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 June 30, 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 July 31, 1999 there were outstanding 37,985,802 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 June 30, 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)
June 30, December
1999 31, 1998
Assets (unaudited)
Current assets:
Cash and cash equivalents 1,663 45
Trade accounts receivable, net 27,013 29,216
Reserves held by NCFE 5,656 5,400
Accounts receivable, other 6,680 686
Receivables from related party 348 54
Prepaid expenses and other current
assets 6,052 5,411
Total current assets 47,412 40,812
Property and equipment, at cost, less
accumulated depreciation 5,693 7,171
Excess of cost over fair value of net
assets acquired, net 2,160 2,248
Other assets 3,333 4,843
Total assets 58,598 55,074
Liabilities and Shareholders' Equity
(Deficit)
Current liabilities:
Current maturities and other short-term
borrowings 88,749 433
Accounts payable 20,266 22,559
Payable to related party 181 1,277
Accrued physicians fees and medical
costs 9,794 9,986
Accrued expenses 7,472 7,429
Total current liabilities 126,462 41,684
Long-term debt, excluding current
maturities 2,940 77,109
Total liabilities 129,402 118,793
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 37,953 and 37,832,
respectively 380 378
Additional paid-in capital 176,222 176,197
Common stock warrants 1,675 1,691
Retained earnings (accumulated deficit)
(251,146) (244,050)
Total shareholders' equity
(deficit) (70,804) (63,719)
Total liabilities and shareholders'
equity (deficit) 58,598 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
June 30,
1999 1998
Operating revenue, net 49,186 78,584
Costs and expenses:
Physician and other provider services
34,398 63,111
Medical support services 8,919 8,447
Selling, general and administrative 7,451 10,435
Related party expense, net 207 59
Total costs and expenses 50,975 82,052
Operating loss (1,789) (3,468)
Other income (expense):
Interest expense (2,802) (2,814)
Interest income 16 110
Other related party expense, net (90) (588)
Other, net (95) 645
Total other expense (2,971) (2,647)
Loss before income taxes (4,760) (6,115)
Benefit for income taxes -- --
Net loss (4,760) (6,115)
Net loss per share (0.13) (0.16)
Weighted average number of shares
outstanding 37,943 37,665
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Six months ended
June 30,
1999 1998
Operating revenue, net 99,881 166,461
Costs and expenses:
Physician and other provider services
69,305 133,635
Medical support services 17,350 16,372
Selling, general and administrative 14,701 22,094
Related party expense, net 297 487
Total costs and expenses 101,653 172,588
Operating loss (1,772) (6,127)
Other income (expense):
Interest expense (5,231) (4,954)
Interest income 79 166
Other related party expense, net (204) (588)
Other, net 32 795
Total other expense (5,324) (4,581)
Loss before income taxes (7,096) (10,708)
Benefit for income taxes -- --
Net loss (7,096) (10,708)
Net loss per share (0.19) (0.28)
Weighted average number of shares
outstanding 37,888 37,605
See accompanying notes to consolidated financial statements.
COASTAL PHYSICIAN GROUP, INC.
Unaudited Consolidated Condensed Statements of Cash Flows
(In thousands)
Six months ended
June 30,
1999 1998
Net cash used in operating activities (13,102) (8,036)
Cash flows from investing activities:
Sales of marketable securities and
investments, net -- 322
Purchases of property and equipment, net
562 (932)
Disposition of subsidiaries, net of
cash disposed -- (5,865)
Net cash provided by(used
in) investing activities 562 (6,475)
Cash flows from financing activities:
Net borrowings on long-term debt 14,147 10,671
Proceeds from issuances of preferred
stock -- 2,065
Proceeds from issuances of common
stock 11 149
Net cash provided by
financing activities 14,158 12,885
Net increase (decrease) in
cash and cash equivalents 1,618 (1,626)
Cash and cash equivalents at beginning
of period 45 8,921
Cash and cash equivalents at end of
period 1,663 7,295
Supplemental disclosures of cash flow
information:
Cash payments during
the period for:
Interest 5,504 4,562
Income taxes 221 124
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 in accordance
with GAAP. 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 statements to conform to the 1999
presentation. Such reclassifications had no impact on net
loss or shareholders' equity (deficit) as previously
reported.
(2) Subsequent Events
Coastal Physician Group, Inc. ("Coastal") acquired the
operations of Sterling Healthcare Group, Inc. ("Sterling")
in a transaction completed on July 8, 1999. Sterling
provided emergency medicine practice management services to
approximately 124 hospitals primarily in the southeastern
United States. Assets acquired were primarily contracts with
hospitals to provide emergency department staffing,
contracts with independent contractor physicians to provide
medical services to emergency departments and accounts
receivable arising from the provision of emergency physician
services. Sterling is a wholly owned subsidiary of FPA
Medical Management, Inc. ("FPA") headquartered in Miami,
Florida. FPA and Sterling were debtors in a jointly
administered Chapter 11 Bankruptcy Proceeding in U.S.
Bankruptcy Court in the District of Delaware (Case No. 98-
1596(PJW)). The assets were acquired pursuant to an Asset
Purchase Agreement in accordance with the Modified Second
Amended Joint Plan of Reorganization of FPA Medical
Management, Inc. and Certain of its Subsidiaries and
Affiliates. In connection with this acquisition, Coastal
paid approximately $69.3 million and assumed certain current
operating liabilities. The transaction will be accounted for
by the purchase method of accounting. Financing was provided
to Coastal by National Century Financial Enterprises, Inc.,
of Dublin, Ohio, through a sale of accounts receivables
acquired from Sterling.
Effective July 29, 1999, the company changed its name from
Coastal Physician Group, Inc. to PhyAmerica Physician Group,
Inc.
(3) 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 June 30, 1999 and 1998, are as
follows:
In thousands of Three months ended
dollars June 30
1999 1998
Net loss $(4,760) $(6,115)
Unrealized gains
(losses)on securities -- (5)
Comprehensive Income $(4,760) $(6,120)
The components of comprehensive income, net of related tax,
for the six months ended June 30, 1999 and 1998, are as
follows:
In thousands of Six months ended
dollars June 30
1999 1998
Net loss $(7,096) $(10,708)
Unrealized gains
(losses)on securities -- (7)
Comprehensive Income $(7,096) $(10,715)
(4) Segment Information
During the quarters ended June 30, 1999 and 1998, and the
six months ended June 30, 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 June 30, 1999
Total
(In Phys. Gov't Billing Dvst Report. All
thousands) Cont. Svcs and Seg. Seg. Other Totals
Coll.
Revenue
from
external 40,17 4,335 4,656 -- 49,168 18 49,186
sources 7
Intersegme
nt -- -- 3,959 -- 3,959 -- 3,959
revenues
Interest
expense 1,727 846 -- -- 2,573 229 2,802
Depreciati
on and
amortizati 94 6 184 -- 284 35 319
on
Segment
Profit
(loss) (3,23 (681) 1,397 25 (2,493) (2,267 (4,760)
4) )
Segment
assets 31,65 2,777 10,810 2,371 47,612 10,986 58,598
4
Quarter ended June 30, 1998
Total
(In Phys. Gov't Billing Dvst Report. All
thousands) Cont. Svcs and Seg. Seg. Other Totals
Coll.
Revenue
from
external 40,66 5,407 4,255 28,28 78,612 (28) 78,584
sources 7 3
Intersegme
nt -- 11 3,252 -- 3,263 -- 3,263
revenues
Interest
expense 1,609 76 -- 113 1,798 1,016 2,814
Depreciati
on and
amortizati 139 15 387 207 748 81 829
on
Segment
profit
(loss) (1,92 (346) 804 (2,223 (3,686) (2,429) (6,115)
1) )
Segment
assets, as
of
December 30,78 4,798 11,529 2,585 49,693 5,381 55,074
31, 1998 1
Six months ended June 30, 1999
Total
(In Phys. Gov't Billing Dvst Report. All
thousands) Cont. Svcs and Seg. Seg. Other Totals
Coll.
Revenue
from
external 82,14 8,697 9,001 -- 99,847 34 99,881
sources 9
Intersegme
nt -- -- 7,503 -- 7,503 -- 7,503
revenues
Interest
expense 3,369 1,589 -- -- 4,958 273 5,231
Depreciati
on and
amortizati 198 15 381 1 595 78 673
on
Segment
Profit
(loss) (4,10 (1,31 2,487 4 (2,933) (4,163) (7,096)
8) 6)
Segment
assets 31,65 2,777 10,810 2,37 47,612 10,986 58,598
4 1
Six months ended June 30, 1998
Total
(In Phys. Gov't Billing Dvst Report. All
thousands) Cont. Svcs and Seg. Seg. Other Totals
Coll.
Revenue
from
external 81,45 10,96 8,345 65,66 166,432 29 166,46
sources 9 8 0 1
Intersegme
nt -- 22 6,073 -- 6,095 -- 6,095
revenues
Interest
expense 3,157 311 -- 97 3,565 1,389 4,954
Depreciati
on and
amortizati 326 32 805 416 1,579 221 1,800
on
Segment
profit
(loss) (3,79 (590) 1,066 (2,38 (5,701) (5,007) (10,70
0) 7) 8)
Segment
assets, as
of
December 30,78 4,798 11,529 2,585 49,693 5,381 55,074
31, 1998 1
(5) Recently Issued Accounting Pronouncements
Effective for fiscal quarters and fiscal years beginning
after June 15, 2000, 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
SECOND QUARTER ENDED JUNE 30, 1999 COMPARED TO THE SECOND
QUARTER ENDED JUNE 30, 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 second
quarter of 1999 was $49.2 million, representing a decrease
of $29.4 million, or 37.4%, from operating revenues of $78.6
million in the second quarter of 1998. The changes in
operating revenue among the various businesses were as
follows:
3 Months ended June 30
Increase
1999 1998 (Decrease) %
Ongoing businesses $49.2 $50.3 $(1.1) (2.2)%
Divested operations 0.0 28.3 (28.3) (100.0)
$49.2 $78.6 $(29.4) (37.4)%
In the second quarter of 1999, the physician contract
services business generated approximately $40.2 in revenue,
which was an decrease of approximately $0.5 million, or
1.2%, from approximately $40.7 million of revenue in the
second quarter of 1998. Revenue for the billing and
collections operations was $4.7 million for the second
quarter of 1999, which was an increase of approximately $0.5
million, or 11.9%, from $4.2 million in the second quarter
of 1998 due to growth in the billing contracts and fees.
Revenue of the billing and collections operations excludes
intersegment revenue of approximately $4.0 million in the
second quarter of 1999 and approximately $3.3 million in the
second quarter of 1998 representing fees billed to the
physician contract services business. The government
services group accounted for approximately $4.3 million in
the second quarter of 1999, which was a decline of
approximately $1.1 million, or 20.4%, from $5.4 million in
the second quarter of 1998. There were minimal increases in
other miscellaneous revenue during the second quarter of
1999 compared to the same period for 1998.
There was no revenue from the HMOs for the second
quarter of 1999. DHP, which was sold in March 1998,
generated no revenue in the second quarter of 1998. HPSE,
which was sold in October 1998, generated revenue in the
second quarter of 1998 of approximately $28.3 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 $28.7 million,
or 45.5%, to approximately $34.4 million in the second
quarter of 1999 from approximately $63.1 million in the
second quarter of 1998. Physician and other provider
services costs and expenses decreased as follows:
3 months ended June 30,
1999 1998 (Decrease) %
Ongoing businesses $34.4 $36.2 $(1.8) (5.0)%
Divested operations 0.0 26.9 (26.9) (100.0)
$34.4 $63.1 $(28.7) (45.5)%
These expenses for the ongoing businesses decreased
because of overall lower expenses of contracts in the
physician contract services business. In the second quarter
of 1999, physician and other provider services costs and
expenses for the physician contract services group were
approximately $30.9 million. This represented a decrease of
$0.8 million, or 2.5%, from $31.7 million in the second
quarter of 1998. The government services group's expenses
were approximately $3.5 million in the second quarter of
1999, representing a decrease of approximately $1.0 million,
or 22.2%, from approximately $4.5 million in the second
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 no expense for
physician and other provider services costs in the second
quarter of 1998. HPSE reported approximately $26.9 million
of physician and other provider services costs in the second
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 $0.5 million, or
6.0%, to $8.9 million in the second quarter of 1999 from
$8.4 million in the second quarter of 1998. Medical support
services costs and expenses increased as follows:
3 months ended June 30,
1999 1998 Increase %
Ongoing businesses $8.9 $8.2 $0.7 8.5%
Divested operations 0.0 0.2 (0.2) (100.0)
$8.9 $8.4 $0.5 6.0%
In the second quarter of 1999, medical support services
costs and expenses for the physician contract services group
were approximately $1.7 million. This represented an
increase of $0.4 million, or 30.8%, from $1.3 million in the
second quarter of 1998. The government services group's
expenses were approximately $0.5 million in the second
quarter of 1999, representing a decrease of approximately
$0.1 million, or 16.7%, from approximately $0.6 million in
the second quarter of 1998. The billing and collections
group's expenses were approximately $6.7 million in the
second quarter of 1999 representing an increase of
approximately $0.4 million, or 6.3%, from approximately $6.3
million in the second quarter of 1998.
The HMOs reported approximately $0.2 million of medical
support services costs and expenses in the second quarter of
1998.
Selling, General and Administrative Costs and Expenses.
Selling, general and administrative costs and expenses
decreased by $2.9 million, or 27.9%, to $7.5 million in the
second quarter 1999 from $10.4 million in the second quarter
1998. Selling, general and administrative costs and expenses
decreased as follows:
3 months ended June 30,
1999 1998 (Decrease) %
Ongoing businesses $7.4 $7.2 $ 0.2 2.8%
Divested operations 0.1 3.2 (3.1) (96.9)
$7.5 $10.4 $(2.9) (27.9)%
In the second quarter of 1999, selling general and
administrative costs and expenses for the physician contract
group were $5.5 million in the second quarter of 1999, this
represented a increase of $0.6 million, or 12.2%, from $4.9
million in the second quarter of 1998. The government
services group's expenses were $0.1 million in the second
quarter of 1999, this represented a decrease of $0.4
million, or 80.0%, from $0.5 million in the second quarter
of 1998. The billing and collections group's expenses were
$0.5 million in the second quarter of 1999 representing a
increase of $0.1 million, or 25.0%, from $0.4 million in the
second quarter of 1998. Selling, general and administrative
costs and expenses for the corporate group were $1.3 million
in the second quarter of 1999, this represented a decrease
of $0.1 million, or 7.1%, from $1.4 in the second quarter of
1998. Approximately $1.8 million related to accounts
receivable sales and subservicing programs costs are
included in selling, general and administrative costs and
expenses for the second quarter of 1999 compared to $0.3
million in the second quarter of 1998.
Selling, general and administrative costs and expenses
of the HMOs declined because the Company sold those
businesses during 1998. There were $0.1 million in selling,
general and administrative costs and expenses, in the second
quarter of 1999, related to wrap-up operations activity for
BHP. DHP reported no selling, general and administrative
costs and expenses in the second quarter 1998. HPSE reported
approximately $3.2 million of selling, general and
administrative costs and expenses in the second quarter
1998.
Related party expense, net. Related party expense, net
increased by $0.14 million, or 233.3%, to $0.2 million in
the second quarter 1999 from $0.06 million in the second
quarter 1998. The increase is primarily related to accounts
payable with affiliates, as well as, lease payments to a
related party .
Other income (expense). Other income (expense)
increased by $0.3 million, or 11.1%, to $3.0 million in the
second quarter of 1999 from $2.7 million in the second
quarter of 1998.
Benefit for income taxes. There was no benefit for
income taxes recorded for the second 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 $4.8 million in the second
quarter of 1999 compared to a net loss of $6.1 million in
the second quarter of 1998.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1998.
Operating Revenue, Net. Net operating revenue for the six
months ended June 30, 1999 was $99.9 million, representing a
decrease of $66.6 million, or 40.0%, from operating revenues
of $166.5 million for the six months ended June 30, 1998.
The changes in operating revenue among the various
businesses were as follows:
6 Months ended June 30
Increase
1999 1998 (Decrease) %
Ongoing businesses $99.9 $100.8 $(0.9) (0.9)%
Divested operations 0.0 65.7 (65.7) (100.0)
$99.9 $166.5 $(66.6) (40.0)%
For the six months June 30, 1999, the physician
contract services business generated approximately $82.1 in
revenue, which was an increase of approximately $0.6
million, or 0.7%, from approximately $81.5 million of
revenue for the six months ended June 30, 1998. Revenue for
the billing and collections operations was $9.0 million for
the six months ended June 30, 1999, which was an increase of
approximately $0.7 million, or 8.4%, from $8.3 million for
the six months ended June 30, 1998 due to growth in the
billing contracts and fees. Revenue of the billing and
collections operations excludes intersegment revenue of
approximately $7.5 million for the six months ended June 30,
1999 and approximately $6.1 million for the six months ended
June 30, 1998 representing fees billed to the physician
contract services business. The government services group
accounted for approximately $8.7 million for the six months
ended June 30, 1999, which was a decline of approximately
$2.3 million, or 20.9%, from $11.0 million for the six
months ended June 30, 1998. The decrease in revenue for the
government services group was directly related to contract
terminations. There were minimal increases, of approximately
$0.1 million, in other miscellaneous revenue during the six
months ended June 30, 1999 compared to the same period for
1998.
There was no revenue from the HMOs for the six months
ended June 30, 1999. DHP, which was sold in March 1998,
generated revenue of approximately $10.0 million for the six
months ended June 30, 1998. HPSE, which was sold in October
1998, generated revenue of approximately $55.7 million for
the six months ended June 30, 1998.
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 $64.3 million,
or 48.1%, to approximately $69.3 million for the six months
ended June 30, 1999 from approximately $133.6 million for
the six months ended June 30, 1998. Physician and other
provider services costs and expenses decreased as follows:
6 months ended June 30,
1999 1998 (Decrease) %
Ongoing businesses $69.3 $73.0 $(3.7) (5.1)%
Divested operations 0.0 60.6 (60.6) (100.0)
$69.3 $133.6 $(64.3) (48.1)%
These expenses for the ongoing businesses decreased
because of overall lower expenses of contracts in the
physician contract services business. For the six months
ended June 30, 1999, physician and other provider services
costs and expenses for the physician contract services group
were approximately $62.2 million. This represented a
decrease of $1.8 million, or 2.8%, from $64.0 million for
the six months ended June 30, 1998. The government services
group's expenses were approximately $7.1 million for the six
months ended June 30, 1999, representing a decrease of
approximately $1.9 million, or 21.1%, from approximately
$9.0 million for the six months ended June 30,1998. The
decrease in physician and other provider services costs and
expenses for the government services group was directly
related to contract terminations. 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 for
the six months ended June 30, 1998. HPSE reported
approximately $51.6 million of physician and other provider
services costs for the six months ended June 30, 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 $1.0 million, or
6.1%, to $17.4 million for the six months ended June 30,
1999 from $16.4 million for the six months ended June 30,
1998. Medical support services costs and expenses increased
as follows:
6 months ended June 30,
1999 1998 Increase %
Ongoing businesses $17.4 $16.1 $1.3 8.1%
Divested operations 0.0 0.3 (0.3) (100.0)
$17.4 $16.4 $1.0 6.1%
For the six months ended June 30, 1999, medical support
services costs and expenses for the physician contract
services group were approximately $3.3 million. This
represented a increase of $0.7 million, or 27.0%, from $2.6
million for the six months ended June 30, 1998. The
government services group's expenses were approximately $0.9
million for the six months ended June 30, 1999, representing
a decrease of approximately $0.4 million, or 30.8%, from
approximately $1.3 million for the six months ended June 30,
1998. The decrease in medical support services costs and
expenses for the government services group was directly
related to contract terminations. The billing and The
billing and collections group's expenses were approximately
$13.2 million for the six months ended June 30, 1999
representing an increase of approximately $1.0 million, or
8.2%, from approximately $12.2 million for the six months
ended June 30, 1998.
Selling, General and Administrative Costs and Expenses.
Selling, general and administrative costs and expenses
decreased by $7.4 million, or 33.5%, to $14.7 million for
the six months ended June 30, 1999 from $22.1 million for
the six months ended June 30, 1998. Selling, general and
administrative costs and expenses decreased as follows:
6 months ended June 30,
1999 1998 (Decrease) %
Ongoing businesses $14.7 $15.1 $(0.4) (2.6)%
Divested operations 0.0 7.0 (7.0) (100.0)
$14.7 $22.1 $(7.4) (33.5)%
For the six months ended June 30, 1999, selling general
and administrative costs and expenses for the physician
contract group were $10.3 million for the six months ended
June 30, 1999, this represented a increase of $0.5 million,
or 5.1%, from $9.8 million for the six months ended June 30,
1998. The government services group's expenses were $0.4
million for the six months ended June 30, 1999, this
represented a decrease of $0.5 million, or 55.6%, from $0.9
million for the six months ended June 30, 1998. The billing
and collections group's expenses were $0.9 million for the
six months ended June 30, 1999 representing a decrease of
$0.2 million, or 18.2%, from $1.1 million for the six months
ended June 30, 1998. Selling, general and administrative
costs and expenses for the corporate group were $3.1 million
for the six months ended June 30, 1999, this represented a
decrease of $0.2 million, or 6.1%, from $3.3 for the six
months ended June 30, 1998. Approximately $3.1 million
related to accounts receivable sales and subservicing
programs costs are included in selling, general and
administrative costs and expenses for the six months ended
June 30, 1999 compared to $2.2 million for the six months
ended June 30, 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 for the
six months ended June 30, 1998. HPSE reported approximately
$6.4 million of selling, general and administrative costs
and expenses for the six months ended June 30, 1998.
Additionally, there were minimal decreases of $.5 million,
in selling, general and administrative costs and expenses
for the six months ended June 30, 1998, related to the HMOs.
Related party expense, net. Related party expense, net
decreased by $0.20 million, or 40.0%, to $0.30 million for
the six months ended June 30, 1999 from $0.50 million for
the six months ended June 30, 1998. The decrease is
primarily due payments made to an affiliate of the Company.
Other income (expense). Other income (expense)
increased by $0.7 million or 15.2%, to $5.3 million for the
six months ended June 30, 1999 from $4.6 million for the six
months ended June 30, 1998.
Benefit for income taxes. There was no benefit for
income taxes recorded for the six months ended June 30, 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 $7.1 million for the six
months ended June 30, 1999 compared to a net loss of $10.7
million for the six months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities increased by $5.1
million, or 63.8%, for the six months ended June 30, 1999,
to $13.1 million as compared to $8.0 million for the six
months ended June 30, 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 provided by investing activities increased
by $7.1 million, or 109.2% for the six months ended June 30,
1999, to $0.6 million from $6.5 million used in investing
activities, for the six months ended June 30, 1998. Net cash
provided by financing activities increased by $1.3 million,
or 10.1%, to $14.2 million for the six months ended June 30,
1999 from $12.9 million for the six months ended June 30,
1998. The increase represented additional funding under the
sales and subservcing agreements with various affiliates of
National Century Financial Enterprises, Inc. ("NCFE").
On June 6, 1997, the Company entered into a series of
sale and subservicing agreements (the "Sale Agreements")
with various subsidiaries of NCFE. The Sale Agreements, as
amended, provide for accounts receivable purchase
commitments totaling $165 million for the purchase of the
Company's healthcare receivables with recourse from third
party payors that meet specified eligibility requirements.
Certain Sale Agreements create facilities for the purchase
of up to $50 million of receivables and terminate on June 1,
2000. The remaining availability for purchases on those
facilities is approximately $20 million as of June 30, 1999.
Another Sale Agreement creates a facility for the purchase
of up to $115 million of receivables and terminates on June
1, 2000. The remaining availability for purchases on this
facility is approximately $38 million as of June 30, 1999.
Pursuant to the Sale Agreement, the Company pays a program
fee ranging from approximately 10.94% to approximately
12.50% per annum on the outstanding amount of uncollected
purchased receivables.
Under a separate loan and security agreement, an
affiliate of NCFE has agreed to provide the Company with a
revolving line of credit of up to $32.5 million through July
1, 2000. Interest on outstanding amounts under this line of
credit is payable monthly at prime plus 4%. The line of
credit is secured by substantially all of the Company's
assets, including pledges of the common stock of each of its
subsidiaries.
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
discussed above, as well as a reduction in cash used in
operations. During the next twelve months the Company
intends to renegotiate, restructure or refinance its
agreement with NCFE or other lenders. The Company continues
to review 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. If the Company is unable to achieve
these objectives, it will likely experience a material
decrease in liquidity which would cause the Company to
increase its reliance on financing under the revolving line
of credit provided by an affiliate of NCFE. Until the
Company significantly improves cash flow, 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: August 18, 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
August 18,1999 Steven M. Scott, M.D. Directors,
President and
Chief Executive Officer
/S/W. Randall Dickerson Executive
Vice President, August 18, 1999
W. Randall Dickerson Chief
Financial Officer and Chief
Accounting Officer
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