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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):
February 23, 1999 (February 23, 1999)
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PHYCOR, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 0-19786 62-13344801
(State or Other (Commission File (I.R.S. Employer
Jurisdiction of Number) Identification
Incorporation) Number)
30 Burton Hills Boulevard
Suite 400
Nashville, Tennessee 37215
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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 February 23, 1999, PhyCor, Inc., a Tennessee corporation (the
"Company"), issued a press release. The press release announced year-end results
and adjusted earning expectations. The press release also announced events
relating to certain of its operating units that resulted in PhyCor recording an
asset impairment charge of approximately $79.8 million, net of tax benefits, in
the fourth quarter of 1998 and a restructuring charge of approximately $5.7
million, net of tax benefits, in the first quarter of 1999. A copy of the press
release is attached hereto as Exhibit 99 and is incorporated by reference,
provided, however, the last sentence has been revised to replace the word
"exceptions" with "expectations" to correct an inadvertent typographical error.
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 releases issued by the Company on February
23, 1999 as corrected herein.
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: February 23, 1999
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
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<S> <C>
99 Form of press releases issued by the Company on February 23, 1999.
</TABLE>
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Exhibit 99
TUESDAY FEBRUARY 23, 8:24 AM EASTERN TIME
COMPANY PRESS RELEASE
PHYCOR ANNOUNCES YEAR-END RESULTS
AND ADJUSTS EARNINGS EXPECTATIONS
NASHVILLE, Tenn.--(BUSINESS WIRE)--Feb. 23, 1999--PhyCor, Inc. (Nasdaq/NM:PHYC -
news) today announced results for the fourth quarter and year ended December 31,
1998. PhyCor also announced events relating to certain of its operating units
that resulted in its recording asset revaluation charges, as outlined below in
the "Detail of Asset Revaluation and Restructuring Charges," totaling
approximately $79.8 million, net of tax benefits, in the fourth quarter of 1998
and anticipates restructuring charges of approximately $5.7 million, net of tax
benefits, in the first quarter of 1999.
Joseph C. Hutts, chief executive officer of PhyCor, said "These are very
challenging times for almost everyone in the healthcare industry as
reimbursement to providers continues to contract significantly. We are making
considerable headway in the majority of our clinics and IPAs by committing
virtually all of our energy and resources to enhancing their performance."
For the fourth quarter of 1998, net revenues were $409.9 million, up 29% from
$317.3 million a year ago. Net earnings for the quarter before the asset
revaluation charge totaled $11.4 million, or $0.15 per share - diluted, on 77.8
million average shares outstanding compared with net earnings before charges of
$16.0 million, or $0.24 per share - diluted, on 67.7 million average shares
outstanding in the prior-year period. Net loss for the fourth quarter of 1998,
including the charge, was $68.4 million, or $0.90 per share.
On a base of 35 clinics and 27 Independent Practice Association (IPA) markets,
PhyCor's same-market revenue increased 8.9% for the quarter and 11.2% for the
year ended December 31, 1998, compared with the same periods in 1997.
For the year ended December 31, 1998, net revenues were $1.51 billion, up 35%
from $1.12 billion in the year-earlier period. Net earnings for the year, before
charges, totaled $54.7 million or $0.74 per share - diluted, on 74.0 million
average shares outstanding, compared with net earnings, before charges, of $57.0
million, or $0.85 per share - diluted, on 66.9 million average shares
outstanding in 1997. Including charges, net loss for the year ended December 31,
1998, was $111.4 million, or $1.55 per share.
Joseph C. Hutts continued, "Recent events and the current healthcare environment
cause us to be cautious regarding our expected earnings levels for 1999.
Assuming events generally occur as we anticipate, we expect our normalized
earnings per share for 1999 to range between a level that is roughly equivalent
to our annualized pre-charge fourth quarter 1998 performance of $0.60 to a level
that is 10% above such target, or $0.66.
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"The strong cash flow being generated by our operations should allow us to fund
the needs of our existing business as well as strengthen our balance sheet.
Although our earnings expectations do not include further transactions, we are,
in fact, talking with several clinics about affiliating with PhyCor through new
and innovative structures. In addition, we have had discussions with several
large hospital systems about management of their physician groups and networks
and discussions are underway with several IPAs for managed care services."
During the fourth quarter, PhyCor completed its acquisition of certain assets of
Huntington Medical Group, P.C., a multi-specialty physician group based in
Huntington, New York, and entered into a long-term service agreement with the
35-physician group.
Subsequent to year-end, PhyCor completed agreements with two IPA organizations
to provide managed care services. The Company entered into an agreement with the
Southern Nevada Healthcare Network in Las Vegas, Nevada, on January 1, 1999,
which initially provides management for 54,000 HMO enrollees through
approximately 300 physicians. On March 1, 1999, the Company will begin managing
the New Century Physicians IPA in the Kansas City metropolitan area with
approximately 10,000 enrollees and 120 physicians.
PHYCOR, INC.
Financial Highlights
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net revenues $ 409,867 $ 317,297 $1,512,499 $1,119,594
Net expenses 391,338 291,527 1,424,740 1,026,842
Asset revaluation,
restructuring, merger
and other nonrecurring
charges 110,400 83,445 239,096 83,445
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Earnings (loss) before
taxes $ (91,871) $ (57,675) $(151,337) $ 9,307
Net earnings (loss) $ (68,419) $ (37,844) $(111,447) $ 3,209
Net earnings before asset
revaluation,
restructuring, merger
and nonrecurring
charges $ 11,396 $ 15,977 $ 54,718 $ 57,030
Net earnings (loss)
per share:
Basic $ (0.90) $ (0.59) $ (1.55) $ 0.05
Diluted $ (0.90) $ (0.59) $ (1.55) $ 0.05
Average number of shares
outstanding:
Basic 76,078 64,493 71,822 62,899
Diluted 77,846 67,695 74,025 66,934
Net earnings per share
before asset revaluation,
restructuring, merger
and other nonrecurring
charges:
Basic $ 0.15 $ 0.25 $ 0.76 $ 0.91
Diluted $ 0.15 $ 0.24 $ 0.74 $ 0.85
</TABLE>
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Summary of Charges
(In millions, net of expected tax benefits)
<TABLE>
<CAPTION>
Asset Restructuring
Revaluation Costs
Fourth Quarter First Quarter
1998 1999
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<S> <C> <C>
Multi-specialty groups:
Holt-Krock and Burns $ 16.9 $ 3.4
Lexington Clinic 22.6 0.7
Morgan Health Group 23.2 0.5
First Physician Care 17.1 1.1
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$ 79.8 $ 5.7
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</TABLE>
For additional information about the Company, visit PhyCor's web site:
http://www.phycor.com
Detail of Asset Revaluation and Restructuring Charges
As previously announced, PhyCor has agreed to sell certain assets associated
with its service agreement with the Holt-Krock Clinic, P.L.C. (Holt-Krock) to
Sparks Regional Medical Center and Sparks Regional Medical Center Foundation
(collectively, Sparks) in Fort Smith, Arkansas, as part of a settlement reached
between PhyCor, Holt-Krock and Sparks to resolve outstanding litigation and all
related claims between the parties. As part of the settlement agreement, Sparks
will enter into a long-term agreement with PhyCor to maintain access to key
physician practice resources. PhyCor has also reached an agreement in principle
to sell substantially all of its clinic operating assets relating to its service
agreement with the Burns Medical Clinic (Burns) to Healthshare Group (HSG), the
health system adjacent to Burns in Petoskey, Michigan. Under terms of the
agreement, HSG will enter into a long-term agreement with PhyCor to maintain
access to key physician practice resources. PhyCor has recorded an asset
revaluation charge of approximately $16.9 million, net of tax benefits, in the
fourth quarter of 1998 to adjust the carrying value of its assets related to
Holt-Krock and Burns to their estimated net realizable value based upon future
cash flows PhyCor expects to receive. In addition, PhyCor expects to incur
approximately $3.4 million, net of tax benefits, in costs during the first
quarter of 1999 related to Holt-Krock and Burns to provide for payment of
severance and other transition costs as PhyCor relinquishes operating
responsibilities for the related physician practices. These transactions are
expected to be completed on or before April 30, 1999, and are subject to the
completion and execution of definitive agreements. The asset revaluation charge
and anticipated costs related to Holt-Krock and Burns assume the successful
completion of those transactions as reflected in the agreements described above.
On July 8, 1998, PhyCor acquired Atlanta-based Morgan Health Group (MHG), an IPA
comprised of approximately 400 primary care physicians and 1,800 specialists
which at the time provided care for approximately 57,000 managed care members
under capitated contracts. Approximately 90% of the revenue for MHG was received
under what PhyCor believed was a profitable contract with a single managed care
payor. As disclosed in the third quarter of 1998, MHG was not contributing
earnings at expected levels. Subsequent to the acquisition date, MHG received
claims from its major payor for costs arising before the acquisition that
revealed that MHG's costs significantly exceeded its revenues under the
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payor contract prior to the date of the acquisition. PhyCor has continued to
fund losses under this contract while attempting to renegotiate payment terms
with the payor to allow for this contract to be economically viable. Recently,
negotiations with the payor ceased without reaching a mutually beneficial
agreement, which impairs the future operations of MHG. On February 19, 1999,
PhyCor notified the previous shareholders of MHG (MHG shareholders) of its
demand to rescind the merger and all related agreements and accordingly offered
to tender all consideration PhyCor received in connection with the transaction
back to the MHG shareholders. PhyCor also notified the MHG shareholders of its
continuing investigation of all other available legal remedies in light of the
circumstances. The outcome of these events is not currently determinable and
PhyCor's ability to recover its investments in MHG is contingent upon future
unpredictable events. As a result, PhyCor has recorded an asset revaluation
charge of approximately $23.2 million, net of tax benefits, in the fourth
quarter of 1998 to write-off goodwill that was recorded in connection with its
acquisition of MHG. In addition, PhyCor expects to incur approximately $0.5
million in transition costs in the first quarter of 1999.
On July 24, 1998, PhyCor completed its acquisition of First Physician Care, Inc.
(FPC), a physician management company then affiliated with approximately 160
physicians. As disclosed in the third quarter of 1998, FPC was not contributing
earnings at expected levels. PhyCor has developed and commenced implementation
of market-specific strategies to improve the economic viability of the FPC
clinics. Certain of these clinics are experiencing significant negative
operating results. Ultimate solutions to these challenges may involve sale of
certain clinic assets and discontinuation of some operations. As a result,
PhyCor has recorded an asset revaluation charge writing down principally
goodwill of $17.1 million, net of tax benefits, in the fourth quarter of 1998 to
recognize the decline in future cash flows to the Company. In addition, PhyCor
expects to incur approximately $1.1 million, net of tax benefits, in the first
quarter of 1999 to provide for payment of severance and other transition costs
in connection with its FPC restructuring efforts.
PhyCor has invested significantly in the operation of the Lexington Clinic based
in Lexington, Kentucky, since its affiliation in 1994. In order to support both
the growth of the Lexington Clinic-owned health maintenance organization,
Advantage Care, Inc. (Advantage Care) and a rapid expansion of the Lexington
Clinic to provide it with an opportunity to serve the State of
Kentucky-sponsored Alliance Health Insurance Program (Alliance), PhyCor provided
capital to the Lexington Clinic to finance these initiatives. In addition,
PhyCor financed the acquisition or establishment of primary care and specialty
practices in various satellite locations in the Lexington area. Advantage Care
experienced significant financial and operational problems in 1997 and 1998
relating to Alliance, including an unresolved dispute of a $10 million
receivable which Advantage Care continues to believe is due from Alliance as of
December 31, 1998. In December 1998, PhyCor acquired 50% of Advantage Care and
participated in its recapitalization and has assumed overall management
responsibility for Advantage Care. Advantage Care does not currently provide
services for enrollees of Alliance.
The combination of poor financial performance at a number of the Lexington
Clinic satellite locations, a challenging and extended information system
conversion, the potential loss arising from the Alliance dispute, and the
repayment of funds used to finance Lexington Clinic's and Advantage Care's
growth are combining to weaken Lexington Clinic's financial performance. In
light of the circumstances, realization of certain of PhyCor's assets related to
the Lexington Clinic is doubtful. PhyCor has recorded an asset revaluation
charge to earnings in the fourth quarter of 1998 of approximately $22.6 million,
net of tax benefits, to reduce to net realizable value its investments in
numerous clinic satellite operations and to provide a reserve for amounts owed
by Lexington Clinic based upon expected future cash flows. In addition, PhyCor
expects to incur approximately $0.7 million, net of tax benefits, in costs
during the first quarter of 1999 to provide for payment of severance and other
transition costs as Lexington Clinic sells or closes unprofitable satellite
locations.
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PhyCor, Inc., headquartered in Nashville, Tennessee, is a physician practice
management company that operates multi-specialty groups, manages independent
practice associations, and provides health care decision support services to
consumers. Excluding Holt-Krock and Burns, the Company operates 54 medical
groups with approximately 3,520 physicians in 27 states, manages IPAs with
approximately 23,400 physicians in 36 markets, and, through CareWise, Inc.,
provides healthcare decision support services to over 2 million consumers
worldwide.
This press release contains forward-looking statements based on management's
current expectations. As such, they involve risk and uncertainty that actual
results may differ materially from the expectations expressed in these
forward-looking statements. A discussion of important factors and assumptions
regarding these statements and risks affecting PhyCor's business and prospects
is contained in PhyCor's periodic filings with the Securities and Exchange
Commission. In addition to such factors and assumptions that may cause actual
results to vary from expectations expressed in the forward-looking statements
included herein, other factors include the possibility of additional charges to
earnings resulting from restructurings of its relationships with its physician
groups, IPAs and their payors, the resolution of outstanding litigation and the
possibility of negative impact associated with Year 2000 issues.
