-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KJcQMhRxrbDPO27dx1UsuNwuY+Ro6bijIMXS77EGr+dQFmRO6uTXbejKqYtnXr4Z nXvBeSsyzqb5qQ0nnn2MNg== /in/edgar/work/20000810/0000874787-00-000006/0000874787-00-000006.txt : 20000921 0000874787-00-000006.hdr.sgml : 20000921 ACCESSION NUMBER: 0000874787-00-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHYAMERICA PHYSICIAN GROUP INC CENTRAL INDEX KEY: 0000874787 STANDARD INDUSTRIAL CLASSIFICATION: [8093 ] IRS NUMBER: 561379244 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13460 FILM NUMBER: 690946 BUSINESS ADDRESS: STREET 1: 2828 CROASDAILE DR CITY: DURHAM STATE: NC ZIP: 27705 BUSINESS PHONE: 9193830355 MAIL ADDRESS: STREET 1: 2828 CROASDAILE DR CITY: DURHAM STATE: NC ZIP: 27705 FORMER COMPANY: FORMER CONFORMED NAME: COASTAL PHYSICIAN GROUP INC DATE OF NAME CHANGE: 19950524 FORMER COMPANY: FORMER CONFORMED NAME: COASTAL HEALTHCARE GROUP INC DATE OF NAME CHANGE: 19930328 10-Q 1 0001.txt United States Securities and Exchange Commission Washington, DC 20549 Form 10-Q {X} Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 2000 OR { } Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 001-13460 PhyAmerica Physician Group, Inc. (Exact name of registrant as specified in its charter) Delaware 56-1379244 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 2828 Croasdaile Drive, Durham, NC 27705 (Address of principal executive offices) (Zip Code) (919) 383-0355 (Registrant's telephone number including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. {X} Yes { } No As of July 31, 2000 there were outstanding 42,761,284 shares of common stock, par value $.01 per share. PHYAMERICA PHYSICIAN GROUP, INC. INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at December 31, 1999 and June 30, 2000 (unaudited) Unaudited Consolidated Statements of Operations - Three and Six months ended June 30, 2000 and 1999 Unaudited Consolidated Condensed Statements of Cash Flows Six months ended June 30, 2000 and 1999 Notes to Consolidated Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk PART II - OTHER INFORMATION Item 6. Exhibits and Other Reports SIGNATURES PHYAMERICA PHYSICIAN GROUP, INC. Consolidated Balance Sheets (In thousands, except per share data) June 30, December 31, 2000 1999 Assets (Unaudited) Current assets: Cash and cash equivalents $ - $ - Trade accounts receivable, net 24,728 25,113 Reserves held by NCFE 15,846 16,167 Accounts receivable, other 2,401 2,329 Receivables from related party 730 1,129 Prepaid expenses and other current 6,289 7,194 assets Total current assets 49,994 51,932 Property and equipment, at cost, less 7,395 7,651 accumulated depreciation Excess of cost over fair value of net 21,749 24,158 assets acquired, net Other assets 5,129 5,042 Total assets $ 84,267 $ 88,783 Liabilities and Shareholders' Equity (Deficit) Current liabilities: Current maturities and other short- $ 3,109 $ 7,477 term borrowings Accounts payable 25,964 30,277 Accrued physician fees and medical 17,032 18,429 costs Accrued expenses 8,090 8,191 Total current liabilities 54,195 64,374 Long-term debt, excluding current 146,374 120,736 maturities Total liabilities 200,569 185,110 Shareholders' equity (deficit): Common stock $.01 par value; shares authorized 100,000; shares issued and outstanding 42,761 428 426 and 42,573, respectively Additional paid-in capital 178,313 178,285 Common stock warrants 1,675 1,675 Retained earnings (accumulated (296,718) (276,713) deficit) Total shareholders' equity (116,302) (96,327) (deficit) Total liabilities and $ 84,267 $ 88,783 shareholders' equity (deficit) See accompanying notes to consolidated financial statements. PHYAMERICA PHYSICIAN GROUP, INC. Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) Three months ended June 30, 2000 1999 Operating revenue, net $ 80,834 $ 49,186 Costs and expenses: Physician and other 60,634 34,398 provider services Medical support services 8,983 8,919 Selling, general and 15,532 7,451 administrative Related party expense, net 415 207 Total costs and expenses 85,564 50,975 Operating loss (4,730) (1,789) Other income (expense): Interest expense (4,064) (2,802) Interest income 30 16 Other related party income (101) (90) expense, net Other, net (76) (95) Total other expense (4,211) (2,971) Loss before income taxes (8,941) (4,760) Income taxes - - Net loss $ (8,941) $ (4,760) Net loss per common share: Basic and diluted loss per $ (0.21) $ (0.13) share Shares used to compute loss per share, basic and 42,631 37,943 diluted See accompanying notes to consolidated financial statements. PHYAMERICA PHYSICIAN GROUP, INC. Consolidated Statements of Operations (In thousands, except per share data) (Unaudited) Six months ended June 30, 2000 1999 Operating revenue, net $ 159,489 $ 99,881 Costs and expenses: Physician and other 121,744 69,305 provider services Medical support services 17,708 17,350 Selling, general and 31,021 14,701 administrative Related party expense, net 819 297 Total costs and expenses 171,292 101,653 Operating loss (11,803) (1,772) Other income (expense): Interest expense (7,944) (5,231) Interest income 47 79 Other related party (202) (204) expense, net Other, net (103) 32 Total other expense (8,202) (5,324) Loss before income taxes (20,005) (7,096) Income taxes - - Net loss $ (20,005) $ (7,096) Net loss per common share: Basic and diluted loss per $ (0.47) $ (0.19) share Shares used to compute loss per share, basic and 42,601 37,888 diluted See accompanying notes to consolidated financial statements. PHYAMERICA PHYSICIAN GROUP, INC. Consolidated Condensed Statements of Cash Flows (In thousands) (Unaudited) Six Months Ended June 30, 2000 1999 Net cash used in operating $ (20,762) $ (13,102) activities Cash flows from investing activities: Proceeds from sale (Purchases) (538) 562 of property and equipment, net Net cash (used in) (538) 562 provided by investing activities Cash flows from financing activities: Proceeds from borrowing of 21,270 14,147 debt, net of repayments Net proceeds from issuances of 30 11 common stock Net cash provided by 21,300 14,158 financing activities Net increase in cash and 0 1,618 cash equivalents Cash and cash equivalents at 0 45 beginning of period Cash and cash equivalents at end of $ 0 $ 1,663 period Supplemental disclosures of cash flow information: Cash payments during the period for: Interest $ 8,216 $ 5,504 Income taxes 213 221 See accompanying notes to consolidated financial statements. PHYAMERICA PHYSICIAN GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) Basis of Presentation The accompanying consolidated financial statements of PhyAmerica Physician Group, Inc. (the "Company") are unaudited and, in the opinion of management, include all adjustments which are necessary for a fair presentation. The unaudited consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2000. (2) Excess of Cost Over Fair Value of Net Assets Acquired The assets and liabilities of acquired entities accounted for under the purchase method of accounting are adjusted to their estimated fair values as of the acquisition dates. The amounts recorded as excess of cost over fair value of net assets acquired ("goodwill") represent amounts paid that exceed estimated fair values assigned to the assets and liabilities of each acquired business. Such amounts are being amortized on a straight- line basis over periods ranging from five to twenty years, depending on the specific circumstances of each acquisition Under Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long- Lived Assets and Long-Lived Assets to Be Disposed Of", management performs an evaluation of the carrying value and remaining amortization periods of unamortized amounts. In connection with the ongoing application of SFAS 121, management performs such an evaluation whenever events or changes in circumstances occur which indicate such carrying values may not be recoverable. Management considers the performance of hospital contracts to be the most important indicator of possible impairment. (3) Comprehensive Income Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", establishes rules for the reporting and display of comprehensive income and its components. This Statement requires that unrealized gains or losses on the Company's available-for-sale securities be included in other comprehensive income. For the three and six months ended June 30, 2000 and 1999, comprehensive income is equal to the Company's net loss. (4) Segment Information During the three and six months ended June 30, 2000 and 1999, the Company had four reportable segments: emergency physician management, government services, billing and business management services and divested businesses. The emergency physician management group contracts principally with hospitals and government agencies to identify and recruit physicians as candidates for admission to a client's medical staff and to coordinate the on-going scheduling of independent contractor physicians who provide clinical coverage in designated areas. While the Company also provides obstetrics, gynecology and pediatrics emergency physician management, the provision of contract management services to hospital emergency departments represents the Company's principal hospital-based service. The government services segment provides similar services to governmental agencies such as the Department of Defense and state and local governments. The billing and business management services segment provides support to independent contractor physicians, independent practices and other health care practitioners. These services are often provided as part of the Company's emergency physician management and are also marketed independently to unaffiliated providers. Divested businesses consist of two health plans which were divested during 1998 and the wrap up of businesses divested prior to 1998. The Company also has a corporate group included in "All Other" that provides administrative services to the operating segments. "All other" also includes amounts related to eliminations. Information About Segment Profit/Loss and Segment Assets The Company evaluates performance based on profit or loss from operations before interest, income taxes, depreciation and amortization. Intersegment revenues are recorded at amounts similar to revenues from external customers. Intersegment profits or losses are eliminated in consolidation. Also, the Company does not allocate certain expenses such as certain professional fees or certain employee benefits to its segments. The Company's reportable segments are business units that are responsible for certain quantitative thresholds of revenue, profits or losses or assets. Quarter ended June 30, 2000 Emergency Total PhysicianGov't Divested Reportable All (In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals Revenue from external sources$71,016$4,654 $5,205 $ -$80,875 $(41) $80,834 Intersegment revenues - - 7,009 - 7,009 - 7,009 Interest expense 2,976 1,040 64 - 4,080(16) 4,064 Depreciation and amortization1,371 7 204 11,583 32 1,615 Segment profit (loss)(6,800)(483)1,830 2 (5,451)(3,490)(8,941) Segment assets $65,128 $3,607$14,128$2,426$85,289$(1,022)$84,267 Quarter ended June 30, 1999 Emergency Total PhysicianGov't Divested Reportable All (In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals Revenue from external sources$40,177$4,335 $4,656$ --$49,168 $18 $49,186 Intersegment revenues-- -- 3,959 -- 3,959 -- 3,959 Interest expense 1,727 846 -- -- 2,573 229 2,802 Depreciation and amortization94 6 184 -- 284 35 319 Segment profit (loss)(3,234)(681)1,397 25 (2,493)(2,267)(4,760) Segment assets $31,654 $2,777$10,810$2,371$47,612$10,986$58,598 Six months ended June 30, 2000 Emergency Total PhysicianGov't Divested Reportable All (In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals Revenue from external sources$140,269$9,128$10,115 $ -$159,512 $(23) $159,489 Intersegment revenues - -13,481 - 13,481 -13,481 Interest expense 5,869 1,952 157 - 7,978(34) 7,944 Depreciation and amortization2,74413 407 13,165 60 3,225 Segment profit (loss)(16,011)(1,113) 3,117 -(14,007)(5,998) (20,005) Segment assets $65,128 $3,607$14,128$2,426 $85,289 $(1,022) $84,267 Six months ended June 30, 1999 Emergency Total PhysicianGov't Divested Reportable All (In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals Revenue from external sources$82,149$8,697 $9,001$ --$99,847 $34 $99,881 Intersegment revenues-- -- 7,503 -- 7,503 -- 7,503 Interest expense 3,369 1,589 -- -- 4,958 273 5,231 Depreciation and amortization198 15 381 1 595 78 673 Segment profit (loss)(4,108)(1,316)2,487 4 (2,933)(4,163)(7,096) Segment assets $31,654 $2,777$10,810$2,371$47,612$10,986$58,598 (5) Recently Issued Accounting Pronouncements Effective for fiscal quarters in fiscal years beginning after June 15, 2000, the Company will be required to adopt Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 requires entities to disclose information for derivative financial instruments, and to recognize all derivatives as assets or liabilities measured at fair value. The Company does not believe that this pronouncement will have a material impact on its financial position or results of operations. PHYAMERICA PHYSICIAN GROUP, INC. Management's Discussion And Analysis Of Financial Condition And Results Of Operations RESULTS OF OPERATIONS SECOND QUARTER ENDED JUNE 30, 2000 COMPARED TO THE SECOND QUARTER ENDED JUNE 30, 1999. During 1998, the Company completed its divestiture strategy. The objective of the divestiture strategy was to identify operating units that were either underperforming or were not deemed critical to the overall operating strategy. The Company sold Doctors Health Plan, Inc. ("DHP") in March 1998, and HealthPlan Southeast ("HPSE") in October 1998. The Company sold Better Health Plan ("BHP") in August 1997. Collectively, these businesses are referred to as the HMOs. During 1997, the Company also sold the last of its clinic operations. The Company refers to the HMOs, clinic operations and some smaller related businesses as the divested businesses. The core businesses are comprised of emergency medicine practice management, government services and medical billing and business management services. In July 1999, in order to expand its Emergency Physician Management business, the Company acquired the hospital emergency department staffing assets of Sterling Healthcare, Inc. ("Sterling"), a subsidiary of FPA Medical Management, Inc., which was in a Chapter 11 proceeding under the United States Bankruptcy Code, for a purchase price of approximately $69.3 million plus assumption of up to $18 million in operating liabilities. In addition, on December 14, 1999 the Company increased the size of its Billing and Business Management business by approximately 25% when Healthcare Business Resources, Inc. ("HBR"), a subsidiary of the Company, acquired from a subsidiary of Per Se Technologies, Inc. the assets used in providing billing services for the hospital staffing contracts acquired in the Sterling Acquisition (the "Per Se Acquisition"). The acquisitions were accounted for in accordance with the purchase method of accounting, and, therefore, the results of operations for the acquired operations are included in the accompanying financial statements since the acquisition date. Operating Revenue, Net. Net operating revenue in the second quarter of 2000 was $80.8 million, representing an increase of $31.6 million, or 64.2 %, from operating revenues of $49.2 million in the second quarter of 1999. The increases in operating revenue in the Company's core businesses were: Three Months Ended June 30, 2000 1999 % Increase Core businesses $80.8 $49.2 $31.6 64.2% Divested 0.0 0.0 0.0 0.0% businesses $80.8 $49.2 $31.6 64.2% The increase in the revenue of the core businesses was due mostly to the Sterling Acquisition. In the second quarter of 2000, the emergency physician management business generated approximately $71.0 in revenue, which was an increase of approximately $30.8 million, or 76.6%, from approximately $40.2 million of revenue in the second quarter of 1999. Approximately $29.8 of this increase was attributable to Sterling, with the remaining increase attributed to non-Sterling contracts. The government services group accounted for approximately $4.6 million in the second quarter of 2000, which was an increase of approximately $0.3 million, or 7.0%, from $4.3 million in the second quarter of 1999. Revenue for the billing and collections operations was $5.2 million for the second quarter of 2000, which was an increase of approximately $0.5 million, or 10.6%, from $4.7 million in the second quarter of 1999 due to growth in the billing contracts and fees. Revenue of the billing and business management operations excludes intersegment revenue of approximately $7.0 million in the second quarter of 2000 and approximately $4.0 million in the second quarter 1999 representing fees billed to the emergency physician management business. Physician and Other Provider Services Costs and Expenses. Physician and other provider services costs and expenses consist primarily of fees paid to physicians and other health care providers. Physician and other provider services costs and expenses increased by approximately $26.2 million, or 76.2%, to approximately $60.6 million in the second quarter of 2000 from approximately $34.4 million in the second quarter of 1999. Physician and other provider services costs and expenses increased as follows: Three Months Ended June 30, 2000 1999 % Increase Core businesses $60.6 $34.4 $26.2 76.2% Divested 0.0 0.0 0.0 0.0% businesses $60.6 $34.4 $26.2 76.2% These expenses for the core businesses increased mostly because of the Sterling acquisition. In the second quarter of 2000, physician and other provider services costs and expenses for the emergency physician management group were approximately $57.0 million. This represented an increase of $26.1 million, or 84.5%, from $30.9 million in the second quarter of 1999. Approximately $26.0 of this increase was attributable to Sterling. The government services group's expenses were approximately $3.6 million in the second quarter of 2000, representing an increase of approximately $0.1 million, or 2.9%, from approximately $3.5 million in the second quarter of 1999. The billing and business management operations did not incur physician and other provider services costs and expenses. Medical Support Services Costs and Expenses. Medical support services costs and expenses include all other direct costs and expenses of practice management activities, as well as billing, collection and physician business management services costs and expenses. Medical support services costs and expenses increased by $0.1 million, or 1.1%, to $9.0 million in the second quarter of 2000 from $8.9 million in the second quarter of 1999. Medical support services costs and expenses increased as follows: Three Months Ended June 30, 2000 1999 Increase % Core businesses $9.0 $8.9 $0.1 1.1% Divested 0.0 0.0 0.0 0.0% businesses $9.0 $8.9 $0.1 1.1% In the second quarter of 2000, medical support services costs and expenses for the emergency physician management group were approximately $1.1 million. This represented a decrease of $0.6 million, or 35.3%, from $1.7 million in the second quarter of 1999. The government services group's expenses were approximately $0.4 million in the second quarter of 2000 representing a decrease of $0.1 million, or 20.0% from approximately $0.5 million in the second quarter of 1999. The billing and business management group's expenses were approximately $7.5 million in the second quarter of 2000 representing an increase of approximately $0.8 million, or 11.9%, from approximately $6.7 million in the second quarter of 1999. The increase in medical support services costs and expenses for the billing and business management group is due to growth in billing operations. Selling, General and Administrative Costs and Expenses. Selling, general and administrative costs and expenses increased by $8.0 million, or 106.7%, to $15.5 million in the second quarter of 2000 from $7.5 million in the second quarter of 1999. Selling, general and administrative costs and expenses increased as follows: Three Months Ended June 30, 2000 1999 % Increase (Decreas e) Core businesses $15.5 $7.4 $8.1 109.5% Divested 0.0 0.1 (0.1) (100.0) businesses $15.5 $7.5 $8.0 106.7% Selling, general and administrative costs and expenses for the core businesses increased primarily because of the Sterling and Per Se acquisitions. In the second quarter of 2000, selling, general and administrative costs and expenses for the Physician Contract group were approximately $10.0 million. This represented an increase of $4.5 million, or 81.8%, from $5.5 million in the second quarter of 1999. Approximately $4.4 million of the increase is attributable to the Sterling acquisition. The government services group's expenses were approximately $0.1 million in the second quarter of 2000 and 1999. The billing and business management group's expenses were approximately $2.8 million in the second quarter of 2000 representing an increase of approximately $2.3 million, or 460.0%, from approximately $0.5 million in the second quarter of 1999. Approximately $2.3 million of the increase is attributable to the Per Se acquisition. Selling, general and administrative costs and expenses for the corporate group increased to approximately $2.6 million in the second quarter of 2000 representing an increase of approximately $1.3 million, or 100.0%, from approximately $1.3 million in the first quarter of 1999. The increase in selling, general and administrative costs and expenses for the corporate group is primarily related to legal payments. There were $0.1 million in selling, general and administrative costs and expenses, in the second quarter of 1999, related to wrap-up operations activity for the HMO's. Related party expense, net. Related party expenses, net increased by $0.2 million, or 100.0%, to $0.4 million in the second quarter of 2000 from $0.2 million in the second quarter of 1999. This increase is primarily due to rent and premium expense to related parties. Interest Expense. Interest expense increased by $1.2 million to $4.0 million in the second quarter of 2000 from $2.8 million in the second quarter of 1999 due primarily to the Sterling and PerSe Acquisitions resulting in higher outstanding amounts of debt during the first quarter of 2000. The costs associated with the sale of eligible accounts receivable in the second quarter of 2000 and 1999 have been included in selling, general and administrative expenses. Other, expenses. Other expenses increased by $1.2 million or 40.0% , to $4.2 million in the second quarter of 2000 from $3.0 million in the second quarter of 1999, primarily due to the increase in interest expense. Benefit (provision) for income taxes. There was no benefit (provision) for income taxes for the second quarter of 2000 and 1999. This is due to continued net operating losses. Net Loss. Primarily as a result of the foregoing, the Company reported a net loss of $8.9 million in the second quarter of 2000 compared to a net loss of $4.8 million in the second quarter of 1999. SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999. Operating Revenue, Net. Net operating revenue for the six months ended June 30, 2000 was $159.5 million, representing an increase of $59.6 million, or 59.7 %, from operating revenue of $99.9 million for the six months ended June 30, 1999. The increases in operating revenue among the various businesses were as follows: Six Months Ended June 30, 2000 1999 % Increase Core businesses $159.5 $99.9 $59.6 59.7% Divested 0.0 0.0 0.0 0.0% businesses $159.5 $99.9 $59.6 59.7% The increase in the revenue of the core businesses was due mostly to the Sterling Acquisition. For the six months ended June 30, 2000, the emergency physician management business generated approximately $140.3 in revenue, which was an increase of approximately $58.2 million, or 70.9%, from approximately $82.1 million of revenue for the six months ended June 30, 1999. Approximately $59.7 of this increase was attributable to Sterling, offset by a decrease in the non-Sterling contracts, related to contract terminations. The government services group accounted for approximately $9.1 million for the six months ended June 30, 2000, which was an increase of approximately $0.4 million, or 4.6%, from $8.7 million for the six months ended June 30, 1999. Revenue for the billing and collections operations was $10.1 million for the six months ended June 30, 2000, which was an increase of approximately $1.1 million, or 12.2%, from $9.0 million for the six months ended June 30, 1999, due to growth in the billing contracts and fees. Revenue of the billing and business management operations excludes intersegment revenue of approximately $13.5 million for the six months ended June 30, 2000 and approximately $7.5 million for the six months ended June 30, 1999, representing fees billed to the emergency physician management business. Other miscellaneous revenue was $0.1 million during the six months ended June 30, 1999. Physician and Other Provider Services Costs and Expenses. Physician and other provider services costs and expenses consist primarily of fees paid to physicians and other health care providers. Physician and other provider services costs and expenses increased by approximately $52.4 million, or 75.6%, to approximately $121.7 million for the six months ended June 30, 2000 from approximately $69.3 million for the six months ended June 30,1999. Physician and other provider services costs and expenses increased as follows: Six Months Ended June 30, 2000 1999 Increase % Core businesses $121.7 $69.3 $52.4 75.6% Divested 0.0 0.0 0.0 0.0% businesses $121.7 $69.3 $52.4 75.6% These expenses for the core businesses increased mostly because of the Sterling acquisition. For the six months ended June 30, 2000, physician and other provider services costs and expenses for the emergency physician management group were approximately $114.6 million. This represented an increase of $52.4 million, or 84.2%, from $62.2 million for the six months ended June 30, 1999. Approximately $52.8 of this increase was attributable to Sterling, offset by a decrease in the non-Sterling contracts, related to contract terminations. The government services group's expenses were approximately $7.1 million for the six months ended June 30, 2000, and June 30, 1999. The billing and business management operations did not incur physician and other provider services costs and expenses. Medical Support Services Costs and Expenses. Medical support services costs and expenses include all other direct costs and expenses of practice management activities, as well as billing, collection and physician business management services costs and expenses. Medical support services costs and expenses increased by $0.3 million, or 1.7%, to $17.7 million for the six months ended June 30, 2000 from $17.4 million for the six months ended June 30, 1999. Medical support services costs and expenses increased as follows: Six Months Ended June 30, 2000 1999 Increase % Core businesses $17.7 $17.4 $0.3 1.7% Divested 0.0 0.0 0.0 0.0% businesses $17.7 $17.4 $0.3 1.7% These expenses for the core businesses increased due to contract terminations in the emergency physician management group offset by growth in the billing operations. For the six months ended June 30, 2000, medical support services costs and expenses for the emergency physician management group were approximately $2.0 million. This represented a decrease of $1.3 million, or 39.4%, from $3.3 million for the six months ended June 30,1999. The government services group's expenses were approximately $0.9 million for the six months ended June 30, 2000 and June 30, 1999. The billing and business management group's expenses were approximately $14.8 million for the six months ended June 30, 2000 representing an increase of approximately $1.6 million, or 12.1%, from approximately $13.2 million for the six months ended June 30, 1999. Selling, General and Administrative Costs and Expenses. Selling, general and administrative costs and expenses increased by $16.3 million, or 110.9%, to $31.0 million for the six months ended June 30, 2000 from $14.7 million for the six months ended June 30, 1999. Selling, general and administrative costs and expenses increased as follows: Six Months Ended June 30, 2000 1999 Increase % Core businesses $31.0 $14.7 $16.3 110.9% Divested 0.0 0.0 0.0 0.0 businesses $31.0 $14.7 $16.3 110.9% Selling, general and administrative costs and expenses for the core businesses increased primarily because of the Sterling and Per Se acquisitions. For the six months ended June 30, 2000, selling, general and administrative costs and expenses for the Physician Contract group were approximately $20.6 million. This represented an increase of $10.3 million, or 100.0%, from $10.3 million for the six months ended June 30, 1999. Approximately $9.2 million of the increase is attributable to the Sterling acquisition. The government services group's expenses were approximately $0.3 million for the six months ended June 30, 2000 representing a decrease of approximately $0.1 million, or 25.0%, from approximately $0.4 million for the six months ended June 30, 1999. The billing and business management group's expenses were approximately $5.5 million for the six months ended June 30, 2000 representing an increase of approximately $4.6 million, or 511.1%, from approximately $0.9 million for the six months ended June 30, 1999. Approximately $4.4 million of the increase is attributable to the Per Se acquisition. Selling, general and administrative costs and expenses for the corporate group increased to approximately $4.6 million for the six months ended June 30, 2000 representing an increase of approximately $1.5 million, or 48.4%, from approximately $3.1 million for the six months ended June 30, 1999. The increase in selling, general and administrative costs and expenses for the corporate group is primarily related to legal payments. Related party expense, net. Related party expenses, net increased by $0.5 million, or 166.7%, to $0.8 million for the six months ended June 30, 2000 from $0.3 million for the six months ended June 30, 1999. This increase is primarily due to rent and premium expense to related parties. Interest Expense. Interest expense increased by $2.7 million to $7.9 million for the six months ended June 30, 2000 from $5.2 million for the six months ended June 30, 1999 due primarily to the Sterling and PerSe Acquisitions resulting in higher outstanding amounts of debt during the six months ended June 30, 2000. The costs associated with the sale of eligible accounts receivable for the six months ended June 30, 2000 and 1999 have been included in selling, general and administrative expenses. Other, expenses. Other expenses increased by $2.9 million or 54.7% , to $8.2 million for the six months ended June 30, 2000 from $5.3 million for the six months ended June 30, 1999, primarily due to the increase in interest expense. Benefit (provision) for income taxes. There was no benefit (provision) for income taxes for the six months ended June 30, 2000 and 1999. This is due to continued net operating losses. Net Loss. Primarily as a result of the foregoing, the Company reported a net loss of $20.0 million for the six months ended June 30, 2000 compared to a net loss of $7.1 million for the six months ended June 30, 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's primary financing source consists of three accounts receivable sale programs with affiliates of NCFE. Under these programs, NCFE purchases qualified receivables generated by the Company or acquired by the Company from independent contractor physicians. The proceeds from these sales are used to fund the Company's working capital needs. One program purchases receivables generated by the hospital contracts of the Company other than those acquired in the Sterling Acquisition (the "Coastal Program"), one program purchases receivables generated by the hospital contracts acquired in the Sterling Acquisition (the "Sterling Program"), and a third program purchases receivables generated in the Government Services business (the "Government Program"). The Emergency Physician Management business and the Government Services business have not been able to generate sufficient receivables to sell to the programs to finance the ongoing working capital needs of the Company. NCFE has supported the Company by funding the purchase of receivables billed by the Company and those to be billed in the future by the Company. As of June 30, 2000, the Company had outstanding advances of approximately $221 million of receivables financing, net of reserves held on the outstanding balances of which approximately $78 million related to billed receivables and approximately $143 million of which related to future receivables. Financing related to the purchase of future receivables is reflected as long-term debt in the accompanying financial statements. The Coastal Program provides for the purchase of up to $115 million of receivables and terminates on June 30, 2001. The Sterling Program provides for the purchase of up to $95 million of receivables and terminates on June 30, 2003. The Government Program provides for the purchase of up to $50 million of receivables and terminates on June 30, 2001. Of the total purchase commitments of $260 million on these facilities, including reserve balances there is no remaining availability for purchases at June 30, 2000. Pursuant to the Sale Agreement, the Company pays a program fee ranging from approximately 10.94% to approximately 12.50% per annum on the outstanding amount of uncollected purchased current and future receivables. The Company also borrowed $6.7 million from NCFE under a note dated December 14, 1999. The funds were used to terminate the billing agreement with a subsidiary of Per Se Technologies, Inc. and to acquire certain of its billing operations in December 1999. The note is repayable in nine monthly installments beginning January 14, 2000, including interest at 13% per annum. Under a separate loan and security agreement, an affiliate of NCFE has agreed to provide the Company with a revolving line of credit of up to $20 million through June 30, 2001. Interest on outstanding amounts under this line of credit is payable monthly at prime plus 4%. The line of credit is secured by substantially all of the Company's assets, including pledges of the common stock of each of its subsidiaries. There is no outstanding balance as of June 30, 2000. The Company has met its cash requirements during the periods covered by the accompanying consolidated financial statements through the sale of certain existing accounts receivable and advances against receivables expected to be generated in the future, as more fully discussed below. The Company's principal uses of cash have been to support operating activities. Net cash used in operating activities increased by $7.7 million, or 58.8%, for the six months ended June 30, 2000, to $20.8 million as compared to $13.1 million for the six months ended June 30, 1999. The Company's net use of cash to support operating activities resulted primarily from operating losses, including medical costs of providers, administrative expenses, legal and professional fees and information technology initiatives. Net cash used in investing activities was $0.5 million for the six months ended June 30, 2000. Net cash provided by investing activities was $0.6 million for the six months ended June 30, 1999. Net cash provided by financing activities increased by $7.1million, or 50.0%, to $21.3 million for the six months ended June 30, 2000, from $14.2 million for the six months ended June 30, 1999. During the six months ended June 30, 2000, the Company had net borrowings of $21.3 million as compared to $14.1 million for the six months ended June 30, 1999. Net borrowings increased during the six months ended June 30, 2000 in order to fund the Company's net cash used to support operating activities. The Company expects to satisfy its anticipated demands and commitments for cash in the next twelve months from the amounts available under the various agreements with NCFE discussed above, as well as a reduction in cash used in operations. The Company continues to review all aspects of the business units and implement actions to improve cash flow and profitability. Among the key actions being implemented by the Company are changes in the method of compensating the independent contractor physicians under the Practice Partners Program. The Company also centralized certain administrative tasks and is evaluating ways of expanding its customer base. The primary objectives are to increase cash flow to repay debt, to improve overall financial results and improve the Company's stock price. If the Company is unable to achieve these objectives, it will likely experience a material decrease in liquidity which would cause the Company to increase its reliance on financing under the revolving line of credit provided by an affiliate of NCFE. Until the Company significantly improves cash flow, it will be dependent upon the continued weekly purchases of eligible accounts receivable by NCFE and the line of credit provided by an affiliate of NCFE in order to meet its obligations. For the foreseeable future, to continue as a going concern, the Company will depend upon NCFE to fund its working capital needs either by purchases of current and future accounts receivable or through the line of credit. The Company's accounts receivables sales programs and line of credit with NCFE have been extended to June 30, 2001 and beyond. Management believes that NCFE will be able to fulfill the Company's needs. The consolidated financial statements do not include any adjustments to the financial statements that might be necessary should NCFE not provide the necessary working capital or should the Company be unable to continue as a going concern. Quantitative and Qualitative Disclosures About Market Risk. The table below provides quantitative disclosure information about the Company's market risk sensitive instruments as of June 30, 2000 and December 31, 1999. The market risk sensitive instruments are categorized as instruments entered into for other than trading purposes. The Company's primary market risk exposure is associated with debt obligations arising from three accounts receivable sale programs with affiliates of NCFE, and a note payable to NCFE. These debt obligations are maintained at fixed interest rates. The details on how these programs are managed are described in the preceding section on Liquidity and Capital Resources. The information is presented in U.S. dollar equivalents, which is the Company's reporting currency. Liabilities June 30, 2000 December 31, 1999 Long-term Debt Fixed Rate $149,483 $128,213 Weighted Average 11.29% 11.29% Interest Rate Forward-looking Information or Statements: Except for statements of historical fact, statements made herein are forward-looking in nature and are inherently subject to uncertainties. The actual results of the Company may differ materially from those reflected in the forward-looking statements based on a number of important risk factors, including, but not limited to: the level and timing of improvements in the operations of the Company's businesses; the possibility that the Company may not be able to improve operations as planned; the inability to obtain continued and/or additional necessary working capital financing as needed; and other important factors discussed above under "Other Trends and Uncertainties" and disclosed from time to time in the Company's Form 10-K, Form 10-Q and other periodic reports filed with the Securities and Exchange Commission. PART II - OTHER INFORMATION Item 6. - Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated. PHYAMERICA PHYSICIAN GROUP, INC. (Registrant) Name Title Date /S/Steven M. Scott, M.D. Chairman of the Board of August 10, 2000 Steven M. Scott, M.D. Directors, President and Chief Executive Officer /S/Marc Weiner Interim Chief Financial Officer August 10, 2000 Marc Weiner and Executive Vice President EX-27 2 0002.txt
5 0000874787 PHYAMERICA PHYSICIAN GROUP, INC. 1,000 US DOLLARS 6-MOS DEC-31-2000 JUN-30-2000 1.0 0 0 43,705 0 0 49,994 7,395 0 84,267 54,195 0 0 0 428 (116,730) 84,267 159,489 159,489 171,292 171,292 0 0 7,944 (20,005) 0 (20,005) 0 0 0 (20,005) (0.47) (0.47)
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