<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 31, 1998
SUN HEALTHCARE GROUP, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 1-12040 85-041062
---------- --------- -----------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
101 Sun Avenue, N.E.
--------------------
Albuquerque, New Mexico 87109
-----------------------------
(Address of principal executive offices)
Registrant's telephone number,
Including area code: (505) 821-3355
--------------
(Former name or former address, if changed since last report.)
This Current Report contains ___ pages.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
ITEM 7(c) Exhibits
Exhibit 99.1 Summarized Consolidating Information for Sun Healthcare Group,
Inc., the Company's Guarantor and the Company's non-Guarantor
subsidiaries with respect to the 9 1/2% Senior Subordinated Notes
due 2007 and 9 3/8% Senior Subordinated Notes due 2008 as of and
for the three months ended March 31, 1998.
<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: June 24, 1998 SUN HEALTHCARE GROUP, INC.
/s/ William C. Warrick
----------------------------
William C. Warrick
Vice President,
Corporate Controller
<PAGE>
Exhibit 99.1
SUN HEALTHCARE GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
SUMMARIZED CONSOLIDATING INFORMATION
In connection with the Company's offering of $250,000,000 aggregate
principal amount of 9 1/2% Senior Subordinated Notes due 2007 (the "9 1/2%
Notes") in July 1997 and $150,000,000 aggregate principal amount of 9 3/8%
Senior Subordinated Notes due 2008 in May 1998 (the "2008 Notes", and
together with the 9 1/2% Notes, the "Notes"), all direct and indirect
subsidiaries of the Company other than the Company's direct and indirect
foreign subsidiaries, CareerStaff and its direct and indirect subsidiaries,
and certain other immaterial subsidiaries of the Company (the "Guarantors")
have, jointly and severally, unconditionally guaranteed the Notes. These
guarantees are subordinated to all existing and future senior debt and
guarantees of the Guarantors and are unsecured.
The Company conducts substantially all of its business through and derives
virtually all of its income from its subsidiaries. Therefore, the Company's
ability to make required payments with respect to its indebtedness (including
the Notes) and other obligations depends on the financial results and condition
of its subsidiaries and its ability to receive funds from its subsidiaries.
There are no restrictions on the ability of any of the Company's subsidiaries to
transfer funds to the Company, except as provided by appropriate law.
Pursuant to Rule 3-10 of Regulation S-X, the following summarized
consolidating information is for the Company, the wholly-owned Guarantors,
and the Company's non-Guarantor subsidiaries with respect to the Notes. This
summarized financial information has been prepared from the books and records
maintained by the Company, the Guarantors and the non-Guarantor subsidiaries.
The summarized financial information may not necessarily be indicative of
results of operations or financial position had the Guarantors or
non-Guarantor subsidiaries operated as independent entities. The separate
financial statements of the Guarantors are not presented because management
has determined they would not be material to the investors.
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------- ------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ (12,865) $ 9,793 $ 4,185 $ - $ 1,113
Accounts receivable, net - 534,819 68,981 (2,680) 601,120
Other receivables 27,481 18,353 7,876 - 53,710
Prepaids and other assets 5,231 38,176 7,534 - 50,941
Deferred tax asset 7,739 - 882 - 8,621
----------- ---------- --------- --------- ----------
Total current assets 27,586 601,141 89,458 (2,680) 715,505
----------- ---------- --------- --------- ----------
Property and equipment, net 36,992 215,131 402,848 - 654,971
Goodwill, net - 864,910 170,271 - 1,035,181
Notes receivable 67,424 17,047 13,448 - 97,919
Other assets 97,012 58,303 24,377 - 179,692
Investment in subsidiaries 607,593 - - (607,593) -
Deferred tax assets 4,718 - - - 4,718
----------- ---------- --------- --------- ----------
Total assets $ 841,325 $1,756,532 $ 700,402 $(610,273) $2,687,986
----------- ---------- --------- --------- ----------
----------- ---------- --------- --------- ----------
Current liabilities:
Current portion of long-term debt $ 9,464 $ 10,942 $ 33,607 $ - $ 54,013
Current portion of obligations under capital leases 199 1,680 381 - 2,260
Accounts payable 46,480 6,882 8,707 (2,680) 59,389
Accrued compensation and benefits 26,613 64,418 10,117 - 101,148
Accrued interest 10,751 1,775 1,780 - 14,306
Accrued self-insurance obligations (5,671) 41,679 (101) - 35,907
Other accrued liabilities 6,095 35,895 32,607 - 74,597
----------- ---------- --------- --------- ----------
Total current liabilities 93,931 163,271 87,098 (2,680) 341,620
----------- ---------- --------- --------- ----------
Long-term debt, net of current portion 1,377,091 88,490 92,762 - 1,558,343
Obligations under capital leases, net of current portion 5 3,899 76,118 - 80,022
Other long-term liabilities - 39,785 2,130 - 41,915
Deferred tax liabilities - - 9,963 - 9,963
----------- ---------- --------- --------- ----------
Total liabilities 1,471,027 295,445 268,071 (2,680) 2,031,863
----------- ---------- --------- --------- ----------
Intercompany payables / (receivables) (1,269,252) 1,130,490 138,762 - -
Minority interest - - 16,573 - 16,573
Total stockholders' equity 639,550 330,597 276,996 (607,593) 639,550
----------- ---------- --------- --------- ----------
Total liabilities and stockholders' equity $ 841,325 $1,756,532 $ 700,402 $(610,273) $2,687,986
----------- ---------- --------- --------- ----------
----------- ---------- --------- --------- ----------
</TABLE>
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------- ------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ (1,581) $ 20,010 $ 2,591 $ - $ 21,020
Accounts receivable, net - 465,137 58,341 (317) 523,161
Other receivables 11,288 13,848 8,414 - 33,550
Prepaids and other assets 596 31,245 6,599 - 38,440
Deferred tax asset 16,546 - - - 16,546
----------- ---------- --------- --------- ----------
Total current assets 26,849 530,240 75,945 (317) 632,717
----------- ---------- --------- --------- ----------
Property and equipment, net 30,805 207,488 392,809 - 631,102
Goodwill, net - 861,492 169,401 - 1,030,893
Notes receivable 60,080 17,534 13,448 - 91,062
Other assets 89,193 58,872 23,833 - 171,898
Investment in subsidiaries 611,846 - - (611,846) -
Deferred tax assets 19,077 - 2,487 - 21,564
----------- ---------- --------- --------- ----------
Total assets $ 837,850 $1,675,626 $ 677,923 $(612,163) $2,579,236
----------- ---------- --------- --------- ----------
----------- ---------- --------- --------- ----------
Current liabilities:
Current portion of long-term debt $ 5,000 $ 12,933 $ 38,884 $ - $ 56,817
Current portion of obligations under capital leases 262 1,415 377 - 2,054
Accounts payable 34,031 21,379 6,780 (317) 61,873
Accrued compensation and benefits 21,870 50,465 6,625 - 78,960
Accrued interest 16,477 1,233 2,741 - 20,451
Accrued self-insurance obligations 369 34,187 (202) - 34,354
Other accrued liabilities 6,028 29,876 35,279 - 71,183
----------- ---------- --------- --------- ----------
Total current liabilities 84,037 151,488 90,484 (317) 325,692
----------- ---------- --------- --------- ----------
Long-term debt, net of current portion 1,303,377 93,514 91,970 - 1,488,861
Obligations under capital leases, net of current portion 17 2,311 76,782 - 79,110
Other long-term liabilities - 41,755 673 - 42,428
Deferred tax liabilities (2,480) - 12,287 - 9,807
----------- ---------- --------- --------- ----------
Total liabilities 1,384,951 289,068 272,196 (317) 1,945,898
----------- ---------- --------- --------- ----------
Intercompany payables / (receivables) (1,164,154) 1,058,101 113,895 (7,842) -
Minority interest - - 16,285 - 16,285
Total stockholders' equity 617,053 328,457 275,547 (604,004) 617,053
----------- ---------- --------- --------- ----------
Total liabilities and stockholders' equity $ 837,850 $1,675,626 $ 677,923 $(612,163) $2,579,236
----------- ---------- --------- --------- ----------
----------- ---------- --------- --------- ----------
</TABLE>
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------- ------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total net revenues $ 332 $637,121 $ 105,474 $(1,437) $741,490
-------- -------- --------- ------- --------
Costs and expenses:
Operating - 518,316 91,706 (1,437) 608,585
Corporate general and administrative 26,717 8,231 4,353 - 39,301
Provision for losses on accounts
receivable - 5,690 323 - 6,013
Depreciation and amortization 1,439 13,523 5,512 - 20,474
Interest, net 28,969 1,593 4,578 - 35,140
Equity interest in (earnings) loss of
subsidiaries 36 - - (36) -
-------- -------- --------- ------- --------
Total costs and expenses 57,161 547,353 106,472 (1,473) 709,513
-------- -------- --------- ------- --------
Earnings (loss) before income taxes
and intercompany charges (56,829) 89,768 (998) 36 31,977
Intercompany charges (1) (86,099) 84,683 1,416 - -
-------- -------- --------- ------- --------
Earnings (loss) before income taxes 29,270 5,085 (2,414) 36 31,977
Income taxes 10,883 2,946 (239) - 13,590
-------- -------- --------- ------- --------
Net earnings (loss) $ 18,387 $ 2,139 $ (2,175) $ 36 $ 18,387
-------- -------- --------- ------- --------
-------- -------- --------- ------- --------
</TABLE>
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------- ------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total net revenues $ 984 $329,942 $ 69,385 $(1,675) $398,636
-------- -------- -------- ------- --------
Costs and expenses:
Operating - 270,753 58,825 (1,675) 327,903
Corporate general and administrative 11,644 3,497 3,306 - 18,447
Provision for losses on accounts
receivable - 3,012 182 - 3,194
Depreciation and amortization 959 7,104 3,578 - 11,641
Interest, net 7,494 839 2,991 - 11,324
Equity interest in (earnings) loss of
subsidiaries (4,093) - - 4,093 -
-------- -------- -------- ------- --------
Total costs and expenses 16,004 285,205 68,882 2,418 372,509
-------- -------- -------- ------- --------
Earnings (loss) before income taxes
and intercompany charges (15,020) 44,737 503 (4,093) 26,127
Intercompany charges (1) (38,862) 37,900 962 - -
-------- -------- -------- ------- --------
Earnings (loss) before income taxes 23,842 6,837 (459) (4,093) 26,127
Income taxes 7,905 2,137 148 - 10,190
-------- -------- -------- ------- --------
Net earnings (loss) $ 15,937 $ 4,700 $ (607) $(4,093) $ 15,937
-------- -------- -------- ------- --------
-------- -------- -------- ------- --------
</TABLE>
<PAGE>
(1) Through various intercompany agreements entered into by the Company,
the Guarantors, and certain of the non-Guarantor subsidiaries, the Company
provides management services, and acts on behalf of the Guarantors and
certain of the non-Guarantors subsidiaries to make financing available for
their operations. The Company charged the Guarantors for management
services totaling $47.4 million and $23.6 million for the periods ended
March 31, 1998 and 1997, respectively. The Company charged non-Guarantor
subsidiaries for management services totaling $0.6 million and $0.3 million
for the periods ended March 31, 1998 and 1997, respectively. Intercompany
interest charged to the Guarantors for the periods ended March 31, 1998 and
1997 for advances from the Company were $37.2 million, and $14.3 million,
respectively. Intercompany interest charged to the non-Guarantor
subsidiaries for the three months ended March 31, 1998 and 1997 for
advances from the Company was $0.8 million and $0.6 million, respectively.
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------- ------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 18,387 $ 2,139 $ (2,175) $ 36 $ 18,387
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
for) operating activities --
Equity in earnings in subsidiaries 36 - - (36) -
Depreciation and amortization 1,439 13,523 5,512 - 20,474
Provision for losses on accounts
receivable - 5,690 323 - 6,013
Other, net 2,494 (358) (50) - 2,086
Changes in operating assets and
liabilities:
Accounts receivable - (75,249) (10,250) - (85,499)
Other current assets (7,481) (11,469) (2,688) - (21,638)
Other current liabilities 10,428 (1,515) 3,339 - 12,252
Income taxes payable 10,754 1,400 21 - 12,175
--------- --------- --------- -------- ---------
Net cash provided by (used for)
operating activities 36,057 (65,839) (5,968) - (35,750)
--------- --------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (7,245) (11,861) (5,723) - (24,829)
Acquisitions, net of cash acquired - (1,502) (5,837) - (7,339)
Increase in long-term note receivable (7,344) 487 - - (6,857)
Other assets expenditures (8,929) (1,384) 404 - (9,909)
--------- --------- --------- -------- ---------
Net cash used for investing activities (23,518) (14,260) (11,156) - (48,934)
--------- --------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term det borrowings 86,521 58 1,739 - 88,318
Long-term det repayments (8,396) (6,626) (7,048) - (22,070)
Net proceeds from issuance of common stock 543 - - - 543
Purchases of treasury stock (1,357) - - - (1,357)
Financing fees paid (403) 148 - - (255)
Intercompany advances (100,731) 76,302 24,429 - -
--------- --------- --------- -------- ---------
Net cash provided by (used for) financing
activities (23,823) 69,882 19,120 - 65,179
--------- --------- --------- -------- ---------
Effect of exchange rate on cash and cash
equivalents - - (402) - (402)
--------- --------- --------- -------- ---------
Net increase (decrease) in cash and cash
equivalents (11,284) (10,217) 1,594 - (19,907)
Cash and cash equivalents at beginning of year (1,581) 20,010 2,591 - 21,020
--------- --------- --------- -------- ---------
Cash and cash equivalents at end of period $ (12,865) $ 9,793 $ 4,185 $ - $ 1,113
--------- --------- --------- -------- ---------
--------- --------- --------- -------- ---------
</TABLE>
<PAGE>
SUN HEALTHCARE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
COMBINED COMBINED
PARENT GUARANTOR NON-GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATION CONSOLIDATED
------- ------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 15,937 $ 4,700 $ (607) $ (4,093) $ 15,937
Adjustments to reconcile net earnings
(loss) to net cash provided by (used
for) operating activities --
Equity in earnings in subsidiaries (4,093) - - 4,093 -
Depreciation and amortization 959 7,104 3,578 - 11,641
Provision for losses on accounts
receivable - 3,012 182 - 3,194
Other, net 247 (434) (85) - (272)
Changes in operating assets and
liabilities:
Accounts receivable - (20,499) (4,606) - (25,105)
Other current assets 7,833 (1,988) 885 - 6,730
Other current liabilities 17,650 (1,963) 3,237 - 18,924
Income taxes payable 9,240 259 489 - 9,988
--------- --------- --------- --------- ----------
Net cash provided by (used for)
operating activities 47,773 (9,809) 3,073 - 41,037
--------- --------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (1,879) (6,946) (4,288) - (13,113)
Acquisitions, net of cash acquired - (24,735) (142,097) - (166,832)
Proceeds from the sale
and leaseback of property and equipment - 19,009 13,129 - 32,138
Increase in long-term note receivable (17,197) - - - (17,197)
Other assets expenditures (1,374) (3,538) (6,766) - (11,678)
--------- --------- --------- --------- ----------
Net cash used for investing activities (20,450) (16,210) (140,022) - (176,682)
--------- --------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term det borrowings 141,603 - 6,817 - 148,420
Long-term det repayments - (371) (1,259) - (1,630)
Net proceeds from issuance of common stock 342 - - - 342
Financing fees paid (84) (20) (16) - (120)
Intercompany advances (167,589) 34,026 133,563 - -
--------- --------- --------- --------- ----------
Net cash provided by (used for) financing
activities (25,728) 33,635 139,105 - 147,012
--------- --------- --------- --------- ----------
Effect of exchange rate on cash and cash
equivalents - - (1,381) - (1,381)
--------- --------- --------- --------- ----------
Net increase (decrease) in cash and cash
equivalents 1,595 7,616 775 - 9,986
Cash and cash equivalents at beginning of year 2,226 10,870 1,784 - 14,880
--------- --------- --------- --------- ----------
Cash and cash equivalents at end of period $ 3,821 $ 18,486 $ 2,559 $ - $ 24,866
--------- --------- --------- --------- ----------
--------- --------- --------- --------- ----------
</TABLE>