<PAGE> 1
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 June 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 38,983,037 at June 30,
1995.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $35,085,200 $31,222,963
Marketable securities 294,639 294,639
Accounts receivable, less allowance
for doubtful accounts of
$4,566,651 in 1995 and $4,160,260
in 1994 32,293,000 34,801,079
Other receivables 516,327 701,965
Supplies 5,266,575 4,562,518
Prepaid expenses and other current assets 1,635,354 742,911
Deferred income taxes 9,260,259 9,260,259
----------- -----------
Total current assets 84,351,354 81,586,334
Property & equipment, including leased properties:
Land & improvements 34,782,525 31,972,686
Building 70,055,721 66,289,162
Equipment, furniture and fixtures 113,988,977 106,690,800
Construction in progress 3,688,427 1,998,495
----------- -----------
222,515,650 206,951,143
Less: accumulated depreciation
and amortization (65,080,253) (57,969,075)
Net property & equipment 157,435,397 148,982,068
Other assets:
Excess of cost over fair value of
net assets acquired 126,244,961 109,149,364
Other assets 710,956 625,828
----------- -----------
$368,742,668 $340,343,594
=========== ===========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
<PAGE> 3
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
----------- ------------
<S> <C> <C>
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $5,492,442 $5,889,642
Accrued liabilities 14,641,301 15,658,612
Accrued loss on disposal of surgery centers 744,083 5,629,000
Current portion of long-term obligations
and notes payable 728,944 10,119,162
Income taxes payable 13,941,956 14,737,873
Distributable to minority interests 7,000,000 4,500,000
------------ ------------
Total current liabilities 42,548,726 56,534,289
Long-term obligations:
Notes payable & other long-term debt 67,160,889 42,269,224
Capital lease obligations - related parties 4,798,301 7,447,761
------------ ------------
Total long-term obligations 71,959,190 49,716,985
Deferred income taxes 3,845,939 3,845,939
Minority interests 30,502,636 33,623,872
Shareholders' equity:
Common stock, par value $.25, 100,000,000
shares authorized, 39,455,437 and 39,110,622
shares issued, and 38,983,037 and 38,638,222
shares outstanding in 1995 and 1994,
respectively 9,863,859 9,777,656
Treasury stock at cost,472,400 shares
in 1995 and 1994, respectively (6,074,863) (6,114,778)
Additional paid in capital 96,089,534 91,159,880
Retained earnings 120,007,647 101,799,751
----------- -----------
Total shareholders' equity 219,886,177 196,622,509
----------- -----------
$368,742,668 $340,343,594
=========== ===========
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
<PAGE> 4
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1995 1994 1995 1994
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $65,681,896 $58,522,606 $130,788,247 $110,670,926
Operating costs:
Costs of providing healthcare services (33,460,889) (30,564,439) (67,629,226) (58,807,209)
Depreciation and amortization (4,328,678) (4,260,168) (8,667,656) (8,060,069)
Provision for doubtful accounts (755,208) (304,769) (1,677,191) (1,284,786)
------------ ------------ ----------- -----------
Operating income 27,137,121 23,393,230 52,814,174 42,518,862
General, administrative and development expenses (1,506,056) (1,530,298) (3,067,187) (2,684,070)
Interest and other expenses (1,142,159) (2,453,099) (2,304,443) (4,510,643)
Interest and other income 982,969 682,489 1,460,551 1,530,397
Gain on sale of MCA stock 0 1,742,199 0 5,161,811
------------ ------------ ----------- -----------
Income before minority interests and income taxes 25,471,875 21,834,521 48,903,095 42,016,357
Minority interests in (earnings) of partnerships (6,554,020) (5,236,013) (12,654,461) (9,652,559)
------------ ------------ ----------- -----------
Income before income taxes and cumulative effect
of change in accounting principle 18,917,855 16,598,508 36,248,634 32,363,798
Income tax provision (7,567,142) (6,965,403) (14,499,454) (14,651,519)
------------ ------------ ----------- -----------
Income before cumulative effect of change in
accounting principle 11,350,713 9,633,105 21,749,180 17,712,279
Cumulative effect of change in accounting principle 0 0 0 (2,105,155)
------------ ------------ ----------- -----------
Net income $11,350,713 $9,633,105 $21,749,180 $15,607,124
============ ============ =========== ===========
Net Income Per Common & Common Equivalent Share
Before cumulative effect of change in
accounting principle $0.29 $0.25 $0.56 $0.46
Cumulative effect of change in accounting principle 0.00 0.00 0.00 (0.05)
------------ ------------ ----------- -----------
$0.29 $0.25 $0.56 $0.41
============ ============ =========== ===========
Weighted average number of common and common
equivalent shares outstanding 39,275,951 39,003,178 39,183,698 38,908,438
============ ============ =========== ===========
</TABLE>
The notes to consolidated financial statements are an integral part of
these statements.
<PAGE> 5
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994
----------- ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $21,749,180 $15,607,124
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 8,667,656 8,060,069
Provisions for Losses on Accounts Receivable 1,677,191 1,284,786
Minority Interests in Earnings of Partnerships 12,654,461 9,652,559
Deferred Income Taxes 0 858,127
Changes in Assets and Liabilities
Net of Effect of Acquisitions:
Decrease in Accounts Receivable 2,992,846 865,030
Decrease in Other Receivables 346,692 4,081,732
(Increase) Decrease in Supplies (121,297) 72,977
Increase in Prepaid Expenses and Other Current Assets (279,995) (851,757)
(Increase) Decrease in Other Assets (85,128) 24,327
Increase in Excess of Cost over Fair Value of
Net Assets Acquired (3,234,648) (4,129,826)
Decrease in Accounts Payable - Trade (509,706) (446,768)
Decrease in Accrued Liabilities (3,718,695) (177,784)
Decrease in Accrued Loss on Disposal of Surgery Centers (4,884,917) 0
(Decrease) Increase in Income Taxes Payable (795,917) 2,458,273
----------- -----------
Net Cash Provided by Operating Activities 34,457,723 39,464,024
Cash Flows From Investing Activities:
Increase in Temporary Investments 0 (1,968,892)
Decrease in Marketable securities 0 9,929,119
Capital Expenditures (9,012,218) (17,250,246)
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 (25,993,469) (25,858,425)
----------- -----------
Cash Flows From Financing Activities:
Net Borrowings Under Line-of-Credit Agreement 59,398,986 2,712,362
Payments on Long-Term Obligations (47,766,854) (3,717,266)
Proceeds From Long-Term Obligations 0 5,176,163
Proceeds From Issuance of Common Stock 922,329 1,290,653
Dividends on (Acquisition of) Common Stock for the Treasury 39,915 (4,800,840)
Dividends Paid (3,541,284) (3,112,476)
Distributions to Minority Interests (7,017,197) (9,926,654)
Increase (Decrease) in Distributable to Minority Interests 2,500,000 (261,219)
Decrease in Minority Interests (9,137,912) (634,646)
----------- -----------
Net Cash Used in Financing Activities (4,602,017) (13,273,923)
Net Increase in Cash & Cash Equivalents 3,862,237 331,676
Cash & Cash Equivalents at Beginning of Period 31,222,963 23,877,186
----------- -----------
Cash & Cash Equivalents at End of Period $35,085,200 $24,208,862
=========== ===========
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 $35,085,200 $24,208,862
Temporary Investments 0 7,254,675
----------- -----------
Cash and Temporary Investments $35,085,200 $31,463,537
=========== ===========
</TABLE>
The notes to consolidated financial statements are an integral part of
these statements.
<PAGE> 6
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 June 30, 1995, and results of its operations and cash flows
for the three months and six months ended June 30, 1995 and 1994. The
results of operations for the six months ended June 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.
<PAGE> 7
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 - Second Quarter
Revenue for the second quarter increased 12% to $65.7 million. Earnings per
share increased 16% to $.29 compared to $.25 in 1994.
Same center revenue increased 7% in the second quarter. The Company
experienced a 4% 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.
The cost of providing healthcare services increased 9%. The increase is due
to the net addition of 4 new centers since the second quarter of 1994, as well
as the 7% increase in same center revenues.
Depreciation and amortization increased 2% due to the net addition of 4 new
surgery centers since June 30, 1994.
General and administrative expenses remained flat during the quarter. In
previous quarters, the Company increased its corporate staff to manage its
growth.
Interest and other expenses decreased in the second quarter primarily due to
a $1.2 million charge in the second quarter of 1994 to write down assets held
for sale to their net realizable value.
Interest and other income increased primarily due to the Company's joint
venturing activity and gains recognized from selling minority interest
positions in centers to joint venture partners.
During the second quarter of 1994, the Company sold approximately 170,000
shares of stock in Medical Care America at a gain of $1.7 million. All of
this stock was sold in 1994.
Minority interest expense increased in the second quarter and the first six
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.
<PAGE> 8
Results of Operations - Six Months
Revenue for the six months ended June 30, 1995, increased 18% compared to the
same period in 1994. The increase is due to an 11% increase in same center
revenue and the contributions from new centers. Earnings per share increased
22% during the six months.
The cost of providing health care services increased 15%, or roughly in line
with the increase in revenue.
Depreciation and amortization expenses increased due to the net addition of
4 new surgery centers since June 30, 1994.
General and administrative expenses increased 14% due to increased staffing
expenses at the corporate office to manage the Company's growth. All of the
increase occurred in the first quarter of 1995.
Interest and other expenses decreased from $4.5 million to $2.3 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 six month period of 1994, the Company realized a gain of $5.2 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 million at June 30, 1995. The increase is due to a $4 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 $148 million to $157 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 $17 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.
<PAGE> 9
Liquidity and Capital Resources
The Company's current ratio was approximately 2.0 to 1 at June 30, 1995, and
its debt to equity ratio was .33 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 is
negotiating to purchase a number of surgery centers from a third party. If the
Company is successful, the transaction will require approximately $50 million
in cash. The Company expects to increase its bank line of credit to finance
this transaction.
As in previous periods, the principle 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> 10
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES
FOR THE THREE MONTHS ENDED JUNE 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.
(a) The Annual Meeting of Shareholders of the Corporation was
held on May 11, 1995.
(b) N/A
(c) The following matters were voted upon by the Shareholders at
the Annual Meeting held on May 11, 1995:
(i) The following directors were elected to serve on the
Board of Directors of the Corporation for a term of one
year or until their successors are elected.
Against/ Broker
Director For Withheld Abstain Non-votes
Joel C. Gordon 29,898,464 377,424 - -
William J. Hamburg 29,899,590 376,298 - -
Dan E. Bruhl, M.D. 29,563,893 711,995 - -
Lucius E. Burch III 29,895,819 380,069 - -
Robert J. Fraiman 29,559,832 716,056 - -
Kenneth J. Melkus 29,722,022 553,866 - -
Andrew W. Miller 29,897,914 377,974 - -
Edwin J. Nighbert, M.D. 29,899,269 376,619 - -
Sister Josepha Schaeffer 29,896,568 379,320 - -
(ii) The shareholders voted on a motion to ratify the appoin-
ments of Deloitte and Touche as the Company's Independent
Public Accountants, with 30,127,848 shares voting for
ratification and 73,393 voting against. The motion
passed.
Item 5. Other Information. - None.
Item 6. Exhibits and Reports on Form 8-K. - None
<PAGE> 11
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: August 2, 1995
<PAGE> 12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SURGICAL CARE AFFILIATES FOR THE QUARTER ENDED JUNE 30,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000722692
<NAME> SURGICAL CARE AFFILIATES, INC
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 35,085,200
<SECURITIES> 294,639
<RECEIVABLES> 36,859,651
<ALLOWANCES> 4,566,651
<INVENTORY> 5,266,575
<CURRENT-ASSETS> 84,351,354
<PP&E> 222,515,650
<DEPRECIATION> 65,080,253
<TOTAL-ASSETS> 368,742,668
<CURRENT-LIABILITIES> 42,548,726
<BONDS> 71,959,190
<COMMON> 9,863,859
0
0
<OTHER-SE> 216,097,181
<TOTAL-LIABILITY-AND-EQUITY> 368,742,668
<SALES> 130,788,247
<TOTAL-REVENUES> 130,788,247
<CGS> 76,296,882
<TOTAL-COSTS> 76,296,882
<OTHER-EXPENSES> 3,067,187
<LOSS-PROVISION> 1,677,191
<INTEREST-EXPENSE> 2,304,443
<INCOME-PRETAX> 36,248,634
<INCOME-TAX> 14,499,454
<INCOME-CONTINUING> 21,749,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,749,180
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
