Irvine, Calif. (Feb. 27, 2006) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced results for the fourth quarter and year ended Dec. 31, 2005.

Earnings
      For the year ended Dec. 31, 2005, Sun reported the following results of operations:

for continuing operations, excluding the results of operations of Peak Medical Corporation ("Peak""), which we acquired in December 2005, total net revenues of $861.0 million, a 5.9 percent improvement over total net revenues in 2004, net income from continuing operations of $4.0 million ($0.26 per fully-diluted share), and EBITDAR of $64.4 million, which included a net $6.8 million reduction in self-insurance reserves for general and professional liability and workers’ compensation related to prior years, offset by a $0.4 million charge for debt extinguishment related to the refinance of one inpatient facility mortgage. This compares to total net revenues of $813.3 million, net income from continuing operations of $9.9 million ($0.68 per fully-diluted share), and EBITDAR of $70.6 million for the year ended Dec. 31, 2004, which included (i) a net $16.5 million reduction in self-insurance reserves for general and professional liability and workers’ compensation related to prior years, and (ii) a $3.4 million gain on debt extinguishment related to the refinance of six inpatient facility mortgages.

excluding the reduction in self-insurance reserves and extinguishment of debt, the net loss from continuing operations for the year ended Dec. 31, 2005, was $2.4 million as compared to a net loss from continuing operations of $10.0 million for the year ended Dec. 31, 2004, and EBITDAR for the year ended Dec. 31, 2005, was $58.0 million, or 6.7 percent of revenue, an improvement of 14.4 percent, as compared to EBITDAR of $50.7 million, or 6.2 percent of revenue, for the prior year.

on an as-reported basis, which includes the results of operations of Peak for December 2005 and discontinued operations, total net revenues of $882.1 million, an 8.5 percent improvement over total net revenues in 2004, and net income of $24.8 million ($1.55 per fully-diluted share), which included a net $21.4 million reduction in self-insurance reserves for general and professional liability and workers’ compensation related to prior years, offset by a $0.4 million charge for debt extinguishment related to the refinance of one inpatient facility mortgage. This compares to total net revenues of $813.3 million and a net loss of $18.6 million (($1.28) per fully-diluted share) for the year ended Dec. 31, 2004, which included (i) a net $13.2 million reduction in self-insurance reserves for general and professional liability and workers’ compensation related to prior years, and (ii) a $3.4 million gain on debt extinguishment related to the refinance of six inpatient facility mortgages.

excluding the reduction in self-insurance reserves and extinguishment of debt, the net income for the year ended Dec. 31, 2005, was $3.8 million as compared to a net loss of $35.2 million for the prior year.

      For the quarter ended Dec. 31, 2005, Sun reported the following results of operations:

for continuing operations, excluding the results of operations of Peak, total net revenues of $224.8 million, a 9.9 percent improvement over total net revenues in the 2004 fourth quarter, net income from continuing operations of $4.7 million ($0.30 per fully-diluted share), and EBITDAR of $19.6 million, which included a net $6.3 million reduction in self-insurance reserves for general and professional liability and workers’ compensation related to prior years, compared to total net revenues of $204.6 million, net income from continuing operations of $5.5 million ($0.36 per fully-diluted share), and EBITDAR of $22.2 million for the quarter ended Dec. 31, 2004, which included a net $14.8 million reduction in self-insurance reserves for general and professional liability and workers’ compensation related to prior years, offset by a $0.4 million charge for debt extinguishment related to the refinance of one inpatient facility mortgage.

excluding the reduction in self-insurance reserves and extinguishment of debt, the net loss from continuing operations for the quarter ended Dec. 31, 2005, was $1.6 million as compared to a net loss from continuing operations for the quarter ended Dec. 31, 2004, of $8.9 million and EBITDAR for the quarter ended Dec. 31, 2005, was $13.3 million, or 5.9 percent of revenue, an improvement of 70.5 percent, as compared to EBITDAR of $7.8 million, or 3.8 percent of revenue, for the prior year period.

on an as-reported basis, total net revenues of $245.9 million, a 20.2 percent improvement over total net revenues in the 2004 fourth quarter, and net income of $11.7 million ($0.65 per fully-diluted share), which included a net $14.5 million reduction in self-insurance reserves for general and professional liability and workers’ compensation related to prior years. This compares to total net revenues of $204.6 million and a net loss of $4.4 million (($0.29) per fully-diluted share) for the quarter ended Dec. 31, 2004, which included a net $10.2 million reduction in self-insurance reserves for general and professional liability and workers’ compensation related to prior years, offset by a $0.4 million charge for debt extinguishment related to the refinance of one inpatient facility mortgage.  

excluding the reduction in self-insurance reserves and extinguishment of debt, the net loss for the quarter ended Dec. 31, 2005, was $2.8 million as compared to a net loss of $14.2 million for the prior year period.

      "Our fourth quarter operating results, in conjunction with the Peak acquisition, the completion of our equity offering in December and the expansion of our credit facility have positioned us for a strong 2006," said Richard K. Matros, Sun’s chairman and chief executive officer. "Our improved operations and the structural improvements that we have made since 2002 have resulted in reducing our stockholders’ deficit from $187.2 million at December 31, 2002, to $2.9 million at December 31, 2005," Matros continued.

Inpatient Business
      Net revenues, on an as-reported basis, from inpatient services operations increased 8.5 percent to $635.6 million for the year ended Dec. 31, 2005, from $585.8 million for the same period in 2004. Adjusting for the one month of revenue of $20.5 million attributable to the Peak portfolio, same store revenue increased $28.7 million or 4.9 percent for the same period. The revenue gain on a same store basis was primarily attributable to: (i) an 80-basis point improvement, or $9.3 million in revenue, in Medicare patient mix, to 13.8 percent from 13.0 percent of total occupancy, (ii) a 2.7 percent increase in our Medicare rates, or $4.5 million in revenue, and (iii) a 5.2 percent increase in our Medicaid rates or $14.6 million in revenues.

      On an as-reported basis, net segment income decreased $3.1 million, to $41.4 million for the year ended Dec. 31, 2005, from $44.5 million for the year ended Dec. 31, 2004. Net segment EBITDAR increased $0.9 million, to $93.5 million for the year ended Dec. 31, 2005, from $92.6 million for the same period in 2004, and net segment EBITDA decreased $1.1 million, to $56.0 million for the year ended Dec. 31, 2005, from $57.1 million for the same period in 2004. Net segment income, excluding the results of operations of Peak, was $41.9 million and net segment EBITDAR was $91.6 million for the year ending Dec. 31, 2005.

      Excluding the reduction in self-insurance reserves, the extinguishment of debt and the results of operations of Peak, net segment income improved to $35.5 million, or 44.3 percent, from $24.6 million, and EBITDAR improved to $85.2 million, or 17.2 percent from $72.7 million, over the results for the year ended Dec. 31, 2004. As a result, EBITDAR margin has improved 140 basis points, to 13.8 percent from 12.4 percent.

      Net revenues from inpatient services operations increased 21.0 percent to $181.2 million for the quarter ended Dec. 31, 2005, from $149.7 million for the same period in 2004. Adjusting for the one month of revenue attributable to the Peak portfolio, same store revenue increased $11.0 million or 7.3 percent. The revenue gain, on a same store basis, was primarily attributable to: (i) an 80-basis point improvement, or $2.8 million in revenue, in Medicare patient mix, to 13.8 percent from 13.0 percent of total occupancy, (ii) a 2.9 percent increase in our Medicare rates or $1.1 million in revenue, and (iii) an 8.8 percent Medicaid rate increase or $6.4 million increase in Medicaid revenues due primarily to a program plan change in the state of California.

      On an as-reported basis, net segment income decreased $4.2 million, to $14.8 million for the fourth quarter of 2005 from $19.0 million for the same period in 2004. Net segment EBITDAR decreased $1.9 million, to $30.0 million for the quarter ended Dec. 31, 2005, from $31.9 million for the same period in 2004, and net segment EBITDA decreased $3.9 million, to $19.4 million for the quarter ended Dec. 31, 2005, from $23.3 million for the same period in 2004. Net segment income, excluding the results of operations of Peak, decreased $3.7 million, to $15.3 million from $19.0 million for same period in 2004, net segment EBITDAR decreased $3.9 million, to $28.0 million from $31.9 million for the same period in 2004, and net segment EBITDA decreased $4.4 million to $18.9 million from $23.3 million for the same period in 2004.

      Excluding the reduction of self-insurance reserves, extinguishment of debt and the results of operations of Peak, net segment income improved to $9.0 million, or 95.7 percent, from $4.6 million and EBITDAR improved to $21.7 million, or 24 percent, from $17.5 million over the prior year period. As a result, EBITDAR margin has improved 180 basis points to 13.5 percent from 11.7 percent.

      "Our inpatient services segment continues to execute its growth strategy into higher acuity Medicare market share resulting in improved profitability. We continue to see additional opportunity here. We are excited about the consummation of the Peak transaction and the opportunities that the combination brings to our employees and shareholders," said Matros.

Ancillary Business
      Net revenues from Sun’s ancillary business operations, which include SunDance Rehabilitation Corporation, CareerStaff Unlimited, Inc., and SunPlus Home Health Services, Inc., net of affiliated revenues, increased $19.0 million, or 8.4 percent, to $245.8 million for the year ended Dec. 31, 2005, from $226.8 million for the same period in 2004. Net segment income decreased $3.5 million, or 20.2 percent, to $13.8 million for 2005 from $17.3 million for 2004. Net segment EBITDAR for the ancillary operations for the year ended Dec. 31, 2005, decreased $3.0 million, or 13.5 percent, over the same period in 2004, to $19.2 million from $22.2 million, and net segment EBITDA decreased $2.9 million, or 15.5 percent, to $15.8 million for the year ended Dec. 31, 2005, from $18.7 million for the same period in 2004. The decrease was primarily related to the rehabilitation services segment as a result of increasing wage pressure and resulting margin compression.

      For the quarter ended Dec. 31, 2005, net revenues from Sun’s ancillary business operations, net of affiliated revenues, increased $9.3 million, or 16.9 percent, to $64.2 million from $54.9 million for the same period in 2004. For the quarter ended Dec. 31, 2005, net segment income decreased $0.5 million, or 15.6 percent, to $2.7 million from $3.2 million for same period in 2004, net segment EBITDAR for the ancillary operations decreased $0.2 million, or 4.5 percent, to $4.2 million from $4.4 million for the same period in 2004, and net segment EBITDA decreased $0.3 million, or 8.6 percent, to $3.2 million from $3.5 million for the same period in 2004.

      "We are committed to executing operational strategies that will improve both margins and profitability in our rehabilitation services segment to mitigate the labor pressure that has negatively impacted the business. Our expectation is that we will start to see results in the second quarter of this year," Matros reported.

Corporate General
      General and administrative expenses not directly attributed to operating segments increased $3.1 million, or 7.0 percent, to $47.2 million for the year ended Dec. 31, 2005, compared to $44.1 million for the year ended Dec. 31, 2004. For the quarter ended Dec. 31, 2005, general and administrative expenses decreased $0.4 million, or 2.8 percent, to $13.7 million compared to $14.1 million for the same period in 2004. "For the year, as a percent of revenues, our G&A dropped to 5.3 percent from 5.4 percent and, for the quarter, as our actual spending decreased, G&A as a percent of revenues dropped to 5.6 percent as compared to 6.9 percent for the same quarter in 2004," said Matros.

2006 Guidance
      For 2006, Sun expects that its total revenues will be approximately $1.17 billion to $1.18 billion. EBITDAR is expected to be approximately $99.5 million to $102.0 million and EBITDA is expected to be approximately $42.5 million to $45.0 million. Pre-tax earnings are expected to be approximately $15.0 million to $17.5 million. Net income is expected to be approximately $9.0 million to $11.5 million ($0.29 per basic share to $0.37 per basic share). This guidance assumes, among other things, no acquisitions, a stable Medicaid reimbursement environment and no net changes in the Medicare reimbursement environment.

Conference Call
      Sun’s senior management will hold a conference call to discuss the Company’s 2005 operating results on Tuesday, Feb. 28, 2006, at 1 p.m. EST / 10 a.m. PST. To listen to the conference call, dial (877) 516-8526 and refer to Sun Healthcare Group. A recording of the call will be available from 4 p.m. EST on Feb. 28 until midnight EST on March 7 by calling (800) 642-1687 and using access code 5311940.

About Sun Healthcare Group, Inc.
      Sun Healthcare Group, Inc., with executive offices located in Irvine, California, owns SunBridge Healthcare Corporation and other affiliated companies that operate long-term and postacute care facilities in many states. In addition, the Sun Healthcare Group family of companies provides therapy through SunDance Rehabilitation Corporation, medical staffing through CareerStaff Unlimited, Inc. and home care through SunPlus Home Health Services, Inc.

Fourth Quarter 2005 Earnings Tables