SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
[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
Commission file number: 0-12024
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MAXICARE HEALTH PLANS, INC.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3615709
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1149 South Broadway Street, Los Angeles, California 90015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213)765-2000
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13, or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes [ X ] No [ ]
<PAGE>
Common Stock, $.01 par value - 17,295,250 shares outstanding as
of May 4, 1995, of which 664,567 shares were held by the
Registrant as disbursing agent for the benefit of holders of
allowed claims and interests under the Registrant's Joint Plan of
Reorganization.
<PAGE>
PART I: FINANCIAL INFORMATION
---------------------
Item 1: Financial Statements
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MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---------- ------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents................................. $ 36,452 $ 37,858
Marketable securities..................................... 48,329 43,558
Accounts receivable, net.................................. 19,373 18,314
Deferred tax asset........................................ 10,000 10,000
Prepaid expenses.......................................... 2,817 2,741
Other current assets...................................... 275 299
--------- ---------
TOTAL CURRENT ASSETS.................................... 117,246 112,770
--------- ---------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 5,471 5,461
Furniture and equipment................................... 24,534 26,137
--------- ---------
30,005 31,598
Less accumulated depreciation and amortization.......... 27,726 29,077
--------- ---------
NET PROPERTY AND EQUIPMENT.............................. 2,279 2,521
--------- ---------
LONG-TERM ASSETS
Long-term receivables..................................... 2,266 2,285
Statutory deposits........................................ 11,356 10,953
Intangible assets, net.................................... 153 163
--------- ---------
TOTAL LONG-TERM ASSETS.................................. 13,775 13,401
--------- ---------
TOTAL ASSETS............................................ $ 133,300 $ 128,692
========= =========
CURRENT LIABILITIES
Estimated claims and incentives payable................... $ 41,241 $ 47,095
Accounts payable.......................................... 302 285
Deferred income........................................... 5,852 2,338
Accrued salary expense.................................... 2,502 2,709
Payable to disbursing agent............................... 6,248 6,248
Other current liabilities................................. 6,225 3,780
--------- ---------
TOTAL CURRENT LIABILITIES............................... 62,370 62,455
LONG-TERM LIABILITIES....................................... 819 887
--------- ---------
TOTAL LIABILITIES....................................... 63,189 63,342
--------- ---------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1995 - 2,600 shares
and 1994 - 5,000 shares authorized, 1994 - 2,290 shares
issued and outstanding.................................. 23
Common stock, $.01 par value - 40,000 shares authorized,
1995 - 17,295 shares and 1994 - 10,850 shares issued and
outstanding............................................. 173 108
Additional paid-in capital................................ 246,085 246,054
Accumulated deficit....................................... (176,147) (180,835)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 70,111 65,350
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 133,300 $ 128,692
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
1995 1994
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<S> <C> <C>
OPERATING REVENUES................................................... $112,355 $106,925
-------- --------
OPERATING EXPENSES
Physician services................................................ 44,222 41,096
Hospital services................................................. 33,601 32,374
Outpatient services............................................... 15,925 16,243
Other health care services........................................ 3,451 4,227
-------- --------
TOTAL HEALTH CARE EXPENSES...................................... 97,199 93,940
Marketing, general and administrative expenses.................... 10,574 10,420
Depreciation and amortization..................................... 294 763
-------- --------
TOTAL OPERATING EXPENSES............................................. 108,067 105,123
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INCOME FROM OPERATIONS............................................... 4,288 1,802
Investment income, net of interest expense........................ 1,341 564
-------- --------
INCOME BEFORE INCOME TAXES........................................... 5,629 2,366
INCOME TAX PROVISION................................................. 941 85
-------- --------
NET INCOME........................................................... 4,688 2,281
PREFERRED STOCK DIVIDENDS............................................ (1,350)
-------- --------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS.......................... $ 4,688 $ 931
======== ========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Primary
Primary Earnings per Common Share................................. $ .35 $ .09
======== ========
Weighted average number of common and common
equivalent shares outstanding.................................... 13,423 10,773
======== ========
Fully Diluted
Fully Diluted Earnings per Common Share........................... $ .26 $ .09
======== ========
Weighted average number of common and common
equivalent shares outstanding................................... 18,083 10,773
======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 4,688 $ 2,281
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization.................................. 294 763
Gain on dispositions of property and equipment................. (4)
Changes in assets and liabilities:
Increase in accounts receivable.............................. (1,059) (1,791)
Decrease in estimated claims and incentives payable.......... (5,854) (1,465)
Increase (decrease) in deferred income....................... 3,514 (335)
Changes in other miscellaneous assets and
liabilities................................................ 2,242 (161)
-------- --------
Net cash provided by (used for) operating activities.............. 3,825 (712)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dispositions of property and equipment......................... 6
Purchases of property and equipment............................ (42) (51)
Increase in statutory deposits................................. (403) (27)
Proceeds from sales of marketable securities................... 14,324 10,449
Purchases of marketable securities............................. (19,095) (15,360)
Decrease in long-term receivables.............................. 19
-------- --------
Net cash used for investing activities............................ (5,197) (4,983)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations.......................... (49) (3)
Payment of preferred stock dividends........................... (1,350)
Stock options exercised........................................ 540 445
Redemption of preferred stock.................................. (525)
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Net cash used for financing activities............................ (34) (908)
-------- --------
Net decrease in cash and cash equivalents......................... (1,406) (6,603)
Cash and cash equivalents at beginning of period.................. 37,858 38,672
-------- --------
Cash and cash equivalents at end of period........................ $ 36,452 $ 32,069
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Interest..................................................... $ 10 $ 3
Supplemental schedule of non-cash investing and financing
activities:
Conversion of preferred stock to common stock................ $ 56,725
Issuance of restricted common stock.......................... $ 2,096
Capital lease incurred for purchase of equipment............. $ 35
See notes to consolidated financial statements.
</TABLE>
<PAGE>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
---------------------
Maxicare Health Plans, Inc., a Delaware corporation ("MHP"), is a
holding company which owns various subsidiaries, primarily health
maintenance organizations ("HMOs"). The accompanying unaudited
consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information. In the opinion of management, all
adjustments considered necessary for a fair presentation, which
consist solely of normal recurring adjustments, have been
included. All significant inter-company balances and
transactions have been eliminated.
For further information on MHP and subsidiaries (collectively the
"Company") refer to the consolidated financial statements and
accompanying footnotes included in the Company's annual report on
Form 10-K as filed with the Securities and Exchange Commission
for the year ended December 31, 1994.
Net Income Per Common and Common Equivalent Share
-------------------------------------------------
Primary earnings per share is computed by subtracting preferred
stock dividends from net income in order to determine net income
available to common shareholders. This amount is then divided by
the weighted average number of common shares outstanding, after
giving effect to stock options with an exercise price less than
the average market price for the period. Common shares issued
upon the conversion of preferred stock (see Note 2) have been
included in the weighted average number of common shares
outstanding subsequent to the conversion date. Fully diluted
earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding, after
giving effect to stock options with an exercise price less than
the market price at the end of the period and shares assumed to
be issued upon conversion of the Company's preferred stock.
Common shares issued upon the conversion of preferred stock have
been included in the weighted average number of common shares
outstanding and the preferred shares have been excluded from the
weighted average number of preferred shares outstanding
subsequent to the conversion date. Fully diluted earnings per
share is reported only when the amount calculated is less than
the primary earnings per share. For the three months ended March
31, 1994 fully diluted earnings per share exceeded the primary
earnings per share (i.e. was "anti-dilutive") so fully diluted
earnings per share is not reported.
<PAGE>
NOTE 2 - PREFERRED STOCK REDEMPTION:
The Company concluded the redemption of its Series A Cumulative
Convertible Preferred Stock ("Series A Stock") on March 14, 1995
(the "Redemption Date"). Holders of approximately 2.27 million
shares of Series A Stock converted their shares into
approximately 6.25 million shares of the Company's Common Stock.
After the Redemption Date, the remaining 21,000 shares of Series
A Stock are no longer deemed to be outstanding and holders of
Series A Stock certificates are entitled to receive $25.4625 per
share.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
Maxicare Health Plans, Inc. and subsidiaries (the "Company")
reported net income of $4.7 million for the three months ended
March 31, 1995, compared to $2.3 million for the same three month
period in 1994. Net income per common share on a fully diluted
basis was $.26 for the first quarter of 1995, compared to $.09 for
1994.
The Company reported a 5.1% increase in operating revenues for the
three months ended March 31, 1995 to $112.4 million, compared to
the same period in 1994, primarily as a result of the new Medicaid
business in California and a net aggregate increase in operating
revenues in the Company's other operations. In the first quarter
of 1995, Maxicare experienced a 1.7% increase in membership and a
3.4% average increase in premium revenue per member as compared to
the first quarter of 1994.
Health care expenses increased 3.5% to $97.2 million in the first
quarter of 1995 as compared to the first quarter of 1994 primarily
due to increased membership; however, health care expenses as a
percentage of operating revenues (the "medical loss ratio")
decreased 1.4% to 86.5% contributing to the $2.5 million increase
to the Company's income from operations to $4.3 million.
Marketing, general and administrative expenses for the first
quarter of 1995 increased 1.5% to $10.6 million as compared to
1994 and remain below 10.0% of operating revenues. This increase
was more than offset by a $469,000 decrease in depreciation and
amortization expense to $294,000 for the three months ended March
31, 1995 as compared to the same period in 1994.
Net investment income for the first quarter of 1995 increased by
$777,000 to $1.3 million, as compared to 1994, due to higher
interest rates and greater cash and investment balances.
The Company reported a $941,000 provision for income taxes for the
three months ended March 31, 1995 as compared to $85,000 for the
same period in 1994 due to the increase in taxable income.
Maxicare concluded the redemption of its Series A Stock (see Note
2 to the Consolidated Financial Statements) and as a result of
this redemption, the Company is no longer required to pay Series A
Stock dividends.
<PAGE>
Liquidity and Capital Resources
Certain of MHP's operating subsidiaries are subject to state
regulations which require compliance with certain statutory
deposit, reserve and net worth requirements. To the extent the
operating subsidiaries must comply with these regulations, they
may not have the financial flexibility to transfer funds to MHP.
MHP's proportionate share of net assets (after inter-company
eliminations) which, at March 31, 1995, may not be transferred to
MHP by subsidiaries in the form of loans, advances or cash
dividends without the consent of a third party is referred to as
"Restricted Net Assets". Total Restricted Net Assets of these
operating subsidiaries was $18.6 million at March 31, 1995, with
deposit and reserve requirements representing $10.9 million of the
Restricted Net Assets and net worth requirements, in excess of
deposit and reserve requirements, representing the remaining $7.7
million. The Company's total Restricted Net Assets at March 31,
1995 was $18.8 million. In addition to the $15.8 million in cash,
cash equivalents and marketable securities held by MHP,
approximately $21.6 million could be considered available to
transfer to MHP from operating subsidiaries.
All of MHP's operating subsidiaries are direct subsidiaries of
MHP. All of the Company's HMOs are federally qualified, and, with
the exception of the Company's South Carolina HMO, all of the
Company's operating HMOs are licensed in the state where they
primarily operate. The operations of the South Carolina HMO are
currently under Bankruptcy Court jurisdiction pending a
reorganization of that entity to operate as a licensed HMO in the
state of South Carolina. The Company believes that it will be
able to ultimately resolve the South Carolina HMO's licensing
situation with the state of South Carolina as a separately
licensed HMO in such state or, alternatively, as a division of one
of its other operating HMOs to be licensed to do business in the
state of South Carolina. The Company can not predict at this time
the required capital infusion, if any, which may result from the
separate licensing of the South Carolina HMO in the state of South
Carolina or operating it as a division of one of the Company's
operating HMOs. If infusion of additional cash resources is
required to ensure compliance with statutory deposit and net worth
requirements, the Company does not believe such an infusion will
have a material adverse effect on its operations taken as a whole.
The operating HMOs currently pay monthly fees to MHP pursuant to
administrative services agreements for various management,
financial, legal, computer and telecommunications services. The
Company believes that for the foreseeable future, it will have
sufficient resources to fund ongoing operations and remain in
compliance with statutory financial requirements.
Pursuant to the Company's plan of reorganization (the
"Reorganization Plan"), the Company was required to make
distributions based on its consolidated net worth in excess of
<PAGE>
$2.0 million at December 31, 1991 and 1992 (the "Consolidated Net
Worth Distribution"). Such distributions were allocated sixty
percent (60%) to redeem outstanding Senior Notes and forty percent
(40%) to the Distribution Trust for the benefit of certain classes
of creditors. As a result of the foregoing, the Company made a
Consolidated Net Worth Distribution of $2.0 million in 1992 based
on the Company's net worth at December 31, 1991. In March 1992,
the Company consummated the sale of $60 million of Series A Stock.
The proceeds from this sale, plus internally generated cash, were
utilized to redeem in April 1992 the entire outstanding principal
amount and accrued interest on the Senior Notes. The sale of the
Series A Stock had the effect of significantly increasing the net
worth of the Company. The Company does not believe the
Reorganization Plan contemplated either the issuance of the Series
A Stock or the redemption of the Senior Notes, and accordingly,
the Company believes the Consolidated Net Worth Distribution
required by the Reorganization Plan should be calculated on a
basis as if the sale of the Series A Stock had not been
consummated and the Senior Notes had not been redeemed. As a
result of the foregoing, the Company calculated the December 31,
1992 Consolidated Net Worth Distribution amount to be
approximately $971,000, which was deposited for distribution to
certain creditors under the Reorganization Plan in March 1993. In
addition, the Company believes that any Consolidated Net Worth
Distribution which under the Reorganization Plan was to be
utilized to redeem the Senior Notes is not required since the
Senior Notes were fully redeemed. The committee representing the
creditors (the "New Committee") has stated it does not agree with
the Company's interpretation of the Reorganization Plan and
believes that additional amounts may be due under the Consolidated
Net Worth Distribution provision of the Reorganization Plan. The
Company has, on a number of occasions, responded to various
questions raised by and inquiries of the New Committee regarding
this matter and believes that if this matter were to be litigated
its position in this matter will ultimately prevail. Currently,
the Company is engaged in settlement discussions with the New
Committee with respect to a resolution of this matter; however,
there can be no assurances that an agreement between the parties
can be reached. Notwithstanding the foregoing, the Company
elected to accrue in its consolidated financial statements for the
year ended December 31, 1992 the maximum potential liability of
$7.2 million related to this matter. The amount that may be
ultimately payable pursuant to this Reorganization Plan provision,
if any, could be less than the amount accrued.
With a current ratio (i.e. current assets divided by current
liabilities) of 1.9 and less than $1.0 million in long-term
liabilities at March 31, 1995, the Company does not believe that
it needs additional working capital at this time. Although the
Company believes it would be able to raise additional working
capital through either an equity infusion or borrowings, if it so
desired, the Company can not state with any degree of certainty at
this time whether additional equity capital or working capital
would be available to the Company, and if available, would be at
terms and conditions acceptable to the Company.
<PAGE>
PART II: OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
-----------------
The information contained in "Part I, Item 3. Legal Proceedings" of
the Company's 1994 Annual Report on Form 10-K is hereby
incorporated by reference and the following information updates the
information contained in the relevant subparts thereof.
The Company is a defendant in a number of other lawsuits arising in
the ordinary course from the operations of its HMOs, including
cases in which the plaintiffs assert claims against the Company or
third parties that might assert indemnity or contribution claims
against the Company for malpractice, negligence, bad faith in the
failure to pay claims on a timely basis or denial of coverage. The
Company does not believe that adverse determination in any one or
more of these cases would have a material, adverse effect on the
Company's business and operations.
Item 2: Change in Securities
--------------------
None
Item 3: Defaults Upon Senior Securities
-------------------------------
None
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5: Other Information
-----------------
None
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
None
<PAGE>
(b) Reports on Form 8-K
-------------------
February 13, 1995 - Item 5. Other Events: Notice of Redemption
of Series A Cumulative Convertible Preferred Stock
March 14, 1995 - Item 5. Other Events: Results of Redemption of
Series A Cumulative Convertible Preferred Stock
<PAGE>
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.
MAXICARE HEALTH PLANS, INC.
---------------------------
(Registrant)
/s/ EUGENE L. FROELICH
---------------------------
May 5, 1995 Eugene L. Froelich
Chief Financial Officer and
Executive Vice President -
Finance and Administration
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the March 31, 1995
financial statements and is qualified in its
entirely by referenced to such financial
statements.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<PERIOD-TYPE> 3-MOS
<CASH> 36,452
<SECURITIES> 48,329
<RECEIVABLES> 23,848
<ALLOWANCES> 4,475
<INVENTORY> 0
<CURRENT-ASSETS> 117,246
<PP&E> 30,005
<DEPRECIATION> 27,726
<TOTAL-ASSETS> 133,300
<CURRENT-LIABILITIES> 62,370
<BONDS> 0
0
0
<COMMON> 173
<OTHER-SE> 69,938
<TOTAL-LIABILITY-AND-EQUITY> 133,300
<PAGE>
<SALES> 112,355
<TOTAL-REVENUES> 113,710
<CGS> 97,199
<TOTAL-COSTS> 108,067
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 5,629
<INCOME-TAX> 941
<INCOME-CONTINUING> 4,688
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,688
<EPS-PRIMARY> .35
<EPS-DILUTED> .26
</TABLE>
