Sun Healthcare

      Irvine, Calif. (Nov. 3, 2004) - Sun Healthcare Group, Inc. (NASDAQ: SUNH) today announced that the financial information expressed in its press release of Nov. 2, 2004 will be adjusted to reflect a change in its auditor’s guidance regarding the Company’s application of FASB Interpretation No. 46 ("FIN 46"). The Company previously recognized the effect of consolidating the real estate ownership of nine facilities, due to an option agreement giving the other equity owners of the real estate the right to sell their interest to the Company, as a cumulative effect of change in accounting principle, which increased the Company’s net income by $11.9 million.
     Based upon additional discussion and guidance from its auditors, the Company has now determined that the effect of the option agreement should have been recognized as a reduction in the carrying value of the nine facilities and, accordingly, the cumulative effect of change in accounting principle should not have been recorded. The revised application of FIN 46 results in a $4.8 million improvement in the Company’s balance sheet versus the $13.1 million originally reported. The adjustment has a recurring effect on positive quarterly EBITDA of approximately $0.8 million, as well as additional depreciation and interest charges totaling $1.3 million. Those impacts therefore remain as previously reported.
      The revision to the Company’s application of FIN 46 will not change the Company’s results from continuing operations nor alter the guidance stated in the Nov. 2, 2004 press release as to revenues, EBITDAR, and EBITDA. The elimination of the previously reported non-cash $11.9 million cumulative effect of change in accounting principle causes the Company’s net income in the third quarter to be reduced by $11.9 million from $0.8 million to a loss of $11.1 million. That adjustment also affects the net income for the nine months ended Sept. 30, 2004 and the Company’s guidance as to net income by the same amount.
      Attached to this press release are the revised financial statements and statistics reflecting the revised application of FIN 46.

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., home care through SunPlus Home Health Services, Inc., and medical laboratory and mobile radiology services through SunAlliance Healthcare Services, Inc.

      Statements made in this release that are not historical facts may be "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. Factors that could cause actual results to differ materially include, but are not limited to, the following: continued compliance by the Company under its loan agreement; changes in Medicare and Medicaid reimbursements; efforts of third-party payors to control costs; the impact of federal and state regulations and investigations; changes in payor mix and payment methodologies; further consolidation of managed care organizations and other third-party payors; competition in our business; potential liability for losses not covered by, or in excess of, our insurance; competition for qualified staff in the healthcare industry; our ability to control operating costs, return to profitability and generate sufficient cash flow to meet operational and financial requirements; and the potential impact of an economic downturn or changes in the laws affecting our business in those markets in which we operate. More information on factors that could affect our business and financial results are included in our Annual Report on Form 10-K for the year ended Dec. 31, 2003, and other public filings made with the Securities and Exchange Commission, copies of which are available at Sun’s web site, www.sunh.com.
    The forward-looking statements involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control. We caution investors that any forward-looking statements made by us are not guarantees of future performance. We disclaim 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.

Third Quarter Fiscal 2004 Earnings Tables - FIN 46