Irvine, Calif. (Aug. 8, 2003) -- Sun Healthcare Group, Inc. (OTC-SUHG.OB) today announced its operating results for its second quarter ended June 30, 2003.
      For the quarter ended June 30, 2003, Sun reported total net revenues of $282.6 million and a net loss, before income taxes and discontinued operations, of $9.6 million, compared with total net revenues of $283.1 million and a net loss, before income taxes and discontinued operations of $9.5 million for the three month period ended June 30, 2002. The Company operated 157 long-term and other inpatient care facilities with 16,897 licensed beds on June 30, 2003, as compared with 243 facilities with 27,571 licensed beds on June 30, 2002.
      As previously announced, the Company completed the sale of the assets of SunScript Pharmacy Corporation and other pharmacy-related operations on July 15, 2003.   Accordingly, results of those businesses have been reclassified as results from discontinued operations. For the quarter ended June 30, 2003, Sun’s net revenues net of intersegment eliminations from its ancillary operations, which, as of August 8, 2003 primarily include SunDance Rehabilitation Corporation, CareerStaff Unlimited, SunPlus Home Health Services, Inc. and Shared Healthcare Systems, Inc., increased $1.6 million, from $64.5 million for the three months ended June 30, 2002, to $66.1 million for the same period in 2003. The net segment income, before restructuring costs, gain on sale of assets, income taxes and discontinued operations for those operations, decreased $4.5 million over the same period, from net income of $10.3 million to net income of $5.8 million. This decrease was the result of multiple factors including reimbursement cuts, labor increases and start-up costs associated with new CareerStaff offices.  The net revenues and net income for the pharmacy operations, which were not included in the ancillary operations because they were reclassified into discontinued operations, were $65.2 million and $2.5 million, respectively, for the three months ended June 30, 2003.  
      Net revenues from the long-term and inpatient care operations, which comprised 76.6 percent of Sun’s total revenue in the second quarter of 2003, decreased $2.1 million to $216.5 million for the three months ended June 30, 2003, from $218.6 million for the same period in 2002. The net segment loss, before restructuring costs, gain on sale of assets, income taxes and discontinued operations from the long-term and inpatient care operations increased $0.7 million from $0.5 million for the three months ended June 30, 2002, to $1.2 million for the same period in 2003. Sun’s inpatient care results of operations were negatively impacted by reductions in Medicare reimbursements of $6.8 million, which were partially offset by a market basket increase of $1.8 million. Without the reimbursement cuts Sun’s inpatient care net revenues and net income, before restructuring costs, gain on sale of assets, income taxes and discontinued operations, would have been $221.5 million and $3.8 million, respectively.
      Sun’s corporate overhead costs for the second quarter of 2003 decreased $6.2 million to $14.0 million from $20.2 million for the same period in 2002.  This decrease is due to the Company’s efforts to match its corporate infrastructure to the decreasing size of the enterprise as the restructuring of the Company continues.
      "Our restructuring of the Company is progressing well, as evidenced by the recent sale of SunScript and the divestiture of ninety-five nursing homes and hospital operations which collectively represent approximately seventy percent of our intended divestitures," said Richard K. Matros, Sun’s chairman and chief executive officer.  Matros continued, "Many challenges remain, but we are pleased by our progress to this point." As noted above, on July 15, 2003 Sun sold its pharmacy services business to Omnicare, Inc. for total consideration of up to $90 million in cash, of which $75 million was paid at closing and up to $15 million is payable post-closing, subject to reduction.  Proceeds received at the closing of that sale were used to retire the Company’s Term Debt as well as to reduce a significant portion of the balance owed by the Company under its Revolving Loan Agreement.
      Sun continues to restructure its long-term care facility portfolio to transition certain under-performing facilities to other operators. Pursuant to this initiative, Sun divested 60 facilities between March 31, 2003 and June 30, 2003. Those 60 facilities accounted for $4.0 million in losses during the second quarter of 2003. Sun divested an additional 14 facilities in July 2003 and anticipates that operations of 29 percent of the 143 long- term care facilities currently operated by the Company’s subsidiaries may be divested as part of the current restructuring.  
      "Despite the distractions of the restructuring, our long term care continuing operations improved to where we have been able to offset most of the reimbursements cuts that have hit the industry," said Mr. Matros.
      Sun and its subsidiaries have continued to receive funding under their Revolving Loan Agreement, even though the Company continues to be in covenant default of that loan agreement and has not obtained a waiver of those defaults.
      Sun’s senior management will hold a conference call to discuss the Company’s second quarter operating results on Tuesday, August 12, at
12 p.m. EDT / 9 a.m. PDT. 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. EDT on August 12 until midnight EDT on August 19 by dialing (800) 642-1687 and using access code 1809707.