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Coastal Physician Group, Inc.
(Name of Registrant as Specified In Its Charter)
Coastal Physician Group, Inc.
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TO OUR SHAREHOLDERS:
As you know, 1995 was a very difficult year for Coastal
Physician Group. Under the Company's former leadership,
Coastal commenced an aggressive acquisition program beginning
in July 1993 that was intended to diversify and strengthen the
organization. Instead, Coastal lost its strategic focus. This
resulted in a deterioration of the Company's financial
performance from net income of $20.7 million, or $0.92 per
share, in 1994 to a net loss of $46.9 million, or $1.98 per
share, by the end of 1995. This is clearly unacceptable - to
the Company's Board of Directors, to our management team and
our employees, and to you, our shareholders.
Your Company's Board of Directors and management are
convinced, however, that Coastal can regain its strategic focus
and its operational and financial strength, and we have already
begun to take the steps we believe necessary to achieve those
goals. Beginning in March 1996, we began the implementation of
a Comprehensive Business Plan designed to revitalize our core
operations, restore profitability and maximize shareholder
value. This plan consists of two key elements:
- Implementing a Management Action Plan designed to
improve the efficiency and performance of each of the
Company's operations and businesses. The Board has
retained the national turnaround services unit of
Price Waterhouse LLP to help develop and implement
the Management Action Plan.
- Pursuing a Strategic and Financial Plan which was
developed by management following a strategic study
conducted by Morgan Stanley & Co., Incorporated.
This plan, approved by the Board in early July 1996,
is focused on the divestiture of nonstrategic
business units and the refinancing and ultimate
paydown of debt.
We Are Committed to Maximizing Shareholder Value
Together, these plans constitute Coastal's Comprehensive
Business Plan which is designed to maximize shareholder value.
Consistent with that objective, Coastal's management team and
committee of independent directors will 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
Company.
It is imperative that Coastal continue to concentrate on
the effective management of the Company's core operations in
order to provide the best opportunity for enhancing asset and
share value. A new credit facility finalized in late May
provides the Company with up to $40 million of additional
borrowing availability and the financial flexibility to
successfully execute these action plans.<PAGE>
Coastal is Achieving Meaningful, Measurable Improvements
in our Operations
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.
Coastal's businesses are beginning to show clear signs of
improvement. For example:
- As of July 31, the Company's hospital-based contract
services division had terminated 34 unprofitable
contracts which is expected to improve EBITDA
(earnings before interest, taxes, depreciation and
amortization) by nearly $4 million per year. Twelve
contracts have been renegotiated to provide Coastal
with a reasonable profit margin. New business
development during the first six months of 1996 has
been successful 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.
The Company has already begun actively marketing the sale
of our non-core assets, including our clinical operations in
Florida, Maryland, New Jersey and North Carolina, our Preferred
Provider Organization in North Carolina, and our New York-based
prepaid health services plan for Medicaid recipients.
Management will continue to analyze corporate overhead costs,
and has developed a preliminary plan to decrease expenses 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 is
clearly unacceptable, we are making real progress.
The strategic and orderly sale of selected non-core
assets, in combination with the operational improvements
currently under way, should enable Coastal to meet its near-
term obligations and position the Company for the future. This
process will also allow management to concentrate its efforts
on businesses where the Company has historically demonstrated
expertise and can deliver added value for our customers - which
include our hospital-based contract services and our billing
and accounts receivable management services businesses - while
we continue to actively pursue all available strategic options.<PAGE>
The Board believes that this is the best approach to
maximize the value of the Company for you. We appreciate your
interest and support, and will keep you informed of our
progress.
Sincerely,
/s/ Jacque J. Sokolov /s/ Joseph G. Piemont
Jacque J. Sokolov, M.D. Joseph G. Piemont
Chairman of the Board President and Chief
Executive Officer
August 21, 1996
