SCHEDULE 14A
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Section 240.14a-12
Coastal Physician Group, Inc.
(Name of Registrant as Specified In Its Charter)
Coastal Physician Group, Inc.
(Name of Person(s) Filing Proxy Statement)
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NEWS RELEASE COASTAL PHYSICIAN GROUP, INC.
Its Subsidiaries and Affiliates
FOR IMMEDIATE RELEASE CONTACT: Robert P. Borchert
Senior Vice President
919-383-0355
COASTAL PHYSICIAN GROUP, INC. ANNOUNCES
SECOND QUARTER FINANCIAL RESULTS
-- Management Will Pursue All Alternatives
to Maximize Shareholder Value --
DURHAM, NC, August 8, 1996 -- Coastal Physician Group, Inc.
(NYSE: DR) today reported financial results for the second
quarter and six-month period ended June 30, 1996. Total net
operating revenue for the second quarter was $146,038,000, a
30.9 percent decrease from net operating revenue of
$211,342,000 for the same period in 1995. The decrease in op-
erating revenue was primarily due to the sale of the Company's
south Florida clinics on November 30, 1995 (averaging ap-
proximately $53 million in quarterly revenue during 1995).
The Company reported a net loss for the second quarter of
$24,860,000, or $1.04 per share, compared with a net loss of
$10,491,000, or $0.44 per share, for the second quarter of 1995.
The net loss for the second quarter of 1996 was due primarily
to contract attrition and lower new business development during
the second half of 1995 in the hospital-based contract services
division, lower net collections per patient visit in the bill-
ing and accounts receivable management services division, in-
creased investments associated with the growth in the Company's
health plans, and increased expenses in information technology.
Approximately $4.5 million of the loss was due to certain
charges in the quarter, including accelerated recognition of
expenses related to telecommunications and information technol-
ogy contracts, provisions for lease terminations and severance
costs related to the closure of offices, and higher reserves
related to the Company's hospital-based business.
For the six-month period ended June 30, 1996, total net operat-
ing revenue decreased 28.7 percent to $298,772,000 from
$419,201,000 for the same period in the prior year. The de-
crease in operating revenue was primarily due to the late-1995
south Florida divestiture mentioned above. The Company in-
curred a net loss for the first six months of 1996 of
$36,590,000, or $1.54 per share, compared with a net loss of
$4,124,000, or $0.17 per share, for the first half of 1995.
Joseph G. Piemont, President and Chief Executive Officer of
Coastal Physician Group, Inc., said: "It is important to note
that our financial results for the first six months largely
reflect the Company's performance prior to the implementation
of our Comprehensive Business Plan, which was designed to revi-
talize Coastal's core operations, restore profitability and
maximize shareholder value. Moreover, we are encouraged by the
meaningful, measurable improvement in our core businesses since
plan implementation began. The fundamental elements of our
action plan are progressing ahead of schedule in terms of cash
flow enhancement, and we are continuing to vigorously pursue
the steps necessary to achieve an operational and financial
turnaround."
-more-<PAGE>
2
Employing Operational Metrics to Measure Results
Coastal's core businesses are beginning to show clear signs
that the operational initiatives over the past few months are
taking hold. For example:
- As of July 31, the Company's hospital-based contract
services division, Coastal Physician Services, Inc.
(CPS) had terminated 34 unprofitable contracts (rep-
resenting approximately $21 million in revenue),
which is expected to improve EBITDA (earnings before
interest, taxes, depreciation and amortization) by
nearly $4 million per year. Twelve contracts operat-
ing at a loss, and noticed for termination in March,
have instead been re-negotiated to provide Coastal
with a fair profit margin. New business development
during the first six months of 1996 has been success-
ful as compared to the same period in 1995. During
the first half of this year, CPS added more than $14
million in revenue, with an aggregate EBITDA margin
of approximately 14 percent -- an improvement over
the same period in 1995.
- Healthplan Southeast, the Company's northern Florida
health maintenance organization, reported that its
medical loss ratio improved in the second quarter to
84.8% from 92.5% in the first quarter, reflecting
more efficient contracting and utilization review
processes. Healthplan Southeast achieved a return
to profitability during the second quarter for the
first time since the first quarter of 1995.
Separately, CPS announced that it will implement a regional
organizational structure over the next six months as part of
the business unit's continuing efforts to enhance its competi-
tive position while reducing administrative overhead and logis-
tics costs. Three hubs in Durham, NC, Ft. Lauderdale, FL and
Dallas, TX will handle all job functions, including contract
management, operations, finance, new business development and
medical affairs; three operating offices will include Washing-
ton, DC, Atlanta, GA and Oakland, CA; and four remote sites will
be located in Orlando, FL, Memphis, TN, Cleveland, OH and St.
Louis, MO. The Company may incur a charge in the third or
fourth quarter of 1996 related to this restructuring.
In addition, management continues to analyze corporate overhead
costs, and has developed a preliminary plan to decrease ex-
penses as asset sales progress.
"The turnaround process in which we are currently and actively
engaged is based on managerial and financial discipline and on
the skillful execution of business fundamentals. While our
Company's recent performance, the legacy of decisions made by
the Company's previous leadership, is unacceptable, we are mak-
ing real progress. We are increasingly confident that, by con-
tinuing to implement our Comprehensive Business Plan, we will
succeed in returning Coastal to a position of operational ex-
cellence, profitability and industry leadership," Mr. Piemont
concluded.
Coastal is Committed to Maximizing Shareholder Value
Coastal's Comprehensive Business Plan is designed to maximize
shareholder value. Consistent with that objective, the Company
announced today that Coastal's management team and committee of
independent directors have determined to actively pursue and
evaluate all strategic alternatives to maximize shareholder
value, including the possible sale or disposition of assets in
addition to those currently slated for sale, an investment from
strategic or financial partners or the sale of the entire Com-
pany. In conjunction with this effort, the Company expects to
hold preliminary discussions with parties interested in such
possible transactions.<PAGE>
3
There can be no assurance that such evaluation or discussions
will lead to any proposed transaction, or that any proposed
transaction, which would be subject to approval of the Board of
Directors of Coastal, would be consummated.
Coastal Physician Group, Inc. is one of the largest publicly-
traded physician management companies in the U.S. and provides
a broad range of health care and administrative services to
physicians, hospitals, employers, managed care programs and
other health care providers.
***********
Forward-looking Information or Statements: Except for state-
ments of historical fact, statements made herein are forward-
looking in nature, and are inherently subject to uncertainties.
The actual results of the company may differ materially from
those reflected in the forward-looking statements based on a
number of important risk factors, including, but not limited
to: receipt of sufficient proceeds from divested assets and
the timing of any divestitures; the level and timing of im-
provements in the operational efforts; the possibility of poor
accounts receivable collection and/or reimbursement experience;
the possibility of increased medical expenses due to increased
utilization; the possibility that the Company may not be able
to improve operations or execute its divestiture strategy as
planned; and other important factors disclosed from time to
time in the Company's Form 10-K, Form 10-Q and other Securities
and Exchange Commission filings.
Certain Additional Information: Coastal Physician Group, Inc.
will be soliciting proxies to elect directors at its 1996 An-
nual Meeting of Stockholders. The following individuals may be
deemed participants in such solicitations of proxies: Jacque J.
Sokolov, M.D.; Robert V. Hatcher, Jr.; Stephen D. Corman; John
P. Mahoney, M.D.; Norman H. Chenven, M.D.; Joseph G. Piemont;
Robert P. Borchert; Dennis I. Simon; and Bettina M. Whyte. As
of May 31, 1996, Dr. Sokolov is the beneficial owner of 263,423
shares of the Company's common stock; Mr. Hatcher is the ben-
eficial owner of 16,808 shares of the Company's common stock;
Mr. Corman is the beneficial owner of 10,138 shares of the
Company's common stock; Dr. Mahoney is the beneficial owner of
4,090 shares of the Company's common stock; Mr. Piemont is the
beneficial owner of 11,110 shares of the Company's common
stock; and Mr. Borchert is the beneficial owner of less than
100 shares of the Company's common stock. Mr. Simon and Ms.
Whyte are employees of Price Waterhouse LLP and have been ap-
pointed by agreement of Price Waterhouse and Coastal to be Plan
Managers of the Company's revitalization plan. In connection
with such agreement, the Company has agreed to pay Price Water-
house $70,000 per month for the services of the Plan Managers,
and $46,400 per month for any additional Price Waterhouse per-
sonnel that may provide services under the agreement. The Com-
pany also granted Price Waterhouse an option to purchase 50,000
shares of Coastal common stock at a price of $7 7/8, which has
not yet vested, and a separate option to purchase up to 50,000
shares of Company common stock, which will vest at a rate of
10,000 shares each month for five months commencing May 15,
1996, at a strike price equal to the average closing price of
the common stock on the New York Stock Exchange for the first
ten trading days of each month prior to the vesting date.
Steven M. Scott, M.D., Bertram E. Walls, M.D., and John A. Hem-
ingway are also directors of Coastal, but are not expected to
solicit proxies on behalf of the Company.
# # #<PAGE>
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
<TABLE>
Three months ended Six months ended
June 30, June 30,
<CAPTION>
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating revenue, net $ 146,038 $ 211,342 $ 298,772 $ 419,201
Costs and expenses:
Physician and other provider
services 114,127 161,250 227,692 305,414
Medical support services 23,094 35,761 47,271 66,740
Selling, general and
administrative 31,215 26,737 56,116 48,073
Total costs and expenses 168,436 223,748 331,079 420,227
Operating income (loss) (22,398) (12,406) (32,307) (1,026)
Other income (expense):
Interest expense (2,124) (1,886) (4,227) (3,051)
Interest income 77 274 202 467
Acquisition and related
expenses - (919) - (919)
Other, net (415) (1,383) (258) (1,362)
Total other expense (2,462) (3,914) (4,283) (4,865)
Income (loss) before income
taxes (24,860) (16,320) (36,590) (5,891)
Provision for income taxes - (5,829) - (1,767)
Net income (loss) $(24,860) $(10,491) $(36,590) $(4,124)
Net income (loss) per share $ (1.04) $ (0.44) $ (1.54) $ (0.17)
Weighted average number of
shares outstanding 23,839 23,657 23,815 23,598
/TABLE
<PAGE>
COASTAL PHYSICIAN GROUP, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
<TABLE>
June 30, December 31,
1996 1995
__________ ____________
(unaudited)
<CAPTION>
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 11,455 $ 8,147
Marketable securities 7,543 9,303
Trade accounts receivable, net 135,550 149,891
Accounts receivable, other 16,298 11,315
Notes receivable from shareholders 1,791 1,879
Refundable income taxes - 12,804
Prepaid expenses and other
current assets 9,584 3,882
Deferred income taxes 4,265 4,265
_______ _______
Total current assets 186,486 201,486
_______ _______
Property and equipment, at cost,
less accumulated depreciation 25,036 33,441
Excess of cost over fair value
of net assets acquired, net 52,557 53,836
Deferred income taxes 2,327 2,244
Other assets 20,231 22,050
_______ _______
Total assets $ 286,637 $ 313,057
_______ _______
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities and other
short-term borrowings $ 46,892 $ 5,210
Accounts payable 16,334 19,600
Accrued physician fees and medical
costs 33,081 38,468
Accrued expenses 21,894 26,138
_______ _______
Total current liabilities 118,201 89,416
_______ _______
Long-term debt, excluding current
maturities 57,180 77,270
_______ _______
Total liabilities 175,381 166,686
_______ _______
Shareholders' equity:
Preferred stock $.01 par value; shares
authorized 10,000; none issued or
outstanding - -
Common stock $.01 par value; shares
authorized 100,000; shares issued
and outstanding 23,836 and 23,754,
respectively 239 238
Additional paid-in capital 142,945 142,345
Common stock warrants 987 -
Retained earnings (accumulated deficit) (32,964) 3,626
Unrealized appreciation of available-
for-sale securities 49 162
_______ _______
Total shareholders' equity 111,256 146,371
_______ _______
Total liabilities and
shareholders' equity $286,637 $313,057
_______ _______
/TABLE
<PAGE>
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
<TABLE>
Six months ended
June 30,
<CAPTION>
1996 1995
<S> <C> <C>
Net cash used in operating activities $ (27,417) $ (2,887)
Cash flows from investing activities:
Sales of marketable securities and
investments, net 5,660 2,983
Sales (purchases) of property and
equipment, net 4,208 (16,689)
Acquisition of subsidiaries, net of
cash acquired - (41,458)
Disposition of subsidiaries, net of
cash disposed (82) -
_________ _________
Net cash provided by (used in)
investing activities 9,786 (55,164)
_________ _________
Cash flows from financing activities:
Repayments of long-term debt (8,786) (5,523)
Borrowings on long-term debt 30,704 63,045
Cash payments for debt issue costs (1,558) -
Net proceeds from issuances of common
stock 579 1,104
_________ _________
Net cash provided by financing
activities 20,939 58,626
_________ _________
Net increase (decrease) in cash and
cash equivalents 3,308 575
Cash and cash equivalents at beginning
of period 8,147 14,286
_________ _________
Cash and cash equivalents at end of period $11,455 $14,861
Supplemental disclosures of cash flow
information:
Cash payments (refunds) during the
period for:
Interest $4,586 $2,916
Income taxes $(12,993) $(1,722)
/TABLE
<PAGE>
Coastal Physician Group
2nd Qtr. 1996
<TABLE>
Revenue
_______
<CAPTION> % of %of Ex S. Fla. % of
2nd Qtr Total 2nd Qtr Total % 2nd Qtr Total %
1996 Revenue 1995 Revenue Change 1995 Revenue Change
________ ________ ________ ________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated $146,038 100.0% $211,342 100.0% -30.9% $158,076 100.0% -7.6%
Physician Contract Services 79,642 54.5% 99,683 47.2% -20.1% 99,683 63.0% -20.1%
Physician Business Mgmt. Services 11,182 7.7% 13,869 6.5% -19.4% 13,869 8.8% -19.4%
Physician Care Networks 55,214 37.8% 97,790 46.3% -43.5% 44,524 28.2% 24.0%
</TABLE>
<TABLE>
Selected Enrollee Data
______________________
Management Estimates:
______________________
<CAPTION> Commercial Medicaid Total
Q1 1996 Q2 1996 8/1/96 Q1 1996 Q2 1996 8/1/96 Q1 1996 Q2 1996 8/1/96
_______ _______ _______ _______ _______ _______ _______ _______ _______
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Healthplan Southeast (North Fla.)2 59,222 60,368 61,272 5,151 5,457 5,535 64,373 65,825 66,807
Doctors Health Plan (North Carolina)2 5,034 6,250 7,260 0 0 0 5,034 6,250 7,260
Better Health Plan (New York)2 0 0 0 30,246 34,836 36,022 30,246 34,836 36,022
Medcost (PPO/UR)1 846,681 860,722 na 0 0 0 846,681 860,722 na
</TABLE>
<TABLE>
Utilization 2nd Qtr.
____________________
Management Estimates:
______________________
<CAPTION> Commercial Medicaid MedLoss MedLoss MedLoss
Days/1,000 Days/1,000 Q2 96 Q1 96 Q4 95
____________ ____________ ____________ ____________ ____________
<S> <C> <C> <C> <C> <C>
Healthplan Southeast (North Fla.) 261 162 84.8% 92.5% 96.2%
Doctors Health Plan (North Carolina) 182 na 85.8% 84.0% 86.7%
Better Health Plan (New York) na 466 82.4% 81.4% 92.7%
</TABLE>
1 Contracted lives
2 Owned lives
