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, 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 July 31, 2000 there were outstanding 42,761,284 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 June 30, 2000 (unaudited)
Unaudited Consolidated Statements of Operations -
Three and Six months ended June 30, 2000 and 1999
Unaudited Consolidated Condensed Statements of Cash Flows
Six months ended June 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
Item 6. Exhibits and Other Reports
SIGNATURES
PHYAMERICA PHYSICIAN GROUP, INC.
Consolidated Balance Sheets
(In thousands, except per share data)
June 30, December
31,
2000 1999
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ - $ -
Trade accounts receivable, net 24,728 25,113
Reserves held by NCFE 15,846 16,167
Accounts receivable, other 2,401 2,329
Receivables from related party 730 1,129
Prepaid expenses and other current 6,289 7,194
assets
Total current assets 49,994 51,932
Property and equipment, at cost, less 7,395 7,651
accumulated depreciation
Excess of cost over fair value of net 21,749 24,158
assets acquired, net
Other assets 5,129 5,042
Total assets $ 84,267 $ 88,783
Liabilities and Shareholders' Equity
(Deficit)
Current liabilities:
Current maturities and other short- $ 3,109 $ 7,477
term borrowings
Accounts payable 25,964 30,277
Accrued physician fees and medical 17,032 18,429
costs
Accrued expenses 8,090 8,191
Total current liabilities 54,195 64,374
Long-term debt, excluding current 146,374 120,736
maturities
Total liabilities 200,569 185,110
Shareholders' equity (deficit):
Common stock $.01 par value; shares
authorized 100,000; shares
issued and outstanding 42,761 428 426
and 42,573, respectively
Additional paid-in capital 178,313 178,285
Common stock warrants 1,675 1,675
Retained earnings (accumulated (296,718) (276,713)
deficit)
Total shareholders' equity (116,302) (96,327)
(deficit)
Total liabilities and $ 84,267 $ 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
June 30,
2000 1999
Operating revenue, net $ 80,834 $ 49,186
Costs and expenses:
Physician and other 60,634 34,398
provider services
Medical support services 8,983 8,919
Selling, general and 15,532 7,451
administrative
Related party expense, net 415 207
Total costs and expenses 85,564 50,975
Operating loss (4,730) (1,789)
Other income (expense):
Interest expense (4,064) (2,802)
Interest income 30 16
Other related party income (101) (90)
expense, net
Other, net (76) (95)
Total other expense (4,211) (2,971)
Loss before income taxes (8,941) (4,760)
Income taxes - -
Net loss $ (8,941) $ (4,760)
Net loss per common share:
Basic and diluted loss per $ (0.21) $ (0.13)
share
Shares used to compute loss
per share, basic and 42,631 37,943
diluted
See accompanying notes to consolidated financial
statements.
PHYAMERICA PHYSICIAN GROUP, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Six months ended
June 30,
2000 1999
Operating revenue, net $ 159,489 $ 99,881
Costs and expenses:
Physician and other 121,744 69,305
provider services
Medical support services 17,708 17,350
Selling, general and 31,021 14,701
administrative
Related party expense, net 819 297
Total costs and expenses 171,292 101,653
Operating loss (11,803) (1,772)
Other income (expense):
Interest expense (7,944) (5,231)
Interest income 47 79
Other related party (202) (204)
expense, net
Other, net (103) 32
Total other expense (8,202) (5,324)
Loss before income taxes (20,005) (7,096)
Income taxes - -
Net loss $ (20,005) $ (7,096)
Net loss per common share:
Basic and diluted loss per $ (0.47) $ (0.19)
share
Shares used to compute loss
per share, basic and 42,601 37,888
diluted
See accompanying notes to consolidated financial
statements.
PHYAMERICA PHYSICIAN GROUP, INC.
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
2000 1999
Net cash used in operating $ (20,762) $ (13,102)
activities
Cash flows from investing
activities:
Proceeds from sale (Purchases) (538) 562
of property and equipment, net
Net cash (used in) (538) 562
provided by investing activities
Cash flows from financing
activities:
Proceeds from borrowing of 21,270 14,147
debt, net of repayments
Net proceeds from issuances of 30 11
common stock
Net cash provided by 21,300 14,158
financing activities
Net increase in cash and 0 1,618
cash equivalents
Cash and cash equivalents at 0 45
beginning of period
Cash and cash equivalents at end of $ 0 $ 1,663
period
Supplemental disclosures of cash
flow information:
Cash payments during the period
for:
Interest $ 8,216 $ 5,504
Income taxes 213 221
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 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
six months ended June 30, 2000 and 1999, comprehensive
income is equal to the Company's net loss.
(4) Segment Information
During the three and six months ended June 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 June 30, 2000
Emergency Total
PhysicianGov't Divested Reportable All
(In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals
Revenue from external sources$71,016$4,654 $5,205 $ -$80,875 $(41)
$80,834
Intersegment revenues - - 7,009 - 7,009 - 7,009
Interest expense 2,976 1,040 64 - 4,080(16) 4,064
Depreciation and amortization1,371 7 204 11,583 32 1,615
Segment profit (loss)(6,800)(483)1,830 2 (5,451)(3,490)(8,941)
Segment assets $65,128 $3,607$14,128$2,426$85,289$(1,022)$84,267
Quarter ended June 30, 1999
Emergency Total
PhysicianGov't Divested Reportable All
(In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals
Revenue from external sources$40,177$4,335 $4,656$ --$49,168 $18 $49,186
Intersegment revenues-- -- 3,959 -- 3,959 -- 3,959
Interest expense 1,727 846 -- -- 2,573 229 2,802
Depreciation and amortization94 6 184 -- 284 35 319
Segment profit (loss)(3,234)(681)1,397 25 (2,493)(2,267)(4,760)
Segment assets $31,654 $2,777$10,810$2,371$47,612$10,986$58,598
Six months ended June 30, 2000
Emergency Total
PhysicianGov't Divested Reportable All
(In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals
Revenue from external sources$140,269$9,128$10,115 $ -$159,512 $(23)
$159,489
Intersegment revenues - -13,481 - 13,481 -13,481
Interest expense 5,869 1,952 157 - 7,978(34) 7,944
Depreciation and amortization2,74413 407 13,165 60 3,225
Segment profit (loss)(16,011)(1,113) 3,117 -(14,007)(5,998) (20,005)
Segment assets $65,128 $3,607$14,128$2,426 $85,289
$(1,022) $84,267
Six months ended June 30, 1999
Emergency Total
PhysicianGov't Divested Reportable All
(In Thousands) ManagementServices BillingSegmentsSegmentsOther Totals
Revenue from external sources$82,149$8,697 $9,001$ --$99,847 $34 $99,881
Intersegment revenues-- -- 7,503 -- 7,503 -- 7,503
Interest expense 3,369 1,589 -- -- 4,958 273 5,231
Depreciation and amortization198 15 381 1 595 78 673
Segment profit (loss)(4,108)(1,316)2,487 4 (2,933)(4,163)(7,096)
Segment assets $31,654 $2,777$10,810$2,371$47,612$10,986$58,598
(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 does not believe that
this pronouncement will have a material impact 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
SECOND QUARTER ENDED JUNE 30, 2000 COMPARED TO THE SECOND
QUARTER ENDED JUNE 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
second quarter of 2000 was $80.8 million, representing an
increase of $31.6 million, or 64.2 %, from operating
revenues of $49.2 million in the second quarter of 1999.
The increases in operating revenue in the Company's core
businesses were:
Three Months Ended June 30,
2000 1999 %
Increase
Core businesses $80.8 $49.2 $31.6 64.2%
Divested 0.0 0.0 0.0 0.0%
businesses
$80.8 $49.2 $31.6 64.2%
The increase in the revenue of the core businesses was
due mostly to the Sterling Acquisition. In the second
quarter of 2000, the emergency physician management
business generated approximately $71.0 in revenue, which was
an increase of approximately $30.8 million, or 76.6%, from
approximately $40.2 million of revenue in the second quarter
of 1999. Approximately $29.8 of this increase was
attributable to Sterling, with the remaining increase
attributed to non-Sterling contracts. The government
services group accounted for approximately $4.6 million in
the second quarter of 2000, which was an increase of
approximately $0.3 million, or 7.0%, from $4.3 million in
the second quarter of 1999. Revenue for the billing and
collections operations was $5.2 million for the second
quarter of 2000, which was an increase of approximately $0.5
million, or 10.6%, from $4.7 million in the second quarter
of 1999 due to growth in the billing contracts and fees.
Revenue of the billing and business management operations
excludes intersegment revenue of approximately $7.0 million
in the second quarter of 2000 and approximately $4.0 million
in the second quarter 1999 representing fees billed to the
emergency physician management business.
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 $26.2
million, or 76.2%, to approximately $60.6 million in the
second quarter of 2000 from approximately $34.4 million in
the second quarter of 1999. Physician and other provider
services costs and expenses increased as follows:
Three Months Ended June 30,
2000 1999 %
Increase
Core businesses $60.6 $34.4 $26.2 76.2%
Divested 0.0 0.0 0.0 0.0%
businesses
$60.6 $34.4 $26.2 76.2%
These expenses for the core businesses increased mostly
because of the Sterling acquisition. In the second quarter
of 2000, physician and other provider services costs and
expenses for the emergency physician management group were
approximately $57.0 million. This represented an increase
of $26.1 million, or 84.5%, from $30.9 million in the
second quarter of 1999. Approximately $26.0 of this increase
was attributable to Sterling. The government services
group's expenses were approximately $3.6 million in the
second quarter of 2000, representing an increase of
approximately $0.1 million, or 2.9%, from approximately $3.5
million in the second quarter of 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 $0.1 million, or
1.1%, to $9.0 million in the second quarter of 2000 from
$8.9 million in the second quarter of 1999. Medical support
services costs and expenses increased as follows:
Three Months Ended June 30,
2000 1999 Increase %
Core businesses $9.0 $8.9 $0.1 1.1%
Divested 0.0 0.0 0.0 0.0%
businesses
$9.0 $8.9 $0.1 1.1%
In the second quarter of 2000, medical support services
costs and expenses for the emergency physician management
group were approximately $1.1 million. This represented a
decrease of $0.6 million, or 35.3%, from $1.7 million in the
second quarter of 1999. The government services group's
expenses were approximately $0.4 million in the second
quarter of 2000 representing a decrease of $0.1 million, or
20.0% from approximately $0.5 million in the second quarter
of 1999. The billing and business management group's
expenses were approximately $7.5 million in the second
quarter of 2000 representing an increase of approximately
$0.8 million, or 11.9%, from approximately $6.7 million in
the second quarter of 1999. The increase in medical support
services costs and expenses for the billing and business
management group is due to growth in billing operations.
Selling, General and Administrative Costs and Expenses.
Selling, general and administrative costs and expenses
increased by $8.0 million, or 106.7%, to $15.5 million in
the second quarter of 2000 from $7.5 million in the second
quarter of 1999. Selling, general and administrative costs
and expenses increased as follows:
Three Months Ended June 30,
2000 1999 %
Increase
(Decreas
e)
Core businesses $15.5 $7.4 $8.1 109.5%
Divested 0.0 0.1 (0.1) (100.0)
businesses
$15.5 $7.5 $8.0 106.7%
Selling, general and administrative costs and expenses
for the core businesses increased primarily because of the
Sterling and Per Se acquisitions. In the second quarter of
2000, selling, general and administrative costs and expenses
for the Physician Contract group were approximately $10.0
million. This represented an increase of $4.5 million, or
81.8%, from $5.5 million in the second quarter of 1999.
Approximately $4.4 million of the increase is attributable
to the Sterling acquisition. The government services group's
expenses were approximately $0.1 million in the second
quarter of 2000 and 1999. The billing and business
management group's expenses were approximately $2.8 million
in the second quarter of 2000 representing an increase of
approximately $2.3 million, or 460.0%, from approximately
$0.5 million in the second quarter of 1999. Approximately
$2.3 million of the increase is attributable to the Per Se
acquisition. Selling, general and administrative costs and
expenses for the corporate group increased to approximately
$2.6 million in the second quarter of 2000 representing an
increase of approximately $1.3 million, or 100.0%, from
approximately $1.3 million in the first quarter of 1999.
The increase in selling, general and administrative costs
and expenses for the corporate group is primarily related to
legal payments. 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 the
HMO's.
Related party expense, net. Related party expenses,
net increased by $0.2 million, or 100.0%, to $0.4 million in
the second quarter of 2000 from $0.2 million in the second
quarter of 1999. This increase is primarily due to rent and
premium expense to related parties.
Interest Expense. Interest expense increased by $1.2
million to $4.0 million in the second quarter of 2000 from
$2.8 million in the second quarter of 1999 due primarily to
the Sterling and PerSe Acquisitions resulting in higher
outstanding amounts of debt during the first quarter of
2000. The costs associated with the sale of eligible
accounts receivable in the second quarter of 2000 and 1999
have been included in selling, general and administrative
expenses.
Other, expenses. Other expenses increased by $1.2
million or 40.0% , to $4.2 million in the second quarter of
2000 from $3.0 million in the second quarter of 1999,
primarily due to the increase in interest expense.
Benefit (provision) for income taxes. There was no
benefit (provision) for income taxes for the second 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 $8.9 million in the second
quarter of 2000 compared to a net loss of $4.8 million in
the second quarter of 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS
ENDED JUNE 30, 1999.
Operating Revenue, Net. Net operating revenue for the
six months ended June 30, 2000 was $159.5 million,
representing an increase of $59.6 million, or 59.7 %, from
operating revenue of $99.9 million for the six months ended
June 30, 1999. The increases in operating revenue among the
various businesses were as follows:
Six Months Ended June 30,
2000 1999 %
Increase
Core businesses $159.5 $99.9 $59.6 59.7%
Divested 0.0 0.0 0.0 0.0%
businesses
$159.5 $99.9 $59.6 59.7%
The increase in the revenue of the core businesses was
due mostly to the Sterling Acquisition. For the six months
ended June 30, 2000, the emergency physician management
business generated approximately $140.3 in revenue, which
was an increase of approximately $58.2 million, or 70.9%,
from approximately $82.1 million of revenue for the six
months ended June 30, 1999. Approximately $59.7 of this
increase was attributable to Sterling, offset by a decrease
in the non-Sterling contracts, related to contract
terminations. The government services group accounted for
approximately $9.1 million for the six months ended June 30,
2000, which was an increase of approximately $0.4 million,
or 4.6%, from $8.7 million for the six months ended June 30,
1999. Revenue for the billing and collections operations was
$10.1 million for the six months ended June 30, 2000, which
was an increase of approximately $1.1 million, or 12.2%,
from $9.0 million for the six months ended June 30, 1999,
due to growth in the billing contracts and fees. Revenue of
the billing and business management operations excludes
intersegment revenue of approximately $13.5 million for the
six months ended June 30, 2000 and approximately $7.5
million for the six months ended June 30, 1999, representing
fees billed to the emergency physician management business.
Other miscellaneous revenue was $0.1 million during the six
months ended June 30, 1999.
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 $52.4
million, or 75.6%, to approximately $121.7 million for the
six months ended June 30, 2000 from approximately $69.3
million for the six months ended June 30,1999. Physician
and other provider services costs and expenses increased as
follows:
Six Months Ended June 30,
2000 1999 Increase %
Core businesses $121.7 $69.3 $52.4 75.6%
Divested 0.0 0.0 0.0 0.0%
businesses
$121.7 $69.3 $52.4 75.6%
These expenses for the core businesses increased mostly
because of the Sterling acquisition. For the six months
ended June 30, 2000, physician and other provider services
costs and expenses for the emergency physician management
group were approximately $114.6 million. This represented
an increase of $52.4 million, or 84.2%, from $62.2 million
for the six months ended June 30, 1999. Approximately $52.8
of this increase was attributable to Sterling, offset by a
decrease in the non-Sterling contracts, related to contract
terminations. The government services group's expenses were
approximately $7.1 million for the six months ended June 30,
2000, and June 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 $0.3 million, or
1.7%, to $17.7 million for the six months ended June 30,
2000 from $17.4 million for the six months ended June 30,
1999. Medical support services costs and expenses increased
as follows:
Six Months Ended June 30,
2000 1999 Increase %
Core businesses $17.7 $17.4 $0.3 1.7%
Divested 0.0 0.0 0.0 0.0%
businesses
$17.7 $17.4 $0.3 1.7%
These expenses for the core businesses increased due to
contract terminations in the emergency physician management
group offset by growth in the billing operations. For the
six months ended June 30, 2000, medical support services
costs and expenses for the emergency physician management
group were approximately $2.0 million. This represented a
decrease of $1.3 million, or 39.4%, from $3.3 million for
the six months ended June 30,1999. The government services
group's expenses were approximately $0.9 million for the six
months ended June 30, 2000 and June 30, 1999. The billing
and business management group's expenses were approximately
$14.8 million for the six months ended June 30, 2000
representing an increase of approximately $1.6 million, or
12.1%, from approximately $13.2 million for the six months
ended June 30, 1999.
Selling, General and Administrative Costs and Expenses.
Selling, general and administrative costs and expenses
increased by $16.3 million, or 110.9%, to $31.0 million for
the six months ended June 30, 2000 from $14.7 million for
the six months ended June 30, 1999. Selling, general and
administrative costs and expenses increased as follows:
Six Months Ended June 30,
2000 1999 Increase %
Core businesses $31.0 $14.7 $16.3 110.9%
Divested 0.0 0.0 0.0 0.0
businesses
$31.0 $14.7 $16.3 110.9%
Selling, general and administrative costs and expenses
for the core businesses increased primarily because of the
Sterling and Per Se acquisitions. For the six months ended
June 30, 2000, selling, general and administrative costs and
expenses for the Physician Contract group were approximately
$20.6 million. This represented an increase of $10.3
million, or 100.0%, from $10.3 million for the six months
ended June 30, 1999. Approximately $9.2 million of the
increase is attributable to the Sterling acquisition. The
government services group's expenses were approximately $0.3
million for the six months ended June 30, 2000 representing
a decrease of approximately $0.1 million, or 25.0%, from
approximately $0.4 million for the six months ended June 30,
1999. The billing and business management group's expenses
were approximately $5.5 million for the six months ended
June 30, 2000 representing an increase of approximately $4.6
million, or 511.1%, from approximately $0.9 million for the
six months ended June 30, 1999. Approximately $4.4 million
of the increase is attributable to the Per Se acquisition.
Selling, general and administrative costs and expenses for
the corporate group increased to approximately $4.6 million
for the six months ended June 30, 2000 representing an
increase of approximately $1.5 million, or 48.4%, from
approximately $3.1 million for the six months ended June 30,
1999. The increase in selling, general and administrative
costs and expenses for the corporate group is primarily
related to legal payments.
Related party expense, net. Related party expenses,
net increased by $0.5 million, or 166.7%, to $0.8 million
for the six months ended June 30, 2000 from $0.3 million for
the six months ended June 30, 1999. This increase is
primarily due to rent and premium expense to related
parties.
Interest Expense. Interest expense increased by $2.7
million to $7.9 million for the six months ended June 30,
2000 from $5.2 million for the six months ended June 30,
1999 due primarily to the Sterling and PerSe Acquisitions
resulting in higher outstanding amounts of debt during the
six months ended June 30, 2000. The costs associated with
the sale of eligible accounts receivable for the six months
ended June 30, 2000 and 1999 have been included in selling,
general and administrative expenses.
Other, expenses. Other expenses increased by $2.9
million or 54.7% , to $8.2 million for the six months ended
June 30, 2000 from $5.3 million for the six months ended
June 30, 1999, primarily due to the increase in interest
expense.
Benefit (provision) for income taxes. There was no
benefit (provision) for income taxes for the six months
ended June 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 $20.0 million for the six
months ended June 30, 2000 compared to a net loss of $7.1
million for the six months ended June 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 June 30, 2000, the Company had outstanding
advances of approximately $221 million of receivables
financing, net of reserves held on the outstanding balances
of which approximately $78 million related to billed
receivables and approximately $143 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. Of the total
purchase commitments of $260 million on these facilities,
including reserve balances there is no remaining
availability for purchases at June 30, 2000. 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 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 is repayable in nine monthly installments beginning
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 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. There is no outstanding balance as of June 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
increased by $7.7 million, or 58.8%, for the six months
ended June 30, 2000, to $20.8 million as compared to $13.1
million for the six months ended June 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 was $0.5 million for
the six months ended June 30, 2000. Net cash provided by
investing activities was $0.6 million for the six months
ended June 30, 1999. Net cash provided by financing
activities increased by $7.1million, or 50.0%, to $21.3
million for the six months ended June 30, 2000, from $14.2
million for the six months ended June 30, 1999. During the
six months ended June 30, 2000, the Company had net
borrowings of $21.3 million as compared to $14.1 million for
the six months ended June 30, 1999. Net borrowings increased
during the six months ended June 30, 2000 in order to fund
the Company's net cash used to support operating activities.
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 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
June 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
June 30, 2000 December 31,
1999
Long-term Debt
Fixed Rate $149,483 $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 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 August 10, 2000
Steven M. Scott, M.D. Directors,
President and
Chief Executive Officer
/S/Marc Weiner Interim
Chief Financial Officer August 10,
2000
Marc Weiner and Executive Vice President
