<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, 1999
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 4, 1999 was 81,086,308.
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OXFORD HEALTH PLANS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1 Financial Statements
Consolidated Balance Sheets at March 31, 1999 and
December 31, 1998 ................................................... 3
Consolidated Statements of Operations for the Three Months Ended
March 31, 1999 and 1998 .............................................. 4
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 ........................................ 5
Notes to Consolidated Financial Statements .............................. 6
Independent Auditor's Report ............................................ 7
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 9
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk .............. 19
PART II - OTHER INFORMATION
ITEM 1 Legal Proceedings ....................................................... 20
ITEM 2 Changes in Securities and Use of Proceeds ............................... 28
ITEM 5 Other Information ....................................................... 28
ITEM 6 Exhibits and Reports on Form 8-K ........................................ 30
SIGNATURES
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
Mar. 31, Dec. 31,
Current assets: 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 207,801 $ 237,717
Investments - available-for-sale, at market value 813,261 922,990
Premiums receivable, net 133,636 110,254
Other receivables 42,503 36,540
Prepaid expenses and other current assets 9,913 9,746
Deferred income taxes 40,073 43,385
- ----------------------------------------------------------------------------------------------------------
Total current assets 1,247,187 1,360,632
Property and equipment, net of accumulated depreciation and
amortization of $171,725 in 1999 and $160,431 in 1998 97,154 112,941
Deferred income taxes 87,144 94,182
Restricted investments - held-to-maturity, at amortized cost 43,376 44,798
Other noncurrent assets 30,320 25,197
- ----------------------------------------------------------------------------------------------------------
Total assets $1,505,181 $1,637,750
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Medical costs payable $ 794,410 $ 850,197
Trade accounts payable and accrued expenses 162,911 176,833
Unearned premiums 38,388 105,993
Current portion of capital lease obligations 11,785 15,938
Deferred income taxes - 2,228
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 1,007,494 1,151,189
Long-term debt 350,000 350,000
Obligations under capital leases 15,576 18,850
Redeemable preferred stock 309,898 298,816
Shareholders' equity (deficit):
Preferred stock, $.01 par value, authorized 2,000,000 shares - -
Common stock, $.01 par value, authorized 400,000,000 shares; issued and
outstanding 80,851,245 shares in 1999 and 80,515,872 shares in 1998 808 805
Additional paid-in capital 500,769 506,243
Accumulated deficit (677,995) (692,290)
Other comprehensive earnings (loss) (1,369) 4,137
- ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity (deficit) $1,505,181 $1,637,750
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Revenues: 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Premiums earned $1,026,586 $1,213,085
Third-party administration, net 3,610 5,002
Investment and other income, net 30,109 11,536
- -----------------------------------------------------------------------------------------------------------
Total revenues 1,060,305 1,229,623
- -----------------------------------------------------------------------------------------------------------
Expenses:
Health care services 871,873 1,066,437
Marketing, general and administrative 149,737 201,033
Interest and other financing charges 14,050 6,849
Restructuring charges -- 25,000
- -----------------------------------------------------------------------------------------------------------
Total expenses 1,035,660 1,299,319
- -----------------------------------------------------------------------------------------------------------
Operating earnings (loss) before income taxes 24,645 (69,696)
Income tax expense (benefit) 10,350 (24,394)
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) 14,295 (45,302)
Less preferred dividends and amortization (11,082) -
- -----------------------------------------------------------------------------------------------------------
Net earnings (loss) attributable to common shares $ 3,213 $ (45,302)
===========================================================================================================
Earnings (loss) per common share:
Basic $ .04 $ (.57)
Diluted $ .04 $ (.57)
Weighted-average common shares outstanding-basic 80,785 79,488
Effect of dilutive securities:
Stock options 4,117 --
Warrants 83 --
- -----------------------------------------------------------------------------------------------------------
Weighted-average common shares outstanding-diluted 84,985 79,488
===========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cash flows from operating activities: 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings (loss) $ 14,295 $ (45,302)
Adjustments to reconcile net earnings (loss) to net cash
used by operating activities:
Depreciation and amortization 14,344 16,059
Noncash restructuring charges -- 11,200
Deferred income taxes 10,350 (24,394)
Provision for doubtful accounts -- 3,000
Realized gain on sale of investments 542 (1,372)
Other, net 791 --
Changes in assets and liabilities, net of effect of acquisitions:
Premiums receivable (23,382) (16,903)
Other receivables (5,963) (8,066)
Prepaid expenses and other current assets (167) (10,752)
Medical costs payable (55,787) (23,764)
Trade accounts payable and accrued expenses (10,568) 12,910
Income taxes payable/refundable -- 48,836
Unearned premiums (67,605) (77,706)
Other, net (4,505) 1,677
- -------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (127,655) (114,577)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (1,081) (29,657)
Purchases of available-for-sale investments (259,355) (154,891)
Sales and maturities of available-for-sale investments 360,389 151,110
Other, net 393 4,597
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 100,346 (28,841)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 4,820 330
Proceeds of notes and loans payable -- 200,000
Payments under capital leases (7,427) --
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (2,607) 200,330
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (29,916) 56,912
Cash and cash equivalents at beginning of year 237,717 4,141
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $207,801 $ 61,053
===================================================================================================================
Supplemental cash flow information:
Cash payments (refunds) for income taxes, net $ (84) $ (48,016)
Cash payments for interest expense 8,795 3,881
Supplemental schedule of noncash investing and financing activities:
Unrealized appreciation (depreciation) of
short-term investments (7,734) (5,043)
Capital lease obligations incurred -- 20,309
Preferred stock dividends and amortization 11,082 --
</TABLE>
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See accompanying notes to consolidated financial statements.
6
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OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The interim 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 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 financial statements include amounts that are
based on management's best estimates and judgments. The most significant
estimates relate to medical costs payable and other policy liabilities and
liabilities and asset impairments related to operational restructuring
activities. These estimates may be adjusted as more current information becomes
available, and any adjustments could be significant. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the consolidated financial position and results of
operations of the Company with respect to the interim 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.
The 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,
1998, included in the Company's Form 10-K/A filed with the SEC in March 1999.
(2) RESTRUCTURING CHARGES
During the first half of 1998, the Company recorded restructuring and
unusual charges primarily associated with implementation of the Company's plan
("Turnaround Plan") to restore the Company's profitability. The table below
presents the activity in the first quarter of 1999 related to the restructuring
charge reserves established in the first and second quarters of 1998 as part of
the Turnaround Plan. This activity is consistent with the Company's estimates
prepared at December 31, 1998. The Company believes that the reserves as of
March 31, 1999 are adequate and that no revisions of estimates are necessary at
this time.
<TABLE>
<CAPTION>
(In thousands) Ending
Restructuring Cash Noncash Changes in Restructuring
Charges Activity Activity Estimate Reserves
------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Provisions for loss on noncore businesses $ 13,805 $ 2,437 $ (5,001) $ - $ 11,241
Write-down of property and equipment 21,959 606 (13,416) - 9,149
Severance and related costs 9,354 (1,106) - - 8,248
Costs of consolidating operations 17,685 (2,956) - - 14,729
=================================================================================
$ 62,803 $(1,019) $(18,417) $ - $ 43,367
=================================================================================
</TABLE>
Results of operations for the three months ended March 31, 1998
included a nonrecurring charge of $25.0 million for severance costs and other
expenses associated with the restructuring of certain of the Company's
management and administrative functions. The charge increased the Company's net
loss for the first quarter of 1998 by approximately $16.3 million, or 20 cents
per share.
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(3) REDEEMABLE PREFERRED STOCK
On February 13, 1999, the Company entered into a Share Exchange Agreement
(the "Exchange Agreement") with Texas Pacific Group, its affiliates and others
to make an adjustment of the dividends payable among the shares of Series A
Cumulative Preferred Stock (the "Series A Preferred Stock") and Series B
Cumulative Preferred Stock (the "Series B Preferred Stock") in connection with
the possible sale of shares of Preferred Stock by the holders thereof to
institutional holders. Pursuant to the Exchange Agreement, the 245,000 shares of
Series A Preferred Stock were exchanged for 260,146.909 shares of a new Series D
Cumulative Preferred Stock (the "Series D Preferred Stock"), and the 105,000
shares of Series B Preferred Stock were exchanged for 111,820.831 shares of a
new Series E Cumulative Preferred Stock (the "Series E Preferred Stock"). In the
exchange, (1) a holder received in exchange for each share of Series A Preferred
Stock, one share of Series D Preferred Stock, plus 0.061824118367 share of
Series D Preferred Stock representing dividends on the Series A Preferred Stock
accrued and unpaid through February 13, 1999, and (2) a holder received in
exchange for each share of Series B Preferred Stock, one share of Series E
Preferred Stock, plus 0.064960295238 share of Series E Preferred Stock
representing dividends on the Series B Preferred Stock accrued and unpaid
through February 13, 1999. As a result of the exchange, the holders hold only
Series D Preferred Stock and Series E Preferred Stock. On March 9, 1999, the
Company filed Certificates of Elimination for the Series A Preferred Stock and
the Series B Preferred Stock that have the effect of eliminating from the
Certificate of Incorporation all matters set forth in the Certificates of
Designations with respect to the Series A Preferred Stock and the Series B
Preferred Stock. The terms of the shares of the Series D Preferred Stock are
identical to the terms of the Series A Preferred Stock, except that the Series D
Preferred Stock accumulates cash dividends at the rate of 5.12981% per annum,
payable quarterly, provided that prior to May 13, 2000, the Series D Preferred
Stock accumulates dividends at a rate of 5.319521% per annum, payable annually
in cash or additional shares of Series D Preferred Stock, at the option of the
Company. The terms of the shares of the Series E Preferred Stock are identical
to the terms of the shares of the Series B Preferred Stock except that the
Series E Preferred Stock accumulates cash dividends at a rate of 14% per annum,
payable quarterly, provided that prior to May 13, 2000, the Series E Preferred
Stock accumulates dividends at a rate of 14.589214% per annum, payable annually
in cash or additional shares of Series E Preferred Stock, at the option of the
Company. In addition, prior to May 13, 2001, the holders of the Series D
Preferred Stock may only use to pay the exercise price of the Company's Series A
Warrants to purchase common stock a percentage of the total amount of Series D
Preferred Stock issued on February 13, 1999 that does not exceed the percentage
of the total number of shares of Series E Preferred Stock issued on February 13,
1999 that have been redeemed, repurchased or retired by the Company, or used as
consideration for the Company's Series B Warrants to purchase common stock by
the holders. With respect to dividend rights, the Series D and Series E
Preferred Stock rank on a parity with each other and prior to the Company's
common stock.
The aggregate cost to the Company of dividends on the Series D Preferred
Stock and Series E Preferred Stock is the same as the aggregate cost to the
Company of dividends on the Series A Preferred Stock and Series B Preferred
Stock. The respective voting rights of the holders of the Series A Preferred
Stock and Series B Preferred Stock have not changed as the result of the
exchange of such shares for shares of Series D Preferred Stock and Series E
Preferred Stock.
(4) COMPREHENSIVE INCOME
The changes in the value of available-for-sale securities included in other
comprehensive earnings (loss) include unrealized holding losses on
available-for-sale securities of $8.3 million and $4.2 million, reduced by the
tax effects of $2.5 million and $2.1 million in the three months ended March 31,
1999 and 1998, respectively, and reclassification adjustments of $(.5) million
and $1.4 million, reduced by the tax effects of $(.2) million and $.5 million in
the three months ended March 31, 1999 and 1998, respectively.
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(5) RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's financial
statement amounts to conform to the 1999 presentation.
9
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INDEPENDENT AUDITOR'S REPORT
To Oxford Health Plans, Inc.
We have reviewed the accompanying consolidated balance sheet of Oxford
Health Plans, Inc. and subsidiaries (the "Company") as of March 31, 1999 and the
consolidated statements of operations and cash flows for the three months then
ended. These financial statements are the responsibility of the Company's
management. The consolidated balance sheet of Oxford Health Plans, Inc. and
subsidiaries as of March 31, 1998, and consolidated statements of operations and
cash flows for the three-month period then ended were reviewed by other
accountants who did not issue a report.
We conducted our review in accordance with the 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 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, which will be performed
for the full year with the objective of expressing 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 the financial statements at March 31, 1999, and for the
three-month period then ended for them to be in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Stamford, Connecticut
May 5, 1999
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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 March 31 Increase (Decrease)
----------------------------------------------------------
1999 1998 Amount %
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Membership:
Freedom Plan 1,286,600 1,400,200 (113,600) (8.1%)
HMO 245,700 280,900 (35,200) (12.5%)
- -----------------------------------------------------------------------------------------------------------
Total commercial membership 1,532,300 1,681,100 (148,800) (8.9%)
- -----------------------------------------------------------------------------------------------------------
Medicare 105,900 162,600 (56,700) (34.9%)
Medicaid -- 183,500 (183,500) (100.0%)
- -----------------------------------------------------------------------------------------------------------
Total government programs membership 105,900 346,100 (240,200) (69.4%)
- -----------------------------------------------------------------------------------------------------------
Total fully insured membership 1,638,200 2,027,200 (389,000) (19.2%)
Self-funded membership 52,800 68,500 (15,700) (22.9%)
- -----------------------------------------------------------------------------------------------------------
Total membership 1,691,000 2,095,700 (404,700) (19.3%)
==========================================================================================================================
</TABLE>
The following table provides certain statement of operations data
expressed as a percentage of total revenues for the three months ended March 31,
1999 and 1998:
<TABLE>
<CAPTION>
Three Months
Ended March 31
-----------------------
1999 1998
----------- ----------
<S> <C> <C>
Revenues:
Premiums earned 96.8% 98.7%
Third-party administration, net .3% .4%
Investment and other income, net 2.9% .9%
- --------------------------------------------------------------------------------------------------------------------------
Total revenues 100.0% 100.0%
- --------------------------------------------------------------------------------------------------------------------------
Expenses:
Health care services 82.2% 86.8%
Marketing, general and administrative 14.1% 16.3%
Interest and other financing charges 1.3% .6%
Restructuring charges - 2.0%
- --------------------------------------------------------------------------------------------------------------------------
Total expenses 97.6% 105.7%
- --------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes 2.4% (5.7%)
Income tax expense (benefit) 1.0% (2.0%)
- --------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) 1.4% (3.7%)
Less preferred dividends and amortization (1.0%) -
- --------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) attributable to common shares .4% (3.7%)
==========================================================================================================================
Medical-loss ratio 84.9% 87.9%
Administrative-loss ratio 14.5% 16.5%
PMPM premium revenue $ 204.77 $ 199.83
PMPM medical expense $ 173.91 $ 175.67
Fully insured member months (000) 5,013.3 6,070.6
</TABLE>
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RESULTS OF OPERATIONS
Overview
The Company's revenues consisted primarily of commercial premiums derived
from its Freedom Plan and Liberty Plan, health maintenance organization ("HMO"),
preferred provider organizations ("PPOs") and reimbursements under government
contracts relating to its Medicare+Choice ("Medicare") programs (and, prior to
1999, its Medicaid programs), third-party administration fee revenue for its
self-funded plan services (which is stated net of direct expenses such as
third-party reinsurance premiums) and investment income.
Health care services expense primarily comprises payments to physicians,
hospitals and other health care providers under fully insured health care
business and includes an estimated amount for incurred but not reported or paid
claims ("IBNR"). The Company estimates IBNR expense based on a number of
factors, including prior claims experience. The actual expense for claims
attributable to any period may be more or less than the amount of IBNR reported.
See "Liquidity and Capital Resources". The Company's results for the year ended
December 31, 1998 were also adversely affected by significant restructuring and
unusual charges.
The Company experienced substantial growth in membership and revenues since
it began operations in 1986 through 1997. The membership and revenue growth has
been accompanied by increases in the cost of providing health care in the
Company's service areas. The Company experienced declines in membership and
revenue through 1998 and such declines may continue through 1999 and beyond. The
Company does not intend to promote significant membership or revenue growth in
1999 because the Company has redirected its strategic initiatives to establish
profitability. Since the Company provides services on a prepaid basis, with
premium levels fixed for one-year periods, unexpected cost increases during the
annual contract period cannot be passed on to employer groups or members.
Software and hardware problems experienced in the conversion of a portion of
the Company's computer system in September 1996 resulted in significant delays
in the Company's billing of group and individual customers. The Company's
revenues were adversely affected by adjustments of approximately $173.5 million
in 1997 and $218.2 million in 1998 related to estimates for terminations of
group and individual members and for nonpaying group and individual members. The
Company has taken steps to attempt to improve billing timeliness, reduce billing
errors, reduce lags in recording enrollment and disenrollment notifications, and
improve the Company's collection processes and is attempting to make requisite
improvements in management information systems concerning the value and aging of
outstanding accounts receivable. The Company continues to experience significant
levels of retroactive member and group terminations impacting revenue. In
addition, the Company continues to show significant aged receivable balances
from certain large group customers which remain uncollected. The Company
believes it has made adequate provision in its estimates for group and
individual member terminations and for nonpaying groups and individual members
as of March 31, 1999. Adjustments to the estimates may be necessary, however,
and any such adjustments would be included in the results of operations for the
period in which such adjustments were made. The Company's results of operations
could also be adversely affected if efforts to collect overdue balances result
in terminations of such groups.
RESTRUCTURING CHARGES
During the first half of 1998, the Company recorded restructuring and
unusual charges primarily associated with implementation of the Company's plan
("Turnaround Plan") to restore the Company's profitability. The Turnaround Plan
has included: focusing on the Company's core commercial and Medicare markets in
the New York tri-state area; disposing or restructuring of noncore businesses;
reducing administrative costs; reducing payments to physicians and other
providers; completing and operationalizing risk transfer agreements and other
provider agreements; reducing unnecessary utilization of hospital and other
services; strengthening commercial underwriting; increasing commercial group
premiums; and improving service levels and strengthening operations.
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The table below presents the activity in the first quarter of 1999 related
to the restructuring charge reserves established in the first and second
quarters of 1998 as part of the Turnaround Plan. This activity is consistent
with the Company's estimates prepared at December 31, 1998. The Company believes
that the reserves as of March 31, 1999 are adequate and that no revisions of
estimates are necessary at this time.
<TABLE>
<CAPTION>
Ending
(In thousands) Restructuring Cash Noncash Changes in Restructuring
Charges Activity Activity Estimate Reserves
------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Provisions for loss on noncore businesses $ 13,805 $ 2,437 $ (5,001) $ - $ 11,241
Write-down of property and equipment 21,959 606 (13,416) - 9,149
Severance and related costs 9,354 (1,106) - - 8,248
Costs of consolidating operations 17,685 (2,956) - - 14,729
=============================================================================
$ 62,803 $(1,019) $ (18,417) $ - $ 43,367
=============================================================================
</TABLE>
The three months ended March 31, 1999 compared with the three months ended March
31, 1998
Total revenues for the quarter ended March 31, 1999 were $1.03 billion, down
15.4% from $1.21 billion during the same period in the prior year. Net earnings
attributable to common stock for the first quarter of 1999 totaled $3.2 million,
or four cents per share, compared to a net loss of $45.3 million, or 57 cents
per share, for the first quarter of 1998. Results of operations for the first
quarter of 1998 were adversely affected by significantly higher medical costs
and approximately $25.0 million ($16.3 million after tax, or 20 cents per share)
of charges for severance and other costs expected to be incurred in connection
with the restructuring of certain administrative and management functions.
Membership in the Company's fully insured commercial health care programs as
of March 31, 1999 decreased by approximately 149,000 members (9%) from the level
of such membership as of March 31, 1998 and by 46,500 members (3%) since
year-end 1998. The decline since year-end 1998 is due to reductions in members
in noncore states and in the Company's core commercial markets. Membership in
government programs decreased by approximately 240,000 members (69%) compared to
March 31, 1998, reflecting the exit of the Company from the Medicaid market in
total and from the withdrawal or restructuring of the Medicare business in
several markets.
Total commercial premiums earned for the three months ended March 31, 1999
decreased 5% to $829.4 million compared with $872.6 million in the same period
in the prior year. This decrease is attributable to a 7.9% decrease in member
months in the Company's commercial health care programs, partially offset by a
3.2% increase in average premium yield. Average premium yields for the full year
1999 are expected to be about 9% higher in the Company's core commercial
business than in the prior year.
Premiums earned from Medicare programs decreased 28% to $326.1 million in
the first quarter of 1999 from $488.3 million in the first quarter of 1998.
Membership declines accounted for all of the change as member months of Medicare
programs decreased 33% when compared with the prior year first quarter, while
average premium yields of Medicare programs increased 7.3% over the level of the
prior year first quarter. This yield increase exceeded the average rate increase
granted by the Health Care Financing Administration ("HCFA") as membership
losses occurred primarily in lower reimbursement counties. Premiums earned from
Medicaid programs decreased 87% to $10.2 million in the first quarter of 1999
compared with $79.6 million in the first quarter on 1998. The decline reflects
the Company's total withdrawal from the Medicaid market by the end of January
1999.
Investment and other income, net includes a $13.5 million gain on the sale
of the Company's New York Medicaid business in the first quarter of 1999. In
addition, net investment income for the three months ended March 31, 1999
increased 45% to $16.2 million from $11.1 million for the same period last year.
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<PAGE> 14
The improvement is primarily due to an increase in average invested balances in
the first quarter of 1999 compared with the first quarter of 1998 offset, in
part, by a $1.9 million decline in capital gains realized in the first quarter
of 1999 compared with the prior year quarter. The higher invested balances are
attributable to the funds received in the Company's May 1998 financing
transaction.
The Company incurred interest and other financing charges of $10.1 million
in the first three months of 1999 related to its outstanding debt and capital
lease obligations, compared with $3.6 million in the first three months of 1998.
The increase is primarily attributable to the issuance of $350 million of
long-term debt in May 1998 at which time bridge financing notes of $200 million
were redeemed. Interest expense on delayed claims totaled $3.9 million in the
first three months of 1999, compared with $3.2 million in the first three months
of 1998. Interest payments have been made in accordance with the Company's
interest payment policy and applicable law. The Company's future results will
continue to reflect interest payments by the Company on delayed claims as well
as interest expense on outstanding indebtedness.
The Company had income tax expense of $10.3 million for the first quarter of
1999 reflecting an effective tax rate of 42%. The Company has established a tax
valuation allowance related to certain net operating losses and the effect of
the Company's net tax deductible temporary differences. The Company has not
changed its view that such tax benefits relating to losses incurred subsequent
to the first quarter of 1998 are more likely than not to be realized in the
foreseeable future. However, the Company may re-examine its position as further
results of operations become available in 1999. The Company discontinued
providing tax benefits beginning in the second quarter of 1998. Based on the
Company's assessment of the progress to date of the Turnaround Plan, together
with projections of future performance, the Company currently believes that it
is more likely than not that deferred tax benefits recorded prior to April 1998
will be realized. The Company will continue to monitor its tax position
throughout the implementation of its Turnaround Plan to determine whether such
deferred tax benefits will require an additional valuation allowance or
adjustment. The amounts of future taxable income necessary during the
carryforward period to utilize the unreserved net deferred tax assets is
approximately $300 million.
The medical loss ratio (health care services expense stated as a percentage
of premium revenues) was 84.9% for the first quarter of 1999 compared with 87.9%
for the first quarter of 1998. The improvement in the first quarter of 1999
reflects a 2.5% increase in average overall premium yield and a 1.0% decrease in
per member per month medical costs when compared to the prior year first
quarter, the latter as a result of a significant change in the Company's
membership composition (for example, a reduction in number of members in
government programs) and initiatives to control health care costs and reduce
inappropriate utilization of services. The Company believes it has made adequate
provision for medical costs as of March 31, 1999. There can be no assurance that
additional reserve additions will not be necessary as the Company continues to
review and reconcile delayed claims and claims paid or denied in error.
Additions to reserves could also result as a consequence of regulatory
examinations and such additions would also be included in the results of
operations for the period in which such adjustments are made.
Marketing, general and administrative expenses totaled $149.7 million in the
first quarter of 1999 compared with $201.0 million in the first quarter of 1998.
The decrease when compared to the first quarter of 1998 is primarily
attributable to a $21.0 million decrease in payroll and benefits due to reduced
staffing and a $14.2 million decrease in consulting fees as the prior year
quarter reflects significant expenses related to enhancements to management
information systems. These expenses as a percent of operating revenue were 14.5%
during the first quarter of 1999 compared with 16.5% during the first quarter of
1998 and 16.7% for the full year 1998. Administrative costs in future periods
may be adversely affected by incremental costs incurred in an initiative to
improve service levels and costs associated with responding to regulatory
inquiries and investigations and defending pending litigation.
LIQUIDITY AND CAPITAL RESOURCES
Cash used by operations during the first quarter of 1999 aggregated $127.6
million, compared with $114.6 million for the first quarter of 1998. The $13.0
million decline in cash flow occurred despite a
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$65 million improvement in net earnings primarily because the prior year quarter
was favorably affected by a tax refund of approximately $49 million. In
addition, cash flow for the first quarter of 1999 was negatively affected by the
receipt in December of 1998 of the January 1999 Medicare premium of $68 million
and the runoff of claims reserves relating to discontinued or restructured
businesses of $59 million. The Company expects cash flow from operations will
continue to be adversely affected by runoff of reserves for restructured or
discontinued business and efforts to reduce existing claims backlogs.
The Company's capital expenditures for the first three months of 1999
totaled $1.1 million. Except for anticipated capital expenditures and
requirements to provide the required levels of capital to its operating
subsidiaries, including any requirement arising from nonadmissibility of
provider advances (as discussed below) or other assets or from operating losses,
the Company currently has no definitive commitments for use of material cash.
As of March 31, 1999, cash and investments aggregating $56.4 million (of
which $13 million is included in other assets) have been segregated in the
accompanying balance sheet as restricted investments to comply with federal and
state regulatory requirements. The Company expects to set aside additional
funds, not expected to exceed $15 million, as collateral for certain advances
made by the Company's New Jersey subsidiary (see below). The Company's
subsidiaries are also subject to certain restrictions on their abilities to make
dividend payments, loans or other transfers of cash to the parent company, which
limit the ability of the Company to use cash generated by subsidiary operations
to pay the obligations of the parent, including debt service and other financing
costs.
In September 1998, the National Association of Insurance Commissioners
("NAIC") adopted new minimum capitalization requirements, known as risk-based
capital rules, for health care coverage provided by HMOs and other risk-bearing
health care entities. Depending on the nature and extent of the new minimum
capitalization requirements ultimately adopted by each state, there could be an
increase in the capital required for certain of the Company's regulated
subsidiaries. Connecticut has introduced legislation allowing the Connecticut
Department of Insurance ("CTDOI") to promulgate regulations based on the NAIC
model. The New York State Insurance Department ("NYSID") has introduced
legislation similar to the NAIC model rules. The Company expects the CTDOI and
NYSID regulations to be applicable to its 1999 annual financial statements. The
New Jersey Department of Banking and Insurance ("NJDBI") has not introduced
similar legislation. However, NJDBI has published draft solvency regulations
that it estimates will result in additional capital requirements for many New
Jersey health care plans. The New York Superintendent of Insurance has announced
an intention to strengthen current solvency regulations to allow the NYSID to
take over failing health plans without a court order. The Company intends to
fund any required increase in statutory capital in regulated subsidiaries from
available parent company cash reserves; however, there can be no assurance that
such cash reserves will be sufficient to fund these minimum capitalization
requirements. The new requirements are expected to be effective on or before
December 31, 1999 upon enactment by each state.
As a result of delays in claims payments during the fourth quarter of 1996
and the first quarter of 1997, the Company experienced a significant increase in
medical claims payable, but such increase was mitigated, in part, by progress in
paying backlogged claims and making advance payments to providers during the
first quarter of 1997 and thereafter. Outstanding advances aggregated
approximately $130.2 million at March 31, 1999, net of a valuation reserve of
$35 million, and have been netted against medical costs payable in the Company's
consolidated balance sheet. The Company believes that it will be able to recover
outstanding advance payments, either through repayment by the provider or
application against future claims, but any failure to recover funds advanced in
excess of the reserve would adversely affect the Company's results of
operations. There can be no assurance that insurance regulators will continue to
recognize such advances as admissible assets and the New Jersey Department of
Banking and Insurance is requiring the Company to provide collateral for
repayment of the advances by setting aside in trust at the parent company funds
equal to the admitted portion of the advances on the New Jersey subsidiary's
statutory financial statement (currently not expected to exceed $15 million). If
the Company fails to provide such collateral or if all or a portion of the
advances were deemed nonadmitted, the capital of the Company's operating
subsidiaries would be impaired and additional capital contributions would be
required for the subsidiaries to meet statutory requirements.
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The Company's medical costs payable was $924.6 million as of March 31, 1999
(including $786.5 million for IBNR and before netting advance claim payments of
$130.2 million) compared with $989.7 million as of December 31, 1998 (including
$864.5 for IBNR and before netting advance claim payments of $139.5 million).
The decrease reflects runoff of claims reserves for discontinued or restructured
business and progress in paying backlogged claims. The Company estimates the
amount of its 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 and between the date services are rendered
and the date claims are received by the Company, expected medical cost
inflation, seasonality patterns and changes in membership.
The liability for medical costs payable is also affected by shared risk
arrangements, including arrangements related to the Company's Medicare business
in certain counties and Private Practice Partnerships ("Partnerships"). In
determining the liability for medical costs payable, the Company accounts for
the financial impact of the transfer of risk for certain Medicare members and
experience of risk-sharing Partnership providers (who may be entitled to credits
from Oxford for favorable experience or subject to deductions for accrued
deficits).
In the case of the Medicare risk arrangements, the Company no longer records
a reserve for claims liability since the payment obligation has been transferred
to third parties. An agreement with the Heritage New Jersey Medical Group
("Heritage") covers all of the Company's approximately 13,500 Medicare members
in New Jersey as of March 31, 1999. The NJDBI has advised the Company that the
risk-sharing aspects of the agreement with Heritage should be suspended pending
NJDBI's review of the need for additional regulation of risk-sharing
arrangements. The Company intends to work with NJDBI and Heritage to arrive at
appropriate interim and long-term arrangements, but there can be no assurance
that such arrangements will be reached or that the risk-sharing agreement will
ultimately be approved. A failure to gain approval of satisfactory arrangements
would likely increase the Company's health care costs for this business and
could eventually lead to reductions in New Jersey Medicare membership
In the case of Partnership providers subject to deficits, the Company has
established reserves to account for delays or other impediments to recovery of
those deficits. The Company has reviewed its partnership program and has
terminated most of its partnership arrangements as a result of difficulties and
expense associated with administering the program as well as other
considerations. The Company recognized estimated costs in taking these actions
in the second quarter of 1998. The Company believes that its reserves for IBNR
are adequate to satisfy its ultimate claim liabilities. However, the Company's
prior rapid growth, delays in paying claims, paying or denying claims in error
and changing speed of payment may affect the Company's ability to rely on
historical information in making IBNR reserve estimates.
During the first quarter of 1999, the Company made cash contributions to the
capital of one of its HMO subsidiaries aggregating $355,000. The capital
contribution was made to ensure that the subsidiary had sufficient surplus under
applicable regulations after giving effect to operating losses and reductions to
surplus resulting from the nonadmissibility of certain assets. The Company
expects that additional capital contributions to the subsidiaries during 1999
may be required.
On February 13, 1999, the Company entered into a Share Exchange Agreement
(the "Exchange Agreement") with Texas Pacific Group, its affiliates and others
to make an adjustment of the dividends payable among the shares of Series A
Cumulative Preferred Stock (the "Series A Preferred Stock") and Series B
Cumulative Preferred Stock (the "Series B Preferred Stock") in connection with
the possible sale of shares of Preferred Stock by the holders thereof to
institutional holders. Pursuant to the Exchange Agreement, the 245,000 shares of
Series A Preferred Stock were exchanged for 260,146.909 shares of a new Series D
Preferred Stock (the "Series D Preferred Stock"), and the 105,000 shares of
Series B Preferred Stock were exchanged for 111,820.831 shares of a new Series E
Preferred Stock (the "Series E Preferred Stock"). In the exchange, (1) a holder
received in exchange for each share of Series A Preferred Stock, one share of
Series D Preferred Stock, plus 0.061824118367 share of Series D Preferred Stock
representing dividends on the Series A Preferred Stock accrued and unpaid
through February 13, 1999, and (2) a holder received in exchange for each share
of Series B Preferred Stock, one share of Series E Preferred Stock, plus
0.064960295238 share of Series E Preferred Stock representing
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<PAGE> 17
dividends on the Series B Preferred Stock accrued and unpaid through February
13, 1999. As a result of the exchange, the holders hold only Series D Preferred
Stock and Series E Preferred Stock. On March 9, 1999, the Company filed
Certificates of Elimination for the Series A Preferred Stock and the Series B
Preferred Stock that have the effect of eliminating from the Certificate of
Incorporation all matters set forth in the Certificates of Designations with
respect to the Series A Preferred Stock and the Series B Preferred Stock. The
terms of the shares of the Series D Preferred Stock are identical to the terms
of the Series A Preferred Stock, except that the Series D Preferred Stock
accumulates cash dividends at the rate of 5.12981% per annum, payable quarterly,
provided that prior to May 13, 2000, the Series D Preferred Stock accumulates
dividends at a rate of 5.319521% per annum, payable annually in cash or
additional shares of Series D Preferred Stock, at the option of the Company. The
terms of the shares of the Series E Preferred Stock are identical to the terms
of the shares of the Series B Preferred Stock except that the Series E Preferred
Stock accumulates cash dividends at a rate of 14% per annum, payable quarterly,
provided that prior to May 13,2000, the Series E Preferred Stock accumulates
dividends at a rate of 14.589214% per annum, payable annually in cash or
additional shares of Series E Preferred Stock, at the option of the Company. In
addition, prior to May 13, 2001, the holders of the Series D Preferred Stock may
only use to pay the exercise price of the Company's Series A Warrants to
purchase shares of common stock a percentage of the total amount of Series D
Preferred Stock issued on February 13, 1999 that does not exceed the percentage
of the total number of shares of Series E Preferred Stock issued on February 13,
1999 that have been redeemed, repurchased or retired by the Company, or used as
consideration for the Company's Series B Warrants to purchase shares of common
stock by the holders. With respect to dividend rights, the Series D and Series E
Preferred Stock rank on a parity with each other and prior to the Company's
common stock.
The aggregate cost to the Company of dividends on the Series D Preferred
Stock and Series E Preferred Stock is the same as the aggregate cost to the
Company of dividends on the Series A Preferred Stock and Series B Preferred
Stock. The respective voting rights of the holders of the Series A Preferred
Stock and Series B Preferred Stock have not changed as the result of the
exchange of such shares for shares of Series D Preferred Stock and Series E
Preferred Stock.
MARKET RISK DISCLOSURES
The Company's consolidated balance sheet as of March 31, 1999 includes a
significant amount of assets whose fair values are subject to market risk. Since
the substantial portion of the company's investments are in fixed rate debt
securities, interest rate fluctuations represent the largest market risk factor
affecting the Company's consolidated financial position. Interest rate risk is
managed within a tight duration band, and credit risk is managed by investing in
U.S. government obligations and in corporate debt securities with high average
quality ratings and maintaining a diversified sector exposure within the debt
securities portfolio. A hypothetical immediate increase of 100 basis points in
market interest rates would decrease the fair value of the Company's investments
in debt securities as of March 31, 1999 by approximately $21.3 million, while a
200 basis points increase in rates would decrease the value of such investments
by approximately $41.9 million. A hypothetical immediate decrease of 100 basis
points in market interest rates would increase the fair value of the Company's
investments in debt securities as of March 31, 1999 by approximately $21.6
million, while a 200 basis points decrease in rates would increase the value of
such investments by approximately $43.8 million. The Company's investment in
equity securities as of March 31, 1999 was not significant. The foregoing
valuation estimates were based upon industry calculations of security durations
and convexities as provided by such third party vendors as Bloomberg and Yield
Book. Due to the fact that durations and convexity are estimated rather than
known quantities for certain securities, there can be no assurance that the
Company's portfolio would perform in-line with the estimated values.
YEAR 2000 READINESS
The Company has completed its assessment of its computer systems and
facilities that could be affected by the "Year 2000" date conversion and is
continuing to carry out the implementation plan to resolve the Year 2000 date
issue which it developed as a result of the assessment. The Year 2000 problem is
the result of computer programs being written using two digits rather than four
to define the applicable year. Any of the Company's programs that have
time-sensitive software may recognize the date
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"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations. The Company is utilizing both internal and external
resources to identify, correct or reprogram, and test the systems for Year 2000
compliance. The Company has divided its Year 2000 compliance program into the
following phases: assessment, planning, remediation and testing. The Company has
completed the assessment, planning and remediation of computer codes associated
with its mission critical systems and is currently conducting certification
testing of those systems. As of March 31, 1999, the Company was 90% complete
with its Year 2000 compliance program and anticipates being complete with all
phases of the program by the second quarter of 1999. The Company's Year 2000
compliance program requires remediation of certain programs within particular
time frames in order to avoid disruption of the Company's operations. These time
frames include certain dates throughout 1999. Although the Company believes it
will complete the remediation of these programs within the applicable time
frames, there can be no assurance that such remediation will be completed or
that the Company's operations will not be disrupted to some degree.
The Company is communicating with certain material vendors to determine the
extent to which the Company may be vulnerable to such vendors' failure to
resolve their own Year 2000 issues. The Company is attempting to mitigate its
risk with respect to the failure of such vendors to be Year 2000 compliant by,
among other things, requesting project plans, status reports and Year 2000
compliance certifications or written assurances from its material vendors,
including certain software vendors, business partners, landlords and suppliers.
The effect of such vendors' noncompliance, if any, is not reasonably estimable
at this time.
The Company is required to submit periodic reports regarding Year 2000
compliance to certain of the regulatory authorities that regulate its business.
The Company is in compliance with such Year 2000 reporting requirements. Such
regulatory authorities have also asked the Company to submit to certain reviews
regarding its Year 2000 compliance.
The Company is in the process of completing the modifications of its
computer systems to accommodate the Year 2000 and will undertake testing to
ensure its systems and applications will function properly after December 31,
1999. The Company currently expects this modification and testing to be
completed in a time frame to avoid any material adverse effect on operations.
The Company has deferred certain other information technology initiatives to
concentrate on its Year 2000 compliance efforts but the Company believes that
such deferral is not reasonably likely to have a material adverse effect on the
Company's financial condition or results of operations. The Company's inability
to complete Year 2000 modifications on a timely basis or the inability of other
companies with which the Company does business to complete their Year 2000
modifications on a timely basis could adversely affect the Company's operations.
The Company has incurred associated expenses of $2.5 million in 1999 and
expects to incur approximately $2.5 million during the remainder of 1999 to
complete this effort. Through March 31, 1999, the Company had cumulatively
incurred approximately $12.3 million of expenses in connection with its Year
2000 compliance efforts. The costs of the project and the date on which the
Company plans to complete the necessary Year 2000 modifications are based on
management's best estimate, which include assumptions of future events including
the continued availability of certain resources. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those plans.
The Company has contracted with an external consulting firm to assist in the
generation of a Year 2000 contingency plan in the event compliance is not
achieved. The Company has begun to develop detailed plans to support its
contingency strategy. The Company expects to be substantially complete with
these detailed plans by the second quarter of 1999. However, there can be no
assurance that this contingency plan will be completed on a timely basis or that
such a plan will protect the Company from experiencing a material adverse effect
on its financial condition or results of operations.
Potential consequences of the Company's failure to timely resolve its Year
2000 issues could include, among others: (i) the inability to accurately and
timely process claims, enroll and bill groups and members,
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pay providers, record and disclose accurate data and perform other core
functions; (ii) increased scrutiny by regulators and breach of contractual
obligations; and (iii) litigation in connection therewith.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", including statements concerning
future results of operations or financial position, future liquidity at the
parent company, future health care and administrative costs, future premium
rates for commercial and Medicare business, the employer renewal process, future
growth of membership and membership composition, future health care benefits,
future provider network, future provider utilization rates, future medical loss
ratio levels, future claims payment, service performance and other operations
matters, the Company's information systems and readiness for Year 2000, proposed
efforts to control health care and administrative costs, future dispositions of
certain businesses and assets, future provider payment and risk-sharing
agreements with health care providers, the Turnaround Plan, future enrollment
levels, future government regulation and relations and the future of the health
care industry, and the impact on the Company of recent events, legal proceedings
and regulatory investigations and examinations, and other statements contained
herein regarding matters that are not historical facts, are forward-looking
statements (as such term is defined in the Securities Exchange Act of 1934, as
amended). 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, those discussed below.
Net losses; restructuring and unusual charges
The Company incurred net losses attributable to common stock of $624 million
in 1998 and $291 million in 1997. As a result of losses at certain of its HMO
and insurance subsidiaries in 1998 and 1997, the Company has had to make capital
contributions to these subsidiaries and expects that additional capital
contributions may be required to be made by the Company in 1999. The Company has
also made significant additions to its reserves for medical claims, and has
experienced significant levels of retroactive member and group terminations as
well as difficulties with collection of premium receivables.
A significant portion of the loss incurred by the Company in 1998 was
associated with restructuring and unusual charges relating to the Company's
Turnaround Plan. These restructuring and unusual charges are based on estimates
of the anticipated costs to the Company of taking the actions contemplated by
the Turnaround Plan, including disposition of certain businesses and assets.
There can be no assurance that these estimates correctly reflect the ultimate
costs that the Company will incur in implementing the Turnaround Plan.
The Company's ability to control net losses depends, to a large extent, on
the success of its Turnaround Plan. There can be no assurance that the
Turnaround Plan will be implemented in the manner described herein, or that it
will be successful or that other efforts by the Company to control net losses
will be successful. Furthermore, despite the Company's efforts to the contrary,
implementation of the Turnaround Plan could adversely affect members and
employer groups, or physicians, hospitals and other health care providers and
ultimately sales and renewals of the Company's health plans. Moreover, the
Company cannot predict the impact of adverse publicity, legal and regulatory
proceedings or other future events on the Company's membership, operations and
financial results, including ongoing financial losses.
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Inability to control, and unpredictability of, health care costs
Oxford's future results of operations depend, 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 risk-sharing and other payment arrangements with providers) while
providing members with coverage for the health care benefits provided under
their contracts. However, Oxford's ability to control such costs may be affected
by various factors, including: new technologies and health care practices,
hospital costs, changes in demographics and trends, selection biases, increases
in unit costs paid to providers, major epidemics, catastrophes, inability to
establish acceptable compensation arrangements with providers, operational and
regulatory issues which could delay, prevent or impede those arrangements, and
higher utilization of medical services, including higher out-of-network
utilization under point of service plans. 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.
Medical costs payable in Oxford's financial statements include reserves for
incurred but not reported or paid claims ("IBNR") which are estimated by Oxford.
Oxford 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 and between the date
services are rendered and the date claims are received by the Company, expected
medical cost inflation, seasonality patterns and changes in membership. The
estimates for submitted claims and IBNR are made on an accrual basis and
adjusted in future periods as required. Oxford believes that its reserves for
IBNR are adequate in order to satisfy its ultimate claim liability. However,
Oxford's prior rapid growth, delays in paying claims, paying or denying claims
in error and changing speed of payment affect the Company's ability to rely on
historical information in making IBNR reserve estimates. There can be no
assurances as to the ultimate accuracy of such estimates. Any adjustments to
such estimates could adversely affect Oxford's results of operations in future
periods.
The effect of high administrative costs on results
The Company expects that results In 1999 may continue to be adversely
affected by high administrative costs associated with the Company's efforts to
strengthen its operations and service levels and address systems issues,
including those related to Year 2000 readiness. Although a key element of the
Company's Turnaround Plan is a reduction in administrative expenses, no
assurance can be given that the Company will not continue to experience
significant service and systems infrastructure problems in 1999 and beyond which
could have a significant impact on administrative costs. Further, the Company
has been adversely affected by high administrative costs in connection with
increased levels of employee attrition over the last several quarters, and there
can be no assurance that the Company will not continue to experience such
attrition in the remainder of 1999.
Changes in laws and regulations could adversely impact operations, financial
condition and prospects
The health care industry in general, and HMOs and health insurance companies
in particular, are subject to substantial federal and state government
regulation, including, but not limited to, regulation relating to cash reserves,
minimum net worth, licensing requirements, approval of policy language and
benefits, mandatory products and benefits, provider compensation arrangements,
member disclosure, premium rates and periodic examinations by state and federal
agencies. State regulations require the Company's HMO and insurance subsidiaries
to maintain restricted cash or available cash reserves and restrict their
ability to make dividend payments, loans or other transfers of cash to the
Company.
In recent years, significant federal and state legislation affecting the
Company's business was enacted. For example, New York State implemented a
requirement that health plans pay interest on delayed payment of claims at a
rate of 12% per annum, effective January 1998, and that managed care members
have a right to an external appeal of certain final adverse determinations,
effective July 1999. State and federal government authorities are continually
considering changes to laws and regulations applicable to Oxford and are
currently considering regulations relating to mandatory benefits and products,
defining
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medical necessity, provider compensation, health plan liability to members who
fail to receive appropriate care, disclosure and composition of physician
networks, all of which would apply to the Company. In addition, Congress is
considering significant changes to Medicare legislation and has in the past
considered, and may in the future consider, proposals relating to health care
reform. Changes in federal and state laws or regulations, if enacted, could
increase health care costs and administrative expenses, and reductions could be
made in Medicare reimbursement rates. Oxford is unable to predict the ultimate
impact on the Company of recently enacted and future legislation and regulations
but such legislation and regulations, particularly in New York where much of the
Company's business is located, could have a material adverse impact on the
Company's operations, financial condition and prospects.
Premiums for Oxford's Medicare programs are determined through formulas
established by HCFA for Oxford's Medicare contracts. Federal legislation enacted
in 1997 provides for future adjustment of Medicare reimbursement by HCFA which
could reduce the reimbursement received by the Company. Premium reductions, or
premium rate increases in a particular region that are lower than the rate of
increase in health care service expenses for Oxford's Medicare members in such
region, could adversely affect Oxford's results of operations. Risk transfer
provider agreements entered into by Oxford could be adversely affected by
regulatory actions or by the failure of the providers to comply with the terms
of such agreements. Such agreements could also have an adverse effect on the
Company's membership or its relationship with its other providers. Oxford's
Medicare programs are subject to certain additional risks compared to commercial
programs, such as higher comparative medical costs and higher levels of
utilization. Oxford's Medicare programs are subject to higher marketing and
advertising costs associated with selling to individuals rather than to groups.
Further, there can be no assurance that the Company will be successful in
completing or operationalizing such risk transfer and other provider
arrangements.
Service and systems infrastructure problems caused by rapid growth
The Company experienced rapid growth in its business and in its staff in the
period from 1986, when the Company began operations, through 1997. The Company
has been affected and will continue to be affected by its ability to manage such
growth effectively, including its ability to continue to develop processes and
systems to support its operations. In September 1996, the Company converted a
significant part of its business operations to a new computer operating system.
Unanticipated software and hardware problems arising in connection with the
conversion resulted in significant delays in the Company's claims payments and
group and individual billing and adversely affected claims payment and billing.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations". The Company does not intend to promote significant membership or
revenue growth in 1999 because the Company's priority in 1999 will continue to
be to attempt to strengthen its service and systems infrastructure, reduce
medical and administrative spending and increase premium rates. No assurance can
be given that, in the remainder of 1999 and beyond, the Company will not
continue to experience significant service and systems infrastructure problems,
high levels of medical and administrative spending and difficulties in obtaining
premium rate increases. In addition, the Company has experienced attrition of
its Medicare and commercial business in 1998 and the first quarter of 1999 and
there can be no assurance that the Company will be successful in the future in
promoting membership growth and will not continue to experience membership
attrition.
Health care provider network
The Company is subject to the risk of disruption in its health care provider
network. The network physicians, hospitals and other health care providers could
terminate their contracts with the Company, demand higher payments or take other
actions which could have a material adverse effect on the Company's ability to
market its products and service its membership. Furthermore, the effect of
mergers and consolidations of health care providers in the Company's service
areas could enhance the combined entity's bargaining power with respect to
demands for higher reimbursement levels and changes to the Company's utilization
review and administrative procedures.
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Management of information systems
There can be no assurance that the Company will be successful in mitigating
the existing system problems that have resulted in payment delays and claims
processing errors, in developing processes and systems to support its operations
and in improving its service levels. Moreover, operating and other issues can
lead to data problems that affect performance of important functions, including,
but not limited to, claims payment and group and individual billing. There can
also be no assurance that the process of improving existing systems, developing
processes and systems to support the Company's operations and improving service
levels will not be delayed or that additional systems issues will not arise in
the future. See "Other Information--Status of Information Systems".
Year 2000 readiness
The Company's failure to timely resolve its own Year 2000 issues or the
failure of the Company's external vendors to resolve their Year 2000 issues
could have a material adverse effect on the Company's results of operations,
liquidity or financial condition. Further, the Company's estimates for the
future costs and timely and successful completion of its Year 2000 program are
subject to uncertainties that could cause actual results to differ from those
currently projected by the Company. See "Management's Discussion and Analysis
and Results of Operations - Year 2000 Readiness".
Recent events and related publicity
Events at the Company over the course of the last two years have resulted in
adverse publicity. Such events and related publicity may adversely affect the
Company's provider network, the employer renewal process and future enrollment
in the Company's health benefit plans.
In addition, the managed care industry, in general, receives significant
negative publicity. This publicity has led to increased legislation, regulation
and review of industry practices. These factors may adversely affect the
Company's ability to market its products or services or require it to change its
products and services and may increase the regulatory burdens under which the
Company operates, further increasing the costs of doing business and adversely
affecting the Company's results of operations.
Collectibility of advances
As part of its attempts to ameliorate delays in processing claims for
payment in 1997, the Company advanced approximately $276 million to providers
pending the Company's disposition of claims for payment. As of March 31, 1999,
approximately $130.2 million, net of allowances, remained outstanding. See
"Management's Discussion Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources". The NYSID is requiring the
Company to obtain written acknowledgments of such advances from recipients of
advances, and the New Jersey Department of Banking and Insurance is requiring
the Company to provide collateral for repayment of the advances by setting aside
in trust at the parent company funds equal to the admitted portions of the
advances on the New Jersey subsidiary's statutory financial statements. If the
Company is unable to receive written acknowledgments or fails to provide such
collateral there can be no assurance that the insurance regulators will continue
to recognize such advances as admissible assets for regulatory purposes. If the
insurance regulators do not recognize such advances as admissible assets, the
capital of certain of the Company's regulated subsidiaries could be impaired.
The Company may be required to make additional capital contributions to
compensate for any impairment. Although the Company believes that the advances
will be repaid, there can be no assurance that this will occur.
Concentration of business
The Company's commercial and Medicare business is concentrated in New York,
New Jersey and Connecticut, with more than 80% of its tri-state premium revenues
received from New York business. As a result, changes in regulatory, market or
health care provider conditions in any of these states, particularly
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New York, could have a material adverse effect on the Company's business,
financial condition or results of operations. In addition, the Company's revenue
under its contracts with HCFA represented 21.9% of its premium revenue earned
during the year 1998 and 19.2% of premiums earned during the first three months
of 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See information contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" under "Market Risk Disclosures."
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
SECURITIES CLASS ACTION LITIGATION
As previously reported by the Company, following the October 27, 1997
decline in the price per share of the Company's common stock, purported
securities class action lawsuits were filed on October 28, 29, and 30, 1997
against the Company and certain of its officers in the United States District
Courts for the Eastern District of New York, the Southern District of New York
and the District of Connecticut. Since that time, plaintiffs have filed
additional securities class actions (see below) against Oxford and certain of
its directors and officers in the United States District Courts for the Southern
District of New York, the Eastern District of New York, the Eastern District of
Arkansas, and the District of Connecticut.
The complaints in these lawsuits purport to be class actions on behalf of
purchasers of Oxford's securities during varying periods beginning on February
6, 1996 through December 9, 1997. The complaints generally allege that
defendants violated Section 10(b) of the Securities Exchange Act of 1934
("Exchange Act") and Rule 10b-5 thereunder by making false and misleading
statements and by failing to disclose certain allegedly material information
regarding changes in Oxford's computer system, and the Company's membership
enrollment, revenues, medical expenses, and ability to collect on its accounts
receivable. Certain of the complaints also assert claims against the individual
defendants alleging violations of Section 20(a) of the Exchange Act and claims
against all of the defendants for negligent misrepresentation. The complaints
also allege that in violation of Section 20A of the Exchange Act certain of the
individual defendants disposed of Oxford's common stock while the price of that
stock was artificially inflated by allegedly false and misleading statements and
omissions. The complaints seek unspecified damages, attorneys' and experts' fees
and costs, and such other relief as the court deems proper.
The purported class actions commenced in the United States District Court
for the Southern District of New York are Metro Services, Inc., et al. v. Oxford
Health Plans, Inc., et al., No. 97 Civ. 08023 (filed Oct. 29, 1997); Worldco,
LLC, et al. v. Oxford Health Plans, Inc., et al., No. 97 Civ. 8494 (filed Nov.
14, 1997); Jerovsek, et al. v. Oxford Health Plans, Inc., et al., No. 97 Civ.
8882 (filed Dec. 2, 1997); North River Trading Co., LLC v. Oxford Health Plans,
Inc., et al., No. 97 Civ. 9372 (filed Dec. 22, 1997); National Industry Pension
Fund v. Oxford Health Plans, Inc., et al., No. 97 Civ. 9566 (filed Dec. 31,
1997); Scheinfeld v. Oxford Health Plans, Inc., et al., No. 98 Civ. 1399
(originally filed Dec. 31, 1997 in the United States District Court for the
District of Connecticut and transferred); Paskowitz v. Oxford Health Plans,
Inc., et al., No. 98 Civ. 1991 (filed March 19, 1998); and Sapirstein v. Oxford
Health Plans, Inc., et al., No. 98 Civ. 4137 (filed September 11, 1998).
The purported class actions commenced in the United States District Court
for the Eastern District of New York are Koenig v. Oxford Health Plans, et al.,
No. 97 Civ. 6188 (filed Oct. 29, 1997); Wolper v. Oxford Health Plans, Inc., et
al., No. 97 Civ. 6299 (filed Oct. 29, 1997); Tawil v. Oxford Health Plans, Inc.,
et al., No. 97 Civ. 7289 (filed Dec. 11, 1997); Winters, et al. v. Oxford Health
Plans, Inc., et al., No. 97 Civ. 7449 (filed Dec. 18, 1997); and Krim v. Oxford
Health Plans, Inc., et al., No. 98 Civ. 4032 (filed September 5, 1998).
The purported class actions commenced in the United States District Court
for the District of Connecticut are Heller v. Oxford Health Plans, Inc., et al.,
No. 397 CV 02295 (filed Oct. 28, 1997); Fanning v. Oxford Health Plans, Inc., et
al., No. 397 CV 02300 (filed Oct. 29, 1997); Lowrie, IRA v. Oxford Health Plans,
Inc., et al., No. 397 CV 02299 (filed Oct. 29, 1997); Barton v. Oxford Health
Plans, Inc., et al., No. 397 CV 02306 (filed Oct. 30, 1997); Sager v. Oxford
Health Plans, Inc., et al., No. 397 CV 02310 (filed Oct. 30, 1997); Cohen v.
Oxford Health Plans, Inc., et al., No. 397 CV 02316 (filed Oct. 31, 1997);
Katzman v. Oxford Health Plans, Inc., et al., No. 397 CV 02317 (filed Oct. 31,
1997); Shapiro v. Oxford Health Plans, Inc., et al., No. 397 CV 02324 (filed
Oct. 31, 1997); Willis v. Oxford Health Plans, Inc., et al., No. 397 CV 02326
(filed Oct. 31, 1997); Saura v. Oxford Health Plans, Inc., et al., No. 397 CV
02329 (filed
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Nov. 3, 1997); Selig v. Oxford Health Plans, Inc., et al., No. 397 CV 02337
(filed Nov. 4, 1997); Brandes v. Oxford Health Plans, Inc., et al., No. 397 CV
02343 (filed Nov. 4, 1997); Ross v. Oxford Health Plans, Inc., et al., No. 397
CV 02344 (filed Nov. 4, 1997); Sole v. Oxford Health Plans, Inc., et al., No.
397 CV 02345 (filed Nov. 4, 1997); Henricks v. Wiggins, et al., No. 397 CV 02346
(filed Nov. 4 1997); Williams v. Oxford Health Plans, Inc., et al., No. 397 CV
02348 (filed Nov. 5, 1997); Direct Marketing Day in New York, Inc. v. Oxford
Health Plans, Inc., et al., No. 397 CV 02349 (filed Nov. 5, 1997); Howard Vogel
Retirement Plans, Inc., et al. v. Oxford Health Plans, Inc., et al., No. 397 CV
02325 (filed Oct. 31, 1997 and amended Dec. 17, 1997); Serbin v. Oxford Health
Plans, Inc., et al., No. 397 CV 02426 (filed Nov. 18, 1997); Hoffman v. Oxford
Health Plans, Inc., et al., No. 397 CV 02458 (filed Nov. 24, 1997); Armstrong v.
Oxford Health Plans, Inc., et al., No. 397 CV 02470 (filed Nov. 25, 1997);
Roeder, et al. v. Oxford Health Plans, Inc., et al., No. 397 CV 02496 (filed
Nov. 26, 1997); Braun v. Oxford Health Plans, Inc., et al., No. 397 CV 02510
(filed Dec. 1, 1997); Blauvelt, et al. v. Oxford Health Plans, Inc., et al., No.
397 CV 02512 (filed Dec. 2, 1997); Hobler et al. v. Oxford Health Plans, Inc.,
et al., No. 397 CV 02535 (filed Dec. 3, 1997); Bergman v. Oxford Health Plans,
Inc., et al., No. 397 CV 02564 (filed Dec. 8, 1997); Pasternak v. Oxford Health
Plans, Inc., et al., No. 397 CV 02567 (filed Dec. 8, 1997); Perkins Partners I,
Ltd. v. Oxford Health Plans, Inc., et al., No. 397 CV 02573 (filed Dec. 9,
1997); N.I.D.D., Ltd. v. Oxford Health Plans, Inc., et al., No. 397 CV 02584
(filed Dec. 9, 1997); Burch v. Oxford Health Plans, Inc., et al., No. 397 CV
02585 (filed Dec. 9, 1997); Mark v. Oxford Health Plans, Inc., et al., No. 397
CV 02594 (filed Dec. 11, 1997); Ross, et al. v. Oxford Health Plans, Inc., et
al., No. 397 CV 02613 (filed Dec. 12, 1997); Lerchbacker v. Oxford Health Plans,
Inc., et al., No. 397 CV 02670 (filed Dec. 22, 1997); State Board of
Administration of Florida v. Oxford Health Plans, Inc., et al., No. 397 CV 02709
(filed Dec. 29, 1997) (the complaint, although purportedly not brought on behalf
of a class of shareholders, invites similarly situated persons to join as
plaintiffs); and Ceisler v. Oxford Health Plans, Inc., et al., No. 397 CV 02729
(filed Dec. 31, 1997).
The purported class actions commenced in the United States District Court
for the Eastern District of Arkansas is Rudish v. Oxford Health Plans, Inc., et
al., No. LR-C-97-1053 (filed Dec. 29, 1997).
The Company anticipates that additional class action complaints containing
similar allegations may be filed in the future.
On January 6, 1998, certain plaintiffs filed an application with the
Judicial Panel on Multidistrict Litigation ("JPML") to transfer most of these
actions for consolidated or coordinated pretrial proceedings before Judge
Charles L. Brieant of the United States District Court for the Southern District
of New York. The Oxford defendants subsequently filed a similar application with
the JPML seeking the transfer of all of these actions for consolidated or
coordinated pretrial proceedings, together with the shareholder derivative
actions discussed below, before Judge Brieant. On April 28, 1998, the JPML
entered an order transferring substantially all of these actions for
consolidated or coordinated pretrial proceedings, together with the federal
shareholder derivative actions discussed below, before Judge Brieant.
On July 15, 1998, Judge Brieant appointed the Public Employees Retirement
Associates of Colorado ("ColPERA"), three individual shareholders (the "Vogel
plaintiffs") and The PBHG Funds, Inc. ("PBHG"), as co-lead plaintiffs and
ColPERA's counsel (Grant & Eisenhofer), the Vogel plaintiffs' counsel (Milberg
Weiss Hynes Lerach & Bershad), and PBHG's counsel (Chitwood & Harley), as
co-lead counsel. ColPERA appealed this decision. On October 15, 1998 the United
States Court of Appeals for the Second Circuit dismissed the appeal.
On October 2, 1998, the co-lead plaintiffs filed a consolidated amended
complaint ("Amended Complaint") in the securities class actions. The Amended
Complaint (which has since been further amended by stipulation) names as
defendants Oxford, Oxford Health Plans (NY), Inc., KPMG LLP (which was Oxford's
outside independent auditor during 1996 and 1997) and several current or former
Oxford directors and officers (Stephen F. Wiggins, William M. Sullivan, Andrew
B. Cassidy, Brendan R. Shanahan, Benjamin H. Safirstein, Robert M. Smoler,
Robert B. Milligan, David A. Finkel, Jeffery H. Boyd, and Thomas A. Travers).
The Amended Complaint purports to be brought on behalf of purchasers of Oxford's
common stock during the period from November 6, 1996 through December 9, 1997
("Class Period"), purchasers of Oxford call options or sellers of Oxford put
options during the Class Period and on behalf of persons who, during the Class
Period, purchased Oxford's securities contemporaneously with sales of
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Oxford's securities by one or more of the individual defendants. The Amended
Complaint alleges that defendants violated Section 10(b) of the Exchange Act and
Rule 10b-5 promulgated thereunder by making false and misleading statements and
failing to disclose certain allegedly material information regarding changes in
Oxford's computer system and the Company's membership, enrollment, revenues,
medical expenses and ability to collect on its accounts receivable. The Amended
Complaint also asserts claims against the individual defendants alleging
"controlling person" liability under Section 20(a) of the Exchange Act. The
Amended complaint also alleges violations of Section 20A of the Exchange Act by
virtue of the individual defendants' sales of shares of Oxford's common stock
while the price of that common stock was allegedly artificially inflated by
allegedly false and misleading statements and omissions. The Amended Complaint
seeks unspecified damages, attorneys' and experts' fees and costs, and such
other relief as the court deems proper.
On December 18, 1998, Oxford and the individual defendants moved to dismiss
the Amended Complaint on the grounds that: (1) plaintiffs have failed to allege
with particularity, as required by the Private Securities Litigation Reform Act
of 1995 (the "PSLRA") and Rule 9(b) of the Federal Rules of Civil Procedure,
that any of the defendants acted with scienter; (2) plaintiffs cannot premise
their securities fraud claims on allegations of mismanagement; (3) plaintiffs
have failed, as required by the PSLRA and Rule 9(b), to specify the particular
facts on which they base their allegations on "information and belief"; (4) none
of the misstatements or omissions alleged in the Amended Complaint are
actionable under the federal securities law; (5) the individual defendants
cannot be liable under the federal securities laws for alleged misstatements
that they did not make; (6) no basis exists for "controlling person" liability
under Section 20(a) of the Exchange Act; and (7) no basis exists for illegal
insider trading liability under Section 20A of the Exchange Act. Briefing on the
motion to dismiss was completed on April 2, 1999 and oral arguments were held on
April 28, 1999.
The State Board of Administration of Florida (the "SBAF") has stipulated
that, in the action brought by it individually (the "SBAF Action"), it will be
bound by the dismissal of any claims it has that are asserted in the Amended
Complaint. In addition, the parties have stipulated, and Judge Brieant has
ordered, that SBAF may file an amended complaint ("Amended SBAF Complaint")
within thirty (30) days after Judge Brieant rules on Oxford's and the individual
defendants' motion to dismiss the class actions. The Amended SBAF Complaint
likely will assert claims similar to those asserted in the Amended Complaint in
the purported class actions (see above). The Amended SBAF Complaint may also
assert claims against all of the defendants alleging: (i) violations of Section
18(a) of the Exchange Act, by virtue of alleged false and misleading information
disseminated in the 10-K report Oxford filed for the year ended December 31,
1996; (ii) violations of the Florida Blue Sky laws; and (iii) common law fraud
and negligent misrepresentation. The Amended SBAF Complaint likely will seek
unspecified damages, attorneys' and experts' fees and costs, and such other
relief as the court deems proper. Defendants intend to move to dismiss the SBAF
Action, to the extent it includes claims not precluded by Judge Brieant's
decision on the motions to dismiss the Amended Complaint. Pursuant to a
stipulation so-ordered by Judge Brieant, such a motion is to be filed within
sixty days after the later of either a ruling on Oxford's and the individual
defendants' motion to dismiss the securities class actions or the serving upon
Oxford of the Amended SBAF Complaint.
The outcomes of these actions cannot be predicted at this time, although the
Company believes that it and the individual defendants have substantial defenses
to the claims asserted and intends to defend the actions vigorously.
SHAREHOLDER DERIVATIVE LITIGATION
As previously reported by the Company, in the months following the October
27, 1997 decline in the price per share of the Company's common stock, ten
purported shareholder derivative actions were commenced on behalf of the Company
in Connecticut Superior Court (the "Connecticut derivative actions") and in the
United States District Courts for the Southern District of New York and the
District of Connecticut (the "federal derivative actions") against the Company's
directors and certain of its officers (and the Company itself as a nominal
defendant).
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These derivative complaints generally alleged that defendants breached their
fiduciary obligations to the Company, mismanaged the Company and wasted its
assets in planning and implementing certain changes to Oxford's computer system,
by making misrepresentations concerning the status of those changes in Oxford's
computer system, by failing to design and to implement adequate financial
controls and information systems for the Company, and by making
misrepresentations concerning Oxford's membership enrollment, revenues, profits
and medical costs in Oxford's financial statements and other public
representations. The complaints further allege that certain of the defendants
breached their fiduciary obligations to the Company by disposing of Oxford
common stock while the price of that common stock was artificially inflated by
their alleged misstatements and omissions. The complaints seek unspecified
damages, attorneys' and experts' fees and costs and such other relief as the
court deems proper. None of the plaintiffs has made a demand on the Company's
Board of Directors that Oxford pursue the causes of action alleged in the
complaint. Each complaint alleges that plaintiff's duty to make such a demand
was excused by the directors' alleged conflict of interest with respect to the
matters alleged therein.
The purported shareholder derivative actions commenced in Connecticut
Superior Court are Reich v. Wiggins, et al., No. CV 97-485145 (filed on or about
Dec. 12, 1997); Gorelkin v. Wiggins, et al., No. CV98-0163665 S (filed on or
about Dec. 24, 1997); and Kellmer v. Wiggins, et al., No. CV 98-0163664 S HAS
(filed on or about Jan. 28, 1998).
The purported shareholder derivative actions commenced in the United States
District Court for the Southern District of New York are Roth v. Wiggins, et
al., No. 98 Civ. 0153 (filed Jan. 12, 1998); Plevy v. Wiggins, et al., No. 98
Civ. 0165 (filed Jan. 12, 1998); Mosson v. Wiggins, et al., No. 98 Civ. 0219
(filed Jan. 13, 1998); Boyd, et al. v. Wiggins, et al., No. 98 Civ. 0277 (filed
Jan. 16, 1998); and Glick v. Wiggins, et al., No. 98 Civ. 0345 (filed Jan. 21,
1998).
The purported shareholder derivative actions commenced in the United States
District Court for the District of Connecticut are Mosson v. Wiggins, et al.,
No. 397 CV 02651 (filed Dec. 22, 1997), and Fisher, et al. v. Wiggins, et al.,
No. 397 CV 02742 (filed Dec. 31, 1997).
In March 1998, Oxford and certain of the individual defendants moved to
dismiss or, alternatively, to stay the Connecticut derivative actions. Since
then, the parties to the Connecticut derivative actions have stipulated, under
certain conditions, to hold all pretrial proceedings in those actions in
abeyance during the pretrial proceedings in the federal derivative actions, and
to allow the plaintiffs in the Connecticut derivative actions to participate to
a limited extent in any discovery that is ultimately ordered in the federal
derivative actions. Stipulations memorializing this agreement have been entered
in the Connecticut derivative actions. On February 19, 1999, Judge Brieant
entered an order in the federal derivative actions permitting the plaintiffs in
the Connecticut derivative actions to participate to a limited extent in any
discovery that ultimately occurs in the federal derivative actions.
In addition, on January 27, 1998, defendants filed an application with the
JPML to transfer the federal derivative actions for consolidated or coordinated
pretrial proceedings before Judge Charles L. Brieant of the Southern District of
New York. On April 28, 1998, the JPML entered an order transferring all of these
actions for consolidated or coordinated pretrial proceedings, together with the
securities class actions discussed above, before Judge Brieant.
The parties to the federal derivative actions have agreed to suspend
discovery in those actions until the filing of a consolidated amended derivative
complaint in those actions and during the pendency of any motion to dismiss or
to stay the federal derivative actions or the securities class actions. A
stipulation memorializing this agreement, consolidating the federal derivative
actions under the caption In re Oxford Health Plans, Inc. Derivative Litigation,
MDL-1222-D, and appointing lead counsel for the federal derivative plaintiffs,
was entered and so ordered by Judge Brieant on September 26, 1998.
On October 2, 1998, the federal derivative plaintiffs filed an amended
complaint. On January 29, 1999, the plaintiffs filed a second amended derivative
complaint (the "Amended Derivative Complaint"). The Amended Derivative Complaint
names as defendants certain of Oxford's directors and a former director (Stephen
F. Wiggins, James B. Adamson, Robert B. Milligan, Fred F. Nazem, Marcia J.
Radosevich,
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Benjamin H. Safirstein and Thomas A. Scully) and the Company's former auditors
KPMG LLP, together with the Company itself as a nominal defendant. The Amended
Derivative Complaint alleges that the individual defendants breached their
fiduciary obligations to the Company, mismanaged the Company and wasted its
assets in planning and implementing certain changes to Oxford's computer system,
by making misrepresentations concerning the status of those changes to Oxford's
computer system, by failing to design and implement adequate financial controls
and information systems for the Company and by making misrepresentations
concerning Oxford's membership, enrollment, revenues, profits and medical costs
in Oxford's financial statements and other public representations. The Amended
Derivative Complaint further alleges that certain of the individual defendants
breached their fiduciary obligations to the Company by selling shares of Oxford
common stock while the price of the common stock was allegedly artificially
inflated by their alleged misstatements and omissions. The Amended Derivative
Complaint seeks declaratory relief, unspecified damages, attorneys' and experts'
fees and costs and such other relief as the court deems proper. No demand has
been made upon the Company's Board of Directors that Oxford pursue the causes of
action alleged in the Amended Derivative Complaint. The Amended Derivative
Complaint alleges that the federal derivative plaintiffs' duty to make such a
demand was excused by the individual defendants' alleged conflict of interest
with respect to the matters alleged therein.
On March 15, 1999, defendants moved to dismiss the Amended Derivative
Complaint. Pursuant to stipulations entered into and filed by the parties and
expected to be so ordered by Judge Brieant, proceedings in the federal
derivative actions are stayed in all respects during the pendency of any motion
to dismiss those actions.
Although the outcome of the federal and Connecticut derivative actions
cannot be predicted at this time, the Company believes that the defendants have
substantial defenses to the claims asserted in the complaints.
STATE INSURANCE DEPARTMENTS
On August 10, 1998, the New York State Insurance Department ("NYSID")
completed its triennial examination and market conduct examination of Oxford's
New York HMO and insurance subsidiaries. In the Reports on Examination (the
"Reports") the NYSID, based on information available through July 1998,
determined that certain assets on the December 31, 1997 balance sheets of the
Company's New York subsidiaries should not be admitted for statutory reporting
purposes and NYSID actuaries recorded additional reserves totaling approximately
$81.3 million for both subsidiaries on the balance sheet as determined by the
examiners. The Company contributed $152 million to the capital of its New York
HMO and insurance subsidiaries in satisfaction of the issues raised in the
Reports relating to the subsidiaries' financial statements, and maintaining such
subsidiaries' compliance with statutory capital requirements as of June 30,
1998. The Reports also made certain recommendations relating to financial
record-keeping, settlement of intercompany accounts and compliance with certain
NYSID regulations. The Company has agreed to address the recommendations in the
Reports. As previously reported, in December 1997, the Company made additions of
$164 million to the reserves of its New York subsidiaries at the direction of
the NYSID. The NYSID issued a Market Conduct Report identifying several alleged
violations of state law and NYSID regulations. On December 22, 1997, the NYSID
and Oxford entered into a stipulation under which Oxford promised to take
certain corrective measures and to pay restitution and a $3 million fine. The
stipulation provides that the NYSID will not impose any other fines for Oxford's
conduct up to November 1, 1997. The NYSID has directed the Company's New York
subsidiaries to obtain notes or other written evidence of agreements to repay
from each provider who has received an advance. The NYSID has continued to
review market conduct issues, including, among others, those relating to claims
processing and continues to express concern with the Company's claims turnaround
and performance. The Company has agreed to take certain other corrective actions
with respect to certain of these market conduct issues, but additional
corrective action may be required and such actions could adversely affect the
Company's results of operations.
On January 5, 1999, and on March 29, 1999, the Company agreed to pay fines
of $40,900 and $51,900, respectively, to the NYSID in connection with certain
alleged violations of New York's prompt payment law. The NYSID has also
requested additional information concerning delayed claim payments and has
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informed Oxford that it will continue to review complaints on an ongoing basis
to establish violations of the prompt pay statute, and that such violations
would result in additional fines. Fines for similar alleged violations have also
been imposed on other health plans in New York.
The NYSID has also raised certain issues relating to the Company's
methodology for determining premium rates for the Company's large group
business. The NYSID has informed the Company that it intends to issue rule
interpretations which affect pricing practices of the Company and competing
health plans in the large group market. These interpretations could have the
effect of requiring changes in health plan pricing practices and the form in
which the Company's large group Freedom Plan product is offered to customers in
the future.
At this time, the Company cannot predict the outcome of continuing market
conduct reviews by the NYSID, enforcement of the New York prompt payment law or
changes in premium pricing practices.
The NJDBI is nearing completion of its market conduct and financial
examinations of the Company's New Jersey HMO subsidiary. The market conduct
examination relates to the subsidiary's activities in 1997 and the first half of
1998 and is expected to assert deficiencies relating to, among others, claims
processing and handling of complaints. The NJDBI may seek imposition of a fine
in connection with completion of the examination. In connection with the
financial examination, the NJDBI is requiring the Company to provide certain
collateral for repayment of advances made in 1997 to providers in respect of
delayed claims by setting aside in trust at the parent company funds equal to
the admitted portions of the advances on the New Jersey subsidiary's statutory
financial statements.
An agreement with the Heritage New Jersey Medical Group ("Heritage") covers
all of the Company's approximately 13,500 Medicare members in New Jersey as of
March 31, 1999. The NJDBI has advised the Company that the risk-sharing aspects
of the agreement with Heritage should be suspended pending NJDBI's review of the
need for additional regulation of risk-sharing arrangements. The Company intends
to work with NJDBI and Heritage to arrive at appropriate interim and long-term
arrangements, but there can be no assurance that such arrangements will be
reached or that the risk-sharing agreement will ultimately be approved. A
failure to gain approval of satisfactory arrangements would likely increase the
Company's health care costs for this business and could eventually lead to
reductions in New Jersey Medicare membership
The Company is also subject to ongoing examinations with respect to
financial condition and market conduct for its HMO and insurance subsidiaries in
other states where it conducts business. The outcome of these examinations
cannot be predicted at this time.
NEW YORK STATE ATTORNEY GENERAL
As previously reported, on November 6, 1997, the New York State Attorney
General served a subpoena duces tecum on the Company requiring the production of
various documents, records and materials "in regard to matters relating to the
practices of the Company and others in the offering, issuance, sale, promotion,
negotiation, advertisement, distribution or purchase of securities in or from
the State of New York." Since then, Oxford has produced a substantial number of
documents in response to the subpoena, and expects to produce additional
documents. In addition, some of Oxford's present and former directors and
officers have provided testimony to the Attorney General's staff.
In addition, as previously reported, the Company entered into an Assurance
of Discontinuance, effective July 25, 1997, with the Attorney General under
which the Company agreed to pay interest at 9% per annum on provider clean
claims not paid by Oxford within 30 days on its New York commercial and Medicaid
lines of business until January 22, 1998. Since that time, the Company's
obligations to make prompt payments have been governed by applicable New York
law. In addition, contemporaneously, the Company agreed to pay varying interest
rates to providers in Connecticut, New Jersey, New Hampshire and Pennsylvania.
The Company has subsequently responded to a number of inquiries by the
Attorney General with respect to Oxford's compliance with the Assurance of
Discontinuance. On February 2, 1998, the Attorney
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General served a subpoena duces tecum on Oxford seeking production of certain
documents relating to complaints from providers and subscribers regarding
nonpayment or untimely payment of claims, interest paid under the Assurance,
accounts payable, provider claims processing, and suspended accounts payable.
Oxford has produced documents in response to the subpoena.
On April 12, 1999, the Attorney General served a subpoena duces tecum on
Oxford seeking production of certain documents relating to Oxford's handling of
inquiries, claims and complaints regarding emergency medical services. The
subpoena was accompanied by a letter stating that, based on an examination of
materials relating to Oxford's individual New York plans, Oxford appeared to be
in violation of certain provisions of the Managed Care Reform Act of 1996 that
relate to the provision and disclosure of emergency medical services. By letter
dated April 20, 1999, Oxford submitted a response to the Attorney General's
letter outlining the steps it has taken to comply with the relevant provisions
of the Managed Care Reform Act.
The Attorney General's Health Care Bureau also periodically inquires of the
Company with respect to hospital and provider payment issues and member
complaints.
The Company intends to cooperate fully with the Attorney General's
inquiries, the outcome of which cannot be predicted at this time.
SECURITIES AND EXCHANGE COMMISSION
As previously reported, the Company received an informal request on December
9, 1997 from the Securities and Exchange Commission's Northeast Regional Office
seeking production of certain documents and information concerning a number of
subjects, including disclosures made in the Company's October 27, 1997 press
release announcing a loss in the third quarter. Oxford has produced documents
and has provided information in response to this informal request.
The Commission has served the Company and certain of its current and former
officers and directors with several subpoenae duces tecum requesting documents
concerning a number of subjects, including, but not limited to, the Company's
public disclosure of internal and external audits, uncollectible premium
receivables, timing of and reserves with respect to payments to vendors, doctors
and hospitals, payments and advances to medical providers, adjustments related
to terminations of group and individual members and for nonpaying group and
individual members, computer system problems, agreements with the New York State
Attorney General, employment records of former employees, and the sale of Oxford
securities by officers and directors. Oxford and certain of its current and
former officers and directors have produced and are continuing to produce
documents in response to these subpoenae. Some of Oxford's present and former
directors and officers have provided testimony to the Commission, and others are
expected to do so.
Oxford intends to cooperate fully with the Commission and cannot predict the
outcome of the Commission's investigation at this time.
HEALTH CARE FINANCING ADMINISTRATION
From February 9, 1998 through February 13, 1998, HCFA conducted an enhanced
site visit at Oxford to assess Oxford's compliance with federal regulatory
requirements for HMO eligibility and Oxford's compliance with its obligations
under its contract with HCFA. During the visit, HCFA monitored, among other
things, Oxford's administrative and managerial arrangements, Oxford's quality
assurance program, Oxford's health services delivery program, and all aspects of
Oxford's implementation of its Medicare programs. On May 20, 1998, the Company
received a final report from HCFA and on June 10, 1998, the Company voluntarily
suspended marketing and most enrollment of new members under its Medicare
programs in New York, New Jersey, Connecticut and Pennsylvania. This action was
taken by the Company in order to provide the Company with an opportunity to
strengthen its operations and institute certain corrective actions required by
HCFA as a result of its visit. This action, however, did not apply to potential
enrollees of the Company's Medicare group accounts. On January 6, 1999, HCFA
notified the
30
<PAGE> 31
Company that it was satisfied that the necessary corrective actions had been
taken, permitting reinstitution of marketing and enrollment of individual
enrollees into the Company's Medicare programs. HCFA will continue to monitor
the Company's operations to ensure that the Company complies with its corrective
action plans and improves its operating performance in key areas, including
claims payment. In February 1999, the Company reinstituted marketing to and
enrollment of Medicare beneficiaries. However, there can be no assurance that
administrative or systems issues or the Company's current or future provider
arrangements will not result in adverse action by HCFA.
ARBITRATION PROCEEDINGS
As previously reported by the Company, on February 3, 1998, the New York
County Medical Society ("NYCMS") initiated an arbitration proceeding before the
American Arbitration Association ("AAA") in New York against Oxford alleging
breach of the written agreements between Oxford and some NYCMS physician members
and failure to adopt standards and practices consistent with the intent of those
agreements. The notice of intention to arbitrate was subsequently amended to
join thirteen additional New York medical associations as co-claimants. NYCMS
and the other claimants seek declaratory and injunctive relief requiring various
changes to Oxford's internal practices and policies, including practices in the
processing and payment of claims submitted by physicians. Oxford has petitioned
the New York State Supreme Court for a permanent stay of this proceeding; the
outcome of this motion cannot be predicted at this time. On or about September
9, 1998, the NYCMS announced that it was breaking off settlement negotiations
with Oxford, and would resume its litigation against Oxford.
Also, some individual physicians claiming that payments under their
contracts with Oxford were delayed have announced their intention to seek
arbitration, one of which has been withdrawn by the physician. Oxford has been
served with additional notices of intent to arbitrate, on behalf of more than
twenty individual physicians, many of which may not have been filed with the
AAA. At least six arbitration proceedings have been filed and commenced by
individual physicians.
In November 1998, various individual physicians purported to amend their
demands for arbitration by adding a claim for punitive damages. These claims all
allege that Oxford's failure to develop the computer systems and personnel
necessary for the prompt and efficient processing of claims was reckless and
intentional, and that Oxford's failure to pay claims was arbitrary, capricious
and without good faith basis.
In addition, on March 30, 1998, Oxford received a demand for arbitration
from two physicians purporting to commence a class action arbitration before the
AAA in Connecticut against Oxford alleging breach of contract and violation of
the Connecticut Unfair Insurance Practices Act.
The outcome and settlement prospects of the various arbitration proceedings
cannot be predicted at this time although the Company believes that it has
substantial defenses to the claims asserted and intends to defend the
arbitrations vigorously.
JEFFREY S. OPPENHEIM, M.D., ET AL. V. OXFORD HEALTH PLANS, INC., ET AL.,
INDEX NO. 97/109088
As previously reported by the Company, on May 19, 1997, Oxford was served
with a purported "Class Action Complaint" filed in the New York State Supreme
Court, New York County by two physicians and a medical association of five
physicians. Plaintiffs alleged that Oxford (i) failed to make timely payments to
plaintiffs for claims submitted for health care services and (ii) improperly
withheld from plaintiffs a portion of plaintiffs' agreed compensation.
Plaintiffs alleged causes of action for common law fraud and deceit, negligent
misrepresentation, breach of fiduciary duty, breach of implied covenants and
breach of contract. The complaint sought an award of an unspecified amount of
compensatory and exemplary damages, an accounting, and equitable relief.
On July 24, 1997, Oxford and plaintiffs reached a settlement in principle of
the class claims wherein Oxford agreed to pay, from September 1, 1997 to January
1, 2000, interest at certain specified rates to physicians who did not receive
payments from Oxford within certain specified time periods after submitting
"clean claims" (a term that was to be applied in a manner consistent with
certain industry guidelines).
31
<PAGE> 32
Moreover, Oxford agreed to provide to plaintiffs' counsel, on a confidential
basis, certain financial information that Oxford believed would demonstrate that
Oxford acted within its contractual rights in making decisions on payments
withheld from plaintiffs and members of the alleged class. The settlement in
principle provided that, if plaintiffs' counsel reasonably does not agree with
Oxford's belief in this regard, plaintiffs retain the right to proceed
individually (but not as a class) against Oxford by way of arbitration. Oxford
has supplied financial information to plaintiffs' counsel and has exchanged
draft settlement papers with plaintiffs' counsel.
OTHER
On May 18, 1998, a purported "Class Action Complaint" was brought against
Oxford and other un-named defendant plan administrators filed in the United
States District Court for the Eastern District of New York by four plaintiffs
who claim to be beneficiaries of defendants' health insurance plans seeking
declaratory and other relief from defendants for alleged wrongful denial of
insurance coverage for the drug Viagra. On September 8, 1998, Oxford moved to
dismiss the complaint based on plaintiffs' failure to exhaust their
administrative remedies; the outcome of this motion cannot be predicted this
time.
On October 26, 1998, Complete Medical Care, P.C. ("CMC"), United Medical
Care, P.C. ("UMC"), Comprehensive Health Care Corp. ("CHC") and Oscar Fukilman,
M.D. commenced actions in the Supreme Court of the State of New York for New
York County against Oxford and certain of its officers. The complaints in United
Medical Care, P.C. v. Oxford Health Plans, Inc. et al., Index No. 605176/98, and
Complete Medical Care, P.C. v. Oxford Health Plans, Inc. et al., Index No.
605178/98, generally allege that Oxford and the individual defendants: (i)
breached, and have announced their intention to breach, certain agreements with
CMC and UMC for the delivery of health care services to certain of Oxford's
members; (ii) breached an implied convenant of good faith and fair dealing with
UMC and CMC; (iii) fraudulently induced CMC and UMC to enter into their
respective agreements with Oxford; (iv) tortiously interfered with CMC's and
UMC's current and prospective contractual relations with certain physicians; and
(v) defamed CMC and UMC. The complaints each seek at least $165 million in
damages, at least $500 million in punitive damages, unspecified interest, costs
and disbursements, and such other relief as the court deems proper. The
complaint in the Complete Medical Care action also alleges that Oxford has
unjustly enriched itself by withholding from CMC certain funds to which CMC
claims it is entitled, and seeks the imposition of a constructive trust with
respect to those funds. The complaint in Oscar Fukilman, M.D. et al v. Oxford
Health Plans, Inc. et al., Index No. 604177/98, alleges that Oxford and certain
officers defamed, and conspired to defame, Dr. Fukilman and CHC, and seeks at
least $25 million in damages and unspecified costs and disbursements and such
other relief as the court deems proper.
On January 8, 1999, defendants: (1) served an answer and counterclaims in
the Complete Medical Care case; (2) filed a motion to compel arbitration and
dismiss the United Medical Care complaint; and (3) moved to dismiss the Fukilman
v. Oxford complaint.
Although the outcome of these actions cannot be predicted at this time, the
Company believes that it and the individual defendants have substantial defenses
to the claims asserted and intends to defend the actions vigorously.
Oxford, like HMOs and health insurers generally, excludes certain health
care services from coverage under its POS, HMO, PPO and other plans. In the
ordinary course of business, the Company is subject to legal claims asserted by
its members for damages arising from decisions to restrict reimbursement for
certain treatments. The loss of even one such claim, if it were to result in a
significant punitive damage award, could have a material adverse effect on the
Company's financial condition or results of operations. In addition, the risk of
potential liability under punitive damages theories may significantly increase
the difficulty of obtaining reasonable settlements of coverage claims. The
financial and operational impact that such evolving theories of recovery may
have on the managed care industry generally, or Oxford in particular, is
presently unknown.
32
<PAGE> 33
In the ordinary course of its business, the Company also is subject to
claims and legal actions by members in connection with benefit coverage
determinations and alleged acts by network providers and by health care
providers and others.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
See information contained in note 3 of "Notes to Consolidated Financial
Statements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" under "Liquidity and Capital Resources".
ITEM 5. OTHER INFORMATION
STATUS OF INFORMATION SYSTEMS
In September 1996, the Company converted a significant part of its business
operations to a new computer operating system developed at Oxford. From
September 1996, most business functions at the Company were operated on the new
system, with the exception of the processing of claims, which continued to
operate on the previous system. Since the conversion, the Company must operate
both systems and reconcile the two systems on an ongoing basis by a process
known as "backbridging".
Unanticipated software and hardware problems arising in connection with the
conversion resulted in significant delays in the Company's claims payments and
group and individual billing and adversely affected claims payment and billing
accuracy. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations". The Company implemented a number of systems and
operational improvements during 1996, 1997 and 1998 in an effort to improve
claims turnaround times and claims backlogs and claims and billing errors.
However, the backbridging process continues to create issues relating to
transfer of data, which continues to cause delays for certain claims, and there
have been delays in delivering all needed functionality under the new system.
Moreover, the Company's claims turnaround times and accuracy still need
improvement to reach acceptable levels. The Company is continuing to seek
improvements in the processes referred to above and to add needed functionality.
The Company has undertaken a review of its information systems needs and
capabilities. As a result of this review, the Company has decided to continue
operations on its current claims processing systems and continue to work on
requisite modifications and enhancements.
Although the Company made certain modifications and enhancements to attempt
to improve systems controls and processing efficiencies during 1998 and the
first quarter of 1999, the Company continues to review its long-term information
system strategy. The Company's resources are currently focused on (i) Year 2000
readiness, (ii) making requisite modifications and enhancements to the existing
information systems and (iii) establishing improved performance and management
information.
There can be no assurance that the Company will be successful in mitigating
the existing system problems that have resulted in payment delays and claims
processing errors. Moreover, operating and other issues can lead to data
problems that affect performance of important functions, including claims
payment and group and individual billing. There can also be no assurance that
the process of improving existing systems will not be delayed or that additional
systems issues will not arise in the future.
For information as to the "Year 2000" readiness, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Readiness."
33
<PAGE> 34
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description of Document
3(a) Second Amended and Restated Certificate of
Incorporation, as amended, of the Registrant
4(a) Certificate of Designations of Series D
Cumulative Preferred Stock
4(b) Certificate of Designations of Series E
Cumulative Preferred Stock
10(a) Amendment, dated April 13, 1999, to
Employment Agreement between the Registrant
and Norman C. Payson, M.D.
10(b) Amendment, dated May 5, 1999, to Employment
Agreement between the Registrant and
Jeffery H. Boyd
10(c) Oxford Health Plans, Inc. Special Salary
Continuation Plan
10(d) Share Exchange Agreement, dated as of
February 13, 1999 by and among TPG Partners
II, L.P., TPG Investors II, L.P., TPG
Parallel II, L.P., Chase Equity Associates,
L.P., Oxford Acquisition Corp. and the DLJ
Entities listed therein
(b) Reports on Form 8-K
In a report on Form 8-K dated and filed on January 8,
1999, the Company reported, under Item 5. "Other Events,"
its press release concerning preliminary January 1999
membership results and government program developments.
In a report on Form 8-K dated and filed on January 29,
1999, the Company reported, under Item 5. "Other Events,"
the filing deadline for stockholder proposals to be
considered for inclusion in the Company's proxy statement
and form of proxy for the annual meeting of stockholders
to be held on May 13, 1999.
In a report on Form 8-K dated and filed on February 25,
1999, the Company reported, under Item 5. "Other Events,"
its fourth quarter 1998 earnings press release.
In a report on Form 8-K/A dated February 25, 1999, and
filed on March 19, 1999, the Company reported, under Item
5. "Other Events," revisions to the financial statements
previously included in its fourth quarter 1998 earnings
press release.
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, 1999 /s/ NORMAN C. PAYSON, M.D.
- ------------------------ ---------------------------------------------
Date NORMAN C. PAYSON, M.D.,
CHIEF EXECUTIVE OFFICER
May 10, 1999 /s/ YON Y. JORDEN
- ------------------------ ---------------------------------------------
Date YON Y. JORDEN,
CHIEF FINANCIAL OFFICER
34
<PAGE> 35
OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------ -----------------------
<S> <C>
3(a) Second Amended and Restated Certificate of Incorporation, as amended, of the
Registrant, incorporated by reference to Exhibit 3(a) of the Registrant's
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998
(File No. 0-19442)
4(a) Certificate of Designations of Series D Cumulative Preferred Stock,
incorporated by reference to Exhibit 3(a) of the Registrant's Annual Report
on Form 10-K/A for the fiscal year ended December 31, 1998 (File No. 0-19442)
4(b) Certificate of Designations of Series E Cumulative Preferred Stock,
incorporated by reference to Exhibit 3(a) of the Registrant's Annual Report
on Form 10-K/A for the fiscal year ended December 31, 1998 (File No. 0-19442)
10(a) Amendment, dated April 13, 1999, to Employee Agreement between Registrant and
Norman C. Payson, M.D.*
10(b) Amendment, dated May 5, 1999, to Employee Agreement between Registrant and
Jeffery H. Boyd*
10(c) Oxford Health Plans, Inc. Special Salary Continuation Plan*
10(d) Share Exchange Agreement, dated as of February 13, 1999 by and among TPG
Partners II, L.P., TPG Investors II, L.P., TPG Parallel II, L.P., Chase
Equity Associates, L.P., Oxford Acquisition Corp. and the DLJ Entities listed
therein, incorporated by reference to Exhibit 10(rr) of the Registrant's
Annual Report on Form 10-K/A for the fiscal year ended December 31, 1998
(File No. 0-19442)
</TABLE>
_____________
* Filed herewith
35
<PAGE> 1
Exhibit 10(a)
conformed
AMENDMENT NUMBER 2 TO EMPLOYMENT AGREEMENT
This Amendment Number 2 to Employment Agreement (the "Amendment")
amends that certain Employment Agreement by and between Oxford Health Plans,
Inc. (the "Company") and Norman C. Payson, M.D. ("Executive"), effective as of
February 23, 1998 (as amended, the "Agreement"). Capitalized terms used but not
defined herein shall have the meanings ascribed thereto in the Agreement.
The Company and the Executive, pursuant to, and in accordance with,
Section 13 of the Agreement, hereby agree to amend the Agreement by replacing
the second sentence of Section 4(b)(i) in its entirety with the following
sentence:
"As promptly as practicable, and in any event no later than May 21,
1999, the Company shall, at its expense, cause all shares subject to
the Option to be registered under the Securities Act of 1933, as
amended (the "Securities Act"), and registered or qualified under
applicable state laws, to be freely resold."
This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all of which constitute one and
the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Amendment this
__13th_ day of April 1999.
OXFORD HEALTH PLANS, INC.
By: /s/ JEFFERY H. BOYD
-------------------------------------
Jeffery H. Boyd, Executive Vice
President and General Counsel
/s/ NORMAN C. PAYSON, M.D.
-------------------------------------
Norman C. Payson, M.D.
<PAGE> 1
Exhibit 10(b)
Conformed
May 5, 1999
Jeffery H. Boyd
34 Brookridge Drive
Greenwich, CT 06830
Dear Jeff:
This letter will serve to further amend the letter agreement dated June
26, 1998, as amended on December 10, 1998, between you and Oxford Health Plans,
Inc. (the "Corporation"), by adding the following clause to the second sentence
of paragraph three thereof:
"; provided, however, notwithstanding any other provision of your
Employment Agreement to the contrary, that the cash payment required to be made
by the Corporation in such instance, shall be equal to $1,200,000."
A copy of the letter agreement and the December 10, 1998 amendment
thereto is attached hereto for reference.
We acknowledge that this letter is being entered into in consideration
of your continued employment with the Corporation and that your Employment
Agreement dated as of August 14, 1996, and amended as of February 23, 1998, and
the letter agreement dated June 26, 1998, as amended on December 10, 1998 and
again by this letter agreement, shall remain in full force and effect.
Sincerely,
/S/ NORMAN C. PAYSON, M.D.
Norman C. Payson, M.D.
Chief Executive Officer
Agreed and Accepted:
/S/ JEFFERY H. BOYD
- -----------------------------
Jeffery H. Boyd
Date: May 5, 1999
NCP/bh
Attachment
<PAGE> 1
Exhibit 10(c)
OXFORD HEALTH
SPECIAL SALARY CONTINUATION PLAN
ARTICLE I
Purpose and Establishment of the Plan
Oxford Health Plans, Inc. (the "Company") hereby establishes and adopts
the Oxford Health Special Salary Continuation Plan (the "Plan"). The purpose of
the Plan is to provide supplemental severance benefits to certain employees of
the Company and its subsidiaries. The Plan is intended to constitute an
"employee welfare benefit plan" within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
ARTICLE II
Definitions
2.10 "Acquirer" shall mean any business entity which consummates a
Change-in-Control Transaction with the Company.
2.20 "Annual Base Salary" shall mean the Participant's annual base salary on
January 1 of the Plan Year, plus any shift differentials.
2.30 "Attachment A" shall mean the schedule of benefits which sets forth the
benefits in Section 4.1(a).
2.40 "Board" shall mean the board of directors of the Company.
2.50 "Cause" shall mean:
(a0) The commission of any fraud or embezzlement against the
Company;
(b0) The willful and continued refusal to perform duties or willful
and continued refusal to comply with directives of superiors,
in each case after the Employee's failure to remedy such
conduct within 5 days after receiving written notice from the
Company;
(c0) The conviction of a felony; or
(d0) An order by, or an agreement by an Employee with, an
appropriate governmental health care regulatory agency
removing or otherwise disqualifying an Employee from
employment with the Company or any of its affiliates.
2.6 "Change-in-Control Transaction" shall mean the occurrence of any of the
following events with respect to a Company:
<PAGE> 2
(a0) Any "person" (as defined below) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934), directly or indirectly, of securities of the
Company representing 30% or more of the total voting power
represented by the Company's then outstanding voting
securities; or
(b0) A change in the composition of the Board occurs, as a result
of which fewer than two-thirds of the incumbent directors are
directors who either (i) had been directors of the Company on
the "look-back date" (as defined below) or (ii) were elected,
or nominated for election, to the Board with the affirmative
votes of at least a majority of the directors who had been
directors of the Company on the "look-back date" and who were
still in office at the time of the election or nomination; or
(c0) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) at least 80% of the total voting power
represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(d0) The stockholders of the Company approve (i) a plan of complete
liquidation of the Company or (ii) an agreement for the sale
or disposition by the Company of all or substantially all of
the Company's assets.
For purposes of this Section, the term "person" shall have the same
meaning as when used in sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, but shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or of a parent or subsidiary of the Company, and (ii) a
corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportions as their ownership of the
common stock of the Company.
For purposes of this Section, the term "look-back date" shall mean the
date 24 months prior to the change in the composition of the Board.
Any other provision of this Section notwithstanding, the term "Change
in Control" shall not include either of the following events, if
undertaken at the election of the Company:
(i) A transaction, the sole purpose of which is to change
the state of the Company's incorporation; or
(ii) A transaction, the result of which is to sell all or
substantially all of the assets of the Company to
another corporation (the "surviving corporation");
provided that the surviving corporation is owned
directly or indirectly by the stockholders of the
Company immediately following such transaction in
substantially the same proportions as their ownership
of the
-2-
<PAGE> 3
Company's common stock immediately preceding such
transaction; and provided, further, that the
surviving corporation expressly assumes this Plan.
2.7 "Company" shall mean Oxford Health Plans, Inc., its subsidiaries on the
Effective Date, and any subsidiary or affiliate which adopts this Plan
and any successor thereto.
2.8 "Effective Date" shall mean August 28, 1998.
2.9 "Employee" shall mean a person who renders services to the Company as a
common law employee or officer.
2.10 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as it has been and may be amended from time to time and any regulations
promulgated thereunder and interpretations as such may effect this
Plan.
2.11 "Good Reason" shall mean:
(a) Any reduction in Annual Base Salary greater than 10%;
(b) Relocation of the Employee's place of employment or service to
a location more than twenty-five (25) driving miles from each
of the Employee's existing place of employment and the
Employee's primary residence or involving an unreasonable
increase in the Employee's commute from residence to the new
location; or
(c) A significant change in regularly scheduled work-week hours
of the Employee.
2.12 "Participant" shall mean any Employee (except an Employee who is not
designated as eligible by the Company) who becomes covered under the
Plan in accordance with Article III.
2.13 "Plan" shall mean the Oxford Health Special Salary Continuation Plan,
as from time to time amended.
2.14 "Plan Administrator" shall mean the person or entity appointed to
manage and administer the Plan, as provided in Article V.
2.15 "Release" shall mean a contract between the Participant and the Company
or Acquirer, whereby the Participant accepts Severance Pay on the
condition that he will release the Company or Acquirer of any liability
for the Participant's Termination of Employment.
2.16 "Severance Pay" shall mean payment received by the Participant under
this Plan.
2.17 "Termination of Employment" shall mean when the Employee's employment
or service is terminated:
(a) By the Employee for Good Reason; or
-3-
<PAGE> 4
(b) By the Company or Acquirer without Cause.
ARTICLE III
Eligibility
As determined by the Company, an Employee shall become a Participant in
the Plan upon his Termination of Employment (i) within eighteen (18) months
after the consummation of a Change-in-Control Transaction, with respect to the
Company he or she is employed by or (ii) in contemplation of a Change-in-Control
Transaction prior to the consummation thereof. No Employee will become a
Participant until the Employee signs an appropriate Release.
ARTICLE IV
Benefits
4.1 Severance Pay. Upon Termination of Employment in accordance with
Article III, a Participant will receive Severance Pay equal to the
greater of (a) or (b) below:
(a) The benefit provided by Attachment A; or
(b) The benefit provided under any agreement entered into between
the Company and the Participant prior to the date of the
Change-in-Control Transaction.
The first four weeks of Severance Pay shall be paid unconditionally.
Any remaining Severance Pay may, at the discretion of the Plan
Administrator, be offset on a weekly basis by salary earned at a new
employer.
4.2 Welfare Benefits. Each Participant will receive continuation of medical
and other welfare benefits for a period of weeks equal to the number of
weeks of Severance Pay.
4.3 Form of Payment of Severance Pay. Severance Pay will be paid in
periodic payments according to the Participant's regular payroll
schedule, provided that the Plan Administrator reserves the right at
any time to pay the remaining Severance Pay in a single lump sum
payment.
ARTICLE V0
Administration
5.1 Plan Administrator. The general administration of the Plan, and the
responsibility for carrying out the provisions hereof, shall be the
responsibility of the Plan Administrator. The Plan Administrator shall
be appointed by the Board.
-4-
<PAGE> 5
5.2 Powers and Duties of the Plan Administrator. The Plan Administrator
shall have complete control of the administration of the Plan, with all
powers necessary to enable it properly to carry out its duties in that
respect including the authority to:
(a) Interpret this Plan and to determine all questions arising in
the administration, construction and application of the Plan.
The decision of the Plan Administrator upon all matters within
the scope of its authority shall be conclusive and binding on
all parties.
(b) Obtain from the Company and from Employees such information as
shall be necessary for the proper administration of the Plan,
and, when appropriate, to furnish such information promptly to
persons entitled thereto;
(c) Prepare and distribute, in such manner as it determines to be
appropriate, information explaining the Plan;
(d) Furnish the Company, upon request, such reports with respect
to the administration of the Plan as are reasonable and
appropriate; and
(e) Establish and maintain such accounts in the name of the
Company and of each Employee as are necessary.
The Plan Administrator shall have the authority, in its sole
discretion, to delegate its authority hereunder to a committee of one
or more persons for the purpose of administering claims for benefits of
Participants under the Plan (a "Claims Committee"). In the event that
one or more Claims Committees are established hereunder, such
committees shall have the full authority of the Plan Administrator to
the extent provided hereunder.
5.3 The Company, as Plan Sponsor. The Company shall be responsible for all
functions assigned or reserved to it under the Plan, including the
right to remove or replace the Plan Administrator or members of any
Claims Committee. Any authority assigned or reserved to the Company
under the Plan, other than responsibilities assigned to the Plan
Administrator, shall be exercised by resolution of the Board.
5.4 Named Fiduciary. The Plan Administrator is hereby designated the "named
fiduciary" of the Plan (within the meaning of Section 402 of ERISA).
5.5 Claims Procedure. It is not necessary that a Participant apply for
benefits under the Plan. However, if a Participant wishes to file a
claim for benefits:
(a) All claims for benefits shall be in writing and shall be filed
with the Plan Administrator.
(b) If the Plan Administrator (or any applicable Claims Committee)
wholly or partially denies a Participant's claim for benefits
hereunder, the Plan
-5-
<PAGE> 6
Administrator (or any applicable Claims Committee) shall give
the Participant written notice within thirty (30) days after
the receipt of the claim setting forth:
(1) 0The specific reason(s) for the denial;
(2) Specific references to pertinent Plan provisions on
which the denial is based;
(3) A description of any additional material or
information which must be submitted to perfect the
claim, and an explanation of why such material or
information is necessary; and
(4) An explanation of the Plan's review procedure.
(c) In the event of a benefit claim denial, a Participant shall
have sixty (60) days after the day on which such written
notice of denial is received in which to apply (in person or
by authorized representative) in writing to the Plan
Administrator (or any applicable Claims Committee) for a full
and fair review of the denial of the claim. In connection with
such review, the Participant (or his or her representative)
shall be afforded a reasonable opportunity to review pertinent
documents and may submit issues and comments in writing. If
requested by the Participant, the Plan Administrator (or any
applicable Claims Committee) shall arrange a meeting with the
Participant and/or representative within thirty (30) days
after receipt of such written request therefor, for the
purpose of hearing the Participant's contentions and receiving
such relevant evidence as the Participant may wish to offer.
(d) The Plan Administrator (or any applicable Claims Committee)
shall issue a decision on review within (60) days after the
receipt of the Participant's written request. The decision of
the Plan Administrator (or any applicable Claims Committee)
shall be in writing and shall set forth specific reasons for
the decision and specific references to the pertinent Plan
provisions on which the decision is based.
(e) If a Participant's claim is denied by the Plan Administrator
(or any applicable Claims Committee) and such Participant has
exhausted the remedial procedures set forth herein, such
Participant may bring an action in any federal or state court
of competent jurisdiction.
5.6 Agents. The Plan Administrator may employ such agents to perform
clerical and other services, and such counsel, accountants and
actuaries as it may deem necessary or desirable for administration of
the Plan. The Plan Administrator may rely upon the written opinions or
certificates of any agent, counsel, or actuary.
5.7 Indemnification. In connection with any action or determination, the
Plan Administrator shall be entitled to rely upon information furnished
by the Company. To the extent permitted by law, the Company shall
indemnify and hold harmless the Plan Administrator
-6-
<PAGE> 7
(as well as each person delegated by the Plan Administrator to act on
its behalf, including, without limitation, any member of a Claims
Committee) against any personal liability or expense incurred by him as
a result of any act or omission in his capacity as Plan Administrator,
except for his own gross negligence or willful misconduct. Such
indemnification shall include attorney's fees and other costs and
expenses reasonably incurred in defense of any action brought against
the individual by reason of any such act of failure to act.
5.8 Procedures. The Plan Administrator shall adopt such bylaws as it deems
desirable and shall keep all such books of account, records and other
data as may be necessary for proper administration of the Plan. The
Plan Administrator shall keep a record of all actions and forward all
necessary communications to the Company. The Plan Administrator shall
keep records containing all relevant data pertaining to any person
affected hereby and his rights under the Plan.
5.9 Co-Fiduciary Breach. All references in this paragraph to any committee
shall apply as well to individual members of the committee and to the
Plan Administrator. No bond or other security shall be required of the
Plan Administrator or any member of the Claims Committee unless he
handles funds or other property of the Plan. Neither the Plan
Administrator nor any member of the Claims Committee shall be liable or
responsible for the acts of commission or omission of another fiduciary
unless:
(a) He knowingly participates or knowingly attempts to conceal the
act or omission of another fiduciary and knows that the act or
omission is a breach of fiduciary responsibility by the other
fiduciary; or
(b) He has knowledge of a breach by the other fiduciary and does
not make reasonable efforts to remedy the breach; or
(c) The breach of his own fiduciary responsibility permits the
other fiduciary to commit a breach.
5.10 Standard of Review. The Plan Administrator (and to the extent
delegated, the Claims Committee) shall have sole discretion to make
decisions regarding an Employee's benefits and such decision shall be
conclusive and binding on all parties. The Plan Administrator, in its
discretion, shall have the authority to interpret all provisions of
this Plan, and to make all decisions regarding administration of the
Plan and eligibility for benefits under the Plan, and such
interpretation shall be conclusive and binding on all parties. All
decisions of the Plan Administrator with respect to this Plan shall be
respected unless arbitrary and capricious.
5.11 Resignation or Removal. The Plan Administrator or any member of the
Claims Committee may resign by giving written notice to the Company not
less than fifteen (15) days before the effective date of his
resignation. Any Plan Administrator or Claims Committee member may be
removed, without cause, by the Board, which Board shall fill
-7-
<PAGE> 8
vacancies as soon as reasonably possible after a vacancy occurs. Until
a new appointment is made, the remaining members of the Claims
Committee shall have full authority to act.
ARTICLE VI
Plan Amendment And Termination
The Company shall have the right at any time, and from time to time, to
amend, in whole or in part, and to terminate any and all of the provisions of
this Plan, but only prior to, and not in contemplation of, a Change-In-Control
Transaction.
ARTICLE VII
Miscellaneous
7.1 Interests Not Transferable. The interests of persons entitled to
benefits under the Plan are not subject to their debts or other
obligations and, except as may be required by the tax withholding
provisions of the Internal Revenue Code or any state's income tax act,
may not be voluntarily or involuntarily sold, transferred, alienated,
assigned or encumbered.
7.2 Notice. Any notice or other communication required or permitted
pursuant to the terms of this Plan shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United
States Mail, first class, postage prepaid, addressed to the intended
recipient at his last known address.
7.3 Construction of Plan. Subject to ERISA, this Plan shall be construed
according to the laws of the State of Connecticut and all provisions
hereof shall be administered according to the laws of the State of
Connecticut.
7.4 Gender and Number. Where the context permits, words in the masculine
gender shall include the feminine and neuter genders, the plural shall
include the singular and the singular shall include the plural.
7.5 Miscellaneous.
(a) All actions or determinations of the Plan Administrator or the
Company hereunder shall be made or result from uniform
standards applied in a nondiscriminatory manner with respect
to all Employees.
(b) Any person affected hereby may consult with the Plan
Administrator on any matters relating to his interest in the
Plan.
-8-
<PAGE> 9
(c) Neither the Plan Administrator nor any member of the Claims
Committee shall vote or decide upon any matters relating
solely to himself or to any of his rights or benefits under
this Plan.
(d) Any act which the Plan authorizes or requires the Plan
Administrator to act which has been delegated to the Claims
Committee may be done by a majority of the members of the
Claims Committee at the time; and the action of such majority
by a vote at a meeting, or in writing without a meeting shall
constitute the action of the Claims Committee and shall have
the same effect for all purposes as if assented to by all of
the members of the Claims Committee at the time in office.
7.6 Withholding of Taxes. The Company will withhold from any amounts
payable under the Plan all federal, state, city and local taxes as
shall be legally required.
7.7 No Right to Company Assets. A Participant shall not acquire by reason
of the Plan any right in or title to any assets, funds or property of
the Company. Any benefits which become payable hereunder (i) are
unfunded obligations of the Company and (ii) shall be paid from the
general assets of the Company.
7.8 Employment Rights. Participation in the Plan will not give a
Participant the right to be rehired or retained in the employ of the
Company, nor will participation in the Plan give any Participant any
right or claim to any benefit under the Plan, unless specifically
provided under the terms of the Plan.
7.9 Delegation of Authority by Company. Whenever the Company under the
terms of this Plan is permitted or required to do or perform any act or
matter or thing, it shall be done and performed by any duly authorized
delegate.
7.10 Severability. In the event any provision of the Plan shall be held to
be illegal or invalid for any reason, such illegality or invalidity
shall not affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if such illegal or invalid provisions had
never been contained in the Plan.
IN WITNESS WHEREOF, this Plan has been duly executed by Oxford Health
Plans, Inc. this ____ day of ___________________, 199__.
OXFORD HEALTH PLANS, INC.
By
--------------------------------------
Its
-9-
<PAGE> 10
ATTACHMENT A
The Severance Pay under Section 4.1(a) is the greater of one week's salary for
each 6 months completed of continuous service to a maximum of twenty-six weeks,
or the minimum amount based on the following formula:
<TABLE>
<CAPTION>
Annual Pay or Position Minimum Severance Payment
---------------------- -------------------------
<S> <C>
$40,000 or less 4 weeks
$40,001 to $60,000 6 weeks
$60,001 to $80,000 8 weeks
$80,001 and over 10 weeks
Director 6 months
Vice President 12 months
</TABLE>
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 207,801
<SECURITIES> 813,261
<RECEIVABLES> 133,636
<ALLOWANCES> 37,759
<INVENTORY> 0
<CURRENT-ASSETS> 1,247,187
<PP&E> 268,879
<DEPRECIATION> 171,725
<TOTAL-ASSETS> 1,505,181
<CURRENT-LIABILITIES> 1,007,494
<BONDS> 365,576
309,898
0
<COMMON> 808
<OTHER-SE> (178,575)
<TOTAL-LIABILITY-AND-EQUITY> 1,505,181
<SALES> 0
<TOTAL-REVENUES> 1,060,305
<CGS> 0
<TOTAL-COSTS> 871,873
<OTHER-EXPENSES> 25,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,050
<INCOME-PRETAX> 24,645
<INCOME-TAX> 10,350
<INCOME-CONTINUING> 14,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,295
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
