EX-99.1 2 ex99-1.htm ex99-1.htm
EXHIBIT 99.1
 

Sun Healthcare Group, Inc.
Reports 2011 Fourth-quarter and Year-end Operating Results;
Normalized Full Year EPS of $1.04

Contact: Investor Inquiries (505) 468-2341
Media Inquiries (505) 468-4582

Irvine, Calif. (Feb. 28, 2012)—Sun Healthcare Group, Inc. (NASDAQ GS: SUNH) today announced its operating results for the fourth quarter and year ended Dec. 31, 2011:
 
 ●
consolidated revenues were $472.9 million for the quarter and $1.93 billion for the year, down 1.6 percent and up 1.8 percent, respectively, as compared to the same periods in 2010;
 ●
consolidated adjusted EBITDAR was $48.2 million for the quarter and $243.4 million for the year, representing adjusted EBITDAR margins of 10.2 percent and 12.6 percent, respectively;
 ●
normalized earnings per share from continuing operations was break-even for the quarter and $1.04 for the full year; and
 ●
free cash flow was $21.9 million for the fourth quarter and $38.9 million for the year.
 
         Regarding the Company’s fourth-quarter results, William A. Mathies, Sun’s chairman and chief executive officer, stated, “As expected, we faced significant challenges in the fourth quarter related to the implementation of CMS’ final rule for Medicare reimbursement to skilled nursing facilities, requiring us not only to undertake cost-mitigation efforts but also to implement changes to our therapy-delivery processes.  While the parity adjustment had the impact we initially projected, the impact from the therapy changes was less than originally projected due to our more rapid deployment of process changes and improved productivity.”

“Not to be overlooked in the noise surrounding the final rule, we also generated same-store growth in all of our business segments in the quarter, highlighted by a 50 basis point increase in skilled mix days and EBITDAR margin growth in all three of our ancillary services businesses,” Mathies concluded.  “We believe that these metrics illustrate our ability, even in difficult times, to continue executing on our strategy of attracting and providing high quality care for high-acuity, short-stay patients and complementing this care with the expansion of our ancillary services.”

Mathies concluded, “The efforts our employees and caregivers undertook to address these reimbursement challenges were tremendous, particularly when coupled with our goal of providing the quality patient care we hold as our highest priority. While the road ahead remains difficult, our early successes in mitigating part of the impact of the CMS final rule give me increased confidence in our previously issued 2012 financial guidance.”
 
Segment Updates
 
Sun’s inpatient services business was significantly impacted by the CMS final rule.  Even with growth in skilled mix, the decreased reimbursement rates under the CMS final rule resulted in a year-over-year decrease in revenues of $7.4 million, or 1.7 percent, with a roughly $15.0 million direct impact from the final rule parity adjustment to the Medicare rates offset somewhat by mix-driven revenue growth and the continued expansion of SolAmor, Sun’s
 
 
 
 
hospice business. The Company continued to expand the capacity of its Rehab Recovery Suites® (RRS) during the fourth quarter, increasing bed-count by 123, further enhancing its ability to attract high-acuity patients. These additional beds bring total available RRS beds to 2,308, an increase of 15.9 percent over the same quarter in 2010.
 
Inpatient services normalized adjusted EBITDAR in the quarter was $58.8 million, down $16.6 million or 22.0 percent as compared to the prior-year quarter, and normalized adjusted EBITDAR margin for inpatient services in the quarter was 14.0 percent, down 360 basis points from the prior-year quarter.  These results included a $5.0 million pre-tax charge for doubtful accounts, related to the collectibility of existing private-pay receivables.
 
      Included in the inpatient services business segment, revenues from SolAmor increased $3.1 million or 25.9 percent from $11.9 million in the fourth quarter of 2010 to $15.0 million in the fourth quarter of 2011.  Same store revenue growth was 10.1 percent in the year-over-year quarter driven by growth in average daily census of 5.6 percent. SolAmor’s adjusted EBITDAR was $3.8 million in the quarter, up $0.8 million over the same period a year ago and adjusted EBITDAR margin was 25.2 percent up 50 basis points over last year.
 
      SunDance, Sun’s rehabilitation therapy services business, reported fourth-quarter revenues of $63.7 million, adjusted EBITDAR of $5.1 million and an adjusted EBITDAR margin of 8.0 percent. The changes made in the quarter to SunDance’s therapy-delivery processes helped to reduce the projected negative impact from the CMS final rule.
 
       CareerStaff, Sun’s medical staffing services business, reported for the quarter revenues of $22.0 million, adjusted EBITDAR of $1.5 million and adjusted EBITDAR margin of 6.8 percent. Sequentially, revenues were stable compared to those in the third quarter while billable hours increased on a year-over-year basis.
 
 
Taxes, Capital Structure and Cash Flow
 
      The Company benefited from several income tax credits which are not expected to recur in the future. Those income tax credits served to reduce partially the Company’s income tax expense for the year ended Dec. 31, 2011, resulting in an effective income tax rate for the year of 35.9 percent, after normalizing for the restructuring costs and the loss on asset impairment recorded in the third quarter of 2011.

At Dec. 31, 2011, Sun had $57.9 million in cash and cash equivalents and $89.8 million of long-term debt. During the fourth quarter, Sun amended its credit facility and in conjunction with the amendment decreased its outstanding long-term debt by $50.0 million through the pre-payment of a portion of the long-term debt. Sun’s free cash flow for the fourth quarter of 2011 was $21.9 million, which was greater than projected due to the combination of better than expected fourth quarter results and certain timing differences. Free cash flow for the full year 2011 was $38.9 million.

 
Conference Call
 
As previously announced, investors and the general public are invited to listen to a conference call with Sun’s senior management on Wednesday, Feb. 29, 2012, at 10 a.m. Pacific / 1 p.m. Eastern, to discuss the Company’s fourth-quarter and year-end operating results for the period ended Dec. 31, 2011.

To listen to the conference call dial (888) 428-9506 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on Feb. 29, 2012, through March 29, 2012, by calling (888) 203-1112 and using access code 7155504.
 
 
 

About Sun Healthcare Group, Inc.

                 Sun Healthcare Group, Inc. (NASDAQ: SUNH) is a healthcare services company, serving principally the senior population, with consolidated annual revenues in excess of $1.9 billion and approximately 29,000 employees in 46 states. Sun's services are provided through its subsidiaries: as of Dec. 31, 2011, SunBridge Healthcare and its subsidiaries operate 165 skilled nursing centers, 14 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and eight mental health centers with an aggregate of 22,860 licensed beds in 25 states; SunDance Rehabilitation provides rehabilitation therapy services to affiliated and non-affiliated centers in 36 states; CareerStaff Unlimited provides medical staffing services in 40 states; and SolAmor Hospice provides hospice services in 11 states. For more information, go to www.sunh.com.

Forward-looking Statements

                 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. Forward-looking statements in this release include all statements regarding the scope, timing and effectiveness of the Company’s efforts to mitigate the impact on the Company’s business of the CMS final rule, and the statements regarding the Company’s financial guidance for 2012. Factors that could cause actual results to differ are identified in filings made by the Company with the Securities and Exchange Commission and include changes in Medicare and Medicaid reimbursements, including with respect to the CMS final rule, and the Company’s ability to mitigate the impact of such changes; the impact that healthcare reform legislation will have on the Company's business; the ability to maintain the occupancy rates and payor mix at the Company's healthcare centers; potential liability for losses not covered by, or in excess of, insurance; the effects of government regulations and investigations; the ability of the Company to collect its accounts receivable on a timely basis; the amount of the Company's indebtedness; covenants in debt agreements and leases that may restrict the Company's activities, including the Company's ability to make acquisitions and incur more indebtedness on favorable terms; the impact of the economic downturn on the business; increasing labor costs and the shortage of qualified healthcare personnel; and the Company's ability to receive increases in reimbursement rates from government payors to cover increased costs. More information on factors that could affect the Company's business and financial results are included in Sun's filings made with the Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q, copies of which are available on Sun's web site, www.sunh.com. There may be additional risks of which the Company is presently unaware or that it currently deems immaterial.

                     The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond the Company’s control. Sun cautions investors that any forward-looking statements made by Sun are not guarantees of future performance and are only made as of the date of this release. Sun disclaims 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, adjusted EBITDA, adjusted EBITDAR and free cash flow, as used in this press release and in the accompanying tables, which are non-GAAP financial measures, are each reconciled to their respective GAAP-recognized financial measures in the accompanying tables. In addition, normalizing adjustments to adjusted EBITDAR and other financial measures, as discussed in this press release and shown in the accompanying tables, are non-GAAP adjustments and are reconciled to GAAP financial measures in the accompanying tables.
 
# # #

 
 
 
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
KEY INCOME STATEMENT FIGURES
  
CONSOLIDATED
  
(in thousands, except per share data)
  
             
   
For the
    
For the
  
   
Three Months Ended
    
Three Months Ended
  
   
December 31, 2011
    
December 31, 2010
  
             
             
Revenue
   $ 472,919     $ 480,771  
                 
Center rent expense
     37,199       28,085  
                 
Depreciation and amortization
     8,450       10,182  
                 
Interest expense, net
     4,762       8,611  
                 
Pre-tax loss
     (2,194 )     (49,266 )
                 
Income tax benefit
     (2,185 )     (17,026 )
                 
Loss from continuing operations
     (9 )     (32,240 )
                 
Loss from discontinued operations
     (410 )     (136 )
                 
Net loss
   $ (419 )   $ (32,376 )
                 
                 
Diluted loss per share
   $ (0.02 )   $ (1.26 )
                 
                 
                 
Adjusted EBITDAR
   $ 48,217     $ 27,680  
Margin - Adjusted EBITDAR
     10.2 %     5.8 %
                 
Adjusted EBITDAR normalized
   $ 48,217     $ 65,543  
Margin - Adjusted EBITDAR normalized
     10.2 %     13.6 %
                 
                 
                 
                 
Adjusted EBITDA
   $ 11,018     $ (405 )
Margin - Adjusted EBITDA
     2.3 %     -0.1 %
                 
Adjusted EBITDA normalized
   $ 11,018     $ 37,458  
Margin - Adjusted EBITDA normalized
     2.3 %     7.8 %
                 
                 
                 
                 
Pre-tax loss continuing operations - normalized
   $ (2,194 )   $ 18,665  
                 
Income tax (benefit)/expense - normalized
   $ (2,185 )   $ 7,779  
                 
(Loss)/Income from continuing operations - normalized
   $ (9 )   $ 10,886  
                 
Diluted earnings per share from continuing operations - normalized
   $ -     $ 0.42  
                 
                 
                 
    See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to
       Adjusted EBITDA and Adjusted EBITDAR."
  
   
    See normalizing adjustments in the table "Normalizing Adjustments - Quarter Comparison."
  


 
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SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
KEY INCOME STATEMENT FIGURES
  
CONSOLIDATED
  
(in thousands, except per share data)
  
             
   
For the
    
For the
  
   
Year Ended
    
Year Ended
  
   
December 31, 2011
    
December 31, 2010
  
             
             
Revenue
   $ 1,930,340     $ 1,896,505  
                 
Center rent expense
     148,308       84,390  
                 
Depreciation and amortization
     32,086       47,631  
                 
Interest expense, net
     19,451       42,717  
                 
Pre-tax (loss) income
     (277,105 )     184  
                 
Income tax expense
     12,457       2,964  
                 
Loss from continuing operations
     (289,562 )     (2,780 )
                 
Loss from discontinued operations
     (2,204 )     (1,870 )
                 
Net loss
   $ (291,766 )   $ (4,650 )
                 
                 
Diluted loss per share
   $ (11.19 )   $ (0.24 )
                 
                 
                 
Adjusted EBITDAR
   $ 243,369     $ 204,990  
Margin - Adjusted EBITDAR
     12.6 %     10.8 %
                 
Adjusted EBITDAR normalized
   $ 243,369     $ 249,849  
Margin - Adjusted EBITDAR normalized
     12.6 %     13.2 %
                 
                 
                 
                 
Adjusted EBITDA
   $ 95,061     $ 120,600  
Margin - Adjusted EBITDA
     4.9 %     6.4 %
                 
Adjusted EBITDA normalized
   $ 95,061     $ 165,459  
Margin - Adjusted EBITDA normalized
     4.9 %     8.7 %
                 
                 
                 
                 
Pre-tax income continuing operations - normalized
   $ 42,412     $ 75,111  
                 
Income tax expense - normalized
   $ 15,205     $ 30,637  
                 
Income from continuing operations - normalized
   $ 27,207     $ 44,474  
                 
Diluted earnings per share from continuing operations - normalized
   $ 1.04     $ 2.31  
                 
                 
                 
    See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to
  
         Adjusted EBITDA and Adjusted EBITDAR."
                
                 
    See normalizing adjustments in the table "Normalizing Adjustments - Quarter Comparison."
  

 
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SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
CONSOLIDATED BALANCE SHEETS
  
(in thousands, except per share data)
  
             
             
   
December 31, 2011
    
December 31, 2010
  
   
(unaudited)
    
(unaudited)
  
ASSETS
            
             
Current assets:
            
Cash and cash equivalents
   $ 57,908     $ 81,163  
Restricted cash
     15,706       15,329  
Accounts receivable, net
     202,229       214,518  
Prepaid expenses and other assets
     29,075       20,381  
Deferred tax assets
     63,170       69,800  
                 
 Total current assets
     368,088       401,191  
                 
Property and equipment, net
     148,298       139,860  
Intangible assets, net
     35,294       39,815  
Goodwill
     34,496       350,199  
Restricted cash, non-current
     353       350  
Deferred tax assets
     123,974       126,540  
Other assets
     45,163       23,803  
 
                
Total assets
   $ 755,666     $ 1,081,758  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
                 
Current liabilities:
                
Accounts payable
   $ 55,888     $ 49,993  
Accrued compensation and benefits
     61,101       61,518  
Accrued self-insurance obligations, current portion
     57,810       52,093  
Other accrued liabilities
     43,139       53,945  
Current portion of long-term debt and capital lease obligations
     1,017       11,050  
                 
Total current liabilities
     218,955       228,599  
                 
Accrued self-insurance obligations, net of current portion
     157,267       133,405  
Long-term debt and capital lease obligations, net of current portion
     88,768       144,930  
Unfavorable lease obligations, net
     7,110       9,815  
Other long-term liabilities
     58,110       52,566  
                 
Total liabilities
     530,210       569,315  
                 
                 
Stockholders' equity:
                
Preferred stock of $.01 par value, authorized 3,333 shares,
       zero shares were issued and outstanding as of December 31, 2011
       and December 31, 2010
     -       -  
Common stock of $.01 par value, authorized 41,667 shares,
       25,146 and 24,974 shares issued and outstanding as of
       December 31, 2011 and December 31, 2010, respectively
     251       250  
Additional paid-in capital
     726,861       720,854  
Accumulated deficit
     (500,427 )     (208,661 )
Accumulated other comprehensive loss, net
     (1,229 )     -  
      225,456       512,443  
Total liabilities and stockholders' equity
   $ 755,666     $ 1,081,758  

 
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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
  
   
December 31, 2011
    
December 31, 2010
  
   
(unaudited)
    
(unaudited)
  
             
Total net revenues
   $ 472,919     $ 480,771  
Costs and expenses:
                
Operating salaries and benefits
     267,860       272,182  
Self-insurance for workers' compensation and
      general and professional liability insurance
     15,249       27,035  
Operating administrative costs
     12,058       13,011  
Other operating costs
     102,043       97,893  
Center rent expense
     37,199       28,085  
General and administrative expenses
     17,175       16,273  
Depreciation and amortization
     8,450       10,182  
Provision for losses on accounts receivable
     10,317       4,580  
Interest, net of interest income of $80 and $92, respectively
     4,762       8,611  
Loss on extinguishment of debt, net
     -       29,221  
Transaction costs
     -       22,117  
Loss on sale of assets, net
     -       847  
Total costs and expenses
     475,113       530,037  
                 
Loss before income taxes and discontinued operations
     (2,194 )     (49,266 )
Income tax benefit
     (2,185 )     (17,026 )
Loss from continuing operations
     (9 )     (32,240 )
                 
Discontinued operations:
                
Loss from discontinued operations, net of related taxes
     (410 )     (136 )
Loss from discontinued operations, net
     (410 )     (136 )
                 
Net loss
   $ (419 )   $ (32,376 )
                 
                 
Basic loss per common and common equivalent share:
                
Loss from continuing operations
   $ -     $ (1.25 )
Loss from discontinued operations, net
     (0.02 )     (0.01 )
Net loss
   $ (0.02 )   $ (1.26 )
                 
Diluted loss per common and common equivalent share:
                
Loss from continuing operations
   $ -     $ (1.25 )
Loss from discontinued operations, net
     (0.02 )     (0.01 )
Net loss
   $ (0.02 )   $ (1.26 )
                 
Weighted average number of common and
  common equivalent shares outstanding:
          
Basic
     26,216       25,791  
Diluted
     26,216       25,791  


 
4 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
CONSOLIDATED INCOME STATEMENTS
  
(in thousands, except per share data)
  
             
   
For the
    
For the
  
   
Year Ended
    
Year Ended
  
   
December 31, 2011
    
December 31, 2010
  
   
(unaudited)
    
(unaudited)
  
             
Total net revenues
   $ 1,930,340     $ 1,896,505  
Costs and expenses:
                
Operating salaries and benefits
     1,086,109       1,071,786  
Self-insurance for workers' compensation and
      general and professional liability insurance
     61,027       70,468  
Operating administrative costs
     51,971       51,943  
Other operating costs
     400,256       386,972  
Center rent expense
     148,308       84,390  
General and administrative expenses
     62,331       60,842  
Depreciation and amortization
     32,086       47,631  
Provision for losses on accounts receivable
     25,277       20,391  
Interest, net of interest income of $324 and $314, respectively
     19,451       42,717  
Loss on extinguishment of debt, net
     -       29,221  
Transaction costs
     -       29,113  
Loss on sale of assets, net
     810       847  
Restructuring costs
     2,728       -  
Loss on asset impairment
     317,091       -  
Total costs and expenses
     2,207,445       1,896,321  
                 
(Loss) income before income taxes and discontinued operations
     (277,105 )     184  
Income tax expense
     12,457       2,964  
Loss from continuing operations
     (289,562 )     (2,780 )
                 
Discontinued operations:
                
Loss from discontinued operations, net of related taxes
     (1,523 )     (1,870 )
Loss on disposal of discontinued operations, net of related taxes
     (681 )     -  
Loss from discontinued operations, net
     (2,204 )     (1,870 )
                 
Net loss
   $ (291,766 )   $ (4,650 )
                 
                 
Basic loss per common and common equivalent share:
                
Loss from continuing operations
   $ (11.10 )   $ (0.14 )
Loss from discontinued operations, net
     (0.09 )     (0.10 )
Net loss
   $ (11.19 )   $ (0.24 )
                 
Diluted loss per common and common equivalent share:
                
Loss from continuing operations
   $ (11.10 )   $ (0.14 )
Loss from discontinued operations, net
     (0.09 )     (0.10 )
Net Loss
   $ (11.19 )   $ (0.24 )
                 
Weighted average number of common and
 common equivalent shares outstanding:
          
Basic
     26,083       19,280  
Diluted
     26,083       19,280  


 
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SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
(in thousands)
  
             
   
For the
    
For the
  
   
Three Months Ended
    
Three Months Ended
  
   
December 31, 2011
    
December 31, 2010
  
   
(unaudited)
    
(unaudited)
  
             
Cash flows from operating activities:
            
Net loss
   $ (419 )   $ (32,376 )
Adjustments to reconcile net loss to net cash provided by
                
operating activities, including discontinued operations:
                
Loss on extinguishment of debt
     -       14,126  
Depreciation and amortization
     8,452       10,279  
Amortization of favorable and unfavorable lease intangibles
     (557 )     (493 )
Provision for losses on accounts receivable
     10,317       4,747  
Loss on sale of assets, including discontinued operations, net
     -       847  
Stock-based compensation expense
     3,200       1,552  
Deferred taxes
     (1,717 )     (16,566 )
Changes in operating assets and liabilities, net of acquisitions:
                
Accounts receivable
     (4,174 )     (6,445 )
Restricted cash
     675       331  
Prepaid expenses and other assets
     2,405       (2,341 )
Accounts payable
     7,473       1,786  
Accrued compensation and benefits
     11,744       574  
Accrued self-insurance obligations
     3,671       12,849  
Income taxes payable
     -       (1,605 )
Other accrued liabilities
     (6,918 )     (8,643 )
Other long-term liabilities
     (421 )     (872 )
Net cash provided by (used for) operating activities
     33,731       (22,250 )
                 
Cash flows from investing activities:
                
Capital expenditures
     (11,800 )     (12,040 )
Acquisitions, net of cash acquired
     (1,000 )     (13,894 )
Net cash used for investing activities
     (12,800 )     (25,934 )
                 
Cash flows from financing activities:
                
Borrowings of long-term debt
     -       415,000  
Principal repayments of long-term debt and capital lease obligations
     (52,797 )     (322,041 )
Distribution to non-controlling interest
     -       (36 )
Distribution to Sabra Health Care REIT, Inc.
     -       (66,862 )
Dividends to stockholders
     -       (9,996 )
Proceeds from issuance of common stock
     -       (608 )
Deferred financing costs
     (1,405 )     (24,460 )
Net cash used for financing activities
     (54,202 )     (9,003 )
                 
Net decrease in cash and cash equivalents
     (33,271 )     (57,187 )
Cash and cash equivalents at beginning of period
     91,179       138,350  
Cash and cash equivalents at end of period
   $ 57,908     $ 81,163  
                 
Reconciliation of net cash provided by operating activities to free cash flow:
          
                 
Net cash provided by (used for) operating activities
   $ 33,731     $ (22,250 )
Capital expenditures
     (11,800 )     (12,040 )
Cash used for professional fees on restructuring
     -       24,232  
Cash used for early redemption fees
     -       15,095  
Cash used for broker fees on acquisitions
     -       446  
Free cash flow
   $ 21,931     $ 5,483  
                 
                 
 
Free cash flow is defined as net cash flow provided by operating activities less cash used for capital expenditures.
Free cash flow is used by management to evaluate discretionary cash flow potentially available for principal repayment and other financing activities.

 
6 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
(in thousands)
  
             
   
For the
    
For the
  
   
Twelve Months Ended
    
Twelve Months Ended
  
   
December 31, 2011
    
December 31, 2010
  
   
(unaudited)
    
(unaudited)
  
             
Cash flows from operating activities:
            
Net loss
   $ (291,766 )   $ (4,650 )
Adjustments to reconcile net loss to net cash provided by
                
  operating activities, including discontinued operations:
                
  Loss on extinguishment of debt
     -       14,126  
  Depreciation and amortization
     32,331       48,023  
  Amortization of favorable and unfavorable lease intangibles
 (2,023 )     (1,945 )
  Provision for losses on accounts receivable
     25,796       21,175  
  Loss on sale of assets, including discontinued operations, net
 1,926       847  
  Loss on asset impairment
     317,091       -  
  Stock-based compensation expense
     8,360       6,300  
  Deferred taxes
     8,154       (1,590 )
    Changes in operating assets and liabilities, net of acquisitions:
            
  Accounts receivable
     (15,561 )     (18,945 )
  Restricted cash
     (1,201 )     3,176  
  Prepaid expenses and other assets
     (178 )     5,671  
  Accounts payable
     5,567       (1,842 )
  Accrued compensation and benefits
     (552 )     2,519  
  Accrued self-insurance obligations
     3,377       17,890  
  Other accrued liabilities
     (5,760 )     (9,919 )
  Other long-term liabilities
     (2,517 )     (928 )
Net cash provided by operating activities
     83,044       79,908  
                 
Cash flows from investing activities:
                
Capital expenditures
     (44,146 )     (53,528 )
Proceeds from sale of assets
     1,809       -  
Acquisitions, net of cash acquired
     (1,356 )     (13,894 )
Net cash used for investing activities
     (43,693 )     (67,422 )
                 
Cash flows from financing activities:
                
Borrowings of long-term debt
     -       435,500  
Principal repayments of long-term debt and capital lease obligations
     (61,201 )     (590,939 )
Payment to non-controlling interest
     -       (2,025 )
Distribution to non-controlling interest
     -       (105 )
Distribution to Sabra Health Care REIT, Inc.
     -       (66,862 )
Dividends to stockholders
     -       (9,996 )
Proceeds from issuance of common stock
     -       225,393  
Deferred financing costs
     (1,405 )     (26,772 )
Net cash used for financing activities
     (62,606 )     (35,806 )
                 
Net decrease in cash and cash equivalents
     (23,255 )     (23,320 )
Cash and cash equivalents at beginning of period
     81,163       104,483  
Cash and cash equivalents at end of period
   $ 57,908     $ 81,163  
                 
Reconciliation of net cash provided by operating activities to free cash flow:
          
                 
Net cash provided by operating activities
   $ 83,044     $ 79,908  
Capital expenditures
     (44,146 )     (53,528 )
Cash used for professional fees on restructuring
     -       26,436  
Cash used for early redemption fees
     -       15,095  
Cash used for broker fees on acquisitions
     -       446  
Free cash flow
   $ 38,898     $ 68,357  
                 

Free cash flow is defined as net cash flow provided by operating activities less cash used for capital expenditures.
Free cash flow is used by management to evaluate discretionary cash flow potentially available for principal repayment and other financing activities.

 
7 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
  
(in thousands)
  
             
   
For the
    
For the
  
   
Three Months Ended
    
Three Months Ended
  
   
December 31, 2011
    
December 31, 2010
  
   
(unaudited)
    
(unaudited)
  
             
 Total net revenues
   $ 472,919     $ 480,771  
                 
 Net loss
   $ (419 )   $ (32,376 )
                 
                 
 Loss from continuing operations
     (9 )     (32,240 )
                 
 Income tax benefit
     (2,185 )     (17,026 )
                 
 Interest, net
     4,762       8,611  
                 
 Depreciation and amortization
     8,450       10,182  
                 
 EBITDA
   $ 11,018     $ (30,473 )
                 
                 
 Loss on extinguishment of debt, net
     -       29,221  
                 
 Loss on sale of assets, net
     -       847  
                 
                 
 Adjusted EBITDA
   $ 11,018     $ (405 )
                 
 Center rent expense
     37,199       28,085  
                 
 Adjusted EBITDAR
   $ 48,217     $ 27,680  

EBITDA is defined as earnings before loss on discontinued operations, income taxes, interest, net, depreciation and amortization.  Adjusted EBITDA is defined as EBITDA before loss on extinguishment of debt, loss on sale of assets, restructuring costs and loss on asset impairment.  Adjusted EBITDAR is defined as Adjusted EBITDA before center rent expense.  Adjusted EBITDA and Adjusted EBITDAR 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.  Adjusted EBITDA and Adjusted EBITDAR are commonly used as analytical indicators within the healthcare industry and also serve as measures of leverage capacity and debt service ability.  Adjusted EBITDA and Adjusted EBITDAR should not be considered as measures of financial performance under generally accepted accounting principles.  As the items excluded from Adjusted EBITDA and Adjusted EBITDAR are significant components in understanding and assessing finance performance, Adjusted EBITDA and Adjusted EBITDAR should not be considered in isolation or as alternatives to net income, 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 Adjusted EBITDA and Adjusted EBITDAR are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations, Adjusted EBITDA and Adjusted EBITDAR as presented may not be comparable to other similarly titled measures of other companies.

 
8 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
  
(in thousands)
  
             
   
For the
    
For the
  
   
Year Ended
    
Year Ended
  
   
December 31, 2011
    
December 31, 2010
  
   
(unaudited)
    
(unaudited)
  
             
 Total net revenues
   $ 1,930,340     $ 1,896,505  
                 
 Net loss
   $ (291,766 )   $ (4,650 )
                 
                 
 Loss from continuing operations
     (289,562 )     (2,780 )
                 
 Income tax expense
     12,457       2,964  
                 
 Interest, net
     19,451       42,717  
                 
 Depreciation and amortization
     32,086       47,631  
                 
 EBITDA
   $ (225,568 )   $ 90,532  
                 
 Loss on extinguishment of debt, net
     -       29,221  
                 
 Loss on sale of assets, net
     810       847  
                 
 Restructuring costs
     2,728       -  
                 
 Loss on asset impairment
     317,091       -  
                 
 Adjusted EBITDA
   $ 95,061     $ 120,600  
                 
 Center rent expense
     148,308       84,390  
                 
 Adjusted EBITDAR
   $ 243,369     $ 204,990  
                 
 
EBITDA is defined as earnings before loss on discontinued operations, income taxes, interest, net, depreciation and amortization.  Adjusted EBITDA is defined as EBITDA before loss on extinguishment of debt, loss on sale of assets, restructuring costs and loss on asset impairment.  Adjusted EBITDAR is defined as Adjusted EBITDA before center rent expense.  Adjusted EBITDA and Adjusted EBITDAR 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.  Adjusted EBITDA and Adjusted EBITDAR are commonly used as analytical indicators within the healthcare industry and also serve as measures of leverage capacity and debt service ability.  Adjusted EBITDA and Adjusted EBITDAR should not be considered as measures of financial performance under generally accepted accounting principles.  As the items excluded from Adjusted EBITDA and Adjusted EBITDAR are significant components in understanding and assessing finance performance, Adjusted EBITDA and Adjusted EBITDAR should not be considered in isolation or as alternatives to net income, 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.  Adjusted EBITDA and Adjusted EBITDAR are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations, Adjusted EBITDA and Adjusted EBITDAR as presented may not be comparable to other similarly titled measures of other companies.

 
9 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
  
($ in thousands)
  
   
For the Three Months Ended December 31, 2011
  
(unaudited)
  
                                     
   
Inpatient
Services
    
Rehabilitation
Therapy
Services
    
Medical
Staffing
Services
    
Other &
Corp Seg
    
Elimination
of Affiliated
Revenue
    
Consolidated
  
                                     
Nonaffiliated revenue
   $ 421,394     $ 30,221     $ 21,301     $ 3     $ -     $ 472,919  
                                                 
Affiliated revenue
     -       33,433       692       -       (34,125 )     -  
                                                 
Total revenue
   $ 421,394     $ 63,654     $ 21,993     $ 3     $ (34,125 )   $ 472,919  
                                                 
Income (loss) from continuing operations
   $ 14,905     $ 4,722     $ 1,150     $ (20,786 )   $ -     $ (9 )
                                                 
Income tax expense
     -       -       -       (2,185 )     -       (2,185 )
                                                 
Interest, net
     (8 )     -       -       4,770       -       4,762  
                                                 
Depreciation and amortization
     7,054       251       186       959       -       8,450  
                                                 
EBITDA
   $ 21,951     $ 4,973     $ 1,336     $ (17,242 )   $ -     $ 11,018  
                                                 
Loss on extinguishment of debt, net
     -       -       -       -       -       -  
                                                 
Loss on sale of assets, net
     -       -       -       -       -       -  
                                                 
Adjusted EBITDA
   $ 21,951     $ 4,973     $ 1,336     $ (17,242 )   $ -     $ 11,018  
                                                 
Center rent expense
     36,897       137       165       -       -       37,199  
                                                 
Adjusted EBITDAR
   $ 58,848     $ 5,110     $ 1,501     $ (17,242 )   $ -     $ 48,217  
                                                 
                                                 
Normalized Adjusted EBITDA
   $ 21,951     $ 4,973     $ 1,336     $ (17,242 )   $ -     $ 11,018  
Normalized Adjusted EBITDAR
   $ 58,848     $ 5,110     $ 1,501     $ (17,242 )   $ -     $ 48,217  
                                                 
                                                 
Adjusted EBITDA margin
     5.2 %     7.8 %     6.1 %                     2.3 %
                                                 
Adjusted EBITDAR margin
     14.0 %     8.0 %     6.8 %                     10.2 %
                                                 
 Normalized Adjusted EBITDA margin
     5.2 %     7.8 %     6.1 %                     2.3 %
                                                 
 Normalized Adjusted EBITDAR margin
     14.0 %     8.0 %     6.8 %                     10.2 %
                                                 
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to
  
Adjusted EBITDA and Adjusted EBITDAR."
                                          
See normalizing adjustments in the table "Normalizing Adjustments - Quarter Comparison."
                  


 
10 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
  
($ in thousands)
  
   
For the Year Ended December 31, 2011
  
(unaudited)
  
                                     
   
Inpatient
Services
    
Rehabilitation
Therapy
Services
    
Medical
Staffing
Services
    
Other &
Corp Seg
    
Elimination
of Affiliated
Revenue
    
Consolidated
  
                                     
Nonaffiliated revenue
   $ 1,723,825     $ 119,866     $ 86,610     $ 39     $ -     $ 1,930,340  
                                                 
Affiliated revenue
     -       132,143       2,771       -       (134,914 )     -  
                                                 
Total revenue
   $ 1,723,825     $ 252,009     $ 89,381     $ 39     $ (134,914 )   $ 1,930,340  
                                                 
Income (loss) from continuing operations
   $ (207,417 )   $ 13,217     $ 5,232     $ (100,594 )   $ -     $ (289,562 )
                                                 
Income tax expense
     -       -       -       12,457       -       12,457  
                                                 
Interest, net
     (76 )     -       1       19,526       -       19,451  
                                                 
Depreciation and amortization
     26,779       941       746       3,620       -       32,086  
                                                 
EBITDA
   $ (180,714 )   $ 14,158     $ 5,979     $ (64,991 )   $ -     $ (225,568 )
                                                 
Loss on extinguishment of debt, net
     -       -       -       -       -       -  
                                                 
Loss on sale of assets, net
     810       -       -       -       -       810  
                                                 
Restructuring costs
     302       -       -       2,426       -       2,728  
                                                 
Loss on asset impairment
     317,091       -       -       -       -       317,091  
                                                 
Adjusted EBITDA
   $ 137,489     $ 14,158     $ 5,979     $ (62,565 )   $ -     $ 95,061  
                                                 
Center rent expense
     147,099       531       678       -       -       148,308  
                                                 
Adjusted EBITDAR
   $ 284,588     $ 14,689     $ 6,657     $ (62,565 )   $ -     $ 243,369  
                                                 
                                                 
Normalized Adjusted EBITDA
   $ 137,489     $ 14,158     $ 5,979     $ (62,565 )   $ -     $ 95,061  
Normalized Adjusted EBITDAR
   $ 284,588     $ 14,689     $ 6,657     $ (62,565 )   $ -     $ 243,369  
                                                 
                                                 
Adjusted EBITDA margin
     8.0 %     5.6 %     6.7 %                     4.9 %
                                                 
Adjusted EBITDAR margin
     16.5 %     5.8 %     7.4 %                     12.6 %
                                                 
 Normalized Adjusted EBITDA margin
     8.0 %     5.6 %     6.7 %                     4.9 %
                                                 
 Normalized Adjusted EBITDAR margin
     16.5 %     5.8 %     7.4 %                     12.6 %
                                                 
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to
  
Adjusted EBITDA and Adjusted EBITDAR."
    
See normalizing adjustments in the table "Normalizing Adjustments - Year to Date Comparison."

 
11 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
  
($ in thousands)
  
   
For the Three Months Ended December 31, 2010
  
(unaudited)
  
                                     
   
Inpatient
Services
    
Rehabilitation
Therapy
Services
    
Medical
Staffing
Services
    
Other &
Corp Seg
    
Elimination
of Affiliated
Revenue
    
Consolidated
  
                                     
Nonaffiliated revenue
   $ 428,817     $ 29,889     $ 22,053     $ 12     $ -     $ 480,771  
                                                 
Affiliated revenue
     -       22,892       672       -       (23,564 )     -  
                                                 
Total revenue
   $ 428,817     $ 52,781     $ 22,725     $ 12     $ (23,564 )   $ 480,771  
                                                 
Income (loss) from continuing operations
   $ 36,237     $ 2,315     $ 1,116     $ (71,908 )   $ -     $ (32,240 )
                                                 
Income tax expense
     -       -       -       (17,026 )     -       (17,026 )
                                                 
Interest, net
     1,319       -       -       7,292       -       8,611  
                                                 
Depreciation and amortization
     8,919       194       189       880       -       10,182  
                                                 
EBITDA
   $ 46,475     $ 2,509     $ 1,305     $ (80,762 )   $ -     $ (30,473 )
                                                 
Loss on extinguishment of debt, net
     -       -       -       29,221       -       29,221  
                                                 
Loss on sale of assets, net
     847       -       -       -       -       847  
                                                 
Adjusted EBITDA
   $ 47,322     $ 2,509     $ 1,305     $ (51,541 )   $ -     $ (405 )
                                                 
Center rent expense
     27,724       133       228       -       -       28,085  
                                                 
Adjusted EBITDAR
   $ 75,046     $ 2,642     $ 1,533     $ (51,541 )   $ -     $ 27,680  
                                                 
                                                 
Normalized Adjusted EBITDA
   $ 47,769     $ 2,509     $ 1,305     $ (14,124 )   $ -     $ 37,459  
Normalized Adjusted EBITDAR
   $ 75,493     $ 2,642     $ 1,533     $ (14,124 )   $ -     $ 65,544  
                                                 
                                                 
Adjusted EBITDA margin
     11.0 %     4.8 %     5.7 %                     -0.1 %
                                                 
Adjusted EBITDAR margin
     17.5 %     5.0 %     6.7 %                     5.8 %
                                                 
 Normalized Adjusted EBITDA margin
     11.1 %     4.8 %     5.7 %                     7.8 %
                                                 
 Normalized Adjusted EBITDAR margin
     17.6 %     5.0 %     6.7 %                     13.6 %
                                                 
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to
  
Adjusted EBITDA and Adjusted EBITDAR."
See normalizing adjustments in the table "Normalizing Adjustments - Quarter Comparison."


 
12 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
  
($ in thousands)
  
   
For the Year Ended December 31, 2010
  
(unaudited)
  
                                     
   
Inpatient
Services
    
Rehabilitation
Therapy
Services
    
Medical
Staffing
Services
    
Other &
Corp Seg
    
Elimination
of Affiliated
Revenue
    
Consolidated
  
                                     
Nonaffiliated revenue
   $ 1,687,087     $ 119,613     $ 89,765     $ 40     $ -     $ 1,896,505  
                                                 
Affiliated revenue
     -       86,476       2,036       -       (88,512 )     -  
                                                 
Total revenue
   $ 1,687,087     $ 206,089     $ 91,801     $ 40     $ (88,512 )   $ 1,896,505  
                                                 
Income (loss) from continuing operations
   $ 149,836     $ 14,073     $ 5,595     $ (172,284 )   $ -     $ (2,780 )
                                                 
Income tax expense
     -       -       -       2,964       -       2,964  
                                                 
Interest, net
     9,146       -       (1 )     33,572       -       42,717  
                                                 
Depreciation and amortization
     42,956       678       732       3,265       -       47,631  
                                                 
EBITDA
   $ 201,938     $ 14,751     $ 6,326     $ (132,483 )   $ -     $ 90,532  
                                                 
Loss on extinguishment of debt, net
     -       -       -       29,221       -       29,221  
                                                 
Loss on sale of assets, net
     847       -       -       -       -       847  
                                                 
Restructuring costs
     -       -       -       -       -       -  
                                                 
Loss on asset impairment
     -       -       -       -       -       -  
                                                 
Adjusted EBITDA
   $ 202,785     $ 14,751     $ 6,326     $ (103,262 )   $ -     $ 120,600  
                                                 
Center rent expense
     83,050       496       844       -       -       84,390  
                                                 
Adjusted EBITDAR
   $ 285,835     $ 15,247     $ 7,170     $ (103,262 )   $ -     $ 204,990  
                                                 
                                                 
Normalized Adjusted EBITDA
   $ 203,231     $ 14,751     $ 6,326     $ (58,849 )   $ -     $ 165,459  
Normalized Adjusted EBITDAR
   $ 286,281     $ 15,247     $ 7,170     $ (58,849 )   $ -     $ 249,849  
                                                 
                                                 
Adjusted EBITDA margin
     12.0 %     7.2 %     6.9 %                     6.4 %
                                                 
Adjusted EBITDAR margin
     16.9 %     7.4 %     7.8 %                     10.8 %
                                                 
 Normalized Adjusted EBITDA margin
     12.0 %     7.2 %     6.9 %                     8.7 %
                                                 
 Normalized Adjusted EBITDAR margin
     17.0 %     7.4 %     7.8 %                     13.2 %
                                                 
See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to
Adjusted EBITDA and Adjusted EBITDAR."
See normalizing adjustments in the table "Normalizing Adjustments - Year to Date Comparison."

 
13 of 16
 

  
Sun Healthcare Group, Inc. and Subsidiaries
  
Selected Operating Statistics
  
Continuing Operations
  
                                                 
   
For the
          
For the
        
   
Three Months Ended
          
Twelve Months Ended
        
   
December 31,
          
December 31,
        
   
2011
          
2010
          
2011
          
2010
        
Consolidated Company
                                                
                                                 
Revenues - Non-affiliated (in thousands)
                                            
  Skilled Nursing and similar facilities
   $ 405,952           $ 416,346           $ 1,663,294           $ 1,639,321        
  Hospice
     14,979             11,901             58,626             45,533        
  Other - Inpatient Services
     463             570             1,905             2,233        
    Inpatient Services
     421,394             428,817             1,723,825             1,687,087        
                                                         
  Rehabilitation Therapy Services
     30,221             29,889             119,866             119,613         
  Medical Staffing Services
     21,301             22,053             86,610             89,765        
  Other - non-core businesses
     3             12             39             40        
Total
   $ 472,919           $ 480,771           $ 1,930,340           $ 1,896,505        
                                                         
                                                         
Revenue Mix - Non-affiliated (in thousands)
                                                  
  Medicare
   $ 139,534      30 %   $ 144,920      30 %   $ 612,185      32 %   $ 564,766      30 %
  Medicaid
     196,490      42 %     194,236      40 %     759,471      39 %     763,458      40 %
  Private and Other
     108,028      22 %     112,758      24 %     440,367      23 %     451,921      24 %
  Managed Care / Insurance
     23,754      5 %     23,521      5 %     97,516      5 %     95,997      5 %
  Veterans
     5,113      1 %     5,336      1 %     20,801      1 %     20,363      1 %
Total
   $ 472,919      100 %   $ 480,771      100 %   $ 1,930,340      100 %   $ 1,896,505      100 %
                                                                 
                                                                 
                                                                 
Inpatient Services Stats
                                                                
                                                                 
  Number of centers:
     199               199               199               199          
  Number of available beds:
     22,045               22,106               22,045               22,106          
  Occupancy %:
     86.4 %             86.7 %             86.5 %             87.0 %        
                                                                 
                                                                 
  Payor Mix % based on patient days:
                                                                
      Medicare - SNF Beds
     14.5 %             14.2 %             15.3 %             15.0 %        
      Managed care / Ins. - SNF Beds
     3.9 %             3.7 %             4.0 %             3.9 %        
      Total SNF skilled mix
     18.4 %             17.9 %             19.3 %             18.9 %        
                                                                 
    Medicare
     13.3 %             13.0 %             14.0 %             13.7 %        
    Medicaid
     63.5 %             63.0 %             62.5 %             62.3 %        
    Private and Other
     18.4 %             19.3 %             18.6 %             19.2 %        
    Managed Care / Insurance
     3.6 %             3.4 %             3.7 %             3.6 %        
    Veterans
     1.2 %             1.3 %             1.2 %             1.2 %        
                                                                 
  Revenue Mix % of revenues:
                                                                
      Medicare - SNF Beds
     31.0 %             32.4 %             33.8 %             32.1 %        
      Managed care / Ins. - SNF Beds
     6.0 %             5.8 %             6.0 %             6.0 %        
      Total SNF skilled mix
     37.0 %             38.2 %             39.8 %             38.1 %        
                                                                 
    Medicare
     32.0 %             32.7 %             34.4 %             32.4 %        
    Medicaid
     46.6 %             45.3 %             44.1 %             45.2 %        
    Private and Other
     14.7 %             15.4 %             14.7 %             15.6 %        
    Managed Care / Insurance
     5.5 %             5.4 %             5.6 %             5.6 %        
    Veterans
     1.2 %             1.2 %             1.2 %             1.2 %        
                                                                 
                                                                 
Revenues PPD:
                                                                
    Medicare (Part A)
   $ 464.54             $ 515.32             $ 506.53             $ 476.57          
    Medicare Blended Rate (Part A & B)
   $ 513.83             $ 558.27             $ 547.95             $ 516.88          
    Medicaid
   $ 176.60             $ 174.10             $ 174.46             $ 173.21          
    Medicaid, net of provider taxes
   $ 160.39             $ 159.55             $ 159.21             $ 159.36          
    Private and Other
   $ 183.39             $ 184.17             $ 186.57             $ 184.73          
    Managed Care / Insurance
   $ 376.02             $ 390.28             $ 375.62             $ 373.92          
    Veterans
   $ 249.73             $ 239.33             $ 249.86             $ 240.60          
                                                                 
                                                                 
Rehab contracts
                                                                
                                                                 
  Affiliated
     178               162               178               162          
  Non-affiliated
     339               346               339               346          
                                                                 
  Average Qtrly Revenue per Contract
  (in thousands)
   $ 123             $ 104             $ 122             $ 101          
                                                                 
                                                                 
                                                                 


 
14 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
NORMALIZING ADJUSTMENTS - QUARTER COMPARISON
  
(in thousands, except per share data)
  
                                           
                                           
   
AS REPORTED - 4th QUARTER 2011
  
   
Revenue
    
Adjusted
EBITDAR
  
Adjusted
EBITDA
  
Pre-tax
    
Loss from
Continuing
Operations
  
Disc Ops
  
Net
Income
  
                                           
As Reported 4th QUARTER 2011
 $ 472,919     $ 48,217     $ 11,018     $ (2,194 )   $ (9 )   $ (410 )   $ (419 )
Percent of Revenue
             10.2 %     2.3 %     -0.5 %     0.0 %     -0.1 %     -0.1 %
                                                         
Normalizing Adjustments:
                                                        
                                                         
None
     -       -       -       -       -       -       -  
                                                         
Normalized As Reported-4th QUARTER 2011
 $ 472,919     $ 48,217     $ 11,018     $ (2,194 )   $ (9 )   $ (410 )   $ (419 )
Percent of Revenue
             10.2 %     2.3 %     -0.5 %     0.0 %     -0.1 %     -0.1 %
                                                         
 As Reported
                                   $ -     $ (0.02 )   $ (0.02 )
Diluted EPS:      As Normalized
                                   $ -     $ (0.02 )   $ (0.02 )
                                                         
                                                         
                                                         
                                                         
                                                         
   
AS REPORTED - 4th QUARTER 2010
  
   
Revenue
    
Adjusted
EBITDAR
  
Adjusted
EBITDA
  
Pre-tax
    
Income/
(Loss) from
Continuing
Operations
  
Disc Ops
  
Net
Income
  
                                                         
As Reported-4th QUARTER 2010
 $ 480,771     $ 27,680     $ (405 )   $ (49,266 )   $ (32,240 )   $ (136 )   $ (32,376 )
Percent of Revenue
             5.8 %     -0.1 %     -10.2 %     -6.7 %     0.0 %     -6.7 %
                                                         
Normalizing Adjustments:
                                                        
                                                         
Loss on sale of property
     -       -       -       847       500       -       500  
Loss on extinguishment of debt
     -       -       -       29,221       17,240       -       17,240  
Transaction costs related to acquisition
     -       446       446       446       263       -       263  
Prior periods' self-insurance costs and other
     general liability matters
     -       15,300       15,300       15,300       9,027       -       9,027  
REIT separation transaction costs
     -       22,117       22,117       22,117       16,096       -       16,096  
                                                         
Normalized As Reported-4th QUARTER 2010
 $ 480,771     $ 65,543     $ 37,458     $ 18,665     $ 10,886     $ (136 )   $ 10,750  
Percent of Revenue
             13.6 %     7.8 %     3.9 %     2.3 %     0.0 %     2.2 %
                                                         
 As Reported
                                   $ (1.25 )   $ (0.01 )   $ (1.26 )
Diluted EPS:      As Normalized
                                   $ 0.42     $ -     $ 0.42  
                                                         
                                                         
                                                         
                                                         
                                                         
See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to Adjusted EBITDA and Adjusted EBITDAR."
  
                                                         
Normalizing adjustments are transactions or adjustments not related to ongoing operations and consist of loss on sale of property, loss on debt extinguishment, transaction costs on acquisition, prior periods' self-insurance costs, and REIT separation transaction costs.
 
  
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.
  


 
15 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
   
NORMALIZING ADJUSTMENTS - YEAR TO DATE COMPARISON
  
(in thousands, except per share data)
  
                                           
                                           
   
AS REPORTED - TWELVE MONTHS 2011
  
   
Revenue
    
Adjusted
EBITDAR
  
Adjusted
EBITDA
  
Pre-tax
    
Income/
(Loss) from
Continuing
Operations
  
Disc Ops
  
Net
Income
  
                                           
As Reported-Twelve Months 2011
   $ 1,930,340     $ 243,369     $ 95,061     $ (277,105 )   $ (289,562 )   $ (2,204 )   $ (291,766 )
Percent of Revenue
             12.6 %     4.9 %     -14.4 %     -15.0 %     -0.1 %     -15.1 %
                                                         
Normalizing Adjustments:
                                                        
                                                         
Restructuring costs
     -       -       -       2,426       1,480       -       1,480  
Impairment of assets
     -       -       -       317,091       315,289       -       315,289  
                                                         
Normalized As Reported-Twelve Months 2011
 $ 1,930,340     $ 243,369     $ 95,061     $ 42,412     $ 27,207     $ (2,204 )   $ 25,003  
Percent of Revenue
             12.6 %     4.9 %     2.2 %     1.4 %     -0.1 %     1.3 %
                                                         
 As Reported
                                   $ (11.10 )   $ (0.09 )   $ (11.19 )
 Diluted EPS:      As Normalized
                                   $ 1.04     $ (0.08 )   $ 0.96  
                                                         
                                                         
                                                         
                                                         
                                                         
   
AS REPORTED - TWELVE MONTHS 2010
  
   
Revenue
    
Adjusted EBITDAR
  
Adjusted
EBITDA
  
Pre-tax
    
Income/
(Loss) from Continuing Operations
  
Disc Ops
  
Net
Income
  
                                                         
As Reported-Twelve Months 2010
   $ 1,896,505     $ 204,990     $ 120,600     $ 184     $ (2,780 )   $ (1,870 )   $ (4,650 )
Percent of Revenue
             10.8 %     6.4 %     0.0 %     -0.1 %     -0.1 %     -0.2 %
                                                         
Normalizing Adjustments:
                                                        
                                                         
Loss on sale of property
     -       -       -       847       500       -       500  
Loss on extinguishment of debt
     -       -       -       29,221       17,240       -       17,240  
Transaction costs related to acquisition
     -       446       446       446       263       -       263  
Prior periods' self-insurance costs and other
     general liability matters
     -       15,300       15,300       15,300       9,027       -       9,027  
REIT separation transaction costs
     -       29,113       29,113       29,113       20,224       -       20,224  
                                                         
Normalized As Reported-Twelve Months 2010
 $ 1,896,505     $ 249,849     $ 165,459     $ 75,111     $ 44,474     $ (1,870 )   $ 42,604  
Percent of Revenue
             13.2 %     8.7 %     4.0 %     2.3 %     -0.1 %     2.2 %
                                                         
                                                         
 As Reported
                                   $ (0.14 )   $ (0.10 )   $ (0.24 )
Diluted EPS:      As Normalized
                                   $ 2.31     $ (0.10 )   $ 2.21  
                                                         
                                                         
                                                         
See definitions of Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Income to Adjusted EBITDA and Adjusted EBITDAR."
  
                                                         
Normalizing adjustments are transactions or adjustments not related to ongoing operations and consist of impairment of assets, restructuring costs, loss on sale of property, loss on debt extinguishment, transaction costs on acquisition, prior periods' self-insurance costs, and REIT separation transaction costs.
  
                                                         
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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