<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended JUNE 30, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ---------
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Commission File Number: 0-24336
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INPHYNET MEDICAL MANAGEMENT INC.
--------------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0501896
------------------------ -----------------
(State of incorporation) (I.R.S. Employer
Identification No.)
1200 South Pine Island Road
Suite 600
Fort Lauderdale, Florida 33324-4460
--------------------------------------
(Address of principal executive office)
(954) 475-1300
-----------------------------
(Registrant's telephone number)
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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
---- ----
The number of shares of the registrant's common stock, par value $.01
per share, outstanding as of August 8, 1996 was 15,796,284.
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INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
INDEX
Page
PART I -- FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets ....................... 1
Condensed Consolidated Statements of Income ................. 2
Condensed Consolidated Statements of Cash Flows ............. 3
Notes to Condensed Consolidated Financial Statements ........ 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............... 5
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 8
Item 2. Changes in Securities ....................................... 8
Item 3. Defaults Upon Senior Securities ............................. 8
Item 4. Submission of Matters to a Vote of Security Holders ......... 8
Item 5. Other Information ........................................... 8
Item 6. Exhibits and Reports on Form 8-K ............................ 9
SIGNATURES ............................................................ 10
EXHIBITS .............................................................. 11
</TABLE>
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<PAGE> 3
INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash $ 2,653 $ 1,305
Accounts receivable, net of allowances of approximately
$92,000 and $91,000 at June 30, 1996 and
December 31, 1995, respectively 74,561 69,759
Accounts receivable from affiliates 873 559
-------- --------
75,434 70,318
Other current assets 10,120 10,206
-------- --------
Total current assets 88,207 81,829
Equipment, furniture and leasehold improvements, net 10,492 11,186
Other assets:
Cost in excess of net assets acquired, net 28,094 26,111
Other assets 2,645 4,090
-------- --------
30,739 30,201
-------- --------
Total assets $129,438 $123,216
LIABILITIES AND STOCKHOLDERS' EQUITY ======== ========
Current liabilities:
Accrued compensation and benefits $ 16,583 $ 15,096
Accounts payable and other current liabilities 6,076 8,018
Reserve for self-insured claims 4,597 7,179
-------- --------
Total current liabilities 27,256 30,293
Long-term debt, net of current portion 10,034 9,617
Deferred income taxes 675 938
Stockholders' equity:
Common stock, par value -- $.01, 50,000 shares authorized,
15,796 and 15,690 issued and outstanding at June 30,
1996 and December 31, 1995, respectively 158 157
Additional paid-in capital 65,750 63,731
Retained earnings 25,565 18,480
-------- --------
Total stockholders' equity 91,473 82,368
-------- --------
Total liabilities and stockholders' equity $129,438 $123,216
======== ========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue $90,130 $81,366 $177,634 $158,040
Revenue from affiliates 336 492 735 924
------- ------- -------- --------
Total revenue 90,466 81,858 178,369 158,964
Expenses:
Compensation and benefits 57,852 51,918 115,380 102,978
Contracted medical services 14,389 13,229 27,523 22,977
Insurance 3,063 2,326 5,790 6,220
Depreciation 763 556 1,464 1,095
Amortization 374 299 732 522
Other 7,423 8,084 14,520 14,387
------- ------- -------- --------
Total operating expenses 83,864 76,412 165,409 148,179
------- ------- -------- --------
Income from operations 6,602 5,446 12,960 10,785
Nonoperating income (expense):
Loss on sale of physician practices (682) -- (682) --
Interest expense (295) (470) (657) (895)
Interest income 158 91 231 186
Other 152 42 115 (20)
------- ------- -------- --------
Total nonoperating expense (667) (337) (993) (729)
------- ------- -------- --------
Income before income tax expense 5,935 5,109 11,967 10,056
Income tax expense 2,345 1,940 4,727 4,064
------- ------- -------- --------
Net income $ 3,590 $ 3,169 $ 7,240 $ 5,992
======= ======= ======== ========
Net income per share (1) $ 0.22 $ 0.21 $ 0.45 $ 0.41
======= ======= ======== ========
Weighted average shares outstanding 16,061 14,810 16,067 14,781
======= ======= ======== ========
</TABLE>
(1) One time charges consisting of loss on the sale of physician practices of
$682,000 and certain management restructuring charges of $250,000 recorded
during the three and six months ended June 30, 1996 represents $0.04 per
share. Excluding these amounts, earnings per share for the three and six
months ended June 30, 1996 were $0.26 and $0.49, respectively.
See accompanying notes to Condensed Consolidated Financial Statements.
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INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
------------------
1996 1995
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 3,247 $ 89
Cash flows from investing activities:
Acquisitions, net of cash acquired (3,019) (6,772)
Purchases of equipment (1,887) (1,452)
Net cash collections from (advances to) affiliates 1,076 (665)
Other investing activities 128 (10)
------- -------
Net cash used in investing activities (3,702) (8,899)
Cash flows from financing activities:
Proceeds from exercise of stock options 1,407 93
Distributions of accounts receivable
not purchased in a prior acquisition -- (1,050)
Proceeds from borrowings of long-term debt 10,700 14,173
Principal payments on long-term debt (10,304) (2,359)
------- -------
Net cash provided by financing activities 1,803 10,857
------- -------
Net increase in cash 1,348 2,047
Cash at beginning of period 1,305 1,422
------- -------
Cash at end of period $ 2,653 $ 3,469
======= =======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements (the "Financial
Statements") of InPhyNet Medical Management Inc. and Subsidiaries (the
"Company") are unaudited and, in the opinion of management, include all
significant normal and recurring adjustments which are necessary for a fair
presentation in accordance with generally accepted accounting principles.
Accordingly, the Financial Statements should be read in conjunction with the
more complete disclosures contained in the Company's audited consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1995. The results of operations for the interim
periods presented are not necessarily indicative of the results of operations
for the full year. Certain amounts in the prior year's Financial Statements
have been reclassified to conform to the current year's presentation.
2. NEW PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("Statement 123"), which provides an alternative to Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Statement 123 allows for a fair value based method of accounting
for stock options and similar equity instruments. However, for companies that
continue to account for stock-based compensation arrangements under APB 25,
Statement 123 requires disclosure of the pro forma effect on net income and
earnings per share of its fair value based accounting for those arrangements.
The requirements of Statement 123 are effective for fiscal years beginning
after December 15, 1995, or upon initial adoption of the statement, if earlier.
The disclosure requirements of Statement 123, including the pro forma
information, need not be applied to interim financial statements unless a
complete set of financial statements is presented for that period. The Company
has concluded that it will continue to account for stock-based compensation
arrangements under APB 25.
3. ACQUISITIONS
Effective July 1, 1996, in a transaction accounted for as a purchase, the
Company acquired certain assets of NHS National Health Services, Inc. for a
purchase price contingent upon the assets' future operating performance over a
five year period. In accordance with APB 16, "Business Combinations", the
recognition of costs in excess of net assets acquired will occur when the
contingency is determinable beyond a reasonable doubt. The purchase agreement
requires that installments of the purchase price be determined on each annual
anniversary of the transaction's effective date for a period of five years.
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<PAGE> 7
INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth divisional revenue (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1996 1995 1996 1995
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Hospital Physician Services $54,983 $52,972 $108,654 $105,251
Capitated Medical Services:
Managed Care 19,509 18,502 38,686 33,914
Correctional Care 15,974 10,384 31,029 19,799
------- ------- -------- --------
Total Capitated Medical Services 35,483 28,886 69,715 53,713
------- ------- -------- --------
Total Revenue $90,466 $81,858 $178,369 $158,964
======= ======= ======== ========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1995
Total Revenue. Total revenue increased by $8.6 million, or 10.5%, to
$90.5 million for the three months ended June 30, 1996 from $81.9 million for
the same period in 1995. The increase was primarily due to an increased number
of Correctional Care contracts, increased revenues from existing contracts and
the acquisition of a primary care practice during the first quarter.
Hospital Physician Services revenue increased by $2.0 million, or 3.8%, to
$55.0 million for the three months ended June 30, 1996 from $53.0 million for
the same period in 1995, as a result of new emergency department contracts
started during 1995 and 1996, and increased revenue from existing contracts.
Capitated Medical Services revenue increased by $6.6 million, or 22.8%, to
$35.5 million for the three months ended June 30, 1996 from $28.9 million for
the same period in 1995. The increase was primarily due to an increased number
of Correctional Care contracts and rate increases for existing contracts.
Total Operating Expenses. Operating expenses increased by $7.5 million,
or 9.8%, to $83.9 million for the three months ended June 30, 1996 from $76.4
million for the same period in 1995. The increase was primarily due to an
increase in compensation expense and related benefits resulting from an
increase in the number of healthcare and administrative personnel associated
with new contracts, an increase in contracted medical services due primarily to
the increased number of Correctional Care contracts and management
restructuring charges of $0.3 million.
Total Non-Operating Expense. Total non-operating expense increased by
$0.4 million to $0.7 million from $0.3 million primarily due to a loss of
$0.7 million on the sale of two physician practices. This was offset by
reduced interest expense of $0.2 million and an increase in interest income.
Income before Income Tax Expense. Income before income tax expense
increased by $0.8 million, or 15.7%, to $5.9 million for the three months ended
June 30, 1996 from $5.1 million for the same period in 1995 due primarily to
the factors set forth above.
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Income Tax Expense. Income tax expense increased by $0.4 to $2.3 million
from $1.9 million due to the increase in income before income tax expense.
Net Income. Net income increased by $0.4 million, or 12.5% to $3.6
million for the three months ended June 30, 1996, from $3.2 million for the
same period in 1995 due to the factors discussed above.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED
JUNE 30, 1995
Total Revenue. Total revenue increased by $19.4 million, or 12.2%, to
$178.4 million for the six months ended June 30, 1996 from $159.0 million for
the same period in 1995. The increase was primarily due to an increased number
of Correctional Care contracts, increased revenues from existing contracts and
the acquisition of a primary care practice during the first quarter.
Hospital Physician Services revenue increased by $3.4 million, or 3.2%, to
$108.7 million for the six months ended June 30, 1996 from $105.3 million for
the same period in 1995, as a result of new emergency department contracts
started during 1995 and 1996, and increased revenue from existing contracts.
Capitated Medical Services revenue increased by $16.0 million, or 29.8%,
to $69.7 million for the six months ended June 30, 1996 from $53.7 million for
the same period in 1995. The increase was primarily due to an increased number
of Correctional Care contracts and rate increases for existing contracts.
Total Operating Expenses. Operating expenses increased by $17.2 million,
or 11.6%, to $165.4 million for the six months ended June 30, 1996 from $148.2
million for the same period in 1995. The increase was primarily due to an
increase in compensation expense and related benefits resulting from an
increase in the number of healthcare and administrative personnel associated
with acquisitions and new contracts, an increase in contracted medical services
due primarily to the increased number of Correctional Care contracts and
management restructuring charges of $0.3 million.
Total Non-Operating Expense. Total non-operating expense increased by
$0.3 million to $1.0 million from $0.7 million primarily due to a loss of
$0.7 million on the sale of two physician practices. This was offset by
reduced interest expense of $0.2 million and an increase in interest income.
Income before Income Tax Expense. Income before income tax expense
increased by $1.9 million, or 18.8%, to $12.0 million for the six months ended
June 30, 1996 from $10.1 million for the same period in 1995 due primarily to
the factors set forth above.
Income Tax Expense. Income tax expense increased by $0.6 to $4.7 million
from $4.1 million due to the increase in income before income tax expense.
Net Income. Net income increased by $1.2 million, or 20.0% to $7.2
million for the six months ended June 30, 1996, from $6.0 million for the same
period in 1995 due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
SIX MONTHS ENDED JUNE 30, 1996. Net cash provided by operating activities
was $3.2 million for the six months ended June 30, 1996, due primarily to
increased collections of accounts receivable resulting from the Company's
implementation of a new fee-for-service billing system in the first half of
1995. The new billing system, which caused a slowdown in the collection of
accounts receivable during the implementation phase, is now running efficiently
and has allowed the Company to bill and collect its receivables on a more
timely basis.
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<PAGE> 9
Net cash used in investing activities of $3.7 million was primarily the
result of expenditures of $3.0 million for a first quarter acquisition, and
purchases of capital equipment for $1.9 million offset by repaid advances from
affiliated entities of $1.1 million.
Net cash provided by financing activities of $1.8 million was primarily
the result of proceeds of $1.4 million from the issuance of common stock in
connection with the Company's stock option plans and borrowings of $10.7
million under the Company's Amended and Restated Revolving Credit and
Reimbursement Agreement (the "Credit Facility") with a financial institution,
offset by repayments under the Credit Facility of $10.3 million.
As a result of the factors discussed above, cash increased to $2.7 million
at June 30, 1996 from $1.3 million at December 31, 1995.
SIX MONTHS ENDED JUNE 30, 1995. Net cash provided by operating activities
was $0.1 million for the six months ended June 30, 1995, due primarily to an
increase in accounts receivable of approximately $8.0 million caused by the
Company's implementation of a new fee-for-service billing system in the first
half of 1995 and the start up of new Correctional Care contracts, offset by
cash generated from operations.
Net cash used in investing activities of $8.9 million was primarily the
result of expenditures of $6.8 million for acquisitions and purchases of
capital equipment for $1.5 million.
Net cash provided by financing activities of $10.9 million was primarily
the result of borrowings of $14.2 million under the Credit Facility, offset by
the repayment of $2.4 million under the Credit Facility and distributions of
$1.1 million of collected accounts receivable not purchased by the Company in
a 1993 acquisition. The Company provides collection services, for a fee, to the
former stockholders of the acquired company.
As a result of the factors discussed above, cash increased to $3.5 million
at June 30, 1995 from $1.4 million at December 31, 1994.
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INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
PART II -- OTHER INFORMATION
ITEM 1: Legal Proceedings
The Company is involved in various legal proceedings incidental
to its business, substantially all of which involve claims
related to the alleged malpractice of employed and contracted
medical professionals and to the failure to render care. In
the opinion of the Company's management, no individual item of
litigation or group of similar items of litigation, taking into
account the insurance coverage available to the Company, is
likely to have a material adverse effect on the Company's
financial position.
ITEM 2: Changes in Securities
None
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matters to a Vote of Security Holders
The Company's Annual Shareholders Meeting was held on May 16,
1996. The following three items were voted upon:
1) Directors were elected with the Company's shares voted
as indicated below:
<TABLE>
<CAPTION>
Delivered
Voted For Withheld Authority Not Voted
--------- ------------------ ---------
<S> <C> <C> <C>
Jere D. Creed 11,211,629 1,988,091 3,000
Thomas E. Dewey, Jr. 11,220,729 1,978,991 3,000
Marta Prado 13,131,085 68,635 3,000
Victor J. Weinstein 11,220,729 1,978,991 3,000
</TABLE>
2) An amendment to the 1994 Stock Incentive Plan of
Inphynet Medical Management Inc. to increase the number
of shares of the Company's Common Stock, par value
$0.01 per share, available for issuance thereunder by
1,000,000 shares and to provide for a maximum number
of shares of Common Stock that can be granted to any
individual with respect to options and stock
appreciation rights in any one year was ratified, with
10,141,733 shares voted for the ratification of such
amendment, 2,500,627 shares voted against, 4,250
abstentions and 555,840 shares delivered not voted.
3) The appointment of Ernst & Young LLP as the Company's
independent certified public accountants for the year
ending December 31, 1996, with 13,196,020 shares voted
for the ratification of such appointment, 900 shares
voted against, 2,800 abstentions and 3,000 shares
delivered not voted.
ITEM 5: Other Information
None
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<PAGE> 11
INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
PART II -- OTHER INFORMATION
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Statement Re: Computation of Per-Share Earnings
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
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INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Inphynet Medical Management Inc.
(registrant)
Date: August 13, 1996 By: /s/ Clifford Findeiss, M.D.
------------------------------------
Clifford Findeiss, M.D.
President, Chief Executive Officer and
Chairman of the Board
Date: August 13, 1996 By: /s/ George W. McCleary, Jr.
--------------------------------------
George W. McCleary, Jr.
Executive Vice President,
Chief Financial Officer,
Secretary and Director
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<PAGE> 1
INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER-SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1996 1995 1996 1995
--------- --------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY AND FULLY DILUTED
- -------------------------
Average weighted shares outstanding 15,768 14,571 15,745 14,580
Effect of dilutive stock options based on the
treasury stock method 293 239 322 201
------- ------- ------- -------
16,061 14,810 16,067 14,781
======= ======= ======= =======
Net income $ 3,590 $ 3,169 $ 7,240 $ 5,992
Net income per share amount $ 0.22 $ 0.21 $ 0.45 $ 0.41
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,653
<SECURITIES> 0
<RECEIVABLES> 167,434
<ALLOWANCES> 92,000
<INVENTORY> 0
<CURRENT-ASSETS> 88,207
<PP&E> 10,492
<DEPRECIATION> 0
<TOTAL-ASSETS> 129,438
<CURRENT-LIABILITIES> 27,256
<BONDS> 10,034
0
0
<COMMON> 158
<OTHER-SE> 91,315
<TOTAL-LIABILITY-AND-EQUITY> 129,438
<SALES> 0
<TOTAL-REVENUES> 178,117
<CGS> 0
<TOTAL-COSTS> 165,157
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 657
<INCOME-PRETAX> 11,967
<INCOME-TAX> 4,727
<INCOME-CONTINUING> 7,240
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,240
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
