EX-99.2 3 ex992.htm EXHIBIT 99.2 Exhibit 99.2
EXHIBIT 99.2

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 three months ended March 31, 2007. The tables and financial information contained herein are considered supplemental to our pro forma information included in our March 12, 2007 Form 8-K filing (the “March 12th 8-K”) with the Securities and Exchange Commission (the “SEC”). Please refer to the March 12th 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”);
 
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 to be made by Harborside (collectively, the “Harborside Transactions”), consisting of (a) the acquisition of the real estate underlying five facilities in Connecticut (the “Moffie Portfolio”) that at March 31, 2007 were leased and operated by Harborside for a net purchase price of $61.7 million, pursuant to the exercise of a purchase option, which closed, as to four facilities, in the second quarter of 2007 (the purchase of the fifth facility is expected to be completed in the third quarter of 2007); and (b) the proposed acquisition of the real estate underlying four facilities in Massachusetts (the “NHP Portfolio”) that at March 31, 2007 were leased and operated by Harborside for a net purchase price of $20.6 million, pursuant to the exercise of a purchase option, which is expected to close in the fourth quarter of 2007.
 
The unaudited pro forma consolidated statement of operations for the three months ended March 31, 2007 gives effect to the Harborside acquisition, the Acquisition Financing Transactions and all the Harborside Transactions as if they had occurred on January 1, 2006.
 
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
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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 filed with the SEC in both our annual report on Form 10-K/A for the year ended December 31, 2006 and our quarterly report on Form 10-Q for the quarter ended March 31, 2007.
 

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

                          
Pro Forma
  
            
 Moffie and
           
Combined
  
   
As Reported
  
 As Reported
  
 NHP Purchase
 
 Transaction
      
Sun and
  
   
Sun
  
 Harborside
  
 Options
  
 Adjustments
      
Harborside
  
                                       
Total net revenues
  
$
273,569
  
$
165,350
  
$
-
  
$
42
    
(2a
)
$
438,961
  
Costs and expenses:
                                      
   Operating salaries and benefits
    
156,426
    
93,266
    
-
    
(1,465
)
  
(2a
)
      
                       
(1,000
)
  
(2b
)
  
247,227
  
   Self-insurance for workers’ compensation
                                      
      and general and professional liability
                                      
      insurance
    
10,564
    
1,932
    
-
    
1,621
    
(2a
)
  
14,117
  
   Operating administrative expenses
    
7,591
    
-
    
-
    
-
          
7,591
  
   Other operating costs
    
56,612
    
40,055
    
-
    
(2,496
)
  
(2a
)
  
94,171
  
   Facility rent expense
    
14,379
    
7,308
    
(2,475
)
  
(374
)
  
(2a
)
  
18,838
  
   General and administrative expenses
    
12,832
    
6,805
    
-
    
358
    
(2a
)
  
19,995
  
   Depreciation and amortization
    
3,920
    
5,447
    
846
    
(429
)
  
(2a
)
  
9,784
  
   Provision for losses on accounts receivable
    
2,440
    
7,940
    
-
    
2,398
    
(2a
)
  
12,778
  
   Interest, net
    
2,059
    
4,763
    
1,644
    
7,066
    
(3c
)
      
                       
429
    
(2a
)
      
                       
(534
)
  
(3b
)
      
                       
614
    
(3a
)
  
16,041
  
   Management fee
    
-
    
275
    
-
    
(275
)
  
(2c
)
  
-
  
   Diligence costs
    
-
    
192
    
-
    
(192
)
  
(2c
)
  
-
  
   Minority interest
    
-
    
57
    
-
    
-
          
57
  
   Loss on extinguishment of debt, net
    
19
    
-
    
-
    
-
          
19
  
   Loss on sale of assets, net
    
7
    
-
    
-
    
-
          
7
  
Total costs and expenses
    
266,849
    
168,040
    
15
    
5,721
          
440,625
  
                                       
Income (loss) before income taxes and
                                      
   discontinued operations
    
6,720
    
(2,690
)
  
(15
)
  
(5,679
)
        
(1,664
)
Income tax expense (benefit)
    
2,368
    
(820
)
  
-
    
(2,134
)
  
(2d
)
  
(586
)
Income (loss) from continuing operations
  
$
4,352
  
$
(1,870
)
$
(15
)
$
(3,545
)
      
$
(1,078
)
                                       
Earnings (loss) per common and common
                                      
   equivalent share based on income from
                                      
   continuing operations
                                      
   Basic and Diluted
  
$
0.10
                          
$
(0.03
)
                                       
Weighted average number of common and
                                      
   Common equivalent shares outstanding:
                                      
   Basic
    
42,908
                            
42,908
  
   Diluted
    
43,889
                            
43,889
  
                                       
 
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 March 12th 8-K. Please refer to the March 12th 8-K for further information.

2.  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 proposed transaction.

          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. The annual estimated net savings from the elimination of positions at Harborside’s corporate and regional offices are estimated to be approximately $8,672. Sun may be unable to fully realize these estimated net cost savings. 

(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 in addition to the diligence costs incurred by Harborside of $192 in connection with the acquisition, both of which were recorded in the first quarter of 2007.

(d)
To reflect the tax provision at an effective rate of 35%, consistent with Sun’s current estimated effective tax rate.


3.  Acquisition Financing Adjustments

          Certain pro forma adjustments have been made to reflect financing transactions associated with the proposed transaction. Sun entered into the financing transactions to acquire Harborside and refinance the outstanding balance on Harborside's existing credit facility (in thousands):

(a)
To record the payments to be made from the proceeds of the new indebtedness:

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Sources:
              
               
 
Borrowings:
            
 
Senior term loan
      
$
310,000
  
 
Delayed draw senior term loan (1) 
        
55,000
  
 
Senior revolving loan
        
-
  
 
Senior subordinated notes
        
200,000
  
           
565,000
  
 
Cash:
            
 
Existing cash at Harborside
        
25,999
  
 
Existing cash at Sun
        
80,143
  
           
106,142
  
               
 
     Subtotal
        
671,142
  
               
Uses:
              
 
Refinance existing debt - Sun (2) 
$
10,000
        
 
Refinance existing debt - Harborside
  
218,000
        
 
Cash payment for Moffie equity, net
  
31,680
        
 
Cash payment for NHP equity, net
  
20,600
        
 
Financing fees (3)
  
17,520
        
 
     Subtotal
  
297,800
    
(297,800
)
           
373,342
  
 
Remaining funds available for Harborside merger:
            
 
Cash payment for Harborside equity
  
349,400
        
 
Estimated direct transaction costs
  
23,942
    
(373,342
)
   
$
373,342
  
$
-
  

(1)
Includes borrowing of $31,680 (which is in addition to the $30,033 of indebtedness being assumed) to purchase Moffie Portfolio, $20,600 to purchase NHP Portfolio and the remaining of $2,720 to purchase Harborside.
   
(2)
Refinanced Sun debt includes $10,000 of current portion of long term debt.
   
(3)
Financing fees include $11,777 related to the revolving credit facility with a term of six years and the senior term loan with a term of 7 years, and $5,743 related to the senior subordinated notes with a term of 8 years. Such fees would be amortized and included as part of interest expense in the amount of $614 for the pro forma statement of operations for the three months ended March 31, 2007.


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(b)
To reflect the non-cash write-off of deferred loan costs associated with the refinancing of existing indebtedness of both Sun and Harborside and to record the related reduction in interest expense of $534 for the amounts that had been amortized for the three months ended March 31, 2007.

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


               
Three Months Ended
  
   
Blended
          
March 31,
  
   
Interest Rate
    
Debt
    
2007
  
                   
Pro Forma Debt,
                  
   including
                  
   capital leases,
                  
   at closing
  
8.00
%
$
776,845
  
$
15,532
  
Sun historical interest costs
  
2,059
  
Harborside historical interest costs, including
      
   adjustments for the Harborside Transactions
  
6,407
  
Adjustment to interest expense, net
$
7,066
  

          The interest expense calculation presented above uses the LIBOR rate effective as of March 31, 2007, which was 5.35%, to determine the interest rate applied to the borrowings under the new senior credit facilities. The pro forma cash interest does not include the net impact of amortization of deferred financing costs of $614 for the three months ended March 31, 2007. Each 0.125% increase or decrease in interest rate on debt expected to be issued in connection with the transaction would result in an annual interest expense increase or decrease, respectively, of $769.
 
 
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