-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EZJeaUP309V3kgWgoEUc7xKaVMkoawkxAn5QBtsLn2zd0qvxpKZ5QqyJtF4GZavj f0dWmdYkO/lOqPy2Oi6Sig== 0000898430-96-001977.txt : 19960517 0000898430-96-001977.hdr.sgml : 19960517 ACCESSION NUMBER: 0000898430-96-001977 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SAFEGUARD HEALTH ENTERPRISES INC CENTRAL INDEX KEY: 0000727303 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 521528581 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12050 FILM NUMBER: 96565571 BUSINESS ADDRESS: STREET 1: 505 N EUCLID ST STREET 2: PO BOX 3210 CITY: ANAHEIM STATE: CA ZIP: 92803-3210 BUSINESS PHONE: 7147781005 10-Q 1 FORM 10-Q FOR PERIOD ENDING MARCH 31, 1996 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, 1996 OR [_] 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 0-12050 SAFEGUARD HEALTH ENTERPRISES, INC. (Exact name of registrant as specified in its charter) Delaware 52-1528581 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.) 505 NORTH EUCLID STREET ANAHEIM, CALIFORNIA 92801 (Address of principal executive offices) (Zip Code) (714) 778-1005 (Registrant's telephone number, including area code) NONE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding of registrant's common stock, par value $.01 per share, at March 31, 1996, was 4,705,806 shares (not including 3,274,788 shares of common stock held in treasury). Page 1 of 9 SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 INFORMATION INCLUDED IN REPORT
Page ---- Part I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Consolidated Statements of Financial Position 3 Consolidated Statements of Income 4 Consolidated Statements of Cash Flows 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. OTHER INFORMATION Item 1. Legal Proceedings 8 Item 2. Changes in Securities 9 Item 3. Default Upon Senior Securities 9 Item 4. Other Information 9 Item 5. Exhibits and Reports 9 SIGNATURES 9
Page 2 of 9 PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (000's OMITTED, EXCEPT SHARE DATA)
March 31, December 31, 1996 1995 ---------- ------------- ASSETS Current assets: Cash $ 6 $ 506 Investment securities available for sale, at estimated fair value 7,978 14,038 Investment securities held to maturity, at cost 3,820 202 Accounts and notes receivable, net of allowances of $238 in 1996 and $260 in 1995 6,620 4,344 Income taxes receivable - 45 Prepaid expenses and other 1,155 1,181 Deferred income taxes 262 262 -------- -------- Total current assets 19,841 20,578 -------- -------- Property and equipment, net 13,478 13,055 Investment securities held to maturity, at cost 4,071 4,073 Other assets 226 226 Intangibles, net of accumulated amortization of $1,406 in 1996 and $1,384 in 1995 388 411 -------- -------- $ 38,004 $ 38,343 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses $ 2,224 $ 3,683 Reserves for incurred but not reported claims 1,746 2,063 Income taxes payable 413 - Deferred revenue 375 195 -------- -------- Total current liabilities 4,758 5,941 -------- -------- Deferred income taxes 495 473 Stockholders' equity Common stock $.01 par value; 30,000,000 shares authorized; 4,706,000 and 4,695,000 shares outstanding, stated at 21,119 21,092 Preferred stock - $.01 par value; 1,000,000 shares authorized; 0 shares outstanding - - Retained earnings 29,873 29,113 Net unrealized loss on investment securities available for sale (118) (153) Treasury stock, at cost (18,123) (18,123) -------- -------- Total stockholders' equity 32,751 31,929 -------- -------- $ 38,004 $ 38,343 ======== ========
See accompanying Notes to Consolidated Financial Statements. Page 3 of 9 SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (000's OMITTED, EXCEPT PER SHARE DATA)
Three months ended March 31, ------------------ 1996 1995 ------- ------- Health care revenues $21,901 $19,423 ------- ------- Expenses: Health care services 17,435 15,472 Selling, general and administrative 3,467 3,349 ------- ------- Total expenses 20,902 18,821 ------- ------- Operating income 999 602 Other income, net 220 192 ------- ------- Income before income taxes 1,219 794 Provision for income taxes 459 309 ------- ------- Net income $ 760 $ 485 ======= ======= Net income per common share and common share equivalent: Primary and fully diluted $.16 $.10 ======= ======= Weighted average common shares and equivalents outstanding 4,889 4,656 ======= =======
See accompanying Notes to Consolidated Financial Statements. Page 4 of 9 SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (000's OMITTED)
Three months ended March 31, ------------------ (Unaudited) 1996 1995 ------- ------- Cash flows from operating activities: Net income $ 760 $ 485 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 443 378 Deferred income taxes (benefit) 22 (25) Change in assets and liabilities: Accounts receivable, net (2,276) 100 Income taxes receivable 45 255 Prepaid expenses and other 26 (37) Accounts payable and accrued expenses (1,459) (554) Reserves for incurred but not reported claims (317) 90 Income taxes payable 413 57 Deferred revenue 180 (38) ------- ------- Net cash provided by (used in) operating activities (2,163) 711 Cash flows from investing activities: Purchase of investments available for sale (1,222) (648) Proceeds from sales/maturity of investments available for sale 2,826 949 Purchase of investments held to maturity (3,274) (145) Proceeds from maturity of investments held to maturity 4,149 - Additions to property and equipment (843) (694) Other activity, net - (35) ------- ------- Net cash provided by (used in) investing activities 1,636 (573) ------- ------- Cash flows from financing activities: Proceeds from exercise of stock options 27 - ------- ------- Net cash provided by financing activities 27 - ------- ------- Net decrease in cash (500) 138 Cash at beginning of period 506 503 ------- ------- Cash at end of period $ 6 $ 641 ======= =======
See accompanying Notes to Consolidated Financial Statements. Page 5 of 9 SAFEGUARD HEALTH ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: BASIS OF REPORTING - --------------------------- The accompanying unaudited Consolidated Financial Statements of Safeguard Health Enterprises, Inc. and subsidiaries (the "Company") for the quarter ended March 31, 1996, have been prepared in accordance with generally accepted accounting principles applicable to interim periods, and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of results for the interim periods. The statements have been prepared in accordance with the regulations of the Securities and Exchange Commission, but omit certain information and footnote disclosures necessary to present the statements in accordance with generally accepted accounting principles. This information should be read in conjunction with the Consolidated Financial Statements and Notes including Significant Accounting Policies, contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Management believes that the disclosures herein are adequate to make the information presented not misleading. NOTE 2: STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE - ---------------------------------------------------- Since October 1986, the Company's Board of Directors has, at various times, authorized the repurchase of up to 4,510,888 shares of its common stock through open market or private transactions. As of March 31, 1996, a total of 3,819,088 shares had been acquired at an average cost of $5.54 per share. All shares acquired prior to August 24, 1987, have been retired as required by California law. All shares acquired after the August 24, 1987 reincorporation in Delaware are being held as treasury stock. Earnings per share for the periods ended March 31, 1996 and 1995 were computed by dividing net income by 4,888,672 and 4,655,866 shares, respectively, which was the weighted average number of outstanding common shares and common share equivalents (stock options) during the respective periods. NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS - ----------------------------------------- In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which will be effective for the Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock-based compensation awards to employees and will disclose the required pro forma effect on net income and earnings per share. Page 6 of 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1996 Versus 1995 Three months ended March 31, ----------------------------- Increase/ Percent (Decrease) Change Results of operations (000's omitted) - ------------------------------------------------------------------------ Health Care Revenues Managed care revenues $ 317 1.7 Indemnity revenues 2,161 238.3 Total Health Care Revenues $2,478 12.8 - ------------------------------------------------------------------------ Health Care Expenses Managed care expenses $ 197 1.3 Indemnity expenses 1,766 237.0 Total Health Care Expenses $1,963 12.7 - ------------------------------------------------------------------------ Total Selling, General and $ 118 3.5 Administrative Expenses - ------------------------------------------------------------------------ Other Income, Net $ 28 14.6 - ------------------------------------------------------------------------ Net Income $ 275 56.7 - ------------------------------------------------------------------------
1996 Versus 1995 - ---------------- Health care revenues increased as a result of sales to new small and mid-size clients, increased revenue from the Company's indemnity insurance subsidiary, and price increases to clients renewing with the Company during the quarter. Revenue in the Company's dental office subsidiary remained essentially the same. Membership enrollment increased to 778,000 from 740,000 primarily from sales to new small and mid-size group clients and an increase in the number of persons covered under various dental indemnity insurance products offered by the Company's insurance subsidiary. Health care expense increased primarily due to increased capitation, as well as increased indemnity benefits paid to insureds, both directly related to increased premium revenue. Health care expenses within the Company's dental office subsidiary as percentage of revenue, declined slightly due to lower costs associated with the operation of such facilities. General and administrative expenses declined slightly, and as a percentage of revenue increased at a lower rate due to increased operating efficiencies. Selling expenses increased primarily due to higher costs in the distribution of the Company's products through insurance related sources, and increased sales and marketing staff expenses. Other income increased slightly due to a higher effective rate of return on the Company's investments. Net income increased due to the above factors. Page 7 of 9 Business Segment Information - ---------------------------- The Company is engaged primarily in two distinct businesses; the operation of managed care dental programs and the operation of dental indemnity insurance programs.
1996 Versus 1995 Three months ended March 31, --------------------------------------------- 1996 Percent of 1995 Percent of Results of operations (000's omitted) Amount Revenue Amount Revenue - ---------------------------------------------------------------------------------------- Health Care Revenues Managed care revenues $18,833 86.0 $18,516 95.3 Indemnity revenues 3,068 14.0 907 4.7 Total Health Care Revenues $21,901 100.0 $19,423 100.0 - ---------------------------------------------------------------------------------------- Health Care Expenses Managed care expenses $14,924 79.2 $14,727 79.5 Indemnity expenses 2,511 81.8 745 82.1 Total Health Care Expenses $17,435 79.6 $15,472 79.7 - ------------------------------------------------------------------------------------- Total Selling, General and $ 3,467 15.8 $ 3,349 17.2 Administrative Expenses - -------------------------------------------------------------------------------------
Liquidity and Capital Resources - ------------------------------- The Company's business has not been capital intensive. The Company's operational cash requirements have been met principally from operating cash flow and this is expected to continue. At March 31, 1996, the current ratio was 4.2 to 1.0. The Company's net worth was $32.8 million compared to $27.9 million a year earlier. The Company had $15.9 million of cash and investments as of March 31, 1996 compared to $15.2 million a year earlier. The Company believes that income from operations, together with the existing cash and investments on hand, and other available sources of financing, should be adequate to meet operating capital needs for the foreseeable future. Impact of Inflation - ------------------- Management believes that the Company's operations are not materially affected by inflation. The Company believes that a majority of its costs are capitated or fixed in nature and are directly related to membership levels, and therefore related to premium levels. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is a defendant in litigation arising in the normal course of business. In the opinion of management, the defense costs and/or ultimate outcome of such litigation is covered by insurance or will not have material effect on the Company's financial position or results of operations. Page 8 of 9 ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. OTHER INFORMATION None ITEM 5. EXHIBITS AND REPORTS There were no reports on Form 8-K filed by the Company during the quarter ended March 31, 1996. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) or the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Anaheim, State of California, on the 14th of May, 1996. SAFEGUARD HEALTH ENTERPRISES, INC. By /s/ STEVEN J. BAILEYS, D.D.S. ------------------------------------------ STEVEN J. BAILEYS, D.D.S., Chairman, President and Chief Executive Officer By /s/ THOMAS C. TEKULVE ------------------------------------------ THOMAS C. TEKULVE, Vice President and Chief Financial Officer Page 9 of 9 EX-27 2 FINANCIAL DATA SCHEDULE - ARTICLE 5
5 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 6 11,798 6,858 238 0 19,841 26,273 12,795 38,004 4,758 0 0 0 21,119 11,632 38,004 21,901 21,901 17,435 17,435 3,467 (220) 0 1,219 459 0 0 0 0 760 .16 .16
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