THIS DOCUMENT IS A COPY OF THE FORM 10-Q
FILED ON NOVEMBER 15, 1996 PURSUANT TO A
RULE 201 TEMPORARY HARDSHIP EXEMPTION.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1996
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
******************************
Commission File Number 0-26806
SHERIDAN HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3252967
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
4651 Sheridan Street, Suite 400, Hollywood, Florida 33021
(Address of principal executive offices, including zip code)
954/987-5822
(Registrant's telephone number, including area code)
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 __________
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of outstanding shares of the issuer's classes of common
stock as of the latest practicable date.
As of November 1, 1996, there were 6,405,050 shares of the Registrant's voting
Common Stock, $.01 par value, outstanding and 296,638 shares of the Registrant's
non-voting Class A Common Stock, $.01 par value, outstanding.
1
<PAGE>
Part I: Financial Information
Item 1: Financial Statements
<TABLE>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................................... $ 730 $ ---
Accounts receivable, net of allowances........................................ 18,562 11,040
Income tax refunds receivable................................................. 747 760
Deferred income taxes......................................................... 645 ---
Other current assets.......................................................... 2,212 1,029
------------- ------------
Total current assets........................................................ 22,896 12,829
Property and equipment, net of accumulated depreciation.......................... 5,014 3,767
Goodwill, net of accumulated amortization........................................ 59,600 45,417
Intangible assets, net of accumulated amortization............................... 1,560 2,360
------------- ------------
Total assets.............................................................. $ 89,070 $ 64,373
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 211 $ 357
Amounts due for acquisitions.................................................. 545 559
Accrued salaries and benefits................................................. 1,628 2,236
Self-insurance accruals....................................................... 2,225 1,615
Refunds payable............................................................... 1,679 910
Income taxes payable.......................................................... 305 ---
Other accrued expenses........................................................ 2,811 1,883
Current portion of long-term debt............................................. 25,127 970
------------- ------------
Total current liabilities................................................... 34,531 8,530
Long-term debt................................................................... 1,489 11,365
Amounts due for acquisitions..................................................... 2,277 1,809
Stockholders' equity:
Preferred stock, par value $.01; 5,000 shares authorized, none issued......... --- ---
Common stock, par value $.01; 31,000 shares authorized:
Voting; 6,431 and 5,773 shares issued and outstanding...................... 64 58
Class A non-voting; 297 shares issued and outstanding...................... 3 3
Additional paid-in capital.................................................... 61,122 55,720
Excess purchase price distributed to management stockholders.................. (7,541) (7,541)
Retained earnings (deficit)................................................... (2,875) (5,571)
------------- ------------
Total stockholders' equity ................................................. 50,773 42,669
------------- ------------
Total liabilities and stockholders' equity................................ $ 89,070 $ 64,373
============= ============
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three Months Ended
September 30,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Net revenue...................................................................... $ 24,869 $ 16,578
Operating expenses:
Direct facility expenses...................................................... 17,748 12,519
Provision for bad debts....................................................... 990 580
Salaries and benefits......................................................... 1,870 1,433
General and administrative.................................................... 1,097 1,218
Amortization.................................................................. 708 622
Depreciation.................................................................. 299 166
---------- ---------
Total operating expenses.................................................... 22,712 16,538
---------- ---------
Operating income................................................................. 2,157 40
Interest expense................................................................. 710 1,158
---------- ---------
Income (loss) before income taxes................................................ 1,447 (1,118)
Income tax expense (benefit)..................................................... 720 (268)
---------- ---------
Net income (loss)................................................................ $ 727 (850)
=========== =========
Dividends on convertible preferred stock......................................... 402
---------
Net income (loss) attributable to common stockholders............................ $ (1,252)
=========
Net income (loss) per share...................................................... $ .11 $ (.62)
Weighted average shares of common stock and
common stock equivalents outstanding.......................................... 6,808 2,028
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<CAPTION>
Nine Months Ended
September 30,
----------------------
1996 1995
---------- ---------
<S> <C> <C>
Net revenue...................................................................... $ 67,923 $ 47,512
Operating expenses:
Direct facility expenses...................................................... 48,830 35,142
Provision for bad debts....................................................... 2,580 1,740
Salaries and benefits......................................................... 5,104 3,654
General and administrative.................................................... 3,199 2,609
Amortization.................................................................. 1,897 1,489
Depreciation.................................................................. 783 365
---------- ---------
Total operating expenses.................................................... 62,393 44,999
---------- ---------
Operating income................................................................. 5,530 2,513
Interest expense................................................................. 1,914 3,382
---------- ---------
Income (loss) before income taxes................................................ 3,616 (869)
Income tax expense............................................................... 920 ---
---------- ---------
Net income (loss)................................................................ $ 2,696 (869)
==========
Dividends on convertible preferred stock......................................... 1,206
---------
Net income (loss) attributable to common stockholders............................ $ (2,075)
=========
Net income (loss) per share...................................................... $ .41 $ (1.02)
Weighted average shares of common stock and
common stock equivalents outstanding.......................................... 6,648 2,028
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Nine Months Ended
September 30,
-----------------
1996 1995
------- -------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss)............................................................. $ 2,696 $ (869)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization................................................................ 1,897 1,489
Depreciation................................................................ 783 365
Provision for bad debts..................................................... 2,580 1,740
Net interest amortization on subordinated debt.............................. --- 381
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable.................................. (5,813) (3,365)
Decrease (increase) in other current assets................................. (1,430) (523)
Decrease (increase) in other assets......................................... --- (604)
Increase (decrease) in accounts payable..................................... (513) (27)
Increase (decrease) in other accrued expenses............................... 326 (348)
------- -------
Net cash provided (used) by operating activities.......................... 526 (1,761)
Cash flows from investing activities:
Acquisitions of physician practices........................................... (12,361) (5,795)
Capital expenditures.......................................................... (1,086) (2,119)
------- -------
Net cash provided (used) by investing activities.......................... (13,447) (7,914)
Cash flows from financing activities:
Borrowings on long-term debt.................................................. 15,036 5,649
Issuance of convertible promissory note....................................... --- 5,000
Payments on long-term debt.................................................... (1,385) (2,109)
Dividends on convertible preferred stock...................................... --- (1,206)
Collection of subscriptions receivable........................................ --- 238
------- -------
Net cash provided by financing activities................................. 13,651 7,572
------- -------
Increase (decrease) in cash and cash equivalents................................. 730 (2,103)
Cash and cash equivalents:
Beginning of period........................................................... --- 2,581
------- -------
End of period................................................................. $ 730 $ 478
======= =======
</TABLE>
See accompanying notes.
5
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(unaudited)
(1) BASIS OF PRESENTATION
---------------------
The interim consolidated financial statements have been prepared without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to SEC rules and regulations;
nevertheless, management believes that the disclosures herein are adequate to
make the information presented not misleading. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995. In the opinion of management,all
adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the consolidated financial position of the Company at September
30, 1996, and the consolidated results of its operations and its consolidated
cash flows for the periods shown in the interim consolidated financial
statements, have been included herein. The results of operations for the interim
periods are not necessarily indicative of the results for the full years.
(2) GOODWILL
--------
Approximately $29.6 million of the total amount of goodwill, net of accumulated
amortization, at September 30, 1996 is related to the Company's acquisition of
Sheridan Healthcorp, Inc. (the "Predecessor") in November 1994. Such goodwill
represents the Company's market position and reputation, its relationships with
its customers and affiliated physicians, the relationships between its
affiliated physicians and their patients, and other similar intangible assets.
Approximately $20.5 million of the total amount of goodwill at September 30,
1996 is related to several acquisitions of office-based physician practices
which were completed from September 1994 to July 1996, some of which are
discussed in Note 5 below. Such goodwill represents the general reputation of
the practices in the communities they serve, the collective experience of the
management and other employees of the practices in managing health care services
delivered under capitated arrangements, contracts with health maintenance
organizations, relationships between the physicians and their patients, patient
lists, and other similar intangible assets. As a result of a change in the
Company's strategic direction and its intent to dispose of nonstrategic assets,
the Company expects to report a material charge to its earnings during the three
months ending December 31, 1996 to reduce the book value of certain assets
related to its office-based operations, including goodwill, to their estimated
net realizable values. See Note 9 for additional information.
The remaining $9.5 million of the total amount of goodwill at September 30, 1996
is related to the acquisition of a hospital-based physician practice in March
1996, as discussed in Note 5 below. Such goodwill represents the acquired
practice's market position and reputation, its relationships with its customers
and affiliated physicians, the relationships between its affiliated physicians
and their patients, patient lists, and other similar intangible assets.
6
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) INTANGIBLE ASSETS
-----------------
Intangible assets consist primarily of the physician employee workforce,
non-physician employee workforce, management team and computer software acquired
in the Company's acquisition of the Predecessor, non-compete covenants related
to certain acquisitions of physician practices, deferred acquisition costs, and
deferred loan costs. These intangible assets are being amortized over the lives
of the underlying assets or agreements, which range from five to seven years. As
a result of a change in the Company's strategic direction and its inten to
dispose of nonstrategic assets, the Company expects to report a material charge
to its earnings during the three months ending December 31, 1996 to reduce the
book value of certain assets related to its office-based operations, including
non-compete covenants, to their net realizable values. See Note 9 for additional
information.
(4) AMOUNTS DUE FOR ACQUISITIONS
----------------------------
Amounts due for acquisitions includes obligations to the former stockholders of
certain office-based physician practices acquired by the Company, which are
being paid over the terms of the employment agreements between the Company and
the former stockholders, which range from three to five years. It also includes
termination benefits payable to the former stockholders of an acquired practice,
which are payable beginning in 2001 or upon termination of their employment by
the Company, whichever is later.
(5) ACQUISITIONS
------------
In February and March 1995, the Company made four acquisitions of office- based
physician practices for an aggregate of $3.1 million in cash and deferred
payments. In June 1995, the Company acquired a three-facility primary care
practice and, in a related transaction, one of the principal physicians
operating the practice assigned a panel services agreement with a health
maintenance organization to the Company. The purchase price for the practice and
the assignment was an aggregate of $4.3 million in cash and deferred payments
and approximately 35,000 shares of the Company's common stock. These
acquisitions were accounted for as purchases, and accordingly, the operations of
each of the acquired practices are included in the Company's consolidated
financial statements beginning on each respective date of acquisition.
During the period from January to July 1996, the Company made four acquisitions
of office-based physician practices for an aggregate of $7.2 million in cash and
deferred payments. In March 1996, the Company acquired a hospital-based
physician practice for $4.2 million in cash and approximately 658,000 shares of
the Company's common stock. These acquisitions were accounted for as purchases,
and accordingly, the operations of each of the acquired practices are included
in the Company's consolidated financial statements beginning on each respective
date of acquisition. The purchase price of each acquisition was allocated to the
net assets acquired based on their estimated fair market values. As a result of
these allocations, approximately $15.8 million of the aggregate purchase price
was allocated to goodwill, as shown below (in thousands):
<TABLE>
<S> <C>
Aggregate purchase price................................................................ $ 16,837
Net assets acquired:
Working capital....................................................................... 2,072
Property and equipment................................................................ 698
Accrued termination benefits.......................................................... (1,100)
Long-term debt........................................................................ (630)
-----------
Net assets acquired................................................................ 1,040
-----------
Goodwill related to the acquisitions.................................................... $ 15,797
===========
</TABLE>
7
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the pro forma consolidated results of operations
of the Company as though all of the acquisitions of physician practices
discussed above had occurred at the beginning of the period presented. The pro
forma consolidated results of operations shown below do not necessarily
represent what the consolidated results of operations of the Company would have
been if these acquisitions had actually occurred at the beginning of the period
presented, nor do they represent a forecast of the consolidated results of
operations of the Company for any future period.
<TABLE>
<CAPTION>
THREE NINE MONTHS ENDED
MONTHS ENDED SEPTEMBER 30,
SEPTEMBER 30, --------------------------
1995 1996 1995
------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenue............................................ $ 20,212 $ 70,822 $ 60,513
Income (loss) before income taxes...................... (1,055) 3,845 (348)
Net income (loss)...................................... (828) 2,811 (667)
Net income (loss) per share............................ $ (.46) $ .41 $ (.70)
</TABLE>
(6) LONG-TERM DEBT
--------------
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ -----------
<S> <C> <C>
Revolving credit facility, maturing in February 1997,
secured by substantially all assets of the Company.................... $ 24,707 $ 9,700
Capital lease obligations payable in various monthly
installments, maturing at various dates through 1999.................. 1,909 2,035
Note payable, maturing in March 1996.................................... --- 600
----------- -----------
Total................................................................ 26,616 12,335
Less current portion.............................................. (25,127) (970)
----------- -----------
Long-term debt.......................................................... $ 1,489 $ 11,365
=========== ===========
</TABLE>
The Company's revolving credit facility contains various restrictive covenants
that include, among other requirements, the maintenance of certain financial
ratios, various restrictions regarding sales of assets, liens, guarantees,
dividends, etc. and limitations regarding investments, lease obligations and
capital expenditures. The Company was in compliance with its loan covenants at
September 30, 1996. The additional amount that could be borrowed under the
credit facility is determined by a leverage ratio defined in the credit
agreement. Based on the value of this leverage ratio at September 30, 1996, the
Company had additional borrowing availability of approximately $15.7 million at
September 30, 1996.
(7) INCOME TAXES
-------------
The Company's income tax expense for the nine months ended September 30, 1996
was reduced by a loss carryforward from 1995. Without the loss carryforward,
income tax expense for the nine months ended September 30, 1996 would have been
approximately $1.8 million. The Company had net deferred tax assets at September
30, 1996, which represent the tax effect of differences between the tax basis
and the financial reporting basis of assets and liabilities on the Company's
balance sheet.
8
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(8) OPERATING RESULTS BY DIVISIONS
------------------------------
The Company's operations consist of the hospital-based services division and the
office-based services division.The hospital-based services division provides
specialist physician services at hospitals and ambulatory surgical facilities in
the areas of anesthesia, neonatology, pediatrics, and emergency services. The
office-based services division owns and operates, or manages, office-based
primary care, rheumatology and obstetrical practices. The following table shows
net revenue and operating income for each of the Company's two divisions.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1996 1995 1996 1995
--------- --------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Net revenue:
Hospital-based services................... $ 17,615 $ 10,665 $ 46,324 $ 32,072
Office-based services..................... 7,254 5,913 21,599 15,440
--------- --------- --------- ----------
Total net revenue....................... 24,869 16,578 67,923 47,512
Operating income:
Hospital-based services................... 4,268 1,673 11,211 6,177
Office-based services..................... (716) (119) (1,734) (190)
General corporate expenses................ (1,395) (1,514) (3,947) (3,474)
---------- --------- --------- ----------
Total operating income.................. $ 2,157 $ 40 $ 5,530 $ 2,513
========== ========= ========= ==========
</TABLE>
(9) SUBSEQUENT EVENTS
-----------------
On October 25, 1996, the Company and certain of its directors, officers and
legal advisors were named as defendants in a lawsuit filed in the Circuit Court
of the Seventeenth Judicial Circuit in and for Broward County,Florida by certain
former physician stockholders of the Predecessor, hich was formerly named
Southeastern Anesthesia Management Associates, Inc. The claim alleges that the
defendants engaged in a conspiracy of fraud and deception for personal gain in
connection with inducing the plaintiffs to sell their stock in the Predecessor
to the Company, as well as legal malpractice and violations of Florida
securities laws. The claim seeks damages of at least $10 million and the
imposition of a constructive trust and disgorgement of stock and options held by
certain members of the Company's management. The Company believes the lawsuit is
without merit and intends to vigorously defend against it.
On November 4, 1996, the Company announced that it is changing its strategy to
place more emphasis on its hospital-based business and to reduce its emphasis on
the primary care business, and that it intends to dispose of nonstrategic
office-based assets. As a result of the change in the Company's strategic
direction and its intent to dispose of nonstrategic assets, the Company
estimates that it will not be able to realize the book value of its assets
related to certain office-based operations. Therefore, the Company expects that
it will report a material charge to its earnings in the fourth quarter of 1996
to reduce the book value of these assets to their estimated net realizable
values.
The assets under review by the Company for possible impairment include all of
the property and equipment, goodwill and other intangible assets related to its
office-based business, which had an aggregate book value of approximately $24.6
million as of September 30, 1996. The Company has not yet completed its review
and analysis of these assets and, therefore, is not able to estimate the amount
of the charge to its earnings that is expected in the fourth quarter.
9
<PAGE>
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain Factors Affecting Future Operating Results
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company's actual results could differ materiall from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include the following: fluctuations in the volume of procedures
performed by the Company's affiliated physicians, changes in the reimbursement
rates for those services, fluctuations in the cost and utilization rates of
referral services used by patients that are subject to shared-risk capitation
arrangements, the loss of significant hospital contracts or third- party payor
relationships and changes in the number of patients using the Company's
physician services.
GENERAL
The Company is a physician practice management company which provides specialist
physician services at hospitals and ambulatory surgical facilities in the areas
of anesthesia, neonatology, pediatrics and emergency services,and which own and
operates,or manages, office-based primary care, rheumatology and obstetrical
practices. The Company derives substantially all of its revenue from the medical
services provided by the physicians who are employed by the Company or whose
practices are managed by the Company. The Company increased the number of
physicians affiliated with it from approximately 90 at December 31, 1994 to
approximately 210 at September 30, 1996 through several acquisitions of
physician practices and the addition of several new contracts for specialist
physician services. The Company made several acquisitions of physician practices
during 1995 and during the nine months ended September 30, 1996, as described in
Note 5 to the accompanying consolidated financial statements. These acquisitions
were accounted for as purchases and accordingly, the operations of each of the
acquired practices are included in the Company's consolidated financial
statements beginning on each respective date of acquisition.
On November 4, 1996, the Company announced that it is changing its strategy to
place more emphasis on its hospital-based business and to reduce its emphasis on
the primary care business, and that it intends to dispose of nonstrategic
office-based assets. As a result of the change in the Company's strategic
direction and its intent to dispose of nonstrategic assets, the Company
estimates that it will not be able to realize the book value of its assets
related to certain office-based operations. Therefore, the Company expects that
it will report a material charge to its earnings in the fourth quarter of 1996
to reduce the book value of these assets to their estimated net realizable
values.
The assets under review by the Company for possible impairment include all of
the property and equipment,goodwill and other intangible assets related to its
office-based business, which had an aggregate book value of approximately $24.6
million as of September 30, 1996. The Company has not yet completed it review
and analysis of these assets and, therefore, is not able to estimate the amount
of the charge to its earnings that is expected in the fourth quarter.
10
<PAGE>
RESULTS OF OPERATIONS
The following table shows certain statement of operations data expressed as
percentage of net revenue:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------ ----- ----- -----
<S> <C> <C> <C> <C>
Net revenue.......................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct facility expenses......................... 71.4 75.5 71.9 74.0
Provision for bad debts.......................... 4.0 3.5 3.8 3.6
Salaries and benefits............................ 7.5 8.6 7.5 7.7
General and administrative....................... 4.4 7.3 4.7 5.5
Amortization..................................... 2.8 3.8 2.8 3.1
Depreciation..................................... 1.2 1.0 1.2 0.8
------ ----- ----- -----
Total operating expenses...................... 91.3 99.7 91.9 94.7
------ ----- ----- -----
Operating income..................................... 8.7% 0.3% 8.1% 5.3%
====== ===== === =====
</TABLE>
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
Net revenue increased $8.3 million, or 50.0%, from $16.6 million in 1995 to
$24.9 million in 1996. Revenue from hospital-based services increased by $6.9
million, from $10.7 million in 1995 to $17.6 million in 1996. Of this increase,
$3.5 million was due to the addition of several new contracts for hospital-based
services,$3.2 million was due to the acquisition of a hospital-based neonatology
and pediatric practice in March 1996, as described in Note 5 to the accompanying
consolidated financial statements, and the remainder was due to an increase in
revenue from same-store hospital-based contracts. Revenue from office-based
practices increased by $1.4 million, from $5.9 million in 1995 to $7.3 million
in 1996. Substantially all of this increase was due to several acquisitions of
office-base physician practices from January 1995 to July 1996, as described in
Note 5 to the accompanying consolidated financial statements.
Direct facility expenses increased $5.2 million, or 41.8%, from $12.5 million in
1995 to $17.7 million in 1996.This increase was primarily due to several
acquisitions of physician practices and several new contracts for hospital-based
services, as discussed in the preceding paragraph. Direct facility expenses as a
percentage of net revenue ("direct facility expense percentage") decreased from
75.5% in 1995 to 71.4% in 1996. The direct facility expense percentage for
hospital-based services decreased from 68.9% in 1995 to 61.2% in 1996. This
decrease was primarily due to cost reductions implemented in same-store
contracts for hospital-based services,and a lower direct facility expense
percentage for new contracts for hospital-based services started during the past
year, compared to the direct facility expense percentage during the third
quarter of 1995. The direct facility expense percentage for office-based
services increased from 87.4% in 1995 to 96.0% in 1996. This increase was
primarily due to increased utilization of referral specialists and hospitaL
services by patients served under shared-risk capitation arrangements, and
decreases in fee-for-service revenue in certain office-based practices which
were not offset by corresponding decreases in direct facility expenses, which
are primarily fixed in nature.
The provision for bad debts increased $410,000, or 70.7%, from $580,000 in 1995
to $990,000 in 1996. This increase was primarily due to a 50.0% increase in net
revenue, as discussed above. As a percentage of net revenue, the provision for
bad debts increased from 3.5% in 1995 to 4.0% in 1996 primarily due to an
increase in the percentage of total net revenue that is comprised of
hospital-based revenue, which has higher bad debt expense as a percentage of net
revenue than office-based revenue.
Salaries and benefits increased $437,000, or 30.5%, from $1.4 million in 1995 to
$1.9 million in 1996. This increase was primarily due to the acquisition of a
hospital-based neonatology and pediatric practice in March 1996, as discussed
above, and an increase in the Company's general corporate organization to
support growth of the Company. As a percentage of net revenue, salaries and
benefits decreased from 8.6% in 1995 to 7.5% in 1996 primarily due to a 50.0%
increase in net revenue, as discussed above.
11
<PAGE>
General and administrative expense decreased $121,000, or 9.9%, from $1.2
million in 1995 to $1.1 million in 1996. This decrease was primarily due to a
nonrecurring increase in the accrual for self-insurance of $250,000 in the third
quarter of 1995. As a percentage of net revenue,general and administrative
expense decreased from 7.3% in 1995 to 4.4% in 1996 primarily due to a 50.0%
increase in net revenue, as discussed above.
Amortization expense increased $86,000, or 13.8%, from $622,000 in 1995 to
$708,000 in 1996. This increase was primarily due to amortization of the
goodwill related to several acquisitions of physician practices from January to
July 1996, as discussed in Note 5 to the accompanying consolidated financial
statements.
Operating income increased $2.1 million, from $40,000 in 1995 to $2.2 million in
1996. This increase was primarily due to a 50.0% increase in net revenue and a
decrease in the direct facility expense percentage from 75.5% in 1995 to 71.4%
in 1996. Operating income from hospital-based services increased by $2.6
million, from $1.7 million in 1995 to $4.3 million in 1996, primarily due to the
addition of several new contracts for hospital-based services, the acquisition
of a hospital-based neonatology and pediatric practice in March 1996,and certain
cost reductions implemented in same-store contracts. Operating income from
office-based practices decreased $597,000, from an operating loss of $119,000 in
1995 to an operating loss of $716,000 in 1996. The decline in operating results
was primarily due to an increase in the direct facility expense percentage for
office-based services.
Interest expense decreased $448,000, from $1.2 million in 1995 to $710,000 in
1996. This decrease was primarily due to the repayment of $26.1 million of
long-term debt with the proceeds of the Company's initial public offering in
November 1995, which was partially offset by additional debt incurred during the
nine months ended September 30, 1996 to finance acquisitions of physician
practices.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
Net revenue increased $20.4 million, or 43.0%, from $47.5 million in 1995 to
$67.9 million in 1996. Revenue from hospital-based services increased $14.2
million, from $32.1 million in 1995 to $46.3 million in 1996. Of this increase,
$7.6 million was due to the addition of several new contracts for hospital-based
services, $6.5 million was due to the acquisition of a hospital-based
neonatology and pediatric practice in March 1996, as described in Note 5 to the
accompanying consolidated financial statements, and the remainder was due to an
increase in revenue from same-store contracts. Revenue from office-based
practices increased $6.2 million, from $15.4 million in 1995 to $21.6 million in
1996. Substantially all of this increase was due to several acquisitions of
office-based physician practices from February 1995 to July 1996, as described
in Note 5 to the accompanying consolidated financial statements.
Direct facility expenses increased $13.7 million, or 39.0%, from $35.1 million
in 1995 to $48.8 million in 1996. This increase was primarily due to several
acquisitions of physician practices and several new contracts for hospital-
based services, as discussed in the preceding paragraph. As a percentage of net
revenue, direct facility expenses decreased from 74.0% in 1995 to 71.9 in 1996.
The direct facility expense percentage for hospital-based services decreased
from 66.4% in 1995 to 61.5% in 1996. This decrease was primarily due to cost
reductions implemented in same-store contracts for hospital-based services. The
direct facility expense percentage for office-based services increased from
89.7% in 1995 to 94.2% in 1996. This increase was primarily due to a decline in
the number of patients served under shared-risk capitation arrangements, and
increased utilization of referral specialists and hospital services by patients
served under such arrangements.
The provision for bad debts increased $840,000, or 48.3%, from $1.7 million in
1995 to $2.6 million in 1996. This increase was primarily due to a 43.0%
increase in net revenue, as discussed above. As a percentage of net revenue,the
provision for bad debts increased slightly from 3.6% in 1995 to 3.8% in 1996.
12
<PAGE>
Salaries and benefits increased $1.4 million, or 39.7%, from $3.7 million in
1995 to $5.1 million in 1996. This increase was primarily due to the acquisition
of a hospital-based neonatology and pediatric practice in March 1996, as
discussed above, an increase in the Company's general corporate organization to
support growth of the Company, and the development of the Company's primary care
management infrastructure, which occurred primarily in the second and third
quarters of 1995. In addition, the Company incurred approximately $125,000 of
severance expense related to certain employees who were terminated during the
three months ended March 31, 1996. As a percentage of net revenue, salaries and
benefits decreased from 7.7% in 1995 to 7.5% in 1996 primarily due to a 43.0%
increase in net revenue, as discussed above.
General and administrative expense increased $590,000, or 22.6%, from $2.6
million in 1995 to $3.2 million in 1996. This increase was primarily due to an
expansion of the corporate office and increases in various office expenses to
support the increase in the number of employees indicated in the preceding
paragraph. In addition,the Company incurred approximately $125,000 of expense
during the three months ended March 31, 1996 related to due diligence and
contract negotiations in connection with a management services contract with the
Municipality of San Juan, Puerto Rico, which was terminated in February 1996. As
a percentage of net revenue, general and administrative expense decreased from
5.5% in 1995 to 4.7% in 1996 primarily due to a 43.0% increase in net revenue,
as discussed above.
Amortization expense increased $408,000, or 27.4%, from $1.5 million in 1995 to
$1.9 million in 1996. This increase was primarily due to amortization of the
goodwill related to several acquisitions of physician practices from February
1995 to July 1996, as discussed in Note 5 to the accompanying consolidated
financial statements.
Operating income increased $3.0 million, from $2.5 million in 1995 to $5.5
million in 1996. This increase was primarily due to a 43.0% increase in net
revenue and a decrease in the direct facility expense percentage from 74.0% in
1995 to 71.9% in 1996. Operating income from hospital-based services increased
by $5.0 million, from $6.2 million in 1995 to $11.2 million in 1996, primarily
due to the addition of several new contracts for hospital-based services, the
acquisition of a hospital-based neonatology and pediatric practice in March
1996, and certain cost reductions implemented in same-store contracts. Operating
income from office-based practices decreased $1.5 million, from an operating
loss of $190,000 in 1995 to an operating loss of $1.7 million in 1996. The
decline in operating results was primarily due to an increase in the direct
facility expense percentage for office-based services, and an increase in the
Company's primary care management infrastructure.
Interest expense decreased $1.5 million, from $3.4 million in 1995 to $1.9
million in 1996. This decrease was primarily due to the repayment of $26.1
million of long-term debt with the proceeds of the Company's initial public
offering in November 1995, which was partially offset by additional debt
incurred during the nine months ended September 30, 1996 to finance acquisitions
of physician practices.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal uses of cash during the nine months ended September 30,
1996 were to finance acquisitions of physician practices ($12.4 million), to
finance increases in accounts receivable ($3.2 million), and to make capital
expenditures ($1.1 million). The $3.2 million increase in accounts receivable
was primarily due to new contracts for hospital-based services added during the
nine months ended September 30, 1996, and to an increase in capitation payments
receivable from a health maintenance organization. The Company met its cash
needs during this period primarily through borrowings under its revolving credit
facility with NationsBank of Florida, N.A. ("NationsBank Florida") ($15.0
million) and its net income ($2.7 million).
13
<PAGE>
On November 1, 1995, the Company established a new $45 million revolving credit
facility with NationsBank Florida. The new credit facility matures on February
28, 1997 and bears interest at NationsBank Florida's prime rate plus an
applicable margin which is subject to quarterly adjustment based on a leverage
ratio defined in the credit agreement. As of November 1, 1996, the applicable
margin was .25%. There are no principal payments due under the credit facility
until the maturity date of February 28, 1997. The Company currently intends to
establish a new revolving credit facility prior to February 28, 1997, and is
currently engaged in discussions with NationsBank Florida regarding a new credit
facility. There can be no assurance that the Company will be able to refinance
the outstanding balance under the exisiting credit facility, or that it will be
able to establish a new revolving credit arrangement to provide financing for
future acquisitions.
The outstanding balance under the credit facility increased from $9.7 million at
December 31, 1995 to $24.7 million at September 30, 1996 primarily due to
acquisitions of physician practices completed during the nine months ended
September 30, 1996. The amount that can be borrowed under the new credit
facility is restricted by a leverage ratio defined in the credit agreement.
Based on the value of this leverage ratio at September 30, 1996, the Company had
additional borrowing availability of approximately $15.7 million at September
30, 1996. Certain conditions must be met, including the maintenance of certain
financial ratios, and in certain circumstances, the approval of NationsBank
Florida must be obtained, in order to use the credit facility to finance
acquisitions of physician practices. There can be no assurance that the Company
will be able to satisfy such conditions in order to use its credit facility to
finance any future acquisitions.
The Company was in compliance with its loan covenants as of September 30, 1996.
Depending on the magnitude of the expected charge to the Company's earnings
during the fourth quarter of 1996 related to the Company's office-based
operations, certain provisions of the credit facility may require modification
to reflect the impact of the expected charge. The Company does not expect this
charge to adversely impact its ability to establish a new credit facility.
In March 1996, the Company issued approximately 658,000 shares of its common
stock as partial consideration for an acquisition of a hospital-based physician
practice completed in March 1996, as discussed in Note 5 to the accompanying
consolidated financial statements.
In order to provide funds necessary for the Company's future expansion
strategies, it will be necessary for the Company to ncur, from time to time,
additional long-term bank indebtedness and/or issue equity or debt securities,
depending on market and other conditions. There can be no assurance that such
additional financing will be available on terms acceptable to the Company.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
1995
Net cash used by operating activities was $1.8 million in 1995 compared to
$526,000 of cash provided by operating activities in 1996. This improvement of
$2.3 million was primarily due to an increase in net income plus non-cash
expenses from $3.1 million in 1995 to $8.0 million in 1996, offset by an
increase in cash used for an increase in accounts receivable from $3.4 million
in 1995 to $5.8 million in 1996.
Net cash used by investing activities increased from $7.9 million in 1995 to
$13.4 million in 1996. This increase was primarily due to an increase in cash
used for physician practice acquisitions from $5.8 million in 1995 to $12.4
million in 1996.
Net cash provided by financing activities increased from $7.6 million in 1995 to
$13.7 million in 1996. This increase was primarily due to an increase in
borrowings under the revolving credit facility with NationsBank Florida from
$5.6 million in 1995 to $15.0 million in 1996.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
On October 25, 1996, the Company and certain of its directors, officers and
legal advisors were named as defendants in a lawsuit filed in the Circuit
Court of the Seventeenth Judicial Circuit in and for Broward County,
Florida by certain former physician stockholders of the Predecessor, which
was formerly named Southeastern Anesthesia Management Associates, Inc. The
claim alleges that the defendants engaged in a conspiracy of fraud and
deception for personal gain in connection with inducing the plaintiffs to
sell their stock in the Predecessor to the Company, as well as legal
malpractice and violations of Florida securities laws. The claim seeks
damages of at least $10 million and the imposition of a constructive trust
and disgorgement of stock and options held by certain members of the
Company's management. The Company believes the lawsuit is without merit and
intends to vigorously defend against it.
From time to time, the Company is party to various other claims, suits, and
complaints. Currently, there are no such claims, suits or complaints which,
in the opinion of management, would have a material adverse effect on the
Company's financial position, liquidity or results of operations.
Item 6: Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this report:
Exhibit
Number Description
11.1 Statement regarding computation of per share earnings.
27 Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Sheridan Healthcare, Inc.
(Registrant)
Date: November 14, 1996 By: /s/ Michael F. Schundler
------------------------
Michael F. Schundler
Chief Financial Officer
(principal financial officer)
16
<PAGE>
EXHIBIT 11.1
<TABLE>
SHERIDAN HEALTHCARE, INC.
Computation of Earnings per Share of Common Stock
(in thousands, except per share amounts)
<CAPTION>
Three Months Ended
September 30,
------------------
1996 1995
<S> <C> <C>
Primary Earnings Per Share:
- - ---------------------------
Weighted average shares outstanding............................................ 6,702 2,028
Dilutive effect of outstanding stock options (1)............................... 106 ---
Dilutive effect of convertible securities (1).................................. --- ---
-- -------- --------
Primary weighted average shares of common stock and
common stock equivalents outstanding........................................ 6,808 2,028
======= ========
Net income (loss) attributable to common stockholders......................... $ 727 $ (1,252)
Net income (loss) per share - primary......................................... $ .11 $ (.62)
Fully Diluted Earnings Per Share:
Weighted average shares outstanding............................................ 6,702 2,028
Dilutive effect of outstanding stock options (1)............................... 106 ---
Dilutive effect of convertible securities (1).................................. --- ---
-- -------- --------
Fully diluted weighted average shares of common stock and
common stock equivalents outstanding........................................ 6,808 2,028
======== ========
Net income (loss) attributable to common stockholders......................... $ 727 $ (1,252)
Net income (loss) per share - fully diluted................................... $ .11 $ (.62)
<FN>
(1) Stock options and convertible securities are excluded from the
earnings per share computation for the three months ended September
30, 1995 because they would have the effect of decreasing the net loss
per share.
</FN>
</TABLE>
17
<PAGE>
EXHIBIT 11.1
<TABLE>
SHERIDAN HEALTHCARE, INC.
Computation of Earnings per Share of Common Stock
(in thousands, except per share amounts)
<CAPTION>
Nine Months Ended
September 30,
---------------------
1996 1995
<S> <C> <C>
Primary Earnings Per Share:
Weighted average shares outstanding............................................ 6,540 2,028
Dilutive effect of outstanding stock options (1)............................... 108 ---
Dilutive effect of convertible securities (1).................................. --- ---
-- -------- ---------
Primary weighted average shares of common stock and
common stock equivalents outstanding........................................ 6,648 2,028
======== =========
Net income (loss) attributable to common stockholders......................... $ 2,696 $ (2,075)
Net income (loss) per share - primary......................................... $ .41 $ (1.02)
Fully Diluted Earnings Per Share:
Weighted average shares outstanding............................................ 6,540 2,028
Dilutive effect of outstanding stock options (1)............................... 108 ---
Dilutive effect of convertible securities (1).................................. --- ---
-- -------- --------
Fully diluted weighted average shares of common stock and
common stock equivalents outstanding........................................ 6,648 2,028
======== ========
Net income (loss) attributable to common stockholders......................... $ 2,696 $ (2,075)
Net income (loss) per share - fully diluted................................... $ .41 $ (1.02)
<FN>
(1) Stock options and convertible securities are excluded from the
earnings per share computation for the nine months ended September 30,
1995 because they would have the effect of decreasing the net loss per
share.
</FN>
</TABLE>
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SHERIDAN HEALTHCARE, INC. FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 730
<SECURITIES> 0
<RECEIVABLES> 40,548
<ALLOWANCES> 21,986
<INVENTORY> 0
<CURRENT-ASSETS> 22,896
<PP&E> 6,432
<DEPRECIATION> 1,418
<TOTAL-ASSETS> 89,070
<CURRENT-LIABILITIES> 34,531
<BONDS> 0
0
0
<COMMON> 67
<OTHER-SE> 50,706
<TOTAL-LIABILITY-AND-EQUITY> 89,070
<SALES> 0
<TOTAL-REVENUES> 67,923
<CGS> 0
<TOTAL-COSTS> 48,830
<OTHER-EXPENSES> 10,983
<LOSS-PROVISION> 2,580
<INTEREST-EXPENSE> 1,914
<INCOME-PRETAX> 3,616
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,696
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,696
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
