<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ending March 31, 1997.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____________ to
_______________.
COMMISSION FILE NO.: 0-19786
PHYCOR, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
TENNESSEE 62-1344801
- --------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 BURTON HILLS BLVD., SUITE 400
NASHVILLE, TENNESSEE 37215
- --------------------------------- ---------------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (615) 665-9066
---------------------
NOT APPLICABLE
----------------------------------------------------
(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. YES X NO
--- ---
As of May 13, 1997, 63,494,635 shares of the Registrant's Common Stock
were outstanding.
<PAGE> 2
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 1997 (unaudited) and December 31, 1996
(All dollar amounts are expressed in thousands)
<TABLE>
<CAPTION>
ASSETS 1997 1996
------ ---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,556 30,530
Accounts receivable, net 349,854 295,437
Inventories 16,138 15,185
Prepaid expenses and other assets 47,257 42,275
---------- ----------
Total current assets 445,805 383,427
Property and equipment, net 193,319 160,228
Intangible assets 722,277 559,705
Other assets 31,538 15,221
---------- ----------
Total assets $1,392,939 1,118,581
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current installments of long-term debt $ 441 424
Current installments of obligations under capital leases 2,048 1,237
Accounts payable 22,955 24,103
Due to physician groups 105,542 75,340
Salaries and benefits payable 33,186 23,120
Other accrued expenses and liabilities 58,562 46,257
---------- ----------
Total current liabilities 222,734 170,481
Long-term debt, excluding current installments 72,035 123,112
Obligations under capital leases, excluding current installments 2,854 1,467
Purchase price payable 67,822 66,103
Deferred tax credits and other liabilities 50,151 21,797
Convertible subordinated notes payable to physician groups 84,920 83,918
Convertible subordinated debentures 200,000 200,000
---------- ----------
Total liabilities 700,516 666,878
---------- ----------
Shareholders' equity :
Preferred stock, no par value; 10,000,000 shares authorized: -- --
Common stock, no par value; 250,000,000 shares authorized; issued and
outstanding, 63,273,000 in 1997 and 53,901,000 shares in 1996 618,125 389,712
Retained earnings 74,298 61,991
---------- ----------
Total shareholders' equity 692,423 451,703
---------- ----------
Total liabilities and shareholders' equity $1,392,939 1,118,581
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Three months ended March 31, 1997 and 1996
(All amounts are expressed in thousands, except for earnings per share)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Net revenue $ 250,652 162,501
Operating expenses:
Clinic salaries, wages and benefits 94,864 62,615
Clinic supplies 39,264 23,878
Purchased medical services 7,028 5,028
Other clinic expenses 39,023 27,144
General corporate expenses 6,487 4,986
Rents and lease expense 22,243 13,178
Depreciation and amortization 13,722 8,441
--------- ---------
Net operating expenses 222,631 145,270
--------- ---------
Earnings from operations 28,021 17,231
Interest income (1,053) (714)
Interest expense 6,159 2,778
Minority interest in earnings of consolidated partnerships 2,904 2,663
--------- ---------
Earnings before income taxes 20,011 12,504
Income tax expense 7,704 4,814
--------- ---------
Net earnings $ 12,307 7,690
========= =========
Earnings per common share $ .19 .13
========= =========
Weighted average number of shares and share
equivalents outstanding 65,142 60,306
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996
(All dollar amounts are expressed in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 12,307 7,690
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 13,722 8,441
Minority interests 2,228 2,092
Increase (decrease) in cash, net of effects of acquisitions,
due to changes in:
Accounts receivable (15,416) (12,542)
Inventories 118 (342)
Prepaid expenses and other assets 3,325 (5,250)
Accounts payable (5,485) (3,511)
Due to physician groups 7,686 3,082
Other accrued expenses and liabilities (1,275) 10,169
--------- ---------
Net adjustments 4,903 2,139
--------- ---------
Net cash provided by operating activities 17,210 9,829
--------- ---------
Cash flows from investing activities:
Payments for acquisitions, net (150,959) (79,431)
Purchase of property and equipment (17,922) (13,161)
Payments to acquire other assets (1,798) 303
--------- ---------
Net cash used by investing activities (170,679) (92,289)
--------- ---------
Cash flows from financing activities:
Proceeds from long-term borrowings 155,000 42,000
Repayment of long-term borrowings (210,098) (104,081)
Repayment of obligations under capital leases (1,972) (583)
Net proceeds from issuance of stock 212,565 1,101
Net proceeds from issuance of convertible debentures -- 194,458
--------- ---------
Net cash provided by financing activities 155,495 132,895
--------- ---------
Net increase in cash and cash equivalents 2,026 50,435
Cash and cash equivalents - beginning of period 30,530 18,827
--------- ---------
Cash and cash equivalents - end of period $ 32,556 69,262
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
PHYCOR, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Three months ended March 31, 1997 and 1996
(All dollar amounts are expressed in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
---- ----
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF INVESTING ACTIVITIES:
Effects of acquisitions:
Assets acquired, net of cash $ 257,568 121,420
Liabilities assumed, net of deferred purchase price payments (89,759) (39,125)
Issuance of convertible subordinated notes payable (8,672) (2,864)
Issuance of common stock (8,178) --
--------- ---------
Payments for acquisitions $ 150,959 79,431
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred to acquire
equipment $ 172 186
========= =========
Conversion of subordinated notes payable
to common stock $ 7,670 3,158
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
PHYCOR, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
Three months ended March 31, 1997 and 1996
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial reporting and in accordance with Rule 10-01 of Regulation
S-X.
In the opinion of management, the unaudited interim financial
statements contained in this report reflect all adjustments, consisting
of only normal recurring accruals which are necessary for a fair
presentation of the financial position and the results of operations
for the interim periods presented. The results of operations for any
interim period are not necessarily indicative of results for the full
year.
These financial statements, footnote disclosures and other information
should be read in conjunction with the financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
(2) ACQUISITIONS
(A) MULTI-SPECIALTY MEDICAL CLINICS
Through March 31, 1997 and during 1996, the Company, through
wholly-owned subsidiaries, acquired certain operating assets
of the following clinics:
<TABLE>
<CAPTION>
CLINIC EFFECTIVE DATE LOCATION
------ -------------- --------
<S> <C> <C>
1997:
Vancouver Clinic January 1, 1997 Vancouver, Washington
First Physicians Medical Group February 1, 1997 Palm Springs, California
St. Petersburg-Suncoast Medical Group February 28, 1997 St. Petersburg, Florida
1996:
Arizona Physicians Center January 1, 1996 Phoenix, Arizona
Clinics of North Texas March 1, 1996 Wichita Falls, Texas
Carolina Primary Care May 1, 1996 Columbia, South Carolina
Harbin Clinic May 1, 1996 Rome, Georgia
Focus Health Services July 1, 1996 Denver, Colorado
Clark-Holder Clinic July 1, 1996 LaGrange, Georgia
Medical Arts Clinic August 1, 1996 Minot, North Dakota
Wilmington Health Associates August 1, 1996 Wilmington, North Carolina
Gulf Coast Medical Group August 1, 1996 Galveston, Texas
Hattiesburg Clinic October 1, 1996 Hattiesburg, Mississippi
Straub Clinic & Hospital (A) October 1, 1996 Honolulu, Hawaii
Toledo Clinic November 1, 1996 Toledo, Ohio
Lewis-Gale Clinic November 1, 1996 Roanoke, Virginia
</TABLE>
(A) Straub Clinic & Hospital (Straub) was operated under an
administrative services agreement effective October 1, 1996.
The Company completed its merger and entered into a long-term
service agreement with Straub effective January 17, 1997.
(Continued)
6
<PAGE> 7
PHYCOR, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
The acquisitions were accounted for as purchases, and the accompanying
consolidated financial statements include the results of their operations
from the dates of their respective acquisitions. Simultaneous with each
acquisition, the Company entered into a long-term service agreement with
the related clinic physician group. The service agreements are 40 years
in length. In conjunction with certain acquisitions, the Company is
obligated to make deferred payments to physician groups. Such payments
are included in amounts due to physician groups in the accompanying
balance sheets.
(B) NORTH AMERICAN MEDICAL MANAGEMENT, INC. (NORTH AMERICAN)
Effective January 1, 1995, the Company completed its merger with North
American, an operator and manager of independent practice associations
(IPAs). The Company may make future payments for the North American
acquisition pursuant to an earn-out formula during 1996, 1997, and 1998
of up to an aggregate of $70 million, subject to adjustment to a maximum
of $130 million in the event of future acquisitions by North American of
additional interests in IPA management entities. The first of such
payments was made in the first quarter of 1996 and totaled approximately
$13.9 million in cash. The second cash payment totaling approximately
$21.1 million was made in the first quarter of 1997. Of the future
payments to be made, a portion may be payable in shares of the CompanyGs
common stock.
(C) PRO FORMA INFORMATION AND SUBSEQUENT EVENTS
The unaudited consolidated pro forma results of all current, continuing
operations assuming all 1997 and 1996 acquisitions, had been consummated
on January 1, 1996 are as follows (in thousands, except for earnings per
share):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Net revenue $257,876 230,651
Earnings before income taxes 20,416 17,172
Net earnings 12,556 10,542
Earnings per common share .19 .17
Weighted average number of shares and share
equivalents outstanding 65,223 62,140
</TABLE>
Since March 31, 1997, the Company has acquired the assets of a 28-physician
multi-specialty clinic based in Annapolis, Maryland and has entered into a
long-term agreement with the affiliated physician group. The physician group
is a new group formation that developed through an affiliate's IPA in the
Annapolis area.
The Company also entered into an agreement with Florida Independent Physician
Association (FIPA) whereby the Company assumed management responsibilities for
FIPA under an agreement with Florida Physician Services, the IPA management
company associated with FIPA. FIPA is a network of 12 regionally based,
physician-directed IPAs covering the state of Florida, currently contracting
with approximately 6,000 physicians who deliver services to approximately
57,000 patients under capitated contracts.
(Continued)
7
<PAGE> 8
PHYCOR, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(3) NET REVENUE
Clinic service agreement revenue is equal to the net revenue of the
clinics, less amounts retained by physician groups. Net clinic revenue is
recorded by the physician groups at established rates reduced by
provisions for doubtful accounts and contractual adjustments. Contractual
adjustments arise due to the terms of certain reimbursement and managed
care contracts. Such adjustments represent the difference between charges
at established rates and estimated recoverable amounts and are recognized
in the period the services are rendered. Any differences between
estimated contractual adjustments and actual final settlements under
reimbursement contracts are recognized as contractual adjustments in the
year final settlements are determined.
IPA management revenue is equal to the difference between the amount of
capitation and risk pool payments due to the IPAs managed by the Company
less amounts retained by the IPA.
The following represent amounts included in the determination of net
revenue (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------
MARCH 31,
1997 1996
---- ----
<S> <C> <C>
Gross physician group revenues $643,157 405,110
Less:
Provisions for doubtful accounts and contractual adjustments 242,833 142,348
-------- -------
Net physician group revenue 400,324 262,762
IPA revenue 86,990 52,886
-------- -------
Net physician group and IPA revenue 487,314 315,648
Less amounts retained by physician groups and IPAs:
Physician group 147,775 99,922
Clinic technical employee compensation 17,295 10,636
IPAs 71,592 42,589
-------- -------
Net revenue $250,652 162,501
======== =======
</TABLE>
(4) CAPITALIZATION
In the first quarter of 1997, the Company completed a public offering of
7,295,000 shares of its common stock at a price of $30.00 per share. Net
proceeds from the offering of approximately $210.5 million were used to
repay bank debt and accrued interest.
8
<PAGE> 9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
PhyCor is a physician practice management company that operates
multi-specialty medical clinics and independent practice associations (IPAs).
The Company currently operates 48 clinics with approximately 3,280 physicians in
28 states and manages IPAs with over 15,800 physicians in 23 markets. The
Company's affiliated physicians provide capitated medical services to
approximately one million patients, including approximately 135,000
Medicare-eligible patients.
The Company's strategy is to position its affiliated primary care
anchored multi-specialty clinics and IPAs as the physician component of
competitive networks that are developing as the health care system reforms.
PhyCor believes physician organizations create the value in these networks as
the decisions of physicians drive the cost and quality of health care.
Most of the Company's revenue in 1997 and 1996 was earned under clinic
service agreements. Revenue earned under the service agreements is equal to the
net revenue of the clinics, less amounts retained by physician groups. The
service agreements contain financial incentives for the Company to assist the
physician groups in increasing clinic revenues and controlling expenses.
To increase clinic revenue, the Company works with the affiliated
physician groups to recruit additional physicians, merge other physicians
practicing in the area into the affiliated physician groups, negotiate contracts
with managed care organizations and provide additional ancillary services. To
reduce or control expenses, among other things, PhyCor utilizes national
purchasing contracts for key items, reviews staffing levels to make sure they
are appropriate and assists the physicians in developing more cost-effective
clinical practice patterns.
The Company has increased its focus on the development of IPAs to
enable the Company to provide services to a broader range of physician
organizations, to enhance the operating performance of existing clinics and to
further develop physician relationships. The Company develops IPAs that include
affiliated clinic physicians to enhance the clinics' attractiveness as providers
to managed care organizations.
During the first quarter of 1997, PhyCor affiliated with three
multi-specialty clinics and numerous smaller medical practices and completed its
previously announced merger with Straub Clinic & Hospital, Incorporated located
in Honolulu, Hawaii, adding a total of $238.0 million in assets. The principal
assets acquired were accounts receivable, property and equipment and service
agreement costs, an intangible asset. The consideration for the acquisitions
consisted of approximately 55% cash, 38% liabilities assumed and 7% stock and
convertible notes. The cash portion of the purchase price was funded by a
combination of operating cash flow, the proceeds from the sale of common stock
and borrowings under the Company's bank credit facility. Property and equipment
acquired consisted mostly of clinic and hospital operating equipment, although
the Company purchased certain land and buildings. Service agreement costs are
amortized over the life of the related service agreement, with recoverability
assessed periodically.
9
<PAGE> 10
Since March 31, 1997, the Company has acquired the assets of a
28-physician multi-specialty clinic based in Annapolis, Maryland and has entered
into a long-term agreement with the affiliated physician group. The physician
group is a new group formation developed through PhyCor Management Corporation's
(PMC) IPA in the Annapolis area.
The Company also entered into an agreement with Florida Independent
Physician Association (FIPA) whereby the Company assumed management
responsibilities for FIPA under an agreement with Florida Physician Services,
the IPA management company associated with FIPA. FIPA is a network of 12
regionally based, physician-directed IPAs covering the state of Florida,
currently contracting with approximately 6,000 physicians who deliver services
to approximately 57,000 patients under capitated contracts.
RESULTS OF OPERATIONS
The following table shows the percentage of net revenue represented by
various expense and other income items reflected in the Company's Consolidated
Statements of Earnings.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Net revenue ........................................ 100.0% 100.0%
Operating expenses:
Clinic salaries, wages and benefits .............. 37.8 38.5
Clinic supplies .................................. 15.6 14.7
Purchased medical services ....................... 2.8 3.1
Other clinic expenses ............................ 15.6 16.7
General corporate expenses ....................... 2.6 3.1
Rents and lease expense .......................... 8.9 8.1
Depreciation and amortization .................... 5.5 5 .2
----- -----
Net operating expenses ......................... 88.8 89.4
----- -----
Earnings from operations ....................... 11.2 10.6
Interest income .................................. (0.4) (0.4)
Interest expense ................................. 2.4 1.7
Minority interest in earnings of
consolidated partnerships ...................... 1.2 1.6
----- -----
Earnings before income taxes ................... 8.0 7.7
Income tax expense ................................. 3.1 3.0
----- -----
Net earnings ................................... 4.9% 4.7%
===== =====
</TABLE>
1997 Compared to 1996
Net revenue increased from $162.5 million for the first quarter of 1996
to $250.7 million for the first quarter of 1997, an increase of $88.2 million,
or 54.3%. On a base of 31 clinics and 13 IPA markets, net revenue increased by
13.2% for the quarter ended March 31, 1997, compared with the
10
<PAGE> 11
same period in 1996. Same clinic growth resulted from the addition of new
physicians, the expansion of ancillary services, increases in patient volume and
increases in fees.
During the first quarter of 1997, several categories of operating
expenses were relatively stable as a percentage of net revenue when compared to
the same period in 1996, despite the large increase in the dollar amounts
resulting from acquisitions and clinic growth. The decrease in clinic salaries,
wages and benefits and other clinic expenses resulted from the acquisition of
clinics with lower levels of these expenses compared to the existing base of
clinics. The increase in clinic supplies and rents and lease expenses as a
percentage of net revenue resulted from the acquisition of clinics with higher
levels of these expenses compared to the existing base of clinics. While general
corporate expenses decreased as a percentage of net revenue, the dollar amount
of general corporate expenses increased as a result of the addition of corporate
personnel to accommodate increased acquisition activity and to respond to
increasing physician group needs for support in managed care negotiations,
information systems implementation and clinic outcomes management programs.
Income tax expense increased from the prior year as a result of the
Company's increased profitability. The Company's expects an effective tax rate
of approximately 38.5% in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had $223.1 million in working capital,
up from $212.9 million as of December 31, 1996. Also, the Company generated
$17.2 million of cash flow from operations in the first quarter of 1997 compared
to $9.8 million in the first quarter of 1996. At March 31, 1997, net accounts
receivable of $349.9 million amounted to 74 days of net clinic revenue compared
to $295.4 million and 73 days at the end of 1996. The increase is attributable
to seasonal factors affecting payments from some payors and patients'
responsibility for beginning of year deductible requirements.
In the first quarter of 1997, the Company completed a public offering
of 7,295,000 shares of its common stock at a price of $30.00 per share. Net
proceeds from the offering of approximately $210.5 million were used to repay
bank debt and accrued interest. As a result of the issuance of common stock
during the first quarter of 1997, debt was 38.2% of total capitalization at
March 31, 1997, compared to 51.2% at the end of 1996.
In the first quarter of 1997, $7.7 million of convertible subordinated
notes issued in connection with physician group asset acquisitions were
converted into common stock. These conversions, the issuance of common stock,
option exercises and net earnings for the first quarter of 1997 resulted in an
increase of $240.7 million in shareholders' equity compared to December 31,
1996.
Capital expenditures during the first quarter of 1997 totaled $17.9
million. The Company is responsible for capital expenditures at its affiliated
clinics under its service agreements. The Company expects to make approximately
$42 million in capital expenditures during the remainder of 1997.
11
<PAGE> 12
Effective January 1, 1995, the Company completed its acquisition of
North American Medical Management, Inc. (North American). The Company paid $20.0
million at closing and may make additional future payments pursuant to an earn-
out formula during 1996, 1997, and 1998 of up to an aggregate of $70.0 million.
The total acquisition consideration may increase to a maximum of $130.0 million
in the event of future acquisitions by North American of additional interests in
IPA management entities. The first of such payments was made in the first
quarter of 1996 and totaled approximately $13.9 million in cash. The second cash
payment totaling approximately $21.1 million was made in the first quarter of
1997. Of the future payments to be made, a portion may be payable in shares of
the Company's common stock.
In addition, deferred acquisition payments are payable to physician
groups in the event such physician groups attain predetermined financial targets
during established periods of time following the acquisitions. If each group
satisfied their applicable financial targets for the periods covered, the
Company would be required to pay an aggregate of approximately $69.0 million of
additional consideration over the next five years, of which $22.6 million would
be payable during 1997.
The Company may exercise its option to acquire the outstanding Class B
Common Stock of PMC before the end of 1997. In accordance with the terms of the
options, the aggregate purchase price for these shares at that time would be
approximately $18 to $19 million.
PhyCor has been the subject of an audit by the IRS since 1991. The IRS
has proposed adjustments relating to the timing of recognition for tax purposes
of certain revenue and deductions relating to uncollectible accounts. PhyCor
disagrees with the positions asserted by the IRS and is vigorously contesting
these proposed adjustments. The Company believes that any adjustments resulting
from resolution of this disagreement would not affect reported net earnings of
PhyCor but would defer tax benefits and change the levels of current and
deferred tax assets and liabilities. For the years under audit, and potentially,
for subsequent years, any such adjustments could result in material cash
payments by the Company. PhyCor does not believe the resolution of this matter
will have a material adverse effect on its financial condition, although there
can be no assurance as to the outcome of this matter.
In July 1996, the Company completed modifications to its bank credit
facility which included the revision of certain terms and conditions and the
addition of six participating financial institutions. The Company's bank credit
facility provides for a five-year, $200.0 million revolving line of credit and a
$100 million 364-day facility for use by the Company prior to July 2001 for
acquisitions, working capital, capital expenditures and general corporate
purposes. The Company's bank credit facility provides that borrowings under the
facility bear interest at either the agent's base rate or between .25% to .55%
above the applicable eurodollar rate. The Company is required to pay a facility
fee of between .10% to .25% per annum on the commitments, payable quarterly in
arrears, until the commitments are terminated. The total drawn cost under the
facility ranges from .375% to .75% above the applicable eurodollar rate.
The Company's bank credit facility contains covenants which, among
other things, require the Company to maintain certain financial ratios and
impose certain limitations or prohibitions on the Company with respect to (i)
the incurring of certain indebtedness, (ii) the creation of security
12
<PAGE> 13
interests on the assets of the Company, (iii) the payment of cash dividends on,
and the redemption or repurchase of, securities of the Company, (iv) investments
and (v) acquisitions. The Company is required to obtain bank consent for an
acquisition with an aggregate purchase price of $50.0 million or more. The
Company was in compliance with such covenants at March 31, 1997.
At March 31, 1997, the Company had cash and cash equivalents of
approximately $32.6 million and, as of May 12, 1997, $212.7 million available
under its bank credit facility. The Company believes that the combination of
funds available under the Company's bank credit facility, together with cash
reserves and cash flow from operations, should be sufficient to meet the
Company's current planned acquisition, expansion, capital expenditures and
working capital needs through 1997. In addition, in order to provide the funds
necessary for the continued pursuit of the Company's long-term expansion
strategy, the Company expects to continue to incur, from time to time,
additional short-term and long-term indebtedness and to issue equity and debt
securities, the availability and terms of which will depend upon market and
other conditions. There can be no assurance that such additional financing will
be available on terms acceptable to the Company.
This discussion contains forward looking statements relating to
completion of pending acquisitions and other matters. Certain of these
statements are accompanied by important cautionary factors that could cause
different results than expected by the Company. In addition to those factors,
other factors such as shareholder, regulatory and third party consents with
respect to acquisitions, among other events outside the Company's control could
also cause future results to differ from expectations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No disclosure required.
13
<PAGE> 14
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
3.1 -- Restated Charter of the Registrant (1)
3.2 -- Amendment to Restated Charter of the Registrant (2)
3.3 -- Amendment to Restated Charter of the Registrant (3)
3.4 -- Amended Bylaws of the Registrant (1)
4.1 -- Specimen of Common Stock Certificate (4)
4.2 -- Shareholder Rights Agreement, dated February 18, 1994, between
the Registrant and First Union National Bank of North Carolina
(5)
11 -- Statement re: Computation of Per Share Earnings
27.1 -- Financial Data Schedule (For SEC use only)
- -------------
(1) Incorporated by reference to Exhibits 3.2 filed with the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994,
Commission No. 0-19786.
(2) Incorporated by reference to Exhibit 4.2 filed with the Registrant's
Registration Statement on Form S-3, Registration No. 33-93018.
(3) Incorporated by reference to Exhibit 4.3 filed with the Registrant's
Registration Statement on Form S-3, Registration No. 33-98528.
(4) Incorporated by reference to Exhibit 4.2 filed with the Registrant's
Registration Statement on Form S-1, Registration No. 33-44123.
(5) Incorporated by reference to exhibits filed with the Registrant's
Annual Report on Form 8-K dated February 18, 1994, Commission No.
0-19786.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on February 3, 1997
describing the acquisition of Straub Clinic & Hospital, Incorporated pursuant to
Item 2 of Form 8-K. The Company filed a Current Report on Form 8-K/A on February
26, 1997 containing the financial statements required by Item 7 of Form 8-K.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PHYCOR, INC.
By: /s/ John K. Crawford
-----------------------------------------
John K. Crawford
Chief Financial Officer
Date: May 13, 1997
15
<PAGE> 1
EXHIBIT 11
PHYCOR, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Earnings per common share:
Net income $12,307 7,690
======= =====
Earnings per share $ .19 .13
======= =====
Weighted average common shares outstanding 65,142 60,306
======= =====
Earnings per common share, assuming full dilution:
Net income $12,307 7,690
======= =====
Earnings per share $ .19 .13
======= =====
Weighted average common shares outstanding 70,734 63,744
======= =====
</TABLE>
Note: The convertible debentures were not included in the fully diluted
earnings per share calculation since the effect of inclusion would be
antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 32,556
<SECURITIES> 0
<RECEIVABLES> 349,854
<ALLOWANCES> 0
<INVENTORY> 16,138
<CURRENT-ASSETS> 445,805
<PP&E> 257,804
<DEPRECIATION> 64,485
<TOTAL-ASSETS> 1,392,939
<CURRENT-LIABILITIES> 222,734
<BONDS> 272,035
0
0
<COMMON> 618,125
<OTHER-SE> 74,298
<TOTAL-LIABILITY-AND-EQUITY> 1,392,939
<SALES> 0
<TOTAL-REVENUES> 250,652
<CGS> 0
<TOTAL-COSTS> 222,631
<OTHER-EXPENSES> 2,904
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,159
<INCOME-PRETAX> 20,011
<INCOME-TAX> 7,704
<INCOME-CONTINUING> 12,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,307
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
