8-K

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):         April 30, 2008

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))

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Item 2.02.  Results of Operations and Financial Condition

     On April 30, 2008, Sun Healthcare Group, Inc. issued the press release furnished herewith as Exhibit 99.1 reporting the results of operations for the quarter ended March 31, 2008.

Item 9.01.  Financial Statements and Exhibits

99.1 Press Release dated April 30, 2008.

2

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/ Jeffrey M. Kreger                                     

Name:  Jeffrey M. Kreger

Title:  Vice President and Corporate Controller

Dated:  April 30, 2008

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EX-99.1

EXHIBIT 99.1

Sun Healthcare Group, Inc.

Reports First Quarter Results; Strongest Margins to Date

Contact: Investor Inquiries (505) 468-2341

Media Inquiries (505) 468-4582

      Irvine, Calif. (April 30, 2008) - Sun Healthcare Group, Inc. (NASDAQ GS: SUNH) today announced results for the first quarter ended March 31, 2008.

Consolidated Results and Consolidated Pro Forma Results

      Total net revenue for the quarter ended March 31, 2008, was $458.2 million, up 74 percent compared to $262.6 million

for the same period one year ago. Net income for the quarter ended March 31, 2008, was $8.6 million, compared to net income of $3.9 million for the same period one year ago. Diluted earnings per share for the quarter ended March 31, 2008, was $0.19 ($0.21 normalized) compared to $0.09 ($0.14 normalized pro forma) for the same 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 Jan. 1, 2007. The table also contains the normalizing adjustments described in the text below.

	Actual Results
(Dollars in thousands)	Quarter Ended March 31,						Pro Forma
	2008			2007			2007
Revenue	$	458,242		$	262,576		$	425,143
Depreciation and amortization		9,709			3,876			8,628
Interest expense, net		14,431			2,062			6,706
Pre-tax income		14,128			5,921			3,799
Income tax expense		5,654			2,368			1,548
Income (loss) from continuing operations		8,474			3,553			2,251
Income (loss) from discontinued operations		103			370			(195	)
Net income (loss)	$	8,577		$	3,923		$	2,056
Diluted earnings per share	$	0.19		$	0.09		$	0.05
EBITDAR	$	56,995		$	25,296		$	39,524
Margin - EBITDAR		12.4	%		9.6	%		9.3	%
EBITDAR normalized	$	58,464		$	25,445		$	46,000
Margin - EBITDAR normalized		12.8	%		9.7	%		10.8	%
EBITDA	$	38,191		$	11,867		$	19,141
Margin - EBITDA		8.3	%		4.5	%		4.5	%
EBITDA normalized	$	39,660		$	12,016		$	25,617
Margin - EBITDA normalized		8.7	%		4.6	%		6.0	%
Pre-tax income continuing operations - normalized	$	15,597		$	6,070		$	10,275
Income tax expense - normalized	$	6,242		$	2,420		$	3,814
Income from continuing operations - normalized	$	9,355		$	3,650		$	6,461
Diluted earnings per share - normalized	$	0.21		$	0.08		$	0.15
Net income - normalized	$	9,458		$	4,020		$	6,266
Diluted earnings per share - normalized	$	0.21		$	0.09		$	0.14

      Normalized actual results for the quarter ended March 31, 2008, include pre-tax adjustments for a $1.5 million charge related to integration costs associated with the Harborside acquisition. Normalized pro forma results for the quarter ended March 31, 2007, include pre-tax adjustments totaling $6.5 million which were primarily related to a bad debt charge recorded by Harborside prior to the acquisition.

On a normalized pro forma basis, comparing the quarter ended March 31, 2008, to the same period in 2007:

·   revenue increased $33.1 million, or 7.8 percent;

·   EBITDAR increased $12.5 million, or 27.1 percent;

·   EBITDAR margin improved 200 basis points to 12.8 percent;

·   EBITDA increased $14.0 million, or 54.8 percent;

·   EBITDA margin improved 270 basis points to 8.7 percent;

·   pre-tax income from continuing operations increased $5.3 million, or 51.8 percent;

·   our effective tax rate increased 290 basis points to 40.0 percent; and

·   income from continuing operations increased $2.9 million, or 44.8 percent.

Commenting on the results, Richard K. Matros, chairman and chief executive officer of Sun, stated, “I am pleased with the continued strength of our operating results, particularly our ability to improve margins on a same store basis.  Our margins are the strongest we’ve experienced to date, with normalized EBITDAR margins up 200 basis points to 12.8 percent and EBITDA margins up 270 basis points to 8.7 percent, resulting in normalized EPS for the quarter of $0.21, up 44.8 percent. These results were driven by our ongoing success in the execution of initiatives focused on providing care for patients with higher acuity, as well as the ongoing integration activities related to the Harborside acquisition.  Throughout the quarter, these integration activities yielded $4.4 million in synergies, bringing our total synergies resulting from the acquisition of Harborside to $10.8 million. We expect to hit the high end of our $12 to $15 million in synergies by year end 2008.”

Inpatient Business

For its core inpatient business, on a normalized pro-forma basis (assuming the Harborside acquisition occurred at the beginning of 2007) comparing the quarter ended March 31, 2008, to the same period in 2007:

Quarter ended March 31, 2008 (pro forma):

·   revenue increased $28.1 million, or 7.4 percent, to $406.8 million from $378.7 million;

·   net segment EBITDAR increased $10.4 million, or 17.5 percent, to $69.9 million from $59.5 million;

·   net segment EBITDAR margin for 2008 was 17.2 percent compared to 15.7 percent in 2007;

·   net segment EBITDA increased $12.0 million, or 30.5 percent, to $51.4 million from $39.4 million;

·   net segment EBITDA margin for 2008 was 12.6 percent compared to 10.4 percent in 2007;

·   net segment income increased $15.0 million, or 61.5 percent, to $39.4 million from $24.4 million;

·   rehabilitation RUGS utilization increased 110 basis points to 84.2 percent as a percent of total Medicare days; and

·   Rehabilitation Extensive Service (“REX”) Days as a percent of total Medicare days increased 200 basis points to 40.6 percent.

    The revenue gain of $28.1 million in the quarter was primarily attributed to a:

·   $14.2 million increase in Medicare revenue due principally to Medicare customer base, part A rate growth, and part B volume growth;

·   $7.7 million increase in managed care/commercial insurance revenue due principally to an increased customer base;

·   $2.9 million increase in Medicaid revenue resulting from an $8.1 million rate improvement partially offset by a $5.2 million impact from a decrease in customer base; and

·   $3.3 million increase in private revenue due principally to improved rates.

Matros further stated, “The shift in acuity in our skilled nursing beds continues to yield positive results for the company with the current quarter showing our strongest Medicare and skilled mix to date at 16.6 percent and 20.4 percent, respectively. The company had 38 Rehab Recovery SuitesSM open at the end of the quarter. We expect to have a minimum of 50 open by the end of 2008. In terms of other critical initiatives, the company has rolled out its new clinical systems. This roll-out was the result of a side-by-side analysis of Sun’s and Harborside’s systems, upgrading to a system that blends the best of both companies. Our inpatient operations will be further enhanced by the implementation of an electronic medical record system, which will be a major IT initiative beginning in the latter part of this year.”  Matros continued, “It is our firm belief that these initiatives will improve the clinical outcomes for our patients and residents, which is the right way to improve returns to all our stakeholders.”

Ancillary Businesses

For its ancillary businesses, on a pro-forma basis (assuming the Harborside acquisition occurred at the beginning of 2007) comparing the quarter ended March 31, 2008, to the same period in 2007:

·   revenue increased $8.7 million, or 15.1 percent, to $66.2 million from $57.5 million; and

·   EBITDA increased $1.3 million, or 41.9 percent, to $4.4 million from $3.1 million.

Conference Call

      Sun’s senior management will hold a conference call to discuss the Company’s 2008 first-quarter operating results on Thursday, May 1, 2008, at 10 a.m. Pacific / 1 p.m. Eastern. To listen to the conference call, dial (866) 288-0540 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on May 1, 2008, until midnight Eastern on May 15, 2008, by calling (888) 203-1112 and using access code 3387483.

About Sun Healthcare Group, Inc.

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

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

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

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

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

# # #

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
	March 31, 2008			December 31, 2007
ASSETS
Current assets:
Cash and cash equivalents	$	62,882		$	55,832
Restricted cash		37,926			37,365
Accounts receivable, net		201,082			188,882
Other receivables, net		1,256			1,635
Prepaid expenses and other assets		16,206			11,655
Assets held for sale		10,727			9,924
Deferred tax asset		36,579			35,354
Total current assets		366,658			340,647
Property and equipment, net		583,090			585,972
Intangible assets, net		55,347			57,044
Goodwill		324,277			324,277
Restricted cash, non-current		3,263			3,829
Deferred tax assets		48,838			51,892
Other assets		6,475			10,165
Total assets	$	1,387,948		$	1,373,826
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	51,246		$	52,836
Accrued compensation and benefits		63,070			61,956
Accrued self-insurance obligations, current		51,365			48,646
Income taxes payable		3,480			3,000
Liabilities held for sale		3,411			3,181
Other accrued liabilities		64,500			58,002
Current portion of long-term debt and capital lease obligations:
Company obligations		30,979			28,480
Clipper partnerships		845			825
Total current liabilities		268,896			256,926
Accrued self-insurance obligations, net of current portion		105,766			106,534
Long-term debt and capital lease obligations, net of current portion:
Company obligations		646,120			651,403
Clipper partnerships		48,336			48,560
Unfavorable lease obligations, net		18,148			18,960
Other long-term liabilities		45,725			44,717
Total liabilities		1,132,991			1,127,100
Minority interest		577			470
Stockholders' equity:
Preferred stock of $.01 par value, authorized 10,000,000 shares,       no shares were issued and outstanding as of March 31, 2008       and December 31, 2007		-			-
Common stock of $.01 par value, authorized 125,000,000 shares,       43,022,398 and 43,016,042 shares issued and outstanding       as of March 31, 2008 and December 31, 2007, respectively		430			430
Additional paid-in capital		601,467			600,199
Accumulated deficit		(343,393	)		(351,970	)
Accunulated other comprehensive loss, net		(4,124	)		(2,403	)
		254,380			246,256
Total liabilities and stockholders' equity	$	1,387,948		$	1,373,826

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SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED
INCOME STATEMENTS
(in thousands, except per share data)
	For the			For the
	Three Months Ended			Three Months Ended
	March 31, 2008			March 31, 2007
	(unaudited)			(unaudited)
Total net revenues	$	458,242		$	262,576
Costs and expenses:
Operating salaries and benefits		258,737			152,275
Self-insurance for workers' compensation and       general and professional liability insurance		15,202			10,289
Operating administrative costs		11,939			7,591
Other operating costs		95,420			52,145
Center rent expense		18,804			13,429
General and administrative expenses		16,586			12,832
Depreciation and amortization		9,709			3,876
Provision for losses on accounts receivable		3,363			2,148
Interest, net of interest income of $545 and $1,186, respectively		14,431			2,062
(Gain) loss on sale of assets, net		(77	)		8
Total costs and expenses		444,114			256,655
Income before income taxes and discontinued operations		14,128			5,921
Income tax expense		5,654			2,368
Income from continuing operations		8,474			3,553
Discontinued operations:
Income from discontinued operations, net of related taxes		165			720
Loss on disposal of discontinued operations, net of related taxes		(62	)		(350	)
Income from discontinued operations, net		103			370
Net income	$	8,577		$	3,923
Basic income per common and common equivalent share:
Income from continuing operations	$	0.20		$	0.08
Income from discontinued operations, net		-			0.01
Net income	$	0.20		$	0.09
Diluted income per common and common equivalent share:
Income from continuing operations	$	0.19		$	0.08
Income from discontinued operations, net		-			0.01
Net Income	$	0.19		$	0.09
Weighted average number of common and     common equivalent shares outstanding:
Basic		43,067			42,908
Diluted		44,474			44,029

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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
	March 31, 2008			March 31, 2007
	(unaudited)			(unaudited)
Cash flows from operating activities:
Net income	$	8,577		$	3,923
Adjustments to reconcile net income to net cash provided by
operating activities, including discontinued operations:
Depreciation and amortization		9,717			3,956
Amortization of favorable and unfavorable lease intangibles		(503	)		(213	)
Provision for losses on accounts receivable		3,301			2,523
(Gain) loss on sale of assets, including discontinued operations, net		(15	)		357
Stock-based compensation expense		965			750
Deferred taxes		1,829			-
Minority interest		107			-
Other		-			2
Changes in operating assets and liabilities:
Accounts receivable		(15,501	)		(2,050	)
Other receivables		368			537
Restricted cash		5			721
Prepaid expenses and other assets		(5,702	)		(6,558	)
Assets and liabilities held for sale		(528	)		-
Accounts payable		(1,598	)		(3,925	)
Accrued compensation and benefits		1,114			(1,666	)
Accrued self-insurance obligations		1,951			(846	)
Income taxes payable		470			2,426
Other accrued liabilities		6,528			1,230
Other long-term liabilities		1,679			404
Net cash provided by operating activities		12,764			1,571
Cash flows from investing activities:
Capital expenditures		(5,916	)		(7,250	)
Proceeds from sale of assets held for sale		3,777			3,238
Acquisitions		(307	)		-
Net cash used for investing activities		(2,446	)		(4,012	)
Cash flows from financing activities:
Net borrowings under Credit Agreement		-			6
Long-term debt repayments		(2,820	)		(29,607	)
Principal payments under capital lease obligations		(264	)		(540	)
Proceeds from issuance of common stock		39			573
Distribution of partnership equity		(223	)		(256	)
Net cash used for financing activities		(3,268	)		(29,824	)
Net increase (decrease) in cash and cash equivalents		7,050			(32,265	)
Cash and cash equivalents at beginning of period		55,832			131,935
Cash and cash equivalents at end of period	$	62,882		$	99,670

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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
	March 31, 2008			March 31, 2007
	(unaudited)			(unaudited)
Total net revenues	$	458,242		$	262,576
Net income	$	8,577		$	3,923
Income from continuing operations		8,474			3,553
Income tax expense		5,654			2,368
(Gain) loss on sale of assets, net		(77	)		8
Net segment income	$	14,051		$	5,929
Interest, net		14,431			2,062
Depreciation and amortization		9,709			3,876
EBITDA	$	38,191		$	11,867
Center rent expense		18,804			13,429
EBITDAR	$	56,995		$	25,296
Operating administrative costs		11,939			7,591
General and administrative expenses		16,586			12,832
Total operating and general and admin expenses		28,525			20,423
EBITDAM	$	66,716		$	32,290
EBITDARM	$	85,520		$	45,719

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 SEGMENT INCOME (LOSS) TO EBITDA(M) and EBITDAR(M)
($ in thousands)
For the Three Months Ended March 31, 2008
(unaudited)
	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated
Nonaffiliated revenue	$	406,853		$	21,710		$	29,668		$	11		$	-		$	458,242
Affiliated revenue		-			14,291			533			-			(14,824	)		-
Total revenue		406,853			36,001			30,201			11			(14,824	)		458,242
Net segment income (loss)	$	38,481		$	2,128		$	1,932		$	(28,490	)	$	-		$	14,051
Interest, net		3,318			-			(1	)		11,114			-			14,431
Depreciation and amortization		8,701			126			195			687			-			9,709
EBITDA	$	50,500		$	2,254		$	2,126		$	(16,689	)	$	-		$	38,191
Center rent expense		18,470			86			248			-			-			18,804
EBITDAR	$	68,970		$	2,340		$	2,374		$	(16,689	)	$	-		$	56,995
Operating and general and   administrative expenses		9,512			1,617			811			16,585			-			28,525
EBITDAM	$	60,012		$	3,871		$	2,937		$	(104	)	$	-		$	66,716
EBITDARM	$	78,482		$	3,957		$	3,185		$	(104	)	$	-		$	85,520
EBITDA margin		12.4	%		6.3	%		7.0	%								8.3	%
EBITDAM margin		14.8	%		10.8	%		9.7	%								14.6	%
EBITDAR margin		17.0	%		6.5	%		7.9	%								12.4	%
EBITDARM margin		19.3	%		11.0	%		10.5	%								18.7	%

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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 March 31, 2007
(unaudited)
	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated
Nonaffiliated revenue	$	218,142		$	20,680		$	23,747		$	7		$	-		$	262,576
Affiliated revenue		-			10,262			187			-			(10,449	)		-
Total revenue		218,142			30,942			23,934			7			(10,449	)		262,576
Net segment income (loss)	$	16,011		$	1,427		$	1,413		$	(12,922	)	$	-		$	5,929
Interest, net		2,483			10			15			(446	)		-			2,062
Depreciation and amortization		3,155			116			169			436			-			3,876
EBITDA	$	21,649		$	1,553		$	1,597		$	(12,932	)	$	-		$	11,867
Center rent expense		13,180			50			199			-			-			13,429
EBITDAR	$	34,829		$	1,603		$	1,796		$	(12,932	)	$	-		$	25,296
Operating and general and   administrative expenses		5,306			1,257			1,026			12,834			-			20,423
EBITDAM	$	26,955		$	2,810		$	2,623		$	(98	)	$	-		$	32,290
EBITDARM	$	40,135		$	2,860		$	2,822		$	(98	)	$	-		$	45,719
EBITDA margin		9.9	%		5.0	%		6.7	%								4.5	%
EBITDAM margin		12.4	%		9.1	%		11.0	%								12.3	%
EBITDAR margin		16.0	%		5.2	%		7.5	%								9.6	%
EBITDARM margin		18.4	%		9.2	%		11.8	%								17.4	%

6 of 17

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 March 31, 2008
(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	$	237,582		$	-		$	237,582		$	-		$	237,582		$	169,271	$	406,853
Net segment income (loss)	$	28,133		$	(7,783	)	$	20,350		$	(304	)	$	20,046		$	18,435		38,481
Interest, net		1,590			-			1,590			830			2,420			898		3,318
Depreciation and amortization		3,763			-			3,763			316			4,079			4,622		8,701
EBITDA	$	33,486		$	(7,783	)	$	25,703		$	842		$	26,545		$	23,955	$	50,500
Center rent expense		14,505			-			14,505			(733	)		13,772			4,698		18,470
EBITDAR	$	47,991		$	(7,783	)	$	40,208		$	109		$	40,317		$	28,653	$	68,970
EBITDA margin		14.1	%					10.8	%					11.2	%				12.4	%
EBITDAR margin		20.2	%					16.9	%					17.0	%				17.0	%

(1)   Clipper represents our interest of 34.0 percent at March 31, 2008 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.

7 of 17

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 March 31, 2007
(unaudited)
	Inpatient Services			Inpatient Services - Overhead			Inpatient Services before Clipper			Clipper (1)			Total  Inpatient Services
Non affiliated revenues	$	218,142		$	-		$	218,142		$	-		$	218,142
Net segment income (loss)	$	21,638		$	(5,157	)	$	16,481		$	(470	)	$	16,011
Interest, net		1,848			-			1,848			635			2,483
Depreciation and amortization		2,774			-			2,774			381			3,155
EBITDA	$	26,260		$	(5,157	)	$	21,103		$	546		$	21,649
Center rent expense		13,605			-			13,605			(425	)	$	13,180
EBITDAR	$	39,865		$	(5,157	)	$	34,708		$	121		$	34,829
EBITDA margin		12.0	%					9.7	%					9.9	%
EBITDAR margin		18.3	%					15.9	%					16.0	%

(1)   Clipper represents our interest of 15.5 percent at March 31 ,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.

8 of 17

Sun Healthcare Group, Inc. and Subsidiaries
Selected Operating Statistics
Continuing Operations
	For the
	Three Months Ended
	March 31,
	2008					2007
Consolidated Company
Revenues - Non-affiliated (in thousands)
Inpatient Services		406,853					218,142
Rehabilitation Therapy Services		21,710					20,680
Medical Staffing Services		29,668					23,747
Other - non-core businesses		11					7
Total	$	458,242				$	262,576
Revenue Mix - Non-affiliated (in thousands)
Medicare		131,639		29	%		67,189		26	%
Medicaid		182,623		40	%		101,650		39	%
Private & Other		117,750		25	%		82,621		31	%
Managed Care / Comm Insur		22,607		5	%		8,706		3	%
Veterans		3,623		1	%		2,410		1	%
Total	$	458,242		100	%	$	262,576		100	%
DSO (Days Sales Outstanding)
Inpatient Services - LTC		42					36
Rehabilitation Therapy Services		74					77
Medical Staffing Services		57					55
Inpatient Services Stats
Number of centers:		213					139
Number of available beds:		23,165					14,473
Occupancy %:		89.1	%				88.6	%
Payor Mix % based on patient days:
Medicare - SNF Beds		16.6	%				15.8	%
Managed care / comm. ins. - SNF Beds		3.8	%				2.7	%
Total SNF skilled mix		20.4	%				18.5	%
Medicare		15.1	%				13.8	%
Medicaid		59.2	%				59.9	%
Private and other		21.3	%				23.0	%
Managed care / commercial insurance		3.5	%				2.3	%
Veterans		0.9	%				1.0	%
Revenue Mix % of revenues:
Medicare - SNF Beds		32.7	%				31.9	%
Managed care / comm. ins. - SNF Beds		5.8	%				4.3	%
Total SNF skilled mix		38.5	%				36.2	%
Medicare		31.7	%				30.0	%
Medicaid		44.9	%				46.6	%
Private and other		17.0	%				18.3	%
Managed care / commercial Insurance		5.5	%				4.0	%
Veterans		0.9	%				1.1	%
Revenues PPD:
LTC only Medicare (Part A)	$	411.37				$	365.70
Medicare Blended Rate (Part A & B)	$	440.79				$	395.82
Medicaid	$	165.90				$	148.53
Private and other	$	170.70				$	146.90
Managed care / commercial Insurance	$	343.15				$	320.43
Veterans	$	209.22				$	205.75
Rehab contracts
Affiliated		106					87
Non-affiliated		312					303

9 of 17

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
PRO FORMA WITH HARBORSIDE
CONSOLIDATED
INCOME STATEMENTS
(in thousands, except per share data)
	AS REPORTED			PRO FORMA WITH HARBORSIDE
	For the			For the
	Three Months Ended			Three Months Ended
	March 31, 2008			March 31, 2007
	(unaudited)			(unaudited)
Total net revenues	$	458,242		$	425,143
Costs and expenses:
Operating salaries and benefits		258,737			241,345
Self-insurance for workers' compensation and       general and professional liability insurance		15,202			14,386
Operating administrative costs		11,939			10,581
Other operating costs		95,420			91,006
Center rent expense		18,804			20,383
General and administrative expenses		16,586			18,231
Depreciation and amortization		9,709			8,628
Provision for losses on accounts receivable		3,363			10,070
Interest, net		14,431			6,706
(Gain) loss on sale of assets, net		(77	)		8
Total costs and expenses		444,114			421,344
Income before income taxes and discontinued operations		14,128			3,799
Income tax expense		5,654			1,548
Income from continuing operations		8,474			2,251
Discontinued operations:
Income from discontinued operations, net of related taxes		165			155
Loss on disposal of discontinued operations, net of related taxes		(62	)		(350	)
Income (loss) from discontinued operations, net		103			(195	)
Net income	$	8,577		$	2,056
Basic income per common and common equivalent share:
Income from continuing operations	$	0.20		$	0.05
Income from discontinued operations, net		-			-
Net income	$	0.20		$	0.05
Diluted income per common and common equivalent share:
Income from continuing operations	$	0.19		$	0.05
Income from discontinued operations, net		-			-
Net Income	$	0.19		$	0.05
Weighted average number of common and  common equivalent shares outstanding:
Basic		43,067			42,907
Diluted		44,474			44,029

10 of 17

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
	March 31, 2008			March 31, 2007
	(unaudited)			(unaudited)
Total net revenues	$	458,242		$	425,143
Net income	$	8,577		$	2,056
Income from continuing operations		8,474			2,251
Income tax expense		5,654			1,548
(Gain) loss on sale of assets, net		(77	)		8
Net segment income	$	14,051		$	3,807
Interest, net		14,431			6,706
Depreciation and amortization		9,709			8,628
EBITDA	$	38,191		$	19,141
Center rent expense		18,804			20,383
EBITDAR	$	56,995		$	39,524
Operating administrative costs		11,939			10,581
General and administrative expenses		16,586			18,231
Total operating and general and admin expenses		28,525			28,812
EBITDAM	$	66,716		$	47,953
EBITDARM	$	85,520		$	68,336

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.

11 of 17

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 March 31, 2008
(unaudited)
	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated
Nonaffiliated revenue	$	406,853		$	21,710		$	29,668		$	11		$	-		$	458,242
Affiliated revenue		-			14,291			533			-			(14,824	)		-
Total revenue		406,853			36,001			30,201			11			(14,824	)		458,242
Net segment income (loss)	$	38,481		$	2,128		$	1,932		$	(28,490	)	$	-		$	14,051
Interest, net		3,318			-			(1	)		11,114			-			14,431
Depreciation and amortization		8,701			126			195			687			-			9,709
EBITDA	$	50,500		$	2,254		$	2,126		$	(16,689	)	$	-		$	38,191
Center rent expense		18,470			86			248			-			-			18,804
EBITDAR	$	68,970		$	2,340		$	2,374		$	(16,689	)	$	-		$	56,995
Operating and general and   administrative expenses		9,512			1,617			811			16,585			-			28,525
EBITDAM	$	60,012		$	3,871		$	2,937		$	(104	)	$	-		$	66,716
EBITDARM	$	78,482		$	3,957		$	3,185		$	(104	)	$	-		$	85,520
EBITDA margin		12.4	%		6.3	%		7.0	%								8.3	%
EBITDAM margin		14.8	%		10.8	%		9.7	%								14.6	%
EBITDAR margin		17.0	%		6.5	%		7.9	%								12.4	%
EBITDARM margin		19.3	%		11.0	%		10.5	%								18.7	%

12 of 17

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 March 31, 2007
(unaudited)
	Inpatient Services			Rehabilitation Therapy Services			Medical Staffing Services			Other & Corp Seg			Elimination of Affiliated Revenue			Consolidated
Nonaffiliated revenue	$	378,748		$	20,679		$	26,391		$	7		$	(682	)	$	425,143
Affiliated revenue		-			10,262			187			-			(10,449	)		-
Total revenue		378,748			30,941			26,578			7			(11,131	)		425,143
Net segment income (loss)	$	24,447		$	1,427		$	1,348		$	(24,228	)	$	813		$	3,807
Interest, net		7,410			10			14			(742	)		14			6,706
Depreciation and amortization		7,581			116			185			746			-			8,628
EBITDA	$	39,438		$	1,553		$	1,547		$	(24,224	)	$	827		$	19,141
Center rent expense		20,109			50			224			-			-			20,383
EBITDAR	$	59,547		$	1,603		$	1,771		$	(24,224	)	$	827		$	39,524
Operating and general and   administrative expenses		2,439			1,257			1,026			24,090			-			28,812
EBITDAM	$	41,877		$	2,810		$	2,573		$	(134	)	$	827		$	47,953
EBITDARM	$	61,986		$	2,860		$	2,797		$	(134	)	$	827		$	68,336
EBITDA margin		10.4	%		5.0	%		5.8	%								4.5	%
EBITDAM margin		11.1	%		9.1	%		9.7	%								11.3	%
EBITDAR margin		15.7	%		5.2	%		6.7	%								9.3	%
EBITDARM margin		16.4	%		9.2	%		10.5	%								16.1	%

13 of 17

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 March 31, 2008
(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	$	237,582		$	-		$	237,582		$	-		$	237,582		$	169,271	$	406,853
Net segment income (loss)	$	28,133		$	(7,783	)	$	20,350		$	(304	)	$	20,046		$	18,435	$	38,481
Interest, net		1,590			-			1,590			830			2,420			898		3,318
Depreciation and amortization		3,763			-			3,763			316			4,079			4,622		8,701
EBITDA	$	33,486		$	(7,783	)	$	25,703		$	842		$	26,545		$	23,955	$	50,500
Center rent expense		14,505			-			14,505			(733	)		13,772			4,698		18,470
EBITDAR	$	47,991		$	(7,783	)	$	40,208		$	109		$	40,317		$	28,653	$	68,970
EBITDA margin		14.1	%					10.8	%					11.2	%				12.4	%
EBITDAR margin		20.2	%					16.9	%					17.0	%				17.0	%

(1)   Clipper represents our interest of 34.0 percent at March 31, 2008 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.

14 of 17

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 March 31, 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	$	218,142		$	-		$	218,142		$	-		$	218,142		$	160,606	$	378,748
Net segment income (loss)	$	21,638		$	(5,157	)	$	16,481		$	(470	)	$	16,011		$	8,436	$	24,447
Interest, net		1,848			-			1,848			635			2,483			4,927		7,410
Depreciation and amortization		2,774			-			2,774			381			3,155			4,426		7,581
EBITDA	$	26,260		$	(5,157	)	$	21,103		$	546		$	21,649		$	17,789	$	39,438
Center rent expense		13,605			-			13,605			(425	)		13,180			6,929		20,109
EBITDAR	$	39,865		$	(5,157	)	$	34,708		$	121		$	34,829		$	24,718	$	59,547
EBITDA margin		12.0	%					9.7	%					9.9	%				10.4	%
EBITDAR margin		18.3	%					15.9	%					16.0	%				15.7	%

(1)   Clipper represents our interest of 15.5 percent at March 31, 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.

15 of 17

Sun Healthcare Group, Inc. and Subsidiaries
Selected Operating Statistics
Continuing Operations
	For the
	Three Months Ended					PRO FORMA
	March 31,					WITH
	AS REPORTED					HARBORSIDE
	2008					2007
Consolidated Company
Revenues - Non-affiliated (in thousands)
Inpatient Services		406,853					378,748
Rehabilitation Therapy Services		21,710					20,679
Medical Staffing Services		29,668					26,391
Other - non-core businesses		11					(675	)
Total	$	458,242				$	425,143
Revenue Mix - Non-affiliated (in thousands)
Medicare		131,639		29	%		116,431		27	%
Medicaid		182,623		40	%		180,227		42	%
Private & Other		117,750		25	%		110,404		27	%
Managed Care / Comm Insur		22,607		5	%		14,709		3	%
Veterans		3,623		1	%		3,372		1	%
Total	$	458,242		100	%	$	425,143		100	%
DSO (Days Sales Outstanding)
Inpatient Services - LTC		42					42
Rehabilitation Therapy Services		74					77
Medical Staffing Services		57					54
Inpatient Services Stats
Number of centers:		213					213
Number of available beds:		23,165					23,210
Occupancy %:		89.1	%				89.5	%
Payor Mix % based on patient days:
Medicare - SNF Beds		16.6	%				16.0	%
Managed care / comm. ins. - SNF Beds		3.8	%				2.7	%
Total SNF skilled mix		20.4	%				18.7	%
Medicare		15.1	%				14.6	%
Medicaid		59.2	%				61.3	%
Private and other		21.3	%				21.1	%
Managed care / commercial Insurance		3.5	%				2.2	%
Veterans		0.9	%				0.8	%
Revenue Mix % of revenues:
Medicare - SNF Beds		32.7	%				31.5	%
Managed care / comm. Ins. - SNF Beds		5.8	%				4.1	%
Total SNF skilled mix		38.5	%				35.6	%
Medicare		31.7	%				30.3	%
Medicaid		44.9	%				47.6	%
Private and other		17.0	%				17.3	%
Managed care / commercial Insurance		5.5	%				3.9	%
Veterans		0.9	%				0.9	%
Revenues PPD:
LTC only Medicare (Part A)	$	411.37				$	381.14
Medicare Blended Rate (Part A & B)	$	440.79				$	410.04
Medicaid	$	165.90				$	159.07
Private and other	$	170.70				$	164.54
Managed care / commercial Insurance	$	343.15				$	316.35
Veterans	$	209.22				$	220.65
Rehab contracts
Affiliated		106					87
Non-affiliated		312					303

16 of 17

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
NORMALIZING ADJUSTMENTS - 4th QUARTER COMPARISON
(in thousands, except per share data)
	AS REPORTED - 1st QUARTER 2008
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income
As Reported 1st QUARTER 2008		458,242		56,995			38,191			14,128			8,474			103			8,577
Percent of Revenue				12.4	%		8.3	%		3.1	%		1.8	%		0.0	%		1.9	%
Normalizing Adjustments:
Harborside integration costs		-		1,469			1,469			1,469			881			-			881
Adjusted As Reported - 1st QUARTER 2008		458,242		58,464			39,660			15,597			9,355			103			9,458
Percent of Revenue				12.8	%		8.7	%		3.4	%		2.0	%		0.0	%		2.1	%
Diluted EPS:
As Reported												$	0.19		$	-		$	0.19
As Adjusted												$	0.21		$	-		$	0.21
	AS REPORTED - 1st QUARTER 2007
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income
As Reported - 1st QUARTER 2007		262,576		25,296			11,867			5,921			3,553			370			3,923
Percent of Revenue				9.6	%		4.5	%		2.3	%		1.4	%		0.1	%		1.5	%
Normalizing Adjustments:
Harborside integration costs		-		149			149			149			97			-			97
Adjusted As Reported - 1st QUARTER 2007		262,576		25,445			12,016			6,070			3,650			370			4,020
Percent of Revenue				9.7	%		4.6	%		2.3	%		1.4	%		0.1	%		1.5	%
Diluted EPS:
As Reported												$	0.08		$	0.01		$	0.09
As Adjusted												$	0.08		$	0.01		$	0.09
	PRO FORMA SUN & HARBORSIDE - 1st QUARTER 2007
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income
Pro Forma Sun & Harborside - 1st QUARTER 2007		425,143		39,524			19,141			3,799			2,251			(195	)		2,056
Percent of Revenue				9.3	%		4.5	%		0.9	%		0.5	%		0.0	%		0.5	%
Normalizing Adjustments:
Harborside integration costs		-		149			149			149			97			-			97
Harborside investor fees		-		275			275			275			179			-			179
Harborside bad debt expense		-		5,860			5,860			5,860			3,809			-			3,809
Harborside merger costs		-		192			192			192			125			-			125
Adjusted Pro Forma Sun & Harborside - 1st QUARTER 2007		425,143		46,000			25,617			10,275			6,461			(195	)		6,266
Percent of Revenue				10.8	%		6.0	%		2.4	%		1.5	%		0.0	%		1.5	%
Diluted EPS:
Pro Forma												$	0.05		$	-		$	0.05
Adjusted Pro Forma												$	0.15		$	(0.01	)	$	0.14
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 twelve months December 31.
Normalizing adjustments are transactions or adjustments not related to ongoing operations, including integration costs related to the Harborside acquisition, a bad debt charge associated with acquired accounts receivable from a prior period acquisition, and investor fees and merger costs recorded by Harborside prior to the acquisition.
Since normalizing adjustments are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations and interpretations, the information presented herein may not be comparable to other similarly described information of other companies.

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