Securities and Exchange Commission
Washington, DC 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 October 31, 1995
/ / 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 0-16235
PHP Healthcare Corporation
____________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 54-1023168
____________________________________________________________
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
11440 Commerce Park Drive, Reston, VA 22091
____________________________________________________________
(Address of principal executive offices)
Registrant's telephone number including area code
(703) 758-3600
____________________________________________________________
____________________________________________________________
Former name, former address and former fiscal year, if
changed since last report.
Indicate by check whether the registrant (i) 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
[ ].
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date.
Common stock, par value $.01 per share, outstanding as of
October 31, 1995, 10,845,508 shares.
<PAGE>
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Report of Independent Accountants 2
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition 10
PART II - OTHER INFORMATION 18
SIGNATURES 19
EXHIBIT INDEX 20
1
<PAGE>
Report of Independent Accountants
To the Board of Directors of PHP Healthcare Corporation:
We have reviewed the accompanying Condensed Consolidated
Statement of Operations, Balance Sheet and Statement of Cash
Flows of PHP Healthcare Corporation and consolidated
subsidiaries as of October 31, 1995, and for the three-month
and six-month periods then ended, included on pages 3
through 9 of this Form 10-Q. These condensed consolidated
financial statements are the responsibility of the company's
management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and making inquires of persons responsible
for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with
generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do
not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
condensed consolidated financial statements for them to be
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Washington, D.C.
November 29, 1995
2
<PAGE>
PHP HEALTHCARE CORPORATION
Condensed Consolidated Statements of Operations
Three Months and Six Months ended October 31, 1994 and 1995
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
------------ ----------
1994 1995 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues......................... $48,180 $48,877 $91,818 $95,047
Direct costs..................... 42,948 39,141 80,867 76,794
_______ _______ _______ _______
Gross profit.................. 5,232 9,736 10,951 18,253
General and administrative
expenses........................ 4,832 7,199 9,593 13,932
_______ _______ _______ _______
Operating income.............. 400 2,537 1,358 4,321
Other income (expense):
Interest expense............ (565) (573) (1,384) (1,098)
Interest income............. 125 203 209 404
Miscellaneous income........ 391 37 371 69
Minority interest in
earnings of subsidiaries... (86) --- (159) ---
_______ _______ _______ _______
Earnings before income taxes.. 265 2,204 395 3,696
Income tax expense............... 103 875 142 1,442
_______ _______ _______ _______
Net earnings.................. $ 162 $ 1,329 $ 253 $ 2,254
======= ======= ======= =======
Net earnings per share........... $ 0.01 $ 0.10 $ 0.02 $ 0.17
======= ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding..................... 11,018 13,211 10,765 12,957
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PHP HEALTHCARE CORPORATION
Condensed Consolidated Balance Sheets
As of April 30, 1995 and October 31, 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
April 30, October 31,
1995 1995
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 1,178 $ 3,293
Accounts receivable, net (note 2)................ 24,537 30,260
Contract settlement receivable, net (note 2)..... 8,022 8,022
Pharmaceutical and medical supplies.............. 1,089 995
Receivables from officers........................ 2,912 3,090
Income tax receivable............................ 592 388
Other current assets............................. 2,099 3,366
_______ _______
Total current assets.......................... 40,429 49,414
Property and equipment, net......................... 23,096 22,457
Excess of cost over fair value of assets acquired,
net of accumulated amortization of $810 in April
and $885 in October................................ 3,092 3,017
Deferred income taxes............................... 1,125 1,125
Receivables from officers, net...................... 885 885
Other assets........................................ 2,523 2,951
_______ _______
$71,150 $79,849
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable to bank
(note 3)......................................... $ 1,368 $ 1,368
Current maturities of notes payable - other
(note 3)......................................... 879 845
Accounts payable................................. 6,405 8,659
Claims payable - medical services................ 6,000 8,469
Accrued salaries and benefits.................... 8,129 9,580
Income taxes payable............................. --- 1,442
Deferred income taxes............................ 1,507 1,507
Billings in excess of costs...................... 719 1,490
_______ _______
Total current liabilities..................... 25,007 33,360
Notes payable to bank, net of current maturities
(note 3)........................................... 23,280 19,865
Notes payable - other, net of current maturities
(note 3)........................................... 1,174 2,213
Deferred gain on sale of building................... 1,085 1,045
Other liabilities................................... 272 669
_______ _______
Total liabilities............................. 50,818 57,152
Minority interest................................... 4 4
_______ _______
Stockholders' equity (note 5):
Preferred stock, $.01 par value, 500,000 shares
authorized, none issued......................... --- ---
Common stock, $.01 par value, 25,000,000 shares
authorized, 14,146,702 shares issued in April
and October..................................... 141 141
Additional paid-in-capital....................... 29,373 29,426
Note receivable from sale of stock............... (900) (900)
Retained earnings (deficit)...................... (1,570) 684
Treasury stock, 3,330,020 common shares in April
and 3,301,194 common shares in October, at cost. (6,716) (6,658)
_______ _______
Total stockholders' equity.................... 20,328 22,693
Contingencies (notes 2 and 6)....................... _______ _______
$71,150 $79,849
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PHP HEALTHCARE CORPORATION
Condensed Consolidated Statements of Cash Flows
Six Months Ended October 31, 1994 and 1995
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Net cash provided by operating activities........... $ 4,683 $ 5,924
________ ________
Cash flows from investing activities:
Acquisition of property and equipment............. (2,499) (1,333)
Disposition of property and equipment............. 151 ---
Net proceeds from sale of property and equipment.. 14,181 ---
Acquisition of subsidiaries, net of cash acquired (694) ---
Disposition of subsidiaries, net.................. 10,826 ---
________ ________
Net cash provided by (used in) investing
activities..................................... 21,965 (1,333)
________ ________
Cash flows from financing activities:
Net repayments under revolving promissory notes... (9,023) (2,731)
Borrowings on notes payable....................... 504 1,918
Repayments on notes payable....................... (19,206) (1,597)
Increase in receivables from officers............. --- (178)
Proceeds from the exercise of stock options....... --- 112
Distributions paid to limited partners............ (133) ---
________ ________
Net cash used in financing activities........... (27,858) (2,476)
________ ________
Net increase (decrease) in cash and cash
equivalents.................................... (1,210) 2,115
Cash and cash equivalents, beginning of period...... 2,370 1,178
________ ________
Cash and cash equivalents, end of period............ $ 1,160 $ 3,293
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PHP HEALTHCARE CORPORATION
Notes to Condensed Consolidated Financial Statements
October 31, 1995
(Unaudited)
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
In the opinion of the Company, the interim condensed
consolidated financial statements include all adjustments,
consisting of only normal recurring adjustments, necessary
for a fair presentation of the results for the interim
periods. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles
have been condensed or omitted. The interim condensed
consolidated financial statements should be read in
conjunction with the Company's April 30, 1994 and 1995
audited consolidated financial statements. The year-end
condensed consolidated balance sheet data was derived from
audited consolidated financial statements but does not
include all disclosures required by generally accepted
accounting principles. The interim operating results are
not necessarily indicative of the operating results for the
full fiscal year. Certain amounts in the fiscal year 1995
condensed consolidated financial statements have been
reclassified to conform with the fiscal year 1996
presentation.
(b) New Accounting Pronouncement
In October 1995, the Financial Accounting Standards
Board (FASB) issued SFAS No. 123, "Accounting for Stock-
Based Compensation". As permitted by the Standard, the
Company does not intend to adopt the provisions for
recognizing compensation expense for grants to employees of
stock, stock options, and other equity instruments based on
a new fair value method. Accordingly, this Standard is not
expected to have any impact on amounts recorded in the
Company's consolidated financial statements. However,
beginning with fiscal year 1997, the Standard will require
the Company to disclose additional information in the
footnotes to its annual consolidated financial statements,
including pro forma net income and earnings per share under
the new fair value method.
(2) Accounts Receivable
(a) Contract Claim
In April 1994, the Company submitted a Request for
Equitable Adjustment (REA) under a contract with the
Department of the Army for material changes in the nature of
the contract requirements from those represented during the
contract proposal process. The REA was denied by the Army
and the Company subsequently submitted a claim for its
increased costs of performance under the contract pursuant
to the Contracts Dispute Act of 1978. Billed accounts
receivable of $1.9 million as of April 30, 1995 were fully
reserved pending further actions by the Board of Contract
Appeals. In September 1995, the Company reached a
settlement with the Department of the Army in the amount of
$300,000. Accordingly, the Company recognized $300,000 of
revenue.
6
<PAGE>
PHP HEALTHCARE CORPORATION
Notes to Condensed Consolidated Financial Statements
(continued)
(b) Contract Settlement Receivable
D.C. Chartered Health Plans ("CHP"), the Company's
wholly owned health maintenance organization, earns
substantially all of its revenue under a prepaid Medicaid
contract with the D.C. Department of Human Services (DCDHS)
to provide health care services to the Medicaid recipients
of the District of Columbia. The Medicaid program is
jointly funded by the District of Columbia and the Health
Care Finance Administration (HCFA) of the United States
Department of Health and Human Services (HHS).
Under a three-year contract ended September 30, 1994,
interim payments were provided on an enrollment basis with a
final settlement at the end of the contract period, subject
to a defined upper payment limit as determined by HCFA of
HHS. Final settlement with DCDHS and HCFA is subject to an
audit of CHP's activities. The Company believes final
settlement should result in amounts due the Company at April
30, 1995 in excess of $20 million, which is expected to be
lower than the actual upper payment limit. Due to the
complexity inherent in the contract and the definition of
the settlement process as provided for in the contract, the
Company has recorded amounts due under the contract of $8.0
million at April 30 and October 31, 1995, which represents
the Company's conservative interpretation of amounts due
under the contract. The Company believes that final
settlement will occur during fiscal 1996. In addition,
proposed congressional legislation is pending which upon
passage would in management's opinion result in a
retroactive entitlement of the full recovery of the
settlement receivable.
Effective October 1, 1994, CHP entered into a new
contract with DCDHS. CHP receives capitation payments for
the inpatient services under the risk portion of the
contract. Additionally, CHP receives interim payments with
an annual final settlement for the other services under the
non-risk portion of the contract. At April 30 and October
31, 1995, CHP recorded accounts receivable of $1.9 million
and $7.7 million, respectively, for the difference between
what was due under the contract and what had been received.
Final settlement of amounts due under this contract is
subject to an audit of the Company's activities by DCDHS.
(3) Notes Payable
(a) Notes Payable to Bank
The notes payable to bank consists of the following (in
thousands):
<TABLE>
<CAPTION>
April 30, October 31,
1995 1995
---- ----
<S> <C> <C>
Term note of $15 million collateralized by all assets,
interest due monthly at 1% above bank prime (9.75% at
October 31, 1995), principal due in quarterly
installments of $342,000 with final payment due in
April 1998........................................... $ 4,102 $ 3,418
Revolving promissory note, collateralized by all
assets, with a maximum credit line of $22 million,
interest due monthly at 1% above bank prime (9.75%
at October 31, 1995), due November 1996............ 20,546 17,815
_______ _______
Total notes payable to bank........................... 24,648 21,233
Less current maturities......................... (1,368) (1,368)
_______ _______
Notes payable to bank, net of current maturities...... $23,280 $19,865
======= =======
</TABLE>
<PAGE>
7
PHP HEALTHCARE CORPORATION
Notes to Condensed Consolidated Financial Statements
(continued)
On November 27, 1995, the Company extended its credit
agreement with its primary bank; in particular, the
revolving promissory note was extended until November 30,
1996 under similar terms.
(b) Notes Payable - Other
The notes payable - other consists of the
following (in thousands):
<TABLE>
<CAPTION>
April 30, October 31,
1995 1995
---- ----
<S> <C> <C>
Various collateralized term notes of $2,025,000,
interest from 10.4% to 12.7% with various installment
payments due October 2000............................. $ 393 $ 1,478
Insurance notes of $732,000, monthly installments of
principal and interest, interest from 6.8% to 7.6% due
April 1996............................................ 166 289
Obligations under capital leases, for certain equipment
and fixtures, monthly installments of principal and
interest of $27,000, interest at 4.1%, due May 1998... 935 791
Convertible promissory notes of $500,000, interest
due annually on April 30 at 7%, convertible into common
stock at $9.00 per share starting September 1995, due
September 1999........................................ 500 500
Promissory notes of $417,000, interest at 7%, repaid
in August 1995........................................ 59 ---
_______ _______
Total notes payable - other.................... 2,053 3,058
Less current maturities................... (879) (845)
_______ _______
Notes payable - other, net of current maturities $ 1,174 $ 2,213
======= =======
</TABLE>
(4) Convertible Debt
On November 29, 1995, the Company announced its
intention to make a private offering of $60 million in
aggregate principal amount of convertible subordinated
debentures due 2002. The Company expects to finalize the
offering in December 1995. The debentures will be unsecured
obligations, convertible into PHP common stock and
subordinated to all present and future senior indebtedness
of the Company.
The debentures and the underlying common stock have not
been registered under the Securities Act of 1933 (the
"Securities Act") and may not be offered or sold absent
registration or an applicable exemption from the
registration requirements of the Securities Act and
applicable state securities laws.
The debentures will be offered only to "qualified
institutional buyers" (as defined in Rule 144A under the
Securities Act) in reliance on the exemption from the
registration requirements provided by Rule 144A, and outside
the United States to certain persons in reliance on
Regulation S under the Securities Act.
(5) Stock Split
On October 16, 1995, the Board of Directors of the
Company declared a two-for-one stock split of its Common
Stock payable on November 20, 1995. This was effected in
the form of a 100 percent stock dividend of 7,073,351 shares
to shareholders on record as of November 1, 1995.
Stockholders' equity has been restated to give retroactive
recognition to the stock split for all periods
8
<PAGE>
PHP HEALTHCARE CORPORATION
Notes to Condensed Consolidated Financial Statements
(continued)
presented by reclassifying from additional paid in capital
to common stock the par value of the additional shares
arising from the split. In addition, for all periods
presented, all references in the consolidated financial
statements and footnotes thereto to number of shares,
earnings per share amounts, and weighted average shares
outstanding, have been restated to give retroactive effect
to the two-for-one stock split effected on November 20,
1995.
(6) Contingencies
The Company is a defendant in various legal actions.
The principal actions allege or involve claims under
contractual arrangements, employment matters and medical
malpractice with an estimated possible range of loss between
approximately $100,000 and $1.7 million in excess of
insurance coverage. The Company has recorded reserves of
$100,000 related to these actions at October 31, 1995. In
the opinion of management, after consultation with legal
counsel, the possible additional losses related to these
actions, if any, will not result in any material adverse
effect on the Company's consolidated financial position,
results of operations, or cash flows. The Company maintains
medical malpractice insurance coverage which provides for
reimbursement of any claim amounts in excess of $250,000 per
incident.
(7) Agreement to Sell Minority Interest in Virginia
Chartered Health Plan
The Company has agreed to sell 30% of its interest in a
wholly-owned subsidiary, Virginia Chartered Health Plan,
Inc. to University Health Services, Inc. ("UHS"). UHS is a
non-stock corporation created by Virginia Commonwealth
University to promote the entry of the Medical College of
Virginia Hospitals into managed care. The proposed
transaction is subject to regulatory approval and other
conditions and is expected to be completed prior to January
31, 1996.
9
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
GENERAL
In response to the industry shift to manage the
disparate components of the health care delivery system, PHP
has transitioned to a managed care solutions company. Over
the past three years, the Company has altered its focus from
a historic dependence on government contracts to a focus on
commercial managed care markets. Prior to 1993, over 98% of
PHP's revenue came from government-related contracts. PHP's
government service contracts required the Company to manage
health care providers in a variety of delivery settings. In
1992, management realized that the knowledge, expertise and
skills the Company had acquired in managing health care
providers for government agencies could also be applied to
serve the commercial managed care market. At the same time,
management supplemented the Company's existing competencies
with additional skills and capabilities in order to take
full advantage of the opportunities available in commercial
managed care. The Company added to existing capabilities by
making several key acquisitions, investing in information
systems and recruiting experienced managed care executives.
With this added expertise, PHP has expanded its commercial
business so that, in fiscal 1995, its commercial business
accounted for 50% of PHP's total revenues.
Revenues from the Commercial Managed Health Care
Services division have grown, in part as a result of
acquisitions, to $102.2 million or 50% or total revenues in
fiscal year 1995 from $1.3 million or 1% of total revenues
in fiscal year 1992. Operations in this division consist of
the Company's integrated system of care applied in whole or
in part to: (i) the Company's project with Blue Cross Blue
Shield of New Jersey ("BCBSNJ") to operate ten Integrated
Systems of Care ("ISOC") in the State of New Jersey, (ii)
family health centers which are operated on a contract basis
for large employers, and (iii) the Company's wholly-owned
HMO in the District of Columbia, primarily serving the
government-assisted Medicaid population in that area. In
these operations, the Company undertakes to provide
specified health care benefits to the participating
populations. The Company is compensated for these services
through a combination of capitation fees, management fees,
cost reimbursements, incentive fees related to cost savings
and profits from equity participation.
Revenues from the Government Managed Health Care
Services division have decreased from a peak of $116.4
million in fiscal year 1992 to $101.5 million in fiscal year
1995. Operations in this division consist of health care
services provided to government agencies across a diverse
scope of service groups including ambulatory care, medical
staffing, mental health, long-term care, and total managed
care. The Company generally performs these services under
unit-price, fixed-price, cost-reimbursement-plus-fee, and
fixed-rate-labor hour contracts.
The Company's revenues have increased from $118.0
million in fiscal year 1992 to $204.1 million in fiscal year
1995. Gross profit margins decreased to 7% and 6% in 1993
and 1994, respectively, from 14% in fiscal year 1992. In
fiscal year 1995, the gross profit margin was 11%. The
Company earned net income of $952,000 in 1995 after net
losses of $3.8 million and $9.3 million in fiscal years 1993
and 1994, respectively. The 1993 and 1994 losses were due
to increased business development costs related to
commercial business efforts, increased corporate support staff
10
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
costs, government contract proposal activity
costs, increased interest expense resulting from various
acquisitions and capital expenditures to meet operational
needs, and write-offs of receivables under certain
contracts.
The following table sets forth, for the periods
indicated, certain items in the Company's Condensed
Consolidated Statements of Operations expressed as a
percentage of revenues:
<TABLE>
<CAPTION>
Three Months Six Months
ended October 31, ended October 31,
----------------- -----------------
1994 1995 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues........................ 100.0% 100.0% 100.0% 100.0%
Direct costs.................... 89.1 80.1 88.1 80.8
_____ _____ _____ _____
Gross profit.................... 10.9 19.9 11.9 19.2
General and administrative
expenses....................... 10.0 14.7 10.4 14.7
_____ _____ _____ _____
Operating income................ 0.9 5.2 1.5 4.5
Other expense................... (0.3) (0.7) (1.0) (0.6)
_____ _____ _____ _____
Earnings before income taxes.... 0.6 4.5 0.5 3.9
Income tax expense.............. 0.3 1.8 0.2 1.5
_____ _____ _____ _____
Net earnings.................... 0.3 2.7 0.3 2.4
===== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
The Three Months Ended October 31, 1994 Compared To
The Three Months Ended October 31, 1995
The following table indicates revenues by the Company's
service divisions and the related percentage of total
revenues:
<TABLE>
<CAPTION>
October 31, 1994 October 31, 1995
---------------- ----------------
Revenues % of Revenues % of
Division (000's) Total (000's) Total
- -------- ------- ----- ------- -----
<S> <C> <C> <C> <C>
Government Managed Health Care Services $25,238 52.4 $24,757 50.7
Commercial Managed Health Care Services 22,942 47.6 24,120 49.3
_______ _____ _______ _____
Total $48,180 100.0 $48,877 100.0
======= ===== ======= =====
</TABLE>
The Company's revenues increased by $700,000 to $48.9
million for the quarter ended October 31, 1995 compared to
$48.2 million for the prior year second quarter. This
overall increase results from a decrease in the Government
Managed Health Care Services division and an increase in
11
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
the Commercial Managed Health Care Services division. The
prior year second quarter Commercial Managed Health Care
Services division revenues included $6.3 million of non-
recurring construction and pre-operational revenues on the
BCBSNJ project.
Commercial Managed Health Care Services division
revenues increased by $1.2 million or 5.2%, to $24.1 million
for the quarter ending October 31, 1995 compared with $22.9
million for the quarter ended October 31, 1994. This net
increase is the result of several increases and decreases.
The most significant increase in Commercial Managed Health
Care Service division revenues was provided by the Company's
Medicaid HMO and resulted from an expanded enrollment and a
new contract at a higher premium rate. Additional revenue
increases also resulted from: (1) increased utilization at
two existing ISOC projects, (2) the commencement of
operations at a new ISOC project for a large employer in
January 1995, (3) increased software sales at the Company's
wholly owned subsidiary, Health Cost Consultants ("HCC"), a
case management and utilization review services company, and
(4) revenues resulting from the development of a new ISOC
project in Connecticut. The Company experienced a net
decrease in revenues related to the BCBSNJ ISOC project
which became operational in January 1995. On a comparative
basis, the operational revenues earned in the current year
second quarter were less than the non-recurring construction
and pre-operational revenues earned in the prior year.
Additional Commercial Managed Health Care Service division
revenue decreases resulted from: (1) the sale in September
1994 of two outpatient surgery centers formerly operated by
the Company, (2) certain non-recurring construction revenues
earned in the prior year related to an ISOC project which
became operational in January 1995, (3) the closing of a
walk-in primary care clinic in January 1995, and (4) the
completion of several small consulting projects.
Government Managed Health Care Service division
revenues decreased by $500,000 to $24.7 million for the
quarter ended October 31, 1995 compared to $25.2 million for
the quarter ended October 31, 1994. This decrease is
primarily related to the completion of four ambulatory care
projects and two mental health projects. These revenue
decreases were partially offset by revenue increases
resulting from: (1) the commencement of operations on two
new long-term care nursing home projects, (2) the expansion
of services and a corresponding increase in contract rate on
one PRIMUS project and one medical staffing project, and (3)
increased contract rates on two long-term care nursing home
projects.
The Company's gross profit increased by 86.5% or $4.5
million, to $9.7 million for the quarter ended October 31,
1995 compared with $5.2 million for the prior year second
quarter. As a percentage of revenues, gross profit increased
to 19.9% for the current year second quarter compared to
10.9% during the prior year. This gross profit improvement
resulted from an increase in the Commercial Managed Health
Care Service division as well as an increase in the
Government Managed Health Care Service division.
The Commercial Managed Health Care Service division
gross profit increase was primarily attributable to an
expanded enrollment and a new contract at a higher premium
rate at the
12
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
Company's Medicaid HMO. Additional gross profit increases
resulted from: (1) increased software sales at HCC, and (2)
the BCBSNJ ISOC project which became operational in January
1995. Prior to January the Company was engaged in the pre-
operational and construction phases of this project which
yielded no gross profit. The Commercial Managed Health Care
Service division gross profit increases discussed above were
partially offset by a decrease resulting from the sale of
the remaining two outpatient surgery centers in September
1994.
Government Managed Health Care Service division gross
profits increased. This net increase is the result of
several increases and decreases, including: (1) the $300,000
settlement of the Company's outstanding claim with the
Department of the Army related to a former PRIMUS project,
(2) increased contract rates on two long-term care nursing
home projects, (3) an expansion of services and a
corresponding increase in contract rate on one PRIMUS
project, and (4) a decrease in expenses at the Company's
PRIMUS and NAVCARE projects resulting from enhanced
management efforts to control costs. Government Managed
Health Care Service division gross profits decreased due to
the completion of four ambulatory care projects and two
mental health projects, and due to a decrease in utilization
and contract rate at one NAVCARE project which was completed
in September 1995.
General and administrative expenses increased 50% or
$2.4 million, to $7.2 million for the quarter ended October
31, 1995 from $4.8 million for the prior year second
quarter. As a percentage of revenue, general and
administrative expenses increased to 14.7% for the current
year second quarter compared to 10.0% during the prior year
second quarter. The increase is primarily a function of the
Company's Commercial Managed Health Care initiatives and is
due to: (1) increased corporate compensation costs related
to the hiring and retention of existing and additional
management personnel, (2) increased travel and consulting
expenses related to commercial business development efforts,
and (3) additional general and administrative expenses
related to the new Virginia Chartered Health Plan
subsidiary.
Operating income increased five-fold or $2.1 million to
$2.5 million for the quarter ended October 31, 1995 from
$400,000 for the quarter ended October 31, 1994. Operating
margin increased to 5.2% from 0.9%. This increase was
primarily due to the expanded gross profit margins, offset
by increased general and administrative expenses.
Interest expense remained almost unchanged at $573,000
for the quarter ended October 31, 1995 compared with
$565,000 for the prior year second quarter. This constant
level of interest expense is the net result of an increase
in the interest rate on the Company's revolving promissory
note from 8.75% to 9.75% for the current year quarter
compared to the prior year quarter, offset by a decrease in
interest expense resulting from a decrease in the Company's
long-term debt due to the sale of the Reston office
building in July 1994, and the sale of two outpatient
surgery centers in September 1994.
13
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
The effective income tax rates of 39.7% in the second
quarter of fiscal 1996 and 38.9% in the second quarter of
fiscal 1995 represent the combined federal and state income
tax rates adjusted as necessary. The fiscal 1995 rate was
lower than the 1996 rate due to the impact of certain net
operating loss carryforwards.
RESULTS OF OPERATIONS
The Six Months Ended October 31, 1994 Compared To
The Six Months Ended October 31, 1995
The following table indicates revenues by the Company's
service divisions and the related percentage of total
revenues:
October 31, 1994 October 31, 1995
---------------- ----------------
Revenues % of Revenues % of
Division (000's) Total (000's) Total
- -------- -------- ----- -------- -----
[S] [C] [C] [C] [C]
Government Managed Health Care Services $51,834 56.5 $48,104 50.6
Commercial Managed Health Care Services 39,528 43.0 46,943 49.4
Other Revenue 456 0.5 --- ---
_______ _____ _______ _____
Total $91,818 100.0 $95,047 100.0
======= ===== ======= =====
The Company's revenues increased by 3.5% or $3.2
million to $95.0 million for the six months ended October
31, 1995 compared to $91.8 million for the prior year six
month period. This overall increase results from an
increase in the Commercial Managed Health Care Services
division and a decrease in the Government Managed Health
Care Services division. The prior year six month Commercial
Managed Health Care Services division revenues included $7.6
million of non-recurring construction and pre-operational
revenues on the BCBSNJ project.
Commercial Managed Health Care Services division
revenues increased by $7.4 million or 18.7%, to $46.9
million for the six months ending October 31, 1995 compared
with $39.5 million for the six months ended October 31,
1994. This net increase is the result of several increases and
decreases. The most significant increase in Commercial Managed
Health Care Service division revenues was provided by the
Company's Medicaid HMO and resulted from an expanded
enrollment and a new contract at a higher premium rate.
Additional revenue increases also resulted from: (1)
increased utilization at two existing ISOC projects, (2) the
commencement of operations at a new ISOC project for a large
employer in January 1995, (3) increased software sales at
the Company's wholly owned subsidiary, Health Cost
Consultants ("HCC"), a case management and utilization
review services company, and (4) revenues resulting from the
development of a new ISOC project in Connecticut. Also, the
Company experienced a net increase in revenues related to
the BCBSNJ ISOC project which became operational in January
1995. On a comparative basis, the operational revenues
earned during the current year exceeded the amount of the
pre-operational and construction revenues earned during the
prior year. A decrease in Commercial Managed Health Care Service
14
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
division revenue resulted from the sale of two outpatient
surgery centers in September 1994. Additional Commercial
Managed Health Care Service division revenue decreases
resulted from: (1) the absence of construction revenues
earned in the prior year related to an ISOC project which
became operational in January 1995, (2) the closing of a
walk-in primary care clinic in January 1995, and (3) the
completion of several small consulting projects.
Government Managed Health Care Service division
revenues decreased by $3.7 million to $48.1 million for the
six months ended October 31, 1995 compared to $51.8 million
for the six month period ended October 31, 1994. This
decrease is primarily related to the completion of six
ambulatory care projects, two mental health projects, and
one medical staffing project. Offsetting these revenue
decreases were revenue increases resulting from: (1) the
commencement of operations on two new long-term care nursing
home projects in June 1995, and (2) the expansion of
services and a corresponding increase in contract rate on
one PRIMUS project and one medical staffing project.
The Company's gross profit increased by 66.4% or $7.3
million, to $18.3 million for the six months ended October
31, 1995 compared with $11.0 million during the prior year
period. As a percentage of revenue, gross profit increased
to 19.2% for the current six month period compared to 11.9%
during the prior year. This gross profit improvement
resulted from a significant increase in the Commercial
Managed Health Care Service division as well as an increase
in the Government Managed Health Care Service division.
The Commercial Managed Health Care Service division
gross profit increase was primarily attributable to an
expanded enrollment and a new contract at a higher premium
rate at the Company's Medicaid HMO. A gross profit increase
also resulted from increased software sales at HCC. These
Commercial Managed Health Care Service division gross profit
increases were slightly tempered by a decrease resulting
from the sale of the remaining two outpatient surgery
centers in September 1994.
The Government Managed Health Care Service division
gross profit increase was due to: (1) a decrease in expenses
at the Company's PRIMUS and NAVCARE projects resulting from
enhanced management efforts to control costs, (2) increased
contract rates on two long-term care nursing home projects,
(3) the $300,000 settlement of the Company's outstanding
claim with the Department of the Army related to a former
PRIMUS project, and (4) an expansion of services and a
corresponding increase in contract rate on one PRIMUS
project. Government Managed Health Care Service division
gross profits decreased due to the completion of certain
projects as cited above for causing revenues to decrease,
and due to a decrease in utilization and contract rate at
one NAVCARE project which was completed in September 1995.
General and administrative expenses increased 44.8% or
$4.3 million, to $13.9 million for the six months ended
October 31, 1995 from $9.6 million for the same period in
the prior year. As a percentage of revenue, general and
administrative expenses increased to 14.7% for the current
year six month period compared to 10.4% during the prior
year. The increase is primarily a function of
15
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
the Company's Commercial Managed Health Care initiatives and
is due to: (1) increased corporate compensation costs related
to the hiring and retention of existing and additional management
personnel, (2) increased general and administrative expenses
associated with CHP and its growing enrollment, (3)
additional general and administrative expenses associated
with the new Virginia Chartered business, (4) increased
travel and consulting expenses related to commercial
business development efforts, and (5) increased facility
expenses resulting from the Company's new expanded Corporate
headquarters office space.
Operating income more than doubled, increasing by $3.0
million to $4.3 million for the six months ended October 31,
1995 from $1.3 million for the six months ended October 31,
1994. Operating margin increased to 4.5% from 1.5%. This
increase was primarily due to the increased gross profit
margins, reduced by increased general and administrative
expenses.
Interest expense decreased 20.7%, or $286,000, to
$1,098,000 for the six months ended October 31, 1995 from
$1,384,000 for the prior year six months. This decrease is
primarily a function of the decrease in the Company's long-
term debt resulting from the sale of the Reston office
building in July 1994, and the sale of the remaining two
outpatient surgery centers in September 1994.
The effective income tax rates of 39% for the six
months ended October 31, 1995 and 35.9% for the six months
ended October 31, 1994 represent the combined federal and
state income tax rates adjusted as necessary. The 1995 rate
was lower than the 1996 rate due to the impact of certain
net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Typically, the Company's principal sources of funds are
operations and bank borrowings.
During the six months ended October 31, 1995 operations
provided $5.9 million in cash. This represents an increase
in cash provided by operations of $1.2 million compared with
the $4.7 million provided by operations in the prior year
six month period. In general, the increase in cash provided
by operations is primarily due to an increase in net
earnings of $2.0 million.
The Company's number of days revenue in average
outstanding receivables was 53 days for the six months ended
October 31, 1995 compared to 33 days for the prior year six
month period. This increase is due to: (1) the difference
between the payment and revenue processes on the BCBSNJ
project, particularly the construction and pre-operational
phases that the Company was engaged in during the prior year
six month period, and (2) $7.7 million in premiums due from
the District of Columbia related to the Company's Medicaid
HMO. These premiums due are the result of the current
federal budget and the District of Columbia's fiscal
difficulties. On November 29, 1995, the Company received
$4.3 million of these amounts.
16
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
Investing activities used $1.3 million in cash during
the six months ended October 31, 1995 compared to $22.0 million
provided during the six months ended October 31, 1994.
The current six months' use of cash is due to the acquisition
of property and equipment. During the prior six month period
the Company generated net cash from investing activities,
principally through the sale of its office building in Reston,
Virginia and the sale of two of its outpatient surgery centers.
Financing activities used $2.5 million in cash during the
six months ended October 31, 1995 compared to $27.9 million provided
during the six months ended October 31, 1994. The current six
months use of cash is due principally to net repayments on
revolving promissory notes and other notes payable. During the
prior six months, the Company's use of cash as a result of
financing activities was due to: (i) the repayment in full of
non-recourse notes and certain prepayments of term notes as a
result of the sale of its office building in Reston, Virginia
and, (ii) certain repayments of revolving promissory notes and
term notes as a result of the sale of two of its outpatient
surgery centers.
The Company believes that the current cash equivilents,
anticipated cash flow generated by operations and its borrowing
capabilities will be sufficient for known future capital needs
of the Company. There may be, however, further expansion
opportunities which require additional external financing and
the Company may, from time to time, consider obtaining such
funds through the public and private issuance of equity or
debt securities.
The Company has announced its intention to make a
private offering of $60 million in aggregate principal
amount of convertible subordinated debentures due 2002. The
Company expects to complete the offering in December 1995.
The debentures will be unsecured obligations, convertible
into PHP common stock and subordinated to all present and
future senior indebtedness (as defined) of the Company.
The Company intends to use the net proceeds of the
offering to repay certain existing indebtedness, to fund
expansion of its Commercial Managed Health Care Services
division, and for general corporate purposes.
The debentures and the underlying common stock have not
been registered under the Securities Act of 1933 and may not
be offered or sold absent registration or an applicable
exemption from the registration requirements of the
Securities Act and applicable state securities laws.
The debentures will be offered only to "qualified
institutional buyers" (as defined in Rule 144A under the
Securities Act) in reliance on the exemption from the
registration requirements provided by Rule 144A, and outside
the United States to certain persons in reliance on
Regulation S under the Securities Act.
17
<PAGE>
PHP HEALTHCARE CORPORATION
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The 1995 annual meeting of shareholders was held on
October 16, 1995. The nominees for Director elected at the
meeting were as follows:
Nominee For Withheld
------- --- --------
Charles H. Robbins 4,789,606 29,732
Jack M. Mazur 4,789,606 29,732
Michael D. Starr 4,789,606 29,732
The other directors whose term of office continued
after the meeting are Paul T. Cuzmanes, Julien J. Lavoie,
Joseph G. Mathews, Charles P. Reilly and Donald J. Ruffing.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11.0 Statement re: Computation of per share earnings
for the three months and six months ended October 31, 1994
and 1995
b) Reports on Form 8-K
There were no Form 8-K filings during the period of this
10-Q. On November 30, 1995, the Company filed a Form 8-K
disclosing its intention to make a private offering of $60
million in aggregate principal amount of convertible
subordinated debentures due 2002.
18
<PAGE>
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 duly authorized.
PHP HEALTHCARE CORPORATION
(Registrant)
By: /s/ Anthony M. Picini
ANTHONY M. PICINI
Senior Vice President of
Finance and
Chief Financial Officer
Date: December 11, 1995
19
<PAGE>
EXHIBIT INDEX
EXHIBIT ITEM PAGE
11.0 Statement re: Computation of per share 21
earnings for the three months and six
months ended October 31, 1994 and 1995
20
EXHIBIT 11
Statement Re: Computation of per Share Earnings
Three Months and Six Months ended
October 31, 1994 and 1995
<TABLE>
<CAPTION> Three Months Six Months
ended October 31, ended October 31,
----------------- -----------------
1994 1995 1994 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary
Net earnings.............. $ 162,000 $1,329,000 $ 253,000 $2,254,000
========== ========== ========== ==========
Weighted average number of
common shares outstanding.. 10,392,570 10,927,970 10,272,096 10,919,540
Add common share equivalents
(determined using the
"treasury stock method")
representing shares issuable
upon exercise of stock
options and warrants....... 654,946 2,372,072 507,888 2,126,110
Shares held in escrow........ (29,524) (88,572) (14,762) (88,572)
__________ __________ __________ __________
Weighted average number of
shares used in calculation
of primary earnings per
share...................... 11,017,992 13,211,470 10,765,222 12,957,078
========== ========== ========== ==========
Primary earnings per common
share..................... $ 0.01 $ 0.10 $ 0.02 $ 0.17
========== ========== ========== ==========
Fully diluted
Net earnings............. $ 162,000 $1,329,000 $ 253,000 $2,254,000
Net interest expense
related to convertible
debt.................. 2,000 9,000 2,000 18,000
___________ __________ __________ __________
Net earnings as adjusted. $ 164,000 $1,338,000 $ 255,000 $2,272,000
========== ========== ========== ==========
Weighted average number of
common shares outstanding. 10,392,570 10,927,970 10,272,096 10,919,540
Add common share equivalents
(determined using the
"treasury stock" method)
representing shares issuable
upon exercise of stock
options, warrants, and
convertible notes payable. 725,206 2,652,454 579,980 2,621,278
Assumed conversion of
convertible debt.......... 37,038 111,111 18,518 111,111
Shares held in escrow....... (29,524) (88,572) (14,762) (88,572)
__________ __________ __________ __________
Weighted average number of
shares used in calculation
of fully diluted earnings
per share................. 11,125,290 13,602,963 10,855,832 13,563,357
========== ========== ========== ==========
Fully diluted earnings per
common share.............. $ 0.01 $ 0.10 $ 0.02 $ 0.17
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR PHP HEALTHCARE CORPORATION AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CIK> 0000803568
<NAME> PHP HEALTHCARE CORPORATION
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 3,293
<SECURITIES> 0
<RECEIVABLES> 38,422
<ALLOWANCES> 140
<INVENTORY> 995
<CURRENT-ASSETS> 49,414
<PP&E> 37,420
<DEPRECIATION> 14,963
<TOTAL-ASSETS> 79,849
<CURRENT-LIABILITIES> 33,360
<BONDS> 22,078
<COMMON> 141
0
0
<OTHER-SE> 29,210
<TOTAL-LIABILITY-AND-EQUITY> 79,849
<SALES> 0
<TOTAL-REVENUES> 95,047
<CGS> 0
<TOTAL-COSTS> 76,794
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,098
<INCOME-PRETAX> 3,696
<INCOME-TAX> 1,442
<INCOME-CONTINUING> 2,254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,254
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
