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Surgical Care Affiliates Inc – ‘10-Q’ for 9/30/95

As of:  Wednesday, 11/1/95   ·   For:  9/30/95   ·   Accession #:  722692-95-6   ·   File #:  0-13364

Previous ‘10-Q’:  ‘10-Q’ on 8/2/95 for 6/30/95   ·   Latest ‘10-Q’:  This Filing

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  As Of                Filer                Filing    For·On·As Docs:Size

11/01/95  Surgical Care Affiliates Inc      10-Q        9/30/95    2:22K

Quarterly Report   —   Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Surgical Care Form 10 Q                               11     44K 
 2: EX-27       Article 5 FDS for 3rd Quarter 10-Q                     1      8K 


10-Q   —   Surgical Care Form 10 Q
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
2Item 1. Financial Statements
7Item 2. Management's Discussion and Analysis of Its Financial Condition and Results of Operations:
9Item 1. Legal Proceedings. - None
"Item 2. Changes in Securities. - None
"Item 3. Defaults Upon Senior Securities. - None
"Item 4. Submission of Matters to a Vote of Security Holders. - None
"Item 5. Other Information. - None
"Item 6. Exhibits and Reports on Form 8-K. - None
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SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1995, commission file number 0-13364 SURGICAL CARE AFFILIATES, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 62-1149229 (I. R. S. Employer Identification No.) Registrant's telephone number, including area code (615) 385-3541 102 Woodmont Blvd, Suite 610, Nashville, TN 37205 Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The condensed financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. All adjustments necessary to a fair statement of the results of this period reported have been included. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Common stock, par value $.25 per share, shares outstanding 38,993,892 at September 30, 1995.
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PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS [Download Table] SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------ ----------- ASSETS Current assets: Cash $39,046,955 $31,222,963 Marketable securities 294,639 294,639 Accounts receivable, less allowance for doubtful accounts of $4,543,380 in 1995 and $4,160,260 in 1994 30,763,766 34,801,079 Other receivables 586,482 701,965 Supplies 5,159,252 4,562,518 Prepaid expenses and other current assets 1,277,301 742,911 Deferred income taxes 9,260,259 9,260,259 ----------- ----------- Total current assets 86,388,654 81,586,334 ----------- ----------- Property & equipment, including leased properties: Land & improvements 33,524,724 31,972,686 Building 71,424,899 66,289,162 Equipment, furniture and fixtures 116,851,338 106,690,800 Construction in progress 4,884,351 1,998,495 ----------- ----------- 226,685,312 206,951,143 Less: accumulated depreciation and amortization (68,184,276) (57,969,075) ----------- ----------- Net property & equipment 158,501,036 148,982,068 Other assets: Excess of cost over fair value of net assets acquired 124,270,083 109,149,364 Other assets 2,262,218 625,828 ----------- ----------- $371,421,991 $340,343,594 =========== =========== The notes to consolidated financial statements are an integral part of these statements.
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SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS [Download Table] SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------ ----------- LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable - trade $4,441,146 $5,889,642 Accrued liabilities 10,529,175 15,658,612 Accrued loss on disposal of surgery centers 741,203 5,629,000 Current portion of long-term obligations and notes payable 728,944 10,119,162 Income taxes payable 20,381,893 14,737,873 Distributable to minority interests 7,000,000 4,500,000 ----------- ----------- Total current liabilities 43,822,361 56,534,289 Long-term obligations: Notes payable & other long-term debt 61,062,400 42,269,224 Capital lease obligations - related parties 4,056,891 7,447,761 ----------- ----------- Total long-term obligations 65,119,291 49,716,985 ----------- ----------- Deferred income taxes 3,845,939 3,845,939 ----------- ----------- Minority interests 29,404,481 33,623,872 ----------- ----------- Shareholders' equity: Common stock, par value $.25, 100,000,000 shares authorized, 39,466,292 and 39,110,622 shares issued, and 38,993,892 and 38,638,222 shares outstanding in 1995 and 1994, respectively 9,866,573 9,777,656 Treasury stock at cost,472,400 shares in 1995 and 1994, respectively (6,051,243) (6,114,778) Additional paid in capital 96,126,266 91,159,880 Retained earnings 129,288,323 101,799,751 ----------- ----------- Total shareholders' equity 229,229,919 196,622,509 ----------- ----------- $371,421,991 $340,343,594 =========== =========== The notes to consolidated financial statements are an integral part of these statements.
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4 SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME [Enlarge/Download Table] THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS ENDED ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1995 1994 1995 1994 ------------ ------------ ------------ ------------ Net revenue $65,469,990 $59,302,163 $196,258,237 $169,973,089 Operating costs: Costs of providing healthcare services (34,754,319) (29,986,803) (102,383,545) (88,794,012) Depreciation and amortization (3,972,284) (4,446,112) (12,639,940) (12,506,181) Provision for doubtful accounts (704,207) (794,635) (2,381,398) (2,079,421) ------------ ------------ ------------ ------------ Operating income 26,039,180 24,074,613 78,853,354 66,593,475 General, administrative and development expenses (1,168,457) (1,376,797) (4,235,644) (4,060,867) Interest and other expenses (1,108,596) (1,514,514) (3,413,039) (6,025,157) Interest and other income 950,932 1,168,559 2,411,483 2,698,957 Gain on sale of MCA stock 0 1,720,058 0 6,881,869 ------------ ------------ ------------ ------------ Income before minority interests and income taxes 24,713,059 24,071,919 73,616,154 66,088,277 Minority interests in (earnings) of partnerships (6,562,206) (5,491,805) (19,216,667) (15,144,364) ------------ ------------ ------------ ------------ Income before income taxes and cumulative effect of change in accounting principle 18,150,853 18,580,114 54,399,487 50,943,913 Income tax provision (6,897,324) (7,432,046) (21,396,778) (22,083,565) ------------ ------------ ------------ ------------ Income before cumulative effect of change in accounting principle 11,253,529 11,148,068 33,002,709 28,860,348 Cumulative effect of change in accounting principle 0 0 0 (2,105,155) ------------ ------------ ------------ ------------ Net income $11,253,529 $11,148,068 $33,002,709 $26,755,193 ============ ============ ============ ============ Net Income Per Common & Common Equivalent Share Before cumulative effect of change in accounting principle $0.29 $0.29 $0.84 $0.74 Cumulative effect of change in accounting principle 0.00 0.00 0.00 (0.05) ------------ ------------ ------------ ------------ $0.29 $0.29 $0.84 $0.69 ============ ============ ============ ============ Weighted average number of common and common equivalent shares outstanding 39,251,597 38,758,751 39,189,129 38,858,864 ============ ============ ============ ============ The notes to consolidated financial statements are an integral part of these statements.
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SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS [Download Table] NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1995 1994 ------------ ------------ Cash Flows From Operating Activities: Net Income $33,002,709 $26,755,193 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Cumulative Effect of Change in Accounting Principle 0 2,105,155 Depreciation and Amortization 12,639,940 12,506,181 Provisions for Losses on Accounts Receivable 2,381,398 2,079,421 Minority Interests in Earnings of Partnerships 19,216,667 15,144,364 Deferred Income Taxes 0 858,127 Changes in Assets and Liabilities Net of Effect of Acquisitions: Decrease (Increase) in Accounts Receivable 3,817,873 (168,868) Decrease in Other Receivables 276,537 3,927,226 Increase in Supplies (13,974) (143.331) Decrease (Increase) in Prepaid Expenses and Other Current Assets 78,058 (524,308) Increase in Other Assets (1,636,390) (259,219) Increase in Excess of Cost over Fair Value of Net Assets Acquired (2,128,031) (4,446,279) (Decrease) Increase in Accounts Payable - Trade (1,561.001) 515,943 Decrease in Accrued Liabilities (7,830,821) (668,556) Decrease in Accrued Loss on Disposal of Surgery Centers(4,887,797) 0 Increase in Income Taxes Payable 5,644,020 5,702,657 ------------ ------------ Net Cash Provided by Operating Activities 58,999,188 63,383,706 Cash Flows From Investing Activities: Decrease in Temporary Investments 0 31,108 Decrease in Marketable Securities 0 12,277,975 Capital Expenditures (13,181,880) (24,628,654) Acquisitions less Cash Acquired of $450,000 in 1995, $550,213 in 1994 (16,981,251) (16,568,406) ------------ ------------ Net Cash Used in Investing Activities (30,163,131) (28,887,977) ------------ ------------ Cash Flows From Financing Activities: Net Borrowings Under Line-of-Credit Agreement 59,398,986 (4,302,662) Payments on Long-Term Obligations (54,606,753) (5,402,249) Proceeds From Long-Term Obligations 0 5,446,163 Proceeds From Issuance of Common Stock 961,775 1,327,141 Dividends on (Acquisition of) Common Stock for the Treasury 63,535 (6,134,753) Dividends Paid (5,514,138) (4,674,014) Distributions to Minority Interests (20,990,773) (14,183,515) Increase (Decrease) in Distributable to Minority Interests 2,500,000 (261,219) Decrease in Minority Interests (2,824,697) (3,044,298) ------------ ------------ Net Cash Used in Financing Activities (21,012,065) (31,299,406) ------------ ------------ Net Increase in Cash & Cash Equivalents 7,823,992 3,266,323 Cash & Cash Equivalents at Beginning of Period 31,222,963 23,877,186 ------------ ------------ Cash & Cash Equivalents at End of Period $39,046,955 $27,143,509 ------------ ------------ For purposes of the statements of cash flows, the Company considers all certificates of deposits and highly liquid marketable securities with a maturity of three months or less to be cash equivalents. Cash & Cash Equivalents at End of Period $39,046,955 $27,143,509 Temporary Investments 0 5,254,675 ------------ ------------ Cash and Temporary Investments $39,046,955 $32,398,184 ============ ============ The notes to consolidated financial statements are an integral part of these statements.
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SURGICAL CARE AFFILIATES, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Basis of Financial Statements The accompanying unaudited consolidated financial statements have been prepared in accordance with Rule 10-01 of Regulation S-X, "Interim Financial Statements," and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements have been prepared in conformity with accounting principles and practices (including consolidation practices) reflected in the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and in the opinion of management, include all adjustments (consisting only of normal recurring adjustments), necessary for a fair presentation of the Company's financial position as of September 30, 1995, and results of its operations and cash flows for the three months and nine months ended September 30, 1995 and 1994. The results of operations for the nine months ended September 30, 1995 are not necessarily indicative of the results that can be expected for the year ending December 31, 1995. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994. Note 2 - Reclassifications Reclassifications of certain amounts in the 1994 consolidated financial statements have been made to conform to the 1995 presentation of accounts. Note 3 - Subsequent Event On October 9, 1995, the Company entered into a definitive agreement to be acquired by HEALTHSOUTH Corporation in a stock-for- stock exchange. Under the terms of the merger agreement, each share of the Company's stock will be exchanged for 1.22 shares of HEALTHSOUTH. If HEALTHSOUTH's stock price during a 20 trading day period ending 2 days prior to closing rises above $28 or declines to below $22, the exchange ratio is subject to change. The transaction will be accounted for as a pooling of interests and is expected to be tax-free to the Company's shareholders. The merger is subject to approval by both Company's shareholders and certain regulatory authorities and is expected to close in early 1996.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL CONDITION AND RESULTS OF OPERATIONS: Surgical Care Affiliates, Inc. operates 67 outpatient surgery centers. The Company began the year with 65 centers; two were closed at the end of the first quarter, and four were purchased on June 1, 1995. Results of Operations - Third Quarter Revenue for the third quarter increased 10% to $65.5 million. Earnings per share increased 12% to $.29 compared to $.26 in 1994. In 1994, the Company also reported a gain of $.03 from the sale of stock, so reported earnings for the third quarter of 1994 were $.29. Same center revenue increased 6% in the third quarter. The Company experienced a 3% increase in same center case volume and a 3% increase in pricing and intensity. These results are consistent with the results achieved over the past five quarters. Same center revenue increased 16% in the first quarter, largely due to the low surgical volume experienced in the first quarter of 1994. The results in 1994 were affected by poor weather which closed several centers. Same center revenue increased 7% in the third quarter. The cost of providing healthcare services increased 17%. The increase is due to the net addition of 4 new centers since the third quarter of 1994, as well as the 6% increase in same center revenues. Depreciation and amortization decreased due to the closing of centers in the first quarter and the write-off of certain intangible assets in 1994. General and administrative expenses declined during the quarter. In previous quarters, the Company increased its corporate staff to manage its growth. Interest and other expenses decreased in the third quarter primarily due to the refinancing of the Company's debt which occurred in the second quarter of 1995. Interest and other income declined from the third quarter of 1994 because in 1994 the Company recognized more gains from joint venturing and development fees from the opening of new centers. During the third quarter of 1994, the Company sold shares of stock in Medical Care America for a gain of $1.7 million. All of this stock was sold in 1994. Minority interest expense increased in the third quarter and the first nine months of 1995 compared to the same periods in 1994. During 1994 and 1995, the Company executed joint ventures with hospitals to jointly own its surgery centers. As a result, the Company's share of profits from these centers is lower, and the minority interest is higher. During the third quarter, the Company recorded a benefit of $1.1 million as an offset to operating costs. In 1994, the Company established a reserve of this amount to provide for the closing of a center in Indianapolis. In the third quarter of 1995, the Company entered into an agreement to joint venture this center with a third party, and the center will now remain open. The reserve was accordingly reversed and returned to income.
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Results of Operations - Nine Months Revenue for the nine months ended September 30, 1995, increased 15% compared to the same period in 1994. The increase is due to a 10% increase in same center revenue and the contributions from new centers. Earnings per share increased 18% during the nine months. The cost of providing health care services increased 16%, or roughly in line with the increase in revenue. Interest and other expenses decreased from $6.0 million to $3.4 million primarily due to charges of $2.2 million in 1994 to provide for the relocation of surgery centers and to write assets held for sale down to their net realizable value. In the nine month period of 1994, the Company realized a gain of $6.9 million from the sale of stock of Medical Care America. No gains were reported in 1995 since all of the stock was sold in 1994. Balance Sheet The Company's working capital increased from $25 million at December 31, 1994, to $42.5 million at September 30, 1995. The increase is due to an $8 million increase in cash and a decline in the amount of debt payable in the next twelve months. The Company refinanced its debt in the second quarter, and no principal payments are due for a five year period. Accounts receivable decreased since December 31, 1994, due to seasonal fluctuations. The Company's receivables typically rise before year end due to the high volume of surgery in the fourth quarter. Property and equipment increased from $149 million to $159 million during the period. The increase is due to funds spent to renovate and expand existing centers, to construct new centers, and to acquire centers. Excess of cost over fair value of net assets acquired (goodwill) increased by $15 million primarily due to the acquisition of four centers in 1995. Long-term obligations increased due to funds required to purchase four centers in June, 1995. Liquidity and Capital Resources The Company's current ratio was approximately 2.0 to 1 at September 30, 1995, and its debt to equity ratio was .28 to 1. The ratios are consistent with management's philosophy to maintain a strong balance sheet and financial position. The Company is actively looking to grow through the development of new surgery centers and the acquisition of existing centers. The Company expects to acquiretwo surgery centers in the fourth quarter for approximately $15 million. The Company will use its cash balances or draw on its line of credit to fund these acquisitions. As in previous periods, the principal source of the Company's cash is generated from its operations. The Company believes that it has ready access to third party resources (primarily banks) to finance its growth to the extent that the growth requirements exceed cash generated from operations.
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SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 Part II. Other Information Item 1. Legal Proceedings. - None. Item 2. Changes in Securities. - None. Item 3. Defaults Upon Senior Securities. - None. Item 4. Submission of Matters to a Vote of Security Holders. - None Item 5. Other Information. - None. Item 6. Exhibits and Reports on Form 8-K. - None
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SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SURGICAL CARE AFFILIATES, INC. (Registrant) /s/ Tarpley B. Jones Tarpley B. Jones Senior Vice President and Chief Financial Officer (Principal Financial and Duly Authorized Officer) On behalf of Registrant Date: November 1, 1995
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Dates Referenced Herein   and   Documents Incorporated by Reference

Referenced-On Page
This ‘10-Q’ Filing    Date First  Last      Other Filings
12/31/956
Filed on:11/1/9510
10/9/9568-K
For Period End:9/30/9519
6/1/957
12/31/946810-K405,  11-K
9/30/94610-Q
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