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 March 31, 1997
[ ] 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 May 1, 1997, there were 6,417,998 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.
Part I: Financial Information
Item 1: Financial Statements
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
March 31, December 31,
1997 1996
------------- -------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ --- $ ---
Accounts receivable, net of allowances........................................ 20,787 18,717
Income tax refunds receivable................................................. --- 570
Deferred income taxes......................................................... 1,361 1,154
Other current assets.......................................................... 1,810 1,845
------------- -------------
Total current assets........................................................ 23,958 22,286
Property and equipment, net of accumulated depreciation.......................... 3,778 3,730
Goodwill, net of accumulated amortization........................................ 48,642 46,111
Intangible assets, net of accumulated amortization............................... 1,738 1,281
------------- -------------
Total assets.............................................................. $ 78,116 $ 73,408
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 306 $ 222
Amounts due for acquisitions.................................................. 559 558
Accrued salaries and benefits................................................. 1,824 2,798
Self-insurance accruals....................................................... 3,270 3,170
Refunds payable............................................................... 2,318 1,952
Accrued lease obligations..................................................... 778 971
Other accrued expenses........................................................ 2,613 3,090
Current portion of long-term debt............................................. 425 1,189
------------- -------------
Total current liabilities................................................... 12,093 13,950
Long-term debt................................................................... 26,880 21,367
Amounts due for acquisitions..................................................... 1,997 2,133
Stockholders' equity:
Preferred stock, par value $.01; 5,000 shares authorized, none issued......... --- ---
Common stock, par value $.01; 21,000 shares authorized:
Voting; 6,418 shares issued and outstanding................................. 64 64
Class A non-voting; 297 shares issued and outstanding...................... 3 3
Additional paid-in capital.................................................... 61,129 61,129
Excess purchase price distributed to management stockholders.................. (7,541) (7,541)
Retained earnings (deficit)................................................... (16,509) (17,697)
------------- -------------
Total stockholders' equity ................................................. 37,146 35,958
------------- -------------
Total liabilities and stockholders' equity................................ $ 78,116 $ 73,408
============= =============
See accompanying notes.
2
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
1997 1996
------------- -------------
Net revenue...................................................................... $ 22,905 $ 19,854
Operating expenses:
Direct facility expenses...................................................... 15,999 14,446
Provision for bad debts....................................................... 925 675
Salaries and benefits......................................................... 1,830 1,550
General and administrative.................................................... 1,120 1,016
Amortization.................................................................. 437 551
Depreciation.................................................................. 143 210
------------- -------------
Total operating expenses.................................................... 20,454 18,448
------------- -------------
Operating income................................................................. 2,451 1,406
Interest expense................................................................. 601 553
------------- -------------
Income before income taxes....................................................... 1,850 853
Income tax expense............................................................... 662 ---
------------- -------------
Net income....................................................................... $ 1,188 853
============= =============
Net income per share............................................................. $ .17 $ .14
Weighted average shares of common stock and
common stock equivalents outstanding.......................................... 6,897 6,277
See accompanying notes.
3
SHERIDAN HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
March 31,
1997 1996
------------- ------------
Cash flows from operating activities:
Net income.................................................................... $ 1,188 $ 853
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization................................................................ 437 551
Depreciation................................................................ 143 210
Provision for bad debts..................................................... 925 675
Deferred income taxes....................................................... (207) ---
Changes in operating assets and liabilities:
Accounts receivable......................................................... (2,727) (1,895)
Other current assets........................................................ 605 (371)
Other assets................................................................ (519) (42)
Accounts payable............................................................ 84 107
Other accrued expenses...................................................... (1,178) 97
------------- ------------
Net cash provided (used) by operating activities.......................... (1,249) 185
Cash flows from investing activities:
Acquisitions of physician practices........................................... (135) (10,119)
Investment in management agreement............................................ (3,203) ---
Capital expenditures.......................................................... (162) (563)
------------- ------------
Net cash provided (used) by investing activities.......................... (3,500) (10,682)
Cash flows from financing activities:
Borrowings on long-term debt.................................................. 5,618 12,032
Payments on long-term debt.................................................... (869) (871)
------------- ------------
Net cash provided by financing activities................................. 4,749 11,161
------------- ------------
Increase in cash and cash equivalents............................................ --- 664
Cash and cash equivalents:
Beginning of period........................................................... --- ---
------------- ------------
End of period................................................................. $ --- $ 664
============= ============
See accompanying notes.
4
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(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, 1996. 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 March 31,
1997, 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 $29.2 million of the total amount of goodwill, net of
accumulated amortization, at March 31, 1997 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.
The remaining $19.4 million of the total amount of goodwill at March 31, 1997 is
related to several acquisitions of physician practices which were completed from
September 1994 to March 1997, some of which are included in the acquisitions
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.
(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 loan costs, and
deferred acquisition costs. These intangible assets are being amortized over the
lives of the underlying assets or agreements, which range from three to seven
years.
(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
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(5) ACQUISITIONS AND DIVESTITURES
-----------------------------
During the period from January to October 1996, the Company made six
acquisitions of physician practices for an aggregate of $12.4 million in cash
and deferred payments and approximately 658,000 shares of the Company's common
stock. The Company also entered into a long-term management agreement with a
physician practice in March 1997, in connection with which it acquired certain
assets from the practice for $3.2 million in cash. This transaction is referred
to as an acquisition in Note 2 and the remainder of this Note 5, and is included
in the pro forma consolidated results of operations below. 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.
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.
Three Months Ended
March 31,
1997 1996
----------- -----------
(in thousands, except
per share data)
PRO FORMA RESULTS OF OPERATIONS:
Net revenue............................................................ $ 23,274 $ 23,864
Income before income taxes............................................. 1,881 1,075
Net income............................................................. 1,202 1,075
Net income per share................................................... $ .17 $ .16
In December 1996 and February 1997, the Company sold two primary care practices
which generated an aggregate of $4.4 million of net revenue during the year
ended December 31, 1996.
(6) LONG-TERM DEBT
--------------
Long-term debt consists of the following (in thousands):
March 31, December 31,
1997 1996
----------- ------------
Revolving credit facility, maturing in March 2000,
secured by substantially all assets of the Company.................... $ 25,600 $ ---
Revolving credit facility, maturing in February 1997,
secured by substantially all assets of the Company.................... --- 19,982
Capital lease obligations payable in various monthly
installments, maturing at various dates through 2001.................. 1,705 1,809
Note payable, maturing in January 1997.................................. --- 765
----------- -----------
Total................................................................ 27,305 22,556
Less current portion.................................................... (425) (1,189)
----------- -----------
Long-term debt...................................................... $ 26,880 $ 21,367
=========== ===========
6
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On March 12, 1997, the Company established a new $35 million revolving credit
facility, which was used to pay the outstanding balance under the previous
credit facility. There are no principal payments due under the new credit
facility until the maturity date of March 11, 2000. The new revolving credit
facility contains various restrictive covenants that include, among other
requirements, the maintenance of certain financial ratios, various restrictions
regarding acquisitions, sales of assets, liens and dividends, and limitations
regarding investments, additional indebtedness and guarantees. The Company was
in compliance with the loan covenants in the new credit facility as of March 31,
1997. The additional amount that could be borrowed under the credit facility is
potentially restricted by a leverage ratio defined in the credit agreement.
Based on the value of this leverage ratio at March 31, 1997, the Company had the
ability to borrow the entire unused portion of the credit facility, which was
$9.4 million at March 31, 1997.
(7) INCOME TAXES
------------
The Company's income tax expense was reduced by a loss carryforward from the
prior year for both the three months ended March 31, 1997 and the three months
ended March 31, 1996. Without the loss carryforward, income tax expense for the
three months ended March 31, 1997 and 1996 would have been approximately
$870,000 and $450,000. The Company had an unused loss carryforward of
approximately $1.6 million for book purposes as of March 31, 1997. The tax
effect of this loss carryforward is being allocated evenly among all four
quarters in the year ending December 31, 1997. The Company had net deferred tax
assets at March 31, 1997, 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) LITIGATION
----------
In October 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 continue to vigorously defend against it.
(9) NET INCOME PER SHARE
--------------------
Net income per share reflected in the accompanying consolidated statement of
operations represents both primary earnings per share and fully diluted earnings
per share, which are substantially the same for the Company. In February 1997,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"), which is
effective for fiscal years ending after December 15, 1997. SFAS 128 simplifies
the calculation of earnings per share and provides for the reporting of basic
earnings per share and diluted earnings per share. Application of SFAS 128 to
the accompanying consolidated financial statements would not have a material
impact on the Company's earnings per share.
7
SHERIDAN HEALTHCARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(10) STOCK OPTIONS
-------------
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123") in 1996. The Company has
elected to continue using Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for employee stock
options. Each stock option has an exercise price equal to the market price on
the date of grant and, accordingly, no compensation expense has been recorded
for any stock option grants.
Stock option activity during the three months ended March 31, 1997 was as
follows:
Weighted
Average
Number Exercise
of Shares Price
--------- --------
Balance, December 31, 1996................................................. 553,911 $ 5.73
Granted during period...................................................... 196,019 9.00
---------
Balance, March 31, 1997.................................................... 749,930 $ 6.58
=========
The following table summarizes the pro forma consolidated results of operations
of the Company as though the fair value based accounting method in SFAS 123 had
been used in accounting for stock options.
Three Months
Ended
March 31, 1997
--------------
(in thousands,
except per
share data)
Pro forma results of operations:
Net income.............................................................................. $ 988
Net income per share.................................................................... .14
(11) SUBSEQUENT EVENTS
-----------------
In April 1997, the Company sold two rheumatology physician practices for an
aggregate sale price of $3.3 million in cash. These two rheumatology practices
generated approximately $4.0 million of net revenue during the year ended
December 31, 1996. Also in April 1997, the Company entered into a long-term
management agreement with a three-physician obstetrical practice, in connection
with which it acquired certain assets from the practice for $2.5 million in cash
and deferred payments. This practice generated approximately $3.2 million of net
revenue in 1996.
In May 1997, the Company decreased the amount of its authorized common stock
from 31,000,000 shares to 21,000,000 shares, which is retroactively reflected in
the accompanying consolidated balance sheet.
8
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 delivered by the Company's affiliated physicians, changes in the
reimbursement rates for those services, uncertainty about the ability to collect
the appropriate fees 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 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, emergency services and obstetrics, and
which owns and operates, or manages, office-based primary care 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 145 at December 31, 1995 to
approximately 210 at March 31, 1997 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
the period from January 1, 1996 to March 31, 1997, 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. The Company also
sold certain physician practices during the period from December 1996 to April
1997, as described in Notes 5 and 10 to the accompanying consolidated financial
statements.
RESULTS OF OPERATIONS
The following table shows certain statement of operations data expressed as
percentage of net revenue:
Three Months Ended
March 31,
1997 1996
-------- --------
Net revenue............................................................... 100.0% 100.0%
Operating expenses:
Direct facility expenses.............................................. 69.9 72.8
Provision for bad debts............................................... 4.0 3.4
Salaries and benefits................................................. 8.0 7.8
General and administrative............................................ 4.9 5.1
Amortization.......................................................... 1.9 2.8
Depreciation.......................................................... 0.6 1.0
--------- --------
Total operating expenses........................................... 89.3 92.9
--------- --------
Operating income.......................................................... 10.7% 7.1%
========= ========
9
Three Months Ended March 31, 1997 Compared To Three Months Ended March 31, 1996
Net revenue increased $3.0 million, or 15.4%, from $19.9 million in 1996 to
$22.9 million in 1997. Net revenue from hospital-based services increased by
$4.1 million, from $12.6 million in 1996 to $16.7 million in 1997. Of this
increase, $2.1 million was due to the acquisition of a hospital-based
neonatology and pediatric practice in March 1996, which is included in the
acquisitions discussed in Note 5 to the accompanying consolidated financial
statements. The remaining $2.0 million increase was primarily due to the
addition of several new contracts for hospital-based services, including new
neonatology contracts awarded to the Company since the neonatology acquisition
in March 1996. Net revenue from office-based practices decreased $1.0 million,
from $7.2 million in 1996 to $6.2 million in 1997, primarily due to the sale of
one of the Company's primary care practices in December 1996.
Direct facility expenses increased $1.6 million, or 10.8%, from $14.4 million in
1996 to $16.0 million in 1997. Direct facility expenses include all operating
expenses that are incurred at the location of the physician practice, including
salaries, employee benefits, referral claims (in the case of shared-risk
capitation business), office expenses, medical supplies, insurance and other
expenses. The increase in direct facility expenses was primarily due to the
acquisition of a hospital-based neonatology practice in March 1996 and the
addition of several new contracts for hospital-based services, which were
partially offset by the sale of a primary care practice in December 1996. Direct
facility expenses as a percentage of net revenue ("direct facility expense
percentage") decreased from 72.8% in 1996 to 69.9% in 1997. This decrease was
primarily due to an increase in the percentage of the Company's total net
revenue that is derived from hospital-based services, from 63.6% in 1996 to
73.0% in 1997. The Company's hospital-based operations have historically had a
lower direct facility expense percentage than its office-based operations.
The provision for bad debts increased $250,000, or 37.0%, from $675,000 in 1996
to $925,000 in 1997. This increase was primarily due to a 15.4% increase in net
revenue, as discussed above. As a percentage of net revenue, the provision for
bad debts increased from 3.4% in 1996 to 4.0% in 1997 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 $280,000, or 18.1%, from $1.5 million in 1996 to
$1.8 million in 1997. Salaries and benefits includes salaries, payroll taxes and
employee benefits related to employees located at the Company's central office,
including employees related to hospital-based operations, office-based
operations, and general corporate functions. The increase in salaries and
benefits was primarily due to the acquisition of a hospital-based neonatology
practice in March 1996, as discussed above. As a percentage of net revenue,
salaries and benefits increased slightly, from 7.8% in 1996 to 8.0% in 1997,
because the acquired neonatology practice has higher salaries and benefits as a
percentage of net revenue than the other operations of the Company.
General and administrative expense increased $104,000, or 10.2%, from $1.0
million in 1996 to $1.1 million in 1997. General and administrative expense
includes expenses incurred at the Company's central office, including office
expenses, accounting and legal fees, insurance, travel and other similar
expenses. The increase in general and administrative expense was primarily due
to the acquisition of a hospital-based neonatology practice in March 1996, as
discussed above. As a percentage of net revenue, general and administrative
expense decreased slightly from 5.1% in 1996 to 4.9% in 1997, primarily due to a
15.4% increase in net revenue, as discussed above.
Amortization expense decreased $114,000, or 20.7%, from $551,000 in 1996 to
$437,000 in 1997. This decrease was primarily due to a decrease in amortization
expense related to goodwill and intangible assets that were written down to
their estimated realizable values during the fourth quarter of 1996, which was
partially offset by amortization of the goodwill related to several acquisitions
of physician practices from March 1996 to March 1997, which are included in the
acquisitions discussed in Note 5 to the accompanying consolidated financial
statements.
10
Operating income increased $1.1 million, or 74.3%, from $1.4 million in 1996 to
$2.5 million in 1997. This increase was primarily due to a 15.4% increase in net
revenue and a decrease in the direct facility expense percentage from 72.8% in
1996 to 69.9% in 1997, which was primarily due to a favorable shift in the
Company's mix of hospital-based and office-based operations, as discussed above.
Interest expense increased $48,000, from $553,000 in 1996 to $601,000 in 1997.
This increase was primarily due to additional debt incurred during the period
from January 1996 to March 1997 to finance acquisitions of physician practices,
which was partially offset by a decrease in the interest rate on the Company's
revolving credit facility, and payments on the Company's debt using cash flows
from operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal uses of cash during the three months ended March 31,
1997 were to finance acquisitions of physician practices ($3.3 million), to
finance increases in accounts receivable ($1.8 million), and to reduce accrued
salaries and benefits ($1.0 million). The Company met its cash needs during this
period primarily through borrowings under its revolving credit facility ($5.6
million) and its net income plus non-cash expenses (amortization, depreciation
and deferred income taxes) ($1.6 million).
On March 12, 1997, the Company established a new $35 million revolving credit
facility with NationsBank, National Association (South) ("NationsBank"). The new
credit facility matures on March 11, 2000 and bears interest at the London
interbank offered rate plus an applicable margin which is subject to quarterly
adjustment based on a leverage ratio defined in the credit agreement. As of May
1, 1997, the applicable margin was 1.63%. The Company was in compliance with the
loan covenants in the new credit facility as of March 31, 1997. There are no
principal payments due under the credit facility until the maturity date of
March 11, 2000.
The outstanding balance under the credit facility increased from $20.0 million
at December 31, 1996 to $25.6 million at March 31, 1997 primarily due to the
acquisition of an office-based obstetrical practice in March 1997, an increase
in accounts receivable, as discussed above, and deferred financing costs related
to the new credit facility. The amount that can be borrowed under the new credit
facility is potentially restricted by a leverage ratio defined in the credit
agreement. Based on the value of this leverage ratio at March 31, 1997, the
Company had the ability to borrow the entire unused portion of the credit
facility, which was $9.4 million at March 31, 1997. Certain conditions must be
met, including the maintenance of certain financial ratios, and in certain
circumstances, the approval of NationsBank 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.
In March 1996, the Company issued approximately 658,000 shares of its common
stock as partial consideration for an acquisition of a hospital-based
neonatology practice completed in March 1996, which is included in the
acquisitions 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.
Net cash provided by operating activities was $185,000 in 1996 compared to $1.2
million of net cash used by operating activities in 1997. This decrease of $1.4
million was primarily due to a reduction in accrued salaries and benefits of
$1.0 million in 1997, compared to no significant change in accrued salaries and
benefits in 1996. The reduction in accrued salaries and benefits in 1997 was
primarily due to a change in the relationship between the end of the quarter and
the Company's two-week payroll cycle from December 31, 1996 to March 31, 1997.
Net cash used by investing activities decreased from $10.7 million in 1996 to
$3.5 million in 1997. This decrease was primarily due to a decrease in cash used
for physician practice acquisitions from $10.1 million in 1996 to $3.3 million
in 1997.
11
Net cash provided by financing activities decreased from $11.2 million in 1996
to $4.7 million in 1997. This decrease was primarily due to a decrease in
borrowings under the Company's revolving credit facility from $12.0 million in
1996 to $5.6 million in 1997, which is related to the decrease in cash used for
physician practice acquisitions, as discussed above.
12
Part II. OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
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
- ------ -----------
10.1 Anesthesiology Agreement, by and between South Broward Hospital District, a
Florida special taxing district doing business as Memorial Healthcare
System, and Sheridan Healthcorp, Inc., a Florida corporation, effective as
of January 1, 1997.
10.2 Real Property Lease Agreement, by and among ACP Venture I Limited
Partnership, a Delaware limited partnership, and Sheridan Healthcorp, Inc.,
a Florida corporation, dated as of January 11, 1997.
10.3 Amended and Restated Credit Agreement, by and among NationsBank, National
Association (South), a national banking association, as Agent and Lender,
and Sheridan Healthcare, Inc., as Borrower, dated as of March 12, 1997.
10.4 Sheridan Healthcare, Inc. Second Amended and Restated 1995 Stock Option
Plan, effective as of April 27, 1995, amended and restated as of July 27,
1995 and further amended as of February 26, 1997.
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.
13
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: May 15, 1997 By: /s/ Michael F. Schundler
---------------------------- ------------------------
Michael F. Schundler
Chief Financial Officer
(principal financial officer)
14