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 June 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 August 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.
<PAGE>
PART I: FINANCIAL INFORMATION
---------------------
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
June 30, December 31,
1996 1995
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 196 $ ---
Accounts receivable, net of allowances........................................ 17,167 11,040
Income tax refund receivable.................................................. 231 760
Deferred income taxes......................................................... 1,409 ---
Other current assets.......................................................... 1,902 1,029
------------- ------------
Total current assets........................................................ 20,905 12,829
Property and equipment, net of accumulated depreciation.......................... 5,166 3,767
Goodwill, net of accumulated amortization........................................ 59,289 45,417
Intangible assets, net of accumulated amortization............................... 1,849 2,360
------------- ------------
Total assets.............................................................. $ 87,209 $ 64,373
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 568 $ 357
Amounts due for acquisitions.................................................. 586 559
Accrued salaries and benefits................................................. 2,662 2,236
Self-insurance accruals....................................................... 2,150 1,615
Refunds payable............................................................... 1,608 910
Income taxes payable.......................................................... 133 ---
Other accrued expenses........................................................ 2,610 1,883
Current portion of long-term debt............................................. 22,661 970
------------- -----------
Total current liabilities................................................... 32,978 8,530
Long-term debt................................................................... 1,576 11,365
Amounts due for acquisitions..................................................... 2,609 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; 6,405 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)................................................... (3,602) (5,571)
------------- ------------
Total stockholders' equity ................................................. 50,046 42,669
Total liabilities and stockholders' equity................................ $ 87,209 $ 64,373
============= ============
</TABLE>
See accompanying notes.
2
<PAGE>
<TABLE>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSNADS, EXCEPT PER SAHRE DATA)
(UNAUDITED)
<CAPTION>
Three Months Ended
June 30,
----------------------------
1996 1995
------------- ------------
<S> <C> <C>
Net revenue...................................................................... $ 23,200 $ 16,081
Operating expenses:
Direct facility expenses...................................................... 16,636 11,912
Provision for bad debts....................................................... 915 605
Salaries and benefits......................................................... 1,684 1,158
General and administrative.................................................... 1,086 856
Amortization.................................................................. 638 422
Depreciation.................................................................. 274 138
------------- ------------
Total operating expenses.................................................... 21,233 15,091
Operating income................................................................. 1,967 990
Interest expense................................................................. 651 1,203
------------- ------------
Income before income taxes....................................................... 1,316 (213)
Income taxes..................................................................... 200 (7)
------------- ------------
Net income....................................................................... $ 1,116 (206)
============= ============
Dividends on convertible preferred stock......................................... 402
------------
Net income (loss) attributable to common stockholders............................ $ (608)
============
Net income (loss) per share...................................................... $ .16 $ (.30)
Weighted average shares of common stock and
common stock equivalents outstanding.......................................... 6,831 2,028
</TABLE>
See accompanying notes.
3
<PAGE>
<TABLE>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
----------------------------
1996 1995
------------- ------------
<S> <C> <C>
Net revenue...................................................................... $ 43,054 $ 30,934
Operating expenses:
Direct facility expenses...................................................... 31,082 22,623
Provision for bad debts....................................................... 1,590 1,160
Salaries and benefits......................................................... 3,234 2,221
General and administrative.................................................... 2,102 1,391
Amortization.................................................................. 1,189 867
Depreciation.................................................................. 484 199
------------- ------------
Total operating expenses.................................................... 39,681 28,461
------------- ------------
Operating income................................................................. 3,373 2,473
Interest expense................................................................. 1,204 2,224
------------- ------------
Income before income taxes....................................................... 2,169 249
Income taxes..................................................................... 200 268
------------- ------------
Net income....................................................................... $ 1,969 (19)
=============
Dividends on convertible preferred stock......................................... 804
------------
Net income (loss) attributable to common stockholders............................ $ (823)
============
Net income (loss) per share...................................................... $ .30 $ (.41)
Weighted average shares of common stock and
common stock equivalents outstanding.......................................... 6,577 2,028
</TABLE>
See accompanying notes.
4
<PAGE>
<TABLE>
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
Six Months Ended
June 30,
----------------------------
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 1,969 $ (19)
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization................................................................ 1,189 868
Depreciation................................................................ 484 199
Provision for bad debts..................................................... 1,520 1,160
Net interest amortization on subordinated debt.............................. --- 251
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable.................................. (3,683) (2,919)
Decrease (increase) in other current assets................................. (1,368) (634)
Decrease (increase) in other assets......................................... --- (79)
Increase (decrease) in accounts payable..................................... (156) (237)
Increase in other accrued expenses.......................................... 841 74
------------- ------------
Net cash provided (used) by operating activities.......................... 796 (1,336)
Cash flows from investing activities:
Acquisitions of physician practices........................................... (10,933) (5,795)
Capital expenditures.......................................................... (939) (1,092)
------------- ------------
Net cash provided (used) by investing activities.......................... (11,872) (6,887)
Cash flows from financing activities:
Borrowings on long-term debt.................................................. 12,559 9,175
Payments on long-term debt.................................................... (1,287) (1,345)
Dividends on convertible preferred stock...................................... --- (804)
Collection of subscriptions receivable........................................ --- 238
------------- ------------
Net cash provided by financing activities................................. 11,272 7,264
------------- ------------
Increase (decrease) in cash and cash equivalents................................. 196 (959)
Cash and cash equivalents:
Beginning of period........................................................... --- 2,581
------------- ------------
End of period................................................................. $ 196 $ 1,622
============= ============
</TABLE>
See accompanying notes.
5
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 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 $29.7 million of the total amount of goodwill, net of accumulated
amortization, at June 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 $20.0 million of the total amount of goodwill at June 30, 1996 is
related to several acquisitions of office-based physician practices which were
completed from September 1994 to February 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.
The remaining $9.6 million of the total amount of goodwill at June 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.
(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, deferred acquisition costs,
deferred loan costs, and non-compete covenants related to certain acquisitions
of physician practices. These intangible assets are being amortized over the
lives of the underlying assets or agreements, which range from five to seven
years.
6
<PAGE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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.
In January and February 1996, the Company made three acquisitions of
office-based physician practices for an aggregate of $5.9 million in cash and
deferred payments. In March 1996, the Company acquired a hospital-based
specialist 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 $14.8 million of the
aggregate purchase price was allocated to goodwill, as shown below (in
thousands):
<TABLE>
<S> <C>
Aggregate purchase price.................................... $ 15,513
Net assets acquired:
Working capital........................................... 1,426
Property and equipment.................................... 1,004
Accrued termination benefits.............................. (1,100)
Long-term debt............................................ (630)
Net assets acquired..................................... 700
Goodwill related to the acquisitions........................ $ 14,813
</TABLE>
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.
7
<PAGE>
<TABLE>
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<CAPTION>
THREE
MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1996 1995
------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenue...................................... $ 19,871 $ 45,953 $ 40,301
Income (loss) before income taxes................ (158) 2,398 707
Net income (loss)................................ (224) 2,198 161
Net income (loss) per share...................... $ (.23) $ .32 $ (.24)
</TABLE>
(6) LONG-TERM DEBT
--------------
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- -----------
<S> <C> <C>
Revolving credit facility, maturing in February 1997,
secured by substantially all assets of the Company.................... $ 22,262 $ 9,700
Capital lease obligations payable in various monthly
installments, maturing at various dates through 1999.................. 1,975 2,035
Note payable, maturing in March 1996.................................... --- 600
----------- -----------
Total................................................................... 24,237 12,335
Less current portion.............................................. (22,661) (970)
----------- -----------
Long-term debt.......................................................... $ 1,576 $ 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
June 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 June 30, 1996, the Company had
additional borrowing availability of approximately $12.8 million at June 30,
1996.
(7) INCOME TAXES
------------
The Company's income tax expense for the three months and the six months ended
June 30, 1996 was reduced by a loss carryforward from 1995. Without the loss
carryforward, income tax expense for the three months and the six months ended
June 30, 1996 would have been approximately $650,000 and $1.1 million. The
Company had net deferred tax assets at June 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. The deferred tax assets
reflected in the accompanying consolidated balance sheet are net of a valuation
allowance, which has been established due to the Company's loss carryforward
from 1995.
8
<PAGE>
(8) OPERATING RESULTS BY DIVISION
-----------------------------
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
1996 1995 1996 1995
----------- ---------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Net revenue:
Hospital-based services....................... $ 16,079 $ 11,061 $ 28,709 $ 21,407
Office-based services......................... 7,121 5,020 14,345 9,527
----------- ---------- ----------- -----------
Total net revenue........................... 23,200 16,081 43,054 30,934
Operating income:
Hospital-based services....................... 3,665 2,327 6,943 4,504
Office-based services......................... (496) (280) (1,018) (71)
General corporate expenses.................... (1,202) (1,057) (2,552) (1,960)
----------- ---------- ----------- -----------
Total operating income...................... $ 1,967 $ 990 $ 3,373 $ 2,473
=========== ========== =========== ===========
</TABLE>
9
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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 materially 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
services 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 owns
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 90 at December 31, 1994 to 210 at June 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 six
months ended June 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.
RESULTS OF OPERATIONS
The following table shows certain statement of operations data expressed as
percentage of net revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
1996 1995 1996 1995
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net revenue.......................................... 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Direct facility expenses........................ 71.7 74.1 72.2 73.1
Provision for bad debts......................... 3.9 3.8 3.7 3.8
Salaries and benefits........................... 7.3 7.2 7.5 7.2
General and administrative...................... 4.7 5.3 4.9 4.5
Amortization.................................... 2.7 2.6 2.8 2.8
Depreciation.................................... 1.2 0.8 1.1 0.6
------- ------- ------- -------
Total operating expenses................... 91.5 93.8 92.2 92.0
Operating income..................................... 8.5% 6.2% 7.8% 8.0%
======= ======= ======= =======
</TABLE>
10
<PAGE>
Three Months Ended June 30, 1996 Compared To Three Months Ended June 30, 1995
Net revenue increased $7.1 million, or 44.3%, from $16.1 million in 1995 to
$23.2 million in 1996. Revenue from hospital-based physician services increased
by $5.0 million, from $11.1 million in 1995 to $16.1 million in 1996. Of this
increase, $2.8 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 $2.2 million was due to the
addition of several new contracts for hospital-based services. Revenue from
office-based practices increased by $2.1 million, from $5.0 million in 1995 to
$7.1 million in 1996. Substantially all of this increase was due to several
acquisitions of office-based physician practices from February 1995 to February
1996, as described in Note 5 to the accompanying consolidated financial
statements.
Direct facility expenses increased $4.7 million, or 39.7%, from $11.9 million in
1995 to $16.6 million in 1996. This increase was primarily due to several
acquisitions and 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 74.1% in 1995 to 71.7% 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 both new management contracts and office-based physician
practices acquired during the past year, compared to the Company's direct
facility expense percentage during the second quarter of 1995.
The provision for bad debts increased $310,000, or 51.2%, from $605,000 in 1995
to $915,000 in 1996 primarily due to a 44.3% increase in net revenue, as
discussed above. As a percentage of net revenue, the provision for bad debts
increased only slightly from 3.8% in 1995 to 3.9% in 1996.
Salaries and benefits increased $526,000, or 45.4%, from $1.2 million in 1995 to
$1.7 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, the development of the Company's primary care management infrastructure,
which occurred primarily during the second and third quarters of 1995, and an
increase in the Company's general management organization to support growth of
the Company. As a percentage of net revenue, salaries and benefits increased
only slightly from 7.2% in 1995 to 7.3% in 1996.
General and administrative expense increased $230,000, or 26.9%, from $856,000
in 1995 to $1.1 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. As a
percentage of net revenue, general and administrative expense decreased from
5.3% in 1995 to 4.7% in 1996 primarily due to a 44.3% increase in net revenue,
as discussed above.
Amortization expense increased $216,000, from $422,000 in 1995 to $638,000 in
1996, substantially all of which is due to amortization of the goodwill related
to several acquisitions of physician practices from June 1995 to March 1996, as
discussed in Note 5 to the accompanying consolidated financial statments.
Operating income increased $1.0 million, from $1.0 million in 1995 to $2.0
million in 1996, primarily due to a 44.3% increase in net revenue and a decrease
in the direct facility expense percentage from 74.1% in 1995 to 71.7% in 1996.
Operating income from hospital-based physician services increased by $1.4
million, from $2.3 million in 1995 to $3.7 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 $216,000, from an operating loss of
$280,000 in 1995 to an operating loss of $496,000 in 1996. The decline in
operating results 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.
11
<PAGE>
Interest expense decreased from $1.2 million in 1995 to $651,000 in 1996
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 six months ended June
30, 1996 to finance acquisitions of physician practices.
Six Months Ended June 30, 1996 Compared To Six Months Ended June 30, 1995
Net revenue increased $12.1 million, or 39.2%, from $30.9 million in 1995 to
$43.1 million in 1996. Revenue from hospital-based physician services increased
by $7.3 million, from $21.4 million in 1995 to $28.7 million in 1996. Of this
increase, $3.3 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 $3.8 million was due to the
addition of several new contracts for hospital-based services. Revenue from
office-based practices increased by $4.8 million, from $9.5 million in 1995 to
$14.3 million in 1996. Substantially all of this increase was due to several
acquisitions of office-based physician practices from February 1995 to February
1996, as described in Note 5 to the accompanying consolidated financial
statements.
Direct facility expenses increased $8.5 million, or 37.4%, from $22.6 million in
1995 to $31.1 million in 1996. This increase was primarily due to several
acquisitions and new contracts for hospital-based services, as discussed in the
preceding paragraph. As a percentage of net revenue, direct facility expenses
decreased from 73.1% in 1995 to 72.2% in 1996. This decrease was primarily due
to cost reductions implemented in same store contracts for hospital-based
services.
The provision for bad debts increased $430,000, or 37.1%, from $1.2 million in
1995 to $1.6 million in 1996 primarily due to a 39.2% increase in net revenue,
as discussed above. As a percentage of net revenue, the provision for bad debts
decreased slightly from 3.8% in 1995 to 3.7% in 1996.
Salaries and benefits increased $1.0 million, or 45.6%, from $2.2 million in
1995 to $3.2 million in 1996. This increase was primarily due to an increase in
the Company's general management organization to support growth of the Company,
the acquisition of a hospital-based neonatology and pediatric practice in March
1996, as discussed above, 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 increased from 7.2% in 1995 to 7.5% in 1996 primarily due to the
$125,000 of severance expense noted above.
General and administrative expense increased $711,000, or 51.1%, from $1.4
million in 1995 to $2.1 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 increased from
4.5% in 1995 to 4.9% in 1996 primarily due to the $125,000 of expenses related
to the contract with San Juan, Puerto Rico.
Amortization expense increased $322,000, from $868,000 in 1995 to $1.2 million
in 1996, substantially all of which is due to amortization of the goodwill
related to several acquisitions of physician practices from February 1995 to
March 1996, as discussed in Note 5 to the accompanying consolidated financial
statements.
12
<PAGE>
Operating income increased $900,000, from $2.5 million in 1995 to $3.4 million
in 1996, primarily due to a 39.2% increase in net revenue. Operating income from
hospital-based physician services increased by $2.4 million, from $4.5 million
in 1995 to $6.9 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 $900,000, from an operating loss of $79,000 in 1995 to an
operating loss of $1.0 million in 1996. The decline in operating results was
primarily due to a decline in the number of patients served under shared-risk
capitation arrangements, increased utilization of referral specialists and
hospital services by patients served under such arrangements, and an increase in
corporate overhead related to this division.
Interest expense decreased from $2.2 million in 1995 to $1.2 million in 1996
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 six months ended June
30, 1996 to finance acquisitions of physician practices.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal uses of cash during the six months ended June 30, 1996
were to finance acquisitions of physician practices ($10.9 million), to finance
increases in accounts receivable ($2.2 million), and to make capital
expenditures ($.9 million). The $2.2 million increase in accounts receivable was
primarily due to new contracts for hospital-based services added during the six
months ended June 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") ($12.6 million) and
its net income ($2.0 million).
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 August 1, 1996, the applicable
margin was .375%. There are no principal payments due under the credit facility
until the maturity date of February 28, 1997. 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 outstanding balance under the credit facility increased from $9.7 million at
December 31, 1995 to $22.3 million at June 30, 1996 primarily due to
acquisitions of physician practices completed during the six months ended June
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 June 30, 1996, the Company had additional
borrowing availability of approximately $12.8 million at June 30, 1996. The
Company was in compliance with its loan covenants as of June 30, 1996.
In March 1996, the Company issued approximately 658,000 shares of its common
stock as partial consideration for an acquisition of a hospital-based specialist
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 incur, 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.
13
<PAGE>
Six Months Ended June 30, 1996 Compared To Six Months Ended June 30, 1995
Net cash used by operating activities was $1.3 million in 1995 compared to
$796,000 of cash provided by operating activities in 1996. This improvement of
$2.1 million was primarily due to net income of $2.0 million in 1996 compared to
a net loss of $19,000 in 1995.
Net cash used by investing activities increased from $6.9 million in 1995 to
$11.9 million in 1996 primarily due to an increase in cash used for physician
practice acquisitions from $5.8 million in 1995 to $10.9 million in 1996.
Net cash provided by financing activities increased from $7.3 million in 1995 to
$11.3 million in 1996 primarily due to an increase in borrowings under the
revolving credit facility with NationsBank Florida from $9.2 million in 1995 to
$12.6 million in 1996.
PART II. OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
From time to time, the Company is party to various 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) A report on Form 8-K/A was filed on May 28, 1996 to amend a
report on Form 8-K which was filed on March 28, 1996 to report
a material acquisition completed on March 14, 1996. The Form
8-K/A includes Item 7.(a), the financial statements of
businesses acquired, and Item 7.(b), the pro forma financial
information, both of which were not included in the Form 8-K.
14
<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: August 14, 1996 By: /s/ Dennis L. Gates
-------------------
Dennis L. Gates
Chief Financial Officer
(principal financial officer)
15
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
June 30,
--------------------
1996 1995
------- -------
<S> <C> <C>
Primary Earnings Per Share:
- ---------------------------
Weighted average shares outstanding.......................................... 6,725 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................................... 6,831 2,028
Net income (loss) attributable to common stockholders....................... $ 1,116 $ (608)
Earnings (loss) per share - primary......................................... $ .16 $ (.30)
Fully Diluted Earnings Per Share:
Weighted average shares outstanding......................................... 6,725 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................................... 6,831 2,028
======= =======
Net income (loss) attributable to common stockholders....................... $ 1,116 $ (608)
Earnings (loss) per share - fully diluted................................... $ .16 $ (.30)
<FN>
(1) Stock options and convertible securities are excluded from the earnings per
share computation for the three months ended June 30, 1995 because they
would have the effect of decreasing the net loss per share.
</FN>
</TABLE>
16
<TABLE>
Exhibit 11.1
SHERIDAN HEALTHCARE, INC.
Computation of Earnings per Share of Common Stock
(in thousands, except per share amounts)
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1995
------- -------
Primary Earnings Per Share:
<S> <C> <C>
Weighted average shares outstanding.......................................... 6,459 2,028
Dilutive effect of outstanding stock options (1)............................. 118 ---
Dilutive effect of convertible securities (1)................................ --- ---
------- -------
Primary weighted average shares of common stock and
common stock equivalents outstanding................................... 6,577 2,028
======= =======
Net income (loss) attributable to common stockholders....................... $ 1,969 $ (823)
Earnings (loss) per share - primary......................................... $ .30 $ (.41)
Fully Diluted Earnings Per Share:
Weighted average shares outstanding......................................... 6,459 2,028
Dilutive effect of outstanding stock options (1)............................ 118 ---
Dilutive effect of convertible securities (1)............................... --- ---
Fully diluted weighted average shares of common stock and
common stock equivalents outstanding................................... 6,577 2,028
Net income (loss) attributable to common stockholders....................... $ 1,969 $ (823)
Earnings (loss) per share - fully diluted................................... $ .30 $ (.41)
<FN>
(1) Stock options and convertible securities are excluded from the earnings per
share computation for the six months ended June 30, 1995 because they would
have the effect of decreasing the net loss per share.
</FN>
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SHERIDAN HEALTHCARE, INC. FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 196
<SECURITIES> 0
<RECEIVABLES> 35,586
<ALLOWANCES> 18,419
<INVENTORY> 0
<CURRENT-ASSETS> 20,905
<PP&E> 6,285
<DEPRECIATION> 1,119
<TOTAL-ASSETS> 87,209
<CURRENT-LIABILITIES> 32,978
<BONDS> 0
0
0
<COMMON> 67
<OTHER-SE> 49,979
<TOTAL-LIABILITY-AND-EQUITY> 87,209
<SALES> 0
<TOTAL-REVENUES> 43,054
<CGS> 0
<TOTAL-COSTS> 31,082
<OTHER-EXPENSES> 7,009
<LOSS-PROVISION> 1,590
<INTEREST-EXPENSE> 1,204
<INCOME-PRETAX> 2,169
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,969
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,969
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
</TABLE>
