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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
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.
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(Exact name of registrant as specified in its charter)
Delaware 65-0501896
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(State of incorporation) (I.R.S. Employer
Identification No.)
1200 South Pine Island Road
Suite 600
Fort Lauderdale, Florida 33324-4460
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(Address of principal executive offices)
(954) 475-1300
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(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
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The number of shares of the registrant's common stock, par value $0.01
per share, outstanding as of May 12, 1997 was 16,371,910.
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INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
INDEX
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<TABLE>
<CAPTION>
Page
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<S> <C>
PART I -- FINANCIAL INFORMATION
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........................................................ 7
Item 2. Changes in Securities.................................................... 7
Item 3. Defaults Upon Senior Securities.......................................... 7
Item 4. Submission of Matters to a Vote of Security Holders...................... 7
Item 5. Other Information........................................................ 7
Item 6. Exhibits and Reports on Form 8-K......................................... 7
SIGNATURES............................................................................ 8
EXHIBITS.............................................................................. 9
</TABLE>
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INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
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(UNAUDITED) (RESTATED)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 6,797 $ 3,618
Accounts receivable, net of allowances of approximately
$82,960 and $83,480 at March 31, 1997 and
December 31, 1996, respectively 88,658 84,300
Accounts receivable from affiliates 282 202
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88,940 84,502
Prepaid expenses and other assets 18,365 15,505
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Total current assets 114,102 103,625
Equipment, furniture and leasehold improvements, net 12,770 11,709
Other assets:
Cost in excess of net assets acquired, net 28,090 27,773
Other assets 2,369 2,672
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30,459 30,445
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Total assets $157,331 $145,779
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related benefits $ 15,815 $ 15,713
Accounts payable and other current liabilities 31,544 27,165
Reserve for self-insured claims 3,601 3,692
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Total current liabilities 50,960 46,570
Long-term debt, net of current portion 309 339
Deferred income taxes 860 959
Stockholders' equity:
Common stock, par value -- $.01, 50,000 shares authorized,
16,363 and 15,821 issued and outstanding at March 31,1997
and December 31, 1996, respectively 164 158
Additional paid-in capital 70,387 66,386
Retained earnings 34,651 31,367
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Total stockholders' equity 105,202 97,911
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Total liabilities and stockholders' equity $157,331 $145,779
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</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
MARCH 31,
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1997 1996
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<S> <C> <C>
Net revenue $ 122,227 $ 87,504
Revenue from affiliates 280 399
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Total revenue 122,507 87,903
Expenses:
Compensation and related benefits 62,199 57,528
Contracted medical services 41,905 13,134
Insurance 3,348 2,727
Other 9,560 8,156
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Total operating expenses 117,012 81,545
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Income from operations 5,495 6,358
Nonoperating income (expense):
Interest expense (183) (362)
Interest income 88 73
Other 39 (37)
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Total nonoperating expense (56) (326)
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Income before income tax expense 5,439 6,032
Income tax expense 2,149 2,382
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Net income $ 3,290 $ 3,650
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Net income per share $ 0.20 $ 0.23
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Weighted average shares outstanding 16,727 16,067
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</TABLE>
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>
THREE MONTHS ENDED
MARCH 31,
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1997 1996
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<S> <C> <C>
Net cash provided by operating activities $ 2,604 $ 68
Cash flows from investing activities:
Acquisitions (1,247) (2,903)
Purchases of equipment (1,934) (1,334)
Cash distributions, loans and repayments
to and from affiliates 313 349
Other investing activities 606 (42)
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Net cash used in investing activities (2,262) (3,930)
Cash flows from financing activities:
Proceeds from exercise of stock options 2,937 483
Proceeds from notes payable -- 8,200
Principal payments on notes payable (100) (2,110)
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Net cash provided by financing activities 2,837 6,573
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Net increase in cash 3,179 2,711
Cash at beginning of period 3,618 1,305
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Cash at end of period $ 6,797 $ 4,016
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</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
MARCH 31, 1997
(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 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 for the year ended December 31, 1996.
The results of operations for the interim periods presented are not necessarily
indicative of the results of operations for the full year.
2. NEW PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), Earnings per Share and Statement of
Financial Accounting Standards No. 129 ("SFAS 129"), Disclosure of Information
about Capital Structure. SFAS 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock. SFAS 129 establishes standards for disclosing information about an
entity's capital structure and applies to all entities. Management believes that
the adoption of these standards, when effective, will not have a significant
impact on the Company's financial statements.
3. RECENT DEVELOPMENTS
On January 20, 1997, the Company agreed to merge with MedPartners, Inc.
("MedPartners"). MedPartners is the largest physician practice management
company in the nation and operates the country's largest independent
prescription benefits management service. The consideration for this transaction
is based on a fixed exchange ratio of 1.311 shares of MedPartners common stock
for each share of the Company's common stock. Based on this ratio, approximately
22 million shares of MedPartners common stock will be issued in exchange for all
outstanding shares of the Company's common stock. The transaction is expected to
be accounted for as a pooling of interests and is expected to close during the
second quarter of 1997.
4. SIGNIFICANT AGREEMENT AND RESTATEMENT
Effective July 1, 1996, the Company entered into a five-year agreement (the
"PCA Agreement"), with an option for an additional five years, with Physician
Corporation of America ("PCA"). Under the PCA Agreement, the Company manages
independent primary care physicians in South Florida and the Tampa Bay region.
At March 31, 1997, these physicians provided primary care services to
approximately 54,000 covered lives: 23,700 in South Florida and 30,300 in the
Tampa Bay area. PCA provides comprehensive health care services through its
HMO's, Life and Property and Casualty Insurance Carriers and Worker's
Compensation administrators located throughout the southeastern United States
and the Caribbean.
The Company has restated its financial statements as of and for the year ended
December 31, 1996, to expense as incurred costs relating to the PCA Agreement.
The Company had established a $9.3 million reserve for future estimated losses
associated with the provider contracts the Company was required to assume under
the PCA Agreement. The Company recorded the $9.3 million as deferred contract
acquisition costs and was amortizing these costs over the initial five year life
of the contract with PCA. Through December 31, 1996, the Company had charged
$6.2 million of losses from the PCA Agreement against this reserve. As a result
of the restatement the reserve for losses under the PCA Agreement and deferred
contract acquisition costs have been eliminated and costs associated with the
PCA Agreement are being expensed as incurred. This change resulted in a decrease
in previously reported 1996 income from operations of $6.9 million; net income
of $3.7 million and income per share of $0.23.
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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 for the periods indicated (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
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PERCENT
1997 INCREASE 1996
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<S> <C> <C> <C>
Hospital Physician Services $ 55.3 3.0% $ 53.7
Capitated Medical Services:
Managed Care 43.3 125.5% 19.2
Correctional Care 23.9 59.3% 15.0
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Total Capitated Medical Services 67.2 96.5% 34.2
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Total Revenue $ 122.5 39.4% $ 87.9
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</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1996
TOTAL REVENUE. Total revenue increased by $34.6 million, or 39.4%, to $122.5
million for the three months ended March 31, 1997 from $87.9 million for the
same period in 1996. The increase was primarily due to acquisitions completed
during 1996, new contract awards and increased revenues from existing contracts.
Hospital Physician Services Division revenue increased marginally to $55.3
million for the three months ended March 31, 1997 from $53.7 million for the
same period in 1996.
Capitated Medical Services Division revenue increased by $33.0 million, or
96.5%, to $67.2 million for the three months ended March 31, 1997 from $34.2
million for the same period in 1996. The increase was primarily due to the net
addition of 16 correctional care contracts which added $8.8 million in revenue,
including the July 1, 1996 acquisition of 6 contracts from National Health
Services, Inc., the July 1, 1996 agreement with PCA Health Plans of Florida,
Inc. (PCA) which added $21.7 million in revenue and annual rate increases from
existing contracts.
TOTAL OPERATING EXPENSES. Operating expenses increased by $35.5 million, or
43.6%, to $117.0 million for the three months ended March 31, 1997 from $81.5
million for the same period in 1996. The increase was primarily due to a $4.7
million increase in compensation and related benefits and a $28.8 million
increase in contracted medical services. The increase in contracted medical
services is due to a $5.5 million increase from the net addition of 16
correctional care contracts and a $23.0 million increase related to the PCA
Agreement.
INCOME BEFORE INCOME TAX EXPENSE. Income before income tax expense decreased by
$0.6 million, or 10.0%, to $5.4 million for the three months ended March 31,
1997 from $6.0 million for the same period in 1996, due primarily to the factors
set forth above.
INCOME TAX EXPENSE. Income tax expense decreased by $0.3 million, or 12.5%, to
$2.1 million for the three months ended March 31, 1997 from $2.4 million for the
same period in 1996.
NET INCOME. Net income decreased by $0.4 million, or 10.8%, to $3.3 million for
the three months ended March 31, 1997 from $3.7 million for the same period in
1996, due to the factors discussed above.
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INPHYNET MEDICAL MANAGEMENT INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
THREE MONTHS ENDED MARCH 31, 1997.
Net cash provided by operating activities was $2.6 million for the three months
ended March 31, 1997 versus $0.07 million for the three months ended March 31,
1996. This increase of $2.5 million in net cash provided by operating activities
resulted from increased cash collections on accounts receivable and the increase
in pre-paid capitation related to the PCA Agreement of approximately $2.0
million dollars.
Net cash used in investing activities was $2.3 million for the three months
ended March 31, 1997 and was primarily the result of $1.2 million for
acquisitions and $1.9 million for purchases of capital equipment.
Net cash provided by financing activities was $2.8 million for the three months
ended March 31, 1997 and was primarily the result of $2.9 million in proceeds
from the exercise of stock options.
As a result of the factors discussed above, cash increased to $6.8 million at
March 31, 1997 from $3.6 million at December 31, 1996.
THREE MONTHS ENDED MARCH 31, 1996.
Net operating activities resulted in a break-even cash flow during the three
months ended March 31, 1996.
Net cash used in investing activities of $3.9 million was primarily the result
of expenditures of $2.9 million for acquisitions and purchases of capital
equipment for $1.3 million.
Net cash provided by financing activities of $6.6 million was primarily the
result of borrowings of $8.2 million under the Company's Amended and Restated
Revolving Credit and Reimbursement Agreement (the "Credit Facility") with its
bank and $0.5 million in proceeds from the issuance of common stock, offset by
principal payments under the Credit Facility of $2.1 million.
As a result of the factors discussed above, cash increased to $4.0 million at
March 31, 1996 from $1.3 million at December 31, 1995.
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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
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(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.
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(registrant)
Date: May 23, 1997 By: /s/ CLIFFORD FINDEISS, M.D.
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Clifford Findeiss, M.D.
President, Chief Executive Officer and
Chairman of the Board
Date: May 23, 1997 By: /s/ GEORGE W. MCCLEARY, JR.
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George W. McCleary, Jr.
Executive Vice President,
Chief Financial Officer,
Secretary and Director
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