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 June 30, 1997 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.
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(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 [ ]
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Common Stock, $.01 par value - 17,953,616 shares outstanding as
of August 12, 1997, of which 616,406 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.
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<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>
June 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash and cash equivalents................................. $ 40,943 $ 55,568
Marketable securities..................................... 64,594 58,650
Accounts receivable, net.................................. 27,254 33,107
Deferred tax asset........................................ 18,061 18,000
Prepaid expenses.......................................... 4,022 3,001
Other current assets...................................... 540 279
--------- ---------
TOTAL CURRENT ASSETS.................................... 155,414 168,605
--------- ---------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 5,441 5,441
Furniture and equipment................................... 18,016 18,875
--------- ---------
23,457 24,316
Less accumulated depreciation and amortization.......... 22,098 22,875
--------- ---------
NET PROPERTY AND EQUIPMENT.............................. 1,359 1,441
--------- ---------
LONG-TERM ASSETS
Long-term receivables..................................... 560 109
Restricted investments.................................... 13,653 14,099
Intangible assets, net.................................... 231 268
--------- ---------
TOTAL LONG-TERM ASSETS.................................. 14,444 14,476
--------- ---------
TOTAL ASSETS............................................ $ 171,217 $ 184,522
========= =========
CURRENT LIABILITIES
Estimated claims and incentives payable................... $ 44,089 $ 48,530
Accounts payable.......................................... 717 711
Deferred income........................................... 1,671 7,234
Accrued salary expense.................................... 3,791 3,376
Payable to disbursing agent............................... 1,000 1,000
Other current liabilities................................. 9,999 6,914
--------- ---------
TOTAL CURRENT LIABILITIES............................... 61,267 67,765
LONG-TERM LIABILITIES....................................... 217 511
--------- ---------
TOTAL LIABILITIES....................................... 61,484 68,276
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value - 40,000 shares authorized,
1997 - 17,950 shares and 1996 - 17,565 shares issued
and outstanding......................................... 180 176
Additional paid-in capital................................ 253,526 249,804
Notes receivable from officers............................ (4,559)
Accumulated deficit....................................... (139,414) (133,734)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 109,733 116,246
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $ 171,217 $ 184,522
========= =========
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Commercial premiums............................................... $113,720 $109,457 $228,802 $217,267
Governmental premiums............................................. 45,348 25,011 84,608 48,310
Other income...................................................... 4,002 105 4,156 762
-------- -------- -------- --------
TOTAL REVENUES.................................................. 163,070 134,573 317,566 266,339
-------- -------- -------- --------
EXPENSES
Physician services................................................ 63,201 53,875 126,198 106,456
Hospital services................................................. 55,923 46,997 104,670 88,966
Outpatient services............................................... 23,933 19,757 45,997 37,943
Other health care services........................................ 3,540 2,791 6,761 5,845
-------- -------- -------- --------
TOTAL HEALTH CARE EXPENSES...................................... 146,597 123,420 283,626 239,210
Marketing, general and administrative expenses.................... 14,156 11,817 27,127 23,263
Depreciation and amortization..................................... 184 329 391 675
Litigation charge - Note 2........................................ 16,000
-------- -------- -------- --------
TOTAL EXPENSES....................................................... 160,937 135,566 327,144 263,148
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS........................................ 2,133 (993) (9,578) 3,191
Investment income, net of interest expense........................ 2,096 1,516 3,898 3,068
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.................................... 4,229 523 (5,680) 6,259
INCOME TAX PROVISION.................................................
-------- -------- -------- --------
NET INCOME (LOSS).................................................... $ 4,229 $ 523 $ (5,680) $ 6,259
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Primary
Primary Earnings (Loss) per Common Share.......................... $ .23 $ .03 $ (.30) $ .34
======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding................................... 18,736 18,406 18,683 18,446
======== ======== ======== ========
Fully Diluted
Fully Diluted Earnings (Loss) per Common Share.................... $ .23 $ .03 $ (.30) $ .34
======== ======== ======== ========
Weighted average number of common and common
equivalent shares outstanding................................... 18,736 18,406 18,683 18,446
======== ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
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MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30,
1997 1996
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................ $ (5,680) $ 6,259
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Depreciation and amortization.................................. 391 675
Benefit from deferred taxes.................................... (61) (252)
Amortization of restricted stock............................... 349 349
Litigation charge.............................................. 16,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable................... (9,147) 291
Decrease in estimated claims and incentives payable.......... (4,441) (9,020)
Decrease in deferred income.................................. (5,563) (3,555)
Changes in other miscellaneous assets and liabilities........ 1,014 (2,388)
-------- --------
Net cash used for operating activities........................... (7,138) (7,641)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................ (155) (41)
(Increase) decrease in restricted investments.................. 446 (888)
Proceeds from sales of marketable securities................... 14,935 21,131
Purchases of marketable securities............................. (20,879) (34,770)
(Increase) decrease in long-term receivables................... (451) 44
Loans to officers.............................................. (4,559)
-------- --------
Net cash used for investing activities........................... (10,663) (14,524)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations.......................... (201) (272)
Stock options exercised........................................ 3,377 1,199
-------- --------
Net cash provided by financing activities........................ 3,176 927
-------- --------
Net decrease in cash and cash equivalents........................ (14,625) (21,238)
Cash and cash equivalents at beginning of period................. 55,568 49,170
-------- --------
Cash and cash equivalents at end of period....................... $ 40,943 $ 27,932
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Interest..................................................... $ 32 $ 65
Income taxes................................................. $ 100 $ 263
Supplemental schedule of non-cash investing activities:
Capital lease obligations incurred for purchase of property
and equipment................................................ $ 103
See notes to consolidated financial statements.
</TABLE>
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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, 1996.
Capital Stock and Net Income Per Common and Common Equivalent
- - -------------------------------------------------------------
Share
- - -----
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.
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
period (or average market price if use of that price results in
greater dilution). For the three and six month periods ended
June 30, 1997 and 1996 the use of the average market price in the
calculation of fully diluted earnings per share resulted in
greater dilution than the use of the period end market price.
Accordingly, primary and fully diluted earnings per share are
identical for the three and six month periods ending June 30,
1997 and 1996.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings per Share", which is required to be adopted on December
31, 1997 (early adoption is prohibited). At that time, the
Company will be required to change the method currently used to
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compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per
share ("basic earnings per share" under SFAS No. 128), the
dilutive effect of common stock equivalents will be excluded.
The impact is expected to result in an increase in primary
(basic) earnings per share for the quarter ended June 30, 1997 of
$.01 and no change in primary (basic) earnings per share for the
quarter ended June 30, 1996. The impact is expected to result in
an increase in primary (basic) loss per share of $.02 for the six
month ended June 30, 1997 and no change in primary (basic)
earnings per share for the six months ended June 30, 1996. The
impact of SFAS No. 128 on the calculation of fully diluted
earnings per share for these periods is not expected to be
material.
Reclassifications
- - -----------------
Certain amounts for 1996 have been reclassified to conform to the
1997 presentation.
NOTE 2 - LITIGATION CHARGE:
On March 31, 1997 the Company received a ruling from the
Commonwealth of Pennsylvania Board of Claims that the Company is
not entitled to any recovery on its claim against the
Pennsylvania Department of Public Welfare ("DPW") for in excess
of $24 million plus accrued interest, in connection with the
operation of a Medicaid managed care program from 1986 through
1989. Accordingly, the Company recorded in the first quarter of
1997 a $16.0 million litigation charge to fully reserve for the
recorded estimate of $15.0 million due the Company from the DPW
and related litigation costs.
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Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
Maxicare reported net income of $4.2 million for the three months
ended June 30, 1997, compared to $.5 million for the same three
month period in 1996. Net income per common share on a fully
diluted basis was $.23 for the second quarter of 1997 compared to
$.03 for the same period in 1996.
Revenues were $163.1 million for the second quarter of 1997, an
increase of $28.5 million or 21.2% when compared to the same
period in 1996. The increase in revenues was primarily generated
by the Company's membership growth from 374,700 as of June 1996 to
466,500 as of June 1997. Commercial premiums increased $4.3
million or 3.9% to $113.7 million as a result of a 6.1% increase
in membership primarily in California and Indiana. This increase
was offset in part by a .5% decline in the average commercial
premium revenue per member per month ("PMPM"). Governmental
premiums increased $20.3 million or 81.3% to $45.3 million as a
result of a 108.0% increase in membership primarily generated by
growth in the Medicaid line of business in California and Indiana.
The premium revenue PMPM for the Medicare line of business
increased by 8.5%; however, the premium revenue PMPM for the
Medicaid line of business decreased by 4.7% resulting in the
average governmental premium revenue PMPM declining by 12.8% as a
result of a greater increase in the lower premium revenue PMPM
Medicaid line of business. Other Income includes a $3.2 million
adjustment to premiums due the Company.
Health care expenses were $146.6 million for the second quarter of
1997, an increase of $23.2 million or 18.8% as compared to the
second quarter of 1996. Health care expenses decreased as a
percentage of revenues by 1.8 percentage point to 89.9%. Health
care expenses increased as the result of the increase in
membership, particularly in the higher medical loss ratio (health
care expenses as a percentage of premium revenues) Medicaid line
of business, and an increase in pharmacy costs.
Marketing, general and administrative ("M,G&A") expenses for the
second quarter of 1997 increased by $2.3 million; however, such
expenses decreased as a percentage of revenues to 8.7% in the
second quarter of 1997 from 8.8% in the second quarter of 1996.
M,G&A expenses were $14.2 million for the second quarter of 1997
compared to $11.8 million for the second quarter of 1996.
Net investment income for the second quarter of 1997 increased by
$.6 million to $2.1 million as compared to the same period in
1996. The increased investment income was due to larger cash and
investment balances, higher investment yields and the realization
of certain investment gains.
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The Company reported a $10,000 provision for income taxes for the
three months ended June 30, 1997 and an offsetting income tax
benefit of $10,000 due to the Company increasing its deferred tax
asset. The Company reported a $32,000 provision for income taxes
for the three months ended June 30, 1996 and an offsetting income
tax benefit of $32,000 due to the Company increasing its deferred
tax asset.
Revenues for the six months ended June 30, 1997 increased 19.2% to
$317.6 million from $266.3 million for the same period in 1996
primarily due to a 21.0% membership increase. This increase was
offset in part by an 8.2% decline in the average governmental
premium revenue PMPM as a result of the growth in the lower
premium revenue PMPM Medicaid line of business and an .8% decline
in the average commercial premium revenue PMPM. Total health care
expenses increased $44.4 million for the first six months of 1997
as compared to the same period in 1996 as a result of the increase
in membership, particularly in the higher medical loss ratio
Medicaid line of business, and an increase in pharmacy costs.
M,G&A expenses increased $3.9 million for the six months ended
June 30, 1997, but decreased as a percentage of revenues to 8.5%
from 8.7%. The Company recorded in the first quarter of 1997 a
$16.0 million litigation charge as a result of a ruling from the
Commonwealth of Pennsylvania Board of Claims denying the Company
recovery on its receivable of $15.0 million due the Company from
the Pennsylvania Department of Public Welfare and related
litigation costs. The Company reported earnings of $10.3 million
for the six months ended June 30, 1997 before the $16.0 million
litigation charge compared to $6.3 million for the same six month
period in 1996. Including the $16.0 million litigation charge,
the Company reported a net loss of $5.7 million for the six months
ended June 30, 1997 compared to $6.3 million in net income for the
same six month period in 1996.
Liquidity and Capital Resources
All of MHP's operational subsidiaries are direct subsidiaries of
MHP. The Company's HMOs are federally qualified and are licensed
in the states where they operate. Certain of MHP's operating
subsidiaries are subject to state regulations which require
compliance with certain statutory deposit, 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 June 30, 1997, 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". Restricted Net Assets of these operating
subsidiaries were $38.7 million at June 30, 1997, with deposit
requirements and limitations imposed by state regulations on the
distribution of dividends representing $12.7 million and $15.3
million of the Restricted Net Assets, respectively, and net worth
requirements in excess of deposit requirements and dividend
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limitations representing the remaining $10.7 million. The
Company's total Restricted Net Assets at June 30, 1997 were $39.0
million. In addition to the $36.5 million in cash, cash
equivalents and marketable securities held by MHP, approximately
$11.0 million in funds held by operating subsidiaries could be
considered available for transfer to MHP at June 30, 1997.
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 $225,000 of long-term
liabilities at June 30, 1997, the Company does not believe that it
will need additional working capital to fund its operations for
the foreseeable future. Although the Company believes that it
would be able to raise additional working capital through either
an equity offering or borrowings if it so desired, the Company
cannot state with any degree of certainty at this time whether
additional equity capital or working capital would be available to
it, and if available, would be at terms and conditions acceptable
to the Company.
The foregoing Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking
information. The forward looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward looking statements may be
significantly impacted by certain risks and uncertainties,
including the Company's need for and the availability of equity
capital or working capital and the terms and conditions associated
with such availability.
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PART II: OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
-----------------
The information contained in "Part I, Item 3. Legal Proceedings" of
the Company's 1996 Annual Report on Form 10-K and in "Part II, Item
1. Legal Proceedings" of the Company's Report on Form 10-Q for the
quarterly period ended March 31, 1997 is hereby incorporated by
reference and the following information updates the information
contained in the relevant subparts thereof.
a. OTHER LITIGATION
The Company is a defendant in a number of other lawsuits arising in
the ordinary course from its operations, including cases in which
the plaintiffs assert claims against the Company or third parties
that assert breach of contract, 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
seeking compensatory, fraud and, in certain instances, punitive
damages and RICO claims in an indeterminate amount which may be
material and/or seeking other forms of equitable relief. The
Company does not believe that the ultimate determination of these
cases will either individually or in the aggregate have a material,
adverse effect on the Company's business or 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
--------------------------------
April 28, 1997 - Item 5. Other Events:
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The Company reported that it has filed an appeal with the
Commonwealth of Pennsylvania Court seeking to overturn an
order received on March 31, 1997 from the Commonwealth of
Pennsylvania Board of Claims.
May 27, 1997 - Item 5. Other Events:
The Company reported that its California HMO has signed a
letter of intent with Molina Medical Centers.
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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.
MAXICARE HEALTH PLANS, INC.
---------------------------
(Registrant)
August 13, 1997 /s/ EUGENE L. FROELICH
- - ---------------- ---------------------------
Date Eugene L. Froelich
Chief Financial Officer and
Executive Vice President -
Finance and Administration
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the June 30, 1997
financial statements and is qualified in
its entirety by reference to such financial
statements.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<PERIOD-TYPE> 6-MOS
<CASH> 40,943
<SECURITIES> 64,594
<RECEIVABLES> 32,462
<ALLOWANCES> 5,208
<INVENTORY> 0
<CURRENT-ASSETS> 155,414
<PP&E> 23,457
<DEPRECIATION> 22,098
<TOTAL-ASSETS> 171,217
<CURRENT-LIABILITIES> 61,267
<BONDS> 0
0
0
<COMMON> 180
<OTHER-SE> 109,553
<TOTAL-LIABILITY-AND-EQUITY> 171,217
<SALES> 317,566
<TOTAL-REVENUES> 321,498
<CGS> 283,626
<TOTAL-COSTS> 327,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> (5,680)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,680)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,680)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> (.30)
</TABLE>
