<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
SEPTEMBER 30, 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 September 30, 1995, was 4,633,170 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 SEPTEMBER 30, 1995
INFORMATION INCLUDED IN REPORT
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Position
Consolidated Statements of Income (Loss)
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 SEPTEMBER 30, 1995
The accompanying Consolidated Financial Statements of Safeguard Health
Enterprises, Inc. and subsidiaries (the "Company"), for the quarter ended
September 30, 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>
September 30, December 31,
1995 1994
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 6 $ 503
Short-term investments 2,395 1,723
Investment securities available for
sale, at estimated fair value 5,450 3,175
Investment securities held to
maturity, at cost 585 3,260
Accounts and notes receivable, net
of allowances of $387 in 1995 and
$206 in 1994 3,501 2,183
Income taxes receivable - 255
Prepaid expenses and other 833 1,032
Deferred income taxes 247 247
-------- --------
Total current assets 13,017 12,378
-------- --------
Property and equipment, net 12,561 11,256
Investment securities held to
maturity, at cost 7,869 6,509
Other assets 229 229
Intangibles, net of accumulated
amortization of $1,362 in 1995 and
$1,293 in 1994 395 420
-------- --------
$ 34,071 $ 30,792
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 880 $ 1,307
Accrued expenses 2,376 1,508
Income taxes payable 170 -
Deferred revenue 78 228
-------- --------
Total current liabilities 3,504 3,043
-------- --------
Deferred income taxes 403 280
Stockholders' equity
Common stock $.01 par value;
30,000,000 shares authorized;
4,633,000 and 4,465,000 shares
outstanding, stated at 20,031 19,212
Retained earnings 28,409 26,725
Net unrealized loss on investment (153) (345)
securities available for sale
Treasury stock, at cost (18,123) (18,123)
-------- --------
Total stockholders' equity 30,164 27,469
-------- --------
$ 34,071 $ 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 Nine months ended
September 30 September 30
-------------------- ------------------
1995 1994 1995 1994
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Health care revenues $20,834 $18,060 $60,299 $52,405
------- ------- ------- -------
Expenses:
Health care services 16,773 15,694 48,387 41,542
Selling, general and administrative 3,476 3,346 10,072 9,696
------- ------- ------- -------
Total expenses 20,249 19,040 58,459 51,238
------- ------- ------- -------
Operating income (loss) 585 (980) 1,840 1,167
Other income, net 403 208 846 615
------- ------- ------- -------
Income (loss) before income taxes 988 (772) 2,686 1,782
Provision (benefit) for income taxes 339 (297) 1,002 707
------- ------- ------- -------
Net income (loss) $ 649 $ (475) $ 1,684 $ 1,075
======= ======= ======= =======
Net income (loss) per common share and common share
equivalent:
Primary and fully diluted $ .14 $ (.10) $ .35 $ .22
======= ======= ======= =======
Weighted average common shares and equivalents outstanding 4,777 4,691 4,766 4,844
======= ======= ======= =======
</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>
Nine months ended
September 30
------------------
(Unaudited)
1995 1994
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,684 $ 1,075
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,194 1,028
Deferred income taxes (benefit) 123 (198)
Change in assets and liabilities:
Accounts receivable, net (1,318) (108)
Income taxes receivable 255 152
Prepaid expenses and other 199 9
Accounts payable (427) (515)
Accrued expenses 868 777
Income taxes payable 170 10
Deferred revenue (150) (270)
------- -------
Net cash provided by operating activities 2,598 1,960
------- -------
Cash flows from investing activities:
Change in marketable securities (1,440) 622
Additions to property and equipment (2,431) (3,583)
Other activity, net (43) (21)
------- -------
Net cash used in investing activities (3,914) (2,982)
------- -------
Cash flows from financing activities:
Stock repurchases - (70)
Proceeds from exercise of stock options 819 406
------- -------
Net cash provided by financing activities 819 336
------- -------
Net decrease in cash (497) (686)
Cash at beginning of period 503 873
------- -------
Cash at end of period $ 6 $ 187
======= =======
</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
September 30, 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 4,510,888 shares of its common stock through
open market or private transactions. As of September 30, 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 September 30, 1995 and 1994 were computed by dividing net income
by 4,777,262 and 4,843,731 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 September 30, 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 1995 Versus 1994
------------------ ------------------
Three months ended Nine months ended
Results of operations (000's) omitted September 30 September 30
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Health care revenues $2,774 $7,894
Percentage change 15.4% 15.1%
- - --------------------------------------------------------------------------------------------------------------
Membership enrollment 51
Percentage change 7.3%
- - --------------------------------------------------------------------------------------------------------------
Health care expenses $1,079 $6,845
Percentage change 6.9% 16.5%
Percent of revenues 80.5% 80.2%
- - --------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses $ 130 $ 376
Percentage change 3.9% 3.9%
Percent of revenues 16.7% 16.7%
- - --------------------------------------------------------------------------------------------------------------
Other income, net $ 195 $ 231
Percentage change 93.8% 37.6%
Percent of revenues 1.9% 1.4%
- - --------------------------------------------------------------------------------------------------------------
Net income $1,124 $ 609
Percentage change 236.6% 56.7%
- - --------------------------------------------------------------------------------------------------------------
</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 751,000 primarily from sales to new small and mid-size
group clients and an increase in the number of persons covered under various
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 expenses within the
Company's dental office subsidiary, increased capitation, and increased
indemnity benefits paid to insureds directly related to increased premium
revenue. Health care expense also increased due to increased claims and claims
reserve costs associated with the implementation of a number of new indemnity
benefit programs offered by the Company's indemnity insurance subsidiary,
geographic expansion, and to a lesser extent, the expansion of the Company's
Preferred Provider Organization operations. General and administrative expenses
increased at a lower rate due to increased operating efficiencies. Selling
expenses increased primarily due to higher costs in the distribution of the
Company's products through insurance related sources. Other income increased
due to the favorable disposition by the Company of certain equity investments
and dividend income. Net income increased due to the above factors.
Page 8 of 10
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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 September 30, 1995, the current ratio was 3.7 to 1.0. The Company's net
worth was $30.2 million compared to $28.6 million a year earlier. The Company
had $16.3 million of cash and investments as of September 30, 1995 compared to
$16.6 million a year earlier. The Company believes that income from operations,
together with the existing cash and investments 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 the Company's operations are not materially affected by
inflation. The Company believes that a majority of its costs are capitated or
fixed in nature and are directly related to membership levels, and therefore
related to premium levels.
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 September 30, 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 30th of October, 1995.
SAFEGUARD HEALTH ENTERPRISES, INC.
By STEVEN J. BAILEYS, D.D.S.
--------------------------
STEVEN J. BAILEYS, D.D.S.,
Chairman, President and
Chief Executive Officer
By RONALD I. BRENDZEL
-------------------
RONALD I. BRENDZEL,
Senior Vice President,
Chief Financial Officer
and Secretary
Page 10 of 10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 6
<SECURITIES> 8,430
<RECEIVABLES> 3,888
<ALLOWANCES> 387
<INVENTORY> 0
<CURRENT-ASSETS> 13,017
<PP&E> 24,584
<DEPRECIATION> 12,022
<TOTAL-ASSETS> 34,071
<CURRENT-LIABILITIES> 3,907
<BONDS> 0
<COMMON> 20,031
0
0
<OTHER-SE> 10,133
<TOTAL-LIABILITY-AND-EQUITY> 34,071
<SALES> 20,834
<TOTAL-REVENUES> 20,834
<CGS> 16,773
<TOTAL-COSTS> 16,773
<OTHER-EXPENSES> 3,476
<LOSS-PROVISION> (403)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 988
<INCOME-TAX> 339
<INCOME-CONTINUING> 649
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 649
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
