<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported): August 15, 1996
SUN HEALTHCARE GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 1-12040 85-0410612
- --------------------------------------------------------------------------------
State or other jurisdiction Commission IRS Employer
of incorporation File Number Identification No.
101 Sun Lane, N.E.
Albuquerque, New Mexico 87109
----------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number,
Including Area Code: (505) 821-3355
This Current Report on Form 8-K consists of __ pages.
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 15, 1996, a wholly owned subsidiary of Sun Healthcare Group, Inc.
("Sun") purchased certain accounts receivable, inventory, and fixed assets and
assumed liabilities under certain contracts and leases from BDO Dunwoody
Limited, in its capacity as Court appointed Receiver and Manager of
International Managed Health Care Inc. for $4,175,000 Canadian Dollars
($3,051,000 U.S. Dollars as of August 15, 1996). On that date, International
Managed Health Care Inc. operated multi-disciplinary rehabilitation facilities
providing physical treatment and psychological and vocational rehabilitation
therapy services.
The above acquisition was financed by borrowings under Sun's revolving line
of credit with NationsBank of Texas, N.A. as administrative lender.
The above acquisition was previously reported on the Company's Current
Report on Form 8-K, dated August 15, 1996. This filing provides the required
audited and pro forma financial information.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
A. Financial Statements of Acquired Business
Audited financial statements of specified rehabilitation facilities of
International Managed Health Care Inc. as of and for the year ended
December 31, 1995.
B. Pro Forma Financial Information for Sun and Acquired Businesses
(unaudited)
1. Pro Forma Condensed Consolidated Balance Sheet as of June 30, 1996.
2. Notes to Pro Forma Condensed Consolidated Balance Sheet.
3. Pro Forma Condensed Consolidated Statement of Earnings for the year
ended December 31, 1995.
4. Pro Forma Condensed Consolidated Statement of Earnings for the six
months ended June 30, 1996.
5. Notes to Pro Forma Condensed Consolidated Statements of Earnings.
C. Exhibits
Exhibit 2.1 (1) Agreement of purchase and sale between BDO Dunwoody
Limited, in its capacity as Court appointed Receiver and Manager of
International Managed Health Care, Inc. and Columbia Centre for
Rehabilitation, Inc.
Exhibit 2.2 (1) Agreement amending agreement of purchase and sale
between BDO Dunwoody Limited, in its capacity as Court appointed
Receiver and Manager of International Managed Health Care, Inc. and
Columbia Centre for Rehabilitation, Inc.
Exhibit 23.1 Consent of KPMG
(1) Incorporated by reference from exhibits to the Company's Form 8-K
dated August 15, 1996.
<PAGE>
A. Financial Statements of Acquired Business
<PAGE>
The following consolidated financial statements for specified rehabilitation
facilities of International Managed Health Care Inc. have been prepared under
accounting principles generally accepted in Canada. The consolidated
financial statements for these businesses are presented in Canadian Dollars
as represented by the $ symbol.
<PAGE>
Financial Statements of
THE SPECIFIED REHABILITATION FACILITIES OF
INTERNATIONAL MANAGED HEALTH CARE INC.
(Canadian Operations)
Twelve month period ended December 31, 1995
<PAGE>
AUDITORS' REPORT
To BDO Dunwoody Limited as Receiver and Manager of
International Managed Health Care Inc.
We have audited the balance sheet of Specified Rehabilitation Facilities
("Facilities") of International Managed Health Care Inc. as at December 31,
1995 and the statements of operations and changes in cash flows for the
twelve month period then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Facilities as at December 31, 1995 and
the results of their operations and changes in their cash flows for the twelve
month period then ended in accordance with generally accepted accounting
principles.
Chartered Accountants
Toronto, Canada
February 29, 1996 except
as to notes 2(a), 4(g), 5(g), 7 and 12
which are as of October 29, 1996
COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-U.S. REPORTING DIFFERENCES
In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when the
financial statements are affected by conditions and events that cast
substantial doubt on the Company's ability to continue as a going concern,
such as those described in notes 1 and 12 to the financial statements. Our
report to BDO Dunwoody Limited as Receiver and Manager of International
Managed Health Care Inc. dated February 29, 1996 except as to notes 2(a),
4(g), 5(g), 7 and 12 which are as of October 29, 1996 is expressed in
accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditors' report when these are
adequately disclosed in the financial statements.
Chartered Accountants
Toronto, Canada
February 29, 1996 except
as to notes 2(a), 4(g), 5(g), 7 and 12
which are as of October 29, 1996
<PAGE>
THE SPECIFIED REHABILITATION FACILITIES OF
INTERNATIONAL MANAGED HEALTH CARE INC.
Balance Sheet
December 31, 1995
- --------------------------------------------------------------------------------
ASSETS
Current assets:
Accounts receivable (net of allowance for doubtful
accounts of $222,645) $ 2,724,131
Prepaid expenses and deposits 160,823
----------------------------------------------------------------------------
2,884,954
Capital assets (note 3) 2,951,203
- --------------------------------------------------------------------------------
$ 5,836,157
- --------------------------------------------------------------------------------
LIABILITIES AND HEAD OFFICE ACCOUNT
Current liabilities:
Bank indebtedness (note 4) $ 4,007,112
Accounts payable and accrued liabilities 1,250,220
Notes payable (note 5) 3,125,740
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8,383,072
Deferred leasehold inducement (note 6) 258,982
Head office account (note 7) (2,805,897)
- --------------------------------------------------------------------------------
$ 5,836,157
- --------------------------------------------------------------------------------
Future operations (note 1)
Lease commitments (note 8)
Contingencies (note 11)
Subsequent event (note 12)
See accompanying notes to financial statements.
<PAGE>
THE SPECIFIED REHABILITATION FACILITIES OF
INTERNATIONAL MANAGED HEALTH CARE INC.
Statement of Operations
Twelve month period ended December 31, 1995
- --------------------------------------------------------------------------------
Revenue $ 7,945,487
Expenses (note 2(a)):
Operating and administrative 5,922,345
Operating and administrative charges allocated
from IMHC 3,604,587
Interest and bank charges 521,001
Amortization 361,718
----------------------------------------------------------------------------
10,409,651
- --------------------------------------------------------------------------------
Loss for the twelve month period $ (2,464,164)
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
THE SPECIFIED REHABILITATION FACILITIES OF
INTERNATIONAL MANAGED HEALTH CARE INC.
Statement of Changes in Cash Flows
Twelve month period ended December 31, 1995
- --------------------------------------------------------------------------------
Cash flows used in operating activities:
Loss for the year $ (2,464,164)
Adjustments to determine net cash flows:
Net change in deferred lease inducements 142,794
Amortization of capital assets 361,718
Net change in non-cash working capital:
Accounts receivable (1,906,913)
Prepaid expenses and deposits (160,823)
Accounts payable and accrued liabilities 381,605
----------------------------------------------------------------------------
Net cash used in operating activities (3,645,783)
Cash flows used in investing activities:
Purchase of capital assets (2,222,432)
Cash flows from financing activities:
Notes payable 2,651,746
Bank indebtedness 3,147,196
Head office account (note 7) 69,273
----------------------------------------------------------------------------
Net cash from financing activities 5,868,215
- --------------------------------------------------------------------------------
Change in cash -
Cash, beginning of period -
- --------------------------------------------------------------------------------
Cash, end of period $ -
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
THE SPECIFIED REHABILITATION FACILITIES OF
INTERNATIONAL MANAGED HEALTH INC.
Notes to Financial Statements
Twelve month period ended December 31, 1995
- -------------------------------------------------------------------------------
International Managed Health Care Inc. (the "Company" or "IMHC") operated
multi-disciplinary rehabilitation facilities providing physical treatment,
psychological and vocational rehabilitation services, including cardiac and
weight management programs to accelerate the recovery process of patients.
These special purpose financial statements consist of the assets,
liabilities, revenues and expenses of certain rehabilitation facilities (the
"Specified Rehabilitation Facilities" or the "Facilities"). The assets of the
Facilities (excluding prepaid expenses and deposits) and certain contractual
obligations were acquired by Columbia Centre for Rehabilitation Inc., under a
purchase and sale agreement dated August 1, 1996. All dollar amounts in the
financial statement and the notes thereto are presented in Canadian currency.
1. FUTURE OPERATIONS:
The Specified Rehabilitation Facilities incurred an operating loss during
the twelve months ended December 31, 1995, has a cash deficiency, and a
working capital deficiency of $5,498,118.
In addition, the Company is required to meet certain financial and other
covenants. As at December 31, 1995, the Company has failed to meet certain
of these financial covenants and is in default on several notes payable
(notes 4 and 5). The future of the Company is dependent upon the actions
of its creditors and its ability to overcome its cash and working capital
deficiencies through profitable operations or other means (note 12).
Subsequent to year end, the assets of the Facilities (excluding prepaid
expenses and deposits) and certain contractual obligations (note 8) were
sold to Columbia Centre for Rehabilitation Inc.
These financial statements have been prepared on a going concern basis,
which assumes the realization of assets and discharge of liabilities in the
ordinary course of business. A failure to continue as a going concern
would require that stated amounts of assets and liabilities be reflected on
a liquidation basis which could differ from that of the going concern
basis.
2. SIGNIFICANT ACCOUNTING POLICIES:
These special purpose financial statements have been prepared in accordance
with generally accepted accounting principles as formulated by the Canadian
Institute of Chartered Accountants. There are no significant differences
between Canadian accounting principles and those applicable in the United
States that would affect these financial statements. The significant
policies are as follows:
<PAGE>
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(a) Basis of presentation:
The accompanying financial statements present the financial position
and results of operations of the Facilities as if such facilities had
operated as a separate corporate entity unaffiliated with IMHC.
Accordingly, the results of operations reflect expenses common to all
facilities of IMHC allocated to the Facilities using the allocation
methods described below. It is management's assertion that the cost
allocation methods used are a practical and reasonable method of
allocation of common expenses to all Facilities of IMHC.
Bank indebtedness, notes payable and related interest and bank charges
are allocated to the Facilities in these financial statements in the
same proportion as the sum of the Facilities' (a) net income/loss;
less (b) amount of capital additions during the year; less (c) balance
of outstanding receivables and work-in-process of the Company as at
December 31, 1995 is, as compared to the Company's sum of the same
items.
Operating and administrative expenses and accounts payable and
accrued liabilities are allocated to the Facilities on the same
proportionate basis as Facilities' revenue is to the Company's
revenue.
Prepaid expenses and deposits are allocated to the Facilities on
a proportionate basis.
Revenues, accounts receivable, capital assets, leasehold inducements
and related amortization are those of the Specified Rehabilitation
Facilities.
(b) Capital assets:
Capital assets are recorded at cost and amortized over their estimated
useful lives as follows:
- --------------------------------------------------------------------------------
Asset Basis Rate
- --------------------------------------------------------------------------------
Furniture and fixtures Declining balance 20%
Clinical equipment Declining balance 20%
Computer hardware Declining balance 30%
Computer software Straight line Over 1 year
Leasehold improvements Straight line Over the term of the lease
plus one renewal term to a
maximum of 10 years
- --------------------------------------------------------------------------------
<PAGE>
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2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(c) Lease inducements:
Where the Company is given a rent-free period or receives a cash sum
as a lease inducement, the benefit of the rent-free period and cash
inducement is recorded as a deferred lease inducement and is amortized
as a reduction of rent expense over the term of the lease.
(d) Pre-operating costs:
The Company expenses certain start-up costs related to the
pre-operating period of rehabilitation facilities.
3. CAPITAL ASSETS:
- --------------------------------------------------------------------------------
Accumulated Net book
Cost amortization value
- --------------------------------------------------------------------------------
Furniture and fixtures $ 297,417 $ 56,550 $ 240,867
Clinical equipment 727,416 110,520 616,896
Computer hardware 309,842 86,445 223,397
Computer software 16,801 12,234 4,567
Leasehold
improvements 2,066,680 201,204 1,865,476
- --------------------------------------------------------------------------------
$ 3,418,156 $ 466,953 $ 2,951,203
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4. BANK INDEBTEDNESS:
- --------------------------------------------------------------------------------
Bank indebtedness of the Company:
Non-revolving loan (a) $ 350,000
Commercial term loan (b) 1,062,500
Operating loans and bulge facility (c) 2,320,000
Additional bulge facility (d) 1,850,000
Bank overdraft 201,030
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5,783,530
Less portion of bank indebtedness not related to
the Facilities (g) 1,776,418
- --------------------------------------------------------------------------------
$ 4,007,112
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<PAGE>
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4. BANK INDEBTEDNESS (CONTINUED):
(a) The non-revolving loan bears interest at prime plus 1% per annum and
matures on January 21, 2000.
(b) The commercial term loan bears interest at prime plus 0.75% per annum
and matures on March 21, 2000.
(c) The operating loans bear interest at rates ranging from prime plus
0.75% to prime plus 1.5% per annum and are due on demand.
The bulge facility is secured by a general security agreement and an
assignment of fire insurance and a mortgage on chattels.
(d) The additional bulge facility bears interest at prime plus 1.5% per
annum and is due on demand.
(e) The Company is in breach of certain of its covenants on these loans.
As a result, the commercial term and non-revolving loan have been
included as a current liability.
(f) At February 29, 1996, the bank has not provided a waiver nor have they
indicated their intentions with regards to this indebtedness.
(g) Bank indebtedness is allocated to the Facilities as described in note
2(a).
5. NOTES PAYABLE:
- --------------------------------------------------------------------------------
Notes payable of the Company, issued as follows:
October 17, 1991 $ 500,000
December 12, 1991 550,000
March 3, 1995 500,000
April 5, 1995 500,000
May 9, 1995 500,000
June 16, 1995 500,000
September 6, 1995 600,000
November 20, 1995 600,000
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4,250,000
Accrued interest 261,431
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4,511,431
Less portion of notes payable not related to
the Facilities (g) 1,385,691
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$ 3,125,740
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<PAGE>
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5. NOTES PAYABLE (CONTINUED):
(a) The Company's majority shareholder advanced funds under promissory
notes bearing interest at prime plus 1% in the amount of $4,250,000
with different maturity dates.
(b) As at December 31, 1995, the Company was in default on $3,050,000 in
principal repayments and $238,202 of accrued interest.
(c) Subsequent to the year end, on January 6, 1996, the Company defaulted
on a note due of $600,000 and related interest of $17,250.
(d) The further promissory note of $600,000 and related interest of $5,979
is due on March 20, 1996.
(e) On February 29, 1996, the majority shareholder issued a further
promissory note of $525,000 bearing interest at 8% per annum, and due
on April 29, 1996.
(f) The Company's majority shareholder has not indicated its intentions
with regard to the promissory notes and interest in default.
(g) Notes payable are allocated to the Facilities as described in note
2(a).
6. DEFERRED LEASEHOLD INDUCEMENT:
----------------------------------------------------------------------------
Leasehold inducement $ 301,379
Accumulated amortization (42,397)
----------------------------------------------------------------------------
$ 258,982
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7. HEAD OFFICE ACCOUNT:
The Facilities cash requirements are met by IMHC. All operating, investing
and financing requirements are funded either through net earnings or IMHC.
The activity in the Head Office Account can be summarized as follows:
----------------------------------------------------------------------------
Head Office Account, beginning of period $ (411,006)
Net loss for the twelve month period (2,464,164)
Net transactions/allocations with IMHC 69,273
----------------------------------------------------------------------------
Head Office Account, end of period $ (2,805,897)
----------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
8. LEASE COMMITMENTS:
The Company is committed under operating lease agreements with respect to
the Specified Rehabilitation Centres, for rental of furniture and fixtures,
clinical equipment, computer equipment, automobile, and clinic and office
space requiring aggregate minimum annual lease payments as follows:
---------------------------------------------------------------------------
1996 $ 1,071,991
1997 1,022,112
1998 968,575
1999 803,477
2000 342,868
Thereafter 1,154,850
---------------------------------------------------------------------------
$ 5,363,873
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9. RELATED PARTY TRANSACTIONS:
Details of amounts paid, receivable or payable by the Company to related
parties as at December 31, 1995 and for the twelve months then ended (note
12) are as follows:
(a) The Company provided case management services for referrals made by
the majority shareholder, and the revenue for the twelve month period
amounts to $65,853.
(b) Included in accounts receivable are amounts of $102,585 billed by the
Company to clients of a law firm in which a shareholder of the Company
is a partner. A personal guarantee has been provided by the partner
in the law firm for amounts receivable which were billed by the
Company to clients of the law firm.
10. INCOME TAXES:
The Specified Rehabilitation Facilities results have been included in the
federal and provincial income tax returns of the Company. The Facilities
have accounting losses which have not been recognized in these financial
statements as there is no reasonable assurance that the Facilities will
produce sufficient revenues to offset such losses.
<PAGE>
- -------------------------------------------------------------------------------
11. CONTINGENCIES:
The Company was named defendant in two wrongful dismissal lawsuits. Also,
on February 8, 1996, the Company was notified that it may be named as
co-defendant in a wrongful dismissal lawsuit. Appropriate provision has
been made in the financial statements where management believes such claims
to have merit. No provision has been made for those claims which, in the
opinion of management, are without substantial merit or where it is not
possible to estimate the outcome.
12. SUBSEQUENT EVENT:
On June 7, 1996, the courts appointed BDO Dunwoody Limited as Receiver
and Manager of all of the assets, property and undertakings of IMHC.
The assets (excluding prepaid expenses and deposits) and certain
contractual obligations of the Facilities thereafter were sold to Columbia
Centre for Rehabilitation Inc. pursuant to court approval granted
August 13, 1996.
<PAGE>
B. Pro Forma Financial Information for Sun and Acquired Businesses
<PAGE>
SUN HEALTHCARE GROUP, INC.
PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of June
30, 1996 is presented by combining, with the adjustments described in the
accompanying notes, (i) the historical assets, liabilities, and stockholders'
equity of Sun Healthcare Group, Inc. ("Sun") as of June 30, 1996 which
includes the accounts of H.T.A. of New York, Inc. and H.T.A. of New Jersey,
Inc. ("HTA") acquired by Sun effective June 28, 1996, (ii) as adjusted to
reflect the effects of the acquisitions of 3270262 Canada Inc. which includes
Yorkview Physiotherapy Centre and Robert Weisz -Physiotherapist ("3270262
Canada") acquired by Sun effective July 2, 1996, Aqua Rehabilitation, Inc.
("Aqua") acquired by Sun effective July 2, 1996, and minority interest
investments of Ashbourne PLC ("Ashbourne") acquired by Sun during the period
from February 1, 1996 to July 8, 1996 ("Prior Acquisitions") as if these
acquisitions had been consummated as of January 1, 1995, and (iii) as further
adjusted to reflect the acquisition of certain of the assets and liabilities
from International Managed Health Care Inc. ("IMHC") acquired by Sun
effective August 15, 1996 as if this acquisition had been consummated on
January 1, 1995.
The Unaudited Pro Forma Condensed Consolidated Statements of Earnings for
the year ended December 31, 1995 and for the six months ended June 30, 1996 are
presented by combining, with the adjustments described in the accompanying
notes, (i) the results of operations of Sun Healthcare Group, Inc. ("Sun") for
such year and six month period, (ii) as adjusted to reflect the effects of the
Prior Acquisitions, which includes the results of operations of HTA acquired by
Sun effective June 28, 1996, as if these Prior Acquisitions had been consummated
on January 1, 1995, and (iii) as further adjusted to reflect the results of
operations of certain clinics of which certain of the assets and liabilities
were acquired from IMHC as if the acquisition of the certain assets and
liabilities had been consummated on January 1, 1995.
The Unaudited Pro Forma Condensed Consolidated Financial Statements do not
necessarily reflect the financial condition or the results of operations of Sun
that would have actually resulted had these acquisitions occurred as of January
1, 1995 and for the periods indicated or of the future results of operations or
the future financial position of Sun. The Unaudited Pro Forma Condensed
Consolidated Financial Statements should be read in connection with the
financial statements of IMHC included elsewhere in this Current Report on Form
8-K and various financial statements of HTA, 3270262 Canada, Aqua and Ashbourne
as filed in a previous Current Report on Form 8-K dated June 30, 1996 and the
financial statements of Sun as included in Sun's Annual Report on Form 10-K and
as amended on Form 10-K/A-1.
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT JUNE 30, 1996
<TABLE>
<CAPTION>
Prior
Acquisitions Pro Forma
Prior Pro Forma Acquisition
Sun Acquisitions Adjustments IMHC Adjustments Pro Forma
--------- ------------ ------------ -------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents $ 9,415 $ 93 $ - $ - $ - $ 9,508
Restricted cash 2,315 - - - - 2,315
Receivables, net 278,489 541 - 2,127 (702) 280,455
Other current assets 35,102 6 - 94 (94) 35,108
--------- ------------ ------------ -------- ----------- -----------
Total current assets 325,321 640 0 2,221 (796) 327,386
Property and equipment, net 231,420 39 - 2,839 (2,108) 232,190
Goodwill, net 410,039 - 2,344(a) - 895 413,278
Other assets, net 103,786 46 544(b) 27 (27) 104,376
Deferred tax asset 6,457 - - - - 6,457
--------- ------------ ------------ -------- ----------- -----------
Total assets $1,077,023 $725 $2,888 $ 5,087 $ (2,036) $1,083,687
--------- ------------ ------------ -------- ----------- -----------
--------- ------------ ------------ -------- ----------- -----------
Current liabilities:
Current portion of long-term debt $ 14,831 $ - $ - $ 7,913 $ (7,913) $ 14,831
Other current liabilities 86,493 125 - 674 (674) 86,618
--------- ------------ ------------ -------- ----------- -----------
Total current liabilities 101,324 125 - 8,587 (8,587) 101,449
Long-term debt, net of current
portion 379,724 - 2,944(a) - 3,051 386,263
544(b)
Other long-term liabilities 15,629 - - 184 (184) 15,629
--------- ------------ ------------ -------- ----------- -----------
Total liabilities 496,677 125 3,488 8,771 (5,720) 503,341
Minority interest 2,687 - - - - 2,687
Stockholders' equity 577,659 600 (600)(a) (3,684) 3,684 577,659
--------- ------------ ------------ -------- ----------- -----------
Total liabilities and
stockholders' equity $1,077,023 $725 $2,888 $5,087 $(2,036) $1,083,687
--------- ------------ ------------ -------- ----------- -----------
--------- ------------ ------------ -------- ----------- -----------
</TABLE>
See accompanying notes to Unaudited Pro Forma
Condensed Consolidated Balance Sheet
<PAGE>
SUN HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED BALANCE SHEET
(1) Prior Acquisitions Pro Forma Adjustments.
The adjustments resulting from Sun's prior acquisitions of 3270262 Canada,
Aqua, and Ashbourne are as follows:
(a) On July 2, 1996, Sun completed the acquisition of all of the
outstanding stock of 3270262 Canada and Aqua for $4,014,000 Canadian
Dollars ($2,944,000 U.S. Dollars as of June 30, 1996) in cash. The
book value of the 3270262 Canada equity was $600,000 U.S. Dollars as
of June 30, 1996 from which the remaining purchase price of $2,344,000
U.S. Dollars was allocated to goodwill. The acquisition was funded by
additional borrowings under the NationsBank Credit Facility.
(b) Subsequent to June 30, 1996, Sun acquired an additional .5% minority
interest in Ashbourne for $544,000 which was funded by additional
borrowings under the NationsBank Credit Facility.
(2) IMHC Pro Forma Adjustments.
(a) On August 15, 1996, Sun purchased certain accounts receivable,
inventory, fixed assets and assumed liabilities under certain
contracts and leases from BDO Dunwoody Limited, in its capacity as
Court appointed Receiver and Manager of International Managed Health
Care Inc. for $4,175,000 Canadian Dollars ($3,051,000 U.S. Dollars as
of August 15, 1996) in cash. The fair market value of the purchased
assets and assumed liabilities was $2,156,000 U.S. Dollars as of June
30, 1996 from which the remaining purchase price of $895,000 U.S.
Dollars was allocated to goodwill. The acquisition was funded by
additional borrowings under the NationsBank Credit Facility.
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Prior
Acquisitions Pro Forma
Prior Pro Forma Acquisition
Sun Acquisitions Adjustments IMHC Adjustments Pro Forma
--------- ------------ ------------ -------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total net revenues $1,135,508 $14,904 $ - $5,791 $(2,071)(b) $1,154,132
--------- ------------ ------------ -------- ----------- ---------
Costs and expenses:
Operating 929,493 11,968 (833)(d) 6,944 (2,944)(b) 944,262
(366)(c)
Corporate general and administrative 51,468 - - - - 51,468
Provision for losses on accounts
receivable 14,623 434 - - - 15,057
Depreciation and amortization 27,734 28 332(a) 264 45 (a) 28,362
143(b) (107)(b)
(77)(d)
Interest, net 21,829 1 1,381(c) 380 (187)(b) 23,440
(193)(e)
229 (f)
Conversion expense 3,256 - - - - 3,256
Merger expenses 5,800 - - - - 5,800
Strike costs 4,006 - - - - 4,006
Investigation and litigation costs 5,505 - - - - 5,505
Impairment loss 59,000 - - - - 59,000
--------- ------------ ------------ -------- ----------- ---------
Total costs and expenses 1,122,714 12,431 1,023 7,588 (3,600) 1,140,155
--------- ------------ ------------ -------- ----------- ---------
Earnings before income taxes and
extraordinary loss 12,794 2,473 (1,023) 1,797 1,529 13,977
Pro forma income taxes 33,362 559 277(e) - - 34,198
--------- ------------ ------------ -------- ----------- ---------
Net earnings (loss) before
extraordinary loss $(20,568) $1,914 $(1,300) $(1,797) $1,529 $(20,221)
--------- ------------ ------------ -------- ----------- ---------
--------- ------------ ------------ -------- ----------- ---------
Pro forma net loss before
extraordinary loss ($0.43) ($0.43)
--------- ---------
--------- ---------
Weighted average numnber of common
and common equivalent shares
outstanding 47,419 47,419
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to Unaudited Pro Forma
Condensed Consolidated Statements of Earnings
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Prior
Acquisitions Pro Forma
Prior Pro Forma Acquisition
Sun Acquisitions Adjustments IMHC Adjustments Pro Forma
--------- ------------ ------------ -------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total net revenues $645,744 $7,877 $ - $ 3,014 $(1,190)(b) $655,445
--------- ------------ ------------ -------- ----------- ---------
Costs and expenses:
Operating 531,862 6,443 (231)(d) 4,021 (1,568)(b) 540,431
(96)(c)
Corporate general and administrative 29,177 - - - - 29,177
Provision for losses on accounts
receivable 2,463 125 - - - 2,588
Depreciation and amortization 16,489 16 167(a) 264 23 (a) 16,864
71(b) (73)(b)
(93)(d)
Interest, net 12,911 - 478(c) 392 (126)(b) 13,496
(266)(e)
107 (f)
--------- ------------ ------------ -------- ----------- ---------
Total costs and expenses 592,902 6,584 485 4,677 (2,092) 602,556
--------- ------------ ------------ -------- ----------- ---------
Earnings before income taxes 52,842 1,293 (485) (1,663) 902 52,889
Income taxes 21,137 276 160(e) - - 21,573
--------- ------------ ------------ -------- ----------- ---------
Net earnings $31,705 $1,017 $(645) $(1,663) $ 902 $ 31,316
--------- ------------ ------------ -------- ----------- ---------
--------- ------------ ------------ -------- ----------- ---------
Net earnings per common and common
equivalent share:
Primary $0.67 $0.66
--------- ---------
--------- ---------
Fully diluted $0.64 $0.63
--------- ---------
--------- ---------
Weighted average numnber of common and
common equivalent shares outstanding
Primary 47,187 47,187
--------- ---------
--------- ---------
Fully Diluted 51,954 51,954
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to Unaudited Pro Forma
Condensed Consolidated Statements of Earnings
<PAGE>
SUN HEALTHCARE GROUP, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENTS OF EARNINGS
(1) Prior Acquisitions Pro Forma Adjustments.
The adjustments resulting from Sun's prior acquisitions of HTA, 3270262
Canada, Aqua, and Ashbourne are as follows:
(a) The excess purchase price of HTA, Weisz and Aqua over the fair value
of the assets acquired totaled $6,644,000. This excess purchase price
will be amortized over an estimated 20 years resulting in additional
amortization of $332,000 for the year ended December 31, 1995 and
$167,000 for the six months ended June 30, 1996.
(b) In connection with the purchase of HTA, Sun entered into a non-compete
agreement with the seller for $1,000,000. The non-compete agreement
will be amortized over its life of seven years resulting in additional
amortization of $143,000 for the year ended December 31, 1995 and
$71,000 for the six months ended June 30, 1996.
(c) Represents pro forma interest on borrowings to fund the acquisition of
HTA, Weisz, Aqua and Ashbourne.
(d) Represents the pro forma earnings of Sun's ownership in Ashbourne
under the equity method for the periods prior to acquisition by Sun.
(e) Represents the tax effect of the pro forma adjustments reflected in
the Unaudited Pro Forma Condensed Consolidated Statements of Earnings
and a pro forma provision for income taxes of $533,000 for the year
ended December 31, 1995 and $288,000 for the six months ended June 30,
1996 to present taxes on the results of operations of 3270262 Canada
on the basis that is required upon their change in tax status from a
sole proprietorship to a corporation. The effective pro forma tax
rate for the year ended December 31, 1995 and the six months June 30,
1996 is the Sun effective tax rate considering the permanent
difference related to the non-deductible amortization of goodwill.
(2) IMHC Pro Forma Adjustments.
(a) The excess purchase price of IMHC over the fair value of the net
assets acquired totaled $895,000. This excess purchase price will
be amortized over an estimated 20 years resulting in additional
amortization of $45,000 for the year ended December 31, 1995 and
$23,000 for the six months ended June 30, 1996.
<PAGE>
(b) In the purchase agreement, Sun acquired the accounts receivable
including the patient lists of four of the clinics. These four
clinics were closed prior to the acquisition. For purposes of
these pro forma statements of earnings, Sun has eliminated the results
of operations of these four clinics.
(c) Represents amounts eliminated for duplicate corporate and
administrative expenses that were eliminated after the purchase. Such
duplicate corporate and administrative expenses consist primarily of
payroll and benefits for former corporate employees not continuing
with the merged company.
(d) As a result of the purchase, the property and equipment that was
purchased was revalued at fair market value. Accordingly, depreciation
and amortization of $77,000 for the year ended December 31, 1995 and
$93,000 for the six months ended June 30, 1996 has been eliminated.
(e) Represents the elimination of interest incurred from various
borrowings of IMHC which were not assumed by Sun.
(f) Represents pro forma interest on borrowings to fund the acquisition of
IMHC.
(g) The results of operations of IMHC have not been adjusted in accordance
with Statement of Financial Accounting Standards No. 109 ("FAS 109")
to reflect a income tax benefit resulting from the losses incurred by
IMHC during the year or six month period since IMHC has had a history
of operating losses.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Sun Healthcare Group, Inc. has duly caused this Current Report to be signed on
its behalf by the undersigned hereunto duly authorized.
Dated: October 28, 1996 SUN HEALTHCARE GROUP, INC.
/s/ Robert D. Woltil
------------------------------------
Robert D. Woltil
Senior Vice-President of Financial
Services and Chief Financial Officer
<PAGE>
EXHIBIT 23.1
AUDITORS' CONSENT
TO THE BOARD OF DIRECTORS
SUN HEALTHCARE GROUP, INC.:
We consent to the incorporation by reference in the Registration Statements
of Sun Healthcare Group, Inc. on Form S-8 (No. 33-80540 filed June 21, 1994,
No. 33-93692 filed June 20, 1995 and No. 333-03058 filed April 1, 1996) of
our report dated October 29, 1996, with respect to the balance sheet of
Specified Rehabilitation Facilities of International Managed Health Care Inc.
as at December 31, 1995 and the related statements of operations and cash
flow for the twelve month period then ended, which report appears in the
Current Report on Form 8-K/A-1 dated August 15, 1996.
Chartered Accountants
Toronto, Canada
October 29, 1996
