ex99-1.htm

(Dollars in thousands)	Quarter Ended September 30,
	2008			2007

Revenue	$	456,722		$	432,573

Depreciation and amortization		10,174			9,961

Interest expense, net		13,070			14,841

Income from continuing operations		9,429			4,880

(Loss) income from discontinued operations		(825	)		316

Net income	$	8,604		$	5,196

Diluted earnings per share	$	0.19		$	0.12

EBITDAR	$	57,510		$	50,873
Margin - EBITDAR		12.6	%		11.8	%
EBITDAR normalized	$	57,510		$	53,348
Margin - EBITDAR normalized		12.6	%		12.3	%


EBITDA	$	38,959		$	32,321
Margin - EBITDA		8.5	%		7.5	%
EBITDA normalized	$	38,959		$	34,796
Margin - EBITDA normalized		8.5	%		8.0	%


Income from continuing operations - normalized	$	9,429		$	6,489
Diluted earnings per share - normalized	$	0.21		$	0.15


Net income - normalized	$	8,604		$	6,805
Diluted earnings per share - normalized	$	0.19		$	0.15

Matros further stated, “Sun's primary growth drivers continue to be our ability to grow skilled mix coupled with the expansion of our Rehab Recovery SuitesTM . We have successfully managed our acuity shifts as evidenced by our skilled mix, which was up 120 basis points over the same quarter prior year to 19.3 percent at quarter end. In addition, Medicaid revenues dropped 240 basis points to 45.6 percent yielding a corresponding increase in quality mix. That said, our RUGS utilization in the top nine RUGS categories was not as high as anticipated due to what appears to be a decrease in elective surgeries, presumably a result of the economic downturn. Our Medicaid rates, while close to where we anticipated at 2.7 percent growth, are nevertheless lower than the 4.5 percent growth we enjoyed at this time last year. Those two factors, compounded by lighter-than-expected occupancy, were the primary contributors to lower-than-expected margin growth.”

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; increasing labor costs and the shortage of qualified healthcare personnel; the impact of current economic conditions on our liquidity and results of operations; 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.

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)


	September 30, 2008			December 31, 2007

ASSETS

Current assets:
Cash and cash equivalents	$	80,433		$	55,832
Restricted cash		33,464			37,365
Accounts receivable, net		197,221			188,882
Prepaid expenses and other assets		22,195			13,290
Assets held for sale		3,651			9,924
Deferred tax assets		31,387			35,354

Total current assets		368,351			340,647

Property and equipment, net		597,373			585,972
Intangible assets, net		52,899			57,044
Goodwill		331,112			324,277
Restricted cash, non-current		3,288			3,829
Deferred tax assets		42,312			51,892
Other assets		6,119			10,165

Total assets	$	1,401,454		$	1,373,826


LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	48,457		$	52,836
Accrued compensation and benefits		61,832			61,956
Accrued self-insurance obligations, current		42,862			48,646
Income taxes payable		2,782			3,000
Liabilities held for sale		-			3,181
Other accrued liabilities		65,979			58,002
Current portion of long-term debt and capital lease obligations:
Company obligations		11,215			28,480
Clipper partnerships		873			825

Total current liabilities		234,000			256,926

Accrued self-insurance obligations, net of current portion		108,809			106,534
Long-term debt and capital lease obligations, net of current portion:
Company obligations		668,022			651,403
Clipper partnerships		47,901			48,560
Unfavorable lease obligations, net		16,372			18,960
Other long-term liabilities		46,498			44,717

Total liabilities		1,121,602			1,127,100

Minority interest		1,289			470

Stockholders' equity:
Preferred stock of $.01 par value, authorized 10,000,000 shares, no shares were issued and outstanding as of September 30, 2008 and December 31, 2007		-			-
Common stock of $.01 par value, authorized 125,000,000 shares, 43,509,223 and 43,016,042 shares issued and outstanding as of September 30, 2008 and December 31, 2007, respectively		435			430
Additional paid-in capital		605,966			600,199
Accumulated deficit		(325,104	)		(351,970	)
Accunulated other comprehensive loss, net		(2,734	)		(2,403	)
		278,563			246,256
Total liabilities and stockholders' equity	$	1,401,454		$	1,373,826

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
	September 30, 2008			September 30, 2007
	(unaudited)			(unaudited)

Total net revenues	$	456,722		$	432,573
Costs and expenses:
Operating salaries and benefits		259,809			246,632
Self-insurance for workers' compensation and general and professional liability insurance		14,580			15,646
Operating administrative costs		12,792			10,208
Other operating costs		94,893			89,009
Center rent expense		18,551			18,552
General and administrative expenses		13,832			16,877
Depreciation and amortization		10,174			9,961
Provision for losses on accounts receivable		3,306			3,328
Interest, net of interest income of $340 and $604, respectively		13,070			14,841
Loss on sale of assets, net		-			12
Total costs and expenses		441,007			425,066

Income before income taxes and discontinued operations		15,715			7,507
Income tax expense		6,286			2,627
Income from continuing operations		9,429			4,880

Discontinued operations:
Loss from discontinued operations, net of related taxes		(171	)		(313	)
(Loss) gain on disposal of discontinued operations, net of related taxes		(654	)		629
(Loss) income from discontinued operations, net		(825	)		316

Net income	$	8,604		$	5,196


Basic income per common and common equivalent share:
Income from continuing operations	$	0.22		$	0.11
(Loss) income from discontinued operations, net		(0.02	)		0.01
Net income	$	0.20		$	0.12

Diluted income per common and common equivalent share:
Income from continuing operations	$	0.21		$	0.11
(Loss) income from discontinued operations, net		(0.02	)		0.01
Net Income	$	0.19		$	0.12

Weighted average number of common and common equivalent shares outstanding:
Basic		43,468			43,114
Diluted		44,478			44,266

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED
INCOME STATEMENTS
(in thousands, except per share data)

	For the			For the
	Nine Months Ended			Nine Months Ended
	September 30, 2008			September 30, 2007
	(unaudited)			(unaudited)

Total net revenues	$	1,359,629		$	1,118,006
Costs and expenses:
Operating salaries and benefits		767,583			637,691
Self-insurance for workers' compensation and general and professional liability insurance		41,146			33,414
Operating administrative costs		37,672			28,351
Other operating costs		280,513			228,436
Center rent expense		55,721			52,446
General and administrative expenses		46,528			47,009
Depreciation and amortization		29,576			23,439
Provision for losses on accounts receivable		9,523			8,792
Interest, net of interest income of $1,454 and $2,926, respectively		41,144			28,869
(Gain) loss on sale of assets, net		(77	)		22
Total costs and expenses		1,309,329			1,088,469

Income before income taxes and discontinued operations		50,300			29,537
Income tax expense		20,119			10,339
Income from continuing operations		30,181			19,198

Discontinued operations:
(Loss) income from discontinued operations, net of related taxes		(792	)		2,334
(Loss) gain on disposal of discontinued operations, net of related taxes		(2,523	)		626
(Loss) income from discontinued operations, net		(3,315	)		2,960

Net income	$	26,866		$	22,158


Basic income per common and common equivalent share:
Income from continuing operations	$	0.70		$	0.46
(Loss) income from discontinued operations, net		(0.08	)		0.07
Net income	$	0.62		$	0.53

Diluted income per common and common equivalent share:
Income from continuing operations	$	0.68		$	0.45
(Loss) income from discontinued operations, net		(0.07	)		0.06
Net Income	$	0.61		$	0.51

Weighted average number of common and common equivalent shares outstanding:
Basic		43,240			42,072
Diluted		44,086			43,068

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

	For the			For the
	Three Months Ended			Three Months Ended
	September 30, 2008			September 30, 2007
	(unaudited)			(unaudited)

Cash flows from operating activities:
Net income	$	8,604		$	5,196
Adjustments to reconcile net income to net cash provided by
operating activities, including discontinued operations:
Depreciation and amortization		10,202			10,136
Amortization of favorable and unfavorable lease intangibles		(452	)		(193	)
Provision for losses on accounts receivable		3,460			3,520
Loss (gain) on sale of assets, including discontinued operations, net		1,091			(617	)
Stock-based compensation expense		1,405			990
Deferred taxes		5,276			-
Minority interest		122			-
Other		(4	)		(479	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		1,751			5,647
Restricted cash		1,379			(343	)
Prepaid expenses and other assets		(459	)		2,469
Assets and liabilities held for sale		(486	)		-
Accounts payable		(3,382	)		(10,378	)
Accrued compensation and benefits		2,576			8,701
Accrued self-insurance obligations		(3,330	)		(1,082	)
Income taxes payable		(615	)		930
Other accrued liabilities		4,302			1,386
Other long-term liabilities		(1,526	)		(220	)
Net cash provided by operating activities		29,914			25,663

Cash flows from investing activities:
Capital expenditures		(12,393	)		(11,356	)
Purchase of leased real estate		(8,229	)		-
Proceeds from sale of assets held for sale		9,840			500
Acquisitions, net of cash acquired		(7,060	)		7,432
Net cash used for investing activities		(17,842	)		(3,424	)

Cash flows from financing activities:
Net repayments under Revolving Credit Facility		-			(15,000	)
Principal payments of long-term debt and capital lease obligations		(2,221	)		(6,839	)
Proceeds from issuance of common stock		2,278			116
Distribution of partnership equity		(65	)		-
Net cash used for financing activities		(8	)		(21,723	)

Net increase (decrease) in cash and cash equivalents		12,064			516
Cash and cash equivalents at beginning of period		68,369			84,537
Cash and cash equivalents at end of period	$	80,433		$	85,053

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, 2008			September 30, 2007
	(unaudited)			(unaudited)

Cash flows from operating activities:
Net income	$	26,866		$	22,158
Adjustments to reconcile net income to net cash provided by
operating activities, including discontinued operations:
Depreciation and amortization		29,802			23,901
Amortization of favorable and unfavorable lease intangibles		(1,443	)		(602	)
Provision for losses on accounts receivable		9,971			9,780
Loss (gain) on sale of assets, including discontinued operations, net		2,883			(603	)
Impairment charge for discontinued operation		1,800			-
Stock-based compensation expense		3,738			2,684
Deferred taxes		13,547			-
Minority interest		819			50
Other		76			(590	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(17,701	)		(3,590	)
Restricted cash		4,442			1,274
Prepaid expenses and other assets		(7,649	)		11,760
Assets and liabilities held for sale		(1,530	)		-
Accounts payable		(6,508	)		(17,221	)
Accrued compensation and benefits		(330	)		14,910
Accrued self-insurance obligations		(3,509	)		(7,910	)
Income taxes payable		976			8,317
Other accrued liabilities		656			17,066
Other long-term liabilities		3,829			(3,387	)
Net cash provided by operating activities		60,735			77,997

Cash flows from investing activities:
Capital expenditures		(28,532	)		(23,327	)
Purchase of leased real estate		(8,956	)		(33,220	)
Proceeds from sale of assets held for sale		13,797			5,989
Acquisitions, net of cash acquired		(7,373	)		(361,083	)
Accrued acquisition costs, net		-			3,585
Net cash used for investing activities		(31,064	)		(408,056	)

Cash flows from financing activities:
Net repayments under Revolving Credit Facility		-			(9,994	)
Principal payments of long-term debt and capital lease obligations		(27,420	)		(41,637	)
Borrowings under long-term debt and capital lease obligations		20,290			327,000
Proceeds from issuance of common stock		2,348			781
Distribution of partnership equity		(288	)		(511	)
Release of third-party collateral		-			25,640
Distribution of minority interest		-			(57	)
Deferred financing costs		-			(18,045	)
Net cash used for financing activities		(5,070	)		283,177

Net increase (decrease) in cash and cash equivalents		24,601			(46,882	)
Cash and cash equivalents at beginning of period		55,832			131,935
Cash and cash equivalents at end of period	$	80,433		$	85,053

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, 2008		September 30, 2007
	(unaudited)		(unaudited)

Total net revenues	$	456,722	$	432,573

Net income	$	8,604	$	5,196

Income from continuing operations		9,429		4,880

Income tax expense		6,286		2,627

Loss on sale of assets, net		-		12

Net segment income	$	15,715	$	7,519

Interest, net		13,070		14,841

Depreciation and amortization		10,174		9,961

EBITDA	$	38,959	$	32,321

Center rent expense		18,551		18,552

EBITDAR	$	57,510	$	50,873

Operating administrative costs		12,792		10,208
General and administrative expenses		13,832		16,877
Total operating and general and admin expenses		26,624		27,085

EBITDAM	$	65,583	$	59,406
EBITDARM	$	84,134	$	77,958

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.

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, 2008			September 30, 2007
	(unaudited)			(unaudited)

Total net revenues	$	1,359,629		$	1,118,006

Net income	$	26,866		$	22,158

Income from continuing operations		30,181			19,198

Income tax expense		20,119			10,339

(Gain) loss on sale of assets, net		(77	)		22

Net segment income	$	50,223		$	29,559

Interest, net		41,144			28,869

Depreciation and amortization		29,576			23,439

EBITDA	$	120,943		$	81,867

Center rent expense		55,721			52,446

EBITDAR	$	176,664		$	134,313

Operating administrative costs		37,672			28,351
General and administrative expenses		46,528			47,009
Total operating and general and admin expenses		84,200			75,360

EBITDAM	$	205,143		$	157,227
EBITDARM	$	260,864		$	209,673

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, 2008
(unaudited)


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

Nonaffiliated revenue	$	404,701		$	22,756		$	29,256		$	9		$	-		$	456,722

Affiliated revenue		-			15,562			827			-			(16,389	)		-

Total revenue		404,701			38,318			30,083			9			(16,389	)		456,722

Net segment income (loss)	$	35,829		$	1,793		$	2,479		$	(24,386	)	$	-		$	15,715

Interest, net		3,548			-			(5	)		9,527			-			13,070

Depreciation and amortization		8,989			138			216			831			-			10,174

EBITDA	$	48,366		$	1,931		$	2,690		$	(14,028	)	$	-		$	38,959

Center rent expense		18,207			100			244			-			-			18,551

EBITDAR	$	66,573		$	2,031		$	2,934		$	(14,028	)	$	-		$	57,510

Operating and general and administrative expenses		10,231			1,747			814			13,832			-			26,624

EBITDAM	$	58,597		$	3,678		$	3,504		$	(196	)	$	-		$	65,583
EBITDARM	$	76,804		$	3,778		$	3,748		$	(196	)	$	-		$	84,134


EBITDA margin		12.0	%		5.0	%		8.9	%								8.5	%

EBITDAM margin		14.5	%		9.6	%		11.6	%								14.4	%

EBITDAR margin		16.4	%		5.3	%		9.8	%								12.6	%

EBITDARM margin		19.0	%		9.9	%		12.5	%								18.4	%

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, 2008
(unaudited)


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

Nonaffiliated revenue	$	1,204,973		$	65,607		$	89,020		$	29		$	-		$	1,359,629

Affiliated revenue		-			44,314			2,155			-			(46,469	)		-

Total revenue		1,204,973			109,921			91,175			29			(46,469	)		1,359,629

Net segment income (loss)	$	117,073		$	6,483		$	6,866		$	(80,199	)	$	-		$	50,223

Interest, net		10,130			(1	)		(14	)		31,029			-			41,144

Depreciation and amortization		26,334			396			611			2,235			-			29,576

EBITDA	$	153,537		$	6,878		$	7,463		$	(46,935	)	$	-		$	120,943

Center rent expense		54,704			285			732			-			-			55,721

EBITDAR	$	208,241		$	7,163		$	8,195		$	(46,935	)	$	-		$	176,664

Operating and general and administrative expenses		30,120			4,879			2,672			46,529			-			84,200

EBITDAM	$	183,657		$	11,757		$	10,135		$	(406	)	$	-		$	205,143
EBITDARM	$	238,361		$	12,042		$	10,867		$	(406	)	$	-		$	260,864


EBITDA margin		12.7	%		6.3	%		8.2	%								8.9	%

EBITDAM margin		15.2	%		10.7	%		11.1	%								15.1	%

EBITDAR margin		17.3	%		6.5	%		9.0	%								13.0	%

EBITDARM margin		19.8	%		11.0	%		11.9	%								19.2	%

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	$	384,763		$	20,579		$	27,197		$	34		$	-		$	432,573

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

Total revenue		384,763			31,879			28,281			34			(12,384	)		432,573

Net segment income (loss)	$	32,980		$	1,697		$	2,319		$	(29,477	)	$	-		$	7,519

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

Depreciation and amortization		8,839			132			189			801			-			9,961

EBITDA	$	44,963		$	1,829		$	2,507		$	(16,978	)	$	-		$	32,321

Center rent expense		18,277			51			224			-			-			18,552

EBITDAR	$	63,240		$	1,880		$	2,731		$	(16,978	)	$	-		$	50,873

Operating and general and administrative expenses		8,603			1,172			432			16,878			-			27,085

EBITDAM	$	53,566		$	3,001		$	2,939		$	(100	)	$	-		$	59,406
EBITDARM	$	71,843		$	3,052		$	3,163		$	(100	)	$	-		$	77,958


EBITDA margin		11.7	%		5.7	%		8.9	%								7.5	%

EBITDAM margin		13.9	%		9.4	%		10.4	%								13.7	%

EBITDAR margin		16.4	%		5.9	%		9.7	%								11.8	%

EBITDARM margin		18.7	%		9.6	%		11.2	%								18.0	%

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	$	976,928		$	62,048		$	78,962		$	68		$	-		$	1,118,006

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

Total revenue		976,928			93,942			81,434			68			(34,366	)		1,118,006

Net segment income (loss)	$	88,403		$	5,405		$	5,789		$	(70,038	)	$	-		$	29,559

Interest, net		8,088			10			13			20,758			-			28,869

Depreciation and amortization		20,535			382			553			1,969			-			23,439

EBITDA	$	117,026		$	5,797		$	6,355		$	(47,311	)	$	-		$	81,867

Center rent expense		51,639			154			653			-			-			52,446

EBITDAR	$	168,665		$	5,951		$	7,008		$	(47,311	)	$	-		$	134,313

Operating and general and administrative expenses		22,423			3,674			2,252			47,011			-			75,360

EBITDAM	$	139,449		$	9,471		$	8,607		$	(300	)	$	-		$	157,227
EBITDARM	$	191,088		$	9,625		$	9,260		$	(300	)	$	-		$	209,673


EBITDA margin		12.0	%		6.2	%		7.8	%								7.3	%

EBITDAM margin		14.3	%		10.1	%		10.6	%								14.1	%

EBITDAR margin		17.3	%		6.3	%		8.6	%								12.0	%

EBITDARM margin		19.6	%		10.2	%		11.4	%								18.8	%

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
	Nine Months Ended			Nine Months Ended
	September 30, 2008			September 30, 2007
	(unaudited)			(unaudited)

Total net revenues	$	1,359,629		$	1,278,905
Costs and expenses:
Operating salaries and benefits		767,583			725,884
Self-insurance for workers' compensation and general and professional liability insurance		41,146			37,469
Operating administrative costs		37,672			30,697
Other operating costs		280,513			266,828
Center rent expense		55,721			59,400
General and administrative expenses		46,528			52,405
Depreciation and amortization		29,576			28,139
Provision for losses on accounts receivable		9,523			16,692
Interest, net of interest income of $1,454 and $3,243, respectively		41,144			33,461
(Gain) loss on sale of assets, net		(77	)		21
Total costs and expenses		1,309,329			1,250,996

Income before income taxes and discontinued operations		50,300			27,909
Income tax expense		20,119			9,519
Income from continuing operations		30,181			18,390

Discontinued operations:
(Loss) income from discontinued operations, net of related taxes		(792	)		1,276
(Loss) gain on disposal of discontinued operations, net of related taxes		(2,523	)		626
(Loss) income from discontinued operations, net		(3,315	)		1,902

Net income	$	26,866		$	20,292


Basic income per common and common equivalent share:
Income from continuing operations	$	0.70		$	0.44
(Loss) income from discontinued operations, net		(0.08	)		0.04
Net income	$	0.62		$	0.48

Diluted income per common and common equivalent share:
Income from continuing operations	$	0.68		$	0.43
(Loss) income from discontinued operations, net		(0.07	)		0.04
Net Income	$	0.61		$	0.47

Weighted average number of common and common equivalent shares outstanding:
Basic		43,240			42,072
Diluted		44,086			43,068

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
	Nine Months Ended			Nine Months Ended
	September 30, 2008			September 30, 2007
	(unaudited)			(unaudited)

Total net revenues	$	1,359,629		$	1,278,905

Net income	$	26,866		$	20,292

Income from continuing operations		30,181			18,390

Income tax expense		20,119			9,519

(Gain) loss on sale of assets, net		(77	)		21

Net segment income	$	50,223		$	27,930

Interest, net		41,144			33,461

Depreciation and amortization		29,576			28,139

EBITDA	$	120,943		$	89,530

Center rent expense		55,721			59,400

EBITDAR	$	176,664		$	148,930

Operating administrative costs		37,672			30,697
General and administrative expenses		46,528			52,405
Total operating and general and admin expenses		84,200			83,102

EBITDAM	$	205,143		$	172,632
EBITDARM	$	260,864		$	232,032

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	$	1,135,867		$	62,047		$	81,605		$	68		$	(682	)	$	1,278,905

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

Total revenue		1,135,867			93,941			84,078			68			(35,049	)		1,278,905

Net segment income (loss)	$	97,333		$	5,405		$	5,723		$	(81,344	)	$	813		$	27,930

Interest, net		12,962			10			12			20,463			14			33,461

Depreciation and amortization		24,911			382			568			2,278			-			28,139

EBITDA	$	135,206		$	5,797		$	6,303		$	(58,603	)	$	827		$	89,530

Center rent expense		58,568			154			678			-			-			59,400

EBITDAR	$	193,774		$	5,951		$	6,981		$	(58,603	)	$	827		$	148,930

Operating and general and administrative expenses		24,769			3,674			2,252			52,407			-			83,102

EBITDAM	$	159,975		$	9,471		$	8,555		$	(6,196	)	$	827		$	172,632
EBITDARM	$	218,543		$	9,625		$	9,233		$	(6,196	)	$	827		$	232,032


EBITDA margin		11.9	%		6.2	%		7.5	%								7.0	%

EBITDAM margin		14.1	%		10.1	%		10.2	%								13.5	%

EBITDAR margin		17.1	%		6.3	%		8.3	%								11.6	%

EBITDARM margin		19.2	%		10.2	%		11.0	%								18.1	%

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					AS REPORTED					AS REPORTED					PRO FORMA WITH HARBORSIDE
	2008					2007					2008					2007
Consolidated Company

Revenues - Non-affiliated (in thousands)
Inpatient Services		404,701					384,763					1,204,973					1,135,867
Rehabilitation Therapy Services		22,756					20,579					65,607					62,047
Medical Staffing Services		29,256					27,197					89,020					81,605
Other - non-core businesses		9					34					29					(614	)
Total	$	456,722				$	432,573				$	1,359,629				$	1,278,905


Revenue Mix - Non-affiliated (in thousands)
Medicare		128,154		28	%		113,013		26	%		386,893		28	%		344,991		27	%
Medicaid		184,771		40	%		184,545		43	%		543,464		40	%		539,138		42	%
Private & Other		117,786		26	%		114,517		26	%		350,127		26	%		337,360		26	%
Managed Care / Comm Insur		22,173		5	%		16,898		4	%		68,037		5	%		47,270		4	%
Veterans		3,838		1	%		3,600		1	%		11,108		1	%		10,146		1	%
Total	$	456,722		100	%	$	432,573		100	%	$	1,359,629		100	%	$	1,278,905		100	%


DSO (Days Sales Outstanding)
Inpatient Services - LTC		41					40					41					40
Rehabilitation Therapy Services		66					77					66					77
Medical Staffing Services		60					56					60					56


Inpatient Services Stats

Number of centers:		208					208					208					208
Number of available beds:		22,627					22,633					22,627					22,633
Occupancy %:		88.5	%				89.5	%				88.9	%				89.7	%


Payor Mix % based on patient days:
Medicare - SNF Beds		15.6	%				15.0	%				16.3	%				15.8	%
Managed care / comm. ins. - SNF Beds		3.7	%				3.1	%				3.9	%				2.9	%
Total SNF skilled mix		19.3	%				18.1	%				20.2	%				18.7	%

Medicare		14.2	%				13.6	%				14.8	%				14.3	%
Medicaid		60.0	%				60.8	%				59.4	%				60.8	%
Private and other		21.5	%				21.9	%				21.4	%				21.4	%
Managed care / commercial Insurance		3.4	%				2.8	%				3.5	%				2.6	%
Veterans		0.9	%				0.9	%				0.9	%				0.9	%

Revenue Mix % of revenues:
Medicare - SNF Beds		31.6	%				29.7	%				32.3	%				30.9	%
Managed care / comm. Ins. - SNF Beds		5.8	%				4.6	%				5.9	%				4.3	%
Total SNF skilled mix		37.4	%				34.3	%				38.2	%				35.2	%

Medicare		30.9	%				28.8	%				31.4	%				29.8	%
Medicaid		45.6	%				48.0	%				45.1	%				47.5	%
Private and other		17.2	%				17.9	%				17.0	%				17.7	%
Managed care / commercial Insurance		5.4	%				4.4	%				5.6	%				4.1	%
Veterans		0.9	%				0.9	%				0.9	%				0.9	%


Revenues PPD:
LTC only Medicare (Part A)	$	423.30				$	392.47				$	417.14				$	386.12
Medicare Blended Rate (Part A & B)	$	456.75				$	422.46				$	447.59				$	415.87
Medicaid	$	168.64				$	164.28				$	167.51				$	161.47
Private and other	$	171.52				$	167.20				$	171.31				$	166.03
Managed care / commercial Insurance	$	352.16				$	320.34				$	348.00				$	331.38
Veterans	$	221.56				$	208.44				$	215.13				$	206.45



Rehab contracts

Affiliated		116					103					116					103
Non-affiliated		325					309					325					309

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

NORMALIZING ADJUSTMENTS - 3rd QUARTER COMPARISON
(in thousands, except per share data)


	AS REPORTED - 3rd QUARTER 2008
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

As Reported 3rd QUARTER 2008		456,722		57,510			38,959			15,715			9,429			(825	)		8,604
Percent of Revenue				12.6	%		8.5	%		3.4	%		2.1	%		-0.2	%		1.9	%

Normalizing Adjustments:


Adjusted As Reported-3rd QUARTER 2008		456,722		57,510			38,959			15,715			9,429			(825	)		8,604
Percent of Revenue				12.6	%		8.5	%		3.4	%		2.1	%		-0.2	%		1.9	%

As Reported												$	0.21		$	(0.02	)	$	0.19
Diluted EPS: As Adjusted												$	0.21		$	(0.02	)	$	0.19



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

As Reported - 3rd QUARTER 2007		432,573		50,873			32,321			7,507			4,880			316			5,196
Percent of Revenue				11.8	%		7.5	%		1.7	%		1.1	%		0.1	%		1.2	%

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

Adjusted As Reported-3rd QUARTER 2007		432,573		53,348			34,796			9,982			6,489			316			6,805
Percent of Revenue				12.3	%		8.0	%		2.3	%		1.5	%		0.1	%		1.6	%

As Reported												$	0.11		$	0.01		$	0.12
Diluted EPS: As Adjusted												$	0.15		$	-		$	0.15





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

Normalizing adjustments are transactions or adjustments not related to ongoing operations, including integration costs related to the Harborside 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.

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


	AS REPORTED - NINE MONTHS 2008
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

As Reported - Nine Months 2008		1,359,629		176,664			120,943			50,300			30,181			(3,315	)		26,866
Percent of Revenue				13.0	%		8.9	%		3.7	%		2.2	%		-0.2	%		2.0	%

Normalizing Adjustments:
Release of insurance reserves related to prior periods		-		(2,650	)		(2,650	)		(2,650	)		(1,590	)		(222	)		(1,812	)
Harborside integration costs		-		1,469			1,469			1,469			881			-			881

Adjusted As Reported - Nine Months 2008		1,359,629		175,483			119,762			49,119			29,472			(3,537	)		25,935
Percent of Revenue				12.9	%		8.8	%		3.6	%		2.2	%		-0.3	%		1.9	%

As Reported												$	0.68		$	(0.07	)	$	0.61
Diluted EPS: As Adjusted												$	0.67		$	(0.08	)	$	0.59




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

As Reported - Nine Months 2007		1,118,006		134,313			81,867			29,537			19,198			2,960			22,158
Percent of Revenue				12.0	%		7.3	%		2.6	%		1.7	%		0.3	%		2.0	%

Normalizing Adjustments:
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
Write-off of deferred financing costs		-		-			-			615			400			-			400

Adjusted As Reported - Nine Months 2007		1,118,006		131,847			79,401			27,686			17,996			981			18,977
Percent of Revenue				11.8	%		7.1	%		2.5	%		1.6	%		0.1	%		1.7	%


As Reported												$	0.45		$	0.06		$	0.51
Diluted EPS: As Adjusted												$	0.42		$	0.02		$	0.44



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

Normalizing adjustments are transactions or adjustments not related to ongoing operations, charges associated with the refinancing of certain debt agreements, self-insurance reserve releases related to prior periods, and integration costs related to the Harborside 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.

17 of 18

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


	AS REPORTED - NINE MONTHS 2008
	Revenue		EBITDAR			EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

As Reported - Nine Months 2008		1,359,629		176,664			120,943			50,300			30,181			(3,315	)		26,866
Percent of Revenue				13.0	%		8.9	%		3.7	%		2.2	%		-0.2	%		2.0	%

Normalizing Adjustments:
Release of insurance reserves related to prior periods		-		(2,650	)		(2,650	)		(2,650	)		(1,590	)		(222	)		(1,812	)
Harborside integration costs		-		1,469			1,469			1,469			881			-			881

Adjusted Pro Forma Sun & Harborside - Nine Months 2008		1,359,629		175,483			119,762			49,119			29,472			(3,537	)		25,935
Percent of Revenue				12.9	%		8.8	%		3.6	%		2.2	%		-0.3	%		1.9	%

Pro Forma												$	0.68		$	(0.07	)	$	0.61
Diluted EPS: Adjusted Pro Forma												$	0.67		$	(0.08	)	$	0.59




	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		1,278,905		148,930			89,530			27,909			18,390			1,902			20,292
Percent of Revenue				11.6	%		7.0	%		2.2	%		1.4	%		0.1	%		1.6	%

Normalizing Adjustments:
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
Write-off of deferred financing costs		-		-			-			615			400			-			400
Harborside merger costs		-		192			192			192			125			-			125
Harborside investor fees		-		275			275			275			179			-			179
Harborside bad debt expense		-		5,860			5,860			5,860			3,809						3,809

Adjusted Pro Forma Sun & Harborside - Nine Months 2007		1,278,905		152,791			93,391			32,385			21,301			(77	)		21,224
Percent of Revenue				11.9	%		7.3	%		2.5	%		1.7	%		0.0	%		1.7	%

Pro Forma												$	0.43		$	0.04		$	0.47
Diluted EPS: Adjusted Pro Forma												$	0.49		$	-		$	0.49



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

Normalizing adjustments are transactions or adjustments not related to ongoing operations, including charges associated with the refinancing of certain debt agreements, self-insurance reserve releases related to prior periods, a bad debt charge recorded by Harborside prior to the acquisiton, integration costs related to the Harborside 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.

18 of 18