-----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, L/EKh53CeucnH5tBBRsXrX+fNIvmxfsBxC08ggtaPAkosNtbXlCbXxdMfYyc7x/1 MDvd85Z10rEYy61TBS4aGg== 0000950144-96-005621.txt : 19960816 0000950144-96-005621.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950144-96-005621 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHYCOR INC/TN CENTRAL INDEX KEY: 0000881400 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-OFFICES & CLINICS OF DOCTORS OF MEDICINE [8011] IRS NUMBER: 621344801 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19786 FILM NUMBER: 96614703 BUSINESS ADDRESS: STREET 1: 30 BURTON HILLS BLVD STREET 2: STE 400 CITY: NASHVILLE STATE: TN ZIP: 37215 BUSINESS PHONE: 6156659066 MAIL ADDRESS: STREET 1: 30 BURTON HILLS BLVD STREET 2: STE 400 CITY: NASHVILLE STATE: TN ZIP: 37215 10-Q 1 PHYCOR, INC. FORM 10-Q 06-30-96 1 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 June 30, 1996, or [ ] Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____________ to _______________. COMMISSION FILE NO.: 0-19786 PHYCOR, INC. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) TENNESSEE 62-1344801 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 BURTON HILLS BLVD., SUITE 400 NASHVILLE, TENNESSEE 37215 - ---------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (615) 665-9066 -------------------------- NOT APPLICABLE - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- As of August 12, 1996, 54,357,098 shares of the Registrant's Common Stock were outstanding. 2 PHYCOR, INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 1996 (unaudited) and December 31, 1995 (All dollar amounts are expressed in thousands)
JUNE 30, DECEMBER 31, ASSETS 1996 1995 ------ -------- ------------ (Unaudited) Current assets: Cash and cash equivalents $ 37,594 18,827 Accounts receivable, net 216,156 167,028 Inventories 11,840 8,939 Prepaid expenses and other assets 29,074 22,727 -------- ------- Total current assets 294,664 217,521 Property and equipment, net 132,709 108,813 Intangible assets 446,037 308,963 Due from physician groups 12,954 8,289 -------- ------- Total assets $886,364 643,586 ======== ======= LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Current installments of long-term debt $ 305 587 Current installments of obligations under capital leases 1,514 1,799 Accounts payable 19,175 20,020 Income taxes payable 302 2,714 Due to physician groups 59,082 48,917 Salaries and benefits payable 16,777 11,381 Other accrued expenses and liabilities 38,636 20,683 -------- ------- Total current liabilities 135,791 106,101 Long-term debt, excluding current installments 12,392 65,905 Obligations under capital leases, excluding current installments 1,306 1,637 Convertible subordinated debentures 200,000 - Convertible subordinated notes payable to physician groups 61,371 59,369 Due to physician groups 47,577 13,722 Deferred tax credits and other liabilities 13,337 8,030 -------- ------- Total liabilities 471,774 254,764 -------- ------- Shareholders' equity : Preferred stock, no par value; 10,000,000 shares authorized: - - Common stock, no par value; 250,000,000 shares authorized; issued and outstanding, 54,334,000 in 1996 and 53,399,000 shares in 1995 372,870 363,211 Retained earnings 41,720 25,611 -------- ------- Total shareholders' equity 414,590 388,822 -------- ------- Total liabilities and shareholders' equity $886,364 643,586 ======== =======
See accompanying notes to consolidated financial statements. 2 3 PHYCOR, INC. AND SUBSIDIARIES Consolidated Statements of Earnings Three months and six months ended June 30, 1996 and 1995 (All amounts are expressed in thousands, except for earnings per share) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------ 1996 1995 1996 1995 -------- ------ ------- ------- Net revenue $176,643 99,146 339,144 191,910 Operating expenses (income): Clinic salaries, wages and benefits 67,151 37,209 129,766 71,812 Clinic supplies 27,198 15,459 51,076 29,100 Purchased medical services 4,896 4,200 9,924 8,102 Other clinic expenses 29,402 15,068 56,546 30,673 General corporate expenses 5,289 3,404 10,275 6,923 Rents and lease expense 14,861 8,030 28,039 15,798 Depreciation and amortization 9,121 4,937 17,562 9,552 Interest income (1,323) (315) (2,037) (571) Interest expense 3,777 1,830 6,555 2,958 Minority interests in earnings of consolidated partnerships 2,581 1,816 5,244 3,210 -------- -------- -------- -------- Net operating expenses 162,953 91,638 312,950 177,557 -------- -------- -------- -------- Earnings before income taxes 13,690 7,508 26,194 14,353 Income tax expense 5,271 2,891 10,085 5,560 -------- -------- -------- -------- Net earnings $ 8,419 4,617 16,109 8,793 ======== ======== ======== ======== Earnings per common share $ .14 .09 .27 .18 ======== ======== ======== ======== Weighted average number of shares and share equivalents outstanding 60,669 48,978 60,377 48,141 ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 3 4 PHYCOR, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Three months and six months ended June 30, 1996 and 1995 (All dollar amounts are expressed in thousands) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ----------------------- 1996 1995 1996 1995 -------- ------- ------- ------- Cash flows from operating activities: Net earnings $ 8,419 4,617 16,109 8,793 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 9,121 4,937 17,562 9,552 Minority interests (698) 587 1,394 1,981 Increase (decrease) in cash, net of effects of acquisitions, due to changes in: Accounts receivable (3,083) 2,140 (15,625) (6,229) Inventories (603) (349) (945) (769) Prepaid expenses and other assets (855) (1,537) (6,105) (1,873) Accounts payable (984) (328) (4,495) 146 Due to physician groups (476) (724) 2,606 4,653 Other accrued expenses and liabilities 1,808 (2,255) 11,977 908 -------- ------- ------- ------- Net adjustments 4,230 2,471 6,369 8,369 -------- ------- ------- ------- Net cash provided by operating activities 12,649 7,088 22,478 17,162 -------- ------- ------- ------- Cash flows from investing activities: Payments for acquisitions, net (42,259) (21,980) (121,690) (64,297) Purchase of property and equipment (10,302) (7,195) (23,463) (13,650) Payments to acquire other assets (1,158) (954) (855) (2,121) -------- ------- ------- ------- Net cash used by investment activities (53,719) (30,129) (146,008) (80,068) -------- ------- ------- ------- Cash flows from financing activities: Net proceeds from issuance of convertible debentures (63) - 194,395 - Proceeds from long-term borrowings 8,000 27,000 50,000 72,100 Repayment of long-term borrowings (283) (99,594) (104,364) (99,636) Repayment of obligations under capital leases (237) (309) (820) (865) Net proceeds from issuance of stock and warrants 1,985 113,217 3,086 113,406 Loan costs incurred - - - (143) -------- ------- ------- ------- Net cash provided by financing activities 9,402 40,314 142,297 84,862 -------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents (31,668) 17,273 18,767 21,956 Cash and cash equivalents - beginning of period 69,262 11,143 18,827 6,460 -------- ------- ------- ------- Cash and cash equivalents - end of period $ 37,594 28,416 37,594 28,416 ======== ======= ======= =======
See accompanying notes to consolidated financial statements. 4 5 PHYCOR, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows, Continued Three months and six months ended June 30, 1996 and 1995 (All dollar amounts are expressed in thousands) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ------------------------ 1996 1995 1996 1995 -------- ------- ------- ------- SUPPLEMENTAL SCHEDULE OF INVESTING ACTIVITIES: Effects of acquisitions: Assets acquired, net of cash $ 64,524 24,957 185,944 93,007 Liabilities assumed (16,475) (2,977) (55,600) (22,609) Issuance of convertible subordinated notes payable (5,365) - (8,229) (6,101) Issuance of common stock and warrants (425) - (425) - -------- ------- ------- ------- Payments for acquired assets $ 42,259 21,980 121,690 64,297 ======== ======= ======= ======= SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Capital lease obligations incurred to acquire equipment $ - 61 186 61 ======== ======= ======= ======= Conversion of subordinated debentures and notes payable to common stock $ 2,985 1,193 6,143 33,244 ======== ======= ======= =======
See accompanying notes to consolidated financial statements. 5 6 PHYCOR, INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements Three months and six months ended June 30, 1996 and 1995 (1) BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial reporting and in accordance with Rule 10-01 of Regulation S-X. In the opinion of management, the unaudited interim financial statements contained in this report reflect all adjustments, consisting of only normal recurring accruals which are necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements, footnote disclosures and other information should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. (2) ACQUISITIONS During 1996 and 1995, the Company, through wholly-owned subsidiaries, acquired certain operating assets of the following clinics:
CLINIC EFFECTIVE DATE LOCATION ------ -------------- -------- 1996: Arizona Physicians Center January 1, 1996 Phoenix, Arizona Clinics of North Texas March 1, 1996 Wichita Falls, Texas Carolina Primary Care May 1, 1996 Columbia, South Carolina Harbin Clinic May 1, 1996 Rome, Georgia 1995: Tidewater Physicians Multispeciality Group January 1, 1995 Newport News, Virginia Northeast Arkansas Clinic March 1, 1995 Jonesboro, Arkansas PAPP Clinic May 1, 1995 Newnan, Georgia Ogden Clinic June 1, 1995 Ogden, Utah Arnett Clinic August 1, 1995 Lafayette, Indiana Casa Blanca Clinic September 1, 1995 Mesa, Arizona South Texas Medical Clinics November 1, 1995 Wharton, Texas South Bend Clinic (A) November 1, 1995 South Bend, Indiana Guthrie Clinic (B) November 17, 1995 Sayre, Pennsylvania
(A) The South Bend Clinic was operated by the Company under a management agreement between November 1, 1995 and December 31, 1995. Effective January 1, 1996, the Company completed the purchase of certain clinic operating assets and entered into a 40-year service agreement with the affiliated physician group. (B) The Company has entered into a series of agreements with Guthrie Clinic whereby the Company agreed to provide management services for up to five years and agreed, pending satisfaction of certain conditions, to acquire certain assets of the clinic prior to the termination or expiration of the interim management agreement. In addition, the Company acquired certain operating assets of various individual physician practices and single specialty groups which were merged into clinics already operated by the Company. The acquisitions were accounted for as purchases, and the accompanying consolidated financial statements include the results of their operations from the dates of their respective acquisitions. Simultaneous with each acquisition, the Company entered into a long-term service agreement with the related clinic physician group. The service agreements are 40 years in length. In conjunction with certain acquisitions, the Company is obligated to make deferred payments to physician groups. Such payments are included in amounts due to physician groups in the accompanying balance sheets. (Continued) 6 7 PHYCOR, INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements Effective January 1, 1995, the Company completed its merger with North American Medical Management, Inc. ("North American"), an operator and manager of independent practice associations (IPAs). North American IPAs provide capitated medical services through over 7,000 affiliated physicians. The Company may make future payments for the North American acquisition pursuant to an earn-out formula during 1996, 1997, and 1998 of up to an aggregate of $70 million, subject to adjustment to a maximum of $130 million in the event of future acquisitions by North American of additional interests in IPA management entities. The first of such payments was made in the first quarter of 1996. Of the future payments made, a portion may be payable in shares of the Company's common stock. The unaudited consolidated pro forma results of all current, continuing operations assuming all 1996 and 1995 acquisitions, excluding the Guthrie Clinic which is operated under a management agreement, had been consummated on January 1, 1995 are as follows (in thousands, except for earnings per share):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------ 1996 1995 1996 1995 -------- ------- ------- ------- Net revenue $179,682 138,107 335,447 273,180 Earnings before income taxes 13,951 10,275 27,435 20,145 Net earnings 8,580 6,319 16,872 12,326 Earnings per common share .14 .12 .28 .25 Weighted average number of shares and share equivalents outstanding 60,687 51,065 60,465 50,397
(3) NET REVENUE Revenue for all physician groups is recorded at established rates reduced by allowances for doubtful accounts and contractual adjustments. Contractual adjustments arise due to the terms of certain reimbursement and managed care contracts. Such adjustments represent the difference between charges at established rates and estimated reimbursable amounts and are recognized by the physician groups in the period the services are rendered. Any differences between estimated contractual adjustments and actual final settlements under reimbursement contracts are recorded by the physician groups as contractual adjustments in the period final settlements are made. The following represent amounts included in the determination of net revenue (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------ 1996 1995 1996 1995 -------- ------- ------- ------- Gross physician group revenues $450,526 239,274 855,636 466,078 Less: Provisions for doubtful accounts and contractual adjustments 162,791 80,593 305,139 154,512 -------- ------- ------- ------- Net physician group revenue 287,735 158,681 550,497 311,566 IPA revenue 59,966 33,541 112,852 61,631 Less amounts retained by physician groups and IPAs: IPAs 48,669 26,513 91,258 49,287 Physician groups 110,832 60,016 210,754 119,310 Clinic technical employee compensation 11,557 6,547 22,193 12,690 -------- ------- ------- ------- Net revenue $176,643 99,146 339,144 191,910 ======== ======= ======= =======
(Continued) 7 8 PHYCOR, INC. AND SUBSIDIARIES Notes to Unaudited Consolidated Financial Statements (4) CAPITALIZATION During February 1996, the Company completed a public offering of convertible subordinated debentures, which mature in 2003. Gross and net proceeds from the offering were $200,000,000 and approximately $194,400,000, respectively. The debentures were priced at par with a coupon rate of 4.5% and are convertible into the Company's common stock at $38.67 per share. The debentures may not be redeemed at the Company's option prior to February 15, 1998. From February 15, 1998 to February 15, 1999, the debentures may be redeemed only if the price of the Company's common stock exceeds $54.13. From February 15, 1999 to maturity, the debentures may be redeemed by the Company at prices decreasing from 102.572% of face value to face value. On May 15, 1996, the Company's shareholders approved an amendment to the Company's Restated Charter which increased from 100,000,000 shares to 250,000,000 shares the number of authorized shares of the Company's Common Stock. On May 10, 1996, the Company declared a three-for-two split effected in the form of a 50% stock dividend on outstanding shares distributed June 14, 1996 to shareholders of record on May 29, 1996. All common shares and per share data included in the financial statements and footnotes thereto are restated to reflect the stock split. (5) SUBSEQUENT EVENTS Effective July 1, 1996, the Company completed the purchase of certain clinic operating assets of Focus Health Services/Front Range Medical Management, a multi-specialty physician clinic and management company based in Denver, Colorado and entered into a 40-year service agreement with the 58-physician group and 240-physician IPA associated with the clinic. Also, effective July 1, 1996, the Company completed the purchase of certain clinic operating assets of Clark- Holder Clinic, a multi-specialty physician clinic based in LaGrange, Georgia and entered into a 40-year service agreement with the 47-physician group associated with the clinic. Effective August 1, 1996, the Company completed the purchase of certain clinic operating assets of Medical Arts Clinic, a 43-physician multi-specialty clinic based in Minot, North Dakota, Wilmington Health Associates, a 42-physician multi-specialty clinic based in Wilmington, North Carolina and Gulf Coast Medical Group, a 38-physician multi-specialty clinic based in Galveston, Texas and entered into a 40- year service agreements with the physician groups associated with the clinics. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW PhyCor is a physician practice management company that operates multi-specialty clinics and independent practice associations ("IPAs"). The Company owns and operates 40 clinics with approximately 2,400 physicians in 22 states and manages IPAs with over 7,000 physicians in 14 markets. The Company's clinics and IPAs provide capitated medical services to approximately 682,000 patients, including approximately 85,000 Medicare-eligible patients. The Company's strategy is to position its affiliated primary care-anchored multi-specialty clinics and IPAs as the physician component of competitive networks that are developing as the health care system reforms. PhyCor believes physician organizations create the value in these networks as the decisions of physicians drive the cost and quality of health care. Most of the revenue in 1995 and 1996 was earned under clinic service agreements. Revenue earned under the service agreements is equal to the net revenue of clinics, less amounts retained by physician groups. The service agreements contain financial incentives for the Company to assist the physician groups in increasing clinic revenues and controlling expenses. To increase clinic revenue, the Company works with the affiliated physician groups to recruit additional physicians, merge other physicians practicing in the area into the affiliated physician groups, negotiate contracts with managed care organizations and provide ancillary services. To reduce or control expenses PhyCor utilizes, among other things, national purchasing contracts for key items, reviews staffing levels to make sure they are appropriate and assists the physicians in developing more cost-effective clinical practice patterns. The Company has increased its focus on the development of IPAs to enable the Company to provide services to a broader range of physician organizations, to enhance the operating performance of existing clinics and to further develop physician relationships. The Company develops IPAs that include affiliated clinic physicians to enhance the clinics' attractiveness as providers to managed care organizations. PhyCor expanded its presence in the IPA management business in 1995 when it acquired North American Medical Management, Inc. ("North American"), which develops and manages IPAs. The Company also made a minority investment in PhyCor Management Corporation ("PMC"). PMC develops and manages IPAs and provides management services to physician organizations. 9 10 During the first six months of 1996, PhyCor acquired certain operating assets of five multi-specialty clinics, including the South Bend Clinic, which the Company operated under a management agreement during November and December 1995, and numerous individual physician and single specialty practices, for a total consideration of $158.3 million. The principal assets acquired were accounts receivable, property and equipment and service agreement costs, an intangible asset. The consideration for clinic asset acquisitions in the first six months of 1996 consisted of approximately 68% cash, 27% liabilities assumed and 5% convertible notes, warrants and stock. The cash portion of the purchase price was funded by a combination of operating cash flow, proceeds from the issuance of convertible subordinated debentures, and borrowings under the Company's bank credit facility. Property and equipment acquired consists primarily of clinic operating equipment, although the Company does own certain land and buildings. Service agreement costs are amortized over the life of the related service agreement, with recoverability assessed periodically. Effective July 1, 1996, the Company acquired the assets of a 58-physician group based in Denver, Colorado and entered into a 40-year service agreement with the group and the associated 240-physician IPA. The Company also acquired the assets of a 47-physician group in LaGrange, Georgia, effective July 1, 1996. Effective August 1, 1996, the Company acquired the assets of a 43-physician group in Minot, North Dakota; a 42-physician group in Wilmington, North Carolina; and a 38-physician group based in Galveston, Texas. The Company also entered into 40-year service agreements with these physician groups. 10 11 RESULTS OF OPERATIONS The following table shows the percentage of net revenue represented by various expense and other income items reflected in the Company's Consolidated Statements of Earnings.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1996 1995 1996 1995 ------ ----- ----- ----- Net Earnings................ 100.0% 100.0% 100.0% 100.0% Operating expenses: Clinic salaries, wages and benefits ................... 38.0 37.5 38.3 37.4 Clinic supplies ............ 15.4 15.6 15.1 15.1 Purchased medical services . 2.8 4.2 2.9 4.2 Other clinic expenses ...... 16.6 15.2 16.7 16.0 General corporate expenses . 3.0 3.4 3.0 3.6 Rents and lease expense .... 8.4 8.1 8.3 8.2 Depreciation and amortization ............... 5.1 5.0 5.2 5.0 Interest income ............ (0.7) (0.1) (0.6) (0.1) Interest expense ........... 2.1 1.8 1.9 1.5 Minority interest in earnings of consolidated partnerships ............... 1.5 1.7 1.5 1.6 ----- ----- ----- ----- Net operating expenses ... 92.2 92.4 92.3 92.5 ----- ----- ----- ----- Earnings before income taxes .................... 7.8 7.6 7.7 7.5 Income tax expense.......... 3.0 2.9 3.0 2.9 ----- ----- ----- ----- Net earnings ............. 4.8% 4.7% 4.7% 4.6% ===== ===== ===== =====
1996 Compared to 1995 Net revenue increased from $99.1 million for the second quarter of 1995 to $176.6 million for the second quarter of 1996, an increase of 78% and from $191.9 million to $339.1 million for the first six months of 1995 compared to 1996, an increase of 77%. Net revenue from the 23 service agreements in effect for both periods increased by 18.6% for the second quarter and 18.1% for the first six months of 1996 compared with the same periods in 1995. Same clinic growth resulted from the addition of new physicians, the expansion of ancillary services, increases in patient volume and increases in fees. The remaining increase was the result of the acquisition of clinic assets. 11 12 During the second quarter and the first six months of 1996, most categories of operating expenses were relatively unchanged as a percentage of net revenue when compared to the same periods in 1995, despite the large increase in the amount of such expenses resulting from acquisitions and clinic growth. The increase in clinic salaries, wages and benefits resulted from the acquisition of clinics with higher levels of these expenses compared to the existing base of clinics and the addition of primary care physicians at existing clinics. The ratio of staffing costs to net revenue is higher for primary care practices than for specialty care. The reductions in purchased medical services as a percentage of net revenue resulted from the Company's continuing efforts to reduce clinic operating costs by improving the productivity of non-physician personnel and limiting payments for outside medical services. While general corporate expenses decreased as a percentage of net revenue, the dollar amount of general corporate expenses increased as a result of the addition of corporate personnel to accommodate increased acquisition activity and to respond to increasing physician group needs for support in managed care negotiations, information systems implementation and clinical outcomes management programs. Income tax expense increased from the prior year as a result of the Company's increased profitability. The Company expects an effective tax rate of approximately 38.5% in 1996. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1996, the Company had $158.9 million in working capital, up from $111.4 million as of December 31, 1995. Also, the Company generated $12.6 million of cash flow from operations for the second quarter of 1996 compared to $7.1 million for the second quarter of 1995 and $22.5 million for the first six months of 1996 compared to $17.2 million for the same period in 1995. At June 30, 1996, net accounts receivable of $216.2 million amounted to 70 days of net clinic revenue compared to $201.1 million and 73 days at March 31, 1996 and $167.0 million and 68 days at the end of the prior year. The increase is attributable to growth in revenues at the Company's clinics and seasonal factors affecting payments from some payors and patients' responsibility for beginning of year deductible requirements. During February 1996, the Company completed a public offering of convertible subordinated debentures, which mature in 2003. Gross and net proceeds from the offering were $200.0 million and approximately $194.4 million, respectively. The debentures were priced at par with a coupon rate of 4.5% and are convertible into the Company's common stock at $38.67 per share. The debentures may not be redeemed at the Company's option prior to February 15, 1998. From February 15, 1998 to February 15, 1999, the debentures may be redeemed only if the price of the Company's common stock exceeds $54.13. From February 15, 1999 to maturity, the debentures may be redeemed by the Company at prices decreasing from 102.572% of par value to par value. As a result of the issuance of convertible subordinated debentures during the quarter, debt was 43.8% of total capitalization at June 30, 1996, compared to 26.6% at the end of 1995. 12 13 In the first six months of 1996, $6.1 million of convertible subordinated notes issued in connection with physician group asset acquisitions were converted into common stock. These conversions, option exercises and net earnings for the first six months of 1996 resulted in an increase of $25.8 million in shareholders' equity compared to December 31,1995. Capital expenditures during the first six months of 1996 totaled $23.5 million. In addition, deferred acquisition payments are payable to physician groups in the event such physician groups attain predetermined financial targets during established periods of time following the acquisitions. If each group satisfied their applicable financial targets for the periods covered, the Company would be required to pay an aggregate of approximately $52.0 million of additional consideration over the next five years, of which $15.4 million would be payable during the remainder of 1996. The Company is committed to make specified levels of capital expenditures, including the financing of the acquisition of the assets of physician practices, under its service agreements. The Company expects to make approximately $27 million in capital expenditures during the remainder of 1996. In July 1996, the Company completed modifications to its bank credit facility which included the revision of certain terms and conditions and the addition of six participating financial institutions. The Company's bank credit facility provides for a five year, $200.0 million revolving line of credit and a $100.0 million 364-day facility for use by the Company prior to July 2001, for acquisitions, working capital, capital expenditures and general corporate purposes. As of August 12, 1996, $30.0 million in borrowings were outstanding under the Company's bank credit facility. The bank credit facility provides that borrowings under the facility bear interest at the agent's base rate or .25% to .55% above the applicable Eurodollar rate. The Company is required to pay a facility fee of between .10% to .25% per annum on the commitments, payable quarterly in arrears, until the commitments are terminated. The total drawn cost of borrowings under the bank credit facility ranges from .375% to .75% per annum. The bank credit facility contains covenants which, among other things, require the Company to maintain certain financial ratios and impose certain limitations or prohibitions on the Company with respect to (i) the incurring of certain indebtedness, (ii) the creation of security interests on the assets of the Company, and (iii) the payment of cash dividends on, and the redemption or repurchase of, securities of the Company, investments and acquisitions. The Company is required to obtain bank consent for an acquisition with an aggregate purchase price of $50.0 million or more. The Company was in compliance with such covenants at June 30, 1996. At June 30, 1996, the Company had cash and cash equivalents of approximately $37.6 million and, as of August 12, 1996, has $269.5 million available under its bank credit facility. The Company believes that the combination of funds available under its bank credit facility, together with cash reserves and cash flow from operations, should be sufficient 13 14 to meet the Company's currently planned acquisition, expansion, capital expenditures and working capital needs for the next 12 months. In addition, in order to provide the funds necessary for the continued pursuit of the Company's long-term expansion strategy, PhyCor expects to continue to incur, from time to time, additional short-term and long-term bank indebtedness and to issue equity and debt securities, the availability and terms of which will depend upon market and other conditions. There can be no assurance that such additional financing will be available on terms acceptable to the Company. PART II OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The annual meeting of shareholders of the Company was held on Wednesday, May 15, 1996. At this meeting, the following matters were voted upon by the Company's shareholders: (a) Amendment to the Company's Restated Charter The Company's Restated Charter was amended to increase number of shares of Common Stock authorized thereunder from 100,000,000 to 250,000,000. This amendment was approved by the shareholders of the Company by the following vote: Votes Cast in Favor Votes Cast Against Abstentions ------------------- ------------------ ----------- 18,356,318 5,438,503 36,330 (b) Amendment to the Company's Amended 1988 Incentive Stock Plan The Company's shareholders approved the amendment to the Company's Amended 1988 Incentive Stock Plan to (i) increase from 6,000,000 to 9,000,000 the number of shares of Common Stock authorized thereunder and (ii) amend the definition of the term "retirement" to include the retirement of an employee who is at least 55 years old and has been continuously employed by the Company for a period of at least 20 years. Votes Cast in Favor Votes Cast Against Abstentions ------------------- ------------------ ----------- 14,276,399 6,432,387 52,007 (c) Amendments to the Company's Amended 1991 Employee Stock Purchase Plan The Company's shareholders approved the amendment to the Company's Amended 1991 Employee Stock Purchase Plan to increase from 14 15 562,500 to 1,000,000 the number of shares authorized thereunder by the following vote: Votes Cast in Favor Votes Cast Against Abstentions ------------------- ------------------ ----------- 20,347,488 421,394 49,298 (d) Election of Class II Directors Sam A. Brooks, Jr., Thompson S. Dent and Dr. James A. Moncrief were elected to serve as Class II directors of the Company. The vote was as follows:
Votes Cast Votes Cast Name in Favor Against or Withheld Abstentions - ---- ---------- -------------------- ----------- Sam A. Brooks, Jr. 23,559,164 0 334,739 Thompson S. Dent 23,558,914 0 334,989 Dr. James A. Moncrief 23,558,914 0 334,989
(e) Selection of Auditors The shareholders of the Company ratified the appointment of KPMG Peat Marwick LLP as the Company's independent auditors for the fiscal year ended December 31,1996, by the following vote: Votes Cast in Favor Votes Cast Against Abstentions ------------------- ------------------ ----------- 23,826,961 31,448 19,239 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. Exhibit Number Description of Exhibits ------- ----------------------- 11 -- Statement re Computation of Per Share Earnings 27 -- Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K. The Company did not file any Current Reports on Form 8-K during the quarter ended June 30, 1996. 15 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PHYCOR, INC. By: /s/ John K. Crawford --------------------------- John K. Crawford Chief Financial Officer Date: August 12, 1996 16 17 EXHIBIT INDEX
Exhibit Number Description of Exhibits Page Number ------- ----------------------- ----------- 11 -- Statement re Computation of Per Share Earnings 27 -- Financial Data Schedule (for SEC use only)
EX-11 2 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 PHYCOR, INC. AND SUBSIDIARIES Statement regarding computation of per share earnings Three months and six months ended June 30, 1996 and 1995 (All amounts are expressed in thousands, except for earnings per share)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------ ----------------------- 1996 1995 1996 1995 ------- ------ ------ ------ Earnings per common share: Net income (in thousands) $ 8,419 4,617 16,109 8,793 ======= ====== ====== ====== Earnings per share $ .14 .09 .27 .18 ======= ====== ====== ====== Weighted average common shares outstanding 60,669 48,978 60,377 48,141 ======= ====== ====== ====== Earnings per common share, assuming full dilution: Net income (in thousands) $ 8,419 4,617 16,109 8,793 ======= ====== ====== ====== Earnings per share $ .14 .09 .27 .18 ======= ====== ====== ====== Weighted average common shares outstanding 67,121 49,195 65,752 48,443 ======= ====== ====== ======
Note: The convertible debentures were not included in the calculation of the fully diluted earnings per share since the effect of inclusion would be antidilutive. EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 37,594 0 216,156 0 11,840 294,664 178,015 45,306 886,364 135,791 212,392 0 0 372,870 41,720 886,364 0 339,144 0 301,151 5,244 0 6,555 26,194 10,085 16,109 0 0 0 16,109 .27 .27
-----END PRIVACY-ENHANCED MESSAGE-----