%		0.0	%


Payor Mix % based on patient days - Inpatient Services:
Medicare		15.0	%		14.4	%		14.7	%		14.3	%
Medicaid		60.6	%		60.1	%		60.2	%		60.3	%
Private and other		20.8	%		22.5	%		21.6	%		22.2	%
Managed care / commercial Insurance		2.7	%		2.0	%		2.6	%		2.2	%
Veterans		0.9	%		1.0	%		0.9	%		1.0	%




Revenue Mix % of revenues - LTC:
Medicare - SNF only		31.3	%		30.9	%		31.3	%		30.6	%
Managed care / commercial insurance - SNF only		4.3	%		3.5	%		4.3	%		3.4	%
Total SNF skilled mix		35.6	%		34.4	%		35.6	%		34.0	%

Medicare		29.9	%		28.8	%		29.6	%		28.6	%
Medicaid		47.6	%		48.2	%		47.5	%		48.4	%
Private and other		17.6	%		18.7	%		18.0	%		18.8	%
Managed care / commercial Insurance		4.1	%		3.2	%		4.0	%		3.1	%
Veterans		0.8	%		1.1	%		0.9	%		1.1	%


Revenue Mix % of revenues - Hospitals:
Medicare		69.0	%		72.2	%		65.8	%		72.7	%
Medicaid		6.7	%		5.3	%		6.1	%		6.5	%
Private and other		1.3	%		0.6	%		1.1	%		0.6	%
Managed care / commercial Insurance		23.0	%		21.9	%		27.0	%		20.2	%
Veterans		0.0	%		0.0	%		0.0	%		0.0	%

16 of 34

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,
	2007			2006			2007			2006

Revenue Mix % of revenues - Inpatient Services:
Medicare		31.6	%		31.7	%		31.6	%		31.5	%
Medicaid		46.0	%		45.3	%		45.5	%		45.6	%
Private and other		17.0	%		17.8	%		17.1	%		17.9	%
Managed care / commercial Insurance		4.6	%		4.2	%		4.9	%		4.0	%
Veterans		0.8	%		1.0	%		0.9	%		1.0	%



Revenues PPD - LTC:
Medicare (Part A)	$	381.76		$	336.85		$	375.28		$	337.44
Medicaid	$	159.37		$	140.70		$	155.11		$	141.13
Private and other	$	165.81		$	139.37		$	158.24		$	141.76
Managed care / commercial Insurance	$	316.90		$	303.81		$	316.19		$	270.64
Veterans	$	190.15		$	186.34		$	196.53		$	185.33


Revenues PPD - Hospitals:
Medicare (Part A)	$	1,189.30		$	1,187.23		$	1,182.65		$	1,204.44
Medicaid	$	1,016.75		$	958.26		$	1,025.39		$	953.14
Private and other	$	-		$	-		$	-		$	-
Managed care / commercial Insurance	$	1,035.26		$	1,239.80		$	1,259.26		$	1,139.32
Veterans	$	-		$	-		$	-		$	-


Revenues PPD - Inpatient Services:
Medicare (Part A)	$	407.87		$	378.22		$	406.86		$	379.20
Medicaid	$	159.93		$	141.40		$	155.96		$	141.99
Private and other	$	165.90		$	139.43		$	158.31		$	141.83
Managed care / commercial Insurance	$	354.27		$	387.65		$	376.40		$	343.29
Veterans	$	190.15		$	186.34		$	196.53		$	185.33




Revenues - Non-affiliated (in thousands):
Inpatient Services:
Medicare	$	125,715		$	68,808		$	197,941		$	136,144
Medicaid		183,145			98,309			285,401			197,223
Private and other		88,970			49,780			143,623			98,965
Subtotal		397,830			216,897			626,965			432,332

Rehabilitation Therapy Services		20,790			20,135			41,469			40,137
Medical Staffing Services		28,018			21,424			51,765			42,741
Subtotal		48,808			41,559			93,234			82,878

Other - non-core businesses		27			2			34			5
Total	$	446,665		$	258,458		$	720,233		$	515,215




Rehab contracts:
Affiliated - continuing		86			89			86			89
Non-affiliated		293			300			293			300

DSO (Days Sales Outstanding):
Inpatient Services - LTC		41			40			41			40
Inpatient Services - Hospitals		75			50			75			50
Rehabilitation Therapy Services		74			83			74			83
Medical Staffing Services		54			56			54			56

17 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
*PRO FORMA WITH HARBORSIDE*
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
	AS REPORTED		PRO FORMA WITH HARBORSIDE
	For the		For the
	Three Months Ended		Three Months Ended
	June 30, 2007		June 30, 2006
	(unaudited)		(unaudited)

Total net revenues	$	446,665	$	419,122
Costs and expenses:
Operating salaries and benefits		249,230		236,626
Self-insurance for workers' compensation and general and professional liability insurance		8,527		9,642
Operating administrative costs		10,497		8,906
Other operating costs		95,895		90,357
Facility rent expense		22,298		21,867
General and administrative expenses		17,297		17,169
Depreciation		7,288		6,745
Amortization		2,499		1,526
Provision for losses on accounts receivable		3,643		3,935
Interest, net		11,999		8,526
Loss on extinguishment of debt, net		-		-
Loss on sale of assets, net		3		230
Total costs and expenses		429,176		405,529

Income before income taxes and discontinued operations		17,489		13,593
Income tax expense		6,163		3,815
Income from continuing operations		11,326		9,778

Discontinued operations:
Income from discontinued operations, net of related taxes		1,367		1,377
Gain (loss) on disposal of discontinued operations, net of related taxes		347		(130	)
Income from discontinued operations, net		1,714		1,247

Net income	$	13,040	$	11,025


Basic income per common and common equivalent share:
Income from continuing operations	$	0.26	$	0.23
Income from discontinued operations, net		0.04		0.03
Net income	$	0.30	$	0.26

Diluted income per common and common equivalent share:
Income from continuing operations	$	0.26	$	0.22
Income from discontinued operations, net		0.04		0.03
Net Income	$	0.30	$	0.25

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

18 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
*PRO FORMA WITH HARBORSIDE*
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
	PRO FORMA WITH HARBORSIDE			PRO FORMA WITH HARBORSIDE
	For the			For the
	Six Months Ended			Six Months Ended
	June 30, 2007			June 30, 2006
	(unaudited)			(unaudited)

Total net revenues	$	884,077		$	833,626
Costs and expenses:
Operating salaries and benefits		495,443			471,742
Self-insurance for workers' compensation and general and professional liability insurance		23,223			27,013
Operating administrative costs		21,079			18,726
Other operating costs		191,834			182,526
Facility rent expense		43,653			43,119
General and administrative expenses		35,527			34,362
Depreciation		14,466			12,428
Amortization		4,018			2,997
Provision for losses on accounts receivable		14,023			7,237
Interest, net		18,703			16,205
Loss on extinguishment of debt, net		19			-
Loss on sale of assets, net		11			243
Total costs and expenses		861,999			816,598

Income before income taxes and discontinued operations		22,078			17,028
Income tax expense		7,711			2,882
Income from continuing operations		14,367			14,146

Discontinued operations:
Income from discontinued operations, net of related taxes		732			978
Loss on disposal of discontinued operations, net of related taxes		(3	)		(195	)
Income from discontinued operations, net		729			783

Net income	$	15,096		$	14,929


Basic income per common and common equivalent share:
Income from continuing operations	$	0.33		$	0.33
Income from discontinued operations, net		0.02			0.02
Net income	$	0.35		$	0.35

Diluted income per common and common equivalent share:
Income from continuing operations	$	0.33		$	0.32
Income from discontinued operations, net		0.01			0.02
Net Income	$	0.34		$	0.34

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

19 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
*PRO FORMA WITH HARBORSIDE*
RECONCILIATION OF NET INCOME TO EBITDA(M) and EBITDAR(M)
(in thousands)
	AS REPORTED		PRO FORMA WITH HARBORSIDE
	For the		For the
	Three Months Ended		Three Months Ended
	June 30, 2007		June 30, 2006
	(unaudited)		(unaudited)

Total net revenues	$	446,665	$	419,122

Net income	$	13,040	$	11,025

Income from continuing operations		11,326		9,778

Income tax expense		6,163		3,815

Loss on sale of assets, net		3		230

Net segment income	$	17,492	$	13,823

Interest, net		11,999		8,526

Depreciation and amortization		9,787		8,271

EBITDA	$	39,278	$	30,620

Facility rent expense		22,298		21,867

EBITDAR	$	61,576	$	52,487

Operating administrative costs		10,497		8,906
General and administrative expenses		17,297		17,169
Total operating and general and admin expenses		27,794		26,075

EBITDAM	$	67,072	$	56,695
EBITDARM	$	89,370	$	78,562

20 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
*PRO FORMA WITH HARBORSIDE*
RECONCILIATION OF NET INCOME TO EBITDA(M) and EBITDAR(M)
(in thousands)
	PRO FORMA WITH HARBORSIDE		PRO FORMA WITH HARBORSIDE
	For the		For the
	Six Months Ended		Six Months Ended
	June 30, 2007		June 30, 2006
	(unaudited)		(unaudited)

Total net revenues	$	884,077	$	833,626

Net income	$	15,096	$	14,929

Income from continuing operations		14,367		14,146

Income tax expense		7,711		2,882

Loss on sale of assets, net		11		243

Net segment income	$	22,089	$	17,271

Interest, net		18,703		16,205

Depreciation and amortization		18,484		15,425

EBITDA	$	59,276	$	48,901

Facility rent expense		43,653		43,119

EBITDAR	$	102,929	$	92,020

Operating administrative costs		21,079		18,726
General and administrative expenses		35,527		34,362
Total operating and general and admin expenses		56,606		53,088

EBITDAM	$	115,882	$	101,989
EBITDARM	$	159,535	$	145,108

21 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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


	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated

Nonaffiliated revenue	$	397,830		$	20,790		$	28,018		$	27		$	-		$	446,665

Affiliated revenue		-			10,332			1,201			-			(11,533	)		-

Total revenue		397,830			31,122			29,219			27			(11,533	)		446,665

Net segment income (loss)	$	40,793		$	2,281		$	2,057		$	(27,639	)	$	-		$	17,492

Interest, net		2,493			-			(1	)		9,507			-			11,999

Depreciation and amortization		8,726			135			194			732			-			9,787

EBITDA	$	52,012		$	2,416		$	2,250		$	(17,400	)	$	-		$	39,278

Facility rent expense		22,015			53			230			-			-			22,298

EBITDAR	$	74,027		$	2,469		$	2,480		$	(17,400	)	$	-		$	61,576

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

EBITDAM	$	60,469		$	3,661		$	3,044		$	(102	)	$	-		$	67,072
EBITDARM	$	82,484		$	3,714		$	3,274		$	(102	)	$	-		$	89,370


EBITDA margin		13.1	%		7.8	%		7.7	%								8.8	%

EBITDAM margin		15.2	%		11.8	%		10.4	%								15.0	%

EBITDAR margin		18.6	%		7.9	%		8.5	%								13.8	%

EBITDARM margin		20.7	%		11.9	%		11.2	%								20.0	%

22 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
*PRO FORMA WITH HARBORSIDE*
RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA(M) and EBITDAR(M)
($ in thousands)

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


	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated

Nonaffiliated revenue	$	374,832		$	20,136		$	24,040		$	114		$	-		$	419,122

Affiliated revenue		-			9,613			300			-			(9,913	)		-

Total revenue		374,832			29,749			24,340			114			(9,913	)		419,122

Net segment income (loss)	$	29,673		$	1,650		$	1,802		$	(19,302	)	$	-		$	13,823

Interest, net		7,146			(2	)		37			1,345			-			8,526

Depreciation and amortization		7,173			90			201			807			-			8,271

EBITDA	$	43,992		$	1,738		$	2,040		$	(17,150	)	$	-		$	30,620

Facility rent expense		21,584			50			233			-			-			21,867

EBITDAR	$	65,576		$	1,788		$	2,273		$	(17,150	)	$	-		$	52,487

Operating and general and administrative expenses		6,988			1,164			734			17,189			-			26,075

EBITDAM	$	50,980		$	2,902		$	2,774		$	39		$	-		$	56,695
EBITDARM	$	72,564		$	2,952		$	3,007		$	39		$	-		$	78,562


EBITDA margin		11.7	%		5.8	%		8.4	%								7.3	%

EBITDAM margin		13.6	%		9.8	%		11.4	%								13.5	%

EBITDAR margin		17.5	%		6.0	%		9.3	%								12.5	%

EBITDARM margin		19.4	%		9.9	%		12.4	%								18.7	%

23 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
*PRO FORMA WITH HARBORSIDE*
RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA(M) and EBITDAR(M)
($ in thousands)

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


	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated

Nonaffiliated revenue	$	788,847		$	41,469		$	54,409		$	34		$	(682	)	$	884,077

Affiliated revenue		-			20,594			1,388			-			(21,982	)		-

Total revenue		788,847			62,063			55,797			34			(22,664	)		884,077

Net segment income (loss)	$	66,031		$	3,708		$	3,404		$	(51,867	)	$	813		$	22,089

Interest, net		9,901			10			13			8,765			14			18,703

Depreciation and amortization		16,377			251			379			1,477			-			18,484

EBITDA	$	92,309		$	3,969		$	3,796		$	(41,625	)	$	827		$	59,276

Facility rent expense		43,096			103			454			-			-			43,653

EBITDAR	$	135,405		$	4,072		$	4,250		$	(41,625	)	$	827		$	102,929

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

EBITDAM	$	103,203		$	6,471		$	5,616		$	(235	)	$	827		$	115,882
EBITDARM	$	146,299		$	6,574		$	6,070		$	(235	)	$	827		$	159,535


EBITDA margin		11.7	%		6.4	%		6.8	%								6.7	%

EBITDAM margin		13.1	%		10.4	%		10.1	%								13.1	%

EBITDAR margin		17.2	%		6.6	%		7.6	%								11.6	%

EBITDARM margin		18.5	%		10.6	%		10.9	%								18.0	%

24 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
*PRO FORMA WITH HARBORSIDE*
RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA(M) and EBITDAR(M)
($ in thousands)

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


	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated

Nonaffiliated revenue	$	745,286		$	40,136		$	47,974		$	230		$	-		$	833,626

Affiliated revenue		-			18,997			430			-			(19,427	)		-

Total revenue		745,286			59,133			48,404			230			(19,427	)		833,626

Net segment income (loss)	$	52,457		$	100		$	2,744		$	(38,030	)	$	-		$	17,271

Interest, net		14,150			(8	)		71			1,992			-			16,205

Depreciation and amortization		13,248			179			400			1,598			-			15,425

EBITDA	$	79,855		$	271		$	3,215		$	(34,440	)	$	-		$	48,901

Facility rent expense		42,539			108			472			-			-			43,119

EBITDAR	$	122,394		$	379		$	3,687		$	(34,440	)	$	-		$	92,020

Operating and general and administrative expenses		13,142			3,831			1,629			34,486			-			53,088

EBITDAM	$	92,997		$	4,102		$	4,844		$	46		$	-		$	101,989
EBITDARM	$	135,536		$	4,210		$	5,316		$	46		$	-		$	145,108


EBITDA margin		10.7	%		0.5	%		6.6	%								5.9	%

EBITDAM margin		12.5	%		6.9	%		10.0	%								12.2	%

EBITDAR margin		16.4	%		0.6	%		7.6	%								11.0	%

EBITDARM margin		18.2	%		7.1	%		11.0	%								17.4	%

25 of 34

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 June 30, 2007
(unaudited)

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

Non affiliated revenues	$	232,870		$	-		$	232,870		$	-		$	232,870		$	164,960	$	397,830

Net segment income (loss)	$	31,111		$	(6,337	)	$	24,774		$	(386	)	$	24,388		$	16,405		40,793

Interest, net		1,552			-			1,552			845			2,397			96		2,493

Depreciation and amortization		2,994			-			2,994			387			3,381			5,345		8,726

EBITDA	$	35,657		$	(6,337	)	$	29,320		$	846		$	30,166		$	21,846	$	52,012

Facility rent expense		15,072			-			15,072			(741	)		14,331			7,684		22,015

EBITDAR	$	50,729		$	(6,337	)	$	44,392		$	105		$	44,497		$	29,530	$	74,027

EBITDA margin		15.3	%					12.6	%					13.0	%				13.1	%

EBITDAR margin		21.8	%					19.1	%					19.1	%				18.6	%

(1)

26 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
*PRO FORMA WITH HARBORSIDE*
RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA AND EBITDAR
INPATIENT SERVICES ONLY
($ in thousands)

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

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

Non affiliated revenues	$	216,896		$	-		$	216,896		$	-		$	216,896		$	157,936	$	374,832

Net segment income (loss)	$	25,377		$	(4,913	)	$	20,464		$	(494	)	$	19,970		$	9,703	$	29,673

Interest, net		2,561			-			2,561			986			3,547			3,599		7,146

Depreciation and amortization		2,742			-			2,742			341			3,083			4,090		7,173

EBITDA	$	30,680		$	(4,913	)	$	25,767		$	833		$	26,600		$	17,392	$	43,992

Facility rent expense		14,589			-			14,589			(876	)		13,713			7,871	$	21,584

EBITDAR	$	45,269		$	(4,913	)	$	40,356		$	(43	)	$	40,313		$	25,263	$	65,576

EBITDA margin		14.1	%					11.9	%					12.3	%				11.7	%

EBITDAR margin		20.9	%					18.6	%					18.6	%				17.5	%

(1)

27 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
*PRO FORMA WITH HARBORSIDE*
RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA AND EBITDAR
INPATIENT SERVICES ONLY
($ in thousands)

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

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

Non affiliated revenues	$	462,004		$	-		$	462,004		$	-		$	462,004		$	326,843	$	788,847

Net segment income (loss)	$	53,548		$	(11,494	)	$	42,054		$	(856	)	$	41,198		$	24,833	$	66,031

Interest, net		3,397			-			3,397			1,480			4,877			5,024		9,901

Depreciation and amortization		5,813			-			5,813			768			6,581			9,796		16,377

EBITDA	$	62,758		$	(11,494	)	$	51,264		$	1,392		$	52,656		$	39,653	$	92,309

Facility rent expense		29,627			-			29,627			(1,166	)		28,461			14,635	$	43,096

EBITDAR	$	92,385		$	(11,494	)	$	80,891		$	226		$	81,117		$	54,288	$	135,405

EBITDA margin		13.6	%					11.1	%					11.4	%				11.7	%

EBITDAR margin		20.0	%					17.5	%					17.6	%				17.2	%

(1)

28 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
*PRO FORMA WITH HARBORSIDE*
RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA AND EBITDAR
INPATIENT SERVICES ONLY
($ in thousands)

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

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

Non affiliated revenues	$	432,332		$	-		$	432,332		$	-		$	432,332		$	312,954	$	745,286

Net segment income (loss)	$	43,892		$	(9,278	)	$	34,614		$	(913	)	$	33,701		$	18,756	$	52,457

Interest, net		5,020			-			5,020			1,961			6,981			7,169		14,150

Depreciation and amortization		4,610			-			4,610			662			5,272			7,976		13,248

EBITDA	$	53,522		$	(9,278	)	$	44,244		$	1,710		$	45,954		$	33,901	$	79,855

Facility rent expense		28,584			-			28,584			(1,752	)		26,832			15,707	$	42,539

EBITDAR	$	82,106		$	(9,278	)	$	72,828		$	(42	)	$	72,786		$	49,608	$	122,394

EBITDA margin		12.4	%					10.2	%					10.6	%				10.7	%

EBITDAR margin		19.0	%					16.8	%					16.8	%				16.4	%

(1)

29 of 34

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,
	AS REPORTED			PRO FORMA WITH HARBORSIDE			PRO FORMA WITH HARBORSIDE			PRO FORMA WITH HARBORSIDE
	2007			2006			2007			2006
Number of available beds:
Long Term Care		23,373			23,356			23,373			23,356
Hospitals		192			192			192			192

Number of facilities:
Long Term Care		213			213			213			213
Hospitals		3			3			3			3


Occupancy %:
Long Term Care		89.2	%		88.9	%		89.2	%		89.0	%
Hospitals		59.5	%		56.3	%		56.9	%		56.6	%
Inpatient Services		89.0	%		88.6	%		88.9	%		88.8	%




Payor Mix % based on patient days - LTC:
Medicare - SNF only		15.8	%		15.9	%		15.7	%		15.9	%
Managed care / commercial insurance - SNF only		2.8	%		2.2	%		2.6	%		2.3	%
Total SNF skilled mix		18.6	%		18.1	%		18.3	%		18.2	%

Medicare		14.7	%		14.8	%		14.6	%		14.8	%
Medicaid		60.9	%		61.5	%		61.1	%		61.6	%
Private and other		20.9	%		20.9	%		21.0	%		20.7	%
Managed care / commercial Insurance		2.6	%		2.0	%		2.4	%		2.1	%
Veterans		0.9	%		0.8	%		0.9	%		0.8	%


Payor Mix % based on patient days - Hospitals:
Medicare		65.9	%		71.7	%		66.3	%		70.2	%
Medicaid		7.7	%		6.8	%		7.3	%		8.3	%
Private and other		0.5	%		0.0	%		0.3	%		0.1	%
Managed care / commercial Insurance		25.9	%		21.5	%		26.1	%		21.4	%
Veterans		0.0	%		0.0	%		0.0	%		0.0	%


Payor Mix % based on patient days - Inpatient Services:
Medicare		15.0	%		15.1	%		14.9	%		15.1	%
Medicaid		60.6	%		61.2	%		60.9	%		61.4	%
Private and other		20.8	%		20.8	%		20.8	%		20.5	%
Managed care / commercial Insurance		2.7	%		2.1	%		2.5	%		2.2	%
Veterans		0.9	%		0.8	%		0.9	%		0.8	%



Revenue Mix % of revenues - LTC:
Medicare - SNF only		31.3	%		30.6	%		31.2	%		30.6	%
Managed care / commercial insurance - SNF only		4.3	%		3.4	%		4.1	%		3.3	%
Total SNF skilled mix		35.6	%		34.0	%		35.3	%		33.9	%

Medicare		29.9	%		29.3	%		29.8	%		29.3	%
Medicaid		47.6	%		48.8	%		47.8	%		48.8	%
Private and other		17.6	%		17.8	%		17.6	%		17.9	%
Managed care / commercial Insurance		4.1	%		3.2	%		3.9	%		3.1	%
Veterans		0.8	%		0.9	%		0.9	%		0.9	%


Revenue Mix % of revenues - Hospitals:
Medicare		69.0	%		72.2	%		65.8	%		72.7	%
Medicaid		6.7	%		5.3	%		6.1	%		6.5	%
Private and other		1.3	%		0.6	%		1.1	%		0.6	%
Managed care / commercial Insurance		23.0	%		21.9	%		27.0	%		20.2	%
Veterans		0.0	%		0.0	%		0.0	%		0.0	%

30 of 34

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,
	AS REPORTED			PRO FORMA WITH HARBORSIDE			PRO FORMA WITH HARBORSIDE			PRO FORMA WITH HARBORSIDE
	2007			2006			2007			2006

Revenue Mix % of revenues - Inpatient Services:
Medicare		31.6	%		31.0	%		31.4	%		31.0	%
Medicaid		46.0	%		47.2	%		46.2	%		47.2	%
Private and other		17.0	%		17.2	%		17.0	%		17.3	%
Managed care / commercial Insurance		4.6	%		3.8	%		4.6	%		3.7	%
Veterans		0.8	%		0.8	%		0.8	%		0.8	%



Revenues PPD - LTC:
Medicare (Part A)	$	381.76		$	354.24		$	380.95		$	354.24
Medicaid	$	159.37		$	153.31		$	159.03		$	152.56
Private and other	$	165.81		$	158.17		$	165.16		$	161.03
Managed care / commercial Insurance	$	316.90		$	306.14		$	333.63		$	287.30
Veterans	$	190.15		$	205.85		$	204.65		$	206.48


Revenues PPD - Hospitals:
Medicare (Part A)	$	1,189.30		$	1,187.23		$	1,182.65		$	1,204.44
Medicaid	$	1,016.75		$	958.26		$	1,025.39		$	953.14
Private and other	$	-		$	-		$	-		$	-
Managed care / commercial Insurance	$	1,035.26		$	1,239.80		$	1,259.26		$	1,139.32
Veterans	$	-		$	-		$	-		$	-


Revenues PPD - Inpatient Services:
Medicare (Part A)	$	407.87		$	377.96		$	406.08		$	378.08
Medicaid	$	159.93		$	153.73		$	159.71		$	153.07
Private and other	$	165.90		$	158.21		$	165.23		$	160.75
Managed care / commercial Insurance	$	354.27		$	356.01		$	384.00		$	330.83
Veterans	$	190.15		$	205.85		$	204.65		$	206.48




Revenues - Non-affiliated (in thousands):
Inpatient Services:
Medicare	$	125,715		$	116,299		$	247,581		$	231,183
Medicaid		183,145			177,016			364,810			351,810
Private and other		88,970			81,517			176,456			162,293
Subtotal		397,830			374,832			788,847			745,286

Rehabilitation Therapy Services		20,790			20,136			41,470			40,136
Medical Staffing Services		28,018			24,040			54,409			47,974
Subtotal		48,808			44,176			95,879			88,110

Other - non-core businesses		27			114			(649	)		230
Total	$	446,665		$	419,122		$	884,077		$	833,626




Rehab contracts:
Affiliated - continuing		86			89			86			89
Non-affiliated		293			300			293			300

DSO (Days Sales Outstanding):
Inpatient Services - LTC		41			40			41			40
Inpatient Services - Hospitals		75			50			75			50
Rehabilitation Therapy Services		74			83			74			83
Medical Staffing Services		54			58			54			58

31 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


	AS REPORTED - 2nd QUARTER 2007
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

As Reported 2nd QUARTER 2007		446,665		61,576			39,278			17,489			11,326			1,714			13,040
Percent of Revenue				13.8	%		8.8	%		3.9	%		2.5	%		0.4	%		2.9	%

Normalizing Adjustments:
Write-off of deferred financing costs		-		-			-			615			400			-			400
Release of insurance reserves related to prior periods		-		(5,956	)		(5,956	)		(5,956	)		(3,871	)		(1,979	)		(5,850	)
Harborside integration costs		-		865			865			865			562			-			562

Adjusted As Reported - 2nd QUARTER 2007		446,665		56,485			34,187			13,013			8,417			(265	)		8,152
Percent of Revenue				12.6	%		7.7	%		2.9	%		1.9	%		-0.1	%		1.8	%

Diluted EPS:
As Reported												$	0.26		$	0.04		$	0.30
As Adjusted												$	0.19		$	-		$	0.19




	AS REPORTED - 2nd QUARTER 2006
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

As Reported - 2nd QUARTER 2006		258,458		32,176			18,207			9,138			5,495			1,812			7,307
Percent of Revenue				12.4	%		7.0	%		3.5	%		2.1	%		0.7	%		2.8	%

Normalizing Adjustments:
Release of insurance reserves related to prior periods		-		(5,370	)		(5,370	)		(5,370	)		(5,102	)		(2,499	)		(7,601	)

Adjusted As Reported - 2nd QUARTER 2006		258,458		26,806			12,837			3,768			393			(687	)		(294	)
Percent of Revenue				10.4	%		5.0	%		1.5	%		0.2	%		-0.3	%		-0.1	%

Diluted EPS:
As Reported												$	0.17		$	0.06		$	0.23
As Adjusted												$	0.01		$	(0.02	)	$	(0.01	)




	PRO FORMA SUN & HARBORSIDE - 2nd QUARTER 2006
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

Pro Forma Sun & Harborside - 2nd QUARTER 2006		419,122		52,487			30,620			13,593			9,778			1,247			11,025
Percent of Revenue				12.5	%		7.3	%		3.2	%		2.3	%		0.3	%		2.6	%

Normalizing Adjustments:
Release of insurance reserves related to prior periods		-		(5,370	)		(5,370	)		(5,370	)		(5,102	)		(2,499	)		(7,601	)
Harborside investor fees		-		125			125			125			81			-			81

Adjusted Pro Forma Sun & Harborside - 2nd QUARTER 2006		419,122		47,242			25,375			8,348			4,757			(1,252	)		3,505
Percent of Revenue				11.3	%		6.1	%		2.0	%		1.1	%		-0.3	%		0.8	%

Diluted EPS:
Pro Forma												$	0.22		$	0.03		$	0.25
Adjusted Pro Forma												$	0.11		$	(0.03	)	$	0.08


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

Normalizing adjustments are transactions or adjustments not related to continuing operations including self-insurance reserve releases related to prior periods, non-recurring integration costs related to the Harborside acquisition, non-recurring expense related to the write-off of deferred financing costs associated with the refinancing of certain debt agreements, and non-recurring investor fees recorded by Harborside prior to the Sun acquisition. Since normalizing adjustments are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations and interpretations, the information presented herein may not be comparable to other similarly described information of other companies.

32 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


	AS REPORTED - SIX MONTHS 2007
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

As Reported - Six Months 2007		720,233		88,662			51,985			24,209			15,678			1,285			16,963
Percent of Revenue				12.3	%		7.2	%		3.4	%		2.2	%		0.2	%		2.4	%

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

Adjusted As Reported - Six Months 2007		720,233		83,720			47,043			19,882			12,866			(694	)		12,172
Percent of Revenue				11.6	%		6.5	%		2.8	%		1.8	%		-0.1	%		1.7	%

Diluted EPS:
As Reported												$	0.36		$	0.03		$	0.39
As Adjusted												$	0.29		$	(0.01	)	$	0.28




	AS REPORTED - SIX MONTHS 2006
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

As Reported - Six Months 2006		515,215		52,909			25,550			9,232			6,655			1,791			8,446
Percent of Revenue				10.3	%		5.0	%		1.8	%		1.3	%		0.3	%		1.6	%

Normalizing Adjustments:
Release of insurance reserves related to prior periods		-		(5,370	)		(5,370	)		(5,370	)		(5,102	)		(2,499	)		(7,600	)

Adjusted As Reported - Six Months 2006		515,215		47,539			20,180			3,862			1,553			(708	)		846
Percent of Revenue				9.2	%		3.9	%		0.7	%		0.3	%		-0.1	%		0.2	%

Diluted EPS:
As Reported												$	0.21		$	0.06		$	0.27
As Adjusted												$	0.05		$	(0.02	)	$	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 and six months ended June 30.

Normalizing adjustments are transactions or adjustments not related to continuing operations including self-insurance reserve releases related to prior periods, non-recurring integration costs related to the Harborside acquisition, and non-recurring expense related to the write-off of deferred financing costs associated with the refinancing of certain debt agreements. Since normalizing adjustments are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations and interpretations, the information presented herein may not be comparable to other similarly described information of other companies.

33 of 34

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


	PRO FORMA SUN & HARBORSIDE - SIX MONTHS 2007
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

Pro Forma Sun & Harborside - Six Months 2007		884,077		102,929			59,276			22,078			14,367			729			15,096
Percent of Revenue				11.6	%		6.7	%		2.5	%		1.6	%		0.1	%		1.7	%

Normalizing Adjustments:
Write-off of deferred financing costs		-		-			-			615			400			-			400
Release of insurance reserves related to prior periods		-		(5,956	)		(5,956	)		(5,956	)		(3,871	)		(1,979	)		(5,850	)
Harborside bad debt expense		-		5,860			5,860			5,860			3,809			-			3,809
Harborside integration costs		-		1,014			1,014			1,014			659			-			659
Harborside investor fees		-		275			275			275			179			-			179
Harborside merger costs		-		192			192			192			125			-			125

Adjusted Pro Forma Sun & Harborside - Six Months 2007		884,077		104,314			60,661			24,078			15,668			(1,250	)		14,418
Percent of Revenue				11.8	%		6.9	%		2.7	%		1.8	%		-0.1	%		1.6	%

Diluted EPS:
Pro Forma												$	0.33		$	0.01		$	0.34
Adjusted Pro Forma												$	0.36		$	(0.03	)	$	0.33




	PRO FORMA SUN & HARBORSIDE - SIX MONTHS 2006
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

Pro Forma Sun & Harborside - Six Months 2006		833,626		92,020			48,901			17,028			14,146			783			14,929
Percent of Revenue				11.0	%		5.9	%		2.0	%		1.7	%		0.1	%		1.8	%

Normalizing Adjustments:
Release of insurance reserves related to prior periods		-		(5,370	)		(5,370	)		(5,370	)		(5,102	)		(2,499	)		(7,601	)
Harborside investor fees		-		250			250			250			238			-			238

Adjusted Pro Forma Sun & Harborside - Six Months 2006		833,626		86,900			43,781			11,908			9,282			(1,716	)		7,566
Percent of Revenue				10.4	%		5.3	%		1.4	%		1.1	%		-0.2	%		0.9	%

Diluted EPS:
Pro Forma												$	0.32		$	0.02		$	0.34
Adjusted Pro Forma												$	0.21		$	(0.04	)	$	0.17

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

Normalizing adjustments are transactions or adjustments not related to continuing operations including self-insurance reserve releases related to prior periods, non-recurring integration costs related to the Harborside acquisition, non-recurring expense related to the write-off of deferred financing costs associated with the refinancing of certain debt agreements, and non-recurring investor fees and merger costs recorded by Harborside prior to the Sun acquisition. Since normalizing adjustments are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations and interpretations, the information presented herein may not be comparable to other similarly described information of other companies.

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