<PAGE>
<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1996, or
[ ] Transition report pursuant to Section 13 OR 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 1-13340
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MID ATLANTIC MEDICAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of
incorporation or organization)
52-1481661
(IRS Employer Identification Number)
4 TAFT COURT, ROCKVILLE, MARYLAND
(Address of principal executive offices)
20850
(Zip code)
(301) 294-5140
(Registrant's telephone number, including area code)
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
The number of shares outstanding of each of the issuer's classes of
common stock was 45,619,012 shares of common stock, par value $.01,
outstanding as of June 30, 1996.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (Note 1)
(in thousands except share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Note)
June 30, 1996 December 31, 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,373 $ 10,874
Short-term investments 169,304 204,734
Accounts receivable, net of allowance of $3,980 and $3,638 85,967 61,263
Prepaid expenses, advances and other 20,728 8,974
Deferred income taxes 4,517 4,379
----------- -----------
Total current assets 282,889 290,224
Property and equipment, net of accumulated
depreciation of $18,171 and $15,091 44,413 38,704
Statutory deposits 9,031 10,543
Other assets 11,615 11,373
Deferred income taxes 2,112 3,338
---------- -----------
Total assets $ 350,060 $ 354,182
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 60 $ 210
Short-term borrowings 1,321 1,651
Accounts payable 19,246 15,075
Medical claims payable 130,842 108,490
Deferred premium revenue 5,606 10,125
Deferred income taxes 21 1,005
----------- -----------
Total current liabilities 157,096 136,556
Notes payable 164 194
Deferred income taxes 223 216
----------- -----------
Total liabilities 157,483 136,966
----------- -----------
Stockholders' equity (Notes 2 and 3)
Common stock, $.01 par, 100,000,000 shares authorized; 47,613,652 issued
and 45,619,012 outstanding at June 30, 1996; 46,631,327 issued and
46,585,387 outstanding at December 31, 1995 476 466
Additional paid-in capital 51,671 40,374
Treasury stock, 1,994,640 shares at June 30, 1996; 45,940 shares at
December 31, 1995 (39,951) (33)
Unrealized gains on investments, net of tax of $114 and $1,004 175 1,535
Retained earnings 180,206 174,874
----------- -----------
Total stockholders' equity 192,577 217,216
----------- -----------
Total liabilities and stockholders' equity $ 350,060 $ 354,182
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1995 has been extracted from the<PAGE>
audited financial statements at that date.
See accompanying notes to these financial statements.<PAGE>
<PAGE> 3
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenue
Health premium $ 266,685 $ 224,503
Fee and other 4,229 3,857
Life, accidental death and disability premium 998 244
Home health services 5,382 4,124
Investment 4,422 2,788
----------- -----------
Total revenue 281,716 235,516
----------- -----------
Expense
Medical 256,326 185,941
Life, accidental death and disability claims 581 102
Home health patient services 3,614 2,559
Administrative (including interest expense of $174 and $225) 31,944 24,874
----------- -----------
Total expense 292,465 213,476
----------- -----------
Income (loss) before income taxes (10,749) 22,040
Provision for income taxes 4,212 (8,215)
----------- -----------
Net income (loss) $ (6,537) $ 13,825
=========== ===========
Income (loss) per common and common equivalent share:
Net income (loss) $ (.14) $ .29
=========== ===========
Weighted average common and common equivalent shares outstanding 46,830,823 47,638,652
=========== ===========
/TABLE
<PAGE>
See accompanying notes to these financial statements.<PAGE>
<PAGE> 4
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(in thousands except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenue
Health premium $ 526,280 $ 434,957
Fee and other 8,126 7,700
Life, accidental death and disability premium 1,653 244
Home health services 10,007 9,466
Investment 7,445 4,137
----------- -----------
Total revenue 553,511 456,504
----------- -----------
Expense
Medical 477,003 352,437
Life, accidental death and disability claims 871 102
Home health patient services 6,961 6,776
Administrative (including interest expense of $425 and $542) 60,395 47,885
----------- -----------
Total expense 545,230 407,200
----------- -----------
Income before income taxes 8,281 49,304
Provision for income taxes (2,949) (18,561)
----------- -----------
Net income $ 5,332 $ 30,743
=========== ===========
Income per common and common equivalent share:
Net income $ .11 $ .65
=========== ===========
Weighted average common and common equivalent shares outstanding 47,567,844 47,619,657
=========== ===========
/TABLE
<PAGE>
See accompanying notes to these financial statements.<PAGE>
<PAGE> 5
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ending
June 30, 1996
------------
<S> <C> <C>
Cash flows used in operating activities:
Net income $ 5,332
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization $ 3,615
Provision for bad debts 342
Provision for deferred income taxes 214
Loss on sale and disposal of assets 8
Increase in accounts receivable (25,046)
Increase in prepaid expenses, advances, and other (11,754)
Increase in accounts payable 4,171
Increase in medical claims payable 22,352
Decrease in deferred premium revenue (4,519)
-----------
Total adjustments (10,617)
-----------
Net cash used in operating activities (5,285)
Cash flows provided by investing activities:
Purchases of short-term investments (240,429)
Sales of short-term investments 275,610
Purchases of property and equipment (8,874)
Purchases of statutory deposits (2,106)
Maturities of statutory deposits 1,617
Purchases of other assets (146)
Proceeds from sale of assets 233
-----------
Net cash provided by investing activities 25,905
Cash flows used in financing activities:
Principal payments on notes payable (180)
Decrease in short-term borrowings (330)
Exercise of stock options 5,539
Stock option tax benefit 5,768
Purchase of treasury stock (39,918)
-----------
Net cash used in financing activities (29,121)
-----------
Net decrease in cash and cash equivalents (8,501)
Cash and cash equivalents at beginning of period 10,874
-----------
Cash and cash equivalents at end of period $ 2,373
===========
/TABLE
<PAGE>
See accompanying notes to these financial statements.<PAGE>
<PAGE> 6
MID ATLANTIC MEDICAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ending
June 30, 1995
------------
<S> <C> <C>
Cash flows provided by operating activities:
Net income $ 30,743
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization $ 2,799
Provision for bad debts 26
Provision for deferred income taxes 2,153
Loss on sale and disposal of assets 71
Increase in accounts receivable (20,878)
Increase in prepaid expenses, advances, and other (2,339)
Decrease in accounts payable (3,479)
Increase in medical claims payable 15,864
Decrease in deferred premium revenue (4,558)
Decrease in income taxes payable (2,589)
-----------
Total adjustments (12,930)
-----------
Net cash provided operating activities 17,813
Cash flows used in investing activities:
Purchases of short-term investments (193,346)
Sales of short-term investments 164,870
Purchases of property and equipment (3,987)
Purchases of statutory deposits (303)
Sales of statutory deposits 129
Purchases of other assets (576)
Proceeds from sale of assets 542
-----------
Net cash used in investing activities (32,671)
Cash flows provided by financing activities:
Principal payments on notes payable (333)
Decrease in short-term borrowings (86)
Exercise of stock options 2,850
Stock option tax benefit 4,239
-----------
Net cash provided by financing activities 6,670
-----------
Net decrease in cash and cash equivalents (8,188)
Cash and cash equivalents at beginning of period 17,054
-----------
Cash and cash equivalents at end of period $ 8,866
===========
/TABLE
<PAGE>
See accompanying notes to these financial statements.<PAGE>
<PAGE> 7
MID ATLANTIC MEDICAL SERVICES, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
INTRODUCTION
Mid Atlantic Medical Services, Inc. ("MAMSI") is a holding company whose
subsidiaries are active in managed health care and other life and health
insurance related activities. MAMSI's principal markets currently
include Maryland, Virginia, the District of Columbia, Delaware, West
Virginia, North Carolina and Pennsylvania. MAMSI and its subsidiaries
(collectively referred to as the "Company") have developed a broad range
of managed health care, health insurance and related ancillary products
and deliver these services through health maintenance organizations
("HMOs"), preferred provider organizations ("PPOs"), a life and health
insurance company, home health care companies and an outpatient surgery
center.
MAMSI delivers managed health care services principally through HMOs.
The HMOs, MD-Individual Practice Association, Inc. ("M.D. IPA"), Optimum
Choice, Inc. ("OCI"), Optimum Choice of the Carolinas, Inc. ("OCCI") and
Optimum Choice, Inc. of Pennsylvania ("OCIPA") arrange for health care
services to be provided to a voluntarily enrolled population for a
predetermined, prepaid fee, regardless of the extent or nature of
services provided to the enrollees. The HMOs offer a full complement of
health benefits, including physician, hospital and prescription drug
services.
Other MAMSI subsidiaries include Alliance PPO, Inc., which provides a
PPO delivery network to employers and insurance companies, and Mid
Atlantic Psychiatric Services, Inc., which provides specialized non-risk
mental health services. MAMSI Life and Health Insurance Company
develops and markets indemnity health products in addition to life,
accidental death and disability insurance. HomeCall, Inc., FirstCall,
Inc., and HomeCall Pharmaceutical Services, Inc. provide in-home medical
care including skilled nursing, infusion and therapy to both MAMSI's HMO
members and other payors.
NOTE 1 - FINANCIAL STATEMENTS
The consolidated balance sheet of the Company as of June 30, 1996, the
consolidated statements of operations for the three and six months ended
June 30, 1996 and 1995, and the consolidated statements of cash flows
for the six months ended June 30, 1996 and 1995 have been prepared by
MAMSI without audit. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a
fair presentation have been included.
Certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements
should be read in conjunction with the financial statements and notes
thereto included in the Company's December 31, 1995 audited consolidated
financial statements. The results of operations for the three and six
month periods ended June 30 are not necessarily indicative of the
operating results for the full year.
Certain balances in the 1995 financial statements have been reclassified
to conform to the 1996 presentation.<PAGE>
NOTE 2 - STOCK OPTION PLANS
In 1996, the stockholders of MAMSI ratified the 1996 Non-Qualified Stock
Option Plan whereby options for the purchase of up to 3,000,000 shares
may be granted to officers, employees and non-employee directors of the
Company. Options under this plan are exercisable at 100% of the fair
market value per share on the date the options are granted.<PAGE>
<PAGE> 8
NOTE 3 - COMMON STOCK
The Company has implemented a stock repurchase program under which the
Company may expend up to $60 million (including brokerage commissions)
to repurchase shares of its common stock over a twelve month period. As
of June 30, 1996, the Company has repurchased approximately 1.95 million
shares for an aggregate purchase price of approximately $39.9 million.<PAGE>
<PAGE> 9
MID ATLANTIC MEDICAL SERVICES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
All forward-looking information contained in this Management's
Discussion and Analysis of Financial Condition and Results of Operations
is based on management's current knowledge of factors affecting MAMSI's
business. MAMSI's actual results may differ materially if these
assumptions prove invalid. Significant risk factors, while not all
inclusive, are:
1. The possibility of increasing price competition in the Company's
market place.
2. The possibility of state or federal budget related mandates that
reduce premiums for Medicaid or Medicare recipients.
3. The potential for increased medical expenses due to:
- Increased utilization by the Company's membership.
- Inflation of costs in the provider community.
- Federal or state mandates that increase benefits.
4. The possibility that the Company is not able to expand its service
territory as planned due to regulatory delays and/or inability to
contract with appropriate providers.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE THREE MONTHS
ENDED JUNE 30, 1995
Consolidated net income (loss) for the Company was $(6,537,000) and
$13,825,000 for the second quarters of 1996 and 1995, respectively.
Earnings (loss) per share on net income was $(.14) in the second quarter
of 1996 as compared to $.29 in the second quarter of 1995. The
reduction in earnings is primarily attributable to a significant
increase in the medical loss ratio for commercial products, continuing
losses in the Company's Medicare product, losses in the Company's
Medicaid products and costs and start-up losses related to expansion
territories. The medical loss ratio increased principally due to
increased member utilization and also due to slightly reduced health
premiums per member. The Company has priced its health products
competitively in order to increase its membership base and thereby
enhance its strategic position in its marketplace. The Company
currently has one of the largest HMO and managed care enrollments and
also the largest network of contract providers of medical care in its
service area (which includes the entire states of Maryland and Delaware,
the District of Columbia, most counties and cities in Virginia, and
certain areas of West Virginia, North Carolina and Pennsylvania).
Revenue for the three months ended June 30, 1996 increased approximately
$46.2 million or 20 percent over the three months ended June 30, 1995.
A 22.6 percent increase in net average HMO and indemnity enrollment
resulted in an increase of approximately $50.8 million in health premium
revenue and a 3.1 percent decrease in average premiums per HMO and
indemnity enrollee reduced health premium revenue by approximately $8.6<PAGE>
million. Health premiums per member have declined due to the combined
effects of an increasing relative percentage of Virginia Medicaid HMO
members with lower per member revenues, reduced revenues per member in
certain expansion areas, and management's plan to price its commercial
products competitively to accelerate growth in membership, offset
slightly by an increasing relative percentage of Medicare risk members
with higher per member revenues. Although health premiums per member in
the current period declined compared to the prior year period,
management believes that health premiums per member should begin
increasing over the next twelve months as new and renewing groups are
charged higher than current premium rates due to legislatively mandated
benefit enhancements, increases in Medicaid premium rates in both
Maryland and Virginia, and commercial pricing changes initiated by the
Company. This is a forward-looking statement. See "Forward-Looking
Information" above for a description of the risk factors that may affect
health premiums per member.<PAGE>
<PAGE> 10
The Company has implemented increased premium rates across all of its
commercial products which will begin to take effect in July, 1996.
Additionally, the Company will receive an approximate 2.5 percent
premium rate increase in its Virginia Medicaid program and an
approximate 4 percent increase in its Maryland Medicaid program, both
effective July 1, 1996. Management believes that the commercial premium
rate increases will have the effect of slowing down the Company's future
membership growth. Therefore, management's original membership goal for
1996 has been reduced and management's current goal is to increase
membership in all product lines by 15 percent to 20 percent. This is a
forward-looking statement. The Company's future membership growth
depends on several factors such as relative premium prices and product
availability, future increases in the Company's service area, increased
competition in the Company's service area and changes to Federal and
state mandated enrollments in Medicaid and Medicare HMO programs where
the Company is licensed.
Service revenue from non-MAMSI affiliated entities earned by the
Company's home health care subsidiaries contributed $5.4 million in
revenue in the second quarter of 1996 as compared to $4.1 million for
the same period in 1995. This increase is the result of increasing
business volume for these subsidiaries, particularly in the home
infusion and mail order pharmacy areas, which is largely offset by an
increasing relative percentage of business conducted for MAMSI HMO and
indemnity members. Revenue from life, accidental death and disability
products contributed $1.0 million in the second quarter of 1996 as
compared to $.2 million for the same period in 1995.
The Company has received a letter from the Health Care Financing
Administration ("HCFA") proposing a marketing sanction based on
assertions that, in the administration of its Medicare product, the
Company failed to comply with certain HCFA requirements. The Company is
contesting the assertions made by HCFA and believes that the sanctions
are not appropriate. HCFA has received the Company's response to the
assertions and is currently in the process of reconsidering its
preliminary determination.
In 1993, MAMSI invited the National Committee for Quality Assurance
("NCQA"), a private, non-profit organization, to evaluate the Company's
methodologies in an effort to receive NCQA accreditation. NCQA
accreditation is a voluntary process. The Company did not meet certain
of NCQA's criteria and, therefore, did not receive NCQA accreditation.
MAMSI believes that it has adopted methodologies and programs designed
to respond to concerns and questions raised in NCQA's assessment. The
Company currently believes that, based on its success with large group
sales since the denial of accreditation, the failure to receive NCQA
accreditation has not had a significant adverse effect on its business
or financial condition. The NCQA is scheduled to return to MAMSI in
December, 1996, to begin another review process for accreditation of
MAMSI's HMOs. Although the Company believes that the likelihood of NCQA
accreditation is good, there can be no assurance that accreditation will
be received or that MAMSI will not experience disenrollment if
accreditation is not ultimately received.
Medical expenses as a percentage of health premium revenue ("medical
loss ratio") increased to 96.1 percent for the second quarter of 1996 as
compared to 82.8 percent for the comparable period of 1995 and, on a per
member per month basis, medical expenses increased 12 percent. Although<PAGE>
medical costs on a per member per month basis increased significantly in
the current period compared to the prior year, management believes that
this is the result of unusually high utilization during the current
quarter and that future utilization rates should decline slowly over the
next twelve months. The Company has greatly expanded its initial health
assessments of new Medicare members after they have enrolled and also
increased its Medicare case management personnel. These initiatives
should help to control and reduce the cost of high cost cases which are
driving the excessive medical loss ratio in this line of business. The
medical cost factor of total medical costs may also stabilize or only
increase slightly from the current level over the next twelve months due
to continuing efforts by the Company to implement product specific cost
containment controls, expanded activity in specialized subrogation areas
and claims review for dual health coverage, the adoption of regionalized<PAGE>
<PAGE> 11
and product specific fee maximums for health services, and the
identification and possible termination of certain providers and
specialists from the delivery network following a continuing,
intensified peer review analysis. The medical loss ratio is expected to
stabilize and decrease slowly from the current level over the next
twelve months due to the combined effects of expanded Medicare
utilization management controls, continuing cost containment efforts,
increases in commercial and Medicaid health premiums per member, and the
continuing analysis of expansion area and product line profitability.
The statements in this paragraph regarding future utilization rates,
cost containment initiatives, total medical costs and future increases
in health premiums per member are forward-looking statements. See
"Forward-Looking Information" above for a description of risk factors
that may affect medical expenses per member and the medical loss ratio.
Administrative expenses as a percentage of revenue ("administrative
expense ratio") increased to 11.3 percent for the second quarter of 1996
as compared to 10.6 percent for the same period in 1995. The increase
in administrative expense is due primarily to increased salaries and
expenses in certain administrative areas of the Company including
utilization management and customer service departments as well as
additional sales expenses in new expansion areas in 1996. The growth in
these administrative functions is expected to enhance MAMSI's bottom
line both in terms of cost containment of medical expenses and also
customer satisfaction with MAMSI's products. Management believes that
the administrative expense ratio will stabilize slightly below the
current level over the next six months due to future cost savings from
the curtailment of marketing efforts for certain Medicaid service areas,
management's continuing efforts to manage its expanded business through
automated processes and the continuing analysis of expansion area and
product line profitability. Management's expectations concerning the
administrative expense ratio are forward-looking statements. The
administrative expense ratio is affected by changes in health premiums
per member, development of the Company's expansion areas and increased
administrative activity related to business volume.
Investment income increased $1.6 million or 59 percent primarily due to
significantly greater invested balances and an increase in realized
gains on sales of marketable equity securities.
The net margin rate decreased from 5.9 percent in the second quarter of
1995 to (2.3) percent in the current quarter. This decrease is
primarily due to increased medical expenses plus a reduction in health
premiums per member.
THE SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE
30, 1995
The Company's consolidated net income for the six months ended June 30,
1996 decreased to $5,332,000 from $30,743,000 for the six months ended
June 30, 1995. Earnings per share on net income decreased from $.65 in
the first six months of 1995 to $.11 for the same period in 1996. The
reduction in earnings is primarily attributable to a significant
increase in the medical loss ratio for commercial products, continuing
losses in the Company's Medicare product, losses in the Company's
Medicaid products and costs and start-up losses related to expansion
territories.<PAGE>
Revenue for the six months ended June 30, 1996 increased approximately
$97.0 million or 21 percent over the six months ended June 30, 1995, and
health premium revenue increased approximately $91.3 million over the
same periods. A 23.2 percent increase in average HMO and indemnity
enrollment resulted in an increase of approximately $100.7 million in
health premium revenue and a 1.7 percent decrease in average premiums
per HMO and indemnity enrollee reduced health premium revenue by
approximately $9.4 million. Revenue from life, accidental death and
disability products contributed $1.7 million in for the first six months
of 1996 as compared to $.2 million for the same period in 1995, which
was the first quarter of operations for this line of business.
The medical loss ratio increased to 90.6 percent for six months ended
June 30, 1996 as compared to 81.0 percent for the comparable period in
1995. Medical expenses on a per member per month basis increased 9.9
percent over the comparable period. The reasons for this increase are
consistent with the items discussed in the quarterly analysis.
In order to reimburse providers at a fair level in a manner consistent
with the current medical environment, the Company implemented the
Medicare Resource Based Relative Value Scale methodology of provider
reimbursement<PAGE>
<PAGE> 12
effective July 1, 1995. This methodology, which applies generally to
specialist health claims, has resulted in the lowering of some
reimbursement levels, mainly those having to do with office and
hospital-based procedures, while increasing payments for many evaluation
and management tasks. Also during 1996, the Company has evaluated and
is in the process of adopting regionalized and product specific fee
maximums for health services which should contribute to cost containment
efforts for the Medicare and Medicaid programs. These reductions in
provider reimbursements have been offset by increases in member
utilization resulting in net increased medical costs on a per member per
month basis.
The administrative expense ratio for the first six months of 1996
increased to 10.9 percent as compared to 10.5 percent for the same
period in 1995. The reasons for this increase are consistent with the
items discussed in the quarterly analysis.
The net margin rate declined to 1.0 percent for the first six months of
1996 as compared to 6.7 percent for the comparable period in 1995,
principally due to increased medical costs and a reduction in health
premiums per member. Management's strategies for reversing this trend
are discussed in the quarterly analysis.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is not capital intensive and the majority of the
Company's expenses are payments to health care providers, which
generally vary in direct proportion to the health premium revenues
received by the Company. Although medical utilization rates vary by
season, the payments for such expenses lag behind cash inflow from
premiums because of the lag in provider billing procedures. In the
past, the Company's cash requirements have been met principally from
operating cash flow and it is anticipated that this source will continue
to be sufficient in the future.
The Company's cash and short-term investments decreased from $215.6
million at December 31, 1995 to $171.7 million at June 30, 1996,
primarily due to purchases of MAMSI stock under the Company's stock
repurchase program and also an operating loss in the second quarter of
1996. Accounts receivable increased from $61.3 million at December 31,
1995 to $86.0 million at June 30, 1996. This $24.7 million increase is
primarily due to the significant increase in membership during 1996 and
increased receivables from groups with alternative funding arrangements
(i.e., revenues vary in a more direct manner with medical expense)
combined with a lower than normal balance in receivables at December 31,
1995 due to a higher relative volume of payments made by employer groups
during the last month of the year.
Prepaid expenses, advances and other increased from $9.0 million at
December 31, 1995 to $20.7 million at June 30, 1996, principally due to
estimated tax refunds for net operating loss carrybacks available for
certain MAMSI subsidiaries and other reductions in estimated tax
liabilities related to the current quarter net loss plus certain other
tax deductions not related to book income. Statutory deposits decreased
from $10.5 million at December 31, 1995 to $9.0 million at June 30, 1996
principally due to the release by state regulatory authorities of
certain deposits related to an affiliated HMO which was merged into M.D.
IPA in 1993.<PAGE>
Medical claims payable increased from $108.5 million at December 31,
1995 to $130.8 million at June 30, 1996 primarily due to increased
member utilization and related claims accruals. Deferred premium
revenue decreased from $10.1 million at December 31, 1995 to $5.6
million at June 30, 1996 due to a reduction in advance cash receipts.
Amounts recorded for treasury stock increased in 1996 by approximately
$39.9 million due to stock purchases under the Company's stock
repurchase program.
The Company currently has access to total revolving credit facilities of
$10.0 million, which is used to provide short-term capital resources for
routine cash flow fluctuations. The Company is currently renegotiating
its revolving credit facilities and expects to increase the total credit
availability under these agreements to $24.0 million during the third
quarter of 1996. At June 30, 1996, approximately $1.3 million was drawn
against the lines-of-credit and approximately $.2 million was
outstanding in letters-of-credit.<PAGE>
<PAGE> 13
Following is a schedule of the short-term capital resources available to
the Company (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 2,373 $ 10,874
Short-term investments 169,304 204,734
Working capital advances to Maryland hospitals 4,053 4,053
----------- -----------
Total available liquid assets 175,730 219,661
Credit line availability 8,454 7,880
----------- -----------
Total short-term capital resources $ 184,184 $ 227,541
=========== ===========
</TABLE>
The Company believes that the cash flow generated from operations along
with its current liquidity and borrowing capabilities are adequate for
both current and planned expanded operations. During the six months
ended June 30, 1996, MAMSI repurchased approximately 1.95 million shares
of its common stock for a total cost of approximately $39.9 million
under its stock repurchase program. Under this program, MAMSI could
expend up to a total of $60 million (including brokerage commissions) to
repurchase shares of its common stock over a twelve month period. This
program will continue to be financed through cash flow from the
Company's operations. Other capital expenditures will be made during
the remainder of 1996 to enhance the Company's computer systems and make
necessary improvements to existing administrative offices.<PAGE>
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
No material legal proceedings were commenced during the quarter ended
June 30, 1996 and no material developments occurred in any of the
previously disclosed proceedings during such quarter.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
An annual meeting of the stockholders of MAMSI was held on April 15,
1996. The following matters were submitted to a vote of the
stockholders during the annual meeting:
(1) The following individuals were elected to the Board of Directors for
a three year term with the indicated votes:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C>
Francis C. Bruno, M.D. 31,112,888 395,654 None
Stanley M. Dahlman, Ph.D. 31,177,705 330,837 None
George T. Jochum 31,102,283 406,259 None
James A. Wild 31,195,651 312,891 None
</TABLE>
Board members whose term of office continued after the meeting are as
follows:
John H. Cook, III, M.D.
Peter L. Flaherty, Jr., M.D.
Walter Girardin
Mark D. Groban, M.D.
Donald R. Hammett
Creighton R. Schneck
Stanley F. Smith, R.Ph.
Alfred Talamantes
(2) The adoption of the 1996 Non-Qualified Stock Option Plan was
ratified by a count of 14,257,966 affirmative votes, 7,073,846 negative
votes and 170,768 abstentions.
(3) The adoption of the 1996 Bonus Plan was ratified by a count of
19,637,633 affirmative votes, 1,661,149 negative votes and 203,798
abstentions.
There were 10,005,962 broker non-votes with respect to the adoption of
the 1996 Non-Qualified Stock Option Plan and the 1996 Bonus Plan.
ITEM 5. OTHER INFORMATION<PAGE>
In May, 1996, the MAMSI Board of Directors authorized an amendment to
MAMSI's bylaws to increase the size of the Board to 13 and unanimously
elected Thomas P. Barbera to fill the newly created vacancy. Mr.
Barbera was also elected the Vice Chairman of MAMSI immediately upon the
resignation of Peter L. Flaherty, Jr., M.D. from that position. Mr.
Flaherty will continue to serve as a member of the MAMSI Board of
Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See the Exhibit Index on page 16 of the Form 10-Q.
(b) There were no reports filed on Form 8-K during the quarter ended
June 30, 1996.<PAGE>
<PAGE> 15
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
undersigned thereto duly authorized.
MID ATLANTIC MEDICAL SERVICES, INC.
--------------------------------------------
(Registrant)
Date: August 14, 1996 Robert E. Foss
--------------------------------------------
Robert E. Foss
Executive Vice President and
Chief Financial Officer<PAGE>
<PAGE> 16
6(a) List of Exhibits.
EXHIBIT INDEX
Location of Exhibit
Exhibit in Sequential
Number Description of Document Numbering System
27 Financial Data Schedule for the Six
Months Ended June 30, 1996 . . . . . . . . . . .<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> $2,373
<SECURITIES> 169,304
<RECEIVABLES> 85,967
<ALLOWANCES> 3,980
<INVENTORY> 0
<CURRENT-ASSETS> 282,889
<PP&E> 44,413
<DEPRECIATION> 18,171
<TOTAL-ASSETS> $350,060
<CURRENT-LIABILITIES> $157,096
<BONDS> 164
0
0
<COMMON> 476
<OTHER-SE> 192,101
<TOTAL-LIABILITY-AND-EQUITY> $350,060
<SALES> $0
<TOTAL-REVENUES> 553,511
<CGS> 0
<TOTAL-COSTS> 484,835
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 342
<INTEREST-EXPENSE> 425
<INCOME-PRETAX> 8,281
<INCOME-TAX> 2,949
<INCOME-CONTINUING> 5,332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $5,332
<EPS-PRIMARY> $.11
<EPS-DILUTED> $.11
</TABLE>
