Attached files
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EX-32.2 - EX-32.2 - SYMBION INC/TN | a09-31182_1ex32d2.htm |
EX-32.1 - EX-32.1 - SYMBION INC/TN | a09-31182_1ex32d1.htm |
EX-31.1 - EX-31.1 - SYMBION INC/TN | a09-31182_1ex31d1.htm |
EX-31.2 - EX-31.2 - SYMBION INC/TN | a09-31182_1ex31d2.htm |
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009
or
o 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: 000-50574
Symbion, Inc.
(Exact name of registrant as specified in its charter)
Delaware |
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62-1625480 |
(State or other
jurisdiction of |
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(I.R.S. Employer |
40 Burton Hills Boulevard, Suite 500
Nashville, Tennessee 37215
(Address of principal executive offices and zip code)
(615) 234-5900
(Registrants 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer o |
Non-accelerated filer x |
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
None of the registrants common stock is held by non-affiliates.
As of November 12, 2009, 1,000 shares of the registrants common stock were outstanding.
SYMBION, INC.
FORM 10-Q
November 12, 2009
Part I FINANCIAL INFORMATION |
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3 |
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4 |
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Condensed Consolidated Statements of Stockholders Equity (unaudited) |
5 |
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6 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
7 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
27 |
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44 |
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44 |
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45 |
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45 |
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46 |
2
SYMBION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share amounts)
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September 30, |
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December 31, |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
50,396 |
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$ |
41,833 |
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Accounts receivable, less allowance for doubtful accounts of $12,945 and $14,587, respectively |
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35,280 |
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34,707 |
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Inventories |
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9,634 |
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9,050 |
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Prepaid expenses and other current assets |
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10,283 |
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12,719 |
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Deferred tax asset |
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507 |
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825 |
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Current assets of discontinued operations |
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641 |
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1,104 |
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Total current assets |
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106,741 |
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100,238 |
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Land |
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2,938 |
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2,938 |
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Buildings and improvements |
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53,969 |
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53,847 |
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Furniture and equipment |
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56,115 |
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49,093 |
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Computers and software |
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4,002 |
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2,864 |
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117,024 |
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108,742 |
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Less accumulated depreciation |
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(25,503 |
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(14,057 |
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Property and equipment, net |
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91,521 |
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94,685 |
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Intangible assets |
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19,570 |
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19,570 |
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Goodwill |
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545,862 |
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541,831 |
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Investments in and advances to affiliates |
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15,785 |
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14,532 |
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Other assets |
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11,192 |
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11,875 |
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Long-term assets of discontinued operations |
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649 |
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833 |
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Total assets |
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$ |
791,320 |
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$ |
783,564 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
8,544 |
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$ |
5,392 |
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Accrued payroll and benefits |
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7,699 |
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7,500 |
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Other accrued expenses |
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19,814 |
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22,240 |
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Current maturities of long-term debt |
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17,091 |
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12,205 |
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Current liabilities of discontinued operations |
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1,237 |
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629 |
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Total current liabilities |
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54,385 |
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47,966 |
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Long-term debt, less current maturities |
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451,343 |
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440,612 |
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Deferred income tax payable |
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37,801 |
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33,008 |
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Other liabilities |
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12,079 |
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12,526 |
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Long-term liabilities of discontinued operations |
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3,595 |
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236 |
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Noncontrolling interests redeemable |
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31,752 |
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32,645 |
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Stockholders equity: |
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Common stock, 1,000 shares, $0.01 par value, authorized, issued and outstanding at September 30, 2009 and December 31, 2008 |
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Additional paid-in-capital |
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241,789 |
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240,815 |
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Accumulated other comprehensive loss |
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(3,673 |
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(5,584 |
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Retained deficit |
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(41,979 |
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(24,025 |
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Total Symbion, Inc. stockholders equity |
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196,137 |
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211,206 |
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Noncontrolling interests non-redeemable |
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4,228 |
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5,365 |
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Total equity |
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200,365 |
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216,571 |
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Total liabilities and stockholders equity |
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$ |
791,320 |
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$ |
783,564 |
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See notes to unaudited condensed consolidated financial statements.
3
SYMBION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands)
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Three Months Ended |
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Nine Months Ended |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues |
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$ |
86,766 |
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$ |
83,570 |
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$ |
259,398 |
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$ |
247,184 |
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Operating expenses: |
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Salaries and benefits |
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25,167 |
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23,389 |
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72,167 |
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67,823 |
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Supplies |
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19,275 |
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16,919 |
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55,548 |
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49,921 |
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Professional and medical fees |
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5,790 |
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4,908 |
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17,102 |
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14,049 |
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Rent and lease expense |
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6,484 |
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5,573 |
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18,640 |
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16,615 |
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Other operating expenses |
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7,434 |
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6,750 |
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20,865 |
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19,521 |
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Cost of revenues |
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64,150 |
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57,539 |
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184,322 |
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167,929 |
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General and administrative expense |
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4,698 |
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6,175 |
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16,043 |
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18,816 |
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Depreciation and amortization |
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4,362 |
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3,947 |
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12,940 |
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11,169 |
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Provision for doubtful accounts |
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1,168 |
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1,403 |
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3,150 |
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2,579 |
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Income on equity investments |
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(712 |
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(450 |
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(1,364 |
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(1,152 |
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Impairment and loss on disposal of long-lived assets |
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2,593 |
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675 |
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3,033 |
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1,147 |
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Gain on sale of long-lived assets |
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(30 |
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(42 |
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(707 |
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(710 |
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Proceeds from insurance settlements, net |
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(150 |
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(416 |
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Total operating expenses |
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76,079 |
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69,247 |
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217,001 |
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199,778 |
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Operating income |
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10,687 |
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14,323 |
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42,397 |
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47,406 |
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Interest expense, net |
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(11,958 |
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(11,293 |
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(33,900 |
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(32,497 |
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(Loss) income before income taxes and discontinued operations |
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(1,271 |
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3,030 |
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8,497 |
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14,909 |
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Provision (benefit) for income taxes |
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1,936 |
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(1,053 |
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4,656 |
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(705 |
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(Loss) income from continuing operations |
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(3,207 |
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4,083 |
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3,841 |
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15,614 |
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Income (loss) from discontinued operations, net of taxes |
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177 |
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(468 |
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(5,958 |
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(2,290 |
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Net (loss) income |
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(3,030 |
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3,615 |
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(2,117 |
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13,324 |
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Less: Net income attributable to noncontrolling interests |
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(4,013 |
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(5,444 |
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(15,837 |
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(18,243 |
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Net loss attributable to Symbion, Inc. |
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$ |
(7,043 |
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$ |
(1,829 |
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$ |
(17,954 |
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$ |
(4,919 |
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See notes to unaudited condensed consolidated financial statements.
4
SYMBION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Unaudited, in thousands, except share amounts)
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Symbion, Inc. |
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Common Stock |
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Accumulated |
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Noncontrolling |
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Other |
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Interests - |
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Additional |
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Comprehensive |
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Retained |
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Non- |
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Shares |
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Amount |
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Paid-in Capital |
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Loss |
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Deficit |
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redeemable |
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Total |
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Balance at December 31, 2007 |
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1,000 |
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$ |
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$ |
238,701 |
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$ |
(2,188 |
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$ |
(3,227 |
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$ |
5,935 |
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$ |
239,221 |
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Net (loss) income |
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(4,919 |
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2,095 |
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(2,824 |
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Amortized compensation expense related to stock options |
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1,790 |
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1,790 |
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Unrealized loss on interest rate swap, net of taxes of $159,000 |
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(248 |
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(248 |
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Distributions to noncontrolling interests |
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(1,925 |
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(1,925 |
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Acquisition and disposal of shares of noncontrolling interest |
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176 |
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176 |
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Other |
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(43 |
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(43 |
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Balance at September 30, 2008 |
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1,000 |
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$ |
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$ |
240,491 |
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$ |
(2,436 |
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$ |
(8,146 |
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$ |
6,238 |
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$ |
236,147 |
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Balance at December 31, 2008 |
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1,000 |
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$ |
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$ |
240,815 |
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$ |
(5,584 |
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$ |
(24,025 |
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$ |
5,365 |
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$ |
216,571 |
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Net (loss) income |
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(17,954 |
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1,069 |
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(16,885 |
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Amortized compensation expense related to stock options |
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974 |
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974 |
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Recognition of interest rate swap liability to earnings, net of taxes of $946,000 |
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1,911 |
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1,911 |
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Distributions to noncontrolling interests |
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(2,286 |
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(2,286 |
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Acquisition and disposal of shares of noncontrolling interest |
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80 |
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80 |
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Balance at September 30, 2009 |
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1,000 |
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$ |
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$ |
241,789 |
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$ |
(3,673 |
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$ |
(41,979 |
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$ |
4,228 |
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$ |
200,365 |
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See notes to unaudited condensed consolidated financial statements.
5
SYMBION, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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Nine
Months Ended |
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2009 |
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2008 |
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Cash flows from operating activities: |
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Net (loss) income |
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$ |
(2,117 |
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$ |
13,324 |
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Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
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Loss from discontinued operations |
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5,958 |
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2,290 |
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Depreciation and amortization |
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12,940 |
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11,169 |
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Amortization of deferred financing costs |
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1,501 |
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3,985 |
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Non-cash payment-in-kind interest option |
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17,183 |
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9,753 |
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Non-cash stock option compensation expense |
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974 |
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1,790 |
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Non-cash recognition of other comprehensive loss into earnings |
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1,866 |
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Non-cash credit risk adjustment of financial instruments |
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1,521 |
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Non-cash net losses |
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2,326 |
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437 |
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Deferred income taxes |
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5,626 |
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(2,870 |
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Equity in earnings of unconsolidated affiliates, net of distributions received |
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(217 |
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237 |
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Provision for doubtful accounts |
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3,150 |
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2,579 |
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Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: |
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Accounts receivable |
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(1,870 |
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(2,495 |
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Income taxes payable |
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1,762 |
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2,216 |
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Other assets and liabilities |
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(756 |
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3,811 |
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Net cash provided by operating activities continuing operations |
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49,847 |
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46,226 |
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Net cash used in operating activities discontinued operations |
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(414 |
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(625 |
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Net cash provided by operating activities |
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49,433 |
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45,601 |
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Cash flows from investing activities: |
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Payments for acquisitions, net of cash acquired |
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(126 |
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(15,822 |
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Purchases of property and equipment, net |
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(6,989 |
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(12,372 |
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Payments from unit activity of unconsolidated facilities |
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(724 |
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Change in other assets |
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(809 |
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349 |
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Net cash used in investing activities continuing operations |
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(8,648 |
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(27,845 |
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Net cash used in investing activities discontinued operations |
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(24 |
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(317 |
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Net cash used in investing activities |
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(8,672 |
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(28,162 |
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Cash flows from financing activities: |
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Principal payments on long-term debt |
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(10,138 |
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(16,476 |
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Repayment of bridge facility |
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(179,937 |
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Proceeds from debt issuances |
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289 |
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12,291 |
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Proceeds from issuance of Toggle Notes |
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179,937 |
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Payment of debt issuance costs |
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(203 |
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(4,739 |
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Distributions to noncontrolling interests |
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(19,342 |
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(16,457 |
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Proceeds from unit activity of consolidated facilities |
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1,027 |
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219 |
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Other financing activities |
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(3,819 |
) |
795 |
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Net cash used in financing activities continuing operations |
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(32,186 |
) |
(24,367 |
) |
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Net cash used in financing activities discontinued operations |
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(12 |
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(147 |
) |
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Net cash used in financing activities |
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(32,198 |
) |
(24,514 |
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Net increase (decrease) in cash and cash equivalents |
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8,563 |
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(7,075 |
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Cash and cash equivalents at beginning of period |
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41,833 |
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44,656 |
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Cash and cash equivalents at end of period |
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$ |
50,396 |
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$ |
37,581 |
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See notes to unaudited condensed consolidated financial statements.
6
SYMBION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009
(Unaudited)
1. Organization
Symbion, Inc. (the Company), through its wholly owned subsidiaries, owns interests in partnerships and limited liability companies and operates a national network of short stay surgical facilities in joint ownership with physicians and physician groups, hospitals and hospital systems. As of September 30, 2009, the Company owned and operated 59 surgical facilities, including 55 ambulatory surgery centers and four surgical hospitals, and managed eight additional ambulatory surgery centers and two physician networks. The Company owns a majority ownership interest in 36 of the 59 surgical facilities and consolidates 52 of these surgical facilities for financial reporting purposes, of which 51 are included in continuing operations.
On August 23, 2007, the Company was acquired by an investment group led by an affiliate of Crestview Partners, L.P. (Crestview). As a result of this merger (the Merger), the Company has no publicly traded equity securities. The Company is a wholly owned subsidiary of Symbion Holdings Corporation (Holdings), which is owned by an investor group that includes affiliates of Crestview, members of the Companys management and other investors.
2. Significant Accounting Policies and Practices
Basis of Presentation and Use of Estimates
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the accompanying condensed consolidated financial statements and accompanying footnotes. Examples include, but are not limited to, estimates of accounts receivable allowances, professional and general liabilities and the estimate of deferred tax assets or liabilities. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All adjustments are of a normal, recurring nature. Actual results could differ from those estimates.
Recently Adopted and Recently Issued Accounting Guidelines
Adopted
On September 30, 2009, the Company adopted changes issued by the Financial Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards CodificationTM (Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the financial statements.
On January 1, 2009, the Company adopted changes issued by the FASB to noncontrolling interests in consolidated financial statements. These changes require, among other items, that a noncontrolling interest be included within equity separate from the parents equity; consolidated net income be reported at amounts inclusive of both the parents and noncontrolling interests shares; and, separately, the amounts of consolidated net income attributable to the parent and noncontrolling interest all be reported on the consolidated statement of operations. The implementation of these changes also results in the cash flow impact of certain transactions with noncontrolling interests being classified within financing activities. Those changes to the statement of cash flows include: a) distributions to noncontrolling interest partners were previously recorded as an operating activity and are now included in the financing activities section, and b) acquisitions or sales of equity interests in consolidated
7
subsidiaries in which there were no changes of control were previously recorded in the investing section and are now presented as financing activities.
The Company could be obligated, under the terms of the partnership and operating agreements governing its joint ventures, upon the occurrence of various fundamental regulatory changes, to purchase some or all of the noncontrolling interests related to the Companys consolidated subsidiaries. These repurchase requirements are limited to the portions of its facilities that are owned by physicians who perform surgery at the Companys facilities and would be triggered by regulatory changes making the existing ownership structure illegal. While the Company is not aware of events that would make the occurrence of such a change probable, regulatory changes are outside the control of the Company. Accordingly, the noncontrolling interests subject to these repurchase provisions, and the income attributable to those interests, have been classified outside of equity on the Companys consolidated balance sheets.
On June 30, 2009, the Company adopted changes issued by the FASB to subsequent events. This guidance establishes general standards of accounting and disclosures of events that occur after the balance sheet date but before the financial statements are issued. The Company evaluated all subsequent events that occurred after the balance sheet date through the filing of the financial statements on November 12, 2009.
In April 2009, the Company adopted changes issued by the FASB to interim disclosures about fair value of financial instruments, which require an entity to provide interim disclosures about the fair value of all financial instruments within the scope of the guidance, and to include disclosures related to the methods and significant assumptions used in estimating those instruments. Other than the required disclosures, these changes had no impact on the financial statements.
Effective January 1, 2009, the Company adopted changes issued by the FASB to accounting for business combinations. These changes retain the purchase method of accounting for acquisitions, but require a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting as well as requiring the expensing of acquisition-related costs as incurred. Furthermore, these changes provide guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The Company has applied these changes to the acquisitions completed during the nine months ended September 30, 2009.
Effective January 1, 2009, the Company adopted changes issued by the FASB to the method of determination of the useful life of intangible assets. This guidance amends the factors that should be considered in determining the useful life of a recognized intangible asset. The intent of this guidance is to improve consistency between the useful life of a recognized intangible asset and the period of expected cash flows used to measure the fair value of the asset. The adoption of this guidance did not have a material impact on the Companys consolidated results of operations or financial position.
Effective January 1, 2009, the Company adopted changes issued by the FASB to equity method investment accounting. These changes clarify the accounting for certain transactions and impairment considerations involving equity method investments. The adoption of this guidance did not have a material impact on the Companys consolidated financial position, results of operations, or cash flows.
Effective January 1, 2009, the Company adopted changes issued by the FASB to disclosures about derivative instruments and hedging activities. This guidance requires enhanced disclosures about an entitys derivative and hedging activities and thereby improves the transparency of financial reporting. The objective of the guidance is to provide users of the financial statements with an enhanced understanding of how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for, and how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows. The Company is adhering to the enhanced disclosure requirements regarding derivative instruments and hedging activities.
8
Issued
In June 2009, the FASB issued changes to the accounting for variable interest entities. These changes require an enterprise (i) to perform an analysis to determine whether the enterprises variable interest or interests give it a controlling financial interest in a variable interest entity; (ii) to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; (iii) to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; (iv) to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entitys economic performance; and (v) to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprises involvement in a variable interest entity. These changes become effective for the Company on January 1, 2010. Management is currently evaluating the potential impact of these changes on the financial statements.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as well as interests in partnerships and limited liability companies controlled by the Company through ownership of a majority voting interest or other rights granted to the Company by contract to manage and control the affiliates business. The physician limited partners and physician minority members of the entities that the Company controls are responsible for the supervision and delivery of medical services. The governance rights of limited partners and minority members are restricted to those that protect their financial interests. Under certain partnership and operating agreements governing these partnerships and limited liability companies, the Company could be removed as the sole general partner or managing member for certain events such as material breaches of the partnership or operating agreement, gross negligence or bankruptcy. These protective rights do not preclude consolidation of the respective partnerships and limited liability companies. The condensed consolidated financial statements include the accounts of variable interest entities in which the Company is the primary beneficiary, under the provisions of the guidance issued by the FASB relating to consolidation of variable interest entities. The variable interest entities are surgical facilities located in the states of Florida and New York. With regard to the New York facility, the Company is the primary beneficiary due to the level of variability in operating results and the obligation and likelihood of absorbing the majority of expected gains and losses. Regarding the Florida facility, the Company has fully guaranteed facility debt obligations. The debt obligations are subordinated to such a level that the Company absorbs the majority of the expected gains and losses. The accompanying condensed consolidated balance sheets at September 30, 2009 and December 31, 2008 include assets of $14.5 million and $17.6 million, respectively, and liabilities of $4.6 million and $5.7 million, respectively, related to the variable interest entities. All significant intercompany balances and transactions are eliminated in consolidation.
Fair Value of Financial Instruments
The carrying amount and fair value of the Companys term loans under its senior secured credit facility and the senior PIK toggle notes as of September 30, 2009 and December 31, 2008 were as follows:
|
|
Carrying Amount |
|
Fair Value |
|
||||||||
|
|
September 30, |
|
December 31, |
|
September 30, |
|
December 31, |
|
||||
Tranche A Term Loan |
|
$ |
117,000 |
|
$ |
117,938 |
|
$ |
103,159 |
|
$ |
70,763 |
|
Tranche B Term Loan |
|
117,000 |
|
117,938 |
|
103,159 |
|
70,763 |
|
||||
Senior PIK Toggle Notes |
|
206,967 |
|
184,635 |
|
155,225 |
|
73,854 |
|
||||
The fair value of the term loans and senior PIK toggle notes were based on quoted prices at September 30, 2009 and December 31, 2008. The Companys long-term debt instruments are discussed further in Note 5.
9
Accounts Receivable
Accounts receivable consist of receivables from federal and state agencies (under the Medicare and Medicaid programs), managed care health plans, commercial insurance companies, employers and patients. The Company recognizes that revenues and receivables from government agencies are significant to its operations, but it does not believe that there is significant credit risk associated with these government agencies. Concentration of credit risk with respect to other payors is limited because of the large number of such payors. Accounts receivable are recorded net of contractual adjustments and allowances for doubtful accounts to reflect accounts receivable at net realizable value. The Company does not require collateral for private pay patients. Accounts receivable at September 30, 2009 and December 31, 2008 were as follows (in thousands):
|
|
September 30, |
|
December 31, |
|
||
Surgical facilities |
|
$ |
34,580 |
|
$ |
34,057 |
|
Physician networks |
|
700 |
|
650 |
|
||
Total |
|
$ |
35,280 |
|
$ |
34,707 |
|
The following table sets forth by type of payor the percentage of the Companys accounts receivable for consolidated surgical facilities as of September 30, 2009 and December 31, 2008:
|
|
September 30, |
|
December 31, |
|
||
Private insurance |
|
|
52 |
% |
|
59 |
% |
Government |
|
|
17 |
|
|
15 |
|
Self-pay |
|
|
17 |
|
|
15 |
|
Other |
|
|
14 |
|
|
11 |
|
Total |
|
|
100 |
% |
|
100 |
% |
The Companys policy is to review the standard aging schedule, by surgical facility, to determine the appropriate allowance for doubtful accounts. Patient account balances are reviewed for delinquency based on contractual terms. This review is supported by an analysis of the historical net revenues, contractual adjustments and cash collections received. If the Companys internal collection efforts are unsuccessful, the Company manually reviews the patient accounts. An account is written off only after the Company has pursued collection with legal or collection agency assistance or otherwise deemed an account to be uncollectible.
Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill are as follows (in thousands):
Balance at December 31, 2008 |
|
$ |
541,831 |
|
Purchase price allocations |
|
4,207 |
|
|
Disposals |
|
(176 |
) |
|
Balance at September 30, 2009 |
|
$ |
545,862 |
|
As a result of the acquisition of a surgical hospital in Austin, Texas during the second quarter of 2009, the Company recorded goodwill of $4.2 million. The Company is in the process of performing a valuation of certain assets of the facility to determine the final purchase price allocation. Disposals of goodwill relate to ceasing operations at the Englewood, Colorado surgical facility in February 2009.
The Company has intangible assets related to the certificates of need for certain of its facilities of $19.6 million. These indefinite-lived assets are not amortized, but are assessed for possible impairment as part of the Companys impairment analysis.
10
Noncontrolling Interests
The consolidated financial statements include all assets, liabilities, revenues and expenses of surgical facilities in which the Company absorbs the majority of the expected gains or losses or otherwise has sufficient ownership and rights requiring the Company to consolidate the surgical facilities. The Company has recorded noncontrolling interests in the earnings (losses) of such surgical facilities in accordance with the guidance issued by the FASB relating to noncontrolling interests in consolidated financial statements.
Other Accrued Expenses
A summary of other accrued expenses is as follows (in thousands):
|
|
September 30, |
|
December 31, |
|
||
Interest payable |
|
$ |
3,777 |
|
$ |
9,787 |
|
Current taxes payable |
|
3,551 |
|
2,284 |
|
||
Insurance liabilities |
|
2,632 |
|
2,325 |
|
||
Other accrued expenses |
|
9,854 |
|
7,844 |
|
||
|
|
$ |
19,814 |
|
$ |
22,240 |
|
Other Comprehensive Loss
The Company reports other comprehensive loss as a measure of changes in stockholders equity that result from recognized transactions. Other comprehensive loss of the Company results from adjustments due to the fluctuation of the value of the Companys interest rate swap. The Company entered into an interest rate swap agreement on October 31, 2007. The value of the interest rate swap was recorded as a long-term liability of $6.3 million at September 30, 2009. The Company previously recorded the change in value of the interest rate swap as other comprehensive loss in the accompanying condensed consolidated balance sheets. As of December 31, 2008, the Company discontinued hedge accounting treatment for the interest rate swap and began recognizing the amount in accumulated other comprehensive loss to earnings, ratably over the remaining life of the hedging instrument. See Note 6 for further discussion of derivative instruments.
Revenues
Revenues by service type consist of the following for the periods indicated (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Patient service revenues |
|
$ |
83,184 |
|
$ |
79,401 |
|
$ |
248,775 |
|
$ |
234,925 |
|
Physician service revenues |
|
1,653 |
|
1,626 |
|
4,907 |
|
4,851 |
|
||||
Other service revenues |
|
1,929 |
|
2,543 |
|
5,716 |
|
7,408 |
|
||||
Total revenues |
|
$ |
86,766 |
|
$ |
83,570 |
|
$ |
259,398 |
|
$ |
247,184 |
|
The following table sets forth by type of payor the percentage of the Companys patient service revenues generated for the periods indicated:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Private insurance |
|
|
70 |
% |
|
72 |
% |
|
71 |
% |
|
72 |
% |
Government |
|
|
24 |
|
|
22 |
|
|
24 |
|
|
22 |
|
Self-pay |
|
|
5 |
|
|
4 |
|
|
4 |
|
|
4 |
|
Other |
|
|
1 |
|
|
2 |
|
|
1 |
|
|
2 |
|
Total |
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
11
Reclassifications
Certain reclassifications have been made to the comparative periods financial statements to conform to the 2009 presentation. The reclassifications had no impact on the Companys financial position or results of operations. During the third quarter of 2009, the Company reclassified the noncontrolling interest related to certain facilities from noncontrolling interests -non-redeemable, previously included as a component of equity, to noncontrolling interests - redeemable, which is recorded outside of equity. The reclassification has no impact on the financial results of operations and an immaterial impact on equity.
3. Acquisitions and Equity Method Investments
Effective September 1, 2009, the Company acquired an ownership of 28.8% in a surgical facility located in Gresham, Oregon for $525,000. The acquisition was financed with cash from operations. The Company accounts for this investment under the equity method.
During the third quarter of 2009, the Company recorded an impairment charge related to a surgical facility located in Arcadia, California for $2.4 million. The Company accounts for this investment under the equity method.
Effective May 1, 2009, the Company acquired a 91.8% ownership interest in a surgical hospital in Austin, Texas for $350,000 plus the assumption of $2.6 million of debt. The Company subsequently reduced its ownership in this facility to 49.8%. Austin, Texas is an existing market for the Company, and this acquisition provides the opportunity to expand the Companys market presence. In addition, favorable growth potential exists if the Company is successful in leveraging its physician relationships at the existing ambulatory surgery center. The surgical hospital has historically experienced financial difficulties and represents an opportunity for the Company to improve the financial position of this facility through operational efficiencies. The acquisition included accounts receivable with an estimated fair value of $1.8 million. This fair value estimate was assumed by the Company to be fully collectible as of the acquisition date. The Company, as general partner, has the ability to direct the financial affairs of the facility, and as such, this facility is consolidated for financial reporting purposes. The acquisition was financed with cash from operations.
During the first quarter of 2009, the Company acquired an incremental ownership of 18.0% in its surgical facility located in Thousand Oaks, California for $416,000. Prior to the acquisition, the Company owned 1.0% of this facility. The acquisition was financed with cash from operations.
4. Discontinued Operations and Divestitures
In February 2009, the Company ceased the operations of the Englewood, Colorado facility. The Company recorded a loss on the disposal of $5.9 million, which includes an accrual of $4.2 million for future contractual obligations under a facility operating lease. As of September 30, 2009, the Company owned one surgical facility that is classified as discontinued operations. The results of operations of these centers are presented net of income taxes in the accompanying condensed consolidated financial statements as discontinued operations. The accompanying condensed consolidated financial statements have been reclassified to conform to this presentation for all periods presented. These required reclassifications of prior period condensed consolidated financial statements did not impact total assets, liabilities, stockholders equity, net (loss) income or cash flows. Revenues, the income (loss) on operations before income taxes, the income tax provision (benefit), the loss on the sale from discontinued operations, net of taxes, and the income (loss) from discontinued operations, net of taxes, for the following periods indicated, were as follows (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Revenues |
|
$ |
1,103 |
|
$ |
1,752 |
|
$ |
3,482 |
|
$ |
5,695 |
|
Income (loss) on operations, before taxes |
|
$ |
20 |
|
$ |
(458 |
) |
$ |
(237 |
) |
$ |
(1,286 |
) |
Income tax (benefit) provision |
|
$ |
(3 |
) |
$ |
10 |
|
$ |
23 |
|
$ |
(390 |
) |
Gain (loss) on sale, net of taxes |
|
$ |
154 |
|
$ |
|
|
$ |
(5,698 |
) |
$ |
(1,394 |
) |
Income (loss) from discontinued operations, net of taxes |
|
$ |
177 |
|
$ |
(468 |
) |
$ |
(5,958 |
) |
$ |
(2,290 |
) |
12
Effective July 10, 2009, the Company disposed of its ownership interest in its facility located in Temple, Texas. A loss of $273,000 was recorded in the quarter ended June 30, 2009 in impairment and loss on long-lived assets.
5. Long-Term Debt
The Companys long-term debt is summarized as follows (in thousands):
|
|
September 30, |
|
December 31, |
|
||
Senior secured credit facility |
|
$ |
234,000 |
|
$ |
235,876 |
|
Senior PIK toggle notes |
|
206,967 |
|
184,635 |
|
||
Notes payable to banks |
|
15,164 |
|
17,297 |
|
||
Secured term loans |
|
2,784 |
|
3,213 |
|
||
Capital lease obligations |
|
9,519 |
|
11,796 |
|
||
|
|
468,434 |
|
452,817 |
|
||
Less current maturities |
|
(17,091 |
) |
(12,205 |
) |
||
Total long-term debt |
|
$ |
451,343 |
|
$ |
440,612 |
|
Senior Secured Credit Facility
On August 23, 2007, the Company entered into a $350.0 million senior secured credit facility with a syndicate of banks. The senior secured credit facility extends credit in the form of two term loans of $125.0 million each (the first, the Tranche A Term Loan and the second, the Tranche B Term Loan) and a $100.0 million revolving, swingline and letter of credit facility (the Revolving Facility). The swingline facility is limited to $10.0 million, and the swingline loans are available on a same-day basis. The letter of credit facility is limited to $10.0 million. The Company is the borrower under the senior secured credit facility, and all of its wholly owned subsidiaries are guarantors. Under the terms of the senior secured credit facility, entities that become wholly owned subsidiaries must also guarantee the debt.
The Tranche A Term Loan matures on August 23, 2013, the Tranche B Term Loan matures on August 23, 2014 and the Revolving Facility matures on August 23, 2013. The Tranche A Term Loan requires quarterly principal payments of $312,500 through September 30, 2009, quarterly payments of $1.6 million from December 31, 2009 through September 30, 2010, quarterly payments of $4.7 million from December 31, 2010 through September 30, 2011, quarterly payments of $6.3 million from December 31, 2011 through September 30, 2012, quarterly payments of $18.1 million from December 31, 2012 through June 30, 2013 and a balloon payment of $12.6 million on August 23, 2013. The Tranche B Term Loan requires quarterly principal payments of $312,500 through June 30, 2014 and a balloon payment of $111.1 million on August 23, 2014.
At the Companys option, the term loans bear interest at the lenders alternate base rate in effect on the applicable borrowing date plus an applicable alternate base rate margin, or the lenders Eurodollar rate in effect on the applicable borrowing date, plus an applicable Eurodollar rate margin. Both the applicable alternate base rate margin and applicable Eurodollar rate margin will vary depending upon the ratio of the Companys total indebtedness to consolidated EBITDA.
The senior secured credit facility permits the Company to declare and pay dividends only in additional shares of its stock except for the following exceptions. Restricted Subsidiaries, as defined in the credit agreement, may declare and pay dividends ratably with respect to their capital stock. The Company may declare and pay cash dividends or make other distributions to Holdings provided the proceeds are used by Holdings to (i) purchase or redeem equity interests of Holdings acquired by former or current employees, consultants or directors of Holdings, the Company or any Restricted Subsidiary or (ii) pay principal or interest on promissory notes that were issued in lieu of cash payments for the repurchase or redemption of such Equity Instruments, as defined in the credit agreement, provided that the aggregate amount of such dividends or other distributions shall not exceed $3.0 million in any fiscal year. Any unused amounts that are permitted to be paid under this provision are available to be carried over to subsequent fiscal years provided that certain conditions are met. The Company may also (i) make payments to Holdings to pay franchise taxes and other fees required to maintain its corporate existence provided such payments do not exceed $3.0 million in any calendar year, (ii) make payments in the amount necessary to enable
13
Holdings to pay income taxes directly attributable to the operations of the Company, and (iii) make $1.0 million in annual advisory and management agreement payments. The Company may also make additional payments to Holdings in the aggregate amount of $5.0 million throughout the term of the senior secured credit facility.
As of September 30, 2009, the amount outstanding under the senior secured credit facility was $234.0 million with an interest rate on the borrowings of 3.5%. The $100.0 million Revolving Facility includes a non-use fee of 0.5% of the portion of the facility not used. The Company pays this fee quarterly. As of September 30, 2009, the amount available under the Revolving Facility was $100.0 million.
Senior PIK Toggle Notes
On June 3, 2008, the Company completed a private offering of $179.9 million aggregate principal amount of the 11.00%/11.75% Senior PIK toggle notes due 2015 (the Toggle Notes). The notes issued in the private offering were subsequently exchanged for Toggle Notes registered under the Securities Act of 1933, as amended, in an exchange offer. Interest on the Toggle Notes is due on February 23 and August 23 of each year. The Toggle Notes will mature on August 23, 2015. For any interest period through August 23, 2011, the Company may elect to pay interest on the Toggle Notes (i) in cash, (ii) in kind, by increasing the principal amount of the notes or issuing new notes (referred to as PIK interest) for the entire amount of the interest payment or (iii) by paying interest on 50% of the principal amount of the Toggle Notes in cash and 50% in PIK interest. Cash interest on the Toggle Notes accrues at the rate of 11.0% per annum. PIK interest on the Toggle Notes accrues at the rate of 11.75% per annum. The Company elects to pay cash interest or to exercise the PIK option in advance of the interest period.
Upon issuance of the Toggle Notes, the Company elected to exercise the PIK option by increasing the principal amount of the Toggle Notes in lieu of making scheduled interest payments of $4.7 million for the interest period through August 23, 2008. On August 23, 2008, the Company elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for the interest period from August 23, 2008 to February 23, 2009. This election increased the principal due on the Toggle Notes by $10.8 million in the first quarter of 2009. On February 23, 2009, the Company elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for the interest period from February 23, 2009 to August 23, 2009. This election increased the principal due on the Toggle Notes by $11.5 million in the third quarter of 2009. On August 23, 2009, the Company elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for the interest period from August 23, 2009 to February 23, 2010. The Company has accrued $2.6 million in interest in other accrued expenses as of September 30, 2009 and will reclassify the total accrued interest to the principal balance of the Toggle Notes on February 23, 2010.
The Toggle Notes are unsecured senior obligations and rank equally with other existing and future senior indebtedness, senior to all future subordinated indebtedness and effectively junior to all secured indebtedness to the extent of the value of the collateral securing such indebtedness. Certain existing subsidiaries have guaranteed the Toggle Notes on a senior basis, as required by the indenture. The indenture also requires that certain of the Companys future subsidiaries guarantee the Toggle Notes on a senior basis. Each guarantee is unsecured and ranks equally with senior indebtedness of the guarantor, senior to all of the guarantors subordinated indebtedness and effectively junior to its secured indebtedness to the extent of the value of the collateral securing such indebtedness.
The indenture governing the Toggle Notes contains various restrictive covenants, including financial covenants that limit the Companys ability and the ability of the subsidiaries to borrow money or guarantee other indebtedness, grant liens, make investments, sell assets, pay dividends or engage in transactions with affiliates.
At September 30, 2009, the Company was in compliance with all material covenants required by each of the senior secured credit facility and the Toggle Notes.
Notes Payable to Banks
Certain subsidiaries of the Company have outstanding bank indebtedness of $15.2 million, which is collateralized by the real estate and equipment owned by the surgical facilities to which the loans were made. The various bank indebtedness agreements contain covenants to maintain certain financial ratios and also restrict encumbrance of assets, creation of indebtedness, investing activities and payment of distributions. The Company has guaranteed substantially all of this debt.
14
Capital Lease Obligations
The Company is liable to various vendors for several equipment leases. The outstanding balance related to these capital leases at September 30, 2009 and December 31, 2008 was $9.5 million and $11.8 million, respectively.
6. Derivative Instruments
Interest Rate Swap
In October 2007, the Company entered into an interest rate swap agreement with Merrill Lynch Capital Service, Inc. to protect the Company against certain interest rate fluctuations of the LIBOR rate on $150.0 million of the Companys variable rate debt under the senior secured credit facility. The effective date of the interest rate swap was October 31, 2007, and it is scheduled to expire on October 31, 2010. The interest rate swap effectively fixes the Companys LIBOR interest rate on the $150.0 million of variable debt at a rate of 4.7%.
On January 1, 2008, the Company adopted the guidance issued by the FASB relating to fair value measurements with respect to the valuation of its interest rate swap agreement. The Company did not adopt the provisions of the guidance issued by the FASB as it relates to nonfinancial assets. The guidance adopted by the Company clarifies how companies are required to use a fair value measure for recognition and disclosure by establishing a common definition of fair value, a framework for measuring fair value, and expanding disclosures about fair value measurements.
The guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company determines the fair value of its interest rate swap based on the amount at which it could be settled, which is referred to in the guidance as the exit price. This price is based upon observable market assumptions and appropriate valuation adjustments for credit risk. The Company has categorized its interest rate swap as Level 2.
The interest rate swap agreement exposes both parties of the swap instrument to credit risk in the event of non-performance by the counter-party. At September 30, 2009, the Company recorded a credit risk adjustment of $296,000 to reduce the carrying value of the swap liability, reflecting the liability at fair value.
The Company does not hold or issue derivative financial instruments for trading purposes. The fair value of the Companys interest rate swap at September 30, 2009 and December 31, 2008, after the credit risk adjustment, reflected a liability of approximately $6.3 million and $7.0 million, respectively, and is included in other liabilities in the accompanying consolidated balance sheets. The interest rate swap reflects a liability balance at September 30, 2009 and December 31, 2008 because of decreases in market interest rates since inception.
At inception, the Company designated the interest rate swap as a cash flow hedge instrument. The Company assessed the effectiveness of this cash flow hedge instrument on a quarterly basis. Due to the significant decline in benchmark interest rates, the Company elected, as of January 28, 2009, an interest term under the provisions of the senior credit facility, different than the terms of the hedging instrument. The Company has determined that this benchmark interest rate swap would no longer result in effectiveness within an acceptable range under the guidance, on a prospective basis. As of December 31, 2008, the Company determined the hedge instrument to be ineffective and discontinued hedge accounting treatment. During the nine months ended September 30, 2009, the Company recognized $2.9 million of the balance in accumulated other comprehensive income (AOCI) as additional interest expense. The remaining balance recorded in AOCI as of September 30, 2009 of $3.7 million will be recognized as additional interest expense ratably over the remaining life of the hedging instrument. Also in January 2009, the Company began recording into earnings the mark-to-market adjustment to reflect the change in the fair value of the hedging instrument. For the nine months ended September 30, 2009, the Company recognized a mark-to-market gain of $2.2 million, which is included in interest expense. The net effect of
15
discontinuing hedge accounting, including the credit risk adjustment to the swap liability, caused interest expense to increase $2.2 million for the nine months ended September 30, 2009.
7. Stock Options
Overview
The guidance issued by the FASB relating to accounting for stock-based compensation requires the Company to recognize, in the financial statements, the cost of employee services received in exchange for awards of equity instruments based on the fair value of those awards. The Company uses the Black-Scholes option pricing model to value any options awarded subsequent to adoption of the guidance. All option pricing models require the input of highly subjective assumptions including the expected stock price volatility and the expected exercise patterns of the option holders.
The Companys stock option compensation expense estimate can vary in the future depending on many factors, including levels of options and awards granted in the future, forfeitures, when option or award holders exercise these awards, and whether performance targets are met and a liquidity event occurs.
There were no options granted during the nine months ended September 30, 2009; however, 94,417 options to purchase shares of common stock included in the August 31, 2007 grant, which were reserved for issuance for positions to be filled after the initial grant, were issued to certain employees of the Company during the first quarter of 2009. The Company began expensing these options during the requisite service period. The estimated weighted average fair value of the time-vested options issued during the first quarter of 2009 was $0.70 and those issued during the period of 2007 after the Merger was $4.91, determined using the Black-Scholes option pricing model. The following assumptions were used in the model to value the options issued during the first quarter of 2009: weighted average dividend yield based on historic dividend rates at the date of the grant which was deemed to be zero; weighted average volatility of 42%; and a weighted average risk free interest rate of 0.5%, based on the implied yield on the United States Treasury zero-coupon issues with an expected life of 6.5 years. The Company used an expected forfeiture rate of approximately 4% for the options valued during 2009.
The Company recognized $974,000 and $1.5 million of non-cash stock based compensation expense in the nine months ended September 30, 2009 and 2008, respectively. As of September 30, 2009, there was approximately $3.0 million of total unrecognized compensation expense related to unvested options granted under the option plan. This expense is expected to be fully recognized by the end of 2013.
8. Income Taxes
The Company recorded income tax expense for the three and nine month periods ended September 30, 2009 of $1.9 million and $4.6 million, respectively, on a pre-tax loss of $5.3 million and $7.3 million from continuing operations, net of income attributable to noncontrolling interests, respectively. The following table provides a reconciliation of the provision for income taxes as reported and the amount computed by multiplying the income (loss) before taxes by the U.S. federal statutory rate of 35% (in thousands):
|
|
Three Months |
|
Nine Months |
|
||
Tax at U.S. statutory rates |
|
$ |
(445 |
) |
$ |
2,974 |
|
State income taxes, net of federal tax benefit |
|
40 |
|
175 |
|
||
Change in valuation allowance |
|
3,521 |
|
6,689 |
|
||
Tax expense attributable to non-controlling interests |
|
(1,323 |
) |
(5,460 |
) |
||
Other |
|
143 |
|
278 |
|
||
Total |
|
$ |
1,936 |
|
$ |
4,656 |
|
16
9. Commitments and Contingencies
Debt and Lease Guaranty on Non-Consolidated Entities
The Company has guaranteed $1.2 million of operating lease payments of certain surgical facilities. These operating leases typically have ten year terms, with optional renewal periods. As of September 30, 2009, the Company has also guaranteed $2.3 million of debt of seven non-consolidated surgical facilities. In the event that the facilities meet certain financial and debt service benchmarks, the guarantees of these surgical facilities will expire between 2010 and 2012.
Professional, General and Workers Compensation Liability Risks
The Company is subject to claims and legal actions in the ordinary course of business, including claims relating to patient treatment, employment practices and personal injuries. To cover these claims, the Company maintains general liability and professional liability insurance in excess of self-insured retentions through a third party commercial insurance carrier in amounts that management believes is sufficient for the Companys operations, although, potentially, some claims may exceed the scope of coverage in effect. This insurance coverage is on a claims-made basis. Plaintiffs in these matters may request punitive or other damages that may not be covered by insurance. The Company is not aware of any such proceedings that would have a material adverse effect on the Companys business, financial condition or results of operations. The Company expenses the costs under the self-insured retention exposure for general and professional liability claims that relate to (i) deductibles on claims made during the policy period, and (ii) an estimate of claims incurred but not yet reported that are expected to be reported after the policy period expires. Reserves and provisions for professional liability are based upon actuarially determined estimates. The reserves are estimated using individual case-basis valuations and actuarial analysis. Based on historical results and data currently available, management does not believe a change in one or more of these assumptions will have a material impact on the Companys consolidated financial position or results of operations.
Laws and Regulations
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. Compliance with such laws and regulations can be subject to future government review and interpretation as well as significant regulatory action including fines, penalties, and exclusion from Medicare, Medicaid and other federal health care programs. From time to time, governmental regulatory agencies will conduct inquiries of the Companys practices. It is the Companys current practice and future intent to cooperate fully with such inquiries. The Company is not aware of any such inquiry that would have a material adverse effect on the Companys consolidated financial position or results of operations.
Acquired Facilities
The Company, through its wholly owned subsidiaries or controlled partnerships and limited liability companies, has acquired and will continue to acquire surgical and diagnostic facilities with prior operating histories. Such facilities may have unknown or contingent liabilities, including liabilities for failure to comply with health care laws and regulations, such as billing and reimbursement, fraud and abuse and similar anti-referral laws. Although the Company attempts to assure itself that no such liabilities exist, obtains indemnification from prospective sellers covering such matters and institutes policies designed to conform centers to its standards following completion of acquisitions, there can be no assurance that the Company will not become liable for past activities that may later be asserted to be improper by private plaintiffs or government agencies. There can be no assurance that any such matter will be covered by indemnification or, if covered, that the liability sustained will not exceed contractual limits or the financial capacity of the indemnifying party.
The Company cannot predict whether federal or state statutory or regulatory provisions will be enacted that would prohibit or otherwise regulate relationships which the Company has established or may establish with other health care providers or have materially adverse effects on its business or revenues arising from such future actions. The Company believes, however, that it will be able to adjust its operations so as to be in compliance with any regulatory or statutory provision as may be applicable.
17
Potential Physician Investor Liability
A majority of the physician investors in the partnerships and limited liability companies that operate the Companys surgical facilities carry general and professional liability insurance on a claims-made basis. Each investee may, however, be liable for damages to persons or property arising from occurrences at the surgical facilities. Although the various physician investors and other surgeons generally are required to obtain general and professional liability insurance with tail coverage, such individual may not be able to obtain coverage in amounts sufficient to cover all potential liability. Since most insurance policies contain exclusions, the physician investor will not be insured against all possible occurrences. In the event of an uninsured or underinsured loss, the value of an investment in the partnership interests or limited liability company membership units and the amount of distributions could be adversely affected.
10. Related Party Transactions
On August 23, 2007, the Company entered into a ten-year advisory services and management agreement with Crestview Advisors, L.L.C. The annual management fee is $1.0 million and is payable on August 23 of each year. The Company has prepaid this annual management fee and, for the quarter ended September 30, 2009, has an asset of $896,000 that is included in prepaid expenses and other current assets.
As of September 30, 2009 and December 31, 2008, the Company had $654,000 and $560,000, respectively, payable to physicians at one of the Companys physician networks as a result of cash receipts in excess of expenditures for the related facilities. These amounts are included in other accrued expenses.
18
11. Financial Information for the Company and Its Subsidiaries
The Company conducts substantially all of its business through its subsidiaries. Presented below is condensed consolidating financial information for the Company and its subsidiaries as required by regulations of the Securities and Exchange Commission (SEC) in connection with the Companys Toggle Notes that have been registered with the SEC. The information segregates the parent company issuer, the combined wholly-owned subsidiary guarantors, the combined non-guarantors, and consolidating eliminations. The operating and investing activities of the separate legal entities are fully interdependent and integrated. Accordingly, the results of the separate legal entities are not representative of what the operating results would be on a stand-alone basis. All of the subsidiary guarantees are both full and unconditional and joint and several.
SYMBION, INC.
CONSOLIDATING BALANCE SHEET
September 30, 2009
(Unaudited, in thousands)
|
|
Parent Issuer |
|
Guarantor Subsidiaries |
|
Combined |
|
Eliminations |
|
Total Consolidated |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
8,655 |
|
$ |
15,134 |
|
$ |
26,607 |
|
$ |
|
|
$ |
50,396 |
|
Accounts receivable, net |
|
|
|
710 |
|
34,570 |
|
|
|
35,280 |
|
|||||
Inventories |
|
|
|
|
|
9,634 |
|
|
|
9,634 |
|
|||||
Prepaid expenses and other current assets |
|
1,613 |
|
584 |
|
8,086 |
|
|
|
10,283 |
|
|||||
Due from related parties |
|
98,702 |
|
|
|
|
|
(98,702 |
) |
|
|
|||||
Deferred tax asset |
|
507 |
|
|
|
|
|
|
|
507 |
|
|||||
Current assets of discontinued operations |
|
|
|
|
|
641 |
|
|
|
641 |
|
|||||
Total current assets |
|
109,477 |
|
16,428 |
|
79,538 |
|
(98,702 |
) |
106,741 |
|
|||||
Property and equipment, net |
|
1,499 |
|
489 |
|
89,533 |
|
|
|
91,521 |
|
|||||
Goodwill and intangibles |
|
565,432 |
|
|
|
|
|
|
|
565,432 |
|
|||||
Investments in and advances to affiliates |
|
121,427 |
|
90,131 |
|
2,270 |
|
(198,043 |
) |
15,785 |
|
|||||
Other assets |
|
10,258 |
|
54 |
|
880 |
|
|
|
11,192 |
|
|||||
Long-term assets of discontinued operations |
|
|
|
|
|
649 |
|
|
|
649 |
|
|||||
Total assets |
|
$ |
808,093 |
|
$ |
107,102 |
|
$ |
172,870 |
|
$ |
(296,745 |
) |
$ |
791,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts payable |
|
$ |
29 |
|
$ |
106 |
|
$ |
8,409 |
|
$ |
|
|
$ |
8,544 |
|
Accrued payroll and benefits |
|
638 |
|
651 |
|
6,410 |
|
|
|
7,699 |
|
|||||
Due to related parties |
|
|
|
54,206 |
|
44,496 |
|
(98,702 |
) |
|
|
|||||
Other accrued expenses |
|
7,804 |
|
98 |
|
11,912 |
|
|
|
19,814 |
|
|||||
Current maturities of long-term debt |
|
7,734 |
|
|
|
9,357 |
|
|
|
17,091 |
|
|||||
Current liabilities of discontinued operations |
|
|
|
|
|
1,237 |
|
|
|
1,237 |
|
|||||
Total current liabilities |
|
16,205 |
|
55,061 |
|
81,821 |
|
(98,702 |
) |
54,385 |
|
|||||
Long-term debt, less current maturities |
|
433,718 |
|
|
|
17,625 |
|
|
|
451,343 |
|
|||||
Deferred income tax payable |
|
37,801 |
|
|
|
|
|
|
|
37,801 |
|
|||||
Other liabilities |
|
11,637 |
|
105 |
|
337 |
|
|
|
12,079 |
|
|||||
Long-term liabilities of discontinued operations |
|
|
|
|
|
3,595 |
|
|
|
3,595 |
|
|||||
Noncontrolling interests redeemable |
|
31,752 |
|
|
|
|
|
|
|
31,752 |
|
|||||
Total Symbion, Inc. stockholders equity |
|
272,752 |
|
51,936 |
|
69,492 |
|
(198,043 |
) |
196,137 |
|
|||||
Noncontrolling interests non-redeemable |
|
4,228 |
|
|
|
|
|
|
|
4,228 |
|
|||||
Total equity |
|
276,980 |
|
51,936 |
|
69,492 |
|
(198,043 |
) |
200,365 |
|
|||||
Total liabilities and stockholders equity |
|
$ |
808,093 |
|
$ |
107,102 |
|
$ |
172,870 |
|
$ |
(296,745 |
) |
$ |
791,320 |
|
19
SYMBION, INC.
CONSOLIDATING BALANCE SHEET
December 31, 2008
(Unaudited, in thousands)
|
|
Parent Issuer |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
4,369 |
|
$ |
9,801 |
|
$ |
27,663 |
|
$ |
|
|
$ |
41,833 |
|
Accounts receivable, net |
|
|
|
654 |
|
34,053 |
|
|
|
34,707 |
|
|||||
Inventories |
|
|
|
|
|
9,050 |
|
|
|
9,050 |
|
|||||
Prepaid expenses and other current assets |
|
6,481 |
|
585 |
|
5,653 |
|
|
|
12,719 |
|
|||||
Due from related parties |
|
78,735 |
|
|
|
|
|
(78,735 |
) |
|
|
|||||
Deferred tax asset |
|
825 |
|
|
|
|
|
|
|
825 |
|
|||||
Current assets of discontinued operations |
|
|
|
|
|
1,104 |
|
|
|
1,104 |
|
|||||
Total current assets |
|
90,410 |
|
11,040 |
|
77,523 |
|
(78,735 |
) |
100,238 |
|
|||||
Property and equipment, net |
|
3,900 |
|
878 |
|
89,907 |
|
|
|
94,685 |
|
|||||
Goodwill and intangibles |
|
561,401 |
|
|
|
|
|
|
|
561,401 |
|
|||||
Investments in and advances to affiliates |
|
143,630 |
|
115,577 |
|
1,019 |
|
(245,694 |
) |
14,532 |
|
|||||
Other assets |
|
11,345 |
|
85 |
|
445 |
|
|
|
11,875 |
|
|||||
Long-term assets of discontinued operations |
|
|
|
|
|
833 |
|
|
|
833 |
|
|||||
Total assets |
|
$ |
810,686 |
|
$ |
127,580 |
|
$ |
169,727 |
|
$ |
(324,429 |
) |
$ |
783,564 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts payable |
|
$ |
1 |
|
$ |
53 |
|
$ |
5,338 |
|
$ |
|
|
$ |
5,392 |
|
Accrued payroll and benefits |
|
1,822 |
|
678 |
|
5,000 |
|
|
|
7,500 |
|
|||||
Due to related parties |
|
|
|
27,030 |
|
51,705 |
|
(78,735 |
) |
|
|
|||||
Other accrued expenses |
|
15,373 |
|
77 |
|
6,790 |
|
|
|
22,240 |
|
|||||
Current maturities of long-term debt |
|
3,998 |
|
17 |
|
8,190 |
|
|
|
12,205 |
|
|||||
Current liabilities of discontinued operations |
|
|
|
|
|
629 |
|
|
|
629 |
|
|||||
Total current liabilities |
|
21,194 |
|
27,855 |
|
77,652 |
|
(78,735 |
) |
47,966 |
|
|||||
Long-term debt, less current maturities |
|
417,217 |
|
|
|
23,395 |
|
|
|
440,612 |
|
|||||
Deferred income tax payable |
|
9,927 |
|
121 |
|
22,960 |
|
|
|
33,008 |
|
|||||
Other liabilities |
|
12,526 |
|
|
|
|
|
|
|
12,526 |
|
|||||
Long-term liabilities of discontinued operations |
|
|
|
|
|
236 |
|
|
|
236 |
|
|||||
Noncontrolling interests redeemable |
|
32,645 |
|
|
|
|
|
|
|
32,645 |
|
|||||
Total Symbion, Inc. stockholders equity |
|
311,812 |
|
99,604 |
|
45,484 |
|
(245,694 |
) |
211,206 |
|
|||||
Noncontrolling interests non-redeemable |
|
5,365 |
|
|
|
|
|
|
|
5,365 |
|
|||||
Total equity |
|
317,177 |
|
99,604 |
|
45,484 |
|
(245,694 |
) |
216,571 |
|
|||||
Total liabilities and stockholders equity |
|
$ |
810,686 |
|
$ |
127,580 |
|
$ |
169,727 |
|
$ |
(324,429 |
) |
$ |
783,564 |
|
20
SYMBION, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For The Three Months Ended September 30, 2009
(Unaudited, in thousands)
|
|
Parent |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
Revenues |
|
$ |
8,618 |
|
$ |
2,379 |
|
$ |
79,557 |
|
$ |
(3,788 |
) |
$ |
86,766 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Salaries and benefits |
|
|
|
1,228 |
|
23,939 |
|
|
|
25,167 |
|
|||||
Supplies |
|
|
|
194 |
|
19,081 |
|
|
|
19,275 |
|
|||||
Professional and medical fees |
|
|
|
286 |
|
5,504 |
|
|
|
5,790 |
|
|||||
Rent and lease expense |
|
|
|
194 |
|
6,290 |
|
|
|
6,484 |
|
|||||
Other operating expenses |
|
|
|
119 |
|
7,315 |
|
|
|
7,434 |
|
|||||
Cost of revenues |
|
|
|
2,021 |
|
62,129 |
|
|
|
64,150 |
|
|||||
General and administrative expense |
|
4,698 |
|
|
|
|
|
|
|
4,698 |
|
|||||
Depreciation and amortization |
|
168 |
|
68 |
|
4,126 |
|
|
|
4,362 |
|
|||||
Provision for doubtful accounts |
|
|
|
45 |
|
1,123 |
|
|
|
1,168 |
|
|||||
Income on equity investments |
|
|
|
(712 |
) |
|
|
|
|
(712 |
) |
|||||
Impairment and loss on disposal of long-lived assets |
|
142 |
|
2,421 |
|
|
|
|
|
2,563 |
|
|||||
Proceeds from insurance settlements, net |
|
(150 |
) |
|
|
|
|
|
|
(150 |
) |
|||||
Management fees |
|
|
|
|
|
3,788 |
|
(3,788 |
) |
|
|
|||||
Equity in earnings of affiliates |
|
(5,218 |
) |
|
|
|
|
5,218 |
|
|
|
|||||
Total operating expenses |
|
(360 |
) |
3,843 |
|
71,166 |
|
1,430 |
|
76,079 |
|
|||||
Operating income (loss) |
|
8,978 |
|
(1,464 |
) |
8,391 |
|
(5,218 |
) |
10,687 |
|
|||||
Interest (expense) income, net |
|
(14,290 |
) |
1 |
|
2,331 |
|
|
|
(11,958 |
) |
|||||
(Loss) income before taxes and discontinued operations |
|
(5,312 |
) |
(1,463 |
) |
10,722 |
|
(5,218 |
) |
(1,271 |
) |
|||||
Provision for income taxes |
|
1,731 |
|
|
|
205 |
|
|
|
1,936 |
|
|||||
(Loss) income from continuing operations |
|
(7,043 |
) |
(1,463 |
) |
10,517 |
|
(5,218 |
) |
(3,207 |
) |
|||||
Income from discontinued operations, net of taxes |
|
|
|
|
|
177 |
|
|
|
177 |
|
|||||
Net (loss) income |
|
(7,043 |
) |
(1,463 |
) |
10,694 |
|
(5,218 |
) |
(3,030 |
) |
|||||
Net income attributable to noncontrolling interests |
|
|
|
|
|
(4,013 |
) |
|
|
(4,013 |
) |
|||||
Net (loss) income attributable to Symbion, Inc. |
|
$ |
(7,043 |
) |
$ |
(1,463 |
) |
$ |
6,681 |
|
$ |
(5,218 |
) |
$ |
(7,043 |
) |
21
SYMBION, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For The Nine Months Ended September 30, 2009
(Unaudited, in thousands)
|
|
Parent |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
Revenues |
|
$ |
26,029 |
|
$ |
7,000 |
|
$ |
237,824 |
|
$ |
(11,455 |
) |
$ |
259,398 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Salaries and benefits |
|
|
|
3,588 |
|
68,579 |
|
|
|
72,167 |
|
|||||
Supplies |
|
|
|
517 |
|
55,031 |
|
|
|
55,548 |
|
|||||
Professional and medical fees |
|
|
|
861 |
|
16,241 |
|
|
|
17,102 |
|
|||||
Rent and lease expense |
|
|
|
578 |
|
18,062 |
|
|
|
18,640 |
|
|||||
Other operating expenses |
|
|
|
358 |
|
20,507 |
|
|
|
20,865 |
|
|||||
Cost of revenues |
|
|
|
5,902 |
|
178,420 |
|
|
|
184,322 |
|
|||||
General and administrative expense |
|
16,043 |
|
|
|
|
|
|
|
16,043 |
|
|||||
Depreciation and amortization |
|
527 |
|
204 |
|
12,209 |
|
|
|
12,940 |
|
|||||
Provision for doubtful accounts |
|
|
|
138 |
|
3,012 |
|
|
|
3,150 |
|
|||||
Income on equity investments |
|
|
|
(1,364 |
) |
|
|
|
|
(1,364 |
) |
|||||
Impairment and loss (gain) on disposal of long-lived assets |
|
(95 |
) |
2,421 |
|
|
|
|
|
2,326 |
|
|||||
Proceeds from insurance settlements, net |
|
(416 |
) |
|
|
|
|
|
|
(416 |
) |
|||||
Management fees |
|
|
|
|
|
11,455 |
|
(11,455 |
) |
|
|
|||||
Equity in earnings of affiliates |
|
(16,607 |
) |
|
|
|
|
16,607 |
|
|
|
|||||
Total operating expenses |
|
(548 |
) |
7,301 |
|
205,096 |
|
5,152 |
|
217,001 |
|
|||||
Operating income (loss) |
|
26,577 |
|
(301 |
) |
32,728 |
|
(16,607 |
) |
42,397 |
|
|||||
Interest (expense) income, net |
|
(40,360 |
) |
(2,936 |
) |
9,396 |
|
|
|
(33,900 |
) |
|||||
(Loss) income before taxes and discontinued operations |
|
(13,783 |
) |
(3,237 |
) |
42,124 |
|
(16,607 |
) |
8,497 |
|
|||||
Provision for income taxes |
|
4,171 |
|
|
|
485 |
|
|
|
4,656 |
|
|||||
(Loss) income from continuing operations |
|
(17,954 |
) |
(3,237 |
) |
41,639 |
|
(16,607 |
) |
3,841 |
|
|||||
Loss from discontinued operations, net of taxes |
|
|
|
|
|
(5,958 |
) |
|
|
(5,958 |
) |
|||||
Net (loss) income |
|
(17,954 |
) |
(3,237 |
) |
35,681 |
|
(16,607 |
) |
(2,117 |
) |
|||||
Net income attributable to noncontrolling interests |
|
|
|
|
|
(15,837 |
) |
|
|
(15,837 |
) |
|||||
Net (loss) income attributable to Symbion, Inc. |
|
$ |
(17,954 |
) |
$ |
(3,237 |
) |
$ |
19,844 |
|
$ |
(16,607 |
) |
$ |
(17,954 |
) |
22
SYMBION, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For The Three Months Ended September 30, 2008
(Unaudited, in thousands)
|
|
Parent |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
Revenues |
|
$ |
8,870 |
|
$ |
2,708 |
|
$ |
75,901 |
|
$ |
(3,909 |
) |
$ |
83,570 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Salaries and benefits |
|
|
|
1,167 |
|
22,222 |
|
|
|
23,389 |
|
|||||
Supplies |
|
|
|
177 |
|
16,742 |
|
|
|
16,919 |
|
|||||
Professional and medical fees |
|
|
|
258 |
|
4,650 |
|
|
|
4,908 |
|
|||||
Rent and lease expense |
|
|
|
178 |
|
5,395 |
|
|
|
5,573 |
|
|||||
Other operating expenses |
|
|
|
139 |
|
6,611 |
|
|
|
6,750 |
|
|||||
Cost of revenues |
|
|
|
1,919 |
|
55,620 |
|
|
|
57,539 |
|
|||||
General and administrative expense |
|
6,175 |
|
|
|
|
|
|
|
6,175 |
|
|||||
Depreciation and amortization |
|
81 |
|
144 |
|
3,722 |
|
|
|
3,947 |
|
|||||
Provision for doubtful accounts |
|
|
|
139 |
|
1,264 |
|
|
|
1,403 |
|
|||||
Income on equity investments |
|
|
|
(450 |
) |
|
|
|
|
(450 |
) |
|||||
Loss on sale/disposal of long-lived assets |
|
32 |
|
115 |
|
486 |
|
|
|
633 |
|
|||||
Management fees |
|
|
|
|
|
3,909 |
|
(3,909 |
) |
|
|
|||||
Equity in earnings of affiliates |
|
(5,554 |
) |
|
|
|
|
5,554 |
|
|
|
|||||
Total operating expenses |
|
734 |
|
1,867 |
|
65,001 |
|
1,645 |
|
69,247 |
|
|||||
Operating income (loss) |
|
8,136 |
|
841 |
|
10,900 |
|
(5,554 |
) |
14,323 |
|
|||||
Interest (expense) income, net |
|
(10,795 |
) |
20 |
|
(518 |
) |
|
|
(11,293 |
) |
|||||
(Loss) income before taxes and discontinued operations |
|
(2,659 |
) |
861 |
|
10,382 |
|
(5,554 |
) |
3,030 |
|
|||||
Benefit for income taxes |
|
(830 |
) |
|
|
(223 |
) |
|
|
(1,053 |
) |
|||||
(Loss) income from continuing operations |
|
(1,829 |
) |
861 |
|
10,605 |
|
(5,554 |
) |
4,083 |
|
|||||
Loss from discontinued operations, net of taxes |
|
|
|
|
|
(468 |
) |
|
|
(468 |
) |
|||||
Net (loss) income |
|
(1,829 |
) |
861 |
|
10,137 |
|
(5,554 |
) |
3,615 |
|
|||||
Net loss attributable to noncontrolling interests |
|
|
|
|
|
(5,444 |
) |
|
|
(5,444 |
) |
|||||
Net (loss) income attributable to Symbion, Inc. |
|
$ |
(1,829 |
) |
$ |
861 |
|
$ |
4,693 |
|
$ |
(5,554 |
) |
$ |
(1,829 |
) |
23
SYMBION, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For The Nine Months Ended September 30, 2008
(Unaudited, in thousands)
|
|
Parent |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
Revenues |
|
$ |
26,012 |
|
$ |
8,328 |
|
$ |
224,514 |
|
$ |
(11,670 |
) |
$ |
247,184 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Salaries and benefits |
|
|
|
3,518 |
|
64,305 |
|
|
|
67,823 |
|
|||||
Supplies |
|
|
|
521 |
|
49,400 |
|
|
|
49,921 |
|
|||||
Professional and medical fees |
|
|
|
726 |
|
13,323 |
|
|
|
14,049 |
|
|||||
Rent and lease expense |
|
|
|
528 |
|
16,087 |
|
|
|
16,615 |
|
|||||
Other operating expenses |
|
|
|
440 |
|
19,081 |
|
|
|
19,521 |
|
|||||
Cost of revenues |
|
|
|
5,733 |
|
162,196 |
|
|
|
167,929 |
|
|||||
General and administrative expense |
|
18,816 |
|
|
|
|
|
|
|
18,816 |
|
|||||
Depreciation and amortization |
|
252 |
|
423 |
|
10,494 |
|
|
|
11,169 |
|
|||||
Provision for doubtful accounts |
|
|
|
216 |
|
2,363 |
|
|
|
2,579 |
|
|||||
Income on equity investments |
|
|
|
(1,152 |
) |
|
|
|
|
(1,152 |
) |
|||||
(Gain) loss on sale/disposal of long-lived assets |
|
(520 |
) |
3,302 |
|
(2,345 |
) |
|
|
437 |
|
|||||
Management fees |
|
|
|
|
|
11,670 |
|
(11,670 |
) |
|
|
|||||
Equity in earnings of affiliates |
|
(18,802 |
) |
|
|
|
|
18,802 |
|
|
|
|||||
Total operating expenses |
|
(254 |
) |
8,522 |
|
184,378 |
|
7,132 |
|
199,778 |
|
|||||
Operating income (loss) |
|
26,266 |
|
(194 |
) |
40,136 |
|
(18,802 |
) |
47,406 |
|
|||||
Interest (expense) income, net |
|
(31,718 |
) |
106 |
|
(885 |
) |
|
|
(32,497 |
) |
|||||
(Loss) income before taxes and discontinued operations |
|
(5,452 |
) |
(88 |
) |
39,251 |
|
(18,802 |
) |
14,909 |
|
|||||
Benefit for income taxes |
|
(533 |
) |
|
|
(172 |
) |
|
|
(705 |
) |
|||||
(Loss) income from continuing operations |
|
(4,919 |
) |
(88 |
) |
39,423 |
|
(18,802 |
) |
15,614 |
|
|||||
Loss from discontinued operations, net of taxes |
|
|
|
|
|
(2,290 |
) |
|
|
(2,290 |
) |
|||||
Net (loss) income |
|
(4,919 |
) |
(88 |
) |
37,133 |
|
(18,802 |
) |
13,324 |
|
|||||
Net loss attributable to noncontrolling interests |
|
|
|
|
|
(18,243 |
) |
|
|
(18,243 |
) |
|||||
Net (loss) income attributable to Symbion, Inc. |
|
$ |
(4,919 |
) |
$ |
(88 |
) |
$ |
18,890 |
|
$ |
(18,802 |
) |
$ |
(4,919 |
) |
24
SYMBION, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For The Nine Months Ended September 30, 2009
(Unaudited, in thousands)
|
|
Parent |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net (loss) income |
|
$ |
(17,954 |
) |
$ |
(3,237 |
) |
$ |
35,681 |
|
$ |
(16,607 |
) |
$ |
(2,117 |
) |
Adjustments to reconcile net (loss) income to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss from discontinued operations |
|
|
|
|
|
5,958 |
|
|
|
5,958 |
|
|||||
Depreciation and amortization |
|
527 |
|
204 |
|
12,209 |
|
|
|
12,940 |
|
|||||
Amortization of deferred financing costs |
|
1,501 |
|
|
|
|
|
|
|
1,501 |
|
|||||
Non-cash payment-in-kind interest option |
|
17,183 |
|
|
|
|
|
|
|
17,183 |
|
|||||
Non-cash stock option compensation expense |
|
974 |
|
|
|
|
|
|
|
974 |
|
|||||
Non-cash recognition of other comprehensive income into earnings |
|
1,866 |
|
|
|
|
|
|
|
1,866 |
|
|||||
Non-cash credit risk adjustment of financial instruments |
|
1,521 |
|
|
|
|
|
|
|
1,521 |
|
|||||
Non-cash (gains) losses |
|
(27 |
) |
2,353 |
|
|
|
|
|
2,326 |
|
|||||
Deferred income taxes |
|
5,626 |
|
|
|
|
|
|
|
5,626 |
|
|||||
Equity in earnings of consolidated affiliates |
|
(16,607 |
) |
|
|
|
|
16,607 |
|
|
|
|||||
Equity in earnings of unconsolidated affiliates, net of distributions received |
|
|
|
(217 |
) |
|
|
|
|
(217 |
) |
|||||
Provision for doubtful accounts |
|
|
|
138 |
|
3,012 |
|
|
|
3,150 |
|
|||||
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts receivable |
|
|
|
|
|
(1,870 |
) |
|
|
(1,870 |
) |
|||||
Other assets and liabilities |
|
15,621 |
|
6,092 |
|
(20,707 |
) |
|
|
1,006 |
|
|||||
Net cash provided by operating activities continuing operations |
|
10,231 |
|
5,333 |
|
34,283 |
|
|
|
49,847 |
|
|||||
Net cash used in operating activities discontinued operations |
|
|
|
|
|
(414 |
) |
|
|
(414 |
) |
|||||
Net cash provided by operating activities |
|
10,231 |
|
5,333 |
|
33,869 |
|
|
|
49,433 |
|
|||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Payments for acquisitions, net of cash acquired |
|
(126 |
) |
|
|
|
|
|
|
(126 |
) |
|||||
Purchases of property and equipment, net |
|
(226 |
) |
|
|
(6,763 |
) |
|
|
(6,989 |
) |
|||||
Payments for unit activity of unconsolidated facilities |
|
(724 |
) |
|
|
|
|
|
|
(724 |
) |
|||||
Change in other assets |
|
|
|
|
|
(809 |
) |
|
|
(809 |
) |
|||||
Net cash used in investing activities continuing operations |
|
(1,076 |
) |
|
|
(7,572 |
) |
|
|
(8,648 |
) |
|||||
Net cash used in investing activities discontinued operations |
|
|
|
|
|
(24 |
) |
|
|
(24 |
) |
|||||
Net cash used in investing activities |
|
(1,076 |
) |
|
|
(7,596 |
) |
|
|
(8,672 |
) |
|||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Principal payments on long-term debt |
|
(1,874 |
) |
|
|
(8,264 |
) |
|
|
(10,138 |
) |
|||||
Proceeds from debt issuances |
|
|
|
|
|
289 |
|
|
|
289 |
|
|||||
Payment of debt issuance costs |
|
(203 |
) |
|
|
|
|
|
|
(203 |
) |
|||||
Distributions to noncontrolling interests |
|
|
|
|
|
(19,342 |
) |
|
|
(19,342 |
) |
|||||
Proceeds from unit activity of consolidating facilities |
|
1,027 |
|
|
|
|
|
|
|
1,027 |
|
|||||
Change in other long-term liabilities |
|
(3,819 |
) |
|
|
|
|
|
|
(3,819 |
) |
|||||
Net cash used in financing activities continuing operations |
|
(4,869 |
) |
|
|
(27,317 |
) |
|
|
(32,186 |
) |
|||||
Net cash used in financing activities discontinued operations |
|
|
|
|
|
(12 |
) |
|
|
(12 |
) |
|||||
Net cash used in financing activities |
|
(4,869 |
) |
|
|
(27,329 |
) |
|
|
(32,198 |
) |
|||||
Net increase (decrease) in cash and cash equivalents |
|
4,286 |
|
5,333 |
|
(1,056 |
) |
|
|
8,563 |
|
|||||
Cash and cash equivalents at beginning of period |
|
4,369 |
|
9,801 |
|
27,663 |
|
|
|
41,833 |
|
|||||
Cash and cash equivalents at end of period |
|
$ |
8,655 |
|
$ |
15,134 |
|
$ |
26,607 |
|
$ |
|
|
$ |
50,396 |
|
25
SYMBION, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For The Nine Months Ended September 30, 2008
(Unaudited, in thousands)
|
|
Parent |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net (loss) income |
|
$ |
(4,919 |
) |
$ |
(88 |
) |
$ |
37,133 |
|
$ |
(18,802 |
) |
$ |
13,324 |
|
Adjustments to reconcile net (loss) income to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss from discontinued operations |
|
|
|
|
|
2,290 |
|
|
|
2,290 |
|
|||||
Depreciation and amortization |
|
252 |
|
423 |
|
10,494 |
|
|
|
11,169 |
|
|||||
Amortization of deferred financing costs |
|
3,985 |
|
|
|
|
|
|
|
3,985 |
|
|||||
Non-cash payment-in-kind interest option |
|
9,753 |
|
|
|
|
|
|
|
9,753 |
|
|||||
Non-cash stock option compensation expense |
|
1,790 |
|
|
|
|
|
|
|
1,790 |
|
|||||
Non-cash losses (gains) |
|
(520 |
) |
3,302 |
|
(2,345 |
) |
|
|
437 |
|
|||||
Deferred income taxes |
|
(2,870 |
) |
|
|
|
|
|
|
(2,870 |
) |
|||||
Equity in earnings of consolidated affiliates |
|
(18,802 |
) |
|
|
|
|
18,802 |
|
|
|
|||||
Equity in earnings of unconsolidated affiliates, net of distributions received |
|
|
|
237 |
|
|
|
|
|
237 |
|
|||||
Provision for doubtful accounts |
|
|
|
216 |
|
2,363 |
|
|
|
2,579 |
|
|||||
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts receivable |
|
|
|
|
|
(2,495 |
) |
|
|
(2,495 |
) |
|||||
Income taxes payable |
|
2,216 |
|
|
|
|
|
|
|
2,216 |
|
|||||
Other assets and liabilities |
|
15,484 |
|
(7,015 |
) |
(4,658 |
) |
|
|
3,811 |
|
|||||
Net cash provided by (used in) operating activities continuing operations |
|
6,369 |
|
(2,925 |
) |
42,782 |
|
|
|
46,226 |
|
|||||
Net cash used in operating activities discontinued operations |
|
|
|
|
|
(625 |
) |
|
|
(625 |
) |
|||||
Net cash provided by (used in) operating activities |
|
6,369 |
|
(2,925 |
) |
42,157 |
|
|
|
45,601 |
|
|||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Payments for acquisitions, net of cash acquired |
|
|
|
|
|
(15,822 |
) |
|
|
(15,822 |
) |
|||||
Purchases of property and equipment, net |
|
(480 |
) |
|
|
(11,892 |
) |
|
|
(12,372 |
) |
|||||
Payments from unit activity of unconsolidated facilities |
|
|
|
|
|
|
|
|
|
|
|
|||||
Change in other assets |
|
|
|
|
|
349 |
|
|
|
349 |
|
|||||
Net cash provided by (used in) investing activities continuing operations |
|
(480 |
) |
|
|
(27,365 |
) |
|
|
(27,845 |
) |
|||||
Net cash used in investing activities discontinued operations |
|
|
|
|
|
(317 |
) |
|
|
(317 |
) |
|||||
Net cash provided by (used in) investing activities |
|
(480 |
) |
|
|
(27,682 |
) |
|
|
(28,162 |
) |
|||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Principal payments on long-term debt |
|
(13,029 |
) |
|
|
(3,447 |
) |
|
|
(16,476 |
) |
|||||
Repayment of bridge facility |
|
(179,937 |
) |
|
|
|
|
|
|
(179,937 |
) |
|||||
Proceeds from issuance of Toggle Notes |
|
179,937 |
|
|
|
|
|
|
|
179,937 |
|
|||||
Proceeds from debt issuances |
|
481 |
|
|
|
11,810 |
|
|
|
12,291 |
|
|||||
Payment of debt issuance costs |
|
(4,739 |
) |
|
|
|
|
|
|
(4,739 |
) |
|||||
Distributions to noncontrolling interests |
|
|
|
|
|
(16,457 |
) |
|
|
(16,457 |
) |
|||||
Proceeds from unit activity of consolidated facilities |
|
219 |
|
|
|
|
|
|
|
219 |
|
|||||
Change in other long-term liabilities |
|
795 |
|
|
|
|
|
|
|
795 |
|
|||||
Net cash used in financing activities continuing operations |
|
(16,273 |
) |
|
|
(8,094 |
) |
|
|
(24,367 |
) |
|||||
Net cash used in financing activities discontinued operations |
|
|
|
|
|
(147 |
) |
|
|
(147 |
) |
|||||
Net cash used in financing activities |
|
(16,273 |
) |
|
|
(8,241 |
) |
|
|
(24,514 |
) |
|||||
Net (decrease) increase in cash and cash equivalents |
|
(10,384 |
) |
(2,925 |
) |
6,234 |
|
|
|
(7,075 |
) |
|||||
Cash and cash equivalents at beginning of period |
|
13,019 |
|
7,063 |
|
24,574 |
|
|
|
44,656 |
|
|||||
Cash and cash equivalents at end of period |
|
$ |
2,635 |
|
$ |
4,138 |
|
$ |
30,808 |
|
$ |
|
|
$ |
37,581 |
|
26
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes.
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements, which are based on our current expectations, estimates and assumptions about future events. All statements other than statements of current or historical fact contained in this report, including statements regarding our future financial position, business strategy, budgets, effective tax rate, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words anticipate, believe, continue, estimate, expect, intend, may, plan, will, and similar expressions are generally intended to identify forward-looking statements. These statements involve risks, uncertainties and other factors that may cause actual results to differ from the expectations expressed in the statements. Many of these factors are beyond our ability to control or predict. These factors include, without limitation:
· our substantial leverage and its impact on our ability to raise additional capital, react to changes in the economy and our industry and meet our obligations under our debt instruments;
· uncertainty associated with legislative and regulatory initiatives relating to health care reform;
· the status of the federal economy and its impact on the health care sector;
· our dependence upon payments from third-party payors, including governmental health care programs and managed care organizations;
· our ability to acquire and develop additional surgical facilities on favorable terms and to integrate their business operations successfully;
· our ability to enter into strategic alliances with health care systems and other third-party payors that are leaders in their markets;
· efforts to regulate the construction, acquisition or expansion of health care facilities;
· our ability to attract and maintain good relationships with physicians who use our facilities;
· our ability to enhance operating efficiencies at our surgical facilities and to control costs as the volume of cases performed at our facilities changes;
· our ability to comply with applicable laws and regulations regulating the operation of our surgical facilities, including physician self-referral laws and laws relating to illegal remuneration under the Medicare, Medicaid or other governmental programs;
· our ability to comply with applicable corporate governance and financial reporting standards;
· the possibility of future legislative changes restricting physician ownership of hospitals and resulting uncertainty over our ability to own and operate our hospitals if enacted;
· the risk of changes to laws governing the corporate practice of medicine that may require us to restructure some of our relationships, which could result in a significant loss of revenues, require us to purchase some or all of the noncontrolling interests, and divert other resources;
27
· risks related to the nature of our corporate structure, including the level of control exercised by Crestview;
· our legal responsibility to the holders of ownership interests in the entities through which we own surgical facilities which may conflict with the interests of our noteholders and prevent us from acting solely in our own bests interests or the interests of our noteholders;
· our ability to obtain the capital required to operate our business and fund acquisitions and developments on favorable terms;
· the intense competition for physicians, strategic relationships, acquisitions and managed care contracts, which may result in a decline in our revenues, profitability and market share;
· the geographic concentration of our operations in certain states, which makes us particularly sensitive to regulatory, economic and other conditions in those states;
· our dependence on our senior management; and
· other risks and uncertainties described in this report or detailed from time to time in our filings with the Securities and Exchange Commission.
In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. When you consider these forward-looking statements, you should keep in mind these risk factors and other cautionary statements in this report.
These forward-looking statements speak only as of the date made. Other than as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Executive Overview
We own and operate a national network of short stay surgical facilities in 26 states. Our surgical facilities, which include ambulatory surgery centers and surgical hospitals, primarily provide non-emergency surgical procedures across many specialties, including, among others, orthopedics, pain management, gastroenterology and ophthalmology. We own our surgical facilities in partnership with physicians and in some cases health care systems in the markets and communities we serve. We apply a market-based approach in structuring our partnerships with individual market dynamics driving the structure. We believe this approach aligns our interests with those of our partners. As of September 30, 2009, we owned and operated 59 surgical facilities, including 55 ambulatory surgery centers and four surgical hospitals. We also managed eight additional ambulatory surgery centers. We owned a majority interest in 36 of the 59 surgical facilities and consolidated 52 of these facilities for financial reporting purposes. We are reporting one of the 59 surgical facilities as discontinued operations. In addition to our surgical facilities, we also manage two physician networks, including one physician network in a market in which we operate an ambulatory surgery center.
We have benefited from both the growth in overall outpatient surgery cases as well as the migration of surgical procedures from the hospital to the surgical facility setting. Advancements in medical technology, such as lasers, arthroscopy and enhanced endoscopic techniques, have reduced the trauma of surgery and the amount of recovery time required by patients following a surgical procedure. Improvements in anesthesia also have shortened the recovery time for many patients and have reduced post-operative side effects such as pain, nausea and drowsiness. These medical advancements have enabled more patients to undergo surgery in a surgical facility setting.
28
We continue to focus on improving the performance of our same store facilities and acquiring facilities that we believe have favorable growth potential. During the nine month period ended September 30, 2009, we acquired an ownership interest in a surgical facility located in Gresham, Oregon. We account for this facility as an equity investment. Also, we acquired an ownership interest in a surgical hospital in Austin, Texas, an existing market for the Company. This acquisition provides us with the opportunity to expand our market presence. In addition, favorable growth potential exists if we are successful in leveraging our physician relationships at our existing ambulatory surgery center. The surgical facility we acquired in Austin, Texas has historically experienced financial difficulties and represents an opportunity for the Company to improve the financial position of this facility through operational efficiencies.
Revenues
Our revenues consist of patient service revenues, physician service revenues and other service revenues. Our patient service revenues relate to fees charged for surgical or diagnostic procedures performed at surgical facilities that we consolidate for financial reporting purposes. Physician service revenues are revenues from physician networks consisting of reimbursed expenses, plus participation in the excess of revenues over expenses of the physician networks, as provided for in our service agreements with our physician networks. Other service revenues consist of management and administrative service fees derived from the non-consolidated facilities that we account for under the equity method, management of surgical facilities in which we do not own an interest, and management services we provide to physician networks for which we are not required to provide capital or additional assets.
The following tables summarize our revenues by service type as a percentage of revenues for the periods indicated:
|
|
Three
Months Ended |
|
Nine
Months Ended |
|
||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Patient service revenues |
|
96 |
% |
95 |
% |
96 |
% |
95 |
% |
Physician service revenues |
|
2 |
|
2 |
|
2 |
|
2 |
|
Other service revenues |
|
2 |
|
3 |
|
2 |
|
3 |
|
Total |
|
100 |
% |
100 |
% |
100 |
% |
100 |
% |
Payor Mix
Approximately 96% of our revenues are patient service revenues. The following table sets forth by type of payor the percentage of our patient service revenues generated in the periods indicated:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Private Insurance |
|
70 |
% |
72 |
% |
71 |
% |
72 |
% |
Government |
|
24 |
|
22 |
|
24 |
|
22 |
|
Self-pay |
|
5 |
|
4 |
|
4 |
|
4 |
|
Other |
|
1 |
|
2 |
|
1 |
|
2 |
|
Total |
|
100 |
% |
100 |
% |
100 |
% |
100 |
% |
Case Mix
We primarily operate multi-specialty facilities where physicians perform a variety of procedures in specialties, including orthopedics, pain management, gastroenterology and ophthalmology, among others. We believe this diversification helps to protect us from any adverse pricing and utilization trends in any individual procedure type and results in greater consistency in our case volume.
29
The following table sets forth the percentage of cases in each specialty performed at surgical facilities which we consolidate for financial reporting purposes for the periods indicated:
|
|
Three
Months Ended |
|
Nine Months
Ended |
|
||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
Ear, nose and throat |
|
4.9 |
% |
5.7 |
% |
5.9 |
% |
6.7 |
% |
Gastrointestinal |
|
28.4 |
|
29.1 |
|
27.8 |
|
28.2 |
|
General surgery |
|
4.7 |
|
4.2 |
|
4.5 |
|
4.1 |
|
Obstetrics/gynecology |
|
2.9 |
|
3.0 |
|
2.9 |
|
3.1 |
|
Ophthalmology |
|
17.0 |
|
15.5 |
|
16.5 |
|
15.0 |
|
Orthopedic |
|
16.1 |
|
15.5 |
|
16.2 |
|
16.3 |
|
Pain management |
|
14.8 |
|
15.8 |
|
15.7 |
|
15.5 |
|
Plastic surgery |
|
2.9 |
|
2.8 |
|
2.7 |
|
2.9 |
|
Other |
|
8.3 |
|
8.4 |
|
7.8 |
|
8.2 |
|
Total |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
Case Growth
Same Store Information
We define same store facilities as those facilities that were operating throughout the three and nine months ended September 30, 2009 and 2008. For the comparison of same store facilities provided below for the nine months ended September 30, 2009 and September 30, 2008, we have also included the results of one developed surgical facility within a market served by another surgical facility in which we own an interest. This surgical facility is consolidated for financial reporting purposes. Management believes that it is appropriate to include the results of this surgical facility in the same store facility information below based on the following considerations: (1) the migration of cases from the existing surgical facility to the new surgical facility; (2) the waiver of the restriction on ownership applicable to the owners of the existing facility that allows certain owners of the existing facility to own an interest in the new surgical facility; and (3) the resulting enhancement of our market position by leveraging management services and capacity.
The following same store facility table includes both consolidated surgical facilities included in continuing operations that are included in our revenue and non-consolidated surgical facilities that are not reported in our revenue, as we account for these surgical facilities using the equity method. This same store facilities table is presented to allow comparability to other companies in our industry for the periods indicated:
|
|
Three
Months Ended |
|
Nine Months
Ended |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Cases |
|
64,634 |
|
65,051 |
|
185,716 |
|
185,689 |
|
||||
Case growth |
|
(0.6 |
)% |
N/A |
|
0.0 |
% |
N/A |
|
||||
Net patient service revenue per case |
|
$ |
1,455 |
|
$ |
1,442 |
|
$ |
1,441 |
|
$ |
1,433 |
|
Net patient service revenue per case growth |
|
0.9 |
% |
N/A |
|
0.5 |
% |
N/A |
|
||||
Number of same store surgical facilities |
|
55 |
|
N/A |
|
49 |
|
N/A |
|
||||
The following same store facility table is presented for purposes of explaining changes in our condensed consolidated financial results and accordingly excludes non-consolidated surgical facilities that are not reported in our revenue. For the comparison of same store facilities provided below, the results for the nine month periods presented include the results of a developed surgical facility within a market served by another surgical facility in which we previously owned an interest. This surgical facility is consolidated for financial reporting purposes. Management believes it is appropriate to present the results of this facility in the same store information based on the following considerations: (1) the migration of cases from the existing surgical facility to the new surgical facility; (2) the waiver of the restriction on ownership applicable to the owners of the existing facility that allows certain owners of the existing facility to own an interest in the new surgical facility; and (3) the resulting enhancement of our market position by leveraging management services and capacity:
30
|
|
Three
Months Ended |
|
Nine Months
Ended |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Cases |
|
56,737 |
|
57,851 |
|
169,449 |
|
169,910 |
|
||||
Case growth |
|
(1.9 |
)% |
N/A |
|
(0.3 |
)% |
N/A |
|
||||
Net patient service revenue per case |
|
$ |
1,324 |
|
$ |
1,328 |
|
$ |
1,326 |
|
$ |
1,326 |
|
Net patient service revenue per case growth |
|
(0.3 |
)% |
N/A |
|
0.0 |
% |
N/A |
|
||||
Number of same store surgical facilities |
|
47 |
|
N/A |
|
44 |
|
N/A |
|
||||
Consolidated Information
The following table sets forth information for all surgical facilities included in continuing operations that we consolidate for financial reporting purposes for the periods indicated. Accordingly, the table includes surgical facilities that we have acquired, developed or disposed of since January 1, 2008.
|
|
Three
Months Ended |
|
Nine Months
Ended |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Cases |
|
59,832 |
|
59,514 |
|
179,793 |
|
175,882 |
|
||||
Case growth |
|
0.5 |
% |
N/A |
|
2.2 |
% |
N/A |
|
||||
Net patient service revenue per case |
|
$ |
1,390 |
|
$ |
1,334 |
|
$ |
1,384 |
|
$ |
1,339 |
|
Net patient service revenue per case growth |
|
4.2 |
% |
N/A |
|
3.4 |
% |
N/A |
|
||||
Number of surgical facilities operated as of end of the period(1) |
|
67 |
|
65 |
|
67 |
|
65 |
|
||||
Number of consolidated surgical facilities |
|
52 |
|
47 |
|
52 |
|
47 |
|
||||
(1) Includes surgical facilities that we manage but in which we have no ownership.
Recent Regulatory Developments and Operating Trends
We are dependent upon private and government third-party sources of payment for the services we provide. The amounts that our surgical facilities and networks receive in payment for their services may be adversely affected by market and cost factors as well as other factors over which we have no control, including Medicare, Medicaid, and state regulations and the cost containment and utilization decisions and reduced reimbursement schedules of third-party payors.
Health Care Reform
Health care reform has become the subject of much national attention and debate. The House of Representatives has passed and two Senate committees have approved legislation that would dramatically alter the U.S. health care system. All of the legislation is intended to increase access to health care and health insurance services, increase the quality of care that is provided, and control or reduce health care spending. As part of the effort to control or reduce health care spending, most of the health care reform legislation that has been proposed would place a number of significant requirements and limitations on the Stark law exception that allows physicians to have ownership interests in hospitals (the Whole Hospital Exception). Among other things, the legislation would prohibit hospitals from increasing the percentages of the total value of the ownership interests held in the hospital by physicians after the date of enactment of the legislation as well as place severe restrictions on the ability of a hospital subject to the Whole Hospital Exception to add operating rooms, procedure rooms and beds. In addition, the bill that passed the House of Representatives and the bills that have been approved by the Senate committees would reduce Medicare and Medicaid payments as part of the reform process. We cannot predict if any health care reform legislation will be adopted by Congress and, if adopted, what effect such legislation would have on our business and financial condition.
Medicare Reimbursement-Ambulatory Surgery Centers
Beginning in 2008, the Centers for Medicare and Medicaid Services (CMS) began basing Medicare payments to ambulatory surgery centers (ASCs) on the hospital outpatient prospective payment system. For procedures performed in 2009, ASCs are being paid at approximately 59% of the corresponding rate that hospitals receive for the same outpatient procedures.
31
On October 30, 2009, CMS issued a final rule to update the Medicare programs payment policies and rates for ASCs for 2010. Among other things, the rule increases the ASC payment rate by 1.2%. As a result of the change, ASC payment rates will be approximately 58% of the applicable hospital outpatient department rate. The rule also adds 26 surgical procedures to the list of procedures for which Medicare will pay when performed in an ASC setting and six procedures to the list of procedures that are subject to the lesser of the non-facility practice expense payment/ASC payment rate cap. The ultimate impact of the changes in Medicare reimbursement will depend on a number of factors, including the procedure mix at the centers and our ability to realize an increased procedure volume.
Medicare Reimbursement-Hospital Inpatient Services
On July 31, 2009, CMS issued the IPPS final rule for federal fiscal year 2010, beginning on October 1, 2009. Among other things, the final rule provides for a market basket increase of 2.1% for hospitals that successfully report the 2010 quality measures included in the Reporting Hospital Quality Date for Annual Payment Update program and 0.1% for hospitals that do not. CMS anticipates that, when combined with the various other adjustments, Medicare payments to hospitals for inpatient services will increase by 1.6% in federal fiscal year 2010. In its proposed IPPS rule for federal fiscal year 2010, CMS had proposed to reduce inpatient payments to hospitals by 1.9% to account for the increase in Medicare spending attributable to the implementation of the MS-DRG system. However, in the final rule, CMS stated that it would not impose any further reductions until all of the claims information for federal fiscal year 2009 was available. CMS will consider phasing in future adjustments over an extended period of time beginning in federal fiscal year 2011 once the claims data for federal fiscal years 2008 and 2009 have been fully analyzed.
Medicare Reimbursement-Hospital Outpatient Services
Most outpatient services provided by hospitals are reimbursed by Medicare under the outpatient prospective payment system (OPPS). Under the OPPS, hospital outpatient services are classified into groups called ambulatory payment classifications (APCs). CMS establishes a payment rate for each APC, and, depending on the services provided, a hospital may be paid for more than one APC for each patient encounter. On October 30, 2009, CMS issued a final rule to update payment rates and policies for calendar year 2010. In addition to adding additional procedures, pursuant to the rule hospital outpatient department payments would receive a market basket increase of 2.1%. CMS will reduce the update by 2.0% for hospitals that did not participate in quality data reporting for outpatient services or did not report the quality data successfully, resulting in a 0.1% update for those hospitals. When combined with other adjustments, CMS projects that overall payments to hospitals under the OPPS in 2010 will increase by 1.9%.
Health Information Practices
We are subject to the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and the Health Information Technology for Economic and Clinical Health Act (HITECH Act), which was enacted as part of the American Recovery and Reinvestment Act of 2009. The HITECH Act strengthened the requirements and significantly increased the penalties for violations of the HIPAA privacy and security regulations. On August 24, 2009, the Secretary of the Department of Health and Human Services (HHS) issued regulations implementing certain of the requirements of the HITECH Act. Although these regulations were effective September 23, 2009, HHS announced the imposition of penalties pursuant to these regulations would be delayed until February 22, 2010. We cannot quantify the financial impact of compliance with these new regulations, but could incur expenses associated with such compliance.
Recovery Audit Contractors
Additionally, CMS announced the expansion of the recovery audit contractor (RAC) pilot program nationwide. RACs are private contractors contracting with CMS to identify overpayment and underpayments for services through post-payment reviews of Medicare providers and suppliers. We cannot quantify the financial impact of potential RAC audits, but could incur expenses associated with responding to and challenging any audit, as well as costs of repayment of alleged overpayments.
32
Operating Margins
Our operating income margin for the three months ended September 30, 2009 decreased to 12.3% from 17.1% during the three months ended September 30, 2008. The 2009 period reflects, among other things, $2.4 million of impairment charge related to our equity method investment located in Arcadia, California. Excluding the impairment charge, our operating margin decreased to 15.1% for the 2009 period. The acquisition of the surgical hospital in Austin, Texas negatively impacted our operating margins by 1.5% during the three months ended September 30, 2009. The surgical hospital has historically experienced financial difficulties and represents an opportunity for the Company to improve the financial position of this facility through operational efficiencies. In addition, same store cost of revenues increased 2.5% as a percentage of same store revenue primarily as a result of a 1.2% increase in supplies expense. The increase in supplies expense is related to an increase in ophthalmology cases which are predominantly reimbursed by Medicare and involve higher cost lenses. Also, during the quarter general and administrative expenses decreased 2.0% as a percentage of revenue.
Acquisitions and Developments
Effective September 1, 2009, we acquired an ownership of 28.8% in a surgical facility located in Gresham, Oregon for $525,000. The acquisition was financed with cash from operations. We account for this investment under the equity method.
Effective May 1, 2009, we acquired a 91.8% ownership interest in a surgical hospital in Austin, Texas for $350,000 plus the assumption of $2.6 million of debt. Subsequently, we reduced our ownership in this facility to 49.8%. Austin, Texas is an existing market for the Company and this acquisition provides the opportunity to expand our market presence. In addition, favorable growth potential exists if we are successful in leveraging our physician relationships at the existing ambulatory surgery center. The surgical hospital has historically experienced financial difficulties and represents an opportunity for us to improve the financial position of this facility through operational efficiencies.
Effective February 28, 2009, we acquired an incremental ownership of 18.0% in our surgical facility located in Thousand Oaks, California, for an aggregate of $416,000, financed with cash from operations. We account for this investment under the equity method. Prior to the acquisition, we owned 1.0% of this facility. Also during the first quarter of 2009, we opened one surgical facility that was under development as of December 31, 2008. We consolidate this surgical facility for financial reporting purposes.
Discontinued Operations and Divestitures
In February 2009, we ceased operations at our surgical facility located in Englewood, Colorado. We recorded a loss on the disposal of $5.9 million, which includes an accrual of $4.2 million for future contractual obligations under a facility operating lease. As of September 30, 2009, we owned one surgical facility that is classified as discontinued operations. This facilitys assets, liabilities, revenues, expenses and cash flows have been reclassified as discontinued operations for all periods presented.
Revenues, the income (loss) on operations before income taxes, the income tax provision (benefit), the loss on the sale from discontinued operations, net of taxes, and the income (loss) from discontinued operations, net of taxes, for the following periods indicated, were as follows (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
Revenues |
|
$ |
1,103 |
|
$ |
1,752 |
|
$ |
3,482 |
|
$ |
5,695 |
|
Income (loss) on operations, before tax |
|
20 |
|
(458 |
) |
(237 |
) |
(1,286 |
) |
||||
Income tax (benefit) provision |
|
(3 |
) |
10 |
|
23 |
|
(390 |
) |
||||
Gain (loss) on sale, net of taxes |
|
154 |
|
|
|
(5,698 |
) |
(1,394 |
) |
||||
Income (loss) from discontinued operations, net of taxes |
|
$ |
177 |
|
$ |
(468 |
) |
$ |
(5,958 |
) |
$ |
(2,290 |
) |
33
Effective July 10, 2009, we disposed of our ownership interest in our surgical facility located in Temple, Texas. A loss of $273,000 was recorded in the quarter ended June 30, 2009. Because this investment was accounted for under the equity method, the results of operations for this facility are not reported as discontinued operations. The loss on disposal of this facility is included in impairment and loss on disposal of long-lived assets.
Results of Operations
The following table summarizes certain statements of operations items for each of the three and nine months ended September 30, 2009 and 2008. The table also shows the percentage relationship to revenues for the periods indicated:
|
|
Three Months Ended September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
||||||
|
|
Amount |
|
% of Revenues |
|
Amount |
|
% of Revenues |
|
||
|
|
(in thousands) |
|
||||||||
Revenues |
|
$ |
86,766 |
|
100.0 |
% |
$ |
83,570 |
|
100.0 |
% |
Cost of revenues |
|
64,150 |
|
73.9 |
|
57,539 |
|
68.9 |
|
||
General and administrative expense |
|
4,698 |
|
5.4 |
|
6,175 |
|
7.4 |
|
||
Depreciation and amortization |
|
4,362 |
|
5.0 |
|
3,947 |
|
4.7 |
|
||
Provision for doubtful accounts |
|
1,168 |
|
1.3 |
|
1,403 |
|
1.7 |
|
||
Income on equity investments |
|
(712 |
) |
(0.7 |
) |
(450 |
) |
(0.5 |
) |
||
Impairment and loss on disposal of long-lived assets |
|
2,593 |
|
3.0 |
|
675 |
|
0.8 |
|
||
Gain on sale of long-lived assets |
|
(30 |
) |
(0.0 |
) |
(42 |
) |
(0.1 |
) |
||
Proceeds from insurance settlements, net |
|
(150 |
) |
(0.2 |
) |
|
|
0.0 |
|
||
Total operating expenses |
|
76,079 |
|
87.7 |
|
69,247 |
|
82.9 |
|
||
Operating income |
|
10,687 |
|
12.3 |
|
14,323 |
|
17.1 |
|
||
Interest expense, net |
|
(11,958 |
) |
(13.8 |
) |
(11,293 |
) |
(13.5 |
) |
||
(Loss) income before income taxes and discontinued operations |
|
(1,271 |
) |
(1.5 |
) |
3,030 |
|
3.6 |
|
||
Provision (benefit) for income taxes |
|
1,936 |
|
2.2 |
|
(1,053 |
) |
(1.3 |
) |
||
(Loss) income from continuing operations |
|
(3,207 |
) |
(3.7 |
) |
4,083 |
|
4.9 |
|
||
Income (loss) from discontinued operations, net of taxes |
|
177 |
|
0.2 |
|
(468 |
) |
(0.6 |
) |
||
Net (loss) income |
|
(3,030 |
) |
(3.5 |
) |
3,615 |
|
4.3 |
|
||
Less: Net income attributable to noncontrolling interests |
|
(4,013 |
) |
(4.6 |
) |
(5,444 |
) |
(6.5 |
) |
||
Net loss attributable to Symbion, Inc. |
|
$ |
(7,043 |
) |
(8.1 |
)% |
$ |
(1,829 |
) |
(2.2 |
)% |
34
|
|
Nine Months Ended September 30, |
|
||||||||
|
|
2009 |
|
2008 |
|
||||||
|
|
Amount |
|
% of Revenues |
|
Amount |
|
% of Revenues |
|
||
|
|
(in thousands) |
|
||||||||
Revenues |
|
$ |
259,398 |
|
100.0 |
% |
$ |
247,184 |
|
100.0 |
% |
Cost of revenues |
|
184,322 |
|
71.1 |
|
167,929 |
|
67.9 |
|
||
General and administrative expense |
|
16,043 |
|
6.2 |
|
18,816 |
|
7.6 |
|
||
Depreciation and amortization |
|
12,940 |
|
5.0 |
|
11,169 |
|
4.5 |
|
||
Provision for doubtful accounts |
|
3,150 |
|
1.2 |
|
2,579 |
|
1.0 |
|
||
Income on equity investments |
|
(1,364 |
) |
(0.5 |
) |
(1,152 |
) |
(0.5 |
) |
||
Impairment and loss on disposal of long-lived assets |
|
3,033 |
|
1.2 |
|
1,147 |
|
0.5 |
|
||
Gain on sale of long-lived assets |
|
(707 |
) |
(0.3 |
) |
(710 |
) |
(0.2 |
) |
||
Proceeds from insurance settlements, net |
|
(416 |
) |
(0.2 |
) |
|
|
0.0 |
|
||
Total operating expenses |
|
217,001 |
|
83.7 |
|
199,778 |
|
80.8 |
|
||
Operating income |
|
42,397 |
|
16.3 |
|
47,406 |
|
19.2 |
|
||
Interest expense, net |
|
(33,900 |
) |
(13.0 |
) |
(32,497 |
) |
(13.1 |
) |
||
Income before income taxes and discontinued operations |
|
8,497 |
|
3.3 |
|
14,909 |
|
6.1 |
|
||
Provision (benefit) for income taxes |
|
4,656 |
|
1.8 |
|
(705 |
) |
(0.3 |
) |
||
Income from continuing operations |
|
3,841 |
|
1.5 |
|
15,614 |
|
6.4 |
|
||
Loss from discontinued operations, net of taxes |
|
(5,958 |
) |
(2.3 |
) |
(2,290 |
) |
(0.9 |
) |
||
Net (loss) income |
|
(2,117 |
) |
(0.8 |
) |
13,324 |
|
5.4 |
|
||
Less: Net income attributable to noncontrolling interests |
|
(15,837 |
) |
(6.1 |
) |
(18,243 |
) |
(7.4 |
) |
||
Net loss attributable to Symbion, Inc. |
|
$ |
(17,954 |
) |
(6.9 |
)% |
$ |
(4,919 |
) |
(2.0 |
)% |
Three Months Ended September 30, 2009 Compared To Three Months Ended September 30, 2008
Overview. During the three months ended September 30, 2009, our revenues increased 3.8% to $86.8 million from $83.6 million for the three months ended September 30, 2008. We incurred a net loss for the 2009 period of $7.0 million compared to a loss of $1.8 million for the 2008 period. Included in the loss for 2009 is income tax expense of $1.9 million which results from a valuation allowance recorded at September 30, 2009 against certain deferred tax assets and recording of non-cash deferred income tax expense related to our partnership investments. Also included in the net loss for 2009 is $2.4 million of impairment charge related to our equity method investment located in Arcadia, California.
Our financial results for the three months ended September 30, 2009 compared to 2008 reflect the addition of two acquired surgical facilities, one developed facility, and one disposed facility, all of which we consolidate for financial reporting purposes. For purposes of this managements discussion of our consolidated financial results, we consider same store facilities as those surgical facilities that we consolidate for financial reporting purposes for both three month periods ended September 30, 2009 and 2008.
Revenues. Revenues for the three months ended September 30, 2009 compared to the three months ended September 30, 2008 were as follows (in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
2009 |
|
2008 |
|
Dollar |
|
Percent |
|
|||
Patient service revenues: |
|
|
|
|
|
|
|
|
|
|||
Same store revenues |
|
$ |
75,129 |
|
$ |
76,824 |
|
$ |
(1,695 |
) |
(2.2 |
)% |
Revenues from other surgical facilities |
|
8,055 |
|
2,577 |
|
5,478 |
|
|
|
|||
Total patient service revenues |
|
83,184 |
|
79,401 |
|
3,783 |
|
4.8 |
|
|||
Physician service revenues |
|
1,653 |
|
1,626 |
|
27 |
|
1.7 |
|
|||
Other service revenues |
|
1,929 |
|
2,543 |
|
(614 |
) |
(24.1 |
) |
|||
Total revenues |
|
$ |
86,766 |
|
$ |
83,570 |
|
$ |
3,196 |
|
3.8 |
% |
35
Patient service revenues at same store facilities decreased 2.2% for the three months ended September 30, 2009 compared to the three months ended September 30, 2008, as a result of a decrease in same store volume of 1.9% and a decrease in net patient service revenue per case of 0.3%. During the three months ended September 30, 2009, reimbursement from governmental payors increased 2.0% compared to the three months ended September 30, 2008. Governmental payors have typically paid claims at a lower rate than third-party payors and therefore our net patient service revenue per case decreased during the 2009 period compared to the 2008 period. The increase in reimbursement from governmental payors is related to an increase in ophthalmology cases which are predominantly reimbursed by Medicare. The decrease in other service revenues results from a scheduled reduction in management fees from one of our physician networks.
Cost of Revenues. Cost of revenues for the three months ended September 30, 2009 compared to the three months ended September 30, 2008 were as follows (in thousands):
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
2009 |
|
2008 |
|
Dollar |
|
Percent |
|
|||
Same store cost of revenues |
|
$ |
56,381 |
|
$ |
55,737 |
|
$ |
644 |
|
1.2 |
% |
Cost of revenues from other surgical facilities |
|
7,769 |
|
1,802 |
|
5,967 |
|
|
|
|||
Total cost of revenues |
|
$ |
64,150 |
|
$ |
57,539 |
|
$ |
6,611 |
|
11.5 |
% |
As a percentage of same store revenues, same store cost of revenues increased to 75.0% for the three months ended September 30, 2009 compared to 72.6% for the three months ended September 30, 2008. As a percentage of same store revenues, this increase is primarily the result of a 1.2% increase in supplies expense. The increase in supplies expense is related to an increase in ophthalmology cases which are predominantly reimbursed by Medicare and involve higher cost lenses. Cost of revenues from other surgical facilities increased by $6.0 million. This increase is primarily attributable to surgical facilities acquired or developed since January 1, 2008. The acquisition of the surgical hospital in Austin, Texas negatively impacted our operating margins by 1.5%. The surgical hospital has historically experienced financial difficulties and represents an opportunity for the Company to improve the financial position of this facility through operational efficiencies. As a percentage of revenues, total cost of revenues increased to 73.9% for the 2009 period compared to 68.9% for the 2008 period.
General and Administrative Expense. General and administrative expense decreased to $4.7 million for the three months ended September 30, 2009 from $6.2 million for the three months ended September 30, 2008. As a percentage of revenues, general and administrative expense was 5.4% for the 2009 period and 7.4% for the 2008 period. This decrease is attributable to a reduction in incentive compensation and other employee benefits.
Depreciation and Amortization. Depreciation and amortization expense increased to $4.4 million for the three months ended September 30, 2009 compared to $3.9 million for the three months ended September 30, 2008. This increase is primarily attributable to surgical facilities acquired or developed since January 1, 2008. As a percentage of revenues, depreciation and amortization expense increased to 5.0% for the 2009 period from 4.7% for the 2008 period. Same store depreciation and amortization expense increased to $3.9 million for the 2009 period from $3.5 million in the 2008 period, primarily as a result of asset additions at certain facilities.
Provision for Doubtful Accounts. Provision for doubtful accounts decreased to $1.2 million for the three months ended September 30, 2009 compared to $1.4 million for the three months ended September 30, 2008. As a percentage of revenues, the provision for doubtful accounts was 1.3% for the 2009 period and 1.7% for the 2008 period.
Impairment and Loss on Disposal of Long-Lived Assets. Impairment and loss on disposal of long-lived assets increased to $2.6 million for the three months ended September 30, 2009 compared to $675,000 for the three months ended September 30, 2008. This increase is attributable to a $2.4 million impairment charge related to our equity method investment located in Arcadia, California.
36
Operating Income. Operating income decreased to $10.7 million for the three months ended September 30, 2009 from $14.3 million for the three months ended September 30, 2008. This decrease is attributable to a $2.4 million impairment charge related to our equity method investment located in Arcadia, California. Excluding the impairment charge, operating income as a percentage of revenues decreased to 15.1% for the 2009 period from 17.1% for the 2008 period. This decrease results from a negative impact of 1.5% for the three months ended September 30, 2009 related to the acquisition of the surgical hospital in Austin, Texas. In addition, same store cost of revenues increased 2.5% as a percentage of same store revenue primarily as a result of a 1.2% increase in supplies expense. The increase in supplies expense is related to an increase in ophthalmology cases which are predominantly reimbursed by Medicare and involve higher cost lenses. Also during the quarter, general and administrative expenses decreased 2.0% as a percentage of revenues.
Interest Expense, Net of Interest Income. Interest expense, net of interest income, increased to $12.0 million for the three months ended September 30, 2009 from $11.3 million for the three months ended September 30, 2008. Included in interest expense for the three months ended September 30, 2009 is $1.1 million as a result of discontinuing hedge accounting treatment related to our interest rate swap as of December 31, 2008, which includes $813,000 of interest expense due to the credit risk adjustment of the swap liability. Interest expense for the 2009 period reflects a reduction in the floating interest rate on the portion of the term loan facility not exposed to our interest rate swap positions. This decrease in rate is offset by our election of the PIK option related to the Toggle Notes, whereby the outstanding principal amount of debt has increased $32.0 million since December 31, 2007.
Provision (benefit) for Income Taxes. The provision for income taxes increased to $1.9 million for the three months ended September 30, 2009 from a benefit of $1.0 million for the three months ended September 30, 2008. Tax expense in 2009 results from a valuation allowance recorded at September 30, 2009 against certain deferred tax assets and recording of non-cash deferred income tax expense related to our partnership investments.
(Loss) Income from Continuing Operations. We incurred a loss from continuing operations of $3.2 million for the three months ended September 30, 2009 compared to income of $4.1 million for the three months ended September 30, 2008, primarily as a result of the decrease in operating income and increase in the provision for income taxes.
Net Income Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests decreased to $4.0 million for the three months ended September 30, 2009 from $5.4 million for the three months ended September 30, 2008. As a percentage of revenues, net income attributable to noncontrolling interests decreased to 4.6% for the 2009 period from 6.5% for the 2008 period. This decrease is primarily attributable to a decrease in operating income.
Nine Months Ended September 30, 2009 Compared To Nine Months Ended September 30, 2008
Overview. During the nine months ended September 30, 2009, our revenues increased 4.9% to $259.4 million from $247.2 million for the nine months ended September 30, 2008. We incurred a net loss for the 2009 period of $18.0 million compared to a loss of $4.9 million for the 2008 period. Included in the loss for 2009 is a loss from discontinued operations of $6.0 million, which includes a loss on disposal of $5.7 million related to our ceased operations at the Englewood, Colorado facility in February 2009. We also recorded an impairment charge of $2.4 million in the 2009 period related to our equity method investment located in Arcadia, California. Also included in the net loss for 2009 is an additional $2.2 million of interest expense as a result of discontinuing hedge accounting treatment related to our interest rate swap as of December 31, 2008, which includes $1.5 million of interest expense due to the credit risk adjustment of the swap liability.
Our financial results for the nine months ended September 30, 2009 compared to the same period in 2008 reflect the addition of two acquired surgical facilities, one developed facility, and two disposed facilities, all of which we consolidate for financial reporting purposes. The acquisition of the surgical hospital in Austin, Texas negatively impacted our operating margins by 1.0%. The surgical hospital has historically experienced financial difficulties and represents an opportunity for us to improve the financial position of this facility through operational efficiencies. For purposes of this managements discussion of our consolidated financial results, we consider same store facilities as those surgical facilities that we consolidate for financial reporting purposes for both nine month periods ended September 30, 2009 and 2008.
37
For the comparison of same store facilities provided below, we have also included the results of one developed surgical facility within a market served by another surgical facility in which we previously owned an interest. This surgical facility is consolidated for financial reporting purposes. Management believes it is appropriate to present the results of this facility in the same store information based on the following considerations: (1) the migration of cases from the existing surgical facility to the new surgical facility; (2) the waiver of the restriction on ownership applicable to the owners of the existing facility that allows certain owners of the existing facility to own an interest in the new surgical facility; and (3) the resulting enhancement of our market position by leveraging management services and capacity.
Revenues. Revenues for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 were as follows (in thousands):
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
2009 |
|
2008 |
|
Dollar |
|
Percent |
|
|||
Patient service revenues: |
|
|
|
|
|
|
|
|
|
|||
Same store revenues |
|
$ |
224,634 |
|
$ |
225,353 |
|
$ |
(719 |
) |
(0.3 |
)% |
Revenues from other surgical facilities |
|
24,141 |
|
9,572 |
|
14,569 |
|
|
|
|||
Total patient service revenues |
|
248,775 |
|
234,925 |
|
13,850 |
|
5.9 |
|
|||
Physician service revenues |
|
4,907 |
|
4,851 |
|
56 |
|
1.2 |
|
|||
Other service revenues |
|
5,716 |
|
7,408 |
|
(1,692 |
) |
(22.8 |
) |
|||
Total revenues |
|
$ |
259,398 |
|
$ |
247,184 |
|
$ |
12,214 |
|
4.9 |
% |
Patient service revenues at same store facilities decreased 0.3% for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008, primarily as a result of our decrease in same store volume of 0.3%. The decrease in other service revenues results from a scheduled reduction in management fees from one of our physician networks.
Cost of Revenues. Cost of revenues for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 were as follows (in thousands):
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
2009 |
|
2008 |
|
Dollar |
|
Percent |
|
|||
Same store cost of revenues |
|
$ |
163,648 |
|
$ |
161,246 |
|
$ |
2,402 |
|
1.5 |
% |
Cost of revenues from other surgical facilities |
|
20,674 |
|
6,683 |
|
13,991 |
|
|
|
|||
Total cost of revenues |
|
$ |
184,322 |
|
$ |
167,929 |
|
$ |
16,393 |
|
9.8 |
% |
As a percentage of same store revenues, same store cost of revenues increased to 72.9% for the nine months ended September 30, 2009 compared to 71.6% for the nine months ended September 30, 2008. As a percentage of same store revenues, this increase is primarily the result of a 0.6% increase in supplies expense. The increase in supplies expense is related to an increase in ophthalmology cases which are predominantly reimbursed by Medicare and involve higher cost lenses. Cost of revenues from other surgical facilities increased by $14.0 million. This increase is primarily attributable to surgical facilities acquired or developed since January 1, 2008. The acquisition of the surgical hospital in Austin, Texas negatively impacted our operating margins by 1.0%. The surgical hospital has historically experienced financial difficulties and represents an opportunity for the Company to improve the financial position of this facility through operational efficiencies. As a percentage of revenues, total cost of revenues increased to 71.1% for the 2009 period compared to 67.9% for the 2008 period.
General and Administrative Expense. General and administrative expense decreased to $16.0 million for the nine months ended September 30, 2009 from $18.8 million for the nine months ended September 30, 2008. As a percentage of revenues, general and administrative expense was 6.2% for the 2009 period and 7.6% for the 2008 period. This decrease is attributable to a reduction in incentive compensation and other employee benefits.
38
Depreciation and Amortization. Depreciation and amortization expense increased to $12.9 million for the nine months ended September 30, 2009 compared to $11.2 million for the nine months ended September 30, 2008. This increase is primarily attributable to surgical facilities acquired or developed since January 1, 2008. As a percentage of revenues, depreciation and amortization expense increased to 5.0% for the 2009 period from 4.5% for the 2008 period. Same store depreciation and amortization expense increased to $11.0 million for the 2009 period from $9.9 million in the 2008 period, primarily as a result of asset additions at certain facilities.
Provision for Doubtful Accounts. Provision for doubtful accounts increased to $3.2 million for the nine months ended September 30, 2009 from $2.6 million for the nine months ended September 30, 2008. As a percentage of revenues, provision for doubtful accounts was 1.2% for the 2009 period compared to 1.0% for the 2008 period.
Operating Income. Operating income decreased to $42.4 million for the nine months ended September 30, 2009 from $47.4 million for the nine months ended September 30, 2008. This decrease is attributable to a $2.4 million impairment charge related to our equity method investment located in Arcadia, California. Excluding the impairment charge, operating income as a percentage of revenues decreased to 17.3% for the 2009 period from 19.2% for the 2008 period. This decrease is attributable to a negative operating margin impact of 1.0% related to the acquisition of the surgical hospital in Austin, Texas. In addition, same store cost of revenues increased 1.3% as a percentage of same store revenue primarily as a result of a 0.6% increase in supplies expense. The increase in supplies expense is related to an increase in ophthalmology cases which are predominantly reimbursed by Medicare and involve higher cost lenses. Also during the 2009 period, general and administrative expenses decreased 1.4% as a percentage of revenues.
Interest Expense, Net of Interest Income. Interest expense, net of interest income, increased to $33.9 million for the nine months ended September 30, 2009 from $32.5 million for the nine months ended September 30, 2008. Included in interest expense for the nine months ended September 30, 2009 is $2.2 million as a result of discontinuing hedge accounting treatment related to our interest rate swap as of December 31, 2008, which includes $1.5 million of interest expense due to the credit risk adjustment of the swap liability. Interest expense also increased as a result of our election of the PIK option related to the Toggle Notes, whereby the outstanding principal amount of debt has increased $32.0 million since December 31, 2007. The increase in interest expense is offset by a reduction in amortization of deferred financing costs of $2.5 million in the 2009 period compared to the 2008 period.
Provision (benefit) for Income Taxes. The provision for income taxes increased to $4.7 million for the nine months ended September 30, 2009 from a benefit of $705,000 for the nine months ended September 30, 2008. Tax expense in the 2009 period is primarily due to the recording of non-cash deferred income tax expense related to our partnership investments.
Income from Continuing Operations. Income from continuing operations was $3.8 million for the nine months ended September 30, 2009 compared to $15.6 million for the nine months ended September 30, 2008. The income for the 2009 period includes additional income tax expense of $5.4 million, as well as an increase in the provision for doubtful accounts of $571,000.
Loss from Discontinued Operations, Net of Taxes. Loss from discontinued operations for the nine months ended September 30, 2009 of $6.0 million includes a loss on the disposal of the Englewood, Colorado facility of $5.7 million. Included in this loss is $4.1 million accrued for future contractual obligations under a facility operating lease.
Net Income Attributable to Noncontrolling Interests. Net income attributable to noncontrolling interests decreased to $15.8 million for the nine months ended September 30, 2009 compared to $18.2 million for the nine months ended September 30, 2008. As a percentage of revenues, net income attributable to noncontrolling interests decreased to 6.1% for the 2009 period from 7.4% for the 2008 period. This decrease is primarily attributable to a decrease in operating income.
39
Liquidity and Capital Resources
Operating Activities
During the nine months ended September 30, 2009, we generated operating cash flow from continuing operations of $49.8 million compared to $46.2 million for the nine months ended September 30, 2008. The increase is attributable to facilities acquired or developed since January 1, 2008.
At September 30, 2009, we had working capital of $52.4 million compared to $52.3 million at December 31, 2008. Our available cash, along with our expected future operating cash flows, is sufficient to service our current obligations.
Investing Activities
Net cash used in investing activities from continuing operations during the nine months ended September 30, 2009 was $8.6 million, including $7.0 million related to purchases of property and equipment. The $7.0 million of property and equipment purchases includes $2.0 million for expansion and development related projects. Cash used in investing activities in 2009 and 2008 was funded primarily from cash from operations.
During the nine months ended September 30, 2008, net cash used in investing activities from continuing operations was $27.8 million, which includes $15.8 million related to payments for acquisitions, net of cash acquired and $12.4 million related to purchases of property and equipment.
Financing Activities
Net cash used in financing activities from continuing operations during the nine months ended September 30, 2009 was $32.2 million. During 2009, we made principal payments on long-term debt totaling $10.1 million. Included in this amount were scheduled principal payments on our senior secured credit facility totaling $1.9 million and $2.6 million to extinguish certain long-term debt assumed related to the acquisition of the surgical hospital in Austin, Texas. Additionally, we made $19.3 million of distributions to noncontrolling interest partners.
Our net cash used in financing activities from continuing operations during the nine months ended September 30, 2008 was $24.4 million. During the nine months ended September 30, 2008, we made scheduled principal payments on long-term debt totaling $1.9 million, along with $11.0 million of voluntary principal payments. Additionally, we made $16.5 million of distributions to noncontrolling interest partners.
Long-Term Debt
The Companys long-term debt is summarized as follows (in thousands):
|
|
September 30, |
|
December 31, |
|
||
Senior secured credit facility |
|
$ |
234,000 |
|
$ |
235,876 |
|
Senior PIK toggle notes |
|
206,967 |
|
184,635 |
|
||
Notes payable to banks |
|
15,164 |
|
17,297 |
|
||
Secured term loans |
|
2,784 |
|
3,213 |
|
||
Capital lease obligations |
|
9,519 |
|
11,796 |
|
||
|
|
468,434 |
|
452,817 |
|
||
Less current maturities |
|
(17,091 |
) |
(12,205 |
) |
||
Total long-term debt |
|
$ |
451,343 |
|
$ |
440,612 |
|
40
Senior Secured Credit Facility
On August 23, 2007, in conjunction with the Merger, we entered into a new $350.0 million senior secured credit facility with a syndicate of banks. The senior secured credit facility extends credit in the form of two term loans of $125.0 million each (the first, the Tranche A Term Loan and the second, the Tranche B Term Loan) and a $100.0 million revolving, swingline and letter of credit facility (the Revolving Facility). The swingline facility is limited to $10.0 million and the swingline loans are available on a same-day basis. The letter of credit facility is limited to $10.0 million. We are the borrower under the senior secured credit facility, and all of our wholly owned subsidiaries are guarantors.
The Tranche A Term Loan matures on August 23, 2013, the Tranche B Term Loan matures on August 23, 2014 and the Revolving Facility matures on August 23, 2013. The Tranche A Term Loan requires quarterly principal payments of $312,500 through September 30, 2009, quarterly payments of $1.6 million from December 31, 2009 through September 30, 2010, quarterly payments of $4.7 million from December 31, 2010 through September 30, 2011, quarterly payments of $6.3 million from December 31, 2011 through September 30, 2012, quarterly payments of $18.1 million from December 31, 2012 through June 30, 2013 and a balloon payment of $12.6 million on August 23, 2013. The Tranche B Term Loan requires quarterly principal payments of $312,500 through June 30, 2014 and a balloon payment of $111.1 million on August 23, 2014.
As of September 30, 2009, the amount outstanding under the senior secured credit facility was $234.0 million with an interest rate on the borrowings of 3.6%. The $100.0 million Revolving Facility includes a non-use fee of 0.5% of the portion of the facility not used. We pay this fee quarterly. As of September 30, 2009, the amount available under the Revolving Facility was $100.0 million.
Interest Rate Swap
In October 2007, we entered into an interest rate swap agreement to protect against certain interest rate fluctuations of the LIBOR rate on $150.0 million of our variable rate debt under the senior secured credit facility. The effective date of the interest rate swap was October 31, 2007, and it is scheduled to expire on October 31, 2010. The interest rate swap effectively fixes our LIBOR interest rate on the $150.0 million of variable debt at a rate of 4.7%. We have recognized the fair value of the interest rate swap as a long-term liability of approximately $6.3 million at September 30, 2009, after a credit risk adjustment of $296,000. Due to the significant changes in LIBOR rates, we elected an interest term for the January 2009 interest election period under the terms of the senior secured credit agreement which differs from that of the swap instrument. As a result, we discontinued hedge accounting treatment for our interest rate swap as of December 31, 2008. In January 2009, we began recognizing a ratable portion of the amount in accumulated other comprehensive income as additional interest expense over the remaining life of the swap instrument. Also beginning in January 2009, we began recording into earnings the mark-to-market adjustment to reflect the changes in the fair value of the hedging instrument. During the three months ended September 30, 2009, we recognized additional interest expense of $952,000 due to the ratable recognition of the balance in accumulated other comprehensive income. We recognized a reduction of interest expense for the quarter of $655,000 due to mark-to-market adjustment of the swap liability. The net effect of discontinuing hedge accounting, including the credit risk adjustment to the swap liability, caused interest expense to increase $1.1 million for the quarter.
Senior PIK Toggle Notes
On August 23, 2008, we elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for the interest period from August 23, 2008 to February 23, 2009. As a result, the principal due on the Toggle Notes increased by $10.8 million in the first quarter of 2009. On February 23, 2009, we elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for the interest period from February 23, 2009 to August 23, 2009. This election increased the principal due on the Toggle Notes by $11.5 million in the third quarter of 2009. On August 23, 2009, we elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for the interest period from August 23, 2009 to February 23, 2010. We have accrued $2.6 million in interest in other accrued expenses as of September 30, 2009 and will reclassify the total accrued interest to the principal balance of the Toggle Notes on February 23, 2010.
41
At September 30, 2009, we were in compliance with all material covenants required by each of the senior secured credit facility and the Toggle Notes.
Notes Payable to Banks
Certain of our subsidiaries have outstanding bank indebtedness, which is collateralized by the real estate and equipment owned by the surgical facilities to which the loans were made. The outstanding balance of this indebtedness as of September 30, 2009 and December 31, 2008 was $15.2 million and $17.3 million, respectively. The various bank indebtedness agreements contain covenants to maintain certain financial ratios and also restrict encumbrance of assets, creation of indebtedness, investing activities and payment of distributions. We have guaranteed substantially all of this debt.
Capital Lease Obligations
We are liable to various vendors for several equipment leases. The outstanding balance related to these capital leases at September 30, 2009 and December 31, 2008 was $9.5 million and $11.8 million, respectively.
Inflation
Inflation and changing prices have not significantly affected our operating results or the markets in which we operate.
Earnings before Interest, Taxes, Depreciation and Amortization
When we use the term EBITDA, we are referring to net income plus (a) income (loss) from discontinued operations, (b) income tax expense (benefit), (c) net interest expense, (d) depreciation and amortization, (e) net income attributable to noncontrolling interests, (f) non-cash (losses) gains, and (g) non-cash stock option compensation. Noncontrolling interest represents the interests of third parties, such as physicians and in some cases, health care systems that own an interest in surgical facilities that we consolidate for financial reporting purposes. Our operating strategy is to apply a market-based approach in structuring our partnerships, with individual market dynamics driving the structure. We believe that it is helpful to investors to present EBITDA as defined above because it excludes the portion of net income attributable to these third-party interests and clarifies for investors our portion of EBITDA generated by our surgical facilities and other operations.
EBITDA increased 1.0% for the three months ended September 30, 2009 compared to the three months ended September 30, 2008. This increase is primarily the result of a decrease in general and administrative expense of $1.5 million for the 2009 period compared to the 2008 period.
EBITDA increased 0.5% for the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008. The increase is primarily the result of a decrease in general and administrative expense of $2.8 million for the 2009 period compared to the 2008 period.
We use EBITDA as a measure of liquidity. We have included it because we believe that it provides investors with additional information about our ability to incur and service debt and make capital expenditures. We also use EBITDA, with some variation in the calculation, to determine compliance with some of the covenants under the senior secured credit facility, as well as to determine the interest rate and commitment fee payable under the senior secured credit facility.
EBITDA is not a measurement of financial performance or liquidity under GAAP. It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. The items excluded from EBITDA are significant components in understanding and evaluating financial performance and liquidity. Our calculation of EBITDA is not comparable to the EBITDA measure we have used in certain prior periods but is consistent with the measure EBITDA less income attributable to noncontrolling interests previously reported. Our calculation of EBITDA may not be comparable to similarly titled measures reported by other companies.
42
The following table reconciles EBITDA to net cash provided by operating activities continuing operations (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
2009 |
|
2008 |
|
2009 |
|
2008 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
EBITDA |
|
$ |
13,925 |
|
$ |
13,782 |
|
$ |
42,800 |
|
$ |
42,559 |
|
Depreciation and amortization |
|
(4,362 |
) |
(3,947 |
) |
(12,940 |
) |
(11,169 |
) |
||||
Non-cash stock option compensation expense |
|
(326 |
) |
(323 |
) |
(974 |
) |
(1,790 |
) |
||||
Non-cash net losses |
|
(2,563 |
) |
(633 |
) |
(2,326 |
) |
(437 |
) |
||||
Interest expense, net |
|
(11,958 |
) |
(11,293 |
) |
(33,900 |
) |
(32,497 |
) |
||||
(Provision) benefit for income taxes |
|
(1,936 |
) |
1,053 |
|
(4,656 |
) |
705 |
|
||||
Net income attributable to noncontrolling interests |
|
4,013 |
|
5,444 |
|
15,837 |
|
18,243 |
|
||||
Income (loss) on discontinued operations, net of taxes |
|
177 |
|
(468 |
) |
(5,958 |
) |
(2,290 |
) |
||||
Net (loss) income |
|
(3,030 |
) |
3,615 |
|
(2,117 |
) |
13,324 |
|
||||
(Income) loss from discontinued operations |
|
(177 |
) |
468 |
|
5,958 |
|
2,290 |
|
||||
Depreciation and amortization |
|
4,362 |
|
3,947 |
|
12,940 |
|
11,169 |
|
||||
Amortization of deferred financing costs |
|
501 |
|
519 |
|
1,501 |
|
3,985 |
|
||||
Non-cash payment-in-kind interest option |
|
5,884 |
|
4,816 |
|
17,183 |
|
9,753 |
|
||||
Non-cash stock option compensation expense |
|
326 |
|
323 |
|
974 |
|
1,790 |
|
||||
Non-cash recognition of other comprehensive income into earnings |
|
484 |
|
|
|
1,866 |
|
|
|
||||
Non-cash credit risk adjustment of financial instruments |
|
812 |
|
|
|
1,521 |
|
|
|
||||
Non-cash net losses |
|
2,563 |
|
633 |
|
2,326 |
|
437 |
|
||||
Deferred income taxes |
|
2,107 |
|
(541 |
) |
5,626 |
|
(2,870 |
) |
||||
Equity in earnings of unconsolidated affiliates, net of distributions received |
|
(175 |
) |
(12 |
) |
(217 |
) |
237 |
|
||||
Provision for doubtful accounts |
|
1,168 |
|
1,403 |
|
3,150 |
|
2,579 |
|
||||
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: |
|
|
|
|
|
|
|
|
|
||||
Accounts receivable |
|
(794 |
) |
(170 |
) |
(1,870 |
) |
(2,495 |
) |
||||
Other assets and liabilities |
|
(1,993 |
) |
(2,656 |
) |
1,006 |
|
6,027 |
|
||||
Net cash provided by operating activities continuing operations |
|
$ |
12,038 |
|
$ |
12,345 |
|
$ |
49,847 |
|
$ |
46,226 |
|
|
|
|
|
|
|
|
|
|
|
||||
Other Data: |
|
|
|
|
|
|
|
|
|
||||
Number of surgical facilities included in continuing operations, as of the end of period(1) |
|
67 |
|
65 |
|
67 |
|
65 |
|
(1) Includes surgical facilities that we manage but in which have no ownership.
Summary
We believe that existing funds, cash flows from operations and available borrowings under our senior secured credit facility will provide sufficient liquidity for the next 12 to 18 months. However, we may need to incur additional debt or issue additional equity or debt securities in the future. We cannot be assured that capital will be available on acceptable terms, if at all. Our ability to meet our funding needs could be adversely affected if we suffer adverse results from our operations, or if we violate the covenants and restrictions to which we are subject under our senior secured credit facility or indenture governing the Toggle Notes.
43
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk related to changes in prevailing interest rates. Historically, we have not held or issued derivative financial instruments other than the use of a variable-to-fixed interest rate swap for a portion of our senior credit facility. We do not use derivative instruments for speculative purposes. Our outstanding debt to commercial lenders is generally based on a predetermined percentage above LIBOR or the lenders prime rate. At September 30, 2009, $234.0 million of our total long-term debt was subject to variable rates of interest, while the remaining $234.4 million of our total long-term debt was subject to fixed rates of interest. A hypothetical 100 basis point increase in market interest rates would result in additional annual interest expense of approximately $2.4 million. The fair value of our total long-term debt, based on quoted market prices as of September 30, 2009 is approximately $389.1 million.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us (including our consolidated subsidiaries) in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported in a timely manner.
Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the three months ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
44
We are, from time to time, subject to claims and suits arising in the ordinary course of business, including claims for damages for personal injuries, breach of management contracts and employment related claims. In certain of these actions, plaintiffs request payment for damages, including punitive damages, that may not be covered by insurance.
No. |
|
Description |
2 |
|
Agreement and Plan of Merger, dated as of April 24, 2007, by and among Symbol Acquisition, L.L.C., Symbol Merger Sub, Inc. and Symbion, Inc. (a) |
3.1 |
|
Amended Certificate of Incorporation of Symbion, Inc. (b) |
3.2 |
|
Amended and Restated Bylaws of Symbion, Inc. (b) |
4.1 |
|
Indenture, dated as of June 3, 2008, among Symbion, Inc., the Guarantors named therein and U.S. Bank National Association, as Trustee (b) |
4.2 |
|
Form of Notes (included in Exhibit 4.1) |
4.3 |
|
Registration Rights Agreement, dated as of June 3, 2007, among Symbion, Inc., the subsidiaries of Symbion, Inc. party thereto as guarantors, and Merrill, Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC and Greenwich Capital Markets, Inc. (b) |
4.4 |
|
First Supplemental Indenture, dated as of September 18, 2008 among Symbion, Inc., the Guarantors named therein and U.S. Bank National Association, as Trustee (b) |
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(a) Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K filed April 24, 2007 (File No. 000-50574)
(b) Incorporated by reference to exhibits filed with the Registrants Registration Statement on Form S-4 (Registration No. 333-153678)
45
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.
|
SYMBION, INC. |
|
|
|
|
|
By: |
/s/ TERESA F. SPARKS |
|
|
Teresa F. Sparks |
|
|
Senior Vice President of Finance and Chief Financial Officer (Principal Financial and Accounting Officer) |
Date: November 12, 2009
46
EXHIBIT INDEX
No. |
|
Description |
2 |
|
Agreement and Plan of Merger, dated as of April 24, 2007, by and among Symbol Acquisition, L.L.C., Symbol Merger Sub, Inc. and Symbion, Inc. (a) |
3.1 |
|
Amended Certificate of Incorporation of Symbion, Inc. (b) |
3.2 |
|
Amended and Restated Bylaws of Symbion, Inc. (b) |
4.1 |
|
Indenture, dated as of June 3, 2008, among Symbion, Inc., the Guarantors named therein and U.S. Bank National Association, as Trustee (b) |
4.2 |
|
Form of Notes (included in Exhibit 4.1) |
4.3 |
|
Registration Rights Agreement, dated as of June 3, 2007, among Symbion, Inc., the subsidiaries of Symbion, Inc. party thereto as guarantors, and Merrill, Lynch, Pierce, Fenner & Smith Incorporated, Banc of America Securities LLC and Greenwich Capital Markets, Inc. (b) |
4.4 |
|
First Supplemental Indenture, dated as of September 18, 2008 among Symbion, Inc., the Guarantors named therein and U.S. Bank National Association, as Trustee (b) |
31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2 |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(a) Incorporated by reference to exhibits filed with the Registrants Current Report on Form 8-K filed April 24, 2007 (File No. 000-50574)
(b) Incorporated by reference to exhibits filed with the Registrants Registration Statement on Form S-4 (Registration No. 333-153678)
47