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Previous: MEDCHEM PRODUCTS INC /MA/, 10-Q, 1995-05-15 |
Next: WINTHROP RESIDENTIAL ASSOCIATES III, 10-Q, 1995-05-15 |
<PAGE> 1
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 March 31, 1995
-----------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
------------------------ ------------------
Commission file number 0-11531
-----------------
U.S. Healthcare, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Pennsylvania 23-2229683
- --------------------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
980 Jolly Road, P.O. Box 1109, Blue Bell, Pa. 19422-0770
- ----------------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 628-4800
-------------------------------------
</TABLE>
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 April 28, 1995, there were 145,739,316 shares of Common Stock, $.005 par
value, and 14,536,530 shares of Class B Stock, $.005 par value, outstanding.
This document is comprised of 15 pages. The Index to Exhibits is on page 14.
1
<PAGE> 2
U.S. HEALTHCARE, INC.
INDEX
<TABLE>
<CAPTION>
Page
No.
----
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1995 and
December 31, 1994 3
Consolidated Statements of Income - Three months
ended March 31, 1995 and 1994 4
Consolidated Statement of Shareholders' Equity -
Three months ended March 31, 1995 5
Consolidated Statements of Cash Flows - Three months
ended March 31, 1995 and 1994 6
Note to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 10
Part II - Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 12
Index to Exhibits 14
Exhibit 11 - Computation of Net Income Per Common and
Common Equivalent Share - Three months ended
March 31, 1995 and 1994 15
</TABLE>
2
<PAGE> 3
U.S. HEALTHCARE, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except per share data)
<TABLE>
<CAPTION>
March 31 December 31
1995 1994
------------ -----------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 200,942 $ 123,814
Marketable securities 1,058,011 1,009,244
Receivables 120,351 103,465
Other 26,564 38,453
---------- ----------
Total current assets 1,405,868 1,274,976
Property and equipment,less accumulated depreciation 125,433 127,562
Marketable securities 37,842 33,405
Other long-term assets 30,146 27,944
---------- ----------
Total assets $1,599,289 $1,463,887
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Medical costs payable $ 382,532 $ 378,321
Unearned premiums 44,196 32,283
Accounts payable and accrued liabilities 85,938 84,747
Income taxes payable 86,412 46,525
---------- ----------
Total current liabilities 599,078 541,876
Long-term liabilities 17,725 16,338
---------- ----------
Total liabilities 616,803 558,214
---------- ----------
Shareholders' equity:
Common stock, $.005 par value - 275,000
shares authorized; 148,473 and 148,307
shares issued in 1995 and 1994 742 741
Class B stock, $.005 par value - 50,000
shares authorized; 14,537 shares issued
and outstanding in 1995 and 1994 73 73
Additional paid-in capital 161,210 157,275
Retained earnings 953,952 899,072
Net unrealized losses on marketable
securities, less applicable income taxes (8,158) (27,203)
Common stock held in treasury - at cost;
2,821 shares in 1995 and 1994 (105,892) (105,892)
Unearned portion of restricted common stock (19,441) (18,393)
---------- ----------
Shareholders' equity 982,486 905,673
---------- ----------
Total liabilities and shareholders' equity $1,599,289 $1,463,887
========== ==========
</TABLE>
See accompanying note.
3
<PAGE> 4
U.S. HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31
----------------------------
1995 1994
--------- --------
<S> <C> <C>
Revenue:
Premiums $800,912 $695,939
Investment income, including net realized losses 19,801 12,499
Other, principally administrative
services fees 13,117 7,508
-------- --------
833,830 715,946
Expenses:
Medical costs 584,202 490,905
Administrative, marketing and other
operating costs 94,626 74,892
-------- --------
678,828 565,797
-------- --------
Income before income taxes 155,002 150,149
Provision for income taxes 60,450 60,810
-------- --------
Net income $ 94,552 $ 89,339
======== ========
Net income per common and common equivalent
share - primary and fully diluted $.59 $.55
Weighted average number of common and common
equivalent shares outstanding:
Primary 161,218 163,197
Fully diluted 161,304 163,204
</TABLE>
See accompanying note.
4
<PAGE> 5
U.S. HEALTHCARE, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Three months ended March 31, 1995
(amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Common stock Class B stock
------------------- --------------------- Additional
Number Par Number Par paid-in
of shares value of shares value capital
--------- ----- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994..... 148,307 $741 14,537 $73 $157,275
Exercise of stock options and
related tax benefits........... 126 1 - - 2,146
Reduction in net unrealized losses
on marketable securities, less
applicable income taxes....... - - - - -
Restricted common stock awarded. 40 - - - 1,789
Earned portion of restricted
common stock................... - - - - -
Cash dividends paid:
$.250 per common share......... - - - - -
$.225 per Class B share........ - - - - -
Net income...................... - - - - -
------- ---- ------ --- --------
Balance at March 31, 1995.... 148,473 $742 14,537 $73 $161,210
======= ==== ====== === ========
</TABLE>
<TABLE>
<CAPTION>
Common stock
Net unrealized held in Treasury
losses on ----------------------
Retained marketable Number
earnings securities of shares Cost
-------- ---------- --------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1994..... $899,072 $(27,203) (2,821) $(105,892)
Exercise of stock options and
related tax benefits........... - - - -
Reduction in net unrealized losses
on marketable securities, less
applicable income taxes....... - 19,045 - -
Restricted common stock awarded. - - - -
Earned portion of restricted
common stock................... - - - -
Cash dividends paid:
$.250 per common share......... (36,401) - - -
$.225 per Class B share........ (3,271) - - -
Net income...................... 94,552 - - -
-------- -------- ----- ---------
Balance at March 31, 1995.... $953,952 $ (8,158) (2,821) $(105,892)
======== ======== ===== =========
</TABLE>
<TABLE>
<CAPTION>
Unearned portion
of restricted
common stock
-----------------------
Number Shareholders'
of shares Amount equity
--------- ------ -------------
<S> <C> <C> <C>
Balance at December 31, 1994..... (469) $(18,393) $905,673
Exercise of stock options and
related tax benefits........... - - 2,147
Reduction in net unrealized losses
on marketable securities, less
applicable income taxes....... - - 19,045
Restricted common stock awarded. (40) (1,789) -
Earned portion of restricted
common stock................... 22 741 741
Cash dividends paid:
$.250 per common share......... - - (36,401)
$.225 per Class B share........ - - (3,271)
Net income...................... - - 94,552
--- -------- --------
Balance at March 31, 1995.... (487) $(19,441) $982,486
==== ======== ========
</TABLE>
See accompanying note.
5
<PAGE> 6
U.S. HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31
-----------------------------
1995 1994
----------- ----------
<S> <C> <C>
Operating Activities:
Net income $ 94,552 $ 89,339
Adjustments to reconcile net income to cash flow
from operating activities:
Depreciation and amortization 7,512 6,496
Net realized losses on sales of marketable securities 90 2,819
Other non-cash charges, net 4,235 1,909
Changes in operating assets and liabilities:
Receivables (16,886) 7,418
Medical costs payable 4,211 18,164
Unearned premiums 11,913 1,250
Acounts payable and accrued liabilities 1,191 10,173
Income taxes payable 40,780 30,274
Other, net (2,311) (3,096)
-------- --------
Cash flow from operating activities 145,287 164,746
-------- --------
Investing Activities:
Purchase of marketable securities (221,245) (122,768)
Purchase of property and equipment, net (4,124) (4,254)
Proceeds from maturities or sales of marketable securities 199,090 674,195
Other (3,461) (1,010)
-------- --------
Cash flow from investing activities (29,740) 546,163
-------- --------
Financing Activities:
Proceeds from exercise of stock options 1,253 788
Cash dividends paid (39,672) (21,404)
-------- --------
Cash flow from financing activities (38,419) (20,616)
-------- --------
Increase in cash and cash equivalents 77,128 690,293
Cash and cash equivalents at beginning of period 123,814 96,339
-------- --------
Cash and cash equivalents at end of period $200,942 $786,632
======== ========
Supplemental disclosure of cash flow information:
Income taxes paid, net of state income tax refunds $ 16,433 $ 29,400
Supplemental disclosure of non-cash financing activities:
Income tax benefits related to exercise of stock options $ 893 $ 961
</TABLE>
See accompanying note.
6
<PAGE> 7
U.S. HEALTHCARE, INC.
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
1. The financial information for the three month periods ended March 31,
1995 and 1994 included herein is unaudited. Such information includes
all adjustments, consisting of adjustments of a normal and recurring
nature, which, in the opinion of management, are necessary for a fair
presentation of the Company's consolidated financial position and the
results of its operations and cash flows. Additionally, such
information should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations included
on pages 8 through 10 and the Consolidated Financial Statements and
Notes to Consolidated Financial Statements incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December 31,
1994.
7
<PAGE> 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Substantially all of the Company's revenue is generated from premiums
received for health care coverage provided to its members. These premiums
represent approximately 96% and 97% of the Company's total revenue for the
three month periods ended March 31, 1995 and 1994, respectively. The Company's
operating expenses are primarily medical costs consisting principally of
medical claims and capitation costs.
The Company's results of operations depend in large part on accurately
predicting and effectively managing medical costs and other operating expenses.
A number of factors, including competition, changes in health care practices,
changes in federal or state laws and regulations or the interpretations
thereof, inflation, provider contract changes, new technologies, government
imposed surcharges, taxes or assessments, reductions in provider payments
by governmental payors (such reductions may cause providers to seek higher
payments from private payors), major epidemics, disasters and numerous other
factors affecting the delivery and cost of health care, may in the future
affect the Company's ability to control its medical costs and other operating
expenses. Governmental action (including downward adjustments to the premium
rates requested by the Company, which adjusted rates could be lower than
premium rates then in effect) or business conditions (including competition and
the other factors described above) could result in premium revenues not
increasing to offset increases in medical costs and other operating expenses.
Once set, premiums are generally fixed for one year periods and, accordingly,
unanticipated costs during such periods cannot be recovered through higher
premiums.
Legislative and regulatory proposals have been made at the federal and
state government levels related to the health care system generally and the
Medicare and Medicaid programs specifically. The Company is unable to predict
the content of any legislation or regulation that may be enacted, when any such
legislation or regulation will be adopted, or what effect such legislation or
regulation will have on the Company's business.
8
<PAGE> 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three months ended March 31, 1995 and 1994
Operations
Premiums increased $104,973,000, or 15% compared to the first quarter of 1994.
Principal factors for the increase are a 13% growth in U.S. Healthcare-insured
health plan membership (217,000 members since March 31, 1994) and higher
weighted average premiums. Weighted average premiums increased 2% to $147 per
member per month, principally due to an increase in the proportion of total
membership in Medicare plans, which plans have higher premiums per member than
the Company's other HMO plans. The average premium for U.S. Healthcare-insured
non-Medicare HMO plans, which at March 31, 1995 had about 1,773,000 members,
was approximately $138 per member per month in the first quarters of 1994 and
1995. Compared to the first quarter of 1994, the average premium for the
Medicare plans, which at March 31, 1995 had about 52,000 members, decreased 3%
to approximately $443 per member per month. On March 31, 1995, the Company
also had about 7,000 members in U.S. Healthcare-insured indemnity plans.
The following tables show premiums earned during the quarter and the increase
in premiums compared to the first quarter of 1994 by plan type and region
(amounts in thousands):
Premiums by plan type:
<TABLE>
<CAPTION>
Three months ended
March 31, 1995 Increase
------------------ --------
<S> <C> <C>
Commercial plans $711,972 $ 66,962
Medicare plans 66,069 26,343
Medicaid and other plans 22,871 11,668
-------- --------
$800,912 $104,973
======== ========
</TABLE>
Premiums by region:
<TABLE>
<CAPTION>
Three months ended
March 31, 1995 Increase
------------------ --------
<S> <C> <C>
Mid-Atlantic $447,857 $ 42,280
Northeastern 332,607 55,005
Southern 20,448 7,688
-------- --------
$800,912 $104,973
======== ========
</TABLE>
Investment income increased $7,302,000, or 58% over the first quarter of 1994,
due to lower losses on sales of marketable securities, the effect of higher
investment portfolio balances and an increase in the average yield on
investments.
Other revenue (principally administrative services fees) increased $5,609,000,
or 75% over the first quarter of 1994, prinicipally due to a 55% increase in
membership in employer-funded health plans. On March 31, 1995, the Company
had about 365,000 members in employer-funded health plans.
9
<PAGE> 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Three months ended March 31, 1995 and 1994
Medical costs increased $93,297,000, or 19% over the first quarter of 1994,
primarily due to a 13% growth in U.S. Healthcare-insured health plan
membership, plus higher costs per member. Compared to the first quarter of
1994, the weighted average medical cost per member increased about 5% to $107
per member per month. Factors for the per member increase include higher
specialist usage and rates, changes in product mix, higher capitation rates
and the enhancement of the Medicare program to include a pharmacy benefit for
most Medicare members.
Administrative, marketing and other operating costs increased $19,734,000, or
26% over the first quarter of 1994. Personnel costs contributed the largest
increase as a result of higher salaries, an increase in the number of
employees necessitated, in part, by higher business volume and changes in
product mix and increased marketing capability.
Liquidity and capital resources
The Company's liquidity requirements have been met from cash flows generated by
operating activities. In the first quarter of 1995, net cash flows from
such activities were $145,287,000. The Company believes that its existing
financial resources are sufficient to meet its liquidity needs.
The Company is subject to federal and state regulations which require the
Company's subsidiaries to maintain certain levels of tangible net assets, as
defined, for use in their own operations. Some states also require prior
approval before funds are transferred to affiliates.
10
<PAGE> 11
Part II - Other Information
Item 1. Legal Proceedings
On October 12, 1993, the Company filed a petition with the New York State
Supreme Court seeking to stay and annul the Opinion and Decision of
Superintendent of Insurance of the State of New York dated September 30, 1993,
which would have reduced the premium rates for the Company's New York HMO for
the twelve month period beginning October 1, 1993 by a weighted average of 3.9%
from the rates in effect for the preceding twelve month period. On November 1,
1993, the Court held a hearing and ordered that a stay should be granted.
Accordingly, for New York HMO group contracts renewed or entered into during
the first quarter of 1994, the Company generally charged the premium rates in
effect during the third quarter of 1993. The Court entered a written Order and
Decision on July 8, 1994, implementing the November 1, 1993 oral decision on
the basis that the Superintendent violated the New York Insurance Law (by
reducing the Company's premium rates without giving the Company an opportunity
to oppose the reduction) and remanding the matter to the Superintendent for a
proper hearing. On August 4, 1994, the Superintendent filed a Notice of Appeal
with the Appellate Division; the appeal was dismissed on October 11, 1994. On
October 13, 1994, the Superintendent moved for permission to appeal to the
Appellate Division; this motion was denied on January 17, 1995. The
Superintendent did not appeal from the decisions of the Appellate Division and,
as of May 11, 1995, had not informed the Company whether he intends to schedule
a hearing pursuant to the July 8, 1994 Order and Decision. The portion of the
litigation related to rates for contracts entered into or renewed on or after
April 1, 1994 through September 30, 1994 was implicitly mooted by the
Superintendent's Opinion and Decision dated April 29, 1994 approving revised
rates for such period, leaving only that portion of the litigation related to
rates for contracts entered into or renewed during the first quarter of 1994
subject to a possible hearing.
The Company is involved in legal actions concerning benefit plan coverage
and other decisions by the Company and alleged medical malpractice by
participating providers. If found liable in such actions, which are vigorously
defended on several grounds including ERISA, the Company may bear financial
responsibility for adverse consequences. The Company is also involved in
certain other claims and legal actions arising in the ordinary course of
business. In the opinion of management, these claims and legal actions will
not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
11
<PAGE> 12
Part II - Other Information
Items 2 through 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) 1. See Exhibit 11 on page 15.
2. Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter for which this report on Form 10-Q is being
filed.
12
<PAGE> 13
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
<TABLE>
<S> <C>
U.S. HEALTHCARE, INC.
----------------------------------------------------
Date: May 11, 1995 By: /S/ Costas C. Nicolaides
---------------------- -------------------------------------------------
Costas C. Nicolaides
Executive Vice President and
Chief Financial Officer
</TABLE>
13
<PAGE> 14
Index to Exhibits
<TABLE>
<CAPTION>
Page
Exhibit No. No.
- ----------- ----
<S> <C>
11. Computation of Net Income Per Common and
Common Equivalent Share - Three months ended
March 31, 1995 and 1994 15
27. Financial Data Schedule
</TABLE>
14
<PAGE> 1
Exhibit 11
U.S. HEALTHCARE, INC.
COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
(amounts in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31
------------------------
1995 1994
-------- --------
<S> <C> <C>
Net income $94,552 $89,339
======= =======
Weighted average number of common shares:
Shares outstanding at beginning of period 145,486 146,718
Effect of exercise of stock options 55 110
Restricted stock awarded 29 102
Conversion of Class B stock to common stock - 4
Weighted average number of common equivalent shares:
Additional equivalent shares issuable from
assumed exercise of stock options 1,111 1,210
Additional equivalent shares issuable from
conversion of Class B stock 14,537 15,053
------- -------
Weighted average number of common and common equivalent
shares outstanding - primary basis 161,218 163,197
Incremental additional equivalent shares issuable
from application of fully diluted computation 86 7
------- -------
Weighted average number of common and common equivalent
shares outstanding - fully diluted basis 161,304 163,204
======= =======
Net income per common and common equivalent
share - primary and fully diluted $.59 $.55
==== ====
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1995 FORM 10-Q OF U.S. HEALTHCARE, INC. AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 200,942
<SECURITIES> 1,058,011
<RECEIVABLES> 108,800
<ALLOWANCES> 13,481
<INVENTORY> 0
<CURRENT-ASSETS> 1,405,868
<PP&E> 204,689
<DEPRECIATION> 79,256
<TOTAL-ASSETS> 1,599,289
<CURRENT-LIABILITIES> 599,078
<BONDS> 0
<COMMON> 742
0
0
<OTHER-SE> 981,744
<TOTAL-LIABILITY-AND-EQUITY> 1,599,289
<SALES> 0
<TOTAL-REVENUES> 833,830
<CGS> 0
<TOTAL-COSTS> 678,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 155,002
<INCOME-TAX> 60,450
<INCOME-CONTINUING> 94,552
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,552
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
</TABLE>
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