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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
July 23, 1998 (July 23, 1998)
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PHYCOR, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 0-19786 62-13344801
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(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification
Incorporation) Number)
30 Burton Hills Boulevard
Suite 400
Nashville, Tennessee 37015
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(Address of principal executive offices) (Zip Code)
(615) 665-9066
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(Registrant's telephone number, including area code)
Not applicable
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(Former name or former address, if changed since last report)
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Page 1 of 4 pages
Exhibit Index located on Page 4
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ITEM 5. OTHER EVENTS.
On July 23, 1998, PhyCor, Inc., a Tennessee corporation (the
"Company"), announced that it expects to record a pre-tax asset impairment
charge of approximately $65 million in the third quarter of 1998. This expected
nonrecurring charge relates to transitions from the current arrangement in four
of the Company's 'group formation' physician operations. Additionally, the
Company announced a reduction of approximately 10% in its targeted earnings
per share, excluding the charge, for the full year of 1998.
The press release announcing the expected pre-tax asset impairment
charge and the reduction in the Company's targeted full-year 1998 earnings per
share is attached hereto as Exhibit 99 and is incorporated by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired.
None required
(b) Pro Forma Financial Information.
None required
(c) Exhibits.
99 Form of press release issued by the Company announcing the
expected pre-tax asset impairment charge and the reduction
in the Company's targeted full-year 1998 earnings per share.
2
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHYCOR, INC.
By:/s/ John K. Crawford
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John K. Crawford
Executive Vice President
and Chief Financial Officer
Date: July 23, 1998
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EXHIBIT INDEX
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
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<S> <C>
99 -- Form of press release issued by the Company announcing the
expected pre-tax asset impairment charge and the reduction in the
Company's targeted full-year 1998 earnings per share.
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4
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EXHIBIT 99
[PHYCOR LETTERHEAD] NEWS RELEASE
Contact: Joseph C. Hutts
President and Chief Executive Officer
or
John K. Crawford
Chief Financial Officer
(615) 665-9066
PHYCOR REPORTS SECOND QUARTER RESULTS
Nashville, Tennessee (July 23, 1998) - PhyCor, Inc. (Nasdaq/NM:PHYC) today
announced revenues and operating results for the second quarter and six months
ended June 30, 1998.
For the second quarter of 1998, net revenues were $376.3 million, up
41% from $267.4 million a year ago. Net earnings for the quarter totaled $15.3
million, or $0.22 per share - diluted, on 70.9 million average shares
outstanding, compared with $13.7 million, or $0.20 per share - diluted, on
68.2 million average shares outstanding in the prior-year period, representing
increases of 12% and 10%, respectively, before adjusting 1997 earnings for the
effect of a change in estimated useful lives of intangible assets.
On a base of 39 clinic and 27 IPA markets, PhyCor's same-market
revenue increased 12.8% for the quarter and 12.0% for the six months ended June
30, 1998, compared with the same periods in 1997.
For the first six months of 1998, net revenues were $699.0 million, up
35% from $518.0 million in the year-earlier period. Net earnings for the first
half of the year, before pre-tax charges, totaled $31.3 million, or $0.45 per
share - diluted, on 70.0 million average shares outstanding, compared with
$26.0 million, or $0.39 per share - diluted, on 65.9 million average shares
outstanding in the prior-year period, representing increases of 20% and 15%,
respectively, before adjusting for the effect of a change in estimated useful
lives of intangible assets.
As announced previously, effective April 1, 1998, PhyCor adopted a
maximum of 25 years as the useful life for amortization of its intangible
assets. Applying the historical tax rate of the Company, if the current policy
had been applied as of January 1, 1997, diluted earnings per share would have
been reduced by $0.02 in the second quarter of 1997, $0.05 for the first half
of 1997, and $0.03 for the first quarter of 1998. On an "as if adjusted"
basis, earnings per share for the second quarter and for the first half of 1998
would reflect increases of 22% and 24%, respectively.
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PHYC Announces Second Quarter Results
Page 2
July 23, 1998
Joseph C. Hutts, president and chief executive officer of PhyCor,
said, "We had a strong quarter in terms of earnings, cash flow, same-market
growth, and clinic and IPA affiliations. In addition, last week, the
Holt-Krock Clinic in Fort Smith, Arkansas, reconfirmed its long-term
relationship with PhyCor. This is an excellent group of physicians who have
experienced a difficult transition. We believe that together we have an
outstanding future in their region.
"We have been working since late 1997 to address problems at some of
our nine 'group formation' physician operations. These types of clinic
operations are very different from the 48 established groups currently in the
Company. Five of these are functioning well. However, in the remaining four
markets, we now believe the wisest course is to concentrate on our IPA efforts
and either transition out of the current relationship or move them to an MSO
arrangement. Because of this, we expect to record a pre-tax asset impairment
charge of approximately $65 million in the third quarter of this year. We
believe this will bring to resolution the most difficult problem our company
has faced."
Mr. Hutts continued, "At the end of our first quarter, we identified
issues and trends affecting PhyCor's growth including timing of acquisitions;
the effect of restructured operations; and confusion arising from major
problems reported by other physician practice management companies. Confusion
has even increased since that time, further affecting our near-term growth
through new affiliations. These factors, combined with the estimated impact on
our current base of earnings from operations resulting from the transitions of
the four 'group formation' operations, have caused us to reduce our targeted
earnings per share, excluding charges, by approximately 10% for the full year
of 1998. We are targeting our 1999 growth to be in the range of 20-25%. We
believe these conditions, which are affecting our growth, are temporary, and we
remain excited about our prospects for continued growth in the future."
During the second quarter, the Company entered into an interim
management agreement and letter of intent to acquire certain assets and enter
into a long-term service agreement with the Watson Clinic, a 167-physician
multi-specialty group in Lakeland, Florida. Also during the quarter, PhyCor
acquired PrimeCare International, Inc., a physician practice management company
serving southern California's Inland Empire, comprised of an integrated campus
(including the 69-physician Desert Valley Medical Group, the 83-bed Desert
Valley Hospital, and Apple Valley Surgery Center) as well as the Inland Empire
IPA Network, a network of 10 IPAs consisting of 210 primary care physicians and
approximately 2,000 affiliated specialty physicians. PrimeCare's comprehensive
network provides care to more than 180,000 managed care members.
Subsequent to the close of the second quarter, PhyCor completed two
previously announced acquisitions. PhyCor acquired CareWise, Inc., a nationally
recognized leader in the health care decision-support industry, and
Atlanta-based Morgan Health Group (MHG), one of the largest IPAs in Georgia
with approximately 400 primary care physicians and 1,800 specialists. The MHG
network currently provides care to approximately 57,000 managed care members
under capitated contracts.
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PHYC Announces Second Quarter Results
Page 3
July 23, 1998
In December 1997, PhyCor announced that it had signed an agreement to
purchase Atlanta-based First Physician Care, Inc., a provider of practice
management services to approximately 160 physicians. The transaction is expected
to close on July 24, 1998.
PhyCor, Inc., headquartered in Nashville, Tennessee, is a physician
practice management company that operates multi-specialty clinics, manages
independent practice associations, and provides health care decision-support
services to consumers. Including pending transactions, the Company operates 61
clinics with approximately 4,060 physicians in 29 states, manages IPAs with
approximately 26,000 physicians in 36 markets, and, through CareWise, serves
over 2 million consumers.
This press release contains forward-looking statements made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. As such, they involve risk and uncertainty that actual results may differ
materially from those projected in these forward-looking statements. A
discussion of important factors and assumptions regarding these statements and
risks involved is contained in PhyCor's recent filings with the Securities and
Exchange Commission.
PHYCOR, INC.
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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1998 1997 1998 1997
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Net revenues $ 376,312 $ 267,354 $ 699,007 $ 518.006
Net expenses 352,006 244,959 649,258 475,600
Nonrecurring charges -- -- 36,196 --
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Earnings before taxes $ 24,306 22,395 13,553 42,406
Net earnings $ 15,313 13,706 7,815 26,013
Net earnings before nonrecurring charges $ 15,313 13,706 31,342 26,013
Net earnings per share:
Basic $ 0.22 $ 0.22 $ 0.12 $ 0.43
Diluted $ 0.22 0.20 0.11 0.39
Average number of shares outstanding:
Basic 69,779 63,570 67,516 61,095
Diluted 70,857 68,191 70,024 65,932
Net earnings per share before
nonrecurring charges:
Basic $ 0.22 $ 0.22 $ 0.46 $ 0.43
Diluted $ 0.22 $ 0.20 $ 0.45 $ 0.39
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For additional information about the Company, visit PhyCor's web site:
http://www.phycor.com
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