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, 1996.
[ ] 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 20191
_____________________________________________________________________
(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,
1996, 10,996,512 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 8
PART II - OTHER INFORMATION 16
SIGNATURES 17
EXHIBIT INDEX 18
1
<PAGE>
Report of Independent Accountants
To the Board of Directors of PHP Healthcare Corporation:
We have reviewed the accompanying Condensed Consolidated Statements
of Operations, Balance Sheets and Statements of Cash Flows of PHP
Healthcare Corporation and consolidated subsidiaries as of October
31, 1996, and for the three month and six month periods ended October
31, 1996 and 1995, included on pages 3 through 7 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 inquiries 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.
December 10, 1996
2
<PAGE>
PHP HEALTHCARE CORPORATION
Condensed Consolidated Statements of Operations
Three Months and Six Months ended October 31, 1996 and 1995
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues.......................... $ 58,418 $ 48,877 $111,846 $ 95,047
Direct costs...................... 45,845 39,141 87,967 76,794
_______ _______ _______ _______
Gross profit................. 12,573 9,736 23,879 18,253
General and administrative expenses 7,346 7,199 14,419 13,932
_______ _______ _______ _______
Operating income............. 5,227 2,537 9,460 4,321
Other income (expense):
Interest expense........ (1,411) (573) (2,768) (1,098)
Interest income......... 554 203 1,209 404
Miscellaneous income.... 5 37 (33) 69
Minority interest in
earnings of subsidiaries (204) --- (239) ---
_______ _______ _______ _______
Earnings before income taxes. 4,171 2,204 7,629 3,696
Income tax expense................ 1,570 875 2,870 1,442
_______ _______ _______ _______
Net earnings................ $ 2,601 $ 1,329 $ 4,759 $ 2,254
======= ======= ======= =======
Net earnings per share............ $ 0.19 $ 0.10 $ 0.35 $ 0.17
======= ======= ======= =======
Weighted average number of common
and common equivalent shares
outstanding..................... 13,700 13,211 13,752 12,957
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PHP HEALTHCARE CORPORATION
Condensed Consolidated Balance Sheets
As of October 31, 1996 and April 30, 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
October 31 April 30,
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 37,514 $ 48,647
Accounts receivable, net (note 2).... 59,802 46,578
Pharmaceutical and medical supplies.. 962 1,039
Receivables from officers............ 4,104 3,263
Other current assets................. 5,709 4,048
________ ________
Total current assets............. 108,091 103,575
Property and equipment, net........... 26,527 22,685
Excess of cost over fair value of assets
acquired, net of accumulated amortization
of $885 in October and $810 in April. 2,902 2,942
Deferred income taxes................. 543 543
Receivables from officers, net........ 1,072 1,072
Other assets.......................... 5,104 4,538
________ ________
$144,239 $135,355
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable
- other............................ 564 545
Accounts payable................... 11,546 9,520
Claims payable - medical services.. 5,865 9,154
Accrued salaries and benefits...... 13,218 11,228
Income taxes payable............... 2,845 ---
Deferred income taxes.............. 4,322 4,322
Billings in excess of costs........ 171 244
________ ________
Total current liabilities....... 38,531 35,013
Notes payable - other, net of current
maturities........................... 1,634 1,921
Convertible subordinated debentures... 65,860 65,608
Deferred gain on sale of building..... 959 1,002
Other liabilities..................... 607 519
________ ________
Total liabilities............... 107,591 104,063
Minority interest..................... 784 545
________ ________
Stockholders' equity:
Preferred stock, $.01 par value,
500,000 shares authorized, none
issued........................... --- ---
Common stock, $.01 par value,
25,000,000 shares authorized,
14,254,997 shares issued in October
and 14,203,987 shares in April... 143 142
Additional paid-in-capital......... 30,885 30,529
Note receivable from sale of stock. (900) (900)
Retained earnings.................. 12,308 7,548
Treasury stock, 3,258,485 common
shares, at cost................... (6,572) (6,572)
________ ________
Total stockholders' equity...... 35,864 30,747
Contingencies (notes 2 and 4)......... ________ ________
$144,239 $135,355
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PHP HEALTHCARE CORPORATION
Condensed Consolidated Statements of Cash Flows
Three Months and Six Months Ended October 31, 1996 and 1995
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Six Months
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings............................ $ 2,601 $ 1,329 $ 4,759 $ 2,254
Adjustments to reconcile net earnings to
net cash provided by (used in)
operating activities:
Minority interest in earnings of
subsidiaries........................ 205 --- 239 ---
Depreciation and amortization......... 1,283 1,166 2,576 2,047
Increase in deferred income taxes..... --- 1,442 --- 1,442
Other items, net...................... (22) (22) (43) (40)
Changes in operating assets and
liabilities:
Increase in accounts receivable, net (8,636) (6,582) (13,224) (5,723)
Decrease in pharmaceutical and
medical supplies................. 76 82 77 94
Increase in other current assets.... (1,042) (484) (1,661) (1,063)
Increase in other assets............ (195) (68) (566) (428)
Increase in accounts payable........ 4,229 1,960 2,026 2,254
Increase (decrease) in claims payable (1,705) 423 (3,289) 2,469
Increase in accrued salaries and
benefits.......................... 2,106 1,566 1,990 1,450
Increase (decrease) in billings
in excess of costs................ (22) 923 (73) 771
Increase (decrease) in income taxes
payable........................... 1,967 (567) 2,845 ---
Increase in other liabilities....... 35 360 88 397
______ ______ ______ ______
Net cash provided by (used in)
operating activities............... 880 1,528 (4,256) 5,924
______ ______ ______ ______
Cash flows from investing activities:
Acquisition of property and equipment (3,584) (532) (6,125) (1,333)
______ ______ ______ ______
Net cash used in investing activities (3,584) (532) (6,125) (1,333)
______ ______ ______ ______
Cash flows from financing activities:
Net repayments under revolving promissory
notes.............................. --- (2,725) --- (2,731)
Borrowings on notes payable.......... --- 1,433 --- 1,918
Repayments on notes payable.......... (135) (805) (268) (1,597)
Receivables from officers............ (87) (90) (841) (178)
Proceeds from the exercise of stock
options 300 64 357 112
______ ______ ______ ______
Net cash provided by (used in)
financing activities.............. 78 (2,123) (752) (2,476)
______ ______ ______ ______
Net increase (decrease) in cash
and cash equivalents.............. (2,626) (1,127) (11,133) 2,115
Cash and cash equivalents, beginning of
period............................... 40,140 4,420 48,647 1,178
_______ ______ _______ _______
Cash and cash equivalents, end of period $37,514 $ 3,293 $37,514 $ 3,293
======= ======= ======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PHP HEALTHCARE CORPORATION
Notes to Condensed Consolidated Financial Statements
October 31, 1996
(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, 1996 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 1996 condensed consolidated financial
statements have been reclassified to conform with the fiscal year
1997 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 Settlement Receivable
D.C. Chartered Health Plan, Inc. ("CHP"), a wholly-owned health
maintenance organization, earns substantially all of its revenue as a
prepaid Medicaid contractor with the D.C. Department of Human
Services (DCDHS) providing health care services to Medicaid
recipients in the District of Columbia. The Medicaid program is
jointly funded by the District of Columbia and the Health Care
Finance Administration (HCFA) of the Department of Health and Human
Services (HHS).
CHP receives interim payments on an estimated basis with a final
settlement occurring at the end of the contract period for the
difference between amounts earned and the interim payments. The
final settlement process with DCDHS and HCFA is subject to defined
upper payment limits and requires an audit of CHP's activities. Due
to the unique nature of these contracts, DCDHS has not undergone a
final settlement process for this type of contract.
6
<PAGE>
PHP HEALTHCARE CORPORATION
Notes to Condensed Consolidated Financial Statements (cont'd.)
In April 1996, the U.S. Government enacted a law, the effect of
which requires the Company's contracts with DCDHS to be settled
retroactively on a capitated-rate-per-enrollee basis. Prior to the
enactment of the law, the terms of the contracts provided that the
final settlements would be on a non-risk basis, calculated in part on
a cost-based methodology.
The Company believes that the final settlement of these
contracts under the method prescribed by the new law may result in
payments to the Company materially in excess of the $17.5 million and
$14.4 million in receivables recorded at October 31, 1996 and April
30, 1996, respectively, which amounts have been consistently
estimated based upon the Company's conservative interpretation of
amounts due under the methods in effect prior to the enactment of the
new law.
Because the settlement under the method prescribed by the new
law will require further discussions with the District of Columbia,
which have not yet been completed, the amount of any such settlement
in excess of recorded amounts is not presently determinable.
(3) Notes Payable - Bank
The Company has extended the term of its primary banking
facility, a $12.2 million revolving promissory note, until May 1997.
This credit facility, previously due to expire in November 1996, was
extended at principally the same terms and conditions.
(4) 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
$1.1 million in excess of insurance coverage. The Company has not
recorded any reserves related to these actions at October 31, 1996.
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 and $50,000 per incident for government and commercial
business, respectively.
7
<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 and integrate the
various components of the health care delivery system, PHP has
transformed 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 which 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 1996 and 1995, its commercial
business accounted for approximately 50% of PHP's total revenues.
Revenues from the Commercial Managed Care Services division have
grown, in part as a result of acquisitions, to $106.9 million or
52.6% of total revenues in 1996 from $1.3 million or 1% of total
revenues in 1992. Operations in this division consist of the
Company's integrated system of care ("ISOC") applied in whole or in
part to: (i) the Company's project with Blue Cross Blue Shield
("BCBSNJ") to operate ten ISOCs 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 HMOs in the District of
Columbia and Virginia, primarily serving the government assisted
Medicaid population. In these operations, the Company undertakes to
provide specified health care benefits to the participating
populations. Also, in November 1995, PHP and St. Vincent's Health
Services Corporation ("St. Vincent's"), an affiliate of the Daughters of
Charity National Health System East, Inc. (the "Daughters of
Charity-East"), formed Connecticut Health Enterprises, L.L.C.
("CHE"), a limited liability company for the purpose of developing an
ISOC in Fairfield County, Connecticut. The CHE ISOC commenced
operations in April 1996 and functions as an alliance between PHP,
St. Vincent's, Fairfield County physicians and other hospitals and
ancillary providers. This system of health care is marketed to
insurers, HMOs, and government agencies, which contract for a total
health care delivery system. The Company is compensated for its
8
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
Commercial Managed Care 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 Care Services division have
decreased slightly to $96.4 million in 1996 from a peak of $116.4
million in 1992. 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 to $203.4 million in 1996
from $118.0 million in 1992. Gross profit margins increased to 19%
and 11% in 1996 and 1995, respectively, after having decreased to 6%
and 7% in 1994 and 1993, respectively. The Company earned net income
of $9.1 million and $952,000 in 1996 and 1995, respectively, after
net losses of $9.3 million and $3.8 million in 1994 and 1993,
respectively. The 1994 and 1993 losses were due to increased
business development costs related to commercial business efforts,
increased corporate support staff 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 revenue:
<TABLE>
<CAPTION>
Three Months Six Months
ended October 31, ended October 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues..................... 100.0% 100.0% 100.0% 100.0%
Direct costs................. 78.5 80.1 78.7 80.8
_____ _____ _____ _____
Gross profit................. 21.5 19.9 21.3 19.2
General and administrative
expenses.................... 12.6 14.7 12.9 14.7
_____ _____ _____ _____
Operating income............. 8.9 5.2 8.4 4.5
Other expense................ (1.8) (0.7) (1.6) (0.6)
_____ _____ _____ _____
Earnings before income taxes. 7.1 4.5 6.8 3.9
Income tax expense........... 2.7 1.8 2.5 1.5
_____ _____ _____ _____
Net earnings................. 4.4 2.7 4.3 2.4
===== ===== ===== =====
</TABLE>
9
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
RESULTS OF OPERATIONS
The Three Months Ended October 31, 1996 Compared To
The Three Months Ended October 31, 1995
The following table indicates revenue by the Company's service
divisions and the related percentage of total revenue:
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
Revenue % of Revenue % of
Division (000's) Total (000's) Total
- -------- ------- ------ ------- -----
<S> <C> <C> <C> <C>
Government Managed Care Services $27,891 47.7 $24,757 50.7
Commercial Managed Care Services 30,527 52.3 24,120 49.3
_______ _____ _______ _____
Total $58,418 100.0 $48,877 100.0
======= ===== ======= =====
</TABLE>
The Company's revenue increased by $9.5 million to $58.4 million
for the quarter ended October 31, 1996, compared to $48.9 million for
the prior year second quarter. This overall increase is due to
growth in both the Commercial Managed Care Services division and the
Government Managed Care Services division.
The Commercial Managed Care Services division revenue increased
by $6.4 million or 26.6%, to $30.5 million for the quarter ended
October 31, 1996, compared to $24.1 million for the quarter ended
October 31, 1995. The largest increase was provided by the Company's
subsidiary, Virginia Chartered Health Plan, Inc. ("VACHP"), a
Medicaid HMO operating in selected markets in the Commonwealth of
Virginia. VACHP commenced operations in November 1995, and
therefore, there were no corresponding revenues during the prior year
second quarter. Commercial Managed Care Services division revenue
also increased due to revenue earned during the current quarter for
ISOC development, management and operations related to strategic
ventures in Connecticut and other markets. Revenues earned from the
Company's BCBSNJ ISOC project also increased due to greater
utilization by the constituent population of the ten ISOCs being
managed and operated by the Company. These Commercial Managed Care
Services division revenue increases were offset slightly by a
decrease in revenue related to a decrease in enrollment at D.C.
Chartered Health Plan, Inc. ("CHP"), the Company's wholly-owned HMO
in the District of Columbia, and the non-recurrence of construction
revenues earned during the prior year second quarter related to the
completion of the tenth and final BCBSNJ ISOC health center which
opened in September 1995.
Government Managed Care Services division revenue increased by
$3.2 million or 12.7% to $27.9 million for the quarter ended October
31, 1996, compared to $24.7 million for the quarter ended October 31,
1995. This increase in revenues is the result of: (1) a new total
managed care correctional facilities project which commenced
operations in July 1996, (2) a new ambulatory care
10
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
project which commenced operations in October 1995, (3) a new mental
health project which commenced operations in August 1996, (4) two new
long-term care nursing home projects which commenced operations near
the end of the prior year first quarter, for which revenue increased
as occupancy gradually increased over the course of several months,
(5) an increase in the number of inmates and in the per inmate
reimbursement rate at an existing total managed care correctional
facilities project, and (6) two new long-term care nursing home
projects which commenced operations in August and October 1996.
These revenue increases were offset by decreases resulting from the
completion of the five ambulatory care projects, one medical staffing
project and two mental health projects since the prior year second
quarter.
The Company's gross profit increased by 29.1% or $2.9 million,
to $12.6 million for the quarter ended October 31, 1996 compared to
$9.7 million for the prior year second quarter. As a percentage of
revenue, gross profit increased to 21.5% for the current year second
quarter compared to 19.9% for the same period in the prior year.
This overall gross profit improvement resulted from an increase in
the Commercial Managed Care Services division, offset by a slight
decrease in the Government Managed Care Services division.
The Commercial Managed Care Services division gross profit
increase was primarily attributable to: (1) the gross profit earned
by VACHP, which was not operational during the prior year second
quarter, and (2) higher gross profit earned from the BCBSNJ ISOC
project resulting from greater utilization by the constituent
population of the ten health centers being managed and operated by
the Company.
Government Managed Care Services division gross profit decreased
due to: (1) the $300,000 settlement of the Company's outstanding
claim with the Department of the Army related to a former PRIMUS
project during the prior year second quarter, (2) increased facility
costs related to the pending early completion of a multi-site
ambulatory care project, and (3) decreases due to completion of
certain projects as described above. These decreases were offset by
increases attributable to the following: (1) an increase in the
number of inmates and in the per inmate reimbursement rate at an
existing total managed care correctional facilities project, and (2)
commencement of operations on new projects as described above.
General and administrative expenses increased 2% or $147,000,
to $7.3 million for the quarter ended October 31, 1996 from $7.2
million for the prior year second quarter. The increase is primarily
due to additional general and administrative expenses related to the
new VACHP subsidiary. As a percentage of revenue, general and
administrative expenses decreased to 12.6% for the current year
second quarter compared to 14.7% during the prior year period.
Operating income more than doubled, increasing by $2.7 million
to $5.2 million for the quarter ended October 31, 1996 from $2.5
million for the quarter ended October 31, 1995. Operating margin
increased to 8.9% from 5.2%. This increase was primarily due to the
expanded gross profit margins, offset in part by increased general
and administrative expenses.
11
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
Interest expense increased by $838,000, to $1,411,000 for the
quarter ended October 31, 1996, from $573,000 for the quarter ended
October 31, 1995. This increase in interest expense is due to the
increase in the Company's long term debt resulting from the issuance
of $69.0 million in convertible subordinated debentures in December
1995.
Interest income increased by $351,000, to $554,000 for the
quarter ended October 31, 1996 from $203,000 for the quarter ended
October 31, 1995. This increase is due to the interest earned on the
increased cash and cash equivalents currently available to the
Company resulting from the sale of $69.0 million in convertible
subordinated debentures in December 1995.
The effective income tax rates of 37.6% in the second quarter
of fiscal 1997 and 39.7% in the second quarter of fiscal 1996
represent the combined federal and state income tax rates adjusted
as necessary.
Net earnings increased by $1.3 million, to $2.6 million or $0.19
per share, from $1.3 million or $0.10 per share, for the quarters
ended October 31, 1996 and 1995, respectively.
RESULTS OF OPERATIONS
The Six Months Ended October 31, 1996 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:
<TABLE>
<CAPTION>
October 31, 1996 October 31, 1995
---------------- ----------------
Revenues % of Revenues % of
Division (000's) Total (000's) Total
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Government Managed Care Services $ 52,545 47.0 $ 48,104 50.6
Commercial Managed Care Services 59,301 53.0 46,943 49.4
-------- ---- -------- -----
Total $111,846 100.0 $ 95,047 100.0
======== ===== ======== =====
</TABLE>
The Company's revenues increased by 17.7% or $16.8 million to
$111.8 million for the six months ended October 31, 1996 compared to
$95.0 million for the prior year six month period. This overall
increase results from an increase in both the Commercial Managed Care
Services division and the Government Managed Care Services division.
Commercial Managed Care Services division revenues increased by
$12.4 million or 26.3%, to $59.3 million for the six months ending
October 31, 1996, compared with $46.9 million for the six months
ended October 31, 1995. The largest increase was provided by the
Company's
12
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
subsidiary, Virginia Chartered Health Plan, Inc. ("VACHP"), a
Medicaid HMO operating in selected markets in the Commonwealth of
Virginia. VACHP commenced operations in November 1995, and
therefore, there were no corresponding revenues during the prior year
six month period. Commercial Managed Care Services division revenue
also increased due to revenue earned during the current quarter for
ISOC development, management and operations related to strategic
ventures in Connecticut and other markets. Also, revenues earned
from the Company's BCBSNJ ISOC project increased due to greater
utilization by the constituent population of the ten ISOCs being
managed and operated by the Company. These Commercial Managed Care
Services division revenue increases were offset slightly by a
decrease in revenue related to a decrease in enrollment at CHP, and
the non-recurrence of construction revenues earned during the prior
year six month period related to the completion of the tenth and
final BCBSNJ ISOC health center which opened in September 1995.
Government Managed Health Care Service division revenues
increased by $4.4 million or 9.2% to $52.5 million for the six months
ended October 31, 1996 compared to $48.1 million for the six month
period ended October 31, 1995. This increase in revenues is the
result of: (1) a new total managed care correctional facilities
project which commenced operations in July 1996, (2) a new ambulatory
care project which commenced operations in October 1995, (3) two new
long-term care nursing home projects which commenced operations near
the end of the prior year first quarter for which revenue increased
as occupancy gradually increased over the course of several months,
(4) a new mental health project which commenced operations in August
1996, (5) an increase in the number of inmates and in the per inmate
reimbursement rate at an existing total managed care correctional
facilities project, and (6) two new long-term care nursing home
projects which commenced operations in August and October 1996.
These revenue increases were offset by decreases resulting from the
completion of six ambulatory care projects, one medical staffing
project and two mental health projects since the prior year six month
period.
The Company's gross profit increased by 30.8% or $5.6 million,
to $23.9 million for the six months ended October 31, 1996 compared
with $18.3 million during the prior year period. As a percentage of
revenue, gross profit increased to 21.3% for the current six month
period compared to 19.2% during the prior year. This gross profit
improvement resulted from a significant increase in the Commercial
Managed Care Service division, offset by a nominal decrease in the
Government Managed Care Service division.
The Commercial Managed Care Service division gross profit
increase was primarily attributable to: (1) the gross profit earned
by VACHP, which was not operational during the prior year six month
period, (2) a decrease in expenses at CHP resulting from a decrease
in utilization of non-primary care services, and (3) increased gross
profit earned from the BCBSNJ ISOC project resulting from greater
utilization by the constituent population of the ten health centers
being managed and operated by the Company.
13
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
The Government Managed Care Service division nominal gross
profit net decrease is the result of several increases and decreases.
The decreases are attributable to: (1) increased facility costs
related to the pending early completion of a multi-site ambulatory
care project, (2) the $300,000 settlement of the Company's
outstanding claim with the Department of the Army related to a former
PRIMUS project during the prior year second quarter, (3) a decrease
in revenue at one mental health project resulting from a decrease in
the scope of service when the contract was renewed near the end of
fiscal year 1996, and (4) decreases due to the completion of certain
projects as described above. These decreases were offset by
increases resulting from: (1) an increase in the number of inmates
and the per inmate reimbursement rate at an existing total managed
care correctional facilities project, and (2) commencement of
operations on new projects as described above.
General and administrative expenses increased 3.5% or $487,000,
to $14.4 million for the six months ended October 31, 1996 from
$13.9 million for the same period in the prior year. The increase is
primarily due to additional general and administrative expenses
related to the new VACHP subsidiary. As a percentage of revenue,
general and administrative expenses decreased to 12.9% for the
current year six month period compared to 14.7% during the prior
year.
Operating income more than doubled, increasing by $5.2 million
to $9.5 million for the six months ended October 31, 1996, from $4.3
million for the six months ended October 31, 1995. Operating margin
increased to 8.4% from 4.5%. This increase was primarily due to the
increased gross profit margins, reduced slightly by increased
general and administrative expenses.
Interest expense increased by $1.7 million to $2.8 million for
the six months ended October 31, 1996, from $1.1 million for the
prior year six month period. This increase in interest expense is
due to the increase in the Company's long term debt resulting from
the issuance of $69.0 million in convertible subordinated debentures
in December 1995.
Interest income increased by $805,000 to $1,209,000 for the six
months ended October 31, 1996, from $404,000 for the prior year six
month period. This increase is due to the interest earned on the
increased cash and cash equivalents currently available to the
Company resulting from the sale of $69.0 million in convertible
subordinated debentures in December 1995.
The effective income tax rates of 37.6% for the six months
ended October 31, 1996 and 39.0% for the six months ended October
31, 1995 represent the combined federal and state income tax rates
adjusted as necessary.
Net earnings increased by $2.5 million, to $4.8 million or $0.35
per share, from $2.3 million or $0.17 per share, for the six months
ended October 31, 1996, and 1995, respectively.
14
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
LIQUIDITY AND CAPITAL RESOURCES
Typically, the Company's principal sources of funds are
operations and bank borrowings. In December 1995, however, the
Company issued $69 million of convertible subordinated debentures
resulting in net proceeds of $65.8 million. The Company used these
proceeds to extinguish all outstanding bank debt and will use the
remaining amount to fund expansion of its Commercial Managed Care
Services division.
During the six months ended October 31, 1996, operations used
$4.3 million in cash. This represents a $10.2 million change from
the $5.9 million in cash provided by operations in the prior year six
month period. This decrease in cash provided by operations is
primarily due to an increase in accounts receivable of $13.2 million.
Of the $13.2 million increase in the Company's accounts
receivable at October 31, 1996, $7.0 million is attributable to the
BCBSNJ ISOC project. Under the existing contract, the Company is
prepaid for services provided on this project; however, the parties
are actively engaged in negotiations of a proposed transaction
wherein the Company would purchase the ten health centers and provide
services as a participating provider service network on a non-
exclusive basis to BCBSNJ. This new arrangement is pursuant to a global
capitation with a minimum guarantee of both members and revenue for a
minimum of three years. Current operating payments due the Company and
other adjustments will be netted against the purchase price upon
closing of the new arrangement which is intended to be made effective
July 1, 1996. Additionally, the Company experienced an increase
in accounts receivable of $2.5 million related to the new Maryland
Department of Corrections project which began operations on July 1,
1996. According to the terms of this contract, the Company invoices
for services provided approximately ten (10) days after month-end and
anticipates receipt of payment forty-five (45) days after invoicing.
Finally, $1.6 million of the total increase in accounts receivable is
attributable to increased activity related to the Company's
Commercial Managed Care ISOC enterprises.
The Company's number of days revenue in average outstanding
receivables was 74 days for the six months ended October 31, 1996
compared to 53 days for the prior year six month period. This
increase is a result of the unusual increase in accounts receivable
from BCBSNJ discussed above.
Investing activities used $6.1 million in cash during the six
months ended October 31, 1996, compared to $1.3 million used during
the six months ended October 31, 1995. These uses of cash for
investing activities are entirely due to the acquisition of property
and equipment. The increase during the current fiscal period is
primarily related to investments made for one new and one expanded
ambulatory care clinic in the Government Managed Care Services
division, and to certain infrastructure investments the Company has
made related to its Commercial Managed Care health enterprise
ventures.
15
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
Financing activities used $752,000 in cash during the six months
ended October 31, 1996, compared to $2.5 million used in financing
activities during the six months ended October 31, 1995. The current
six month use of cash is principally due to advances made to
officers. During the prior year six months, the Company's use of
cash for financing activities was due principally to net repayments
on revolving promissory notes and other notes payable.
The Company believes that the current cash and cash equivalents,
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.
16
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None.
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, 1996 and 1995
15.1 Letter of Coopers & Lybrand, L.L.P. regarding Unaudited
Interim Financial Statements
17
<PAGE>
PHP HEALTHCARE CORPORATION
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
Executive Vice President and
Chief Financial Officer
Date: December 16, 1996
18
<PAGE>
PHP HEALTHCARE CORPORATION
EXHIBIT INDEX
Exhibit Item Page
11.0 Statement re: Computation of per share earnings for 20
the three months and six months ended October 31,
1996 and 1995
15.1 Letter of Coopers & Lybrand, L.L.P. regarding 21
Unaudited Interim Financial Statements
19
PHP HEALTHCARE CORPORATION
EXHIBIT 11
Statement Re: Computation of per Share Earnings
Three Months and Six Months ended
October 31, 1996 and 1995
<TABLE>
<CAPTION>
Three Months Six Months
ended October 31, ended October 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary
Net earnings............ $2,601,000 $1,329,000 $4,759,000 $2,254,000
========== ========== ========== ==========
Weighted average number of
common shares outstanding 11,081,376 10,927,970 11,064,598 10,919,540
Add common share equivalents
(determined using the
"treasury stock method")
representing shares issuable
upon exercise of stock
options and warrants..... 2,707,067 2,372,072 2,775,879 2,126,110
Shares held in escrow...... (88,572) (88,572) (88,572) (88,572)
__________ __________ _________ _________
Weighted average number
of shares used in
calculation of primary
earnings per share....... 13,699,871 13,211,470 13,751,905 12,957,078
========== ========== ========== ==========
Primary earnings per
common share............. $ 0.19 $ 0.10 $ 0.35 $ 0.17
========== ========== ========== ==========
Fully diluted
Net earnings............ $2,601,000 $1,329,000 $4,759,000 $2,254,000
Net interest expense
related to
convertible debt..... 6,000 9,000 11,000 18,000
__________ __________ __________ __________
Net earnings as adjusted $2,607,000 $1,338,000 $4,770,000 $2,272,000
========== ========== ========== ==========
Weighted average number of
common shares outstanding 11,081,376 10,927,970 11,064,598 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.................. 2,707,067 2,652,454 2,775,879 2,621,278
Assumed conversion of
convertible debt......... 111,111 111,111 111,111 111,111
Shares held in escrow...... (88,572) (88,572) (88,572) (88,572)
__________ __________ __________ __________
Weighted average number
of shares used in
calculation of fully
diluted earnings
per share................ 13,810,982 13,602,963 13,863,016 13,563,357
========== ========== ========== ==========
Fully diluted earnings
per common share......... $ 0.19 $ 0.10 $ 0.34 $ 0.17
========== ========== ========== ==========
</TABLE>
Exhibit 15.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: PHP Healthcare Corporation, Registrations on Form S-3 and on
Form S-8
We are aware that our report dated December 6, 1996 on our review of
interim financial information of PHP Healthcare Corporation and
consolidated subsidiaries as of October 31, 1996 and for the three
month and six month periods ended October 31, 1996 and 1995, and
included in the Company's quarterly report on Form 10-Q for the
quarter then ended is incorporated by reference in Registration
Statement No. 33-301101 on Form S-3 and in Registration Statement No.
33-41577 on Form S-8. Pursuant to Rule 436(c) under the Securities
Act of 1933, this report should not be considered a part of the
prospectus and registration statement prepared or certified by us
within the meaning of Section 7 and 11 of that Act.
Coopers & Lybrand L.L.P.
Washington, D.C.
December 10, 1996
<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 it 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-30-1997
<PERIOD-START> May-01-1996
<PERIOD-END> Oct-31-1996
<CASH> 37,514
<SECURITIES> 0
<RECEIVABLES> 59,997
<ALLOWANCES> 195
<INVENTORY> 0
<CURRENT-ASSETS> 108,091
<PP&E> 44,727
<DEPRECIATION> 18,200
<TOTAL-ASSETS> 144,239
<CURRENT-LIABILITIES> 38,531
<BONDS> 65,860
<COMMON> 143
0
0
<OTHER-SE> 35,721
<TOTAL-LIABILITY-AND-EQUITY>144,239
<SALES> 0
<TOTAL-REVENUES> 111,846
<CGS> 0
<TOTAL-COSTS> 87,967
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,768
<INCOME-PRETAX> 7,629
<INCOME-TAX> 2,870
<INCOME-CONTINUING> 4,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,759
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0.34
</TABLE>
