<PAGE>
Securities and Exchange Commission
Washington, DC 20549
-----------------
FORM 10-Q/A-7
DRAFT
(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. 7
The undersigned registrant hereby files this Amendment No. 7 (the
"Amendment") for purposes of amending Part II, Item 5. The Amendment is set
forth below:
ITEM 5. OTHER INFORMATION
ITEM 5 OF FORM 10-Q/A OF PHP HEALTHCARE CORPORATION (THE "COMPANY")
DATED APRIL 29, 1997, IS HEREBY AMENDED IN ITS ENTIRETY AS FOLLOWS:
On February 28, 1997, the Company and a real estate investment trust
subsidiary in which the Company owns a minority interest (the "REIT")
acquired ten primary care facilities located throughout New Jersey formerly
operated by Blue Cross and Blue Shield of New Jersey, Inc. ("BCBSNJ"). The
ten health centers were originally designed, built and managed by the Company
under a management agreement with BCBSNJ. Under the management agreement, the
Company recruited physicians and other center staff, developed an integrated
referral network of medical and surgical specialists, and designed the
utilization, case management and quality assurance systems for the health
centers.
The total consideration paid by the Company and the REIT to BCBSNJ,
approximately $35 million, was determined through arms' length negotiations
between the Company and BCBSNJ. Of the $35 million received by BCBSNJ, $22
million was paid by the REIT and the balance was paid by the Company,
including $10.6 million in cash and 90,000 shares of the Company's common
stock. In addition, in connection with the transaction, the Company made a
$0.9 million capital contribution to the REIT and advanced the REIT an
additional $18 million, including $16 million in short-term secured loans and
$2 million in long-term secured loans until permanent financing is obtained.
The Company's portion of the cash consideration paid to BCBSNJ and the
amounts contributed or advanced to the REIT were obtained from a combination
of cash on hand, equipment lease financing and borrowings on its bank line of
credit.
The Company will use the health centers as the cornerstone of a provider
sponsored integrated health care delivery network to be operated on a
non-exclusive basis for BCBSNJ, and other third party payors, including HMOs.
The integrated health care delivery network will operate under the name
Pinnacle Health Enterprises and resemble other provider service networks
managed by the Company in Connecticut and Georgia, which align the Company
with local hospital and physician partners.
In addition, the physicians previously employed at the health centers are
now employed by a professional medical group affiliated with the Company.
Concurrent with the purchase agreement the Company and BCBSNJ entered into a
network services agreement pursuant to which the Company provides certain
health care services to enrolled BCBSNJ beneficiaries through global
capitation based on market rates. Under the network services agreement,
BCBSNJ has guaranteed certain global capitation payments to the Company over
a three year period.
1
<PAGE>
The following documents are included in this report:
(a) Financial statements of the business acquired.
- Health Center Operations of Blue Cross Blue and Shield of New Jersey,
Inc. financial statements as of and for the year ended December 31,
1996, together with Report of Independent Public Accountants.
(b) Pro forma financial information.
The following pro forma financial information is required by Article 11
of Regulation S-X.
- PHP Healthcare Corporation Pro Forma Consolidated Balance Sheet as of
January 31, 1997, which reflects the acquisition of the Health Center
Operations as of that date (unaudited).
- PHP Healthcare Corporation Pro Forma Combined Statements of Operations
for the Nine Months ended January 31, 1997 (unaudited).
- PHP Healthcare Corporation Pro Forma Combined Statements of Operations
for the Year ended April 30, 1996 (unaudited).
- PHP Healthcare Corporation Notes to Pro Forma Combined Financial
Statements for the Year ended April 30, 1996 (unaudited) and the Nine
Months ended January 31, 1997 (unaudited).
2
<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: May 16, 1997
-------------------------
3
<PAGE>
HEALTH CENTER OPERATIONS OF
BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC.
Financial Statements as of December 31, 1996
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
4
<PAGE>
[Arthur Andersen LLP logo appears here]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Blue Cross and Blue Shield of New Jersey, Inc.:
We have audited the accompanying statement of assets and liabilities of
the Health Center Operations of Blue Cross Blue and Shield of New Jersey,
Inc. (an operating segment of Blue Cross and Blue Shield of New Jersey, Inc.)
as of December 31, 1996, and the related statement of operations for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, the accompanying
financial statements present the carved-out portion of Blue Cross and Blue
Shield of New Jersey, Inc.'s assets and liabilities and results of
operations, referred to as the Health Center Operations, and may not
necessarily be indicative of the financial position or results of operations
that would have existed if the Health Center Operations had been operated as
an unaffiliated company. Certain expenses are the result of allocations of
total expenses incurred by Blue Cross and Blue Shield of New Jersey, Inc.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Health Center
Operations of Blue Cross and Blue Shield of New Jersey, Inc. as of December
31, 1996, and the results of its operations for the year then ended in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
May 15, 1997
5
<PAGE>
HEALTH CENTER OPERATIONS OF
BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC.
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable............................................ $ 650,000
Inventories.................................................... 686,619
Prepaid expenses and other..................................... 57,183
----------
Total current assets........................................ 1,393,802
Property and equipment:
Equipment..................................................... 6,843,634
Leasehold improvements........................................ 5,229,359
Land.......................................................... 6,072,907
Building...................................................... 12,234,282
----------
30,380,182
Less accumulated depreciation and amortization................ (4,453,724)
----------
Property and equipment, net................................. 25,926,458
Deposits....................................................... 165,960
----------
Total assets................................................... $27,486,220
----------
----------
LIABILITIES
Obligations under capital lease, current portion............... $1,270,000
Obligations under capital lease, net of current portion........ 2,223,000
Commitments and Contingencies (Note 4)
ASSETS IN EXCESS OF LIABILITIES
Assets in excess of liabilities................................ 23,993,220
----------
Total liabilities and assets in excess of liabilities.......... $27,486,220
----------
----------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
6
<PAGE>
HEALTH CENTER OPERATIONS OF
BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC.
Statement of Operations
For the Year ended December 31, 1996
<TABLE>
<S> <C>
Revenues:
Capitation................................................... $ 3,666,058
Fee for service.............................................. 4,499,906
-----------
Total Revenues.............................................. 8,165,964
-----------
Expenses:
Physician expenses........................................... 6,380,275
Center operating expenses.................................... 13,973,647
Facility costs............................................... 3,974,464
Other........................................................ 1,061,766
-----------
Total Expenses.............................................. 25,390,152
-----------
Net loss....................................................... $(17,224,188)
-----------
-----------
</TABLE>
The accompanying notes to financial statements are an integral part of this
statement.
7
<PAGE>
HEALTH CENTER OPERATIONS OF
BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC.
NOTES TO FINANCIAL STATEMENTS
1) DESCRIPTION OF OPERATIONS INCLUDED IN THE ACCOMPANYING FINANCIAL STATEMENTS
On February 28, 1997, PHP Healthcare Corporation ("PHP") acquired certain
assets and assumed certain liabilities from Blue Cross and Blue Shield of
New Jersey's Health Center operations. The accompanying statement of
assets and liabilities and statement of operations present the carved-out
portion of the Health Center Operations. This carved-out portion is
herein referred to as the "Health Center Operations" (the "HCO").
Concurrent with the purchase, PHP and BCBSNJ entered into a network
services agreement pursuant to which PHP provides certain health care
services to enrolled BCBSNJ beneficiaries through global capitation.
Under the network services agreement, BCBSNJ has guaranteed certain
global capitation payments to PHP over a three year period. However, the
effects of the network services agreement are not included in the
statement of operations. These assets and liabilities and results of
operations may not necessarily be indicative of the financial position or
results of operations that would have existed if the Health Center
Operations had been operated as an unaffiliated company. Certain expenses
are the result of allocations of total expenses incurred by Blue Cross
and Blue Shield of New Jersey.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RECOGNITION OF REVENUE
(a) Capitation Revenues
Primary care capitation revenues are recorded as revenue in the month
for which the covered member is entitled to primary care service.
Capitation revenue from a related party accounted for approximately
100% of total capitation revenues in 1996.
(b) Fee for Service Revenues
Fee for service revenues are recorded in the month for which the
services are provided.
INVENTORIES
Inventories, consisting principally of pharmaceuticals and medical
supplies held for resale, are stated at the lower of cost or net
realizable value. Cost is determined by specific identification.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major additions and
improvements are capitalized, while minor replacements, and maintenance
and repairs that do not increase the useful lives of the property are
expensed as incurred. Depreciation and amortization are provided using
the straight-line method over the estimated useful lives of the related
assets, ranging from five to thirty years.
8
<PAGE>
HEALTH CENTER OPERATIONS OF
BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
INCOME TAXES
The HCO's financial statements have been presented on a carved-out basis.
BCBSNJ has not allocated any income tax benefit to the HCO for 1996.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(3) EMPLOYEE BENEFIT AND HEALTH PLANS
SAVINGS AND INVESTMENT PLAN
The physicians, together with other Blue Cross and Blue Shield of New
Jersey subsidiaries, participate in a qualified defined contribution
savings plan covering substantially all full-time employees as allowed
under Section 401(k) of the Internal Revenue Code. All physicians with
six months of service are eligible for membership. Total expenses
allocated for participating physicians in the health centers was
approximately $96,000 in 1996.
PENSION AND RETIREMENT PLAN
Substantially all the health center physicians, together with employees
of other Blue Cross and Blue Shield of New Jersey subsidiaries are
covered under a pension plan which provides benefits based upon employee
compensation and years of service. The costs allocated to the HCO were
approximately $289,000 for 1996.
(4) COMMITMENTS AND CONTINGENCIES
LEASES
The HCO has leases for health center space and equipment that expire on
various dates over the next eight years. The health center leases provide
for increased real estate taxes and building operating costs through
annual adjustments. Total rental expenses for leases for the year was
approximately $2.4 million.
Future minimum rental payments under noncancelable leases at December 31,
1996, are as follows: $1.4 million in 1997, $1.4 million in 1998, $1.4
million in 1999, $1.4 million in 2000, $1.4 million in 2001, and $4.4
million thereafter.
9
<PAGE>
HEALTH CENTER OPERATIONS OF
BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC.
NOTES TO FINANCIAL STATEMENTS (continued)
(5) RELATED PARTY TRANSACTIONS
Overhead costs of approximately $135,000 were allocated to the HCO by PHP
for the year ended December 31, 1996.
10
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED FINANCIAL STATEMENTS
On February 28, 1997, the PHP Healthcare Corporation (the "Company")
acquired ten health care centers ("HCO") from Blue Cross and Blue Shield of
New Jersey ("BCBSNJ"). This transaction was accounted for as a purchase.
Concurrently, six of the health care center buildings were directly purchased
by GL/PHP, LLC, an 80.5% owned subsidiary of G&L Realty, a NYSE listed Real
Estate Investment Trust. The remaining ownership of 19.5% is owned by the
Company. Since PHP funded substantially all of the funds at closing, in
concert with certain ownership risk provisions of the lease agreements, the
Company will consolidate GL/PHP, LLC.
The Pro Forma Combined Statement of Operations for the year ended April
30, 1996 and the nine months ended January 31, 1997, and the Pro Forma
Combined Balance Sheet of the Company as of January 31, 1997, give effect to
the acquisition of the HCO which was completed on February 28, 1997. The
adjustments related to the Pro Forma Combined Statement of Operations assume
the transaction was consummated effective May 1, 1995.
The Pro Forma financial information is not necessarily indicative of the
results of operations which would have been attained had the acquisition been
consummated on the date indicated or that which may be attained in the
future. The Pro Forma financial information should be read in conjunction
with the historical consolidated financial statements of PHP and the HCO.
11
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
AS OF JANUARY 31, 1997 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
--------- GL/PHP PRO FORMA PRO FORMA
PHP HCO LLC SUBTOTAL ADJUSTMENTS COMBINED
---------- --------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 29,148 $ 4,400 $ 33,548 $ (15,581)(1) $ 17,967
Accounts receivable, net......................... 47,924 $ 650 48,574 (10,190)(2) 38,384
Pharmaceutical and medical supplies.............. 785 630 1,415 1,415
Receivables from officers........................ 4,101 4,101 4,101
Other current assets............................. 6,395 166 6,561 6,561
---------- --------- ----------- ---------- ----------- -----------
Total current assets........................... 88,353 1,446 94,199 (25,771) 68,428
Property and equipment, net........................ 27,595 25,552 53,147 5,228(3) 58,375
Intangible assets.................................. 2,959 2,959 10,670(4) 13,629
Deferred income taxes.............................. 1,321 1,321 1,321
Receivables from officers, net..................... 1,072 1,072 1,072
Other assets....................................... 5,440 108 5,548 5,548
---------- --------- ----------- ---------- ----------- -----------
$ 126,740 $ 27,106 $ 4,400 $ 158,246 $ (9,873) $ 148,373
---------- --------- ----------- ---------- ----------- -----------
---------- --------- ----------- ---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of notes payable--other....... 574 574 9,200(1) 9,774
Accounts payable................................. 8,046 8,046 8,046
Claims payable--medical services................. 4,646 4,646 2,891(5) 7,537
Accrued salaries and benefits.................... 15,020 15,020 15,020
Deferred income taxes............................ 1,322 1,322 1,322
Billings in excess of costs...................... 1,105 1,105 1,105
---------- --------- ----------- ---------- ----------- -----------
Total current liabilities...................... 30,713 30,713 12,091 42,804
Notes payable--other, net of current liabilities... 1,486 3,506 4,992 94(1) 5,086
Convertible subordinated debentures................ 65,986 65,986 65,986
Deferred gain on sale of building.................. 938 938 938
Other liabilities.................................. 696 696 696
---------- --------- ----------- ---------- ----------- -----------
Total liabilities.............................. 99,819 3,506 103,325 12,185 115,510
---------- --------- ----------- ---------- ----------- -----------
Assets in excess of liabilities.................... 23,600 23,600 (23,600)
Minority interest.................................. 862 862 3,542(6) 4,404
---------- --------- ----------- ---------- ----------- -----------
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 in January....... 143 4,400 4,543 (4,400)(6) 143
Additional paid-in capital....................... 30,982 30,982 2,400(7) 33,382
Note receivable from sale of stock............... (900) (900) (900)
Retained earnings................................ 2,406 2,406 2,406
Treasury stock, 3,258,485 common shares at
cost........................................... (6,572) (6,572) (6,572)
---------- --------- ----------- ---------- ----------- -----------
Total stockholders equity........................ 26,059 4,400 30,459 (2,000) 28,459
Contingencies......................................
---------- --------- ----------- ---------- ----------- -----------
$ 126,740 $ 27,106 $ 4,400 $ 158,246 $ (9,873) $ 148,373
---------- --------- ----------- ---------- ----------- -----------
---------- --------- ----------- ---------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
12
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
----------------------------------- PRO
GL/PHP PRO FORMA FORMA
PHP HCO LLC SUBTOTAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................................. $ 162,280 $ 7,287 $ $ 169,567 $12,231(8) $ 181,798
306(10)
Direct costs......................................... 130,510 20,723 151,233 (1,898)(9) 151,320
---------- ---------- --- ---------- ----------- ----------
1,691(11)
(412)(12)
400(13)
-----------
Gross profit..................................... 31,770 (13,436) 18,334 12,144 30,478
General and administrative expenses.................. 22,584 22,584 22,584
Reserve for Medicaid receivables (note 2)............ 9,822 9,822 9,822
Former chairman retirement package (note 4).......... 2,275 2,275 2,275
Restructuring charges (note 5)....................... 2,550 2,550 2,550
---------- ---------- --- ---------- ----------- ----------
Operating income (loss).......................... (5,461) (13,436) (18,897) 12,144 (6,753)
Other income (expense):
Interest expense............................... (4,128) (4,128) (850) 14) (4,978)
Interest income................................ 1,679 1,679 1,020(14) 2,699
Miscellaneous income (expense)................. (67) (67) (67)
Minority interest in earnings of
subsidiaries................................. (316) (316) (316)
---------- ---------- --- ---------- ----------- ----------
Earnings (loss) before income taxes.............. (8,293) (13,436) (21,729) 12,314 (9,415)
Income tax expense (benefit)......................... (3,151) (3,151) (427) (3,578)
---------- ---------- --- ---------- ----------- ----------
Net earnings (loss).............................. $ (5,142) $ (13,436) $ -- $ (18,578) $ 12,741 $ (5,837)
Net earnings (loss) per share........................ $ (0.47) $ (0.53)
---------- ---------- --- ---------- ----------- ----------
---------- ---------- --- ---------- ----------- ----------
Weighted average number of common and common
equivalent shares outstanding...................... 10,986 11,076
---------- ---------- --- ---------- ----------- ----------
---------- ---------- --- ---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of this statement.
13
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED APRIL 30, 1996 (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACTUAL
---------- GL/PHP PRO FORMA PRO FORMA
PHP HCO LLC SUBTOTAL ADJUSTMENTS COMBINED
---------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues......................................... $ 203,360 $ 9,400 $ $ 212,760 $ (294)(8) $ 212,466
408(10)
Direct costs..................................... 163,582 23,952 187,534 (2,530)(9) 181,900
---------- ---------- ----------- ----------- ----------- -----------
(3,820) 11)
(226) 12)
534 (13
---------- ---------- ----------- ----------- ----------- -----------
Gross profit................................... 39,778 (14,552) 25,226 5,340 30,566
General and administrative expenses.............. 27,173 27,173 27,173
Operating income (loss)........................ 12,605 (14,552) (1,947) 5,340 3,393
Other income (expense):
Interest expense............................. (3,363) (3,363) (1,132) 14) (4,495)
Interest income.............................. 1,448 1,448 1,360 (14 2,808
Miscellaneous income (expense)............... 69 69 69
Gain on sale of subsidiary stock............. 2,247 2,247 2,247
Minority interest in earnings of
subsidiaries............................... 212 212 212
---------- ---------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes.......... 13,218 (14,552) (1,334) 5,568 4,234
Income tax expense (benefit)..................... 4,100 4,100 (2,787) 1,313
Net earnings (loss).......................... $ 9,118 $ (14,552) $ -- $ (5,434) $ 8,355 $ 2,921
---------- ---------- ----------- ----------- ----------- -----------
---------- ---------- ----------- ----------- ----------- -----------
Net earnings (loss) per share:
Primary........................................ $ .68 $ 0.22
---------- -----------
---------- -----------
Diluted........................................ $ .66 $ 0.21
---------- -----------
---------- -----------
Weighted average number of common and common
equivalent shares outstanding:
Primary........................................ 13,429 13,429
---------- -----------
---------- -----------
Diluted........................................ 13,873 13,873
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral part of this statement.
14
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED APRIL 30, 1996 (UNAUDITED) AND
THE NINE MONTHS ENDED JANUARY 31, 1997
1) Cash Paid and Debt Incurred
The pro forma adjustment to cash and notes payable represents cash on hand
used in the acquisition. The $9.2 million in notes payable represents a draw
against the Company's bank line of credit.
2) Accounts Receivable
The pro forma adjustment to accounts receivable represents payments on
amounts due to PHP net of acquired accounts receivables.
3) Property and Equipment
The pro forma adjustment to property and equipment represents the increase in
estimated fair value of the acquired property and equipment.
4) Intangible Assets
The pro forma adjustment to intangible assets represents the addition
resulting from the excess of the purchase price paid in the acquisition over
the fair market value of the tangible net assets acquired. The Company has
assigned values of approximately $2.4 million to a network agreement, $1.0
million to physician contracts, $1.0 million to assembled workforce, and $6.2
million to goodwill. The estimated amortization periods for these components
are 25 years, 4 years, 15 years, and 25 years, respectively.
5) Claims Payable
The pro forma adjustment to claims payable represents the estimated incurred
but not reported claims costs for services provided under the global
capitation network services agreement.
6) REIT Participation
The pro forma adjustment to equity reclassifies G&L Realty's equity in
GL/PHP, LLC of $3.5 million to minority interest and eliminates the Company's
equity in GL/PHP, LLC of $900,000.
7) Stock Issuance
The pro forma adjustment to additional paid-in-capital represents the value
of the shares issued by PHP to BCBSNJ in conjunction with the acquisition.
15
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED APRIL 30, 1996 (UNAUDITED) AND
THE NINE MONTHS ENDED JANUARY 31, 1997 (CONTINUED)
8) Global Capitation
In conjunction with the purchase agreement the Company and BCBSNJ entered
into a network services agreement pursuant to which the Company provides
certain health care services to enrolled BCBSNJ beneficiaries through global
capitation payment to the Company over a three year period. The effects of
this new contractual arrangement is being added while the revenue recorded
under the Company's prior contract as well as the HCO's prior capitation
revenue are being eliminated. Revenues of approximately $31.2 million and
$26.7 million are being added under the new global capitation arrangement for
the nine months ended January 31, 1997 and the year ended April 30, 1996,
respectively. The significantly larger adjustment in revenue for the nine
months ended January 31, 1997 compared to the year ended April 30, 1996 is
due to the increased enrollment (approximately 256,000 and 220,000 member
months, respectively). Prior contract and capitation revenues of
approximately $19 million and $27 million are being eliminated for the nine
months ended Janury 31, 1997 and the year ended April 30, 1996, respectively.
9) Direct Costs
The pro forma adjustment to direct costs represent elimination of GL/PHP, LLC
rental amounts.
10) Depreciation Expense
The pro forma adjustment to direct costs represents the increase in
depreciation of fixed assets recorded in conjunction with the acquisition.
11) Expanded Service Costs
As described in note (8) the direct cost adjustments were similarly impacted
by the costs associated with providing additional health care services under
the network services agreement to a differing member base. The effects of
this new contractual arrangement is being added while the costs recorded
under the Company's prior contract are being eliminated. Claims expense of
approximately $11.6 million and $9.6 million are being added under the new
expanded health care services arrangement for the nine months ended January
31, 1997 and the year ended April 30, 1996, respectively. The significantly
larger adjustment in claims for the nine months ended January 31, 1997,
compared to the year ended April 30, 1996 is due to the increased enrollment
(approximately 256,000 and 220,000 member months, respectively). Prior
contract expenses of approximately $10 million and $13.4 million are being
eliminated for the nine months ended January 31, 1997 and the year ended
April 30, 1996, respectively.
12) Nonrecurring Costs
The pro forma adjustment to direct costs represents the elimination of
certain nonrecurring costs related to allocations charged by the parent
company for data processing and other administrative services. Also included
in this adjustment is the processing and other administrative services.
16
<PAGE>
PHP HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
FOR THE YEAR ENDED APRIL 30, 1996 (UNAUDITED) AND
THE NINE MONTHS ENDED JANUARY 31, 1997 (CONTINUED)
13) Amortization Expense
The pro forma adjustment to direct costs represents the increase in
amortization of intangible assets recorded in conjunction with the
acquisition using a 20-year amortization period.
14) Interest Expense
The pro forma adjustment to interest expense represents the interest expense
on additional debt necessary to complete the acquisition.
(15) Interest Income
The pro forma adjustment to interest income represents the interest income
on advances made to GL/PHP, LLC to complete the acquisition.
(16) Elimination of Costs
There are cost reductions in connection with the acquisition which are not
reflected in the pro forma financials. The Company has estimated that if
these cost reductions were included, the reduction to health center
expenses would be approximately $1.8 million and $2.4 million for the nine
months ended January 31, 1997 and the year ended April 30, 1996,
respectively.
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