Irvine, Calif. (March 10, 2004) - (NASDAQ: SUNH) On Friday, March 5, 2004, Sun Healthcare Group, Inc. filed its annual report to the Securities and Exchange Commission on Form 10-K. The operating results Sun reported included net income for the year ended Dec. 31, 2003 of $0.4 million. The report also included audited financial statements that no longer contain a going concern qualification from its independent auditors. On March 10, 2004, Sun’s common stock commenced trading on the NASDAQ National Market under the symbol "SUNH".
     "We are pleased with our progress as a company in 2003," said Richard K. Matros, Sun’s chairman and chief executive officer. "Improving the Company’s financial condition and liquidity to allow our auditors to remove the 2002 going concern qualification represents an important step forward for the Company, its stockholders and other constituents." Matros continued, "Despite the improvement in the Company’s finances and operations in 2003, we will not rest on those achievements. We will be focused on creating better operations company-wide while seeking opportunities for growth and enhanced profitability."
      For the year ended Dec. 31, 2003, Sun reported total net revenues of $834.0 million and a net income of $0.4 million, including net income on discontinued operations of $35.4 million resulting primarily from the sale of its pharmaceutical services operations in July 2003, compared with total net revenues of $980.9 million and a net loss of $451.0 million for the year ended Dec. 31, 2002, which included an impairment charge of $407.8 million and excluded the gain on extinguishment of debt of $1.5 billion recorded as a result of Sun’s emergence from bankruptcy protection on Feb. 28, 2002. For the quarter ended Dec. 31, 2003, Sun reported total net revenues of $212.5 million and a net loss of $13.9 million, which included an impairment charge of $2.8 million and restructuring costs of $4.7 million, compared with total net revenues of $197.5 million and a net loss of $415.4 million for the three-month period ended Dec. 31, 2002, which included an impairment charge of $407.8 million, part of which is reclassified into Discontinued Operations.
     Net revenues from the long-term care and inpatient services operations, which comprised 68.7 percent of Sun’s total revenue from continuing operations for the year ended Dec. 31, 2003, decreased $132.7 million, from $705.7 million for the year ended Dec. 31, 2002, to $573.0 million for the same period in 2003, due primarily to reclassification of discontinued operations. The net segment income, excluding any allocation of corporate overhead, before loss on asset impairment, restructuring costs, gain on sale of assets, income taxes and discontinued operations from the long-term care and inpatient services operations increased $18.8 million from a loss of $2.0 million for the year ended Dec. 31, 2002, to income of $16.8 million for the same period in 2003, primarily due to the restructuring efforts’ impact on operating overhead and rent expense combined with the effect of the accounting treatment of operations for the two months of 2002 prior to emergence from bankruptcy.
      For the year ended Dec. 31, 2003, Sun’s net revenues from its continuing ancillary business operations, comprised primarily of SunDance Rehabilitation Corporation, CareerStaff Unlimited and SunPlus Home Health Services, Inc., net of intersegment eliminations, decreased $14.0 million, from $275.0 million for the year ended Dec. 31, 2002, to $261.0 million for the same period in 2003. Adjusted for $32.8 million of revenues related to the pharmaceutical services operations for the two months ended Feb. 28, 2002, net revenues for 2003 for the ancillary business operations actually increased over the same period 2002 by $18.8 million. The net segment income, excluding any allocation of corporate overhead, before loss on asset impairment, restructuring costs, gain on sale of assets, income taxes and discontinued operations for those operations, decreased $18.2 million over the same period, from net income of $38.4 million to net income of $20.2 million. The decrease was the result of multiple factors, including a $10.0 million decrease in rehabilitation services income related to (i) loss of affiliated business from the divestitures within our inpatient services operations and (ii) Medicare Part B therapy caps, $2.7 million related to the divestiture of the pharmaceutical services operations and $3.3 million due to start up losses associated with our medical staffing services.
      In early 2003, Sun commenced a restructuring of its operations to divest its under-performing long-term care facilities, divest certain non-core business operations, and reduce its overhead expenses. During 2003, Sun reduced the number of its long-term care facilities from 237 facilities with 26,845 licensed beds on Dec. 31, 2002, to 110 facilities with 11,210 licensed beds on Dec. 31, 2003. The Company also sold its SunScript Pharmacy Corporation pharmaceutical operations and its Shared Healthcare Systems, Inc. software development operations during 2003. In Feb. 2004, Sun completed a private placement of $56.2 million of its securities to accredited and institutional investors, raising net proceeds of approximately $52.3 million. Although Sun intends to divest seven more facilities during 2004, Sun believes that its 2003 restructuring is substantially complete.
     The Company emerged from bankruptcy on Feb. 28, 2002, and adopted the provisions of fresh-start accounting effective March 1, 2002. Under these provisions, the terms of the Company’s reorganization plan were implemented, assets and liabilities were adjusted to their estimated fair values, and a new entity was deemed created for financial reporting purposes. As a consequence, the financial results for the quarter and year ended Dec. 31, 2002, are generally not comparable to the financial results for the same periods in the prior year. Financial results in the attached financial highlights and consolidated statements of operations and cash flows labeled "Predecessor Company" refer to periods prior to the adoption of fresh-start reporting, while those labeled "Reorganized Company" refer to periods following the Company’s reorganization.
     Sun’s senior management will hold a conference call to discuss the Company’s fourth quarter and year-end operating results on Thursday, March 11, at 12 p.m. EST / 9 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 1 p.m. EST on March 11 until midnight EST on March 18 by calling (800) 642-1687 and using access code 5725297.