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

Sun Healthcare Group, Inc.
 Reports Third-quarter Earnings
and Normalized EPS of $0.25

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

Irvine, Calif. (Oct. 27, 2009)—Sun Healthcare Group, Inc. (NASDAQ GS: SUNH) today announced its operating results for the third quarter ended Sept. 30, 2009.
 
Third-quarter Results:
 
On a normalized basis, comparing the quarter ended Sept. 30, 2009, to the same period in 2008 (unless otherwise stated):
 
·  
consolidated revenues rose 3.3 percent to $470.9 million;
o  
rates continued to drive revenue growth;
§  
acuity strategy contributed to rate growth;
·  
consolidated EBITDAR increased 5.3 percent to $60.4 million;
o  
EBITDAR margin improved 20 basis points to 12.8 percent;
·  
consolidated EBITDA increased 8.3 percent to $42.2 million;
o  
EBITDA margin improved 50 basis points to 9.0 percent;
·  
diluted earnings per share from continuing operations reported at $0.25, up 19 percent;
·  
operating cash flows up 36 percent to $39.8 million;
·  
the sole normalizing item in the third quarter was a non-recurring pretax expense of
 
$0.9 million for restructuring costs, which consisted principally of employee severance costs;
o  
infrastructure restructuring should reduce overhead by approximately $10.0 million on an annualized basis; and
·  
results included $1.0 million of non-recurring project costs associated with the implementation of the new clinical/billing platform and labor management system.

  Commenting on the Company’s third-quarter results, Richard K. Matros, Sun’s chairman and chief executive officer, remarked, “It appears that we have weathered the worst of the economic downturn relative to overall occupancy and mix. On a sequential basis, our occupancy improved 20 basis points.  Although occupancy was down 80 basis points compared to third quarter of 2008, it is an improvement over the decrease of 130 basis points that we experienced in the second quarter. Our skilled mix was down 20 basis points compared to third quarter of 2008, as compared to the second quarter’s year-over-year decline of 100 basis points. As a percent of revenue, skilled mix increased 90 basis points over the third quarter of 2008. September’s occupancy edged up to 88.2 percent and has held in October. The Company’s operating cash flows for the quarter were strong and our cost controls continue to be solid.”

 
 
 

Segment Updates
 
The year-over-year revenue growth in Sun’s inpatient services business (SunBridge) for the quarter of $16.9 million or 4.2 percent was principally driven by skilled rate growth and census expansion in the hospice business (SolAmor). SunBridge’s nursing center Medicare rate continued to demonstrate strong acuity growth, as evidenced by the Rehab RUG utilization of 88.9 percent and REX utilization of 42 percent, resulting in an 8.1 percent increase in rates. In addition, SunBridge experienced a 5.4 percent increase in managed care rates. SolAmor’s revenues grew 75 percent from $4.1 million to $7.2 million, principally due to growth in census (driven in part by a September 2008 acquisition). SolAmor had its best ever quarter, contributing $1.6 million in EBITDA and a 22.2 percent EBITDA margin. The Oct. 1, 2009 acquisition of Allegiance Hospice will increase the potential of the hospice business line. Overall, inpatient services EBITDA grew $4.5 million year over year along with a 60 basis point improvement in margin, which increased to 12.6 percent for the quarter.
 
SunDance, Sun’s rehabilitation therapy services business, experienced revenue growth of $6.7 million or 17.4 percent in the quarter and EBITDA margin expansion of 110 basis points, which produced a 6.1 percent margin for the quarter. The revenue growth and margin expansion were favorably impacted by 15 percent growth in revenue per contract.
 
The slow economy continues to impact the demand for temporary medical staffing across the industry.  Accordingly, revenues from CareerStaff, Sun’s medical staffing services business, were down compared to revenues in the third quarter of 2008. Despite the decline in revenues, CareerStaff experienced EBITDA margin growth of 40 basis points to 9.3 percent for the quarter.
 
        Mr. Matros further stated, “Acuity in our inpatient services business continued to be strong, particularly in our Rehab Recovery Suites ® (RRS) centers, where skilled mix increased 40 basis points to 21.5 percent over the third quarter of 2008. Quality results as measured by both internal and external metrics continued to reflect our commitment to quality of care, and we expect that 2009 will be our best year in terms of these metrics. SolAmor continued its strong performance and will benefit from the recent acquisition of Allegiance Hospice. Through nine months on $19.2 million in revenue, it contributed $3.5 million in EBITDA. CareerStaff, as previously noted, is our hardest-hit business segment and, while revenues have decreased, our management team once again increased margins. SunDance recorded another good quarter and continues to show growth in key metrics.”
 
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, Oct. 28, 2009, at 10 a.m. Pacific / 1 p.m. Eastern, to discuss the Company’s earnings for the third quarter of 2009.

      To listen to the conference call, dial (800) 768-6490 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. Eastern on Oct. 28, 2009, until midnight Eastern on Nov. 27, 2009, by calling (888) 203-1112 and using access code 5432115.
 
About Sun Healthcare Group, Inc.
 
The subsidiaries of Sun Healthcare Group, Inc. (NASDAQ GS: SUNH) provide nursing, rehabilitative and related specialty healthcare services principally to the senior population in the United States. Sun’s core business is providing inpatient services, primarily through 184 skilled nursing centers, 14 assisted and independent living centers and eight mental health centers. On a consolidated basis, Sun had annual revenues in 2008 of more than $1.8 billion and approximately 30,000 employees in 46 states.

 
 
 

At Sept. 30, 2009, SunBridge centers had 23,289 licensed beds located in 25 states, of which 22,481 were available for occupancy. The company also provides rehabilitation therapy services to affiliated and non-affiliated centers through the SunDance subsidiary, medical staffing services through the CareerStaff Unlimited subsidiary and hospice services through the SolAmor subsidiary.

 
Forward-Looking Statement
 
     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 healthcare 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 make acquisitions, incur more indebtedness and refinance indebtedness on favorable terms; the impact of the current economic downturn on our business; increasing labor costs and the shortage of qualified healthcare personnel; and our ability to receive increases in reimbursement rates from government payors to cover increased costs. More information on factors that could affect our business and financial results are included in our public filings made with the Securities and Exchange Commission, including our Annual Report on Forms 10-K and 10-K/A and Quarterly Reports on Form 10-Q and 10-Q/A, copies of which are available on Sun’s web site, www.sunh.com.
     The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. We caution investors that any forward-looking statements made by Sun are not guarantees of future performance. We disclaim any obligation to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statements to reflect future events or developments.
     EBITDA and EBITDAR as used in this press release and in the accompanying tables, which are non-GAAP financial measures, are each reconciled to net income (loss) in the accompanying tables. In addition, the normalizing adjustments to EBITDA, EBITDAR, pre-tax income and income from continuing operations discussed in this press release and shown in the accompanying tables are non-GAAP adjustments.
     Any documents filed by Sun with the SEC may be obtained free of charge at the SEC’s web site at www.sec.gov. In addition, investors and stockholders of Sun may obtain free copies of the documents filed with the SEC by contacting Sun’s investor relations department at (505) 468-2341 (TDD users, please call (505) 468-4458) or by sending a written request to Investor Relations, Sun Healthcare Group, Inc. 101 Sun Avenue N.E., Albuquerque, N.M. 87109. You may also read and copy any reports, statements and other information filed by Sun with the SEC at the SEC public reference room at Room 1580, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 or visit the SEC’s web site for further information.

 
 
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
             
KEY INCOME STATEMENT FIGURES
  
CONSOLIDATED
  
(in thousands, except per share data)
  
             
   
For the
    
For the
  
   
Three Months Ended
    
Three Months Ended
  
   
September 30, 2009
    
September 30, 2008
  
             
             
Revenue
   $ 470,893     $ 455,757  
                 
Depreciation and amortization
     11,460       10,165  
                 
Interest expense, net
     12,231       13,070  
                 
Pre-tax income
     17,609       15,707  
                 
Income tax expense
     7,220       6,286  
                 
Income from continuing operations
     10,389       9,421  
                 
Loss from discontinued operations
     (731 )     (817 )
                 
Net income
   $ 9,658     $ 8,604  
                 
                 
Diluted earnings per share
   $ 0.22     $ 0.19  
                 
                 
                 
 EBITDAR
   $ 60,366     $ 57,351  
 Margin - EBITDAR
     12.8 %     12.6 %
                 
 EBITDAR normalized
   $ 60,366     $ 57,351  
 Margin - EBITDAR normalized
     12.8 %     12.6 %
                 
                 
                 
                 
 EBITDA
   $ 42,172     $ 38,942  
 Margin - EBITDA
     9.0 %     8.5 %
                 
 EBITDA normalized
   $ 42,172     $ 38,942  
 Margin - EBITDA normalized
     9.0 %     8.5 %
                 
                 
                 
                 
 Pre-tax income continuing operations - normalized
   $ 18,481     $ 15,707  
                 
 Income tax expense - normalized
   $ 7,578     $ 6,286  
                 
 Income from continuing operations normalized
   $ 10,903     $ 9,421  
                 
 Diluted earnings per share - normalized
   $ 0.25     $ 0.21  
                 
 Net income - normalized
   $ 10,172     $ 8,604  
                 
 Diluted earnings per share - normalized
   $ 0.23     $ 0.19  
                 


 
1 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
             
KEY INCOME STATEMENT FIGURES
  
CONSOLIDATED
  
(in thousands, except per share data)
  
             
   
For the
    
For the
  
   
Nine Months Ended
    
Nine Months Ended
  
   
September 30, 2009
    
September 30, 2008
  
             
             
Revenue
   $ 1,407,735     $ 1,356,706  
                 
Depreciation and amortization
     33,336       29,553  
                 
Interest expense, net
     37,422       41,144  
                 
Pre-tax income
     55,597       50,218  
                 
Income tax expense
     22,795       20,119  
                 
Income from continuing operations
     32,802       30,099  
                 
Loss from discontinued operations
     (2,806 )     (3,233 )
                 
Net income
   $ 29,996     $ 26,866  
                 
                 
Diluted earnings per share
   $ 0.68     $ 0.61  
                 
                 
                 
 EBITDAR
   $ 182,042     $ 176,163  
 Margin - EBITDAR
     12.9 %     13.0 %
                 
 EBITDAR normalized
   $ 186,342     $ 174,982  
 Margin - EBITDAR normalized
     13.2 %     12.9 %
                 
                 
                 
                 
 EBITDA
   $ 127,269     $ 120,838  
 Margin - EBITDA
     9.0 %     8.9 %
                 
 EBITDA normalized
   $ 131,569     $ 119,657  
 Margin - EBITDA normalized
     9.3 %     8.8 %
                 
                 
                 
                 
 Pre-tax income continuing operations - normalized
   $ 60,769     $ 49,037  
                 
 Income tax expense - normalized
   $ 24,916     $ 19,647  
                 
 Income from continuing operations normalized
   $ 35,853     $ 29,390  
                 
 Diluted earnings per share - normalized
   $ 0.82     $ 0.67  
                 
 Net income - normalized
   $ 33,395     $ 25,935  
                 
 Diluted earnings per share - normalized
   $ 0.76     $  0.59  
                 


 
2 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
             
CONSOLIDATED BALANCE SHEETS
  
(in thousands, except share data)
  
             
             
   
September 30, 2009
    
December 31, 2008
  
   
(unaudited)
    
(unaudited)
  
ASSETS
            
             
Current assets:
            
Cash and cash equivalents
   $ 117,405     $ 92,153  
Restricted cash
     25,855       34,676  
Accounts receivable, net
     210,394       205,620  
Prepaid expenses and other assets
     23,385       21,456  
Assets held for sale
     -       3,654  
Deferred tax assets
     58,995       57,261  
                 
 Total current assets
     436,034       414,820  
                 
Property and equipment, net
     615,825       603,645  
Intangible assets, net
     49,299       54,388  
Goodwill
     327,020       326,808  
Restricted cash, non-current
     3,313       3,303  
Deferred tax assets
     115,054       134,807  
Other assets
     5,042       5,563  
 
                
Total assets
   $ 1,551,587     $ 1,543,334  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                
                 
Current liabilities:
                
Accounts payable
   $ 48,005     $ 62,000  
Accrued compensation and benefits
     65,592       60,660  
Accrued self-insurance obligations, current
     46,847       45,293  
Other accrued liabilities
     65,141       56,857  
Current portion of long-term debt and capital lease obligations
     27,781       17,865  
                 
Total current liabilities
     253,366       242,675  
                 
Accrued self-insurance obligations, net of current portion
     114,258       114,557  
Long-term debt and capital lease obligations, net of current portion
     674,795       707,976  
Unfavorable lease obligations, net
     13,377       15,514  
Other long-term liabilities
     57,651       58,903  
                 
Total liabilities
     1,113,447       1,139,625  
                 
                 
Stockholders' equity:
                
Preferred stock of $.01 par value, authorized 10,000,000 shares,
      no shares were issued and outstanding as of
      September 30, 2009 and December 31, 2008
     -       -  
Common stock of $.01 par value, authorized 125,000,000 shares,
      43,738,565 and 43,544,765 shares issued and outstanding
      as of September 30, 2009 and December 31, 2008, respectively
     437       435  
Additional paid-in capital
     654,280       650,543  
Accumulated deficit
     (212,686 )     (242,683 )
Accumulated other comprehensive loss, net
     (3,891 )     (4,586 )
      438,140       403,709  
Total liabilities and stockholders' equity
   $ 1,551,587     $ 1,543,334  
                 


 
3 of 16
 

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, 2009
    
September 30, 2008
  
   
(unaudited)
    
(unaudited)
  
             
Total net revenues
   $ 470,893     $ 455,757  
Costs and expenses:
                
Operating salaries and benefits
     265,929       259,349  
Self-insurance for workers' compensation and
      general and professional liability insurance
     14,165       14,527  
Operating administrative costs
     12,462       12,792  
Other operating costs
     97,067       94,599  
Center rent expense
     18,194       18,409  
General and administrative expenses
     15,586       13,832  
Depreciation and amortization
     11,460       10,165  
Provision for losses on accounts receivable
     5,318       3,307  
Interest, net of interest income of $106 and $340, respectively
     12,231       13,070  
Restructuring costs
     872       -  
Total costs and expenses
     453,284       440,050  
                 
Income before income taxes and discontinued operations
     17,609       15,707  
Income tax expense
     7,220       6,286  
Income from continuing operations
     10,389       9,421  
                 
Discontinued operations:
                
Loss from discontinued operations, net of related taxes
     (712 )     (163 )
Loss on disposal of discontinued operations, net of related taxes
     (19 )     (654 )
Loss from discontinued operations, net
     (731 )     (817 )
                 
Net income
   $ 9,658     $ 8,604  
                 
                 
Basic income per common and common equivalent share:
                
Income from continuing operations
   $ 0.24     $ 0.22  
Loss from discontinued operations, net
     (0.02 )     (0.02 )
Net income
   $ 0.22     $ 0.20  
                 
Diluted income per common and common equivalent share:
                
Income from continuing operations
   $ 0.24     $ 0.21  
Loss from discontinued operations, net
     (0.02 )     (0.02 )
Net Income
   $ 0.22     $ 0.19  
                 
Weighted average number of common and
  common equivalent shares outstanding:
          
Basic
     43,923       43,468  
Diluted
     44,015       44,478  


 
4 of 16
 

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, 2009
    
September 30, 2008
  
   
(unaudited)
    
(unaudited)
  
             
Total net revenues
   $ 1,407,735     $ 1,356,706  
Costs and expenses:
                
Operating salaries and benefits
     790,804       766,223  
Self-insurance for workers' compensation and
      general and professional liability insurance
     45,626       40,985  
Operating administrative costs
     38,231       37,671  
Other operating costs
     287,376       279,644  
Center rent expense
     54,773       55,325  
General and administrative expenses
     48,057       46,529  
Depreciation and amortization
     33,336       29,553  
Provision for losses on accounts receivable
     15,599       9,491  
Interest, net of interest income of $310 and $1,454, respectively
     37,422       41,144  
Loss (gain) on sale of assets, net
     42       (77 )
Restructuring costs
     872       -  
Total costs and expenses
     1,352,138       1,306,488  
                 
Income before income taxes and discontinued operations
     55,597       50,218  
Income tax expense
     22,795       20,119  
Income from continuing operations
     32,802       30,099  
                 
Discontinued operations:
                
Loss from discontinued operations, net of related taxes
     (2,472 )     (710 )
Loss on disposal of discontinued operations, net of related taxes
     (334 )     (2,523 )
Loss from discontinued operations, net
     (2,806 )     (3,233 )
                 
Net income
   $ 29,996     $ 26,866  
                 
                 
Basic income per common and common equivalent share:
                
Income from continuing operations
   $ 0.75     $ 0.70  
Loss from discontinued operations, net
     (0.07 )     (0.08 )
Net income
   $ 0.68     $ 0.62  
                 
Diluted income per common and common equivalent share:
                
Income from continuing operations
   $ 0.75     $ 0.68  
Loss from discontinued operations, net
     (0.07 )     (0.07 )
Net Income
   $ 0.68     $ 0.61  
                 
Weighted average number of common and
  common equivalent shares outstanding:
          
Basic
     43,807       43,240  
Diluted
     43,926       44,086  


 
5 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
             
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
(in thousands)
  
             
   
For the
    
For the
  
   
Three Months Ended
    
Three Months Ended
  
   
September 30, 2009
    
September 30, 2008
  
   
(unaudited)
    
(unaudited)
  
             
Cash flows from operating activities:
            
Net income
   $ 9,658     $ 8,604  
Adjustments to reconcile net income to net cash provided by
                
operating activities, including discontinued operations:
                
Depreciation and amortization
     11,460       10,202  
Amortization of favorable and unfavorable lease intangibles
     (474 )     (452 )
Provision for losses on accounts receivable
     5,318       3,460  
Loss on sale of assets, including discontinued operations, net
     31       539  
Stock-based compensation expense
     1,476       1,405  
Deferred taxes
     5,500       5,276  
Other
     -       (68 )
Changes in operating assets and liabilities, net of acquisitions:
          
Accounts receivable
     1,079       1,751  
Restricted cash
     (710 )     1,379  
Prepaid expenses and other assets
     382       (379 )
Accounts payable
     (6,762 )     (3,983 )
Accrued compensation and benefits
     4,561       2,522  
Accrued self-insurance obligations
     4       (3,171 )
Income taxes payable
     -       (615 )
Other accrued liabilities
     9,355       4,296  
Other long-term liabilities
     (1,004 )     (1,404 )
Net cash provided by operating activities
     39,874       29,362  
                 
Cash flows from investing activities:
                
Capital expenditures
     (16,456 )     (12,393 )
Purchase of leased real estate
     -       (8,229 )
Proceeds from sale of assets held for sale
     -       9,840  
Acquisitions, net of cash acquired
     -       (7,060 )
Insurance proceeds received for damaged property
     -       553  
Net cash used for investing activities
     (16,456 )     (17,289 )
                 
Cash flows from financing activities:
                
Borrowings of long-term debt
     20,822       -  
Principal repayments of long-term debt and capital lease obligations
     (22,562 )     (2,221 )
Distribution to non-controlling interest
     -       (130 )
Proceeds from issuance of common stock
     55       2,342  
Net cash used for financing activities
     (1,685 )     (9 )
                 
Net (decrease) increase in cash and cash equivalents
     21,733       12,064  
Cash and cash equivalents at beginning of period
     95,672       68,369  
Cash and cash equivalents at end of period
   $ 117,405     $ 80,433  
                 


 
6 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
             
CONSOLIDATED STATEMENTS OF CASH FLOWS
  
(in thousands)
  
             
   
For the
    
For the
  
   
Nine Months Ended
    
Nine Months Ended
  
   
September 30, 2009
    
September 30, 2008
  
   
(unaudited)
    
(unaudited)
  
             
Cash flows from operating activities:
            
  Net income
   $ 29,996     $ 26,866  
  Adjustments to reconcile net income to net cash provided by
                
operating activities, including discontinued operations:
                
Depreciation and amortization
     33,336       29,802  
Amortization of favorable and unfavorable lease intangibles
     (1,350 )     (1,443 )
Provision for losses on accounts receivable
     15,599       9,971  
Loss on sale of assets, including discontinued operations, net
     607       2,255  
Impairment charge for discontinued operation
     -       1,800  
Stock-based compensation expense
     4,385       3,738  
Deferred taxes
     18,019       13,547  
Other
     -       11  
  Changes in operating assets and liabilities, net of acquisitions:
          
Accounts receivable
     (20,588 )     (17,801 )
Restricted cash
     8,811       4,442  
Prepaid expenses and other assets
     144       (5,700 )
Accounts payable
     (11,825 )     (7,113 )
Accrued compensation and benefits
     4,927       (1,129 )
Accrued self-insurance obligations
     1,255       (3,406 )
Income taxes payable
     -       976  
Other accrued liabilities
     8,530       679  
Other long-term liabilities
     177       4,648  
Net cash provided by operating activities
     92,023       62,143  
                 
Cash flows from investing activities:
                
Capital expenditures
     (41,458 )     (28,532 )
Purchase of leased real estate
     (3,275 )     (8,956 )
Proceeds from sale of assets held for sale
     2,174       13,797  
Acquisitions, net of cash acquired
     -       (7,373 )
Insurance proceeds received for damaged property
     -       628  
Net cash used for investing activities
     (42,559 )     (30,436 )
                 
Cash flows from financing activities:
                
Borrowings of long-term debt
     20,822       20,290  
Principal repayments of long-term debt and capital lease obligations
     (44,249 )     (27,420 )
Payment to non-controlling interest
     (311 )     (2,035 )
Distribution to non-controlling interest
     (549 )     (353 )
Proceeds from issuance of common stock
     75       2,412  
Net cash used for financing activities
     (24,212 )     (7,106 )
                 
Net increase in cash and cash equivalents
     25,252       24,601  
Cash and cash equivalents at beginning of period
     92,153       55,832  
Cash and cash equivalents at end of period
   $ 117,405     $ 80,433  
                 


 
7 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
             
RECONCILIATION OF NET INCOME TO EBITDA and EBITDAR
  
(in thousands)
  
             
   
For the
    
For the
  
   
Three Months Ended
    
Three Months Ended
  
   
September 30, 2009
    
September 30, 2008
  
   
(unaudited)
    
(unaudited)
  
             
 Total net revenues
   $ 470,893     $ 455,757  
                 
 Net income
   $ 9,658     $ 8,604  
                 
                 
 Income from continuing operations
     10,389       9,421  
                 
 Income tax expense
     7,220       6,286  
                 
 Restructuring costs
     872       -  
                 
 Net segment income
   $ 18,481     $ 15,707  
                 
 Interest, net
     12,231       13,070  
                 
 Depreciation and amortization
     11,460       10,165  
                 
 EBITDA
   $ 42,172     $ 38,942  
                 
 Center rent expense
     18,194       18,409  
                 
 EBITDAR
   $ 60,366     $ 57,351  

EBITDA is defined as earnings before income (loss) on discontinued operations, income taxes, loss (gain) on sale of assets, net, restructuring costs, interest, net, depreciation and amortization.  EBITDAR is defined as EBITDA before facility rent expense.  EBITDA and 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.  EBITDA and EBITDAR are commonly used as analytical indicators within the healthcare industry and also serve as measures of leverage capacity and debt service ability. EBITDA and EBITDAR should not be considered as measures of financial performance under generally accepted accounting principles.  As the items excluded from EBITDA and EBITDAR are significant components in understanding and assessing financial performance, EBITDA and EBITDAR 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 and EBITDAR are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations, EBITDA and 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 INCOME TO EBITDA and EBITDAR
  
(in thousands)
  
             
   
For the
    
For the
  
   
Nine Months Ended
    
Nine Months Ended
  
   
September 30, 2009
    
September 30, 2008
  
   
(unaudited)
    
(unaudited)
  
             
 Total net revenues
   $ 1,407,735     $ 1,356,706  
                 
 Net income
   $ 29,996     $ 26,866  
                 
 Income from continuing operations
     32,802       30,099  
                 
 Income tax expense
     22,795       20,119  
                 
 Loss (gain) on sale of assets, net
     42       (77 )
                 
 Restructuring costs
     872       -  
                 
 Net segment income
   $ 56,511     $ 50,141  
                 
 Interest, net
     37,422       41,144  
                 
 Depreciation and amortization
     33,336       29,553  
                 
 EBITDA
   $ 127,269     $ 120,838  
                 
 Center rent expense
     54,773       55,325  
                 
 EBITDAR
   $ 182,042     $ 176,163  
                 

EBITDA is defined as earnings before income (loss) on discontinued operations, income taxes, loss (gain) on sale of assets, net ,restructuring costs, interest, net, depreciation and amortization   EBITDAR is defined as EBITDA before facility rent expense.  EBITDA and 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.  EBITDA and EBITDAR are commonly used as analytical indicators within the healthcare industry and also serve as measures of leverage capacity and debt service ability. EBITDA and EBITDAR should not be considered as measures of financial performance under generally accepted accounting principles.  As the items excluded from EBITDA and EBITDAR are significant components in understanding and assessing financial performance, EBITDA and EBITDAR 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 and EBITDAR are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations, EBITDA and 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 NET SEGMENT INCOME (LOSS) TO EBITDA and EBITDAR
  
($ in thousands)
  
                                     
For the Three Months Ended September 30, 2009
  
(unaudited)
  
                                     
                                     
   
Inpatient
Services
    
Rehabilitation
Therapy
Services
    
Medical
Staffing
Services
    
Other &
Corp Seg
    
Elimination
of Affiliated
Revenue
    
Consolidated
  
                                     
Nonaffiliated revenue
   $ 420,623     $ 26,394     $ 23,864     $ 12     $ -     $ 470,893  
                                                 
Affiliated revenue
     -       18,592       545       -       (19,137 )     -  
                                                 
Total revenue
     420,623       44,986       24,409       12       (19,137 )     470,893  
                                                 
Net segment income (loss)
   $ 39,330     $ 2,606     $ 2,091     $ (25,546 )   $ -     $ 18,481  
                                                 
Interest, net
     3,024       -       (1 )     9,208       -       12,231  
                                                 
Depreciation and amortization
     10,483       140       179       658       -       11,460  
                                                 
EBITDA
   $ 52,837     $ 2,746     $ 2,269     $ (15,680 )   $ -     $ 42,172  
                                                 
Center rent expense
     17,852       119       223       -       -       18,194  
                                                 
EBITDAR
   $ 70,689     $ 2,865     $ 2,492     $ (15,680 )   $ -     $ 60,366  
                                                 
                                                 
Normalized EBITDA
   $ 52,837     $ 2,746     $ 2,269     $ (15,680 )   $ -     $ 42,172  
Normalized EBITDAR
   $ 70,689     $ 2,865     $ 2,492     $ (15,680 )   $ -     $ 60,366  
                                                 
                                                 
EBITDA margin
     12.6 %     6.1 %     9.3 %                     9.0 %
                                                 
EBITDAR margin
     16.8 %     6.4 %     10.2 %                     12.8 %
                                                 
 Normalized EBITDA margin
     12.6 %     6.1 %     9.3 %                     9.0 %
                                                 
 Normalized EBITDAR margin
     16.8 %     6.4 %     10.2 %                     12.8 %
                                                 
See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net Income to EBITDA and EBITDAR".
See normalizing adjustments in the table "Normalizing Adjustments - Quarter Comparison".
 
10 of 16

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
                                     
RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA and EBITDAR
  
($ in thousands)
  
                                     
For the Nine Months Ended September 30, 2009
  
(unaudited)
  
                                     
                                     
   
Inpatient
Services
    
Rehabilitation
Therapy
Services
    
Medical
Staffing
Services
    
Other &
Corp Seg
    
Elimination
of Affiliated
Revenue
    
Consolidated
  
                                     
Nonaffiliated revenue
   $ 1,252,310     $ 78,063     $ 77,335     $ 27     $ -     $ 1,407,735  
                                                 
Affiliated revenue
     -       55,168       1,668       -       (56,836 )     -  
                                                 
Total revenue
     1,252,310       133,231       79,003       27       (56,836 )     1,407,735  
                                                 
Net segment income (loss)
   $ 119,934     $ 8,606     $ 6,401     $ (78,430 )   $ -     $ 56,511  
                                                 
Interest, net
     9,345       (2 )     (1 )     28,080       -       37,422  
                                                 
Depreciation and amortization
     30,330       399       601       2,006       -       33,336  
                                                 
EBITDA
   $ 159,609     $ 9,003     $ 7,001     $ (48,344 )   $ -     $ 127,269  
                                                 
Center rent expense
     53,725       348       700       -       -       54,773  
                                                 
EBITDAR
   $ 213,334     $ 9,351     $ 7,701     $ (48,344 )   $ -     $ 182,042  
                                                 
                                                 
Normalized EBITDA
   $ 163,909     $ 9,003     $ 7,001     $ (48,344 )   $ -     $ 131,569  
Normalized EBITDAR
   $ 217,634     $ 9,351     $ 7,701     $ (48,344 )   $ -     $ 186,342  
                                                 
                                                 
EBITDA margin
     12.7 %     6.8 %     8.9 %                     9.0 %
                                                 
EBITDAR margin
     17.0 %     7.0 %     9.7 %                     12.9 %
                                                 
 Normalized EBITDA margin
     13.1 %     6.8 %     8.9 %                     9.3 %
                                                 
 Normalized EBITDAR margin
     17.4 %     7.0 %     9.7 %                     13.2 %
                                                 
See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net Income to EBITDA and EBITDAR".
See normalizing adjustments in the table "Normalizing Adjustments - Year to Date Comparison".
  


 
11 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
                                     
RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA and EBITDAR
  
($ 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
   $ 403,736     $ 22,756     $ 29,256     $ 9     $ -     $ 455,757  
                                                 
Affiliated revenue
     -       15,562       827       -       (16,389 )     -  
                                                 
Total revenue
     403,736       38,318       30,083       9       (16,389 )     455,757  
                                                 
Net segment income (loss)
   $ 35,821     $ 1,793     $ 2,479     $ (24,386 )   $ -     $ 15,707  
                                                 
Interest, net
     3,548       -       (5 )     9,527       -       13,070  
                                                 
Depreciation and amortization
     8,980       138       216       831       -       10,165  
                                                 
EBITDA
   $ 48,349     $ 1,931     $ 2,690     $ (14,028 )   $ -     $ 38,942  
                                                 
Center rent expense
     18,065       100       244       -       -       18,409  
                                                 
EBITDAR
   $ 66,414     $ 2,031     $ 2,934     $ (14,028 )   $ -     $ 57,351  
                                                 
                                                 
Normalized EBITDA
   $ 48,349     $ 1,931     $ 2,690     $ (14,028 )   $ -     $ 38,942  
Normalized EBITDAR
   $ 66,414     $ 2,031     $ 2,934     $ (14,028 )   $ -     $ 57,351  
                                                 
                                                 
EBITDA margin
     12.0 %     5.0 %     8.9 %                     8.5 %
                                                 
EBITDAR margin
     16.4 %     5.3 %     9.8 %                     12.6 %
                                                 
 Normalized EBITDA margin
     12.0 %     5.0 %     8.9 %                     8.5 %
                                                 
 Normalized EBITDAR margin
     16.4 %     5.3 %     9.8 %                     12.6 %
                                                 
See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net Income to EBITDA and EBITDAR".
See normalizing adjustments in the table "Normalizing Adjustments - Quarter Comparison".
                                                 
 
12 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
                                     
RECONCILIATION OF NET SEGMENT INCOME (LOSS) TO EBITDA and EBITDAR
  
($ 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
   $ 1,202,050     $ 65,607     $ 89,020     $ 29     $ -     $ 1,356,706  
                                                 
Affiliated revenue
     -       44,314       2,155       -       (46,469 )     -  
                                                 
Total revenue
     1,202,050       109,921       91,175       29       (46,469 )     1,356,706  
                                                 
Net segment income (loss)
   $ 116,991     $ 6,483     $ 6,866     $ (80,199 )   $ -     $ 50,141  
                                                 
Interest, net
     10,130       (1 )     (14 )     31,029       -       41,144  
                                                 
Depreciation and amortization
     26,311       396       611       2,235       -       29,553  
                                                 
EBITDA
   $ 153,432     $ 6,878     $ 7,463     $ (46,935 )   $ -     $ 120,838  
                                                 
Center rent expense
     54,308       285       732       -       -       55,325  
                                                 
EBITDAR
   $ 207,740     $ 7,163     $ 8,195     $ (46,935 )   $ -     $ 176,163  
                                                 
                                                 
Normalized EBITDA
   $ 151,729     $ 6,878     $ 7,463     $ (46,413 )   $ -     $ 119,657  
Normalized EBITDAR
   $ 206,037     $ 7,163     $ 8,195     $ (46,413 )   $ -     $ 174,982  
                                                 
                                                 
EBITDA margin
     12.8 %     6.3 %     8.2 %                     8.9 %
                                                 
EBITDAR margin
     17.3 %     6.5 %     9.0 %                     13.0 %
                                                 
 Normalized EBITDA margin
     12.6 %     6.3 %     8.2 %                     8.8 %
                                                 
 Normalized EBITDAR margin
     17.1 %     6.5 %     9.0 %                     12.9 %
                                                 
See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net Income to EBITDA and 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
    
Nine Months Ended
    
 
September 30,
    
September 30,
    
 
2009
    
2008
    
2009
    
2008
    
Consolidated Company
                        
                         
 Revenues - Non-affiliated (in thousands)
                      
Inpatient Ser vices
 $      420,623
    
 $      403,736
    
       1,252,310
    
      1,202,050
    
Rehabilitation Therapy Services
           26,394
    
           22,756
    
            78,063
    
           65,607
    
Medical Staffing Services
           23,864
    
           29,256
    
            77,335
    
           89,020
    
Other - non-core businesses
                  12
    
                    9
    
                   27
    
                  29
    
Total
 $      470,893
    
 $      455,757
    
 $    1,407,735
    
 $   1,356,706
    
                         
                         
 Revenue Mix - Non-affiliated (in thousands)
                      
Medicare
 $      138,105
29%
  
 $      127,942
28%
  
          417,844
30%
  
         386,250
28%
  
Medicaid
         189,878
40%
  
         184,453
40%
  
          559,358
40%
  
         542,536
40%
  
Private and Other
         114,144
25%
  
         117,375
26%
  
          341,425
24%
  
         348,920
26%
  
Managed Care / Insurance
           24,393
5%
  
           22,149
5%
  
            76,591
5%
  
           67,892
5%
  
Veterans
             4,373
1%
  
             3,838
1%
  
            12,517
1%
  
           11,108
1%
  
Total
 $      470,893
100%
  
 $      455,757
100%
  
 $    1,407,735
100%
  
 $   1,356,706
100%
  
                         
                         
                         
                         
Inpatient Services Stats
                        
                         
Number of centers:
                206
    
                206
    
                 206
    
                206
    
Number of available beds:
           22,481
    
           22,516
    
            22,481
    
           22,516
    
Occupancy %:
87.9%
    
88.7%
    
88.2%
    
89.0%
    
                         
                         
Payor Mix % based on patient days:
                        
Medicare - SNF Beds
15.3%
    
15.7%
    
15.8%
    
16.3%
    
Managed care / Ins. - SNF Beds
3.9%
    
3.7%
    
4.1%
    
3.9%
    
    Total SNF skilled mix
19.2%
    
19.4%
    
19.9%
    
20.2%
    
                         
Medicare
14.0%
    
14.3%
    
14.4%
    
14.8%
    
Medicaid
60.7%
    
60.1%
    
60.5%
    
59.5%
    
Private and Other
20.7%
    
21.3%
    
20.3%
    
21.3%
    
Managed Care / Insurance
3.6%
    
3.4%
    
3.8%
    
3.5%
    
Veterans
1.0%
    
0.9%
    
1.0%
    
0.9%
    
                         
Revenue Mix % of revenues:
                        
Medicare - SNF Beds
32.2%
    
31.6%
    
32.9%
    
32.3%
    
Managed care / Ins. - SNF Beds
6.1%
    
5.8%
    
6.4%
    
5.9%
    
    Total SNF skilled mix
38.3%
    
37.4%
    
39.3%
    
38.2%
    
                         
Medicare
31.9%
    
30.9%
    
32.4%
    
31.4%
    
Medicaid
45.1%
    
45.7%
    
44.7%
    
45.1%
    
Private and Other
16.2%
    
16.9%
    
15.8%
    
17.0%
    
Managed Care / Insurance
5.8%
    
5.5%
    
6.1%
    
5.6%
    
Veterans
1.0%
    
1.0%
    
1.0%
    
0.9%
    
                         
                         
Revenues PPD:
                        
LTC only Medicare (Part A)
 $        457.79
    
 $        423.38
    
 $         454.15
    
 $        417.23
    
Medicare Blended Rate (Part A & B)
 $        496.11
    
 $        456.82
    
 $         491.94
    
 $        447.68
    
Medicaid
 $        172.06
    
 $        167.12
    
 $         170.86
    
 $        165.88
    
Private and Other
 $        175.29
    
 $        170.82
    
 $         175.82
    
 $        170.58
    
Managed Care / Insurance
 $        371.09
    
 $        352.17
    
 $         373.86
    
 $        347.90
    
Veterans
 $        234.74
    
 $        220.82
    
 $         229.95
    
 $        214.45
    
                         
                         
Rehab contracts
                        
                         
Affiliated
                121
    
                116
    
                 121
    
                116
    
Non-affiliated
                328
    
                325
    
                 328
    
                325
    
                         
Average Qtrly Revenue per Contract
 $          100.2
    
 $            86.9
    
 $             98.9
    
 $            83.1
    
(in thousands)
                        
                         

 
14 of 16
 

SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
  
                                           
NORMALIZING ADJUSTMENTS - QUARTER COMPARISON
  
(in thousands, except per share data)
  
                                           
                                           
   
AS REPORTED - 3rd QUARTER 2009
  
   
Revenue
    
EBITDAR
  
EBITDA
    
Pre-tax
    
Income from
Continuing
Operations
  
Disc Ops
  
Net Income
  
                                           
As Reported 3rd QUARTER 2009
   $ 470,893     $ 60,366     $ 42,172     $ 17,609     $ 10,389     $ (731 )   $ 9,658  
Percent of Revenue
             12.8 %     9.0 %     3.7 %     2.2 %     -0.2 %     2.1 %
                                                         
Normalizing Adjustments:
                                                        
Restructuring costs
     -       -       -       872       514       -       514  
                                                         
Adjusted As Reported-3rd QUARTER 2009
   $ 470,893     $ 60,366     $ 42,172     $ 18,481     $ 10,903     $ (731 )   $ 10,172  
Percent of Revenue
             12.8 %     9.0 %     3.9 %     2.3 %     -0.2 %     2.2 %
                                                         
Diluted EPS:      As Reported
                                   $ 0.24     $ (0.02 )   $ 0.22  
As Adjusted
                                   $ 0.25     $ (0.02 )   $ 0.23  
                                                         
                                                         
                                                         
   
AS REPORTED - 3rd QUARTER 2008
  
   
Revenue
    
EBITDAR
  
EBITDA
    
Pre-tax
    
Income from
Continuing
Operations
  
Disc Ops
  
Net Income
  
                                                         
As Reported - 3rd QUARTER 2008
   $ 455,757     $ 57,351     $ 38,942     $ 15,707     $ 9,421     $ (817 )   $ 8,604  
Percent of Revenue
             12.6 %     8.5 %     3.4 %     2.1 %     -0.2 %     1.9 %
                                                         
Normalizing Adjustments:
                                                        
None
     -       -       -       -       -       -       -  
                                                         
Adjusted As Reported-3rd QUARTER 2008
   $ 455,757     $ 57,351     $ 38,942     $ 15,707     $ 9,421     $ (817 )   $ 8,604  
Percent of Revenue
             12.6 %     8.5 %     3.4 %     2.1 %     -0.2 %     1.9 %
                                                         
Diluted EPS:     As Reported
                                   $ 0.21     $ (0.02 )   $ 0.19  
 As Adjusted
                                   $ 0.21     $ (0.02 )   $ 0.19  
                                                         
                                                         
                                                         
                                                         
                                                         
See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net Income to EBITDA and EBITDAR".
  
   
Normalizing adjustments are transactions or adjustments not related to ongoing operations and consists of restructuring 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 -NINE MONTHS 2009
  
   
Revenue
    
EBITDAR
  
EBITDA
    
Pre-tax
    
Income from
Continuing
Operations
  
Disc Ops
  
Net Income
  
                                           
As Reported - Nine Months 2009
   $ 1,407,735     $ 182,042     $ 127,269     $ 55,597     $ 32,802     $ (2,806 )   $ 29,996  
Percent of Revenue
             12.9 %     9.0 %     3.9 %     2.3 %     -0.2 %     2.1 %
                                                         
Normalizing Adjustments:
                                                        
Restructuring costs
     -       -       -       872       514       -       514  
Prior periods' self-insurance costs
     -       4,300       4,300       4,300       2,537       348       2,885  
                                                         
Adjusted As Reported-Nine Months 2009
   $ 1,407,735     $ 186,342     $ 131,569     $ 60,769     $ 35,853     $ (2,458 )   $ 33,395  
Percent of Revenue
             13.2 %     9.3 %     4.3 %     2.5 %     -0.2 %     2.4 %
                                                         
Diluted EPS:    As Reported
                                   $ 0.75     $ (0.07 )   $ 0.68  
 As Adjusted
                                   $ 0.82     $ (0.06 )   $ 0.76  
                                                         
                                                         
                                                         
                                                         
   
AS REPORTED - NINE MONTHS 2008
  
   
Revenue
    
EBITDAR
  
EBITDA
    
Pre-tax
    
Income from
Continuing
Operations
  
Disc Ops
  
Net Income
  
                                                         
As Reported - Nine Months 2008
   $ 1,356,706     $ 176,163     $ 120,838     $ 50,218     $ 30,099     $ (3,233 )   $ 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
   $ 1,356,706     $ 174,982     $ 119,657     $ 49,037     $ 29,390     $ (3,455 )   $ 25,935  
Percent of Revenue
             12.9 %     8.8 %     3.6 %     2.2 %     -0.3 %     1.9 %
                                                         
                                                         
Diluted EPS:     As Reported
                                   $ 0.68     $ (0.07 )   $ 0.61  
 As Adjusted
                                   $ 0.67     $ (0.08 )   $ 0.59  
                                                         
                                                         
See definitions of EBITDA and EBITDAR in the table "Reconciliation of Net Income to EBITDA and EBITDAR".
  
                                                         
Normalizing adjustments are transactions or adjustments not related to ongoing operations and consist of restructuring costs, prior periods' self-insurance costs 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.
  

 
16 of 16