Securities and Exchange Commission
Washington, DC 20549
-----------------
FORM 10-Q
Amendment No. 4
(Mark One)
[X] Quarterly Report Pursuant To Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended January 31, 1997.
[ ] 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 January 31,
1997, 11,014,444 shares.
<PAGE>
AMENDMENT NO. 4
The undersigned registrant hereby files this Amendment No. 4
(the "Amendment") for the purposes of amending (i) Part I, Item 1
to include the report of Coopers & Lybrand L.L.P., dated March 31,
1997 and (ii) Part II, Item 6, to include the letter of Coopers &
Lybrand L.L.P., dated April 3, 1997 regarding unaudited interim
financial statements. The Amendment is set forth below.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
[Coopers & Lybrand Letterhead]
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 January 31, 1997, and for the three month and nine month
periods ended January 31, 1997 and 1996, included on page 3
through 9 of this Form 10-Q/A-3. 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.
The Company's original Form 10 Q dated March 17, 1997, has been
amended on Form 10 Q/A-3 dated March 31, 1997, to correct an
error in the calculation of earnings per share for the three
month and nine month periods ended January 31, 1997.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
March 31, 1997
1
<PAGE>
PHP HEALTHCARE CORPORATION
Condensed Consolidated Statements of Operations
Three Months and Nine Months ended January 31, 1997 and 1996
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues............................ $50,434 $52,886 $162,280 $147,934
Direct costs........................ 42,543 42,305 130,510 119,100
_______ _______ ________ ________
Gross profit................... 7,891 10,581 31,770 28,834
General and administrative expenses. 8,165 7,039 22,584 20,971
Reserve for Medicaid receivables
(note 2).......................... 9,822 --- 9,822 ---
Former chairman retirement package
(note 4).......................... 2,275 --- 2,275 ---
Restructuring charges (note 5)...... 2,550 --- 2,550 ---
_______ _______ ________ ________
Operating income (loss)........ (14,921) 3,542 (5,461) 7,863
Other income (expense):
Interest expense................. (1,360) (979) (4,128) (2,076)
Interest income.................. 470 482 1,679 885
Miscellaneous income (expense)... (34) (20) (67) 49
Gain on sale of subsidiary stock. --- 2,247 --- 2,247
Minority interest in earnings of
subsidiaries................... (78) --- (316) ---
_______ _______ ________ ________
Earnings (loss) before income
taxes.......................... (15,923) 5,272 (8,293) 8,968
Income tax expense (benefit)........ (6,021) 1,112 (3,151) 2,554
_______ _______ ________ ________
Net earnings (loss)........... $(9,902)$ 4,160 $(5,142) $ 6,414
======= ======= ======== ========
Net earnings (loss) per share....... $ (0.90)$ 0.31 $ (0.47)$ 0.48
======= ======= ======== ========
Weighted average number of common
and common equivalent shares
outstanding...................... 11,005 13,603 10,986 13,280
======= ======= ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
PHP HEALTHCARE CORPORATION
Condensed Consolidated Balance Sheets
As of January 31, 1997 and April 30, 1996
(In thousands, except share data)
<TABLE>
<CAPTION>
January 31 April 30,
1997 1996
---- ----
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents............. $ 29,148 $ 48,647
Accounts receivable, net (note 2)..... 47,924 46,578
Pharmaceutical and medical supplies... 785 1,039
Receivables from officers............. 4,101 3,263
Other current assets.................. 6,395 4,048
________ ________
Total current assets.............. 88,353 103,575
Property and equipment, net............ 27,595 22,685
Excess of cost over fair value of
assets acquired, net of
accumulated amortization
of $962 in January and $810 in April. 2,959 2,942
Deferred income taxes.................. 1,321 543
Receivables from officers, net......... 1,072 1,072
Other assets........................... 5,440 4,538
________ ________
$126,740 $135,355
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable
- other........................... 574 545
Accounts payable.................... 8,046 9,520
Claims payable - medical services... 4,646 9,154
Accrued salaries and benefits
(notes 4 and 5)................... 15,020 11,228
Deferred income taxes............... 1,322 4,322
Billings in excess of costs......... 1,105 244
________ ________
Total current liabilities 30,713 35,013
Notes payable - other, net of current
maturities........................... 1,486 1,921
Convertible subordinated debentures.... 65,986 65,608
Deferred gain on sale of building...... 938 1,002
Other liabilities...................... 696 519
________ ________
Total liabilities 99,819 104,063
________ ________
Minority interest...................... 862 545
________ ________
Stockholders' equity:
Preferred stock, $.01 par value,
500,000 shares authorized, none
issued............................ --- ---
Common stock, $.01 par value,
25,000,000 shares authorized,
14,272,929 shares issued in
January and 14,203,987 shares in
April............................. 143 142
Additional paid-in-capital.......... 30,982 30,529
Note receivable from sale of stock.. (900) (900)
Retained earnings................... 2,406 7,548
Treasury stock, 3,258,485 common
shares, at cost................... (6,572) (6,572)
________ ________
Total stockholders' equity 26,059 30,747
Contingencies (note 6) ________ ________
$126,740 $135,355
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PHP HEALTHCARE CORPORATION
Condensed Consolidated Statements of Cash Flows
Three Months and Nine Months Ended January 31, 1997 and 1996
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................$ (9,902) $ 4,160 $ (5,142) $ 6,414
Adjustments to reconcile net
earnings (loss) to net cash
used in operating activities:
Gain on sale of subsidiary stock. --- (2,247) --- (2,247)
Minority interest in earnings
of subsidiaries................ 78 --- 316 ---
Depreciation and amortization.... 1,136 1,188 3,712 3,235
Increase (decrease) in deferred
income taxes................... (3,778) 440 (3,778) 1,882
Other items, net.................. (21) (21) (64) (61)
Changes in operating assets and
liabilities:
Decrease (increase) in accounts
receivable, net................. 11,878 (7,776) (1,346)(13,499)
Decrease in pharmaceutical and
medical supplies................ 177 5 254 99
Decrease (increase) in other
current assets.................. (687) 431 (2,348) (632)
Increase in other assets.......... (430) (195) (996) (623)
Increase (decrease) in accounts
payable......................... (3,499) (1,904) (1,473) 350
Increase (decrease) in claims
payable......................... (1,219) (1,794) (4,508) 675
Increase in accrued salaries and
benefits........................ 1,802 549 3,792 1,999
Increase (decrease) in billings
in excess of costs.............. 934 (583) 861 188
Decrease in income taxes payable.. (2,845) --- --- ---
Increase (decrease) in other
liabilities..................... 89 (196) 177 201
_______ _______ _______ _______
Net cash used in operating
activities..................... (6,287) (7,943) (10,543) (2,019)
_______ _______ _______ _______
Cash flows from investing activities:
Acquisition of property and
equipment........................ (2,041) (1,112) (8,166) (2,445)
Sale of subsidiary stock.......... --- 3,000 --- 3,000
_______ _______ _______ _______
Net cash provided by (used in)
investing activities........... (2,041) 1,888 (8,166) 555
_______ _______ _______ _______
Cash flows from financing activities:
Proceeds from issuance of convertible
subordinated debentures........... --- 65,831 --- 65,831
Net repayments under revolving
promissory notes.................. --- (17,815) --- (20,546)
Borrowing on notes payable.......... --- --- --- 1,918
Repayments on notes payable......... (138) (3,732) (406) (5,329)
Receivables from officers........... 3 (81) (838) (259)
Proceeds from exercise of stock options 97 216 454 328
_______ _______ _______ _______
Net cash provided by (used in)
financing activities............ (38) 44,419 (790) 41,943
_______ _______ _______ _______
Net increase (decrease)
in cash and cash equivalents.... (8,366) 38,364 (19,499) 40,479
Cash and cash equivalents, beginning
of period........................... 37,514 3,293 48,647 1,178
_______ _______ _______ _______
Cash and cash equivalents, end of
period.............................. $29,148 $41,657 $29,148 $41,657
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PHP HEALTHCARE CORPORATION
Notes to Condensed Consolidated Financial Statements
January 31, 1997
(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
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.
5
<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 a final settlement of these contracts
for the periods 1992 through 1996 under the method prescribed by the
new law results in amounts due the Company in excess of the $17.6
million and $14.4 million in receivables recorded at October 31, 1996
and April 30, 1996, respectively, which amounts have been consistently
calculated based upon the Company's conservative interpretation of
the methods in effect prior to the enactment of the new law.
For several years the Company engaged in on-going good faith
discussions and negotiations with the District regarding amounts due for
the 1992 and 1994 contract years. That process ultimately resulted
in an agreement to settle these amounts due the Company for
$18.9 million. It is now evident to the Company, however, through
recent comments in the local press, that payment has been blocked.
Consequently, in light of the clearly prolonged timeframe to resolve
these issues, the Company has determined to recognize reserves of
$9.8 million against its Medicaid receivables from the District of
Columbia, principally relating to services provided during the 1992
to 1994 contract years.
The Company remains committed to pursuing its contractual
rights for the amounts it is due from the District.
(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.
As a result of the several one-time charges against earnings
recorded during the third quarter of fiscal year 1997, the Company
was not in compliance with certain of the various financial covenants
in the borrowing agreement with its primary bank as of January 31,
1997. The Company is in the process of obtaining a waiver for all
conditions of noncompliance. At January 31, 1997, the Company had no
borrowings under the agreement.
6
<PAGE>
PHP HEALTHCARE CORPORATION
Notes to Condensed Consolidated Financial Statements (cont'd.)
(4) Retirement of Former Chairman
On January 31, 1997, the Company's Founder, Chairman and Chief
Executive Officer, Charles H. Robbins, retired. The Board of
Directors provided Mr. Robbins a retirement agreement that included a
one-time $2 million payment and a payment of $275,000 related to a
one-year noncompetition agreement. The agreement further requires
Mr. Robbins to repay (by April 30, 1997) all outstanding notes
receivable and accrued interest due the Company within the Senior
Executive Loan Program and notes receivable related to certain life
insurance policies. Under the agreement, Mr. Robbins has the right
(through April 30, 1997) to require the Company to purchase up to
200,000 shares of his stock in the Company at the then current market
price. The agreement contains additional clauses which include,
among other things, a "standstill" provision and restrictions on the
timing of any dispositions of Mr. Robbins' holdings in the Company.
For the quarter ended January 31, 1997, the Company recognized
$2.275 million in expense related to the retirement agreement.
(5) Restructuring Charges
During the third quarter ended January 31, 1997, the Company
incurred restructuring charges of $2.55 million. Within a broad
restructuring effort, this charge resulted from two specific
decisions made by the Board of Directors.
In late November 1996, the Company made the strategic decision
to terminate its long-term care line of business, an unprofitable
operation, in the Government Managed Care Services division.
The Company has recognized a net loss of $1.8 million related to the
restructuring for the termination of this line of business.
Effective January 31, 1997, the Company made the
strategic decision to terminate the Company's facilities development
and maintenance function operated out of the corporate offices
through the Company's wholly owned subsidiary, Sterling Communities
Corporation. Future building and facilities management needs will be
fulfilled through outsourced vendor relationships. The Company incurred a
restructuring charge of $750,000 for severance and other termination
costs associated with the elimination of this function.
7
<PAGE>
PHP HEALTHCARE CORPORATION
Notes to Condensed Consolidated Financial Statements (cont'd.)
(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 $115,000 and
$1.1 million in excess of insurance coverage. The Company has not
recorded any reserves related to these actions at January 31, 1997.
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) Subsequent Event - Acquisition of New Jersey Family Healthcare
Centers
On February 28, 1997, the Company purchased 10 healthcare
centers from Blue Cross and Blue Shield of New Jersey (BCBSNJ) for
approximately $35 million cash, 90,000 shares of the Company's
treasury stock, and other consideration. Concurrently, the Company
sold the 6 owned health center buildings to a subsidiary of G&L Realty
Corporation for $22.5 million. Based in Beverly Hills, California,
G&L Realty, which is traded on the New York Stock Exchange, is a
healthcare real estate investment trust specializing in medical office
buildings and other healthcare facilities. The Company has a minority
interest in the subsidiary and has entered into 25-year lease
commitments for these same buildings. The Company has also advanced
approximately $18 million as a short-term secured loan to the subsidiary
until permanent financing is obtained.
The acquisition will be accounted for using the purchase method
of accounting and accordingly, the purchase price will be allocated
to the acquired tangible and identifiable intangible assets and
liabilities based on their respective fair values. Final accounting
for this acquisition is still subject to various appraisals which
must be undertaken to assign values to the tangible and intangible
assets acquired.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Articles of Incorporation of PHP Healthcare Corporation*
3.2 Bylaws of PHP Healthcare Corporation*
11.0 Statement re: Computation of per share earnings for
the three months and nine months ended January 31, 1997
and 1996*
15.1 Letter of Coopers & Lybrand L.L.P. regarding Unaudited
Interim Financial Statements
_______________________
* Previously filed as an Exhibit to the Company's Form 10-Q,
Amendment No. 3, filed with the Securities and Exchange
Commission on March 31, 1997.
9
<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: April 3, 1997
10
<PAGE>
PHP HEALTHCARE CORPORATION
EXHIBIT INDEX
Exhibit Item
3.1 Articles of Incorporation of PHP Healthcare Corporation*
3.2 Bylaws of PHP Healthcare Corporation*
11.0 Statement re: Computation of per share earnings for
the three months and nine months ended January 31, 1997
and 1996*
15.1 Letter of Coopers & Lybrand L.L.P. regarding Unaudited
Interim Financial Statements
_______________________
* Previously filed as an Exhibit to the Company's Form 10-Q,
Amendment No. 3, filed with the Securities and Exchange
Commission on March 31, 1997.
11
EXHIBIT 15.1
[Coopers & Lybrand Letterhead]
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: PHP Healthcare Corporation, Registrations on Form S-3 and on
Form S-8
We are aware that our report dated March 31, 1997 on our review
of interim financial information of PHP Healthcare Corporation
and consolidated subsidiaries as of January 31, 1997 and for the
three month and nine month periods ended January 31, 1997 and
1996, and included in the Company's quarterly report on Form 10-Q
as amended on Form 10-Q/A-3 and Form 10-Q/A-4 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.
April 3, 1997
