Attached files
file | filename |
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EX-32.1 - EX-32.1 - SYMBION INC/TN | a10-17553_1ex32d1.htm |
EX-31.1 - EX-31.1 - SYMBION INC/TN | a10-17553_1ex31d1.htm |
EX-32.2 - EX-32.2 - SYMBION INC/TN | a10-17553_1ex32d2.htm |
EX-31.2 - EX-31.2 - SYMBION INC/TN | a10-17553_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, 2010
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 o No x
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 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 |
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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, 2010, 1,000 shares of the registrants common stock were outstanding.
SYMBION, INC.
FORM 10-Q
November 12, 2010
Part I FINANCIAL INFORMATION |
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6 |
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7 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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26 |
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43 |
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43 |
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44 |
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44 |
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45 |
SYMBION, INC.
(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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$ |
73,528 |
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$ |
47,683 |
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Accounts receivable, less allowance for doubtful accounts of $11,452 and $9,270, respectively |
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53,672 |
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35,163 |
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Inventories |
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10,776 |
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9,434 |
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Prepaid expenses and other current assets |
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11,388 |
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12,399 |
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Deferred tax asset |
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668 |
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432 |
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Current assets of discontinued operations |
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1,438 |
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2,648 |
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Total current assets |
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151,470 |
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107,759 |
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Land |
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7,260 |
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2,938 |
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Buildings and improvements |
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103,164 |
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53,126 |
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Furniture and equipment |
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69,602 |
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53,898 |
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Computers and software |
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4,852 |
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3,877 |
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184,878 |
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113,839 |
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Less accumulated depreciation |
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(39,573 |
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(25,441 |
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Property and equipment, net |
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145,305 |
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88,398 |
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Intangible assets |
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19,480 |
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19,480 |
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Goodwill |
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624,412 |
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545,238 |
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Investments in and advances to affiliates |
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17,294 |
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17,652 |
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Other assets |
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10,231 |
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10,675 |
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Long-term assets of discontinued operations |
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911 |
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1,524 |
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Total assets |
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$ |
969,103 |
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$ |
790,726 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
9,781 |
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$ |
7,732 |
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Accrued payroll and benefits |
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10,320 |
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5,824 |
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Other accrued expenses |
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26,673 |
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31,089 |
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Current maturities of long-term debt |
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31,074 |
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20,151 |
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Current liabilities of discontinued operations |
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1,870 |
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2,182 |
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Total current liabilities |
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79,718 |
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66,978 |
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Long-term debt, less current maturities |
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513,138 |
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444,834 |
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Deferred income tax payable |
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47,012 |
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40,776 |
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Other liabilities |
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64,919 |
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6,021 |
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Long-term liabilities of discontinued operations |
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1,550 |
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3,945 |
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Noncontrolling interests redeemable |
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34,670 |
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31,363 |
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Stockholders equity: |
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Common stock, 1,000 shares, $0.01 par value, authorized, issued and outstanding at September 30, 2010 and at December 31, 2009 |
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Additional paid-in-capital |
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241,304 |
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242,623 |
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Accumulated other comprehensive loss |
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(253 |
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(2,731 |
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Retained deficit |
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(52,902 |
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(46,479 |
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Total Symbion, Inc. stockholders equity |
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188,149 |
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193,413 |
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Noncontrolling interests non-redeemable |
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39,947 |
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3,396 |
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Total equity |
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228,096 |
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196,809 |
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Total liabilities and stockholders equity |
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$ |
969,103 |
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$ |
790,726 |
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See notes to unaudited consolidated financial statements.
SYMBION, INC.
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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2010 |
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2009 |
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2010 |
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2009 |
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Revenues |
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$ |
104,832 |
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$ |
85,004 |
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$ |
292,159 |
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$ |
253,551 |
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Operating expenses: |
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Salaries and benefits |
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29,424 |
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24,641 |
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82,690 |
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70,597 |
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Supplies |
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24,088 |
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18,911 |
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65,462 |
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54,200 |
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Professional and medical fees |
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7,768 |
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5,487 |
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20,363 |
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16,179 |
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Rent and lease expense |
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6,104 |
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6,229 |
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18,412 |
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17,807 |
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Other operating expenses |
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8,034 |
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7,118 |
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22,419 |
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19,984 |
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Cost of revenues |
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75,418 |
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62,386 |
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209,346 |
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178,767 |
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General and administrative expense |
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5,521 |
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4,697 |
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16,690 |
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16,042 |
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Depreciation and amortization |
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5,072 |
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4,299 |
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14,193 |
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12,755 |
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Provision for doubtful accounts |
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2,070 |
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1,057 |
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5,270 |
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2,870 |
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Income on equity investments |
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(668 |
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(712 |
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(2,173 |
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(1,364 |
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Impairment and loss on disposal of long-lived assets |
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6 |
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2,593 |
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1,165 |
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3,033 |
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Gain on sale of long-lived assets |
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(409 |
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(30 |
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(416 |
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(707 |
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Business combination remeasurement gains |
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(3,169 |
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(3,169 |
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Litigation settlements, net |
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(150 |
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(44 |
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(416 |
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Total operating expenses |
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83,841 |
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74,140 |
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240,862 |
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210,980 |
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Operating income |
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20,991 |
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10,864 |
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51,297 |
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42,571 |
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Interest expense, net |
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(12,668 |
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(11,954 |
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(35,615 |
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(33,892 |
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Income (loss) before income taxes and discontinued operations |
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8,323 |
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(1,090 |
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15,682 |
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8,679 |
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Provision for income taxes |
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1,756 |
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1,936 |
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3,970 |
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4,656 |
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Income (loss) from continuing operations |
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6,567 |
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(3,026 |
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11,712 |
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4,023 |
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(Loss) income from discontinued operations, net of taxes |
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(221 |
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95 |
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(650 |
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(5,938 |
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Net income (loss) |
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6,346 |
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(2,931 |
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11,062 |
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(1,915 |
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Less: Net income attributable to noncontrolling interests |
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(6,063 |
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(4,112 |
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(17,485 |
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(16,039 |
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Net income (loss) attributable to Symbion, Inc |
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$ |
283 |
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$ |
(7,043 |
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$ |
(6,423 |
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$ |
(17,954 |
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See notes to unaudited consolidated financial statements.
SYMBION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Unaudited, in thousands)
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Symbion, Inc. |
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Common Stock |
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Additional |
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Accumulated |
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Retained |
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Noncontrolling |
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Shares |
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Shares |
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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, 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 attributable to Symbion, Inc |
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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 $946,000 |
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1,911 |
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1,911 |
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Distributions to noncontrolling interests |
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(2,286 |
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(2,286 |
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Acquisition and disposal of shares of noncontrolling interests |
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80 |
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80 |
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Other |
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Balance at September 30, 2009 |
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1,000 |
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$ |
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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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Balance at December 31, 2009 |
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1,000 |
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$ |
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$ |
242,623 |
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$ |
(2,731 |
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$ |
(46,479 |
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$ |
3,396 |
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$ |
196,809 |
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Net loss attributable to Symbion, Inc |
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(6,423 |
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3,282 |
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(3,141 |
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Amortized compensation expense related to stock options |
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1,002 |
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1,002 |
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Recognition of interest rate swap liability to earnings, net of taxes of $1.4 million |
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2,478 |
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2,478 |
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Distributions to noncontrolling interest partners |
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(3,848 |
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(3,848 |
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Acquisition and disposal of shares of noncontrolling interests |
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(2,321 |
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37,117 |
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34,796 |
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Balance at September 30, 2010 |
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1,000 |
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$ |
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$ |
241,304 |
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$ |
(253 |
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$ |
(52,902 |
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$ |
39,947 |
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$ |
228,096 |
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See notes to unaudited consolidated financial statements.
SYMBION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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Nine Months Ended |
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2010 |
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2009 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
11,062 |
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$ |
(1,915 |
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Adjustments to reconcile net loss to net cash provided by operating activities: |
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Loss from discontinued operations |
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650 |
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5,938 |
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Depreciation and amortization |
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14,193 |
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12,755 |
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Amortization of deferred financing costs |
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1,501 |
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1,501 |
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Non-cash payment-in-kind interest option |
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19,264 |
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17,183 |
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Non-cash stock option compensation expense |
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1,002 |
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974 |
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Non-cash recognition of accumulated other comprehensive loss into earnings |
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2,478 |
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1,911 |
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Non-cash credit risk adjustment of financial instruments |
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189 |
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1,521 |
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Noncash (gains) losses |
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(2,420 |
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2,539 |
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Deferred income taxes |
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5,471 |
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5,581 |
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Equity in earnings of unconsolidated affiliates, net of distributions received |
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(57 |
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(217 |
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Provision for doubtful accounts |
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5,270 |
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2,870 |
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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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(5,192 |
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(1,830 |
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Income taxes receivable |
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857 |
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1,762 |
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Other assets and liabilities |
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(2,615 |
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(1,458 |
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Net cash provided by operating activities continuing operations |
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51,653 |
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49,115 |
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Net cash (used in) provided by operating activities discontinued operations |
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(418 |
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176 |
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Net cash provided by operating activities |
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51,235 |
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49,291 |
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Cash flows from investing activities: |
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Purchases of property and equipment, net |
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(5,280 |
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(6,879 |
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Payments for acquisitions, net of cash acquired |
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(43,830 |
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(126 |
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Payments from unit activity of nonconsolidated facilities |
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(55 |
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(724 |
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Change in other assets |
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(375 |
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(806 |
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Net cash used in investing activities continuing operations |
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(49,540 |
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(8,535 |
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Net cash used in investing activities discontinued operations |
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(13 |
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(137 |
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Net cash used in investing activities |
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(49,553 |
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(8,672 |
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Cash flows from financing activities: |
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Principal payments on long-term debt |
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(15,589 |
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(10,110 |
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Proceeds from debt issuances |
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56,975 |
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289 |
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Payment of debt issuance costs |
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(203 |
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Distributions to noncontrolling interest partners |
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(17,914 |
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(19,342 |
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Payments and proceeds from unit activity |
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2,410 |
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1,027 |
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Other financing activities |
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(1,673 |
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731 |
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Net cash provided by (used in) financing activities continuing operations |
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24,209 |
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(27,608 |
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Net cash used in financing activities discontinued operations |
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(46 |
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(4,589 |
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Net cash provided by (used in) financing activities |
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24,163 |
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(32,197 |
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Net increase in cash and cash equivalents |
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25,845 |
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8,422 |
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Cash and cash equivalents at beginning of period |
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47,683 |
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41,688 |
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Cash and cash equivalents at end of period |
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$ |
73,528 |
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$ |
50,110 |
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See notes to unaudited consolidated financial statements.
SYMBION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2010
(Unaudited)
1. Organization
Symbion, Inc. (the Company), through its wholly owned subsidiaries, owns interests in partnerships and limited liability companies that own and operate a national network of short stay surgical facilities in joint ownership with physicians and physician groups, hospitals and hospital systems. As of September 30, 2010, the Company owned and operated 57 surgical facilities, including 52 ambulatory surgery centers and five surgical hospitals, and managed eight additional ambulatory surgery centers and one physician network. The Company owns a majority ownership interest in 34 of the 57 surgical facilities and consolidates 52 of these surgical facilities for financial reporting purposes, of which 50 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 no longer has 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 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 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.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) amended the consolidation guidance related to variable interest entities. The amendments include the elimination of the exemption for qualifying special purpose entities, revised criteria for determining the primary beneficiary of a variable interest entity, and expanded requirements for reconsideration of the primary beneficiary. Effective January 1, 2010 the Company adopted this standard, which did not have an impact on its consolidated results of operations or financial condition.
Principles of Consolidation
The accompanying unaudited 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 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 consolidated financial statements include the accounts of variable interest entities in which the Company is the primary beneficiary, under the provisions of ASU 2009-17. 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 within the management services agreement as well as the obligation and likelihood of absorbing the majority of expected gains and losses. Regarding the Florida facility, the Company has fully guaranteed the facilitys 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 consolidated balance sheets at September 30, 2010 and December 31, 2009 include assets of $15.4 million and $14.5 million, respectively, and liabilities of $4.2 million and $4.4 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 11.00%/11.75% Senior PIK Toggle Notes due 2015 (the Toggle Notes) as of September 30, 2010 and December 31, 2009 were as follows (in thousands):
|
|
Carrying Amount |
|
Fair Value |
|
||||||||
|
|
September 30, |
|
December 31, |
|
September 30, |
|
December 31, |
|
||||
Senior Secured Credit Facility |
|
|
|
|
|
|
|
|
|
||||
Tranche A term loan |
|
$ |
110,750 |
|
$ |
115,438 |
|
$ |
103,690 |
|
$ |
103,120 |
|
Tranche B term loan |
|
115,750 |
|
116,687 |
|
108,371 |
|
104,237 |
|
||||
Revolving facility |
|
56,000 |
|
|
|
52,430 |
|
|
|
||||
Toggle Notes |
|
232,000 |
|
206,967 |
|
200,982 |
|
156,260 |
|
||||
The fair value of the term loans and Toggle Notes were based on quoted prices at September 30, 2010 and December 31, 2009. The Companys long-term debt instruments are discussed further in Note 5.
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, 2010 and December 31, 2009 were as follows (in thousands):
|
|
September 30, |
|
December 31, |
|
||
Surgical facilities |
|
$ |
53,160 |
|
$ |
34,566 |
|
Physician networks |
|
512 |
|
597 |
|
||
Total |
|
$ |
53,672 |
|
$ |
35,163 |
|
The following table sets forth by type of payor the percentage of the Companys accounts receivable for consolidated surgical facilities as of September 30, 2010 and December 31, 2009:
|
|
September 30, |
|
December 31, |
|
Private insurance |
|
53 |
% |
59 |
% |
Government |
|
20 |
|
15 |
|
Self-pay |
|
10 |
|
13 |
|
Other |
|
17 |
|
13 |
|
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 actual 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.
During the nine months ended September 30, 2010, the Companys accounts receivable balance increased $18.6 million as a result of facilities and additional incremental, controlling ownership interests acquired since January 1, 2010. See Note 3 for further discussion of facilities acquisitions and the impact on the consolidated financial statements.
Inventories
Inventories, which consist primarily of medical and drug supplies, are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method.
Goodwill and Other Intangible Assets
Changes in the carrying amount of goodwill are as follows (in thousands):
Balance at December 31, 2009 |
|
$545,238 |
|
Disposals |
|
(793 |
) |
Purchase price allocations |
|
79,967 |
|
Balance at September 30, 2010 |
|
$624,412 |
|
Purchase price allocations for the period reflect adjustments to the identifiable net assets of acquired facilities. As a result of the acquisition of a 54.5% ownership interest in a general acute care hospital with a surgical and obstetrics focus, located in Idaho Falls, Idaho during the second quarter of 2010, the Company recorded goodwill of $48.9 million. As a result of the acquisition of an incremental, controlling ownership interest in its Chesterfield, Missouri facility during the third quarter of 2010, the Company recorded goodwill of $31.1 million. The Company is in the process of performing valuations of certain assets of the facilities to determine the final purchase price allocations.
Effective September 30, 2010, the Company disposed of its facility located in Orlando, Florida. Goodwill of $793,000 was allocated to this facility and included in the calculation of the loss on disposal and included in the loss from discontinued operations.
The Company has intangible assets related to the certificates of need for certain of its facilities of $19.5 million. These indefinite-lived assets are not amortized, but are assessed for possible impairment under the Companys impairment policy.
Noncontrolling Interests
The consolidated financial statements include all assets, liabilities, revenues and expenses of surgical facilities in which the Company has sufficient ownership and rights to allow the Company to consolidate the surgical facilities. The Company has recorded noncontrolling interests in the earnings of such surgical facilities.
GAAP requires, 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 on the consolidated statement of operations. Compliance with GAAP also results in the cash flow impact of certain transactions with noncontrolling interests being classified within financing activities. Changes to our 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 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 in the Companys consolidated subsidiaries if regulatory changes make 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.
Other Accrued Expenses
A summary of other accrued expenses is as follows (in thousands):
|
|
September 30, |
|
December 31, |
|
||
Interest payable |
|
$ |
4,287 |
|
$ |
9,945 |
|
Current taxes payable |
|
7,056 |
|
5,782 |
|
||
Self-insurance liabilities |
|
1,633 |
|
2,651 |
|
||
Current portion of financing obligation due to facility lessor |
|
5,414 |
|
|
|
||
Interest rate swap liability |
|
510 |
|
5,045 |
|
||
Other accrued expenses |
|
7,773 |
|
7,666 |
|
||
|
|
$ |
26,673 |
|
$ |
31,089 |
|
Other Comprehensive Loss
The Company reports other comprehensive loss as a measure of changes in stockholders equity that results from recognized transactions. Other comprehensive loss of the Company resulted 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 current liability of $510,000 at September 30, 2010. The Company previously recorded the change in value of the interest rate swap as other comprehensive loss. 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 |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Patient service revenues |
|
$ |
101,792 |
|
$ |
81,423 |
|
$ |
282,873 |
|
$ |
242,928 |
|
Physician service revenues |
|
1,489 |
|
1,652 |
|
4,346 |
|
4,907 |
|
||||
Other service revenues |
|
1,551 |
|
1,929 |
|
4,940 |
|
5,716 |
|
||||
Total revenues |
|
$ |
104,832 |
|
$ |
85,004 |
|
$ |
292,159 |
|
$ |
253,551 |
|
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 |
|
||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Private insurance |
|
67 |
% |
70 |
% |
68 |
% |
71 |
% |
Government |
|
26 |
|
24 |
|
26 |
|
24 |
|
Self-pay |
|
4 |
|
5 |
|
4 |
|
4 |
|
Other |
|
3 |
|
1 |
|
2 |
|
1 |
|
Total |
|
100 |
% |
100 |
% |
100 |
% |
100 |
% |
Reclassifications
Certain reclassifications have been made to the comparative periods financial statements to conform to the 2010 presentation. The reclassifications primarily related to the presentation of discontinued operations and noncontrolling interests and had no impact on the Companys financial position or results of operations.
3. Business Combinations
On April 9, 2010, the Company completed the acquisition of a 54.5% ownership interest in a 43-bed general acute care hospital with a surgical and obstetrics focus located in Idaho Falls, Idaho. The purchase price for the acquisition was $31.9 million, plus existing indebtedness of $6.1 million and other obligations of $49.6 million which are consolidated on the Companys balance sheet.
On July 1, 2010, the Company acquired an incremental, controlling ownership interest of 37.0% in its surgical facility located in Chesterfield, Missouri for $18.8 million and began consolidating the facility for financial reporting purposes. Prior to the acquisition date, the Company owned a 13.0% interest in this facility which was accounted for as an equity method investment. The acquisition date fair value of the existing equity interest was $16.3 million and is included in the measurement of the consideration transferred for purposes of allocating the purchase price. The fair value was determined using comparable market multipies. The Company recognized a gain of $3.2 million as a result of remeasuring its existing equity interest in the facility prior to the purchase of the incremental interest. The gain is presented separately as Business combination remeasurement gains on the consolidated statement of operations.
The Company has accounted for these acquisitions under the purchase method of accounting. Under the purchase method of accounting, the total purchase price is allocated to the net tangible and intangible assets acquired and liabilities assumed in connection with the acquisition based on their estimated fair values. The preliminary allocation of the purchase price was based upon managements preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, and such valuation is subject to change.
The following table summarizes the allocation of the aggregate purchase price of the acquisitions recorded using the purchase method of accounting for the nine months ended September 30, 2010 (in thousands):
|
|
Nine Months |
|
|
Cash consideration |
|
$ |
50,709 |
|
Working capital true-up in escrow |
|
(601 |
) |
|
Fair value of the noncontrolling interests |
|
40,207 |
|
|
Total consideration |
|
90,315 |
|
|
Net assets acquired |
|
|
|
|
Cash |
|
6,278 |
|
|
Accounts receivable |
|
18,649 |
|
|
Inventories |
|
1,316 |
|
|
Prepaid expenses and other current assets |
|
724 |
|
|
Property and equipment |
|
64,488 |
|
|
Other assets |
|
235 |
|
|
Accounts payable |
|
(3,172 |
) |
|
Accrued payroll and benefits |
|
(2,425 |
) |
|
Other accrued expenses |
|
(5,569 |
)(a) |
|
Current portion of long-term debt |
|
(1,829 |
) |
|
Long-term debt, less current maturities |
|
(10,517 |
) |
|
Other liabilities |
|
(57,830 |
)(a) |
|
Net assets acquired |
|
10,348 |
|
|
Excess of purchase price over identifiable net assets acquired |
|
$ |
79,967 |
|
(a) Other liabilities include $44.9 million to record the financing obligation payable to the hospital facility lessor relating to the land, building and improvements. The current portion of the obligation is $4.7 million, which is included in other accrued expenses.
The results for the three months ended September 30, 2010 of the facilities in which we have acquired interests are included in the Companys statement of operations. Following are the results for the nine months ended September 30, 2010 as if the acquisitions had occurred on January 1, 2010 (in thousands):
|
|
Nine Months |
|
|
Revenues |
|
$ |
307,024 |
|
Net income |
|
$ |
10,516 |
|
Net loss attributable to Symbion, Inc. |
|
$ |
(6,850 |
) |
Following are the results for the three and nine months ended September 30, 2009 as if the acquisition had occurred on January 1, 2009 (in thousands):
|
|
Three Months |
|
Nine Months |
|
||
Revenues |
|
$ |
100,744 |
|
$ |
300,070 |
|
Net (loss) income |
|
$ |
(1,544 |
) |
$ |
2,016 |
|
Net loss attributable to Symbion, Inc |
|
$ |
(6,427 |
) |
$ |
(16,230 |
) |
4. Discontinued Operations
During the second quarter of 2010, the Company identified two underperforming ambulatory surgery centers that are consolidated for financial reporting purposes. The Company committed to a plan to divest its interest in these facilities. On September 30, 2010, the Company completed the divestiture of its surgical facility located in Orlando, Florida. The Company recorded a loss of $2.4 million on the sale, which is included in the loss from discontinued operations. This loss includes an accrual of $1.7 million for future contractual obligations under a facility operating lease. As of September 30, 2010, the Company had two surgical facilities which were classified as discontinued operations. The results of operations in these centers are presented net of income taxes in the accompanying consolidated financial statements as discontinued operations. The accompanying consolidated financial statements have been reclassified to conform to this presentation for all periods presented. These required reclassifications of prior period consolidated financial statements did not impact total assets, liabilities, stockholders equity, net loss or cash flows.
Revenues, (loss) income on operations before taxes, income tax (benefit) provision, gain (loss) on sale, net of taxes and (loss) income from discontinued operations, net of taxes for the three and nine months ended September 30, 2010 and 2009 related to discontinued operations were as follows (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Revenues |
|
$ |
2,275 |
|
$ |
2,864 |
|
$ |
7,454 |
|
$ |
9,328 |
|
(Loss) income on operations, before taxes |
|
$ |
(248 |
) |
$ |
246 |
|
$ |
(704 |
) |
$ |
213 |
|
Income tax (benefit) provision |
|
$ |
(17 |
) |
$ |
(3 |
) |
$ |
(30 |
) |
$ |
12 |
|
Gain (loss) on sale, net of taxes |
|
$ |
10 |
|
$ |
(154 |
) |
$ |
24 |
|
$ |
(6,139 |
) |
(Loss) income from discontinued operations, net of taxes |
|
$ |
(221 |
) |
$ |
95 |
|
$ |
(650 |
) |
$ |
(5,938 |
) |
During the third quarter of 2010, the Company terminated its contractual lease obligation at a facility located in Englewood, Colorado that the Company previously divested. The Company paid cash of $1.2 million to settle the $3.6 million obligation. A gain of $2.4 million is included in the loss from discontinued operations.
5. Long-Term Debt
The Companys long-term debt is summarized as follows (in thousands):
|
|
September 30, |
|
December 31, |
|
||
Senior secured credit facility |
|
$ |
282,500 |
|
$ |
232,125 |
|
Toggle Notes |
|
232,000 |
|
206,967 |
|
||
Notes payable to banks |
|
20,126 |
|
14,433 |
|
||
Secured term loans |
|
2,990 |
|
2,628 |
|
||
Capital lease obligations |
|
6,596 |
|
8,832 |
|
||
|
|
544,212 |
|
464,985 |
|
||
Less current maturities |
|
(31,074 |
) |
(20,151 |
) |
||
Total long-term debt |
|
$ |
513,138 |
|
$ |
444,834 |
|
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 required quarterly principal payments of $1.6 million through September 30, 2010, and requires 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 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 interest 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 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 and also make payments in the amount necessary to enable Holdings to pay income taxes directly attributable to the operations of the Company and to make $1.0 million in annual advisory and management agreement payments. The Company may also make additional payments to Holdings in an aggregate amount not to exceed $5.0 million throughout the term of the senior secured credit facility.
As of September 30, 2010, the amount outstanding under the senior secured credit facility was $282.5 million with an interest rate on the borrowings of 3.5%. The Company borrowed $33.0 million against its existing Revolving Facility during the second quarter of 2010 to fund the acquisition of an ownership interest in a surgical hospital, located in Idaho Falls, Idaho. During the third quarter of 2010, the Company borrowed $23.0 million against the Revolving Facility to fund the acquisition of an incremental, controlling ownership interest in its surgical facility located in Chesterfield, Missouri and to restructure certain facility level debt. 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, 2010, the amount available under the Revolving Facility was $44.0 million.
Senior Toggle Notes
On June 3, 2008, the Company completed a private offering of $179.9 million aggregate principal amount of the Toggle Notes. Interest on the Toggle Notes is due 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 will accrue at the rate of 11.0% per annum. PIK interest on the Toggle Notes will accrue at the rate of 11.75% per annum.
Since August 23, 2008, the Company has elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for various interest periods. As a result, the principal due on the Toggle Notes increased by $52.1 million since the issuance of the Toggle Notes. On August 23, 2010, the Company elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for the interest period from August 24, 2010 to February 23, 2011. The Company has accrued $2.9 million in interest in other accrued expenses as of September 30, 2010. As of September 30, 2010, the amount outstanding under the Toggle Notes was $232.0 million.
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, 2010, 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 $20.1 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 $8.7 million of this debt.
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, 2010 was $6.6 million. The carrying value of the assets was $5.3 million as of September 30, 2010.
6. Derivative Instruments
In October 2007, the Company entered into an interest rate swap agreement 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, with Merrill Lynch Capital Service, Inc., as counterparty. The effective date of the interest rate swap was October 31, 2007, and it expired on October 31, 2010. The interest rate swap effectively fixed the Companys LIBOR interest rate on the $150.0 million of variable debt at a rate of 4.7%.
The FASB established 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 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 Company does not hold or issue derivative financial instruments for trading purposes. The fair value of the Companys interest rate swap at September 30, 2010 and December 31, 2009 reflected a liability of approximately $510,000 and $5.0 million, respectively, and is included in other accrued expenses in the accompanying consolidated balance sheets. The interest rate swap reflects a liability balance as of September 30, 2010 and December 31, 2009 as a result of decreases in market interest rates since inception.
At inception, the Company designated the interest rate swap as a cash flow hedge instrument. 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 hedged term debt agreement, different than the terms of the hedging instrument. The Company has determined this benchmark interest rate swap would no longer result in effectiveness within an acceptable range under the authoritative guidance, on a prospective basis. As of December 31, 2008, the Company determined the hedge instrument to be ineffective and discontinued hedge accounting treatment. In January 2009, the Company began recognizing a ratable portion of the $7.0 million in accumulated other comprehensive loss as additional interest expense, over the remaining life of the hedging instrument which expired October 31, 2010. Also in January 2009, the Company began recording into earnings the mark-to-market adjustment to reflect the fair value of the hedging instrument. During 2010, the Company recorded a mark-to-market adjustment of $4.7 million as a reduction of interest expense and additional interest expense of $2.9 million related to the amortization of the interest rate swap balance in accumulated other comprehensive loss.
7. Commitments and Contingencies
Debt and Lease Guaranty on Non-consolidated Entities
The Company has guaranteed $877,000 of operating lease payments of certain non-consolidated surgical facilities. These operating leases typically have ten year terms, with optional renewal periods. As of September 30, 2010, the Company has also guaranteed $1.7 million of debt of four non-consolidated surgical facilities. In the event that the Company meets certain financial and debt service benchmarks, the guarantees at these surgical facilities will expire between 2010 and 2017.
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 which 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 the underlying 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 the 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 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 and 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.
Potential Physician Investor Liability
A majority of the physician investors in the partnerships and limited liability companies which 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 individuals may not be able to obtain coverage in amounts sufficient to cover all potential liability. Since most insurance policies contain exclusions, the physician investors 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.
8. 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, 2010, has an asset of $890,000 that is included in prepaid expenses and other current assets.
At both September 30, 2010 and December 31, 2009, the Company had $545,000 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.
9. Financial Information for the Company and Its Subsidiaries
The Company conducts substantially all of its business through its subsidiaries. Presented below is 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 adjustments. 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, 2010
(Unaudited, in thousands)
|
|
Parent Issuer |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
12,191 |
|
$ |
23,621 |
|
$ |
37,716 |
|
$ |
|
|
$ |
73,528 |
|
Accounts receivable, net |
|
|
|
512 |
|
53,160 |
|
|
|
53,672 |
|
|||||
Inventories |
|
|
|
304 |
|
10,472 |
|
|
|
10,776 |
|
|||||
Prepaid expenses and other current assets |
|
3,722 |
|
73 |
|
7,593 |
|
|
|
11,388 |
|
|||||
Due from related parties |
|
89,844 |
|
|
|
|
|
(89,844 |
) |
|
|
|||||
Deferred tax asset |
|
571 |
|
|
|
97 |
|
|
|
668 |
|
|||||
Current assets of discontinued operations |
|
|
|
|
|
1,438 |
|
|
|
1,438 |
|
|||||
Total current assets |
|
106,328 |
|
24,510 |
|
110,476 |
|
(89,844 |
) |
151,470 |
|
|||||
Property and equipment, net |
|
1,131 |
|
281 |
|
143,893 |
|
|
|
145,305 |
|
|||||
Goodwill and intangible assets |
|
643,892 |
|
|
|
|
|
|
|
643,892 |
|
|||||
Investments in and advances to affiliates |
|
8,671 |
|
29,059 |
|
5,771 |
|
(26,207 |
) |
17,294 |
|
|||||
Other assets |
|
8,444 |
|
12 |
|
1,775 |
|
|
|
10,231 |
|
|||||
Long-term assets of discontinued operations |
|
|
|
|
|
911 |
|
|
|
911 |
|
|||||
Total assets |
|
$ |
768,466 |
|
$ |
53,862 |
|
$ |
262,826 |
|
$ |
(116,051 |
) |
$ |
969,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts payable |
|
$ |
4 |
|
$ |
167 |
|
$ |
9,610 |
|
$ |
|
|
$ |
9,781 |
|
Accrued payroll and benefits |
|
981 |
|
193 |
|
9,146 |
|
|
|
10,320 |
|
|||||
Due to related parties |
|
|
|
40,277 |
|
49,567 |
|
(89,844 |
) |
|
|
|||||
Other accrued expenses |
|
11,124 |
|
2,439 |
|
13,110 |
|
|
|
26,673 |
|
|||||
Current maturities of long-term debt |
|
20,277 |
|
379 |
|
10,418 |
|
|
|
31,074 |
|
|||||
Current liabilities of discontinued operations |
|
|
|
|
|
1,870 |
|
|
|
1,870 |
|
|||||
Total current liabilities |
|
32,386 |
|
43,455 |
|
93,721 |
|
(89,844 |
) |
79,718 |
|
|||||
Long-term debt, less current maturities |
|
494,576 |
|
647 |
|
17,915 |
|
|
|
513,138 |
|
|||||
Deferred income tax payable |
|
47,329 |
|
|
|
(317 |
) |
|
|
47,012 |
|
|||||
Other liabilities |
|
255 |
|
1,089 |
|
63,575 |
|
|
|
64,919 |
|
|||||
Long-term liabilities of discontinued operations |
|
|
|
|
|
1,550 |
|
|
|
1,550 |
|
|||||
Noncontrolling interests redeemable |
|
|
|
|
|
34,670 |
|
|
|
34,670 |
|
|||||
Total Symbion, Inc. stockholders equity |
|
193,920 |
|
8,671 |
|
11,765 |
|
(26,207 |
) |
188,149 |
|
|||||
Noncontrolling interests non-redeemable |
|
|
|
|
|
39,947 |
|
|
|
39,947 |
|
|||||
Total equity |
|
193,920 |
|
8,671 |
|
51,712 |
|
(26,207 |
) |
228,096 |
|
|||||
Total liabilities and stockholders equity |
|
$ |
768,466 |
|
$ |
53,862 |
|
$ |
262,826 |
|
$ |
(116,051 |
) |
$ |
969,103 |
|
SYMBION, INC.
CONSOLIDATING BALANCE SHEET
December 31, 2009
(Unaudited, in thousands)
|
|
Parent Issuer |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
11,272 |
|
$ |
14,992 |
|
$ |
21,419 |
|
$ |
|
|
$ |
47,683 |
|
Accounts receivable, net |
|
|
|
586 |
|
34,577 |
|
|
|
35,163 |
|
|||||
Inventories |
|
|
|
331 |
|
9,103 |
|
|
|
9,434 |
|
|||||
Prepaid expenses and other current assets |
|
4,234 |
|
85 |
|
8,080 |
|
|
|
12,399 |
|
|||||
Due from related parties |
|
106,031 |
|
|
|
|
|
(106,031 |
) |
|
|
|||||
Deferred Tax Asset - Current |
|
335 |
|
|
|
97 |
|
|
|
432 |
|
|||||
Current assets of discontinued operations |
|
|
|
|
|
2,648 |
|
|
|
2,648 |
|
|||||
Total current assets |
|
121,872 |
|
15,994 |
|
75,924 |
|
(106,031 |
) |
107,759 |
|
|||||
Property and equipment, net |
|
1,331 |
|
433 |
|
86,634 |
|
|
|
88,398 |
|
|||||
Goodwill and intangible assets |
|
564,718 |
|
|
|
|
|
|
|
564,718 |
|
|||||
Investments in and advances to affiliates |
|
3,986 |
|
49,535 |
|
4,193 |
|
(40,062 |
) |
17,652 |
|
|||||
Other assets |
|
9,790 |
|
44 |
|
841 |
|
|
|
10,675 |
|
|||||
Long-term assets of discontinued operations |
|
|
|
|
|
1,524 |
|
|
|
1,524 |
|
|||||
Total assets |
|
$ |
701,697 |
|
$ |
66,006 |
|
$ |
169,116 |
|
$ |
(146,093 |
) |
$ |
790,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts payable |
|
$ |
15 |
|
$ |
136 |
|
$ |
7,581 |
|
$ |
|
|
$ |
7,732 |
|
Accrued payroll and benefits |
|
464 |
|
265 |
|
5,095 |
|
|
|
5,824 |
|
|||||
Due to related parties |
|
|
|
61,080 |
|
44,951 |
|
(106,031 |
) |
|
|
|||||
Other accrued expenses |
|
17,295 |
|
328 |
|
13,466 |
|
|
|
31,089 |
|
|||||
Current maturities of long-term debt |
|
10,865 |
|
109 |
|
9,177 |
|
|
|
20,151 |
|
|||||
Current liabilities of discontinued operations |
|
|
|
|
|
2,182 |
|
|
|
2,182 |
|
|||||
Total current liabilities |
|
28,639 |
|
61,918 |
|
82,452 |
|
(106,031 |
) |
66,978 |
|
|||||
Long-term debt, less current maturities |
|
428,655 |
|
102 |
|
16,077 |
|
|
|
444,834 |
|
|||||
Deferred income tax payable |
|
40,776 |
|
|
|
|
|
|
|
40,776 |
|
|||||
Other liabilities |
|
6,021 |
|
|
|
|
|
|
|
6,021 |
|
|||||
Long-term liabilities of discontinued operations |
|
|
|
|
|
3,945 |
|
|
|
3,945 |
|
|||||
Noncontrolling interest - redeemable |
|
|
|
|
|
31,363 |
|
|
|
31,363 |
|
|||||
Total Symbion, Inc. stockholders equity |
|
197,606 |
|
3,986 |
|
31,883 |
|
(40,062 |
) |
193,413 |
|
|||||
Noncontrolling interests - nonredeemable |
|
|
|
|
|
3,396 |
|
|
|
3,396 |
|
|||||
Total equity |
|
197,606 |
|
3,986 |
|
35,279 |
|
(40,062 |
) |
196,809 |
|
|||||
Total liabilities and stockholders equity |
|
$ |
701,697 |
|
$ |
66,006 |
|
$ |
169,116 |
|
$ |
(146,093 |
) |
$ |
790,726 |
|
SYMBION, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For the Three Months Ended September 30, 2010
(Unaudited, in thousands)
|
|
Parent |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
Revenues |
|
$ |
8,760 |
|
$ |
2,516 |
|
$ |
97,509 |
|
$ |
(3,953 |
) |
$ |
104,832 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Salaries and benefits |
|
|
|
1,117 |
|
28,307 |
|
|
|
29,424 |
|
|||||
Supplies |
|
|
|
242 |
|
23,846 |
|
|
|
24,088 |
|
|||||
Professional and medical fees |
|
|
|
283 |
|
7,485 |
|
|
|
7,768 |
|
|||||
Rent and lease expense |
|
|
|
186 |
|
5,918 |
|
|
|
6,104 |
|
|||||
Other operating expenses |
|
|
|
120 |
|
7,914 |
|
|
|
8,034 |
|
|||||
Cost of revenues |
|
|
|
1,948 |
|
73,470 |
|
|
|
75,418 |
|
|||||
General and administrative expense |
|
5,521 |
|
|
|
|
|
|
|
5,521 |
|
|||||
Depreciation and amortization |
|
168 |
|
84 |
|
4,820 |
|
|
|
5,072 |
|
|||||
Provision for doubtful accounts |
|
|
|
47 |
|
2,023 |
|
|
|
2,070 |
|
|||||
Income on equity investments |
|
|
|
(668 |
) |
|
|
|
|
(668 |
) |
|||||
Impairment and loss on disposal of long-lived assets |
|
6 |
|
|
|
|
|
|
|
6 |
|
|||||
Gain on sale of long-lived assets |
|
(409 |
) |
|
|
|
|
|
|
(409 |
) |
|||||
Business combination remeasurement gains |
|
(3,169 |
) |
|
|
|
|
|
|
(3,169 |
) |
|||||
Proceeds from insurance settlements, net |
|
|
|
|
|
|
|
|
|
|
|
|||||
Management fees |
|
|
|
|
|
3,953 |
|
(3,953 |
) |
|
|
|||||
Equity in earnings of affiliates |
|
(4,150 |
) |
(3,045 |
) |
|
|
7,195 |
|
|
|
|||||
Total operating expenses |
|
(2,033 |
) |
(1,634 |
) |
84,266 |
|
3,242 |
|
83,841 |
|
|||||
Operating income |
|
10,793 |
|
4,150 |
|
13,243 |
|
(7,195 |
) |
20,991 |
|
|||||
Interest expense, net |
|
(8,808 |
) |
|
|
(3,860 |
) |
|
|
(12,668 |
) |
|||||
Income (loss) before taxes and discontinued operations |
|
1,985 |
|
4,150 |
|
9,383 |
|
(7,195 |
) |
8,323 |
|
|||||
Provision for income taxes |
|
1,702 |
|
|
|
54 |
|
|
|
1,756 |
|
|||||
Income (income) from continuing operations |
|
283 |
|
4,150 |
|
9,329 |
|
(7,195 |
) |
6,567 |
|
|||||
Loss from discontinued operations, net of taxes |
|
|
|
|
|
(221 |
) |
|
|
(221 |
) |
|||||
Net income (loss) |
|
283 |
|
4,150 |
|
9,108 |
|
(7,195 |
) |
6,346 |
|
|||||
Net income attributable to noncontrolling interests |
|
|
|
|
|
(6,063 |
) |
|
|
(6,063 |
) |
|||||
Net income (loss) attributable to Symbion, Inc. |
|
$ |
283 |
|
$ |
4,150 |
|
$ |
3,045 |
|
$ |
(7,195 |
) |
$ |
283 |
|
SYMBION, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2010
(Unaudited, in thousands)
|
|
Parent |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
Revenues |
|
$ |
26,032 |
|
$ |
7,486 |
|
$ |
270,181 |
|
$ |
(11,540 |
) |
$ |
292,159 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Salaries and benefits |
|
|
|
3,452 |
|
79,238 |
|
|
|
82,690 |
|
|||||
Supplies |
|
|
|
608 |
|
64,854 |
|
|
|
65,462 |
|
|||||
Professional and medical fees |
|
|
|
815 |
|
19,548 |
|
|
|
20,363 |
|
|||||
Rent and lease expense |
|
|
|
569 |
|
17,843 |
|
|
|
18,412 |
|
|||||
Other operating expenses |
|
|
|
318 |
|
22,101 |
|
|
|
22,419 |
|
|||||
Cost of revenues |
|
|
|
5,762 |
|
203,584 |
|
|
|
209,346 |
|
|||||
General and administrative expense |
|
16,690 |
|
|
|
|
|
|
|
16,690 |
|
|||||
Depreciation and amortization |
|
513 |
|
227 |
|
13,453 |
|
|
|
14,193 |
|
|||||
Provision for doubtful accounts |
|
|
|
139 |
|
5,131 |
|
|
|
5,270 |
|
|||||
Income on equity investments |
|
|
|
(2,173 |
) |
|
|
|
|
(2,173 |
) |
|||||
Impairment and loss on disposal of long-lived assets |
|
1,165 |
|
|
|
|
|
|
|
1,165 |
|
|||||
Gain on sale of long-lived assets |
|
(416 |
) |
|
|
|
|
|
|
(416 |
) |
|||||
Business combination remeasurement gains |
|
(3,169 |
) |
|
|
|
|
|
|
(3,169 |
) |
|||||
Litigation settlements, net |
|
(44 |
) |
|
|
|
|
|
|
(44 |
) |
|||||
Management fees |
|
|
|
|
|
11,540 |
|
(11,540 |
) |
|
|
|||||
Equity in earnings of affiliates |
|
(16,739 |
) |
(13,207 |
) |
|
|
29,946 |
|
|
|
|||||
Total operating expenses |
|
(2,000 |
) |
(9,252 |
) |
233,708 |
|
18,406 |
|
240,862 |
|
|||||
Operating income |
|
28,032 |
|
16,738 |
|
36,473 |
|
(29,946 |
) |
51,297 |
|
|||||
Interest expense (income), net |
|
(30,545 |
) |
1 |
|
(5,071 |
) |
|
|
(35,615 |
) |
|||||
(Loss) income before taxes and discontinued operations |
|
(2,513 |
) |
16,739 |
|
31,402 |
|
(29,946 |
) |
15,682 |
|
|||||
Provision for income taxes |
|
3,910 |
|
|
|
60 |
|
|
|
3,970 |
|
|||||
(Loss) income from continuing operations |
|
(6,423 |
) |
16,739 |
|
31,342 |
|
(29,946 |
) |
11,712 |
|
|||||
Loss from discontinued operations, net of taxes |
|
|
|
|
|
(650 |
) |
|
|
(650 |
) |
|||||
Net (loss) income |
|
(6,423 |
) |
16,739 |
|
30,692 |
|
(29,946 |
) |
11,062 |
|
|||||
Net income attributable to noncontrolling interests |
|
|
|
|
|
(17,485 |
) |
|
|
(17,485 |
) |
|||||
Net (loss) income attributable to Symbion, Inc. |
|
$ |
(6,423 |
) |
$ |
16,739 |
|
$ |
13,207 |
|
$ |
(29,946 |
) |
$ |
(6,423 |
) |
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 |
|
$ |
2,378 |
|
$ |
77,796 |
|
$ |
(3,788 |
) |
$ |
85,004 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Salaries and benefits |
|
|
|
1,227 |
|
23,414 |
|
|
|
24,641 |
|
|||||
Supplies |
|
|
|
194 |
|
18,717 |
|
|
|
18,911 |
|
|||||
Professional and medical fees |
|
|
|
286 |
|
5,201 |
|
|
|
5,487 |
|
|||||
Rent and lease expense |
|
|
|
193 |
|
6,036 |
|
|
|
6,229 |
|
|||||
Other operating expenses |
|
|
|
119 |
|
6,999 |
|
|
|
7,118 |
|
|||||
Cost of revenues |
|
|
|
2,019 |
|
60,367 |
|
|
|
62,386 |
|
|||||
General and administrative expense |
|
4,697 |
|
|
|
|
|
|
|
4,697 |
|
|||||
Depreciation and amortization |
|
168 |
|
68 |
|
4,063 |
|
|
|
4,299 |
|
|||||
Provision for doubtful accounts |
|
|
|
45 |
|
1,012 |
|
|
|
1,057 |
|
|||||
Income on equity investments |
|
|
|
(712 |
) |
|
|
|
|
(712 |
) |
|||||
Impairment and loss on disposal of long-lived assets |
|
22 |
|
2,571 |
|
|
|
|
|
2,593 |
|
|||||
Litigation settlements, net |
|
(150 |
) |
|
|
|
|
|
|
(150 |
) |
|||||
Gain on sale of long-lived assets |
|
(30 |
) |
|
|
|
|
|
|
(30 |
) |
|||||
Management fees |
|
|
|
|
|
3,788 |
|
(3,788 |
) |
|
|
|||||
Equity in earnings of affiliates |
|
(4,490 |
) |
(6,102 |
) |
|
|
10,592 |
|
|
|
|||||
Total operating expenses |
|
217 |
|
(2,111 |
) |
69,230 |
|
6,804 |
|
74,140 |
|
|||||
Operating income |
|
8,401 |
|
4,489 |
|
8,566 |
|
(10,592 |
) |
10,864 |
|
|||||
Interest (expense) income, net |
|
(13,713 |
) |
1 |
|
1,758 |
|
|
|
(11,954 |
) |
|||||
(Loss) income before taxes and discontinued operations |
|
(5,312 |
) |
4,490 |
|
10,324 |
|
(10,592 |
) |
(1,090 |
) |
|||||
Provision for income taxes |
|
1,731 |
|
|
|
205 |
|
|
|
1,936 |
|
|||||
(Loss) income from continuing operations |
|
(7,043 |
) |
4,490 |
|
10,119 |
|
(10,592 |
) |
(3,026 |
) |
|||||
Income from discontinued operations, net of taxes |
|
|
|
|
|
95 |
|
|
|
95 |
|
|||||
Net (loss) income |
|
(7,043 |
) |
4,490 |
|
10,214 |
|
(10,592 |
) |
(2,931 |
) |
|||||
Net income attributable to noncontrolling interests |
|
|
|
|
|
(4,112 |
) |
|
|
(4,112 |
) |
|||||
Net (loss) income attributable to Symbion, Inc. |
|
$ |
(7,043 |
) |
$ |
4,490 |
|
$ |
6,102 |
|
$ |
(10,592 |
) |
$ |
(7,043 |
) |
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 |
|
$ |
231,977 |
|
$ |
(11,455 |
) |
$ |
253,551 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Salaries and benefits |
|
|
|
3,588 |
|
67,009 |
|
|
|
70,597 |
|
|||||
Supplies |
|
|
|
517 |
|
53,683 |
|
|
|
54,200 |
|
|||||
Professional and medical fees |
|
|
|
861 |
|
15,318 |
|
|
|
16,179 |
|
|||||
Rent and lease expense |
|
|
|
578 |
|
17,229 |
|
|
|
17,807 |
|
|||||
Other operating expenses |
|
|
|
358 |
|
19,626 |
|
|
|
19,984 |
|
|||||
Cost of revenues |
|
|
|
5,902 |
|
172,865 |
|
|
|
178,767 |
|
|||||
General and administrative expense |
|
16,042 |
|
|
|
|
|
|
|
16,042 |
|
|||||
Depreciation and amortization |
|
527 |
|
204 |
|
12,024 |
|
|
|
12,755 |
|
|||||
Provision for doubtful accounts |
|
|
|
139 |
|
2,731 |
|
|
|
2,870 |
|
|||||
Income on equity investments |
|
|
|
(1,364 |
) |
|
|
|
|
(1,364 |
) |
|||||
Impairment and loss on disposal of long-lived assets |
|
3,033 |
|
|
|
|
|
|
|
3,033 |
|
|||||
Gain on sale of long-lived assets |
|
(707 |
) |
|
|
|
|
|
|
(707 |
) |
|||||
Management fees |
|
|
|
|
|
11,455 |
|
(11,455 |
) |
|
|
|||||
Litigation settlements, net |
|
(416 |
) |
|
|
|
|
|
|
(416 |
) |
|||||
Equity in earnings of affiliates |
|
(18,450 |
) |
(16,329 |
) |
|
|
34,779 |
|
|
|
|||||
Total operating expenses |
|
29 |
|
(11,448 |
) |
199,075 |
|
23,324 |
|
210,980 |
|
|||||
Operating income |
|
26,000 |
|
18,448 |
|
32,902 |
|
(34,779 |
) |
42,571 |
|
|||||
Interest (expense) income, net |
|
(39,783 |
) |
2 |
|
5,889 |
|
|
|
(33,892 |
) |
|||||
(Loss) income before taxes and discontinued operations |
|
(13,783 |
) |
18,450 |
|
38,791 |
|
(34,779 |
) |
8,679 |
|
|||||
Provision for income taxes |
|
4,171 |
|
|
|
485 |
|
|
|
4,656 |
|
|||||
(Loss) income from continuing operations |
|
(17,954 |
) |
18,450 |
|
38,306 |
|
(34,779 |
) |
4,023 |
|
|||||
Loss from discontinued operations, net of taxes |
|
|
|
|
|
(5,938 |
) |
|
|
(5,938 |
) |
|||||
Net (loss) income |
|
(17,954 |
) |
18,450 |
|
32,368 |
|
(34,779 |
) |
(1,915 |
) |
|||||
Net income attributable to noncontrolling interests |
|
|
|
|
|
(16,039 |
) |
|
|
(16,039 |
) |
|||||
Net (loss) income attributable to Symbion, Inc. |
|
$ |
(17,954 |
) |
$ |
18,450 |
|
$ |
16,329 |
|
$ |
(34,779 |
) |
$ |
(17,954 |
) |
SYMBION, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2010
(Unaudited, in thousands)
|
|
Parent |
|
Guarantor |
|
Combined |
|
Eliminations |
|
Total |
|
|||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Net (loss) income |
|
$ |
(6,423 |
) |
$ |
16,739 |
|
$ |
30,692 |
|
$ |
(29,946 |
) |
$ |
11,062 |
|
Adjustments to reconcile net (loss) income to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss from discontinued operations |
|
|
|
|
|
650 |
|
|
|
650 |
|
|||||
Depreciation and amortization |
|
513 |
|
227 |
|
13,453 |
|
|
|
14,193 |
|
|||||
Amortization of deferred financing costs |
|
1,501 |
|
|
|
|
|
|
|
1,501 |
|
|||||
Non-cash payment-in-kind interest option |
|
19,264 |
|
|
|
|
|
|
|
19,264 |
|
|||||
Non-cash stock option compensation expense |
|
1,002 |
|
|
|
|
|
|
|
1,002 |
|
|||||
Non-cash recognition of other comprehensive income into earnings |
|
2,478 |
|
|
|
|
|
|
|
2,478 |
|
|||||
Non-cash credit risk adjustment of financial instruments |
|
189 |
|
|
|
|
|
|
|
189 |
|
|||||
Non-cash losses |
|
(2,420 |
) |
|
|
|
|
|
|
(2,420 |
) |
|||||
Deferred income taxes |
|
5,471 |
|
|
|
|
|
|
|
5,471 |
|
|||||
Equity in earnings of affiliates |
|
(16,739 |
) |
(13,207 |
) |
|
|
29,946 |
|
|
|
|||||
Equity in earnings of affiliates, net of distributions received |
|
|
|
(57 |
) |
|
|
|
|
(57 |
) |
|||||
Provision for doubtful accounts |
|
|
|
139 |
|
5,131 |
|
|
|
5,270 |
|
|||||
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts receivable |
|
|
|
|
|
(5,192 |
) |
|
|
(5,192 |
) |
|||||
Other assets and liabilities |
|
(56,369 |
) |
48,993 |
|
5,618 |
|
|
|
(1,758 |
) |
|||||
Net cash (used in) provided by operating activities continuing operations |
|
(51,533 |
) |
52,834 |
|
50,352 |
|
|
|
51,653 |
|
|||||
Net cash provided by operating activities discontinued operations |
|
|
|
|
|
(418 |
) |
|
|
(418 |
) |
|||||
Net cash (used in) provided by operating activities |
|
(51,533 |
) |
52,834 |
|
49,934 |
|
|
|
51,235 |
|
|||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Purchases of property and equipment, net |
|
(139 |
) |
|
|
(5,141 |
) |
|
|
(5,280 |
) |
|||||
Payments for acquisitions, net of cash acquired |
|
|
|
(43,830 |
) |
|
|
|
|
(43,830 |
) |
|||||
Payments from unit activity |
|
(55 |
) |
|
|
|
|
|
|
(55 |
) |
|||||
Change in other assets |
|
|
|
(375 |
) |
|
|
|
|
(375 |
) |
|||||
Net cash (used in) provided by investing activities continuing operations |
|
(194 |
) |
(44,205 |
) |
(5,141 |
) |
|
|
(49,540 |
) |
|||||
Net cash used in investing activities discontinued operations |
|
|
|
|
|
(13 |
) |
|
|
(13 |
) |
|||||
Net cash (used in) provided by investing activities |
|
(194 |
) |
(44,205 |
) |
(5,154 |
) |
|
|
(49,553 |
) |
|||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Principal payments on long-term debt |
|
(6,025 |
) |
|
|
(9,564 |
) |
|
|
(15,589 |
) |
|||||
Proceeds from debt issuances |
|
56,261 |
|
|
|
714 |
|
|
|
56,975 |
|
|||||
Distributions to noncontrolling interest partners |
|
|
|
|
|
(17,914 |
) |
|
|
(17,914 |
) |
|||||
Proceeds from unit activity |
|
2,410 |
|
|
|
|
|
|
|
2,410 |
|
|||||
Other financing activities |
|
|
|
|
|
(1,673 |
) |
|
|
(1,673 |
) |
|||||
Net cash provided by (used in) financing activities continuing operations |
|
52,646 |
|
|
|
(28,437 |
) |
|
|
24,209 |
|
|||||
Net cash used in financing activities discontinued operations |
|
|
|
|
|
(46 |
) |
|
|
(46 |
) |
|||||
Net cash provided by (used in) financing activities |
|
52,646 |
|
|
|
(28,483 |
) |
|
|
24,163 |
|
|||||
Net (decrease) increase in cash and cash equivalents |
|
919 |
|
8,629 |
|
16,297 |
|
|
|
25,845 |
|
|||||
Cash and cash equivalents at beginning of period |
|
11,272 |
|
14,992 |
|
21,419 |
|
|
|
47,683 |
|
|||||
Cash and cash equivalents at end of period |
|
$ |
12,191 |
|
$ |
23,621 |
|
$ |
37,716 |
|
$ |
|
|
$ |
73,528 |
|
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 |
) |
$ |
18,450 |
|
$ |
32,368 |
|
$ |
(34,779 |
) |
$ |
(1,915 |
) |
Adjustments to reconcile net (loss) income to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss from discontinued operations |
|
|
|
|
|
5,938 |
|
|
|
5,938 |
|
|||||
Depreciation and amortization |
|
527 |
|
204 |
|
12,024 |
|
|
|
12,755 |
|
|||||
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 |
|
1,911 |
|
|
|
|
|
|
|
1,911 |
|
|||||
Non-cash losses (gains) |
|
2,539 |
|
|
|
|
|
|
|
2,539 |
|
|||||
Non-cash credit risk adjustment of financial instruments |
|
1,521 |
|
|
|
|
|
|
|
1,521 |
|
|||||
Deferred income taxes |
|
5,581 |
|
|
|
|
|
|
|
5,581 |
|
|||||
Equity in earnings of affiliates, net of distributions received |
|
|
|
(217 |
) |
|
|
|
|
(217 |
) |
|||||
Equity in earnings of affiliates |
|
(18,450 |
) |
(16,329 |
) |
|
|
34,779 |
|
|
|
|||||
Provision for doubtful accounts |
|
|
|
139 |
|
2,731 |
|
|
|
2,870 |
|
|||||
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Accounts receivable |
|
|
|
|
|
(1,830 |
) |
|
|
(1,830 |
) |
|||||
Income taxes payable |
|
1,762 |
|
|
|
|
|
|
|
1,762 |
|
|||||
Other assets and liabilities |
|
14,992 |
|
6,092 |
|
(22,542 |
) |
|
|
(1,458 |
) |
|||||
Net cash (used in) provided by operating activities continuing operations |
|
12,087 |
|
8,339 |
|
28,689 |
|
|
|
49,115 |
|
|||||
Net cash provided by operating activities discontinued operations |
|
|
|
|
|
176 |
|
|
|
176 |
|
|||||
Net cash (used in) provided by operating activities |
|
12,087 |
|
8,339 |
|
28,865 |
|
|
|
49,291 |
|
|||||
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Purchases of property and equipment, net |
|
(226 |
) |
|
|
(6,653 |
) |
|
|
(6,879 |
) |
|||||
Payments for acquisitions, net of cash acquired |
|
(126 |
) |
|
|
|
|
|
|
(126 |
) |
|||||
Payments from unit activity |
|
(724 |
) |
|
|
|
|
|
|
(724 |
) |
|||||
Change in other assets |
|
|
|
|
|
(806 |
) |
|
|
(806 |
) |
|||||
Net cash used in investing activities continuing operations |
|
(1,076 |
) |
|
|
(7,459 |
) |
|
|
(8,535 |
) |
|||||
Net cash used in investing activities discontinued operations |
|
|
|
|
|
(137 |
) |
|
|
(137 |
) |
|||||
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 |
) |
|
|
(8,236 |
) |
|
|
(10,110 |
) |
|||||
Proceeds from debt issuances |
|
|
|
|
|
289 |
|
|
|
289 |
|
|||||
Payment of debt issuance costs |
|
(203 |
) |
|
|
|
|
|
|
(203 |
) |
|||||
Distributions to noncontrolling interest partners |
|
|
|
|
|
(19,342 |
) |
|
|
(19,342 |
) |
|||||
Proceeds from unit activity |
|
1,027 |
|
|
|
|
|
|
|
1,027 |
|
|||||
Change in other long-term liabilities |
|
(5,675 |
) |
(3,006 |
) |
9,412 |
|
|
|
731 |
|
|||||
Net cash used in financing activities continuing operations |
|
(6,725 |
) |
(3,006 |
) |
(17,877 |
) |
|
|
(27,608 |
) |
|||||
Net cash used in financing activities discontinued operations |
|
|
|
|
|
(4,589 |
) |
|
|
(4,589 |
) |
|||||
Net cash used in financing activities |
|
(6,725 |
) |
(3,006 |
) |
(22,466 |
) |
|
|
(32,197 |
) |
|||||
Net (decrease) increase in cash and cash equivalents |
|
4,286 |
|
5,333 |
|
(1,197 |
) |
|
|
8,422 |
|
|||||
Cash and cash equivalents at beginning of period |
|
4,369 |
|
9,801 |
|
27,518 |
|
|
|
41,688 |
|
|||||
Cash and cash equivalents at end of period |
|
$ |
8,655 |
|
$ |
15,134 |
|
$ |
26,321 |
|
$ |
|
|
$ |
50,110 |
|
10. Subsequent Events
Subsequent to September 30, 2010, the Company received an unsolicited offer to purchase its surgical facility located in Duncanville, Texas. During October, the Company finalized negotiations and effective October 31, 2010, the Company disposed of its ownership interest in this facility for cash proceeds of $969,000. This facility is included in continuing operations in the Companys consolidated financial statements as of September 30, 2010. The Company will recognize a loss on the disposal of $1.4 million in the fourth quarter of 2010. This loss will be included in results from discontinued operations.
On November 2, 2010, the Company entered into an interest rate swap agreement to protect the Company against certain interest rate fluctuations of the LIBOR rate on $100.0 million of the Companys variable rate debt under the senior secured credit facility. The effective date of the interest rate swap is December 31, 2010. The interest rate swap effectively fixes the Companys LIBOR interest rate on $100.0 million of variable rate debt at 0.85%.
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 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 generally are 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 the implementation of 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;
· legislative changes restricting physician ownership of hospitals;
· 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;
· 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 27 states. Our surgical facilities, which include ambulatory surgery centers and surgical hospitals, primarily provide non-emergency surgical procedures across many specialties, including, orthopedics, pain management, gastroenterology and ophthalmology. We own our surgical facilities in partnerships 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 November 12, 2010, we own and operate 56 surgical facilities, including 51 ambulatory surgery centers and five surgical hospitals. We also manage eight additional ambulatory surgery centers. We own a majority interest in 34 of the 56 surgical facilities and consolidate 51 of these facilities for financial reporting purposes. We are reporting two of the 56 surgical facilities as discontinued operations. In addition to our surgical facilities, we also manage 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.
We continue to focus on improving the performance of our same store facilities and acquiring facilities on a selective basis that we believe have favorable growth potential. On April 9, 2010, we acquired a 54.5% ownership interest in a general acute care hospital with a surgical and obstetrics focus, located in Idaho Falls, Idaho. This acquisition provides us with the opportunity to expand into a new market and the results of the facility are consolidated for financial reporting purposes for periods subsequent to the acquisition. Effective July 1, 2010, we acquired an incremental, controlling ownership interest of 37.0% in our surgical facility located in Chesterfield, Missouri for $18.8 million. As a result of this acquisition, we began consolidating the facility in the third quarter of 2010.
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 |
|
||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Patient service revenues |
|
97 |
% |
96 |
% |
97 |
% |
96 |
% |
Physician service revenues |
|
1 |
|
2 |
|
1 |
|
2 |
|
Other service revenues |
|
2 |
|
2 |
|
2 |
|
2 |
|
Total |
|
100 |
% |
100 |
% |
100 |
% |
100 |
% |
Payor Mix
Approximately 97% 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 |
|
||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Private insurance |
|
67 |
% |
70 |
% |
68 |
% |
71 |
% |
Government |
|
26 |
|
24 |
|
26 |
|
24 |
|
Self-pay |
|
4 |
|
5 |
|
4 |
|
4 |
|
Other |
|
3 |
|
1 |
|
2 |
|
1 |
|
Total |
|
100 |
% |
100 |
% |
100 |
% |
100 |
% |
Case Mix
We primarily operate multi-specialty facilities where physicians perform a variety of procedures in various specialties, including orthopedics, pain management, gastroenterology and ophthalmology. 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.
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 |
|
||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
Ear, nose and throat |
|
5.2 |
% |
4.8 |
% |
5.7 |
% |
5.8 |
% |
Gastrointestinal |
|
29.4 |
|
29.2 |
|
29.6 |
|
28.5 |
|
General surgery |
|
4.2 |
|
4.5 |
|
4.1 |
|
4.3 |
|
Obstetrics/gynecology |
|
2.9 |
|
2.9 |
|
2.8 |
|
2.9 |
|
Ophthalmology |
|
15.6 |
|
16.9 |
|
15.9 |
|
16.5 |
|
Orthopedic |
|
16.7 |
|
16.4 |
|
17.1 |
|
16.5 |
|
Pain management |
|
15.8 |
|
14.9 |
|
15.2 |
|
15.7 |
|
Plastic surgery |
|
2.8 |
|
3.0 |
|
2.9 |
|
2.8 |
|
Other |
|
7.4 |
|
7.4 |
|
6.7 |
|
7.0 |
|
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 months ended September 30, 2010 and 2009. The following same store facility table includes both consolidated surgical facilities from 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 |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Cases |
|
61,113 |
|
62,185 |
|
183,998 |
|
186,919 |
|
||||
Case growth |
|
(1.7 |
)% |
N/A |
|
(1.6 |
)% |
N/A |
|
||||
Net patient service revenue per case |
|
$ |
1,505 |
|
$ |
1,457 |
|
$ |
1,525 |
|
$ |
1,468 |
|
Net patient service revenue per case growth |
|
3.3 |
% |
N/A |
|
3.9 |
% |
N/A |
|
||||
Number of same store surgical facilities |
|
51 |
|
N/A |
|
51 |
|
N/A |
|
||||
The following same store facility table is presented for purposes of explaining changes in our consolidated financial results and accordingly excludes non-consolidated surgical facilities that are not reported in our revenue:
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Cases |
|
55,783 |
|
57,294 |
|
169,147 |
|
173,218 |
|
||||
Case growth |
|
(2.6 |
)% |
N/A |
|
(2.4 |
)% |
N/A |
|
||||
Net patient service revenue per case |
|
$ |
1,324 |
|
$ |
1,335 |
|
$ |
1,352 |
|
$ |
1,351 |
|
Net patient service revenue per case growth |
|
(0.8 |
)% |
N/A |
|
0.1 |
% |
N/A |
|
||||
Number of same store surgical facilities |
|
47 |
|
N/A |
|
47 |
|
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, 2009.
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Cases |
|
59,421 |
|
58,056 |
|
176,403 |
|
174,512 |
|
||||
Case growth |
|
2.4 |
% |
N/A |
|
1.1 |
% |
N/A |
|
||||
Net patient service revenue per case |
|
$ |
1,713 |
|
$ |
1,402 |
|
$ |
1,604 |
|
$ |
1,392 |
|
Net patient service revenue per case growth |
|
22.1 |
% |
N/A |
|
15.2 |
% |
N/A |
|
||||
Number of surgical facilities operated as of end of the period(1) |
|
64 |
|
64 |
|
64 |
|
64 |
|
||||
Number of consolidated surgical facilities |
|
50 |
|
48 |
|
50 |
|
48 |
|
||||
(1) Includes surgical facilities that we manage but in which we have no ownership.
Recent Regulatory Developments
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 and federal regulations and the cost containment and utilization decisions and reduced reimbursement schedules of third-party payors.
Health Care Reform
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (the Acts) were signed into law on March 23, 2010 and March 30, 2010, respectively, dramatically altering the U.S. health care system. The Acts are intended to provide coverage and access to substantially all Americans, to increase the quality of care provided, and to reduce the rate of growth in healthcare expenditures. The changes include, among other things, reducing payments to Medicare Advantage plans, expanding the Medicare programs use of value-based purchasing programs, tying hospital payments to the satisfaction of certain quality criteria, bundling payments to hospitals and other providers, reducing Medicare and Medicaid payments, including disproportionate share payments, expanding Medicare and Medicaid eligibility, and expanding access to health insurance. As part of the effort to control or reduce health care spending, the Acts also contain a number of measures intended to reduce fraud and abuse in the Medicare and Medicaid programs, such as requiring the use of recovery audit contractors in the Medicaid program and limitations on the Stark Law exception that allows physicians to have ownership interests in hospitals (the Whole Hospital Exception). Among other things, the Acts prohibit hospitals from increasing the percentages of the total value of the ownership interests held in the hospital by physicians after March 23, 2010, 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. It is difficult to predict the impact the Acts will have on the Companys operations as a majority of the measures contained in the Acts do not take effect until 2014. The Acts could have an adverse effect on our financial condition and results of operations.
Medicare Reimbursement-Ambulatory Surgery Centers
Beginning in 2008, the Centers for Medicare and Medicaid Services (CMS) began transitioning Medicare payments to ambulatory surgery centers (ASCs) to a system based upon the hospital outpatient prospective payment system. In 2011 that transition is complete and payments to ASCs will be solely based on the outpatient prospective payment system (OPPS) relative weights. CMS has cautioned that the final OPPS relative weights may result in payment rates for the year being less than the payment rates for the preceding year. On November 2, 2010, CMS issued a final rule to update the Medicare programs payment policies and rates for ASCs for 2011. The final rule applies a 0.2% increase to the ASC payment rate. The final rule will also add six procedures to the list of procedures for which Medicare will reimburse when performed in an ASC. 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
Five of our surgical facilities are licensed as hospitals. The Medicare program pays hospitals on a prospective payment system for acute inpatient services. Under this prospective payment system, a hospital receives a fixed amount for inpatient hospital services based on each patients final assigned diagnosis related group (DRG). On April 19, 2010, CMS issued the inpatient prospective payment system (IPPS) proposed rule for federal fiscal year 2011, beginning on October 1, 2010. Among other things, the proposed rule provided for a market basket increase of 2.4% for hospitals that successfully report the 2011 quality measures included in the Reporting Hospital Quality Date for Annual Payment Update (RHQDAPU) program and 0.4% for hospitals that do not. The quality reporting program would also increase the outlier threshold and adjust the number of patient care quality measures required for reporting in order to receive the full market basket increase in fiscal year (FY) 2011 to 45. For FY 2012 CMS anticipates adding an additional ten measures.
On June 2, 2010, CMS published a notice regarding the final Medicare IPPS payment rates for FY 2010 and a supplemental IPPS proposed rule for FY 2011. The notice and the supplemental proposed rule implement changes that were made to the Medicare programs reimbursement for hospital inpatient services by the Acts. Among other things, for discharges occurring on or after April 1, 2010, the notice decreases the IPPS market basket update from 2.10% to 1.85% for hospitals that successfully report the quality measures included in the RHQDAPU program and from 0.10% to (0.15)% for hospitals that do not. These changes were further modified on July 30, 2010, when CMS announced a final rule updating acute care hospital rates, and on August 16, 2010, when CMS published its final rule implementing changes contained in the Acts.
Per the final rule, the market basket update for FY 2011 for hospitals under the IPPS was raised to 2.6 percent, or 0.6% for those hospitals that do not participate successfully in the RHQDAPU program. This update amount will be further reduced by 0.25 percentage points, as required by the Acts. As such, the applicable percentage increase to the standardized amount for FY 2011 is 2.35% for hospitals that submit quality data in accordance with the RHQDAPU requirements and 0.35% for hospitals that do not submit quality data. Additionally, in FY 2011 the standardized amount will also be adjusted by (2.9)%, as is required by statute to recoup 2007 and 2008 excess spending resulting from hospital coding practices. An additional (2.9)% adjustment will also be required in the future. CMS anticipates these reductions, coupled with other adjustments, will decrease Medicare payments to IPPS hospitals for FY 2011 by 0.4%, or $440.0 million.
Medicare Reimbursement-Hospital Outpatient Services
On November 2, 2010, CMS issued the final Medicare hospital outpatient prospective payment system (OPPS) rates for calendar year (CY) 2011 to implement changes in Medicares reimbursement policies for hospital outpatient services that were required by the Acts and its proposed hospital OPPS rule for CY 2011. For CY 2011, the final rule reduced the hospital operating market basket increase factor from 2.6% to 2.35% for hospitals that satisfy the requirements of the Hospital Outpatient Quality Data Reporting Program (HOPQDRP) and from 0.6% to 0.35% for hospitals that do not.
In addition to the above changes, the proposed OPPS rule would also waive the Medicare deductibles and copayments for certain preventative services reimbursed under OPPS and establishes 15 quality measures to the list of items that a hospital must report to the HOPQDRP in order to receive the full market basket update in CY 2012.
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, including the Breach Notification Rule providing obligations for compiling and reporting of certain information relating to breaches by providers and their business associates (the Interim Final Breach Rule).
On July 14, 2010, HHS issued a notice of proposed rulemaking to modify the HIPAA privacy, security and enforcement regulations. These changes may require substantial operational changes for HIPAA covered entities and their business associates, including, in part, new requirements for business associate agreements and a transition period for compliance, new limits on the use and disclosure of health information for marketing and fundraising, enhanced individuals rights to obtain electronic copies of their medical records and restricted disclosure of certain information, new requirements for notices of privacy practices, modified restrictions on authorizations for the use of health information for research, and new changes to the HIPAA enforcement regulations. We cannot quantify the financial impact of compliance with these new regulations, but could incur expenses associated with such compliance.
On May 14, 2010, HHS promulgated a final breach notification rule for review (the Final Breach Rule). In July 2010, HHS withdrew the Final Breach Rule from OMB review to allow for further consideration, given HHS experience to date in administering the regulations. HHS intends to publish a final data breach rule in the coming months. Until such time as a new final breach rule is issued, the Interim Final Breach Rule that became effective on September 23, 2009 remains in effect.
Adoption of Electronic Health Records
The HITECH Act also includes provisions designed to increase the use of Electronic Health Records (EHR) by both physicians and hospitals. Beginning with FY 2011 and extending through FY 2016, eligible hospitals may receive reimbursement incentives based upon successfully demonstrating meaningful use of its certified EHR technology. Beginning in FY 2015, those hospitals that do not successfully demonstrate meaningful use of EHR technology are subject to reductions in reimbursements. On July 13, 2010, HHS released final meaningful use regulations. We are are currently planning the implementation of EHR at some of our facilities and intend to comply with the EHR meaningful use requirements, but we may not comply in time to qualify for the maximum available incentive payments in FY 2011. Implementation of EHR and compliance with the HITECH Act will result in significant costs. While we do not currently know the cost that will be associated with implementation and the amount of reimbursement incentives we will receive, we estimate that at a minimum our costs of implementation and compliance will be recovered through improved reimbursement over the course of the initiative program.
Operating Margins
Our operating income margin for the three months ended September 30, 2010 increased to 20.0% from 12.8% during the three months ended September 30, 2009. Included in our results for the 2010 period is a gain of $3.2 million resulting from our acquisition of an incremental, controlling ownership interest in our Chesterfield, Missouri facility. Excluding one-time charges, our operating income margin increased to 16.6% in 2010 from 15.6% in the same period for 2009.
Acquisitions and Developments
Effective July 1, 2010, we acquired an incremental, controlling ownership interest of 37.0% in our surgical facility located in Chesterfield, Missouri for $18.8 million. As part of the acquisition, we consolidated $4.8 million of facility debt on our balance sheet. We subsequently restructured this debt using borrowings from our Revolving Facility. As a result of this acquisition, we hold a controlling interest in this facility. The acquisition was treated as a business combination and we began consolidating the facility in the third quarter of 2010. We financed the aggregate purchase price with proceeds from our Revolving Facility.
Effective April 9, 2010, we acquired an ownership of 54.5% in a general acute care hospital with a surgical and obstetrics focus located in Idaho Falls, Idaho for approximately $31.9 million plus the assumption of approximately $6.1 million of debt and other obligations of $49.6 million which we consolidate on our balance sheet. The other obligations include a financing obligation of $49.6 million payable to the hospital facility lessor for the land, buildings and improvements of the facility. We financed the acquisition with borrowings from our Revolving Facility. We consolidate this facility for financial reporting purposes for periods subsequent to the acquisition.
Discontinued Operations and Divestitures
From time to time, we evaluate our portfolio of surgical facilities to ensure the facilities are performing as we expect. During the second quarter of 2010 we identified two underperforming ambulatory surgery centers that we consolidate for financial reporting purposes. We committed to a plan to divest our interest in these facilities. On September 30, 2010, we completed the divestiture of our facility located in Orlando, Florida. We entered into an asset sale agreement which provided for the sale of substantially all assets and liabilities for cash consideration of $1.3 million. We recorded a loss on the transaction of $2.4 million. This loss includes an accrual of $1.7 million for future contractual obligations under a facility operating lease. This loss is included in the loss from discontinued operations for the period.
During the third quarter of 2010, we terminated the contractual lease obligation at a facility located in Englewood, Colorado that we previously divested. We paid cash of $1.2 million to settle the $3.6 million obligation. A gain of $2.4 million is included in the loss from discontinued operations.
As of September 30, 2010, we owned two surgical facilities which we classified as discontinued operations. Each facilitys assets, liabilities, revenues, expenses and cash flows have been reclassified as discontinued operations for all periods presented.
Revenues, (loss) income on operations before taxes, income tax (benefit) provision, gain (loss) on sale, net of taxes, and loss from discontinued operations, net of taxes, for the following periods indicated, were as follows (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
Revenues |
|
$ |
2,275 |
|
$ |
2,864 |
|
$ |
7,454 |
|
$ |
9,328 |
|
(Loss) income on operations before taxes |
|
$ |
(248 |
) |
$ |
246 |
|
$ |
(704 |
) |
$ |
213 |
|
Income tax (benefit) provision |
|
$ |
(17 |
) |
$ |
(3 |
) |
$ |
(30 |
) |
$ |
12 |
|
Gain (loss) on sale, net of taxes |
|
$ |
10 |
|
$ |
(154 |
) |
$ |
24 |
|
$ |
(6,139 |
) |
(Loss) income from discontinued operations, net of taxes |
|
$ |
(221 |
) |
$ |
95 |
|
$ |
(650 |
) |
$ |
(5,938 |
) |
Effective October 31, 2010, we received an unsolicited offer to purchase our ownership interest in our surgical facility located in Duncanville, Texas. During October, we finalized negotiations and effective October 31, 2010, we disposed of our ownership interest in this facility for $969,000. The results of operations of that facility, including the loss on disposal of the facility, will be included in the results of discontinued operations in the fourth quarter of 2010.
Results of Operations
The following table summarizes certain statements of operations items for each of the three and nine months ended September 30, 2010 and 2009. The table also shows the percentage relationship to revenues for the periods indicated:
|
|
Three Months Ended September 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
||||||
|
|
Amount |
|
% of |
|
Amount |
|
% of |
|
||
|
|
(in thousands) |
|
||||||||
Revenues |
|
$ |
104,832 |
|
100.0 |
% |
$ |
85,004 |
|
100.0 |
% |
Cost of revenues |
|
75,418 |
|
71.9 |
|
62,386 |
|
73.4 |
|
||
General and administrative expense |
|
5,521 |
|
5.3 |
|
4,697 |
|
5.5 |
|
||
Depreciation and amortization |
|
5,072 |
|
4.8 |
|
4,299 |
|
5.1 |
|
||
Provision for doubtful accounts |
|
2,070 |
|
2.0 |
|
1,057 |
|
1.2 |
|
||
Income on equity investments |
|
(668 |
) |
(0.6 |
) |
(712 |
) |
(0.8 |
) |
||
Impairment and loss on disposal of long-lived assets |
|
6 |
|
0.0 |
|
2,593 |
|
3.1 |
|
||
Gain on sale of long-lived assets |
|
(409 |
) |
(0.4 |
) |
(30 |
) |
(0.1 |
) |
||
Business combinations remeasurement gains |
|
(3,169 |
) |
(3.0 |
) |
|
|
0.0 |
|
||
Litigation settlements, net |
|
|
|
0.0 |
|
(150 |
) |
(0.2 |
) |
||
Total operating expenses |
|
83,841 |
|
80.0 |
|
74,140 |
|
87.2 |
|
||
Operating income |
|
20,991 |
|
20.0 |
|
10,864 |
|
12.8 |
|
||
Interest expense, net |
|
(12,668 |
) |
(12.1 |
) |
(11,954 |
) |
(14.1 |
) |
||
Income (loss) before income taxes and discontinued operations |
|
8,323 |
|
7.9 |
|
(1,090 |
) |
(1.3 |
) |
||
Provision for income taxes |
|
1,756 |
|
1.7 |
|
1,936 |
|
2.3 |
|
||
Income (loss) from continuing operations |
|
6,567 |
|
6.2 |
|
(3,026 |
) |
(3.6 |
) |
||
(Loss) income on discontinued operations, net of taxes |
|
(221 |
) |
(0.2 |
) |
95 |
|
0.1 |
|
||
Net income (loss) |
|
6,346 |
|
6.0 |
|
(2,931 |
) |
(3.5 |
) |
||
Less: Net income attributable to noncontrolling interests |
|
(6,063 |
) |
(5.8 |
) |
(4,112 |
) |
(4.8 |
) |
||
Net income (loss) attributable to Symbion, Inc |
|
$ |
283 |
|
0.2 |
|
$ |
(7,043 |
) |
(8.3 |
) |
|
|
Nine Months Ended September 30, |
|
||||||||
|
|
2010 |
|
2009 |
|
||||||
|
|
Amount |
|
% of |
|
Amount |
|
% of |
|
||
|
|
(in thousands) |
|
||||||||
Revenues |
|
$ |
292,159 |
|
100.0 |
% |
$ |
253,551 |
|
100.0 |
% |
Cost of revenues |
|
209,346 |
|
71.7 |
|
178,767 |
|
70.5 |
|
||
General and administrative expense |
|
16,690 |
|
5.7 |
|
16,042 |
|
6.3 |
|
||
Depreciation and amortization |
|
14,193 |
|
4.9 |
|
12,755 |
|
5.0 |
|
||
Provision for doubtful accounts |
|
5,270 |
|
1.8 |
|
2,870 |
|
1.1 |
|
||
Income on equity investments |
|
(2,173 |
) |
(0.7 |
) |
(1,364 |
) |
(0.5 |
) |
||
Impairment and loss on disposal of long-lived assets |
|
1,165 |
|
0.3 |
|
3,033 |
|
1.2 |
|
||
Gain on sale of long-lived assets |
|
(416 |
) |
(0.1 |
) |
(707 |
) |
(0.3 |
) |
||
Business combination remeasurement gains |
|
(3,169 |
) |
(1.2 |
) |
|
|
0.0 |
|
||
Litigation settlements |
|
(44 |
) |
0.0 |
|
(416 |
) |
(0.1 |
) |
||
Total operating expenses |
|
240,862 |
|
82.4 |
|
210,980 |
|
83.2 |
|
||
Operating income |
|
51,297 |
|
17.6 |
|
42,571 |
|
16.8 |
|
||
Interest expense, net |
|
(35,615 |
) |
(12.2 |
) |
(33,892 |
) |
(13.4 |
) |
||
Income before income taxes and discontinued operations |
|
15,682 |
|
5.4 |
|
8,679 |
|
3.4 |
|
||
Provision for income taxes |
|
3,970 |
|
1.4 |
|
4,656 |
|
1.8 |
|
||
Income from continuing operations |
|
11,712 |
|
4.0 |
|
4,023 |
|
1.6 |
|
||
Loss on discontinued operations, net of taxes |
|
(650 |
) |
(0.2 |
) |
(5,938 |
) |
(2.3 |
) |
||
Net income (loss) |
|
11,062 |
|
3.8 |
|
(1,915 |
) |
(0.8 |
) |
||
Less: Net income attributable to noncontrolling interests |
|
(17,485 |
) |
(6.0 |
) |
(16,039 |
) |
(6.3 |
) |
||
Net loss attributable to Symbion, Inc |
|
$ |
(6,423 |
) |
(2.2 |
)% |
$ |
(17,954 |
) |
(7.1 |
)% |
Three Months Ended September 30, 2010 Compared To Three Months Ended September 30, 2009
Overview. During the three months ended September 30, 2010, our revenues increased 23.3% to $104.8 million from $85.0 million for the three months ended September 30, 2009. We generated net income attributable to Symbion, Inc. for the 2010 period of $283,000 compared to a net loss of $7.0 million for the 2009 period.
Our financial results for the three months ended September 30, 2010 compared to the three months ended September 30, 2009 reflect the addition of one surgical facility that we consolidate for financial reporting purposes and one surgical facility which we account for using the equity method. Additionally, our financial results for the 2010 period reflect the disposal of one surgical facility that we consolidated and one facility which we accounted for using the equity method. During the third quarter of 2010, we acquired an incremental, controlling ownership interest of 37.0% in our surgical facility located in Chesterfield, Missouri for $18.8 million. As a result of this acquisition, we hold a controlling interest in the facility. The acquisition was treated as a business combination, and we began consolidating the facility for financial reporting purposes in the third quarter of 2010.
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, 2010 and 2009.
Revenues. Revenues for the three months ended September 30, 2010 compared to the three months ended September 30, 2009 were as follows (in thousands):
|
|
2010 |
|
2009 |
|
Dollar |
|
Percent |
|
|||
Patient service revenues: |
|
|
|
|
|
|
|
|
|
|||
Same store revenues |
|
$ |
73,832 |
|
$ |
76,501 |
|
$ |
(2,669 |
) |
(3.5 |
)% |
Revenues from other surgical facilities |
|
27,960 |
|
4,922 |
|
23,038 |
|
|
|
|||
Total patient service revenues |
|
101,792 |
|
81,423 |
|
20,369 |
|
25.0 |
|
|||
Physician service revenues |
|
1,489 |
|
1,652 |
|
(163 |
) |
(9.9 |
) |
|||
Other service revenues |
|
1,551 |
|
1,929 |
|
(378 |
) |
(19.6 |
) |
|||
Total revenues |
|
$ |
104,832 |
|
$ |
85,004 |
|
$ |
19,828 |
|
23.3 |
% |
Patient service revenues at same store facilities decreased for the three months ended September 30, 2010 compared to the three months ended September 30, 2009. We experienced a 2.6% decrease in cases, and a 0.8% decrease in net revenue per case. Revenues from other surgical facilities increased by $23.0 million. This increase is attributable to surgical facilities and additional incremental, controlling ownership interests acquired since July 1, 2009.
Cost of Revenues. Cost of revenues for the three months ended September 30, 2010 compared to the three months ended September 30, 2009, were as follows (in thousands):
|
|
2010 |
|
2009 |
|
Dollar |
|
Percent |
|
|||
Same store cost of revenues |
|
$ |
55,304 |
|
$ |
57,157 |
|
$ |
(1,853 |
) |
(3.2 |
)% |
Cost of revenues from other surgical facilities |
|
20,114 |
|
5,229 |
|
14,885 |
|
|
|
|||
Total cost of revenues |
|
$ |
75,418 |
|
$ |
62,386 |
|
$ |
13,032 |
|
20.9 |
% |
As a percentage of same store revenues including physician services and other revenue, same store cost of revenues increased to 71.9% for the three months ended September 30, 2010 compared to 71.4% for the three months ended September 30, 2009. The decrease in case volume resulted in a negative impact on operating income margins due to certain fixed costs such as facility rent expense and minimum staffing requirements. Cost of revenues from other surgical facilities increased by $14.9 million. This increase is attributable to surgical facilities and additional incremental, controlling ownership interests acquired since July 1, 2009. As a percentage of revenues, total cost of revenues decreased to 71.9% for 2010 compared to 73.4% for 2009. This decrease is attributable to surgical facilities and additional incremental, controlling ownership interests acquired since July 1, 2009.
General and Administrative Expense. General and administrative expense increased to $5.5 million for the three months ended September 30, 2010 from $4.7 million for the three months ended September 30, 2009. As a percentage of revenues, general and administrative expense decreased to 5.3% for 2010 from 5.5% for 2009. This decrease is primarily attributable to our leveraging of corporate overhead costs while continuing to increase revenue through recent acquisitions.
Depreciation and Amortization. Depreciation and amortization expense increased to $5.1 million for the three months ended September 30, 2010 compared to $4.3 million for the three months ended September 30, 2009. This increase is attributable to surgical facilities and additional incremental, controlling ownership interests acquired since July 1, 2009. As a percentage of revenues, depreciation and amortization expense decreased to 4.8% for 2010 from 5.1% for 2009.
Provision for Doubtful Accounts. The provision for doubtful accounts increased to $2.1 million for the three months ended September 30, 2010 compared to $1.1 million for the three months ended September 30, 2009. As a percentage of revenues, the provision for doubtful accounts increased to 2.0% for 2010 from 1.2% for 2009. This increase is attributable to surgical facilities and additional incremental, controlling ownership interests acquired since July 1, 2009.
Business Combination Remeasurement Gains. Effective July 31, 2010, we acquired an incremental, controlling ownership interest of 37.0% in our surgical facility located in Chesterfield, Missouri for $18.8 million. We recognized a gain of $3.2 million as a result of remeasuring our existing equity interest in this facility held before the incremental acquisition.
Operating Income. Operating income increased to $21.0 million for the three months ended September 30, 2010 from $10.9 million for the three months ended September 30, 2009. This change is primarily attributable to surgical facilities and additional incremental, controlling ownership interests acquired since July 1, 2009.
Interest Expense, Net of Interest Income. Interest expense, net of interest income, increased to $12.7 million for the three months ended September 30, 2010 from $12.0 million for the three months ended September 30, 2009. This increase is primarily attributable to surgical facilities and additional incremental, controlling ownership interests acquired since July 1, 2009.
Provision for Income Taxes. The provision for income taxes decreased to $1.8 million for the three months ended September 30, 2010 from $1.9 million for the three months ended September 30, 2009. Tax expense in both periods is primarily due to the recording of non-cash deferred income tax expense related to our partnership investments.
Income Attributable to Noncontrolling Interests. Income attributable to noncontrolling interests increased to $6.1 million for the three months ended September 30, 2010 from $4.1 million for the three months ended September 30, 2009. As a percentage of revenues, income attributable to noncontrolling interests increased to 5.8% for 2010 from 4.8% for 2009. This increase is attributable to an increase in operating income at same store facilities and the impact of surgical facilities and additional incremental, controlling ownership interests acquired since July 1, 2009.
Nine Months Ended September 30, 2010 Compared To Nine Months Ended September 30, 2009
Overview. During the nine months ended September 30, 2010, our revenues increased 15.2% to $292.2 million from $253.6 million for the nine months ended September 30, 2009. We incurred a net loss attributable to Symbion, Inc. for the 2010 period of $6.4 million compared to a net loss of $18.0 million for the 2009 period.
Our financial results for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 reflect the addition of one surgical facility. Additionally, our financial results for the 2010 period reflect the disposal of one facility that we consolidated for financial reporting purposes and one facility that we accounted for using the equity method. 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, 2010 and 2009.
Revenues. Revenues for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 were as follows (in thousands):
|
|
Nine Months Ended |
|
Dollar |
|
Percent |
|
|||||
|
|
2010 |
|
2009 |
|
Variance |
|
Variance |
|
|||
Patient service revenues: |
|
|
|
|
|
|
|
|
|
|||
Same store revenues |
|
$ |
228,739 |
|
$ |
233,969 |
|
$ |
(5,230 |
) |
(2.2 |
)% |
Revenues from other surgical facilities |
|
54,134 |
|
8,959 |
|
45,175 |
|
|
|
|||
Total patient service revenues |
|
282,873 |
|
242,928 |
|
39,945 |
|
16.4 |
|
|||
Physician service revenues |
|
4,346 |
|
4,907 |
|
(561 |
) |
(11.4 |
) |
|||
Other service revenues |
|
4,940 |
|
5,716 |
|
(776 |
) |
(13.6 |
) |
|||
Total revenues |
|
$ |
292,159 |
|
$ |
253,551 |
|
$ |
38,608 |
|
15.2 |
% |
Patient service revenues at same store facilities decreased 2.2% for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009, primarily as a result of a 2.4% decrease in cases. This decrease in case volume is attributable to weak economic conditions experienced during 2010. Patient service revenues from other surgical facilities increased by $45.2 million. This increase is attributable to surgical facilities and additional incremental, controlling ownership interests acquired since January 1, 2009.
Cost of Revenues. Cost of revenues for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 were as follows (in thousands):
|
|
Nine Months Ended |
|
Dollar |
|
Percent |
|
|||||
|
|
2010 |
|
2009 |
|
Variance |
|
Variance |
|
|||
Same store cost of revenues |
|
$ |
166,576 |
|
$ |
169,276 |
|
$ |
(2,700 |
) |
(1.6 |
)% |
Cost of revenues from other surgical facilities |
|
42,770 |
|
9,491 |
|
33,279 |
|
|
|
|||
Total cost of revenues |
|
$ |
209,346 |
|
$ |
178,767 |
|
$ |
30,579 |
|
17.1 |
% |
As a percentage of same store revenues, including physician services and other revenue, same store cost of revenues increased to 70.0% for the nine months ended September 30, 2010 compared to 69.2% for the nine months ended September 30, 2009. The decrease in case volume resulted in a negative impact on operating income margin due to certain fixed costs such as facility rent expense and minimum staffing requirements. We experienced volatility during the year which impacted our ability to adjust staffing and reduce supply costs at our facilities in proportion to the lower case volume. Cost of revenues from other surgical facilities increased by $33.3 million. This increase is attributable to surgical facilities and additional incremental, controlling ownership interests acquired since July 1, 2009. As a percentage of revenues, total cost of revenues increased to 71.7% for 2010 compared to 70.5% for 2009.
General and Administrative Expense. General and administrative expense increased to $16.7 million for the nine months ended September 30, 2010 from $16.0 million for the nine months ended September 30, 2009. As a percentage of revenues, general and administrative expense was 5.7% for 2010 and 6.3% for 2009. This decrease is
primarily attributable to our leveraging corporate overhead costs while continuing to increase revenue through recent acquisitions.
Depreciation and Amortization. Depreciation and amortization expense increased to $14.2 million for the nine months ended September 30, 2010 compared to $12.8 million for the nine months ended September 30, 2009. This increase is attributable to surgical facilities and additional incremental, controlling ownership interests acquired since January 1, 2009. As a percentage of revenues, depreciation and amortization expense decreased to 4.9% for 2010 from 5.0% for 2009.
Provision for Doubtful Accounts. The provision for doubtful accounts increased to $5.3 million for the nine months ended September 30, 2010 compared to $2.9 million for the nine months ended September 30, 2009. This increase is attributable to surgical facilities and additional incremental, controlling ownership interests acquired since January 1, 2009. As a percentage of revenues, the provision for doubtful accounts was 1.8% for the 2010 period compared to 1.1% for the 2009 period.
Impairment and Loss on Disposal of Long-lived Assets. Included in impairment and loss on disposal of long-lived assets for the nine months ended September 30, 2010 is an impairment charge of $816,000 related to our equity method investment located in Gresham, Oregon.
Business Combination Remeasurement Gains. Effective July 1, 2010, we acquired an incremental, controlling ownership of 37.0% in our surgical facility located in Chesterfield, Missouri for $18.8 million. We recognized a gain of $3.2 million as a result of remeasuring our existing equity interest in this facility held before the incremental acquisition.
Operating Income. Operating income increased to $51.3 million in 2010 from $42.6 million in 2009. This increase is attributable to surgical facilities and additional incremental, controlling ownership interests acquired since January 1, 2009.
Interest Expense, Net of Interest Income. Interest expense, net of interest income, increased to $35.6 million for the nine months ended September 30, 2010 from $33.9 million for the nine months ended September 30, 2009. This increase is primarily attributable to surgical facilities acquired since January 1, 2009.
Provision for Income Taxes. The provision for income taxes decreased to $4.0 million for the nine months ended September 30, 2010 from $4.7 million for the nine months ended September 30, 2009. Tax expense in both periods is primarily due to the recording of non-cash deferred income tax expense related to our partnership investments.
Income Attributable to Noncontrolling Interests. Income attributable to noncontrolling interests increased to $17.5 million for the nine months ended September 30, 2010 compared to $16.0 million for the nine months ended September 30, 2009. As a percentage of revenues, income attributable to noncontrolling interests decreased to 6.0% for 2010 from 6.3% for 2009. This decrease is attributable to a decrease in operating income at same store facilities as well as surgical facilities acquired since January 1, 2009.
Liquidity and Capital Resources
Operating Activities
During the nine months ended September 30, 2010, we generated operating cash flow from continuing operations of $51.7 million compared to $49.1 million for the nine months ended September 30, 2009. This increase is attributable to surgical facilities and additional incremental, controlling ownership interests acquired since January 1, 2009.
At September 30, 2010, we had working capital of $71.8 million compared to $40.8 million at December 31, 2009. This increase is primarily related to our increased cash and accounts receivable balances due to surgical facilities and additional incremental, controlling ownership interests acquired since January 1, 2009. 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, 2010 was $49.5 million, which included $43.8 million of payments for acquisitions, net of cash acquired. Our acquisition activity was funded from cash borrowings under our Revolving Facility. Additionally, the 2010 period included $5.3 million related to purchases of property and equipment. During the nine months ended September 30, 2009, net cash used in investing activities from continuing operations was $8.5 million, which included $6.9 million related to purchases of property and equipment. Cash used in investing activities in the 2009 period was funded primarily from cash from continuing operations.
Financing Activities
Net cash provided by financing activities from continuing operations during the nine months ended September 30, 2010 was $24.2 million, which includes borrowings under our Revolving Facility of $56.0 million to fund acquisitions. Additionally, during the nine months ended September 30, 2010, we distributed $17.9 million in cash to noncontrolling interest partners. We also made scheduled principal payments on our senior secured credit facility totaling $5.6 million.
Net cash used in financing activities from continuing operations during the nine months ended September 30, 2009 was $27.6 million. During 2009, we made scheduled principal payments on our senior secured credit facility of $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 distributed $19.3 million in cash 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 |
|
$ |
282,500 |
|
$ |
232,125 |
|
Toggle Notes |
|
232,000 |
|
206,967 |
|
||
Notes payable to banks |
|
20,126 |
|
14,433 |
|
||
Secured term loans |
|
2,990 |
|
2,628 |
|
||
Capital lease obligations |
|
6,596 |
|
8,832 |
|
||
|
|
544,212 |
|
464,985 |
|
||
Less current maturities |
|
(31,074 |
) |
(20,151 |
) |
||
Total long-term debt |
|
$ |
513,138 |
|
$ |
444,834 |
|
Senior Secured Credit Facility
On August 23, 2007, in conjunction with the Merger, we 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. We are the borrower under the senior secured credit facility, and all of our 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 required quarterly principal payments of $1.6 million through September 30, 2010, and requires quarterly principal 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 our 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 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 our total indebtedness to consolidated EBITDA. As of November 12, 2010, the amount outstanding under the senior secured credit facility was $282.5 million with an interest rate on the borrowings of 3.5%. We borrowed $33.0 million against our Revolving Facility during the second quarter of 2010 to fund the acquisition of an ownership interest in a surgical hospital in Idaho Falls, Idaho and $23.0 million on July 1, 2010 to fund the acquisition of incremental ownership in the surgical facility located in Chesterfield, Missouri and restructure certain facility level debt. The 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 November 12, 2010, the amount available under our Revolving Facility was $44.0 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 expired on October 31, 2010. The interest rate swap effectively fixed 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 current liability of approximately $510,000 at September 30, 2010. 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 nine months ended September 30, 2010, we recognized additional interest expense of $2.9 million due to the ratable recognition of the balance in accumulated other comprehensive income. We recognized a gain in interest expense for the quarter of $4.7 million due to mark-to-market adjustment of the swap liability.
On November 2, 2010, we entered into an interest rate swap agreement to protect the Company against certain interest rate fluctuations of the LIBOR rate on $100.0 million of the Companys variable rate debt under the senior secured credit facility. The effective date of the interest rate swap is December 31, 2010. The interest rate swap effectively fixes our LIBOR interest rate on $100.0 million of variable debt at 0.85%. We have designated the interest rate swap as a cash flow hedge instrument.
Senior Toggle Notes
Since August 23, 2008, we have elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for various interest periods. As a result, the principal due on the Toggle Notes increased by $52.1 million since the issuance of the Toggle Notes. On August 24, 2010, we elected the PIK option of the Toggle Notes in lieu of making scheduled interest payments for the interest period from August 24, 2010 to February 23, 2011. We have accrued $2.9 million in interest in other accrued expenses as of September 30, 2010. As of September 30, 2010, the amount outstanding under the Toggle Notes was $232.0 million.
At September 30, 2010, 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, 2010 and December 31, 2009 was $20.1 million and $14.4 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 $8.7 million 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, 2010 and December 31, 2009 was $6.6 million and $8.8 million, respectively.
Other Obligations
In connection with our acquisition of a 54.5 % ownership interest in Mountain View Hospital, in Idaho Falls, Idaho, we assumed lease payment obligations of $49.6 million. This obligation is payable to the lessor of the land, building and improvements at the hospital.
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 and other adjustments
When we use the term EBITDA, we are referring to net loss plus (a) (income) loss from discontinued operations, net of taxes, (b) income tax expense, (c) interest expense, net, (d) depreciation and amortization, (e) non-cash losses (gains), and (f) non-cash stock option compensation expense, and less (g) net income attributable to noncontrolling interests. 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 to $16.8 million for the three months ended September 30, 2010 from $13.9 million for the three months ended September 30, 2009. EBITDA margin for the three month period decreased 40 basis points to 16.0% for 2010 from 16.4% for 2009. This decrease is primarily attributable to the increase in income attributable to noncontrolling interests from $6.1 million for the three months ended September 30, 2010 from $4.1 million for the three months ended September 30, 2009 which is a result of our operating margin improvement, excluding one-time charges, to 16.6% in 2010 from 15.6% in the same period for 2009. As a percentage of revenues, income attributable to noncontrolling interests increased to 5.8% for 2010 from 4.8% for 2009.
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 of 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.
The following table reconciles EBITDA to net cash provided by operating activities continuing operations (in thousands):
|
|
Three Months Ended |
|
Nine Months Ended |
|
||||||||
|
|
2010 |
|
2009 |
|
2010 |
|
2009 |
|
||||
EBITDA |
|
$ |
16,781 |
|
$ |
13,925 |
|
$ |
46,587 |
|
$ |
42,587 |
|
Depreciation and amortization |
|
(5,072 |
) |
(4,299 |
) |
(14,193 |
) |
(12,755 |
) |
||||
Non-cash (losses) gains |
|
3,572 |
|
(2,548 |
) |
2,420 |
|
(2,326 |
) |
||||
Non-cash stock option compensation expense |
|
(353 |
) |
(326 |
) |
(1,002 |
) |
(974 |
) |
||||
Interest expense, net |
|
(12,668 |
) |
(11,954 |
) |
(35,615 |
) |
(33,892 |
) |
||||
Provision for income taxes |
|
(1,756 |
) |
(1,936 |
) |
(3,970 |
) |
(4,656 |
) |
||||
Net income attributable to noncontrolling interests |
|
6,063 |
|
4,112 |
|
17,485 |
|
16,039 |
|
||||
Loss (income) on discontinued operations, net of taxes |
|
(221 |
) |
95 |
|
(650 |
) |
(5,938 |
) |
||||
Net income |
|
6,346 |
|
(2,931 |
) |
11,062 |
|
(1,915 |
) |
||||
Loss from discontinued operations |
|
221 |
|
(95 |
) |
650 |
|
5,938 |
|
||||
Depreciation and amortization |
|
5,072 |
|
4,299 |
|
14,193 |
|
12,755 |
|
||||
Amortization of deferred financing costs |
|
501 |
|
501 |
|
1,501 |
|
1,501 |
|
||||
Non-cash payment-in-kind interest option |
|
6,597 |
|
5,884 |
|
19,264 |
|
17,183 |
|
||||
Non-cash stock option compensation expense |
|
353 |
|
326 |
|
1,002 |
|
974 |
|
||||
Non-cash recognition of other comprehensive income into earnings |
|
826 |
|
637 |
|
2,478 |
|
1,911 |
|
||||
Non-cash credit risk adjustment of financial instruments |
|
|
|
813 |
|
189 |
|
1,521 |
|
||||
Non-cash losses (gains) |
|
(3,572 |
) |
2,548 |
|
(2,420 |
) |
2,326 |
|
||||
Deferred income taxes |
|
1,138 |
|
2,119 |
|
5,471 |
|
5,581 |
|
||||
Equity in earnings of unconsolidated affiliates, net of distributions received |
|
272 |
|
(175 |
) |
(57 |
) |
(217 |
) |
||||
Provision for doubtful accounts |
|
2,070 |
|
1,057 |
|
5,270 |
|
2,870 |
|
||||
Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: |
|
|
|
|
|
|
|
|
|
||||
Accounts receivable |
|
(688 |
) |
(936 |
) |
(5,192 |
) |
(1,830 |
) |
||||
Other assets and liabilities |
|
(2,224 |
) |
(2,550 |
) |
(1,758 |
) |
517 |
|
||||
Net cash provided by operating activities continuing operations |
|
$ |
16,912 |
|
$ |
11,497 |
|
$ |
51,653 |
|
$ |
49,115 |
|
Other Data: |
|
|
|
|
|
|
|
|
|
||||
Number of surgical facilities included in continuing operations, as of the end of period(1) |
|
61 |
|
60 |
|
61 |
|
60 |
|
(1) Includes surgical facilities that we manage but in which we have no ownership.
Summary
We believe we have sufficient liquidity in the next 12 to 18 months as described above. Nevertheless, we continue to monitor the state of the financial and credit markets and our current and expected liquidity and capital resource needs, and intend to continue to explore various financing alternatives to improve our capital structure, including by reducing debt, extending maturities or relaxing financial covenants. These may include new equity or debt financings or exchange offers with our existing security holders (including exchanges of debt for debt or equity) and other transactions involving our outstanding securities, given their secondary market trading prices. We cannot assure you, if we pursue any of these transactions, that we will be successful in completing a transaction on attractive terms, or at all.
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, 2010, $132.5 million of our total long-term debt was subject to variable rates of interest, while the remaining $411.7 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 $1.3 million. The fair value of our total long-term debt, based on quoted market prices as of September 30, 2010 was approximately $495.2 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 Securities Exchange Act of 1934, 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 third quarter of 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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 |
2.1 |
|
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) |
2.2 |
|
Contribution and Distribution Agreement by and among SMBI Idaho, LLC, Mountain View Hospital, LLC and the existing unitholders and their owners, dated as of April 9, 2010. (b) |
3.1 |
|
Amended Certificate of Incorporation of Symbion, Inc. (c) |
3.2 |
|
Amended and Restated Bylaws of Symbion, Inc. (c) |
4.1 |
|
Indenture, dated as of June 3, 2008, among Symbion, Inc., the Guarantors named therein and U.S. Bank National Association, as Trustee (c) |
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. (c) |
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 (c) |
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 Quarterly Report on Form 10-Q for the three months ended March 31, 2010 (File No. 000-50574)
(c) Incorporated by reference to exhibits filed with the Registrants Registration Statement on Form S-4 (Registration No. 333-153678)
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, 2010
EXHIBIT INDEX
No. |
|
Description |
2.1 |
|
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) |
2.2 |
|
Contribution and Distribution Agreement by and among SMBI Idaho, LLC, Mountain View Hospital, LLC and the existing unitholders and their owners, dated as of April 9, 2010. (b) |
3.1 |
|
Amended Certificate of Incorporation of Symbion, Inc. (c) |
3.2 |
|
Amended and Restated Bylaws of Symbion, Inc. (c) |
4.1 |
|
Indenture, dated as of June 3, 2008, among Symbion, Inc., the Guarantors named therein and U.S. Bank National Association, as Trustee (c) |
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. (c) |
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 (c) |
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 Quarterly Report on Form 10-Q for the three months ended March 31, 2010 (File No. 000-50574)
(c) Incorporated by reference to exhibits filed with the Registrants Registration Statement on Form S-4 (Registration No. 333-153678)