SUN HEALTHCARE GROUP INC - FORM 8-K - EX-99.1 - EXHIBIT

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8-K - 8-K - SUN HEALTHCARE GROUP INC	form8-k3rdqtr2012.htm

EXHIBIT 99.1

Sun Healthcare Group, Inc.

Reports 2012 Third-Quarter Operating Results;

Normalized EPS from Continuing Operations of $0.17

Contact: Investor Inquiries (505) 468-2341

Media Inquiries (505) 468-4582

Irvine, Calif. (Oct. 29, 2012)-Sun Healthcare Group, Inc. (NASDAQ GS: SUNH) today announced its operating results for the third quarter ended Sept. 30, 2012.

Highlights of continuing operations:


•	consolidated revenues were $460.5 million for the quarter;


•	consolidated normalized adjusted EBITDAR was $57.9 million for the quarter representing a normalized adjusted EBITDAR margin of 12.6 percent; and


•	normalized earnings per share was $0.17 for the quarter.

Transaction Update

The closing date for the Company's pending transaction with Genesis HealthCare LLC has not yet been finalized but is expected to occur in December 2012, subject to receipt of a few remaining regulatory approvals and the satisfaction of customary closing conditions. In connection with the pending transaction, the Company incurred $2.9 million of transaction costs through the nine months ended Sept. 30, 2012, which were primarily comprised of legal fees and financial advisory fees. The Company will not hold a quarterly conference call to discuss its third-quarter results.

Commenting on the expected completion of the transaction, William A. Mathies, Sun's chairman and chief executive officer, stated, “I am extremely proud of our thousands of caregivers and employees who have maintained their focus on providing high-quality care for our patients and residents throughout the transaction process while continuing to execute toward our operational goals for this year. As we enter into our merger with Genesis HealthCare, I'm confident that we bring skills, dedication and capabilities that will contribute to the success of the combined company.”

Segment Updates

Sun's inpatient services business produced revenue in the third quarter totaling $409.8 million, down $8.3 million, or 2.0 percent, from the third quarter of 2011. The decrease in year-over-year revenues resulted principally from the reduction in Medicare rates as mandated by the CMS Final Rule and implemented in the prior year on Oct. 1, 2011. Inpatient services adjusted EBITDAR for the quarter was $66.3 million, down $8.4 million, or 11.2 percent, from the prior year third quarter, and adjusted EBITDAR margin for the quarter was 16.2 percent, down 170 basis points from the prior year third quarter.

Sun's hospice division, SolAmor, is included in Sun's inpatient services business segment and produced revenue in the third quarter of $15.7 million, up $0.8 million, or 5.6 percent, from the

third quarter of 2011. SolAmor's adjusted EBITDAR was $3.9 million in the third quarter and adjusted EBITDAR margin was 24.6 percent.

Sun's rehabilitation therapy services business, SunDance, reported third-quarter revenues of $60.9 million, adjusted EBITDAR of $4.5 million and an adjusted EBITDAR margin of 7.4 percent, up 310 basis points year over year.

Sun's medical staffing services business, CareerStaff, reported third-quarter revenues of $22.1 million, up 1.7 percent year over year, adjusted EBITDAR of $1.6 million and an adjusted EBITDAR margin of 7.2 percent.

Cash Flow

At Sept. 30, 2012, Sun had $63.8 million in cash and cash equivalents and $88.9 million of long-term debt. During the third quarter, Sun generated cash flow from operations of $26.4 million and used net cash of $5.9 million for capital investments.

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 28,000 employees in 46 states. Sun's services are provided through its subsidiaries: as of Sept. 30, 2012, SunBridge Healthcare and its subsidiaries' continuing operations include 158 skilled nursing centers, 13 combined skilled nursing, assisted and independent living centers, 10 assisted living centers, two independent living centers and seven mental health centers with an aggregate of 21,324 licensed beds in 23 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 the Company's expectations regarding the closing of the transaction with Genesis Healthcare. 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; the Company's ability to receive increases in reimbursement rates from government payors to cover increased costs; delays in or failure to satisfy required conditions to the closing of the proposed merger with Genesis Healthcare, including the receipt of required regulatory approvals with respect to the transaction; failure to consummate or delay in consummating the transaction for other reasons; and disruption from the transaction making it more difficult to maintain relationships with customers and employees. 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.



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, 2012			September 30, 2011

Revenue	$	460,470		$	468,676

Center rent expense	36,647			35,952

Depreciation and amortization	8,654			8,163

Interest expense, net	4,458			4,834

Pre-tax income	6,921			(305,172		)

Income tax expense	2,932			2,203

Income (loss) from continuing operations	3,989			(307,375		)

Loss from discontinued operations	(2,702		)	(2,031		)

Net income (loss)	$	1,287		$	(309,406	)


Diluted (loss) income per share	$	0.05		$	(11.81	)



Adjusted EBITDAR	$	56,869		$	64,103
Margin - Adjusted EBITDAR	12.4		%	13.7		%

Adjusted EBITDAR normalized	$	57,902		$	64,103
Margin - Adjusted EBITDAR normalized	12.6		%	13.7		%



Adjusted EBITDA	$	20,222		$	28,151
Margin - Adjusted EBITDA	4.4		%	6.0		%

Adjusted EBITDA normalized	$	21,255		$	28,151
Margin - Adjusted EBITDA normalized	4.6		%	6.0		%



Pre-tax income continuing operations - normalized	$	7,954		$	14,345

Income tax expense - normalized	$	3,335		$	4,951

Income from continuing operations - normalized	$	4,619		$	9,394

Diluted earnings per share from continuing operations - normalized	$	0.17		$	0.36


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
	Nine Months Ended			Nine Months Ended
	September 30, 2012			September 30, 2011


Revenue	$	1,376,105		$	1,405,558

Center rent expense	109,546			107,394

Depreciation and amortization	25,588			23,241

Interest expense, net	13,297			14,688

Pre-tax income	14,842			(269,596		)

Income tax expense	6,021			16,715

Income (loss) from continuing operations	8,821			(286,311		)

Loss from discontinued operations	(8,301		)	(5,036		)

Net income (loss)	$	520		$	(291,347	)


Diluted (loss) income per share	$	0.02		$	(11.19	)



Adjusted EBITDAR	$	163,462		$	196,355
Margin - Adjusted EBITDAR	11.9		%	14.0		%

Adjusted EBITDAR normalized	$	166,333		$	196,355
Margin - Adjusted EBITDAR normalized	12.1		%	14.0		%



Adjusted EBITDA	$	53,916		$	88,961
Margin - Adjusted EBITDA	3.9		%	6.3		%

Adjusted EBITDA normalized	$	56,787		$	88,961
Margin - Adjusted EBITDA normalized	4.1		%	6.3		%



Pre-tax income continuing operations - normalized	$	17,713		$	49,921

Income tax expense - normalized	$	7,141		$	19,463

Income from continuing operations - normalized	$	10,572		$	30,458

Diluted earnings per share from continuing operations - normalized	$	0.40		$	1.17


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)

	September 30, 2012			December 31, 2011
	(unaudited)			(unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	63,801		$	57,908
Restricted cash	14,252			15,706
Accounts receivable, net	199,787			202,229
Prepaid expenses and other assets	27,323			29,075
Assets held for sale	4,946			—
Deferred tax assets	61,629			63,170

Total current assets	371,738			368,088

Property and equipment, net	143,288			148,298
Intangible assets, net	33,358			35,294
Goodwill	34,905			34,496
Restricted cash, non-current	354			353
Deferred tax assets	125,409			123,974
Other assets	40,792			45,163

Total assets	$	749,844		$	755,666

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable	$	47,427		$	55,888
Accrued compensation and benefits	58,212			61,101
Accrued self-insurance obligations, current portion	58,273			57,810
Other accrued liabilities	47,602			43,139
Current portion of long-term debt and capital lease obligations	944			1,017

Total current liabilities	212,458			218,955

Accrued self-insurance obligations, net of current portion	158,224			157,267
Long-term debt and capital lease obligations, net of current portion	87,989			88,768
Unfavorable lease obligations, net	5,268			7,110
Other long-term liabilities	55,500			58,110

Total liabilities	519,439			530,210

Stockholders' equity:
Preferred stock of $.01 par value, authorized 3,333 shares, zero shares were issued and outstanding as of September 30, 2012 and December 31, 2011	—			—
Common stock of $.01 par value, authorized 41,667 shares, 25,538 and 25,146 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively	255			251
Additional paid-in capital	731,473			726,861
Accumulated deficit	(499,907		)	(500,427		)
Accumulated other comprehensive loss, net	(1,416		)	(1,229		)
	230,405			225,456
Total liabilities and stockholders' equity	$	749,844		$	755,666

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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
	September 30, 2012			September 30, 2011
	(unaudited)			(unaudited)

Total net revenues	$	460,470		$	468,676
Costs and expenses:
Operating salaries and benefits	259,379			263,932
Self-insurance for workers' compensation and general and professional liability insurance	15,237			14,545
Operating administrative costs	10,635			12,962
Other operating costs	97,619			93,705
Center rent expense	36,647			35,952
General and administrative expenses	14,447			14,825
Depreciation and amortization	8,654			8,163
Provision for losses on accounts receivable	5,250			4,604
Interest, net of interest income of $94 and $103, respectively	4,458			4,834
Transaction costs	1,034			—
Loss on sale of assets, net	189			809
Restructuring costs	—			2,426
Loss on asset impairment	—			317,091
Total costs and expenses	453,549			773,848

Income (loss) before income taxes and discontinued operations	6,921			(305,172		)
Income tax expense	2,932			2,203
Income (loss) from continuing operations	3,989			(307,375		)

Loss from discontinued operations, net	(2,702		)	(2,031		)

Net income (loss)	$	1,287		$	(309,406	)

Basic loss per common and common equivalent share:
Income (loss) from continuing operations	$	0.15		$	(11.73	)
Loss from discontinued operations, net	(0.10		)	(0.08		)
Net income (loss)	$	0.05		$	(11.81	)

Diluted loss per common and common equivalent share:
Income (loss) from continuing operations	$	0.15		$	(11.73	)
Loss from discontinued operations, net	(0.10		)	(0.08		)
Net income (loss)	$	0.05		$	(11.81	)

Weighted average number of common and common equivalent shares outstanding:
Basic	27,082			26,203
Diluted	27,082			26,203

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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, 2012			September 30, 2011
	(unaudited)			(unaudited)

Total net revenues	$	1,376,105		$	1,405,558
Costs and expenses:
Operating salaries and benefits	779,976			789,874
Self-insurance for workers' compensation and general and professional liability insurance	43,744			43,643
Operating administrative costs	34,744			39,333
Other operating costs	289,614			276,999
Center rent expense	109,546			107,394
General and administrative expenses	46,537			45,156
Depreciation and amortization	25,588			23,241
Provision for losses on accounts receivable	15,157			14,198
Interest, net of interest income of $229 and $243, respectively	13,297			14,688
Transaction costs	2,871			—
Loss on sale of assets, net	189			809
Restructuring costs	—			2,728
Loss on asset impairment	—			317,091
Total costs and expenses	1,361,263			1,675,154

Income (loss) before income taxes and discontinued operations	14,842			(269,596		)
Income tax expense	6,021			16,715
Income (loss) from continuing operations	8,821			(286,311		)

Loss from discontinued operations, net	(8,301		)	(5,036		)

Net income (loss)	$	520		$	(291,347	)


Basic loss per common and common equivalent share:
Income (loss) from continuing operations	$	0.33		$	(11.00	)
Loss from discontinued operations, net	(0.31		)	(0.19		)
Net income (loss)	$	0.02		$	(11.19	)

Diluted loss per common and common equivalent share:
Income (loss) from continuing operations	$	0.33		$	(11.00	)
Loss from discontinued operations, net	(0.31		)	(0.19		)
Net income (loss)	$	0.02		$	(11.19	)

Weighted average number of common and common equivalent shares outstanding:
Basic	26,732			26,038
Diluted	26,732			26,038

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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
		September 30, 2012			September 30, 2011
		(unaudited)			(unaudited)

Cash flows from operating activities:
Net income (loss)		$	1,287		$	(309,406	)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities, including discontinued operations:
	Depreciation and amortization	8,654			8,335
	Amortization of favorable and unfavorable lease intangibles	(507		)	(492		)
	Provision for losses on accounts receivable	5,403			4,975
	Loss on sale of assets, including discontinued operations, net	188			1,925
	Loss on asset impairment	—			317,091
	Stock-based compensation expense	1,233			2,359
	Deferred taxes	386			(105		)
Changes in operating assets and liabilities, net of acquisitions:
	Accounts receivable	7,641			23
	Restricted cash	78			52
	Prepaid expenses and other assets	1,800			(1,600		)
	Accounts payable	2,756			1,595
	Accrued compensation and benefits	(5,666		)	(11,717		)
	Accrued self-insurance obligations	3,821			3,618
	Other accrued liabilities	(36		)	2,104
	Other long-term liabilities	(667		)	(880		)
	Net cash provided by operating activities	26,371			17,877

Cash flows from investing activities:
Capital expenditures		(6,722		)	(14,190		)
Proceeds from sale of assets		781			1,809
	Net cash used for investing activities	(5,941		)	(12,381		)

Cash flows from financing activities:
Principal repayments of long-term debt and capital lease obligations		(277		)	(2,806		)
	Net cash used for financing activities	(277		)	(2,806		)

Net increase in cash and cash equivalents		20,153			2,690
Cash and cash equivalents at beginning of period		43,648			88,489
Cash and cash equivalents at end of period		$	63,801		$	91,179

Reconciliation of net cash provided by operating activities to free cash flow:

	Net cash provided by operating activities	$	26,371		$	17,877
	Capital expenditures	(6,722		)	(14,190		)
	Free cash flow	$	19,649		$	3,687

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.

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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, 2012			September 30, 2011
		(unaudited)			(unaudited)

Cash flows from operating activities:
Net income (loss)		$	520		$	(291,347	)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities, including discontinued operations:
	Depreciation and amortization	25,740			23,879
	Amortization of favorable and unfavorable lease intangibles	(1,527		)	(1,466		)
	Provision for losses on accounts receivable	15,866			15,479
	Loss on sale of assets, including discontinued operations, net	257			1,925
	Loss on asset impairment	—			317,091
	Stock-based compensation expense	5,041			5,160
	Deferred taxes	229			9,871
Changes in operating assets and liabilities, net of acquisitions:
	Accounts receivable	(13,568		)	(12,555		)
	Restricted cash	1,453			(1,876		)
	Prepaid expenses and other assets	4,125			(1,410		)
	Accounts payable	(7,358		)	(1,906		)
	Accrued compensation and benefits	(2,889		)	(12,298		)
	Accrued self-insurance obligations	1,420			(294		)
	Other accrued liabilities	4,386			1,158
	Other long-term liabilities	(2,920		)	(2,098		)
	Net cash provided by operating activities	30,775			49,313

Cash flows from investing activities:
Capital expenditures		(24,551		)	(32,346		)
Proceeds from sale of assets		781			1,809
Acquisitions, net of cash acquired		(260		)	(356		)
	Net cash used for investing activities	(24,030		)	(30,893		)

Cash flows from financing activities:
Principal repayments of long-term debt and capital lease obligations		(852		)	(8,404		)
	Net cash used for financing activities	(852		)	(8,404		)

Net increase in cash and cash equivalents		5,893			10,016
Cash and cash equivalents at beginning of period		57,908			81,163
Cash and cash equivalents at end of period		$	63,801		$	91,179

Reconciliation of net cash provided by operating activities to free cash flow:

	Net cash provided by operating activities	$	30,775		$	49,313
	Capital expenditures	(24,551		)	(32,346		)
	Free cash flow	$	6,224		$	16,967

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.

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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
	September 30, 2012		September 30, 2011
	(unaudited)		(unaudited)

Total net revenues	$	460,470	$	468,676

Net income (loss)	$	1,287	$	(309,406	)


Income (loss) from continuing operations	3,989		(307,375		)

Income tax expense	2,932		2,203

Interest, net	4,458		4,834

Depreciation and amortization	8,654		8,163

EBITDA	$	20,033	$	(292,175	)


Loss on sale of assets, net	189		809

Restructuring costs	—		2,426

Loss on asset impairment	—		317,091


Adjusted EBITDA	$	20,222	$	28,151

Center rent expense	36,647		35,952

Adjusted EBITDAR	$	56,869	$	64,103

EBITDA is defined as earnings before loss on discontinued operations, income taxes, interest, net, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before restructuring costs. 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.

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SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
(in thousands)

	For the		For the
	Nine Months Ended		Nine Months Ended
	September 30, 2012		September 30, 2011
	(unaudited)		(unaudited)

Total net revenues	$	1,376,105	$	1,405,558

Net income (loss)	$	520	$	(291,347	)


Income (loss) from continuing operations	8,821		(286,311		)

Income tax expense	6,021		16,715

Interest, net	13,297		14,688

Depreciation and amortization	25,588		23,241

EBITDA	$	53,727	$	(231,667	)

Loss on sale of assets, net	189		809

Restructuring costs	—		2,728

Loss on asset impairment	—		317,091

Adjusted EBITDA	$	53,916	$	88,961

Center rent expense	109,546		107,394

Adjusted EBITDAR	$	163,462	$	196,355

EBITDA is defined as earnings before loss on discontinued operations, income taxes, interest, net, depreciation and amortization. Adjusted EBITDA is defined as EBITDA before restructuring costs. 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.

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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 September 30, 2012
(unaudited)

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

Nonaffiliated revenue	$	409,750		$	29,032		$	21,686		$	2		—			$	460,470

Affiliated revenue	—			31,885			432			—			(32,317		)	—

Total revenue	$	409,750		$	60,917		$	22,118		$	2		$	(32,317	)	$	460,470

Income (loss) from continuing operations	$	22,780		$	4,068		$	1,238		$	(24,097	)	—			$	3,989

Income tax expense	—			—			—			2,932			—			2,932

Interest, net	(53		)	—			—			4,511			—			4,458

Depreciation and amortization	7,276			267			191			920			—			8,654

EBITDA	$	30,003		$	4,335		$	1,429		$	(15,734	)	—			$	20,033

Loss on sale of assets, net	—			—			—			189			—			189

Adjusted EBITDA	$	30,003		$	4,335		$	1,429		$	(15,545	)	—			$	20,222

Center rent expense	36,323			154			170			—			—			36,647

Adjusted EBITDAR	$	66,326		$	4,489		$	1,599		$	(15,545	)	—			$	56,869


Normalized Adjusted EBITDA	$	30,003		$	4,335		$	1,429		$	(14,511	)	—			$	21,256
Normalized Adjusted EBITDAR	$	66,326		$	4,489		$	1,599		$	(14,511	)	—			$	57,903


Adjusted EBITDA margin	7.3		%	7.1		%	6.5		%							4.4		%

Adjusted EBITDAR margin	16.2		%	7.4		%	7.2		%							12.4		%

Normalized Adjusted EBITDA margin	7.3		%	7.1		%	6.5		%							4.6		%

Normalized Adjusted EBITDAR margin	16.2		%	7.4		%	7.2		%							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 - Quarter Comparison."

10 of 17



SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
($ in thousands)

For the Nine Months Ended September 30, 2012
(unaudited)

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

Nonaffiliated revenue	$	1,220,673		$	88,858		$	66,559		$	15		—			$	1,376,105

Affiliated revenue	—			98,152			1,982			—			(100,134		)	—

Total revenue	$	1,220,673		$	187,010		$	68,541		$	15		$	(100,134	)	$	1,376,105

Income (loss) from continuing operations	$	65,104		$	11,381		$	4,345		$	(72,009	)	—			$	8,821

Income tax expense	—			—			—			6,021			—			6,021

Interest, net	(81		)	—			(3		)	13,381			—			13,297

Depreciation and amortization	21,420			778			562			2,828			—			25,588

EBITDA	$	86,443		$	12,159		$	4,904		$	(49,779	)	—			$	53,727

Loss on sale of assets, net	—			—			—			189			—			189

Adjusted EBITDA	$	86,443		$	12,159		$	4,904		$	(49,401	)	—			$	54,105

Center rent expense	108,606			432			508			—			—			109,546

Adjusted EBITDAR	$	195,049		$	12,591		$	5,412		$	(49,401	)	—			$	163,651


Normalized Adjusted EBITDA	$	86,443		$	12,159		$	4,904		$	(46,530	)	—			$	56,976
Normalized Adjusted EBITDAR	$	195,049		$	12,591		$	5,412		$	(46,530	)	—			$	166,522


Adjusted EBITDA margin	7.1		%	6.5		%	7.2		%							3.9		%

Adjusted EBITDAR margin	16.0		%	6.7		%	7.9		%							11.9		%

Normalized Adjusted EBITDA margin	7.1		%	6.5		%	7.2		%							4.1		%

Normalized Adjusted EBITDAR margin	16.0		%	6.7		%	7.9		%							12.1		%

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 17



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 September 30, 2011
(unaudited)

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

Nonaffiliated revenue	$	418,097		$	29,568		$	20,996		$	15		—			$	468,676

Affiliated revenue	—			32,791			757			—			(33,548		)	—

Total revenue	$	418,097		$	62,359		$	21,753		$	15		$	(33,548	)	$	468,676

Income (loss) from continuing operations	$	(285,549	)	$	2,296		$	1,221		$	(25,343	)	—			$	(307,375	)

Income tax expense	—			—			—			2,203			—			2,203

Interest, net	(33		)	—			—			4,867			—			4,834

Depreciation and amortization	6,770			236			187			970			—			8,163

EBITDA	$	(278,812	)	$	2,532		$	1,408		$	(17,303	)	—			$	(292,175	)

Loss on sale of assets, net	809			—			—			—			—			809

Restructuring costs	—			—			—			2,426			—			2,426

Loss on asset impairment	317,091			—			—			—			—			317,091

Adjusted EBITDA	$	39,088		$	2,532		$	1,408		$	(14,877	)	—			$	28,151

Center rent expense	35,642			140			170			—			—			35,952

Adjusted EBITDAR	$	74,730		$	2,672		$	1,578		$	(14,877	)	—			$	64,103




Adjusted EBITDA margin	9.3		%	4.1		%	6.5		%							6.0		%

Adjusted EBITDAR margin	17.9		%	4.3		%	7.3		%							13.7		%


See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to
Adjusted EBITDA and Adjusted EBITDAR."

12 of 17



SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

RECONCILIATION OF INCOME (LOSS) FROM CONTINUING OPERATIONS TO ADJUSTED EBITDA and ADJUSTED EBITDAR
($ in thousands)

For the Nine Months Ended September 30, 2011
(unaudited)

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

Nonaffiliated revenue	$	1,250,568		$	89,645		$	65,309		$	36		—			$	1,405,558

Affiliated revenue	—			98,710			2,079			—			(100,789		)	—

Total revenue	$	1,250,568		$	188,355		$	67,388		$	36		$	(100,789	)	$	1,405,558

Income (loss) from continuing operations	$	(217,007	)	$	8,495		$	4,082		$	(81,881	)	—			$	(286,311	)

Income tax expense	—			—			—			16,715			—			16,715

Interest, net	(69		)	—			1			14,756			—			14,688

Depreciation and amortization	19,331			689			561			2,660			—			23,241

EBITDA	$	(197,745	)	$	9,184		$	4,644		$	(47,750	)	—			$	(231,667	)

Loss on sale of assets, net	809			—			—			—			—			809

Restructuring costs	302			—			—			2,426			—			2,728

Loss on asset impairment	317,091			—			—			—			—			317,091

Adjusted EBITDA	$	120,457		$	9,184		$	4,644		$	(45,324	)	—			$	88,961

Center rent expense	106,487			394			513			—			—			107,394

Adjusted EBITDAR	$	226,944		$	9,578		$	5,157		$	(45,324	)	—			$	196,355




Adjusted EBITDA margin	9.6		%	4.9		%	6.9		%							6.3		%

Adjusted EBITDAR margin	18.1		%	5.1		%	7.7		%							14.0		%


See definitions of EBITDA, Adjusted EBITDA and Adjusted EBITDAR in the table "Reconciliation of Net Loss to
Adjusted EBITDA and Adjusted EBITDAR."

13 of 17



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,
	2012					2011					2012					2011
Consolidated Company

Revenues - Non-affiliated (in thousands)
Skilled Nursing and similar
facilities	$	393,560				$	402,703				$	1,172,804				$	1,205,479
Hospice	15,719					14,885					46,491					43,647
Other - Inpatient Services	471					509					1,378					1,442
Inpatient Services	409,750					418,097					1,220,673					1,250,568

Rehabilitation Therapy Services	29,032					29,568					88,858					89,645
Medical Staffing Services	21,686					20,996					66,559					65,309
Other - non-core businesses	2					15					15					36
Total	$	460,470				$	468,676				$	1,376,105				$	1,405,558

Revenue Mix - Non-affiliated (in thousands)
Medicare	$	128,180		28	%	$	149,147		32	%	$	397,867		29	%	$	454,591		32	%
Medicaid	195,441			42	%	184,754			39	%	570,734			41	%	541,977			39	%
Private and Other	106,648			24	%	106,541			23	%	320,285			24	%	324,169			23	%
Managed Care / Insurance	24,568			5	%	22,777			5	%	71,311			5	%	69,133			5	%
Veterans	5,633			1	%	5,457			1	%	15,908			1	%	15,688			1	%
Total	$	460,470		100	%	$	468,676		100	%	$	1,376,105		100	%	$	1,405,558		100	%



Inpatient Services Stats

Number of centers:	190					190					190					190
Number of available beds:	20,774					20,803					20,774					20,803
Occupancy %:	87.0		%			87.2		%			87.1		%			87.4		%


Payor Mix % based on patient days:
Medicare - SNF Beds	13.9		%			15		%			14.6		%			15.6		%
Managed care / Ins. - SNF Beds	4.1		%			3.8		%			4.1		%			4		%
Total SNF skilled mix	18.0		%			18.8		%			18.7		%			19.6		%

Medicare	12.7		%			13.7		%			13.4		%			14.3		%
Medicaid	64.2		%			62.8		%			63.7		%			62.3		%
Private and Other	17.9		%			18.7		%			17.9		%			18.5		%
Managed Care / Insurance	3.8		%			3.5		%			3.7		%			3.6		%
Veterans	1.4		%			1.3		%			1.3		%			1.3		%

Revenue Mix % of revenues:
Medicare - SNF Beds	29.1		%			33.7		%			30.5		%			34.6		%
Managed care / Ins. - SNF Beds	6.3		%			5.8		%			6.2		%			5.9		%
Total SNF skilled mix	35.4		%			39.5		%			36.7		%			40.5		%

Medicare	30.2		%			34.5		%			31.5		%			35.2		%
Medicaid	47.7		%			44.2		%			46.8		%			43.3		%
Private and Other	14.8		%			14.6		%			14.6		%			14.7		%
Managed Care / Insurance	5.9		%			5.4		%			5.8		%			5.5		%
Veterans	1.4		%			1.3		%			1.3		%			1.3		%

14 of 17



Revenues PPD:
Medicare (Part A)	$	465.80	$	520.11	$	463.52	$	520.92
Medicare Blended Rate
(Part A & B)	$	513.99	$	563.52	$	509.23	$	559.86
Medicaid	$	183.16	$	176.42	$	180.65	$	175.21
Medicaid, net of provider taxes	$	165.95	$	160.69	$	163.50	$	159.84
Private and Other	$	189.42	$	186.05	$	189.87	$	190.06
Managed Care / Insurance	$	387.04	$	384.33	$	380.05	$	377.69
Veterans	$	242.67	$	257.15	$	246.28	$	249.90


Rehab contracts

Affiliated	178		178		178		178
Non-affiliated	338		343		338		343

Average Qtrly Revenue per
Contract (in thousands)	$	118	$	120	$	121	$	121

15 of 17



SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


	AS REPORTED - 3rd QUARTER 2012
	Revenue		Adjusted EBITDAR			Adjusted EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net (Loss) Income

As Reported 3rd QUARTER 2012	$	460,470	$	56,869		$	20,222		$	6,921		$	3,989		$	(2,702	)	$	1,287
Percent of Revenue			12.4		%	4.4		%	1.5		%	0.9		%	(0.6		)%	0.3		%

Normalizing Adjustments:

Transaction costs	—		1,033			1,033			1,033			630			—			630

Normalized As Reported - 3rd
QUARTER 2012	$	460,470	$	57,902		$	21,255		$	7,954		$	4,619		$	(2,702	)	$	1,917
Percent of Revenue			12.6		%	4.6		%	1.7		%	1.0		%	(0.6		)%	0.4		%

As Reported												$	0.15		$	(0.10	)	$	0.05
Diluted EPS: As Normalized												$	0.17		$	(0.10	)	$	0.07



	AS REPORTED - 3rd QUARTER 2011
	Revenue		Adjusted EBITDAR			Adjusted EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

As Reported - 3rd QUARTER 2011	$	468,676	$	64,103		$	28,151		$	(305,172	)	$	(307,375	)	$	(2,031	)	$	(309,406	)
Percent of Revenue			13.7		%	6		%	(65.1		)%	(65.6		)%	(0.4		)%	(66.0		)%

Normalizing Adjustments:

Restructuring costs	—		—			—			2,426			1,480			—			1,480
Impairment of assets	—		—			—			317,091			315,289			—			315,289

Normalized As Reported - 3rd
QUARTER 2011	$	468,676	$	64,103		$	28,151		$	14,345		$	9,394		$	(2,031	)	$	7,363
Percent of Revenue			13.7		%	6.0		%	3.1		%	2.0		%	(0.4		)%	1.6		%

As Reported												$	(11.73	)	$	(0.08	)	$	(11.81	)
Diluted EPS: As Normalized												$	0.36		$	(0.08	)	$	0.28



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 transaction costs associated with the Company's sale to Genesis Healthcare.
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 17



SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES

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


	AS REPORTED - NINE MONTHS 2012
	Revenue		Adjusted EBITDAR			Adjusted EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net (Loss) Income

As Reported - Nine Months 2012	$	1,376,105	$	163,462		$	53,916		$	14,842		$	8,821		$	(8,301	)	$	520
Percent of Revenue			11.9		%	3.9		%	1.1		%	0.6		%	(0.6		)%	—		%

Normalizing Adjustments:

Transaction costs	—		2,871			2,871			2,871			1,751			—			1,751

Normalized As Reported - Nine
Months 2012	$	1,376,105	$	166,333		$	56,787		$	17,713		$	10,572		$	(8,301	)	$	2,271
Percent of Revenue			12.1		%	4.1		%	1.3		%	0.8		%	(0.6		)%	0.2		%

As Reported												$	0.33		$	(0.31	)	$	0.02
Diluted EPS: As Normalized												$	0.40		$	(0.32	)	$	0.08



	AS REPORTED - NINE MONTHS 2011
	Revenue		Adjusted EBITDAR			Adjusted EBITDA			Pre-tax			Income from Continuing Operations			Disc Ops			Net Income

As Reported - Nine Months 2011	$	1,405,558	$	196,355		$	88,961		$	(269,596	)	$	(286,311	)	$	(5,036	)	$	(291,347	)
Percent of Revenue			14.0		%	6.3		%	(19.2		)%	(20.4		)%	(0.4		)%	(20.7		)%

Normalizing Adjustments:

Restructuring costs	—		—			—			2,426			1,480			—			1,480
Impairment of assets	—		—			—			317,091			315,289			—			315,289

Normalized As Reported - Nine
Months 2011	$	1,405,558	$	196,355		$	88,961		$	49,921		$	30,458		$	(5,036	)	$	25,422
Percent of Revenue			14.0		%	6.3		%	3.6		%	2.2		%	(0.4		)%	1.8		%

As Reported												$	(11.00	)	$	(0.19	)	$	(11.19	)
Diluted EPS: As Normalized												$	1.17		$	(0.19	)	$	0.98

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 transaction costs associated with the Company's sale to Genesis Healthcare.

Since normalizing adjustments are not measurements determined in accordance with U.S. generally accepted accounting principles and are thus susceptible to varying calculations and interpretations, the information presented herein may not be comparable to other similarly described information of other companies.

17 of 17

SUN HEALTHCARE GROUP INC - FORM 8-K - EX-99.1 - EXHIBIT - October 29, 2012

Attached files

SUN HEALTHCARE GROUP INC Reports