EX-99.1 2 ex99-1.htm EXHIBIT 99.1 ex99-1.htm
EXHIBIT 99.1

UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
 
Introduction
 

The following tables present unaudited pro forma consolidated financial information of Sun Healthcare Group, Inc. (“Sun”) for the year ended December 31, 2007.  The tables and financial information contained herein are considered supplemental to our pro forma information included in our July 11, 2007 Form 8-K filing (the “July 11th 8-K”) with the Securities and Exchange Commission (the “SEC”).  Please refer to the July 11th 8-K for further information.
 
The unaudited pro forma consolidated financial information relates to the following transactions:
 
1.  the acquisition of Harborside Healthcare Corporation (“Harborside”) on April 19, 2007;
 
2.  entering into new credit facilities, the issuance of senior subordinated notes and the refinancing of outstanding indebtedness of Sun and of Harborside (collectively, the “Acquisition Financing Transactions”), all in connection with the acquisition of Harborside; and
 
3.  acquisitions made by Harborside in 2007 pursuant to the exercise of purchase options (collectively, the “Harborside Transactions”), consisting of (a) the acquisition of the real estate underlying five facilities in Connecticut (the “Moffie Portfolio”) that had been leased and operated by Harborside prior to their acquisition, for a net purchase price of $61.7 million; and (b) the acquisition of the real estate underlying four facilities in Massachusetts (the “NHP Portfolio”) that had been leased and operated by Harborside prior to their acquisition, for a net purchase price of $20.6 million.
 
The unaudited pro forma consolidated statement of operations for the year ended December 31, 2007 gives effect to the Harborside acquisition, the Acquisition Financing Transactions and the Harborside Transactions as if they had occurred on January 1, 2007.
 
Sun and Harborside have had no intercompany activity that would require elimination in preparing the unaudited pro forma consolidated financial information.
 
 
The pro forma adjustments and the resulting unaudited pro forma consolidated statement of operations were prepared based on available information and certain assumptions and estimates described in the notes to the unaudited pro forma consolidated financial information.
 
The unaudited pro forma consolidated statement of operations does not purport to represent what our results of operations would have been had the acquisition of Harborside, the Acquisition Financing Transactions and the Harborside Transactions occurred on the date indicated or to project our results of operations for any future period.  Furthermore, the unaudited pro forma consolidated statement of operations does not reflect changes which may occur as a result of activities after the acquisition of Harborside.  The unaudited pro forma consolidated statement of operations should be read in conjunction with Harborside’s consolidated financial statements and related notes filed with the SEC in reports on Form 8-K on March 12, 2007 and on July 11, 2007, and our financial statements and related notes filed with the SEC in our annual report on Form 10-K for the year ended December 31, 2007.
 

 
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Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 2007
(in thousands, except per share data)

                                   
         
Adjusted
                        
   
As Reported
    
Harborside
                        
   
by Sun for the
    
for the Three
                    
Pro Forma
  
   
Year Ended
    
Months Ended
    
Moffie and
              
Consolidated
  
   
December 31,
    
March 31,
    
NHP Purchase
      
Transaction
      
Sun and
  
   
2007
    
2007
    
Options
      
Adjustments
      
Harborside
  
                                   
Total net revenues
$
1,587,307
  
$
162,604
  
$
-
    
$
42
  
(4a)
$
1,749,953
  
Costs and expenses:
                                  
   Operating salaries and benefits
  
902,347
    
91,288
    
-
      
(1,465
)
(4a)
      
                       
(1,000
)
(4b)
  
991,170
  
   Self-insurance for workers’ compensation
                                  
      and general and professional liability
                                  
      insurance
  
45,878
    
1,864
    
-
      
1,621
  
(4a)
  
49,363
  
   Operating administrative expenses
  
39,953
    
-
    
-
      
-
      
39,953
  
   Other operating costs
  
328,535
    
39,307
    
-
      
(2,496
)
(4a)
  
365,346
  
   Center rent expense
  
72,013
    
7,159
    
(6,620
)
(3a)
  
(374
)
(4a)
  
72,178
  
   General and administrative expenses
  
60,339
    
6,599
    
-
      
358
  
(4a)
  
67,296
  
   Depreciation and amortization
  
31,537
    
5,410
    
2,872
  
(3b)
  
(429
)
(4a)
  
39,390
  
   Provision for losses on accounts receivable
  
9,417
    
7,912
    
-
      
2,398
  
(4a)
  
19,727
  
   Interest, net
  
44,380
    
4,645
    
4,290
  
(3c)
  
7,400
  
(5c)
      
                       
429
  
(4a)
      
                       
(615
)
(5b)
      
                       
842
  
(5a)
  
61,371
  
   Management fee
  
-
    
275
    
-
      
(275
)
(4c)
  
-
  
   Diligence and integration costs
  
4,495
    
192
    
-
      
(4,687
)
(4d)
  
-
  
   Minority interest
  
-
    
57
    
-
      
-
      
57
  
   Loss on extinguishment of debt, net
  
3,173
    
-
    
-
      
(3,173
)
(5d)
  
-
  
   Loss on sale of assets, net
  
23
    
-
    
-
      
-
      
23
  
Total costs and expenses
  
1,542,090
    
164,708
    
542
      
(1,466
)
    
1,705,874
  
                                   
Income (loss) before income taxes and
                                  
   discontinued operations
  
45,217
    
(2,104
)
  
(542
)
    
1,508
      
44,079
  
Income tax (benefit) expense
  
(11,458
)
  
(820
)
  
-
      
27,706
  
(4e)
  
15,428
  
Income (loss) from continuing operations
$
56,675
  
$
(1,284
)
$
(542
)
  
$
(26,198
)
  
$
28,651
  
                                   
Earnings per common and common
                                  
   equivalent share based on income from
                                  
   continuing operations
                                  
   Basic
$
1.34
                        
$
0.68
  
   Diluted
$
1.31
                        
$
0.66
  
                                   
Weighted average number of common and
                                  
   common equivalent shares outstanding:
                                  
   Basic
  
42,350
                          
42,350
  
   Diluted
  
43,390
                          
43,390
  
                                   


See Notes to Unaudited Pro Forma Consolidated Financial Information

 
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Notes to Unaudited Pro Forma Consolidated Financial Information


1.  Basis of Pro Forma Presentation

On October 19, 2006, Sun announced that it entered into a definitive agreement to acquire Harborside in a transaction in which Sun would pay approximately $349 million in cash for all of Harborside’s outstanding stock and to refinance or assume Harborside’s debt of approximately $241 million.  The information contained herein is considered supplemental to our pro forma information included in the July 11th 8-K.  Please refer to the July 11th 8-K for further information.  The unaudited pro forma consolidated statement of operations should also be read in conjunction with Harborside’s consolidated financial statements and related notes filed with the SEC in reports on Form 8-K on March 12, 2007 and on July 11, 2007, and our financial statements and related notes filed with the SEC in our annual report on Form 10-K for the year ended December 31, 2007..

Sun’s acquisition of Harborside was accounted for with an effective date of April 1, 2007.  Therefore, Sun’s actual results for the year ended December 31, 2007 include the actual results of Harborside’s operations for the nine months ended December 31, 2007.  This presentation combines Harborside’s actual results for the three months ended March 31, 2007 (which are not included in Sun’s 2007 results) with Sun’s 2007 results, and after certain adjustments discussed below, arrives at the pro forma combined results for the year ended December 31, 2007.  Harborside’s actual results for the three months ended March 31, 2007 have been adjusted for the reclassification of discontinued operations.

The unaudited pro forma consolidated statement of operations also reflects the Harborside Transactions, consisting of (a) the acquisition of the real estate underlying five facilities in Connecticut (the “Moffie Portfolio”) that had been leased and operated by Harborside prior to their acquisition, for a net purchase price of $61.7 million; and (b) the acquisition of the real estate underlying four facilities in Massachusetts (the “NHP Portfolio”) that had been leased and operated by Harborside prior to their acquisition, for a net purchase price of $20.6 million


 
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2.  Adjustments to Reconcile Harborside Results As Reported to Adjusted Results

Subsequent to Sun’s acquisition of Harborside, certain of Harborside’s operations were reclassified as discontinued operations.  The table below indicates the impact of such reclassification (in thousands):
                   
   
As Reported by
    
Adjustments
    
Adjusted
  
   
Harborside
    
To Reclassify
    
Harborside
  
   
For the Three
    
Discontinued
    
For the Three
  
   
Months Ended
    
Operations as of
    
Months Ended
  
   
March 31, 2007
    
March 31, 2007
    
March 31, 2007
  
                   
Total net revenues
$
165,350
  
$
2,746
  
$
162,604
  
                   
Costs and expenses:
                  
   Operating salaries and benefits
  
93,266
    
1,978
    
91,288
  
   Self-insurance for workers’
                  
      compensation and general and
                  
      professional liability insurance
  
1,932
    
68
    
1,864
  
   Operating administrative expenses
  
-
    
-
    
-
  
   Other operating costs
  
40,055
    
748
    
39,307
  
   Center rent expense
  
7,308
    
149
    
7,159
  
   General and administrative expenses
  
6,805
    
206
    
6,599
  
   Depreciation and amortization
  
5,447
    
37
    
5,410
  
   Provision for losses on accounts
                  
      receivable
  
7,940
    
28
    
7,912
  
   Interest, net
  
4,763
    
118
    
4,645
  
   Management fee
  
275
    
-
    
275
  
   Diligence and integration costs
  
192
    
-
    
192
  
   Minority interest
  
57
    
-
    
57
  
Total costs and expenses
  
168,040
    
3,332
    
164,708
  
                   
Loss before income taxes and
                  
   discontinued operations
  
(2,690
)
  
(586
)
  
(2,104
)
Income tax benefit
  
(820
)
  
-
    
(820
)
Loss from continuing operations
$
(1,870
)
$
(586
)
$
(1,284
)
                   
 
3.  Adjustments Due to the Acquisitions of the Moffie Portfolio and the NHP Portfolio

Pro forma transaction adjustments are necessary to reflect the impact of consummating the purchases of the Moffie Portfolio and the NHP Portfolio as if they had occurred on January 1, 2007.  The accompanying unaudited pro forma consolidated statement of operations reflects the following pro forma adjustments (in thousands):

(a)
To remove the impact of actual center rent expense for the Moffie and NHP Portfolios incurred during 2007 prior to closing the purchases.

(b)
To adjust depreciation and amortization to reflect a full year of expense.

(c)
To reflect the impact of term loan borrowings and mortgages assumed in conjunction with the Harborside Transactions.

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4.  Transaction Adjustments

Pro forma transaction adjustments are necessary to reflect the impact of adjustments in the current period which pertain to prior periods and to reflect other transactions directly related to the Harborside acquisition.

The accompanying unaudited pro forma consolidated statement of operations reflects the following pro forma adjustments (in thousands):

(a)
To reclassify Harborside’s financial statement presentation to conform to Sun’s financial statement presentation.

(b)
To adjust operating salaries and benefits in the three months ended March 31, 2007 for estimated net decreases in operating expenses.  Positions at Harborside's corporate office and certain regional positions have been eliminated for an estimated net savings for the quarter of approximately $1,000.

(c)
To eliminate the management fee paid to Investcorp International Inc. (an affiliate of which was a major stockholder of Harborside prior to the acquisition by Sun) by Harborside of $275, which was recorded in the first quarter of 2007.

(d)
To eliminate diligence costs incurred by Harborside of $192 and integration costs of $4,495 incurred by Sun in connection with the acquisition.

(e)
To reflect the tax provision at an effective rate of 35%, consistent with Sun’s 2007 normalized effective tax rate.


5.  Acquisition Financing Adjustments

The pro forma adjustments shown below have been made to reflect financing transactions associated with the Harborside acquisition (in thousands):

(a)
Deferred financing costs capitalized totaled $13,629 for the senior secured credit facility and $7,140 for the senior subordinated notes.  Amortization of such fees would be $2,864 for the pro forma statement of operations for the twelve months ended December 31, 2007, of which $2,022 is included in Sun’s actual results.

(b)
To reflect the non-cash write-off of deferred loan costs associated with the refinancing of existing indebtedness of both Sun and Harborside.


 
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(c)
To adjust actual interest expense to pro forma interest expense based upon an assumed debt structure as follows:

       
Adjustment to reflect a full year of interest expense for
      
   the Acquisition Financing Transactions
$
12,163
  
Less:  Harborside historical interest costs related to
      
   refinanced debt
  
(4,763
)
Net adjustment to interest expense
$
7,400
  


(d)
To adjust for financing termination fees incurred with the refinancing of Sun’s debt.


 
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