<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 September 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 ___________________
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 November 10, 1997 was
79,418,237.
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OXFORD HEALTH PLANS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
<S> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
PAGE
----
Consolidated Balance Sheets at September 30, 1997 and
December 31, 1996 ................................................................ 3
Consolidated Statements of Earnings for the Three Months and Nine
Months Ended September 30, 1997 and 1996 ........................................... 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 ......................................................... 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 5 Other Information ..................................................................... 12
ITEM 6 Exhibits and Reports on Form 8-K ....................................................... 12
Signatures
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Sep. 30, Dec. 31,
ASSETS 1997 1996
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,072 72,160
Short-term investments - available-for-sale, at market value 652,684 767,312
Premiums receivable, net 354,091 315,126
Other receivables 37,782 26,343
Prepaid expenses and other current assets 8,503 5,814
Refundable income taxes 83,181 -
Deferred income taxes 5,223 13,771
- ------------------------------------------------------------------------------------------------------------
Total current assets 1,148,536 1,200,526
Property and equipment, at cost, net of accumulated depreciation and
amortization of $110,652 in 1997 and $69,739 in 1996 120,478 104,954
Deferred income taxes 8,100 5,700
Other noncurrent assets 70,010 35,559
- ------------------------------------------------------------------------------------------------------------
Total assets $1,347,124 1,346,739
============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Medical costs payable $ 567,834 624,359
Trade accounts payable and accrued expenses 97,386 51,256
Income taxes payable - 9,902
Unearned premiums 36,312 63,052
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 701,532 748,569
- ------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Preferred stock, $.01 par value, authorized 2,000,000 shares - -
Common stock, $.01 par value, authorized 400,000,000
shares; issued and outstanding 79,298,190 in 1997
and 77,376,282 in 1996 793 774
Additional paid-in capital 438,800 391,602
Retained earnings 189,187 195,790
Unrealized net appreciation of investments 16,812 10,004
- ------------------------------------------------------------------------------------------------------------
Total shareholders' equity 645,592 598,170
- ------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,347,124 1,346,739
============================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Premiums earned $1,045,185 797,623 3,059,810 2,158,573
Third-party administration, net 3,975 2,347 10,091 7,875
Investment and other income, net 14,854 11,213 43,352 28,203
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues 1,064,014 811,183 3,113,253 2,194,651
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses:
Health care services 1,019,557 639,917 2,630,083 1,730,149
Marketing, general and administrative 176,641 123,554 492,347 343,867
- ----------------------------------------------------------------------------------------------------------------------------------
Total expenses 1,196,198 763,471 3,122,430 2,074,016
- ----------------------------------------------------------------------------------------------------------------------------------
Operating earnings (loss) (132,184) 47,712 (9,177) 120,635
Equity in net loss of affiliate (120) (1,500) (1,140) (3,550)
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (132,304) 46,212 (10,317) 117,085
Provision (credit) for income taxes (54,147) 19,562 (3,714) 49,460
- ----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ (78,157) 26,650 (6,603) 67,625
==================================================================================================================================
Earnings (loss) per common and common equivalent share:
Primary $ (.99) .33 (.08) .86
Fully diluted $ (.99) .33 (.08) .85
Weighted average common stock and common stock equivalents outstanding:
Primary 79,059 80,880 78,363 79,089
Fully diluted 79,059 81,362 78,363 79,459
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ (6,603) 67,625
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 42,997 31,220
Deferred income taxes 1,417 1,617
Realized gain on sale of investments (11,137) (3,081)
Equity in net loss of affiliate 1,140 3,550
Other, net 245 360
Changes in assets and liabilities:
Premiums receivable (38,723) (45,301)
Other receivables (10,704) (7,320)
Prepaid expenses and other current assets (2,553) (2,731)
Other noncurrent assets (7,251) (1,406)
Medical costs payable (63,489) 225,362
Trade accounts payable and accrued expenses 35,739 24,291
Income taxes payable (64,834) 19,855
Unearned premiums (26,740) (31,515)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (150,496) 282,526
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (58,730) (38,607)
Purchases of available-for-sale securities (417,241) (650,087)
Sales and maturities of available-for-sale securities 552,821 235,949
Investments in unconsolidated affiliates (13,815) (11,729)
Other, net 3,405 251
- ----------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 66,440 (464,223)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 220,541
Proceeds from exercise of stock options 18,968 12,913
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 18,968 233,454
- ----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (65,088) 51,757
Cash and cash equivalents at beginning of period 72,160 58,450
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7,072 110,207
================================================================================================================
Supplemental cash flow information - cash paid for income taxes $ 66,367 38,632
Supplemental schedule of noncash investing and financing activities:
Unrealized appreciation (depreciation) of short-term investments 11,539 (159)
Tax benefit realized on exercise of stock options 28,249 14,583
One-for-one stock dividend $ - 348
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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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 its 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, 1996, included in
the Company's Form 10-K filed with the SEC in March 1997.
In the opinion of management, all adjustments necessary to present fairly
the consolidated financial position of the Company with respect to the interim
condensed consolidated financial statements have been made. See note 3 below.
The results of operations for the interim periods are not necessarily
indicative of the results to be expected for the full year.
(2) CAPITAL STOCK
On March 17, 1997, the Board of Directors unanimously adopted a
resolution, subject to shareholder approval, proposing an amendment to the
Company's Second Restated and Amended Certificate of Incorporation, as amended,
to increase the number of authorized shares of the Company's common stock from
200 million shares to 400 million shares. On April 22, 1997, the Company's
shareholders approved such amendment.
(3) THIRD QUARTER 1997 CHARGES
During the third quarter of 1997, premiums earned were reduced due to
accounts receivable write-offs resulting from clean-ups of delayed group bills
and terminations of nonpaying individual and group customers. Additions were
also made to accounts receivable reserves. These accounts receivable write-offs
and additons to reserves resulted in an after tax charge of $42.2 million, or
53 cents per share, and are a consequence of information obtained from a review
and reconciliation of previously delayed premium bills. The Company also
increased reserves for medical costs payable, recognizing an after tax charge
of $51.9 million, or 66 cents per share, for the quarter, as the process of
reviewing and reconciling previously delayed claims revealed payment
obligations which exceeded the Company's original estimates.
(4) SALE OF EQUITY INVESTMENT
On October 13, 1997, the Company completed the sale of its interest in
Health Partners, Inc. to FPA Medical Management, Inc. ("FPA") in a pooling of
interests transaction. The Company received 2,090,109 shares of FPA common stock
with a market value of approximately $76.4 million. As a result of the
transaction, the Company will recognize an after tax gain of more than $40
million in the fourth quarter of 1997.
(5) RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statement amounts to conform to the current year's financial statement
presentation.
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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 September 30 Increase
Membership: 1997 1996 Amount %
- ----------- ---- ---- ------ -
<S> <C> <C> <C> <C>
Freedom Plan 1,286,600 958,300 328,300 34.3%
HMO 256,600 181,800 74,800 41.1%
Medicare 154,800 113,400 41,400 36.5%
Medicaid 187,900 147,600 40,300 27.3%
- -----------------------------------------------------------------------------------------------------------------------
Total fully insured 1,885,900 1,401,100 484,800 34.6%
Self-funded 56,700 41,100 15,600 38.0%
- -----------------------------------------------------------------------------------------------------------------------
Total membership 1,942,600 1,442,200 500,400 34.7%
=======================================================================================================================
</TABLE>
Increases in membership in the third quarter of 1997 include 20,300
fully insured and 9,400 self-funded members added in connection with the
acquisition of a small Chicago-based HMO during the third quarter of 1997.
The following table provides certain statement of earnings data
expressed as a percentage of total revenues for the three months and nine
months ended September 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
Revenues: 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Premiums earned 98.2% 98.3% 98.3% 98.4%
Third-party administration, net 0.4% 0.3% 0.3% 0.4%
Investment and other income, net 1.4% 1.4% 1.4% 1.2%
- -----------------------------------------------------------------------------------------------------------
Total revenues 100.0% 100.0% 100.0% 100.0%
- -----------------------------------------------------------------------------------------------------------
Expenses:
Health care services 95.8% 78.9% 84.5% 78.8%
Marketing, general and administrative 16.6% 15.2% 15.8% 15.7%
- -----------------------------------------------------------------------------------------------------------
Total expenses 112.4% 94.1% 100.3% 94.5%
- -----------------------------------------------------------------------------------------------------------
Operating earnings (loss) (12.4%) 5.9% (0.3%) 5.5%
Equity in net loss of affiliate - (0.2%) - (0.2%)
- -----------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes (12.4%) 5.7% (0.3%) 5.3%
Provision (credit) for income taxes (5.1%) 2.4% (0.1%) 2.3%
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) (7.3%) 3.3% (0.2%) 3.0%
===========================================================================================================
Medical-loss ratio 97.5% 80.2% 86.0% 80.2%
===========================================================================================================
Administrative expense as a percentage
of operating revenue 16.8% 15.4% 16.0% 15.9%
===========================================================================================================
</TABLE>
7
<PAGE> 8
Results of Operations
The three months ended September 30, 1997 compared with the three months ended
September 30, 1996
Total revenues for the quarter ended September 30, 1997 were $1.06
billion, up 31% from $811.2 million during the same period in the prior year.
However, the Company experienced a net loss for the third quarter of 1997
totaling $78.2 million, or 99 cents per share, compared with net earnings of
$26.7 million, or 33 cents per share, for the third quarter of 1996. The net
loss was primarily due to several factors attributable to delays in the
Company's billing of customers and delays in the Company's payment of claims to
providers as a result of software and hardware problems which arose in the
conversion of the Company's computer operating system. Third quarter 1997
results reflect reduced premiums earned due to accounts receivable write-offs
resulting from clean-ups of delayed group bills and terminations of nonpaying
individual and group customers. Additions were also made to accounts receivable
reserves. These accounts receivable write-offs and additions to reserves
resulted in an after tax charge of $42.2 million, or 53 cents per share, and are
a consequence of information obtained from a review and reconciliation of
previously delayed premium bills. The Company also increased reserves for
medical costs payable, recognizing an after tax charge of $51.9 million, or 66
cents per share, for the quarter, as the process of reviewing and reconciling
previously delayed claims revealed payment obligations which exceeded the
Company's original estimates. For additional information regarding the Company's
reserves for medical costs payable, see "Liquidity and Capital Resources" below.
Total commercial premiums earned for the three months ended September
30, 1997 increased 27% to $719.9 million from $568.3 million in the same period
in the prior year. This increase is attributable to a 36% increase in member
months in the Company's commercial health care programs, primarily due to a 35%
member months increase in the Freedom Plan. Premium rates of commercial programs
on average were 2.6% higher than in the third quarter of 1996.
Premiums earned from government programs increased 42% to $325.2
million in the third quarter of 1997 compared with $229.3 million in the third
quarter of 1996. Membership growth accounted for most of the change as member
months of Medicare programs increased 39% when compared with the prior year
third quarter, while member months of Medicaid programs increased by 29% over
the level of the prior year third quarter. Legislation to reform the federal
Medicare program was passed by Congress on July 31, 1997 and was signed into
law. The legislation changes the way health plans are compensated for Medicare
members by eliminating over five years amounts paid for graduate medical
education and increasing the blend of national cost factors applied in
determining local reimbursement rates over a six-year phase-in period. Both
changes have the effect of reducing reimbursement in high cost metropolitan
areas with a large number of teaching hospitals, such as the Company's service
areas; however, the legislation includes provision for a minimum increase of 2%
annually in health plan Medicare reimbursement for the next five years. The
legislation also provides for expedited licensure of provider-sponsored Medicare
plans and a repeal in 1999 of the rule requiring health plans to have one
commercial enrollee for each Medicare or Medicaid enrollee and the immediate
removal of Medicaid enrollees from the rule. These changes could have the effect
of increasing competition in the Medicare and Medicaid markets. The legislation
also requires Medicare plans to pay a fee which would finance the costs incurred
by the Department of Health and Human Services to inform Medicare beneficiaries
of new enrollment/disenrollment rules and managed care options. The manner of
charging this fee to plans has not been specified and amendments to this
provision have been proposed in Congress. The Company is not able at this time
to determine the ultimate impact of the fee eventually imposed.
Net third-party administration revenues for the three months ended
September 30, 1997 increased 67% to $4.0 million from $2.4 million for the same
period in the prior year, attributable to a 34% increase in member months and an
24% increase in per member per month revenue. The increase in member months is
due, in part, to the acquisition of a small Chicago-based HMO during the third
quarter. In the absence of such acquisition, member months would have increased
by 18% while per member per month revenue would have increased by 32%.
Net investment income for the three months ended September 30, 1997
increased 40% to $15.8 million from $11.3 million for the same period in 1996
due to higher realized capital gains.
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<PAGE> 9
The medical-loss ratio (health care services expense stated as a
percentage of premium revenues) was 97.5% for the third quarter of 1997 compared
with 80.2% for the third quarter of 1996. The increase is attributable to the
reduction in premiums earned and the increase in medical costs described above.
As previously reported, the Company expects that future results will be affected
by higher expenses in its Medicare business. The Company also expects that
future results will be affected by higher expenses in its Medicaid business. The
Company continues to reconcile delayed claims and pay down backlogged claims.
Information gained as the process continues may result in future changes to the
Company's estimates of its medical costs and expected cost trends.
Marketing, general and administrative expenses totaled $176.6 million
in the third quarter of 1997 compared with $123.6 million in the third quarter
of 1996. The increase over the third quarter of 1996 is primarily attributable
to a $25.2 million rise in payroll and benefits due to increased staffing, an
$8.5 million increase in broker commissions attributable to the increase in
premiums earned, as well as to the increased costs associated with the growth in
membership in the Company's plans and expenses related to enhancements to
management information systems necessary to accommodate increased transaction
volume. These expenses as a percent of operating revenue were 16.8% during the
third quarter of 1997 compared with 15.4% during the third quarter of 1996. The
increase is primarily attributable to increases in administrative spending and
lower than expected operating revenue for the third quarter of 1997, as
described above. As previously reported, the Company has increased its planned
administrative expenditures in order to strengthen operations. Such additional
expenditures will include the cost of independent consultants, additional
internal staff and system enhancements.
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 case rate and 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 favorable compensation agreements with providers and
numerous other external influences may 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.
The Company is unable to predict what effect, if any, the recent events
described herein (including any adverse publicity) may have on future enrollment
in the Company's health benefit plans.
The nine months ended September 30, 1997 compared with the nine months ended
September 30, 1996
Total revenues for the nine months ended September 30, 1997 were $3.11
billion, up 42% from $2.19 billion during the same period in the prior year. The
net loss for the first nine months of 1997 totaled $6.6 million, or 8 cents per
share, compared with net earnings of $67.6 million, or 86 cents per share, for
the first nine months of 1996.
Total commercial premiums earned for the nine months ended September
30, 1997 increased 39% to $2.16 billion from $1.56 billion in the same period in
the prior year. This increase is attributable to a 40% increase in member months
in the Company's commercial health care programs, including a 39% member months
increase in the Freedom Plan.
Premiums earned from government programs increased 50% to $901.9
million in the first nine months of 1997 compared with $601.0 million in the
first nine months of 1996. Membership growth accounted for most of the change as
member months of Medicare programs increased 53% when compared with the first
nine months of 1996, while member months of Medicaid programs increased by 39%
over the first nine months of 1996.
Net third-party administration revenues for the nine months ended
September 30, 1997 increased 28% to $10.1 million from $7.9 million for the same
period in the prior year, attributable to a 25% increase
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<PAGE> 10
in member months and a 2% increase in per member per month revenue. In the
absence of the previously mentioned acquisition, member months would have
increased by 20% while per member per month revenue would have increased by 4%.
Net investment income for the nine months ended September 30, 1997
increased 57% to $44.3 million from $28.2 million for the same period last year
due to higher realized capital gains and an increase in the average balance of
invested cash compared with the prior year's period.
The medical-loss ratio was 86.0% for the first nine months of 1997
compared with 80.2% for the first nine months of 1996. The increase is
attributable to the reduction in premiums earned and the increase in medical
costs described previously.
Marketing, general and administrative expenses totaled $492.3 million
in the first nine months of 1997 compared with $343.9 million in the first nine
months of 1996. The increase over the first nine months of 1996 is primarily
attributable to a $63.0 million rise in payroll and benefits due to increased
staffing, a $28.9 million increase in broker commissions attributable to the
increase in premiums earned, as well as to the increased costs associated with
the growth in membership in the Company's plans and expenses related to
enhancements to management information systems necessary to accommodate
increased transaction volume. These expenses as a percent of operating revenue
were 16.0% during the first nine months of 1997 compared with 15.9% during the
first nine months of 1996.
Liquidity and Capital Resources
The Company's capital expenditures for the first nine months of 1997
totaled $58.7 million. Such funds were used primarily for management information
systems and leasehold improvements related to business expansion. Except for the
increased administrative expenditures discussed above and anticipated capital
expenditures in the ordinary course of business, the Company currently has no
definitive commitments for use of material cash resources.
Cash flow used by operations aggregated $150.5 million in the first
nine months of 1997 compared with cash flow provided by operations of $282.5
million in the first nine months of 1996, primarily as a consequence of the
operating loss for the first nine months of 1997 and the reduction of medical
claims payable resulting from progress in paying backlogged claims and payment
of advances to providers as described below. Included in cash outflows were
payments for income taxes of approximately $66.4 million.
Premiums receivable at September 30, 1997 decreased to $354.1 million
from $421.8 at June 30, 1997 due to the accounts receivable write-offs and
reserve adjustments previously discussed.
Refundable income taxes at September 30, 1997 aggregated approximately
$83.2 million primarily as the result of payments of $66.4 million during the
first nine months of 1997. Such payments were made prior to the recognition of
the third quarter loss previously discussed. In addition, the Company is
entitled to a tax benefit of approximately $28.2 million for stock option
exercises through September 30, 1997.
The Company's medical costs payable, which includes reserves for
incurred but not reported claims, was $567.8 million as of September
30, 1997, $532.3 million as of June 30, 1997, $657.8 million as of March 31,
1997, $624.4 million as of December 31, 1996 and $525.9 million as of September
30, 1996. The relative increase in medical costs payable during the last three
months of 1996 and the first three months of 1997 resulted primarily from delays
in claims payments caused by the computer system conversion referred to above.
Delays in claims payments continued during the first quarter of 1997, but the
increase in medical costs payable was mitigated by progress in paying backlogged
claims and advance payments to providers which aggregated approximately $89
million as of March 31, 1997. During the second and third quarters of 1997, the
Company made significant progress in paying current and backlogged claims and
continued to make claims advances to providers. Such advances aggregated
approximately $271 million at June 30, 1997 and $247 million at September 30,
1997. Such advance payments have been applied against medical costs payable in
the accompanying balance sheet. The Company believes that it will be able to
recover outstanding advance payments, but any failure to recover funds advanced
would adversely affect earnings. The Company estimates the amount of its
reserves using standard actuarial methodologies based upon historical data,
including the average interval between the
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<PAGE> 11
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 are adequate in order to satisfy its ultimate claim
liability. However, the Company's rapid growth, delays in paying claims and
changing speed of payment affect the Company's ability to rely on historical
information in making reserve estimates.
As previously reported, the New York State Insurance Department is
currently examining the Company's New York HMO and insurance subsidiaries. The
Insurance Department has raised various issues, including concerns relating to
reserves for medical costs payable and premiums earned. The Company is currently
unable to predict the outcome of the Insurance Department's examination. As
also previously reported, KPMG Peat Marwick LLP is auditing the Company's New
York HMO and insurance subsidiaries' financial statements as of September 30,
1997. Such audit, which is expected to be completed by December 3, 1997, may
result in adjustments to the unaudited condensed consolidated financial
statements included in this report.
As discussed above, the Company expects that future results will be
affected by higher expenses in its Medicare and Medicaid businesses. As also
discussed above, information gained as the Company continues to reconcile
delayed claims and pay down backlogged claims may result in future changes to
the Company's estimate of its medical costs and expected cost trends. These and
other factors could adversely affect future results of operations or financial
condition.
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this report, such as statements concerning the
Company's future results of operations or financial condition, future health
care costs and administrative costs, future premium rates and medical-loss ratio
levels for commercial, Medicare and Medicaid business, operations matters, and
the effect of government regulation, and other statements regarding matters that
are not historical facts, are forward-looking statements (as defined in the
Securities Exchange Act of 1934, as amended); and because such statements
involve risks and uncertainties, actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to:
1. Changes in federal or state regulation relating to health care and
health benefit plans.
2. Rising medical costs or higher utilization of medical services,
including higher out-of-network utilization under point-of-service
plans.
3. Competition from health benefit plan providers and competitive pressure
on pricing Oxford products.
4. High administrative costs in operating the Company's business, the
Company's ability to develop processes and systems to support its
growing operations and the cost and impact on service of changing
technologies.
5. The effect, if any, of the recent events described in this report
(including any adverse publicity) on future enrollment in the Company's
health benefit plans.
6. Any changes in the Company's estimates of its medical costs and
expected cost trends as a result of information gained in the process
of continuing to reconcile delayed claims and to pay down backlogged
claims.
7. The impact of litigation (including purported class actions recently
filed against the Company and certain officers and directors),
regulatory proceedings and other governmental action (including the
current examination, investigation and review by the New York State
Insurance Department and the recent inquiry by the New York State
Attorney General).
8. Those factors included in the Company's 1996 Annual Report on Form 10-K
under the caption "Business--Cautionary Statement Regarding
Forward-Looking Statements," incorporated herein by reference.
11
<PAGE> 12
Part II - Other Information
Item 5. Other Information
The following information is incorporated herein by reference: the
information contained in "Item 5. Other Events" of the Company's Current Report
on Form 8-K dated July 31, 1997; the information contained in "Item 5. Other
Events" of the Company's Current Report on Form 8-K dated October 30, 1997; the
information contained in the first paragraph of "Item 5. Other Events" of the
Company's Current Report on Form 8-K dated November 4, 1997, and in Exhibit
99(b) to such report; and the information contained or incorporated by reference
in "Item 5. Other Events" of the Company's Current Report on Form 8-K dated
November 6, 1997.
The Cautionary Statement Regarding Forward-Looking Statements in Item 2
of this report is incorporated herein by reference.
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
99(a) Annual Report on Form 10-K of the Company for the fiscal
year ended December 31, 1996 (Commission File No.
0-19442), incorporated herein by reference
99(b) Current Report on Form 8-K, dated July 31, 1997
(Commission File No. 0-19442), incorporated herein by
reference
99(c) Current Report on Form 8-K, dated October 30, 1997
(Commission File No. 0-19442), incorporated herein by
reference
99(d) Current Report on Form 8-K, dated November 4, 1997
(Commission File No. 0-19442), incorporated herein by
reference
99(e) Current Report on Form 8-K, dated November 6, 1997
(Commission File No. 0-19442), incorporated herein by
reference
(b) Reports on Form 8-K
In a report on Form 8-K dated July 31, 1997, and filed July 31,
1997, the Company reported, under Item 5. "Other Events," the
details of an agreement with the New York State Attorney General
concerning the payment of interest on unpaid claims.
In a report on Form 8-K dated August 5, 1997, and filed August 5,
1997, the Company reported, under Item 5. "Other Events," its
second quarter 1997 earnings press release.
12
<PAGE> 13
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)
November 13, 1997 /s/ WILLIAM M. SULLIVAN
- --------------------------------- --------------------------------------
Date William M. Sullivan
President and Chief Executive Officer
November 13, 1997 /s/ ANDREW B. CASSIDY
- --------------------------------- ------------------------------------
Date Andrew B. Cassidy
Executive Vice President and
Chief Financial Officer
13
<PAGE> 14
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit Page
Number Description of Document Number
- ------ ----------------------- ------
<S> <C> <C>
11 Computation of Net Earnings Per Share of Common Stock 15
99(a) Annual Report on Form 10-K of the Company for the fiscal year ended
December 31, 1996 (Commission File No. 0-19442), incorporated
herein by reference
99(b) Current Report on Form 8-K, dated July 31, 1997 (Commission File
No. 0-19442), incorporated herein by reference
99(c) Current Report on Form 8-K, dated October 30, 1997 (Commission File
No. 0-19442), incorporated herein by reference
99(d) Current Report on Form 8-K, dated November 4, 1997 (Commission File
No. 0-19442), incorporated herein by reference
99(e) Current Report on Form 8-K, dated November 6, 1997 (Commission File
No. 0-19442), incorporated herein by reference
</TABLE>
14
<PAGE> 1
EXHIBIT 11
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER SHARE OF COMMON STOCK
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY:
Net earnings (loss) $(78,157) 26,650 (6,603) 67,625
- -------------------------------------------------------------------------------------------------------------
Weighted average number of shares of common stock and
common stock equivalents:
Weighted average number of shares outstanding 79,059 75,890 78,363 73,404
Dilutive effect of stock options - 4,990 - 5,685
- -------------------------------------------------------------------------------------------------------------
Weighted average number of common stock
and common stock equivalents 79,059 80,880 78,363 79,089
- -------------------------------------------------------------------------------------------------------------
Earnings per common and common equivalent share $ (.99) .33 (0.08) .86
=============================================================================================================
FULLY DILUTED:
Net earnings (loss) $(78,157) 26,650 (6,603) 67,625
- -------------------------------------------------------------------------------------------------------------
Weighted average number of shares of common stock and
common stock equivalents:
Weighted average number of shares outstanding 79,059 75,890 78,363 73,404
Dilutive effect of stock options - 5,472 - 6,055
- -------------------------------------------------------------------------------------------------------------
Weighted average number of common stock
and common stock equivalents 79,059 81,362 78,363 79,459
- -------------------------------------------------------------------------------------------------------------
Earnings per common and common equivalent share $ (.99) .33 (0.08) .85
=============================================================================================================
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at September 30, 1997 (Unaudited) and the
Consolidated Statement of Earnings for the Nine Months Ending September 30, 1997
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 7,072
<SECURITIES> 652,684
<RECEIVABLES> 354,091
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,148,536
<PP&E> 231,130
<DEPRECIATION> 110,652
<TOTAL-ASSETS> 1,347,124
<CURRENT-LIABILITIES> 701,532
<BONDS> 0
0
0
<COMMON> 793
<OTHER-SE> 644,799
<TOTAL-LIABILITY-AND-EQUITY> 1,347,124
<SALES> 3,069,901
<TOTAL-REVENUES> 3,113,253
<CGS> 0
<TOTAL-COSTS> 2,630,083
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (10,317)
<INCOME-TAX> (3,714)
<INCOME-CONTINUING> (6,603)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,603)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
