SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Act of 1934 for the quarterly period ended
June 30, 1998 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 [ ]
Common Stock, $.01 par value - 17,925,381 shares outstanding as
of August 12, 1998.
<PAGE>
PART I: FINANCIAL INFORMATION
---------------------
Item 1: Financial Statements
--------------------
MAXICARE HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands except par value)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- ---------
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash and cash equivalents................................. $ 40,990 $ 51,881
Marketable securities..................................... 28,930 47,843
Accounts receivable, net.................................. 30,896 26,024
Deferred tax asset........................................ 18,129 18,061
Prepaid expenses......................................... 7,364 6,763
Other current assets...................................... 786 653
---------- ---------
TOTAL CURRENT ASSETS.................................... 127,095 151,225
---------- ---------
PROPERTY AND EQUIPMENT
Leasehold improvements.................................... 5,441 5,441
Furniture and equipment................................... 18,303 18,135
---------- ---------
23,744 23,576
Less accumulated depreciation and amortization.......... 22,536 22,330
---------- ---------
NET PROPERTY AND EQUIPMENT.............................. 1,208 1,246
---------- ---------
LONG-TERM ASSETS
Long-term receivables..................................... 509
Restricted investments.................................... 14,202 14,135
Intangible assets, net.................................... 306 307
---------- ---------
TOTAL LONG-TERM ASSETS.................................. 14,508 14,951
---------- ---------
TOTAL ASSETS............................................ $ 142,811 $ 167,422
========== =========
CURRENT LIABILITIES
Estimated claims and other health care costs payable...... $ 64,042 $ 67,334
Accounts payable.......................................... 476 528
Deferred income........................................... 1,431 7,220
Accrued salary expense.................................... 3,137 3,304
Reserve for loss contracts and divestiture costs.......... 10,000
Other current liabilities................................. 5,261 7,805
---------- ---------
TOTAL CURRENT LIABILITIES............................... 84,347 86,191
LONG-TERM LIABILITIES....................................... 156 195
---------- ---------
TOTAL LIABILITIES....................................... 84,503 86,386
---------- ---------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value - 40,000 shares authorized,
1998 - 17,925 shares and 1997 - 17,936 shares issued and
outstanding............................................. 179 179
Additional paid-in capital................................ 254,250 254,376
Notes receivable from shareholders ....................... (4,855) (4,704)
Accumulated deficit....................................... (191,293) (168,815)
Accumulated other comprehensive income.................... 27
---------- ---------
TOTAL SHAREHOLDERS' EQUITY.............................. 58,308 81,036
---------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $ 142,811 $ 167,422
========== =========
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 For the six
months ended months ended
June 30, June 30,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES (Restated)
Commercial premiums................................. $119,812 $113,720 $238,770 $228,802
Governmental premiums............................... 65,560 45,348 126,153 84,608
Other income........................................ 361 4,002 1,205 4,156
-------- -------- -------- --------
TOTAL REVENUES.................................... 185,733 163,070 366,128 317,566
-------- -------- -------- --------
EXPENSES
Physician services.................................. 73,954 63,201 146,683 126,198
Hospital services................................... 70,416 55,923 133,084 104,670
Outpatient services................................. 30,869 23,933 60,226 45,997
Other health care services.......................... 4,252 3,540 8,603 6,761
-------- -------- -------- --------
TOTAL HEALTH CARE EXPENSES........................ 179,491 146,597 348,596 283,626
Marketing, general and administrative expenses...... 17,153 14,156 32,552 27,127
Depreciation and amortization....................... 187 184 375 391
Loss contracts, divestiture costs and
litigation charges................................ 10,000 10,000 6,000
-------- -------- -------- --------
TOTAL EXPENSES.................................... 206,831 160,937 391,523 317,144
-------- -------- -------- --------
INCOME (LOSS) FROM OPERATIONS.......................... (21,098) 2,133 (25,395) 422
Investment income, net of interest expense.......... 1,337 2,096 2,917 3,898
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES...................... (19,761) 4,229 (22,478) 4,320
INCOME TAX PROVISION...................................
-------- -------- -------- --------
NET INCOME (LOSS)..................................... $(19,761) $ 4,229 $(22,478) $ 4,320
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE:
Basic:
Basic Earnings (Loss) per Common Share.............. $ (1.10) $ .24 $ (1.25) $ .24
======== ======== ======== ========
Weighted average number of common
shares outstanding................................ 17,925 17,943 17,931 17,834
======== ======== ======== ========
Diluted:
Diluted Earnings (Loss) per Common Share............ $ (1.10) $ .23 $ (1.25) $ .23
======== ======== ======== ========
Weighted average number of common dilutive
potential shares outstanding...................... 17,925 18,736 17,931 18,683
======== ======== ======== ========
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 six months
ended June 30,
1998 1997
--------- ---------
(Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................................. $ (22,478) $ 4,320
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization.................................. 375 391
Benefit from deferred taxes.................................... (68) (61)
Amortization of restricted stock............................... 58 349
Loss contracts, divestiture costs and litigation charges....... 10,000 6,000
Changes in assets and liabilities:
Increase in accounts receivable.............................. (4,872) (9,147)
Decrease in estimated claims and other health
care costs payable......................................... (3,292) (4,441)
Decrease in deferred income.................................. (5,789) (5,563)
Changes in other miscellaneous assets and liabilities........ (3,569) 1,014
--------- ---------
Net cash provided by (used for) operating activities.............. (29,635) (7,138)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................ (262) (155)
Decrease (increase) in restricted investments.................. (69) 446
Proceeds from sales of marketable securities................... 29,871 14,935
Purchases of marketable securities............................. (10,929) (20,879)
(Increase) decrease in long-term receivables................... 509 (451)
Loans to shareholders.......................................... (4,559)
--------- ---------
Net cash provided by (used for) investing activities.............. 19,120 (10,663)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations.......................... (192) (201)
Stock options exercised........................................ 160 3,377
Repurchase of restricted stock................................. (344)
--------- ---------
Net cash provided by (used for) financing activities.............. (376) 3,176
---------- ---------
Net decrease in cash and cash equivalents......................... (10,891) (14,625)
Cash and cash equivalents at beginning of period.................. 51,881 55,568
--------- ---------
Cash and cash equivalents at end of period........................ $ 40,990 $ 40,943
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for -
Interest..................................................... $ 57 $ 32
Income taxes................................................. $ 100
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>
<PAGE>
MAXICARE HEALTH PLANS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Number of Additional Other
Common Common Paid-in Accumulated Comprehensive
Shares Stock Capital Other Deficit Income Total
--------- -------- ---------- ------- ----------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996
(Restated)..................... 17,565 $ 176 $ 249,804 $ (143,734) $106,246
Stock options exercised........ 403 4 3,609 3,613
Restricted stock amortized..... 426 426
Retirement of restricted
stock.......................... (32) (1) (368) (369)
Adjustment to paid-in capital
for deferred compensation...... 905 905
Notes receivable from
shareholders................... $ (4,704) (4,704)
Net loss (Restated)............ (25,081) (25,081)
------- -------- --------- -------- ---------- ------------ --------
Balances at December 31, 1997.... 17,936 179 254,376 (4,704) (168,815) 81,036
Comprehensive income (loss)
Net loss..................... (22,478) (22,478)
Other comprehensive income,
net of tax, related to
unrealized gains on
securities................... $ 27 27
--------
Comprehensive income (loss).... (22,451)
Stock options exercised........ 20 160 160
Restricted stock amortized..... 58 58
Retirement of restricted
stock.......................... (31) (344) (344)
Notes receivable from
shareholders................... (151) (151)
------- -------- --------- -------- ---------- ------------ --------
Balances at June 30, 1998....... 17,925 $ 179 $ 254,250 $ (4,855) $ (191,293) $ 27 $ 58,308
======= ======== ========= ======== ========== ============ ========
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. The accompanying unaudited
consolidated financial statements for the periods through June
30, 1997 have been restated to reflect certain non-cash
adjustments. For further information on MHP and subsidiaries
(collectively the "Company") refer to the consolidated financial
statements and accompanying footnotes included in the Company's
amended Annual Report on Form 10-K as filed with the Securities
and Exchange Commission (the "SEC") for the year ended December
31, 1997 and the unaudited consolidated financial statements and
accompanying footnotes included in the Company's amended
Quarterly Report on Form 10-Q as filed with the SEC for the
quarterly period ended March 31, 1998.
Net Income Per Common Share
- ---------------------------
Effective December 15, 1997 the Company was required to adopt
Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings per Share." SFAS No. 128 requires the presentation of
"basic earnings per share" (which excludes dilution) and "diluted
earnings per share" as replacements for primary earnings per
share and fully diluted earnings per share. Restatement of all
earnings per share calculations presented in the financial
statements is required by SFAS No. 128.
Basic earnings per share is computed by dividing net income
available to common shareholders by the weighted average number
of common shares outstanding.
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 average market price for the period, when such effect would
be to dilute earnings.
<PAGE>
Comprehensive Income
- --------------------
As of January 1, 1998, the Company adopted SFAS No. 130
"Reporting Comprehensive Income." SFAS No. 130 requires the
reporting and display of comprehensive income and its components.
SFAS No. 130 requires unrealized gains or losses on the Company's
available-for-sale and held-to-maturity securities to be included
in other comprehensive income.
NOTE 2 - CHARGE FOR LOSS CONTRACTS AND DIVESTITURE COSTS
In December 1997, the Company began a comprehensive restructuring
of the Company's operations and businesses with a view towards
enhancing and focusing on the Company's core operations which
have generated substantially all of the membership growth and
profits in recent years. As a result of assessing various
strategic alternatives, the Company has concluded that the
divestiture of the Company's operations in Illinois, the
Carolinas and Wisconsin through either a sale or closure of these
operations is in its best interest as the Company was unable to
predict a return to profitability for these health plans in a
reasonable time frame. Additionally, the Company is restructuring
its commercial and Medicaid provider network arrangements in
southern Indiana to improve the operating margins in this region.
Accordingly, the Company recorded a $10.0 million charge for
anticipated continuing losses primarily related to contracts in
Illinois and the Carolinas for which the anticipated future
health care costs and associated maintenance costs exceed the
related premiums, and certain other costs associated with the
divestiture of these health plans. On August 5, 1998, the
Company announced it had signed a definitive agreement for the
cash sale of its Wisconsin health plan. The sale transaction is
subject to certain contingencies, including due diligence and
regulatory approvals, and is expected to close September 30,
1998.
<PAGE>
Item 2: Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Results of Operations
The Company reported a net loss of $19.8 million after recording a
$10.0 million charge for loss contracts and divestiture costs and
$1.2 million of costs related to a recent shareholder consent
action and related litigation, or $1.10 per common share, for the
three months ended June 30, 1998 compared to net income of $4.2
million, or $.23 per common share, for the same three month period
in 1997. In addition to the $10.0 million charge, the Company
reported a loss from operations of approximately $7.6 million for
its Illinois, Carolinas and Wisconsin health plans for the three
months ended June 30, 1998. The Company reported that revenues
increased by $22.7 million or 13.9% for the three months ended
June 30, 1998 when compared to the same period in 1997. The
Company's membership grew to 548,000 at June 30, 1998, an increase
of 18.2% when compared to membership of 463,300 at June 30, 1997.
The Company's membership for its Illinois, Carolinas and Wisconsin
health plans was 63,600 at June 30, 1998, which represented
approximately 12% of the Company's total membership, as compared
to 65,200 at June 30, 1997.
In December 1997, the Company began a comprehensive restructuring
of the Company's operations and businesses with a view towards
enhancing and focusing on the Company's core operations which have
generated substantially all of the membership growth and profits
in recent years. As a result of assessing various strategic
alternatives, the Company has concluded that the divestiture of
the Company's operations in Illinois, the Carolinas and Wisconsin
through either a sale or closure of these operations is in its
best interest as the Company was unable to predict a return to
profitability for these health plans in a reasonable timeframe.
Additionally, the Company is restructuring its commercial and
Medicaid provider network arrangements in southern Indiana to
improve the operating margins in this region. Accordingly, the
Company recorded a $10.0 million charge for anticipated continuing
losses primarily related to contracts in Illinois and the
Carolinas for which the anticipated future health care costs and
associated maintenance costs exceed the related premiums, and
certain other costs associated with the divestiture of these
health plans. On August 5, 1998, the Company announced it had
signed a definitive agreement for the cash sale of its Wisconsin
health plan. The sale transaction is subject to certain
contingencies, including due diligence and regulatory approvals,
and is expected to close September 30, 1998.
Total revenues for the second quarter of 1998 were $185.7 million.
Commercial premiums increased $6.1 million or 5.4% to $119.8
<PAGE>
million as a result of a 3.8% increase in membership primarily
in California and Indiana, and a 1.5% increase in the average
commercial premium revenue per member per month ("PMPM").
Governmental premiums increased $20.2 million or 44.6% to $65.6
million as a result of a 52.6% increase in membership primarily
generated by growth in the Medicaid line of business in
California. The average premium revenue PMPM for the Medicaid line
of business decreased by 4.4% due to greater membership growth in
California which has a lower average premium revenue PMPM as
compared to that of Indiana; however, the California Medicaid line
of business has a lower medical loss ratio (defined as health care
expenses as a percentage of premium revenues) than does the
Indiana Medicaid line of business. The average premium revenue
PMPM for the Medicare line of business increased by 2.4%. The
decline in the average premium revenue PMPM for the Medicaid line
of business, along with the greater growth in membership for the
Medicaid line of business as compared to Medicare, resulted in an
overall decrease of 5.3% in the average governmental premium
revenue PMPM. For the foreseeable future it is anticipated that
the average governmental premium revenue PMPM will decline as the
expected membership growth in the lower premium revenue PMPM
Medicaid line of business is anticipated to exceed the membership
growth in the higher premium revenue PMPM Medicare line of
business.
Health care expenses increased 22.4% or $32.9 million in the
second quarter of 1998 as compared to the second quarter of 1997;
and the medical loss ratio increased to 96.8%. The increase in
health care expenses principally results from the increase in
membership and higher prescription drug costs. For the
foreseeable future it is anticipated that the Company will
continue to experience higher prescription drug costs; however,
the Company has begun implementing enhanced procedures and
controls in June 1998 to promote cost effective use of its
prescription drug benefit.
Marketing, general and administrative ("M,G&A") expenses increased
$3.0 million to $17.2 million for the second quarter of 1998
compared to $14.2 million for the second quarter of 1997.
Included in M,G&A expenses for the second quarter of 1998 is
approximately $1.2 million of costs related to a recent
shareholder consent action and related litigation which was
settled in May 1998. Excluding the $1.2 million of costs, M,G&A
expenses for the second quarter of 1998 decreased as a percentage
of revenues from 8.7% in the second quarter of 1997 to 8.6% in the
second quarter of 1998.
Net investment income for the second quarter of 1998 decreased by
$.8 million to $1.3 million as compared to the same period in
1997. The decrease in net investment income was due to lower cash
and investment balances as well as lower investment yields.
Total revenues for the six months ended June 30, 1998 increased
15.3% to $366.1 million from $317.6 million for the same period in
<PAGE>
1997 primarily due to a 20.4% membership increase. This increase
was offset in part by a 10.7% decline in the average governmental
premium revenue PMPM as a result of the growth in the lower
premium revenue PMPM Medicaid line of business. The average
commercial premium revenue PMPM for the six months ended June 30,
1998 increased .7% compared to the same six month period in 1997.
Total health care expenses increased $65.0 million for the first
six months of 1998 as compared to the same period in 1997 as a
result of the increase in membership and an increase in pharmacy
costs. M,G&A expenses, including approximately $1.2 million of
costs related to a shareholder action, increased $5.4 million for
the six months ended June 30, 1998, and as a percentage of
revenues to 8.9% from 8.5%. The Company recorded in the first
quarter of 1997 a $6.0 million litigation charge as a result of a
ruling from the Commonwealth of Pennsylvania Board of Claims
denying the Company recovery on its receivable due the Company
from the Pennsylvania Department of Public Welfare and related
litigation costs. The Company reported a loss of $11.3 million
for the six months ended June 30, 1998 before the $10.0 million
charge for divestiture costs and loss contracts and $1.2 million
of costs related to a shareholder action compared to earnings of
$10.3 million for the six months ended June 30, 1997 before the
$6.0 million litigation charge. Including the $10.0 million
charge for loss contracts and divestiture costs, the Company
reported a net loss of $22.5 million for the six months ended June
30, 1998. In addition to the $10.0 million charge, the Company
reported a loss from operations of approximately $12.0 million for
its Illinois, Carolinas and Wisconsin health plans for the six
months ended June 30, 1998. Including the $6.0 million litigation
charge, the Company reported net income of $4.3 million for the
six months ended June 30, 1997.
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, 1998, 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 $31.6 million at June 30, 1998, with deposit
requirements and limitations imposed by state regulations on the
distribution of dividends representing $12.7 million and $3.9
million of the Restricted Net Assets, respectively, and net worth
requirements in excess of deposit requirements and dividend
limitations representing the remaining $15.0 million. The
Company's total Restricted Net Assets at June 30, 1998 were $31.9
<PAGE>
million. In addition to the $4.1 million in cash, cash
equivalents and marketable securities held by MHP, approximately
$10.7 million in funds held by operating subsidiaries could be
considered available for transfer to MHP at June 30, 1998.
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 and working capital to fund ongoing
operations and remain in compliance with statutory financial
requirements. The Company has sought to obtain a committed line of
credit and is presently seeking to obtain such a line of credit;
however, the Company cannot state with any degree of certainty at
this time whether such a line of credit or additional equity
capital or other working capital would be available to it, and if
available, would be at terms and conditions acceptable to the
Company.
The Company is in the process of upgrading its current management
information systems to address and recognize the Year 2000. These
system upgrades have been partially completed as of June 1998 and
are expected to be fully implemented by mid 1999. Implementation
costs are expensed as incurred and are not expected to have a
material impact on the Company's consolidated financial position,
results of operations or cash flows. The Company is in the
process of assessing whether its major business partners,
primarily employer groups and health care providers, are Year 2000
compliant.
Forward Looking Information
General - This Quarterly Report on Form 10-Q contains and
incorporates by reference forward looking statements within the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Reference is made in particular to the
discussion set forth under "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations". Such
statements are based on certain assumptions and current
expectations that involve a number of risks and uncertainties, many
of which are beyond the Company's control. These risks and
uncertainties include unanticipated costs and losses related to the
divestiture or closing of the Company's Illinois, Carolinas and
Wisconsin health plans, limitations on premium levels, greater than
anticipated increases in healthcare expenses, benefit mandates,
variances in anticipated enrollment as a result of competition or
other factors, changes to the laws or funding of Medicare and
Medicaid programs, and increased regulatory requirements of
dividending, minimum capital, reserve and other financial solvency
requirements. These statements are forward looking and actual
results could differ materially from those projected in the forward
looking statements, which statements involve risks and
uncertainties. In addition, past financial performance is not
<PAGE>
necessarily a reliable indicator of future performance and
investors should not use historical performance to anticipate
results or future period trends. Shareholders are also directed to
disclosures in this and other documents filed by the Company with
the Securities and Exchange Commission.
Business Strategy - The Company's business strategy includes
strengthening its position in the markets it serves by: marketing
an expanded range of managed care products and services, providing
superior service to the Company's members and employer groups,
enhancing long-term relationships and arrangements with health care
providers, and selectively targeting geographic areas within a
state for expansion through increased penetration or development of
new areas. The Company continually evaluates opportunities to
expand its business as well as evaluates the investment in these
businesses.
<PAGE>
PART II: OTHER INFORMATION
-----------------
Item 1: Legal Proceedings
-----------------
The information contained in "Part I, Item 3 Legal Proceedings" of
the Company's 1997 Annual Report on Form 10-K and in "Part II, Item
1 Legal Proceedings" of the Company's Quarterly Report on Form 10-
Q for the quarterly period ended March 31, 1998 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
-----------------
The Company's Annual Meeting of Shareholders was held in
the Sunset Room of the Transamerica Center Tower at 1150
South Olive Street in Los Angeles on July 30, 1998. The
Company's shareholders approved by ballot and by proxy all
five proposals set forth for shareholder consideration
which were as follows:
<PAGE>
Proposal #1: Provided for the election of three Directors,
Ms. Florence F. Courtright, Mr. Paul R. Dupee, Jr. and Mr.
Elwood I. Kleaver, Jr. to serve until the year 2001 Annual
Meeting of Shareholders.
Proposal #2: Provided for an amendment to the Company's
Certificate of Incorporation to eliminate the right of
shareholders to act by written consent or to call a special
meeting of shareholders and to set the number of Directors
at nine until the conclusion of the Company's 1999 Annual
Meeting of Shareholders.
Proposal #3: Provided for four amendments to the Company's
Bylaws dealing with the rights of shareholders regarding
the calling of a special meeting of shareholders,
nomination of Directors, and elimination of the
supermajority voting requirements for shareholder actions
seeking to change the number of Directors.
Proposal #4: Provided for an amendment to the Shareholders
Rights Plan to eliminate the "dead hand" (continuing
Directors) provision of such plan.
Proposal #5: Provided for, pursuant to a Settlement
Agreement with the Company, the reimbursement of certain
expenses incurred by Mr. Paul R. Dupee, Jr. and others in
connection with his recent consent solicitation.
The Company will be disclosing additional information
regarding these actions in "Part II, Item 4 Submission of
Matters to a Vote of Security Holders" of its Quarterly
Report on Form 10-Q to be filed for the quarterly period
ending September 30, 1998.
On August 5, 1998 the Company announced that it had signed
a definitive Stock Purchase Agreement with Managed Health
Services Insurance Corp. (MHS), a Wisconsin corporation,
for the cash sale of all of the stock of Maxicare Health
Insurance Company, a wholly-owned subsidiary of Maxicare
Health Plans, Inc. (MHP), which comprises all of MHP's
Wisconsin operations. The buyer is a wholly-owned
subsidiary of Centene Corporation, a Wisconsin corporation.
The transaction which is subject to certain contingencies,
including due diligence and regulatory approvals, is
expected to close September 30, 1998.
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
None
<PAGE>
(b) Reports on Form 8-K
-------------------
June 12, 1998 - Item 5. Other Events:
On June 12, 1998, Maxicare Health Plans, Inc. issued
a news release announcing non-cash adjustments to
1997 and 1995 financial results and related
restatement of financial statements for the years
ended December 31, 1995, 1996, and 1997.
<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)
August 14, 1998 /s/ Richard A. Link
--------------- --------------------------
Date Richard A. Link
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 June 30,
1998 financial statements and is qualified
in its entirety by reference to such
financial statements.
<MULTIPLIER> 1,000
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<PERIOD-TYPE> 6-MOS
<CASH> 40,990
<SECURITIES> 28,930
<RECEIVABLES> 39,137
<ALLOWANCES> 8,241
<INVENTORY> 0
<CURRENT-ASSETS> 127,095
<PP&E> 23,744
<DEPRECIATION> 22,536
<TOTAL-ASSETS> 142,811
<CURRENT-LIABILITIES> 84,347
<BONDS> 0
0
0
<COMMON> 179
<OTHER-SE> 58,129
<TOTAL-LIABILITY-AND-EQUITY> 142,811
<SALES> 366,128
<TOTAL-REVENUES> 369,102
<CGS> 348,596
<TOTAL-COSTS> 391,523
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57
<INCOME-PRETAX> (22,478)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,478)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,478)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial
information extracted from the restated
June 30, 1997 financial statements and is
qualified in its entirety by reference to
such restated financial statements. EPS
has been restated as required by SFAS 128.
<MULTIPLIER> 1,000
<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> 317,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34
<INCOME-PRETAX> 4,320
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,320
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,320
<EPS-PRIMARY> .24
<EPS-DILUTED> .23
</TABLE>
