<PAGE>
___________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 0-21098.
Physicians Health Services, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1116976
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Far Mill Crossing 06484
Shelton, Connecticut (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (203) 381-6400
120 Hawley Lane
Trumbull, Connecticut 06611
_________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by a check mark whether the registrant (1) 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 __
There were 5,881,454 shares of Class A Common Stock ($0.01 par value) and
3,452,271 shares of Class B Common Stock ($0.01 par value) outstanding as of
August 11, 1997.
___________________________________________________________________________
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I. Financial Information
---------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations for the Three and Six
Months Ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Stockholders' Equity
for the Six Months Ended June 30, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II. Other Information
------------------
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
</TABLE>
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets
Cash and Cash Equivalents $ 3,999 $ 39,213
Fixed Maturity Securities Available for Sale -
(amortized cost--1997--$99,573 and 1996--$58,643) 99,968 59,115
Accounts Receivable Less Allowances (1997--$1,700 and
1996--$1,781) 42,089 49,613
Other Receivables 43,965 19,696
Advances to Participating Hospitals 55 400
Prepaid Expenses and Other 961 1,154
-------------- ------------
Total Current Assets 191,037 169,191
Property, Plant, and Equipment
Land 8,822 8,822
Building and Improvements 28,723 26,938
Furniture and Equipment 53,685 46,559
-------------- ------------
91,230 82,319
Less Accumulated Depreciation and Amortization 18,111 15,273
-------------- ------------
Total Property, Plant, and Equipment 73,119 67,046
-------------- ------------
Other Assets (including restricted investments) 13,850 13,658
-------------- ------------
TOTAL ASSETS $ 278,006 $ 249,895
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities
Accrued Health Care Expenses $ 69,848 $ 51,757
Unearned Premiums 28,653 27,757
Amounts Due to IPA's, Physicians and other Providers 68,612 59,084
Accounts Payable and Accrued Expenses 11,398 13,849
-------------- ------------
Total Current Liabilities 178,511 152,447
Excess of Net Assets Over Cost of Company Acquired 1,101 1,162
Stockholders' Equity
Class A Common Stock, Par Value $0.01 per Share--Authorized 58 56
13,000,000 Shares, Issued and Outstanding; 1997--5,866,199
shares; 1996--5,566,023 shares
Class B Common Stock, Par Value $0.01 per Share; 36 38
Non-transferable--Authorized and Issued 1997--3,547,071 shares;
1996--3,829,880 shares; Voting rights - 10 per share
Additional Paid-In Capital 41,724 41,360
Net Unrealized Gains on Marketable Securities,
Net of Tax 240 279
Retained Earnings 56,337 54,554
-------------- ------------
98,395 96,287
Less Cost of Class B Common Stock (86,400) Shares in
Treasury 1 1
-------------- ------------
Total Stockholders' Equity 98,394 96,286
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 278,006 $ 249,895
============== ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-3-
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1997 1996 1997 1996
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Premiums $162,171 $118,432 $311,425 $230,252
Investment and Other Income 1,917 1,595 3,722 3,261
-------- --------- --------- --------
164,088 120,027 315,147 233,513
COSTS AND EXPENSES:
Hospital Services 55,335 44,130 104,396 83,786
Physicians and Related Health Care
Services 66,145 49,620 128,164 90,558
Other Health Care Services 16,309 9,432 32,388 20,150
Indemnity Costs - 4,375 - 7,008
-------- --------- --------- --------
Total Health Care Costs 137,789 107,557 264,948 201,502
-------- --------- --------- --------
Selling, General and Administrative
Expenses 24,495 21,417 47,369 39,738
-------- --------- --------- --------
162,284 128,974 312,317 241,240
-------- --------- --------- --------
Income before Income Taxes 1,804 (8,947) 2,830 (7,727)
Income Tax Expense 667 (3,942) 1,047 (3,588)
-------- --------- --------- --------
NET INCOME $ 1,137 $ (5,005) $ 1,783 $(4,139)
======== ========= ========= ========
Net Income Per Common Share $ 0.12 $ (0.54) $ 0.19 $ (0.45)
======== ========= ========= ========
Weighted Average Number of Common and Common
Equivalent Shares Outstanding 9,483 9,303 9,430 9,293
======== ========= ========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-4-
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
---------------------------------
1997 1996
---------------------------------
<S> <C> <C>
CLASS A COMMON STOCK
Balance at Beginning of Period $ 56 $ 53
Conversion of Class B Common Stock
into Class A Common Stock 2 2
------------- --------------
Balance at End of Period $ 58 $ 55
============= ==============
CLASS B COMMON STOCK
Balance at Beginning of Period $ 38 $ 41
Conversion of Class B Common Stock
into Class A Common Stock (2) (2)
------------- --------------
Balance at End of Period $ 36 $ 39
============= ==============
ADDITIONAL PAID IN CAPITAL
Balance at Beginning of Period $ 41,360 $ 40,760
Exercise of Stock Options 364 496
------------- --------------
Balance at End of Period $ 41,724 $ 41,256
============= ==============
NET UNREALIZED GAINS (LOSSES)ON FIXED MATURITY
SECURITIES,
NET OF TAX
Balance at Beginning of Period $ 279 $ 510
Unrealized Depreciation (39) (535)
------------- --------------
Balance at End of Period $ 240 $ (25)
============= ==============
RETAINED EARNINGS
Balance at Beginning of Period $ 54,554 $ 67,518
Net Income (Loss) 1,783 (4,139)
------------- --------------
Balance at End of Period $ 56,337 $ 63,379
============= ==============
TREASURY STOCK
------------- --------------
Balance at Beginning and End of Period $ (1) $ (1)
============= ==============
TOTAL STOCKHOLDERS' EQUITY
Balance at Beginning of Period $ 96,286 $ 108,881
Exercise of Stock Options 364 496
Net Income (Loss) 1,783 (4,139)
Unrealized Depreciation of Fixed Maturity
Securities (39) (535)
------------- --------------
Balance at End of Period $ 98,394 $ 104,703
============= ==============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-5-
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1997 1996
--------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,783 $ (4,139)
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used for) Operating Activities:
Depreciation and Amortization 2,856 1,847
Provision for Doubtful Accounts 742 630
Amortization of Excess of Net Assets over Cost
of Company Acquired (61) (60)
Deferred income tax expense (benefit) 2,781 (161)
Changes in Assets and Liabilities:
Accounts Receivable 6,782 (6,855)
Other Receivables (24,269) 658
Advances to Participating Hospitals 345 3,982
Prepaid Expenses and Other 193 (502)
Accrued Health Care Expenses 18,091 7,923
Unearned Premiums 896 1,624
Due to IPA's, Physicians and Other Providers 9,528 (6,837)
Accounts Payable and Accrued Expenses (5,194) (7,848)
------------ ------------
Net Cash Provided by (Used For) Operating Activities 14,473 (9,738)
INVESTING ACTIVITIES
Purchases of Property, Plant, and Equipment (8,946) (27,106)
Proceeds from Disposal of Property, Plant and Equipment 17 6
Increase in Other Assets (192) (971)
Purchases of Fixed Maturity Securities (175,789) (169,290)
Proceeds from Sales and Maturities of Marketable Securities 134,859 189,036
------------ ------------
Net Cash Used for Investing Activities (50,051) (8,325)
FINANCING ACTIVITIES
Proceeds from Revolving Credit Line - 18,000
Exercise of Stock Options 364 496
------------ ------------
Net Cash Provided by Financing Activities 364 18,496
------------ ------------
Increase (Decrease) in cash and cash equivalents (35,214) 433
Cash and cash equivalents at beginning of period 39,213 7,536
------------ ------------
Cash and cash equivalents at end of period $ 3,999 $ 7,969
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
-6-
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Physicians Health Services, Inc. and Subsidiaries Annual Report on Form 10-K for
the year ended December 31, 1996.
2. Stockholders' Equity and Per Share Data
Pursuant to the Company's Certificate of Incorporation, upon conversion of Class
B shares to Class A shares, such Class B shares are canceled and cannot be
reissued. Per share data are based upon the weighted average number of common
and common equivalent shares outstanding during the period. Common stock
equivalents are excluded to the extent they have an antidilutive effect on per
share data.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of primary and fully diluted earnings per share for the quarter and six months
ended June 30, 1997 and June 30, 1996 is not expected to be material.
3. New Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" ("SFAS 130") and Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information," ("SFAS 131"). SFAS 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income is defined as the
change in equity during the financial reporting period of a business enterprise
resulting from non-owner sources. SFAS 131 establishes standards for the
reporting of operating segment information in both annual financial reports and
interim financial reports issued to shareholders. Operating segments are
components of an entity for which separate financial information is available
and is evaluated regularly by the entity's chief operating management. Both
Statements are effective for fiscal years beginning after December 15, 1997 and
are not expected to have a material impact on the Company.
-7-
<PAGE>
PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(unaudited)
4. Tax Provision
The Company is currently under examination by the Internal Revenue Service (IRS)
for certain prior tax years. Management does not expect any proposed
adjustments which may result from the IRS' audit to have a material adverse
impact on the Company's financial position or results of operations.
The Company's effective tax rate is lower than the statutory rate due to tax
exempt interest generated from much of the Company's investment portfolio.
5. Reclassifications
Certain reclassifications were made to conform the 1996 amounts to current
presentations in 1997.
6. Non-monetary Exchange
On May 2, 1997, the Company acquired 200 shares of Physicians Health Services of
New Jersey, Inc. ("PHS NJ") from Mastercare Companies, Inc. ("Mastercare"). In
exchange for the receipt of the shares of PHS NJ the Company gave up 1,250,000
shares of Series B Convertible Preferred Stock of MasterCare, Companies, Inc.
and 190 shares of Common Stock of MasterCare of Connecticut, Inc. Since the
common stock of MasterCare and PHS NJ are not publicly traded, fair values of
the shares exchanged were estimated. MasterCare shares were valued based on
prices obtained in a recent private placement while the fair value of PHS NJ
shares were derived from a valuation of membership. The purchase price paid
(fair value of MasterCare's shares held by the Company) exceeded the fair value
of MasterCare's proportionate interest in the net assets of PHS NJ acquired from
MasterCare by approximately $1.8 million. Such excess will be amortized over 10
years. As a result of this transaction, PHS NJ became a wholly-owned
subsidiary of the Company. This transaction resulted in a net gain of $348
thousand which is reflected in selling, general and administrative expenses.
7. Merger Agreement
On May 8, 1997, the Company and Foundation Health Systems, Inc. ("FHS") executed
a merger agreement pursuant to which FHS would acquire all of the shares of
common stock of the Company for $29.25 per share in cash, or a total
consideration to the Company's stockholders of approximately $280 million. FHS
announced that it intends to finance the purchase with a combination of cash and
bank debt. As part of the transaction, the Company has entered into a voting
trust agreement with the Greater Bridgeport Individual Practice Association
("GBIPA"), which owns shares constituting approximately 61% of the voting power
of the Company. The agreement stipulates that such shares will be voted in
favor of the transaction by GBIPA. The transaction is subject to certain
closing conditions, including receipt of regulatory approvals and entering into
certain agreements with The Guardian. This transaction is expected to close by
the end of 1997.
-8-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Quarter Ended June 30, 1997 Versus June 30, 1996
Six Months Ended June 30, 1997 Versus June 30, 1996
Premium revenue increased 36.9% to $162.2 million in the second quarter of 1997
from $118.4 million for the comparable 1996 quarter. For the six months ended
June 30, 1997, premium revenue increased 35.3% to $311.4 million from $230.3
million for the comparable 1996 period. Enrollment at June 30, 1997 was 468,354,
an increase of 35.0% from enrollment of 346,868 at June 30, 1996. As of June 30,
1997, fully-insured enrollees increased 44.3% to 399,185 members up from 276,555
as of June 30, 1996, while self-funded enrollees decreased 1.6% to 69,169
members as of June 30, 1997, down from 70,313 members at June 30, 1996. The
aggregate premium revenue increase lagged the membership growth due primarily to
the growth of membership in the Healthcare Solutions product where 50% of all
the premium revenue and related health care costs related to this business for
1997 are ceded to The Guardian Life Insurance Company of America ("The
Guardian") pursuant to a reinsurance agreement. Until October 1, 1996, the
Healthcare Solutions activity in Connecticut was reported under a profit sharing
arrangement. According to the provisions of the profit sharing arrangement, the
Company recorded 100% of the premium revenue from Connecticut Healthcare
Solutions activity until October 1, 1996. After October 1, 1996, the profit
sharing agreement was replaced by the reinsurance agreement as in effect for
1997. The effect was to reduce the percentage premium increase as compared to
what such increase would have been if the reinsurance agreement had been in
effect throughout 1996. This effect was offset by an increase in revenue from
Medicare products resulting from a shift in membership from cost to risk
products which carry higher revenue yields and an increase in the pricing of
some of the proprietary products.
Investment and other income increased 20.2% to $1.9 million for the second
quarter of 1997 from the second quarter of 1996. On a year-to-date basis,
investment and other income increased 14.1% to $3.7 million. The increase is
due to an increase in investable assets.
Health care expenses as a percentage of premium revenues (medical loss ratio)
declined to 85.8% for the second quarter of 1997 as compared to 92.3% for the
second quarter of 1996. For the six months ended June 30, 1997, the medical
loss ratio was 86.0% compared to 88.9% for the first six months of 1996. Total
health care expenses increased 28.1% to $137.8 million in the second quarter of
1997 from $107.6 million for the comparable 1996 quarter. On a year-to-date
basis, total health care expenses increased 31.5% to $264.9 million for the
first six months of 1997 from $201.5 million for the same 1996 period. The
improvement in the medical loss ratios for both the quarter and year-to-date
periods is the result of an increase in fully insured revenue that was greater
than the rise in total medical expenses.
Hospital services expenses increased 25.4% to $55.3 million in the second
quarter of 1997 from $44.1 million for the second quarter of 1996. Hospital
services expenses for the first six months of 1997 totaled $104.4 million, up
24.5% from $83.8 million in the first six months of 1996. The rise in hospital
services expenses was significantly less than the 44.3% increase in fully
insured membership which contributed to a decline of 2.0% in the per member per
month hospital costs from the second quarter of 1996 to the second quarter of
1997 and a decline of 4.3% in the per member per month hospital costs for the
year-to-date period. The decrease in the per member per month amount for the
quarter and six months ended June 30, 1997 can be attributed to an overall
reduction in hospital rates for both inpatient and outpatient services which was
somewhat mitigated by a new claims assessment in New York from the
implementation of the Hospital Care Reform Act of 1996 ("HCRA"), which became
effective on January 1, 1997. The New York State legislature enacted HCRA,
which requires the Company to make payments to state funding pools to finance
hospital bad debt and charity care, graduate medical education, and other state
programs. The claims assessment under HCRA is equal to 8.18% of qualified New
York hospital costs and is expected to continue to increase the Company's
hospital costs in the future.
Commercial inpatient utilization for the second quarter of 1997 was similar to
the second quarter of 1996 with commercial bed days per thousand members at 269
days for the second quarter of 1997 compared to 268 days for the same 1996
period. For the six months ended June 30, 1997, a decrease in
-9-
<PAGE>
Results of Operations (con't)
- ---------------------
inpatient utilization contributed further to the decline in hospital services
costs. On a year-to-date basis, commercial bed days per thousand members
dropped 4.0% from 275 days per thousand members for the six months ended June
30, 1996 to 264 days per thousand members for the six months ended June 30,
1997. The improvement in the commercial product line was partially
offset by a 211% and 107% increase in the per member per month hospital expenses
for government products for the quarter and six months ended June 30, 1997,
respectively. The increase is primarily due to the introduction of the Medicare
Risk products and the resulting shift in membership from the Medicare cost
product (for which the Company does not carry full risk on hospital services) to
the Medicare Risk products for which the Company carries substantially more of
the hospital risk. The Company expects hospital costs for Medicare products to
continue to rise as membership (and related revenue) in this product increases.
Physician and related health care expenses increased by 33.3% from $49.6 million
for the second quarter of 1996 to $66.1 million for the second quarter of 1997.
For the six months ended June 30, 1997, physician and related health care
expenses increased 41.5% to $128.2 million from $90.6 million for the same 1996
period. The increase in physician expenses is primarily due to the increase in
fully insured membership and increases in certain non-capitated services.
Additionally, the introduction of the Medicare Risk product has contributed to
the rise in physician costs.
Other health care expenses increased by $6.9 million or 72.9% in the second
quarter of 1997 and by $12.2 million or 60.7% on a year-to-date basis. The
increase is primarily due to the increase in fully insured membership and due to
the inclusion of the covered lives assessment in New York as a result of HCRA.
This assessment is expected to continue to increase other health care expenses
in the future.
Indemnity costs reflect the medical costs associated with the indemnity revenue
assumed in connection with The Guardian reinsurance arrangement in New York
under which the Company shared risk for indemnity business with The Guardian
until June 30, 1996.
Selling, general and administrative expenses increased 14.3% or $3.1 million in
the second quarter of 1997 from the comparable 1996 period. For the six months
ended June 30, 1997, selling, general and administrative expenses rose 19.2% or
$7.6 million over the prior year. The increase is due primarily to increased
personnel and facilities expenses needed to support the enrollment growth and
product diversity. The increase was partially offset by a decline in expenses
related to the Guardian joint marketing arrangements as these expenses were
unusually high in the second quarter of 1996. The selling, general and
administrative expenses as a percentage of revenue improved to 15.1% for the
second quarter of 1997 down from 18.1% for the second quarter of 1996. On a
year-to-date basis, selling, general and administrative expenses as a percentage
of premium revenue totaled 15.2% down from 17.3% for the comparable 1996 period.
Liquidity and Capital Resources
- -------------------------------
PHS has historically financed its operations primarily through internally
generated funds. The Company's primary capital requirements are for working
capital, principally to fund geographic and product expansion, and to maintain
necessary regulatory capital. The Company's HMO and insurance subsidiaries are
subject to statutory regulations that restrict the payment of dividends.
Cash and cash equivalents decreased $35.2 million to $4.0 million at June 30,
1997 from $39.2 million at December 31, 1996. For the six months ended June 30,
1997, net cash provided by operating activities totaled $14.5 million which
resulted primarily from a $18.1 million increase in hospital incurred but not
reported (IBNR) claims. The increase in IBNR was generated from the increase in
claims activity due to the increase in membership and the timing of the related
claims payments. Additionally, the amounts due to IPA's, physicians and other
providers rose $9.5 million, reflecting an increase in the amounts payable to
non-capitated providers which was partially offset by the 1996 risk retention
payments to providers made in the first quarter. These items were offset in
part by the net increase in other receivables of approximately
-10-
<PAGE>
Liquidity and Capital Resources (con't)
- -------------------------------
$24.3 million which occurred from the Company's arrangements with The Guardian,
whereby the cash balances relating to the arrangements are held and invested by
The Guardian, on behalf of the Company, while trade receivables declined $6.8
million during the first six months of 1997. Approximately $40.9 million of net
cash was used to purchase marketable securities during the first six months with
an additional $8.9 million used for capital expenditures.
The Company expects to require additional capital, over the next several years,
principally for computer and technology system enhancements and to maintain
necessary regulatory capital. The Company's spending on the computer and
technology system enhancements has been temporarily suspended pending the
merger. Therefore, the additional capital requirements may be less than
originally estimated. If the system enhancements are reinitiated, the capital
requirements will be restored and could be in excess of amounts originally
anticipated. The Company believes that in addition to its current capital
resources and internally generated funds, it will be able to obtain financing,
if necessary, sufficient for its continued operations, although it can provide
no assurances in this regard.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" includes certain forward looking statements (including statements
identified by the use of such words as "expects", "believes" or similar
expressions). Actual results could differ materially from those discussed.
Additional information concerning factors that could cause actual results to
differ materially from those in forward looking statements is contained in Item
7 of the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996 under the caption "Cautionary Statement".
-11-
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibit Number Description of Exhibit
-------------- ----------------------
27 Financial data schedule.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended June 30,
1997.
-12-
<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.
Physicians Health Services, Inc.
--------------------------------
(Registrant)
Date: August 14, 1997 /s/James L. Elrod, Jr.
------------------------- ---------------------------
James L. Elrod, Jr.
Chief Financial Officer
Date: August 14, 1997 /s/ Robert L. Natt
------------------------- ---------------------------
Robert L. Natt
President
-13-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description of Exhibit
-------------- ----------------------
27 Financial data schedule.
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,999
<SECURITIES> 99,968
<RECEIVABLES> 42,089
<ALLOWANCES> 1,700
<INVENTORY> 0
<CURRENT-ASSETS> 191,037
<PP&E> 91,230
<DEPRECIATION> 18,111
<TOTAL-ASSETS> 278,006
<CURRENT-LIABILITIES> 178,511
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 98,336
<TOTAL-LIABILITY-AND-EQUITY> 278,006
<SALES> 311,425
<TOTAL-REVENUES> 315,147
<CGS> 264,948
<TOTAL-COSTS> 264,948
<OTHER-EXPENSES> 47,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,830
<INCOME-TAX> 1,047
<INCOME-CONTINUING> 1,783
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,783
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
