<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-21440
___________
PHYSICIAN CORPORATION OF AMERICA
(Exact name of Registrant as specified in its charter)
DELAWARE 48-1006287
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
5835 BLUE LAGOON DRIVE
MIAMI, FL 33126
(Principal Executive Offices, Including Zip Code)
Registrant's telephone number including area code: (305) 267-6633
___________
Indicate by check mark 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 twelve months (or for such shorter period that the Registrant was
required to file such reports), and (ii) has been subject to such filing
requirements for the past ninety days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether Registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Not Applicable X
-----
APPLICABLE ONLY TO CORPORATE ISSUERS:
NUMBER OF SHARES OUTSTANDING
TITLE OF EACH CLASS AT JUNE 30, 1996
Common Stock 38,779,420
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
QUARTERLY REPORT ON FORM 10-Q
FOR QUARTER ENDED JUNE 30, 1996
TABLE OF CONTENTS
PAGE
----
PART I. Financial Information
Item 1. Financial Statements 1-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-12
PART II. Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
<PAGE>
PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 56,564 $164,706
Short term investments 141,771 131,185
Accounts receivable, net of allowance of approximately
$10,488 and $7,670 at June 30, 1996 and
December 31, 1995, respectively:
Trade (health premiums and administrative service fees) 110,688 61,271
Other 17,287 11,478
Prepaid expenses, inventories and other current assets 26,742 8,449
Income taxes receivable 6,486 20,580
Deferred income tax benefit 16,641 11,301
-------- --------
Total current assets 376,179 408,970
-------- --------
Property and equipment, net of accumulated depreciation
of $21,657 and $22,652 at June 30, 1996 and
December 31, 1995, respectively 52,727 59,564
Long term investments 220,073 145,865
Deferred income tax benefit long-term 5,746 -
Statutory deposits and other assets 106,879 43,141
Intangible assets:
Goodwill, net of accumulated amortization of $18,591
and $14,742 at June 30, 1996 and December 31,
1995, respectively 161,559 164,871
Other intangible assets net of accumulated amortization of
$16,289 and $14,014 at June 30, 1996 and
December 31, 1995, respectively 23,204 27,251
-------- --------
Total intangible assets 184,763 192,122
-------- --------
$946,367 $849,662
-------- --------
-------- --------
</TABLE>
1
<PAGE>
PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
JUNE 30, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
------------------------------------ -------------- ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Current liabilities:
Accounts payable, accrued expenses and other
current liabilities $ 51,864 $ 55,592
Health claims payable 165,624 171,241
Current portion of other claims payable, primarily
workers' compensation 41,480 23,629
Unearned premiums and service fees 40,481 54,398
Current portion of long-term debt and obligations
under capital leases 70,421 26,943
-------- --------
Total current liabilities 369,870 331,803
Long-term debt and obligations under capital leases,
less current portion 97,645 157,096
Long-term portion of other claims payable, primarily
workers' compensation 252,591 138,894
Deferred income taxes - 2,068
Deferred income and other long-term liabilities 18,530 9,632
-------- --------
Total liabilities 738,636 639,493
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value, 10,000,000 shares
authorized; none issued and outstanding - -
Common stock, $.01 par value, authorized 200,000,000
shares; issued and outstanding 38,779,420 and 38,608,913
at June 30, 1996 and December 31, 1995,
respectively 388 386
Additional paid-in capital 136,945 137,826
Common stock held in treasury - at cost; 510,790 and
681,292 shares at June 30, 1996 and December 31,
1995, respectively (10,048) (12,565)
Retained earnings 84,460 84,058
Unrealized (loss)/gain on investments (4,014) 464
-------- --------
Total stockholders' equity 207,731 210,169
Commitment and contingencies
-------- --------
$946,367 $849,662
-------- --------
-------- --------
</TABLE>
2
<PAGE>
PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- --------------------------
1996 1995 1996 1995
----------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Health premiums $ 324,602 $ 257,234 $ 642,811 $ 499,129
Workers compensation and other revenues (note D) 17,674 38,682 72,692 68,533
Investment income 5,913 3,988 11,609 7,710
----------- ---------- ---------- ----------
Total revenues 348,189 299,904 727,112 575,372
Operating expenses:
Medical costs 282,904 209,100 560,869 400,062
Administrative, marketing and other expenses (note D) 61,925 72,697 161,256 139,516
Depreciation and amortization 5,735 5,749 11,969 10,656
----------- ---------- ---------- ----------
Total operating expenses 350,564 287,546 734,094 550,234
Operating (loss) income (2,375) 12,358 (6,982) 25,138
Gain on sale of subsidiaries (note E) 7,900 - 7,900 -
Interest expense (3,695) (2,411) (7,722) (4,159)
Other income (expense) (147) 24 (137) (9)
----------- ---------- ---------- ----------
(Loss) earnings before income taxes 1,683 9,971 (6,941) 20,970
Income tax benefit (expense) 3,653 (3,292) 7,343 (7,887)
----------- ---------- ---------- ----------
Net earnings $ 5,336 $ 6,679 $ 402 $ 13,083
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Net earnings per common and common
equivalent share $ 0.14 $ 0.17 $ 0.01 $ 0.33
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Net earnings per common and common
equivalent share assuming full dilution $ 0.14 $ 0.17 $ 0.01 $ 0.33
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Number of common shares used in computation of
primary earnings per share 39,144,245 39,952,354 39,280,748 40,075,841
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Number of common shares used in computation of
fully diluted earnings per share 39,144,245 39,986,904 39,280,748 40,128,139
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
3
<PAGE>
PHYSICIAN CORPORATION OF AMERICA AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1995
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 402 $ 13,083
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 11,969 10,656
Amortization of premium/accretion of discount 1,405 -
Gain on sale of subsidiaries (7,900) -
Loss on sale of property and equipment 70 -
Changes in working capital:
Accounts receivable (56,958) (8,225)
Income taxes 11,371 (3,395)
Accounts payable, accrued expenses and
other current liabilities 215 (20,231)
Claims payable 125,932 29,928
Unearned premiums (13,917) (4,962)
Deferred income taxes (7,725) 1,862
Other changes in other assets and liabilities (266) 729
----------- ---------
Total adjustments 64,196 6,362
----------- ---------
Net cash provided by operating activities 64,598 19,445
----------- ---------
Cash flows from investing activities:
Purchase of investments (200,075) (3,016)
Proceeds from sale of investments 115,068 -
Purchase of property and equipment (6,505) (10,099)
Proceeds from sale of property and equipment 1,574 -
Statutory deposits and other assets (63,955) (774)
Acquisitions, net of cash acquired - (21,493)
Disposals, net of cash sold (3,103) -
----------- ---------
Net cash used in investing activities (156,996) (35,382)
----------- ---------
Cash flows from financing activities:
Proceeds from borrowings - 25,000
Principal payments on debt and capital leases (15,558) (3,093)
Principal payments on covenants not-to-compete (1,500) (2,402)
Proceeds from issuance of common stock 1,314 1,826
Repurchase of common stock - (3,501)
----------- ---------
Net cash (used in) provided by financing
activities (15,744) 17,830
----------- ---------
Net (decrease) increase in cash (108,142) 1,893
Cash and cash equivalents at beginning of period 164,706 123,135
----------- ---------
Cash and cash equivalents at end of period $ 56,564 $ 125,028
----------- ---------
----------- ---------
</TABLE>
4
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR QUARTER ENDED JUNE 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE A:
ORGANIZATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for annual financial
statements. In management's opinion, all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation have been
included.
The balance sheet as of December 31, 1995 was derived from the registrant's
audited financial statements.
The results for the six months ended June 30, 1996 are not necessarily
indicative of the results to be expected for the full year.
NOTE B:
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." Under SFAS 109, the deferred income tax expense or benefit generally
arises from changes in differences between financial reporting and tax bases of
all assets and liabilities, and previously recorded deferred tax assets and
liabilities are adjusted upon any changes in enacted tax rates.
NOTE C:
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Primary earnings per share were based on the weighted average number of common
and common equivalent shares outstanding during the periods presented.
Equivalent shares consist of those shares issuable upon the assumed exercise of
stock options calculated under the treasury stock method, based on average stock
market prices in the periods.
Fully diluted earnings per share were computed using the weighted average number
of common and common equivalent shares outstanding in the periods, assuming
exercise of stock options calculated under the treasury stock method, based on
the higher of average stock prices in the periods or the stock market price at
the end of the periods.
5
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR QUARTER ENDED JUNE 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE D:
WORKERS COMPENSATION AND OTHER REVENUES AND ADMINISTRATIVE, MARKETING AND OTHER
EXPENSES
In January 1996, the Company, through its workers compensation subsidiaries,
began providing primary workers compensation insurance coverage to employer
groups in Florida. In conjunction with providing this new product, the Company
entered into quota share arrangements with five reinsurers whereby a percentage
of the premiums and a percentage of the claims costs are retained by the Company
and the remaining percentage is ceded to the reinsurers. In the first quarter
of 1996 these agreements included a 50% quota share arrangement; however, in the
second quarter, they were amended to a 25% quota share arrangement retroactive
to January 1, 1996. The impact to earnings of this retroactive amendment was
immaterial. The following illustrates the components of the financial statement
captions entitled workers compensation and other revenues and administrative,
marketing and other expenses for the quarters ended March 31, 1996 and June 30,
1996.
<TABLE>
<CAPTION>
YTD
MARCH 31, JUNE 30, JUNE 30,
1996 1996 1996
------- ------- --------
<S> <C> <C> <C>
Workers Compensation and Other Revenues:
- ----------------------------------------
Gross premium written, subject to quota share $65,734 $61,767 $127,501
Premium ceded (35,089) (67,611) (102,700)
------- ------- --------
Net premiums retained 30,645 (5,844) 24,801
Workers compensation reinsurance and other premiums 5,039 5,259 10,298
Administrative service fees 19,334 18,259 37,593
------- ------- --------
Total workers compensation and other revenues $55,018 $17,674 $72,692
------- ------- --------
------- ------- --------
Administrative, Marketing and Other Expenses:
- ---------------------------------------------
Gross claims and other costs, subject to quota share $65,599 $62,547 $128,146
Claims and costs ceded (34,749) (67,458) (102,207)
------- ------- --------
Net costs retained 30,850 (4,911) 25,939
Workers compensation reinsurance and other claims 3,597 3,355 6,952
Other administrative, marketing and other expenses 64,884 63,481 128,365
------- ------- --------
Total administrative, marketing and other expenses $99,331 $61,925 $161,256
------- ------- --------
------- ------- --------
</TABLE>
6
<PAGE>
PHYSICIAN CORPORATION OF AMERICA
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR QUARTER ENDED JUNE 30, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE E:
DISPOSITIONS
In June 1996, the Company sold its wholly owned subsidiary, Physicians First,
Inc. (PFI) for $23.6 million in stock and notes to FPA Medical Management,
Inc. (FPA). As consideration, the Company received 525,000 shares of
unregistered FPA stock and a $15 million note from FPA. Additionally, as a
condition of the sale, PCA entered into a four-year covenant not-to-compete
with FPA. This transaction resulted in a gain on the sale of PFI of
approximately $7.9 million. After completing this transaction in June 1996,
the Company made a $9.5 million principal payment to reduce its outstanding
debt balance.
Additionally, in May 1996 the Company signed definitive agreements to sell its
HMO subsidiaries, PCA Health Plans of Georgia, Inc. (PCA/Georgia) and PCA Health
Plans of Alabama, Inc. (PCA/Alabama) for $25 million in cash, notes and non-
compete payments. The sale of these HMOs is expected to close the third quarter
of 1996 pending regulatory approval. Net cash proceeds from this sale are
expected to be used to reduce the Company's debt under its line of credit
facility.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Physician Corporation of America ("the Company") is a managed health care
company that provides comprehensive health care services through its health
maintenance organizations ("HMOs") and workers compensation administrative
management services and provides primary workers compensation and reinsurance
insurance coverage through its workers compensation third party administration
and indemnity companies ("Workers Compensation Companies"). The Company
conducts all of its business in the Southeastern United States and Puerto Rico.
In the second quarter 1996, the Company continued to increase health premium
revenues and membership in its health plans. Additionally, effective January 1,
1996, the Company began writing primary workers compensation insurance coverage.
The following sets forth certain financial and operating information pertaining
to the Company's results for the three and six months ended June 30, 1996
compared to 1995:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C>
Health Premiums:
Commercial 144,537 122,696 287,093 240,175
Medicaid 90,596 83,088 181,921 165,649
Medicare 80,536 45,117 156,722 81,339
Indemnity 8,933 6,333 17,075 11,966
------- ------- ------- -------
Total health premiums 324,602 257,234 642,811 499,129
------- ------- ------- -------
------- ------- ------- -------
Workers compensation administrative
service fees and other revenues 17,674 38,682 72,692 68,532
------- ------- ------- -------
------- ------- ------- -------
Operating Statistics and Data:
Medical loss ratio (1) 87.2% 81.3% 87.3% 80.2%
Health administrative, marketing
and other expenses ratio (2) 15.5% 16.9% 15.9% 17.8%
Period ending membership:
HMO:
Commercial 452,000 385,000
Medicaid 418,000 210,000
Medicare 60,000 39,000
------- -------
Total HMO 930,000 634,000
Health Indemnity and PPO 36,000 32,000
------- -------
Total HMO and Insured Health Membership 966,000 666,000
------- -------
------- -------
</TABLE>
(1) Medical costs as a percentage of health premiums.
(2) Health administrative, marketing and other expenses, including allocations
of corporate overhead as a percentage of health premiums.
8
<PAGE>
THREE AND SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE AND SIX MONTHS ENDED
JUNE 30, 1995
NET EARNINGS:
Net earnings for the three and six months ended June 30, 1996 as compared to
1995 decreased by $1.3 million and $12.7 million, respectively. The three and
six month decreases were primarily due to a $11.0 million and $22.0 million
decline, respectively, in profitability of the Company's HMO operations in 1996,
offset by profits earned in its worker's compensation companies and a second
quarter 1996 $7.9 million gain from the sale of Physicians First, Inc.
REVENUES:
Total revenues for the three and six months ended June 30, 1996 as compared to
1995 increased by $48.3 million or 16% and $151.7 million or 26%, respectively.
The principal components of these increases are as follows:
HEALTH PREMIUMS
Health premium revenues for the three and six months ended June 30, 1996 as
compared to 1995 increased by $67.4 million or 26% and $143.7 million or 29%,
respectively.
Of the three months increase, $112.5 million was due to a 44% increase in the
average number of members during the period offset by a $45.1 million decrease
due to a 12% decrease in the weighted average health premium rate per member.
Of the six months increase, $219.7 million was due to a 44% increase in the
average number of members during the period offset by a $76.0 million decrease
due to a 11% decrease in the weighted average health premium per member. The
weighted average decrease in premium rates is due to the Company having
approximately 246,000 Medicaid members (Puerto Rico reform program) with a lower
than average premium rate (approximately $48 per member per month) in the three
and six months ended June 30, 1996 which began enrolling in December 1995. Total
membership of 966,000 at June 30, 1996 increased by approximately 300,000
members from 666,000 members at June 30, 1995 (67,000 increase in Commercial,
208,000 increase in Medicaid, 21,000 increase in Medicare and 4,000 in indemnity
and PPO members).
WORKERS COMPENSATION AND OTHER REVENUES
Workers compensation and other revenues for the three and six months ended
June 30, 1996 decreased $21.0 million and increased $4.2 million, respectively.
The fluctuations are due to: (i) workers compensation administrative service
fees and other revenues for the three and six month periods ended June 30, 1996
decreased by $4.4 million to $18.3 million from $22.6 million and by $9.6
million to $37.6 million from $47.2 million, respectively. These revenues were
generated primarily by the Company's workers compensation administration and
indemnity operations servicing self insured funds. In 1996, through its workers
compensation indemnity subsidiary, the Company began offering primary workers
compensation coverage to these employer groups (who were previously members of
these self insured funds). Therefore, the workers compensation services fees
earned from these employers in 1995 have been replaced in 1996 by primary
workers compensation premiums; and (ii) workers compensation premiums for the
three and six months ended June 30, 1996 decreased $16.6 million and increased
$13.8 million, respectively. The three month decrease is caused by the fact
that the quota share agreements entered into in January 1996 which provided for
PCA to retain 50% of primary workers compensation premiums and costs and cede
the remaining 50% to the reinsurers were amended in the second quarter of 1996.
These amended agreements provide for PCA to retain 25% of primary workers
compensation premiums written and costs incurred retroactively to January 1,
1996. The result of these amendments was to reduce second quarter 1996 primary
workers compensation premiums and workers compensation claims and costs by the
amount necessary to reflect the 25% quota share arrangement for the six months
9
<PAGE>
ended June 30, 1996. The six month increase is attributable to the introduction
of primary workers compensation insurance coverage commencing January 1, 1996.
Investment income for the three and six months ended June 30, 1996 as compared
to 1995 increased by $1.9 million or 48% and $3.9 million or 51%, respectively.
These increases were the result of the Company investing the proceeds from the
$70 million borrowed in December 1995 under the Company's bank facility which
were used to further capitalize the Company's workers compensation and Puerto
Rico HMO operations.
MEDICAL COSTS
Medical costs for the three and six months ended June 30, 1996 as compared to
1995 increased by $73.8 million or 35% and $160.8 million and 40%, respectively.
Of the three months increase, $91.5 million was due to a 44% increase in the
average number of members during the period offset by a $17.7 million decrease
due to a 6% decrease in the weighted average medical costs per member. Of the
six months increase, $176.1 million was due to a 44% increase in the average
number of members in the period offset by a $15.3 million decrease due to a 3%
decrease in the weighted average medical cost per member.
These decreases in the weighted average medical costs per member were due
primarily to: (i) the shift in membership mix to proportionately more Medicaid
reform members in Puerto Rico (which have a lower medical cost approximately $42
per member per month but a higher medical loss ratio), (ii) reduction in overall
utilization by members, and (iii) medical cost savings as a result of the
Company's efforts to recontract with its providers for the three and six months
ended June 30, 1996 compared to 1995. As a result of these factors, and in
conjunction with a lower premium rate for the Medicaid reform members in Puerto
Rico and the increase in number of Medicare members, the Company's overall
medical loss ratio for the three and six months ended June 30, 1996 increased to
87.2% from 81.3% and increased to 87.3% from 80.2%, respectively for the same
periods in 1995.
ADMINISTRATIVE, MARKETING AND OTHER EXPENSES
Administrative, marketing and other expenses for the three and six months ended
June 30, 1996 as compared to 1995 decreased by $10.8 million or 15% and
increased $21.7 million or 17%, respectively. The three month decrease in
administrative, marketing and other expenses was primarily due to administrative
cost control measures put in place as well as a second quarter 1996 adjustment
to costs made in connection with the quota share amendments to the Company's
workers compensation reinsurance agreements. The six month increase is
attributable to the introduction of primary workers compensation insurance
coverage commencing January 1, 1996. The Company's health administrative cost
ratio for the three and six months ended June 30, 1996 was 15.5% and 15.9%,
respectively, compared to 16.9% and 17.8% for the same periods in 1995. This
improvement was a direct result of the Company implementing cost cutting
measures while increasing premiums.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the three and six months ended June 30, 1996
as compared to 1995 remained constant for the three month period and increased
$1.3 million or 12%, respectively.
10
<PAGE>
GAIN ON SALE OF SUBSIDIARIES
In June 1996, the Company sold its wholly owned subsidiary, Physicians First,
Inc. (PFI) for $23.6 million in stock and notes to FPA Medical Management, Inc.
(FPA). As consideration, the Company received 525,000 shares of unregistered
FPA stock and a $15 million note from FPA. Additionally, as a condition of the
sale, PCA entered into a four-year covenant not-to-compete with FPA. This
transaction resulted in a gain on the sale of PFI of approximately $7.9 million
being reflected in the second quarter of 1996. After completing this
transaction in June 1996, the Company made a $9.5 million principal payment to
reduce its outstanding debt balance.
INTEREST EXPENSE
Interest expense for the three and six months ended June 30, 1996 as compared to
1995 increased by $1.3 million to $3.7 million and $3.5 million to $7.7 million,
respectively. These increases were due primarily to incremental interest
expense incurred relating to the $70 million borrowed under this facility in
December 1995 to capitalize the Company's Puerto Rico HMO and its workers
compensation company.
INCOME TAXES
The Company recognized an income tax benefit in the three and six months ended
June 30, 1996 of $3.7 million and $7.3 million respectively. This compares with
a tax expense of $3.3 million and $7.9 million for the three and six months
ended June 30, 1995, respectively. The increase in tax benefit recognized is
attributable directly to the Company incurring a taxable loss in the three and
six months ended June 30, 1996. The tax benefits for the three and six months
ended June 30, 1996, respectively, are consistent with: (i) the 39% statutory
rate for such periods, (ii) the nondeductibility of goodwill amortization for
income tax purposes arising from the acquisition of the HMOs and workers
compensation companies offset by tax exempt investment income, and (iii) the
Company incurring no income tax expense on the gain from the sale of Physicians
First, Inc. due to the availability of capital loss carryovers.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had working capital of $6.3 million. Cash and
cash equivalents were $56.6 million at June 30, 1996, a decrease of $108.1
million from $164.7 million at December 31, 1995 and short term investments were
$141.8 million at June 30, 1996, an increase of $10.6 million from a $131.2
million balance at December 31, 1995. The decrease in cash and cash equivalents
is the result of cash generated from operations offset by cash used in investing
and financing activities. The Company's cash and cash equivalents do not include
statutory cash deposits segregated as required by various regulatory
authorities.
Net cash provided by operating activities for the six months ended June 30, 1996
was $64.6 million compared to cash of $19.4 million provided by operating
activities for the six months ended June 30, 1995. The cash provided by
operating activities for 1996 was principally the result of the following
factors: (i) net earnings of $.4 million, (ii) increase in claims payable in the
amount of $125.9 million, (iii) decrease in income taxes receivable in the
amount of $11.4 million, (iv) decrease in unearned premiums in the amount of
$13.9 million, (v) $57.0 million increase in accounts receivable, and (vi) an
increase in accounts payable, accrued expenses and other current liabilities of
$.2 million.
In 1996, net cash used in investment activities increased to $157.0 million,
from $35.4 million in 1995. The net cash used in investing activities was
primarily the result of the $6.5 million purchase of property and equipment, and
the net purchase of investments of $85.0 million. The Company believes it will
be able to finance all capital expenditures for the foreseeable future from cash
generated from operations and amounts available from cash. The Company has
utilized capital leases to finance certain equipment additions in the past and
expects to continue to do so in the future.
In 1996, net cash used in financing activities for the six months ended June 30,
1996 was $15.7 million compared to $17.8 million cash provided in the six months
ended June 30, 1995. The cash used in financing activities was primarily the
result of $17.1 million of long-term debt principal and covenant payments.
The Company believes that cash on hand and cash flow generated from operations
will be sufficient to fund future capital expenditures, introduction of new
products and services and meet debt service requirements for the foreseeable
future. The cash proceeds from the pending sales of PCA/Georgia and PCA/Alabama
will be used to pay down the $150.5 million bank debt facility, which is
provided by six banks, including Citibank, NA as agent. Beginning on December
31, 1996, the Company is required to commence quarterly principal repayments of
$16.75 million until the loan is fully repaid. While such loan repayments are
anticipated to be made from operating cash flow, the Company is evaluating other
options, including other assets sales and refinancing alternatives with respect
to this debt.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On June 28, 1996, the Company held its Annual Meeting of
Stockholders. The matters and vote tabulation for each
matter voted upon at such meeting are as follows:
1. ELECTION OF DIRECTORS. The following directors were reelected to
serve on the Board of Directors:
FOR WITHHELD
E. Stanley Kardatzke, M.D. 33,314,846 1,767,043
George J. Farha, M.D. 33,357,626 1,724,263
In addition to the directors named above who were elected at the
meeting, the terms of office for the following directors continued
after the meeting: Clark R. Mandigo, Peter E. Kilissanly, and
William C. Loewen, M.D.
2. ELECTION OF AUDITORS. The stockholders of the Company elected
KPMG Peat Marwick, LLP, independent certified public accountants,
as auditors for the Company for the fiscal year ending December
31, 1996. The vote was as follows:
FOR AGAINST ABSTAIN
34,850,170 188,726 42,993
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits furnished as part of the Report:
(1) Financial Statements, See PART I, Item 1
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
PHYSICIAN CORPORATION OF AMERICA
(Registrant)
By: /s/ E. Stanley Kardatzke, M.D.
------------------------------------------------------
E. Stanley Kardatzke, M.D.,
Chairman of the Board and CEO (Principal Executive Officer)
By: /s/ Clifford W. Donnelly
------------------------------------------------------
Clifford W. Donnelly
Senior Vice President of Finance and Chief Financial Officer
By: /s/ Jay M. Grobowsky
------------------------------------------------------
Jay M. Grobowsky
Vice President of Finance
Date: August 6, 1996
--------------
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF PHYSICIAN CORPORATION OF AMERICA FOR THE SIX
MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 56,564
<SECURITIES> 141,771
<RECEIVABLES> 110,688
<ALLOWANCES> 10,488
<INVENTORY> 823
<CURRENT-ASSETS> 376,179
<PP&E> 74,384
<DEPRECIATION> 21,657
<TOTAL-ASSETS> 946,367
<CURRENT-LIABILITIES> 369,870
<BONDS> 97,645
0
0
<COMMON> 388
<OTHER-SE> 207,343
<TOTAL-LIABILITY-AND-EQUITY> 946,367
<SALES> 715,503
<TOTAL-REVENUES> 727,112
<CGS> 592,374
<TOTAL-COSTS> 734,094
<OTHER-EXPENSES> 137
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,722
<INCOME-PRETAX> (6,941)
<INCOME-TAX> (7,343)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
