<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) October 9, 1996
---------------
Physicians Resource Group, Inc.
----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 1-13778 76-0456864
---------------------- ------------ -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
Three Lincoln Centre, Suite 1540, 5430 LBJ Freeway, Dallas, TX 75240
---------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (972) 982-8200
-------------------------
<PAGE> 2
Reference is made to the Current Report on Form 8-K dated October 9,
1996 (the "Form 8-K") filed by Physicians Resource Group, Inc. on October 16,
1996. The Form 8-K is hereby amended to read in its entirety as follows:
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
MELBOURNE ACQUISITION
On October 9, 1996, Physicians Resource Group, Inc., a Delaware
corporation (the "Company") acquired (the "Stock Purchase") all of the stock of
Melbourne Eye Associates of Brevard, Inc., a Florida corporation and Melbourne
Eye Associates, P.A., a Florida professional association (collectively, the
"Practice") pursuant to the terms of a Share Exchange Agreement dated October
4, 1996 by and among PRG Florida XII, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company ("PRG Sub"), the Practice, William J.
Broussard, M.D., Trustee U.T.D. March 24, 1980, Michael F. Corcoran, M.D.,
Trustee U.T.D. September 26, 1988, Andrew Zorbis, M.D., Ralph R. Paylor, M.D.,
L. Neal Freeman, M.D., Kaukwok Frederick Ho, M.D., Trustee U.T.D. November 24,
1989 (collectively, the "Stockholders") and the Company.
As a result of the Stock Purchase, the Company became the indirect
holder (through PRG Sub) of, with certain limitations, all of the assets and
properties, real and personal, tangible and intangible, and certain liabilities
of the Practice. PRG Sub intends to provide the use of such assets to the
Practice pursuant to the terms of the management services agreement entered
into at the time of the Stock Purchase.
To the best knowledge of the Company, at the time of the Merger there
was no material relationship between (i) the Practice and the Stockholders on
the one hand and (ii) the Company, or any of its affiliates, any director or
officer of the Company, or any associate of such director or officer on the
other.
The aggregate consideration paid by the Company as a result of the
Merger was 441,876 shares of the common stock, par value $.01 per share, of the
Company. The acquisition consideration for the Stock Purchase was determined
by arms-length negotiations between the parties to the Share Exchange
Agreement.
ITEM 5. OTHER EVENTS.
The Company and various wholly-owned subsidiaries of the Company (each
an "Additional Acquisition Sub"), entered into acquisition agreements (the
"Additional Acquisition Agreements") with the following ophthalmological and
optometric practices (the "Additional Practices") and physicians (the
"Additional Physicians"):
(i) Richard D. Levin, M.D., P.S.C., Inc., and
Richard D. Levin, M.D.
(ii) Safford Surgi-Center, Southwest Eye Associates, Ltd., SNW,
Inc. and James Holder, O.D.
2
<PAGE> 3
(iii) Ophthalmological Associates, Ltd., Morton R. Green, M.D.,
Kenneth 0. Green, M.D., and Stephen R. Waltman, M.D.
Pursuant to the Additional Acquisition Agreements, the respective
Additional Acquisition Subs acquired (the "Additional Acquisitions"), with
certain limited exceptions, all of the assets and properties, real and
personal, tangible and intangible, and certain liabilities of the Additional
Practices.
As a result of the Additional Acquisitions, the Company became the
indirect holder (through the respective Additional Acquisition Subs) of, with
certain limited exceptions, all of the assets and properties, real and
personal, tangible and intangible, and certain liabilities of the Additional
Practices. The respective Additional Acquisition Subs intend to provide the
use of such assets to the respective ophthalmological practices from which they
were acquired pursuant to the terms of management services agreements.
To the best knowledge of the Company, at the time of the Additional
Acquisitions there was no material relationship between (i) the Additional
Practices and the Additional Physicians, on the one hand, and (ii) the Company,
or any of its affiliates, any director or officer of the Company, or any
associate of such director or officer on the other.
The aggregate consideration paid by the Company as a result of the
Additional Acquisitions was 124,891 shares of the common stock, par value $.01
per share, of the Company and $722,450 cash. The acquisition consideration for
the Additional Acquisitions was determined by arms-length negotiations between
the parties to the applicable acquisition agreements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The audited combined balance sheet of Melbourne Eye Associates
of Brevard, Inc. and Melbourne Eye Associates, P.A. as of December 31, 1995,
and the related combined statements of earnings, owners' equity and cash flows
for the year then ended, are attached hereto as Annex A. Also attached hereto
as Annex A are the unaudited combined consolidated balance sheet of Melbourne
Eye Associates of Brevard, Inc. and Melbourne Eye Associates, P.A. as of June
30, 1996 and the related unaudited statements of income and cash flows for the
six months ended June 30, 1995 and 1996.
(b) The unaudited pro forma combined balance sheet of PRG as of
June 30, 1996 attached hereto as Annex B assumes the consummation of the Stock
Purchase as of that date. The unaudited pro forma consolidated statements of
income of PRG also attached hereto as Annex B present the historical results of
PRG as if PRG had consummated the Stock Purchase on January 1, 1995. Such pro
forma information is not necessarily indicative of operating results that would
have been achieved had such transaction been consummated on the dates presented
and should not be construed as representative of future operations.
(c) Exhibits.
3
<PAGE> 4
2.1 Share Exchange Agreement by and among PRG Florida XII, Inc., Melbourne
Eye Associates of Brevard, Inc., Melbourne Eye Associates, P.A.,
William Broussard, Trustee U.T.D. March 24, 1980, Michael F. Corcoran,
M.D., Trustee U.T.D. September 26, 1988, Andrew Zorbis, M.D., Ralph
Paylor, M.D., L. Neal Freeman, M.D., and Kaukwok Frederick Ho, M.D.,
Trustee U.T.D. November 24, 1989 and Physicians Resource Group, Inc.
(1)
2.2 Agreement and Plan of Reorganization by and among Ophthalmological
Associates, Ltd., Morton R. Green, M.D., Kenneth O. Green, M.D.,
Stephen R. Waltman, M.D., PRG Gr Acq. Corp., and Physicians Resource
Group, Inc. (1)
2.3 Asset Purchase Agreement by and among Safford Surgi-Center, Southwest
Eye Associates, Ltd., James Holder, O.D., Sun Valley Acquisition
Corporation and Physicians Resource Group, Inc. (1)
2.4 Asset Purchase Agreement by and among SNW, Inc., James Holder, O.D.,
Clarice Holder, Jeffrey Woodward, Suzy Woodward, Sun Valley
Acquisition Corporation and Physicians Resource Group, Inc. (1)
2.5 Asset Purchase Agreement by and among Richard D. Levin, M.D., P.S.C.
Inc., Richard D. Levin, M.D., PRG Ohio, Inc. and Physicians Resource
Group, Inc. (1)
4.1 Restated Certificate of Incorporation of Physicians Resource Group,
Inc. (2)
4.2 Certificate of Designations, Preferences, Rights and Limitations of
Class A Preferred Stock of Physicians Resource Group, Inc. (2)
4.3 Third Amended and Restated Bylaws of Physicians Resource Group, Inc.
(3)
4.4 Form of Warrant Certificate (2)
4.5 Rights Agreement dated as of April 19, 1996 between Physicians
Resource Group, Inc. And Chemical Mellon Shareholder Services. (4)
4.6 Form of certificate evidencing ownership of Common Stock of Physicians
Resource Group, Inc. (2)
23.1 Consent of Arthur Andersen, LLP (5)
- ---------------
(1) Previously filed herewith.
(2) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 33-91440) and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated herein by
reference.
4
<PAGE> 5
(4) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 333-3852) and incorporated herein by reference.
(5) Filed herewith.
5
<PAGE> 6
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PHYSICIANS RESOURCE GROUP, INC.
Date: October 30, 1996 By:/s/ Richard J. D'Amico
-----------------------------------
Richard J. D'Amico
Senior Vice President and
General Counsel
6
<PAGE> 7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Physicians Resource Group, Inc.:
We have audited the accompanying combined balance sheet of Melbourne Eye
Associates of Brevard, Inc. and Melbourne Eye Associates, P.A. as of December
31, 1995, and the related combined statements of earnings, owners' equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Melbourne Eye Associates of
Brevard, Inc. and Melbourne Eye Associates, P.A. as of December 31, 1995, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 16, 1996
A-1
<PAGE> 8
MELBOURNE EYE ASSOCIATES OF BREVARD, INC. AND
MELBOURNE EYE ASSOCIATES, P.A.
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 221,835 $ 642,595
Accounts receivable, net of allowance for doubtful accounts of
$385,000 and $427,000, at December 31, 1995 and June 30, 1996
(unaudited), respectively...................................... 1,033,774 1,037,737
Inventories....................................................... 25,083 25,603
Prepaid expenses and other current assets......................... 336,657 132,894
---------- ----------
Total current assets...................................... 1,617,349 1,838,829
PROPERTY AND EQUIPMENT, net......................................... 571,140 631,077
OTHER NON CURRENT ASSETS............................................ 391,113 429,945
---------- ----------
Total assets.............................................. $2,579,602 $2,899,851
========== ==========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................................. $ 17,143 $ 11,428
Short-term capital lease.......................................... 20,930 14,825
Accounts payable and accrued expenses............................. 305,578 301,338
Accrued salaries and benefits..................................... 161,875 214,911
---------- ----------
Total current liabilities................................. 505,526 542,502
LONG-TERM DEBT, net of current portion.............................. 72,760 68,473
---------- ----------
Total liabilities......................................... 578,286 610,975
---------- ----------
OWNERS' EQUITY...................................................... 2,001,316.. 2,288,876
---------- ----------
Total liabilities and owners' equity...................... $2,579,602 $2,899,851
========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
A-2
<PAGE> 9
MELBOURNE EYE ASSOCIATES OF BREVARD, INC. AND
MELBOURNE EYE ASSOCIATES, P.A.
COMBINED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
DECEMBER 31, ------------------------
1995 1995 1996
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
REVENUES:
Medical service revenues, net......................... $7,215,756 $3,497,168 $3,501,455
COSTS AND EXPENSES:
Compensation to physician owners'..................... 2,768,259 1,357,525 1,284,582
Salaries, wages, and benefits......................... 1,311,566 652,333 717,379
Pharmaceuticals and supplies.......................... 154,633 77,649 105,281
General and administrative expenses................... 1,741,104 788,232 948,229
Depreciation and amortization......................... 176,425 84,761 86,808
Interest expense...................................... 864 5,300 5,363
Other expenses........................................ 44,280 1,891 6,253
---------- ---------- ----------
Total costs and expenses...................... 6,197,131 2,967,691 3,153,895
---------- ---------- ----------
Net earnings.................................. $1,018,625 $ 529,477 $ 347,560
========== ========== ==========
SUPPLEMENTAL DISCLOSURE:
Combined compensation to and net earnings of physician
owners'............................................ $3,786,884 $1,887,002 $1,632,142
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
A-3
<PAGE> 10
MELBOURNE EYE ASSOCIATES OF BREVARD, INC. AND
MELBOURNE EYE ASSOCIATES, P.A.
COMBINED STATEMENT OF OWNERS' EQUITY
<TABLE>
<S> <C>
BALANCE, December 31, 1994....................................................... $1,430,025
Net earnings................................................................... 1,018,625
Distributions to owners........................................................ (447,334)
----------
BALANCE, December 31, 1995....................................................... 2,001,316
Net earnings (unaudited)....................................................... 347,560
Distributions to owners (unaudited)............................................ (60,000)
----------
BALANCE, June 30, 1996 (unaudited)............................................... $2,288,876
==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
A-4
<PAGE> 11
MELBOURNE EYE ASSOCIATES OF BREVARD, INC. AND
MELBOURNE EYE ASSOCIATES, P.A.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED
JUNE 30,
DECEMBER 31, ---------------------
1995 1995 1996
------------ --------- --------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings............................................ $1,018,625 $ 529,477 $347,560
Adjustments to reconcile net earnings to net cash
provided by operating activities --
Depreciation and amortization........................ 176,425 84,761 86,808
Changes in assets and liabilities --
(Increase) decrease in --
Accounts receivable, net........................ (520,387) (194,208) (3,963)
Inventories..................................... (1,003) (499) (520)
Prepaid expenses and other assets............... (118,620) (119,088) 164,931
Increase (decrease) in --
Accounts payable and accrued expenses........... (40,884) 72,729 (4,240)
Accrued salaries and benefits................... 103,802 46,927 53,036
---------- --------- --------
Net cash provided by operating activities....... 617,958 420,099 643,612
---------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (160,150) (90,223) (146,745)
---------- --------- --------
Net cash used in investing activities........... (160,150) (90,223) (146,745)
---------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt....................................... (41,307) (21,071) (16,107)
Equity distributions to owners'......................... (447,334) -- (60,000)
---------- --------- --------
Net cash used in financing activities........... (488,641) (21,071) (76,107)
---------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (30,833) 308,805 420,760
CASH AND CASH EQUIVALENTS, beginning of period............ 252,668 252,668 221,835
---------- --------- --------
CASH AND CASH EQUIVALENTS, end of period.................. $ 221,835 $ 561,473 $642,595
SUPPLEMENTAL DISCLOSURE
Cash paid for interest.................................. $ 14,045 $ 7,862 $ 5,011
Cash paid for taxes..................................... $ 7,352 $ 5,698 $ 7,207
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
A-5
<PAGE> 12
MELBOURNE EYE ASSOCIATES OF BREVARD, INC. AND
MELBOURNE EYE ASSOCIATES, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION:
Melbourne Eye Associates of Brevard, Inc. and Melbourne Eye Associates,
P.A. (collectively "MEA"), are affiliated through common ownership, and are
professional service corporations that are engaged in the practice of medicine
specializing in ophthalmology, with practices in Melbourne, Florida.
The accompanying financial statements reflect the combined operations of
the affiliated practices and have been prepared on the accrual basis of
accounting. The supplemental caption on the combined statements of earnings,
"Combined compensation to and net earnings of the physician owners'," reflects
the total earnings available to the physician owners' for each period.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
MEA considers all highly liquid instruments with original maturities of
three months or less, to be cash and cash equivalents.
Accounts Receivable
Accounts receivable primarily consist of receivables from patients,
insurers, government programs, and other third-party payors for medical services
provided by physicians. Such amounts are reduced by an allowance for contractual
adjustments and other uncollectible amounts. Contractual adjustments result from
the differences between the rates charged by the physicians for services
performed and the amounts allowed by the Medicare and Medicaid programs and
other public and private insurers.
Inventories
Inventories consist primarily of contact lenses, solutions, and
miscellaneous pharmaceutical supplies, which are valued at the lower of cost or
market with cost determined using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment is stated at cost, net of accumulated depreciation.
Depreciation is calculated using accelerated methods over the estimated useful
lives of the assets. Routine maintenance and repairs are charged to expense as
incurred, while costs of betterments and renewals are capitalized.
Income Taxes
The accompanying combined financial statements reflect the operations of an
S corporation and a C corporation. In the S corporation, the income tax
liabilities are the responsibility of the owner. The C corporation has
historically not incurred significant tax liabilities for federal or state
income taxes. Compensation to physician owners' has traditionally reduced
taxable income to nominal levels. This relationship would be expected to
continue in the absence of the acquisition referred to in Note 12. Because of
this practice, a provision for income taxes and deferred tax assets and
liabilities of the taxable entities has not been reflected in these combined
financial statements. The consistent presentation of the combined financial
statements on a pretax basis also provides comparability that would not
otherwise be the case when presenting a combination of various taxable and
nontaxable entities.
A-6
<PAGE> 13
MELBOURNE EYE ASSOCIATES OF BREVARD, INC. AND
MELBOURNE EYE ASSOCIATES, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues
Medical service revenues are accounted for in the period in which the
services are provided. The revenues are reported at the estimated realizable
amounts from patients, third-party payors, and others. Provisions for estimated
third-party payor adjustments are estimated and recorded in the period the
related services are provided. Any adjustment to the amounts is recorded in the
period in which the revised amount is determined. A significant portion of MEA
medical service revenues is related to Medicare and other governmental programs.
Medicare and other governmental programs reimburse physicians based on fee
schedules which are determined by the related governmental agency. Additionally,
MEA participates in agreements with managed care organizations to provide
services at negotiated rates.
New Accounting Pronouncement
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Adoption of this
standard is required for financial statements for fiscal years beginning after
December 15, 1995. Earlier application is encouraged. MEA does not expect the
new standard to have a material effect on MEA's results of operations.
Concentration of Credit Risk
MEA extends credit to patients covered by programs such as Medicare,
Medicaid, and private insurers. MEA manages credit risk with the various public
and private insurance providers, as appropriate. Allowances for doubtful
accounts have been made for potential losses, when appropriate.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the combined
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Unaudited Financial Information
The unaudited interim combined financial statements as of June 30, 1996,
and for the six-months ended June 30, 1996 and 1995, have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. The
accompanying unaudited combined financial statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the unaudited
combined financial statements. All such adjustments are of a normal and
recurring nature.
A-7
<PAGE> 14
MELBOURNE EYE ASSOCIATES OF BREVARD, INC. AND
MELBOURNE EYE ASSOCIATES, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED USEFUL DECEMBER 31,
LIVES (YEARS) 1995
---------------- ------------
<S> <C> <C>
Equipment............................................... 5-10 $ 1,224,707
Automobiles............................................. 5 14,965
Leasehold improvements.................................. 5-15 151,566
Property and fixtures................................... 5-10 206,530
------------
Total......................................... 1,597,768
Less -- Accumulated depreciation and amortization....... (1,026,628)
------------
Property and equipment, net................... $ 571,140
============
</TABLE>
4. LONG-TERM DEBT:
Long-term debt consists of the following as of December 31, 1995:
<TABLE>
<S> <C>
Note payable to bank, bearing interest at the prime rate plus 0.5% (9.0%
at December 31, 1995), due in 2001. Monthly principal payments of
approximately $1,429, collateralized by accounts receivable and
equipment, and guaranteed by
the stockholders........................................................ $ 89,903
--------
Less -- Current portion......................................... (17,143)
--------
Long-term debt excluding current portion........................ $ 72,760
========
</TABLE>
As of December 31, 1995, the aggregate amounts of annual principal
maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1996....................................................... $17,143
1997....................................................... 17,143
1998....................................................... 17,143
1999....................................................... 17,143
2000....................................................... 17,143
Thereafter................................................. 4,188
-------
Total............................................ $89,903
=======
</TABLE>
MEA guarantees debt obligations of its stockholders and related parties. At
December 31, 1995, the amount guaranteed was approximately $2,000,000. Accounts
receivable and equipment have been pledged as collateral.
5. LINE OF CREDIT:
There were no advances under MEA's line of credit at December 31, 1995. The
maximum advance under the agreement is $400,000. The debt is collateralized by
accounts receivable and equipment. Interest is charged at prime rate (8.50% as
of December 31, 1995).
A-8
<PAGE> 15
MELBOURNE EYE ASSOCIATES OF BREVARD, INC. AND
MELBOURNE EYE ASSOCIATES, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. CAPITAL LEASES:
Capital leases for computer equipment consisted of the following as of
December 31, 1995:
<TABLE>
<S> <C>
Capital lease to financing company for computer equipment due in 1997,
payable in monthly installments of $2,228 with interest at 12.26%,
collateralized by the equipment.......................................... $20,930
-------
Total capital lease payable...................................... $20,930
=======
</TABLE>
As of December 31, 1995, the annual lease commitments under the capital
lease are as follows:
<TABLE>
<S> <C>
Total minimum lease payments due........................................... $22,280
Less -- Amounts representing interest.................................... (1,350)
-------
Present value of minimum lease payments.................................... $20,930
=======
</TABLE>
7. OPERATING LEASES:
Certain medical and office equipment and buildings are leased under
noncancelable operating leases. At December 31, 1995, minimum annual lease
commitments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
RELATED
PARTY OTHER
---------- --------
<S> <C> <C>
1996......................................................... $ 453,833 $ 76,290
1997......................................................... 424,323 72,651
1998......................................................... 511,126 69,340
1999......................................................... 512,736 18,576
2000......................................................... 514,394 9,675
Thereafter................................................... 4,311,001 --
---------- --------
Total.............................................. $6,727,413 $246,532
========== ========
</TABLE>
Rent expense on related-party operating leases was approximately $347,000
for the year ended December 31, 1995. Non related party rent amounted to
approximately $80,000 for the year ended December 31, 1995.
8. RELATED PARTY TRANSACTIONS:
MEA's stockholders own various other entities that are engaged in a similar
business at different locations. Various expenses are paid and cash is collected
on behalf of the other entities. Included in prepaid expenses and other current
assets are related party receivables of $296,320. Included in accounts payable
and accrued expenses is $199,208 of related party payables. MEA's stockholders
also own three of the buildings in which the practice conducts business (See
Note 7 for lease commitments disclosure).
9. EMPLOYEE BENEFIT PLAN:
MEA has a 401(k) profit-sharing plan (the "Plan") which provides for MEA to
make discretionary contributions. MEA pays all general and administrative
expenses of the Plan. MEA made contributions related to the Plan totaling
approximately $140,000 in 1995. An officer of MEA is the trustee of the Plan.
MEA does not provide postretirement or postemployment benefits to
employees.
A-9
<PAGE> 16
MELBOURNE EYE ASSOCIATES OF BREVARD, INC. AND
MELBOURNE EYE ASSOCIATES, P.A.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. CONTINGENCIES:
MEA is insured with respect to medical malpractice risks on a claims-made
basis. In the normal course of business, MEA has been named in a lawsuit,
primarily alleging medical malpractice. In the opinion of MEA's management,
final settlement, if any, due as a result of litigation, and without
consideration of possible insurance recoveries, is not expected to be material
to the operating results or financial condition of MEA.
11. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosure about fair value of financial statements,"
requires all entities to disclose the fair value of certain financial
instruments in their financial statements. Accordingly, the carrying amounts of
accounts receivable, accounts payable, and accrued expenses approximate fair
value due to the short maturity of these instruments.
The carrying amount of MEA s long-term debt approximates fair value due to
MEA s ability to obtain such borrowings on comparable terms and the floating
nature of the interest rates.
12. SUBSEQUENT EVENT:
On October 9, 1996, MEA completed a stock-for-stock merger transaction with
Physicians Resource Group, Inc. (PRG), in exchange for 441,876 shares of PRG
common stock.
The combined financial statements of MEA have been prepared as supplemental
information about the entities which PRG acquired. MEA previously operated as
separate independent entities. The historical financial position, results of
operations, and cash flows do not reflect any adjustments relating to the
acquisition.
A-10
<PAGE> 17
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma financial statements include the
unaudited pro forma balance sheet as of June 30, 1996 as if the acquisition of
Houston Eye Associates (Houston Eye); South Texas Retina Consultants, P.A.
(South Texas); Melbourne Eye Associates of Brevard, Inc. and Melbourne Eye
Associates, Inc., P.A. (Melbourne), Equimed, Inc. - Ophthamology Business
(Equimed); and American Ophthalmic, Inc. and Subsidiaries (AOI) (the Purchased
Entities) (collectively the Third Quarter Acquisitions) had occurred on that
date, and include the unaudited pro forma statement of operations for the years
ended December 31, 1995 and for the six months ended June 30, 1996 as if the
merger with Cincinnati Eye Institute, Inc. and affiliate (Cincinnati Eye); Tampa
Eye Clinic, P.A. (Tampa Eye); Gregory L. Henderson, M.D., P.A. (Henderson); The
Eye Institute of West Florida, P.A. and Douglas G. Johnson, O.D., P.A. (West
Florida); Stuart J. Kaufman, M.D. and Associates, P.A. (Kaufman); F. A. Hauber,
M.D., P.A. (Hauber) (the Pooled Entities) had occurred as of January 1, 1993 and
the acquisition of Houston Eye, South Texas, Melbourne, Equimed and AOI and
certain other transactions as described below had occurred as of January 1,
1995.
The unaudited pro forma statements of operations for the year ended
December 31, 1995 and the six months ended June 30, 1996 also give effect to (i)
the consummated PRG initial public offering (IPO) and simultaneous exchange of
cash, shares of its common stock and note payable for certain assets of and
liabilities (the Reorganization) associated with ten eye care practices; (ii)
the issuance of 3,553,000 shares of PRG common stock in the IPO and the
application of the net proceeds therefrom; (iii) the acquisition of certain
assets from and consummation of service agreements with 25 eye care practices by
PRG during the first, second, third and fourth quarter-to-date of 1996 and the
acquisition of Equimed and AOI (the 1996 Acquisitions); (iv) the acquisition of
certain assets from and consummation of service agreements with eye care
practices during 1995 and 1996 made by EyeCorp, Equimed and AOI prior to their
respective transactions with PRG (the 1995 EyeCorp Acquisitions, Equimed
Acquisitions, and AOI Acquisitions); and (v) the issuance of 4,250,000 shares of
PRG in a public offering during May, 1996 and the application of the net
proceeds therefrom.
The unaudited merger/significant transactions pro forma financial
statements have been prepared by PRG based on the financial statements of PRG
and the Third Quarter Acquisitions included elsewhere in this Form 8-K/A or
previously filed Form 8-K's, the unaudited financial statements of practices
acquired by PRG in the 1996 Acquisitions and the practices acquired in the 1995
EyeCorp Acquisitions, the Equimed Acquisitions, and the AOI Acquisitions and
other assumptions deemed appropriate by PRG. These unaudited pro forma financial
statements may not be indicative of the actual results had the above events and
transactions occurred on the dates indicated or of actual results which may be
realized in the future. Neither expected benefits and cost reductions
anticipated by PRG nor future corporate costs and expenses related to the 1996
Acquisitions, the 1995 EyeCorp Acquisitions, the Equimed Acquisitions, and the
AOI Acquisitions have been reflected in the accompanying unaudited pro forma
financial statements.
B-1
<PAGE> 18
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1996
(000'S)
<TABLE>
<CAPTION>
PURCHASE
ADJUSTMENTS
PRG -----------
and POOLED PURCHASED TOTAL
ENTITIES ENTITIES PRO FORMA
-------- ----------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................. $ 82,278 $(79,001)(A) $ 3,277
Accounts receivable, net................... 18,480 22,069 (A) 40,549
Receivables due from affiliated
practices................................ 14,684 135 (A) 14,819
Inventories................................ 3,638 1,003 (A) 4,641
Prepaid expenses and other current
assets................................... 5,104 3,196 (A) 8,300
-------- -------- --------
Total current assets................. 124,184 (52,598) 71,586
PROPERTY AND EQUIPMENT, net:................. 43,951 19,028 (A) 62,979
INTANGIBLE ASSETS, net:...................... 112,370 236,200 (A) 348,570
OTHER NONCURRENT ASSETS, net................. 3,895 1,919 (A) 5,814
-------- -------- --------
Total assets......................... $284,400 204,549 $488,949
======== ======== ========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt........................... $ 3,629 $ 926 (A) $ 4,555
Accounts payable and accrued expenses...... 11,391 1,769 (A) 13,160
Accrued salaries and benefits.............. 5,636 10,864 (A) 16,500
-------- -------- --------
Total current liabilities............ 20,656 13,559 34,215
LONG-TERM DEBT, net of current portion....... 13,186 76,100 (A) 89,286
DEFERRED TAXES and OTHER LONG-TERM
LIABILITIES................................ 30,124 50,028 (A) 80,152
-------- -------- --------
Total liabilities.................... 63,966 139,687 203,653
OWNERS' EQUITY:
Common stock............................... 259 29 (A) 288
Additional paid-in capital................. 215,711 64,833 (A) 280,544
Retained earnings (deficit)................ 4,464 -- 4,464
-------- -------- --------
Total owners' equity................. 220,434 64,862 285,296
-------- -------- --------
Total liabilities and owners'
equity............................. $284,400 $204,549 $488,949
======== ======== ========
</TABLE>
See accompanying notes to unaudited merger/significant transactions pro forma
balance sheet.
B-2
<PAGE> 19
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PURCHASE ADJUSTMENTS
--------------------------------------------------
PRG 1995
and 1996 EYECORP
Pooled POOLING IPO ACQUISITIONS ACQUISITIONS TOTAL
Entities ADJUSTMENTS REORGANIZATION AND OTHER AND OTHER PRO FORMA
-------- ----------- -------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Management
service
revenues... $75,610 $ -- $ 22,085 (C) $ 170,317 (J) $ 40,424 (R) $308,436
Surgery
center
revenue.... 12,935 -- 2,821 (C) 25,967 (J) 4,749 (R) 46,472
Other
revenues... 1,422 -- 5 (D) 961 (K) -- 2,388
------- ------- -------- ---------- -------- --------
Total
revenues... 89,967 -- 24,911 197,245 45,173 357,296
COSTS AND
EXPENSES:
Salaries,
wages and
benefits... 50,061 (18,803)(B) 10,199 (D) 75,978 (K) 15,455 (S) 132,890
Pharmaceuticals
and
supplies... 9,487 -- 3,494 (D) 18,181 (K) 7,659 (S) 38,821
General and
administrative
expenses... 22,478 12,693 (B) 6,115 (D) 63,545 (K) 13,653 (S) 116,960
(334)(G) (54)(M) (676)(T)
(460)(N)
Depreciation
and
amortization... 3,498 -- 1,217 (D) 7,756 (K) 1,264 (S) 26,090
(194)(F) (20)(H) 1,448 (U)
159 (G) 10,939 (L)
23 (M)
Write-off of
intangible
assets..... -- -- -- 4,126 (P) -- 4,126
Executive
resignation
expenses... 1,117 -- -- -- -- 1,117
Interest
expense.... 1,516 -- 233 (D) 7,893 (K) 379 (S) 8,641
(82)(E) (22)(H) (207)(V)
(24)(F) (5,045)(Q)
4,000 (O)
------- ------- -------- ---------- --------- --------
Total
costs
and
expenses... 88,157 (6,110) 20,783 186,840 38,975 328,645
------- ------- -------- ---------- --------- --------
INCOME BEFORE
INCOME
TAXES........ 1,810 6,110 4,128 10,405 6,198 28,651
PROVISION FOR
INCOME
TAXES........ (501) (2,634)(I) (1,610)(I) (3,873)(I) (2,479)(I) (11,097)(I)
------- ------- -------- ---------- -------- --------
NET INCOME..... $ 1,309 $ 3,476 $ 2,518 $ 6,532 $ 3,719 $ 17,554 (W)
======= ======= ======== ========== ======== ========
NET INCOME PER
SHARE........ $ 0.10 $ 0.60
======= ========
NUMBER OF
SHARES USED
IN NET INCOME
PER SHARE
CALCULATION... 12,678 29,240 (X)
======= ========
</TABLE>
See accompanying notes to unaudited merger/significant transactions pro forma
statement of operations.
B-3
<PAGE> 20
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(000'S, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PURCHASE
ADJUSTMENTS
------------
PRG and 1996
POOLED POOLING ACQUISITIONS TOTAL
ENTITIES ADJUSTMENTS AND OTHER PRO FORMA
-------- ----------- ------------ ---------
<S> <C> <C> <C> <C>
REVENUES:
Management service revenues.... $ 88,549 $ -- $ 64,587 (J) $ 153,136
Surgery center revenue......... 12,454 -- 11,089 (J) 23,543
Other revenues................. 1,896 -- 323 (K) 2,219
-------- ----------- --------- ----------
Total revenues......... 102,899 -- 75,999 178,898
COSTS AND EXPENSES:
Salaries, wages and benefits... 51,768 (10,511)(B) 26,887 (K) 68,144
Pharmaceuticals and supplies... 13,046 -- 8,793 (K) 21,839
General and administrative
expenses.................... 23,904 7,515 (B) 25,633 (K) 57,052
Depreciation and
amortization................ 4,418 -- 2,568 (K) 11,786
4,800 (L)
Pooling merger transaction..... 9,000 -- -- 9,000
Interest expense............... 341 -- 3,177 (K) 3,310
(2,208)(Q)
2,000 (O)
-------- ----------- --------- ---------
Total costs and
expenses............. 102,477 (2,996) 71,650 171,131
-------- ----------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES.......................... 422 2,996 4,349 7,767
PROVISION FOR INCOME TAXES....... (3,276) (1,503)(I) (1,152)(I) (5,931)(I)
-------- ----------- --------- ---------
NET INCOME (LOSS)................ $ (2,854) $ 1,493 $ 3,197 $ 1,836 (W)
======== =========== ========= =========
NET INCOME (LOSS) PER SHARE...... $ (0.13) $ 0.06
======== =========
NUMBER OF SHARES USED IN NET
INCOME PER SHARE CALCULATION... 21,768 29,673 (X)
======== =========
</TABLE>
See accompanying notes to unaudited merger/significant transactions pro forma
statement of operations.
B-4
<PAGE> 21
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA FINANCIAL STATEMENTS
(000'S, EXCEPT SHARE AMOUNTS)
PRO FORMA BALANCE SHEET ADJUSTMENTS
The accompanying pro forma balance sheet as of June 30, 1996 gives effect
to the Third Quarter Acquisitions as if such transactions or events had occurred
on June 30, 1996. The estimated fair market values reflected below are based on
preliminary estimates and assumptions and are subject to revision. In
management's opinion, the preliminary allocation is not expected to be
materially different than the final allocation.
(A) Reflects the Third Quarter Acquisitions which include Melbourne,
Equimed, and AOI. Pursuant to the Third Quarter Acquisitions, PRG acquired
certain assets and assumed certain liabilities, excluding cash, in exchange for
the issuance of 2,939,432 shares of PRG common stock and $89,000 in cash. The
$89,000 cash payment was funded through $79,000 in available cash and $10,000
draw on the PRG Credit Facility. Simultaneously, with the purchase of the eye
care practices' assets and liabilities, the Company enters into a 40 year
service agreement with the practices. The estimated fair market value of the
assets and liabilities of the Third Quarter Acquisitions are as follows:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- --------
(000'S)
<S> <C>
Net assets acquired --
Accounts receivable, net................................................ $ 22,069
Receivables due from affiliated practices............................... 135
Inventories............................................................. 1,003
Prepaid expenses and other current assets............................... 3,196
Property and equipment, net............................................. 19,028
Intangible assets....................................................... 236,200
Other noncurrent assets, net............................................ 1,919
Notes payable and current portion of long-term debt..................... (926)
Accounts payable and accrued expenses................................... (1,769)
Accrued salaries and benefits........................................... (10,864)
Long-term debt, net..................................................... (66,101)
Deferred taxes and other long-term liabilities.......................... (50,028)
--------
$153,862
========
Consideration paid --
Common stock............................................................ $ 64,862
Cash.................................................................... 89,000
--------
$153,862
========
</TABLE>
The value of the shares issued in the Third Quarter Acquisitions was based
on the average trading price prior to the closing of the individual transactions
and is discounted, as appropriate, for trading restrictions. Identifiable
intangible assets consist of the nonphysician employee work force, and the
service agreements. The estimated fair value of the nonphysician employee work
force is based on the estimated cost to replace the work force. The estimated
fair value of the service agreement for clinics is the excess of the purchase
price over the estimated fair value of the tangible assets and work force
acquired and liabilities assumed.
In connection with the allocation of the purchase price to identifiable
intangible assets, PRG analyzed the nature of each practice including the number
of physicians in each group, number of clinics and their ability to recruit and
develop additional physicians; value of the nonphysician employee work force;
length of service agreement and ability to enforce the agreement; existence of
an ambulatory surgery center (ASC), if any, and the trend in health care
delivery methods to an ASC-type facility. Management's analysis indicated that
the work force in place to be acquired represents an intangible asset. The
typical replacement cost of the work force has been estimated and will be
amortized over the expected average seven-year worklife of the existing work
force. The physician groups have the ability to extend their existence
indefinitely; however, the length of
B-5
<PAGE> 22
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(000'S, EXCEPT SHARE AMOUNTS)
the service agreement, typically 40 years with additional renewal options,
effectively establishes a finite life for the amortization of intangibles. These
practices typically break into two categories:
(1) Physician practices and larger optometric practices are
characterized by multiple clinics, large staffs and multiple practitioners
and are composed of a mixture of surgery and complex vision service
providers with high-volume optometric providers. These practice groups
typically operate in a partnership manner and actively recruit physicians
for fellowship programs, or as employee physicians and, if appropriate,
subsequently admit qualified physicians into various levels of group
practice ownership. This manner of operations allows a practice to
perpetuate itself as individual physicians retire or are otherwise
replaced. Management of PRG estimates that the average major practice group
has practiced as a group for more than 15 years. The service agreements
with these groups are typically 40 years and, because the practice group
has an indefinite life, the Company has chosen to amortize the intangible
created over the shorter of 40 years or the life of the related service
agreement.
(2) The second practice category, optometric practices, can be
characterized as being composed of a single provider, smaller staffs and
one clinic and are typically limited to optometric services and primary eye
care. These practices do not normally have the same indefinite life
characteristics as the larger practices, and the intangible created in the
purchase transaction will be amortized over a 15-year period representing
the expected life of the related practice although the related service
agreement may extend well beyond that period.
The carrying value of the intangible assets will be reviewed at each
reporting period on a practice-by-practice basis to determine if facts and
circumstances exist which would suggest that the intangible assets may be
impaired or that the amortization period needs to be modified. Among the factors
PRG will consider in making the evaluation are changes in the market position,
reputation, profitability and geographical penetration of the practices or ASCs.
If indicators are present which indicate impairment is probable, PRG will
prepare a projection of the undiscounted cash flows of the specific practice and
determine if the intangible assets are recoverable based on these undiscounted
cash flows. If impairment is indicated, then an adjustment will be made to
reduce the carrying amounts of the intangible assets to their values. PRG does
not expect the adoption of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-Lived Assets to
Be Disposed Of," to have a material impact on its financial condition or results
of operations.
(B) Historical compensation to the owners has been reversed and future
professional service fees properly recorded. The previous owners of the Pooled
Entities will receive a professional service fee equal to 65% of income before
taxes as compensation for the services rendered by the physicians to the Clinic.
PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
The accompanying unaudited pro forma statements of operations assume that
as of January 1, 1993, PRG and the Pooled Entities had completed the merger. In
addition, the accompanying unaudited pro forma statements of operations for the
year ended December 31, 1995 and for the six months ended June 30, 1996 assume
that as of January 1, 1995, PRG had completed the IPO and Reorganization, the
1996 Acquisitions, the 1995 EyeCorp Acquisitions, the Equimed Acquisitions, the
AOI Acquisitions and the May, 1996 issuance of shares in a public offering.
B-6
<PAGE> 23
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(000'S, EXCEPT SHARE AMOUNTS)
NOTES (C) - (G) REPRESENT ADJUSTMENTS RELATING TO THE IPO AND REORGANIZATION
(C) Represents calculated management service revenues of PRG, determined in
accordance with the management service agreements applied to the historical
operating results of the initial affiliated practices for the first six months
of 1995.
<TABLE>
<CAPTION>
DESCRIPTION
----------- YEAR ENDED
DECEMBER 31,
1995
------------
(000'S)
<S> <C>
Management service revenues(1).......................................... $ 22,085
=======
Revenues from ACSs(2)................................................... $ 2,821
=======
</TABLE>
PRG receives, with respect to each of the initial affiliated practices, revenues
based on the following components:
(1) Under the terms of its service agreements, PRG receives service
revenues based on certain operating and nonoperating expenses incurred on
behalf of the practice and a percentage of revenues relating to physician
and certain other medical services.
(2) With respect to several of the Practices, PRG owns or operates
ASCs and receives the related revenues for certain nonphysician services.
Various of these services fees are subject to certain negotiated
performance and other adjustments. The negotiated adjustments vary on a
practice-by-practice basis and include adjustments that cap or otherwise align
the fees based on percentages of revenues at specified levels related to the
profitability of the practice. Additionally, certain of the service fees based
on percentages of revenues are adjusted based on the actual results of the
practices, resulting in lower service fee ratios for incremental practice
results over specified base levels.
(D) Represents an adjustment to reflect historical costs of the initial
affiliated practices which have been subsequently assumed by PRG in order to
fulfill PRG's obligations under the service agreements with such practices. The
components of the adjustment for the first half of the year ended December 31,
1995, include costs of the initial affiliated practices and a management
services organization (MSO) purchased by PRG in the Reorganization which are
included in the historical financial statements of the initial affiliated
practices.
<TABLE>
<CAPTION>
DESCRIPTION
----------- YEAR ENDED
DECEMBER 31,
1995
------------
(000'S)
<S> <C>
Other revenue, net...................................................... $ (5)
Salaries, wages and benefits............................................ 10,199
Pharmaceuticals and supplies............................................ 3,494
General and administrative expenses..................................... 6,115
Depreciation and amortization........................................... 1,217
Interest expense........................................................ 233
</TABLE>
(E) Reflects the elimination of interest expense related to debt
extinguished with proceeds of the IPO.
B-7
<PAGE> 24
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(000'S, EXCEPT SHARE AMOUNTS)
(F) Reflects adjustments to the historical costs and expenses as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
DESCRIPTION 1995
----------- ------------
(000'S)
<S> <C>
Change in depreciation method --
Pro forma depreciation(1)............................................. $ 916
Depreciation recorded in entry (D).................................... (1,148)
-------
Net depreciation adjustment................................... $ (232)
=======
Additional amortization --
Pro forma amortization(2)............................................. $ 107
Amortization recorded in entry (D).................................... (69)
-------
Net amortization adjustment................................... $ 38
=======
Reduction of interest expense --
Interest expense on capital leases that will not be incurred on a pro
forma basis(3)..................................................... $ (24)
=======
</TABLE>
Further explanation of the components of these calculations is as follows:
(1) The depreciation adjustment results from a change from an
accelerated method to a straight-line method and, where PRG has determined
that it is appropriate, a revision in the estimated useful lives of those
assets. The calculated pro forma amount is based on property and equipment
acquired of $11,305 with composite average useful lives of six years as of
January 1, 1995.
(2) Pro forma amortization of intangibles relates to $4,293 of
intangible assets resulting from the purchase of an MSO, which is being
amortized on a straight-line basis over a period of 40 years. This portion
of the amortization of the intangible asset has been included in entry (D).
(3) Certain capital leases recorded by the initial Affiliated
Practices were not assumed by PRG because the underlying assets have been
acquired by PRG from their owners.
(G) Reflects reversal of operating lease expense for previously leased
assets with a net book value of approximately $3,736 acquired from owners of the
initial affiliated practices and the recording of depreciation expense on a
straightline basis over a composite average useful life of 12 years. Debt
obligations relating to the underlying assets under operating leases of $2,401
as of December 31, 1995 have been extinguished with the proceeds of the IPO.
Accordingly, interest expense on such debt has not been reflected in the
accompanying pro forma statement of operations.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
DESCRIPTION 1995
----------- ------------
(000'S)
<S> <C>
Reduction of lease expense.............................................. $ (353)
Property tax on acquired assets......................................... 19
-----
Total general and administrative.............................. $ (334)
=====
Depreciation of acquired assets......................................... $ 159
=====
</TABLE>
B-8
<PAGE> 25
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(000'S, EXCEPT SHARE AMOUNTS)
NOTE (H) REFERS TO EXCLUDED ASSETS FROM THE 1996 ACQUISITIONS
(H) Reflects the elimination of expenses related to certain assets which
have been included within the historical costs and expenses of the 1996
Acquisitions but will not be associated with PRG on an ongoing basis.
NOTE (I) REFERS TO INCOME TAXES
(I) Reflects federal and state income taxes that PRG would have incurred on
pro forma income before taxes.
NOTES (J) - (Q) REFER TO ADJUSTMENTS RELATING TO 1996 ACQUISITIONS AND OTHER
(J) Represents calculated management service revenues of PRG, determined in
accordance with the applicable service agreement applied to the historical
operating results of the 1996 Acquisitions, Equimed Acquisitions and AOI
Acquisitions.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
DECEMBER 31, JUNE 30,
DESCRIPTION 1995 1996
----------- ------------ --------
(000'S)
<S> <C> <C>
Management service revenues(1)..................... $170,317 $ 64,587
======== ========
Revenues from ASCs(2).............................. $ 25,967 $ 11,089
======== ========
</TABLE>
PRG will receive revenues, with respect to each of the 1996 Acquisitions,
Equimed Acquisitions and AOI Acquisitions based on the following components:
(1) Under the terms of its service agreements, the Company receives
service revenues based on certain operating and nonoperating expenses
incurred on behalf of the practice and a percentage of revenues relating to
physician and certain other medical services.
(2) With respect to several of the practices, PRG owns or operates
ASCs and receives related revenues for certain nonphysician services.
(K) Represents an adjustment to reflect historical costs of the 1996
Acquisitions, Equimed Acquisitions and AOI Acquisitions which will be assumed by
PRG in order to fulfill PRG's obligation under the applicable service
agreements. The components of the adjustment include the historical operating
costs of the acquisitions.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, JUNE 30,
DESCRIPTION 1995 1996
----------- ------------ ----------
(000'S) (000'S)
<S> <C> <C>
Other revenue, net............................. $ (961) (323)
Salaries, wages and benefits................... 75,978 26,887
Pharmaceuticals and supplies................... 18,181 8,793
General and administrative expenses............ 63,545 25,633
Depreciation and amortization.................. 7,756 2,568
Interest expense............................... 7,893 3,177
</TABLE>
(L) Reflects adjustments to historical costs and expenses of $669, $1,008
and $3,123 for the six months ended June 30, 1996 and $1,897, $2,155 and $6,887
for the year ended December 31, 1995, for (1) amortization of work
B-9
<PAGE> 26
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(000'S, EXCEPT SHARE AMOUNTS)
force, (2) amortization of goodwill related to the ASCs and (3) amortization of
intangibles related to the service agreements.
(M) Reflects reversal of operating lease expense for previously leased
assets which will be acquired from owners of the 1996 Acquisitions and the
recording of depreciation expense on a straight-line basis.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
DESCRIPTION 1995
----------- ------------
(000'S)
<S> <C>
Reduction of lease expense.............................................. $(54)
Depreciation of acquired assets......................................... 23
</TABLE>
(N) Includes the elimination of nonrecurring professional fees related to a
reorganization of one of the practices and nonrecurring professional fees
related to the 1996 Acquisitions which are included in the historical financials
of the 1996 Acquisitions.
(O) Reflects a reduction in interest income due to a $79,000 reduction in
cash available for investment in tax-free securities and an increase in interest
expense due to incremental borrowings required of $10,000 to fund the purchase
of Equimed and AOI and $5,000 to pay acquisition related costs.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
INTEREST DECEMBER 31, JUNE 30,
DESCRIPTION RATE 1995 1996
----------- ---- ------------ ----------
<S> <C> <C> <C>
Reduction of Interest Income .............. 3.6% $2,875 $1,437
Increase in Interest Expense .............. 7.5% 1,125 563
------ ------
Net decrease in Interest Income ........... $4,000 $2,000
====== ======
</TABLE>
(P) Represents AOI management decision to write off approximately $2,798 in
goodwill, $1,178 assigned to trade name and $150 of non-compete agreements
determined to be not recoverable in 1995.
(Q) Reflects reduction in interest expense of $1,440 and $1,186 associated
with an $18,000 and $38,114 reduction in debt bearing interest at 8% during 1995
and the six months ended June 30, 1996, respectively, from the proceeds of the
May 1996 stock offering. In addition, the remaining proceeds from the stock
offering of $97,430 and $77,316 during 1995 and the six months ended June 30,
1996, has been invested in tax-free securities bearing interest at approximately
3.7%. Therefore interest income of $3,605 and $1,022 during 1995 and the six
months ended June 30, 1996, has also been included in income.
NOTES (R) - (U) REFER TO 1995 EYECORP ACQUISITIONS AND OTHER
(R) Represents calculated EyeCorp management service revenues determined in
accordance with the applicable service agreements applied to the historical
operating results of the 1995 EyeCorp Acquisitions.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
DESCRIPTION 1995
----------- ------------
(000'S)
<S> <C>
Management service revenues(1).......................................... $ 40,424
========
Revenues from ASCs(2)................................................... $ 4,749
========
</TABLE>
EyeCorp will receive, with respect to each of the 1995 EyeCorp
Acquisitions, revenues based on the following primary components:
(1) Under the terms of its service agreements (which have terms
similar to PRG's service agreements), EyeCorp receives service revenues
based on certain operating and nonoperating expenses incurred on behalf of
the practice and a percentage of each practice's revenues or pretax
earnings relating to physician and certain other medical services.
(2) EyeCorp owns or operates ASCs and receives the related revenues
for certain nonphysician services.
(S) Represents an adjustment to reflect historical costs of the 1995
EyeCorp Acquisitions which will be assumed by EyeCorp in order to fulfill
EyeCorp's obligations under the applicable Service Agreements.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
DESCRIPTION 1995
----------- ------------
(000'S)
<S> <C>
Salaries, wages and benefits............................................ $ 15,455
Pharmaceuticals and supplies............................................ 7,659
General and administrative expenses..................................... 13,653
Depreciation and amortization........................................... 1,264
Interest expense........................................................ 379
</TABLE>
B-10
<PAGE> 27
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(000'S, EXCEPT SHARE AMOUNTS)
(T) Represents an adjustment to remove the nonrecurring unsuccessful
financing costs included in the EyeCorp historical financials.
(U) Represents additional amortization of intangible assets established in
the 1995 EyeCorp Acquisitions which occurred in late December 1995. If the 1995
EyeCorp Acquisitions had occurred on January 1, 1995, intangible assets would
have aggregated approximately $36,566 and additional amortization would have
aggregated $1,359 for the year ended December 31, 1995. Also includes $89
amortization of capitalized transaction and other fees for the year ended
December 31, 1995.
(V) Reflects a reduction in interest expense due to a reduction in interest
rates associated with repaying EyeCorp's existing debt borrowed under the prior
credit facility with a portion of the proceeds from the borrowings under the
EyeCorp credit facility. This interest reduction was partially offset by an
overall increase in debt due to additional borrowings to fund the purchase price
of the 1995 EyeCorp Acquisitions. The reduction in interest expenses is
calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
DESCRIPTION 1995
----------- ------------
(000'S)
<S> <C>
Interest expense --
Prior Credit Facility................................................. $(1,393)
EyeCorp Credit Facility............................................... 1,186
-------
Reduction in interest expense................................. $ (207)
=======
</TABLE>
The prior credit facility's weighted average principal balance outstanding
for the year ended December 31, 1995, was approximately $14,287 and the
applicable interest rate was 9.75%. The EyeCorp credit facility pro forma
weighted average principal balance outstanding (assuming additional borrowings
to fund the cash portion of the purchase price of the 1995 EyeCorp Acquisitions
and related transactions) for the year ended December 31, 1995 was approximately
$14,825 and the applicable interest rate was 8.0%.
NOTES (W) - (X) REFER TO THE PRO FORMA TOTALS
(W) The Company has decided to continue to apply the provisions of APB
Opinion 25 to its stock-based employee compensation arrangements.
B-11
<PAGE> 28
PHYSICIANS RESOURCE GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED MERGER/SIGNIFICANT TRANSACTIONS
PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
(000'S, EXCEPT SHARE AMOUNTS)
(X) Weighted average shares outstanding is summarized below:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------ ----------
DESCRIPTION 1995 1996
---------------------------- ---------- ----------
(000'S)
<S> <C> <C>
Outstanding PRG shares......................... 9,558,244 9,558,244
PRG stock options impact, using the treasury
stock method................................. 344,684 595,339
PRG shares issued in the 1996 Acquisitions..... 5,197,648 5,197,648
Equivalent shares of EyeCorp common stock
equivalents at the exchange ratio............ 6,089,506 6,089,506
PRG shares issued to Pooled Entities
shareholders................................. 3,592,030 3,592,030
PRG shares issued in connection with the
public offering during May, 1996............. 4,250,000 4,250,000
PRG stock options impact, EyeCorp options
assumed using the treasury stock method...... 208,117 253,922
PRG stock issued in connection with stock
options exercised............................ -- 135,981
---------- ----------
29,240,229 29,672,670
========== ==========
</TABLE>
B-12
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Share Exchange Agreement by and among PRG Florida XII, Inc., Melbourne
Eye Associates of Brevard, Inc., Melbourne Eye Associates, P.A.,
William Broussard, Trustee U.T.D. March 24, 1980, Michael F. Corcoran,
M.D., Trustee U.T.D. September 26, 1988, Andrew Zorbis, M.D., Ralph
Paylor, M.D., L. Neal Freeman, M.D., and Kaukwok Frederick Ho, M.D.,
Trustee U.T.D. November 24, 1989 and Physicians Resource Group, Inc.
(1)
2.2 Agreement and Plan of Reorganization by and among Ophthalmological
Associates, Ltd., Morton R. Green, M.D., Kenneth O. Green, M.D.,
Stephen R. Waltman, M.D., PRG Gr Acq. Corp., and Physicians Resource
Group, Inc. (1)
2.3 Asset Purchase Agreement by and among Safford Surgi-Center, Southwest
Eye Associates, Ltd., James Holder, O.D., Sun Valley Acquisition
Corporation and Physicians Resource Group, Inc. (1)
2.4 Asset Purchase Agreement by and among SNW, Inc., James Holder, O.D.,
Clarice Holder, Jeffrey Woodward, Suzy Woodward, Sun Valley
Acquisition Corporation and Physicians Resource Group, Inc. (1)
2.5 Asset Purchase Agreement by and among Richard D. Levin, M.D., P.S.C.
Inc., Richard D. Levin, M.D., PRG Ohio, Inc. and Physicians Resource
Group, Inc. (1)
4.1 Restated Certificate of Incorporation of Physicians Resource Group,
Inc. (2)
4.2 Certificate of Designations, Preferences, Rights and Limitations of
Class A Preferred Stock of Physicians Resource Group, Inc. (2)
4.3 Third Amended and Restated Bylaws of Physicians Resource Group, Inc.
(3)
4.4 Form of Warrant Certificate (2)
4.5 Rights Agreement dated as of April 19, 1996 between Physicians
Resource Group, Inc. And Chemical Mellon Shareholder Services. (4)
4.6 Form of certificate evidencing ownership of Common Stock of Physicians
Resource Group, Inc. (2)
23.1 Consent of Arthur Andersen, LLP (5)
</TABLE>
- ---------------
(1) Previously filed herewith.
(2) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 33-91440) and incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated herein by
reference.
(4) Previously filed as an exhibit to the Company's Registration Statement
on Form S-1 (No. 333-3852) and incorporated herein by reference.
(5) Filed herewith.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated October 16, 1996, on our audit of the combined financial
statements of Melbourne Eye Associates of Brevard, Inc. and Melbourne Eye
Associates, P.A. included in this form 8-K/A, into the Company's previously
filed Form S-8 Registration Statement File No. 33-93712, Form S-8 Registration
Statement File No. 33-93746, Form S-8 Registration Statement File No.
333-03460, Form S-8 Registration Statement File No. 333-03478, Form S-4
Registration Statement File No. 333-00230, Form S-4 Registration Statement File
No. 333-4406, Form S-4 Registration Statement File No. 333-09905, Form S-3
Registration Statement File No. 333-10531, and Form S-3 Registration Statement
File No. 333-11607.
ARTHUR ANDERSEN LLP
Dallas, Texas,
October 29, 1996
