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, 1996 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
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1149 South Broadway Street, Los Angeles, California 90015
--------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213)765-2000
-------------
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 - 17,520,651 shares outstanding as
of May 10, 1996, of which 636,112 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.
2
<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,
1996 1995
---------- ---------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents................................. $ 37,602 $ 49,170
Marketable securities..................................... 54,949 49,659
Accounts receivable, net.................................. 34,199 32,946
Deferred tax asset........................................ 14,220 14,000
Prepaid expenses.......................................... 3,207 1,195
Other current assets...................................... 296 294
--------- ---------
TOTAL CURRENT ASSETS.................................... 144,473 147,264
--------- ---------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 5,441 5,441
Furniture and equipment................................... 18,847 18,849
--------- ---------
24,288 24,290
Less accumulated depreciation and amortization.......... 22,062 21,755
--------- ---------
NET PROPERTY AND EQUIPMENT.............................. 2,226 2,535
--------- ---------
LONG-TERM ASSETS
Long-term receivables..................................... 178 200
Statutory deposits........................................ 13,485 12,593
Intangible assets, net.................................... 223 244
--------- ---------
TOTAL LONG-TERM ASSETS.................................. 13,886 13,037
--------- ---------
TOTAL ASSETS............................................ $ 160,585 $ 162,836
========= =========
CURRENT LIABILITIES
Estimated claims and incentives payable................... $ 40,824 $ 46,232
Accounts payable.......................................... 501 689
Deferred income........................................... 1,972 5,272
Accrued salary expense.................................... 2,723 3,296
Payable to disbursing agent............................... 6,248 6,248
Other current liabilities................................. 5,828 5,239
--------- ---------
TOTAL CURRENT LIABILITIES............................... 58,096 66,976
LONG-TERM LIABILITIES....................................... 967 1,155
--------- ---------
TOTAL LIABILITIES....................................... 59,063 68,131
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value - 40,000 shares authorized,
1996 - 17,511 shares and 1995 - 17,420 shares issued and
outstanding............................................. 175 174
Additional paid-in capital................................ 248,770 247,690
Accumulated deficit....................................... (147,423) (153,159)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 101,522 94,705
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 160,585 $ 162,836
========= =========
See notes to consolidated financial statements.
</TABLE>
3
<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,
1996 1995
-------- --------
<S> <C> <C>
OPERATING REVENUES................................................... $131,766 $112,355
-------- --------
OPERATING EXPENSES
Physician services................................................ 52,581 44,222
Hospital services................................................. 41,969 33,601
Outpatient services............................................... 18,186 15,925
Other health care services........................................ 3,054 3,451
-------- --------
TOTAL HEALTH CARE EXPENSES...................................... 115,790 97,199
Marketing, general and administrative expenses.................... 11,446 10,574
Depreciation and amortization..................................... 346 294
-------- --------
TOTAL OPERATING EXPENSES............................................. 127,582 108,067
-------- --------
INCOME FROM OPERATIONS............................................... 4,184 4,288
Investment income, net of interest expense........................ 1,552 1,341
-------- --------
INCOME BEFORE INCOME TAXES........................................... 5,736 5,629
INCOME TAX PROVISION................................................. (941)
-------- --------
NET INCOME........................................................... $ 5,736 $ 4,688
======== ========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
Primary
Primary Earnings per Common Share................................. $ .31 $ .35
======== ========
Weighted average number of common and common
equivalent shares outstanding.................................... 18,487 13,423
======== ========
Fully Diluted
Fully Diluted Earnings per Common Share........................... $ .31 $ .26
======== ========
Weighted average number of common and common
equivalent shares outstanding................................... 18,487 18,083
======== ========
See notes to consolidated financial statements.
</TABLE>
4
<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,
1996 1995
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 5,736 $ 4,688
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization.................................. 346 294
Benefit from deferred taxes.................................... (220)
Amortization of restricted stock............................... 175 58
Changes in assets and liabilities:
Increase in accounts receivable.............................. (1,253) (1,059)
Decrease in estimated claims and incentives payable.......... (5,408) (5,854)
(Decrease) increase in deferred income....................... (3,300) 3,514
Changes in other miscellaneous assets and
liabilities................................................ (2,214) 2,184
-------- --------
Net cash provided by (used for) operating activities.............. (6,138) 3,825
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................ (16) (42)
Increase in statutory deposits................................. (892) (403)
Proceeds from sales of marketable securities................... 19,569 14,324
Purchases of marketable securities............................. (24,859) (19,095)
Decrease in long-term receivables.............................. 22 19
-------- --------
Net cash used for investing activities............................ (6,176) (5,197)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations.......................... (160) (49)
Stock options exercised........................................ 906 540
Redemption of preferred stock.................................. (525)
-------- --------
Net cash used for financing activities............................ 746 (34)
-------- --------
Net decrease in cash and cash equivalents......................... (11,568) (1,406)
Cash and cash equivalents at beginning of period.................. 49,170 37,858
-------- --------
Cash and cash equivalents at end of period........................ $ 37,602 $ 36,452
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Interest..................................................... $ 40 $ 10
Supplemental schedule of non-cash financing activities:
Reclassification of preferred stock capital accounts to
common stock capital accounts pursuant to the conversion
of preferred stock to common stock......................... $ 53,195
Issuance of restricted common stock.......................... $ 2,096
See notes to consolidated financial statements.
</TABLE>
5
<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, 1995.
Capital Stock and Net Income Per Common and Common Equivalent
-------------------------------------------------------------
Share
-----
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.
As a result of the redemption of the Series A Stock the Company
paid no preferred stock dividends in 1995, and, accordingly, no
consideration is given to preferred stock dividends in the
calculation of earnings per share for the three month period
ended March 31, 1995.
Primary earnings per share are 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 average market price for the period. Common shares issued
upon the conversion of preferred stock have been included in the
weighted average number of common shares outstanding subsequent
to the conversion date.
Fully diluted earnings per share are 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
6
<PAGE>
period (or average market price if use of that price results in
greater dilution) 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
common equivalent shares outstanding subsequent to the conversion
date.
7
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 $5.7 million for the three months ended
March 31, 1996, compared to $4.7 million for the same three month
period in 1995. Net income per common share on a fully diluted
basis was $.31 for the first quarter of 1996, compared to $.26 for
1995.
For the three months ended March 31, 1996, the Company reported
operating revenues of $131.8 million, an increase of $19.4 million
or 17.3% when compared to the same period in 1995. Of this $19.4
million increase in operating revenues, $11.3 million resulted
from growth in the Company's Medicaid and Medicare lines of
business in Indiana and California. The remaining increase in
operating revenues of $8.1 million resulted from a 13.6% increase
in commercial membership primarily in California and Indiana,
partially offset by a decrease in the average commercial premium
revenue per member per month.
Health care expenses increased 19.1% or $18.6 million in the first
quarter of 1996 as compared to the first quarter of 1995; health
care expenses as a percentage of operating revenues (the "medical
loss ratio") increased 1.4 percentage points to 87.9%. The
increase in health care expenses of $18.6 million was primarily a
result of the growth in the Medicaid and Medicare lines of
business, both of which have a higher medical loss ratio than the
commercial line of business.
Marketing, general and administrative ("MG&A") expenses for the
first quarter of 1996 increased 8.2% to $11.4 million as compared
to 1995. MG&A expenses as a percentage of operating revenues
decreased to 8.7% for the three months ended March 31, 1996 as
compared to 9.4% for the first quarter of 1995.
Net investment income for the first quarter of 1996 increased by
$200,000 to $1.6 million, as compared to 1995, due to higher cash
and investment balances.
The Company reported a $220,000 provision for income taxes for the
three months ended March 31, 1996 and an offsetting income tax
benefit of $220,000 due to the Company increasing its deferred tax
asset. The Company reported a $941,000 provision for income taxes
for the three months ended March 31, 1995.
8
<PAGE>
Liquidity and Capital Resources
Certain of MHP's operating subsidiaries are subject to state
regulations which require compliance with certain statutory
deposit, reserve, dividend distribution 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, 1996, 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 were $35.6
million at March 31, 1996, with deposit requirements and
limitations imposed by state regulations on the distribution of
dividends representing $13.3 million and $14.9 million of the
Restricted Net Assets, respectively, and net worth requirements in
excess of deposit requirements and dividend limitations
representing the remaining $7.4 million. The Company's total
Restricted Net Assets at March 31, 1996 were $35.9 million. In
addition to the $25.1 million in cash, cash equivalents and
marketable securities held by MHP, approximately $14.2 million
could be considered available for 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.
With a current ratio (i.e. current assets divided by current
liabilities) of 2.5 and less than $1.0 million in long-term
liabilities at March 31, 1996, the Company does not believe that
it needs additional working capital at this time. Although the
9
<PAGE>
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.
10
<PAGE>
PART II: OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
-----------------
The information contained in "Part I, Item 3. Legal Proceedings" of
the Company's 1995 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
--------------------------------
None
11
<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)
May 14, 1996 /s/ EUGENE L. FROELICH
------------ ---------------------------
Eugene L. Froelich
Chief Financial Officer and
Executive Vice President -
Finance and Administration
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the March 31,
1996 financial statements and is qualified in
its entirety by reference to such financial
statements.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 3-MOS
<CASH> 37,602
<SECURITIES> 54,949
<RECEIVABLES> 39,236
<ALLOWANCES> 5,037
<INVENTORY> 0
<CURRENT-ASSETS> 144,473
<PP&E> 24,288
<DEPRECIATION> 22,062
<TOTAL-ASSETS> 160,585
<CURRENT-LIABILITIES> 58,096
<BONDS> 0
0
0
<COMMON> 175
<OTHER-SE> 101,347
<TOTAL-LIABILITY-AND-EQUITY> 160,585
<SALES> 131,766
<TOTAL-REVENUES> 133,347
<CGS> 115,790
<TOTAL-COSTS> 127,582
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29
<INCOME-PRETAX> 5,736
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,736
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
