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 September 30, 2000
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
PhyAmerica 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 October 31, 2000 there were outstanding 42,968,965
shares of common stock, par value $.01 per share.
PHYAMERICA PHYSICIAN GROUP, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at December 31,1999
and September 30, 2000 (unaudited)
Unaudited Consolidated Statements of Operations -
Three and Nine months ended September 30, 2000 and 1999
Unaudited Consolidated Condensed Statements of Cash Flows
Nine months ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II - OTHER INFORMATION
Item5. Other Information
Item 6. Exhibits and Other Reports
SIGNATURES
PHYAMERICA PHYSICIAN GROUP, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
September December
30, 31,
2000 1999
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ - $ -
Trade accounts receivable, net 25,092 25,113
Reserves held by NCFE 17,108 16,167
Accounts receivable, other 2,272 2,329
Receivables from related party 2,903 1,129
Prepaid expenses and other current 6,214 7,194
assets
Total current assets 53,589 51,932
Property and equipment, at cost, less 7,056 7,651
accumulated depreciation
Excess of cost over fair value of net 20,544 24,158
assets acquired, net
Other assets 4,961 5,042
Total assets $ 86,150 $ 88,783
Liabilities and Shareholders' Equity
(Deficit)
Current liabilities:
Current maturities and other short- $ 819 $ 7,477
term borrowings
Accounts payable 33,841 30,277
Accrued physician fees and medical 17,226 18,429
costs
Accrued expenses 8,943 8,191
Total current liabilities 60,829 64,374
Long-term debt, excluding current 152,026 120,736
maturities
Total liabilities 212,855 185,110
Shareholders' equity (deficit):
Common stock $.01 par value; shares
authorized 100,000; shares
issued and outstanding 42,969 and 430 426
42,573, respectively
Additional paid-in capital 178,340 178,285
Common stock warrants 1,675 1,675
Retained earnings (accumulated (307,150) (276,713)
deficit)
Total shareholders' equity (126,705) (96,327)
(deficit)
Total liabilities and $ 86,150 $ 88,783
shareholders' equity (deficit)
See accompanying notes to consolidated financial statements.
PHYAMERICA PHYSICIAN GROUP, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Three months ended
September 30,
2000 1999
Operating revenue, net $ 81,887 $ 80,032
Costs and expenses:
Physician and other 62,944 66,835
provider services
Medical support services 9,413 8,631
Selling, general and 16,260 11,959
administrative
Related party expense, net 468 746
Total costs and expenses 89,085 88,171
Operating loss (7,198) (8,139)
Other income (expense):
Interest expense (4,377) (4,125)
Interest income 23 45
Other related party (102) (52)
expense, net
Other, net 1,222 (2,904)
Total other expense (3,234) (7,036)
Loss before income taxes (10,432) (15,175)
Income taxes - -
Net loss $ (10,432) $ (15,175)
Net loss per common share:
Basic and diluted loss per $ (0.24) $ (0.40)
share
Shares used to compute loss
per share, basic and 42,764 37,989
diluted
See accompanying notes to consolidated financial
statements.
PHYAMERICA PHYSICIAN GROUP, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Nine months ended
September 30,
2000 1999
Operating revenue, net $ 241,376 $ 179,913
Costs and expenses:
Physician and other 184,688 136,140
provider services
Medical support services 27,121 25,981
Selling, general and 47,281 26,660
administrative
Related party expense, net 1,287 1,043
Total costs and expenses 260,377 189,824
Operating loss (19,001) (9,911)
Other income (expense):
Interest expense (12,321) (9,356)
Interest income 70 124
Other related party (304) (256)
expense, net
Other, net 1,119 (2,872)
Total other expense (11,436) (12,360)
Loss before income taxes (30,437) (22,271)
Income taxes - -
Net loss $ (30,437) $ (22,271)
Net loss per common share:
Basic and diluted loss per $ (0.71) $ (0.59)
share
Shares used to compute loss
per share, basic and 42,656 37,921
diluted
See accompanying notes to consolidated financial
statements.
PHYAMERICA PHYSICIAN GROUP, INC.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
2000 1999
Net cash used in operating $ (23,954) $(30,645)
activities
Cash flows from investing
activities:
Proceeds from sale (purchases) (737) 99
of property and equipment, net
Acquisition of subsidiaries, net -- (20,392)
of cash acquired
Net cash used in investing (737) (20,293)
activities
Cash flows from financing
activities:
Proceeds from borrowing of 24,632 51,903
debt, net of repayments
Net proceeds from issuances of 59 36
common stock
Net cash provided by 24,691 51,939
financing activities
Net increase in cash and 0 1,001
cash equivalents
Cash and cash equivalents at 0 45
beginning of period
Cash and cash equivalents at end of $ 0 $ 1,046
period
Supplemental disclosures of cash
flow information:
Cash payments during the period for:
Interest $ 12,731 $ 9,767
Income taxes 223 421
See accompanying notes to consolidated financial
statements.
PHYAMERICA PHYSICIAN GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying consolidated financial statements of
PhyAmerica 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, 1999. 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,
2000.
(2) Excess of Cost Over Fair Value of Net Assets Acquired
The assets and liabilities of acquired entities
accounted for under the purchase method of accounting are
adjusted to their estimated fair values as of the
acquisition dates. The amounts recorded as excess of cost
over fair value of net assets acquired ("goodwill")
represent amounts paid that exceed estimated fair values
assigned to the assets and liabilities of each acquired
business. Such amounts are being amortized on a straight-
line basis over periods ranging from five to twenty years,
depending on the specific circumstances of each acquisition
Under Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to Be Disposed Of",
management performs an evaluation of the carrying value and
remaining amortization periods of unamortized amounts. In
connection with the ongoing application of SFAS 121,
management performs such an evaluation whenever events or
changes in circumstances occur which indicate such carrying
values may not be recoverable. Management considers the
performance of hospital contracts to be the most important
indicator of possible impairment.
(3) Comprehensive Income
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income", establishes rules for the
reporting and display of comprehensive income or loss and
its components. This Statement requires that unrealized
gains or losses on the Company's available-for-sale
securities be included in other comprehensive income. For
the three and nine months ended September 30, 2000 and 1999,
comprehensive income is equal to the Company's net loss.
(4) Segment Information
During the three and nine months ended September 30, 2000
and 1999, the Company had four reportable segments:
emergency physician management, government services, billing
and business management services and divested businesses.
The emergency physician management 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
emergency physician management, 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 business
management 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 emergency physician management and
are also marketed independently to unaffiliated providers.
Divested businesses consist of 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. "All other" also
includes amounts related to eliminations.
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 September 30, 2000
Emergency Total
PhysicianGov't Divested Reportable All
(In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals
Revenue from external sources$70,391$6,230 $5,278 $ -$81,899 $(12)
$81,887
Intersegment revenues - - 6,303 - 6,303 - 6,303
Interest expense 2,695 1,900 32 - 4,627(250)4,377
Depreciation and amortization1,371 8 322 -1,701 42 1,743
Segment profit (loss)(5,475)(839)384 5 (5,925)(4,507)(10,432)
Segment assets $65,140 $4,318$13,028$2,438$84,924$1,226$86,150
Quarter ended September 30, 1999
Emergency Total
PhysicianGov't Divested Reportable All
(In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals
Revenue from external sources$70,743$4,542 $4,744$ --$80,029 $3 $80,032
Intersegment revenues-- -- 3,930 -- 3,930 -- 3,930
Interest expense 3,213 906 -- -- 4,119 6 4,125
Depreciation and amortization1,322 6 160 --1,488 33 1,521
Segment profit (loss)(12,207)(608)1,211(47)(11,651)(3,524)(15,175)
Segment assets $76,063 $2,833$11,030$2,479$92,405$6,254$98,659
Nine months ended September 30, 2000
Emergency Total
PhysicianGov't Divested Reportable All
(In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals
Revenue from external sources$210,660$15,358$15,393$ -$241,411 $(35)
$241,376
Intersegment revenues - -19,784 - 19,784 -19,784
Interest expense 8,564 3,852 189 - 12,605(284)12,321
Depreciation and amortization4,11521 729 14,866 102 4,968
Segment profit (loss)(21,486)(1,952) 3,501 5(19,932)(10,505) (30,437)
Segment assets $65,140 $4,318$13,028$2,438 $84,924
$1,226 $86,150
Nine months ended September 30, 1999
Emergency Total
PhysicianGov't Divested Reportable All
(In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals
Revenue from external sources$152,930$13,239$13,744$ --$179,913 $- $179,913
Intersegment revenues-- --11,433 -- 11,433 --11,433
Interest expense 6,583 2,494 -- -- 9,077 279 9,356
Depreciation and amortization1,52022 540 22,084 112 2,196
Segment profit (loss)(16,317)(1,924) 3,698 (43)(14,586)(7,685) (22,271)
Segment assets $76,063 $2,833$11,030$2,479$92,405$6,254$98,659
(5) Recently Issued Accounting Pronouncements
Effective for fiscal quarters in 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 will evaluate the impact
of the statement on the Company's financial position and
results of operations and adopt SFAS 133 as required.
In December 1999, the SEC staff released Staff Accounting
Bulletin No. 101 ("SAB 101"), which provides guidance on the
recognition, presentation and disclosure of revenue in
financial statements. The Company will evaluate the impact
of the bulletin on the Company's financial position and
results of operations and adopt SAB 101 as required in the
fourth quarter of 2000.
In September 2000, the FASB issued Statement of Financial
Accounting Standards No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities (A Replacement of FASB Statement 125)"("SFAS
140"). SFAS 140 provides the accounting and reporting
guidance for transfers and servicing of financial assets and
extinguishments of liabilities. While most of the provisions
of SFAS 140 will become effective for transactions entered
into after March 31, 2001, the disclosures in SFAS 140 will
be effective for fiscal years ending after December 15,
2000. The Company is in the process of evaluating the impact
that this pronouncement will have on its financial position
or results of operations.
PHYAMERICA PHYSICIAN GROUP, INC.
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
RESULTS OF OPERATIONS
THIRD QUARTER ENDED SEPTEMBER 30, 2000 COMPARED TO THE THIRD
QUARTER ENDED SEPTEMBER 30, 1999.
During 1998, the Company completed its divestiture strategy.
The objective of the divestiture strategy was to identify
operating units that were either underperforming or were not
deemed critical to the overall operating strategy. 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.
Collectively, these businesses are referred to as the HMOs.
During 1997, the Company also sold the last of its clinic
operations. The Company refers to the HMOs, clinic
operations and some smaller related businesses as the
divested businesses. The core businesses are comprised of
emergency medicine practice management, government services
and medical billing and business management services.
In July 1999, in order to expand its Emergency
Physician Management business, the Company acquired the
hospital emergency department staffing assets of Sterling
Healthcare, Inc. ("Sterling"), a subsidiary of FPA Medical
Management, Inc., which was in a Chapter 11 proceeding under
the United States Bankruptcy Code, for a purchase price of
approximately $69.3 million plus assumption of up to $18
million in operating liabilities. In addition, on December
14, 1999 the Company increased the size of its Billing and
Business Management business by approximately 25% when
Healthcare Business Resources, Inc. ("HBR"), a subsidiary of
the Company, acquired from a subsidiary of Per Se
Technologies, Inc. the assets used in providing billing
services for the hospital staffing contracts acquired in the
Sterling Acquisition (the "Per Se Acquisition"). The
acquisitions were accounted for in accordance with the
purchase method of accounting, and, therefore, the results
of operations for the acquired operations are included in
the accompanying financial statements since the acquisition
date.
Operating Revenue, Net. Net operating revenue in the
third quarter of 2000 was $81.9 million, representing an
increase of $1.9 million, or 2.4 %, from operating revenues
of $80.0 million in the third quarter of 1999. The increase
in operating revenue in the Company's core businesses were:
Three Months Ended September 30,
2000 1999 %
Increase
Core businesses $81.9 $80.0 $1.9 2.4%
Divested 0.0 0.0 0.0 0.0%
businesses
$81.9 $80.0 $1.9 2.4%
The increase in the revenue of the core businesses was
due to growth in the government services group and the
billing and collections operations, as well as the Per Se
acquisition during the fourth quarter of 1999. In the third
quarter of 2000, the emergency physician management business
generated approximately $70.4 in revenue, which was a
decrease of approximately $0.4 million, or 0.6%, from
approximately $70.8 million of revenue in the third quarter
of 1999. Sterling accounted for approximately $29.5 million
of the revenue in the emergency physician management
business for the third quarter 2000 versus $31.4 million for
the third quarter 1999. The government services group
accounted for approximately $6.2 million in the third
quarter of 2000, which was an increase of approximately $1.7
million, or 37.8%, from $4.5 million in the third quarter of
1999. The increase in revenue for the government services
group was directly related to the addition of new contracts
in the third quarter 2000. Revenue for the billing and
collections operations was $5.3 million for the third
quarter of 2000, which was an increase of approximately $0.6
million, or 12.8%, from $4.7 million in the third quarter of
1999. . Revenue of the billing and business management
operations excludes intersegment revenue of approximately
$6.3 million in the third quarter of 2000 and approximately
$3.9 million in the third quarter 1999 representing fees
billed to the emergency physician management business. Per
Se accounted for approximately $2.0 million of gross revenue
for the billing and business management operations, before
the exclusion of intersegment revenue, for the third quarter
2000
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 $3.9
million, or 5.8%, to approximately $62.9 million in the
third quarter of 2000 from approximately $66.8 million in
the third quarter of 1999. Physician and other provider
services costs and expenses decreased as follows:
Three Months Ended September 30,
2000 1999 %
Decrease
Core businesses $62.9 $66.8 ($3.9) 5.8%
Divested 0.0 0.0 0.0 0.0%
businesses
$62.9 $66.8 ($3.9) 5.8%
These expenses for the core businesses decreased
because of terminated contracts in the emergency physician
management group offset by growth in the government services
group. In the third quarter of 2000, physician and other
provider services costs and expenses for the emergency
physician management group were approximately $57.9 million.
This represented a decrease of $5.3 million, or 8.4%, from
$63.2 million in the third quarter of 1999. Sterling
accounted for approximately $26.0 million of the physician
and other provider services costs and expenses for the third
quarter 2000 versus $31.9 million for the third quarter
1999. The government services group's expenses were
approximately $5.1 million in the third quarter of 2000,
representing an increase of approximately $1.5 million, or
41.7%, from approximately $3.6 million in the third quarter
of 1999. The increase in physician and other provider
services costs and expenses for the government services
group is directly related to the addition of new contracts
in the third quarter 2000. The billing and business
management operations did not incur physician and other
provider services costs and expenses.
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 $0.8 million, or
9.3%, to $9.4 million in the third quarter of 2000 from $8.6
million in the third quarter of 1999. Medical support
services costs and expenses increased as follows:
Three Months Ended September 30,
2000 1999 Increase %
Core businesses $9.4 $8.6 $0.8 9.3%
Divested 0.0 0.0 0.0 0.0%
businesses
$9.4 $8.6 $0.8 9.3%
In the third quarter of 2000, medical support services
costs and expenses for the emergency physician management
group were approximately $1.0 million. This represented a
decrease of $0.1 million, or 9.1%, from $1.1 million in the
third quarter of 1999. Sterling accounted for $0.5 million
of the medical support services costs and expenses for the
emergency physician management group for the third quarter
of 2000 and 1999. The government services group's expenses
were approximately $0.5 million in the third quarter of 2000
and 1999. The billing and business management group's
expenses were approximately $7.9 million in the third
quarter of 2000 representing an increase of approximately
$0.9 million, or 12.9%, from approximately $7.0 million in
the third quarter of 1999. The increase in medical support
services costs and expenses for the billing and business
management group is due to start-up expenses related to
preparation for servicing additional outside clients.
Selling, General and Administrative Costs and Expenses.
Selling, general and administrative costs and expenses
increased by $4.3 million, or 35.8%, to $16.3 million in the
third quarter of 2000 from $12.0 million in the third
quarter of 1999. Selling, general and administrative costs
and expenses increased as follows:
Three Months Ended September 30,
2000 1999 %
Increase
Core businesses $16.3 $12.0 $4.3 35.8%
Divested 0.0 0.0 0.0 100.0
businesses
$16.3 $12.0 $4.3 35.8%
Selling, general and administrative costs and expenses
for the core businesses increased primarily because of the
Per Se acquisition, and increases in overhead. In the third
quarter of 2000, selling, general and administrative costs
and expenses for the Physician Contract group were
approximately $8.3 million. This represented a decrease of
$2.0 million, or 19.4%, from $10.3 million in the third
quarter of 1999. . Sterling accounted for approximately
$2.3 million of the selling, general and administrative cost
and expenses for the Physician Contract group for the third
quarter 2000 versus $3.9 million for the third quarter 1999.
The decrease in selling, general and administrative costs
and expenses for the Physician Contract group is related to
contract termination and the cost associated with the sale
of eligible accounts receivable. The government services
group's expenses were approximately negative $0.5 million
for the nine months ended September 30, 2000, this
represented a decrease of $0.6 million or 600%, from
approximately $0.1 million in the third quarter of 1999.
The decrease in selling, general and administrative costs
and expenses for the government services group is primarily
due to the cost associated with the sale of eligible
accounts receivable. The billing and business management
group's expenses were approximately $3.2 million in the
third quarter of 2000 representing an increase of
approximately $2.7 million, or 540.0%, from approximately
$0.5 million in the third quarter of 1999. Per Se accounted
for approximately $2.5 million of the selling, general and
administrative expenses for the billing and business
management group for the third quarter 2000. Selling,
general and administrative costs and expenses for the
corporate group increased to approximately $5.3 million in
the third quarter of 2000 representing an increase of
approximately $4.2 million, or 381.8%, from approximately
$1.1 million in the third quarter of 1999. The increase in
selling, general and administrative costs and expenses for
the corporate group increased primarily due to the cost
associated with the sale of eligible accounts receivable as
well as increased legal and overhead expenses.
Related party expense, net. Related party expense, net
decreased by $0.2 million, or 28.6%, to $0.5 million in the
third quarter of 2000 from $0.7 million in the third quarter
of 1999. This decrease is primarily due to reductions in
premium expense to a related party and the discontinuation
of management fee income from a related party.
Interest Expense. Interest expense increased by $0.2
million, or 4.8%, to $4.4 million in the third quarter of
2000 from $4.2 million in the third quarter of 1999 due
primarily to higher amounts of outstanding debt during the
third quarter of 2000. The costs associated with the sale
of eligible accounts receivable in the third quarter of 2000
and 1999 have been included in selling, general and
administrative expenses.
Other expenses. Other expenses decreased by $3.8
million or 54.3%, to $3.2 million in the third quarter of
2000 from $7.0 million in the third quarter of 1999,
primarily due to the settlement of prior litigation in the
third quarter 2000 and non-repetitive legal accruals
recognized during the third quarter 1999.
Benefit (provision) for income taxes. There was no
benefit (provision) for income taxes for the third quarter
of 2000 and 1999. This is due to continued net operating
losses.
Net Loss. Primarily as a result of the foregoing, the
Company reported a net loss of $10.4 million in the third
quarter of 2000 compared to a net loss of $15.2 million in
the third quarter of 1999.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THE NINE
MONTHS ENDED SEPTEMBER 30, 1999.
Operating Revenue, Net. Net operating revenue for the
nine months ended September 30, 2000 was $241.4 million,
representing an increase of $61.5 million, or 34.2 %, from
operating revenue of
$179.9 million for the nine months ended September 30, 1999.
The increases in operating revenue among the various
businesses were as follows:
Nine Months Ended September 30,
2000 1999 %
Increase
Core businesses $241.4 $179.9 $61.5 34.2%
Divested 0.0 0.0 0.0 0.0%
businesses
$241.4 $179.9 $61.5 34.2%
The increase in the revenue of the core businesses was
due to growth in the government services group and the
billing and collections operations, as well as the Sterling
and Per Se acquisitions. For the nine months ended September
30, 2000, the emergency physician management business
generated approximately $210.7 in revenue, which was an
increase of approximately $57.8 million, or 37.8%, from
approximately $152.9 million of revenue for the nine months
ended September 30, 1999. Sterling accounted for
approximately $89.4 million of the revenue in the emergency
physician management business for the nine months ended
September 30, 2000 versus $31.4 million for the nine months
ended September 30, 1999. The government services group
accounted for approximately $15.3 million for the nine
months ended September 30, 2000, which was an increase of
approximately $2.1 million, or 15.9%, from $13.2 million for
the nine months ended September 30, 1999. Revenue for the
billing and collection operations was $15.4 million for the
nine months ended September 30, 2000, which was an increase
of approximately $1.6 million, or 11.6%, from $13.8 million
for the nine months ended September 30, 1999. Revenue of the
billing and business management operations excludes
intersegment revenue of approximately $19.8 million for the
nine months ended September 30, 2000 and approximately $11.4
million for the nine months ended September 30, 1999,
representing fees billed to the emergency physician
management business. Per Se accounted for approximately $6.6
million of the gross revenue for the billing and business
management operations, before the exclusion of intersegment
revenue, for the nine months ended September 30, 2000.
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 increased by approximately $48.6
million, or 35.7%, to approximately $184.7 million for the
nine months ended September 30, 2000 from approximately
$136.1 million for the nine months ended September 30,1999.
Physician and other provider services costs and expenses
increased as follows:
Nine Months Ended September 30,
2000 1999 Increase %
Core businesses $184.7 $136.1 $48.6 35.7%
Divested 0.0 0.0 0.0 0.0%
businesses
$184.7 $136.1 $48.6 35.7%
These expenses for the core businesses increased mostly
because of the Sterling acquisition and growth in the
government services group, which were offset by terminated
contracts in the emergency physician management group. For
the nine months ended September 30, 2000, physician and
other provider services costs and expenses for the emergency
physician management group were approximately $172.5
million. This represented an increase of $47.1 million, or
37.6%, from $125.4 million for the nine months ended
September 30, 1999. Sterling accounted for approximately
$78.7 million of the physician and other provider services
costs and expenses for the nine months ended September 30,
2000 versus $31.9 million for the nine months ended
September 30, 1999. The government services group expenses
were approximately $12.2 million for the nine months ended
September 30, 2000, which was an increase of approximately
$1.5 million, or 14.0%, from $10.7 million for the nine
months ended September 30, 1999. The billing and business
management operations did not incur physician and other
provider services costs and expenses.
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 $1.1 million, or
4.2%, to $27.1 million for the nine months ended September
30, 2000 from $26.0 million for the nine months ended
September 30, 1999. Medical support services costs and
expenses increased as follows:
Nine Months Ended September 30,
2000 1999 Increase %
Core businesses $27.1 $26.0 $1.1 4.2%
Divested 0.0 0.0 0.0 0.0%
businesses
$27.1 $26.0 $1.1 4.2%
The increase in the medical support services costs and
expenses of the core businesses was due to growth in the
government services group and the billing and collections
operations, as well as the Sterling and Per Se acquisitions.
For the nine months ended September 30, 2000, medical
support services costs and expenses for the emergency
physician management group were approximately $3.0 million.
This represented a decrease of $1.5 million, or 33.3%, from
$4.5 million for the nine months ended September 30,1999.
Sterling accounted for approximately $2.1 million of the
medical support services costs and expenses for the
emergency physician management group for the nine months
ended September 30, 2000 versus $0.6 million for the nine
months ended September 30, 1999. The government services
group's expenses were approximately $1.4 million for the
nine months ended September 30, 2000 and September 30, 1999.
The billing and business management group's expenses were
approximately $22.7 million for the nine months ended
September 30, 2000 representing an increase of approximately
$2.6 million, or 12.9%, from approximately $20.1 million for
the nine months ended September 30, 1999.
Selling, General and Administrative Costs and Expenses.
Selling, general and administrative costs and expenses
increased by $20.6 million, or 77.2%, to $47.3 million for
the nine months ended September 30, 2000 from $26.7 million
for the nine months ended September 30, 1999. Selling,
general and administrative costs and expenses increased as
follows:
Nine Months Ended September 30,
2000 1999 Increase %
Core businesses $47.3 $26.6 $20.7 77.8%
Divested 0.0 0.1 0.0 0.0
businesses
$47.3 $26.7 $20.6 77.2%
Selling, general and administrative costs and expenses
for the core businesses increased primarily because of the
Sterling and Per Se acquisitions, and increases in overhead.
For the nine months ended September 30, 2000, selling,
general and administrative costs and expenses for the
Physician Contract group were approximately $28.9 million.
This represented an increase of $8.2 million, or 39.6%,
from $20.7 million for the nine months ended September 30,
1999. Sterling accounted for approximately $11.5 million of
the selling, general and administrative cost and expenses
for the physician contract group for the nine month ended
September 30, 2000 versus $3.9 million for the nine months
September 30, 1999. The increase in selling, general and
administrative costs and expenses for the Physician Contract
group is related to the cost associated with the sale of
eligible accounts receivable, goodwill associated with the
Sterling acquisition and increases in overhead expenses. The
government services group's expenses were approximately a
negative $0.2 million for the nine months ended September
30, 2000 representing a decrease of approximately $0.8
million, or 133.3%, from approximately $0.6 million for the
nine months ended September 30, 1999. The decrease in
selling, general and administrative costs and expenses for
the government services group is primarily due to the cost
associated with the sale of eligible accounts receivable.
The billing and business management group's expenses were
approximately $8.7 million for the nine months ended
September 30, 2000 representing an increase of approximately
$7.4 million, or 569.2%, from approximately $1.3 million for
the nine months ended September 30, 1999. Per Se accounted
for approximately $7.0 million of the selling, general and
administrative expenses for the billing and business
management group for the nine months ended September 30,
2000. Selling, general and administrative costs and expenses
for the corporate group increased to approximately $9.9
million for the nine months ended September 30, 2000
representing an increase of approximately $5.9 million, or
147.5%, from approximately $4.0 million for the nine months
ended September 30, 1999. The increase in selling, general
and administrative costs and expenses for the corporate
group increased primarily due to the cost associated with
the sale of eligible accounts receivable as well as
increased legal and overhead expenses. For the nine months
ended September 30, 1999, there were approximately $0.1
million in selling, general and administrative costs
associated with continued wrap-up activities for divested
businesses.
Related party expense, net. Related party expense, net
increased by $0.3 million, or 30.0%, to $1.3 million for the
nine months ended September 30, 2000 from $1.0 million for
the nine months ended September 30, 1999. This increase is
primarily due to rent, premium and other miscellaneous
expenses to related parties, offset by decreases related to
the discontinuation of management fee income from a related
party.
Interest Expense. Interest expense increased by $2.9
million, or 30.9%, to $12.3 million for the nine months
ended September 30, 2000 from $9.4 million for the nine
months ended September 30, 1999 due primarily to higher
amounts of outstanding debt during the nine months ended
September 30, 2000. The costs associated with the sale of
eligible accounts receivable for the nine months ended
September 30, 2000 and 1999 have been included in selling,
general and administrative expenses.
Other expenses. Other expenses decreased by $1.0
million or 8.1%, to $11.4 million for the nine months ended
September 30, 2000 from $12.4 million for the nine months
ended September 30, 1999, primarily due to the settlement of
prior litigation in the third quarter 2000 and non-
repetitive legal accruals recognized during the third
quarter 1999, partially offset by the increase in interest
expense described above.
Benefit (provision) for income taxes. There was no
benefit (provision) for income taxes for the nine months
ended September 30, 2000 and 1999. This is due to continued
net operating losses.
Net Loss. Primarily as a result of the foregoing, the
Company reported a net loss of $30.4 million for the nine
months ended September 30, 2000 compared to a net loss of
$22.3 million for the nine months ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary financing source consists of
three accounts receivable sale programs with affiliates of
NCFE. Under these programs, NCFE purchases qualified
receivables generated by the Company or acquired by the
Company from independent contractor physicians. The
proceeds from these sales are used to fund the Company's
working capital needs. One program purchases receivables
generated by the hospital contracts of the Company other
than those acquired in the Sterling Acquisition (the
"Coastal Program"), one program purchases receivables
generated by the hospital contracts acquired in the Sterling
Acquisition (the "Sterling Program"), and a third program
purchases receivables generated in the Government Services
business (the "Government Program"). The Emergency
Physician Management business and the Government Services
business have not been able to generate sufficient
receivables to sell to the programs to finance the ongoing
working capital needs of the Company. NCFE has supported
the Company by funding the purchase of receivables billed by
the Company and those to be billed in the future by the
Company. As of September 30, 2000, the Company had
outstanding advances of approximately $230 million of
receivables financing, net of reserves held on the
outstanding balances of which approximately $81 million
related to billed receivables and approximately $149 million
of which related to future receivables. Financing related to
the purchase of future receivables is reflected as long-term
debt in the accompanying financial statements. The Coastal
Program provides for the purchase of up to $115 million of
receivables and terminates on June 30, 2001. The Sterling
Program provides for the purchase of up to $95 million of
receivables and terminates on June 30, 2003. The Government
Program provides for the purchase of up to $50 million of
receivables and terminates on June 30, 2001. Management
expects to renew the funding of the Coastal Program
by rolling the amounts into the Sterling Program and the
Government Program. This will be reflected in new Sale
and Subservicing Agreements being prepared by NCFE.
The agreement should maintain the current purchase
commitment level and will extend the term to June 30,
2002. Of the total purchase commitments of $260 million on
these facilities, including reserve balances there is no
remaining availability for purchases as of September 30,
2000. Pursuant to the Sale Agreement, the Company pays a
program fee ranging from approximately 10.8% to
approximately 12.50% per annum on the outstanding amount of
uncollected purchased current and future receivables. The
Company also borrowed $6.7 million from NCFE under a note
dated December 14, 1999. The funds were used to terminate
the billing agreement with a subsidiary of Per Se
Technologies, Inc. and to acquire certain of its billing
operations in December 1999. The note was repaid in full in
September, 2000 via the payment of nine monthly installments
which began on January 14, 2000, including interest at 13%
per annum.
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 $20 million through June
30, 2001. Interest on outstanding amounts under this line
of credit is payable monthly at prime plus 3%. 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. There is no outstanding balance as of
September 30, 2000.
The Company has met its cash requirements during the
periods covered by the accompanying consolidated financial
statements through the sale of certain existing accounts
receivable and advances against receivables expected to be
generated in the future, as more fully discussed below. The
Company's principal uses of cash have been to support
operating activities. Net cash used in operating activities
decreased by $6.6 million, or 21.6%, for the nine months
ended September 30, 2000, to $24.0 million as compared to
$30.6 million for the nine months ended September 30, 1999.
The Company's net use of cash to support operating
activities resulted primarily from operating losses,
including medical costs of providers, administrative
expenses, legal and professional fees and information
technology initiatives. Net cash used in investing
activities decreased by $19.6 million, or 96.6%, for the
nine months ended September 30, 2000, to $0.7 million as
compared to $20.3 million for the nine months ended
September 30, 1999. Net cash provided by financing
activities decreased by $27.2 million, or 52.4%, to $24.7
million for the nine months ended September 30, 2000, from
$51.9 million for the nine months ended September 30, 1999.
During the nine months ended September 30, 2000, the
Company had net borrowings of $24.6 million as compared
to $51.9 million for the nine months ended September 30,
2000.
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. 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 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.
For the foreseeable future, to continue as a going
concern, the Company will depend upon NCFE to fund its
working capital needs either by purchases of current and
future accounts receivable or through the line of credit.
The Company's accounts receivables sales programs and line
of credit with NCFE have been or will be extended to June
30, 2001 and beyond. Management believes that NCFE will be
able to fulfill the Company's needs. The consolidated
financial statements do not include any adjustments to the
financial statements that might be necessary should NCFE not
provide the necessary working capital or should the Company
be unable to continue as a going concern.
Quantitative and Qualitative Disclosures About Market Risk.
The table below provides quantitative disclosure information
about the Company's market risk sensitive instruments as of
September 30, 2000 and December 31, 1999. The market risk
sensitive instruments are categorized as instruments entered
into for other than trading purposes. The Company's primary
market risk exposure is associated with debt obligations
arising from three accounts receivable sale programs with
affiliates of NCFE, and a note payable to NCFE. These debt
obligations are maintained at fixed interest rates. The
details on how these programs are managed are described in
the preceding section on Liquidity and Capital Resources.
The information is presented in U.S. dollar equivalents,
which is the Company's reporting currency.
Liabilities
September 30, December 31,
2000 1999
Long-term Debt
Fixed Rate $152,845 $128,213
Weighted Average 11.29% 11.29%
Interest Rate
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 5
On September 19, 2000, the company filled two vacancies on
the Board of Directors by appointing Mr. Fred Jinks and Mr.
Ernest Bacon to the Board to complete the unexpired terms of
two former directors. Mr. Jinks, 49, is a resident of
Wilmington, North Carolina, and is a former Financial
Consultant and First Vice President of Merrill Lynch, Pierce
Fenner & Smith, where he worked for over 20 years. He is a
past member of the President's Club, Chairman's Club, Circle
of Excellence and retired as a member of the Director's
Circle of Merrill Lynch. Mr. Bacon, 63, is a resident of
Franklin, Tennessee, and is a former executive of
HealthTrust, Inc., Columbia/HCA Healthcare Corporation and
Community Health Systems, and most recently has worked with
a number of Quorum Health Group Affiliated Companies.
The company's chairman, chief executive officer and
majority shareholder, Steven M. Scott, M.D., has made a
proposal dated November 6, 2000 to acquire, through a cash
out merger transaction, the approximately 43% of the
Company's outstanding common stock that is not owned or
controlled by him or his family members or affiliates. The
consummation of the offer would mean that PhyAmerica would
become a privately held company. The proposed offer price
is equivalent to $0.15 per share in cash or an aggregate
price of approximately $2.76 million.
In response to the offer by Dr. Scott, the Company's
Board of Directors has appointed three outside directors to
a Special Committee to review and evaluate the terms of the
proposal and make a full recommendation to the Board. The
members of the Special Committee are Mr. Jinks, Mr. Bacon
and Mr. Charles Potter, who has served on the Board since
April, 1977. The consummation of the proposed transaction
to take the Company private would be subject to, among other
things, the negotiation of a mutually acceptable definitive
merger agreement and the approval of the merger agreement by
the holders of a majority of outstanding shares of the
Company's common stock at a Special Meeting of the
Shareholders. The Special Committee will also engage
independent legal counsel and independent financial advisors
to advise it in connection with its review and evaluation of
the proposal. If the Special Committee recommends approval
of the proposal, the Company will furnish a detailed proxy
statement to the shareholders.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
SIGNATURES
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.
PHYAMERICA PHYSICIAN GROUP, INC.
(Registrant)
Name Title Date
/S/Steven M. Scott, M.D. Chairman of the Board of November 15, 2000
Steven M. Scott, M.D. Directors, President and
Chief Executive Officer
/S/Marc Weiner Interim Chief Financial November 15,2000
Marc Weiner Officer and Executive
Vice President
