<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
[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
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
-------- ---------
Commission File No. 1-11538
------------
HEALTHSOURCE, INC.
--------------------------------------------------------------
(Exact name or registrant as specified in its charter)
New Hampshire 02-0387748
- --------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Two College Park Drive, Hooksett, NH 03106
- --------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 268-7000
--------------
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
--- ---
At August 7, 1996, 63,770,957 shares of $.10 par value common stock of the
Registrant were outstanding.
1
<PAGE> 2
HEALTHSOURCE, INC.
INDEX
Page Number
-----------
Part I. Financial Information.
- ------------------------------
Item 1. Financial Statements
--------------------
Condensed Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations
for the Three and Six Month Periods ended
June 30, 1996 and 1995 4 - 5
Condensed Consolidated Statements of Cash Flows
for the Six Month Periods ended
June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7 - 9
Independent Accountants' Report 10
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations 11 - 17
---------------------------------------------
Part II. Other Information.
- ----------------------------
Item 1. Legal Proceedings
-----------------
Not Applicable
Item 2. Changes in Securities
---------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of
----------------------------------
Security Holders
----------------
Not Applicable
Item 5. Other Information 18 - 20
-----------------
Item 6. Exhibits and Reports on Form 8-K 20
--------------------------------
Signatures 21
2
<PAGE> 3
HEALTHSOURCE, INC. AND SUBSIDIARIES
- -----------------------------------
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
(unaudited)
ASSETS (in thousands)
- ------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . $ 99,395 $121,467
Marketable securities . . . . . . . . . . 26,475 34,301
Premiums and administrative
fees receivable . . . . . . . . . . . . 113,380 117,871
Restricted investments . . . . . . . . . . 116,711 123,871
Other current assets . . . . . . . . . . . 65,551 29,986
-------- --------
Total current assets . . . . . . . . . 421,512 427,496
Long-term assets:
Long-term marketable securities . . . . . 118,813 68,357
Property and leasehold improvements, net . 122,962 103,611
Restricted investments . . . . . . . . . . 8,797 8,099
Intangible assets, net . . . . . . . . . . 306,666 254,886
Other assets . . . . . . . . . . . . . . . 16,957 10,590
-------- --------
TOTAL $995,707 $873,039
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Medical claims payable . . . . . . . . . . $172,415 $152,649
Accounts payable and accrued expenses . . 98,099 85,678
Estimated liability under retrospective
refund agreements 31,191 35,623
Deferred revenue . . . . . . . . . . . . . 16,549 7,489
Other current liabilities . . . . . . . . 716 1,587
-------- --------
Total current liabilities . . . . . . 318,970 283,026
Long-term liabilities:
Revolving note payable . . . . . . . . . . 15,000 95,000
Convertible subordinated notes . . . . . . 247,250 -
Other liabilities . . . . . . . . . . . . 5,826 6,931
-------- --------
Total liabilities. . . . . . . . . . . 587,046 384,957
-------- --------
Shareholders' equity:
Preferred stock . . . . . . . . . . . . . - 100,000
Common stock . . . . . . . . . . . . . . . 6,377 6,358
Additional paid-in capital . . . . . . . . 224,724 221,048
Retained earnings . . . . . . . . . . . . 180,479 159,547
Unrealized gain (loss)on marketable
securities . . . . . . . . . . . . . . . (2,919) 1,129
-------- --------
Shareholders' equity . . . . . . . . . 408,661 488,082
-------- --------
TOTAL $995,707 $873,039
======== ========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 4
HEALTHSOURCE, INC. AND SUBSIDIARIES
- -----------------------------------
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
<CAPTION>
Three Months Ended
June 30,
------------------
1996 1995
-------- --------
(unaudited)
(in thousands,
except per share data)
<S> <C> <C>
Revenue:
HMO medical premiums . . . . . . . . . . . . . $309,618 $195,081
Other insured medical premiums . . . . . . . . 62,321 48,662
Administrative and managed care fees . . . . . 58,181 43,001
-------- --------
Total operating revenue . . . . . . . . . 430,120 286,744
-------- --------
Expenses:
Cost of HMO medical premiums . . . . . . . . . 253,641 151,070
Cost of other insured medical premiums . . . . 51,733 39,432
Selling, general and administrative:
HMO and fully insured . . . . . . . . . . . 59,991 37,496
Admin. and managed care fees . . . . . . . . 47,873 36,988
-------- --------
Total selling, general and administrative. 107,864 74,484
-------- --------
Depreciation and amortization . . . . . . . . 9,197 5,816
-------- --------
Total operating expenses . . . . . . . . . 422,435 270,802
-------- --------
Operating income . . . . . . . . . . . . . 7,685 15,942
Interest income . . . . . . . . . . . . . . . . . 5,689 6,141
Interest expense . . . . . . . . . . . . . . . . (3,481) (1,433)
-------- --------
Interest income, net . . . . . . . . . . . 2,208 4,708
-------- --------
Income before provision for income taxes . . . . 9,893 20,650
Provision for income taxes . . . . . . . . . . . (3,395) (7,028)
-------- --------
Net income . . . . . . . . . . . . . . . . . . . $ 6,498 $ 13,622
======== ========
Preferred stock dividend . . . . . . . . . . . . - ( 1,042)
-------- --------
Net income available to common stockholders. . . $ 6,498 $ 12,580
======== ========
Net income per common share: $ 0.10 $ .20
Weighted average number of common and common
equivalent shares outstanding: 65,293 63,802
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 5
HEALTHSOURCE, INC. AND SUBSIDIARIES
- -----------------------------------
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1995
-------- --------
(in thousands,
except per share data)
<S> <C> <C>
Revenue:
HMO medical premiums . . . . . . . . . . . . . $600,373 $383,393
Other insured medical premiums . . . . . . . . 130,433 52,373
Administrative and managed care fees . . . . . 118,406 59,085
-------- --------
Total operating revenue . . . . . . . . . 849,212 494,851
-------- --------
Expenses:
Cost of HMO medical premiums . . . . . . . . . 481,496 297,392
Cost of other insured medical premiums . . . . 109,439 42,192
Selling, general and administrative:
HMO and fully insured . . . . . . . . . . . 116,954 66,340
Admin. and managed care fees . . . . . . . . 95,836 49,780
-------- --------
Total selling, general and administrative. 212,790 116,120
-------- --------
Depreciation and amortization . . . . . . . . 17,906 9,148
-------- --------
Total operating expenses . . . . . . . . . 821,631 464,852
-------- --------
Operating income . . . . . . . . . . . . . 27,581 29,999
Interest and other income . . . . . . . . . . . . 12,309 9,801
Interest expense . . . . . . . . . . . . . . . . (5,854) (1,433)
-------- --------
Interest income, net . . . . . . . . . . . 6,455 8,368
-------- --------
Income before provision for income taxes . . . . 34,036 38,367
Provision for income taxes . . . . . . . . . . . (11,976) (12,975)
-------- --------
Net income . . . . . . . . . . . . . . . . . . . $ 22,060 $ 25,392
======== ========
Preferred stock dividend (1,128) (1,042)
-------- --------
Net income available to shareholders $ 20,932 $ 24,350
======== ========
Net income per common share: $ 0.32 $ .38
Weighted average number of common and common 65,623 63,932
equivalent shares outstanding:
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE> 6
HEALTHSOURCE, INC. AND SUBSIDIARIES
- -----------------------------------
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
- --------------------------------------------------------------------------------
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1995
--------- --------
(unaudited)
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . $ 22,060 $ 25,392
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . 17,906 9,148
Changes in assets and liabilities,
net of effects of acquisitions:
Premiums and administrative fees receivable . . 7,169 (8,976)
Other current assets . . . . . . . . . . . . . (34,816) (7,005)
Medical claims payable . . . . . . . . . . . . (2,103) 6,075
Accounts payable and accrued expenses . . . . . 5,855 (5,221)
Deferred revenue . . . . . . . . . . . . . . . 8,537 8,449
--------- ---------
Net cash provided by operating activities . . 24,608 27,862
--------- ---------
Cash flows from investing activities:
Investment in affiliates/intangible assets, net
of cash acquired . . . . . . . . . . . . . . . . (56,104) (147,061)
(Increase) decrease in marketable securities . . . (29,532) 84,205
Additions to property and leasehold improvements . (29,001) (20,943)
(Increase) decrease in other assets
and restricted investments . . . . . . . . . . . 95 (1,321)
--------- ---------
Net cash used for investing activities . . . (114,542) (85,120)
--------- ---------
Cash flows from financing activities:
Issuance of convertible subordinated notes . . . . 247,250 -
Redemption of preferred stock . . . . . . . . . . (100,000) -
Net borrowings (repayment) under
revolving note payable . . . . . . . . . . . . . (80,000) 130,000
Issuance of common stock . . . . . . . . . . . . . 2,845 2,359
Preferred stock dividends . . . . . . . . . . . . (1,128) (1,042)
Increase (decrease) in other liabilities . . . . . (1,105) 89
--------- ---------
Net cash provided by
financing activities . . . . . . . . . . . 67,862 131,406
--------- ---------
Increase (decrease)in cash and cash equivalents . . . (22,072) 74,148
Cash and cash equivalents, beginning of period . . . 121,467 67,193
--------- ---------
Cash and cash equivalents, end of period . . . . . . $ 99,395 $ 141,341
========= =========
Supplemental disclosure of cash flow information:
Income taxes paid . . . . . . . . . . . . . . . . 16,567 13,372
Interest paid. . . . . . . . . . . . . . . . . . . 189 -
Supplemental disclosure of non-cash transactions:
Effective May 1, 1995, the Company acquired the group health, HMO and third
party administration business of Provident Life and Accident Insurance
Company of America, Inc. In connection with the agreement, the Company issued
$100 million in 6.25% cumulative preferred stock.
</TABLE>
See notes to condensed consolidated financial statements
6
<PAGE> 7
HEALTHSOURCE, INC. AND SUBSIDIARIES
- -----------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ----------------------------------------------------------------
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Rule 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all normal recurring
adjustments considered necessary for a fair presentation have been
included.
The results of operations for the three and six month periods ended June
30, 1996 are not necessarily indicative of the results of operations to be
expected for the full year.
2. SUMMARY OF SIGNIFICANT INCOME STATEMENT POLICIES
Revenue - HMO medical premium revenue and other insured medical premiums
are recognized in the month in which members are entitled to receive health
care services; other insured medical premiums are reported net of
retrospective refunds. Medical premiums collected in advance are recorded
as deferred revenue. Administrative and managed care fees are recognized in
the period that claims processing and other managed care services are
provided to self-funded clients. Revenue from management service agreements
is recognized in the period the Company performs the services.
Cost of HMO Medical Premiums - Cost of HMO medical premiums includes the
costs of all medical services delivered to enrolled members of the
Company's majority-owned HMOs and for whom the entities have recorded HMO
medical premium revenue during the reporting period. These costs include
payments for specific medical services and for capitation. The costs of
specific medical services include those paid to physicians, hospitals, and
other health care providers on a fee-for-service basis. These costs include
claims paid, claims in process and pending, estimates of unreported claims,
estimates of contractual adjustments pursuant to hospital and other
provider contracts, and estimates of charges at the balance sheet date for
which the Company will be responsible. The costs of capitation (fixed
monthly payments per member) include payments to certain physicians,
hospitals, laboratories, pharmaceutical and mental health care providers.
Adjustments to prior period estimates are reflected in the current period
and are not significant.
Cost of Other Insured Medical Premiums - Cost of other insured medical
premiums includes the costs of all medical services delivered to enrolled
members of the Company's non-HMO medical plans for whom the entities have
recorded medical premium revenue during the reporting period. These costs
include claims paid, claims in process and claims pending, and estimates of
unreported claims and charges at the balance sheet date for which the
Company will be responsible. Adjustments to prior period estimates are
reflected in the current period and are not significant.
Selling, General and Administrative ("SG&A") Expense - HMO and
fully-insured SG&A expense includes the costs recognized by the Company and
its majority-owned entities: (1) to market and administer the delivery of
medical services for which the Company is at risk; (2) to develop and
administer its management services agreements; and (3) to develop new
product offerings, negotiate new provider agreements and costs incurred to
enter new markets. Administrative and managed care fees SG&A includes the
costs recognized by the Company and its majority-owned entities to market
and administer the delivery of medical services for self-insured clients.
Corporate SG&A is included within HMO and other fully-insured SG&A expense.
7
<PAGE> 8
Impairment of Long-Lived Assets - The Company adopted Statement of
Financial Accounting Standards No.121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS121")
in the period ended June 30, 1996. SFAS 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets. There was no effect of
adoption of SFAS 121 on the financial statements.
Stock-Based Compensation - Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123") became
effective in 1996. As permitted by SFAS 123, the Company has elected to
continue to account for stock-based compensation to employees under APB
Opinion No. 25 and will provide the SFAS 123 required disclosures in its
1996 annual financial statements.
Reclassifications - Certain prior year amounts have been reclassified to
conform with the current year presentation. Other insured medical premiums,
cost of other insured medical premiums and a significant portion of
administrative and managed care fees SG&A relate primarily to the Provident
Transaction. See Note 3.
3. ACQUISITIONS
1996 Acquisition - Effective February 1, 1996, the Company acquired
substantially all of the HMO assets of Central Massachusetts Health Care,
Inc. (now called "Healthsource CMHC" ("HSCMHC")) for approximately $46.5
million in cash, subject to post closing purchase price adjustments.
1995 Acquisition - Effective May 1, 1995, the Company acquired the group
health, HMO and third party administration business of Provident Life and
Accident Insurance Company of America, Inc. (the "Provident Transaction")
for $231 million in cash and securities. The cash payment was $131 million
and the Company issued to Provident non-convertible Class A cumulative
preferred stock with a face value of $100 million (See Note 4).
<TABLE>
The following unaudited pro forma consolidated statement of operations
assumes the Provident and HSCMHC acquisitions occurred on January 1, 1995
(in thousands, except per share data):
<CAPTION>
Six Months Ended
June 30,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Revenue $859,635 $705,146
Operating income 26,284 28,422
Net income 21,213 24,223
Net income per share $0.31 $0.33
</TABLE>
4. CONVERTIBLE SUBORDINATED NOTES
On March 8, 1996, the Company completed the sale (through a private
offering to institutional investors) of $247 million principal amount of 5%
Convertible Subordinated Notes due 2003. The proceeds of the sale were used
to redeem the outstanding $100 million preferred stock and to repay a
portion of the amount owed under the revolving note payable.
5. INCOME TAXES
The Company provides for income taxes based upon an estimate of its annual
effective tax rate. The estimated effective tax rates for the six months
ended June 30, 1996 and 1995 were 35.2% and 33.8%, respectively.
8
<PAGE> 9
6. COMMITMENTS AND CONTINGENCIES
In June 1996, the Company announced that it had signed an asset purchase
agreement with Chubb Life to acquire the remaining 85% interest in Chubb
Health. The Company will acquire the stock of Chubb Health for an estimated
purchase price of $25 million, subject to adjustments. The agreement is
subject to regulatory approval.
In June 1996, the Company announced that it had terminated its
previously reported agreement to acquire substantially all of the assets of
PACC Health Plans and PACC HMO (together "PACC"), a 113,000 member HMO and
managed care company based in the Portland, Oregon area.
The Company is involved in legal actions in the ordinary course of
business. Although the outcome of any such legal actions cannot be
predicted, in the opinion of management there are no legal proceedings
pending against or involving the Company, the outcome of which is likely
to have a material adverse effect upon the consolidated financial position
or results of operations of the Company.
7. SUBSEQUENT EVENT
On August 2, 1996, the Company reported the adoption of a Rights Agreement
pursuant to which each shareholder of record as of August 12, 1996 and
subsequently (subject to certain exceptions) will receive one right per
share of outstanding common stock. The rights will entitle the holders,
upon any person or group acquiring ownership of 20% or greater of the
outstanding common stock, to purchase additional shares of common stock at
half the market price, except of 20% or greater holder.
9
<PAGE> 10
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
and Shareholders of
Healthsource, Inc.
Hooksett, New Hampshire
We have reviewed the accompanying condensed consolidated balance sheet of
Healthsource, Inc. and subsidiaries as of June 30, 1996 and the related
condensed consolidated statements of operations for the three and six month
periods ended June 30, 1996 and 1995 and the condensed consolidated statements
of cash flows for the six month periods ended June 30, 1996 and 1995. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Healthsource, Inc. and subsidiaries
as of December 31, 1995 and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated February 16, 1996, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1995 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
Boston, Massachusetts
August 9,1996
10
<PAGE> 11
HEALTHSOURCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
- -------
The Company has experienced substantial growth in both revenues and
profitability since its formation in New Hampshire in 1985. Revenue growth has
been accomplished through increasing membership and medical premiums per member
and administrative and managed care fees from self-insured employers and through
acquisitions. The Company has made acquisitions of health maintenance
organization ("HMO") companies resulting in wholly-owned subsidiaries in South
Carolina, Tennessee, Maine, Indiana, North Carolina, Syracuse, New York and
Massachusetts. The Company has formed strategic alliances with hospitals and
organized HMOs in Arkansas, Georgia, north central Texas, and southwestern Ohio
and has formed additional new HMOs in Connecticut and Louisville, Kentucky. It
also formed a strategic alliance with Chubb Life Insurance Company to operate an
HMO ("ChubbHealth") in the metropolitan New York City and northern New Jersey
areas. Effective May 1, 1995, the Company acquired the group health, third-party
administration and HMO business ("the Provident Transaction") from Provident
Life and Accident Insurance Company of America, Inc. for $231 million in cash
and preferred stock. To conduct the acquired businesses, the Company organized
and capitalized Healthsource Provident Insurance Company to assume the insured
business and Healthsource Provident Administrators, Inc. to administer the
self-insured business.
<TABLE>
The Company has experienced a decline in average premium yield during the first
six months of 1996 of 6.0% as compared to the same period in 1995. Year-to-date
1996 and 1995 average premium yields were as follows:
<CAPTION>
REGION 6/30/96 6/30/95 % Change
------- ------- --------
<S> <C> <C> <C>
North $137.68 $142.61 (3.5)%
South 117.00 124.37 (5.9)%
Total 124.85 132.78 (6.0)%
</TABLE>
The Company continues to experience very strong resistance to premium increases
by employers and intense price competition from payors, including new entrants.
While the Company expects this pricing environment to continue at least through
the renewal season for January 1997 business (and perhaps longer), the Company
will attempt to increase premium yield on its 1997 business whenever practicable
to reflect higher underlying healthcare costs. Given the difficult premium
pricing environment, the Company's medical loss ratio, and ultimately its
profitability, will depend upon its ability to control healthcare costs
commensurate with a more intense premium pricing environment.
Recent Reduction in Profitability; Enrollment Levels; Review of Operations
- --------------------------------------------------------------------------
The Company's profitability is significantly lower in the second quarter of 1996
primarily due to a significant increase in medical loss ratio in its insured HMO
products which in turn is principally due to reduction in average premium yield.
The Company expects that its profitability will remain at this lower level
through 1996 since 1996 premium levels are fixed. The Company is therefore
focusing on appropriate increases in 1997 premium pricing which may not be
achievable due to market conditions and may significantly reduce its enrollment
growth rate. Enrollment may decline in some of the Company's markets as it
attempts to reprice its products. The Company will also attempt to improve its
medical loss ratio through initiatives to reduce inappropriate or excessive
health care costs. Such initiatives, which may include lower payment levels to
providers, new contracting methodologies, and steerage of members more
aggressively to more efficient providers, and other factors, may cause the
Company's relationship with health care providers to be strained in certain
markets. The Company is exploring other methodologies to contain health care
costs and reassessing various lines of business and operating units in a review
11
<PAGE> 12
of operations in an attempt to improve profitability in 1997. No assurance can
be given that such initiatives will be successful.
<TABLE>
The following table shows membership for the Company's affiliated health plans
as of June 30, 1996 and 1995:
<CAPTION>
6/30/96 6/30/95
--------- ---------
<S> <C> <C>
HMOs(1)
Northern Region:
New Hampshire 132,800 101,600
Massachusetts 80,200 -
Indiana 71,300 65,000
Maine 66,800 58,300
New York City 32,800 28,400
New York (Syracuse) 22,000 23,400
New Jersey 15,600 -
Kentucky 13,100 -
Ohio 900 -
--------- ---------
Sub-total 435,500 276,700
--------- ---------
Southern Region:
North Carolina 183,100 122,400
South Carolina 153,900 90,700
Tennessee 75,600 42,900
Arkansas 35,000 21,000
Georgia 14,500 6,000
Texas 7,100 -
--------- ---------
Sub-total 469,200 283,000
--------- ---------
Total HMO 904,700 559,700
--------- ---------
MANAGED INDEMNITY (INSURED)(2) 63,100 63,600
--------- ---------
SELF AND PARTIALLY INSURED MEDICAL PRODUCTS
- -------------------------------------------
Point of Service 210,200 176,000
Workers' Compensation 116,000 117,400
Other Managed Care/Administration(3) 2,134,300 2,286,700
--------- ---------
Total Self-Insured 2,460,500 2,580,100
------------------ --------- ---------
TOTAL ADMINISTERED MEDICAL 3,428,300 3,203,400
- -------------------------- --------- ---------
DENTAL PRODUCTS(4)
- ------------------
Fully Insured 293,100 374,100
Self Insured 2,152,600 2,067,600
--------- ---------
TOTAL ADMINISTERED DENTAL 2,445,700 2,441,700
- ------------------------- --------- ---------
<FN>
(1) Includes membership for HMOs owned, co-owned, and/or managed by the
Company. Managed indemnity lives previously reported in the Company's HMO
membership are now reported separately as managed indemnity lives. At June
30, 1996 and 1995, these lives were 6,200 and 7,600, respectively.
(2) Includes managed indemnity business from the Provident acquisition of
approximately 56,900 and 56,000 for 1996 and 1995 respectively.
(3) Includes self-insured business from the Provident acquisition of
approximately 1,901,000 and 2,000,000 members at June 30, 1996 and 1995,
respectively. Included in these totals are approximately 237,000 and
367,000 members at June 30, 1996 and 1995, respectively which were covered
by minimum premium and experience rated refundable premium products where
the Company shares risk with the employers and where the Company receives
an insurance premium. Many of these employer accounts have managed care
benefit designs.
(4) Obtained through the Provident acquisition.
</TABLE>
12
<PAGE> 13
<TABLE>
The following table shows certain income statement data expressed as a
percentage of total operating revenue for the three and six month periods ended
June 30, 1996 and 1995:
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(unaudited) (unaudited)
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
HMO medical premiums 72.0% 68.0% 70.7% 77.5%
Other insured medical premiums 14.5 16.9 15.4 10.6
Administrative and managed
care fees 13.5 15.1 13.9 11.9
----- ----- ----- -----
Total operating revenue 100.0 100.0 100.0 100.0
----- ----- ----- -----
Expenses:
Cost of HMO medical premiums 59.0 52.7 56.7 60.0
Cost of other insured
medical premiums 12.0 13.7 12.9 8.6
Selling, general and administrative:
HMO and fully-insured 14.0 13.1 13.8 13.4
Admin. and managed care fees 11.1 12.9 11.3 10.1
----- ----- ----- -----
Total selling, general and admin. 25.1 26.0 25.1 23.5
----- ----- ----- -----
Depreciation and amortization 2.1 2.0 2.1 1.8
---- ----- ----- -----
Total operating expenses 98.2 94.4 96.8 93.9
Operating income 1.8 5.6 3.2 6.1
Interest income 1.3 2.1 1.5 2.0
Interest expense (0.8) (0.5) (0.7) (0.3)
----- ----- ----- -----
Interest and other income, net 0.5 1.6 0.8 1.7
Income before provision for income taxes 2.3 7.2 4.0 7.8
Provision for income taxes (0.8) (2.4) (1.4) (2.7)
----- ----- ----- -----
Net income 1.5% 4.8% 2.6% 5.1%
===== ===== ===== =====
</TABLE>
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
- -----------------------------------------------------------------------------
Revenue increased 50% to $430 million from $287 million. This increase was
primarily the result of a 59% increase in HMO medical premium revenue to $310
million from $195 million. The change in HMO medical premium revenue was
attributable to: (1) the combined effect of a 47% increase in average membership
and a 5.3% decrease in average medical premium yield to $125 per member per
month ("pmpm") from $132 pmpm at Healthsource New Hampshire, Healthsource
Tennessee, Healthsource Indiana, Healthsource South Carolina, Healthsource
Maine, Healthsource North Carolina, Healthsource Arkansas, Healthsource Savannah
and Healthsource New York(collectively "Existing Plans");(2) a $31 million
increase due to the acquisition of Healthsource CMHC ("HSCMHC"); and (3) the
commencement of operations of Healthsource North Texas ("HSNTX"), Healthsource
Kentucky ("HSKY") and Healthsource Ohio ("HSOH").
In addition, there was a significant increase in revenue resulting from an
increase in other insured medical premiums to $62 million from $49 million due
to the inclusion of the Provident Transaction for a full quarter in 1996. The
acquired business consists of fully-insured managed indemnity products and
minimum premium and experience rated refundable premium products with large
employer groups.
The remaining revenue increase was due to a 35% increase in administrative and
managed care fees to $58 million from $43 million which resulted from the
inclusion of the Provident Transaction for a full quarter in 1996.
Cost of HMO medical premiums ("health care costs") increased 68% to $254 million
from $151 million. This increase was due to the combined effect of the 47%
increase in average membership with a 1.0% increase in the average cost of
13
<PAGE> 14
medical premiums to $102 pmpm from $101 pmpm at Existing Plans, the acquisition
of HSCMHC and the commencement of operations of HSNTX, HSKY, and HSOH. This 1.0%
increase in costs resulted from higher outpatient hospital, pharmaceutical, and
diagnostic costs offset by lower inpatient hospital costs.
The cost of HMO medical premiums as a percent of HMO medical premiums (the
"medical loss ratio" or "MLR") increased to 81.9% from 77.4% because of the 5.3%
decrease in average medical premium yield and the 1.0% increase in average cost
of medical premiums at Existing Plans combined with HSKY, HSNTX, and HSOH which
in aggregate had higher MLRs than the Existing Plans. The divergence between
premium pricing (which significantly declined) and health care costs (which
increased) was primarily responsible for the Company's significant reduction in
profitability. While the difficult premium pricing environment is expected to
continue, the Company will attempt to reverse the premium yield decline in 1997,
although there can be no assurance that the Company will be successful. Failure
to achieve an increase in premium yield will most likely increase the Company's
medical loss ratio and reduce net income.
The cost of other insured medical premiums increased to $52 million from $39
million as a result of the inclusion of Provident's fully-insured managed
indemnity products and minimum premium and experience rated refundable premium
products for a full quarter in 1996.
Total selling, general and administrative (SG&A) expenses increased to $108
million from $74 million due to acquisitions and the development of existing
operations and new businesses. As a percent of total operating revenue, SG&A
expenses decreased to 25.1% from 26% as a result of a number of factors
including change in mix of business where SG&A levels as a percentage of revenue
are far lower in fully insured business than self-insured business where revenue
does not include health care expenses.
SG&A expenses related to HMO, fully-insured medical business and corporate
administration increased 60% to $60 million from $37 million. This increase
resulted from the SG&A expense associated with the insured portion of the
Provident business which was included for a full quarter in 1996, the membership
increases at existing HMOs, the commencement of operations at HSKY, HSNTX and
HSOH, development expenses at start-up HMOs and other business development
activities. In future periods, the Company may separately quantify its
development expenses. SG&A expenses related to administration and managed care
fees increased 29% to $48 million from $37 million because the SG&A expense
associated with the self-insured portion of the Provident business was included
for a full quarter in 1996.
Depreciation and amortization expense increased 58% to $9.2 million from $5.8
million primarily due to the amortization expense associated with the Provident
Transaction which was included for a full quarter in 1996, the acquisition of
HSCMHC which occurred in the first quarter of 1996 and depreciation associated
with increased capital purchases.
Interest income decreased 7% to $5.7 million from $6.1 million. This decrease
resulted primarily from the decrease in cash, cash equivalents and marketable
securities due to acquisitions and increased capital purchases. Interest expense
increased 143% to $3.5 million from $1.4 million as result of the convertible
subordinated debt issued in March 1996.
Six Months Ended June 30, 1996 Compared to Six Months Ended June 30, 1995
- -------------------------------------------------------------------------
Revenue increased 72% to $849 million from $495 million. This increase was
primarily the result of a 57% increase in HMO medical premium revenue to $600
million from $383 million. The change in HMO medical premium revenue was
attributable to: (1) the combined effect of a 47% increase in average membership
and a 6.0% decrease in average medical premium yield to $125 per member per
month ("pmpm") from $133 pmpm at the Existing Plans. (2) a $53 million increase
due to the acquisition of HSCMHC; and (3) the commencement of operations of
HSNTX, HSKY and HSOH.
14
<PAGE> 15
In addition, there was a significant increase in revenue resulting from an
increase in other insured medical premiums to $130 million from $52 million due
to the inclusion of the Provident Transaction for a full six months in 1996. The
acquired business consists of fully-insured managed indemnity products and
minimum premium and experience rated refundable premium products with large
employer groups.
The remaining revenue increase was primarily due to a 100% increase in
administrative and managed care fees to $118 million from $59 million which
resulted from the inclusion of the Provident Transaction for a full six months
in 1996.
Cost of HMO medical premiums ("health care costs") increased 62% to $481 million
from $297 million. This increase was due to the combined effect of the 47%
increase in average membership with a 2.3% decrease in the average cost of
medical premiums to $100 pmpm from $103 pmpm at Existing Plans, the acquisition
of HSCMHC and the commencement of operations of HSNTX, HSKY, and HSOH. This 2.3%
decrease in costs resulted from lower inpatient hospital costs offset by higher
pharmaceutical, diagnostic and outpatient hospital costs.
The medical loss ratio increased to 80.2% from 77.6% because the 6.0% decrease
in average medical premium yield was more than the 2.3% decrease in average cost
of medical premiums at Existing Plans, combined with HSKY, HSNTX, and HSOH which
in the aggregate had higher MLRs than the Existing Plans. The divergence between
premium pricing (6% decline) and health care costs (2.3% decline) was primarily
responsible for the Company's significant reduction in profitability. While the
difficult premium pricing environment is expected to continue, the Company will
attempt to reverse the premium yield decline in 1997, although there can be no
assurance that the Company will be successful. Failure to achieve an increase in
premium yield will most likely increase the Company's medical loss ratio and
reduce net income.
The cost of other insured medical premiums increased to $109 million from $42
million as a result of the inclusion of Provident's fully-insured managed
indemnity products and minimum premium and experience rated refundable premium
products for a full six months in 1996.
Total selling, general and administrative (SG&A) expenses increased to $213
million from $116 million due to acquisitions and the development of existing
operations and new businesses. As a percent of total operating revenue, SG&A
expenses increased to 25.1% from 23.5% as a result of the self-funded business
acquired in the Provident Transaction which has proportionately higher levels of
SG&A expense since health care costs are not included in revenue.
SG&A expenses related to HMO, fully-insured medical business and corporate
administration increased 76% to $117 million from $66 million. This increase
resulted from the SG&A expense associated with the insured portion of the
Provident business which was included for a full six months in 1996, the
membership increases at existing HMOs, the commencement of operations at HSKY,
HSNTX and HSOH, development expenses at start-up HMOs and other business
development activities. SG&A expenses related to administration and managed care
fees increased 93% to $96 million from $50 million because the SG&A expense
associated with the self-insured portion of the Provident business was included
for a full six months in 1996.
Depreciation and amortization expense increased 96% to $17.9 million from $9
million primarily due to the amortization expense associated with the Provident
Transaction which was included for a full six months in 1996, the acquisition of
HSCMHC which occurred in the first quarter of 1996 and depreciation associated
with increased capital purchases.
15
<PAGE> 16
Interest income increased 26% to $12.3 million from $9.8 million. This increase
resulted primarily from the increase in cash, cash equivalents and marketable
securities associated with the Provident Transaction. Interest expense increased
309% to $5.9 million from $1.4 million as result of the interest associated with
the convertible subordinated notes.
The Company's effective tax rate increased to 35.2% from 33.8% due to the
decline of non-taxable interest income as a percentage of total interest income
and as a percentage of total operating income.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1996, cash, cash equivalents and marketable securities totaled
approximately $245 million, of which $223 million was held by regulated
operating companies and, except for permissible dividends, was restricted to use
in those companies.
During the first six months of 1996, the Company generated $25 million from
operations and invested approximately $29 million in real estate, property and
equipment. The acquisition of HSCMHC resulted in a net cash expenditure of $46
million which was funded from borrowings under the Chase Facility described
below.
On March 8, 1996, the Company completed the sale (through a private offering to
institutional investors) of $247 million principal amount of 5% Convertible
Subordinated Notes (the "Notes") due 2003. The Notes are convertible into Common
Stock of the Company at a price of $46.965 per share. The Company used the net
proceeds of the offering to redeem the $100 million face amount of the Company's
outstanding 6.25% Class A Cumulative Preferred Stock. The balance of the net
proceeds of the offering was used to repay a portion of the outstanding
principal balance under the Company's $300 million unsecured revolving credit
agreement with Chase Manhattan Bank N.A. as agent ("Chase Facility").
The Chase Facility is committed through March 15, 2000. At June 30, 1996, the
Company had $15 million outstanding. Based on current financial conditions and
expectations which are subject to change, the Company has the ability to borrow
between $150 and $200 million under the Chase Facility. The Company is presently
considering amending its understanding with the Chase Facility to allow it more
flexibility on the use of borrowed proceeds such as for purchases of the
Company's stock in the open market.
The principal and interest on the Notes is by their terms subordinated in right
of payment to principal and interest on substantially all existing and future
debt (including debt under the Chase Facility) incurred by the Company ("Senior
Debt"). As of June 30, 1996, the Company had $15 million in Senior Debt. As of
such date, the Company's subsidiaries had aggregate liabilities of approximately
$312 million, to which the Notes are also structurally subordinated.
The Company has signed an asset purchase agreement with Chubb Life to acquire
the remaining 85% interest in Chubb Health for an estimated purchase price of
$25 million, subject to adjustments. The agreement is subject to regulatory
approval. The Company intends to fund the Chubb Health transaction from
borrowings under the Chase Facility or other financial resources.
The Company believes that its existing cash balances and cash flow generated by
its wholly-owned plans coupled with the proceeds of the sale of the Notes and
the amounts available for borrowing under the Chase Facility are adequate to
fund its existing operations.
16
<PAGE> 17
Effects of Inflation
- --------------------
Medical premiums and the costs of medical premiums (healthcare costs) generally
increase at higher rates than the overall rates of inflation in the economy.
Accordingly, the Company must use strong utilization management techniques and
tight provider contracting strategies to counteract inflationary trends in
healthcare costs and, given the current phenomenon of declining premium levels,
any failure to adequately control healthcare costs can substantially increase
the Company's medical loss ratio and decrease the Company's net income.
* * * * * *
Risks associated with any forward looking statements contained in Management's
Discussion and Analysis of Financial Condition and Results of Operations are
discussed in Item 5, Other Information.
17
<PAGE> 18
PART II - OTHER INFORMATION
Items 1, 2, 3, & 4. Not Applicable.
--------------
Item 5. Other Information
-----------------
(i) SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. The statements contained in the Management's Discussion and Analysis of
Financial Condition and Results of Operations and those contained in the
Company's Annual Report on Form 10-K concerning future profitability, premium
pricing levels, future levels of medical-loss ratios, the Company's ability to
control healthcare and SG&A costs and all other statements that are not
historical facts are forward looking statements. Because such statements involve
risks and uncertainties, the following factors, among others, could affect the
Company's actual results and could cause actual future results to differ
materially from those expressed in any forward looking statements either made
herein or previously or subsequently made by or on behalf of Healthsource:
CONTROL AND PREDICTABILITY OF HEALTH CARE COSTS. The Company's profitability
depends in large part on predicting and maintaining effective control of the
healthcare costs of its HMOs. The future profitability of the Company's HMOs is
dependent upon controlling future healthcare costs in part through appropriate
benefit design, utilization control and negotiation of favorable provider
contracts, including global capitation arrangements with hospitals which
generally link healthcare costs for assigned members to the premiums received
for such members. The Company may be unable to predict accurately or to control
health care costs because of many factors, including the inherent
unpredictability of rates of utilization of services in any given period and the
volatility of such use particularly in quarterly periods; major epidemics;
undetected increases in costs of units of services (in some cases implemented by
providers without prior notice); changes in risk profile of a rapidly increasing
membership due to pre-existing medical conditions, changing demographics and
other factors; and increased utilization driven by changes in physician practice
patterns and new techniques (e.g., use of bone marrow transplants for an
increasing number of diagnostic categories). There can be no assurance that the
Company will be successful in predicting or mitigating the effect of any of
these factors nor that its global capitation agreements will be able to totally
buffer these factors or costs for assigned members.
COMPETITION AND PREMIUM PRICING. The managed healthcare industry is highly
competitive at both the local HMO level and in the regional and national
employer markets. The principal competitive factors affecting the Company's
products are premium rates and fees, plan design and flexibility, and
physician/hospital network and reputation. The Company competes in all of its
markets with Blue Cross plans, indemnity insurers, HMOs, TPAs, PPOs and other
managed care companies. The Company also faces competition in many of its
markets from hospitals and other provider groups who have organized their own
networks to contract directly with employer groups.
The cost of providing benefits is in many instances the controlling factor in
obtaining and retaining employer groups, and in certain markets some competitors
are underpricing the Company's products. In many historically under-penetrated
markets such as the Carolinas, many new HMOs have been recently licensed which
is reflected in premium pressure for new and renewal business. As a result of
this competition, the Company experienced a 6.0% decline in average premium
yield per member during the first six months of 1996. The Company expects the
difficult premium pricing environment to continue and the Company's attempts to
reverse the 1996 premium decline may not be successful.
18
<PAGE> 19
ACCOUNTING; MIS AND NETWORK DISRUPTION ISSUES. Reserves for incurred but not
reported claims ("IBNR") are a large component of the Company's medical claims
payable reserve and are based upon an estimation of future claims using
traditional actuarial techniques heavily influenced by historical claims
experience; rapid growth and changing risk profiles could render the Company's
IBNR estimates inaccurate and there can be no assurance as to the ultimate
accuracy of such estimates or that subsequent adjustments will not cause
fluctuations in the Company's operating results. The ability to predict IBNR,
control costs in general and to manage increasingly complicated global
capitation arrangements depends upon the use of sophisticated customized MIS
systems; there can be no assurance that such systems can be developed quickly
enough to effectively manage the increasing complexity of the Company's
contractual arrangements nor that facility or equipment problems will not
disrupt the Company's ability to effectively provide such MIS support. With the
increasing complexity of contractual arrangements comes the potential for
disagreements with major hospital providers over the reimbursement under such
contracts, which disagreements (if not resolved) could disrupt relations with
affiliated physician providers and could potentially affect the perception of
the Company's plans in the affected markets.
ACQUISITIONS AND NEW PRODUCTS. A significant part of the Company's business
strategy is to diversify into new geographic markets through acquisitions or
start-up plans and to develop new products. Identifying and pursuing acquisition
opportunities, integrating acquired businesses and managing growth requires a
significant amount of management time and skill. The Company may be unable to
(i) negotiate acceptable terms with suitable acquisition candidates or ensure
that, if negotiated, such acquisitions will be either approved by all relevant
regulatory authorities or concluded, (ii) assimilate such acquired companies
free from hidden risks undetected at the time of closing or (iii) manage future
growth effectively. Until start-up HMOs reach a critical mass of membership,
they generally produce operating losses (despite capitated provider contracts)
and failure to generate sufficient membership in start-up markets could
adversely affect operating results. The Company is expanding its product
offerings, most notably by developing and seeking a license for Medicare risk
products in most of its markets. The Company will expend approximately $5
million in 1996 in developing such Medicare products which will still require a
substantial marketing program before the Company generates revenues from such
products in any market; the failure to achieve Medicare membership quickly in
various markets may further impact operating results as such development
expenses are relatively fixed. There can be no assurance that the Company will
successfully mitigate any of the foregoing risks.
IMPACT OF HEALTHCARE REFORM. Many federal and state proposals have been made in
the past to reform the healthcare system. The Company anticipates that federal
and state legislatures will continue to assess alternative healthcare systems
and payment methodologies as well as mandated coverages, capitation limits,
underwriting constraints and other measures that could affect the Company's
business. The Company is unable to predict which, if any, of these healthcare
reform proposals may be adopted. While the Company does not believe it would be
materially adversely impacted by most of the proposed reforms, certain proposals
could have such an impact; for example the imposition of a single-payor system
in any state could potentially eliminate the Company's business in that state.
See "Business - Governmental Regulation" in the Company's Form 10-K.
GOVERNMENTAL REGULATION. The Company's HMOs, insurance companies and certain of
its other subsidiaries are licensed by and subject to periodic examination and
extensive regulation by the states in which they operate and by the federal
government. Such state and federal statutes and regulations are subject to
change and such changes could adversely impact the Company's operations in the
future. There can be no assurance that the Company will be able to obtain any
regulatory approvals required to enter new markets or to offer new products. See
"Business Governmental Regulation" in the Company's Form 10-K.
19
<PAGE> 20
VOLATILITY OF THE COMPANY'S STOCK. The market price for the Company's stock may
be affected by investor perception of the Company, by general economic and
market conditions, by fluctuations in quarterly earnings, by general trends in
the healthcare market, and by regulatory developments especially at the federal
level; accordingly, the market price of the Company's stock may be volatile.
(ii) NEW DEVELOPMENTS. On August 5, 1996, the Company announced that
negotiations with Advocate Health Care, an eight-hospital system, to acquire
Health Direct, Inc., a 25,000 member HMO in Chicago, had been mutually
terminated. The Company had announced in April 1996 a letter of intent for the
proposed transaction with a purchase price of $27 million.
On June 26, 1996, the Company announced that it had terminated its
previously-reported agreement to acquire substantially all of the assets of PACC
Health Plans and PACC HMO (together "PACC"), a 113,000 member HMO and managed
care company based in the Portland, Oregon area. In January 1996, the Company
signed an agreement to purchase PACC for an estimated cash price of $80 million.
Completion of the acquisition was subject to certain closing conditions which
were not met. No further discussions with respect to such acquisition are
expected.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11. Statement re: Computation of Net Income Per Share
27. Financial Data Schedule
(b) Reports on Form 8-K
The following reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended June 30, 1996 and
subsequently:
1. On April 17, 1996, the Company reported the signing of a letter
of intent to acquire Health Direct, Inc. located in DesPlaines,
Illinois, and to enter into a provider agreement with Advocate
Health Care and its affiliates for an aggregate consideration of
$27 million. The letter of intent was subject to various items,
including due diligence and the negotiation of definitive stock
purchase and provider agreements.
2. On June 4, 1996, the Company reported the signing of an asset
purchase agreement with Chubb Life Insurance Company of America
to acquire the remaining 85% interest in ChubbHealth, Inc., an
HMO operating in the New York City and northern New Jersey areas,
for an estimated purchase price of $25 million.
3. On June 28, 1996, the Company reported the naming of Joseph M.
Zubretsky as Chief Financial Officer, to replace Thomas M.
Congoran, whose resignation was announced on June 19, 1996. The
Company also reported the termination of its previously reported
agreement to acquire substantially all of the assets of PACC
Health Plans and PACC HMO, due to the failure of certain closing
conditions to be met.
4. On August 2, 1996, the Company reported preliminary operating
results and the adoption of a Rights Agreement pursuant to which
each shareholder of record as of August 12, 1996 and subsequently
(subject to certain exceptions) will receive one right per share
of outstanding Common Stock. The rights will entitle the
holders, upon any person or group acquiring ownership of 20% or
greater of the outstanding Common Stock, to purchase additional
shares of Common Stock at half the market price, except the 20%
or greater holder.
20
<PAGE> 21
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.
HEALTHSOURCE, INC.
Dated: August 9, 1996 By /s/ Norman C. Payson
---------------------------------
Norman C. Payson, M.D.
President and
Chief Executive Officer
By /s/ Joseph M. Zubretsky
---------------------------------
Joseph M. Zubretsky
Chief Financial Officer/Principal
Accounting Officer
21
<PAGE> 1
HEALTHSOURCE, INC. EXHIBIT 11
<TABLE>
COMPUTATION OF NET INCOME PER SHARE
(UNAUDITED)
<CAPTION>
Three Months Ended
June 30,
---------------------
1996 1995
------- -------
(in thousands
except per share data)
<S> <C> <C>
Net Income ............................... $ 6,498 $13,622
Preferred dividend ....................... - (1,042)
------- -------
Net income available to
common stockholders ..................... $ 6,498 $12,580
======= =======
COMPUTATION OF SHARES OUTSTANDING:
- ----------------------------------
Average weighted common shares
outstanding .......................... 63,691 62,758
Dilutive effect of stock options issued .. 1,602 1,044
------- -------
Average weighted common shares and share
equivalents outstanding .............. 65,293 63,802
======= =======
NET INCOME PER SHARE: $ .10 $ .20
- --------------------
<CAPTION>
Six Months Ended
June 30,
---------------------
1996 1995
------- -------
(in thousands
except per share data)
<S> <C> <C>
Net Income ............................... $22,060 $25,392
Preferred dividend ....................... (1,128) (1,042)
------- -------
Net income available to
common stockholders ..................... $20,932 $24,350
======= =======
COMPUTATION OF SHARES OUTSTANDING:
- ----------------------------------
Average weighted common shares
outstanding .......................... 63,653 62,682
Dilutive effect of stock options issued .. 1,970 1,250
------- -------
Average weighted common shares and share
equivalents outstanding .............. 65,623 63,932
======= =======
NET INCOME PER SHARE: $ .32 $ .38
- --------------------
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 99,395
<SECURITIES> 145,288
<RECEIVABLES> 113,380
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 421,512
<PP&E> 122,962
<DEPRECIATION> 0
<TOTAL-ASSETS> 995,707
<CURRENT-LIABILITIES> 318,970
<BONDS> 247,250
<COMMON> 6,377
0
0
<OTHER-SE> 402,284
<TOTAL-LIABILITY-AND-EQUITY> 995,707
<SALES> 849,212
<TOTAL-REVENUES> 861,521
<CGS> 590,935
<TOTAL-COSTS> 821,631
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,854
<INCOME-PRETAX> 34,036
<INCOME-TAX> 11,976
<INCOME-CONTINUING> 22,060
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,060
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
