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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported):
January 8, 1998 (January 7, 1998)
MEDPARTNERS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-27276 63-1151076
(Commission File No.) (I.R.S. Employer Identification No.)
3000 Galleria Tower
Suite 1000
Birmingham, Alabama 35244
(Address of Principal Executive Offices)
(205) 733-8996
(Registrant's Telephone Number, Including Area Code)
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Item 5. Other Events
On October 29, 1997, MedPartners, Inc. ("MedPartners") executed a Plan
and Agreement of Merger (the "Merger Agreement") with PhyCor, Inc., a Tennessee
corporation ("PhyCor"), pursuant to which MedPartners was to be merged with and
into PhyCor (the "Merger"). On January 7, 1998, MedPartners and PhyCor issued a
press release announcing the termination of the Merger Agreement. A copy of that
press release is attached hereto as Exhibit 99.1 and is incorporated herein by
reference. On January 7, 1998, MedPartners also issued a press release
announcing certain fourth quarter charges and estimates concerning fourth
quarter earnings and 1998 operating results. A copy of that press release is
attached hereto as Exhibit 99.2 and is incorporated herein by reference. A copy
of certain comments from a conference call with analysts and investors on
January 8, 1998 relating to these events is attached as Exhibit 99.3 and is
incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(c) Exhibits:
99.1 Press Release of MedPartners, Inc. and PhyCor, Inc.
dated January 7, 1998.
99.2 Press release of MedPartners, Inc. dated January 7,
1998.
99.3 Copy of certain comments from a January 8, 1998,
conference call with analysts and investors.
SIGNATURES
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.
MEDPARTNERS, INC.
By /s/ Harold O. Knight, Jr.
-----------------------------------
Harold O. Knight, Jr.
Executive Vice President and
Chief Financial Officer
Dated: January 8, 1998
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EXHIBIT 99.1
CONTACTS:
FOR MEDPARTNERS: FOR PHYCOR:
Larry R. House Joseph C. Hutts
Chairman of the Board and CEO Chairman, President and CEO
or or
Harold O. Knight, Jr. John K. Crawford
Executive Vice President, CFO Chief Financial Officer
(205) 733-8996 (615) 665-9066
Investor Relations: Investor Relations:
Randy Pittman Shawn Carder
Vice President, Finance Director
or (615)665-9066
Tom Bartels
Director-Investor Relations New York Media Contact:
(205) 733-8996 Sam Ostrow (203)328-3018
Media Relations:
Tom Dingledy Other Media Contact:
Vice President-Corporate Communications Tom Lawrence
(205) 733-8996 (615) 665-9066
MEDPARTNERS AND PHYCOR ANNOUNCE
TERMINATION OF MERGER PLAN
BIRMINGHAM, ALABAMA AND NASHVILLE, TENNESSEE, JANUARY 7, 1998--MedPartners,
Inc. (NYSE:MDM) and PhyCor, Inc. (Nasdaq:PHYC) today announced they have
mutually agreed to terminate their plan to merge the two companies. The
boards of directors of both companies had approved a merger agreement on
October 29, 1997.
"After a lengthy review and planning process, we determined
due to significant operational and strategic differences we would be unable to
successfully and effectively integrate the two companies," said Joseph C.
Hutts, chairman, president and chief executive officer of PhyCor. "Each
company takes a much different approach to business in a number of key areas,
including information systems, development and operations. MedPartners is a
very well managed company with tremendous management talent, and I feel sure it
will continue to be very successful in the future."
(MORE)
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Add 1/PhyCor-MedPartners Merger
"The MedPartners' team has worked very hard these past two months to
gain an understanding of PhyCor's business philosophies and practices and to
have them understand ours, and it became apparent the differences in the two
companies were significant," said Larry R. House, MedPartners' chairman and
chief executive officer. "During this time, we have continued to position
MedPartners for the future by strengthening our day-to-day operations and
planning strategic acquisitions."
PhyCor, Inc., headquartered in Nashville,Tennessee, is a physician
practice management company that operates multi-specialty clinics and manages
IPAs. The company operates 55 clinics with approximately 3,860 physicians in 28
states and manages IPAs with over 18,700 physicians in 28 markets.
MedPartners, with headquarters in Birmingham, Alabama, is the nation's
largest manager of physician practices, operating in 40 states. The company
develops, consolidates and manages healthcare delivery systems. Through the
company's network of affiliated group and IPA physicians, MedPartners provides
primary and specialty healthcare services to prepaid managed care enrollees and
fee-for-service patients. MedPartners also manages the nation's largest
independent prescription benefits management (PBM) company. Through the PBM, the
company administers 53 million prescriptions annually.
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EXHIBIT 99.2
Contacts:
Larry R. House Harold O. Knight, Jr.
Chairman of the Board, CEO Exec. VP, CFO
205-733-8996 205-733-8996
Investor Relations: Media Relations:
Randy Pittman Tom Dingledy
VP - Finance VP - Corporate Communications
205-733-8996 205-733-8996
Tom Bartels
Director - Investor Relations
205-733-8996
MEDPARTNERS ANNOUNCES 4TH QUARTER EARNINGS CHARGE;
ESTIMATES OPERATING LOSS IN 4TH QUARTER
Birmingham, Alabama - January 7, 1998-- MedPartners, Inc. (NYSE: MDM) announced
today that it expects to record a pre- tax charge to earnings in the 4th
quarter of approximately $115 million related to the restructuring of certain
of its operating units. This charge is related to: the consolidation of its
Southern California delivery network; the consolidation of several other
operating units in the Southwestern U.S.; disassociations with several smaller
practices; and the previously announced closing of its mail order pharmacy
facility in Richmond, Virginia.
The company is in the process of closing 60 smaller clinic locations
and disassociating from 19 practices with 100 physicians (out of a total of 289
practices with 3,385 physicians at September 30, 1997). Many of the closed
locations are the result of combinations of adjacent or nearby clinic
locations. The disassociations are the result of agreements with a number of
MedPartners' smaller physician groups where the economics of going forward
under the existing clinic service agreements were deemed to be not in the best
interest of MedPartners or the affected groups. The mail order pharmacy in
Richmond represented excess capacity that will be handled by MedPartners
remaining three mail order pharmacy locations.
MedPartners also anticipates a 4th quarter pre-tax charge from
discontinued operations of approximately $30 million. This charge is related
primarily to several receivables and investments in operations previously owned
by the company's Caremark subsidiary that have been determined to have impaired
value or are uncollectable.
The company also announced that it has incurred greater than
anticipated costs during the 4th quarter related primarily to its Western
operations. As a result of these costs, the company believes that its earnings
in the 4th quarter will fall substantially short of analysts' consensus
estimates. While it is not at this time practicable to predict with certainty
what the 4th quarter operating results will be, the company estimates that there
could be a loss in the quarter from continuing operations in the range of $0.20
to $0.25 per share.
(MORE)
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ADD 1/ MEDPARTNERS 4TH QUARTER
The additional costs in the Western operations were due primarily to
higher than expected utilization and additions to medical claim reserves.
MedPartners has determined that these reserves, used primarily to cover
institutional and other medical costs associated with covered lives, needed to
be increased due to changes in the delivery network. The company has taken
steps to insure these reserves remain at appropriate levels in the future.
Included in the fourth quarter operating loss were certain
non-recurring operating expenses. Given that fact, and the actions taken in
the fourth quarter, the company believes it will return to profitability on an
operating basis in the first quarter of 1998. The company now believes that
earnings per share in 1998 will be approximately 30 percent short of analysts'
current consensus estimates of $1.40 to $1.42 for the year.
"These actions, while difficult, give us great confidence in our 1998
business plan goals," said Larry R. House, MedPartners' chairman and chief
executive officer.
MedPartners announced that it expects to release fourth quarter and
year end results the week of February 9.
MedPartners, Inc., based in Birmingham, Alabama, is the nation's
largest manager of physician practices operating in 40 states. The company
develops, consolidates and manages healthcare delivery systems. Through the
company's network of affiliated group and IPA physicians, MedPartners provides
primary and specialty healthcare services to prepaid managed care enrollees and
fee-for- service patients. MedPartners also manages the nation's largest
independent prescription benefits management (PBM) company. Through the PBM,
the company administers 53 million prescriptions annually.
Cautionary Statement: Some of the statements contained in this
release are forward looking statements. As such, they involve risks and
uncertainties, including, but not limited to, statements regarding future
business prospects, revenues, working capital, liquidity, margins, and growth
in net income and earnings per share. It is possible that actual results could
differ materially from those projected in these forward looking statements. A
discussion of a number of important factors and assumptions regarding these
statements and risks involved is contained in the company's most recent filings
with the SEC.
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EDITOR'S NOTE: More information on MedPartners is available on the World Wide
Web at http://www.medpartners.com.
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EXHIBIT 99.3
January 8, 1998
w/ Larry R. House, Chairman of the Board and CEO
Harold O. Knight, Jr., Executive Vice President, CFO
The following comments are from the January 8, 1998 conference call with
investors and analysts.
Larry R. House:
Good morning and welcome.
As most of you already know, we have released some information regarding our
projected 4th quarter earnings. The purpose of this call is to address these
issues answer any questions you may have about these announcements. I will also
touch briefly on the decision to terminate the merger with PhyCor.
Joining me today are...
MARK WAGAR, PRESIDENT & CHIEF OPERATING OFFICER
HAL KNIGHT, CHIEF FINANCIAL OFFICER AND
JOHN GANNON, PRESIDENT OF THE PPM DIVISION
Hal has some opening comments about the nature of our discussion this morning.
Harold O. Knight, Jr.:
Some of the statements we will make today are forward looking statements. As
such, they involve risks and uncertainties, including, but not limited to
statements regarding our future business prospects, revenues, working capital,
liquidity, margins, and growth in net income and earnings per share. It is
possible that our actual results could differ materially from those projected in
these forward looking statements. A discussion of a number of important factors
and assumptions regarding these statements and risks involved is contained in
our most recent filings with the SEC.
Larry R. House:
With regard to the PhyCor merger......
Our team has worked very hard these past two months to gain an understanding of
PhyCor's business philosophies and practices and to have them understand ours,
and it became apparent the differences in the two companies were significant. We
determined due to significant operational and strategic differences, successful
and effective integration would have been quite a challenge. Each company takes
a much different approach to business in a number of key areas, including
information systems, development, managed care and clinic operations. After
careful consideration of these and other factors, both parties determined that
the merger agreement should be terminated.
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Regarding our financial results in the 4th quarter; as was stated in our press
release last night, MedPartners expects to record a pre-tax charge to earnings
of approximately $145 million; these charges are all one-time in nature. $115
million of these charges are related to the restructuring of certain operating
units within the organization, and $30 million are related to discontinued
operations. Specific items covered by this charge are:
[ ] the previously announced consolidation of our Southern
California delivery network.
[ ] the consolidation of several other operating units in the
Southwestern U.S.
[ ] disassociations of several of our smaller practices in the
East.
[ ] the previously announced closing of our mail order pharmacy
facility in Richmond, Virginia, and
[ ] a discontinued operations charge related to several
receivables and investments in business units previously owned
by Caremark that we have determined to have impaired value or
to be uncollectible.
Specifically, the company is in the process of closing 60 smaller and redundant
clinic locations, resulting in the elimination of positions and other related
costs. Many of these are the result of combining adjacent or nearby clinic
locations. We are also disassociating with 19 smaller practices with 100
physicians, out of a total of 289 practices with 3,385 physicians. The
disassociations are by mutual agreement and result from the fact that the
economics of the clinic service agreements were not in the best interests of our
company or the physicians. The PBM business previously handled at the Richmond
facility will be covered by our other three locations, which have sufficient
available capacity.
This restructuring will strengthen the company's operating performance and allow
us to focus on markets and business segments with the greatest opportunities.
The elimination of ongoing costs related to these charges should contribute $65
to $70 million annually to our pre-tax earnings. Our operations are solid in all
areas of the company - our hospital based business, our PBM, our therapeutic
services, our government services - all are in good shape. Hal.......
Harold O. Knight, Jr.:
In the 4th quarter, our operations in our hospital-based business, our PBM, our
therapeutic services, and our government services all performed generally in
line with our expectations. However, we have announced that there will be
greater than anticipated costs during the 4th quarter related primarily to our
Western operations. As a result, the company believes that its 4th quarter
earnings will fall substantially short of analysts' expectations. We believe
that we will show an operating loss during the 4th quarter; in the range of
$0.20 to $0.25 per share. This reflects $105 million (or approximately $0.33 per
share) of non-recurring costs and $70 million of reduced earnings resulting from
delays in integrating acquisitions and a slowdown in acquisition activity during
the last quarter of the year.
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The $105 million in non-recurring costs can be broken down as follows:
[ ] $35 million is related to an increase in our IBNR reserves.
The increased costs were associated with (1) the implementation of
open access plans, and (2) higher than anticipated medical
utilization in our newer groups in Southern California. We have
addressed the medical management issues, and in December, have
already seen improvements in our utilization rates.
[ ] $28 million is related to increased reserves for receivables
from managed care companies, and reductions in risk pool
settlements.
[ ] $28 million is related to accounting systems standardization
and reconciliation. Efforts are almost completed in the
integration of our Southern California units into a common general
ledger system. System conversions of this size and scale will
often result in adjustments to various accounts.
[ ] $14 million is attributable to losses recognized in the 4th
quarter, representing the total future losses anticipated in the
only risk-share contract of significance in our PBM.
With regard to the $70 million in reduced earnings:
We have confronted some integration issues related to West Coast acquisitions.
Our Friendly Hills network integration was delayed by several months due to the
extended period of time which was required to merge the Friendly Hills group and
the former CIGNA staff model group. This integration has now been accomplished
and the consolidation was done along with the Talbert acquisition, which was
closed in September.
We also experienced delays in acquisitions; our pipeline of acquisitions is
essentially the same as it was prior to the PhyCor discussions. However, during
the time we were working on the PhyCor merger, certain acquisition targets chose
to wait for the outcome of the merger before deciding to move forward, therefore
we were not able to close as many acquisitions as we had anticipated.
Looking forward, I recognize that street estimates are currently in the $1.40 to
$1.42 range for 1998. We know that in light of the earnings shortfall, many of
you will adjust your models for the coming year. We would be comfortable with an
adjustment of EPS estimates lowered by approximately 30% from the previously
expected 1998 consensus. To help you understand our current profitability run
rate, I would like to bridge the 4th quarter 1997 estimated operating loss
(excluding the restructuring charge) to our anticipated 1st quarter 1998
operating profit as follows:
Starting from an estimated $80 million pre-tax operating loss ($0.25 per share),
add the following:
[ ] $105 million in non recurring costs previously discussed;
[ ] $20 million for cost reductions already implemented in our - West
operations;
[ ] $10 million in rate increases in our prepaid business;
[ ] $5 million in estimated first quarter impact of $45 million in
annual savings related to enhanced medical management that have
been identified and are in the process of being implemented; -- $5
million in quarterly benefit of the 4th quarter 97 restructuring
charge for operations other than our West Coast business;
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After deducting $5 million of estimated increase in net interest expense, the
net of these items is an estimated operating profit of approximately $60 million
or $0.18 per share. This estimated $0.18 for the first quarter of 1998 is $0.72
annualized. We estimate an additional $0.28 per share - to get us to
approximately $1.00 for the year -- should be generated by: (1) identified cost
savings that are being implemented in the 1st and 2nd quarters of 1998, (2)
internal growth and (3) a modest level of acquisitions.
I will now turn the discussion back over to Larry.
Larry R. House:
Despite the fourth quarter shortfall, everyone at MedPartners is excited about
our 1998 plan. Due to the organizational and structural changes we have made, we
are confident about the plan for 1998. Not only do we have a solid plan in place
, but we also have the people in place to execute the plan, as well as an
enormous market opportunity. We will focus heavily on operations, at the same
time that we continue our growth. Regarding growth, I would like to summarize
what we have announced just in the past 8 weeks:
[ ] Closed on the Blue Cross/Blue Shield medical groups in
Massachusetts, which added 125 physicians and included a 10
year provider agreement for global capitation on approximately
84,000 prepaid enrollees. This transaction gives us access to
an important new market.
[ ] Announced the MacGregor Clinic acquisition in Houston, which
will add 237 physicians in our Houston market and will become
a strong complement to Kelsey Seybold. We also entered into a
10 year provider agreement with Prudential to provide global
capitation to 190,000 prepaid enrollees. We expect to have
this transaction closed soon.
[ ] Announced and closed the acquisition of Health First Group in
Memphis, which consists of 45 physicians.
[ ] Announced and closed the acquisition of Idaho Physician
Associates, doubling our size in Boise.
[ ] In addition to the above, we fully expect to complete the
previously announced sale of our international division early
in the year.
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I would also like to remind everyone that we are keeping the January 20th
investor day on our calendar. Instead of the joint presentation which was
originally scheduled, we will host a MedPartners-only investor day in New York--
same time, same place. We will fax invitations out over the next couple of days.
If you have any questions about the 20th, contact Jennifer Angel at Noonan Russo
at 212-696-4455.
Over the span of just 4 years, we have assembled the most comprehensive
healthcare delivery company in the nation. The environment in this dynamic
industry has dictated that size and scale is a necessity, and we have reached a
critical mass in which we have become the dominant player.
With over 13,000 affiliated physicians, we operate the largest physician
practice management company in the country. We currently have over 2 million
prepaid enrollees, half of which are globally capitated. And the numbers have
continued to grow.
In addition, we operate the largest independent PBM in the country. We have
become the leader in our industry and will continue to set the standards for the
delivery of quality healthcare.
We will continue to grow and take advantage of strategic opportunities as they
present themselves. As Hal said, we may see consensus estimates drop by about
30%, however we have identified the issues, we have addressed the issues, and
are confident about the direction in which we are headed.
With revenues expected to exceed $7.5 billion in 1998, EBITDA of approximately
$540 million, and net income expected to be in the $200 million range, we
continue to be an extremely strong company and are very confident about our
continued success.
