UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended September 30, 1997
or
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from _________ to _________
Commission File Number 33-80731
----------------
PHYSICIAN SUPPORT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3624081
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
ROUTE 230 AND EBY-CHIQUES ROAD
MT. JOY, PENNSYLVANIA 17552
(Address of principal executive offices) (Zip Code)
(717) 653-5340
--------------
Registrant's telephone number, including area code
--------------
Indicated 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
------- -------
Indicate the number of shares outstanding of each of issuer's classes of common
stock, as of the latest practicable date.
Common Stock, par value $.001 per share 9,732,033 Shares
--------------------------------------- ----------------
Class Outstanding at
October 27, 1997
Physician Support Systems, Inc. And Subsidiaries
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
September 30, 1997 and December 31, 1996 2
Condensed Consolidated Statements of Operation--
Three and Nine Months Ended September 30,
1997 and 1996 3
Condensed Consolidated Statements of Cash Flows--
Nine Months Ended September 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits 12
Signatures 13
Exhibit Index 14
1
Part I. Financial Information
Item 1. Financial Statements
Physician Support Systems, Inc. And Subsidiaries
Condensed Consolidated Balance Sheets
September 30, December 31,
------------- ------------
1997 1996
---- ----
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents............. $ 643,441 $ 3,826,018
Accounts receivable................... 25,698,479 17,458,338
Accounts receivable--unbilled......... 15,859,389 11,149,811
Prepaid expenses and
other current assets................. 2,905,511 1,991,689
--------------- -------------
Total current assets................ 45,106,820 34,425,856
Property and equipment--net............. 10,036,702 9,092,630
Intangible assets--net.................. 58,060,653 44,556,022
Due from related parties................ 1,390,369 1,054,038
Other assets............................ 2,831,720 2,776,902
--------------- -------------
Total............................... $ 117,426,264 $ 91,905,448
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 1,776,668 $ 2,135,924
Accrued expenses...................... 14,289,418 16,805,042
Current portion of other long-term
liabilities.......................... 1,152,914 969,623
Current portion of due to related
parties.............................. 140,112 463,736
Deferred income taxes................. 31,347 31,347
--------------- -------------
Total current liabilities........... 17,390,459 20,405,672
--------------- -------------
Long-term debt.......................... 43,057,978 20,017,027
--------------- -------------
Other long-term liabilities............. 2,983,806 3,676,052
--------------- -------------
Due to related parties.................. 676,573 771,695
--------------- -------------
Deferred income taxes................... 1,322,263 1,322,263
--------------- -------------
Commitments and contingencies...........
Stockholders' equity:
Preferred stock, par value $.01 per
share: authorized 10,000,000 shares:
none outstanding....................
Common stock, par value $.001 per
share: authorized 100,000,000
shares: outstanding 9,720,033 and
9,156,101 shares at September 30, 1997
and December 31, 1996 respectively.... 9,720 9,156
Additional paid-in capital.............. 58,740,799 55,194,229
Retained earnings (accumulated deficit). (6,755,334) (9,490,646)
--------------- -------------
Total stockholders' equity.......... 51,995,185 45,712,739
--------------- -------------
Total............................... $ 117,426,264 $ 91,905,448
=============== =============
See notes to condensed consolidated financial statements.
2
Physician Support Systems, Inc. And Subsidiaries
Condensed Consolidated Statements Of Operations
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues................................ $ 28,995,780 $ 19,774,785 $ 81,741,604 $ 54,044,689
------------- ------------- -------------- -------------
Operating expenses:
Salaries and wages................... 14,370,104 9,929,898 41,261,948 27,969,515
General and administrative........... 9,508,064 6,589,681 28,492,060 19,823,503
Depreciation and amortization........ 1,539,143 1,337,647 4,567,871 3,893,513
Interest income...................... (34,923) (166,617) (92,927) (610,173)
Interest expense..................... 791,353 221,711 2,045,614 758,054
Other (income) expense............... --- 20,444 --- 122,609
Merger costs......................... --- 1,200,000 --- 2,350,000
Restructuring charges................ --- --- 750,000 2,500,000
------------- ------------- -------------- -------------
Income (loss) before income taxes
(benefit)............................ 2,822,039 642,021 4,717,038 (2,762,332)
Income taxes (benefit).................. 1,185,257 2,902,258 1,981,726 2,246,258
------------- ------------- -------------- -------------
Net income (loss)....................... 1,636,782 (2,260,237) 2,735,312 (5,008,590)
Pro forma income taxes (benefit)........ --- (1,425,343) --- (1,578,681)
------------- ------------- -------------- -------------
Pro forma net income (loss)............. 1,636,782 (834,894) 2,735,312 (3,429,909)
Preferred stock dividends............... --- --- --- 36,320
------------- ------------- -------------- -------------
Pro forma net income (loss) applicable
to common stock..................... $ 1,636,782 $ (834,894) $ 2,735,312 $ (3,466,229)
============= ============== ============== =============
Pro forma earnings (loss) per share..... $ 0.17 $ (0.09) $ 0.28 $ (0.43)
============= ============== ============== =============
Weighted average shares outstanding..... 9,849,024 8,824,625 9,640,843 8,006,589
============= ============== ============== =============
See notes to condensed consolidated financial statements.
3
Physician Support Systems, Inc. And Subsidiaries
Condensed Consolidated Statements Of Cash Flows
Nine Months Ended September 30,
--------------------------------
1997 1996
--------------- ---------------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss)...................... $ 2,735,312 $ (5,011,829)
Adjustments to reconcile net income to
net cash provided by (used
in) operating activities:
Depreciation and amortization....... 4,567,871 3,896,724
Deferred income taxes............... --- 2,150,683
Loss on disposal of property and
equipment.......................... --- 122,609
Other long-term liabilities......... 42,168 (341,866)
Changes in operating assets and
liabilities:
Accounts receivable................ (7,490,624) (653,254)
Accounts receivable--unbilled...... (2,721,625) (583,985)
Prepaid expenses and other current
assets and other assets........... (924,329) (1,869,361)
Accounts payable................... (1,169,639) (1,092,543)
Accrued expenses................... (2,426,561) 4,027,900
--------------- ---------------
Net cash provided by (used in)
operating activities................ (7,387,427) 645,078
--------------- ---------------
Cash flows from investing activities:
Acquisitions, net of cash acquired..... (14,139,183) (21,557,373)
Deferred purchase price................ (463,333) (1,166,667)
Capital expenditures................... (2,188,488) (1,592,302)
--------------- ---------------
Net cash used in investing activities (16,791,004) (24,316,342)
--------------- ---------------
Cash flows from financing activities:
Net proceeds from sale of common stock. --- 43,556,217
Proceeds from long-term borrowings..... 23,040,952 168,635
Proceeds from short-term borrowings.... --- 3,371,875
Repayment of short-term borrowings..... --- (600,000)
Principal payments on long-term debt... (586,274) (14,267,809)
Principal payments on capital lease
obligations........................... (703,750) (370,693)
Due to/from related parties............ (755,074) (393,439)
Common stock dividends................. --- (1,196,112)
Redemption of preferred stock.......... --- (2,932,032)
Redeemable preferred stock
distributions......................... --- (36,319)
--------------- ---------------
Net cash provided by financing
activities.......................... 20,995,854 27,300,323
--------------- ---------------
Net increase (decrease) in cash and
cash equivalents....................... (3,182,577) 3,629,059
Cash and cash equivalents, beginning of
period................................. 3,826,018 1,691,758
--------------- ---------------
Cash and cash equivalents, end of period $ 643,441 $ 5,320,817
=============== ===============
Supplemental investing activity:
Fair value of assets acquired.......... $ 20,155,912 $ 31,589,439
Stock issued in acquisitions........... (3,547,132) ---
Cash acquired.......................... --- (490,231)
Liabilities assumed.................... (2,274,597) (7,279,835)
Deferred purchase price................ (195,000) (2,262,000)
--------------- ---------------
Net cash paid for acquisitions....... $ 14,139,183 $ 21,557,373
=============== ===============
Supplemental disclosure of cash flow
information:
Cash paid for interest................. $ 1,688,777 $ 1,574,066
=============== ===============
Capital lease obligations incurred in
acquisition of equipment.............. $ 718,955 $ 1,073,235
=============== ===============
See notes to condensed consolidated financial statements.
4
Physician Support Systems, Inc. And Subsidiaries
Notes To Condensed Consolidated Financial Statements
Three and Nine Months Ended September 30, 1997 and 1996
1. Basis of Presentation
The unaudited condensed consolidated financial statements included herein
have been prepared by the Company in accordance with the rules and regulations
of the Securities and Exchange Commission and consequently do not include all of
the disclosures normally required by generally accepted accounting principles.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and related notes
thereto included in the Company's Annual Report on Form 10-K.
The unaudited financial information contained herein reflects all
adjustments (consisting of only normal recurring accruals) which, in the opinion
of management, are necessary for a fair presentation of the results of
operations for the three and nine month periods ended September 30, 1997 and
1996.
2. Sale of Common Stock
On February 12, 1996, the Company authorized the issuance of up to
10,000,000 shares of preferred stock, increased the number of authorized shares
of common stock from 5,000 to 100,000,000, changed the par value of its common
stock from $.01 to $.001 per share and effected a 1,400-for-one stock split. In
addition, on February 12, 1996, the Company sold 4,025,000 shares of common
stock for $12 per share in its initial public offering of common stock. The net
proceeds of such offering of approximately $43,556,000 were used to repay all
outstanding short and long-term debt except for The Spring Anesthesia Group,
Inc. ("Spring") acquisition subordinated note, redeem all outstanding shares of
preferred stock and acquire three businesses.
3. Business Combinations
During 1996, the Company acquired either 100 percent of the outstanding
common stock or substantially all of the assets and liabilities of seven
businesses in transactions accounted for under the purchase method of
accounting, and merged with three businesses in transactions accounted for as
poolings of interests.
On February 5, 1997, the Company acquired 100 percent of the outstanding
common stock of Physerv Solutions, Inc. ("Physerv") for approximately
$10,109,000 in cash plus 563,934 shares of common stock. The Company has begun
to merge the operations of Spring into Physerv, and will complete this
assilimation as soon as is practicable (see Note 5).
The unaudited consolidated results of operations of the Company on a pro
forma basis as if the Company had consummated on January 1, 1996 the
acquisitions of the businesses accounted for under the purchase method of
accounting since January 1, 1996 are as follows:
Nine Months Ended September 30,
--------------------------------
1997 1996
-------------- -------------
Revenues $ 82,509,909 $ 75,561,362
============== =============
Net income $ 3,253,414 $ 736,948
============== =============
Earnings per share $ 0.33 $ 0.08
============== =============
Weighted average shares 9,720,033 9,720,033
============== =============
5
4. Long-Term Debt
Long-term debt consists of the September 30, December 31,
following: 1997 1996
---- ----
Amended Agreement Adjusted LIBOR Rate
borrowings (7.5% at September 30, 1997).... $ 36,000,000 $ ---
Amended Agreement Prime Rate borrowings
(8.5% at September 30, 1997)............... 1,557,978 ---
Loan Agreement Acquisition Line
borrowings, Overnight Market Rate
(6.2% at December 31, 1997)................ --- 12,017,027
Loan Agreement Working Capital Line
borrowings, Intermediate Market Rate
(6.8% at December 31, 1997)................ --- 2,500,000
Spring acquisition subordinated note,
7.6%, payable on August 12, 2003 5,500,000 5,500,000
------------- -------------
$ 43,057,978 $ 20,017,027
============= =============
On September 8, 1997, the Company amended its Loan Agreement (the "Loan
Agreement") with its bank and entered into an Amended and Restated Loan
Agreement (the "Amended Agreement") with three banks which allows for a
$65,000,000 Revolving Credit Facility. Under the Amended Agreement, the Company
may borrow, repay, and reborrow amounts through September 8, 2000, at which time
all borrowings become due. Borrowings may, at the Company's option, bear
interest at the Prime Rate or the Adjusted LIBOR Rate (London Interbank Offered
Rate plus up to 1.75%). Borrowings are secured by a pledge of the common stock
of the Company's subsidiaries.
5. Restructuring Charge
As previously reported, results at the Company's Spring subsidiary located
in Stockton, California, in the three months ended June 30, 1996 were adversely
affected by operating inefficiencies in the processing of physician charges
which resulted in lower revenues during that period. In addition, the Company
incurred increased salary and general and administrative expenses in an attempt
to increase production. To address these operating inefficiencies, among other
actions, the Company decided to replace certain computer hardware and software
at Spring with other operating software. The Company recorded a restructuring
charge in the three months ended June 30, 1996 of approximately $1,600,000
related to the write-off of certain computer hardware and software, and costs
associated with the introduction of a new management team, some limited
severance activity and other transition items. During the three months ended
December 31, 1996, the Spring operating inefficiencies led to client
dissatisfaction. The Company incurred increased salary and general and
administrative costs in an attempt to increase client satisfaction. However,
these efforts were unsuccessful, and led to the loss of clients and loss of
related revenues. As a result, in accordance with Statement of Financial
Accounting Standards No. 121, the Company determined that certain identifiable
intangible assets (primarily customer contracts), and goodwill, were not
recoverable from future cash flows of Spring, and accordingly, an impairment
loss of approximately $6,578,000 was recorded in the year ended December 31,
1996. In addition, in conjunction with the Company's acquisition on February 5,
1997 of Physerv, which like Spring, serves only anesthesiologists, the Company
decided to fold the remaining Spring business into Physerv, in order to develop
a profitable, national approach to the anesthesia market. This entails exiting
the processing of physician charges in remote Spring locations and performing
such processing activities at more efficient central anesthesia processing
locations. As a result of this assimilation, the Company recorded a charge of
$750,000 in the three months ended March 31, 1997 primarily for severance and
lease terminations related to exiting processing activities at Spring.
6
6. Pro Forma Income Taxes
The Company has acquired certain entities in merger transactions accounted
for as poolings of interests, which prior to the mergers had elected "S"
corporation status for income tax purposes. As a result of the mergers, these
acquired entities terminated their "S" corporation elections. Pro forma income
taxes represent the income tax provision (benefit) that would have been
recognized for periods prior to the mergers had the acquired entities been taxed
as "C" corporations.
7. Related Party Transactions
Legal services provided by related parties were approximately $1,055,000
and $497,000 in the three months ended September 30, 1997 and 1996, respectively
and $2,872,000 and $2,161,000 in the nine months ended September 30, 1997 and
1996, respectively.
Rent paid to related parties was approximately $113,000 and $18,000 for the
three months ended September 30, 1997 and 1996, respectively and $302,000 and
$27,000 for the nine months ended September 30, 1997 and 1996, respectively.
8. Subsequent Event
On October 14, 1997, the Company announced that it had entered into a
definitive agreement with National Data Corporation ("NDC"), pursuant to which
NDC will acquire the Company. NDC is a leading provider of information services
and systems for the health care and payment systems markets.
Under the terms of the definitive agreement, each share of the Company's
common stock will be exchanged for .435 shares of NDC common stock, subject to
adjustment based on the average trading price of a share of NDC common stock
prior to closing in the event such price is greater than $47.126 per share or
less than $36.782 per share. The acquisition will be accounted for as a
pooling-of-interests and is expected to close by the end of January 1998,
subject to customary conditions, including approval of the Company's
stockholders and expiration of the waiting period under the Hart-Scott-Rodino
Anti-Trust Improvements Act.
7
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations.
OVERVIEW
The Company is a leading provider of business management services to hospitals
and physicians. The Company's services include preparation and follow-up on
bills for medical services provided, assisting providers in qualifying patients
for state medicaid eligibility, collecting past due accounts, and providing
other business management services on an outsource basis. The Company is
generally compensated with a management fee based upon net receipts of its
clients.
On February 12, 1996, the Company sold 4,025,000 shares of common stock for
$12 per share in its initial public offering of common stock. The net proceeds
of such offering of approximately $43,556,000 were used to repay all outstanding
short and long-term debt except for the Spring acquisition subordinated note,
redeem all outstanding shares of preferred stock and acquire three businesses.
See "ACQUISITIONS."
This Management's Discussion and Analysis of Financial Condition and Results
of Operations should be read in conjunction with the Company's latest Annual
Report on Form 10-K.
ACQUISITIONS
During 1996, the Company acquired either 100 percent of the outstanding common
stock or substantially all the assets and liabilities of seven businesses in
transactions accounted for under the purchase method of accounting, and merged
with three businesses in transactions accounted for as poolings of interests.
On February 5, 1997, the Company acquired 100 percent of the outstanding
common stock of Physerv for approximately $10,109,000 in cash plus 563,934
shares of common stock. The Company has begun to merge the operations of Spring
into Physerv, and will complete this assimilation as soon as is practicable.
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentages of
net revenue represented by certain items reflected in the Company's statement of
operations.
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues 100.0% 100.0% 100.0% 100.0%
Salaries and wages 49.6% 50.2% 50.5% 51.8%
General and administrative 32.8% 33.3% 34.9% 36.7%
Depreciation and
amortization 5.3% 6.8% 5.6% 7.2%
Interest expense (income),
net 2.6% 0.3% 2.4% 0.3%
Other expense (income), net 0.0% 0.1% 0.0% 0.2%
Merger costs 0.0% 6.1% 0.0% 4.3%
Restructuring charge 0.0% 0.0% 0.9% 4.6%
------------------ ----------------- ---------------- ---------------------
Income (loss) before
income taxes (benefit) 9.7% 3.2% 5.7% (5.1)%
Income taxes (benefit) 4.1% 14.7% 2.4% 4.2%
------------------ ----------------- ---------------- ---------------------
Net income (loss) 5.6% (11.5)% 3.3% (9.3)%
Pro forma income taxes
(benefit) 0.0% (7.2)% 0.0% (3.0)%
------------------ ----------------- ---------------- ---------------------
Pro forma net income (loss) 5.6% (4.3)% 3.3% (6.3)%
================== ================= ================ =====================
Revenues
Revenues increased 46.6% from $19,774,785 for the three months ended September
30, 1996 to $28,995,780 for the three months ended September 30, 1997 and 51.2%
from $54,044,689 for the nine months ended September 30, 1996 to $81,741,604 for
the nine months ended September 30, 1997. Such increases resulted primarily from
businesses acquired during 1996 and 1997 plus increased revenues from the
addition of new clients, offset, in part, by decreased revenues from lost
clients. In addition, the Company's revenues during the three months ended March
8
31, 1997 were adversely affected by operating inefficiencies in the processing
of physician charges at Spring, the Company's subsidiary located in Stockton,
California. See "Restructuring Charge."
Salaries and Wages
Salaries and wages increased 44.7% from $9,929,898 for the three months ended
September 30, 1996 to $14,370,104 for the three months ended September 30, 1997
and 47.5% from $27,969,515 for the nine months ended September 30, 1996 to
$41,261,948 for the nine months ended September 30, 1997. Such increases
resulted primarily from businesses acquired during 1996 and 1997 and increases
in the number of clients served by the Company. As a percentage of revenues,
salaries and wages were lower in the three and nine months ended September 30,
1997 compared to the three and nine months ended September 30, 1996 primarily
due to efficiencies gained at businesses previously acquired.
General and Administrative Expenses
General and administrative expenses increased 44.3% from $6,589,681 for the
three months ended September 30, 1996 to $9,508,064 for the three months ended
September 30, 1997 and 43.7% from $19,823,503 for the nine months ended
September 30, 1996 to $28,492,060 for the nine months ended September 30, 1997.
Such increases resulted primarily from businesses acquired during 1996 and 1997
and increases in the number of clients served by the Company. As a percentage
of revenues, general and administrative expenses were lower in the three and
nine months ended September 30, 1997 compared to the three and nine months ended
September 30, 1996 primarily due to efficiencies gained at businesses previously
acquired, offset by increased administrative costs associated with being a
publicly traded company.
Depreciation and Amortization
Depreciation and amortization increased 15.1% from $1,337,647 for the three
months ended September 30, 1996 to $1,539,143 for the three months ended
September 30, 1997 and 17.3% from $3,893,513 for the nine months ended September
30, 1996 to $4,567,871 for the nine months ended September 30, 1997. Such
increases resulted primarily from businesses acquired during 1996 and 1997,
offset, in part, by reductions in depreciation and amortization expense due to
the write off of Spring fixed and intangible assets. See "Restructuring
Charge."
Interest Income
Interest income decreased from $166,617 for the three months ended September
30, 1996 to $34,923 for the three months ended September 30, 1997 and from
$610,173 for the nine months ended September 30, 1996 to $92,927 for the nine
months ended September 30, 1997 primarily as a result of lower levels of excess
cash invested in 1997 compared to 1996.
Interest Expense
Interest expense increased from $221,711 for the three months ended September
30, 1996 to $791,353 for the three months ended September 30, 1997 and from
$758,054 for the nine months ended September 30, 1996 to $2,045,614 for the nine
months ended September 30, 1997. Such increases resulted primarily from
increased levels of borrowings in 1997 resulting from the acquisition of
businesses during 1996 and 1997.
Restructuring Charge
As previously reported, results at the Company's Spring subsidiary located in
Stockton, California in the three months ended June 30, 1996 were adversely
affected by operating inefficiencies in the processing of physician charges
which resulted in lower revenues during that period. In addition, the Company
incurred increased salary and general and administrative expenses in an attempt
to increase production. To address these operating inefficiencies, among other
actions, the Company decided to replace certain computer hardware and software
at Spring with other operating software. The Company recorded a restructuring
charge in the three months ended June 30, 1996 of approximately $1,600,000
related to the write-off of certain computer hardware and software, and costs
associated with the introduction of a new management team, some limited
severance activity and other transition items. During the three months ended
December 31, 1996, the Spring operating inefficiencies led to client
dissatisfaction. The Company incurred increased salary and general and
administrative costs in an attempt to increase client satisfaction. However,
these efforts were unsuccessful, and led to the loss of clients and loss of
related revenues. As a result, in accordance with Statement of Financial
Accounting Standards No. 121, the Company determined that certain identifiable
intangible assets (primarily customer contracts) and goodwill were not
recoverable from future cash flows of Spring, and accordingly, an impairment
loss of approximately $6,578,000 was recorded in the year ended December 31,
1996.
9
In addition, in conjunction with the Company's acquisition on February 5, 1997
of Physerv, which like Spring, serves only anesthesiologists, the Company
decided to fold the remaining Spring business into Physerv, in order to develop
a profitable, national approach to the anesthesia market. This entails exiting
the processing of physician charges in remote Spring locations and performing
such processing activities at more efficient central anesthesia processing
locations. As a result of this assimilation, the Company recorded a charge of
$750,000 in the three months ended March 31, 1997 primarily for severance and
lease terminations related to exiting processing activities at Spring.
Income Taxes (Benefit) and Pro Forma Income Taxes
The Company's historical effective rates for income taxes (benefit) changed
from (16.2%) for the three months ended September 30, 1996 to 42.0% for the
three months ended September 30, 1997 and from (19.3%) for the nine months ended
September 30, 1996 to 42.0% for the nine months ended September 30, 1997. Such
changes were primarily attributable to mergers with two companies subsequent to
June 30, 1996, but prior to December 31, 1996, that were accounted for as
poolings of interests. Both companies had been taxed as "S" Corporations, and
their historical financial statements, which are now included in the Company's
consolidated financial statements, did not include provisions for income taxes.
Pro forma income taxes are presented for the three and nine months ended
September 30, 1996 to show what income taxes would have been had these two
companies been taxed as "C" Corporations at that time. In addition, changes in
the effective income tax rate also resulted from differing levels in each year
of projected annual pretax income and the effect on such projected levels of
items not deductible for Federal and State income tax purposes.
Pro Forma Net Income and Pro Forma Earnings Per Share
Pro forma net income and pro forma earnings per share result from the
accumulation of the items described above and the increase in the weighted
average number of shares outstanding in the three and nine months ended
September 30, 1997 compared to the three and nine months ended September 30,
1996 resulting from shares issued in the Company's initial public offering of
common stock and additional shares of common stock issued as consideration in
acquisitions accounted for as purchases in 1996 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital and cash and cash equivalents were $27,716,000
and $643,000, respectively, at September 30, 1997 compared to $14,020,000 and
$3,826,000, respectively, at December 31, 1996.
The Company's total long-term debt, including current portion and amounts due
to related parties was $43,875,000 at September 30, 1997 compared to $21,252,000
at December 31, 1996. Such increase at September 30, 1997 was primarily
attributable to increased borrowings resulting from the acquisition of PhyServ
on February 5, 1997, plus borrowings during the nine months ended September 30,
1997 to pay transaction fees associated with the PhyServ acquisition and other
acquisitions that were consummated in the second half of 1996 and borrowings to
fund changes in working capital items, primarily increases in billed and
unbilled accounts receivable associated with increases in revenues and increases
in days of billed accounts receivable outstanding.
On September 8, 1997, the Company amended its Loan Agreement (the "Loan
Agreement") with its bank and entered into an Amended and Restated Loan
Agreement (the "Amended Agreement") with three banks which allows for a
$65,000,000 Revolving Credit Facility. Under the Amended Agreement, the Company
may borrow, repay, and reborrow amounts through September 8, 2000, at which time
all borrowings become due. Borrowings may, at the Company's option, bear
interest at the Prime Rate or the Adjusted LIBOR Rate (London Interbank Offered
Rate plus up to 1.75%). Borrowings are secured by a pledge of the common stock
of the Company's subsidiaries.
The Company believes anticipated cash flow from operations, cash and cash
equivalents on hand and borrowing capacity from the Agreement are adequate for
its anticipated operating needs.
10
Recent Developments
On October 14, 1997, the Company announced that it had entered into a
definitive agreement with National Data Corporation ("NDC"), pursuant to which
NDC will acquire the Company. NDC is a leading provider of information services
and systems for the health care and payment systems markets.
Under the terms of the definitive agreement, each share of the Company's
common stock will be exchanged for .435 shares of NDC common stock, subject to
adjustment based on the average trading price of a share of NDC common stock
prior to closing in the event such price is greater than $47.126 per share or
less than $36.782 per share. The acquisition will be accounted for as a
pooling-of-interests and is expected to close by the end of January 1998,
subject to customary conditions, including approval of the Company's
stockholders and expiration of the waiting period under the Hart-Scott-Rodino
Anti-Trust Improvements Act.
11
Part II. Other Information
Item 6. Exhibits
(a) Exhibits
Exhibit
Number Description
------ -----------
10.1 Amended and Restated Loan Agreement dated as of
September 8, 1997 among Physician Support Systems,
Inc., its subsidiaries named therein, the lenders
named therein, and CoreStates Bank, N.A., as
agent.
10.2 Collateral Pledge of Stock Agreement dated as of
September 8, 1997 among Physician Support Systems,
Inc., its subsidiaries named therein and
CoreStates Bank, N.A., as agent.
27 Financial Data Schedule
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, on November 6, 1997.
PHYSICIAN SUPPORT SYSTEMS, INC.
By: /s/ DAVID S. GELLER
-----------------------
DAVID S. GELLER
SENIOR VICE PRESIDENT
CHIEF FINANCIAL OFFICER
(Duly Authorized Officer and
Principal Financial Officer)
13
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
10.1 Amended and Restated Loan Agreement dated as of
September 8, 1997 among Physician Support Systems, Inc.,
its subsidiaries named therein, the lenders named
therein, and CoreStates Bank, N.A., as agent.
10.2 Collateral Pledge of Stock Agreement dated as of
September 8, 1997 among Physician Support Systems, Inc.,
its subsidiaries named therein and CoreStates Bank,
N.A., as agent.
27 Financial Data Schedule
14