Irvine, Calif. (March 27, 2003) - (OTC-SUHG.OB) Sun Healthcare Group, Inc. today announced its operating results for its fourth quarter and year ended December 31, 2002. Sun also noted preliminary progress in the Company’s previously announced restructuring efforts.
    For the quarter ended December 31, 2002, Sun reported total net revenues of $476.5 million and a net loss, before reorganization costs and income taxes of $415.5 million (which included an asset impairment charge of $407.8 million), compared with total net revenues of $543.3 million and a net loss, before reorganization costs and income taxes of $27.2 million (which included an asset impairment charge of $18.9 million) for the three-month period ended December 31, 2001. For the year ended December 31, 2002, Sun reported total net revenues of $1.9 billion and a net loss, before reorganization costs, income taxes, discontinued operations and extraordinary items, of $444.3 million (which included an asset impairment charge of $407.8 million), compared with total net revenues of $2.1 billion and an operating loss, before reorganization costs, income taxes, discontinued operations and extraordinary items, of $26.2 million (which included an asset impairment charge of $18.8 million) for the 12-month period ended December 31, 2001. The Company operated 237 long-term and other inpatient care facilities with 26,845 licensed beds on December 31, 2002, as compared with 247 facilities with 27,954 licensed beds on December 31, 2001.  
    Sun’s fourth quarter results were negatively impacted by the failure of Congress to extend certain Medicare reimbursement add-ons as of September 30, 2002. Sun estimates that its Medicare reimbursements with respect to its long term care operations decreased by approximately $6.4 million during the fourth quarter.  In addition, Sun estimates that its revenues will decrease by approximately $36.9 million during the year ended December 31, 2003 as a result of known changes to Medicare and Medicaid and assuming that we continue operating all of our facilities. This decrease includes: a $32.9 million decrease to inpatient revenues as a result of the expiration of the Medicare add-ons; a $8.5 million increase to inpatient revenues as a result of a market basket increase; a $7.2 million decrease to therapy revenues and a $0.9 million decrease in inpatient services revenues as a result of the expiration of a therapy cap moratorium; a $2.1 million decrease in Medicare home health revenues as a result of legislative changes; and a $2.3 million decrease in Medicaid pharmacy rates.  
    For the quarter ended December 31, 2002, Sun’s net revenues from its ancillary and Corporate operations, which include SunScript Pharmacy Corporation, SunDance Rehabilitation Corporation, Career-Staff Unlimited, SunPlus Home Health Services, Inc. and Shared Healthcare Systems, Inc., increased $3.4 million, from $110.3 million for the three months ended December 30, 2001, to $113.7 million for the same period in 2002. Its net loss, before reorganization costs, income taxes, discontinued operations and extraordinary items, for those operations increased $177.0 million over the same period, from a loss of $24.4 million (which included an asset impairment charge of $4.3 million and an extraordinary charge of $11.1 million) to a loss of $201.4 million (which included an asset impairment charge of $197.2 million and an extraordinary gain of $2.4 million). For the year ended December 31, 2002, Sun’s net revenues from its ancillary and corporate operations decreased slightly from $465.8 million for the 12 months ended December 30, 2001 to $447.9 million for the 12 months ended December 31, 2002. Its net income, before reorganization costs, income taxes, discontinued operations and extraordinary items, for those operations decreased $172.9 million over the same period, from a loss of $45.6 million (which included an asset impairment charge of $4.3 million and an extraordinary charge of $12.9 million) to a loss of $218.5 million (which included an asset impairment charge of $197.2 million and an extraordinary gain of $3.9 million). The net income for these operations, excluding asset impairment charges previously noted and corporate overhead expenses of $75.7 million, was $50.5 million in 2002, compared to net income, exclusive of asset impairment charges previously noted and corporate overhead expense of $68.4 million, of $40.0 million in 2001.
    Net revenues from the long-term and inpatient care operations, which comprised 76.2 percent of Sun’s total revenue in the fourth quarter of 2002 and 76.6 percent for the year ended December 31, 2002, decreased $70.2 million to $362.8 million for the three months ended December 31, 2002 from $433.0 million for the same period in 2001 (which included $49.6 million related to the Settlement Agreement with CMS). The net loss, before reorganization costs, income taxes, discontinued operations and extraordinary items from the long-term and inpatient care operations increased $211.3 million from $2.8 million (which included an asset impairment charge of $14.5 million and an extraordinary gain of $1.1 million) for the three months ended December 31, 2001, to $214.1 million (which included an asset impairment charge of $210.6 million and an extraordinary gain of $3.1 million) for the same period in 2002. For the year ended December 31, 2002, Sun’s net revenues from its long-term and inpatient care operations decreased from $157.3 million from $1,609.4 million for the 12 months ended December 30, 2001 to $1,452.1 million for the 12 months ended December 31, 2002. Its net loss, before reorganization costs, income taxes, discontinued operations and extraordinary items, for those operations decreased $245.2 million over the same period, from a net profit of $19.4 million (which included an asset impairment charge of $14.5 million and an extraordinary gain of $1.6 million) to a loss of $225.8 million (which included an asset impairment charge of $210.5 million, an extraordinary gain of $1.4 million and loss on discontinued operations of $7.6 million). The net loss in 2002, excluding asset impairment charges, was $6.6 million compared to a net loss, exclusive of asset impairment charges, of $10.6 million in 2001.
    During the quarter ended December 31, 2002, Sun also recorded non-cash impairment charges in the aggregate amount of $407.8 million. The charges consisted of the write-down of $231.1 million of goodwill, $126.7 million of fixed assets, and $50.0 million of other intangible assets. Sun incurred these charges as a result of our anticipated divestiture of long-term care facilities, the expiration of the Medicare add-on payments on September 30, 2002 and the increase in industry-wide general, professional liability costs during 2002. As a result of these and other factors, the Company determined that the fair values of each of its operating business segments require Sun to recognize the impairment charge noted above.
    Sun has initiated restructuring efforts to obtain, among other things, rent concessions with respect to certain facilities and to transition certain under-performing facilities to other operators. In connection with this initiative, Sun has withheld approximately $18.9 million to date in accrued rent and mortgage payments which related facilities it intends to transition to new operators. Sun is hopeful that, as part of its restructuring, the company will transition away operations that generate losses under the current, greatly restricted reimbursement environment. "Our restructuring is intended to allow the Company to reinvent itself and make it through these very troubled times in the long-term care industry. We are attempting to reshape our portfolio to move it toward financial stability in a reduced reimbursement environment," said Richard K. Matros, Sun’s chairman and chief executive officer. Matros continued, "Successfully implementing this sort of restructuring will, of course, be difficult. It presents numerous complex and vexing challenges. That said, I am pleased with the cooperation we have achieved with the majority of our landlords as we go through this process. We have had a constructive dialogue with most of our landlords but there is a very long and difficult road remaining before we will know whether our restructuring will succeed. We remain focused on providing quality care to our residents and patients during this unprecedented transition."  
    Sun and its subsidiaries have continued to receive funding under their Revolving Credit Agreement, even though the Company is in covenant default of its loan agreements and has not obtained current waivers of the defaults.  
    The Company emerged from bankruptcy on February 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 December 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 Friday, March 28, 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 conference call will be available from 1 p.m. EST on March 28 until midnight EST on April 4 by dialing (800) 642-1687 and using access code 919-9816.

Fourth Quarter and Year End Fiscal 2002 Earnings Tables