<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
-------- --------
Commission file number 0-15846
-------
HealthCare COMPARE Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3307583
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3200 Highland Avenue, Downers Grove, Illinois 60515
---------------------------------------------------
(Address of principal executive offices, Zip Code)
(708) 241-7900
------------------------------------------------
(Registrant's phone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of shares of Common Stock, par value $.01 per share, outstanding on
May 8, 1996 was 34,962,385.
<PAGE> 2
HealthCare COMPARE Corp. and Subsidiaries
INDEX
Part I. Financial Information Page Number
-----------
Item 1. Financial Statements
Consolidated Balance Sheets - Assets at March 31, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets - Liabilities and Stockholders'
Equity at March 31, 1996 and December 31, 1995 . . . . . . 4
Consolidated Statements of Operations for the three months
ended March 31, 1996 and 1995 . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 . . . . . . . . . . . . . . 6-7
Notes to Consolidated Financial Statements . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 9-10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Exhibit 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13-14
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . $ 89,735,000 $ 74,599,000
Short-term investments . . . . . . . . . . . . . . . . 65,278,000 70,634,000
Accounts receivable, less allowances for
doubtful accounts of $2,921,000
and $2,807,000, respectively . . . . . . . . . . . 24,620,000 22,255,000
Other current assets . . . . . . . . . . . . . . . . . 10,496,000 6,434,000
------------ ------------
Total current assets . . . . . . . . . . . . . . . . . 190,129,000 173,922,000
------------ ------------
Long-Term Investments:
Marketable securities . . . . . . . . . . . . . . . . 84,390,000 58,051,000
Other . . . . . . . . . . . . . . . . . . . . . . . . 18,163,000 18,086,000
------------ ------------
102,553,000 76,137,000
------------ ------------
Property and Equipment:
Buildings and improvements . . . . . . . . . . . . . . 33,928,000 32,885,000
Computer equipment and software . . . . . . . . . . . 31,074,000 29,358,000
Office furniture and equipment . . . . . . . . . . . . 17,865,000 17,643,000
------------ ------------
82,867,000 79,886,000
Less accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . (39,207,000) (36,472,000)
------------ ------------
Net property and equipment . . . . . . . . . . . . . . 43,660,000 43,414,000
------------ ------------
Other Assets . . . . . . . . . . . . . . . . . . . . . . . 8,911,000 3,721,000
------------ ------------
$345,253,000 $297,194,000
============ ============
</TABLE>
3
<PAGE> 4
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . $ 12,414,000 $ 7,149,000
Accrued expenses . . . . . . . . . . . . . . . . . . . . 10,891,000 9,649,000
Claims reserves . . . . . . . . . . . . . . . . . . . . 8,506,000 --
Income taxes payable . . . . . . . . . . . . . . . . . . 7,142,000 --
------------ ------------
Total current liabilities . . . . . . . . . . . . . . . 38,953,000 16,798,000
Non-Current Liabilities . . . . . . . . . . . . . . . . . . . 110,000 126,000
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . . 39,063,000 16,924,000
------------ ------------
Commitments and Contingencies . . . . . . . . . . . . . . . . -- --
Stockholders' Equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . 370,000 366,000
Additional paid-in capital . . . . . . . . . . . . . . . 117,348,000 104,961,000
Retained earnings . . . . . . . . . . . . . . . . . . . 229,008,000 210,070,000
Unrealized holding gain (loss) on marketable
securities . . . . . . . . . . . . . . . . . . . . . (129,000) 242,000
Treasury stock, at cost . . . . . . . . . . . . . . . . (40,407,000) (35,369,000)
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . . 306,190,000 280,270,000
------------ ------------
$345,253,000 $297,194,000
============ ============
</TABLE>
4
<PAGE> 5
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $59,985,000 $51,381,000
----------- -----------
Operating expenses:
Cost of services . . . . . . . . . . . . . . . . . . . 17,842,000 16,657,000
Selling and marketing . . . . . . . . . . . . . . . . 7,240,000 6,191,000
General and administrative . . . . . . . . . . . . . . 3,393,000 2,757,000
Healthcare benefits . . . . . . . . . . . . . . . . . 830,000 --
Depreciation and amortization . . . . . . . . . . . . 2,760,000 2,649,000
Interest income, net . . . . . . . . . . . . . . . . . (2,852,000) (1,709,000)
----------- -----------
29,213,000 26,545,000
----------- -----------
Income before income taxes . . . . . . . . . . . . . . . . 30,772,000 24,836,000
Income taxes . . . . . . . . . . . . . . . . . . . . . . . (11,822,000) (10,063,000)
----------- -----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . $18,950,000 $14,773,000
=========== ===========
Weighted average common and
common share equivalents . . . . . . . . . . . . . . . . 35,645,000 35,006,000
=========== ===========
Net income per common share . . . . . . . . . . . . . . . . $ .53 $ .42
=========== ===========
</TABLE>
5
<PAGE> 6
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers . . . . . . . . . . . . . . . . $57,692,000 $51,253,000
Cash paid to suppliers and employees . . . . . . . . . . . . (28,299,000) (24,089,000)
Healthcare benefits paid . . . . . . . . . . . . . . . . . . (572,000) --
Interest received, net . . . . . . . . . . . . . . . . . . . 2,553,000 1,353,000
Income taxes paid, net . . . . . . . . . . . . . . . . . . . (1,380,000) (1,434,000)
----------- -----------
Net cash provided by operating activities . . . . . . . . . 29,994,000 27,083,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments . . . . . . . . . . . . . . . . . . (60,313,000) (36,505,000)
Sales of investments . . . . . . . . . . . . . . . . . . . . 50,863,000 18,790,000
Acquisition of businesses, net of cash acquired . . . . . . (7,073,000) --
Purchase of property and equipment . . . . . . . . . . . . . (2,220,000) (2,163,000)
----------- -----------
Net cash used in investing activities . . . . . . . . . . . (18,743,000) (19,878,000)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock . . . . . . . . . . . . . . . . . (5,038,000) (2,170,000)
Proceeds from issuance of common stock . . . . . . . . . . . 8,923,000 3,979,000
----------- -----------
Net cash provided by financing activities . . . . . . . . . 3,885,000 1,809,000
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . 15,136,000 9,014,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . 74,599,000 29,412,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . $89,735,000 $38,426,000
=========== ===========
SUPPLEMENTAL CASH FLOW DATA:
Acquisition of businesses
Fair value of assets acquired . . . . . . . . . . . . . . . $19,246,000
Cost in excess of net assets acquired . . . . . . . . . . . 3,123,000
Fair value of liabilities assumed . . . . . . . . . . . . . (11,204,000)
Liabilities incurred for acquisition . . . . . . . . . . . . (4,092,000)
-----------
Net cash paid . . . . . . . . . . . . . . . . . . . . . . . $ 7,073,000
===========
</TABLE>
6
<PAGE> 7
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1996 1995
-------- ---------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,950,000 $14,773,000
----------- -----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization . . . . . . . . . . . . . . . . 2,760,000 2,649,000
Change in provision for uncollectible receivables . . . . . . 114,000 (55,000)
Amortization of bond premiums . . . . . . . . . . . . . . . . 425,000 282,000
Tax benefit from stock options exercised . . . . . . . . . . 3,468,000 1,013,000
Unrealized holding (gain) loss on marketable
securities . . . . . . . . . . . . . . . . . . . . . . . . 239,000 (455,000)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . (288,000) 21,000
Changes in Assets and Liabilities, net of effects
of acquired businesses:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (2,479,000) (73,000)
Other current assets . . . . . . . . . . . . . . . . . . . . 315,000 (504,000)
Accounts payable and accrued expenses . . . . . . . . . . . . (201,000) 1,295,000
Claims reserves . . . . . . . . . . . . . . . . . . . . . . . (82,000) --
Income taxes payable . . . . . . . . . . . . . . . . . . . . 7,142,000 8,650,000
Non-current assets and liabilities . . . . . . . . . . . . . (369,000) (513,000)
----------- -----------
TOTAL ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . 11,044,000 12,310,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . $29,994,000 $27,083,000
=========== ===========
</TABLE>
7
<PAGE> 8
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. The unaudited financial statements herein have been prepared by the
Company pursuant to the rules and regulations of the Securities and
Exchange Commission. The accompanying interim financial statements have
been prepared under the presumption that users of the interim financial
information have either read or have access to the audited financial
statements for the latest fiscal year ended December 31, 1995.
Accordingly, footnote disclosures which would substantially duplicate the
disclosures contained in the December 31, 1995 audited financial
statements have been omitted from these interim financial statements.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. Although the Company believes that the disclosures
are adequate to make the information presented not misleading, it is
suggested that these interim financial statements be read in conjunction
with the financial statements and the notes thereto included in the
Company's latest Annual Report on Form 10-K.
2. On February 1, 1996, the Company acquired American Life and Health
Insurance Company and its subsidiary, Cambridge Life Insurance Company,
for approximately $11.2 million in cash, of which $7.1 million was paid at
closing and $4.1 million will be paid when certain contingencies are
resolved. The acquisition was accounted for by the purchase method and,
accordingly, the results of operations of the acquired companies have been
included in the accompanying consolidated financial statements from the
date of acquisition. The estimated fair market value of net assets
acquired was $8,042,000, net of cash acquired. The excess of purchase
price over estimated fair market value has been allocated to goodwill
which is being amortized on a straight-line basis over 20 years. The pro
forma effects of these acquisitions on the consolidated results of the
Company are not material.
3. The Company's investments in marketable securities which are classified as
available for sale had a net unrealized loss in market value of $371,000,
net of deferred income taxes, for the three months ended March 31, 1996.
The net unrealized loss at March 31, 1996, included as a component of
stockholders' equity, was $129,000, net of deferred income taxes. The
Company's $10,000,000 investment in a limited partnership is carried at
cost. The current value of the Company's interest in the limited
partnership at March 31, 1996, as reported by the partnership, was
$10,775,000. In the third quarter of 1995, the Company invested in
another limited partnership which invests in equipment which is leased to
third parties. This investment is accounted for on the equity method
since the Company owns 20% of the limited partnership's assets. The
Company's proportionate share of the partnership's income was $75,000 for
the three months ended March 31, 1996 and is included in interest income.
4. Commitments and Contingencies
Litigation: In April 1993, seven lawsuits were filed in the United States
District Court for the Northern District of Illinois alleging violations
of Federal securities laws by the Company and two of its executive
officers. The plaintiffs alleged, among other things, that the defendants
made false and misleading statements regarding the Company's financial
prospects for 1993. In January 1996, the Seventh Circuit Court of Appeals
reversed the District Court and dismissed all counts of the consolidated
class action complaint. The plaintiffs have declined to appeal this
ruling.
8
<PAGE> 9
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(UNAUDITED)
RESULTS OF OPERATIONS
Revenues for the three months ended March 31, 1996 increased $8,604,000
(17%) from the comparable period of 1995. The Company's revenues consist of
fees for cost management services provided under contracts which typically
require clients to pay based upon a percentage of savings or on a predetermined
contractual basis (fee-based revenue). The Company also derives revenues based
on a fixed monthly fee for each participant, excluding covered dependents, in a
client-sponsored health care plan (capitated revenue). As a result of the
Company's acquisition of a life and health insurance company, the Company also
derives an immaterial amount of premium revenue on life and health insurance
contracts.
The following table sets forth information with respect to the sources of
the Company's revenues for the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
SOURCES OF REVENUE
($ in thousands)
Three Months Ended March 31,
-----------------------------------------------------------
1996 % 1995 %
-------- ----- -------- -----
<S> <C> <C> <C> <C>
PPO Services $46,101 77% $39,058 76%
Fee Schedule Services 6,260 11% 4,404 8%
Clinical Cost Management
Services 5,473 9% 6,459 13%
Net Premiums 1,381 2% -- --
Government Contract
Services 770 1% 1,460 3%
------- ---- ------- ----
Total $59,985 100% $51,381 100%
======= ==== ======= ====
</TABLE>
The growth in revenue during the three months ended March 31, 1996 from
the comparable period of 1995 is primarily attributable to the expansion and
development of the Company's PPO services. PPO revenue increased $7,043,000
(18%) from the same period of 1995. This growth is the result of new client
additions and increased utilization of the PPO network by existing clients.
Revenue from fee schedule services increased $1,856,000 (42%) for the three
months ended March 31, 1996 from the comparable period in 1995 due to new
client additions and increased revenue from several existing clients. Revenue
from clinical cost management services decreased $986,000 (15%) for the three
months ended March 31, 1996 from the comparable period in 1995. This decrease
is due primarily to the loss of one client. Premium revenue was generated by
the small health and life insurance companies acquired by the Company during
the first quarter of 1996. Government contract revenue decreased $690,000
(47%) from the same period in 1995 due to the successful completion of the
regional review portion of the Company's CHAMPUS contract.
9
<PAGE> 10
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(UNAUDITED)
Cost of services increased $1,185,000 (7%) for the three months ended
March 31, 1996 from the comparable period of 1995. Cost of services consists
primarily of salaries for personnel involved in PPO administration, development
and expansion, utilization management programs, fee schedule and other cost
management services offered by the Company. To a lesser extent, cost of
services includes telephone expenses, facility expenses and information
processing costs. The increase in these costs is primarily attributable to
expenses incurred in the development of the Company's risk-based products.
Selling and marketing costs increased $1,049,000 (17%) for the three
months ended March 31, 1996 from the same period of 1995, primarily as a result
of the hiring of additional sales personnel. To a lesser extent, the increase
relates to commissions paid to agents and third party administrators by the
Company's insurance subsidiaries.
General and administrative costs for the three months ended March 31, 1996
increased $636,000 (23%) from the comparable period of 1995. This increase is
primarily attributable to the general administrative expenses incurred by the
Company's insurance entities. To a lesser extent, the increase relates to
salaries and benefits incurred in the executive and administrative areas of the
Company.
Healthcare benefits represent losses incurred by the Company's insurance
entities. The loss ratio (losses as a percent of premiums) was 60% for the
first quarter of 1996. This ratio is consistent with management expectations.
Depreciation and amortization expenses increased $111,000 (4%) for the
three months ended March 31, 1996 from the comparable period of 1995.
Depreciation expense as a percent of revenue remained constant at 5%.
Interest income for the three months ended March 31, 1996 increased
$1,143,000 (67%) from the same period in 1995 due to a 55% increase in the
amount of cash equivalents and investments since March 31, 1995.
Net income for the three months ended March 31, 1996, increased $4,177,000
(28%) from the comparable period of 1995. This increase is due primarily to
the revenue growth as well as efficiencies achieved in the Company operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $151,176,000 in working capital at March 31, 1996 compared
with working capital of $157,124,000 at December 31, 1995. The decrease is
primarily attributable to the purchase of the insurance subsidiaries, which had
negative working capital of approximately $5,500,000 at the date of purchase.
Cash equivalents and short- and long-term investments increased to $257,566,000
at March 31, 1996 from $221,370,000 at December 31, 1995, primarily as the
result of cash provided by operating activities and, to a lesser extent, cash
received upon the exercise of stock options. Through the first three months of
the year, operating activities provided $29,994,000 of cash.
The Company believes that its working capital, long-term investments, and
cash generated from future operations will be sufficient to fund the Company's
anticipated operations and expansion plans.
10
<PAGE> 11
PART II
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 - Computation of Primary Earnings Per Common Share
(b) Exhibit 11 - Computation of Fully Diluted Earnings Per Common
Share
11
<PAGE> 12
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.
HealthCare COMPARE Corp.
Dated: May 10, 1996 /s/James C. Smith
---------------------------------------
James C. Smith
President and Chief Executive Officer
Dated: May 10, 1996 /s/Joseph E. Whitters
---------------------------------------
Joseph E. Whitters
Chief Financial Officer
(Principal Financial and Accounting
Officer)
12
<PAGE> 1
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
1996 1995
----------- ----------
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,950,000 $14,773,000
=========== ===========
Weighted average number of common shares
outstanding:
Shares outstanding from beginning of period . . . . . . . . 34,635,000 34,034,000
Other issuances of common stock . . . . . . . . . . . . . . 258,000 148,000
Purchases of treasury stock . . . . . . . . . . . . . . . . (73,000) (48,000)
Common Stock Equivalents:
Additional equivalent shares issuable from
assumed exercise of common stock options . . . . . . . . . 825,000 872,000
----------- -----------
Weighted average common and common share
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . 35,645,000 35,006,000
=========== ===========
Net income per common share . . . . . . . . . . . . . . . . . . . $ .53 $ .42
=========== ===========
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 89,735
<SECURITIES> 159,668
<RECEIVABLES> 27,541
<ALLOWANCES> (2,921)
<INVENTORY> 0
<CURRENT-ASSETS> 190,129
<PP&E> 82,867
<DEPRECIATION> (39,207)
<TOTAL-ASSETS> 345,253
<CURRENT-LIABILITIES> 38,953
<BONDS> 0
0
0
<COMMON> 370
<OTHER-SE> 305,820
<TOTAL-LIABILITY-AND-EQUITY> 345,253
<SALES> 0
<TOTAL-REVENUES> 59,985
<CGS> 0
<TOTAL-COSTS> 29,305
<OTHER-EXPENSES> 2,760
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 30,772
<INCOME-TAX> 11,822
<INCOME-CONTINUING> 18,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,950
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
