<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 June 30, 1997
-------------
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 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)
(630) 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
August 8, 1997 was 31,722,114.
<PAGE> 2
HealthCare COMPARE Corp. and Subsidiaries
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page Number
-----------
<S> <C>
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets - Assets at June 30, 1997
and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets - Liabilities and Stockholders'
Equity at June 30, 1997 and December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Operations for the three months
ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Operations for the six months
ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-8
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 9-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 11-13
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Exhibit 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-17
</TABLE>
2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
ASSETS June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . $ 64,537,000 $ 77,439,000
Short-term investments . . . . . . . . 22,680,000 74,823,000
Accounts receivable, less allowances for
doubtful accounts of $2,587,000
and $2,573,000, respectively . . . . 29,351,000 24,515,000
Other current assets . . . . . . . . . 7,251,000 11,694,000
-------------- --------------
Total current assets . . . . . . . . . 123,819,000 188,471,000
Long-Term Investments:
Marketable securities . . . . . . . . . 96,923,000 92,766,000
Other . . . . . . . . . . . . . . . . . 25,030,000 20,869,000
-------------- --------------
121,953,000 113,635,000
Property and Equipment:
Buildings and improvements . . . . . . 50,846,000 36,450,000
Computer equipment and software . . . . 44,683,000 39,642,000
Office furniture and equipment . . . . 19,740,000 19,036,000
-------------- --------------
115,269,000 95,128,000
Less accumulated depreciation and
amortization . . . . . . . . . . . . (54,636,000) (48,472,000)
-------------- --------------
Net property and equipment . . . . . . 60,633,000 46,656,000
Other Assets . . . . . . . . . . . . . . . 4,859,000 4,576,000
-------------- --------------
$ 311,264,000 $ 353,338,000
============== ==============
</TABLE>
3
<PAGE> 4
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Current Liabilities:
Accounts payable . . . . . . . . . . . $ 6,807,000 $ 8,574,000
Accrued expenses . . . . . . . . . . . 12,553,000 10,811,000
Treasury stock purchases payable . . . 855,000 --
Claims reserves . . . . . . . . . . . . 8,075,000 8,750,000
Income taxes payable . . . . . . . . . 747,000 --
-------------- --------------
Total current liabilities . . . . . . . 29,037,000 28,135,000
Non-Current Liabilities . . . . . . . . . . 1,902,000 1,997,000
-------------- --------------
Total liabilities . . . . . . . . . . . 30,939,000 30,132,000
Commitments and Contingencies . . . . . . . -- --
Stockholders' Equity:
Common stock . . . . . . . . . . . . . 373,000 372,000
Additional paid-in capital . . . . . . 144,794,000 129,147,000
Retained earnings . . . . . . . . . . . 331,343,000 289,065,000
Unrealized holding gain on marketable
securities . . . . . . . . . . . . . 1,120,000 1,125,000
Treasury stock, at cost . . . . . . . . (197,305,000) (96,503,000)
-------------- --------------
Total stockholders' equity . . . . . . 280,325,000 323,206,000
-------------- --------------
$ 311,264,000 $ 353,338,000
============== ==============
</TABLE>
4
<PAGE> 5
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
-------------- ---------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $ 68,834,000 $ 62,200,000
-------------- --------------
Operating expenses:
Cost of services . . . . . . . . . . . 20,552,000 18,366,000
Selling and marketing . . . . . . . . . 7,429,000 7,319,000
General and administrative . . . . . . 3,714,000 3,321,000
Healthcare benefits . . . . . . . . . . 2,035,000 1,398,000
Depreciation and amortization . . . . . 3,304,000 2,938,000
Interest income, net . . . . . . . . . (3,210,000) (3,053,000)
-------------- --------------
33,824,000 30,289,000
-------------- --------------
Income before income taxes . . . . . . . . 35,010,000 31,911,000
Income taxes . . . . . . . . . . . . . . . (13,566,000) (12,179,000)
-------------- --------------
Net income . . . . . . . . . . . . . . . . $ 21,444,000 $ 19,732,000
============== ==============
Weighted average common and
common share equivalents . . . . . . . . 33,307,000 35,789,000
============== ==============
Net income per common share . . . . . . . . $ .64 $ .55
============== ==============
</TABLE>
5
<PAGE> 6
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
-------------- --------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . $ 133,755,000 $ 122,185,000
-------------- --------------
Operating expenses:
Cost of services . . . . . . . . . . . 39,095,000 36,208,000
Selling and marketing . . . . . . . . . 14,638,000 14,559,000
General and administrative . . . . . . 7,372,000 6,714,000
Healthcare benefits . . . . . . . . . . 4,127,000 2,228,000
Depreciation and amortization . . . . . 6,392,000 5,698,000
Interest income, net . . . . . . . . . (6,701,000) (5,905,000)
-------------- --------------
64,923,000 59,502,000
-------------- --------------
Income before income taxes . . . . . . . . 68,832,000 62,683,000
Income taxes . . . . . . . . . . . . . . . (26,554,000) (24,001,000)
-------------- --------------
Net income . . . . . . . . . . . . . . . . $ 42,278,000 $ 38,682,000
============== ==============
Weighted average common and
common share equivalents . . . . . . . . 33,757,000 35,714,000
============== ==============
Net income per common share . . . . . . . . $ 1.25 $ 1.08
============== ==============
</TABLE>
6
<PAGE> 7
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Six Month Ended June 30,
----------------------------------------
1997 1996
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers . . . . . . . . . . . . . . . . . . . $ 128,535,000 $ 120,804,000
Cash paid to suppliers and employees . . . . . . . . . . . . . . . (59,583,000) (56,708,000)
Healthcare benefits paid . . . . . . . . . . . . . . . . . . . . . (3,148,000) (1,835,000)
Interest received, net . . . . . . . . . . . . . . . . . . . . . . 9,003,000 5,948,000
Income taxes paid, net . . . . . . . . . . . . . . . . . . . . . . (24,478,000) (21,352,000)
-------------- --------------
Net cash provided by operating activities . . . . . . . . . . . . . 50,329,000 46,857,000
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments . . . . . . . . . . . . . . . . . . . . . (103,512,000) (102,967,000)
Sales of investments . . . . . . . . . . . . . . . . . . . . . . . 146,585,000 82,027,000
Acquisition of businesses, net of cash acquired . . . . . . . . . . (412,000) (10,090,000)
Purchase of property and equipment . . . . . . . . . . . . . . . . (20,232,000) (7,722,000)
-------------- --------------
Net cash provided by (used in) investing activities . . . . . . . . 22,429,000 (38,752,000)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . (99,947,000) (5,038,000)
Proceeds from issuance of common stock . . . . . . . . . . . . . . 3,476,000 9,501,000
Proceeds from sale of put options on common stock . . . . . . . . . 10,811,000 --
-------------- --------------
Net cash provided by (used in) financing activities . . . . . . . . (85,660,000) 4,463,000
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . . (12,902,000) 12,568,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD . . . . . . . . . . . . 77,439,000 74,599,000
-------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . . . . . . . . . . $ 64,537,000 $ 87,167,000
============== ==============
SUPPLEMENTAL CASH FLOW DATA:
Acquisition of businesses:
Fair value of assets acquired . . . . . . . . . . . . . . . . . . . $ -- $ 19,246,000
Cost in excess of net assets acquired . . . . . . . . . . . . . . . 412,000 3,031,000
Fair value of liabilities assumed . . . . . . . . . . . . . . . . . -- (11,204,000)
Future payments on acquisition . . . . . . . . . . . . . . . . . . -- (983,000)
-------------- --------------
Net cash paid . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 412,000 $ 10,090,000
============== ==============
Non-cash financing activity:
Treasury stock purchase payable . . . . . . . . . . . . . . . . . . $ 855,000
==============
</TABLE>
7
<PAGE> 8
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Six Month Ended June 30,
----------------------------------------
1997 1996
--------------- ----------------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,278,000 $ 38,682,000
-------------- --------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization . . . . . . . . . . . . . . . . . 6,392,000 5,698,000
Change in provision for uncollectible receivables . . . . . . . 14,000 115,000
Amortization of bond premiums . . . . . . . . . . . . . . . . . 761,000 871,000
Tax benefit from stock options exercised . . . . . . . . . . . . 1,361,000 3,794,000
Unrealized holding loss on marketable securities . . . . . . . . -- 385,000
other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . (46,000) (211,000)
Changes in assets and Liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . (4,850,000) (1,064,000)
Other current assets . . . . . . . . . . . . . . . . . . . . . . 4,443,000 405,000
Accounts payable and accrued expenses . . . . . . . . . . . . . (25,000) (296,000)
Claims reserves . . . . . . . . . . . . . . . . . . . . . . . . (675,000) (42,000)
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . 747,000 (281,000)
Non-current assets and liabilities . . . . . . . . . . . . . . . (71,000) (1,199,000)
-------------- --------------
TOTAL ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 8,051,000 8,175,000
-------------- --------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . . . . . $ 50,329,000 $ 46,857,000
============== ==============
</TABLE>
8
<PAGE> 9
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, 1996.
Accordingly, footnote disclosures which would substantially duplicate the
disclosures contained in the December 31, 1996 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 July 1, 1997, the Company completed the acquisition of all of the
outstanding shares of capital stock of First Health Strategies, Inc.
("Strategies") and First Health Services Corporation ("Services") from
First Financial Management Corporation and First Data Corporation for a
purchase price of approximately $202 million in cash subject to certain
post-closing adjustments. Strategies, based in Salt Lake City, Utah, and
Services, based in Richmond, Virginia, provide independent health care
administration services such as claims administration and associated
health care management services to the self-insured corporate and
government markets. The acquisition will be accounted for as a purchase.
Simultaneously with the closing of the acquisition, the Company entered
into a credit agreement underwritten by LaSalle National Bank as a lender
and as administrative agent and First Chicago Capital Markets, Inc. as
syndication agent, which provides for borrowing of $200 million under a
revolving credit facility. On July 1, 1997, the Company borrowed $200
million to fund the acquisition of Strategies and Services. In addition,
the Company anticipates receiving commitments for expansion of the credit
facility to a maximum of $350 million in August, 1997.
3. The Company's investments in marketable securities which are classified
as available for sale had a net unrealized loss in market value of
$5,000, net of deferred income taxes, for the six months ended June 30,
1997. The net unrealized gain at June 30, 1997, included as a component
of stockholders' equity, was $1,120,000, net of deferred income taxes.
The Company's $12,561,000 investment in a limited partnership is carried
at cost. The current value of the Company's interest in the limited
partnership at June 30, 1997, as reported by the partnership, was
$14,480,000. 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 a 20% interest in a particular tranche of the
limited partnership. The Company's proportionate share of the
partnership's income was $264,000 for the six months ended June 30, 1997
and is included in interest income. In the second quarter of 1997, the
Company made an additional investment of $3.3 million in this limited
partnership. The new
9
<PAGE> 10
investment will also be accounted for on the equity method since the
Company owns a 25% interest in another tranche of the limited
partnership. No income has been reported on this additional investment
as of June 30, 1997.
4. On August 8, 1996, the Company announced that the Board of Directors had
approved the repurchase of up to 5,000,000 shares, or approximately 15%
of the Company's then outstanding Common Stock. Purchases may be made
from time to time, depending on market conditions and other relevant
factors. During the first six months of 1997, the Company repurchased
2,136,600 shares for a total cost of approximately $101 million ($855,000
of which was paid subsequent to June 30, 1997) or an average of $47.18
per share. During 1996, the Company repurchased approximately 1,412,000
shares for a total cost of approximately $56.1 million or an average of
$39.74 per share. Approximately 567,000 of these shares were purchased
under the 1996 repurchase plan and 845,000 shares were repurchased under
a prior plan. Such shares are recorded as treasury shares, at cost, and
can be used for general corporate purposes.
In connection with this stock repurchase program, the Company sold put
options in 1996 which obligate the Company, at the election of the option
holders, to repurchase up to 2,000,000 shares of Common Stock at prices
ranging from $40.25 to $42.875 per share. The proceeds from the sale of
these options in the amount of $6,728,000 was recorded as additional
paid-in-capital. During the first six months of 1997, the Company sold
6,095,000 put options which obligate the Company to repurchase shares at
prices ranging from $38.71 to $48.13 per share. The proceeds from sale
of these options in the amount of $10,811,000 was recorded as
paid-in-capital. As of June 30, 1997, 5,500,000 of the 8,095,000 put
options have expired. The outstanding put options expire at various dates
from August 12, 1997 through March 2, 1998. As of August 11, 1997, no
shares have been put to the Company pursuant to these options.
5. On May 8, 1997 the Company announced it had signed a definitive agreement
under which the Company will acquire Loyalty Life Insurance Company
(Loyalty). Loyalty is an insurer with licenses to conduct health
insurance business in 49 states, which will have no net insurance
liabilities at the time of its acquisition by the Company. Under the
terms of the acquisition, which will be accounted for as a purchase, the
Company will pay a maximum of approximately $13.5 million subject to the
satisfaction of certain contingencies. Loyalty will have net assets of
approximately $8 million which results in a net acquisition cost of
approximately $5.5 million. The Company expects to receive regulatory
approval for the completion of the acquisition in late August 1997.
6. The Company has not yet adopted Statement of Financial Accounting
Standards No. 128 (SFAS No. 128), "Earnings Per Share". SFAS No. 128 is
effective for fiscal periods ending after December 15, 1997, and early
adoption is prohibited. If the Company had adopted SFAS No. 128, Basic
Earnings Per Share would have been $.66 and $1.28 compared to $.56 and
$1.11 for the three and six months ended June 30, 1997 and 1996,
respectively. Diluted Earnings Per Share would have been $.64 and $1.25
compared to $.55 and $1.08 for the three and six months ended June 30,
1997 and 1996, respectively.
10
<PAGE> 11
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 and six months ended June 30, 1997 increased 11%
or $6,634,000 and 9% or $11,570,000, respectively, from the comparable periods
of 1996. The Company's revenues consist of fees for cost management services
provided under contracts which typically require clients to pay based upon a
percentage of savings or on a predetermined contractual basis (fee-based
revenue). The Company also derives revenues based on a fixed monthly fee for
each participant, excluding covered dependents, in a client-sponsored health
care plan (capitated revenue) or on a per-transaction basis. As a result of
the Company's acquisition of a life and health insurance company, the Company
also derives an immaterial amount of premium revenue on life and health
insurance contracts.
The following table sets forth information with respect to the sources of
the Company's revenues for the three and six months ended June 30, 1997 and
1996:
SOURCES OF REVENUE
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------- ---------------------------------------------
1997 % 1996 % 1997 % 1996 %
-------- ------ -------- -------- ---------- ------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Service:
PPO Services $ 54,295 79% $48,024 77% $105,191 79% $ 94,125 77%
Fee Schedule Services 6,831 10 6,414 10 13,130 10 12,674 10
Clinical Management 4,674 7 5,301 9 9,454 7 10,774 9
Services
Gov't. Contract
Services -- -- 590 1 -- -- 1,360 1
------- ---- ------- --- -------- ---- --------- ---
Total Service 65,800 96 60,329 97 127,775 96 118,933 97
------- ---- ------- --- -------- ---- --------- ---
Risk:
Premiums, Net 2,767 4 1,871 3 5,713 4 3,252 3
Service 267 -- -- -- 267 -- -- --
------- ---- ------- --- -------- ---- --------- ---
Total Risk 3,034 4 1,871 3 5,980 4 3,252 3
------- ---- ------- --- -------- ---- --------- ---
Grand Total $68,834 100% $62,200 100% $133,755 100% $122,185 100%
======= ==== ======= === ======== ---- --------- ---
</TABLE>
The growth in revenue during the three and six months ended June 30, 1997
from the comparable periods of 1996 is primarily attributable to the expansion
and development of the Company's PPO services. PPO revenue increased $6,271,000
(13%) and $11,066,000 (12%) from the same periods of 1996. 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 $417,000 (7%)
and $456,000 (4%) from the comparable periods in 1996. Premium revenue
increased $896,000 (48%) and
<PAGE> 12
$2,641,000 (76%) for the three and six months ended June 30, 1997 from the
comparable periods in 1996 due primarily to new client activity.
Revenue from clinical cost management services decreased $627,000 (12%) and
$1,320,000 (12%), respectively, for the three and six months ended June 30,
1997 from the comparable periods in 1996. Government contract revenue decreased
$590,000 and $1,360,000 from the same periods in 1996 due to the completion of
the Company's CHAMPUS contract with the Department of Defense.
Cost of services increased $2,186,000 (12%) and $2,887,000 (8%),
respectively, for the three and six months ended June 30, 1997 from the
comparable periods of 1996. 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 associated with
the development of the Company's risk based products and, to a lesser extent,
expenses incurred in the expansion and development of the Company's PPO
network.
Selling and marketing costs for the three and six months ended June 30, 1997
were essentially unchanged from the comparable periods of 1996.
General and administrative costs for the three and six months ended June 30,
1997 increased $393,000 (12%) and $658,000 (10%) from the comparable periods of
1996. This increase is primarily attributable to the general insurance
expenses incurred by the Company's insurance subsidiary. 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 insureds of the Company's
insurance entity. The loss ratio (losses as a percent of premiums) was 74% and
72%, respectively, for the three and six months ended June 30, 1997 compared to
75% and 69% for the comparable periods of 1996. Due to the small size of the
insurance business, this expense is expected to be volatile until the Company
is able to institute all of its managed care services and cost controls and
increase the size of its insurance business.
Depreciation and amortization expenses increased $366,000 (12%) and $694,000
(12%), respectively, for the three and six months ended June 30, 1997 from the
comparable periods of 1996 due primarily to purchases of computer hardware and
software as well as the purchase of the Company's Phoenix facility.
Depreciation expense as a percent of revenue remained constant at 5%.
Interest income for the three and six months ended June 30, 1997 increased
$157,000 (5%) and $796,000 (13%), respectively for the same periods in 1996
although the amount of cash equivalents and investments has decreased 26% since
June 30, 1996. This increase is due primarily to the Company investing in
longer term investments with higher yields.
Net income for the three and six months ended June 30, 1997, increased
$1,712,000 (9%) and $3,596,000 (9%), respectively, from the comparable periods
of 1996. This increase is due primarily to the revenue growth achieved.
12
<PAGE> 13
Net income per share for the three and six months ended June 30, 1997
increased 16% from the comparable periods of 1996. The increase in net income
per share was favorably impacted by the repurchase of approximately 2,137,000
shares of Company common stock during the first six months of 1997. For the
three and six months ended June 30, 1997, there were approximately 7% and 5%
fewer weighted average common shares outstanding than during the comparable
periods of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $94,782,000 in working capital at June 30, 1997 compared with
working capital of $160,336,000 at December 31, 1996. The decrease is
primarily attributable to the purchase of the building which houses the
Company's Phoenix operations for $14,000,000 as well as the repurchase of
2,136,600 shares of Company Common Stock for a total cost of $100,802,000
($855,000 of which is payable at June 30, 1997) during the first six months of
1997. Through the first six months of the year, operating activities provided
$50,329,000 of cash. Investment activities provided $22,429,000 of cash
representing net sales of investments of $43,073,000 and purchases of fixed
assets of $20,232,000 (including $14,000,000 for the Phoenix building).
Financing activities used $85,660,000 of cash representing $99,947,000 in
purchases of treasury stock during the six months ended June 30, 1997 partially
offset by $3,476,000 in proceeds from issuance of common stock and $10,811,000
in proceeds from sale of put options.
The Company believes that its working capital, long-term investments,
recently completed credit facility and cash generated from future operations
will be sufficient to fund the Company's anticipated operations and expansion
plans.
13
<PAGE> 14
PART II
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders of the Company on May 20, 1997,
all directors of the Company were re-elected. The number of votes
cast for and withheld for each director were as follows:
<TABLE>
<CAPTION>
For Withheld
------------------- -----------------
<S> <C> <C>
Robert J. Becker, M.D. 28,507,100 113,627
Michael J. Boskin 28,507,168 113,559
Daniel S. Brunner 28,507,500 113,227
Robert S. Colman 28,507,500 113,227
Ronald H. Galowich 28,507,280 113,447
Harold S. Handelsman 28,507,400 113,327
Burton W. Kanter 28,507,200 113,527
Don Logan 28,507,180 113,547
Thomas J. Pritzker 28,507,500 113,227
David E. Simon 27,801,037 819,690
James C. Smith 28,505,102 115,625
</TABLE>
A proposal to approve the performance-based compensation provision of
the employment agreement with the Company's Chief Executive Officer
was approved with 27,544,433 shares cast for, 579,480 shares against
and 38,664 shares abstaining. In addition, there were 458,150 broker
non-votes.
A proposal to approve the grant of two stock options to the Company's
Chief Executive Officer was approved with 27,628,075 shares cast for,
756,088 shares against and 89,352 shares abstaining. In addition,
there were 147,212 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
(a) Exhibit 11 - Computation of Primary Earnings Per Common Share
(b) Exhibit 11 - Computation of Fully Diluted Earnings Per Common
Share
Reports on Form 8-K:
The Company filed a Report on Form 8-K dated July 14, 1997
reporting under Item 2, the acquisition of Strategies and
Services.
14
<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 the
undersigned thereunto duly authorized.
HealthCare COMPARE Corp.
Dated: August 13, 1997
/s/James C. Smith
-----------------------------
James C. Smith
President and Chief Executive
Officer
Dated: August 13, 1997 /s/Joseph E. Whitters
-----------------------------
Joseph E. Whitters
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<PAGE> 1
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
------------- -------------
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,444,000 $ 19,732,000
============= =============
Weighted average number of common shares
outstanding:
Shares outstanding from beginning of period . . . . . . . . . . . . . . . . 32,949,000 34,936,000
Other issuances of common stock . . . . . . . . . . . . . . . . . . . . . . 31,000 27,000
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . (365,000) --
Common Stock Equivalents:
Additional equivalent shares issuable from
assumed exercise of common stock options . . . . . . . . . . . . . . . . . 692,000 826,000
------------- -------------
Weighted average common and common share
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,307,000 35,789,000
============= =============
Net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .64 $ .55
============= =============
Six Months Ended June 30,
------------------------------
1997 1996
------------- -------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,278,000 $ 38,682,000
============= =============
Weighted average number of common shares
outstanding:
Shares outstanding from beginning of period . . . . . . . . . . . . . . . . 33,697,000 34,635,000
Other issuances of common stock . . . . . . . . . . . . . . . . . . . . . . 59,000 335,000
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . (669,000) (85,000)
Common Stock Equivalents:
Additional equivalent shares issuable from
assumed exercise of common stock options . . . . . . . . . . . . . . . . . 670,000 829,000
------------- -------------
Weighted average common and common share
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,757,000 35,714,000
============= =============
Net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.25 $ 1.08
============= =============
</TABLE>
16
<PAGE> 2
HEALTHCARE COMPARE CORP. AND SUBSIDIARIES EXHIBIT 11
COMPUTATION OF FULLY DILUTED EARNINGS PER COMMON SHARE
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended June 30,
1997 1996
------------- -------------
<S> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,444,000 $ 19,732,000
============= =============
Weighted average number of common shares
outstanding:
Shares outstanding from beginning of period . . . . . . . . . . . . . . . . 32,949,000 34,936,000
Other issuances of common stock . . . . . . . . . . . . . . . . . . . . . . 31,000 27,000
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . (365,000) --
Common Stock Equivalents:
Additional equivalent shares issuable from
assumed exercise of common stock options . . . . . . . . . . . . . . . . . 809,000 841,000
------------- -------------
Weighted average common and common share
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,424,000 35,804,000
============= =============
Net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ .64 $ .55
============= =============
Six Months Ended June 30,
------------------------------
1997 1996
------------- -------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,278,000 $ 38,682,000
============= =============
Weighted average number of common shares
outstanding:
Shares outstanding from beginning of period . . . . . . . . . . . . . . . . 33,697,000 34,635,000
Other issuances of common stock . . . . . . . . . . . . . . . . . . . . . . 59,000 335,000
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . (669,000) (85,000)
Common Stock Equivalents:
Additional equivalent shares issuable from
assumed exercise of common stock options . . . . . . . . . . . . . . . . . 737,000 865,000
------------- -------------
Weighted average common and common share
equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,824,000 35,750,000
============= =============
Net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.25 $ 1.08
============= =============
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 64,537
<SECURITIES> 119,603
<RECEIVABLES> 31,938
<ALLOWANCES> (2,587)
<INVENTORY> 0
<CURRENT-ASSETS> 123,819
<PP&E> 115,269
<DEPRECIATION> (54,636)
<TOTAL-ASSETS> 311,264
<CURRENT-LIABILITIES> 29,037
<BONDS> 0
0
0
<COMMON> 373
<OTHER-SE> 279,952
<TOTAL-LIABILITY-AND-EQUITY> 311,264
<SALES> 0
<TOTAL-REVENUES> 68,834
<CGS> 0
<TOTAL-COSTS> 33,730
<OTHER-EXPENSES> 3,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 35,010
<INCOME-TAX> 13,566
<INCOME-CONTINUING> 21,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,444
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
