<PAGE>
Securities and Exchange Commission
Washington, DC 20549
-----------------
FORM 10-Q/A
(Mark One)
_
/X/ Quarterly Report Pursuant To Section 13 or 15(d) of the Securities
-
Exchange Act of 1934
For the quarterly period ended July 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 July 31, 1997,
11,549,925 shares.
<PAGE>
The undersigned registrant hereby files this Amendment No. 1 (the "Amendment")
for the purpose of amending and restating in its entirety Part I, Items 1 and
2. The Amendment is set forth below.
INDEX
<TABLE>
<CAPTION>
PAGE
----
PART I - FINANCIAL INFORMATION
- ------------------------------
<S> <C>
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
SIGNATURES 14
EXHIBIT INDEX 15
</TABLE>
1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of PHP Healthcare Corporation:
We have reviewed the Condensed Consolidated Balance Sheet of PHP Healthcare
Corporation and subsidiaries as of July 31, 1997, and the related Condensed
Consolidated Statements of Operations and Cash Flows for the three month periods
ended July 31, 1997 and 1996. 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.
We have previously audited in accordance with generally accepted auditing
standards, the Consolidated Balance Sheet as of April 30, 1997, and the related
Consolidated Statements of Operations, Stockholders' Equity, and Cash Flows for
the year then ended (not presented herein), and in our report dated July 25,
1997, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
Condensed Consolidated Balance Sheet as of April 30, 1997, is fairly stated, in
all material respects, in relation to the Consolidated Balance Sheet from which
it has been derived.
As discussed in note 4 to the condensed consolidated financial statements, the
accompanying Condensed Balance Sheets as of April 30, 1997 and July 31, 1997 and
the Condensed Consolidated Statements of Operations and Cash Flows for the three
month periods ended July 31, 1997 and 1996, have been restated to reflect
revised accounting for certain contract costs.
Coopers & Lybrand, L.L.P.
Washington, D.C.
September 18, 1997
2
<PAGE>
PHP HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
RESTATED
<TABLE>
<CAPTION>
Three Months
------------------
1997 1996
-------- --------
<S> <C> <C>
Revenues................................................. $55,742 $53,483
Direct costs............................................. 44,883 42,122
------- -------
Gross profit........................................ 10,859 11,361
General and administrative expenses...................... 7,638 7,073
------- -------
Operating income.................................... 3,221 4,288
Other income (expense):
Interest expense............................... (1,492) (1,357)
Interest income................................ 279 655
Miscellaneous expense.......................... (186) (38)
Minority interest in earnings of subsidiaries.. (214) (34)
------- -------
Earnings before income taxes........................ 1,608 3,514
Income tax expense....................................... 563 1,321
------- -------
Net earnings........................................ $ 1,045 $ 2,193
======= =======
Net earnings per share................................... $0.08 $0.16
======= =======
Weighted average number of common and common
equivalent shares outstanding.......................... 13,662 13,789
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PHP HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1997 AND APRIL 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
RESTATED
<TABLE>
<CAPTION>
July 31, April 30,
1997 1997
----------- ----------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................ $ 11,597 $ 15,765
Accounts receivable, net................................................. 51,354 45,800
Pharmaceutical and medical supplies...................................... 752 1,460
Receivables from officers................................................ 2,915 4,442
Income tax receivable.................................................... 895 882
Deferred income taxes.................................................... 3,322 3,322
Other current assets..................................................... 6,250 4,273
-------- --------
Total current assets.................................................. 77,085 75,944
Property and equipment, net............................................... 59,056 58,444
Intangible assets, net of accumulated amortization of $1,474 in July and
$1,236 in April........................................................... 7,028 7,275
Receivables from officers................................................. 458 1,202
Other assets.............................................................. 7,035 5,508
-------- --------
$150,662 $148,373
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank (note 2)............................................ 8,200 9,200
Current maturities of notes payable - other.............................. 2,452 1,716
Accounts payable......................................................... 10,494 12,036
Claims payable - medical services........................................ 7,428 8,739
Accrued salaries and benefits............................................ 12,428 13,219
Income taxes payable..................................................... 563 ---
Billings in excess of costs.............................................. 1,045 1,068
-------- --------
Total current liabilities.............................................. 42,610 45,978
Notes payable - other, net of current maturities.......................... 4,440 3,964
Convertible subordinated debentures....................................... 66,161 66,032
Deferred income taxes..................................................... 1,274 1,274
Deferred gain on sale of building......................................... 895 916
Other liabilities......................................................... 829 759
-------- --------
Total liabilities...................................................... 116,209 118,923
-------- --------
Minority interest......................................................... 4,517 4,303
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value, 500,000 shares authorized, none issued.. --- ---
Common stock, $.01 par value, 25,000,000 shares authorized,
14,808,410 shares issued in July and 14,369,849 shares in April......... 148 144
Additional paid-in-capital............................................... 37,686 33,946
Note receivable from sale of stock....................................... (900) (900)
Retained earnings........................................................ (426) (1,471)
Treasury stock, 3,258,485 common shares in July and April, at cost....... (6,572) (6,572)
-------- --------
Total stockholders' equity............................................. 29,936 25,147
Contingencies (note 3).................................................... _______ _______
$150,662 $148,373
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PHP HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JULY 31, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
RESTATED
<TABLE>
<CAPTION>
Three Months
------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net earnings........................................... $ 1,045 $ 2,193
Adjustments to reconcile net earnings to net cash
used in operating activities:
Minority interest in earnings of subsidiaries........ 214 34
Depreciation and amortization........................ 1,798 1,292
Other items, net..................................... (21) (21)
Changes in operating assets and liabilities:
Increase in accounts receivable, net.................. (5,554) (4,643)
Decrease in pharmaceutical and medical supplies....... 708 1
Increase in other current assets...................... (1,990) (619)
Increase in other assets.............................. (1,527) (371)
Decrease in accounts payable.......................... (1,542) (2,203)
Decrease in claims payable............................ (1,311) (1,584)
Decrease in accrued salaries and benefits............. (791) (116)
Decrease in billings in excess of costs............... (23) (51)
Increase in income taxes payable...................... 563 899
Increase in other liabilities......................... 70 53
------- -------
Net cash used in operating activities................ (8,361) (5,136)
------- -------
Cash flows from investing activities:
Acquisition of property and equipment................. (2,034) (2,541)
------- -------
Cash flows from financing activities:
Net repayments under revolving promissory notes....... (1,000) ---
Borrowing on notes payable............................ 1,863 ---
Repayments on notes payable........................... (651) (133)
Receivables from officers............................. 2,271 (754)
Proceeds from exercise of stock options............... 1,144 57
Proceeds from sale of stock........................... 2,600 ---
------- -------
Net cash provided by (used in) financing activities.. 6,227 (830)
------- -------
Net decrease in cash and cash equivalents............ (4,168) (8,507)
Cash and cash equivalents, beginning of period.......... 15,765 48,647
------- -------
Cash and cash equivalents, end of period................ $11,597 $40,140
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PHP HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 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,
1997 and 1996 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.
(b) NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128),
effective for financial statements for both interim and annual periods ending
after December 15, 1997. At that time, the Company will be required to change
the method currently used to calculate earnings per share and to restate all
prior periods. The new requirements will include a calculation of basic
earnings per share, from which the dilutive effect of stock options and warrants
will be excluded. The basic earnings per share are expected to reflect an
increase of $0.01 and $0.04 per share for the quarters ended July 31, 1997 and
July 31, 1996, respectively, over the primary earnings per share reported for
these quarters. A calculation of diluted earnings per share will also be
required; however, this is not expected to differ materially from the Company's
reported primary earnings per share.
(2) NOTE PAYABLE - BANK
The Company has extended the term of its primary banking facility, a $12.2
million revolving promissory note, until October 28, 1997. This credit
facility, previously due to expire in August 1997, was extended at principally
the same terms and conditions.
(3) 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 $50,000 and $250,000. The Company does not believe that it has a
material, estimable and probable liability related to these various legal
actions and therefore has not recorded any reserves at July 31, 1997.
6
<PAGE>
PHP HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
The Company maintains medical malpractice insurance coverage which provides
for reimbursement of any claim amounts in excess of $250,000 per incident on
Government Managed Care Division projects and $50,000 per incident on Commercial
Managed Care Division projects.
(4) RESTATEMENT
Upon further review the Company has revised its accounting treatment for two
contracts entered into during fiscal years 1994 and 1995. The two contracts, a
construction contract and a management contract, which were with the same
party, were previously combined for purposes of revenue recognition. The
Company has restated previously issued financial statements and related footnote
disclosures to account for these two contracts separately. As a result, the
fiscal year 1995 financial statements have been adjusted to reduce the revenue
recognized by $6.9 million for certain cost overruns related to 1995
construction and start-up activities which would have been recovered
prospectively under the two combined contracts. Furthermore, the Company has
recorded additional contract loss reserves of approximately $915,000 in fiscal
year 1995 resulting from the contracts being accounted for separately. This
revised accounting treatment also resulted in the reduction of fiscal year 1996
revenues and direct cost by approximately $900,000 and $915,000, respectively.
Immaterial adjustments to revenue were also recorded in fiscal year 1997. The
effects of these adjustments on net earnings and per share amounts as previously
reported, were as follows:
<TABLE>
<CAPTION>
Three Months Ended July 31,
1997 1996
-------------- --------------
<S> <C> <C>
Net earnings, as previously reported........................... $ 1,045 $ 2,159
Adjustment, net of tax......................................... --- 34
-------------- --------------
Net earnings (loss) as adjusted................................ $ 1,045 $ 2,193
============== ==============
Per Share Amounts:
Net earnings (loss) per share:
Net earnings as previously reported............................ $ 0.08 $ 0.16
Adjustments, net of tax........................................ 0.00 0.00
-------------- --------------
Net earnings (loss) as adjusted................................ $ 0.08 $ 0.16
============== ==============
</TABLE>
7
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Upon further review the Company has revised its accounting treatment for
two contracts entered into during fiscal years 1994 and 1995. The two contracts,
a construction contract and a management contract, which were with the same
party, were previously combined for purposes of revenue recognition. The Company
has restated previously issued financial statements to account for these two
contracts separately. Accordingly, the Company has also revised the following
Management's Discussion and Analysis.
GENERAL
Over the past four 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.
Revenues from the Commercial Managed Care Division have grown, in part as a
result of acquisitions, to $134.9 million or 58.1% of total revenues in 1997
from $1.3 million or 1% of total revenues in 1992. Operations in this division
consist of the Company's integrated health care delivery networks applied in
whole or in part to: (i) the Company's HMOs in the District of Columbia and
Virginia, primarily serving the government assisted Medicaid population, (ii)
the Company's statewide ISOC in New Jersey which contracts to provide services
with HMOs and insurance companies, and (iii) family health centers which are
operated on a contract basis for large employers. 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"), formed Connecticut Health Enterprises, L.L.C. ("Connecticut Health
Enterprises"), a limited liability company, for the purpose of developing a
provider sponsored integrated health care delivery network in Fairfield County,
Connecticut. Connecticut Health Enterprises 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 health care system
is marketed to insurers, HMOs, and government agencies, which contract for a
total health care delivery system. The Company is compensated for its
commercial managed health care services in a variety of methodologies, including
cost plus fee, percentage of revenue, percentage of savings, fee-for-service,
capitation, or some combination of the foregoing.
Revenues from the Government Managed Care Division have decreased slightly
from a peak of $116.4 million in 1992 to $97.4 million in 1997. 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, and total managed care. The Company generally performs
these services under unit-price, fixed-price, cost-reimbursement-plus-fee, and
fixed-rate-labor hour contracts.
The Company's revenues have increased from $118.0 million in 1992 to $232.3
million in 1997. Gross profit margins increased to 18% and 19% in 1997 and 1996,
respectively, after having decreased to 6% and 7% in 1994 and 1993,
respectively. The Company incurred a net loss of $4.1 million in 1997 after
earning net income of $9.1 million in 1996 and a net loss of $4.0 million in
1995, respectively.
8
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
The 1997 loss resulted from a $9.8 million reserve for Medicaid receivables,
$2.6 million in restructuring charges, and a $2.3 million charge related to the
retirement of the Company's former chairman. The 1995 loss resulted from a $8.0
million charge ($4.8 million after tax) related to costs in excess of cash
receipts under a certain contract. In 1994 and 1993 the Company incurred losses
of $9.3 million and $3.8 million, respectively, due to a decrease in gross
profits resulting from some significant nonrecurring events including certain
contract receivable write-offs, increased corporate staff costs and increased
commercial business development costs.
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
ended July 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Revenues................................................... 100.0% 100.0%
Direct costs............................................... 80.5 78.8
----- -----
Gross profit............................................... 19.5 21.2
General and administrative expenses........................ 13.7 13.2
Operating income........................................... 5.8 8.0
Other expense.............................................. (2.9) (1.5)
----- -----
Earnings before income taxes............................... 2.9 6.5
Income tax expense......................................... 1.0 2.5
----- -----
Net earnings............................................... 1.9 4.0
===== =====
</TABLE>
Results Of Operations
The Three Months Ended July 31, 1997 Compared To
------------------------------------------------
The Three Months Ended July 31, 1996
------------------------------------
The following table indicates revenue by the Company's service divisions
and the related percentage of total revenue:
<TABLE>
<CAPTION>
July 31, 1997 July 31, 1996
--------------- --------------
<S> <C> <C> <C> <C>
Revenue % of Revenue % of
Division (000's) Total (000's) Total
- -------- ------- ----- ------- -----
Government Managed Care Division $18,619 33.4 $24,654 46.1
Commercial Managed Care Division 37,123 66.6 28,829 53.9
------- ----- ------- -----
Total $55,742 100.0 $53,483 100.0
======= ===== ======= =====
</TABLE>
9
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
The Company's revenue increased by 4.1% or $2.2 million to $55.7 million
for the quarter ended July 31, 1997 compared to $53.5 million for the prior year
quarter. This increase in revenues was the result of an increase in the
Commercial Managed Care Division offset by a decrease in the Government Managed
Care Division.
The Commercial Managed Care Division revenue increased by $8.3 million or
28.8%, to $37.1 million for the quarter ended July 31, 1997, compared to $28.8
million for the quarter ended July 31, 1996. This net increase is the result of
several increases and a decrease. The largest increase in Commercial Managed
Care Division revenue resulted from the BCBSNJ ISOC project. Effective July 1,
1996, this business relationship was modified such that the Company began to
provide services under a global capitation arrangement which significantly
increased the revenues the Company earns as well as the scope of services and
resultant cost of service. The second 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 since then, VACHP has continually
increased its membership enrollment. Commercial Managed Care revenues also
increased as a result of the Company's ISOC development, management and
operations related to its strategic ventures, primarily in Connecticut and
Louisiana.
These Commercial Managed Care Division increases were offset by a decrease
in revenues at Chartered Health Plan, Inc. ("CHP"), the Company's wholly-owned
Medicaid HMO in the District of Columbia. CHP's revenues decreased due to a
gradual decrease in enrollment and a reduction in the contractual premium rate
effective November 1, 1996.
Government Managed Care Division revenue decreased by $6.0 million or 24.4%
to $18.6 million for the quarter ended July 31, 1997, compared to $24.6 million
for the quarter ended July 31, 1996. This net decrease in revenues is the result
of: (1) the completion of five ambulatory care projects, three mental health
projects, and one total managed care correctional facilities project on various
dates since the prior year first quarter, and (2) a revenue decrease resulting
from the Company's decision to terminate its long-term care line of business.
These revenue decreases were offset by increases due to one new total managed
care correctional facilities project, two new ambulatory care projects, one new
mental health project, and one new medical staffing project, which commenced
operations on various dates since the prior year first quarter.
The Company's gross profit decreased by 4.4% or $500,000, to $10.9 million
for the quarter ended July 31, 1997, compared to $11.4 million for the prior
year first quarter. As a percentage of revenue, gross profit decreased to 19.5%
for the current year first quarter compared to 21.2% for the same period in the
prior year. Gross profit increased in the Commercial Managed Care Division and
decreased in the Government Managed Care Division.
10
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
The Commercial Managed Care Division gross profit increase resulted from
the BCBSNJ ISOC project, and also as a result of the Company's ISOC development,
management and operations related to its strategic ventures, as discussed above.
The increase was offset by CHP operations, discussed above.
The Government Managed Care Division gross profit decreased due to the
completion of certain projects as described above and related completion costs,
partially offset by increases due to the commencement of operations on new
projects as described above.
General and administrative expenses increased $500,000 to $7.6 million for
the quarter ended July 31, 1997 from $7.1 million for the prior year first
quarter as a result of the continued growth of the Company. As a percentage of
revenue, general and administrative expenses increased to 13.7% for the current
year first quarter compared to 13.2% during the prior year period.
Operating income decreased by $1.1 million to $3.2 million for the quarter
ended July 31, 1997, from $4.3 million for the prior year first quarter.
Operating margin decreased to 5.8% from 8.0%. Operating income decreased due to
the gross profit decrease in the Government Managed Care Division and the
increased general and administrative expenses, as discussed above.
Interest expense increased by $135,000, to $1,492,000 for the quarter ended
July 31, 1997, from $1,357,000 for the quarter ended July 31, 1996.
Interest income decreased by $376,000, to $279,000 for the quarter ended
July 31, 1997 from $655,000 for the quarter ended July 31, 1996. This decrease
is due to a decrease in cash available for short-term investment as a result of
the BCBSNJ health center acquisition completed in February 1997.
The effective income tax rates of 35.0% in the first quarter of fiscal 1998
and 37.6% in the first quarter of fiscal 1997 represent the combined federal and
state income tax rates adjusted as necessary.
Net earnings decreased by $1.2 million to $1.0 million or $0.08 per share
based on 13,662,190 weighted average shares outstanding, from $2.2 million or
$0.16 per share based on 13,788,777 weighted average shares outstanding, for the
quarters ended July 31, 1997 and 1996, respectively.
11
<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 $69.0 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 to
fund expansion of its Commercial Managed Care Division.
During the three months ended July 31, 1997 operations used $8.4 million in
cash. This is a $3.3 million increase in cash used by operations compared to
the $5.1 million used by operations in the prior year three month period. This
increase in cash used by operations is primarily due to an increase in accounts
receivable of $5.6 million, and routine fluctuations in other working capital
line items.
The $5.6 million increase in the Company's accounts receivable at July 31,
1997 is attributable to a momentary aberration in the timing of payments on
certain of the Company's projects, particularly the new Commercial Managed Care
Division health enterprise activities.
The Company's number of days revenue in average outstanding receivables was
80 days for the three months ended July 31, 1997 compared to 70 days for the
prior year three month period. This increase is due to increased receivables
related to the Company's commercial ISOC ventures, and a change in the mix of
government contracts such that there are now fewer prepaid contracts.
Investing activities used $2.0 million in cash during the three months
ended July 31, 1997, compared to $2.5 million used during the three months ended
July 31, 1996. These uses of cash were for the acquisition of property and
equipment.
Financing activities provided $6.2 million in cash during the three months
ended July 31, 1997, compared to $830,000 used by financing activities during
the three months ended July 31, 1996. The $6.2 million provided by financing
activities in the current period is mostly due to the sale of 200,000 shares of
the Company's common stock to an investor and the repayment of officers
receivables in conjunction with the recent retirement of the former chairman and
founder of the Company.
On July 24, 1997, the Company entered into an Asset Purchase Agreement with
Health Insurance Plan of New Jersey, Inc. ("HIP"), a New Jersey not-for-profit
health maintenance organization, to acquire from HIP certain assets constituting
HIP's staff model health center operations in New Jersey. Under the Asset
Purchase Agreement, the Company will acquire the operations of 18 health care
centers and related assets throughout New Jersey for a purchase price of $73
million, subject to certain adjustments. The Company and HIP have also entered
into a Health Services Agreement pursuant to which the Company will arrange for
the provision of health care services to HIP's members on an exclusive global
capitation basis. The Company has also agreed to purchase from Health Insurance
Plan of Greater New York ("HIP-NY") $40.2 million in aggregate principal amount
of surplus notes (the "Surplus Notes") made by HIP payable to HIP-NY. Under the
Note Purchase Agreement, the Company may require HIP-NY to repurchase the
surplus notes
12
<PAGE>
PHP HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION (continued)
from the Company in equal installments on the first and second anniversary of
the closing. Completion of these transactions is subject to the approval of the
New Jersey Department of Banking and Insurance and the New Jersey Department of
Health and Senior Services, as well as the receipt of other required consents
and approvals. The foregoing description of the HIP acquisition is qualified in
its entirety by reference to the Asset Purchase Agreement and the Note Purchase
Agreement, copies of which are attached hereto as exhibits.
The Company's current cash and cash equivalents, and its borrowing
capabilities under its current credit arrangements are not sufficient to fund
the transactions contemplated by the Asset Purchase Agreement and Note Purchase
Agreement, as described above. The Company intends to finance the HIP
transaction through a combination of new bank borrowings and the issuance of
additional equity securities. However, there can be no assurance that the
Company will be able to obtain additional debt or equity financing on acceptable
terms. The failure to obtain the additional financing required to fund the
Company's acquisition and working capital needs could have a material adverse
effect on the Company's financial condition and results of operations.
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, other than the
completion of the HIP acquisition, which will require additional external
financing as described above. In addition to the HIP acquisition, there may be
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.
13
<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: June 3, 1998
--------------------
14
<PAGE>
PHP HEALTHCARE CORPORATION
EXHIBIT INDEX
Exhibit Item Page
- ------- ---- ----
10.1* Asset Purchase Agreement by and between PHP Healthcare
Corporation and HIP of New Jersey, Inc., dated as of July 24,
1997
10.2* Note Purchase Agreement by and among PHP Healthcare Corporation,
Health Insurance Plan of Greater New York, and HIP of New Jersey,
Inc., dated as of July 24, 1997
11.0 Statement re: Computation of per share earnings for the three 17
months ended July 31, 1997 and 1996
15.1 Letter of Coopers & Lybrand, L.L.P. regarding Unaudited Interim 18
Financial Statements
27 Financial Data Schedule
- -------
* Document filed as exhibit to the Company's Form 10-Q for Quarter Ended July
31, 1997 (File No. 0-16235), bearing same exhibit number, which is
incorporated herein by reference.
15
<PAGE>
PHP HEALTHCARE CORPORATION
Exhibit 11
Statement Re: Computation Of Per Share Earnings
Three Months Ended
July 31, 1997 And 1996
RESTATED
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JULY 31,
--------------
1997 1996
---- ----
<S> <C> <C>
Primary Earnings Per Share
- --------------------------
Primary
Net earnings......................................... $ 1,045,000 $ 2,193,000
=========== ===========
Weighted average number of common
shares outstanding.................................... 11,409,820 11,044,095
Add common share equivalents (determined
using the "treasury stock method") repre-
senting shares issuable upon exercise of
stock options and warrants............................ 2,252,370 2,833,254
Shares held in escrow................................... --- (88,572)
----------- -----------
Weighted average number of shares used
in calculation of primary earnings per
share................................................. 13,662,190 13,788,777
=========== ===========
Primary earnings per common share....................... $ 0.08 $ 0.16
=========== ===========
Fully Diluted Earnings Per Share
- --------------------------------
Fully diluted
Net earnings......................................... $ 1,045,000 $ 2,193,000
Net interest expense related to convertible debt.. 9,000 6,000
----------- -----------
Net earnings as adjusted............................. $ 1,054,000 $ 2,199,000
=========== ===========
Weighted average number of common
shares outstanding.................................... 11,409,820 11,044,095
Add common share equivalents (determined
using the "treasury stock" method) repre-
senting shares issuable upon exercise of
stock options and warrants............................ 2,338,910 2,833,254
Assumed conversion of convertible debt.................. 111,111 111,111
Shares held in escrow................................... --- (88,572)
----------- -----------
Weighted average number of shares used
in calculation of fully diluted earnings
per share............................................. 13,859,841 13,899,888
=========== ===========
Fully diluted earnings per common share................. $ 0.08 $ 0.16
=========== ===========
</TABLE>
17
<PAGE>
PHP HEALTHCARE CORPORATION
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, which includes an explanatory paragraph regarding
the restatement of previously issued financial statements to reflect revised
accounting for certain contract costs, dated September 18, 1997, on our review
of interim financial information of PHP Healthcare Corporation and consolidated
subsidiaries as of July 31, 1997 and for the three month periods ended July 31,
1997 and 1996, and included in the Company's quarterly report on Form 10-Q, as
amended, for the quarter then ended, is incorporated by reference in
Registration Statement (No. 333-01011) on Form S-3 and in Registration
Statements (Nos. 333-41577, 333-26403, and 333-47093) 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.
June 2, 1998
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR PHP HEALTHCARE CORPORATION AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000803568
<NAME> PHP HEALTHCARE CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 11,597
<SECURITIES> 0
<RECEIVABLES> 51,550
<ALLOWANCES> 196
<INVENTORY> 752
<CURRENT-ASSETS> 77,085
<PP&E> 76,172
<DEPRECIATION> 17,116
<TOTAL-ASSETS> 150,662
<CURRENT-LIABILITIES> 42,610
<BONDS> 66,161
0
0
<COMMON> 148
<OTHER-SE> 29,788
<TOTAL-LIABILITY-AND-EQUITY> 150,662
<SALES> 0
<TOTAL-REVENUES> 55,742
<CGS> 0
<TOTAL-COSTS> 44,883
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,492
<INCOME-PRETAX> 1,608
<INCOME-TAX> 563
<INCOME-CONTINUING> 1,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,045
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
