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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act (Fee Required) for the fiscal year ended
December 31, 1994, or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period
from to .
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COMMISSION FILE NO.: 0-13364
SURGICAL CARE AFFILIATES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 62-1149229
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 WOODMONT BLVD, SUITE 610
NASHVILLE, TENNESSEE 37205
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (615) 385-3541
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Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of each Class on which registered
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Common Stock, par value $.25 per share New York Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.25 per share
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. X
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The aggregate market value of the shares of Common Stock (based upon
the closing price of these shares on the New York Stock Exchange) of the
registrant held by nonaffiliates on March 17, 1995, was approximately
$771,000,000.
As of March 17, 1995, 39,380,655 shares of the registrant's Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Documents incorporated by reference and the part of Form 10-K into
which the document is incorporated:
Portions of the Annual Report to Security Holders
for the Fiscal Year Ended December 31, 1994............... Part II
Portions of the Registrant's Definitive Proxy
Statement Relating to the Annual Meeting of
Shareholders to be held on May 11, 1995....................Part III
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PART I
ITEM 1. BUSINESS
THE COMPANY
Surgical Care Affiliates, Inc. ("SCA" or the "Company") was
incorporated under the laws of Tennessee in 1982 and was reincorporated under
the laws of Delaware in 1986. SCA develops, owns and operates outpatient
surgical care centers. On December 1, 1993, SCA distributed to its shareholders
all of its shares of HealthWise of America, Inc., its wholly-owned managed care
subsidiary.
SURGERY CENTERS
An outpatient or ambulatory surgical care center is a facility that is
designed, equipped and staffed for performance of the surgical procedures which
generally do not require overnight hospitalization and which the treating
physician chooses not to or cannot perform in his or her office. Approximately
500 types of surgical procedures can be performed in the Company's centers.
SCA believes that outpatient surgical care centers help control health care
costs. In the areas where SCA centers operate, the Company believes that the
fees charged by its outpatient surgical centers are less than the fees charged
by hospitals for similar services performed on an outpatient basis. Because of
the cost advantages of ambulatory surgical care centers and continuing cost
containment pressures, private health insurers and Medicare and Medicaid
programs have added ambulatory surgery as a covered benefit.
The Company's ownership interest in surgical care centers typically
consists of all the capital stock of corporations which are general partners of
a limited or general partnership which owns and operates the center. In some
instances, separate partnerships have been formed to own or lease the real
estate and equipment. The other general and limited partners of the
partnerships are physicians who practice in the communities where the surgical
care center is located or, in the case of joint ventures, other local health
care providers. SCA and participating partners share the center's operating
income or loss and receive distributions of any excess cash on a quarterly
basis.
During 1994, SCA acquired five centers and built five centers. SCA is
currently building two centers and expects to build or acquire a total of 10-12
centers in 1995.
The table below sets forth certain information concerning each of the
outpatient surgery centers owned at December 31, 1994.
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<TABLE>
<CAPTION>
DATE
OPERATIONS # OF % OF SCA'S # OF
CENTERS OWNED AND BEGAN OPERATING OWNERSHIP IN PHYSICIAN
FULLY OPERATIONAL BY SCA ROOMS PARTNERSHIP OWNERS (1)
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<S> <C> <C> <C> <C>
Lexington Surgery Center June 1983 5 67 41
Lexington, KY
Surgicenter of Louisville September 1983 4 65 37
Louisville, KY
Surgery Center of Ft. Worth October 1983 5 59 31
Ft. Worth, TX
Mobile Surgery Center October 1984 4 89 12
Mobile, AL
Chattanooga Surgery Center December 1984 4 82 27
Chattanooga, TN
Evansville Surgery Center December 1984 5 61 42
Evansville, IN
Cabell Huntington Surgery December 1984 5 47 37
Center
Huntington, WV
Memphis Surgery Center December 1984 4 40 33
Memphis, TN
Freeway Surgery Center March 1985 5 58 26
Little Rock, AR
Charlotte Surgery Center March 1985 5 61 47
Charlotte, NC
Lancaster Surgery Center June 1985 6 60 41
Lancaster, PA
Greenpark Surgery Center June 1985 4 80 22
Houston, Texas
Arlington Surgery Center July 1985 4 67 22
Arlington, TX
Sarasota Surgery Center September 1985 6 73 23
Sarasota, FL
Eau Claire Surgery Center March 1986 4 26 31
Eau Claire, WI
Montgomery Surgery Center April 1986 4 36 39
Rockville, MD
Greenville Surgery Center August 1986 4 63 20
Dallas, TX
San Antonio Surgery Center February 1987 4 96 5
San Antonio, TX
Maple Surgery Center April 1987 4 61 21
Springfield, MA
Wauwatosa Surgery Center May 1987 4 67 17
Wauwatosa, WI
Charleston Surgery Center March 1988 4 57 23
Charleston, SC
Grandview Surgery Center May 1989 4 27 30
Harrisburg, PA
East El Paso Surgery Center August 1989 4 54 18
El Paso, TX
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Tampa Outpatient Surgical July 1989 4 52 30
Facility
Tampa, FL
St. Petersburg Surgery November 1989 5 59 42
Center
St. Petersburg, FL
Surgery Center of December 1989 4 78 27
Albuquerque
Albuquerque, NM
Inland Surgery Center April 1990 4 34 30
Redlands, CA
Central Maryland Surgery June 1990 5 51 10
Center
Baltimore, MD
Forest Surgery Center June 1990 4 73 31
San Jose, CA
Scranton Surgery Center September 1990 5 60 23
Scranton, PA
Colorado Springs Surgery March 1991 4 83 18
Center
Colorado Springs, CO
North Indianapolis Surgery March 1991 4 100 0
Center
Indianapolis, IN
Central Delaware Surgery August 1991 4 50 0
Center
Dover, DE
San Luis Obispo Surgery August 1991 3 66 28
Center
San Luis Obispo, CA
Physicians Surgery Center September 1991 5 33 34
Ft. Myers, FL
Surgery Center of Fort October 1991 4 78 23
Collins
Fort Collins, CO
Surgical Center of South December 1991 5 71 44
Jersey
Mt. Laurel, NJ
Nashville Surgery Center January 1992 5 83 21
Nashville, TN
Gadsden Surgery Center February 1992 4 73 29
Gadsden, AL
Surgecenter of Wilson April 1992 4 87 13
Wilson, NC
Oshkosh Surgery Center August 1992 5 97 3
Oshkosh, WI
Knoxville Surgery Center September 1992 5 72 30
Knoxville, TN
Aurora Surgery Center September 1992 5 72 26
Aurora, CO
Pueblo Surgery Center October 1992 5 74 27
Pueblo, CO
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
Center for Day Surgery October 1992 4 86 19
Ft. Smith, AR
Yuma Outpatient Surgery October 1992 3 77 13
Center
Yuma, AZ
Westmoreland Surgery Center October 1992 4 96 3
Mt. Pleasant, PA
Surgicare of Hawaii December 1992 4 81 32
Honolulu, Hawaii
Roseland Surgery Center December 1992 5 100 0
Roseland, NJ
Blue Ridge Day Surgery June 1993 4 65 17
Center
Raleigh, NC
Coral Springs Surgical October 1993 5 97 3
Center
Coral Springs, FL
Emerald Coast Surgery September 1993 5 51 34
Center
Ft. Walton Beach, FL
Physicians' Surgical Care October 1993 4 45 14
Center
Winter Park, FL
Denver West Surgery Center August 1993 5 60 30
Golden, CO
The Surgery Center December 1993 4 95 26
Santa Rosa, CA
Plano Surgery Center January 1994 4 94 10
Plano, TX
Wausau Surgery Center January 1994 4 79 23
Wausau, WI
Dothan Surgery Center February 1994 4 96 19
Dothan, AL
Citrus Regional Surgery March 1994 3 80 20
Center
Lecanto, FL
Conroe Surgery Center March 1994 3 73 17
Conroe, TX
Greenville Surgery Center April 1994 4 80 19
Greenville, SC
Sutter Street Surgery Center April 1994 3 100 -
San Francisco, CA
Northeast Alabama Surgery May 1994 2 81 19
Center
Florence, AL
The Surgery Center August 1994 4 42 19
St. Joseph, MO
Paoli Surgery Center September 1994 5 36 28
Paoli, PA
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</TABLE>
(1) includes direct and indirect ownership interests
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ORGANIZATIONAL STRUCTURE OF SURGICAL CARE CENTERS
In connection with the development of outpatient surgical care
centers, the Company generally forms a limited or general partnership to
operate the center. A subsidiary of SCA is typically a general partner and
local physicians or health care providers are limited or general partners in
such partnerships. SCA sells partnership interests in these partnerships to
physicians who utilize the Company's surgical care centers, but typically
maintains a majority interest in the partnerships operating each center. The
proceeds from the sale of the partnership interests provide the partnership
with the necessary equity to offset part of the capital investment in the
surgical center and also provide start-up working capital. The use of such
partnerships can generate local medical community support for its surgical care
centers by providing physicians with a continuing participation in these
centers. The Company believes that in order to fully realize these objectives,
at least 15 physicians should initially own partnership interests in each of
its surgical care centers.
SCA and participating physicians receive a pro rata share, based on
their ownership interest in a surgical care center, of the center's operating
income or loss and receive distributions of any excess cash on a quarterly
basis. The participating physicians may also own interests in the real
property and equipment relating to the Company's centers and are allocated a
corresponding amount of the depreciation related thereto. The Company enters
into a management agreement with each operating partnership pursuant to which
the Company provides management, administrative and purchasing services and
support, and financial guarantees. The Company charges a management fee for
these services based on a percentage of annual charges ranging from 5% to 7%.
For the years ended December 31, 1992, 1993 and 1994, management fees of
$10,273,866, $13,260,505, and $16,933,346, respectively, were recorded by SCA.
MANAGEMENT AND OPERATION OF SURGICAL CARE CENTERS
The typical SCA surgical care center is a freestanding facility of
8,500 to 12,500 square feet with four to six fully equipped operating rooms and
ancillary areas for reception, preparation, recovery and administration. The
Company's centers are normally open weekdays from 6:00 a.m. to approximately
4:00 p.m. The Company estimates that a four-operating room surgical care
center can accommodate up to 6,000 procedures per year.
Each of the Company's centers is available for use only by licensed
physicians, oral surgeons and podiatrists who have admitting privileges in
nearby hospitals. Typically, each center has a medical advisory committee
which reviews the professional credentials of physicians applying for staff
privileges and reviews the quality of care at the center. The Company's
surgical care centers generally require a staff of between 10 and 25
employees, depending on case load. The staff includes one or more medical
directors, anesthesiologists, registered nurses, operating room technicians, a
business manager/bookkeeper and clerical workers. Generally, the medical
director is a practicing surgeon who is responsible for and supervises the
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quality of medical care provided at the center. SCA believes that attracting
personnel of high professional standing in the local community is crucial to
the success of the individual center.
All surgical procedures performed in the Company's centers are
non-emergency, low risk procedures that are generally performed to correct
conditions that are not life-threatening. Approximately 500 different types of
procedures can be performed in the Company's centers. The procedures most
commonly performed at the Company's surgical care centers within various
specialties are:
* Ear, nose and throat--removal of tonsils and adenoids
and insertion of ear drainage tubes.
* Gynecology--laparoscopy, tubal ligation, and dilation
and curettage.
* Orthopedic--arthroscopy, fracture repair and tendon
repair.
* Oral--wisdom teeth extraction and dental restoration.
* General Surgery--hernia repair, biopsy and removal
of lesions of the female breast and pilonidal cysts.
* Plastic surgery--facelifts, rhinoplasty, eyelid surgery
and breast augmentation.
* Urology--cystoscopy, vasectomy and circumcision.
* Ophthalmology--removal of cataracts and lens
implantation.
* Neurosurgery--hand surgery and nerve repair.
* Podiatry--foot surgery.
The decision to use one of the Company's centers is generally made by
the patient's physician after discussion with the patient. An evaluation of
the procedure and the patient's overall health must also be made by the
center's anesthesiology staff.
The Company's surgical care centers do not perform surgery on an
emergency basis. Patients arrive at the center approximately one hour before
scheduled surgery to allow time for admitting, laboratory tests and medical
history. A local or general anesthetic is administered and the surgery is
performed.
After completion of surgery, patients usually spend up to three hours
in the recovery area before release by the center's anesthesiology staff. The
patient is called on the day following the surgery to check on the patient's
condition. When a surgical center patient requires an extended period for
recuperation, the patient is transferred to a hospital.
The Company currently has 31 centers with a total of 72 overnight
recovery rooms. Patients can remain overnight in these rooms, but, because of
licensing regulations, cannot stay in the center any longer than 23 1/2 hours.
This allows the attending physicians to perform more intensive procedures which
may require overnight recovery and observation. The Company expects to add
overnight recovery rooms to existing centers and include them in new centers
where allowed by the applicable State law. Medicare patients cannot be kept
overnight by regulation.
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SCA centers' general fees range between $600 and $4,000 for each
procedure. The center's fee does not include either the anesthesiologist's
charges or the charges of the patient's physician, both of which are billed
separately. Each of the Company's centers collects fees directly from
insurance carriers, Medicare or Medicaid, employers or patients. The Company
seeks to minimize bad debts by verifying insurance coverage or by advance
collection from the patient. SCA estimates that approximately 20% of its
centers' patients are covered by commercial insurance, 31% by Medicare, 11% by
Blue Cross and 7% self-pay. The Company estimates that 21% of its patients in
1994 were members of a health maintenance or preferred provider organization.
The Company estimates that approximately 10% of patients are covered by
Medicaid, Workman's Compensation and CHAMPUS.
The Company bills in a variety of different ways which are usually
dictated by a contract between the Company and payors. In a majority of
situations, the Company bills the payor a negotiated amount. This negotiated
fee arrangement applies to patients covered under Medicare, Medicaid, some Blue
Cross plans and patients enrolled in health maintenance or preferred provider
organizations.
Under the Medicare program, the largest single payor to the Company,
the Secretary of Health and Human Services determines amounts prospectively for
categories of procedures performed at outpatient surgery centers. On October
1, 1992, Medicare increased its reimbursement rates to surgery centers by 3.5%.
In 1993, Medicare announced that reimbursement rates would not be increased for
the fiscal years beginning October 1, 1993 and 1994.
Medicare rates for the reimbursement for inter-ocular lens were
significantly reduced by $50 (from $200 to $150) beginning January 1, 1994.
Medicare may reduce reimbursement rates again beginning October 1, 1995.
In the 1994 Congressional session, the Clinton Administration, as well
as numerous members of Congress introduced a variety of legislative proposals
designed to change access to and payment for health care services in the United
States. Although no such health reform initiative was passed by Congress in
1994, it is uncertain what effect, if any, reform to the health care system
would have on the Company. Various states have also enacted health care reform
plans or are in the process of doing so. The Company cannot predict how such
proposals may impact the way that it does business. A reduction in the rates
set by Medicare could have an adverse effect on the Company. Other kinds of
cost controls or limits on the ability to raise prices could also have a
negative impact. The Company does believe, however, that it is a low cost
provider of surgery. To the extent that higher cost providers of surgery,
namely hospitals, also see their reimbursement rates lowered, there could be a
movement of cases from the outpatient units at hospitals to surgery centers.
This could increase the profits of the Company since variable costs on
incremental volume are lower than average costs. The Company believes that its
experienced management team and low cost structure will allow it to remain
competitive regardless of changes in health care practices.
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TECHNOLOGICAL DEVELOPMENTS
Over the last several years there has been a significant improvement
in the medical technology and equipment used by physicians during surgery. The
use of fiber optics has resulted in the perfection of the laparoscope and
arthroscope which now allow certain invasive procedures to be performed on an
outpatient basis. Specifically, the gallbladder is now being removed on an
outpatient basis using the fiber optic laparoscope and surgical laser.
Arthroscopically assisted ligament reconstruction and rotator cuff repair are
also now being done by orthopedic surgeons on an outpatient basis. Other
surgeries starting to gravitate to an outpatient basis include: Vaginal
Hysterectomies, Oophorectomy (removal of the ovaries), Ablation of
Endometriosis (laser treatment of abnormal uterine tissue), Modified Radical
Mastectomies (excision of breast tissue), and Thyroidectomy (removal of thyroid
glands). The Company expects these technologies to continue to be perfected in
the future resulting in a larger percentage of surgery being performed on an
outpatient basis.
EXPANSION PLANS
The Company intends to increase the number of its centers by
developing new freestanding facilities, developing centers with hospitals and
others through joint arrangements and acquiring existing centers, and to
increase utilization of its existing centers through aggressive marketing
programs.
SCA's strategy for the development of ambulatory
services focuses on:
* Establishing settings where physicians can practice
to their maximum efficiency, and
* Providing managerial and administrative services
through a nationwide corporate structure, and
* Providing opportunities for local physicians to
participate with SCA in the ownership of health care
facilities.
SCA provides each of its outpatient health care centers a full range
of development and operating services from the corporate headquarters including
the following:
Capitalization - As needed, the SCA corporate office provides
working capital to fund anticipated start-up losses and loans or
guarantees loans to fund property and equipment expansion.
Systems - SCA provides standardized data processing systems to
its centers both for internal operational control and for the orderly
conduct of business office functions. This includes a full-range
financial reporting and accounting package, a claims
processing/accounts receivable system, inventory and accounts payable
systems and a patient record keeping system.
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Architecture/Site Development - SCA provides comprehensive
site development services, including the review of local market
conditions to assist in site selection, land acquisition and zoning,
building design and construction management.
Administration - SCA reviews and analyzes patient and staff
flows and facility efficiency and utilization. Company personnel are
responsible for the implementation of SCA operational planning and
control policies.
Marketing Services - SCA supports local marketing activities,
including the analysis of market conditions and patient referral
patterns and the development of prices and services which are
competitive with those offered by other health care providers in the
locality.
Purchasing - SCA, where appropriate, executes master
agreements for purchasing ambulatory care equipment and supplies to
provide to each center the economies available through volume
purchases.
Regulatory/Certificate of Need Support - SCA conducts
necessary feasibility studies, prepares and files applications for
certificates of need and develops local support for its applications.
SCA provides support for Medicare certification and local Department
of Health licensure.
Corporate Supervision & Problem Solution - Drawing upon the
extensive backgrounds of SCA senior management in the development and
successful operation of large proprietary health care systems, the
Company provides ongoing management and supervision of each center.
DEVELOPMENT OF NEW FREESTANDING SURGICAL CARE FACILITIES
SCA believes that its growth will partially depend upon its ability to
develop new freestanding centers. While such development projects involve
start-up periods of losses, the successful development of a new center can
produce significant rates of return on investment over the longer term. The
Company's corporate personnel are engaged in identifying and analyzing
communities throughout the United States which show appropriate support for an
outpatient surgical care center. Upon selection of appropriate sites, the
Company files certificate of need applications in connection with such
locations, if required. In most development projects selected by the Company,
a certificate of need is not required. The development of a typical surgical
care center typically requires approximately $150,000 for development costs and
capital funds of approximately $2,500,000 to $3,000,000 for property and
equipment. Land costs also may range from $200,000 to $600,000. These costs
have been financed principally through long term debt financing.
JOINT ARRANGEMENTS
The Company also believes that growth will be obtained by the
development of surgery centers under joint arrangements with hospitals and
health maintenance organizations ("HMOs"). These facilities will typically be
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freestanding either on the hospital campus or located in the surrounding
medical community. All operations of the center will be separate and distinct
from the internal operations of the hospital or HMO. The Company will have the
responsibility of developing, financing and operating these centers with the
hospital or HMO owning an interest in the operating entity as well as the
physical facility.
SCA and Hospital Sisters Services Incorporated, affiliated with the
Hospital Sisters of the Third Order of St. Francis, entered into a joint
venture with physician partners and developed the Eau Claire Surgery Center in
Eau Claire, Wisconsin in March, 1986.
SCA and Holy Spirit Ventures, Inc., a subsidiary of the Sisters of
Christian Charity Health Care Corporation, entered into a joint venture and
purchased the Grandview Surgery Center in Camp Hill, Pennsylvania. This center
was opened in May of 1989.
A surgery center in Rockville, Maryland, developed by a joint venture
composed of the Company and MD-IPA, a health maintenance organization operating
in Maryland and southeastern Pennsylvania, opened in April 1986. This center
is a joint venture also involving local physicians from the Rockville area.
SCA opened a surgery center in Baltimore, Maryland in a joint venture
with HCCA Services, Inc., a division of Care-First, Inc, an HMO in the greater
Baltimore area, and area physicians. The Center opened in May, 1990.
SCA acquired a center in Redlands, California on April 30, 1990, which
is a joint venture between SCA, RSI, Inc., a subsidiary of Redlands Community
Hospital and area physicians.
SCA built a center in Dover, Delaware in 1991, which is a joint
venture between SCA and a subsidiary of Central Delaware Health Care
Corporation, owner of Kent General Hospital.
The Company built centers in 1994 in Paoli, Pennsylvania and St.
Joseph, Missouri, both of which are joint ventures with hospitals. In Paoli,
the venture partner is Mainline Health Systems, Inc., and in St. Joseph, the
partner is Heartland Hospital
The Company joint ventured several existing surgery centers in 1994
with local hospitals as shown below:
Center Hospital
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Little Rock Surgery Center St. Vincent Infirmary Medical Center
Evansville Surgery Center Deaconess Hospital
Memphis Surgery Center Baptist Memorial Health Care System
Physicians' Surgical Care Center Florida Hospital
Physician's Surgery Center Lee Memorial Hospital
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SCA also has two joint ventures with hospitals to build new centers in
Eugene, Oregon and Gainesville, Georgia.
ACQUISITIONS
The acquisition of existing centers has provided the Company with an
entry into new markets and an immediate source of revenues and cash flow.
During 1994, SCA purchased five centers.
The Company expects to continue to grow through acquisitions. This
can be accomplished either by buying individual centers or by buying a chain of
centers.
SURGERY CENTER CLOSINGS
In 1994, the Company closed one center in Indianapolis and announced
that it would close or sell three other centers in 1995. SCA recorded a charge
in the fourth quarter to provide for losses expected to occur as a result of
this decision.
Of the four centers closed, or to be closed, two were acquired in
previous years. The Company was unable to improve the performance of these
centers, largely because the centers were built in locations that were
inconvenient to doctors and patients. Both facilities were leased and the
rental rates were too high to allow for profitable operations.
The other two centers were built in locations where competition from
other providers was intense. The centers also were unable to obtain managed
care contracts.
The Company does not anticipate the need to close any additional
centers based on existing market conditions.
HEALTH MAINTENANCE ORGANIZATION
Prior to December 1, 1993, through HealthWise of America, Inc.
("HOA"), its wholly-owned subsidiary, SCA owned a majority interest in an HMO
in Lexington, Kentucky, and in Baltimore, Maryland. In 1993, the Company's
Board of Directors decided that the long-term value of SCA would be enhanced if
the surgery centers and HMOs were operated individually as separate companies.
On December 1, 1993, SCA distributed to its shareholders all of the outstanding
shares of Common Stock of HOA (the "Distribution"). The Distribution was made
on the basis of one share of HOA for every ten shares of SCA Common Stock held.
As a result of the Distribution, SCA no longer has any ownership interest in
HOA.
The results of SCA's managed care operation have been reflected as a
discontinued operation in the financial statements for all periods presented.
COMPETITION
SCA faces strong competition in obtaining physician and patient
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utilization of its outpatient surgical care centers, obtaining certificates of
need, developing new centers and acquiring existing outpatient surgical care
centers. The Company's chief competitors are hospitals and other outpatient
surgery centers. Medical Care America, Inc., a larger company than SCA and a
wholly owned subsidiary of Columbia/HCA Healthcare Corporation, and other
companies are competing in the marketplace.
In competing for physician and patient utilization, important
competitive factors are convenience, cost, quality, physician loyalty and
community relations. Hospitals have many competitive advantages in attracting
physicians and ambulatory patients, including established community position,
physician loyalty, potential price competitiveness through cost controls or
cross- subsidies and convenience for physicians making rounds or performing
inpatient surgery in the hospital.
In obtaining certificates of need and developing new outpatient
surgical care centers, the Company competes with major hospitals and large
proprietary hospital corporations, outpatient surgery corporations and local
physician groups. These competitors may possess substantially greater
personnel and financial resources than the Company. In addition, local
hospitals and physicians may oppose a certificate of need application. The
Company also competes with several other corporations which are attempting to
acquire existing surgical care centers.
REGULATION
GENERAL
Operations of surgical care centers are subject to federal, state and
local government regulations. Licensing of new surgical care centers is
subject to various governmental requirements. Surgical care centers are also
subject to periodic inspection by state licensing agencies to determine whether
the standards of medical care, patient safety, equipment and cleanliness are
being met. It is anticipated that governmental regulation will become more
comprehensive in the future, but the extent and resultant impact on the
Company's operations, earnings and construction and acquisition programs cannot
be determined at this time.
Certain states in which the Company operates or intends to operate
have statutes requiring certificates of need as a prior condition to surgical
care center construction, acquisition, expansion or introduction of new
services. These statutes may limit the Company's ability to develop outpatient
surgical care centers.
Certain states have adopted hospital rate review legislation which
generally provides that a state commission must monitor, review or approve the
rates for various hospital and, in certain states, surgical care or diagnostic
center services. Such rate review programs have not had an adverse effect on
the Company's operations. No assurances can be given of the future
significance of such programs or whether similar legislation will be adopted in
other states in which the Company may operate.
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FRAUD AND ABUSE
The provisions of the Social Security Act addressing illegal
renumeration (the "anti-kickback statute") prohibit providers and others from
soliciting, receiving, offering or paying, directly or indirectly, any
renumeration in return for either making a referral for a Medicare or Medicaid
covered service or item or ordering any covered service or item. Violations of
this statute may be punished by a fine of up to $25,000 or imprisonment for up
to five years, or both. In addition, the Medicare and Medicaid Patient and
Program Protection Act of 1987 (the "Protection Act") imposes civil penalties
for a violation of these prohibitions, including exclusion from the Medicare
and Medicaid programs by the Secretary of Health and Human Services ("HHS").
The Office of the Inspector General ("OIG") of the Department of
Health and Human Services has indicated that it is giving increased scrutiny to
health care joint ventures involving physicians and other referral sources.
Although the OIG has not stated publicly a policy about joint ventures, in May
1989, it published a Fraud Alert that outlined questionable features of
"suspect" joint ventures. The Company believes that its activities are being
conducted in compliance with such laws. Because of the changing
interpretations of such law, however, no assurance can be given in this regard.
On January 29, 1992, regulations were published in the Federal Register
implementing the OIG sanction and civil money penalty provisions established in
the Protection Act. The regulations (the "Exclusion Regulations") provide that
the OIG may exclude a Medicare provider from participation in the Medicare
Program for a five-year period upon a finding that the anti-kickback statute has
been violated. The regulations expressly incorporate a test adopted by three
federal circuit courts providing that if one purpose of remuneration that is
offered, paid, solicited or received is to induce referrals, then the statute is
violated. The regulations also provide that after the OIG establishes a factual
basis for excluding a provider from the program, the burden of proof shifts to
the provider to prove that the anti-kickback statute has not been violated.
The Protection Act authorized the OIG to publish regulations outlining
certain categories of activities that would be deemed not to violate the fraud
and abuse anti-kickback provisions. Final regulations outlining certain
business practices that would be deemed not to violate the anti-kickback
statute were published in the Federal Register on July 29, 1991. The Company
has determined that SCA sponsored partnerships generally do not meet all of the
criteria of the "investment interest" safe harbor as set forth in the 1991 safe
harbor regulations. On September 21, 1993, proposed regulations were published
in the Federal Register setting forth an expanded listing of safe harbor
provisions. One of those proposed safe harbor regulations is designed to
protect payments to investors in ambulatory surgery centers who are surgeons
who refer patients directly to the center and perform surgery themselves on
referred patients. As one of the conditions for meeting this proposed safe
harbor requires, all of the investors must be surgeons who are in a position to
refer patients directly to the center. Because not all of the investors in a
SCA-sponsored partnership are surgeons, the proposed safe harbor would not
provide protection if that criteria is read to exclude non-physician investors
15
<PAGE> 16
such as an SCA subsidiary. The Company is unable to predict whether this
proposed safe harbor regulation will become final and, if so, in what form. In
recent years Congress and some state legislatures have considered various
proposals that would have prohibited, or at least severely limited, the ability
of physicians and other referral sources to refer Medicare or Medicaid patients
to ventures with which the referral source has a financial relationship.
Limited partners in SCA affiliated partnerships receive cash
distributions based upon the available cash flow, if any, of such partnerships.
Since many of the limited partners are physicians or other entities in a
position to make or influence referrals, the distribution of available cash
flow could come under scrutiny under the anti-kickback statute. In August,
1993, Congress passed legislation that, effective December 31, 1994, expanded
the self-referral ban to include a number of health care services provided by
entities with which the physicians have an ownership interest or a financial
relationship ("OBRA '93). OBRA '93 does not specifically prohibit referrals by
physicians with an ownership interest in, or financial relationship with, an
ambulatory surgery center, provided that the surgery services are not provided
as "outpatient hospital services." Should legislation be implemented
prohibiting physicians from referring patients to any health care facility in
which the physician has any beneficial interest, SCA's operations could be
adversely impacted.
In the event that Federal or individual state regulations prohibit the
ownership of surgery centers by physicians, the Company would seek to purchase
the interests held by its limited partner physicians. Some of the limited
partnership agreements contain a provision which allows the Company to purchase
the interest of each limited partner for an amount equal to a multiple of the
partner's allocation of taxable income in the most recent calendar year. The
Company may issue cash or stock, including unregistered stock, at its option to
purchase the limited partners' interests. The Company believes that it has the
financial resources necessary to buy-out all of its limited partners if
required.
In June 1994, the American Medical Association severely restricted the
ability of physicians to refer to entities in which such physicians have
ownership, except when the physician directly provides care or services at the
facility and in very limited circumstances such as lack of available capital
from non-physician sources and situations in which the facility is an extension
of the physician's practice. In the event that the American Medical
Association changes its ethical requirements to preclude all referrals by
physicians and such ethical requirements are applied retroactively to
facilities which, at the time of adoption, are owned in whole or in part by
referring physicians, physician referrals to Company owned ASCs could be
adversely affected.
It is possible that a prohibition on physician ownership could
adversely affect the Company's future operations. The Company believes that a
majority of its current physician limited partners utilize the surgery centers
because they are highly efficient and convenient to the physicians' practice of
medicine. For these reasons, the Company believes that the majority of
physicians would continue to perform surgery at the surgery centers even if
16
<PAGE> 17
they were no longer limited partners. It is possible, however, that some
physicians would perform surgery elsewhere if ownership is no longer allowed.
INSURANCE
The Company maintains professional coverage for all centers on a
claims made basis with limits of coverage which the Company believes are
adequate.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers as of
December 31, 1994, with their ages, positions with the Company and year which
each became an executive officer with the Company.
Joel C. Gordon 66 Chairman of the Board 1982
& Chief Executive Officer
William J. Hamburg 45 President and Chief 1984
Operating Officer
Tarpley B. Jones 37 Senior Vice President and 1992
Chief Financial Officer
Mr. Gordon has been Chairman of the Board of the Company since its
founding in 1982 and has served as its Chief Executive Officer since 1987. Mr.
Gordon had been in private investing in Nashville, Tennessee prior to his
association with the Company in 1982. Mr. Gordon serves on the Board of
Genesco, Inc., an apparel manufacturer, Third National Bank in Nashville,
Tennessee and HealthWise of America, Inc.
Mr. Hamburg joined the Company as a Vice President in March 1984, was
appointed Executive Vice President in 1986, and President and Chief Operating
Officer in 1992.
Mr. Jones was selected to become Senior Vice President and Chief
Financial Officer on January 1, 1992. Prior to joining the Company he was
Treasurer, Senior Vice President and Chief Financial Officer, and then
Executive Vice President and Chief Financial Officer, at Comdata Holdings
Corporation and Comdata Network, Inc. Comdata provides financial and
information services to the trucking and gaming industries.
EMPLOYEES
On December 31, 1994, the Company had approximately 2,300 full-time
and part-time employees. Of these, 25 are corporate personnel. The remaining
employees, most of whom are nurses and office personnel, work at the surgery
centers.
None of the Company's employees are covered by a collective bargaining
agreement.
17
<PAGE> 18
ITEM 2. PROPERTIES
The Company's corporate headquarters occupy approximately 11,000
square feet of an office building located in Nashville, Tennessee, under a
lease expiring in January, 1996. The Company also leases certain of the
buildings in which its centers operate and the equipment used in certain of its
centers, either from limited partnerships comprised of a subsidiary of the
Company as general partner and local physicians as limited partners or from
physicians who sold the center to the Company. The Company owns interests
ranging from 1% to 60% in the operations of these real estate partnerships and
in some instances may participate in any net proceeds from the sale of the
properties. In some cases, the Company's limited partnerships lease their
property from unaffiliated parties.
The following table sets forth the location and type of property
leased and the duration of the leases as of December 31, 1994:
<TABLE>
<CAPTION>
EXPIRATION TYPE OF RENT DURING
LOCATION DATE PROPERTY LEASED 1994
---------------- --------- ------------------- -------------
<S> <C> <C> <C>
Arlington, Texas July 2010 Surgical Center and $ 178,000 (1)
Equipment
Charlotte, North March 2001 Surgical Center 138,000 (1)
Carolina
Chattanooga, December 2001 Surgical Center and 166,000 (1)
Tennessee Equipment
Evansville, Indiana December 2001 Surgical Center and 265,000 (1)
Equipment
Ft. Worth, Texas November 1998 Surgical Center and 154,000 (1)
Equipment
Houston, Texas May 1995 Surgical Center 313,000 (1)
Huntington, December 2001 Surgical Center and 325,000 (1)
West Virginia Equipment
Camp Hill, January 1999 Surgical Center and 219,000 (1)
Pennsylvania Equipment
Lancaster, Month to Month Surgical Center 190,000
Pennsylvania
Lexington, Kentucky May 2011 Surgical Center 187,000 (1)
Lexington, Kentucky June 1996 Surgical Equipment 32,000 (1)
Little Rock, March 2001 Surgical Center and 273,000 (1)
Arkansas Equipment
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
Louisville, January 2002 Surgical Center 193,000 (1)
Kentucky
Memphis, Tennessee December 2001 Surgical Center and 193,000 (1)
Equipment
Sarasota, Florida September 2001 Surgical Center and 223,000 (1)
Equipment
Mobile, Alabama October 2001 Surgical Center and 249,000 (1)
Equipment
Rockville, Maryland Month to Month Surgical Center 142,000 (1)
Dallas, Texas December 1995 Surgical Center 218,000 (1)
Eau Claire, November 2004 Surgical Center 25,000 (1)
Wisconsin
Springfield, March 1997 Surgical Center 257,000 (1)
Massachusetts
Tampa, Florida July 2004 Surgical Center and 352,000 (1)
Equipment
Albuquerque, October 2009 Surgical Center and 214,000 (1)
New Mexico Equipment
Redlands, August 2008 Land 63,000 (1)
California
San Jose, November 1999 Surgical Center and 431,000 (1)
California Equipment
Baltimore, March 2003 Surgical Center 116,000 (1)
Maryland
Indianapolis, July 2002 Land, Surgical Center, 215,000 (1)
Indiana and Equipment
Indianapolis, February 1997 Land, Surgical Center, 115,000 (1)
Indiana and Equipment
San Luis Obispo, August 1995 Surgical Center 169,000 (1)
California
Mt. Laurel, June 2006 Surgical Center 194,000 (1)
New Jersey
Gadsden, October 1999 Surgical Center 212,000 (1)
Alabama
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C> <C>
Ft. Smith, October 2007 Surgical Center 193,000 (1)
Arkansas
Honolulu, December 1995 Surgical Center 167,000 (1)
Hawaii
Coral Springs, December 2001 Surgical Center 223,000 (1)
Florida
Winter Park, September 2013 Surgical Center 219,000 (1)
Florida
Golden, December 2002 Surgical Center 182,000 (1)
Colorado
Roseland, September 2002 Surgical Center 250,000 (1)
New Jersey
Aurora, February 2002 Surgical Center 88,000 (1)
Colorado
Santa Rosa, December 1997 Surgical Center 96,000 (1)
California
San Francisco, June 1995 Surgical Center 272,000 (1)
California
</TABLE>
___________________
(1) Plus insurance, taxes and maintenance.
The remainder of the Company's properties are owned and subject to
mortgage. The Company believes that its facilities are adequate for its
immediate needs.
In 1985, SCA purchased a building containing approximately 53,000
square feet in Lancaster, Pennsylvania. SCA developed the property as a
medical office building and sold the building at its cost to a limited
partnership having as its general partner an SCA subsidiary and as its limited
partners physicians who use the Lancaster Surgery Center and tenants in the
medical office building. The Lancaster Surgery Center leases approximately
13,700 square feet of the building.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings which could have, in the judgment of
management, a material adverse effect upon the Company's financial position or
results of operations taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
None.
20
<PAGE> 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCK HOLDER MATTERS
This information is incorporated by reference from the Company's
Annual Report to Security Holders for fiscal year ended December 31, 1994, pp.
20.
ITEM 6. SELECTED FINANCIAL DATA
This information is incorporated by reference from the Company's
Annual Report to Security Holders for fiscal year ended December 31, 1994, pp.
2 and 3.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This information is incorporated by reference from the Company's
Annual Report to Security Holders for fiscal year ended December 31, 1994, pp.
19 and 20.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is incorporated by reference from the Company's
Annual Report to Security Holders for fiscal year ended December 31, 1994, pp.
10-18.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the executive officers of the Company is
included in Item 1, Business. Information with respect to the Company's
directors is incorporated by reference from the Company's Proxy Statement
relating to the Annual Meeting of Shareholders to be held on May 11, 1995.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 11,
1995, except for the items appearing under the heading "Compensation Committee
Report on Executive Compensation" and "Comparative Performance Graph" which are
excluded in accordance with Item 402(a)(8) of Regulation S-K.
21
<PAGE> 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 11,
1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 11,
1995.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) Index to Consolidated Financial Statements, Financial
Statement Schedules and Exhibits.
Annual Report to
Security Holders
(1) Financial Statements: Page
----
Report of Independent Public 9
Accountants --
Consolidated Statements of
Income for the Years Ended
December 31, 1992, 1993 and 1994 10
--
Consolidated Balance Sheets for
the Years Ended December 31,
1993 and 1994 11
--
Consolidated Statements of Share-
holders' Equity for the Years
Ended December 31, 1992, 1993
and 1994 12
--
Consolidated Statements of Cash
Flow for the Years Ended
December 31, 1992, 1993 and 1994 13
--
Notes to Consolidated Financial
Statements 14
--
(2) Financial Statement Schedule:
-----------------------------
Report of Independent Public
Accountants - Deloitte & Touche
LLP S-1
22
<PAGE> 23
Schedule II - Valuation and
Qualifying Accounts S-2
All other schedules are omitted because they are not applicable, or
not required, or because the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------------------------------------------------------------------
<S> <C>
2(a) Agreement of Merger and Plan of Reorganization, dated May 2, 1986, between the Registrant and SCA-Del. Corp. (4)
2(b) Plan and Agreement of Distribution between Registrant and HealthWise of America, Inc. dated November 29, 1993. (9)
3(a) Certificate of Incorporation of the Registrant, as amended. (7)
3(b) By-Laws of the Registrant. (4)
10(a) Sale and Purchase Agreement, dated June 15, 1983, among the Registrant, Lexington SC Properties, Inc., and the
shareholders of Lexington Surgery, Inc.. (1)
10(b) Employment Agreement dated January 1, 1990, between the Registrant and Joel C. Gordon. (2)
10(c) Amendment to Employment Agreement dated September 1, 1994 between the Registrant and Joel C. Gordon.
10(d) Non-Competition Agreement, dated June 15, 1983, between Lexington-SC Properties, Inc. and Edwin J. Nighbert. (1)
10(e) Lease Contract, dated as of October 1, 1983, between Surgery Center of Ft. Worth, Inc and Ft. Worth Surgery Center
Associates. (1)
10(f) 1986 Employee Stock Purchase Plan, as amended. (10)
10(g) Incentive Stock Plan of 1986, as amended. (10)
10(h) Form of Indemnity Agreements with Directors and Officers. (5)
10(i) 1990 Non-Qualified Stock Option Plan for Non-Employee Directors. (6)
10(j) Employment Agreement dated January 1, 1992, as amended, between Registrant and William J. Hamburg. (8)
</TABLE>
23
<PAGE> 24
<TABLE>
<S> <C>
10(k) Employment Agreement dated April 25, 1994, between the Registrant and Tarpley B. Jones.
10(l) Agreement, dated October 22, 1992, between the Company and American Healthmark, Inc. (8)
10(m) Shared Services Agreement between the Registrant and HealthWise of America, Inc., dated as of November 29, 1993.
(10)
10(n) Tax Matters Agreement between the Registrant and HealthWise of America, Inc., dated as of November 29, 1993. (10)
10(o) Employee Benefits Agreement between the Registrant and HealthWise of America, Inc., dated as of November 29, 1993.
(10)
10(p) Agreement among the Registrant, SCA-Kentucky Health Plan, Inc. (now HealthWise of America, Inc.), Chesapeake Health
Plan, Inc. and Kenneth J. Melkus. (10)
10(q) Option Agreement among SCA-Kentucky Plan, Inc. (now HealthWise of America, Inc.), Chesapeake Health Plan, Inc. and
Kenneth J. Melkus, with executed Employment Agreement and Option Agreement attached. (10)
10(r) Amendment to Employment Agreement dated September 1, 1994 between the Registrant and William J. Hamburg.
13 Annual Report to security holders but only to the extent set forth in Items 5, 6, 7 and 8 hereof.
18 Letter from Accountants regarding change in accounting principle.
21 List of subsidiaries of the Registrant.
23(a) Consent of Deloitte & Touche.
27 Financial Data Schedule
</TABLE>
_____________________
(1) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-1, Registration
No. 2-88175.
(2) Incorporated by reference to exhibits filed with the
Registrant's Annual Report on 10-K for the year ended December
31, 1989, File No. 0-13364.
24
<PAGE> 25
(3) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-8, Registration
No. 33-11639.
(4) Incorporated by reference to the Registrant's annual report on
10-K for the year ended December 31, 1986, File No. 0-13364.
(5) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-2, Registration
No. 33-14622.
(6) Incorporated by reference to exhibits filed with the
Registrant's annual report on Form 10-K for the year ended
December 31, 1990, File No. 0-13364.
(7) Incorporated by reference to exhibits filed with the
Registrant's annual report on Form 10-K for the year ended
December 31, 1991, File No. 0-13364.
(8) Incorporated by reference to exhibits filed with the
Registrant's annual report on Form 10-K for the year ended
December 31, 1992, File No. 0-13364.
(9) Incorporated by reference to exhibits Filed with the
Registrant's annual report on Form 8-K dated December 31,
1993.
(10) Incorporated by reference to exhibits filed with Registrant's
annual report in Form 10-K for the year ended December 31,
1993, File No. 0-13364.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
The following is a list of all executive compensation plans
and arrangements filed as Exhibits to this Annual Report on Form 10-K.
Employment Agreement dated January 1, 1990 between the
Registrant and Joel C. Gordon - Form 10-K for the fiscal year ended December
31, 1989, File No. 0-13364, Exhibit 10(d).
Employment Agreement dated January 1, 1992, as amended,
between the Registrant and William J. Hamburg - Form 10-K for the fiscal year
ended December 31, 1992, File No. 0-13364, Exhibit 10(l).
Employment Agreement dated April 25, 1994, between the
Registrant and Tarpley B. Jones - Form 10-K for the fiscal year ended December
31, 1994, File No. 0-13364, Exhibit 10(k).
Incentive Stock Plan of 1986, as amended, - Form 10-K for the
fiscal year ended December 31, 1993, File No. 0-13364, Exhibit 10(i)
25
<PAGE> 26
1990 Non-Qualified Stock Option Plan for Non-Employee
Directors - Form 10-K for the fiscal year ended December 31, 1990, File No.
0-13364, Exhibit 10(k).
Agreement of the Registrant, SCA-Kentucky Health Plan, Inc.
(now HealthWise of America, Inc.), Chesapeake Health Plan, Inc. and Kenneth J.
Melkus, with executed Employment Agreement and Option Agreement attached. Form
10-K for the year ended December 31, 1993, File No. 0-13364, Exhibit 10(s).
Option Agreement among SCA-Kentucky Health Plan, Inc. (now
HealthWise of America, Inc. and Kenneth J. Melkus. Form 10-K for the year
ended December 31, 1993, File No. 0-13364, Exhibits 10(t).
Amendment to Employment Agreement dated September 1, 1994
between the Registrant and Joel C. Gordon - Form 10-K for the fiscal year ended
December 31, 1994, File No. 0-13364, Exhibit 10(c).
Amendment to Employment Agreement dated September 1, 1994
between the Registrant and William J. Hamburg - Form 10-K for the fiscal year
ended December 31, 1994, File No. 0-13364, Exhibit 10(r).
(b) Reports on Form 8-K.
None
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
BY: /s/ JOEL C. GORDON
----------------------------
JOEL C. GORDON
CHAIRMAN & CHIEF EXECUTIVE OFFICER
Date: March 30, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Joel C. Gordon Chairman of the Board, March 30, 1995
---------------------------- Chief Executive Officer ----------------
Joel C. Gordon (Principal Executive
Officer) & Director
/s/ William J. Hamburg President, Chief March 30, 1995
---------------------------- ----------------
William J. Hamburg
/s/ Tarpley B. Jones Senior Vice President March 30, 1995
---------------------------- & Chief Financial Officer ----------------
Tarpley B. Jones (Principal Financial &
Accounting Officer)
/s/ Andrew W. Miller Director March 30, 1995
---------------------------- ----------------
Andrew W. Miller
/s/ Kenneth J. Melkus Director March 30, 1995
---------------------------- ---------------
Kenneth J. Melkus
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C> <C>
/s/ Dan E. Bruhl Director March 30, 1995
------------------------- ----------------
Daniel E. Bruhl
/s/ Lucius E. Burch, III Director March 30, 1995
---------------------------- ----------------
Lucius E. Burch, III
/s/ Robert E. Fraiman Director March 30, 1995
---------------------------- ----------------
Robert J. Fraiman
/s/ Edwin J. Nighbert Director March 30, 1995
---------------------------- ----------------
Edwin J. Nighbert
/s/ Sister Josepha Schaeffer Director March 30, 1995
------------------------------ ----------------
Sister Josepha Schaeffer
</TABLE>
28
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Surgical Care Affiliates, Inc.
Nashville, Tennessee
We have audited the consolidated financial statements of Surgical Care
Affiliates, Inc. as of December 31, 1994 and 1993 and for each of the three
years in the period ended December 31, 1994 and have issued our report thereon
dated February 22, 1995; such consolidated financial statements and report are
included in your 1994 Annual Report to Stockholders and are incorporated herein
by reference. Our audits also included the financial statement schedule of
Surgical Care Affiliates, Inc., listed in Item 14. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
February 22, 1995
S-1
<PAGE> 30
SURGICAL CARE AFFILIATES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
BALANCE AT BALANCE
BEGINNING AT END OF
DESCRIPTION OF PERIOD ADDITIONS RETIREMENTS OTHER CHANGES(1) OF PERIOD
----------- ---------- --------- ----------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994
Allowance for doubtful accounts $3,214,296 $3,060,679 $(2,114,715) $ --- $4,160,260
========== ========== =========== =========== ==========
Allowance for unsuccessful development $ 107,591 $ - $ - $ --- $ 107,591
=========== ========== =========== =========== ==========
Year Ended December 31, 1993
Allowance for doubtful accounts $4,914,778 $1,067,775 $(1,226,656) $(1,541,601) $3,214,296
========== ========== =========== =========== ==========
Allowance for unsuccessful development $ 135,443 $ 288,140 $ (315,992) $ --- $ 107,591
========== ========== =========== =========== ==========
Year Ended December 31, 1992
Allowance for doubtful accounts $4,204,721 $1,441,862 $ (731,805) $ --- $4,914,778
========== ========== =========== =========== ==========
Allowance for unsuccessful development $ 137,208 $ 170,734 $ (172,499) $ --- $ 135,443
========== ========== =========== =========== ==========
</TABLE>
(1) See Summary of Significant Accounting Policies for
discussion of change in accounting estimate in 1993.
S-2
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------------------------------------------------------------------
<S> <C>
2(a) Agreement of Merger and Plan of Reorganization, dated May 2, 1986, between the Registrant and SCA-Del. Corp. (4)
2(b) Plan and Agreement of Distribution between Registrant and HealthWise of America, Inc. dated November 29, 1993. (9)
3(a) Certificate of Incorporation of the Registrant, as amended. (7)
3(b) By-Laws of the Registrant. (4)
10(a) Sale and Purchase Agreement, dated June 15, 1983, among the Registrant, Lexington SC Properties, Inc., and the
shareholders of Lexington Surgery, Inc.. (1)
10(b) Employment Agreement dated January 1, 1990, between the Registrant and Joel C. Gordon. (2)
10(c) Amendment to Employment Agreement dated September 1, 1994 between the Registrant and Joel C. Gordon.
10(d) Non-Competition Agreement, dated June 15, 1983, between Lexington-SC Properties, Inc. and Edwin J. Nighbert. (1)
10(e) Lease Contract, dated as of October 1, 1983, between Surgery Center of Ft. Worth, Inc and Ft. Worth Surgery Center
Associates. (1)
10(f) 1986 Employee Stock Purchase Plan, as amended. (10)
10(g) Incentive Stock Plan of 1986, as amended. (10)
10(h) Form of Indemnity Agreements with Directors and Officers. (5)
10(i) 1990 Non-Qualified Stock Option Plan for Non-Employee Directors. (6)
10(j) Employment Agreement dated January 1, 1992, as amended, between Registrant and William J. Hamburg. (8)
</TABLE>
<PAGE> 32
<TABLE>
<S> <C>
10(k) Employment Agreement dated April 25, 1994, between the Registrant and Tarpley B. Jones.
10(l) Agreement, dated October 22, 1992, between the Company and American Healthmark, Inc. (8)
10(m) Shared Services Agreement between the Registrant and HealthWise of America, Inc., dated as of November 29, 1993.
(10)
10(n) Tax Matters Agreement between the Registrant and HealthWise of America, Inc., dated as of November 29, 1993. (10)
10(o) Employee Benefits Agreement between the Registrant and HealthWise of America, Inc., dated as of November 29, 1993.
(10)
10(p) Agreement among the Registrant, SCA-Kentucky Health Plan, Inc. (now HealthWise of America, Inc.), Chesapeake Health
Plan, Inc. and Kenneth J. Melkus. (10)
10(q) Option Agreement among SCA-Kentucky Plan, Inc. (now HealthWise of America, Inc.), Chesapeake Health Plan, Inc. and
Kenneth J. Melkus, with executed Employment Agreement and Option Agreement attached. (10)
10(r) Amendment to Employment Agreement dated September 1, 1994 between the Registrant and William J. Hamburg.
13 Annual Report to security holders but only to the extent set forth in Items 5, 6, 7 and 8 hereof.
18 Letter from Accountants regarding change in accounting principle.
21 List of subsidiaries of the Registrant.
23(a) Consent of Deloitte & Touche.
27 Financial Data Schedule
</TABLE>
_____________________
(1) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-1, Registration
No. 2-88175.
(2) Incorporated by reference to exhibits filed with the
Registrant's Annual Report on 10-K for the year ended December
31, 1989, File No. 0-13364.
<PAGE> 33
(3) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-8, Registration
No. 33-11639.
(4) Incorporated by reference to the Registrant's annual report on
10-K for the year ended December 31, 1986, File No. 0-13364.
(5) Incorporated by reference to exhibits filed with the
Registrant's Registration Statement on Form S-2, Registration
No. 33-14622.
(6) Incorporated by reference to exhibits filed with the
Registrant's annual report on Form 10-K for the year ended
December 31, 1990, File No. 0-13364.
(7) Incorporated by reference to exhibits filed with the
Registrant's annual report on Form 10-K for the year ended
December 31, 1991, File No. 0-13364.
(8) Incorporated by reference to exhibits filed with the
Registrant's annual report on Form 10-K for the year ended
December 31, 1992, File No. 0-13364.
(9) Incorporated by reference to exhibits Filed with the
Registrant's annual report on Form 8-K dated December 31,
1993.
(10) Incorporated by reference to exhibits filed with Registrant's
annual report in Form 10-K for the year ended December 31,
1993, File No. 0-13364.
<PAGE> 1
EXHIBIT 10(c)
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment dated as of September 1, 1994, is by and between
Surgical Care Affiliates, Inc., a Delaware corporation ("SCA"), and Joel C.
Gordon ("Gordon").
WHEREAS, SCA and Gordon have entered into an Employment Agreement
effective as of January 1, 1992 (the "Employment Agreement"); and
WHEREAS, SCA and Gordon desire to amend the Employment Agreement as
hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. The following sentence shall be added at the end of Section 4
of the Employment Agreement:
In the event Gordon's employment is terminated for any reason prior to
the end of the calendar year, Gordon shall be entitled to receive a
percentage of the performance bonus for such year equal to the
percentage of the year that he was employed by SCA.
2. The next to the last sentence of Section 5 of the Employment
Agreement is hereby deleted and replaced with the following:
Without limiting the generality of the foregoing, mental or physical
incapacity or disability shall be conclusively evidenced by Gordon's
inability to perform services hereunder for a period of ninety (90)
substantially consecutive days.
3. Except as hereby amended, the Employment Agreement shall
remain in full force and effect and the Employment Agreement as hereby amended
is ratified by the parties hereto.
<PAGE> 2
IN WITNESS WHEREOF, SCA has caused this Amendment to Employment
Agreement to be executed and Gordon has signed his name.
SURGICAL CARE AFFILIATES, INC.
By: /s/ William J. Hamburg
--------------------------
Title: President
-----------------------
/s/ Joel C. Gordon
------------------------------
JOEL C. GORDON
<PAGE> 1
EXHIBIT 10(k)
EMPLOYMENT AGREEMENT
THIS AGREEMENT effective as of the 1st day of April 25, 1994, by and
between SURGICAL CARE AFFILIATES, INC., a Delaware corporation ("SCA"), and
TARPLEY B. JONES ("Jones").
WHEREAS, SCA desires to employ Jones as Senior Vice President of SCA,
to perform such services as the Board of Directors of SCA from time to time may
direct; and
WHEREAS, Jones is willing to perform such services for SCA under the
terms and conditions set forth below.
NOW THEREFORE, in consideration of the mutual covenants, promises,
agreements and conditions hereinafter set forth, the parties hereto agree as
follows:
1. Employment.
SCA hereby employs Jones and Jones hereby accepts employment by SCA as
Senior Vice President for a period ending on December 31, 1996. SCA shall give
Jones not less than 60 days' written notice if SCA does not intend to renew
this Agreement for an additional three year term. In connection with such
employment Jones agrees to render such services as the Board of Directors of
SCA may from time to time direct. Jones agrees to devote substantially all of
his time to the affairs of SCA; provided,
<PAGE> 2
however, that Jones shall not be prevented from devoting such time as may be
necessary to his personal affairs and investments.
2. Compensation.
Jones shall be compensated for rendering such services at the rate of
$175,000 per year, plus such additional amounts as may be determined by the
Compensation Committee of the Board of Directors on an annual basis, to be paid
in monthly installments.
3. Adjustment of Compensation.
The compensation required to be paid to Jones hereunder shall not be
decreased in any manner unless:
(i) Jones fails to perform the duties required herein for any
reason other than death or disability;
(ii) This Agreement is terminated pursuant to the terms hereof; or
(iii) By written agreement between Jones and SCA.
4. Fringe Benefits.
During the term of this Agreement, SCA shall provide Jones with
insurance and similar benefits on the same basis as other employees of SCA. In
addition, at the discretion of the Compensation Committee of the Board of
Directors of SCA, Jones may be granted options, bonuses, and other forms of
incentive
2
<PAGE> 3
compensation. In the event Jones' employment is terminated for any reason
prior to the end of a calendar year, Jones shall be entitled to receive a
percentage of the performance bonus for such year equal to the percentage of
the year that he was employed by SCA.
5. Earlier Termination.
If, during the term of this Agreement, Jones commits a material breach
of any term or terms of this Agreement, dies or becomes mentally or physically
incapacitated or disabled so as to be unable to perform his duties or is
engaged in dishonest acts or convicted of felonious illegal activities which
bring disrepute to SCA and/or limit the ability of Jones effectively to act on
behalf of SCA, then this Agreement shall, at the election of SCA, terminate as
of the last day of the month in which such material breach, death, mental or
physical incapacity or disability or dishonesty or conviction shall occur and
Jones shall have no further obligations hereunder. This Agreement shall also
terminate, at the election of SCA, upon the showing of any other good cause for
such termination. Without limiting the generality of the foregoing, mental or
physical incapacity or disability shall be conclusively evidenced by Jones'
inability to perform services hereunder for a period of 90 substantially
consecutive days. Upon Jones' death, SCA shall pay to Jones' estate an amount
equal to one year's compensation at the rate being paid at the time of his
death.
3
<PAGE> 4
6. Prohibition Against Assignment.
Neither SCA nor Jones shall have any right to sell, assign, transfer
or otherwise convey any right either of them may have under the terms of this
Agreement except as provided herein.
7. No Merger.
SCA will not merge, consolidate or combine with any other business
entity unless and until, at Jones' option, either (a) the succeeding or
continuing business entity expressly assumes and confirms in writing the
obligations of SCA under this Agreement or (b) SCA shall pay to Jones an amount
equal to three years' compensation at the rate being paid on the date Jones
notifies SCA of his choice of option pursuant to this Section.
8. Miscellaneous.
(a) Amendments. No amendment or variation of the terms
of this Agreement shall be valid unless made in writing and signed by SCA and
Jones.
(b) Benefit and Binding Effect. This Agreement shall
inure to the benefit of the heirs and personal representatives of Jones and
shall be binding upon the successors and assigns of SCA.
(c) Supersedes Prior Agreements. This Agreement
supersedes all prior employment agreements between SCA and Jones, including
without limitation the Employment Agreement dated as of January 1, 1994.
4
<PAGE> 5
(d) Headings. The headings used in this Agreement are
for convenience only, and each paragraph shall be interpreted as if such
headings were omitted.
(e) Interpretation. This Agreement shall be interpreted
and construed under the laws of the State of Tennessee.
IN WITNESS WHEREOF, SCA has caused this Agreement to be
executed and Jones has signed his name.
SURGICAL CARE AFFILIATES, INC.
By: /s/ Joel C. Gordon
-------------------------------
Title: Chairman
----------------------------
/s/ Tarpley B. Jones
-----------------------------------
Tarpley B. Jones
5
<PAGE> 1
EXHIBIT 10(r)
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment dated as of September 1, 1994, is by and between
Surgical Care Affiliates, Inc., a Delaware corporation ("SCA"), and William J.
Hamburg ("Hamburg").
WHEREAS, SCA and Hamburg have entered into an Employment Agreement
effective as of January 1, 1992, as amended by an Amendment to Employment
Agreement dated as of February 20, 1992 (the "Employment Agreement"); and
WHEREAS, SCA and Hamburg desire to amend the Employment Agreement as
hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. The following sentence shall be added at the end of Section 4
of the Employment Agreement:
In the event Hamburg's employment is terminated for any reason prior
to the end of the calendar year, Hamburg shall be entitled to receive
a percentage of the performance bonus for such year equal to the
percentage of the year that he was employed by SCA.
2. The next to the last sentence of Section 5 of the Employment
Agreement is hereby deleted and replaced with the following:
Without limiting the generality of the foregoing, mental or physical
incapacity or disability shall be conclusively evidenced by Hamburg's
inability to perform services hereunder for a period of ninety (90)
substantially consecutive days.
3. Except as hereby amended, the Employment Agreement shall
remain in full force and effect and the Employment Agreement as hereby amended
is ratified by the parties hereto.
<PAGE> 2
IN WITNESS WHEREOF, SCA has caused this Amendment to Employment
Agreement to be executed and Hamburg has signed his name.
SURGICAL CARE AFFILIATES, INC.
By: /s/ Joel C. Gordon
-----------------------------
Title: Chairman
--------------------------
/s/ William J. Hamburg
--------------------------------
WILLIAM J. HAMBURG
<PAGE> 1
EXHIBIT 13
-----------------------------
PARTNERSHIPS
HOSPITALS
HMOs
PHYSICIANS
SURGICAL
[SCA LOGO] CARE
AFFILIATES
1994
ANNUAL
REPORT
<PAGE> 2
CONTENTS
<TABLE>
<S> <C>
SCA Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . inside front cover
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Letter to our Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Surgical Care Partnerships Assume their
Place in an Integrated Delivery System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Financial Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Management's Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Market Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . inside back cover
</TABLE>
SCA FACILITIES
Corporate Headquarters
Surgical Care Affiliates, Inc.
Woodmont Centre
102 Woodmont Boulevard,
Suite 610
Nashville, TN 37205
(615) 385-3541
ALABAMA
Dothan Surgery Center,
Dothan, AL
Florence Surgery Center,
Florence, AL
Gadsden Surgery Center,
Gadsden, AL
Mobile Surgery Center,
Mobile, AL
ARIZONA
Yuma Outpatient Surgery Center,
Yuma, AZ
ARKANSAS
Center for Day Surgery
Fort Smith, AR
Little Rock Surgery Center,
Little Rock, AR
CALIFORNIA
Forest Surgery Center
San Jose, CA
Inland Surgery Center,
Redlands, CA
San Luis Obispo Surgery Center,
San Luis Obispo, CA
The Surgery Center,
Santa Rosa, CA
Sutter Street Surgery Center,
San Francisco, CA
COLORADO
Aurora Surgery Center,
Aurora, CO
Colorado Springs Surgery Center,
Colorado Springs, CO
Denver West Surgery Center,
Golden, CO
<PAGE> 3
<TABLE>
<S> <C> <C>
Fort Collins Surgery Center, MASSACHUSETTS Memphis Surgery Center,
Fort Collins, CO Maple Surgery Center, Memphis, TN
Springfield, MA Nashville Surgery Center,
Pueblo Surgery Center, Nashville, TN
Pueblo, CO MISSOURI
The Surgery Center, TEXAS
DELAWARE St. Joseph, MO Arlington Day Surgery Center,
Central Delaware Surgery Center, Arlington, TX
Dover, DE NEW JERSEY Conroe Surgery Center,
Roseland Surgical Center, Conroe, TX
FLORIDA Roseland, NJ East El Paso Surgery Center,
Coral Springs Surgery Center, Surgical Center of South Jersey, El Paso, TX
Coral Springs, FL Mount Laurel, NJ Fort Worth Surgery Center,
Citrus Regional Surgery Center, Fort Worth, TX
Lecanto, FL NEW MEXICO Greenpark Surgery Center,
Emerald Coast Surgery Center, Surgery Center of Albuquerque, Houston, TX
Fort Walton, FL Albuquerque, NM Greenville Surgery Center,
Physician's Surgical Care Center, Dallas, TX
Winter Park, FL NORTH CAROLINA Plano Surgery Center,
Physicians Surgery Center, Blue Ridge Day Surgery Center, Plano, TX
Fort Myers, FL Raleigh, NC San Antonio Surgery Center,
St. Petersburg Surgery Center, Charlotte Surgery Center, San Antonio, TX
St. Petersburg, FL Charlotte, NC
Sarasota Surgery Center, Surgecenter of Wilson, WEST VIRGINIA
Sarasota, FL Wilson, NC Cabell-Huntington Surgery Center,
Tampa Outpatient Surgical Facility, Huntington, WV
Tampa, FL PENNSYLVANIA
Grandview Surgery Center, WISCONSIN
HAWAII Camp Hill, PA Eau Claire Surgery Center,
Surgicare of Hawaii, Lancaster Surgery Center, Eau Claire, WI
Honolulu, HI Lancaster, PA Oshkosh Surgery Center,
Paoli Surgery Center, Oshkosh, WI
INDIANA Paoli, PA Wauwatosa Surgery Center,
Evansville Surgery Center, Scranton Surgery Center, Wauwatosa, WI
Evansville, IN Scranton, PA Wausau Surgery Center,
North Indianapolis Surgery Center, Westmoreland Surgery Center, Wausau, WI
Indianapolis, IN Mount Pleasant, PA
KENTUCKY SOUTH CAROLINA
Lexington Surgery Center, Charleston Surgery Center,
Lexington, KY North Charleston, SC
Surgecenter of Louisville, Greenville Surgery Center,
Louisville, KY Greenville, SC
MARYLAND TENNESSEE
Central Maryland Surgery Center, Chattanooga Surgery Center,
Baltimore, MD Chattanooga, TN
Montgomery Surgery Center, Knoxville Surgery Center,
Rockville, MD Knoxville, TN
</TABLE>
<PAGE> 4
___________________________________________________
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Net Revenue $236,719,426 $197,976,179 $161,873,266 $120,680,097 $87,251,637
Operating Income $ 79,691,501 $ 80,457,192 $ 66,865,672 $ 49,190,611 $33,345,677
Net Income from
Continuing Operations $ 31,385,364* $ 32,215,695 $ 25,556,114 $ 17,770,423 $10,235,375
Income Per Common
& Common Equivalent
Share from Continuing
Operations $ .80* $ .85 $ .69 $ .49 $ .29
Weighted Average
Number of Common
& Common Equivalent
Shares Outstanding 38,891,521 38,116,602 37,191,232 36,674,290 35,530,550
</TABLE>
*Net Income from continuing operations before cumulative effect of change in
accounting principle.
2
<PAGE> 5
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Cash Dividends Paid
per Common Share $ .16 $ .16 $ .147 $ .093 $ .043
Net Working Capital $ 25,052,045 $ 50,665,892 $ 34,879,287 $ 38,070,554 $ 37,000,388
Current Ratio 1.4 to 1 2.7 to 1 2.3 to 1 2.3 to 1 3.2 to 1
Total Assets $340,343,594 $300,188,723 $288,032,550 $172,417,835 $120,494,519
Long-Term Obligations $ 49,716,985 $ 62,190,600 $ 35,364,214 $ 32,519,503 $ 36,776,142
Shareholders' Equity $196,622,509 $166,583,258 $136,267,771 $ 88,501,531 $ 52,641,347
Long-Term Debt
to Equity Ratio 0.3 to 1 0.4 to 1 0.3 to 1 0.4 to 1 0.7 to 1
</TABLE>
On December 1, 1993, Surgical Care Affiliates, Inc. distributed to its
shareholders all of the outstanding shares of common stock of its wholly-owned
subsidiary, HealthWise of America, Inc. The Consolidated financial statements
of the Company for the periods 1990-1993 have been restated to reflect the
discontinued operations of HealthWise of America, Inc.
3
<PAGE> 6
LETTER TO OUR SHAREHOLDERS
FEBRUARY 1995
The year 1994 presented many challenges. We are pleased to report that in 1994
your management team assessed the operations of the Company and made several
strategic decisions that will provide SCA with a strong future direction and
which produced excellent operating results for the past twelve months. Even
during a year when fundamental changes took place in our health care system, SCA
reported increased earnings. In fact, record earnings were reported for the
ninth consecutive year and for the past thirty-five quarters.
Early in the first quarter, weather conditions in many areas of the
country were the most severe experienced in several years. This exerted
extreme pressure on first quarter earnings, and results for the quarter were
the lowest of any quarter during 1994. Subsequent quarters, however, produced
substantially stronger same center revenues as well as comparable same center
cases.
Operating results for 1994 reflect major gains in all areas of
operation. Net income before nonrecurring items discussed below increased by
21% over 1993. Same center revenues increased 5% in 1994 while the net
addition of 9 centers brings the year end total number of surgery cneters to
65. Total cases performed at SCA centers during 1994 showed an increase of 18%
over 1993. Centers built or acquired during 1994 have enjoyed favorable
operating results and are adding to the revenue and profit of your Company.
Net revenues were $236.7 million compared to net revenues in 1993 of
$198.0 million, an increase of 20%. Net income before nonrecurring items was
$39.1 million, or $1.01 per share in 1994 compared to net income of $32.2
million or $.85 per share reported in 1993.
During the fourth quarter of 1994, net revenues were at a record level
for the 35th consecutive quarter. Revenues for the fourth quarter of 1994 were
a record $66.7 million, an increase of 22% over the fourth quarter of 1993.
Net income before nonrecurring items was $11.4 million, or $.29 per share. Same
center case volume increased 6% in the fourth quarter, and same center revenues
increased 8% in total.
In the fourth quarter, the Company decided to write-down certain
assets, including goodwill, in surgery centers that have not performed as well
as expected. while the vast majority of our centers are doing well and have
excellent growth prospects, three centers in particular do not fit our criteria
of having good margins and strong growth opportunities. As a result, the
Company recorded nonrecurring items of $8.9 million, or $.23 per share. The
Company also changed the method used to account for deferred development and
pre-opening costs. The cumulative effect of this change in accounting
principle was $2.1 million, or $.05 per share.
At the beginning of 1994, management developed a plan to establish
strategic alliances with strong community hospitals in some of our markets. We
are pleased to report that the year ended with sixteen of Surgical Care's
facilities joint ventured with the type of partners we targeted. This has
proven to be a viable concept as we have enjoyed an increase in cases in each
of the facilities so structured. The year ended with 25% of Surgical Care's
centers joint ventured with local hospitals or HMOs. We expect to increase the
percentage of joint ventured centers to between 35 and 40 percent of our total
during 1995.
The Company's balance sheet continues to be strong, and we enjoy
favorable banking relations at our primary bank and other institutions.
Sufficient cash and credit facilities are available to serve the growth of SCA
in 1995 and future years.
Newly constructed surgery centers were opened in Lecanto, Florida;
Wausau, Wisconsin; Plano, Texas; St. Joseph, Missouri and Paoli, Pennsylvania.
Centers were acquired in Dothan, Alabama; Conroe, Texas; Florence, Alabama; San
Francisco, California and Greenville, South Carolina.
Construction of new centers will begin in Eugene, Oregon; Gainesville,
Georgia and Evansville, Indiana. Additions are under construction in three
additional centers. Surgical Care expects to continue its aggressive growth
strategy during 1995 with the addition of ten centers. The mix will likely be
comprised of seven new development centers and three or more acquisitions.
<PAGE> 7
The majority of newly constructed centers will be opened during the third and
fourth quarters of 1995, and the acquisitions should occur in the second half
of the year.
At year end, Surgical Care had signed contracts for the development of
three centers during 1995. Each of these centers will be joint ventured with
local physicians and strong community hospitals. The results achieved from
this type of joint venture in 1994 indicate that SCA should be very successful
with these new centers.
(Figure 1)
Picture of Joel C. Gordon
(Figure 2)
Picture of William J. Hamburg
During the year, your Board authorized the Company to purchase its common stock
at prevailing market prices. At year end, 472,400 shares had been repurchased.
The average price for those shares purchased was $12.95.
Also during 1994, a gain of $7.7 million was recorded from the sale of our
investment in Medical Care America. There have been substantial ongoing
changes in the delivery of outpatient surgery. At the end of 1994,
approximately 80.9% of all our cases were discounted. We are pleased that we
have been able to adapt to the changing health care environment and still
produce the type of results our shareholders expect. At year end, Surgical
Care had operations in 28 of the top 50 HMO markets in the United States. This
includes surgery centers in seven of the top ten penetrated HMO markets. We are
pleased that we have been able to operate in this competitive environment and
still produce substantial return on invested capital. Although margins will
continue to be under some pressure, we should report substantial increases in
our operating results if we can attract incremental cases to our centers.
Your management looks forward to 1995 and the years beyond with much
enthusiasm. Your Company has never had such a strong management team as it
does today. Our most senior managers have more than ten years of experience at
SCA. A great many of our regional managers have similar experience, and all of
us look forward to the challenges that lie ahead. We would like to express our
thanks to all the physicians that practice at SCA's facilities, the payors that
choose to contract with SCA centers and the outstanding group of employees that
make the Company what it is today. We appreciate all your efforts.
We look forward to another outstanding year during 1995.
Respectfully,
Joel C. Gordon
--------------
Joel C. Gordon
Chairman
William J. Hamburg
------------------
William J. Hamburg
President
<PAGE> 8
SURGICAL CARE PARTNERSHIPS ASSUME THEIR
PLACE IN AN INTEGRATED DELIVERY SYSTEM
Surgical Care Affiliates is the nation's largest independent operator of
ambulatory surgery centers (ASCs). The company, through limited partnerships,
owns 65 surgery centers in 22 states. During 1994, SCA centers provided
outpatient surgical services to over 190,000 patients. Historically, Surgical
Care's centers have been viewed as competitors by their hospital outpatient
surgery counterparts. Ambulatory surgery centers have had advantages that
allowed them to capture volume from these hospitals. Those advantages include:
PRICE. Various surveys have found that list charges for outpatient
surgery are 25% - 40% lower in ASCs than in comparable hospital outpatient
departments.
CONVENIENCE AND EFFICIENCY. Surgeons like to operate where the
parking is convenient, the scheduling meets their needs, and the staff treats
the surgeon and the patient like customers. Free-standing ASCs are
structurally better able to deliver these benefits than hospital outpatient
departments.
EXPANDED SERVICES. The combination of technically advanced surgical
equipment and instrumentation, available in SCA centers, with extended recovery
capabilities or overnight accommodations provide ASC benefits to patients
undergoing more complicated surgeries, such as laparoscopic cholecystectomies,
the second most commonly performed surgical procedure in the United States.
In today's cost-trimming health care industry, the growth of managed
care and the creation of integrated health care networks have encouraged
traditionally competitive providers to join forces and provide optimal health
care services at the lowest possible cost.
As the health care industry consolidates into integrated delivery
systems, Surgical Care's original partnership strategy has evolved to include
other health care providers and payors. These three-way joint ventures include
physicians, and/or community hospitals and HMOs.
Three-way joint ventures of Surgical Care centers is not a new
strategy for the Company. The first SCA center/hospital joint venture took
place in 1986 with the Cabell Huntington Surgery Center in Huntington, WV and
the Cabell-Huntington Hospital. These three-way joint ownership centers, with
hospitals or HMOs, now comprise 25% of SCA's surgery centers.
In the typical hospital surgery center joint venture, Surgical Care
Affiliates and the hospital each own one-third of the venture and are co-owners
of the center. The physician partners collectively own one-third of the
venture and are limited partners. The co-owners each guarantee one-half of all
debt. Surgical Care manages the center and receives a management fee. A
general partnership board is formed to discuss major issues, such as strategic
service planning, major capital equipment needs, operating budgets and clinical
programs.
(Figure B)
Picture of St. Vincent Infirmary Medical Center, Little Rock, Arkansas, and
Thomas L. Feurig, its President.
"The partnership between St. Vincent and SCA will complement the continuing
mission of the Sisters of Charity of Nazareth Health System in providing
affordable health care to our patients." THOMAS L. FEURIG, President & CEO
St. Vincent Infirmary Medical Center Little Rock, Arkansas
These collective ventures provide crucial advantages in economically
responsible integrated health care delivery systems. Surgical Care Affiliates
and their limited partner physicians benefit, through joint ventures with
hospitals, by increased access to managed care contracts. (Hospitals are
typically the leader in forming integrated delivery systems.) As a result,
physicians can continue to bring their patients
<PAGE> 9
to the center for cost effective care and convenience to the patient and
physician. SCA gains access to new physicians and/or physician groups, whose
close affiliation with the hospital may have prevented them from utilizing the
center. There is also the advantage of shared financial risk should
reimbursement and/or legislation alter physician practice patterns in the
future. And center joint ventures with hospitals foster cooperation among
providers who were previously competitive entities. This cooperation should
result in increased surgical volume for the surgery center, and lower the cost
of outpatient surgery to patients and insurance companies.
The hospital, through a joint venture with Surgical Care, gains a more
cost-effective alternative setting to provide outpatient surgery and additional
access points for patient admissions and treatment within the delivery system.
It also provides the potential to develop relationships with physician groups
who may not currently be involved with the hospital.
[FIGURE 4]
Pictures of Deaconess Hospital, Inc., Evansville, Indiana and Thomas H. Kramer,
its President.
"Development of a new surgery center is consistent with our long-term strategy
of creating an integrated health care delivery system in the Evansville market.
This venture with Surgical Care Affiliates allows us to streamline our
outpatient surgery program to benefit our patients and medical staff, and most
importantly, to lower costs to patients and area employers."
THOMAS H. KRAMER, President
Deaconess Hospital, Inc.
Evansville, Indiana
With the proliferation of discounted managed care contracts that
decrease reimbursement and require increased provider risk sharing, it is more
prudent for the hospital to shift services to a quality lower cost option. The
hospital also gains from the opportunity to share financial risk and obtain
proven expertise in outpatient surgery management with SCA.
The long-standing success in the operations of ambulatory surgery
centers and the expertise in joint venture ownership of these centers, make
Surgical Care the joint venture company of choice. Currently, SCA is involved
in surgery center joint ventures with some of the nations leading hospitals and
health care providers. SCA has joint ventured ambulatory surgery centers with
the following community hospitals:
ARKANSAS
St. Vincent Infirmary Medical Center/Little Rock, AR
CALIFORNIA
Redlands Community Hospital and Beaver Medical Clinic/Redlands, CA
DELAWARE
Kent General Hospital/Dover, DE
FLORIDA
Florida Hospital/Orlando, FL
Lee Memorial Hospital/Ft. Myers, FL
GEORGIA
Northeast Georgia Medical Center/Gainesville, GA
INDIANA
Deaconess Hospital/Evansville, IN
MISSOURI
Heartland Health Care System/St Joseph, MO
OREGON
McKenzie-Williamette Hospital/Springfield, OR
PENNSYLVANIA
Holy Spirit Hospital/Camp Hill, PA
Paoli Memorial Hospital/Paoli, PA
TENNESSEE
Baptist Memorial Health Care System, Inc./Memphis, TN
TEXAS
Columbia Medical Center East/El Paso, TX
WEST VIRGINIA
Cabell-Huntington Hospital/Huntington, WV
WISCONSIN
Sacred Heart Hospital/Eau Claire, WI
<PAGE> 10
SURGICAL CARE PARTNERSHIPS ASSUME THEIR
PLACE IN AN INTEGRATED DELIVERY SYSTEM
Surgical Care Affiliates also participates in joint ventured surgery
centers with major managed care organizations.
These include Mid-Atlantic Medical Services, Inc. in Rockville,
Maryland, with over 500,000 members; Care First, Baltimore, Maryland, a Blue
Cross HMO with over 150,000 members; and Pacific Hospital Association, an HMO,
located in Eugene, Oregon, with over 53,000 members.
Most recently, Surgical Care has signed a Letter of Intent entering
into a management agreement to manage a hospital's outpatient surgery
department. This agreement with Saint Thomas Hospital, Nashville, TN, recently
named one of the country's top 100 hospitals, is the first step for parties to
develop a network of outpatient surgery centers in Middle Tennessee.
John Tighe, Saint Thomas' President and CEO, stated, "Saint Thomas
hopes to benefit from Surgical Care's expertise. Demand for outpatient surgery
will grow even more as technology develops and the forces of health care reform
push costs down. We will now be able to provide access to low-cost, high
quality outpatient surgery services to an even larger patient population."
With the acquisition of Medical Care America by Columbia/HCA, a
competitor of not-for-profit hospitals throughout the country, SCA clearly has
become the preferred provider in being the not-for-profit hospitals' joint
venture company of choice. According to Bill Hamburg, SCA's President and
Chief Operating Officer, "Our strategy is to develop relationships with the
leading, not-for-profit hospitals in our markets. We feel they have been
long-standing players in their communities and will continue to be in the
future. We think we can bring them an expertise in ambulatory surgery that
will allow them to compete more effectively with the large for-profit chains."
With approximately 85% of the 5,500 United States hospitals falling
into the not-for-profit sector, SCA's reference list is growing on a daily
basis. This trend and the opportunities for SCA are expected to continue.
Hospital joint ventures solidify Surgical Care's position in an
integrated delivery system and the company's strong management and significant
cost advantages position SCA and its joint venture partners to benefit in a
price-conscious health care environment.
(Figure 5)
Pictures of Florida Hospital, Orlando, Florida and its President Thomas L.
Werner.
"Florida Hospital continues to search for ways to expand its network of
services and offer cost-effective health care to our patients. Our partnership
with Surgical Care Affiliates provides both of these options along with the
opportunity to associate with an entity that is known for their quality of care
in the outpatient surgical area."
THOMAS L. WERNER, President
Florida Hospital
Orlando, Florida
<PAGE> 11
FINANCIAL REPORTS
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Surgical Care Affiliates, Inc.
Nashville, Tennessee
We have audited the accompanying consolidated balance sheets of Surgical Care
Affiliates, Inc. and subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1994. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Surgical Care Affiliates, Inc.
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 7 to the consolidated financial statements,
the Company changed its method of accounting for development and pre-opening
costs in 1994.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
February 22, 1995
REPORT OF MANAGEMENT
We have prepared the consolidated balance sheets of Surgical Care Affiliates,
Inc. and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1994. The consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles. Financial information included throughout this annual
report is consistent with that in the financial statements.
The consolidated financial statements have been audited by Deloitte &
Touche LLP, independent auditors, in accordance with generally accepted
auditing standards. The independent auditors develop and maintain an
understanding of the Company's systems and procedures and perform such tests
and other procedures, including selective tests of the internal accounting
controls, as they deem necessary to enable them to express an opinion on the
fairness of the consolidated financial statements.
The Company maintains a system of internal accounting control which is
designed to provide reasonable assurance that assets are safeguarded and that
the financial records are adequate and can be relied upon to provide
information for the preparation of consolidated financial statements.
The Audit Committee of the Board of Directors, consisting of three outside
directors, meets periodically with the independent auditors to review
accounting, auditing and financial reporting matters.
Joel C. Gordon
Chairman and Chief Executive Officer
William J. Hamburg
President and Chief Operating Officer
PAGE 9
<PAGE> 12
CONSOLIDATED
STATEMENTS OF INCOME
For the Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Revenue $ 236,719,426 $ 197,976,179 $ 161,873,266
Operating Costs:
Costs of Providing Healthcare Services 123,378,641 103,824,815 83,870,628
Depreciation and Amortization 17,391,605 12,626,397 9,695,104
Provision for Doubtful Accounts 3,060,679 1,067,775 1,441,862
Loss on Disposal of Surgery Centers 13,197,000 -- --
-----------------------------------------------------------------------------------------------------------
Totals 157,027,925 117,518,987 95,007,594
-----------------------------------------------------------------------------------------------------------
Operating Income 79,691,501 80,457,192 66,865,672
General, Administrative and Development Expenses 5,463,515 3,880,180 3,803,964
Interest and Other Expenses 7,293,533 3,600,067 3,409,960
Interest and Other Income (4,183,722) (2,513,386) (3,049,258)
Gain on Sale of MCA Stock (7,726,921) -- --
-----------------------------------------------------------------------------------------------------------
Income Before Minority Interests and Income Taxes 78,845,096 75,490,331 62,701,006
Minority Interests in Earnings of Partnerships (22,420,156) (22,624,464) (21,481,467)
-----------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Income Taxes
and Cumulative Effect of Change in Accounting Principle 56,424,940 52,865,867 41,219,539
-----------------------------------------------------------------------------------------------------------
Income Tax Provision (25,039,576) (20,650,172) (15,663,425)
-----------------------------------------------------------------------------------------------------------
Net Income from Continuing Operations Before
Cumulative Effect of Change in Accounting Principle 31,385,364 32,215,695 25,556,114
Net Income from Discontinued Operations -- 4,451,722 3,282,963
Cumulative effect of Change in Accounting Principle,
net of income tax benefit of $1,403,437 (2,105,155) -- --
-----------------------------------------------------------------------------------------------------------
Net Income $ 29,280,209 $ 36,667,417 $ 28,839,077
===========================================================================================================
Net Income Per Common & Common Equivalent Share
Continuing Operations Before Cumulative Effect of
Change in Accounting Principle $ .80 $ .85 $ .69
Discontinued Operations -- .11 .09
Cumulative Effect of Change in Accounting Principle (.05) -- --
-----------------------------------------------------------------------------------------------------------
$ .75 $ .96 $ .78
===========================================================================================================
Weighted Average Number of Common
& Common Equivalent Shares Outstanding 38,891,521 38,116,602 37,191,232
===========================================================================================================
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
PAGE 10
<PAGE> 13
CONSOLIDATED
BALANCE SHEETS
December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 31,222,963 $ 23,877,186
Temporary Investments -- 5,285,783
Marketable Securities, at Cost 294,639 13,360,507
Accounts Receivable, Less Allowance for Doubtful Accounts
of $4,160,260 in 1994 and $3,214,296 in 1993 34,801,079 28,133,055
Other Receivables 701,965 5,400,027
Supplies 4,562,518 4,193,379
Prepaid Expenses 742,911 428,817
Deferred Income Taxes 9,260,259 --
----------------------------------------------------------------------------------------------------------------
Total Current Assets 81,586,334 80,678,754
----------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Land and Improvements 31,972,686 29,789,361
Buildings 66,289,162 49,477,899
Equipment, Furniture and Fixtures 106,690,800 87,272,417
Construction in Progress 1,998,495 8,159,358
----------------------------------------------------------------------------------------------------------------
206,951,143 174,699,035
Less Accumulated Depreciation and Amortization (57,969,075) (44,604,904)
----------------------------------------------------------------------------------------------------------------
Net Property and Equipment 148,982,068 130,094,131
----------------------------------------------------------------------------------------------------------------
OTHER ASSETS:
Excess of Cost Over Fair Value of Net Assets Acquired 109,149,364 83,196,653
Deferred Development Costs and Other Assets 625,828 6,219,185
----------------------------------------------------------------------------------------------------------------
$ 340,343,594 $ 300,188,723
================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable - Trade $ 5,889,642 $ 5,517,412
Accrued Liabilities 15,658,612 7,609,790
Accrued Loss on Disposal of Surgery Centers 5,629,000 --
Income Taxes Payable 14,737,873 1,397,293
Current Portion of Long-Term Obligations 10,119,162 10,727,148
Distributable to Minority Interests 4,500,000 4,761,219
----------------------------------------------------------------------------------------------------------------
Total Current Liabilities 56,534,289 30,012,862
----------------------------------------------------------------------------------------------------------------
LONG-TERM OBLIGATIONS:
Notes Payable and Other Long-Term Debt 42,269,224 52,880,009
Capital Lease Obligations - Related Parties 7,447,761 9,310,591
----------------------------------------------------------------------------------------------------------------
Total Long-Term Obligations 49,716,985 62,190,600
----------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 3,845,939 7,971,705
MINORITY INTERESTS 33,623,872 33,430,298
----------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Common Stock, Par Value $.25; 100,000,000 Shares Authorized; 39,110,622
and 38,259,336 issued and 38,638,222 and 38,259,336 outstanding in
1994 and 1993, respectively 9,777,656 9,564,834
Treasury Stock at Cost, 472,400 and 0 shares in 1994 and 1993, respectively (6,114,778) --
Additional Paid-In Capital 91,159,880 78,262,327
Retained Earnings 101,799,751 78,756,097
----------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 196,622,509 166,583,258
----------------------------------------------------------------------------------------------------------------
$ 340,343,594 $ 300,188,723
================================================================================================================
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
PAGE 11
<PAGE> 14
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Additional
Common Stock Treasury Stock Paid-In
Shares Amount Shares Amount Capital
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT
JANUARY 1,1992 35,656,550 $8,914,138 -- -- $41,872,619
Issuance of Common Stock 1,461,223 365,305 -- -- 22,407,129
Tax Benefits of Stock
Options Exercised -- -- -- -- 1,502,181
Dividends Paid ($.147 per share) -- -- -- -- --
Net Income -- -- -- -- --
-------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1992 37,117,773 9,279,443 -- -- 65,781,929
Issuance of Common Stock 1,141,563 285,391 12,480,398
Dividends Paid ($.16 per share) -- -- -- -- --
Net Income -- -- -- -- --
Distribution of HealthWise of
America, Inc. Common Stock -- -- -- -- --
-------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1993 38,259,336 9,564,834 78,262,327
Issuance of Common Stock 851,286 212,822 12,897,553
Treasury Stock Acquired -- -- 472,400 (6,114,778) --
Dividends Paid ($.16 per share) -- -- -- -- --
Net Income -- -- -- -- --
-------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1994 39,110,622 $9,777,656 472,400 $(6,114,778) $91,159,880
=============================================================================================================
<CAPTION>
Retained
Earnings Total
---------------------------------------------------------------------------
<S> <C> <C>
BALANCE AT
JANUARY 1, 1992 $ 37,714,774 $ 88,501,531
Issuance of Common Stock -- 22,772,434
Tax Benefits of Stock
Options Exercised -- 1,502,181
Dividends Paid ($.147 per share) (5,347,452) (5,347,452)
Net Income 28,839,077 28,839,077
---------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1992 61,206,399 136,267,771
Issuance of Common Stock -- 12,765,789
Dividends Paid ($.16 per share) (6,033,085) (6,033,085)
Net Income 36,667,417 36,667,417
Distribution of HealthWise of
America, Inc. Common Stock (13,084,634) (13,084,634)
---------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1993 78,756,097 166,583,258
Issuance of Common Stock -- 13,110,375
Treasury Stock Acquired -- (6,114,778)
Dividends Paid ($.16 per share) (6,236,555) (6,236,555)
Net Income 29,280,209 29,280,209
---------------------------------------------------------------------------
BALANCE AT
DECEMBER 31,1994 $101,799,751 $196,622,509
===========================================================================
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements
PAGE 12
<PAGE> 15
CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the Years Ended December 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 29,280,209 $ 36,667,417 $ 28,839,077
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Net Income from Discontinued Operations -- (4,451,722) (3,282,963)
Cumulative Effect of Change in Accounting Principle 2,105,155 -- --
Depreciation and Amortization 17,391,605 12,626,397 9,695,104
Provisions for Losses on Accounts Receivable 3,060,679 1,067,775 1,441,862
Minority Interests in Earnings of Partnerships 22,420,156 22,624,464 21,481,467
Loss on Disposal of Surgery Centers 13,197,000 -- --
Deferred Income Taxes (13,386,025) 5,777,179 2,194,526
Changes in Assets and Liabilities
Net of Effect of Acquisitions:
Increase in Accounts Receivable (7,788,110) (5,069,407) (7,405,327)
Decrease (Increase) in Other Receivables 4,698,222 (4,424,541) 82,736
Increase in Supplies (33,098) (445,904) (510,196)
(Increase) Decrease in Prepaid Expenses and Other Assets (282,204) 156,063 (351,275)
Increase in Deferred Development Costs & Other Assets (4,269,428) (2,562,462) (703,830)
Increase in Excess of Cost over Fair Value of Net
Assets Acquired (4,136,343) (5,211,849) (12,547,271)
Increase in Accounts Payable - Trade 158,337 159,735 818,008
Increase (Decrease) in Accrued Liabilities 6,943,302 (671,899) 758,312
Increase (Decrease) in Income Taxes Payable 14,730,916 1,397,293 (2,547,583)
-----------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 84,090,373 57,638,539 37,962,647
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Decrease (Increase) in Temporary Investments 5,285,783 (3,983,754) 26,771,184
Decrease (Increase) in Marketable Securities 13,065,868 (13,360,507) --
Capital Expenditures (30,061,584) (42,171,282) (21,860,939)
Acquisitions, less Cash Acquired of $550,213 in 1994,
$306,124 in 1993, $208,531 in 1992 (16,568,406) (6,685,491) (11,560,035)
-----------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (28,278,339) (66,201,034) (6,649,790)
-----------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Net (Payments) Borrowings Under Line-of-Credit Agreement (15,102,662) 8,418,324 5,187,649
Payments on Long-Term Obligations (9,485,194) (6,182,964) (12,201,505)
Proceeds from Long-Term Obligations 8,008,063 24,078,532 4,435,000
Proceeds from Issuance of Common Stock 1,381,244 2,691,311 2,458,680
Acquisition of Common Stock for the Treasury (6,114,778) -- --
Dividends Paid (6,236,555) (6,033,085) (5,347,452)
Distributions to Minority Interests (20,047,393) (20,224,061) (15,373,714)
(Decrease) Increase in Distributable to Minority Interests (261,219) 21,391 2,236,856
(Decrease) Increase in Minority Interests (607,763) 4,511,734 (1,502,504)
-----------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities (48,466,257) 7,281,182 (20,106,990)
-----------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash & Cash Equivalents 7,345,777 (1,281,313) 11,205,867
Cash & Cash Equivalents at Beginning of Year 23,877,186 25,158,499 13,952,632
-----------------------------------------------------------------------------------------------------------------
Cash & Cash Equivalents at End of Year $ 31,222,963 $ 23,877,186 $ 25,158,499
=================================================================================================================
</TABLE>
The notes to consolidated financial statements are an integral part of these
statements.
PAGE 13
<PAGE> 16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
For the Years Ended December 31, 1994, 1993 and 1992
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Surgical Care Affiliates, Inc. (the "Company") was organized in 1982 to
develop, own and operate outpatient health care facilities. Each facility is
operated as a general or limited partnership with a subsidiary of the Company
being a general partner with a controlling interest or a corporation with the
Company being the majority shareholder.
The Company currently owns interests in 65 surgery centers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries and majority-owned or controlled
partnerships. All significant inter-company accounts and transactions have been
eliminated, and minority interests are reflected in consolidation.
NET REVENUE
Net revenue consists of charges by the Company's centers which generally
include all fees for laboratory tests, operating room, supplies, medication and
recovery room. Net revenue also includes anesthesia charges from certain of
the Company's centers and other miscellaneous operating revenues. Net revenue
does not include the charges for the patient's physician as those fees are
billed directly by the physician. Net revenue is net of contractual adjustments
of $216,275,846 in 1994, $82,021,162 in 1993, and $56,383,247 in 1992.
TEMPORARY INVESTMENTS
The Company has a cash management program which provides for the
investment of excess cash balances in short-term investments which include
commercial paper, certificates of deposit and non-equity type investments.
Short-term investments of $5,285,783 in 1993 are stated at cost, which
approximates market.
MARKETABLE SECURITIES
Marketable securities are carried at the lower of aggregate cost or market
value. As of December 31,1994, these securities consisted of $294,639 of
corporate notes, at cost, which approximates market. As of December 31,1993,
these securities consisted of $13,360,507 of common stock, at cost. Unrealized
gains at December 31,1993 were $4,436,243.
The Company adopted the provisions of Financial Accounting Standard
No. 115 "Accounting for Certain Investments in Debt and Equity Securities" as of
January 1,1994. Accordingly, marketable securities were reported at fair value
with unrealized gains/losses being reported as a separate component of
shareholders' equity, net of income tax effects at that date. During 1994, the
marketable securities were sold and the resulting gain was recognized in the
statement of income.
SUPPLIES
Supplies (principally medical) are stated at the lower of cost (first-in,
first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment obtained through acquisitions are stated at their
fair value determined on the dates of acquisition. Property and equipment under
capital leases are recorded at the lower of the present value of the minimum
lease payments or the fair vaiue of the leased property.
Depreciation is computed using the straight-line method over the estimated
useful lives or the terms of the leases of the related assets. The general
range of estimated useful lives is as follows:
<TABLE>
<S> <C>
Buildings ................................... 25 to 30 years
Equipment, Furniture and Fixtures ........... 8 to 10 years
</TABLE>
When assets are sold or retired, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
included in the statement of income.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
Excess of cost over fair value of net assets acquired is amortized over 40
years using the straight-line method.
The Company periodically assesses the recoverability of intangibles and
other long-lived assets using undiscounted cash flows anticipated to be
received over the estimated life of the related assets.
DEVELOPMENT AND PRE-OPENING COSTS
As discussed in Note 7, effective at the beginning of fiscal 1994 the
Company changed its accounting policy for development and pre-opening costs
associated with preparing facilities for operations. Such costs are now
expensed as incurred. Prior to the change, such costs were capitalized and
amortized over an estimated useful life.
PER SHARE DATA
Per share data has been computed on the basis of the weighted average
number of shares outstanding, including common stock equivalents. Common stock
equivalents consist of stock options and warrants. In determining the number of
dilutive common stock equivalents, the Company includes average common shares
attributable to dilutive stock options and warrants using the treasury stock
method. Fully diluted earnings per share is not presented since it approximates
earnings per common and common equivalent share.
CASH FLOW REPORTING
For purposes of the statements of cash flows, the Company considers all
certificates of deposits and highly liquid marketable securities with an
original maturity of three months or less to be cash equivalents.
ACCOUNTING ESTIMATES
Accounting estimates are an integral part of the consolidated financial
statements prepared by management and are based on management's current
judgments. These judgments are based on knowledge and experience about past and
current events and on assumptions about future events. During 1993 management
determined, based on subsequent experience, that estimates of certain reserves
provided in previous years were in excess of amounts actually required which
resulted in an increase to net income from continuing operations of
approximately $1,900,000 or $.05 per share for the year ending December 31,1993.
MANAGEMENT FEES
The Company charges the operating centers a management fee based on gross
or net revenues of the centers. These fees are to cover administrative,
accounting, purchasing, marketing and other support costs incurred by the
Company. These management fees are eliminated in the consolidated financial
statements except for the share allocated to minority interests.
PAGE 14
<PAGE> 17
INCOME TAXES
In fiscal 1992, income taxes were accounted for in accordance with
Financial Accounting Standard No. 96. Effective the first day of fiscal 1993,
the Company implemented Statement of Financial Accounting Standard ("SFAS")
No. 109, "Accounting for Income Taxes." Under SFAS 109, the asset and liability
method is used for computing future tax consequences of events which have been
recognized in the Company's financial statements or tax returns. Deferred tax
expense or benefit is the change during the year in the Company's deferred tax
assets and liabilities. The effect of adoption of SFAS 109 in 1993 was not
material to the Company's financial statements.
RECLASSIFICATIONS
Reclassifications of certain prior year amounts have been made to conform
to the 1994 presentation of accounts.
(2) SHAREHOLDERS' EQUITY:
STOCK OPTIONS
The Company has stock option plans which provide for the issuance of
common stock to key employees of the Company. Under the plans, the option price
per share for incentive stock options must be equal to or greater than the fair
value of the common stock at the date of grant. Options granted under the plans
are not exercisable until two years after the date of the grant and become
exercisable to the extent of 33% per year thereafter. The options expire five
years from the date of the grant.
A summary of transactions during 1994, 1993 and 1992 under the option plans
is as follows:
<TABLE>
<CAPTION>
Number Option Price
of Shares Per Share
--------------------------------------------------------------------------
<S> <C> <C>
Outstanding at January 1, 1992 1,781,153 $ 1.00 to $37.75
Granted 301,500 $21.38 to $40.50
Exercised (577,554) $ 1.00 to $12.33
Cancelled (197,549) $ 2.28 to $37.00
--------------------------------------------------------------------------
Outstanding at December 31, 1992 1,307,550 $ 2.28 to $40.50
Granted 589,128 $11.70 to $22.05
Exercised (408,125) $ 2.28 to $18.00
Cancelled (207,500) $ 5.92 to $37.00
--------------------------------------------------------------------------
Outstanding at December 31, 1993 1,281,053 $ 1.94 to $31.53
Granted 397,700 $12.38 to $19.00
Exercised (194,505) $ 1.94 to $10.50
Cancelled (62,437) $10.50 to $31.53
--------------------------------------------------------------------------
Outstanding at December 31, 1994 1,421,811 $ 5.04 to $31.50
==========================================================================
</TABLE>
At December 31,1994, options for 242,711 shares were exercisable.
WARRANTS
The Board of Directors has authorized the Company to issue warrants for
the purchase of common stock. The warrants expire from 3 to 10 years after
issuance and may be exercised at purchase prices not less than the fair market
value of the Company's common stock on the date the warrants are issued.
Warrants for 229,192 shares of common stock at prices ranging from $2.91 to
$38.31 have been issued through December 31, 1994.
At December 31, 1994, warrants for 59,601 shares were exercisable.
EMPLOYEE STOCK PURCHASE PLAN
The Company has reserved common stock for the Employee Stock Purchase Plan
which allows participating employees to contribute up to 10% of their
compensation for the purchase of stock. At the end of each Plan Year, the
Company will issue the stock to participating employees at an issue price equal
to 85% of the lower of the stock price at the beginning of the Plan Year or the
stock price at the end of the Plan Year, as defined. Employee contributions
totaling $576,323 were made to the Plan during 1994, which resulted in the
issuance in January 1995 of 43,985 shares of stock for the 1994 Plan Year.
COMMON STOCK
As of December 31,1994, the Company had reserved common shares as follows:
<TABLE>
<S> <C>
Stock Option Plans 1,819,825
Warrants 677,449
Employee Stock Purchase Plan 239,586
------------------------------------------------------------------------
Total Reserved Common Shares 2,736,860
========================================================================
</TABLE>
During 1993, the limited partners of one of the Company's limited
partnerships exchanged one-fourth of their partnership units for 124,444 shares
of the Company's common stock under terms set forth in the partnership
agreement. At December 31, 1994 and 1993, there were no shares of common stock
subject to exchange for partnership units.
During 1992, certain employees of the Company exercised nonqualified stock
options which entitles the Company to a deduction for income tax purposes of
the difference between the market price and exercise price at the date of
exercise of the option by an employee. The Company recorded $1,502,181 in 1992
of additional paid-in capital to reflect the tax benefit obtained by the
Company as a result of the exercise of the options.
(3) LONG-TERM DEBT AND LEASE COMMITMENTS:
NOTES PAYABLE AND OTHER LONG-TERM DEBT
The Company has unsecured revolving credit loan agreements with two banks
which total $36,000,000. The revolving credit loan agreements expire on various
dates over the next two years. At December 31,1994 and 1993 the Company had
$6,000,OO0 and $21,102,662, respectively, in borrowings outstanding under the
loan agreements. The credit facilities bear interest at the Company's choice of
(1) the institutions' base rate, as defined by the agreement or (2) the London
Interbank Offered Rate (LIBOR).
The Company and certain of its operating partnerships have notes payable
to lending institutions totalling $44,788,466 and $41,123,701 as of December
31,1994 and 1993, respectively. The notes are primarily at variable rates
ranging from 5.95% to 11.75% at December 31,1994. At December 31,1994 and 1993,
approximately $62,246,000 and $51,721,O00, respectively, of the Company's
property and equipment is pledged as security on these notes.
Certain of the debt agreements require the Company to (a) maintain certain
net worth, debt to net worth ratio, debt service coverage ratio, and current
ratio requirements, (b) meet certain profitability requirements and (c) limit
the payments of cash dividends and the terms of additional borrowings. At
December 31, 1994, all such requirements and covenants were met.
PAGE 15
<PAGE> 18
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
LEASES
The Company leases its principal executive offices, operating facilities
and various equipment under both capital and operating leases.
As of December 31, 1994, $23,863,454 of the Company's property and
equipment is under capital lease obligations with related limited partnerships.
The related accumulated amortization for these assets is $11,543,295 at
December 31, 1994. Interest rates on the capital lease obligations range from
4.20% to 10.35%.
Substantially all related property and equipment is pledged as security
under the noncancelable lease agreements with the limited partnerships.
Rent expense under the operating leases for the three years ended December
31, 1994, 1993 and 1992, was $5,269,478, $4,382,581 and $3,257,426,
respectively.
Future minimum payments under capital leases, other long-term debt and
noncancelable operating leases are as follows as of December 31, 1994:
<TABLE>
<CAPTION>
Capital Other Long- Operating
Leases Term Debt Leases
-----------------------------------------------------------------
<S> <C> <C> <C>
Year Ending December 31:
1995 $ 2,242,237 $12,148,347 $ 4,472,201
1996 3,176,786 16,059,606 4,378,453
1997 2,317,545 6,144,607 3,913,502
1998 843,562 11,784,890 3,249,362
1999 753,645 10,551,337 3,013,853
Thereafter 2,262,112 5,794,261 18,058,494
-----------------------------------------------------------------
Total Minimum Payments 11,595,887 62,483,048 $37,085,865
Less Amount
Representing Interest 2,548,206 11,694,582
-----------------------------------------------------------------
Present Value of
Obligations 9,047,681 50,788,466
Less Current Portion 1,599,920 8,519,242
-----------------------------------------------------------------
Long-Term Obligations $ 7,447,761 $42,269,224
=================================================================
</TABLE>
(4) RELATED PARTY TRANSACTIONS:
The Company leases certain of its operating facilities and various
equipment and land under long-term noncancelable lease arrangements from
partnerships, of which the Company is a general partner, and from other related
parties. As of December 31, 1994, all $11,595,887 of total minimum lease
payments under capital leases are payable to these related parties. In addition
$13,677,725 of total minimum payments for operating leases is payable to these
related parties. Capital and operating lease payments made to these related
parties during the years ended December 31, 1994, 1993 and 1992 were $5,145,967,
$5,071,129 and $4,860,528, respectively.
(5) INCOME TAXES:
The Company adopted SFAS 109, "Accounting for Income Taxes," effective the
first day of fiscal 1993. The effect of this change was not material to the
Company's financial statements. There was also no material impact to the
deferred tax liability resulting from the statutory federal income tax rate
increase enacted by the Omnibus Budget Reconciliation Act of 1993.
The provision for income taxes net of the $1,403,437 benefit from
cumulative effect of change in accounting principle consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable $31,520,464 $14,872,993 $13,468,899
----------------------------------------------------------------------------
Deferred (7,884,325) 5,777,179 2,194,526
----------------------------------------------------------------------------
Total $23,636,139 $20,650,172 $15,663,425
============================================================================
</TABLE>
Deferred tax assets (liabilities) at December 31, 1994 are comprised of the
following:
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------
<S> <C> <C>
Financial accruals without
economic performance $ 9,260,259 $ 708,911
----------------------------------------------------------------------
Depreciation and amortization (3,845,939) (8,680,616)
----------------------------------------------------------------------
Net deferred tax asset (liability) $ 5,414,320 $(7,971,705)
======================================================================
</TABLE>
A reconciliation of the provision for income taxes on income from
continuing operations to the federal statutory rate (35% in 1994 and 1993 and
34% in 1992) is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
Federal Statutory Rate 35% 35% 34%
---------------------------------------------------------------------
State Income Taxes, net
of Federal Tax Benefit 4% 4% 4%
---------------------------------------------------------------------
Non-Deductible Expenses
and Other 5% -- --
---------------------------------------------------------------------
Effective Tax Rate 44% 39% 38%
=====================================================================
</TABLE>
(6) ACQUISITIONS:
During 1994, the Company acquired a majority equity interest in five
outpatient surgery centers. The acquisitions were accounted for as purchases,
and the accompanying financial statements include the results of the surgical
centers' operations from the dates of their respective acquisitions.
The purchase price allocated to the assets and liabilities acquired was
based on their fair value. Allocation of the purchase price for the
acquisitions is summarized below:
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------------
<S> <C>
Working Capital $ 1,526,385
Property and Equipment 6,996,524
Other Assets 64,796
Excess of Cost Over Fair Value
of Net Assets Acquired 22,296,063
Minority Interests (876,808)
Long-Term Debt and Capital Lease Obligations (3,498,191)
----------------------------------------------------------------------
Total Purchase Price, Net $ 26,508,769
======================================================================
</TABLE>
The total net purchase price of $26,508,769 is comprised of net cash paid
of $17,118,619 and issuance of common stock of $9,390,150.
The unaudited consolidated pro forma results of operations assuming all
purchase acquisitions had been consummated as of January 1, 1993, are as
follows:
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------------
<S> <C> <C>
Net Revenue $238,888,356 $ 209,602,064
Net Income $ 29,588,922 $ 34,096,206
Earnings Per Common and
Common Equivalent Share $ .76 $ .89
</TABLE>
PAGE 16
<PAGE> 19
(7) CHANGE IN ACCOUNTING FOR DEVELOPMENT AND PRE-OPENING COSTS:
Prior to 1994, deferred development costs included costs associated with
obtaining certificates of need and costs associated with preparing facilities
for operations. Once a facility became operational, the costs of obtaining a
certificate of need were amortized on a straight-line basis over the life of
the building, if owned, or the term of the building lease. Other pre-opening
costs were amortized on a straight-line basis over two years.
During the year ended December 31, 1994, the Company changed its
accounting policy for development and pre-opening costs. As a result of the
change, which has been recorded as if it occurred at the beginning of 1994, the
Company will expense deferred development and pre-opening costs as incurred
rather than continue to capitalize such costs and amortize them over an
estimated useful life. Management believes the change is preferable as the new
policy will more accurately match the benefits received from opening a new
facility with the related costs.
The change in accounting for deferred development and pre-opening costs
did not have a material impact on the Company's net income from continuing
operations for the year ended December 31, 1994. The Company's net income was
decreased by $2,105,155 ($.05 per share) by the cumulative effect of the change
in accounting principle related to years prior to 1994.
(8) LIABILITY INSURANCE:
The Company carries professional malpractice and general liability
insurance for all of its facilities. The policy is carried on a claims made
basis. The Company has policies and procedures in place to track and monitor
incidents of significance. Additionally, the Company maintains an umbrella
liability insurance policy.
(9) SELECTED QUARTERLY DATA (UNAUDITED):
Summarized quarterly financial data for 1994 and 1993 is shown below.
<TABLE>
<CAPTION>
1ST OUARTER 2ND QUARTER 3RD OUARTER 4TH OUARTER
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Net Revenue $ 52,148,320 $ 58,522,606 $ 59,302,163 $66,746,337
Operating Income $ 19,125,632 $ 23,393,230 $ 24,074,613 $13,098,026
Net Income:
Before Cumulative
Effect of Change
in Accounting
Principle $ 8,079,175 $ 9,633,105 $ 11,148,068 $ 2,525,016
Cumulative Effect
of Change
Accounting
Principle $ (2,105,155) -- -- --
Net Income: $ 5,974,020 $ 9,633,105 $ 11,148,068 $ 2,525,016
Income Per Share:
Before Cumulative
Effect of Change
in Accounting
Principle $ .21 $ .25 $ .29 $ .06
Cumulative Effect
of Change
Accounting
Principle $ (.05) -- -- --
Net Income: $ .16 $ .25 $ .29 $ .06
<CAPTION>
1ST OUARTER 2ND OUARTER 3RD OUARTER 4TH OUARTER
-------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993
<S> <C> <C> <C> <C>
Net Revenue $45,673,153 $48,644,456 $48,921,974 $54,731,596
Operating Income $18,305,462 $19,938,564 $20,068,487 $22,144,679
Net Income:
Continuing
Operations $ 7,631,902 $ 7,749,536 $ 8,166,849 $ 8,667,408
Discontinued
Operations $ 895,970 $ 1,408,514 $ 1,303,082 $ 844,156
Net Income: $ 8,527,872 $ 9,158,050 $ 9,469,931 $ 9,511,564
Income Per Share:
Continuing
Operations $ .20 $ .20 $ .22 $ .23
Discontinued
Operations $ .03 $ .04 $ .03 $ .01
Net Income: $ .23 $ .24 $ .25 $ 24
</TABLE>
The above quarterly financial data for the year ended December 31,1994 has
been restated to reflect the cumulative effect of the change in accounting for
deferred development and pre-opening costs as of January 1,1994. The effect of
this change on net income was not material for the year ended December 31,1994.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following disclosure of estimated fair value of financial instruments
as of December 31,1994 is made in accordance with the Statement of Financial
Accounting Standard No. 107, "Disclosures about Fair Value of Financial
Instruments". The estimates presented are not necessarily indicative of amounts
the Company could realize in a current market exchange.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------------------------------------------------------------------
<S> <C> <C>
Assets:
Marketable Securities $ 294,639 $ 294,639
Liabilities:
Notes Payable and
other Long-Term Debt $ 50,788,466 $ 50,788,466
<CAPTION>
DECEMBER 31, 1993
----------------------------------------------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------------------------------------------------------------------
<S> <C> <C>
Assets:
Temporary Investments $ 5,285,783 $ 5,285,783
Marketable Securities $ 13,360,507 $ 17,796,750
Liabilities:
Notes Payable and
other Long-Term Debt $ 62,226,363 $ 62,226,363
</TABLE>
Temporary Investments:
The carrying amounts of the temporary investments are a reasonable
estimate of their fair value due to their short-term maturity.
Marketable Securities:
Fair value of marketable securities was determined based on quoted market
prices listed on the New York Stock Exchange.
Notes Payable and Other Long-Term Debt:
The carrying amounts of the Company's debt instruments approximate fair
value due to these instruments being substantially of a variable rate nature.
PAGE 17
<PAGE> 20
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(11) SUPPLEMENTAL CASH FLOW INFORMATION:
The Company paid interest on Long-Term Debt Obligations of $5,097,399,
$3,923,751 and $3,388,640 for the three years ended December 31, 1994, 1993 and
1992, respectively.
The Company paid federal and state income taxes of approximately
$23,395,000, $15,752,000 and $13,016,000 for the three years ended December 31,
1994, 1993 and 1992, respectively.
(12) LOSS ON DISPOSAL OF SURGERY CENTERS
During the fourth quarter of 1994, the Company adopted a formal plan to
dispose of three surgery centers and certain other properties during fiscal
1995. Accordingly, a charge of $13,197,000 was made to reflect the expected
losses resulting from the disposal of these centers. The charge is comprised
primarily of losses on the sale of owned facilities and equipment, write-off of
intangible and other assets, and accrual of future operating lease obligations
and estimated operating losses through the anticipated date of disposal.
The following are the major components of the restructuring charge:
<TABLE>
<S> <C>
Write down of land, buildings
and equipment .................................... $ 4,806,000
Write off of goodwill and other assels ............ 2,762,000
Estimated operating losses through
anticipated date of disposal...................... 1,750,000
Accrual of future lease commitments
and other obligations resulting from disposal .... 3,879,000
-----------------------------------------------------------------
$13,197,000
=================================================================
</TABLE>
Management anticipates the disposal of these operations will be completed
by June 30, 1995. An accrual of $5,629,000 is reflected on the December 31, 1994
consolidated balance sheet for the remaining costs to be incurred relative to
this disposal.
(13) SPIN-OFF OF HMO SUBSIDIARY
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 is 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. The net assets of the
entity at December 31, 1992, have also been reported separately in the
consolidated balance sheet.
Included in other receivables on the accompanying December 31, 1993
balance sheet is approximately $3,700,000 which represents amounts due the
Company from HealthWise primarily for partnership distributions and income
taxes. This amount was repaid to the Company during 1994. In connection with
the spin-off, the Company has entered into the following agreements with
HealthWise: 1) a tax matters agreement that specifies the responsibility of the
Company and HealthWise for the tax liabilities before and after the spin-off
and 2) a shared service and employee benefit agreement whereby HealthWise may
acquire certain administrative and employee services and employee benefit
services from the Company subsequent to the spin-off.
Operating results of discontinued operations are summarized as follows
(1993 information is for the eleven months ended November 30, 1993):
<TABLE>
<CAPTION>
1993 1992
---------------------------------------------------------------------
<S> <C> <C>
Net revenues $ 110,275,961 $ 64,842,932
---------------------------------------------------------------------
Income before
income taxes $ 7,295,639 $ 5,295,101
Income taxes (2,843,917) (2,012,138)
---------------------------------------------------------------------
Net income $ 4,451,722 $ 3,282,963
=====================================================================
</TABLE>
PAGE 18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Surgical Care Affiliates, Inc. operates 65 outpatient surgery centers,
nine of which were acquired or built in 1994, and six of which were acquired or
built in 1993. The results of HealthWise of America, which were spun out of the
Company in December,1993, are reflected as a discontinued operation in the 1993
and 1992 statements of income.
1994 VERSUS 1993
The Company reported net income of $29.3 million in 1994 or $.75 per
share, compared to $36.7 million or $.96 per share in 1993. During the year,
the Company recorded non-recurring items which resulted in a net after tax
charge of $9.8 million or $.25 per share. Before giving effect to these items,
net income was $39.1 million or $1.01 per share. These non-recurring items
included establishing a reserve for the closing of three surgery centers, the
write-off of deferred development costs, the write-off of goodwill at certain
surgery centers and the recognition of a gain from the disposition of Medical
Care of America stock. Included in the 1993 net income is the discontinued
operations of Healthwise of America, Inc. of $4.5 million or $.11 per share.
Revenue increased 20% in 1994 due to a 5% increase in same center sales
and due to the net addition of 9 new surgery centers. One center was closed in
1994. Same center sales increased because of a 5% rise in the number of cases
performed. Revenue increases, due to a more intense case mix, were offset by
price reductions from managed care arrangements, so revenue per case remained
constant between 1994 and 1993. Total surgery cases increased 18% in 1994, from
161,241 to 190,030. The Company expects pricing pressure to continue, but same
center sales are expected to increase in 1995.
The cost of providing health care services increased 19% in 1994. The
increase is the result of the 18% increase in surgical cases performed.
Depreciation and amortization expense increased by approximately $5
million in 1994. The increase is due to the $30 million increase in property
and equipment and the $26 million increase in goodwill.
The increase in the provision for doubtful accounts is due to a change in
the way that billings and collections occur at some of the Company's surgery
centers.
The loss of $13.2 million on the disposal of surgery centers is the result
of the Company's decision to close three centers. These centers are expected to
be closed in the second quarter of 1995.
General and administrative expenses increased due to an increase in
corporate and regional staffing requirements.
Interest and other expense increased by $3.7 million. In the first and
second quarter of 1994 the Company recorded a charge totaling $2.2 million to
provide for the relocation of two surgery centers. The remaining increase is
due to the general rise in interest rates in the second half of 1994.
Interest and other income increased by $1.7 million primarily due to gains
recognized from the sale of a portion of the Company's equity interest in
several surgery centers to local hospitals. This is part of the Company's
strategy to bring local hospitals into surgery centers as an equity partner.
This activity should continue in 1995 and gains and losses from these
transactions will be reported as other income.
The provision for income taxes was 44% in 1994 and 39% in 1993. The
provision was increased due to certain restructuring charges which are not
deductible for income tax purposes.
In 1994 the Company disposed of all of the common stock of Medical Care of
America that it purchased in 1993. A gain of $7.7 million was recorded.
In the fourth quarter of 1994 the Company decided to change the method
used to account for deferred development expense. In 1994 and previous years,
any expense incurred prior to the opening of a new surgery center was
capitalized and amortized over several years. Beginning in 1995, all
pre-opening expenses will be expensed when incurred. Management believes the
change is preferable as the new policy will more accurately match the benefits
received from opening a new facility with the related costs. All deferred
development expenses on the balance sheet were written off at December 31, 1994,
which resulted in an expense of $2.1 million. The expense is reported as a
change in accounting principle net of income tax benefit of $1.4 million in the
income statement.
1993 VS 1992
The Company's revenue increased 22% in 1993, and net income from
continuing operations increased 26% compared to 1992. Earnings per share from
continuing operations increased 23% from $.69 in 1992 to $.85 in 1993.
Surgical cases increased 16% in 1993 to 161,241 from 139,025 in 1992. Same
center revenue increased 7% in 1993 which includes a 2% increase in same center
cases. Revenue per surgical case increased from $1,154 in 1992 to $1,221 in
1993 due to general price increases and an increase in the number of more
complex cases performed. The Company expects same center revenues increases
will range from 5% to 10% in 1994.
In 1993, the Company added six surgery centers. Two of these centers were
acquired and four were constructed.
The costs of providing health care services increased 24% in 1993
primarily due to the 16% increase in numbers of cases in the surgery centers.
Depreciation and amortization expense increased from $9.7 million to $12.6
million in 1993 due to the addition of 12 surgery centers in 1992, six new
centers in 1993 and capital expenditures at older centers.
The provision for doubtful accounts decreased from $1.4 million in 1992 to
$1.1 million in 1993. The Company's bad debt experience improved in 1993 due to
more emphasis on collections by the Company's regional and center management.
The Company's operating income as a percentage of revenue decreased from
41.3% in 1992 to 40.6% in 1993. The decrease is largely due to the fact that
the Company's costs in its surgery centers increased more rapidly than the
increase of 7% in same store revenues. The Company expects to see moderate
downward pressure on its operating income margin in future years because the
growth in managed care will limit the Company's pricing flexibility.
General, administrative and development expenses did not increase
significantly in 1993.
PAGE 19
<PAGE> 22
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Minority interests as a percentage of income before minority interests
decreased from 34.3% in 1992 to 30% in 1993. The decrease is due to the
repurchase of minority interests from limited partnerships and a higher Company
interest in the ten surgery centers purchased in 1992 and 1993.
The provision for income taxes was 38% in 1992 and 39% for 1993. The
provision was increased because the corporate federal tax rate was raised.
The rate of inflation has had a moderate impact on the operations of the
Company, since some cost increases can generally be offset by increasing the
fees charged for medical services to nongovernment payors. The existence of
weak economic conditions did not appear to have a significant impact on the
Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $31.2 million of cash at December 31, 1994, and a total
working capital of $25 million. Cash, temporary investments and marketable
securities were down approximately $11 million due primarily to the Company's
efforts to pay down its long-term debt, because of the rise in interest rates.
Working capital also decreased in 1994 because of the decline in cash and the
increase in accrued liabilities to provide for the closing of three surgery
centers.
The principal source of funds to the Company comes from operations. The
Company uses cash from operations to pay dividends, build surgery centers and
to acquire surgery centers. From time to time the Company draws on its bank
lines of credit to fund additional spending requirements. At December 31, 1994,
the Company had a bank line of $36 million of which $6 million was borrowed.
The Company expects to finance its growth in 1995 from funds provided from
its operations.
MARKET INFORMATION
The Company's common stock is traded on the New York Stock Exchange under
the symbol SCA.
Shareholders may request a copy of the Company's filing on Form 1OK by
contacting Tarpley B. Jones, Senior Vice President and Chief Financial Officer
at the Corporate Headquarters.
SHAREHOLDERS
As of December 31,1994, there were approximately 3,000 shareholders of
record. The Company estimates there are approximately 28,000 beneficial owners.
STOCK PERFORMANCE
The Common Stock of the Company was first offered to the public on January
17, 1984 and from May 7, 1985 to October 1,1992 was quoted in the NASDAQ
National Market System. Beginning October 2, 1992, the Common Stock of the
Company has been quoted on the New York Stock Exchange. The following table
sets forth the quarterly high and low sales prices for the periods indicated.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
<S> <C> <C>
1994
First Quarter $20.00 $15.00
Second Quarter $15.75 $11.88
Third Quarter $20.00 $12.63
Fourth auarter $20.88 $18.25
1993
First Quarter $25.73 $14.85
Second Quarter $17.85 $13.48
Third Quarter $16.60 $12.23
Fourth Quarter $20.60 $14.00
1992
First Quarter $43.35 $30.85
Second Quarter $37.10 $24.35
Third Quarter $30.85 $18.10
Fourth Quarter $27.48 $17.10
</TABLE>
The Company paid a $.16 cash dividend during 1994. It is the Company's
intent to continue to pay comparable dividends in future years.
PAGE 20
<PAGE> 23
CORPORATE INFORMATION
[FIGURE 6]
Picture of Board of Directors
<TABLE>
<CAPTION>
Board of Directors Management General Counsel
<S> <C> <C>
JOEL C. GORDON JOEL C. GORDON WALLER LANSDEN
Chairman of the Board and Chairman, CEO DORTCH & DAVIS
Chief Executive Officer Nashville City Center
WILLIAM J. HAMBURG 511 Union Street
WILLIAM J. HAMBURG President, COO Suite 2100
President and Chief Nashville, TN 37219
Operating Officer TARPLEY B. JONES
Senior Vice President, Auditors
DAN E. BRUHL, M.D. Chief Financial Officer, DELOITTE & TOUCHE LLP
Ophthalmological Surgeon Secretary and Treasurer Suite 2400
424 Church Street
LUCIUS BURCH, III JOSEPH J. FRANK Nashville, TN 37219-2396
Chairman of the Board, Massey Senior Vice President, Development
Burch Investment Group, Inc. Transfer Agents and
CHARLES T. NEAL Registrars
ROBERT J. FRAIMAN Senior Vice President, TRUST COMPANY BANK
Private Investor Eastern Region P.O. Box 4625
Atlanta, GA 30302
KEN MELKUS E. MICHELE VICKERY 800-568-3476
Chairman of the Board and Senior Vice President,
Chief Executive Officer - Western Region NYSE SYMBOL: SCA
HealthWise of America, Inc.
Vice Presidents, Corporate Headquarters
ANDREW W. MILLER Regional Operations SURGICAL CARE AFFILIATES, INC.
Chairman of the Board, LYNNE R. BRUCE, Southwest Woodmont Centre
Omega Health Systems, Inc. SHELVY J. FRANK, East Central 102 Woodmont Boulevard,
American HealthMark, Inc. PATRICIA A. FREDERICKSON, Pacific Suite 610
MARK C. GARVIN, South Central Nashville, TN 37205
EDWIN J. NIGHBERT, M.D. KATHRYN L. JOHNSTON, Midwest (615) 385-3541
General/Vascular Surgeon HAROLD L. MILLS, Mid Atlantic (615) 385-9939 (FAX)
DONNA J. ST. LOUIS, Southeast
SISTER M. JOSEPHA SCHAEFFER, DOUGLAS G. WILSON, JR.,
O.S.F., R.N. Mountain States
Vice President - Illinois
Hospital Sisters Health Systems
</TABLE>
<PAGE> 24
SURGICAL CARE AFFILIATES, INC.
WOODMONT CENTRE
102 WOODMONT BOULEVARD,
SUITE 610
NASHVILLE, TN 37205
(615) 385-3541
<PAGE> 1
EXHIBIT 18
February 22, 1995
Surgical Care Affiliates, Inc.
102 Woodmont Blvd., Suite 610
Nashville, Tennessee 37205
Gentlemen:
We have audited the consolidated financial statements of Surgical Care
Affiliates, Inc. and subsidiaries as of December 31, 1994 and 1993 and for each
of the three years in the period ended December 31, 1994, included in your
Annual Report on Form 10-K to the Securities and Exchange Commission and have
issued our report thereon dated February 22, 1995. Note 7 to such consolidated
financial statements contains a description of your adoption during the year
ended December 31, 1994 of the policy to expense development and pre-opening
costs as incurred. The Company now expenses development and pre-opening costs
as incurred rather than capitalizing such costs and amortizing them over a
period of two years from the facility opening date. In our judgment, such
change is to an alternative accounting principle that is preferable under the
circumstances.
Yours truly,
DELOITTE & TOUCHE LLP
Nashville, Tennessee
<PAGE> 1
EXHIBIT 21
SURGICAL CARE AFFILIATES, INC.
CORPORATE SUBSIDIARIES*
<TABLE>
<S> <C>
ALABAMA FLORIDA
------- -------
Gadsden Surgery Center, Inc. SCA-Ft. Myers, Inc.
SCA-Gadsden, Inc. SCA-Sarasota, Inc.
SCA-Mobile, Inc. SCA-St. Petersburg, Inc.
SCA-Mobile Properties, Inc. SCA-Tampa, Inc.
Surgical Services of Sarasota, Inc.
ARKANSAS
-------- ILLINOIS
--------
(The) Center for Day Surgery, Inc.
Little Rock-SC, Inc. SCA-JV, Inc.
SCA-Little Rock Development Corp.
INDIANA
CALIFORNIA -------
----------
SCA-Evansville, Inc.
Redlands-SCA Surgery Centers, Inc. SCA-Indianapolis, Inc.
SCA-San Jose, Inc.
SCA-San Luis Obispo, Inc.
KENTUCKY
--------
COLORADO
-------- Lexington-SC, Inc.
Lexington-SC Properties, Inc.
Aurora-SC, Inc. Louisville-SC Properties, Inc.
Golden-SCA, Inc. Surgery Center of Louisville, Inc.
Pueblo-SCA Surgery Center, Inc.
SCA-Colorado Springs, Inc.
SCA-Fort Collins, Inc. MARYLAND
--------
DELAWARE All-Care Surgi Center, Inc.
-------- Maryland-SCA Centers, Inc.
SCA-Dover, Inc.
</TABLE>
__________________________________
* The names of certain inactive subsidiaries, which considered in the
aggregate would not constitute a significant subsidiary, have been omitted.
Some are indirect subsidiaries.
<PAGE> 2
<TABLE>
<S> <C>
MASSACHUSETTS TENNESSEE
------------- ---------
Springfield-SC, Inc. Chattanooga-SC, Inc.
Coral Springs-SC, Inc.
Health Horizons of San Francisco, Inc.
NEVADA Knoxville-SCA Surgery Center, Inc.
------ Nashville-SCA Surgery Centers, Inc
SCA-Blue Ridge, Inc. .
SCA Investment Company SCA-Citrus, Inc.
SCA-Santa Rosa, Inc. SCA-Conroe, Inc.
SCA Development, Inc.
SCA-Dothan, Inc.
NEW JERSEY SCA-Eugene, Inc.
---------- SCA-Florence, Inc.
SCA-Fort Walton, Inc.
SCA-Roseland, Inc. SCA-Gainesville, Inc.
SCA-South Jersey, Inc. SCA-Greenville East, Inc.
SCA-Hamilton Development Corp.
SCA-HHI, Inc.
NEW MEXICO SCA-Honolulu, Inc.
---------- SCA-Management Company
SCA-Marquette, Inc.
SCA-Albuquerque, Inc. SCA-Mt. Pleasant, Inc.
SCA-Albuquerque Surgery Properties, Inc. SCA-Paoli, Inc.
SCA-Plano, Inc.
SCA-Shelby Development Corp.
NORTH CAROLINA SCA-St. Joseph Missouri, Inc.
-------------- SCA-Tallahassee, Inc.
SCA-Wausau, Inc.
Charlotte-SC, Inc. SCA-Winter Park, Inc.
SCA-Mecklenberg Development Corp. SCA-Yuma, Inc.
SC-Wilson, Inc. Shelby Surgery Properties, Inc.
PENNSYLVANIA TEXAS
------------ -----
Camp Hill-SCA Centers, Inc. El Paso-SC, Inc.
Lancaster Medical Centre, Inc. Fort Worth-SC, Inc.
Lancaster-SC, Inc. Greenpark Surgery Center, Inc.
Lancaster Surgical Center, Inc. Greenville Surgery Center, Inc.
Scranton-SC, Inc. San Antonio Surgery Center, Inc.
SCA-Arlington Surgery, Inc.
SOUTH CAROLINA
--------------
SCA-Charleston, Inc.
</TABLE>
<PAGE> 3
WEST VIRGINIA
-------------
SCA-Cabell, Inc.
SCA-Cabell Development Corporation
WISCONSIN
---------
Oshkosh-SCA Surgery Center, Inc.
Wauwatosa Outpatient Surgery Center, Inc.
<PAGE> 4
SURGICAL CARE AFFILIATES, INC.
AFFILIATED PARTNERSHIPS(1)
ALABAMA
Gadsden Surgery Center, Ltd.
Mobile-SC, Ltd.
Mobile-SC Properties, Ltd.
ARKANSAS
Little Rock Surgery Center, Limited Partnership
Little Rock Surgery Properties, Limited Partnership
CALIFORNIA
Forest Ambulatory Surgical Associates, L.P.
Inland Surgery Center, L.P.
Redlands Ambulatory Surgery Center
San Luis Obispo Surgery Center, a California Limited Partnership
COLORADO
Aurora Surgery Center Limited Partnership
Colorado Springs Surgery Center, Ltd.
Golden Surgery Center, L.P.
SCA-FCSC, L.P.
Pueblo Ambulatory Surgery Center Limited Partnership
DELAWARE
Central Delaware Ambulatory Surgery Center
__________________________________
(1) The names of certain inactive partnerships, which considered in the
aggregate would not constitute a significant affiliated partnership, have been
omitted.
<PAGE> 5
FLORIDA
Physicians Surgery Center, Ltd.
Sarasota Surgery Center, Ltd.
Sarasota Surgery Properties, Ltd.
St. Petersburg Surgery Center, Ltd.
Tampa Outpatient Surgery Joint Venture, Ltd.
INDIANA
Evansville Surgery Center Associates, L.P.
KENTUCKY
Lexington Surgery Center, Ltd.
Lex-Surg Associates
Louisville S.C., Ltd.
LPSC, Ltd.
Surgery Property Associates, Ltd.
MARYLAND
Maryland Ambulatory Centers
Montgomery Surgery Center Limited Partnership
MASSACHUSETTS
Maple Surgery Center, Limited Partnership
NEW JERSEY
Surgical Center of South Jersey, Limited Partnership
NEW MEXICO
New Mexico Surgicenter Limited Partnership
New Mexico Surgery Properties Limited Partnership
2
<PAGE> 6
NORTH CAROLINA
Charlotte Surgery Properties, Ltd.
Charlotte Surgery Center, Ltd.
Surgecenter of Wilson, Limited Partnership
PENNSYLVANIA
Camp Hill Ambulatory Centers
Grandview Surgery Center, Ltd.
Lancaster Surgery Center, Limited Partnership
Lancaster Surgery Properties, Ltd.
Scranton Surgery Center, Limited Partnership
SOUTH CAROLINA
Charleston Surgery Center Limited Partnership
Greenville Surgery Center Limited Partnership
TENNESSEE
Blue Ridge Day Surgery Center, L.P.
Chattanooga Surgery Center, Ltd., L.P.
Chattanooga Surgery Properties, Ltd., L.P.
Citrus Regional Surgery Center, L.P.
Conroe Surgery Center, L.P.
Coral Springs Surgery Center Limited Partnership
Dothan Surgery Center, L.P.
Emerald Coast Surgery Center, L.P.
Florence Surgery Center, L.P.
Fort Smith Outpatient Surgery Center, L.P.
Gainesville Surgery Center, L.P.
Honolulu Surgery Center, L.P.
Knoxville Ambulatory Surgery Center, L.P.
Marquette Surgery Center, L.P.
McKenzie Surgery Center, L.P.
Memphis Surgery Center, Ltd., L.P.
Memphis Surgery Properties, Ltd., L.P.
Mt. Pleasant Surgery Center, L.P.
Nashville Surgery Center, L.P.
Nashville Ambulatory Surgery Center
Oshkosh Surgery Center, L.P.
Paoli Surgery Center, L.P.
Paoli Ambulatory Surgery Center
Plano Surgery Center, L.P.
Santa Rosa Surgery Center, L.P.
St. Joseph Surgery Center, L.P.
Tampa IVF/Gift Center, L.P.
3
<PAGE> 7
Tampa Pain Management Center, L.P.
Wausau Surgery Center, L.P.
Winter Park Surgery Center, L.P.
Yuma Outpatient Surgery Center, L.P.
TEXAS
Arlington Surgery Center Associates, Ltd.
El Paso Surgery Center Limited Partnership
Fort Worth Surgery Center Associates
Greenpark Surgery Center Associates, Ltd.
Greenville Surgery Center, Ltd.
San Antonio Surgery Center, Ltd.
WEST VIRGINIA
Huntington Surgery Center, Limited Partnership
Huntington Surgery Properties, Limited Partnership
WISCONSIN
Ambulatory Health Services Association
Eau Claire Surgery Center, Limited Partnership
Wauwatosa Surgery Center, Limited Partnership
4
<PAGE> 8
SURGICAL CARE AFFILIATES, INC.
AFFILIATED LIMITED LIABILITY COMPANIES
TENNESSEE
Memphis-SC, LLC
Memphis-SP, LLC
SCA/Deaconess Joint Venture, LLC
SCA/Ft. Myers, LLC
SCA/McKenzie Joint Venture, LLC
SCA-Northeast Georgia Health, LLC
Winter Park, LLC
<PAGE> 1
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Annual Report on Form 10-K
and previously filed Registration Statements No. 33- 62408 on Form S-3; No.
33-62418 on Form S-4; and Nos. 33-47599, 33-11639, 33-35874 and 33-62406 on
Form S-8 of our report dated February 22, 1995 accompanying the consolidated
financial statements of Surgical Care Affiliates, Inc. for the year ended
December 31, 1994.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
March 29, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT OF SURGICAL CARE FOR THE YEAR ENDED DECEMBER 31, 1994, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000722692
<NAME> SURGICAL CARE AFFILIATES, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 31,222,963
<SECURITIES> 294,639
<RECEIVABLES> 38,961,339
<ALLOWANCES> 4,160,260
<INVENTORY> 4,562,518
<CURRENT-ASSETS> 81,586,334
<PP&E> 206,951,143
<DEPRECIATION> 57,969,075
<TOTAL-ASSETS> 340,343,594
<CURRENT-LIABILITIES> 56,534,289
<BONDS> 49,716,985
<COMMON> 9,777,656
0
0
<OTHER-SE> 192,959,631
<TOTAL-LIABILITY-AND-EQUITY> 340,343,594
<SALES> 236,719,426
<TOTAL-REVENUES> 236,719,426
<CGS> 140,770,246
<TOTAL-COSTS> 140,770,246
<OTHER-EXPENSES> 18,660,515
<LOSS-PROVISION> 3,060,679
<INTEREST-EXPENSE> 7,293,533
<INCOME-PRETAX> 56,424,940
<INCOME-TAX> 25,039,576
<INCOME-CONTINUING> 31,385,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 2,105,155
<NET-INCOME> 29,280,209
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
