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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 24, 1997
COVENTRY CORPORATION
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(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 0-19147 62-1297579
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(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
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53 Century Boulevard, Suite 250, Nashville, TN 37214
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (615) 391-2440
Not Applicable
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(Former name or former address, if changed since last report)
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Item 5. Other Events
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On February 24, 1997, Coventry Corporation announced operating results for
its fourth quarter and year ended December 31, 1996, as set forth in the
attached Exhibit 99 to this Form 8-K.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(c) Exhibit:
99 Press Release dated February 24, 1997.
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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 hereunto duly authorized.
COVENTRY CORPORATION
Date: February 26, 1997 By: /s/ Shirley R. Smith
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Shirley R. Smith
Vice President and Corporate General Counsel
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EXHIBIT INDEX
No. Exhibit
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99 Press Release dated February 24, 1997.
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CVTY Announces Year-End Results
Page 1
February 24, 1997
Exhibit 99
PRESS RELEASE
FOR IMMEDIATE RELEASE CONTACT: DALE B. WOLF
CHIEF FINANCIAL OFFICER
(615) 391-2448
COVENTRY ANNOUNCES YEAR-END RESULTS
AND NONRECURRING FOURTH QUARTER CHARGE OF $41 MILLION
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COMPANY ALSO REAFFIRMS STRATEGIC INITIATIVES
Nashville, Tennessee (February 24, 1997) -- Coventry Corporation
(Nasdaq/NM:CVTY) today reported operating results for the fourth quarter and
year ended December 31, 1996. In addition to recognizing a nonrecurring fourth
quarter charge of $41 million, the Company increased medical reserves by $25
million, attributable to the Company's quarterly reserve setting process,
including adjusting for settlement of prior quarters.
For the fourth quarter ended December 31, 1996, revenues totaled $289.6
million, a 30% gain over the prior year's $222.7 million. Net loss for the
fourth quarter, including a $41 million nonrecurring pre-tax charge to earnings
and a $4.9 million pre-tax gain from the sale of Champion Dental, was $52.1
million, or $1.58 per share, compared with a net loss of $13.5 million, or $0.42
per share, for the year-earlier period. Net loss before the nonrecurring items
for the quarter ended December 31, 1996, was $21.3 million, or $0.65 per share.
For the year ended December 31, 1996, revenues were $1,057.1 million, up
24% over prior year revenues of $852.4 million. Net loss for the year, including
nonrecurring items, was $61.3 million, or $1.86 per share, compared with
earnings of $18,000, or $0.00 per share, for the prior year.
As a result of management's recent intensive review, the Company recorded
nonrecurring charges of $41 million in the quarter ended December 31, 1996, to
increase reserves related to accounts receivable and long-term contracts, to
write-down certain capitalized assets, including goodwill, as well as several
other items. As a result of these charges, the Company is in default of its
required year-end financial covenants. Coventry is continuing to negotiate with
its lenders with regards to amending and restructuring its credit facility,
including application of the proceeds of anticipated asset sale transactions,
timing and amounts of required principle repayments, and historic and future
financial covenant compliance. Management expects to have this process completed
by March 31.
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CVTY Announces Year-End Results
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February 24, 1997
Allen F. Wise, president and chief executive officer of Coventry, in
commenting on the Company's financial results, said, "During the past four
months, we have exhaustively reviewed Coventry's operations and the results of
that review highlighted the need to strengthen certain balance sheet reserves.
We understand the issues, both operational and financial, and have initiated
measures to address our problems."
The Company has accelerated its efforts to reduce overall administrative
and medical costs, solidify pricing, monitor the Company's balance sheet, and
focus resources on the Company's most profitable lines of business. Progress on
some of those initiatives includes:
STRONG ENROLLMENT GROWTH
December 31, 1996, enrollment in the Company's health plans increased by
199,000 members, or 28.6% over the prior year, to 894,000 while, during the same
period, HMO and other at-risk enrollment grew by 138,000, or 22.9%. The Company
continues to aggressively market its services across multiple products in each
of its markets.
PRICING
Dale B. Wolf, chief financial officer for Coventry, said, "The Company has
strengthened its pricing processes and disciplines. While we recognize that
continued growth is essential to our success, we will grow in a financially
responsible way. We believe we are entering into an improved pricing environment
in our major markets. Coventry's major competitors have been adversely affected
by the same pricing pressures as we have, thus creating the likelihood of more
reasonable price increases in our markets throughout 1997 and 1998."
FOCUS RESOURCES
Coventry has recently taken several actions to focus its resources on its
core HMO business. It recently announced its intention to sell its group medical
practices in Pittsburgh, Pennsylvania, and St. Louis, Missouri. In addition to
financial gains from these anticipated sales, the successful divestiture of
these business units will enable the signing of long-term global capitation
agreements with major provider organizations that will reduce Coventry's medical
costs for approximately 23% of its risk enrollment, or 172,000 members. At the
end of 1996, Coventry completed the sale of its St. Louis, Missouri-based
Champion Dental Plan, resulting in a one-time pre-tax gain of $4.9 million.
Coventry has previously announced its intention to divest itself of its Medicaid
HMO in Florida and is in negotiations with potential acquirors.
RE-ENGINEERING
In an effort to improve service and reduce costs, the Company is engaged in
a disciplined process to re-engineer Claims, Information Systems, and Customer
Service. The process will involve the installation of self-directed,
cross-functional teams. While such a disciplined process does not create an
immediate reduction in expense, the Company believes it is the most
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CVTY Announces Year-End Results
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February 24, 1997
responsible way to improve service and create a lasting lower cost structure, a
critical ingredient to success in the managed care industry.
NEW MANAGEMENT
The Company has already added several experienced leaders. Robert A. Mayer
joined Coventry's largest plan, HealthAmerica, as senior vice president and
chief operations officer. At the corporate level, a new vice president of
operations and systems, Skip Carroll, along with Ed Arnold, who is experienced
in installation of self-directed teams, joined the Company to lead the process
re-engineering effort. Also at the corporate level, senior vice president and
chief financial officer, Dale B. Wolf, is heading up overall financial
management, underwriting, rating, and reserve control, as well as
expense-control functions and other general senior management responsibilities.
Mr. Wise added, "We have tremendous presence in good markets where we are
well regarded for our service and the quality of our health care. We remain
committed to delivering the highest quality health care in all our communities.
Our status as ranked by the National Committee of Quality Assurance (NCQA) and
other regulatory bodies continues to be of the highest caliber. We are well
positioned in membership strength, marketplace concentration and product
diversity. Our Missouri Medicaid program is doing very well and our Medicare
risk initiative is steadily increasing its contribution to profitability. We
have repositioned our balance sheet to address our reserve needs. With the
problems of the past behind us, we can turn our attention to capitalizing on our
strengths."
Coventry Corporation, headquartered in Nashville, Tennessee, is a managed
health care company that provides a wide range of health benefits and services
to 894,000 members in a broad cross section of employer and government-funded
groups in Pennsylvania, Ohio, West Virginia, Missouri, Illinois, Virginia and
Florida. The Company operates from regional headquarters in Pittsburgh and
Harrisburg, Pennsylvania; St. Louis, Missouri; Richmond, Virginia; and
Jacksonville, Florida.
This press release contains forward-looking information. The
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
may be significantly impacted by certain risks and uncertainties described
herein and in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission for the year ended December 31, 1995.
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CVTY Announces Year-End Results
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February 24, 1997
COVENTRY CORPORATION
UNAUDITED FINANCIAL HIGHLIGHTS
(In thousands, except per share and membership data)
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THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
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PERCENT PERCENT
1996 1995 CHANGE 1996 1995 CHANGE
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Operating revenues $ 289,552 $ 222,733 30.0% $1,057,129 $ 852,390 24.0%
Operating earnings (loss) (74,371) (23,410) NM (91,346) (1,275) NM
Earnings (loss) before income
taxes and minority interests (68,778) (22,904) NM (84,224) 1,549 NM
Net earnings (loss) (52,139) (13,523) NM (61,287) 18 NM
Earnings (loss) per share $ (1.58) $ (0.42) NM $ (1.86) $ 0.00 NM
Weighted average number of
common and common
equivalent shares outstanding 33,024 32,416 1.9% 33,011 32,164 2.6%
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CVTY Announces Year-End Results
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February 24, 1997
COVENTRY CORPORATION
UNAUDITED FINANCIAL HIGHLIGHTS
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December 31,
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1996 1995 % Change
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Total enrollment by market:
Western Pennsylvania 296,396 252,153 17.6%
Central Pennsylvania 245,051 158,760 54.4%
St. Louis 253,602 189,647 33.7%
Richmond 70,985 68,765 3.2%
Jacksonville 28,042 26,162 7.2%
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Total 894,076 695,487 28.6%
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Risk enrollment by market:
Western Pennsylvania 250,831 221,176 13.4%
Central Pennsylvania 173,151 120,369 43.9%
St. Louis 229,028 177,752 28.8%
Richmond 60,055 57,796 3.9%
Jacksonville 28,042 26,162 7.2%
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Total 741,107 603,255 22.9%
Non-risk enrollment 152,969 92,232 65.9%
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Total 894,076 695,487 28.6%
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January 1,
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1997 1996 % Change
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Total enrollment by market:
Western Pennsylvania(1) 297,984 281,834 5.7%
Central Pennsylvania 253,615 209,563 21.0%
St. Louis 260,045 196,795 32.1%
Richmond 63,399 68,371 (7.3)%
Jacksonville 26,848 24,212 10.9%
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Total 901,891 780,775 11.6%
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Risk enrollment by market:
Western Pennsylvania(1) 262,770 237,999 10.4%
Central Pennsylvania 182,897 139,029 31.6%
St. Louis 237,129 185,096 28.1%
Richmond 53,615 57,339 (6.5)%
Jacksonville 26,848 24,212 10.9%
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Total 763,259 643,675 18.6%
Non-risk enrollment 138,632 137,100 2.0%
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Total 901,891 780,775 15.5%
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(1) Western Pennsylvania January 1, 1996, enrollment includes 15,800 members
from the Aetna Health Plans' acquisition, which was finalized in the first
quarter of 1996.
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CVTY Announces Year-End Results
Page 6
February 24, 1997
COVENTRY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share data)
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Three Months Ended Year Ended
December 31, December 31,
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1996 1995 1996 1995
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Operating revenues:
Managed care premiums $ 278,501 $ 220,399 $ 1,035,778 $ 844,032
Managed care services 11,051 2,334 21,351 8,358
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Total operating revenues 289,552 222,733 1,057,129 852,390
Operating expenses:
Health benefits 275,417 200,024 930,739 713,226
Selling, general and administrative 55,955 42,120 165,081 123,523
Provision for multi-year contracts 1,800 -- 9,793 --
Depreciation and amortization 30,751 3,999 42,862 14,666
Merger costs -- -- -- 2,250
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Total operating expenses 363,923 246,143 1,148,475 853,665
Operating earnings (loss) (74,371) (23,410) (91,346) (1,275)
Other income, net of interest expense 5,593 506 7,122 2,824
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Earnings (loss) before income taxes
and minority interest (68,778) (22,904) (84,224) 1,549
Provision for (benefit from) income taxes (16,682) (9,426) (22,860) 1,530
Minority interest in earnings (loss) of
consolidated subsidiary, net of income tax 43 45 (77) 1
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Net earnings (loss) $ (52,139) $ (13,523) $ (61,287) $ 18
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Net earnings (loss) per common
and common equivalent share $ (1.58) $ (0.42) $ (1.86) $ 0.00
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Weighted average number of common and
common equivalent shares outstanding 33,024 32,416 33,011 32,164
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Certain 1995 amounts have been reclassified to conform to 1996 presentation.
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CVTY Announces Year-End Results
Page 7
February 24, 1997
COVENTRY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
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December 31, December 31,
1996 1995
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ASSETS:
Current assets:
Cash and short term investments $ 98,007 $ 85,843
Other current assets 86,428 57,593
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Total current assets 184,435 143,436
Long-term assets 264,510 242,239
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TOTAL ASSETS $ 448,945 $ 385,675
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Medical costs payable $ 146,082 $ 92,160
Other current liabilities 117,919 64,103
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Total current liabilities 264,001 156,263
Long-term liabilities 84,517 75,561
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Total liabilities 348,518 231,824
Stockholders' equity 100,427 153,851
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 448,945 $ 385,675
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