United States
Securities and Exchange Commission
Washington, DC 20549
Form 10-Q
{X} Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
OR
{ } 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 001-13460
Coastal Physician Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 56-1379244
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2828 Croasdaile Drive, Durham, NC 27705
(Address of principal executive offices) (Zip Code)
(919) 383-0355
(Registrant's telephone number including area code)
None
(Former name, former address and former fiscal year, if
changed since last report)
Indicate by 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.
{X} Yes
{ } No
As of April 30, 1999 there were outstanding 37,953,249
shares of common stock, par value $.01 per share.
COASTAL PHYSICIAN GROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31, 1998
and March 31, 1999 (unaudited)
Unaudited Consolidated Statements of
Operations
Unaudited Consolidated Condensed
Statements of Cash Flows
Notes to Consolidated Financial Statements
(Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
SIGNATURES
COASTAL PHYSICIAN GROUP, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
March 31, December
1999 31, 1998
Assets (unaudited)
Current assets:
Cash and cash equivalents 2,395 45
Trade accounts receivable, net 31,853 29,216
Reserves held by NCFE 5,192 5,400
Accounts receivable, other 2,720 686
Receivables from related party 17 54
Prepaid expenses and other current
assets 5,639 5,411
Total current assets 47,816 40,812
Property and equipment, at cost, less
accumulated depreciation 7,014 7,171
Excess of cost over fair value of net
assets acquired, net 2,204 2,248
Other assets 4,114 4,843
Total assets 61,148 55,074
Liabilities and Shareholders' Equity
(Deficit)
Current liabilities:
Current maturities and other short-term
borrowings 442 433
Accounts payable 19,551 22,559
Payable to related party 209 1,277
Accrued physicians fees and medical
costs 10,411 9,986
Accrued expenses 7,524 7,429
Total current liabilities 38,137 41,684
Long-term debt, excluding current
maturities 89,055 77,109
Total liabilities 127,192 118,793
Shareholders' equity (deficit):
Preferred stock $.01 par value;
authorized 10,000; issued and
outstanding 445 and 445, respectively 4 4
Additional paid-in capital 2,061 2,061
Common stock $.01 par value; shares
authorized 100,000; shares issued and
outstanding 37,892 and 37,832,
respectively 379 378
Additional paid-in capital 176,207 176,197
Common stock warrants 1,691 1,691
Retained earnings (accumulated deficit)
(246,386) (244,050)
Total shareholders' equity
(deficit) (66,044) (63,719)
Total liabilities and shareholders'
equity (deficit) 61,148 55,074
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Three months ended
March 31,
1999 1998
Operating revenue, net 50,695 87,877
Costs and expenses:
Physician and other provider services
34,907 70,524
Medical support services 8,431 7,925
Selling, general and administrative 7,250 11,659
Related party expense, net 90 428
Total costs and expenses 50,678 90,536
Operating income (loss) 17 (2,659)
Other income (expense):
Interest expense (2,429) (2,140)
Interest income 63 56
Other related party expense, net (114) --
Other, net 127 150
Total other expense (2,353) (1,934)
Loss before income taxes (2,336) (4,593)
Benefit for income taxes -- --
Net loss (2,336) (4,593)
Net loss per share (0.06) (0.12)
Weighted average number of shares
outstanding 37,832 37,545
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Three months ended
March 31,
1999 1998
Net cash used in operating activities (9,458) (5,467)
Cash flows from investing activities:
Sales of marketable securities and
investments, net -- 245
Purchases of property and equipment, net
(158) (153)
Disposition of subsidiaries, net of
cash disposed -- (5,865)
Net cash used in investing
activities (158) (5,773)
Cash flows from financing activities:
Net borrowings on long-term debt 11,955 3,125
Proceeds from issuances of common
stock 11 60
Net cash provided by
financing activities 11,966 3,185
Net increase (decrease) in
cash and cash equivalents 2,350 (8,055)
Cash and cash equivalents at beginning
of period 45 8,921
Cash and cash equivalents at end of
period 2,395 866
Supplemental disclosures of cash flow
information:
Cash payments during
the period for:
Interest 2,565 2,140
Income taxes 60 --
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying consolidated financial statements of
Coastal Physician Group, Inc. (the "Company") are unaudited
and, in the opinion of management, include all adjustments
which are necessary for a fair presentation. The unaudited
consolidated financial statements should be read in
conjunction with the Company's audited consolidated
financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998. Operating results for the interim periods
presented are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31,
1999.
Reclassifications
Certain reclassifications have been made to the 1998
consolidated financial statments to conform to the 1999
pesentations. Such reclassifications had no impact on net
loss or shareholders' equity (deficit) as previously
reported.
(2) Comprehensive Income
The Company has adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income."
Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components. The
adoption of this Statement requires that unrealized gains or
losses on the Company's available-for-sale securities be
included in other comprehensive income, which in prior
periods were reported separately in shareholders' equity.
Prior year financial statements have been reclassified to
conform to the requirements of Statement 130.
The components of comprehensive income, net of related tax,
for the quarter ended March 31, 1999 and 1998, are as
follows:
In thousands of Three months ended
dollars March 31
1999 1998
Net loss $(2,336) $(4,593)
Unrealized gains
(losses)on securities -- (2)
Comprehensive Income $(2,336) $(4,595)
(3) Segment Information
During the quarters ended March 31, 1999 and 1998, the
Company had four reportable segments: physician contract
services, government services, billing and collection
services, and divested businesses. The physician contract
services group contracts principally with hospitals and
government agencies to identify and recruit physicians as
candidates for admission to a client's medical staff and to
coordinate the on-going scheduling of independent contractor
physicians who provide clinical coverage in designated
areas. While the Company also provides obstetrics,
gynecology and pediatrics physician contract services, the
provision of contract management services to hospital
emergency departments represents the Company's principal
hospital-based service. The government services segment
provides similar services to governmental agencies such as
the Department of Defense and state and local governments.
The billing and collection services segment provides support
to independent contractor physicians, independent practices
and other health care practitioners. These services are
often provided as part of the Company's physician contract
services and are also marketed independently to unaffiliated
providers. Divested businesses include two health plans
which were divested during 1998 and the wrap up of
businesses divested prior to 1998. The Company also has a
corporate group included in "All Other" that provides
administrative services to the operating segments.
Information About Segment Profit/Loss and Segment Assets
The Company evaluates performance based on profit or loss
from operations before interest, income taxes, depreciation
and amortization. Intersegment revenues are recorded at
amounts similar to revenues from external customers.
Intersegment profits or losses are eliminated in
consolidation. Also, the Company does not allocate certain
expenses such as certain professional fees or certain
employee benefits to its segments. The Company's reportable
segments are business units that are responsible for certain
quantitative thresholds of revenue, profits or losses or
assets.
Quarter ended March 31, 1999
Total
(In Phys. Gov't Billing Dvst Report. All
thousands) Cont. Svcs and Seg. Seg. Other Totals
Coll.
Revenue
from
external 41,97 4,362 4,345 -- 50,679 16 50,695
sources 2
Intersegme
nt -- -- 3,544 -- 3,544 -- 3,544
revenues
Interest
expense 1,642 743 -- -- 2,385 44 2,429
Depreciati
on and
amortizati 104 9 197 1 311 43 354
on
Segment
Profit
(loss) (874) (635) 1,090 (21) (440) (1,896) (2,336)
Segment
assets 32,72 2,781 11,408 649 47,559 13,589 61,148
1
Quarter ended March 31, 1998
Total
(In Phys. Gov't Billing Dvst Report. All
thousands) Cont. Svcs and Seg. Seg. Other Totals
Coll.
Revenue
from
external 40,79 5,561 4,090 37,37 87,820 57 87,877
sources 2 7
Intersegme
nt -- 11 2,821 -- 2,832 -- 2,832
revenues
Interest
expense 1,548 235 -- (16) 1,767 373 2,140
Depreciati
on and
amortizati 187 17 418 209 831 140 971
on
Segment
profit
(loss) (1,86 (244) 262 (164) (2,015) (2,578) (4,593
9) )
Segment
assets, as
of
December 30,78 4,798 11,529 2,585 49,693 5,381 55,074
31, 1998 1
(4) Recently Issued Accounting Pronouncements
Effective for fiscal quarters and fiscal years beginning
after June 15, 1999, the Company will be required to adopt
Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 requires entities to
disclose information for derivative financial instruments,
and to recognize all derivatives as assets or liabilities
measured at fair value. The Company does not believe that
this pronouncement will have a material impact on its
financial position or results of operations.
COASTAL PHYSICIAN GROUP, INC.
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
RESULTS OF OPERATIONS
FIRST QUARTER ENDED MARCH 31, 1999 COMPARED TO THE FIRST
QUARTER ENDED MARCH 31, 1998.
During 1998, the Company completed its divestiture
strategy. This will allow the Company to focus its future
operations on the core businesses of emergency medicine
practice management, government services and medical billing
and collections. The Company refers to these businesses as
its core businesses. The last step in completing the
divestiture strategy was the sale of two remaining HMOs. The
Company sold Doctors Health Plan, Inc. ("DHP") in March
1998, and Healthplan Southeast ("HPSE") in October 1998. The
Company sold Better Health Plan ("BHP") in August 1997 which
continues to have some wrap-up operations activity. During
1997, the Company also sold the last of its clinic
operations. The Company refers to the HMO and clinic
operations and some smaller related businesses as the
divested businesses.
Operating Revenue, Net. Net operating revenue in the first
quarter of 1999 was $50.7 million, representing a decrease
of $37.2 million, or 42.3%, from operating revenues of $87.9
million in the first quarter of 1998. The changes in
operating revenue among the various businesses were as
follows:
3 Months ended March 31
Increase
1999 1998 (Decrease) %
Ongoing businesses $50.7 $50.5 $ 00.2 00.4%
Divested operations 0.0 37.4 (37.4) (100.0)
$50.7 $87.9 $(37.2) (42.3)%
In the first quarter of 1999, the physician contract
services business generated approximately $42.0 in revenue,
which was an increase of approximately $1.2 million, or
2.9%, from approximately $40.8 million of revenue in the
first quarter of 1998. Revenue for the billing and
collections operations was $4.3 million for the first
quarter of 1999, which was an increase of approximately $0.2
million, or 4.9%, from $4.1 million in the first quarter of
1998 due to growth in the billing contracts and fees.
Revenue of the billing and collections operations excludes
intersegment revenue of approximately $3.5 million in the
first quarter of 1999 and approximately $2.8 million in the
first quarter of 1998 representing fees billed to the
physician contract services business. The government
services group accounted for approximately $4.4 million in
the first quarter of 1999, which was a decline of
approximately $1.2 million, or 21.4%, from $5.6 million in
the first quarter of 1998. There were minimal increases in
other miscellaneous revenue during the first quarter of 1999
compared to the same period for 1998.
There was no revenue from the HMOs for the first
quarter of 1999. DHP, which was sold in March 1998,
generated revenue of approximately $10.0 million in the
first quarter of 1998. HPSE, which was sold in October 1998,
generated revenue in the first quarter of 1998 of
approximately $27.3 million.
Physician and Other Provider Services Costs and Expenses.
Physician and other provider services costs and expenses
consist primarily of fees paid to physicians and other
health care providers. Physician and other provider services
costs and expenses decreased by approximately $35.6 million,
or 50.5%, to approximately $34.9 million in the first
quarter of 1999 from approximately $70.5 million in the
first quarter of 1998. Physician and other provider services
costs and expenses decreased as follows:
3 months ended March 31,
1999 1998 (Decrease) %
Ongoing businesses $34.9 $36.8 $(1.9) (5.2)%
Divested operations 0.0 33.7 (33.7) (100.0)
$34.9 $70.5 $(35.6) (50.5)%
These expenses for the ongoing businesses decreased
because of overall lower expenses of contracts in the
physician contract services business. In the first quarter
of 1999, physician and other provider services costs and
expenses for the physician contract services group were
approximately $31.3 million. This represented a decrease of
$1.0 million, or 3.1%, from $32.3 million in the first
quarter of 1998. The government services group's expenses
were approximately $3.6 million in the first quarter of
1999, representing a decrease of approximately $0.9 million,
or 20.0%, from approximately $4.5 million in the first
quarter of 1998. The billing and collections operations did
not incur physician and other provider services costs and
expenses.
Physician and other provider services costs and
expenses of the HMOs declined because the Company sold those
businesses during 1998. DHP reported approximately $9.0
million of physician and other provider services costs in
the first quarter of 1998. HPSE reported approximately $24.7
million of physician and other provider services costs in
the first quarter of 1998.
Medical Support Services Costs and Expenses. Medical
support services costs and expenses include all other direct
costs and expenses of practice management activities, as
well as billing, collection and physician business
management services costs and expenses. Medical support
services costs and expenses increased by $0.4 million, or
5.0%, to $8.4 million in the first quarter of 1999 from $7.9
million in the first quarter of 1998. Medical support
services costs and expenses increased as follows:
3 months ended March 31,
1999 1998 Increase %
Ongoing businesses $8.4 $7.9 $0.5 6.3%
Divested operations 0.0 0.0 0.0 --
$8.4 $7.9 $0.5 6.3%
In the first quarter of 1999, medical support services
costs and expenses for the physician contract services group
were approximately $1.6 million. This represented a increase
of $0.3 million, or 23.1%, from $1.3 million in the first
quarter of 1998. The government services group's expenses
were approximately $0.4 million in the first quarter of
1999, representing a decrease of approximately $0.3 million,
or 42.9%, from approximately $0.7 million in the first
quarter of 1998. The billing and collections group's
expenses were approximately $6.4 million in the first
quarter of 1999 representing an increase of approximately
$0.5 million, or 8.5%, from approximately $5.9 million in
the first quarter of 1998.
Selling, General and Administrative Costs and Expenses.
Selling, general and administrative costs and expenses
decreased by $4.4 million, or 37.6%, to $7.3 million in the
first quarter 1999 from $11.7 million in the first quarter
1998. Selling, general and administrative costs and expenses
decreased as follows:
3 months ended March 31,
1999 1998 (Decrease) %
Ongoing businesses $7.3 $7.7 $(0.4) (5.2)%
Divested operations 0.0 4.0 (4.0) (100.0)
$7.3 $11.7 $(4.4) (37.6)%
In the first quarter of 1999, selling general and
administrative costs and expenses for the Physician Contract
group were $4.8 million in the first quarter of 1999, this
represented a decrease of $0.1 million, or 2.0%, from $4.9
million in the first quarter of 1998. The government
services group's expenses were $0.3 million in the first
quarter of 1999, this represented a decrease of $0.1
million, or 25.0%, from $0.4 million in the first quarter of
1998. The billing and collections group's expenses were $0.4
million in the first quarter of 1999 representing a decrease
of $0.2 million, or 33.3%, from $0.6 million in the first
quarter of 1998. Selling, general and administrative costs
and expenses for the corporate group were $1.8 million in
the first quarter of 1999 and the first quarter of 1998.
Approximately $1.3 million related to accounts receivable
sales and subservicing programs costs are included in
selling, general and administrative costs and expenses for
the first quarter of 1999 compared to $1.9 million in the
first quarter of 1998.
Selling, general and administrative costs and expenses
of the HMOs declined because the Company sold those
businesses during 1998. DHP reported approximately $1.1
million of selling, general and administrative costs and
expenses in the first quarter 1998. HPSE reported
approximately $3.2 million of selling, general and
administrative costs and expenses in the first quarter 1998.
Related party expense, net. Related party expenses, net
decreased by $0.3 million, or 75.0%, to $0.1 million in the
first quarter 1999 from $0.4 million in the first quarter
1998. The decrease is primarily due to an affiliate of the
Company being purchased by an unaffiliated party in May
1998.
Other income (expense). Other income (expenses)
increased by $0.5 million or 32.4%, to $2.4 million in the
first quarter of 1999 from $1.9 million in the first quarter
of 1998.
Benefit for income taxes. There was no benefit for
income taxes recorded for the first quarter of 1999 or 1998.
The Company expects to record no tax expense or benefit,
other than as a result of potential asset dispositions,
until the Company returns to profitability in the future.
Net Loss. Primarily as a result of the foregoing, the
Company reported a net loss of $2.3 million in the first
quarter of 1999 compared to a net loss of $4.6 million in
the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities increased by $4.0
million, or 72.7%, for the three months ended March 31,
1999, to $9.5 million as compared to $5.5 million for the
three months ended March 31, 1998. The Company's net use of
cash to support operating activities resulted primarily from
operating losses, increases in accounts receivable,
reduction of accounts payable and amounts due to related
parties. Net cash used in investing activities decreased by
$5.6 million, or 96.7% for the three months ended March 31,
1999, to $.2 million from $5.8 million for the three months
ended March 31, 1998. Net cash provided by financing
activities increased by $8.8 million, or 275.0%, to $12.0
million for the three months ended March 31, 1999 from $3.2
million for the three months ended March 31, 1998. The
increase represented additional funding under the sales and
subservcing agreements with various affiliates of National
Century Financial Enterprises, Inc. ("NCFE").
The Company expects to satisfy its anticipated demands and
commitments for cash in the next twelve months from the
amounts available under the various agreements with NCFE, as
well as a reduction in cash used in operations. The Company
continues to review of all aspects of the business units and
implement actions to improve cash flow and profitability.
Among the key actions being implemented by the Company are
changes in the method of compensating the independent
contractor physicians under the Practice Partners Program.
The Company also centralized certain administrative tasks
and is evaluating ways of expanding its customer base. The
primary objectives are to increase cash flow to continue to
repay debt, to improve overall financial results and improve
the Company's stock price. Until the Company significantly
improves cash flows, it will be dependent upon the continued
weekly purchases of eligible accounts receivable by NCFE and
the line of credit provided by an affiliate of NCFE in order
to meet its obligations.
YEAR 2000 ISSUES
The Company places significant reliance upon information
technology for day to day operations. The Company's reliance
on non-Information Technology systems is not significant. In
1997, the Company began a review of computer applications
and platforms to determine that they are Year 2000 compliant
before December 31, 1999. The Company has not completed the
review of all applications, but has reasonable assurance
that major applications covering billing and certain general
ledger applications have been reviewed and are Year 2000
compliant. The balance of the system reviews and
modifications are expected to be completed before
experiencing any adverse consequences. The Company plans to
complete any significant reviews, testing and modifications
by September 30, 1999. The costs of the project to date have
not been material and the Company does not expect the
estimated costs to complete this project to be material to
the Company's consolidated financial position or the results
of operations. Further, the significant reallocation of
resources has not been required to address Year 2000 issues.
The Company relies on a number of outside parties to
process claims for emergency department visits. The outside
parties are computer processing and telecommunications
vendors, insurance companies, HMOs and entities that process
claims on behalf of Medicare and state Medicaid programs. A
large amount of claims submitted to payors are transmitted
electronically. If electronic submission of claims is not
possible because of Year 2000 issues, the Company could
produce paper claims instead. Processing of paper claims
could also delay reimbursements to the Company.
The Company is monitoring the progress of these outside
parties toward Year 2000 compliance. If Year 2000 issues are
not properly addressed by entities that pay for services
provided by the Company, including entities under contract
with HCFA, operating results and cash flows could be
significantly impacted. If cash flows are interrupted, the
Company would seek to utilize available lines of credit or
other financing sources. There can be no assurances at this
time that the lines of credit or other financing sources
would be sufficient if such an interruption in cash flow
occurs. The Company will continue to monitor the progress of
these outside parties through written communications, joint
tests of hardware and software and review of contingency
plans.
Forward-looking Information or Statements: Except
for statements 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: the level and
timing of improvements in the operations of the
Company's businesses; the possibility that the
Company may not be able to improve operations as
planned; the inability to obtain continued and/or
additional necessary working capital financing as
needed; and other important factors discussed
above under "Other Trends and Uncertainties" and
disclosed from time to time in the Company's Form
10-K, Form 10-Q and other periodic reports filed
with the Securities and Exchange Commission.
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
Date: May 17, 1999
COASTAL PHYSICIAN GROUP, INC.
By: /S/ Steven M. Scott, M.D.
Steven M. Scott, M.D.
Chairman of the Board of
Directors, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed by the following
persons in the capacities and on the dates indicated.
Name Title Date
/S/Steven M. Scott, M.D. Chairman of the Board May
17,1999 Steven M. Scott, M.D. Directors,
President and
Chief Executive Officer
/S/W. Randall Dickerson Executive
Vice President, May 17, 1999
W. Randall Dickerson Chief
Financial Officer and Chief
Accounting Officer
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