<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER 0-12050
MARCH 31, 1995
SAFEGUARD HEALTH ENTERPRISES, INC.
(Exact Name of Registrant Specified in its Charter)
DELAWARE 52-1528581
(State of Incorporation) (I.R.S. Employer
Identification No.)
505 NORTH EUCLID STREET
P.O. BOX 3210
ANAHEIM, CALIFORNIA 92803-3210
(Address of principal offices) (Zip code)
Registrant's telephone number, including area code: (714) 778-1005
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
-----
The number of shares outstanding of registrant's common stock, par value $.01
per share, at March 31, 1995, was 4,464,503 shares (not including 3,274,788
shares of common stock held in treasury).
Page 1 of 10
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SAFEGUARD HEALTH ENTERPRISES, INC.
AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
INFORMATION INCLUDED IN REPORT
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Position
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Default Upon Senior Securities
Item 4. Other Information
Item 5. Exhibits and Reports
Page 2 of 10
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PART I. FINANCIAL INFORMATION
SAFEGUARD HEALTH ENTERPRISES, INC.
AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
The accompanying Consolidated Financial Statements of Safeguard Health
Enterprises, Inc. and subsidiaries (the "Company"), for the quarter ended March
31, 1995, while unaudited, reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of results for the interim
periods. The statements have been prepared in accordance with the regulations
of the Securities and Exchange Commission, but omit certain information and
footnote disclosures necessary to present the statements in accordance with
generally accepted accounting principles.
These Consolidated Financial Statements should be reviewed in conjunction with
the Consolidated Financial Statements and Notes, including Significant
Accounting Policies, contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1994. Management believes that the disclosures
herein are adequate to make the information presented not misleading.
Page 3 of 10
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ITEM 1. FINANCIAL STATEMENTS
SAFEGUARD HEALTH ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($000'S OMITTED, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 641 $ 503
Short-term investments 1,840 1,723
Investment securities available for 2,997 3,175
sale, at estimated fair value
Investment securities held to 3,186 3,260
maturity, at cost
Accounts and notes receivable, net
of allowances of
$503 in 1995 and $206 in 1994 2,083 2,183
Income taxes receivable - 255
Prepaid expenses and other 1,069 1,032
Deferred income taxes 244 247
-------- --------
Total current assets 12,060 12,378
Property and equipment, net 11,595 11,256
Investment securities held to 6,505 6,509
maturity, at cost
Other assets 229 229
Intangibles, net of accumulated
amortization of 398 420
$1,316 in 1995 and $1,293 in 1994 -------- --------
$ 30,787 $ 30,792
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 2,351 $ 2,815
Income taxes payable 57 -
Deferred revenue 190 228
-------- --------
Total current liabilities 2,598 3,043
Deferred income taxes 252 280
Stockholders' equity
Common stock $.01 par value;
30,000,000 shares authorized;
4,465,000 and 4,465,000 shares 19,212 19,212
outstanding, stated at
Retained earnings 27,210 26,725
Net unrealized loss on investment (362) (345)
securities available for sale
Treasury stock, at cost (18,123) (18,123)
Total stockholders' 27,937 27,469
equity -------- --------
$ 30,787 $ 30,792
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 4 of 10
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SAFEGUARD HEALTH ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(000'S OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1995 1994
------- -------
<S> <C> <C>
Health care revenues $19,423 $16,933
------- -------
Expenses:
Health care services 15,472 12,328
Selling, general and administrative 3,349 3,090
------- -------
Total expense 18,821 15,418
------- -------
Operating income (loss) 602 1,515
Other income, net 192 220
------- -------
Income (loss) before income taxes 794 1,735
------- -------
Provision (benefit) for income taxes $ 309 $ 678
------- -------
Net income (loss) $ 485 $ 1,057
======= =======
Net income (loss) per common share and
common share equivalent:
Primary and fully diluted $.10 $.22
======= =======
Weighted average common shares and 4,656 4,911
equivalents outstanding
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 5 of 10
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SAFEGUARD HEALTH ENTERPRISES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000'S OMITTED)
<TABLE>
<CAPTION>
Three months ended
March 31,
-------------------
(Unaudited)
1995 1994
------ --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 485 $ 1,057
Adjustments to reconcile net income
to net cash provided
by operating activities:
Depreciation and amortization 378 288
Deferred income taxes (benefit) (25) -
Change in assets and liabilities:
Accounts receivable net 100 (657)
Income taxes receivable 255 152
Prepaid expenses and (37) (279)
other
Accounts payable and (464) 289
accrued expenses
Income taxes payable 57 830
Deferred revenue (38) (96)
----- -------
Net cash provided 711 1,584
by operating ----- -------
activities
Cash flows from investing activities:
Change in marketable securities 156 991
Additions to property and equipment (694) (1,053)
Other activity, net (35) (8)
----- -------
Net cash used in (573) ( 70)
investing ----- -------
activities
Cash flows from financing activities:
Proceeds from exercise of stock - 67
options ----- -------
Net cash provided - 67
by financing ----- -------
activities
Net increase in cash 138 1,581
Cash at beginning of period 503 873
----- -------
Cash at end of period $ 641 $ 2,454
===== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 6 of 10
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SAFEGUARD HEALTH ENTERPRISES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF REPORTING
- ---------------------------
The accompanying unaudited Consolidated Financial Statements of Safeguard Health
Enterprises, Inc. and subsidiaries (the "Company") for the quarter ended March
31, 1995, have been prepared in accordance with generally accepted accounting
principles applicable to interim periods. This information should be read in
conjunction with the Consolidated Financial Statements and Notes including
Significant Accounting Policies, contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1994. In the opinion of management,
the accompanying statements contain all adjustments necessary for the interim
amounts shown to be fairly presented.
NOTE 2: STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
- ----------------------------------------------------
Since October 1986, the Company's Board of Directors has, at various times,
authorized the repurchase of up to a total of 4,510,888 shares of its common
stock through open market or private transactions. As of March 31, 1995, a
total of 3,819,088 shares had been acquired at an average cost of $5.54 per
share. All shares acquired prior to August 24, 1987, have been retired as
required by California law. All shares acquired after the August 24, 1987
reincorporation in Delaware are being held as treasury stock. Earnings per
share for the periods ended March 31, 1995 and 1994 were computed by dividing
net income by 4,655,866 and 4,911,378 shares, respectively, which was the
weighted average number of outstanding common shares and common share
equivalents (stock options) during the respective periods.
NOTE 3: INCOME TAXES
- ---------------------
Effective January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes. This statement
supersedes APB 11, which the Company had utilized since its inception. The
adoption of SFAS No. 109 has had no cumulative net effect on income from
continuing operations for the quarter ended March 31, 1995.
This statement requires the recognition of deferred tax assets and liabilities
for the future consequences of events that have been recognized in the Company's
financial statements or tax returns. The measurement of the deferred items is
based on enacted tax laws. In the event the future consequences of the
Company's assets and liabilities result in a deferred tax asset, SFAS No. 109
requires an evaluation of the probability of being able to realize the future
benefits indicated by such asset. A valuation allowance related to a deferred
tax asset is recorded when it is more likely than not that some portion or all
of the deferred tax asset will not be realized. The cumulative effect on the
Company's deferred tax accounts at January 1, 1993 of adopting this new
statement was the recording of a net deferred tax liability of $177,000.
Page 7 of 10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
1995 Versus 1994
--------------------
Three months ended
Results of operations (000') omitted) March 31
- ---------------------------------------------------------------
<S> <C>
Health care revenues $2,490
Percentage change 14.7%
- ---------------------------------------------------------------
Membership enrollment 52
Percentage change 7.6%
- ---------------------------------------------------------------
Health care expenses $3,144
Percentage change 25.5%
Percent of revenues 79.7%
- ---------------------------------------------------------------
Selling, general and administrative $ 259
expenses
Percentage change 8.4%
Percent of revenues 17.2%
- ---------------------------------------------------------------
Other income, net $ (28)
Percentage change (12.7%)
Percent of revenues 1.0%
- ---------------------------------------------------------------
Net income $ (572)
Percentage change (54.1%)
- ----------------------------------------------------------------
</TABLE>
1995 Versus 1994
- ----------------
Health care revenues increased as a result of sales to new small and mid-size
clients, increased revenue from the Company's dental office subsidiary and
increased revenue from the Company's indemnity insurance subsidiary. Membership
enrollment increased to 740,000 from 688,000 primarily from sales to new small
and mid-size group clients and an increase in the number of persons covered
under dental indemnity insurance products offered by the Company's insurance
subsidiary. Enrollment increases offset entirely continued workforce reductions
in a number of the Company's major group clients.
Health care expense increased primarily due to increased capitation directly
related to increased premium revenue. Health care expense also increased due to
increased claims costs associated with the implementation of a number of new
indemnity benefit programs offered by the Company's indemnity insurance
subsidiary, geographic expansion, and the expansion of the Company's Preferred
Provider Organization operations. General and administrative expenses increased
due to increased staffing levels to accommodate increasing enrollment. Selling
expenses increased primarily due to higher acquisition costs in the distribution
of the Company's products through other insurance related sources. Net income
decreased due to the above factors.
Page 8 of 10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources
- -------------------------------
The Company's business has not been capital intensive. The Company's
operational cash requirements have been met principally from operating cash flow
and this is expected to continue.
At March 31, 1995, the current ratio was 4.6 to 1.0. The Company's net worth
was $27.9 million compared to $28.3 million a year earlier. The Company had
$15.2 million of cash and investments as of March 31, 1995 compared to $18.5
million a year earlier. The Company believes that income from operations,
together with the existing cash and marketable securities on hand, and other
available sources of financing, should be adequate to meet operating capital
needs for the foreseeable future.
Impact of Inflation
- -------------------
Management believes that a major factor supporting the Company's ability to
obtain and retain clients has been its ability to provide quality managed dental
care benefits to a broad spectrum of clients, at a lower cost than most
competitors during a period of escalating health care benefit costs. The
Company believes its operations are not otherwise materially affected by
inflation due to the capitated or fixed nature of its major costs over the
respective terms of its client contracts.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in litigation arising in the normal course
of business. In the opinion of management, the defense costs and/or
ultimate outcome of such litigation is covered by insurance or will
not have material effect on the Company's financial position or
results of operations.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. OTHER INFORMATION
None.
ITEM 5. EXHIBITS AND REPORTS
There were no reports on Form 8-K filed by the Company during the
quarter ended March 31, 1995.
Page 9 of 10
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) or 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, in the City of Anaheim,
State of California, on the 8th of May, 1995.
SAFEGUARD HEALTH ENTERPRISES, INC.
By /s/ STEVEN J. BAILEYS, D.D.S.
------------------------------
STEVEN J. BAILEYS, D.D.S.,
Vice Chairman, President and
Chief Operating Officer
By /s/ RONALD I. BRENDZEL
------------------------------
RONALD I. BRENDZEL,
Senior Vice President, Chief
Financial Officer and
Secretary
Page 10 of 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 641
<SECURITIES> 8,023
<RECEIVABLES> 2,586
<ALLOWANCES> 503
<INVENTORY> 0
<CURRENT-ASSETS> 12,060
<PP&E> 22,877
<DEPRECIATION> 11,282
<TOTAL-ASSETS> 30,787
<CURRENT-LIABILITIES> 2,850
<BONDS> 0
<COMMON> 19,212
0
0
<OTHER-SE> 8,725
<TOTAL-LIABILITY-AND-EQUITY> 30,787
<SALES> 19,423
<TOTAL-REVENUES> 19,423
<CGS> 15,472
<TOTAL-COSTS> 15,472
<OTHER-EXPENSES> 3,025
<LOSS-PROVISION> 132
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 794
<INCOME-TAX> 309
<INCOME-CONTINUING> 485
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 485
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
