ex99-1.htm

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

CONDENSED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

EXHIBIT 99.1

Sun Healthcare Group, Inc.

Reports Third-Quarter Results;

Revises Guidance Upward

Contact: Investor Inquiries (505) 468-2341

Media Inquiries (505) 468-4582

Irvine, Calif. (Oct. 31, 2007) - Sun Healthcare Group, Inc. (NASDAQ GM: SUNH) today announced results for the third quarter ended Sept. 30, 2007.

Consolidated and Consolidated Pro Forma Results

Total net revenue for the quarter ended Sept. 30, 2007 was $439.6 million, up 74 percent compared to $252.8 million for the comparable period one year ago. Net income for the quarter ended Sept. 30, 2007 was $5.2 million, compared to a net loss of $1.2 million for the comparable 2006 period. Diluted earnings per share for the quarter ended Sept. 30, 2007 was $0.12, up significantly from the diluted loss per share of $0.04 for the comparable period one year ago. 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 July 1, 2006. The information in the table also contains the normalizing adjustments described below.

Normalized actual results for the quarter ended Sept. 30, 2007 include a pre-tax adjustment for $2.5 million of integration costs associated with the Harborside acquisition. Normalized actual results for the quarter ended

Sept. 30, 2006 include pre-tax adjustments consisting of a $0.8 million credit to workers compensation expense as a result of the finalization of insurance reserves related to a prior period acquisition, $0.2 million of retroactive wage costs related to prior period rate increases in California, a $1.0 million charge related to the termination of a hospice management contract and a $1.0 million depreciation charge as a result of finalization of property valuations associated with a prior period acquisition. Normalized pro forma results for the quarter ended Sept. 30, 2006 include the four 2006 adjustments referred to above and also include adjustments for $2.4 million of Harborside merger costs and $0.1 million of costs related to Harborside investor fees.

On a normalized pro forma basis, comparing the quarter ended Sept. 30, 2007, to the same period in 2006:

·	revenue increased $22.8 million, or 5.5 percent;

·	EBITDAR increased $8.4 million, or 18.3 percent;

·	EBITDAR margin improved 130 basis points to 12.3 percent;

·	EBITDA increased $9.6 million, or 37.2 percent;

·	EBITDA margin improved 180 basis points to 8.0 percent;

·	income from continuing operations increased $0.2 million, or 3.1 percent; and

·	net income increased $0.9 million, or 16.0 percent, increasing diluted earnings per share by $0.02.

Commenting on the results, Richard K. Matros, chairman and chief executive officer of Sun, stated, "We continue to be pleased with the company's performance. The integration of the Harborside acquisition proceeds as expected with $2.3 million in synergies for the quarter and $2.5 million in integration costs. Our margin expansion on a pro forma normalized basis is material at 130 basis points improvement in EBITDAR margin and 180 basis point improvement in EBITDA margin. The execution of the strategy of our inpatient segment to admit higher acuity patients continues to show the expected results as evidenced by our rate growth as well as in other metrics. It is important to note that the quality of care provided to patients of our operating subsidiaries continues to strengthen as supported by both internal and external measures."

Total net revenue for the nine-month period ended Sept. 30, 2007 was $1,136.8 million, up 52 percent compared to $746.5 million for the comparable 2006 period. Net income for the nine-month period ended Sept. 30, 2007 was $22.2 million compared to net income of $7.3 million for the comparable 2006 period, resulting in a 122-percent increase in diluted earnings per share to $0.51 from $0.23 one year ago. 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.

Normalized actual results for the first nine months of 2007 include pre-tax adjustments for $3.5 million of 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 a $0.6 million charge related to the write-off of deferred financing costs associated with a credit facility which was refinanced in April 2007. Normalized actual results for the first nine months of 2006 include pre-tax adjustments consisting of $8.0 million of income from adjustments of prior period self-insurance reserves ($2.6 million of which were related to discontinued operations), a $0.8 million credit to workers’ compensation expense as a result of the finalization of insurance reserves related to a prior period acquisition, $0.2 million of retroactive wage costs related to prior period rate increases in California, a $1.0 million charge related to the termination of a hospice management contract and a $1.0 million charge related to additional depreciation associated with a prior period acquisition.

Normalized pro forma results for the first nine months of 2007 include the three 2007 adjustments referred to above and also include 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. Normalized pro forma results for the first nine months of 2006 include the four 2006 adjustments referred to above and also include adjustments of $2.4 million for Harborside merger costs and $0.4 million for costs related to Harborside investor fees.

On a normalized pro forma basis, comparing the nine-month period ended Sept. 30, 2007, to the same period in 2006:

·	revenue increased $72.9 million, or 5.9 percent;

·	EBITDAR increased $26.5 million, or 20.7 percent;

·	EBITDAR margin improved 140 basis points to 11.9 percent;

·	EBITDA increased $27.5 million, or 41.1 percent;

·	EBITDA margin improved 180 basis points to 7.3 percent;

·	income from continuing operations increased $7.7 million or 57.7 percent, increasing diluted earnings per share from continuing operations by $0.18; and

·	net income increased $7.9 million, or 58.8 percent, increasing diluted earnings per share by $0.18.

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 nine months ended Sept. 30, 2007 to the same periods in 2006:

Quarter ended Sept. 30, 2007 (pro forma):

·	revenue increased $19.6 million, or 5.3 percent, to $391.8 million from $372.2 million;

·	net segment EBITDAR increased $4.5 million, or 7.5 percent, to $64.0 million from $59.6 million;

·	net segment EBITDAR margin for 2007 was 16.3 percent compared to 16.0 percent in 2006;

·	net segment EBITDA increased $5.7 million, or 14.3 percent, to $45.5 million from $39.8 million;

·	net segment EBITDA margin for 2007 was 11.6 percent compared to 10.7 percent in 2006;

·	net segment income increased $7.0 million, or 26.7 percent, to $33.4 million from $26.4 million;

·	rehabilitation RUGS utilization increased 200 basis points to 83.0 percent as a percent of total Medicare days; and

·	Rehabilitation Extensive Service Days as a percent of total Medicare days increased 300 basis points to 38.0 percent.

The revenue gain of $19.6 million in the quarter was primarily attributable to:

a $5.9 million increase in Medicare revenue, $4.2 million of which was contributed by our skilled nursing centers from rate increases which were partially offset by customer base declines, $1.1 million of increased revenue from our hospice operations due to a higher customer base and $0.6 million of increased part B revenue;

·	a $4.6 million increase in managed care/commercial insurance revenue due principally to a higher customer base;

·	a $3.4 million increase in Medicaid revenue resulting from a $7.2 million rate improvement partially offset by a $3.8 million impact from a decrease in customer base; and

·	a $5.7 million increase in private revenue due principally to improved rates.

Nine months ended Sept. 30, 2007 (pro forma):

·	revenue increased $62.7 million, or 5.7 percent, to $1,156.3 million from $1,093.6 million;

·	net segment EBITDAR increased $17.7 million, or 10.3 percent, to $189.8 million from $172.2 million;

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

·	net segment EBITDA increased $18.6 million, or 16.7 percent, to $130.4 million from $111.8 million;

·	net segment EBITDA margin for 2007 was 11.3 percent compared to 10.2 percent in 2006; and

·	net segment income increased $21.1 million, or 29.7 percent, to $92.2 million from $71.1 million.

Matros further stated, “The Company's inpatient segment had numerous highlights this quarter. Medicare part A rates increased 7.3 percent. Skilled mix as a percent of revenue increased 110 basis points. Our Rehab Recovery Suites continue to reflect a well executed strategy with increases in Medicare occupancy, RUGS extensive service and rehab days, as well as managed care/insurance days. Labor management was very strong with labor as a percent of revenue running 50 basis points lower than the third quarter of 2006. While we ran lighter than we would have liked on overall Medicare occupancy on a consolidated basis, we have rebounded nicely in October, with a 30 basis points increase in overall occupancy and a 40 basis points increase in Medicare occupancy over the third-quarter averages.”

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 nine months ended Sept. 30, 2007 to the same periods in 2006:

·	for the quarter, revenue increased $5.9 million, or 10.8 percent, to $60.2 million from $54.3 million;

·	for the quarter, EBITDA increased $0.8 million, or 22.9 percent, to $4.3 million from $3.5 million;

·	for the nine month period, revenue increased $16.2 million, or 10.0 percent, to $178.0 million from $161.8 million; and

·	for the nine month period, EBITDA increased $5.1 million, or 72.5 percent, to $12.1 million from $7.0 million.

Guidance Update

As a result of the strength of our operating results, we have raised our 2007 guidance as shown below, after taking into account the reclassification of three of our centers now held for sale as discontinued operations. The table below also shows the impact of the adjustment resulting from this reclassification to discontinued operations on our 2007 guidance announced in May. Our updated guidance assumes no changes in current reimbursement rates through the end of 2007.

Conference Call

Sun’s senior management will hold a conference call to discuss the Company’s 2007 third-quarter operating results on Thursday, Nov. 1, 2007, at 1 p.m. eastern / 10 a.m. pacific. 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 Nov. 1, 2007, until midnight eastern on Nov. 8, 2007, by calling (800) 642-1687 and using access code 19457722.

About Sun Healthcare Group, Inc.

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

Statements made in this release that are not historical facts are "forward-looking" statements (as defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties and are subject to change at any time. These forward-looking statements may include, but are not limited to, statements containing words such as "anticipate," "believe," "plan," "estimate,” "expect," "hope,” "intend," "may” and similar expressions. Factors that could cause actual results to differ are identified in the public filings made by the company with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements; our ability to maintain the occupancy rates and payor mix at our long-term care centers; potential liability for losses not covered by, or in excess of, our insurance; the effects of government regulations and investigations; our ability to generate cash flow sufficient to operate our business and pay interest on our indebtedness; 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/A and Quarterly Reports on Forms 10-Q/A and 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)


	September 30, 2007		December 31, 2006

ASSETS

Current assets:
Cash and cash equivalents	$	85,053	$	131,935
Restricted cash		40,318		32,752
Accounts receivable, net		184,458		117,091
Assets held for sale		12,487		7,173
Other current assets		17,462		10,323

Total current assets		339,778		299,274

Property and equipment, net		691,665		217,544
Restricted cash, non-current		6,873		29,083
Goodwill		225,764		55,092
Intangible assets, net		31,741		13,691
Other assets, net		7,115		6,739

Total assets	$	1,302,936	$	621,423


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	52,578	$	43,400
Accrued compensation and benefits		61,954		42,723
Accrued self-insurance obligations, current		46,772		48,689
Liabilities held for sale		4,038		1,672
Other accrued liabilities		88,507		42,535
Capital leases, current		832		494
Current portion of long-term debt:
Company obligations		26,778		22,780
Clipper partnerships		812		736

Total current liabilities		282,271		203,029

Accrued self-insurance obligations, net of current		112,622		81,559
Long-term debt, net of current portion:
Company obligations		644,792		100,763
Clipper partnerships		48,774		49,392
Other long-term liabilities		42,251		42,547

Total liabilities		1,130,710		477,290

Stockholders' equity		172,226		144,133
Total liabilities and stockholders' equity	$	1,302,936	$	621,423

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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
	September 30, 2007			September 30, 2006
	(unaudited)			(unaudited)

Total net revenues	$	439,570		$	252,777
Costs and expenses:
Operating salaries and benefits		250,063			146,023
Self-insurance for workers' compensation and general and professional liability insurance		16,028			11,772
Operating administrative costs		10,267			6,376
Other operating costs		91,199			50,993
Facility rent expense		18,832			13,337
General and administrative expenses		16,877			12,580
Depreciation		7,600			3,336
Amortization		2,451			1,605
Provision for losses on accounts receivable		3,455			2,270
Interest, net		14,841			4,697
Loss (gain) on sale of assets, net		12			(87	)
Loss on contract termination		-			975
Total costs and expenses		431,625			253,877

Income (loss) before income taxes and discontinued operations		7,945			(1,100	)
Income tax expense (benefit)		2,800			(169	)
Income (loss) from continuing operations		5,145			(931	)

Discontinued operations:
Loss from discontinued operations, net of related taxes		(578	)		(83	)
Gain (loss) on disposal of discontinued operations, net of related taxes		629			(180	)
Income (loss) from discontinued operations, net		51			(263	)

Net income (loss)	$	5,196		$	(1,194	)


Basic income per common and common equivalent share:
Income (loss) from continuing operations	$	0.12		$	(0.03	)
Loss from discontinued operations, net		-			(0.01	)
Net income (loss)	$	0.12		$	(0.04	)

Diluted income per common and common equivalent share:
Income (loss) from continuing operations	$	0.12		$	(0.03	)
Loss from discontinued operations, net		-			(0.01	)
Net Income (loss)	$	0.12		$	(0.04	)

Weighted average number of common and common equivalent shares outstanding:
Basic		43,114			31,345
Diluted		44,266			31,345

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SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

	For the		For the
	Nine Months Ended		Nine Months Ended
	September 30, 2007		September 30, 2006
	(unaudited)		(unaudited)

Total net revenues	$	1,136,758	$	746,461
Costs and expenses:
Operating salaries and benefits		646,692		431,812
Self-insurance for workers' compensation and general and professional liability insurance		34,505		28,965
Operating administrative costs		28,353		21,007
Other operating costs		234,411		151,172
Center rent expense		53,280		38,813
General and administrative expenses		47,008		36,354
Depreciation		17,232		6,923
Amortization		6,411		4,574
Provision for losses on accounts receivable		9,059		5,818
Interest, net		28,901		14,140
Loss on extinguishment of debt, net		19		-
Loss on sale of assets, net		23		156
Loss on contract termination		-		975
Total costs and expenses		1,105,894		740,709

Income before income taxes and discontinued operations		30,864		5,752
Income tax expense		11,331		2,408
Income from continuing operations		19,533		3,344

Discontinued operations:
Income from discontinued operations, net of related taxes		1,999		4,284
Gain (loss) on disposal of discontinued operations, net of related taxes		626		(375	)
Income from discontinued operations, net		2,625		3,909

Net income	$	22,158	$	7,253


Basic income per common and common equivalent share:
Income from continuing operations	$	0.46	$	0.11
Income from discontinued operations, net		0.07		0.12
Net income	$	0.53	$	0.23

Diluted income per common and common equivalent share:
Income from continuing operations	$	0.45	$	0.11
Income from discontinued operations, net		0.06		0.12
Net Income	$	0.51	$	0.23

Weighted average number of common and common equivalent shares outstanding:
Basic		42,072		31,252
Diluted		43,068		31,338

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

Cash flows from operating activities:
Net income	$	5,196		$	(1,194	)
Adjustments to reconcile net income to net cash provided by (used for)
operating activities, including discontinued operations:
Depreciation		7,654			3,582
Amortization		2,482			1,796
Amortization of favorable and unfavorable lease intangibles		(193	)		(376	)
Provision for losses on accounts receivable		3,520			2,823
(Gain) loss on disposal of discontinued operations, net		(629	)		180
Loss on sale of assets, net		12			(87	)
Restricted stock and stock option compensation		990			732
Other, net		(479	)		(15	)
Changes in operating assets and liabilities, net of acquisitions		7,110			5,459
Net cash provided by operating activities		25,663			12,900

Cash flows from investing activities:
Capital expenditures, net		(8,372	)		(5,458	)
Exercise of real estate purchase option		(2,984	)		-
Proceeds from sale of assets held for sale		500			942
Acquisitions, net		7,432			(3,120	)
Insurance proceeds received		-			150
Net cash used for investing activities		(3,424	)		(7,486	)

Cash flows from financing activities:
Net borrowings under Revolving Credit Facility		(15,000	)		(1,486	)
Long-term debt borrowings		-			-
Long-term debt repayments		(6,568	)		(2,655	)
Principal payments under capital lease obligation		(271	)		(819	)
Net proceeds from exercise of employee stock options		116			320
Net cash provided by financing activities		(21,723	)		(4,640	)

Net (decrease) increase in cash and cash equivalents		516			774
Cash and cash equivalents at beginning of period		84,537			15,957
Cash and cash equivalents at end of period	$	85,053		$	16,731

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SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	For the			For the
	Nine Months Ended			Nine Months Ended
	September 30, 2007			September 30, 2006
	(unaudited)			(unaudited)

Cash flows from operating activities:
Net income	$	22,158		$	7,253
Adjustments to reconcile net income to net cash provided by (used for)
operating activities, including discontinued operations:
Depreciation		17,393			7,645
Amortization		6,508			5,153
Amortization of favorable and unfavorable lease intangibles		(602	)		(1,134	)
Provision for losses on accounts receivable		9,780			7,215
Loss on disposal of discontinued operations, net		(626	)		375
Loss on sale of assets, net		23			156
Minority interest		50			-
Restricted stock and stock option compensation		2,684			1,739
Other, net		(590	)		15
Changes in operating assets and liabilities, net of acquisitions		21,219			(25,126	)
Net cash provided by operating activities		77,997			3,291

Cash flows from investing activities:
Capital expenditures, net		(23,327	)		(14,083	)
Exercise of real estate purchase option		(33,220	)		-
Proceeds from sale of assets held for sale		5,989			942
Acquisitions, net		(361,083	)		(3,356	)
Accrued acquisition costs, net		3,585			-
Insurance proceeds received		-			150
Proceeds from sale/leaseback		-			838
Net cash used for investing activities		(408,056	)		(15,509	)

Cash flows from financing activities:
Net borrowings under Revolving Credit Facility		(9,994	)		24,368
Long-term debt borrowings		327,000			11,636
Long-term debt repayments		(40,708	)		(23,219	)
Principal payments under capital lease obligation		(929	)		(853	)
Net proceeds from exercise of employee stock options		781			499
Distribution of partnership equity		(511	)		(123	)
Release of third-party collateral		25,640			-
Distribution of equity		(57	)		-
Deferred financing costs		(18,045	)		-
Net cash provided by financing activities		283,177			12,308

Net (decrease) increase in cash and cash equivalents		(46,882	)		90
Cash and cash equivalents at beginning of period		131,935			16,641
Cash and cash equivalents at end of period	$	85,053		$	16,731

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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
	September 30, 2007		September 30, 2006
	(unaudited)		(unaudited)

Total net revenues	$	439,570	$	252,777

Net income (loss)	$	5,196	$	(1,194	)

Income (loss) from continuing operations		5,145		(931	)

Income tax expense (benefit)		2,800		(169	)

Loss (gain) on sale of assets, net		12		(87	)

Loss on contract termination		-		975

Net segment income	$	7,957	$	(212	)

Interest, net		14,841		4,697

Depreciation and amortization		10,051		4,941

EBITDA	$	32,849	$	9,426

Center rent expense		18,832		13,337

EBITDAR	$	51,681	$	22,763

Operating administrative costs		10,267		6,376
General and administrative expenses		16,877		12,580
Total operating and general and admin expenses		27,144		18,956

EBITDAM	$	59,993	$	28,382
EBITDARM	$	78,825	$	41,719

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.

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SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

	For the		For the
	Nine Months Ended		Nine Months Ended
	September 30, 2007		September 30, 2006
	(unaudited)		(unaudited)

Total net revenues	$	1,136,758	$	746,461

Net income	$	22,158	$	7,253

Income from continuing operations		19,533		3,344

Income tax expense		11,331		2,408

Loss on sale of assets, net		23		156

Loss on contract termination		-		975

Net segment income	$	30,887	$	6,883

Interest, net		28,901		14,140

Depreciation and amortization		23,643		11,497

EBITDA	$	83,431	$	32,520

Center rent expense		53,280		38,813

EBITDAR	$	136,711	$	71,333

Operating administrative costs		28,353		21,007
General and administrative expenses		47,008		36,354
Total operating and general and admin expenses		75,361		57,361

EBITDAM	$	158,792	$	89,881
EBITDARM	$	212,072	$	128,694

7 of 32

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 September 30, 2007
(unaudited)


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

Nonaffiliated revenue	$	391,760		$	20,579		$	27,197		$	34		$	-		$	439,570

Affiliated revenue		-			11,300			1,084			-			(12,384	)		-

Total revenue		391,760			31,879			28,281			34			(12,384	)		439,570

Net segment income (loss)	$	33,418		$	1,697		$	2,319		$	(29,477	)	$	-		$	7,957

Interest, net		3,144			-			(1	)		11,698			-			14,841

Depreciation and amortization		8,929			132			189			801			-			10,051

EBITDA	$	45,491		$	1,829		$	2,507		$	(16,978	)	$	-		$	32,849

Center rent expense		18,557			51			224			-			-			18,832

EBITDAR	$	64,048		$	1,880		$	2,731		$	(16,978	)	$	-		$	51,681

Operating and general and administrative expenses		8,662			1,172			432			16,878			-			27,144

EBITDAM	$	54,153		$	3,001		$	2,939		$	(100	)	$	-		$	59,993
EBITDARM	$	72,710		$	3,052		$	3,163		$	(100	)	$	-		$	78,825


EBITDA margin		11.6	%		5.7	%		8.9	%								7.5	%

EBITDAM margin		13.8	%		9.4	%		10.4	%								13.6	%

EBITDAR margin		16.3	%		5.9	%		9.7	%								11.8	%

EBITDARM margin		18.6	%		9.6	%		11.2	%								17.9	%

8 of 32

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

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


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

Nonaffiliated revenue	$	211,231		$	20,224		$	21,305		$	17		$	-		$	252,777

Affiliated revenue		-			9,726			322			-			(10,048	)		-

Total revenue		211,231			29,950			21,627			17			(10,048	)		252,777

Net segment income (loss)	$	11,204		$	1,434		$	1,731		$	(14,581	)	$	-		$	(212	)

Interest, net		3,251			(1	)		39			1,408			-			4,697

Depreciation and amortization		4,148			91			190			512			-			4,941

EBITDA	$	18,603		$	1,524		$	1,960		$	(12,661	)	$	-		$	9,426

Center rent expense		13,089			57			191			-			-			13,337

EBITDAR	$	31,692		$	1,581		$	2,151		$	(12,661	)	$	-		$	22,763

Operating and general and administrative expenses		4,600			1,204			572			12,580			-			18,956

EBITDAM	$	23,203		$	2,728		$	2,532		$	(81	)	$	-		$	28,382
EBITDARM	$	36,292		$	2,785		$	2,723		$	(81	)	$	-		$	41,719


EBITDA margin		8.8	%		5.1	%		9.1	%								3.7	%

EBITDAM margin		11.0	%		9.1	%		11.7	%								11.2	%

EBITDAR margin		15.0	%		5.3	%		9.9	%								9.0	%

EBITDARM margin		17.2	%		9.3	%		12.6	%								16.5	%

9 of 32

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

For the Nine Months Ended September 30, 2007
(unaudited)

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

Nonaffiliated revenue	$	995,680		$	62,048		$	78,962		$	68		$	-		$	1,136,758

Affiliated revenue		-			31,894			2,472			-			(34,366	)		-

Total revenue		995,680			93,942			81,434			68			(34,366	)		1,136,758

Net segment income (loss)	$	89,731		$	5,405		$	5,789		$	(70,038	)	$	-		$	30,887

Interest, net		8,120			10			13			20,758			-			28,901

Depreciation and amortization		20,739			382			553			1,969			-			23,643

EBITDA	$	118,590		$	5,797		$	6,355		$	(47,311	)	$	-		$	83,431

Center rent expense		52,472			154			653			1			-			53,280

EBITDAR	$	171,062		$	5,951		$	7,008		$	(47,310	)	$	-		$	136,711

Operating and general and administrative expenses		22,425			3,674			2,252			47,010			-			75,361

EBITDAM	$	141,015		$	9,471		$	8,607		$	(301	)	$	-		$	158,792
EBITDARM	$	193,487		$	9,625		$	9,260		$	(300	)	$	-		$	212,072


EBITDA margin		11.9	%		6.2	%		7.8	%								7.3	%

EBITDAM margin		14.2	%		10.1	%		10.6	%								14.0	%

EBITDAR margin		17.2	%		6.3	%		8.6	%								12.0	%

EBITDARM margin		19.4	%		10.2	%		11.4	%								18.7	%

10 of 32

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

For the Nine Months Ended September 30, 2006
(unaudited)

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

Nonaffiliated revenue	$	622,032		$	60,360		$	64,047		$	22		$	-		$	746,461

Affiliated revenue		-			28,723			752			-			(29,475	)		-

Total revenue		622,032			89,083			64,799			22			(29,475	)		746,461

Net segment income (loss)	$	42,525		$	1,534		$	4,530		$	(41,706	)	$	-		$	6,883

Interest, net		10,229			(9	)		113			3,807			-			14,140

Depreciation and amortization		9,349			270			564			1,314			-			11,497

EBITDA	$	62,103		$	1,795		$	5,207		$	(36,585	)	$	-		$	32,520

Center rent expense		38,037			165			611			-			-			38,813

EBITDAR	$	100,140		$	1,960		$	5,818		$	(36,585	)	$	-		$	71,333

Operating and general and administrative expenses		13,772			5,035			2,201			36,353			-			57,361

EBITDAM	$	75,875		$	6,830		$	7,408		$	(232	)	$	-		$	89,881
EBITDARM	$	113,912		$	6,995		$	8,019		$	(232	)	$	-		$	128,694


EBITDA margin		10.0	%		2.0	%		8.0	%								4.4	%

EBITDAM margin		12.2	%		7.7	%		11.4	%								12.0	%

EBITDAR margin		16.1	%		2.2	%		9.0	%								9.6	%

EBITDARM margin		18.3	%		7.9	%		12.4	%								17.2	%

11 of 32

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 September 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	$	226,232		$	-		$	226,232		$	-		$	226,232		$	165,528	$	391,760

Net segment income (loss)	$	24,145		$	(6,749	)	$	17,396		$	(356	)	$	17,040		$	16,378		33,418

Interest, net		1,728			-			1,728			842			2,570			574		3,144

Depreciation and amortization		2,529			-			2,529			388			2,917			6,012		8,929

EBITDA	$	28,402		$	(6,749	)	$	21,653		$	874		$	22,527		$	22,964	$	45,491

Center rent expense		13,949			-			13,949			(741	)		13,208			5,349		18,557

EBITDAR	$	42,351		$	(6,749	)	$	35,602		$	133		$	35,735		$	28,313	$	64,048

EBITDA margin		12.6	%					9.6	%					10.0	%				11.6	%

EBITDAR margin		18.7	%					15.7	%					15.8	%				16.3	%

(1)

Clipper represents our interest of 15.5 percent at September 30 ,2007 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 32

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 September 30, 2006
(unaudited)

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

Non affiliated revenues	$	211,231		$	-		$	211,231		$	-		$	211,231

Net segment income (loss)	$	16,302		$	(4,629	)	$	11,673		$	(469	)	$	11,204

Interest, net		2,278			-			2,278			973			3,251

Depreciation and amortization		3,797			-			3,797			351			4,148

EBITDA	$	22,377		$	(4,629	)	$	17,748		$	855		$	18,603

Center rent expense		13,971			-			13,971			(882	)	$	13,089

EBITDAR	$	36,348		$	(4,629	)	$	31,719		$	(27	)	$	31,692

EBITDA margin		10.6	%					8.4	%					8.8	%

EBITDAR margin		17.2	%					15.0	%					15.0	%

(1)

Clipper represents our interest of 11.5 percent at September 30 ,2006 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.

13 of 32

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

For the Nine Months Ended September 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	$	666,523		$	-		$	666,523		$	-		$	666,523		$	329,157	$	995,680

Net segment income (loss)	$	76,403		$	(18,243	)	$	58,160		$	(1,213	)	$	56,947		$	32,784		89,731

Interest, net		5,128			-			5,128			2,322			7,450			670		8,120

Depreciation and amortization		8,251			-			8,251			1,156			9,407			11,332		20,739

EBITDA	$	89,782		$	(18,243	)	$	71,539		$	2,265		$	73,804		$	44,786	$	118,590

Center rent expense		41,368			-			41,368			(1,907	)		39,461			13,011		52,472

EBITDAR	$	131,150		$	(18,243	)	$	112,907		$	358		$	113,265		$	57,797	$	171,062

EBITDA margin		13.5	%					10.7	%					11.1	%				11.9	%

EBITDAR margin		19.7	%					16.9	%					17.0	%				17.2	%

(1)

14 of 32

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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

For the Nine Months Ended September 30, 2006
(unaudited)

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

Non affiliated revenues	$	622,032		$	-		$	622,032		$	-		$	622,032

Net segment income (loss)	$	57,814		$	(13,907	)	$	43,907		$	(1,382	)	$	42,525

Interest, net		7,295			-			7,295			2,934			10,229

Depreciation and amortization		8,336			-			8,336			1,013			9,349

EBITDA	$	73,445		$	(13,907	)	$	59,538		$	2,565		$	62,103

Center rent expense		40,672			-			40,672			(2,635	)	$	38,037

EBITDAR	$	114,117		$	(13,907	)	$	100,210		$	(70	)	$	100,140

EBITDA margin		11.8	%					9.6	%					10.0	%

EBITDAR margin		18.3	%					16.1	%					16.1	%

(1)

15 of 32

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

	For the						For the
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Long Term Care Stats
Number of centers:		213			138			213			138
Number of available beds:		23,190			14,473			23,190			14,473
Occupancy %:		89.3	%		88.4	%		89.3	%		88.2	%



Inpatient Services Stats
Payor Mix % based on patient days:
Medicare - SNF Beds		15.2	%		15.3	%		15.8	%		15.8	%
Managed care / commercial insurance - SNF Beds		3.1	%		2.1	%		2.9	%		2.3	%
Total SNF skilled mix		18.3	%		17.4	%		18.7	%		18.1	%

Medicare		13.7	%		13.1	%		14.1	%		13.6	%
Medicaid		61.0	%		61.0	%		60.6	%		60.8	%
Private and other		21.6	%		23.1	%		21.8	%		22.7	%
Managed care / commercial Insurance		2.8	%		1.8	%		2.6	%		1.9	%
Veterans		0.9	%		1.0	%		0.9	%		1.0	%


Revenue Mix % of revenues:
Medicare - SNF beds		30.2	%		31.1	%		31.5	%		31.8	%
Managed care / commercial insurance - SNF Beds		5.7	%		4.7	%		5.6	%		4.7	%
Total SNF skilled mix		35.9	%		35.8	%		37.1	%		36.5	%

Medicare		28.9	%		28.5	%		29.8	%		29.1	%
Medicaid		48.0	%		48.6	%		47.3	%		47.9	%
Private and other		17.9	%		18.8	%		17.8	%		18.9	%
Managed care / commercial Insurance		4.3	%		3.1	%		4.2	%		3.1	%
Veterans		0.9	%		1.0	%		0.9	%		1.0	%


Revenues PPD:
LTC only Medicare (Part A)	$	391.30		$	346.71		$	382.14		$	342.07
Medicare Blended Rate (Part A & B)	$	424.86		$	382.23		$	415.47		$	374.42
Medicaid	$	163.41		$	144.07		$	158.45		$	142.08
Private and other	$	166.88		$	140.14		$	161.52		$	141.21
Managed care / commercial Insurance	$	319.45		$	308.89		$	320.37		$	286.13
Veterans	$	208.07		$	194.53		$	200.95		$	188.36



Revenues - Non-affiliated (in thousands)
Inpatient Services:
Medicare	$	113,058		$	60,243		$	296,344		$	180,966
Medicaid		188,153			102,559			471,323			298,262
Private and other		90,549			48,429			228,013			142,804
Subtotal		391,760			211,231			995,680			622,032

Rehabilitation Therapy Services		20,579			20,224			62,048			60,360
Medical Staffing Services		27,197			21,305			78,962			64,047
Subtotal		47,776			41,529			141,010			124,407

Other - non-core businesses		34			17			68			22
Total	$	439,570		$	252,777		$	1,136,758		$	746,461



Rehab contracts
Affiliated - continuing		103			88			103			88
Non-affiliated		309			298			309			298



DSO (Days Sales Outstanding)
Inpatient Services - LTC		40			36			40			36
Rehabilitation Therapy Services		77			83			77			83
Medical Staffing Services		56			55			56			55

16 of 32

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
	September 30, 2007			September 30, 2006
	(unaudited)			(unaudited)

Total net revenues	$	439,570		$	416,724
Costs and expenses:
Operating salaries and benefits		250,063			236,459
Self-insurance for workers' compensation and general and professional liability insurance		16,028			15,668
Operating administrative costs		10,267			8,674
Other operating costs		91,199			87,571
Center rent expense		18,832			20,049
General and administrative expenses		16,877			20,273
Depreciation		7,600			7,643
Amortization		2,451			1,619
Provision for losses on accounts receivable		3,455			4,183
Interest, net		14,841			8,670
Loss (gain) on sale of assets, net		12			(86	)
Loss on contract termination		-			975
Total costs and expenses		431,625			411,698

Income before income taxes and discontinued operations		7,945			5,026
Income tax expense		2,800			1,637
Income from continuing operations		5,145			3,389

Discontinued operations:
Loss from discontinued operations, net of related taxes		(578	)		(505	)
Gain (loss) on disposal of discontinued operations, net of related taxes		629			(180	)
Income (loss) from discontinued operations, net		51			(685	)

Net income	$	5,196		$	2,704


Basic income per common and common equivalent share:
Income from continuing operations	$	0.12		$	0.08
Loss from discontinued operations, net		-			(0.02	)
Net income	$	0.12		$	0.06

Diluted income per common and common equivalent share:
Income from continuing operations	$	0.12		$	0.08
Loss from discontinued operations, net		-			(0.02	)
Net Income	$	0.12		$	0.06

Weighted average number of common and common equivalent shares outstanding:
Basic		43,114			43,114
Diluted		44,266			44,266

17 of 32

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
	Nine Months Ended		Nine Months Ended
	September 30, 2007		September 30, 2006
	(unaudited)		(unaudited)

Total net revenues	$	1,299,325	$	1,226,473
Costs and expenses:
Operating salaries and benefits		735,825		699,072
Self-insurance for workers' compensation and general and professional liability insurance		38,601		41,977
Operating administrative costs		31,345		27,398
Other operating costs		273,208		260,519
Center rent expense		60,233		61,240
General and administrative expenses		52,405		54,637
Depreciation		21,984		19,988
Amortization		6,412		4,573
Provision for losses on accounts receivable		16,982		11,373
Interest, net		33,546		24,871
Loss on extinguishment of debt, net		19		-
Loss on sale of assets, net		22		155
Loss on contract termination		-		975
Total costs and expenses		1,270,582		1,206,778

Income before income taxes and discontinued operations		28,743		19,695
Income tax expense		10,511		4,519
Income from continuing operations		18,232		15,176

Discontinued operations:
Income from discontinued operations, net of related taxes		1,434		2,833
Gain (loss) on disposal of discontinued operations, net of related taxes		626		(375	)
Income from discontinued operations, net		2,060		2,458

Net income	$	20,292	$	17,634


Basic income per common and common equivalent share:
Income from continuing operations	$	0.43	$	0.36
Income from discontinued operations, net		0.05		0.06
Net income	$	0.48	$	0.42

Diluted income per common and common equivalent share:
Income from continuing operations	$	0.42	$	0.35
Income from discontinued operations, net		0.05		0.06
Net Income	$	0.47	$	0.41

Weighted average number of common and common equivalent shares outstanding:
Basic		42,072		42,072
Diluted		43,068		43,068

18 of 32

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
	September 30, 2007		September 30, 2006
	(unaudited)		(unaudited)

Total net revenues	$	439,570	$	416,724

Net income	$	5,196	$	2,704

Income from continuing operations		5,145		3,389

Income tax expense		2,800		1,637

Loss (gain) on sale of assets, net		12		(86	)

Loss on contract termination		-		975

Net segment income	$	7,957	$	5,915

Interest, net		14,841		8,670

Depreciation and amortization		10,051		9,262

EBITDA	$	32,849	$	23,847

Center rent expense		18,832		20,049

EBITDAR	$	51,681	$	43,896

Operating administrative costs		10,267		8,674

General and administrative expenses		16,877		20,273

Total operating and general and admin expenses		27,144		28,947

EBITDAM	$	59,993	$	52,794

EBITDARM	$	78,825	$	72,843

19 of 32

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
	Nine Months Ended		Nine Months Ended
	September 30, 2007		September 30, 2006
	(unaudited)		(unaudited)

Total net revenues	$	1,299,325	$	1,226,473

Net income	$	20,292	$	17,634

Income from continuing operations		18,232		15,176

Income tax expense		10,511		4,519

Loss on sale of assets, net		22		155

Loss on contract termination		-		975

Net segment income	$	28,765	$	20,825

Interest, net		33,546		24,871

Depreciation and amortization		28,396		24,561

EBITDA	$	90,707	$	70,257

Center rent expense		60,233		61,240

EBITDAR	$	150,940	$	131,497

Operating administrative costs		31,345		27,398

General and administrative expenses		52,405		54,637

Total operating and general and admin expenses		83,750		82,035

EBITDAM	$	174,457	$	152,292

EBITDARM	$	234,690	$	213,532

20 of 32

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 September 30, 2007
(unaudited)

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

Nonaffiliated revenue	$	391,760		$	20,579		$	27,197		$	34		$	-		$	439,570

Affiliated revenue		-			11,300			1,084			-			(12,384	)		-

Total revenue		391,760			31,879			28,281			34			(12,384	)		439,570

Net segment income (loss)	$	33,418		$	1,697		$	2,319		$	(29,477	)	$	-		$	7,957

Interest, net		3,144			-			(1	)		11,698			-			14,841

Depreciation and amortization		8,929			132			189			801			-			10,051

EBITDA	$	45,491		$	1,829		$	2,507		$	(16,978	)	$	-		$	32,849

Center rent expense		18,557			51			224			-			-			18,832

EBITDAR	$	64,048		$	1,880		$	2,731		$	(16,978	)	$	-		$	51,681

Operating and general and administrative expenses		8,662			1,172			432			16,878			-			27,144

EBITDAM	$	54,153		$	3,001		$	2,939		$	(100	)	$	-		$	59,993
EBITDARM	$	72,710		$	3,052		$	3,163		$	(100	)	$	-		$	78,825


EBITDA margin		11.6	%		5.7	%		8.9	%								7.5	%

EBITDAM margin		13.8	%		9.4	%		10.4	%								13.6	%

EBITDAR margin		16.3	%		5.9	%		9.7	%								11.8	%

EBITDARM margin		18.6	%		9.6	%		11.2	%								17.9	%

21 of 32

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 September 30, 2006
(unaudited)

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

Nonaffiliated revenue	$	372,158		$	20,224		$	24,011		$	331		$	-		$	416,724

Affiliated revenue		-			9,725			323			-			(10,048	)		-

Total revenue		372,158			29,949			24,334			331			(10,048	)		416,724

Net segment income (loss)	$	24,956		$	1,434		$	1,762		$	(22,237	)	$	-		$	5,915

Interest, net		7,223			(1	)		38			1,410			-			8,670

Depreciation and amortization		8,206			91			203			762			-			9,262

EBITDA	$	40,385		$	1,524		$	2,003		$	(20,065	)	$	-		$	23,847

Center rent expense		19,775			57			217			-			-			20,049

EBITDAR	$	60,160		$	1,581		$	2,220		$	(20,065	)	$	-		$	43,896

Operating and general and administrative expenses		6,888			1,204			572			20,283			-			28,947

EBITDAM	$	47,273		$	2,728		$	2,575		$	218		$	-		$	52,794
EBITDARM	$	67,048		$	2,785		$	2,792		$	218		$	-		$	72,843


EBITDA margin		10.9	%		5.1	%		8.2	%								5.7	%

EBITDAM margin		12.7	%		9.1	%		10.6	%								12.7	%

EBITDAR margin		16.2	%		5.3	%		9.1	%								10.5	%

EBITDARM margin		18.0	%		9.3	%		11.5	%								17.5	%

22 of 32

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 Nine Months Ended September 30, 2007
(unaudited)

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

Nonaffiliated revenue	$	1,156,286		$	62,048		$	81,605		$	68		$	(682	)	$	1,299,325

Affiliated revenue		-			31,894			2,473			-			(34,367	)		-

Total revenue		1,156,286			93,942			84,078			68			(35,049	)		1,299,325

Net segment income (loss)	$	98,168		$	5,405		$	5,723		$	(81,344	)	$	813		$	28,765

Interest, net		13,047			10			12			20,463			14			33,546

Depreciation and amortization		25,168			382			568			2,278			-			28,396

EBITDA	$	136,383		$	5,797		$	6,303		$	(58,603	)	$	827		$	90,707

Center rent expense		59,400			154			678			1			-			60,233

EBITDAR	$	195,783		$	5,951		$	6,981		$	(58,602	)	$	827		$	150,940

Operating and general and administrative expenses		19,558			3,674			2,252			58,266			-			83,750

EBITDAM	$	155,941		$	9,471		$	8,555		$	(337	)	$	827		$	174,457
EBITDARM	$	215,341		$	9,625		$	9,233		$	(336	)	$	827		$	234,690


EBITDA margin		11.8	%		6.2	%		7.5	%								7.0	%

EBITDAM margin		13.5	%		10.1	%		10.2	%								13.4	%

EBITDAR margin		16.9	%		6.3	%		8.3	%								11.6	%

EBITDARM margin		18.6	%		10.2	%		11.0	%								18.1	%

23 of 32

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 Nine Months Ended September 30, 2006
(unaudited)


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

Nonaffiliated revenue	$	1,093,567		$	60,360		$	71,986		$	560		$	-		$	1,226,473

Affiliated revenue		-			28,723			752			-			(29,475	)		-

Total revenue		1,093,567			89,083			72,738			560			(29,475	)		1,226,473

Net segment income (loss)	$	75,052		$	1,534		$	4,506		$	(60,267	)	$	-		$	20,825

Interest, net		21,369			(9	)		109			3,402			-			24,871

Depreciation and amortization		21,327			270			604			2,360			-			24,561

EBITDA	$	117,748		$	1,795		$	5,219		$	(54,505	)	$	-		$	70,257

Center rent expense		60,386			165			689			-			-			61,240

EBITDAR	$	178,134		$	1,960		$	5,908		$	(54,505	)	$	-		$	131,497

Operating and general and administrative expenses		20,031			5,035			2,201			54,768			-			82,035

EBITDAM	$	137,779		$	6,830		$	7,420		$	263		$	-		$	152,292
EBITDARM	$	198,165		$	6,995		$	8,109		$	263		$	-		$	213,532


EBITDA margin		10.8	%		2.0	%		7.2	%								5.7	%

EBITDAM margin		12.6	%		7.7	%		10.2	%								12.4	%

EBITDAR margin		16.3	%		2.2	%		8.1	%								10.7	%

EBITDARM margin		18.1	%		7.9	%		11.1	%								17.4	%

24 of 32

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 September 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	$	226,232		$	-		$	226,232		$	-		$	226,232		$	165,528	$	391,760

Net segment income (loss)	$	24,145		$	(6,749	)	$	17,396		$	(356	)	$	17,040		$	16,378		33,418

Interest, net		1,728			-			1,728			842			2,570			574		3,144

Depreciation and amortization		2,529			-			2,529			388			2,917			6,012		8,929

EBITDA	$	28,402		$	(6,749	)	$	21,653		$	874		$	22,527		$	22,964	$	45,491

Center rent expense		13,949			-			13,949			(741	)		13,208			5,349		18,557

EBITDAR	$	42,351		$	(6,749	)	$	35,602		$	133		$	35,735		$	28,313	$	64,048

EBITDA margin		12.6	%					9.6	%					10.0	%				11.6	%

EBITDAR margin		18.7	%					15.7	%					15.8	%				16.3	%

(1)

25 of 32

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 September 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	$	211,231		$	-		$	211,231		$	-		$	211,231		$	160,927	$	372,158

Net segment income (loss)	$	16,302		$	(4,629	)	$	11,673		$	(469	)	$	11,204		$	13,752	$	24,956

Interest, net		2,278			-			2,278			973			3,251			3,972		7,223

Depreciation and amortization		3,797			-			3,797			351			4,148			4,058		8,206

EBITDA	$	22,377		$	(4,629	)	$	17,748		$	855		$	18,603		$	21,782	$	40,385

Center rent expense		13,971			-			13,971			(882	)		13,089			6,686		19,775

EBITDAR	$	36,348		$	(4,629	)	$	31,719		$	(27	)	$	31,692		$	28,468	$	60,160

EBITDA margin		10.6	%					8.4	%					8.8	%				10.9	%

EBITDAR margin		17.2	%					15.0	%					15.0	%				16.2	%

(1)

26 of 32

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 Nine Months Ended September 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	$	666,523		$	-		$	666,523		$	-		$	666,523		$	489,763	$	1,156,286

Net segment income (loss)	$	76,403		$	(18,243	)	$	58,160		$	(1,213	)	$	56,947		$	41,221	$	98,168

Interest, net		5,128			-			5,128			2,322			7,450			5,597		13,047

Depreciation and amortization		8,251			-			8,251			1,156			9,407			15,761		25,168

EBITDA	$	89,782		$	(18,243	)	$	71,539		$	2,265		$	73,804		$	62,579	$	136,383

Center rent expense		41,368			-			41,368			(1,907	)		39,461			19,939		59,400

EBITDAR	$	131,150		$	(18,243	)	$	112,907		$	358		$	113,265		$	82,518	$	195,783

EBITDA margin		13.5	%					10.7	%					11.1	%				11.8	%

EBITDAR margin		19.7	%					16.9	%					17.0	%				16.9	%

(1)

27 of 32

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 Nine Months Ended September 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	$	622,032		$	-		$	622,032		$	-		$	622,032		$	471,535	$	1,093,567

Net segment income (loss)	$	57,814		$	(13,907	)	$	43,907		$	(1,382	)	$	42,525		$	32,527	$	75,052

Interest, net		7,295			-			7,295			2,934			10,229			11,140		21,369

Depreciation and amortization		8,336			-			8,336			1,013			9,349			11,978		21,327

EBITDA	$	73,445		$	(13,907	)	$	59,538		$	2,565		$	62,103		$	55,645	$	117,748

Center rent expense		40,672			-			40,672			(2,635	)		38,037			22,349		60,386

EBITDAR	$	114,117		$	(13,907	)	$	100,210		$	(70	)	$	100,140		$	77,994	$	178,134

EBITDA margin		11.8	%					9.6	%					10.0	%				10.8	%

EBITDAR margin		18.3	%					16.1	%					16.1	%				16.3	%

(1)

28 of 32

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

	For the						For the
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	AS REPORTED			PRO FORMA WITH HARBORSIDE			PRO FORMA WITH HARBORSIDE			PRO FORMA WITH HARBORSIDE
	2007			2006			2007			2006
Long Term Care Stats
Number of centers:		213			213			213			213
Number of available beds:		23,190			23,210			23,190			23,210
Occupancy %:		89.3	%		89.7	%		89.5	%		89.5	%



Inpatient Services Stats
Payor Mix % based on patient days:
Medicare - SNF Beds		15.2	%		15.5	%		15.9	%		15.9	%
Managed care / commercial insurance - SNF Beds		3.1	%		2.3	%		2.9	%		2.3	%
Total SNF skilled mix		18.3	%		17.8	%		18.8	%		18.2	%

Medicare		13.7	%		14.0	%		14.3	%		14.6	%
Medicaid		61.0	%		61.9	%		61.0	%		61.6	%
Private and other		21.6	%		21.2	%		21.3	%		20.9	%
Managed care / commercial Insurance		2.8	%		2.1	%		2.5	%		2.1	%
Veterans		0.9	%		0.8	%		0.9	%		0.8	%


Revenue Mix % of revenues:
Medicare - SNF Beds		30.2	%		30.3	%		31.4	%		31.1	%
Managed care / commercial insurance - SNF Beds		5.7	%		4.5	%		5.4	%		4.4	%
Total SNF skilled mix		35.9	%		34.8	%		36.8	%		35.5	%

Medicare		28.9	%		28.8	%		29.9	%		29.4	%
Medicaid		48.0	%		49.7	%		47.6	%		48.8	%
Private and other		17.9	%		17.3	%		17.5	%		17.7	%
Managed care / commercial Insurance		4.3	%		3.3	%		4.1	%		3.2	%
Veterans		0.9	%		0.9	%		0.9	%		0.9	%


Revenues PPD:
LTC only Medicare (Part A)	$	391.30		$	364.51		$	385.02		$	358.40
Medicare Blended Rate (Part A & B)	$	424.86		$	394.88		$	417.49		$	385.98
Medicaid	$	163.41		$	157.29		$	160.64		$	154.17
Private and other	$	166.88		$	155.77		$	165.73		$	159.02
Managed care / commercial Insurance	$	319.45		$	307.94		$	330.88		$	296.17
Veterans	$	208.07		$	213.65		$	205.87		$	208.72



Revenues - Non-affiliated (in thousands)
Inpatient Services:
Medicare	$	113,058		$	107,117		$	345,586		$	322,038
Medicaid		188,153			184,800			549,900			533,630
Private and other		90,549			80,241			260,800			237,899
Subtotal		391,760			372,158			1,156,286			1,093,567

Rehabilitation Therapy Services		20,579			20,224			62,048			60,360
Medical Staffing Services		27,197			24,011			81,605			71,986
Subtotal		47,776			44,235			143,653			132,346

Other - non-core businesses		34			331			(614	)		560
Total	$	439,570		$	416,724		$	1,299,325		$	1,226,473



Rehab contracts
Affiliated - continuing		103			88			103			88
Non-affiliated		309			298			309			298



DSO (Days Sales Outstanding)
Inpatient Services - LTC		40			40			40			40
Rehabilitation Therapy Services		77			83			77			83
Medical Staffing Services		56			56			56			56

29 of 32

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

NORMALIZING ADJUSTMENTS - 3rd QUARTER COMPARISON

(in thousands, except per share data)


	AS REPORTED - 3rd QUARTER 2007
	Revenue	EBITDAR	EBITDA	Pre-tax	Income from Continuing Operations	Disc Ops	Net Income

As Reported 3rd QUARTER 2007	439,570	51,681	32,849	7,945	5,145	51	5,196
Percent of Revenue		11.8%	7.5%	1.8%	1.2%	0.0%	1.2%

Normalizing Adjustments:
Harborside integration costs	-	2,475	2,475	2,475	1,609	-	1,609

Adjusted As Reported - 3rd QUARTER 2007	439,570	54,156	35,324	10,420	6,754	51	6,805
Percent of Revenue		12.3%	8.0%	2.4%	1.5%	0.0%	1.5%

As Reported					$ 0.12	$ -	$ 0.12
As Adjusted					$ 0.15	$ -	$ 0.15




	AS REPORTED - 3rd QUARTER 2006
	Revenue	EBITDAR	EBITDA	Pre-tax	Income from Continuing Operations	Disc Ops	Net Income

As Reported - 3rd QUARTER 2006	252,777	22,763	9,426	(1,100)	(931)	(263)	(1,194)
Percent of Revenue		9.0%	3.7%	-0.4%	-0.4%	-0.1%	-0.5%

Normalizing Adjustments:
Retroactive wage costs associated with rate increase	-	185	185	185	176	-	176
Peak workers comp valuation recovery	-	(777)	(777)	(777)	(740)	-	(740)
Peak depreciation catch up	-	-	-	1,041	992	-	992
Hospice mgmt contract termination	-	-	-	975	929	-	929

Adjusted As Reported - 3rd QUARTER 2006	252,777	22,171	8,834	324	426	(263)	163
Percent of Revenue		8.8%	3.5%	0.1%	0.2%	-0.1%	0.1%

As Reported					$ (0.03)	$ (0.01)	$ (0.04)
As Adjusted					$ 0.01	$ -	$ 0.01



	PRO FORMA SUN & HARBORSIDE - 3rd QUARTER 2006
	Revenue	EBITDAR	EBITDA	Pre-tax	Income from Continuing Operations	Disc Ops	Net Income

Pro Forma Sun & Harborside - 3rd QUARTER 2006	416,724	43,896	23,847	5,026	3,389	(685)	2,704
Percent of Revenue		10.5%	5.7%	1.2%	0.8%	-0.2%	0.6%

Normalizing Adjustments:
Retroactive wage costs associated with rate increase	-	185	185	185	176	-	176
Peak workers comp valuation recovery	-	(777)	(777)	(777)	(740)	-	(740)
Peak depreciation catch up	-	-	-	1,041	992	-	992
Hospice mgmt contract termination	-	-	-	975	929	-	929
Harborside investor fees	-	125	125	125	91	-	91
Harborside merger costs	-	2,360	2,360	2,360	1,713	-	1,713

Adjusted Pro Forma Sun & Harborside - 3rd QUARTER 2006	416,724	45,789	25,740	8,935	6,550	(685)	5,865
Percent of Revenue		11.0%	6.2%	2.1%	1.6%	-0.2%	1.4%

Pro Forma					$ 0.08	$ (0.02)	$ 0.06
Adjusted Pro Forma					$ 0.15	$ (0.02)	$ 0.13

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 nine months September June 30.

Normalizing adjustments are transactions or adjustments not related to continuing operations including integration costs related to the Harborside acquisition, expense for retroactive wage costs associated with prior period rate increases, a credit to prior period workers compensation expense as a result of the finalization of insurance reserves related to a prior period acquisition, a depreciation charge related to the finalization of the valuation of owned property, plant and equipment associated with a prior period acquisition, a charge resulting from the termination of a management fee contract and investor fees and merger costs recorded by Harborside prior to the acquisition. Since normalizing adjustments are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations and interpretations, the information presented herein may not be comparable to other similarly described information of other companies.

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SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

NORMALIZING ADJUSTMENTS - YEAR TO DATE COMPARISON

(in thousands, except per share data)


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

As Reported - Nine Months 2007	1,136,758	136,711	83,431	30,864	19,533	2,625	22,158
Percent of Revenue		12.0%	7.3%	2.7%	1.7%	0.2%	1.9%

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	-	3,490	3,490	3,490	2,269	-	2,269

Adjusted As Reported - Nine Months 2007	1,136,758	134,245	80,965	29,013	18,331	646	18,977
Percent of Revenue		11.8%	7.1%	2.6%	1.6%	0.1%	1.7%

As Reported					$ 0.45	$ 0.06	$ 0.51
As Adjusted					$ 0.43	$ 0.01	$ 0.44




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

As Reported - Nine Months 2006	746,461	71,333	32,520	5,752	3,344	3,909	7,253
Percent of Revenue		9.6%	4.4%	0.8%	0.4%	0.5%	1.0%

Normalizing Adjustments:
Release of insurance reserves related to prior periods	-	(5,370)	(5,370)	(5,370)	(5,115)	(2,499)	(7,614)
Retroactive wage costs associated with rate increase	-	185	185	185	176	-	176
Peak valuation workers comp recovery	-	(777)	(777)	(777)	(740)	-	(740)
Hospice management contract termination	-	-	-	1,041	992	-	992
Peak depreciation catch up	-	-	-	975	929	-	929

Adjusted As Reported - Nine Months 2006	746,461	65,371	26,558	1,806	(414)	1,410	996
Percent of Revenue		8.8%	3.6%	0.2%	-0.1%	0.2%	0.1%


As Reported					$ 0.11	$ 0.12	$ 0.23
As Adjusted					$ (0.01)	$ 0.04	$ 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 nine months ended September 30.

Normalizing adjustments are transactions or adjustments not related to continuing operations including expense related to the write-off of deferred financing costs associated with the refinancing a credit agreement, self-insurance reserve releases related to prior periods, integration costs related to the Harborside acquisition, expense for retroactive wage costs associated with prior period rate increases, a credit to prior period workers compensation expense as a result of the finalization of insurance reserves related to a prior period acquisition, a charge resulting from the termination of a management fee contract and a depreciation charge related to the finalization of the valuation of owned property, plant and equipment associated with a prior period 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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SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

NORMALIZING ADJUSTMENTS - YEAR TO DATE COMPARISON

(in thousands, except per share data)


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

Pro Forma Sun & Harborside - Nine Months 2007	1,299,325	150,940	90,707	28,743	18,232	2,060	20,292
Percent of Revenue		11.6%	7.0%	2.2%	1.4%	0.2%	1.6%

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	-	3,490	3,490	3,490	2,269	-	2,269
Harborside investor fees	-	275	275	275	179	-	179
Harborside merger costs	-	192	192	192	125	-	125

Adjusted Pro Forma Sun & Harborside - Nine Months 2007	1,299,325	154,801	94,568	33,219	21,143	81	21,224
Percent of Revenue		11.9%	7.3%	2.6%	1.6%	0.0%	1.6%

Pro Forma					$ 0.42	$ 0.05	$ 0.47
Adjusted Pro Forma					$ 0.49	$ -	$ 0.49




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

Pro Forma Sun & Harborside - Nine Months 2006	1,226,473	131,497	70,257	19,695	15,176	2,458	17,634
Percent of Revenue		10.7%	5.7%	1.6%	1.2%	0.2%	1.4%

Normalizing Adjustments:
Release of insurance reserves related to prior periods	-	(5,370)	(5,370)	(5,370)	(5,115)	(2,499)	(7,614)
Harborside merger costs	-	2,360	2,360	2,360	1,713	-	1,713
Retroactive wage costs associated with rate increase	-	185	185	185	176	-	176
Peak valuation workers comp recovery	-	(777)	(777)	(777)	(740)	-	(740)
Hospice management contract termination	-	-	-	1,041	992	-	992
Peak depreciation catch up	-	-	-	975	929	-	929
Harborside investor fees	-	375	375	375	273	-	273

Adjusted Pro Forma Sun & Harborside - Nine Months 2006	1,226,473	128,270	67,030	18,484	13,404	(41)	13,363
Percent of Revenue		10.5%	5.5%	1.5%	1.1%	0.0%	1.1%

Pro Forma					$ 0.35	$ 0.06	$ 0.41
Adjusted Pro Forma					$ 0.31	$ -	$ 0.31

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 nine months ended September 30.

Normalizing adjustments are transactions or adjustments not related to continuing operations including expense related to the write-off of deferred financing costs associated with the refinancing of a credit agreement, integration costs related to the Harborside acquisition, expense for retroactive wage costs associated with prior period rate increases, self-insurance reserve releases related to prior periods, a credit to prior period workers compensation expense as a result of the finalization of insurance reserves related to a prior period acquisition, a depreciation charge related to the finalization of the valuation of owned property, plant and equipment associated with a prior period acquisition, a charge resulting from the termination of a management fee contract and investor fees and merger costs recorded by Harborside prior to the acquisition. Since normalizing adjustments are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations and interpretations, the information presented herein may not be comparable to other similarly described information of other companies.

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