<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission File Number: 0-19442
OXFORD HEALTH PLANS, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1118515
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
800 Connecticut Avenue - Norwalk, Connecticut 06854
(Address of principal executive offices) (Zip Code)
(203) 852-1442
Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. The number of shares of common
stock, par value $.01 per share, outstanding on May 6, 1996 was 74,896,666.
<PAGE> 2
OXFORD HEALTH PLANS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Part I - Financial Information Page
<S> <C>
Item 1 Financial Statements
Consolidated Balance Sheets at March 31, 1996 and
December 31, 1995 ................................................................ 3
Consolidated Statements of Earnings for the Three Months Ended
March 31, 1996 and 1995 ........................................................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1995 ..................................................... 5
Notes to Condensed Consolidated Financial Statements ................................. 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations ......................................................... 7
Part II - Other Information
Item 6 Exhibits and Reports on Form 8-K ..................................................... 11
Signatures
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
Assets 1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 30,858 58,450
Short-term investments - available-for-sale (at market value) 340,800 310,197
Premiums receivable (net of allowance for doubtful
accounts of $3,526 in 1996 and $3,029 in 1995) 134,724 96,278
Other receivables 15,679 15,260
Prepaid expenses and other current assets 3,824 3,563
Deferred income taxes 11,878 8,443
- ------------------------------------------------------------------------------------------------------------------
Total current assets 537,763 492,191
- ------------------------------------------------------------------------------------------------------------------
Property and equipment, at cost (net of accumulated depreciation and
amortization of $38,607 in 1996 and $30,074 in 1995) 106,461 97,414
Other noncurrent assets 21,290 19,171
- ------------------------------------------------------------------------------------------------------------------
Total assets $665,514 608,776
==================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Medical costs payable $365,967 300,508
Trade accounts payable and accrued expenses 35,328 36,396
Income taxes payable 10,578 1,428
Unearned premiums 6,182 50,299
Other current liabilities 104 112
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 418,159 388,743
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value, authorized 2,000,000 shares -- --
Common stock, $.01 par value, authorized 200,000,000
shares; issued and outstanding 34,793,720 in 1996
and 34,390,401 in 1995 348 343
Additional paid-in capital 127,033 116,639
Retained earnings 114,684 96,167
Unrealized net appreciation of investments 5,290 6,884
- ------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 247,355 220,033
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $665,514 608,776
==================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Ended March 31, 1996 and 1995
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Revenues: 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums earned $ 648,182 328,189
Third-party administration, net 3,182 2,866
Investment income, net 6,725 3,328
- ------------------------------------------------------------------------------------------------------------------
Total revenues 658,089 334,383
- ------------------------------------------------------------------------------------------------------------------
Expenses:
Health care services 518,216 252,537
Marketing, general and administrative 106,760 62,844
- ------------------------------------------------------------------------------------------------------------------
Total expenses 624,976 315,381
- ------------------------------------------------------------------------------------------------------------------
Operating earnings 33,113 19,002
Equity in net loss of affiliate (1,050) (873)
Other income (expense), net 51 (34)
- ------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 32,114 18,095
Provision for income taxes 13,597 7,722
- ------------------------------------------------------------------------------------------------------------------
Net earnings $ 18,517 10,373
==================================================================================================================
Earnings per common and common equivalent share:
Primary $ .25 .14
Fully diluted $ .25 .14
Weighted average common and common equivalent shares outstanding:
Primary 75,080 72,506
Fully diluted 75,374 72,768
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
Three Months Ended March 31, 1996 and 1995
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------- ------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 18,517 10,373
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 9,675 3,515
Provision for doubtful accounts 728 922
Deferred income taxes (2,327) (3,264)
Equity in net loss of affiliate 1,050 873
Other, net 120 193
Changes in assets and liabilities:
Premiums receivable (39,174) (61,489)
Other receivables (419) (624)
Prepaid expenses and other current assets (261) (1,402)
Other noncurrent assets (717) (1,911)
Medical costs payable 65,459 66,282
Trade accounts payable and accrued expenses (1,068) (1,943)
Income taxes payable 14,447 7,260
Unearned premiums (44,117) 22,212
Other, net -- (98)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 21,913 40,899
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (18,196) (19,776)
Purchases of available-for-sale securities (75,810) (43,100)
Sales and maturities of available-for-sale securities 41,949 16,866
Investment in unconsolidated affiliates (2,695) --
Other, net 153 225
- ----------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (54,599) (45,785)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities - proceeds
from exercise of stock options 5,094 2,251
- ----------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (27,592) (2,635)
Cash and cash equivalents at beginning of period 58,450 35,344
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 30,858 32,709
================================================================================================================
Supplemental cash flow information - cash paid for income taxes $ 3,164 5,538
Supplemental schedule of noncash investing and financing activities:
Unrealized appreciation (depreciation) of short-term investments (2,702) 5,574
Tax benefit realized on exercise of stock options 5,297 2,667
Common stock issued for contingent performance grants 8 4
One-for-one stock dividend -- 166
Reclassification of long-term investment to short-term investments -- 13,505
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
The interim condensed consolidated financial statements included herein
have been prepared by Oxford Health Plans, Inc. ("Oxford") and Subsidiaries
(collectively, the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (the "SEC"). Certain
information and footnote disclosures, normally included in the financial
statements prepared in accordance with generally accepted accounting principles,
have been condensed or omitted pursuant to SEC rules and regulations;
nevertheless, management of the Company believes that the disclosures herein are
adequate to make the information presented not misleading. The condensed
consolidated financial statements and notes should be read in conjunction with
the audited consolidated financial statements and notes thereto as of and for
each of the years in the three-year period ended December 31, 1995, included in
the Company's Form 10-K filed with the SEC in March 1996.
On July 3, 1995, a wholly-owned subsidiary of Oxford merged with and into
OakTree Health Plan, Inc. ("OakTree"), a Philadelphia-based health maintenance
organization. The stockholders of OakTree received 1,177,047 newly issued shares
(2,354,094 shares after giving effect to the March 1996 two-for-one split
described below) of Oxford's common stock in exchange for all of the issued and
outstanding shares of OakTree's capital stock. The merger was accounted for as a
pooling of interests and, accordingly, the prior year amounts in the
accompanying financial statements have been restated to include the financial
position and results of operations of OakTree.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the consolidated financial
position of the Company with respect to the interim condensed consolidated
financial statements have been made. The results of operations for the interim
periods are not necessarily indicative of the results to be expected for the
full year.
(2) Earnings Per Share
On March 15, 1996, the Board of Directors approved a two-for-one split of
the Company's common stock effected by distribution of a dividend of one share
of common stock for each share of common stock outstanding on March 25, 1996.
The two-for-one split was effectuated on April 1, 1996. Earnings per share
amounts in the accompanying consolidated statements of earnings have been
restated to reflect the stock split.
(3) Public Offering
On April 8, 1996, the Company completed a registered public offering of
5,227,272 newly issued post-split shares of common stock from which the Company
realized net proceeds of approximately $220 million.
6
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following table shows membership by product:
<TABLE>
<CAPTION>
As of March 31 Increase
---------------------------------------------------------------
Membership: 1996 1995 Amount %
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Freedom Plan 806,600 437,700 368,900 84.3%
HMO 151,100 90,700 60,400 66.6%
Medicare 80,800 29,000 51,800 178.6%
Medicaid 123,500 72,400 51,100 70.6%
-----------------------------------------------------------------------------------------------------
Total fully insured 1,162,000 629,800 532,200 84.5%
Third-party administration, net 38,400 41,300 (2,900) (7.0%)
=====================================================================================================
Total membership 1,200,400 671,100 529,300 78.9%
=====================================================================================================
</TABLE>
The following table provides certain statement of earnings data expressed as a
percentage of total revenues for the three months ended March 31, 1996 and 1995:
Three Months
Ended March 31
-----------------------
1996 1995
Revenues: -----------------------
Premiums earned 98.5% 98.1%
Third-party administration, net 0.5% 0.9%
Investment income, net 1.0% 1.0%
- --------------------------------------------------------------------------------
Total revenues 100.0% 100.0%
- --------------------------------------------------------------------------------
Expenses:
Health care services 78.7% 75.5%
Marketing, general and administrative 16.2% 18.8%
- --------------------------------------------------------------------------------
Total expenses 94.9% 94.3%
- --------------------------------------------------------------------------------
Operating earnings 5.1% 5.7%
Equity in loss of affiliate and other (0.2%) (0.3%)
- --------------------------------------------------------------------------------
Earnings before income taxes 4.9% 5.4%
Provision for income taxes 2.1% 2.3%
================================================================================
Net earnings 2.8% 3.1%
================================================================================
7
<PAGE> 8
Results of Operations
The three months ended March 31, 1996 compared with the three months ended March
31, 1995
Total revenues for the quarter ended March 31, 1996 were $658.1 million, up
97% from $334.4 million during the same period in the prior year. Net earnings
for the first quarter of 1996 totaled $18.5 million, or 25 cents per share,
compared with $10.4 million, or 14 cents per share, for the first quarter of
1995.
Total commercial premiums earned for the three months ended March 31, 1996
increased 85% to $471.7 million from the same period in the prior year. This
increase is attributable to a 86% increase in member months in the Company's
commercial health care programs, including a 91% member months increase in the
Freedom Plan. Premium rates of commercial programs were substantially unchanged
from the first quarter of 1995 but were 1.6% higher than in the fourth quarter
of 1995.
Premiums earned from government programs increased 141% to $176.5 million
in the first quarter of 1996 compared with $73.3 million in the first quarter of
1995. Membership growth accounted for most of the change as member months of
Medicare programs increased 189% when compared with the prior year first
quarter, while member months of Medicaid programs increased by 71% over the
level of the prior year first quarter. Premiums earned in the Company's
Medicaid programs are now expected to decline at a rate slightly in excess of
8% for the year, and greater than expected increases in Medicaid membership are
increasing the impact of those decreases on the Company's results.
Net third-party administration revenues for the three months ended March
31, 1996 increased 10% to $3.2 million from $2.9 for the same period in the
prior year, attributable to a 22% increase in per member per month revenue,
partially offset, by a 9.0% decrease in member months.
Net investment income for the three months ended March 31, 1996 increased
102% to $6.7 million from $3.3 million for the same period last year due to the
increase in invested cash generated by cash flow from operations.
The medical-loss ratio (health care services expense stated as a percentage
of premium revenues) was 79.9% for the first quarter of 1996 compared with 76.9%
for the first quarter of 1995 and 77.5% for the full year 1995. The increase is
attributable to higher medical costs in the Company's Medicare programs, greater
than expected pharmacy costs and increased membership in the Company's Medicaid
programs.
Marketing, general and administrative expenses totaled $106.8 million in
the first quarter of 1996 compared with $62.8 million in the first quarter of
1995 and $102.8 million in the fourth quarter of 1995. The increase over the
first quarter of 1995 is primarily attributable to a $19.2 million rise in
payroll and benefits due to increased staffing, increased costs associated with
the growth in membership in the Company's plans, higher broker commissions
attributable to the increase in premiums earned, and expenses related to
enhancements to management information systems necessary to accommodate
increased transaction volume. These expenses as a percent of operating revenue
were 16.4% during the first quarter of 1996 compared with 19.0% during the first
quarter of 1995 and 19.4% during the fourth quarter of 1995.
The Company's profitability is dependent, in part, on its ability to
predict and maintain effective control over health care costs (through, among
other things, appropriate benefit design, utilization review and case management
programs and its risk-sharing agreements with providers) while providing members
with quality health care. Factors such as utilization, new technologies and
health care practices, hospital costs, major epidemics, inability to establish
effective risk-sharing agreements with providers and numerous other external
influences may
8
<PAGE> 9
affect Oxford's ability to control such costs. The Company uses its medical cost
containment capabilities, such as claim auditing systems, physician tracking
systems and utilization review protocols, and improved channeling to the most
cost-effective providers with a view to reducing the rate of growth in health
care services expense. There can be no assurance that Oxford will be successful
in mitigating the effect of any or all of the above listed or other factors.
Accordingly, past financial performance is not necessarily a reliable indicator
of future performance, and investors should not use historical performance to
anticipate results or future period trends.
Liquidity and Capital Resources
Cash flow from operations of $21.9 million contributed to an increase in
cash and cash equivalents and short-term investments to $371.7 million as of
March 31, 1996 from $368.6 million at December 31, 1995. The decline in cash
flow from operations when compared to the first quarter of 1995 is attributable
to the fact that a January 1996 Medicare premium of approximately $36 million
was received and recognized as unearned premiums in December 1995. The April
1996 Medicare premium was received on April 1, 1996, and accounts for the
significant decline in the unearned premiums shown on the consolidated balance
sheet.
The Company's cash flow from operations has increased substantially over
the past five years primarily as a result of increased earnings from operations
and increases in items related to growth in membership and revenues such as
receipt of premium revenues before payment of health care services expenses.
The Company's capital expenditures for the first three months of 1996
totaled $18.2 million. Such funds were used primarily for management information
systems and leasehold improvements related to business expansion.
On April 9, 1996, the Company completed a registered public offering of
5,227,272 newly issued post split shares of common stock from which the Company
realized net proceeds of approximately $220 million. The Company expects to use
the net proceeds from the offering to add to its capital base and for general
corporate purposes, including expansion of marketing and sales programs and
possible future acquisitions, although there are currently no agreements or
commitments for any such acquisitions. As part of a plan to add to its capital
base, the Company intends to make an addition of approximately $25 million to
the capital reserves of the Company's New York HMO subsidiary in conjunction
with obtaining regulatory approval for a service area expansion.
Except as disclosed above, the Company currently has no other definitive
commitments for use of material cash resources, however, management continually
evaluates opportunities to expand the Company's managed care services and health
plan operations.
The Company's medical costs payable, which includes reserves for incurred
but not reported claims ("IBNR"), was $366.0 million as of March 31, 1996 and
$300.5 million as of December 31, 1995. The Company estimates the amount of such
reserves using standard actuarial methodologies based upon historical data,
including the average interval between the date services are rendered and the
date claims are paid, expected medical cost inflation, seasonality patterns and
increases in membership. The Company believes that its reserves for IBNR are
adequate in order to satisfy its ultimate claim liability. However, the
Company's rapid growth affects the Company's ability to rely on historical
information in making IBNR reserve estimates.
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" includes a forward-looking statement concerning
Medicaid premium rates. Actual results could differ materially from those
discussed. Additional information concerning factors that could cause actual
results to differ materially from those in forward-looking statements is
contained in the Company's Annual Report on Form 10-K under the caption
"Business-Cautionary Statement Regarding Forward-Looking Statements."
9
<PAGE> 10
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Document
----------- -----------------------
11 Computation of Net Earnings Per Share of Common Stock
(b) Reports on Form 8-K
In a report on Form 8-K dated February 6, 1996, and filed February 7,
1996, the Company reported, under Item 5. "Other Events," its fourth
quarter 1995 earnings press release.
10
<PAGE> 11
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.
OXFORD HEALTH PLANS, INC.
-------------------------
(Registrant)
May 10, 1996 /s/ STEPHEN F. WIGGINS
- ------------------------------- -------------------------------
Date Stephen F. Wiggins, Chairman
and Chief Executive Officer
May 10, 1996 /s/ ANDREW B. CASSIDY
- ------------------------------- -------------------------------
Date Andrew B. Cassidy,
Chief Financial Officer
11
<PAGE> 12
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Index to Exhibits
Exhibit Page
Number Description of Document Number
- ------ ----------------------- ------
11 Computation of Net Earnings Per Share of Common Stock 13
27 Financial Data Schedule
12
<PAGE> 1
EXHIBIT 11
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Computation of Net Earnings Per Share of Common Stock (a)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months
Ended March 31
-------------------------
1996 1995
------- -------
<S> <C> <C>
Primary:
Net earnings $18,517 10,373
======= =======
Weighted average number of shares of common stock and common equivalent
shares outstanding:
Weighted average number of shares outstanding 69,354 66,368
Dilutive effect of stock options 5,726 6,138
------- -------
Weighted average number of common shares
and common share equivalents outstanding 75,080 72,506
======= =======
Earnings per common and common equivalent share $ .25 .14
======= =======
Fully diluted:
Net earnings $18,517 10,373
======= =======
Weighted average number of shares of common stock and common equivalent
shares outstanding:
Weighted average number of shares outstanding 69,354 66,368
Dilutive effect of stock options 6,020 6,400
------- -------
Weighted average number of common shares
and common share equivalents outstanding 75,374 72,768
======= =======
Earnings per common and common equivalent share $ .25 .14
======= =======
</TABLE>
(a) All share and per share amounts in the earnings per share computation have
been shown giving retroactive effect to the two-for-one stock split in
March 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 1996 (Unaudited) and the Consolidated
Statement of Earnings for the Three Months Ended March 31, 1996 (Unaudited) and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000865084
<NAME> Oxford Health Plans, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 30,858
<SECURITIES> 340,800
<RECEIVABLES> 138,250
<ALLOWANCES> 3,526
<INVENTORY> 0
<CURRENT-ASSETS> 537,763
<PP&E> 145,068
<DEPRECIATION> 38,607
<TOTAL-ASSETS> 665,514
<CURRENT-LIABILITIES> 418,159
<BONDS> 0
0
0
<COMMON> 348
<OTHER-SE> 247,007
<TOTAL-LIABILITY-AND-EQUITY> 665,514
<SALES> 651,364
<TOTAL-REVENUES> 658,089
<CGS> 518,216
<TOTAL-COSTS> 518,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 32,114
<INCOME-TAX> 13,597
<INCOME-CONTINUING> 18,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,517
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
