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, 1994, 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 38,582,463 at September 30, 1994.
<PAGE>
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
<S> <C> <C>
ASSETS
Current assets:
Cash $27,143,509 $23,877,186
Temporary investments 5,254,675 5,285,783
Marketable equity securities 1,949,596 13,360,507
Accounts receivable, less allowance for doubtful
accounts of $3,827,106 in 1994 and $3,214,296
in 1993 28,163,095 28,133,055
Other receivables 1,472,961 5,400,027
Supplies 4,672,751 4,193,379
Prepaid expenses and other assets 985,015 428,817
Total current assets 69,641,602 80,678,754
Property & equipment, including leased properties:
Land & improvements 32,959,945 29,789,361
Building 63,060,981 49,477,899
Equipment, furniture and fixtures 105,385,605 87,272,417
Construction in progress 4,917,682 8,159,358
206,324,213 174,699,035
Less: accumulated depreciation and amortization (54,513,532) (44,604,904)
Net property & equipment 151,810,681 130,094,131
Other assets:
Excess of cost over fair value of net assets
acquired 110,189,374 83,196,653
Deferred development costs and other assets 6,034,254 6,219,185
$337,675,911 $300,188,723
<FN>
The notes to consolidated financial statements are an integral part of these statements.
</TABLE>
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<TABLE>
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
<S> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
Current liabilties:
Accounts payable - trade $6,247,255 $5,517,412
Accrued liabilities 8,046,754 7,609,790
Current portion of long-term obligations and notes payable 10,727,148 10,727,148
Accrued income taxes 7,459,877 1,397,293
Distributable to minority interests 4,500,000 4,761,219
Total current liabilities 36,981,034 30,012,862
Long-term obligations:
Notes payable & other long-term debt 52,541,133 52,880,009
Capital lease obligations - related parties 8,888,911 9,310,591
Total long-term obligations 61,430,044 62,190,600
Deferred income taxes 8,829,832 7,971,705
Minority interests 32,223,657 33,430,298
Shareholders' equity:
Common stock, par value $.25, 100,000,000 shares authorized,
39,054,863 and 38,259,336 shares issued, and 38,582,463 and
38,259,336 outstanding in 1994 and 1993, respectively 9,763,716 9,564,834
Treasury stock at cost,472,400 and 0 shares in 1994 and 1993,
respectively (6,134,753) 0
Additional paid in capital 91,119,717 78,262,327
Retained earnings 103,462,664 78,756,097
Total shareholders' equity 198,211,344 166,583,258
$337,675,911 $300,188,723
<FN>
The notes to consolidated financial statements are an integral part of these statements.
</TABLE>
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<TABLE>
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net revenue $59,302,163 $48,921,974 169,973,089 143,244,583
Operating costs:
Cost of providing health care services (29,986,803) (25,214,932) (88,794,012) (74,884,068)
Depreciation and amortization (4,446,112) (3,152,282) (12,506,181) (9,136,063)
Provision for doubtful accounts (794,635) (486,273) (2,079,421) (911,939)
Operating income 24,074,613 20,068,487 66,593,475 58,312,513
General, administrative and development expenses (1,376,797) (1,129,435) (4,060,867) (2,708,774)
Interest and other expenses (1,514,514) (1,070,336) (6,025,157) (3,007,187)
Interest and other income 1,168,559 996,943 2,698,957 2,235,605
Gain on sale of MCA stock 1,720,058 0 6,881,869 0
Income before minority interests 24,071,919 18,865,659 66,088,277 54,832,157
Minority interests in (earnings) of partnerships (5,491,805) (5,254,244) (15,144,364) (16,411,969)
Income before income tax provision 18,580,114 13,611,415 50,943,913 38,420,188
Income tax provision (7,432,046) (5,444,566) (22,083,565) (14,871,900)
Net income from Continuing Operations 11,148,068 8,166,849 28,860,348 23,548,288
Net income from Discontinued Operations 0 1,303,082 0 3,607,566
Net Income $11,148,068 $9,469,931 $28,860,348 $27,155,854
Net Income Per Common & Common Equivalent Share
Continuing Operations $0.29 $0.22 $0.74 $0.62
Discontinued Operations 0.00 0.03 0.00 0.10
$0.29 $0.25 $0.74 $0.72
Weighted average number of common and common
equivalent shares outstanding 38,758,751 38,108,373 38,858,864 37,966,614
<FN>
The notes to consolidated financial statements are an integral part of these statements.
</TABLE>
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<TABLE>
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
1994 1993
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $28,860,348 $27,155,854
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization 12,506,181 9,136,063
Provisions for Losses on Accounts Receivable 2,079,421 911,939
Minority Interests in Earnings of Partnerships 15,144,364 16,411,969
Changes in Assets and Liabilities
Net of Effect of Acquisitions:
(Increase) Decrease in Accounts Receivable (168,868) 467,829
Decrease (Increase) in Other Receivables 3,927,226 (471,766)
Increase in Supplies (143,331) (347,020)
Increase in Prepaids Expenses and Other Assets (524,308) (155,491)
Increase in Net Assets from Discontinued Operations 0 (2,576,591)
Increase in Deferred Development Costs & Other Assets (259,219) (2,918,499)
Increase in Excess of Cost over Fair Value of Net Assets Acquired (4,446,279) (3,987,014)
Increase in Accounts Payable - Trade 515,943 332,950
Decrease in Accrued Liabilities (668,556) (5,718,712)
Increase in Income Taxes Payable 5,702,657 270,625
Increase in Deferred Income Taxes 858,127 4,492,542
Net Cash Provided by Operating Activities 63,383,706 43,004,678
Cash Flows From Investing Activities:
Decrease in Temporary Investments 31,108 0
Decrease (Increase) in Marketable equity securities 12,277,975 (5,247,285)
Capital Expenditures (24,628,654) (30,227,250)
Acquisitions less Cash Acquired of $ 550,213 in 1994, $91,505 in 1993 (16,568,406) (6,262,785)
Net Cash (Used in) Investing Activities (28,887,977) (41,737,320)
Cash Flows From Financing Activities:
Net (Payments) Borrowings Under Line-of-Credit Agreement (4,302,662) 12,215,661
Payments on Long-Term Obligations (5,402,249) (4,232,440)
Proceeds From Long-Term Obligations 5,446,163 12,431,137
Proceeds From Issuance of Common Stock 1,327,141 2,418,569
Acquisition of Common Stock for the Treasury (6,134,753) 0
Dividends Paid (4,674,014) (4,511,764)
Distributions to Minority Interests (14,183,515) (16,016,061)
(Decrease) Increase in Distributable to Minority Interests (261,219) 966,874
(Decrease) Increase in Minority Interests (3,044,298) 3,228,181
Net Cash Used in Financing Activities (31,229,406) 6,500,157
Net Increase in Cash & Cash Equivalents 3,266,323 7,767,515
Cash & Cash Equivalents at Beginning of Period 23,877,186 26,158,499
Cash & Cash Equivalents at End of Period $27,143,509 $33,926,014
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 $27,143,509 $33,926,014
Temporary Investments 5,254,675 5,549,314
Cash and Temporary Investments $32,398,184 $39,475,328
<FN>
The notes to consolidated financial statements are an integral part of these statements.
</TABLE>
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<TABLE>
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES
SUPPLEMENTAL CASH FLOW INFORMATION
During the periods ended September 30, the Company had the following noncash financing and investing activities:
<CAPTION>
1994 1993
<S> <C> <C>
Common Stock issued for center acquistions $9,390,150 $8,034,290
Unrealized Gain on Marketable Equity Securities 867,064 0
</TABLE>
<PAGE>
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, 1993, 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, 1994, and results of its operations
and cash flows for the nine months ended September 30, 1994 and
1993. The results of operations for the nine months ended
September 30, 1994 are not necessarily indicative of the results
that can be expected for the year ending December 31, 1994. 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, 1993.
Note 2 - Reclassifications
Reclassifications of certain amounts in the 1993 consolidated
financial statements have been made to conform to the 1994
presentation of accounts.
Note 3 - Discontinued Operations
Effective December 1, 1993, the Company spun off the net
assets of its HMO subsidiary, HealthWise of America, Inc. The
spin-off was accomplished by a tax-free distribution of one
HealthWise common share for every ten shares of the Company's
common stock. The distribution was reflected as a charge to
retained earnings of the Company for the year ended December 31,
1993. The operating results of HealthWise have been classified as
discontinued operations on the accompanying consolidated statements
of income.
Note 4 - Accounting for Income Taxes
The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes", effective
January 1, 1993. This statement supersedes SFAS No. 96,
"Accounting for Income Taxes", which was adopted by the Company in
1988.
<PAGE>
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. The Company's net deferred tax liability as of
September 30, 1994 and December 31, 1993 is $8,829,832 and
$7,971,705, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ITS FINANCIAL
CONDITION AND RESULTS OF OPERATIONS:
Surgical Care Affiliates, Inc. operates 65 outpatient surgery
centers, ten of which were acquired or built in 1994, and six of
which began operations or were acquired in 1993.
Results of Operations - Third Quarter
Revenue for the third quarter increased 21% to $59.3 million.
Earnings per share from continuing operations increased 32% to $.29
compared to $.22 in 1993. Included in the third quarter of 1994 is
a one-time after tax gain of $.03 from the sale of stock. Without
this one-time gain, earnings per share were $.26 in the third
quarter of 1994, an increase of 18% from the third quarter of 1993.
Same center revenue increased 6% in the third quarter. The
Company experienced a 6% increase in same center case volume while
revenue per case was flat compared to the third quarter of 1993.
The Company expects these trends to continue for the remainder of
the year.
The cost of providing health care services increased 19%. The
increase is due to the addition of 13 new centers since the third
quarter of 1993, as well as the 6% increase in same center
revenues.
Depreciation and amortization increased due to the addition of
13 new surgery centers since September 30, 1993.
General and administrative expenses increased 22% during the
quarter. The increase is due to additions to the Company's
corporate staff to manage its growth, combined with an increase in
shareholder-related and legal expenses.
Interest and other expenses increased from $1.1 million in the
third quarter of 1993 to $1.5 million in the third quarter of 1994.
The increase is due to long-term debt that was added by the Company
to finance the acquisition and construction of new surgery centers.
During the third quarter, the Company sold approximately
137,000 shares of stock in Medical Care America at a pre-tax gain
of $1.7 million. In October, the Company sold all of its remaining
shares and expects to report a pre-tax gain of $845,000 in the
fourth quarter of 1994.
Minority interest expense declined as a percentage of income
before minority interest in the third quarter and the first nine
months of 1994 compared to the same periods in 1993. The Company
owns a greater majority ownership in centers acquired in the last
three years than it does in centers acquired before 1992. These
newer centers are contributing a substantial amount to the
Company's operations which is causing minority interest expense to
decrease.
<PAGE>
Results of Operations - Nine Months
Revenue for the nine months ended September 30, 1994,
increased 19% compared to the same period in 1993. The increase is
due to a 4% increase in same center revenue and the contributions
from new centers. Earnings per share from continuing operations
increased 19% during the nine months.
The cost of providing health care services increased 19%, or
roughly in line with the increase in revenue.
Depreciation and amortization expenses increased due to the
addition of 13 new surgery centers since September 30, 1993.
General and administrative expenses increased 50% due to
increased staffing expenses at the corporate office to manage the
Company's growth, along with an increase in legal and shareholder
related expenses.
Interest and other expenses increased from $3.0 million to
$6.0 million primarily due to charges of $2.2 million to provide
for the relocation of surgery centers and to write assets held for
sale down to their net realizable value.
Interest and other income increased due to development fees
earned by the Company when new centers are developed.
In the nine month period of 1994, the Company realized a pre-
tax gain of $6.9 million from the sale of stock of Medical Care
America.
The Company's effective tax rate was 43% in the nine months
ended September 30, 1994, compared to 39% in 1993. The increase is
due to the fact that charges to relocate surgery centers and to
write assets down to their net realizable are not deductible for
tax purposes.
Balance Sheet Amounts
The Company's marketable equity securities decreased from year
end. The decrease is the result of the sale of common stock of
Medical Care America, Inc. Proceeds were used to retire long-term
debt.
Other receivables decreased from $5.4 at December 31, 1993 to
$1.5 million at September 30, 1994. The decrease is due to the
collection from HealthWise of certain amounts owed to SCA as a
result of the spin-out.
Property and equipment increased from $130 million to $152
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 $27 million primarily due to the
acquisition of five centers in 1994.
The increase in common stock and paid-in capital of $13
million is the result of shares issued in connection with
acquisitions. At September 30, 1994, SCA had $6.1 million of
treasury stock. At September 30, 1994, the Company had purchased
472,400 shares of common stock at an average price of $12.99 per
share.
<PAGE>
Liquidity and Capital Resources
The Company's current ratio was approximately 1.88 to 1 at
September 30, 1994, and its debt to equity ratio was .31 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. 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.
<PAGE>
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
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
<PAGE>
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)
Tarpley B. Jones
Senior Vice President and Chief
Financial Officer
(Principal Financial and
Duly Authorized Officer)
On behalf of Registrant
Date: November 10, 1994
<TABLE> <S> <C>
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<S> <C>
<PERIOD-TYPE> 9-MOS
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<PERIOD-END> SEP-30-1994
<CASH> 32398
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<RECEIVABLES> 31990
<ALLOWANCES> 3827
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<DEPRECIATION> 54514
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0
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</TABLE>
