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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001, 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 NO.: 0-19786
PHYCOR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TENNESSEE 62-1344801
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
30 BURTON HILLS BOULEVARD, SUITE 400
NASHVILLE, TENNESSEE 37215
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 665-9066
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
As of August 17, 2001, 73,234,201 shares of the registrant's common
stock were outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHYCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2001 (UNAUDITED) AND DECEMBER 31, 2000
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS)
2001 2000
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents - unrestricted ........................... $ 15,920 $ 286
Cash and cash equivalents - restricted ............................. 31,190 641
Accounts receivable, net ........................................... 3,263 2,389
Inventories, prepaid expenses and other current assets ............. 10,124 4,810
Notes receivable, current installments ............................. 1,064 1,514
Assets held for sale, net .......................................... -- 77,154
------------ ------------
Total current assets ............................... 61,561 86,794
Property and equipment, net ............................................. 6,729 5,574
Intangible assets, net .................................................. 35,098 18,754
Notes receivable, excluding current installments ........................ 13,644 31,873
Other assets ............................................................ 1,739 2,019
------------ ------------
Total assets ....................................... $ 118,771 $ 145,014
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current installments of long-term debt and capital leases .......... $ 212 $ 46,306
Current installments of convertible subordinated notes and
debentures ..................................................... 308,875 305,500
Accounts payable ................................................... 1,977 2,403
Salaries and benefits payable ...................................... 3,661 1,909
Incurred but not reported claims payable ........................... 24,099 1,297
Current portion of accrued restructuring reserves .................. 8,143 11,277
Other accrued expenses and current liabilities ..................... 44,838 21,601
------------ ------------
Total current liabilities .......................... 391,805 390,293
Long-term debt and capital leases, excluding current installments ....... 1,071 2,862
Accrued restructuring reserves, excluding current portion ............... 13,384 15,578
Convertible subordinated notes payable to physician groups .............. 319 637
------------ ------------
Total liabilities .................................. 406,579 409,370
------------ ------------
Minority interest in earnings of consolidated partnerships .............. 1,649 633
Shareholders' deficit:
Preferred stock, no par value, 10,000 shares authorized ............ -- --
Common stock, no par value; 250,000 shares authorized; issued and
outstanding 73,237 shares in 2001 and 73,281 shares in 2000 ... 834,168
834,168
Accumulated deficit ................................................ (1,123,625) (1,099,157)
------------ ------------
Total shareholders' deficit ....................... (289,457) (264,989)
------------ ------------
Commitments and contingencies
Total liabilities and shareholders' deficit ....... $ 118,771 $ 145,014
============ ============
See accompanying notes to consolidated financial statements.
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PHYCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS, EXCEPT FOR EARNINGS PER SHARE)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
---------- ---------- ---------- ------------
Net revenue ................................................ $ 70,886 $ 258,010 $ 156,170 $ 567,506
Operating expenses:
Cost of provider services ............................... 43,556 57,098 90,434 117,934
Salaries, wages and benefits ............................ 13,655 82,830 32,008 180,448
Supplies ................................................ 687 35,023 3,345 75,836
Purchased medical services .............................. -- 4,990 312 12,287
Other expenses .......................................... 7,220 47,779 29,956 94,110
General corporate expenses .............................. 2,830 7,368 7,962 14,952
Rents and lease expense ................................. 1,855 18,234 4,671 41,279
Depreciation and amortization ........................... 1,977 15,756 5,154 33,054
Provision for (recovery of) asset revaluation,
restructuring and refinancing ......................... 547 407,308 (415) 431,085
---------- ---------- ---------- ------------
Net operating expenses ........................... 72,327 676,386 173,427 1,000,985
---------- ---------- ---------- ------------
Loss from operations ............................. (1,441) (418,376) (17,257) (433,479)
Other (income) expense:
Interest income ......................................... (943) (1,749) (1,881) (3,209)
Interest expense ........................................ 4,148 9,912 8,709 19,978
---------- ---------- ---------- ------------
Loss before income taxes and minority interest ... (4,646) (426,539) (24,085) (450,248)
Income tax expense ......................................... -- 307 -- 635
Minority interest in earnings (losses) of consolidated
partnerships ............................................ (275) (22) 383 1,514
---------- ---------- ---------- ------------
Net loss ......................................... $ (4,371) $ (426,824) $ (24,468) $ (452,397)
========== ========== ========== ============
Loss per share:
Basic ................................................... $ (0.06) $ (5.80) $ (0.33) $ (6.15)
Diluted ................................................. $ (0.06) $ (5.80) $ (0.33) $ (6.15)
========== ========== ========== ============
Weighted average number of shared and dilutive
share equivalents outstanding:
Basic ................................................... 73,237 73,548 73,243 73,513
Diluted ................................................. 73,237 73,548 73,243 73,513
========== ========== ========== ============
See accompanying notes to consolidated financial statements.
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PHYCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Cash flows from operating activities:
Net loss ................................................ $ (4,371) $(426,824) $ (24,468) $(452,397)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization ......................... 1,977 15,756 5,154 33,054
Minority interests .................................... (275) (22) 383 1,514
Provision for (recovery of) asset revaluation,
restructuring and refinancing ....................... 547 407,308 (415) 431,085
Write down of notes receivable ........................ 300 -- 4,564 --
Accretion of convertible subordinated notes ........... 1,687 1,688 3,375 3,375
Increase (decrease) in cash, net of effects of
acquisitions and dispositions due to changes in:
Accounts receivable, net ........................ (1,851) 13,824 4,384 16,668
Inventories, prepaid expenses and other
current assets ................................ 3,358 6,572 8,891 1,867
Accounts payable ................................ 23 (3,088) (4,434) (4,275)
Due to physician groups ......................... -- (4,681) 282 (1,843)
Incurred but not reported claims payable ........ 86 3,135 5,091 8,393
Accrued restructuring reserves .................. (1,747) (3,421) (3,996) (7,634)
Other accrued expenses and current
liabilities ................................... 1,499 (1,927) 123 (19,748)
--------- --------- --------- ---------
Net cash provided (used) by operating
activities ................................. 1,233 8,320 (1,066) 10,059
--------- --------- --------- ---------
Cash flows from investing activities:
Dispositions, net ..................................... 8,771 23,078 63,381 38,781
Purchase of property and equipment .................... (14) (7,624) (154) (16,509)
Proceeds from (payments for) other assets ............. 2,602 (2,484) 3,071 (1,171)
Change in restricted cash held for sale ............... 26,472 -- 30,378 --
--------- --------- --------- ---------
Net cash provided by investing activities ..... 37,831 12,970 96,676 21,101
--------- --------- --------- ---------
Cash flows from financing activities:
Cost of issuance of common stock and warrants ......... -- (193) -- (132)
Repayment of long-term borrowings ..................... (20) (33,103) (47,955) (26,764)
Repayment of obligations under capital leases ......... (16) (1,210) (65) (2,038)
Distributions of minority interests ................... (200) 108 (1,407) (2,760)
Loan costs incurred ................................... -- (127) -- (2,093)
--------- --------- --------- ---------
Net cash used by financing activities ......... (236) (34,525) (49,427) (33,787)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents ....... 38,828 (13,235) 46,183 (2,627)
Cash and cash equivalents - beginning of period ............ 8,282 71,319 927 60,711
--------- --------- --------- ---------
Cash and cash equivalents - end of period .................. $ 47,110 $ 58,084 $ 47,110 $ 58,084
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
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PHYCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(ALL AMOUNTS ARE EXPRESSED IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
-------- -------- -------- --------
SUPPLEMENTAL SCHEDULE OF INVESTING
ACTIVITIES:
Effects of acquisitions and dispositions, net:
Assets acquired, net of cash ............................. -- (374) -- (1,269)
Liabilities paid, including deferred purchase price
payments .............................................. -- (2,108) (67) (6,778)
Cash received from disposition of clinic assets, net ..... 8,771 25,560 63,448 46,828
-------- -------- -------- --------
Dispositions, net ................................. $ 8,771 $ 23,078 $ 63,381 $ 38,781
======== ======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Notes receivable received from disposition of clinic
assets .................................................. $ 1,796 $ 8,500 $ 13,796 $ 18,895
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
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PHYCOR, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2001 AND 2000
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial reporting and in
accordance with Rule 10-01 of Regulation S-X.
In the opinion of management, the unaudited interim consolidated
financial statements contained in this report reflect all adjustments,
consisting of only normal recurring accruals, that are necessary for a
fair presentation of the financial position and the results of
operations for the interim periods presented. The results of operations
for any interim period are not necessarily indicative of results for
the full year.
These consolidated financial statements, footnote disclosures and other
information should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
In the second quarter of 2001, the Company determined to retain and
continue to operate the PrimeCare operations. PrimeCare accounts for
most of the revenue and earnings of the Company's Independent Practice
Association ("IPA") business. In the fourth quarter of 2000, the
Company decided to solicit bids for the sale of PrimeCare. After
reviewing these bids, and after certain other assets were sold which
helped to alleviate PhyCor's short-term cash flow problems, in June
2001, the Company decided to retain PrimeCare. Accordingly, PrimeCare
is not accounted for as an asset held for sale on June 30, 2001 as it
was on December 31, 2000.
In July 2001, the FASB issued Statement No. 141, Business Combinations,
and Statement No. 142, Goodwill and Other Intangible Assets. Statement
141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 as well as all
purchase method business combinations completed after June 30, 2001.
Statement 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and
reported apart from goodwill, noting that any purchase price allocable
to an assembled workforce may not be accounted for separately.
Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of
Statement 142. Statement 142 will also require that intangible assets
with definite useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of.
The Company is required to adopt the provisions of Statement 141
immediately and Statement 142 effective January 1, 2002. Furthermore,
any goodwill and any intangible asset determined to have an indefinite
useful life that are acquired in a purchase business combination
completed after June 30, 2001 will not be amortized, but will continue
to be evaluated for impairment in accordance with the appropriate
pre-Statement 142 accounting literature. Goodwill and intangible assets
acquired in business combinations completed before July 1, 2001 will
continue to be amortized prior to the adoption of Statement 142.
Statement 141 will require, upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were
acquired in a prior purchase business combination, and make any
necessary reclassifications in order to conform with the new criteria
in Statement 141 for recognition apart from goodwill. Upon adoption of
Statement 142, the Company will be required to reassess the useful
lives and residual values of all intangible assets acquired in purchase
business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In
addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will
be measured as of the date of adoption and recognized as the cumulative
effect of a change in accounting principle in the first interim period.
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date
of adoption. To accomplish this the Company must identify its reporting
units and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill
and intangible assets, to those reporting units as of the date of
adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare
it to the
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reporting unit's carrying amount. To the extent a reporting unit's
carrying amount exceeds its fair value, an indication exists that the
reporting unit's goodwill may be impaired and the Company must perform
the second step of the transitional impairment test. In the second
step, the Company must compare the implied fair value of the reporting
unit's goodwill, determined by allocating the reporting unit's fair
value to all of its assets and liabilities in a manner similar to a
purchase price allocation in accordance with Statement 141, to its
carrying amount, both of which would be measured as of the date of
adoption. This second step is required to be completed as soon as
possible, but no later than the end of the year of adoption. Any
transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement
of earnings.
Because of the extensive effort needed to comply with adopting
Statements 141 and 142, it is not practicable to reasonably estimate
the impact of adopting these Statements on the Company's financial
statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.
(2) LIQUIDITY AND GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern with the
realization of assets and the settlement of liabilities and commitments
in the normal course of business. The Company's leveraged financial
structure and losses from operations, however, give rise to the fact
that such realization of assets and liquidation of liabilities is
subject to significant uncertainty. At June 30, 2001, current
liabilities exceeded the Company's current assets by $330.2 million.
The Company failed to meet the February and August 2001 interest
payment obligations totaling approximately $8.8 million under the 4.5%
convertible subordinated notes ("Notes"). The Company entered into
limited forbearance agreements respecting the February 2001 interest
payment with noteholders representing a majority of the aggregate
principal amount of the Notes. Pursuant to the forbearance agreements,
the holders agreed not to take action under the Notes until September
5, 2001, subject to automatic ten business day extensions. The default
under the Notes caused a default under the Company's bank credit
facility ("Credit Facility"), which default was waived by the senior
lenders. Under the Credit Facility, there are no funds available and
all letters of credit are fully collateralized with cash held by the
agent bank. If the Notes were to be accelerated, a default would occur
under the Company's Zero Coupon Convertible Subordinated Notes Due
2014, original issue discount amount of approximately $109 million (the
"Warburg Notes"), held by affiliates of Warburg, Pincus & Co.
("Warburg, Pincus"). The Company obtained a waiver and forbearance
agreement from Warburg, Pincus through June 30, 2001, subject to
certain conditions. The Company is seeking to renew the forbearance
agreements with holders of the Notes and Warburg, Pincus.
The Company has initiated discussions with an informal committee of
holders of the Notes regarding a possible restructuring. In connection
with the restructuring, the Company expects it may be necessary to seek
protection from its creditors. A restructuring could materially change
the amounts reported in the accompanying consolidated financial
statements, which do not give effect to any necessary adjustments of
the carrying value of assets or liabilities. The Company's ability to
continue as a going concern is dependent upon, among other things,
future profitable operations and the ability to generate sufficient
cash flow from operations and financing arrangements to meet
obligations.
(3) NET REVENUE
Net revenue of the Company for the three months and six months ended
June 30, 2001 is comprised of IPA revenue, net revenue from demand
management services earned at the Company's wholly-owned subsidiary
CareWise, Inc. ("CareWise") through May 25, 2001 (the date CareWise was
sold), and contract management services revenue. Net revenue of the
Company for the three months and six months ended June 30, 2000 was
comprised of net clinic service agreement revenue from
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26 clinics, IPA management revenue, net hospital revenue, CareWise
revenue and other operating revenues.
IPA management revenue consists of fees paid by IPAs to the Company
for management services and payments for healthcare costs, usually made
under capitated arrangements, received by the Company from Health
Maintenance Organizations ("HMOs") in situations where the Company is a
party to a capitated or similar payment agreement with the HMOs. The
cost of healthcare claims incurred by the Company under these
agreements is reported as cost of provider services. At June 30, 2001,
the Company had underwritten letters of credit totaling $0.6 million
for the benefit of certain managed care payors to ensure payment of
costs for which the Company's affiliated IPAs are responsible. The
Company is exposed to losses if a letter of credit is drawn upon and
the IPA fails to fulfill its reimbursement obligation to the Company.
The Company has experienced losses of approximately $1.0 million under
such letters of credit in 2001.
Clinic service agreement revenue is equal to the net revenue of the
clinics, less amounts retained by physician groups. Net clinic revenue
recorded by the physician groups is recorded at established rates
reduced by provisions for doubtful accounts and contractual
adjustments. Contractual adjustments arise as a result of the terms of
certain reimbursement and managed care contracts. Such adjustments
represent the difference between charges at established rates and
estimated recoverable amounts and are recognized in the period the
services are rendered. Any differences between estimated contractual
adjustments and actual final settlements under reimbursement contracts
are recognized as contractual adjustments in the year final settlements
are determined. With the exception of certain clinics acquired as part
of the First Physician Care, Inc. ("FPC") acquisition, the physician
groups, rather than the Company, entered into managed care contracts.
Through calculation of its service fees, the Company shared indirectly
in any capitation risk assumed by its affiliated physician groups.
Contract management services revenue consists of fees earned from
consulting and support services provided to independent medical
organizations and physician networks of health systems through the
Company's PhySys division. The Company does not employ the personnel or
own the assets of these organizations.
The following represents amounts included in the determination
of net revenue (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
-------- -------- -------- ----------
Gross physician group, hospital and other revenue .......... $ 4,874 $543,284 $ 36,287 $1,184,325
Less:
Provisions for doubtful accounts and contractual
adjustments ......................................... -- 249,573 10,334 534,476
-------- -------- -------- ----------
Net physician group, hospital and other revenue ....... 4,874 293,711 25,953 649,849
IPA revenue ................................................ 128,460 252,265 279,935 521,949
-------- -------- -------- ----------
Net physician group, hospital, IPA and other
revenue ............................................. 133,334 545,976 305,888 1,171,798
Less amounts retained by physician groups and IPAs:
Physician groups ...................................... -- 95,923 5,311 213,859
Clinical technical employee compensation .............. -- 13,750 815 29,353
IPAs .................................................. 62,448 178,293 143,592 361,080
-------- -------- -------- ----------
Net revenue ....................................... $ 70,886 $258,010 $156,170 $ 567,506
======== ======== ======== ==========
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(4) BUSINESS SEGMENTS
The Company has historically had two reportable segments based on the
way management has organized its operations: multi-specialty clinics
and IPAs. The Company has derived its revenues primarily from operating
multi-specialty medical clinics and managing IPAs (See Note 3). In
addition, the Company provided health care decision-support services
through CareWise, through May 25, 2001, and other management and
consulting services that did not meet the quantitative thresholds for
reportable segments and have therefore been aggregated within the
corporate and other category.
The Company evaluates performance based on earnings from operations
before asset revaluation and restructuring charges, refinancing,
minority interest and income taxes. The following is a financial
summary by business segment for the periods indicated (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
------- ---------- ---------- ----------
Multi-specialty clinics:
Net revenue ................................................ $ -- $ 170,841 $ 8,243 $ 378,099
Operating expenses(1) ...................................... -- 155,466 8,123 342,667
Interest income ............................................ -- (1,637) (7) (3,088)
Interest expense ........................................... -- 10,804 230 23,361
Earnings (loss) before taxes and minority interest(1) ...... -- 6,208 (103) 15,159
Depreciation and amortization .............................. -- 9,586 311 21,558
Segment assets ............................................. -- 384,769 -- 384,769
IPAs:
Net revenue ................................................ 66,012 73,972 136,343 160,869
Operating expenses(1) ...................................... 63,751 91,479 132,205 182,858
Interest income ............................................ (141) (805) (397) (1,441)
Interest expense ........................................... 521 3,696 1,042 5,955
Earnings (loss) before taxes and minority interest(1) ...... 1,881 (20,398) 3,493 (26,503)
Depreciation and amortization .............................. 1,348 3,588 1,949 7,169
Segment assets ............................................. 73,191 207,043 73,191 207,043
Corporate and other(2):
Net revenue ................................................ 4,874 13,197 11,584 28,538
Operating expenses(1) ...................................... 8,029 22,133 33,514 44,375
Interest income ............................................ (802) 693 (1,477) 1,320
Interest expense ........................................... 3,627 (4,588) 7,437 (9,338)
Earnings (loss) before taxes and minority interest(1) ...... (5,980) (5,041) (27,890) (7,819)
Depreciation and amortization .............................. 629 2,582 2,894 4,327
Segment assets ............................................. 45,580 25,616 45,580 25,616
(1) Amounts exclude provision for asset revaluation, restructuring
and refinancing.
(2) This segment includes all corporate costs and real estate
holdings as well as the results for CareWise, and in 2000,
hospitals managed by the Company.
The Company has divested all of its ownership in multi-specialty
clinics and expects to report only one segment, the IPA business, for
periods beginning July 1, 2001.
(5) ASSET REVALUATION AND RESTRUCTURING
In the second quarter of 2001, the Company recorded a net asset
revaluation charge of approximately $0.5 million. This charge was
comprised of a pre-tax $2.0 million asset revaluation charge less
recovery of $1.5 million of certain asset revaluation charges recorded
previously.
In the first quarter of 2001, the Company recorded a net asset
revaluation and restructuring recovery of approximately $1.0 million.
This recovery included a net pre-tax asset revaluation charge of
approximately
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$0.3 million, which was comprised of a $3.6 million asset revaluation
charge less recovery of $3.3 million of certain asset revaluation
charges recorded previously. In addition, this charge included a net
restructuring recovery of $1.3 million, which was comprised of a $0.5
million restructuring charge less recovery of $1.8 million of certain
restructuring charges recorded in prior years which will not be
utilized.
Net revenue and pre-tax income (losses) from operations disposed of or
closed as of June 30, 2001 were $2.8 million and $(0.4) million for the
three months ended June 30, 2001, and $15.8 million and $(13.3) million
for the six months ended June 30, 2001, respectively, compared to
$199.5 million and $(9.3) million for the three months ended June 30,
2000, and $441.3 million and $(9.3) for the six months ended June 30,
2000, respectively.
The Company completed the disposition of the assets of its two
remaining owned clinics and CareWise during the second quarter of 2001
and received consideration consisting of $10.4 million in cash and $1.8
million in notes receivable, in addition to certain liabilities assumed
by the purchasers. In July 2001, the Company completed the disposition
of the assets of its Denver operations and received proceeds totaling
$55,000 in cash, in addition to certain liabilities assumed by the
purchasers, which approximated the net carrying value of these clinic
assets.
The Company has approximately $21.5 million of accrued restructuring
reserves remaining at June 30, 2001, of which approximately $8.1
million are due and payable during the next 12 months. The remaining
$13.4 million primarily relates to long term lease commitments.
The following table summarizes the restructuring accrual and payment
activity for the first six months of 2001 (in thousands):
FACILITY & SEVERANCE & OTHER
LEASE TERMINATION RELATED EXIT
COSTS COSTS COSTS TOTAL
----------------- ----------- -------- --------
Balances at December 31, 2000 ............... $ 18,881 $ 3,462 $ 4,512 $ 26,855
First quarter 2001 charges ................ 500 -- -- 500
Payments .................................. (378) (1,251) (620) (2,249)
Non-utilized charges taken into income .... (391) (51) (1,390) (1,832)
-------- -------- -------- --------
Balances at March 31, 2001 .................. 18,612 2,160 2,502 23,274
Payments .................................. (39) (869) (839) (1,747)
Other re-allocations ...................... (167) (398) 565 --
-------- -------- -------- --------
Balances at June 30, 2001 ................... $ 18,406 $ 893 $ 2,228 $ 21,527
======== ======== ======== ========
(6) COMMITMENTS AND CONTINGENCIES
(a) Employment Agreements
The Company has entered into employment agreements with certain of its
management employees, which include, among other terms, non-compete
provisions and salary and benefits continuation. Pursuant to agreements
with certain employees, the Company paid an aggregate of approximately
$600,000 to such employees representing an advance of severence owed in
the event of their termination by the Company without cause.
The employment agreements with the Company's two executive officers
provide for the payment of bonuses aggregating up to a maximum of $2.25
million upon the repayment of borrowings under the Credit Facility.
Approximately $0.2 million of the bonuses were earned in 2000 and the
remainder was earned during the first quarter of 2001 of which $1.88
million was paid during the first quarter and the remainder was paid
during the second quarter of 2001.
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(b) Litigation
The Company and certain of its current and former officers and
directors, Joseph C. Hutts, Derril W. Reeves, Thompson S. Dent, Richard
D. Wright and John K. Crawford (only Mr. Dent remains employed by the
Company while he and Mr. Hutts serve as directors) have been named
defendants in 10 securities fraud class actions filed in state and
federal courts in Tennessee between September 8, 1998 and June 24,
1999. The factual allegations of the complaints in all 10 actions are
substantially identical and assert that during various periods between
April 22, 1997 and September 22, 1998, the defendants issued false and
misleading statements which materially misrepresented the earnings and
financial condition of the Company and its clinic operations and
misrepresented and failed to disclose various other matters concerning
the Company's operations in order to conceal the alleged failure of the
Company's business model. Plaintiffs further assert that the alleged
misrepresentations caused the Company's securities to trade at inflated
levels while the individual defendants sold shares of the Company's
stock at such levels. In each of the actions, the plaintiff seeks to be
certified as the representative of a class of all persons similarly
situated who were allegedly damaged by the defendants' alleged
violations during the "class period." Each of the actions seeks damages
in an indeterminate amount, interest, attorneys' fees and equitable
relief, including the imposition of a trust upon the profits from the
individual defendants' trades. The federal court actions have been
consolidated in the U. S. District Court for the Middle District of
Tennessee. Defendants' motion to dismiss was denied. The state court
actions were consolidated in Davidson County, Tennessee. The
Plaintiffs' original consolidated class action complaint in state court
was dismissed for failure to state a claim. Plaintiffs, however, were
granted leave to file an amended complaint. The amended complaint filed
by Plaintiffs asserted, in addition to the original Tennessee
Securities Act claims, that Defendants had also violated Section 11 and
12 of the Securities Act of 1933 for alleged misleading statements in a
prospectus released in connection with the CareWise acquisition. The
amended complaint also added KPMG LLP ("KPMG"), the Company's
independent public auditors. KPMG removed this case to federal court
and its motion to dismiss has been denied. On October 20, 2000, this
case was consolidated with the original federal consolidated action and
a new consolidated complaint has been filed. The Company, the
individual defendants and KPMG have filed an answer. The discovery
process is nearing completion. On May 30, 2001, the court granted
plaintiffs' motion for class certification. The trial of all the
consolidated cases is set for March 12, 2002. The Company believes that
it has meritorious defenses to all of the claims, and is vigorously
defending against these actions. There can be no assurance, however,
that such defenses will be successful or that the lawsuits will not
have a material adverse effect on the Company. The Company's Restated
Charter provides that the Company shall indemnify the officers and
directors for any liability arising from these suits unless a final
judgment establishes liability (a) for a breach of the duty of loyalty
to the Company or its shareholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violation
of law or (c) for an unlawful distribution.
On April 18, 2000, a jury in the case of United States of America ex
rel. William R. Benz v. PrimeCare International, Inc. ("PrimeCare") and
Prem Reddy, in the United States District Court, Central District of
California, returned a verdict in favor of the plaintiff as follows:
$0.5 million against PrimeCare on plaintiff's breach of contract
claims; $0.9 million in compensatory damages and $3 million in punitive
damages jointly and severally against PrimeCare and Prem Reddy on
plaintiff's claims for wrongful termination and intentional infliction
of emotional distress; and $0.2 million against PrimeCare on
plaintiff's claim for violations of state labor codes. The jury
returned a verdict in defendants' favor on plaintiff's claim for
retaliatory termination under the False Claims Act. The jury was unable
to reach a verdict on plaintiff's Medicare fraud claims. The court
entered a final judgment on July 13, 2000. Effective May 3, 2001, the
Company entered into a settlement agreement with Mr. Benz which
subsequently received court approval. In exchange for PrimeCare paying
Mr. Benz $2.7 million (of which $0.7 million was paid during the second
quarter of 2001 and the remainder was paid during July 2001), all
claims were dropped by Mr. Benz against the Company and its affiliates.
The judgment of $4.6 million was recorded as other operating expenses
in the second quarter of 2000 and $2.0 million is included in other
accrued expenses at June 30, 2001.
In September 1999, three relators brought a claim in the United States
District Court for the District of Hawaii under the False Claims Act
against Straub Clinic and Hospital, Inc. ("Straub"), PhyCor of Hawaii,
Inc., and the Company. This matter had been under seal until September
2000. On September 20, 2000, the
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United States government elected to decline to intervene in the matter.
The Company sold PhyCor of Hawaii, Inc. to Straub in November 2000. On
February 21, 2001, plaintiffs filed a Second Amended Complaint, and
Straub is defending the claims against PhyCor of Hawaii, Inc. PhyCor,
Inc. lost its motion to dismiss and is defending the litigation against
it.
As a result of the Company's determination to exit its IPA market in
Houston, Texas, a number of providers in the market have brought
actions naming several parties, including the Company and an
IPA-management subsidiary of the Company, alleging breach of contract,
among other matters. In addition, as a result of the Company's
financial condition, the Company and its subsidiaries have been unable
to meet certain contractual obligations including, but not limited to,
certain ongoing lease obligations and severance obligations to former
employees. There can be no assurance that the Company or its
subsidiaries will meet existing or additional contractual obligations
in the future. Several parties have sent letters to the Company and its
subsidiaries alleging breach of contract and threatening to bring
claims, and several suits have been brought. There can be no assurance
that additional actions will not be brought against the Company and its
subsidiaries as a result of the Company's actions. There can be no
assurance that if these matters are determined adversely to the Company
that such determinations would not have a material adverse effect on
the Company.
PrimeCare, its affiliated IPAs and its employed physicians are parties
to several medical malpractice cases which the Company believes will be
adjudicated within applicable insurance coverage limits. In addition,
the PrimeCare subsidiary which holds a limited Knox-Keane license has
been named in certain managed care liability cases which are not
expected to exceed insurance limits. Various PrimeCare entities have
been sued on business claims such as breach of contract,
misrepresentation, fraud and deceit. The plaintiffs in these suits are
seeking millions of dollars in damages, and the Company is vigorously
defending these suits. While there can be no assurance that the Company
will be successful in such litigation, the Company does not believe any
such litigation will result in damage awards at the levels the
plaintiffs have demanded, and thus the Company does not believe such
litigation will have a material adverse effect on the Company. Finally,
PrimeCare and the Company have been named in litigation involving
PrimeCare operations in the State of Oklahoma that were not transferred
to the Company when the Company acquired PrimeCare. Plaintiffs are
alleging that a former PrimeCare subsidiary (which the Company did not
buy) is guilty of breach of contract, conversion and fraud, and
plaintiff is seeking damages in excess of $2.0 million in damages plus
punitive damages. Since filing the litigation, plaintiff has filed for
bankruptcy. While the Company did not own PrimeCare at the time of the
alleged incidents, PrimeCare and the Company may have liability for the
actions of this entity and do not have indemnity rights as to the
former owners (who are also codefendants in this matter). It is not
possible to determine the amount of exposure of the Company and its
subsidiaries in this case, but any judgment against the Company or
PrimeCare in the full amount requested by the plaintiff could have a
material adverse effect on the Company.
Certain litigation is pending against the physician groups which were
affiliated with the Company and IPAs managed by the Company. The
Company has not assumed any liability in connection with such
litigation. Claims against the physician groups and IPAs could result
in substantial damage awards to the claimants which may exceed
applicable insurance coverage limits. While there can be no assurance
that the physician groups and IPAs will be successful in any such
litigation, the Company does not believe any such litigation will have
a material adverse effect on the Company.
(c) Insurance
The Company maintains managed healthcare errors and omissions insurance
on a claims made basis for all of its managed care operations.
Insurance coverage under such policies is contingent upon a policy
being in effect when a claim is made, regardless of when the events
which caused the claim occurred. The Company also maintains general
liability and some umbrella coverage on an occurrence basis. In
addition, the Company is named as an additional insured on medical
malpractice policies of some formerly affiliated physician groups. In
other cases, however, the Company has no insurance for malpractice
claims brought against such physician groups. There are known claims
and incidents that may result in the assertion of additional claims, as
well as claims from unknown incidents that may be asserted. Management
is not aware of any claims against it or its formerly affiliated
physician groups which might have a material
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adverse impact on the Company's financial position. The cost and
availability of insurance coverage has varied widely in recent years.
Management believes its insurance policies are adequate in amount and
coverage for its operations. There can be no assurance, however, that
the coverage is sufficient to cover all future claims or will continue
to be available in adequate amounts or at a reasonable cost.
(d) Letters of Credit
At June 30, 2001, letters of credit totaling $4.3 million were
outstanding under the Credit Facility. On behalf of certain of the
Company's affiliated IPAs, the Company has been required to issue
letters of credit, aggregating $0.6 million at June 30, 2001, to
managed care payors to ensure payment of health care costs for which
the affiliated IPAs have responsibility. The Company is exposed to
losses if a letter of credit is drawn upon and the related IPA fails to
satisfy its reimbursement obligation to the Company. Approximately $1.0
million has been drawn on letters of credit related to IPA's to date in
2001 which have not been reimbursed by the IPAs. The $3.7 million
remaining letters of credit secure malpractice insurance deductibles,
bonds required for third party administrator licenses and real estate
leases.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a medical network management company that manages and owns IPAs,
provides contract management services to physician networks owned by health
systems, manages certain medical organizations and provides consulting services
to independent medical organizations.
Our demand management services subsidiary, CareWise, Inc., was sold May
25, 2001. We utilized a portion of the cash proceeds from the sale to fully cash
collateralize letters of credit outstanding under the Company's bank credit
facility ("Credit Facility").
In the second quarter of 2001, we determined to retain and continue to
operate our PrimeCare operations. PrimeCare accounts for most of the revenue and
earnings of our IPA business. In the fourth quarter of 2000, we decided to
solicit bids for the sale of PrimeCare. After reviewing these bids, and after
certain other assets were sold which helped to alleviate PhyCor's short-term
cash flow problems, in June 2001, we decided to retain PrimeCare. Accordingly,
PrimeCare is not accounted for as an asset held for sale on June 30, 2001 as it
was on December 31, 2000.
We have decided to discontinue development of HPMdirect, Inc., an
entity organized to provide health and productivity services to self-insured
employers. We have determined to focus our attention and resources on our
existing operations.
As of the date hereof, as a result of our failure to pay the
approximately $4.4 million interest payments due on each of February 15, and
August 15, 2001 on the 4.5% convertible subordinated notes ("Notes"), we are in
default under the Notes. Moreover, the default under the Notes, caused a default
under the Credit Facility, which default was waived by the senior lenders. The
Company has no funds available under its Credit Facility. If the Notes were to
be accelerated, a default would occur under the Company's Zero Coupon
Convertible Subordinated Notes Due 2014, original issue discount amount of
approximately $109 million (the "Warburg Notes"), held by affiliates of Warburg,
Pincus & Co. ("Warburg, Pincus"). We obtained limited forbearance agreements
respecting the February 2001 interest payment through September 5, 2001, with
additional automatic ten business day extensions unless otherwise notified, from
bondholders representing approximately 57% of the Notes in the aggregate, and a
waiver and forbearance agreement from Warburg, Pincus through June 30, 2001
subject to certain conditions. We are seeking to renew the forbearance
agreements with holders of the Notes and Warburg, Pincus. We have also defaulted
on obligations related to several equipment and facilities leases. In connection
with the audit of our financial statements for the year ended December 31, 2000,
our independent auditors stated in their report that our recurring losses from
operations, net capital deficiency and net working capital deficit raise
substantial doubt about our ability to continue as a going concern. We have
engaged Jefferies & Company, Inc. to assist us in restructuring our balance
sheet. In light of our operating history and current projections and in
connection with the restructuring, we expect it may be necessary to seek
protection from our creditors. Any such action could have a material adverse
effect on the Company and its stakeholders.
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Operations
We operate IPA/PHO management companies, including PrimeCare, in four
states. With respect to PrimeCare operations, we contract with payors primarily
on a capitated basis. We are at risk that the costs of professional services
will exceed the capitated payments, and we assume limited risk for the
institutional (hospital) costs up to pre-defined limits of any losses. In future
periods, PrimeCare's exposure for the institutional risk may increase. Fees
earned from managing the other IPAs /PHOs (not part of PrimeCare) are based upon
a percentage of either revenue collected by the IPAs or a per member/per month
payment, and a share of surplus, if any, of capitated revenue of the IPAs. We
are attempting to develop additional contracts in all of our markets.
Through the PrimeCare acquisition in 1998, we became a party to certain
managed care contracts and, accordingly, are exposed to certain losses.
PrimeCare holds a limited Knox-Keene license in the State of California.
As a result of holding the Knox-Keene license, we are subject to an
increased level of state oversight, including reserve requirements by the
California Department of Managed Health Care (the "DMHC"). The Knox-Keene entity
contracts with payors and hospitals on a capitated basis, and then, with respect
to professional services, contracts with the IPAs managed by PrimeCare to
perform the services. The Knox-Keene entity contracts with several payors,
including Pacificare of California and Aetna U.S. HealthCare, which represent
approximately 28% and 11%, respectively, of the revenue from our California IPA
operations. These contracts are renewed annually on a calendar basis. We are
negotiating with payors, including Pacificare and Aetna, for a renewal of these
agreements. During the third quarter of 2000, we reached an agreement with the
DMHC regarding the funding of certain cash reserve requirements for claims
payment. Under this agreement, PrimeCare agreed not to make any distributions of
cash to the Company if any such distribution would cause PrimeCare not to be in
compliance with the Knox-Keene requirements. PrimeCare was in compliance with
such requirements as of June 30, 2001. For the second quarter of 2001, PrimeCare
and our other IPA companies in California, which operate under the name North
American Medical Management in both northern and southern California, had
revenues of $61.1 million and earnings (losses) before interest, taxes,
depreciation and amortization ("EBITDA") of $3.5 million, compared to revenues
of $48.8 million and EBITDA of $(3.7) million for the second quarter of 2000.
For the first six months of 2001, these entities had revenues of $125.9 million
and EBITDA of $5.5 million, compared to revenues of $104.8 million and EBITDA of
$(1.6) million for the first six months of 2000. Our operations would be
adversely affected if we failed to maintain compliance with the agreement and
the DMHC took corrective action. On June 30, 2001, PrimeCare had restricted cash
reserves of $25.4 million and outstanding healthcare claims and liabilities of
$22.4 million. If we elect to seek protection from our creditors, the operations
of our IPA businesses are not expected to be affected.
Through our PhySys division, we provide management and support services
to two of our formerly affiliated multi-specialty clinics, the Harbin Clinic in
Rome, Georgia and the Lakeview Medical Group in Suffolk, Virginia. These
agreements are for seven and five years, respectively, subject to termination
for various reasons. We do not employ the personnel at these clinics and we do
not own any clinic assets. In addition, through PhySys, we provide management
services to the physician networks of health systems. At present, our PhySys
division provides management and support services to the 124-physician group
related to the Rockford Health System, a health care delivery system serving
northern Illinois and southern Wisconsin. The Rockford agreement continues to
December 31, 2003 but is subject to termination on December 31, 2002. In April
2001, we entered into an agreement to provide services to MedClinic of
Sacramento, a 120-member physician group affiliated with the Mercy Health System
in Sacramento, California. The agreement is for a three year term but is subject
to earlier termination by either party in certain circumstances. We are pursuing
additional relationships with health systems and physician groups but there is
no assurance that we will enter into similar arrangements in the future or that
such arrangements will be successful.
We believe that we can assist the health systems and independent
medical organizations in improving the operations of their physician networks by
offering the organizations a range of services to address their needs. Pursuant
to these affiliations, we provide management services to the physician networks
for a fee but do not acquire the assets or employ the personnel of the physician
groups, except certain key employees, and do not have any ongoing obligation to
provide capital to the affiliated groups. If we choose to invest capital with
these groups in the future, we may do so through a joint venture. To date, we
have not invested any capital with these groups. This
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modified structure enables the physician group or health system to benefit from
our management expertise, yet retain control of its employees and decisions
regarding future capital investment.
Through PhySys we continue to provide consulting services to
independent medical organizations through limited engagements. Fees from
consulting arrangements have increased in 2001 compared to 2000, although there
can be no assurance that we will continue to obtain additional engagements or
that such engagements will be profitable.
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RESULTS OF OPERATIONS
The following table shows the percentage of net revenue represented by
various expenses and other income items reflected in the Company's Consolidated
Statements of Operations.
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2001 2000 2001 2000
------ ------ ------ ------
Net revenue ................................................ 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of provider services .............................. 61.4 22.1 57.9 20.8
Salaries, wages and benefits ........................... 19.3 32.1 20.5 31.8
Supplies ............................................... 1.0 13.6 2.2 13.3
Purchased medical services ............................. 0.0 1.9 0.2 2.2
Other expenses ......................................... 10.2 18.5 19.2 16.6
General corporate expenses ............................. 4.0 2.9 5.1 2.6
Rents and lease expense ................................ 2.6 7.1 3.0 7.3
Depreciation and amortization .......................... 2.8 6.1 3.3 5.8
Provision for asset revaluation and restructuring ...... 0.8 157.9 (0.3) 76.0
------ ------ ------ ------
Net operating expenses .................................... 102.1 262.2 111.1 176.4
------ ------ ------ ------
Loss from operations ................................... (2.1) (162.2) (11.1) (76.4)
Interest income ........................................... (1.3) (0.7) (1.2) (0.6)
Interest expenses ......................................... 5.8 3.8 5.6 3.5
------ ------ ------ ------
Loss before income taxes and minority interest ......... (6.6) (165.3) (15.5) (79.3)
Income tax expense ......................................... 0.0 0.1 0.0 0.1
Minority interest .......................................... (0.4) 0.0 0.2 0.3
------ ------ ------ ------
Net loss ............................................... (6.2)% (165.4)% (15.7)% (79.7)%
====== ====== ====== ======
2001 COMPARED TO 2000
Net revenue decreased $187.1 million, or 72.5%, from $258.0 million for
the second quarter of 2000 to $70.9 million for the second quarter of 2001, and
$411.3 million, or 72.5%, from $567.5 million for the first six months of 2000
to $156.2 million for the first six months of 2001. Net revenue from clinics
("Clinic Net Revenue") decreased in the second quarter of 2001 from the second
quarter of 2000 by $170.8 million, comprised of (i) a $143.9 million decrease in
our service fees for reimbursement of clinic expenses incurred by us and (ii) a
$26.9 million decrease in our fees from clinic operating income and net
physician group revenue. Clinic Net Revenue decreased in the first six months of
2001 from the first six months of 2000 by $369.9 million, comprised of (i) a
$297.3 million decrease in our service fees for reimbursement of clinic expenses
incurred by us and (ii) a $72.6 million decrease in our fees from clinic
operating income and net physician group revenue. Decreases in Clinic Net
Revenue for the second quarter and first six months of 2001 compared to the same
periods in 2000 was $170.8 million and $369.9 million, respectively, due to the
disposal of clinic operations through the second quarter of 2001. Net revenue
from consulting engagements for the second quarter and first six months of 2001
increased $1.1 million and $1.8 million, respectively, compared to the same
periods in 2000.
Net revenue from IPAs decreased $8.0 million, or 10.8%, from $74.0
million for the second quarter of 2000 to $66.0 million for the second quarter
of 2001 and $24.6 million, or 15.2%, from $160.9 million for the first six
months of 2000 to $136.3 million for the first six months of 2001. IPA Net
Revenue decreased approximately $20.7 million and $46.3 million in the second
quarter and first six months of 2001, respectively, compared to the same periods
in 2000 primarily as a result of the decisions to restructure and close the
Houston, Dallas and various other IPA markets and to place our HMO in Kentucky
in voluntary rehabilitation with the Commonwealth of Kentucky Department of
Insurance, during the fourth quarter of 2000. IPA Net Revenue from the IPA
markets in effect for the second quarter and first six months of 2001 and 2000
increased by $12.7 million, or 23.9%, and $21.7 million, or 19.1%, respectively,
compared to the same periods in 2000. Net revenue from PrimeCare increased $12.3
million to $61.1 million for the second quarter of 2001 and $21.1 million to
$125.9 million for the first six months of 2001 compared to the same periods in
2000 primarily as a result of increased enrollment.
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Comparing operating expense ratios between the second quarter and first
six months of 2001 and the corresponding periods in 2000 is difficult given the
large decrease in and composition of net revenue between the periods. Net
revenue from our IPA operations were 93% and 87% of our total net revenue for
the second quarter and first six months of 2001, respectively, compared to 29%
and 28% for the second quarter and first six months of 2000, respectively. As
such, cost of provider services as a percentage of net revenue significantly
increased during the second quarter and first six months of 2001 compared to the
same periods in 2000 because cost of provider services relates primarily to our
IPA operations. Conversely, salaries, wages and benefits decreased as a
percentage of net revenues because our multi-specialty clinic operations, which
required more personnel to operate, comprised only 5% of our total net revenue
for the first six months of 2001 compared to 66% and 67% of our total net
revenue for the second quarter and first six months in 2000. Other operating
expenses decreased as a percentage of net revenue for the second quarter of 2001
compared to the second quarter of 2000 because of a $4.6 million litigation
reserve accrual originally recorded in the second quarter of 2000 (see Part II,
Item 1 below). Other operating expenses increased as a percentage of net revenue
for the first six months of 2001 compared to the first six months of 2000
because of an $8.1 million expense recorded on the discount of a certain note
receivable for which we collected $7.2 million in the first quarter of 2001. In
addition, the decrease in estimated net realizable value of three other notes
receivable totaling approximately $4.6 million was recorded in other operating
expenses during the first six months of 2001. The increase in interest expense
as a percentage of net revenue is primarily because of decreased net revenue and
amendments to our Credit Facility that resulted in increased interest costs.
On behalf of certain of our affiliated IPAs, we have underwritten
letters of credit to managed care payors to ensure payment of health care costs
for which the affiliated IPAs have responsibility. As of June 30, 2001, letters
of credit aggregating $0.6 million were outstanding under the Credit Facility
for the benefit of managed care payors. To date in 2001, draws on such letters
of credit totaled approximately $1.0 million which have not been reimbursed by
the IPAs.
The net asset revaluation charge for the quarter ending June 30, 2001
totaled approximately $0.5 million, consisting of a $2.0 million asset
impairment charge offset by a $1.5 million recovery of assets impaired in
previous years. See discussion of these charges in "Asset Revaluation and
Restructuring" below.
We will incur no federal income tax expense and make no federal income
tax payments during the foreseeable future as a result of available net
operating loss carryforwards.
ASSET REVALUATION AND RESTRUCTURING
General
In the second quarter of 2001, we recorded a net asset revaluation
charge of approximately $0.5 million. This charge was comprised of a $2.0
million asset revaluation charge less recovery of $1.5 million of certain asset
revaluation charges recorded previously.
In the first quarter of 2001, we recorded a net asset revaluation and
restructuring recovery of approximately $1.0 million. This net recovery included
a net pre-tax asset revaluation charge of approximately $0.3 million, which was
comprised of a $3.6 million asset revaluation charge less recovery of $3.3
million of certain asset impairment charges recorded in prior years. The net
charge also included a net restructuring reserve recovery of approximately $1.3
million, which was comprised of a $0.5 million restructuring charge less
recovery of $1.8 million of restructuring reserves recorded in prior years which
will not be utilized.
Assets Held for Sale
At June 30, 2001, we had no material assets classified as held for
sale. We completed the disposition of the assets of our two remaining owned
clinics and our CareWise operations during the second quarter of 2001 and
received consideration consisting of $10.4 million in cash and $1.8 million in
notes receivable, in addition to certain liabilities assumed by the purchasers.
The $1.8 million note receivable was fully collected prior to June 30, 2001. In
July 2001, we completed the disposition of the assets of our Denver operations
and received proceeds totaling $55,000 in cash, in addition to certain
liabilities assumed by the purchasers, which approximated the net carrying value
of these assets.
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We completed the disposition of the assets of four clinics, certain
real estate holdings and other assets during the first quarter of 2001 and
received consideration consisting of $54.7 million in cash and $12.0 million in
notes receivable, in addition to certain liabilities assumed by the purchasers.
Net revenue and pre-tax income (losses) from operations disposed of or
closed as of June 30, 2001 were $2.8 million and $(0.4) million for the three
months ended June 30, 2001, and $15.8 million and $(13.3) million for the six
months ended June 30, 2001, respectively, compared to $199.5 million and $(9.3)
million for the three months ended June 30, 2000, and $441.3 million and $(9.3)
million for the six months ended June 30, 2000, respectively.
Restructuring Charges
We did not adopt or implement any restructuring plans in the second
quarter of 2001. In the first quarter of 2001, we adopted and implemented
restructuring plans and recorded a net pre-tax restructuring reserve recovery of
approximately $1.3 million. This recovery was comprised of a $500,000
restructuring charge related to the disaffiliation with one of our multi
specialty groups and the recovery of approximately $1.8 million related to
restructuring charges recorded in prior years which will not be utilized.
During the second quarter and first six months of 2001, we paid
approximately $39,000 and $0.4 million in facility and lease termination costs,
respectively, $0.9 million and $2.1 in severance costs, respectively, and $0.8
million and $1.5 million in other exit costs, respectively, related to 2000,
1999 and 1998 restructuring charges. At June 30, 2001, accrued restructuring
reserves totaled approximately $21.5 million, which included $18.4 million in
facility and lease termination costs, $0.9 million in severance costs and $2.2
million in other exit costs. We estimate that approximately $8.1 million of the
remaining liabilities at June 30, 2001 are due and payable during the next 12
months. The remaining $13.4 million primarily relates to long term lease
commitments.
LIQUIDITY AND CAPITAL RESOURCES
General
In 2000, as a result of the outcome of discussions with our affiliated
clinics, we determined to sell the assets of our medical clinic business and to
apply the proceeds to the amounts outstanding under the Credit Facility. In
April 2001, we completed the disposition of all remaining owned clinics. The
proceeds were used to pay down outstanding borrowings under the Credit Facility
and to cash collateralize certain letters of credit issued under the Credit
Facility. We failed to meet the February and August 2001 interest payment
obligations under the Notes totaling approximately $8.8 million. The default
under the Notes created a default under the Credit Facility, which default was
waived by the senior lenders. The Company has no funds available under its
Credit Facility. If the Notes were to be accelerated, a default would occur
under the Warburg Notes. We have also defaulted on obligations related to
several equipment and facility leases. The Company entered into limited
forbearance agreements respecting the February 2001 interest payment with
noteholders representing a majority of the aggregate principal amount of the
Notes. Pursuant to the forbearance agreements, the holders have agreed not to
take action under the Notes until September 5, 2001, subject to automatic ten
business day extensions, and Warburg Pincus agreed to forbear until June 30,
2001, subject to certain conditions. We have initiated discussions with an
informal committee of holders of the Notes regarding a possible restructuring.
The Company is seeking to renew the forbearance agreements with holders of the
Notes and Warburg, Pincus. We have engaged Jefferies & Co. to assist us in
restructuring our balance sheet. In light of our operating history and current
projections and in connection with the restructuring, we expect it may be
necessary to seek protection from our creditors.
At June 30, 2001, current liabilities exceeded our current assets by
$330.2 million, compared to $305.8 million at December 31, 2000. At June 30,
2001, we had $47.1 million in cash and cash equivalents, of which $15.9 million
was available for general corporate purposes, compared to $0.9 million and $0.3
million, respectively, at December 31, 2000. The significant change in the cash
balance relates to PrimeCare being held for sale at December 31, 2001, with all
of its cash and restricted cash recorded as assets held for sale on the
accompanying consolidated balance sheet. Restricted cash and cash equivalents
include amounts held by IPA partnerships and HMOs, the use of which is
restricted to operations of the IPA partnerships or to meet other contractual
requirements.
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We generated $1.2 million and used $1.1 million of cash flows from
operations in the second quarter and first six months of 2001, respectively,
compared to generating $8.3 million and $10.1 million of cash flows in the
second quarter and first six months of 2000. Cash flows from operations of
clinics that were disposed of or closed at June 30, 2001 resulted in a decrease
of $16.3 million and $33.1 million for the second quarter and first six months
of 2001, respectively, compared to the same periods in 2000. Our IPA management
division experienced losses in certain markets in 2000. We ceased operations in
eleven IPA markets in 2000, including the Houston and Dallas managed IPA markets
in the fourth quarter of 2000. Cash flows related to our IPA operations
increased $11.0 million and $27.8 million in the second quarter and first six
months of 2001, respectively, compared to the same periods in 2000, primarily as
a result of the disposition or closing of the aforementioned markets.
We completed the disposition of the assets of our two remaining owned
clinics and our CareWise operations during the second quarter of 2001 and
received consideration consisting of $10.4 million in cash and $1.8 million in
notes receivable and certain liabilities assumed by the purchasers. The $1.8
million note receivable was fully collected prior to June 30, 2001.
The employment agreements with the Company's two executive officers
provided for the payment of bonuses aggregating up to a maximum of $2.25 million
upon the repayment of borrowings under the Credit Facility. Approximately $0.2
million of the bonuses were earned in 2000 and the remainder was earned during
the first quarter of 2001 of which $1.88 million was paid during the first
quarter and the remainder was paid during the second quarter of 2001.
Capital expenditures during the second quarter and first six months of
2001 totaled $14,000 and $154,000, respectively. We expect to make less than
$0.5 million in capital expenditures in 2001, which we anticipate will be funded
primarily from operating cash flows and cash reserves.
During 2000, we resolved the outstanding Internal Revenue Service
("IRS") examination for the years 1996 through 1998. The IRS examination
resulted in an adjustment to the 1998 loss carryback and, accordingly, we repaid
approximately $1.2 million plus interest as a result of revisions in the
alternative minimum tax calculation. The tax years 1988 through 1998 have been
closed with respect to all issues without a material financial impact.
Additionally, two subsidiaries are currently under examination for the 1995 and
1996 tax years. We acquired the stock of these subsidiaries during 1996. For the
years under audit, and potentially, for subsequent years, any such adjustments
could result in material cash payments by the Company. We cannot determine at
this time the resolution of these matters, however, we do not believe the
resolution of these matters will have a material adverse effect on our financial
condition, although there can be no assurance as to the outcome of these
matters. As of December 31, 2000, we had approximately $557.8 million in net
operating loss carryforwards; accordingly, we do not expect to pay current
federal income taxes for the foreseeable future.
Capital Resources
We have $196.5 million in principal amount outstanding under the Notes
which mature in 2003. Our failure to make the February 15, 2001 interest payment
on the Notes resulted in an Event of Default under the terms of the related
indenture on March 17, 2001. We also failed to make the August 15, 2001 interest
payment on the Notes. We entered into limited forbearance agreements respecting
the February 2001 interest payment with noteholders representing 57% of the
aggregate principal amount of the Notes. Pursuant to the forbearance agreements,
the holders have agreed not to take action under the Notes until September 5,
2001, subject to automatic ten business day extensions. We are seeking to renew
the forbearance agreements with holders of the Notes. We have initiated
discussions with an informal committee of holders of the Notes regarding a
possible restructuring.
Our Credit Facility and synthetic lease facility were modified several
times in 2000. The Credit Facility, as amended August 25, 2000, provided for the
conversion of outstanding balances under the previous revolving credit and
synthetic lease facilities and outstanding letters of credit to a term loan
("Term Loan") and a $25 million revolving loan ("Revolving Loan"). Amounts were
available under this Revolving Loan only to the extent repayments were made from
our excess cash flows. The restated Credit Facility also included a senior
secured revolving loan of up to $10 million ("New Revolving Loan"). Under the
terms of this amended Credit Facility, net cash proceeds from asset sales were
required to be prepaid against outstanding borrowings under the Term Loan, the
Revolving Loan and the New Revolving Loan and then to cash collateralize
outstanding letters of credit. Pursuant to
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the March 30, 2001 amendment, irrespective of asset sales, the aggregate
uncollateralized letters of credit were required to be reduced on an established
timetable until maturity on December 31, 2001. During the first quarter of 2001,
all borrowings under the Credit Facility were repaid and during the second
quarter of 2001, all outstanding letters of credit were fully collateralized
with cash held by the agent bank. No additional borrowings are available under
the Credit Facility. If the principal due under the Notes were to be
accelerated, an event of default would occur under the Warburg Notes. We
obtained a waiver and forbearance agreement through June 30, 2001 from Warburg,
Pincus relating to the possible default under the Warburg Notes. We are seeking
to renew the forbearance agreement with Warburg, Pincus.
Letters of credit issued under the Credit Facility totaling $4.3
million are fully secured by cash in addition to the capital stock the Company
holds in certain of its subsidiaries (as defined in the Credit Facility) and the
personal property held by the Company and its subsidiaries. The Credit Facility
terminates December 31, 2001. We are currently in discussions with other
financial institutions regarding the issuance of letters of credit to replace
those outstanding under the Credit Facility prior to its termination. There can
be no assurance that we will be able to obtain replacement letters of credit on
acceptable terms.
Summary
The completed asset sales will substantially reduce our revenue and
earnings in the future. The outcome of certain legal proceedings described in
Part II, Item 1 hereof may have a negative impact on our liquidity and capital
reserves.
At June 30, 2001, we had cash and cash equivalents of approximately
$47.1 million, of which $15.9 million was available for general corporate
purposes, and currently have no availability under the Credit Facility. We
defaulted on our obligation to make interest payments due February 15, 2001 and
August 15, 2001 totaling approximately $8.8 million on the Notes. If the Notes
were to be accelerated, a default would occur under the Warburg Notes. We have
also defaulted on obligations related to several equipment and facility leases.
We obtained limited forbearance agreements respecting the February 2001 interest
payment until September 5, 2001, with automatic extensions for ten business
days, from bondholders representing approximately 57% of the Notes in the
aggregate and a waiver and forbearance agreement from Warburg, Pincus through
June 30, 2001, subject to certain conditions. The Company is seeking to renew
the forbearance agreements with holders of the Notes and Warburg, Pincus.
Failure of the bondholders or Warburg, Pincus to continue the forbearance
agreements could have a material adverse effect on our operations. There can be
no assurance that we could satisfy any acceleration demand by the noteholders or
Warburg, Pincus.
In their report on the audit of our consolidated financial statements
for the fiscal year ended December 31, 2000, our auditors stated that our
recurring losses from operations, net capital deficiency and net working capital
deficit raise substantial doubts about our ability to continue as a going
concern. We do not believe our revenue will exceed our costs in 2001 and do not
anticipate having access to any additional capital. Accordingly, we expect to
continue to experience negative cash flow. We have engaged Jefferies & Company,
Inc. to assist us in restructuring our balance sheet, however, there can be no
assurance that we will be successful in doing so. In light of our operating
history and current projections and in connection with the restructuring, we
expect it may be necessary to seek protection from our creditors. Any such
action could have a material adverse effect on the Company and its stakeholders.
In the event that we elect to seek protection from our creditors, we believe
that our continuing IPA businesses, which are adequately capitalized and cash
flow positive, will remain outside of any protective actions. Our objective over
the past several months has been to ensure that the continuing IPA businesses
are positioned within their markets to remain financially viable and independent
from the financial difficulty of the parent company, PhyCor.
FORWARD-LOOKING STATEMENTS
The disclosure and analysis in this report and other information that
is provided by PhyCor, Inc. ("PhyCor," the "Company" "we," "our" or "us")
contain some forward-looking statements. Forward-looking statements give our
current expectations or forecasts of future events. These statements do not
relate solely to historical or current facts and can be identified by the use of
words such as "may," "believe," "will," "expect," "project," "estimate,"
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"anticipate," "plan," "should" or "continue." From time to time, we also may
provide oral or written forward-looking statements in other materials we release
to the public.
Any of our forward-looking statements in this report and in any other
public statements we make may turn out to be incorrect. These statements can be
affected by inaccurate assumptions we might make or by known or unknown risks
and uncertainties. Many factors mentioned in this report - for example, our
ability to operate as a going concern, our ability to restructure our balance
sheet, the adequacy of our capital resources, the expectation that we may seek
relief from our creditors, the impact to earnings and the possibility of
additional charges to earnings resulting from terminating or restructuring our
relationships with our IPAs and their payors, our ability to operate IPAs and
other physician organizations profitably, changes in contractual relationships,
competition in the health care industry, regulatory developments and changes,
the nature of capitated fee arrangements and other methods of payment for
medical services, the risk of professional liability claims, and the outcome of
pending litigation will be important in determining future results.
Consequently, no forward-looking statement can be guaranteed. Actual future
results may vary materially. For a more detailed discussion of the factors that
could affect the results of operations and financial condition of the Company,
see "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risk Factors."
We undertake no obligation to publicly update any forward-looking
statements, whether as a result of new information, future events or otherwise.
You are advised, however, to consult any further disclosures we make on related
subjects in our 10-Q, 8-K and 10-K reports to the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
During the second quarter and first six months ended June 30, 2001,
there were no material changes to the Company's quantitative and qualitative
disclosures about the market risks associated with financial instruments as
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 2000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its current and former officers and
directors, Joseph C. Hutts, Derril W. Reeves, Thompson S. Dent, Richard D.
Wright and John K. Crawford (only Mr. Dent remains employed by the Company while
he and Mr. Hutts serve as directors) have been named defendants in 10 securities
fraud class actions filed in state and federal courts in Tennessee between
September 8, 1998 and June 24, 1999. The factual allegations of the complaints
in all 10 actions are substantially identical and assert that during various
periods between April 22, 1997 and September 22, 1998, the defendants issued
false and misleading statements which materially misrepresented the earnings and
financial condition of the Company and its clinic operations and misrepresented
and failed to disclose various other matters concerning the Company's operations
in order to conceal the alleged failure of the Company's business model.
Plaintiffs further assert that the alleged misrepresentations caused the
Company's securities to trade at inflated levels while the individual defendants
sold shares of the Company's stock at such levels. In each of the actions, the
plaintiff seeks to be certified as the representative of a class of all persons
similarly situated who were allegedly damaged by the defendants' alleged
violations during the "class period." Each of the actions seeks damages in an
indeterminate amount, interest, attorneys' fees and equitable relief, including
the imposition of a trust upon the profits from the individual defendants'
trades. The federal court actions have been consolidated in the U. S. District
Court for the Middle District of Tennessee. Defendants' motion to dismiss was
denied. The state court actions were consolidated in Davidson County, Tennessee.
The Plaintiffs' original consolidated class action complaint in state court was
dismissed for failure to state a claim. Plaintiffs, however, were granted leave
to file an amended complaint. The amended complaint filed by Plaintiffs
asserted, in addition to the original Tennessee Securities Act claims, that
Defendants had also violated Section 11 and 12 of the Securities Act of 1933 for
alleged misleading statements in a prospectus released in connection with the
CareWise acquisition. The amended complaint also added KPMG LLP (KPMG), the
Company's independent public auditors. KPMG removed this case to federal court
and its motion to dismiss has been denied. On October 20, 2000, this case was
consolidated
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with the original federal consolidated action and a new consolidated complaint
has been filed. The Company, the individual defendants and KPMG have filed an
answer. The discovery process is nearing completion. On May 30, 2001, the court
granted plaintiffs' motion for class certification. The trial of all the
consolidated cases is set for March 12, 2002. The Company believes that it has
meritorious defenses to all of the claims, and is vigorously defending against
these actions. There can be no assurance, however, that such defenses will be
successful or that the lawsuits will not have a material adverse effect on the
Company. The Company's Restated Charter provides that the Company shall
indemnify the officers and directors for any liability arising from these suits
unless a final judgment establishes liability (a) for a breach of the duty of
loyalty to the Company or its shareholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or knowing violation of law
or (c) for an unlawful distribution.
On April 18, 2000, a jury in the case of United States of America ex
rel. William R. Benz v. PrimeCare International, Inc. ("PrimeCare") and Prem
Reddy, in the United States District Court, Central District of California,
returned a verdict in favor of the plaintiff as follows: $0.5 million against
PrimeCare on plaintiff's breach of contract claims; $0.9 million in compensatory
damages and $3 million in punitive damages jointly and severally against
PrimeCare and Prem Reddy on plaintiff's claims for wrongful termination and
intentional infliction of emotional distress; and $0.2 million against PrimeCare
on plaintiff's claim for violations of state labor codes. The jury returned a
verdict in defendants' favor on plaintiff's claim for retaliatory termination
under the False Claims Act. The jury was unable to reach a verdict on
plaintiff's Medicare fraud claims. The court entered a final judgment on July
13, 2000. Effective May 3, 2001, the Company entered into a settlement agreement
with Mr. Benz which subsequently received court approval. In exchange for
PrimeCare paying Mr. Benz $2.7 million (of which $0.7 million was paid during
the second quarter of 2001 and the remainder was paid during July 2001), all
claims were dropped by Mr. Benz against the Company and its affiliates. The
judgement of $4.6 million was recorded as other operating expenses in the second
quarter of 2000 and $2.0 million is included in other accrued expenses at June
30, 2001.
In September 1999, three relators brought a claim in the United States
District Court for the District of Hawaii under the False Claims Act against
Straub Clinic and Hospital, Inc. ("Straub"), PhyCor of Hawaii, Inc., and the
Company. This matter had been under seal until September 2000. On September 20,
2000, the United States government elected to decline to intervene in the
matter. The Company sold PhyCor of Hawaii, Inc. to Straub in November 2000. On
February 21, 2001, plaintiffs filed a Second Amended Complaint, and Straub is
defending the claims against PhyCor of Hawaii, Inc. PhyCor, Inc. lost its motion
to dismiss and is defending the litigation against it.
As a result of the Company's determination to exit its IPA market in
Houston, Texas, a number of providers in the market have brought actions naming
several parties, including the Company and an IPA-management subsidiary of the
Company, alleging breach of contract, among other matters. In addition, as a
result of the Company's financial condition, the Company and its subsidiaries
have been unable to meet certain contractual obligations including, but not
limited to, certain ongoing lease obligations and severance obligations to
former employees. There can be no assurance that the Company or its subsidiaries
will meet existing or additional contractual obligations in the future. Several
parties have sent letters to the Company and its subsidiaries alleging breach of
contract and threatening to bring claims, and several suits have been brought.
There can be no assurance that additional actions will not be brought against
the Company and its subsidiaries as a result of the Company's actions. There can
be no assurance that if these matters are determined adversely to the Company
that such determinations would not have a material adverse effect on the
Company.
PrimeCare, its affiliated IPAs and its employed physicians are parties
to several medical malpractice cases which the Company believes will be
adjudicated within applicable insurance coverage limits. In addition, the
PrimeCare subsidiary which holds a limited Knox-Keane license has been named in
certain managed care liability cases which are not expected to exceed insurance
limits. Various PrimeCare entities have been sued on business claims such as
breach of contract, misrepresentation, fraud and deceit. The plaintiffs in these
suits are seeking millions of dollars in damages, and the Company is vigorously
defending these suits. While there can be no assurance that the Company will be
successful in such litigation, the Company does not believe any such litigation
will result in damage awards at the levels the plaintiffs have demanded, and
thus the Company does not believe such litigation will have a material adverse
effect on the Company. Finally, PrimeCare and the Company have been named in
litigation involving PrimeCare operations in the State of Oklahoma that were not
transferred to the Company when the Company acquired PrimeCare. Plaintiffs are
alleging that a former PrimeCare subsidiary (which the Company did not buy) is
guilty of breach of contract, conversion and fraud, and plaintiff is seeking
damages in excess of $2.0 million in damages plus punitive damages. Since filing
the litigation, plaintiff has filed for bankruptcy. While the Company did not
own PrimeCare at the time of the alleged incidents, PrimeCare and the Company
may have liability for the actions of this entity and do not have indemnity
rights as to the former owners (who are also codefendants in this matter). It is
not possible to determine the amount of exposure of the Company and its
subsidiaries in this case, but any judgment against the Company or PrimeCare in
the full amount requested by the plaintiff could have a material adverse effect
on the Company.
Certain litigation is pending against the physician groups which were
affiliated with the Company and IPAs managed by the Company. The Company has not
assumed any liability in connection with such litigation. Claims against the
physician groups and IPAs could result in substantial damage awards to the
claimants which may exceed applicable insurance coverage limits. While there can
be no assurance that the physician groups and IPAs will be successful in any
such litigation, the Company does not believe any such litigation will have a
material adverse effect on the Company.
The Company's forward-looking statements relating to the
above-described litigation reflect management's best judgment based on the
status of the litigation to date and facts currently known to the Company and
its management and, as a result, involve a number of risks and uncertainties,
including the possible disclosure of new
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facts and information adverse to the Company in the discovery process and the
inherent uncertainties associated with litigation.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As stated previously in this report, as a result of our
failure to pay the interest payments, totaling approximately $8.8 million, due
February 15, 2001 and August 15, 2001, on the 4.5% convertible subordinated
notes ("Notes"), we are in default under the Notes. The principal amount
outstanding under the Notes, which mature in 2003, is $196.5 million. The
Company entered into limited forbearance agreements respecting the February 2001
interest payment with noteholders representing a majority of the aggregate
principal amount of the Notes. Pursuant to the forbearance agreements, the
holders agreed not to take action under the Notes until September 5, 2001,
subject to automatic ten business day extensions. The Company is seeking to
renew the forbearance agreements with holders of the Notes and Warburg, Pincus.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
3.1 -- Amended Bylaws of the Company(1)
3.2 -- Restated Charter of the Company(1)
3.3 -- Amendment to Restated Charter of the Company(2)
3.4 -- Amendment to Restated Charter of the Company(3)
4.1 -- Form of 4.5% Convertible Subordinated Debenture due 2003(4)
4.2 -- Form of Indenture by and between the Company and First American National Bank, N.A.(4)
(1) Incorporated by reference to exhibits filed with the Annual Report on
Form 10-K for the year ended December 31, 1994, Commission No. 0-19786.
(2) Incorporated by referenced to exhibits filed with the Company's
Registration Statement on Form S-3, Commission No. 33-93018.
(3) Incorporated by referenced to exhibits filed with the Company's
Registration Statement on Form S-3, Commission No. 33-98528.
(4) Incorporated by reference to exhibits filed with the Company's
Registration Statement on Form S-3, Registration No. 333-328.
(B) REPORTS ON FORM 8-K
The Company filed a Current Report on Form 8-K with the Commission on June 5,
2001 announcing the Company's completed sale of CareWise, Inc. In addition, the
Company announced that it was no longer pursuing the sale of PrimeCare
International, Inc. and its other California IPA operations.
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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 thereunto duly authorized.
PHYCOR, INC.
By: /s/ Tarpley B. Jones
------------------------------------------------------
Tarpley B. Jones
Executive Vice President and Chief Financial Officer
Date: August 20, 2001
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EXHIBIT INDEX
EXHIBIT
- -------
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
3.1 -- Amended Bylaws of the Company(1)
3.2 -- Restated Charter of the Company(1)
3.3 -- Amendment to Restated Charter of the Company(2)
3.4 -- Amendment to Restated Charter of the Company(3)
4.1 -- Form of 4.5% Convertible Subordinated Debenture due 2003(4)
4.2 -- Form of Indenture by and between the Company and First American National Bank, N.A.(4)
(1) Incorporated by reference to exhibits filed with the Annual Report on
Form 10-K for the year ended December 31, 1994, Commission No. 0-19786.
(2) Incorporated by referenced to exhibits filed with the Company's
Registration Statement on Form S-3, Commission No. 33-93018.
(3) Incorporated by referenced to exhibits filed with the Company's
Registration Statement on Form S-3, Commission No. 33-98528.
(4) Incorporated by reference to exhibits filed with the Company's
Registration Statement on Form S-3, Registration No. 333-328.