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Securities and Exchange Commission
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
Commission File Number: 000-18839
UNITED AMERICAN HEALTHCARE CORPORATION
(Exact Name of Registrant as Specified in Charter)
MICHIGAN 38-2526913
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1155 BREWERY PARK BOULEVARD, SUITE 200
DETROIT, MICHIGAN 48207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 393-0200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
(Title of Class)
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
--- ---
THE NUMBER OF OUTSTANDING SHARES OF REGISTRANT'S COMMON STOCK AS OF NOVEMBER 9,
1999 was 6,779,134.
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As filed with the Securities and Exchange Commission on November 9, 1999
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UNITED AMERICAN HEALTHCARE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C>
Item 1. Unaudited Condensed Consolidated Financial Statements--
Condensed Consolidated Balance Sheets-September 30, 1999
and June 30, 1999 2
Condensed Consolidated Statements of Operations--Three
Months Ended September 30, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows--Three
Months Ended September 30, 1999 and 1998 4
Notes to the Unaudited Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
EXHIBITS 18
</TABLE>
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PART I.
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
--------------- ------------
ASSETS (Unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 18,153 $ 17,286
Marketable securities, available for sale 1,804 1,290
Premium receivables 4,667 5,445
Notes receivable - 8,432
Management fee receivable 3,967 2,932
Other receivables 165 223
Prepaid expenses and other 439 290
Deferred income taxes 227 227
--------- ---------
Total current assets 29,422 36,125
Property and equipment, net 3,640 4,001
Intangible assets, net 4,206 4,374
Surplus note receivable, net 2,300 2,300
Marketable securities 1,731 1,548
Deferred income taxes 326 326
Other assets 1,027 577
--------- ---------
$ 42,652 $ 49,251
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current liabilities
Current portion of long-term debt $ 4,348 $ 12,737
Medical claims payable 21,454 19,810
Accounts payable and accrued expenses 3,381 2,959
Accrued compensation and related benefits 1,058 1,309
Other current liabilities 529 448
Deferred income taxes 514 514
--------- ---------
Total current liabilities 31,284 37,777
Long-term debt, less current portion 250 375
Accrued rent 700 700
Deferred income taxes 39 39
Shareholders' equity
Preferred stock, 5,000,000 shares authorized; none issued - -
Common stock, no par, 15,000,000 shares authorized; 6,779,134 and 6,947,683
issued and outstanding at September 30, 1999 and June 30, 1999, respectively 11,151 11,445
Accumulated deficit (618) (925)
Accumulated other comprehensive loss, net of income taxes (154) (160)
--------- ---------
10,379 10,360
========= =========
$ 42,652 $ 49,251
========= =========
</TABLE>
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
2
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
---------- -----------
<S> <C> <C>
REVENUES
Medical premiums $ 20,311 $ 16,585
Management fees from related party 4,449 5,302
Interest and other income 443 465
-------- --------
Total revenues 25,203 22,352
EXPENSES
Medical services 16,859 14,097
Marketing, general and administrative 6,957 6,705
Depreciation and amortization 834 887
Interest expense 189 495
-------- --------
Total expenses 24,839 22,184
-------- --------
Earnings before income taxes 364 168
Income tax expense 57 48
-------- --------
NET EARNINGS $ 307 $ 120
======== ========
NET EARNINGS PER COMMON SHARE - BASIC
Net earnings per common share $ 0.05 $ 0.02
======== ========
Weighted average shares outstanding 6,800 6,578
======== ========
NET EARNINGS PER COMMON SHARE - DILUTED
Net earnings per common share $ 0.05 $ 0.02
======== ========
Weighted average shares outstanding 6,800 6,754
======== ========
</TABLE>
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
3
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 307 $ 120
Adjustments to reconcile net earnings to net cash provided by operating activities
Loss on disposal of assets 22 -
Depreciation and amortization 834 887
Net change in assets and liabilities 1,099 (97)
---------- ----------
Net cash provided by operating activities 2,262 910
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of marketable securities (691) -
Proceeds from the sale of property and equipment - 122
Purchase of property and equipment (328) (12)
Proceeds from collection of notes receivable 8,432 2,000
Cash used in discontinued operation - (1,047)
---------- ----------
Net cash provided by investing activities 7,413 1,063
CASH FLOWS FROM FINANCING ACTIVITIES
Payments made on long-term debt (8,514) (2,000)
Repurchase of common stock (370) -
Issuance of common stock 76 -
---------- ----------
Net cash used in financing activities (8,808) (2,000)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 867 (27)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 17,286 13,259
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,153 $ 13,232
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 189 $ 495
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES
Issuance of notes receivable in connection with sale of discontinued operation - $ 15,750
========== ==========
</TABLE>
See accompanying Notes to the Unaudited Condensed Consolidated Financial
Statements.
4
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
- -----------------------------------------------------
NOTE 1 - BASIS OF PREPARATION
- -----------------------------------------------------
The accompanying consolidated financial statements include the accounts
of United American Healthcare Corporation and all of its majority-owned
subsidiaries, together referred to as the "Company." All significant
intercompany transactions and balances have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
of the Company have been prepared in conformity with generally accepted
accounting principles and with the instructions for Form 10-Q and Rule 10-01 of
Regulation S-X as they apply to interim financial information. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
financial position and results of operations have been included. The results of
operations for the three-month period ended September 30, 1999 are not
necessarily indicative of the results of operations for the full fiscal year
ending June 30, 2000. Audited June 30, 1999 financial statements, with
accompanying footnotes, can be found in the Company's most recent annual report
on Form 10-K.
- -----------------------------------------------------
NOTE 2 - COMPREHENSIVE INCOME
- -----------------------------------------------------
The components of comprehensive income, net of related tax, are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
------- -------
<S> <C> <C>
Net earnings $ 307 $ 120
Unrealized holding gains, net of deferred federal income taxes 6 -
======= =======
Comprehensive income $ 313 $ 120
======= =======
</TABLE>
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999 AND 1998
The components of accumulated other comprehensive income, included in
shareholders' equity at September 30, 1999 and June 30, 1999, include net
unrealized holding losses, net of deferred federal income taxes.
- ------------------------------------------------------------------
NOTE 3 - ACQUISITIONS AND DISPOSITIONS
- ------------------------------------------------------------------
CORPORATE HEALTHCARE FINANCING, INC. (CHF)
The stock of CHF was sold on September 8, 1998, effective as of August
31, 1998, for $17.75 million, comprised of $2.0 million in cash and the buyer's
secured and unsecured notes for $13.25 million and $2.5 million, respectively,
to an entity related to the Company through certain common shareholders,
including a former officer and director of the Company.
Both notes were paid in full with accrued interest on August 16, 1999.
The final payment on the secured and unsecured notes was in the aggregate amount
of $8.5 million, including $0.1 million of interest.
OMNICARE HEALTH PLAN, INC. OF TENNESSEE (OMNICARE-TN)
In July 1998, the Company made an additional cash contribution of $0.75
million to OmniCare-TN, in exchange for additional preferred stock of
OmniCare-TN to be issued to the Company.
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999 AND 1998
- -----------------------------------------------------
NOTE 4 - LONG TERM DEBT
- -----------------------------------------------------
The maturity date of the Company's bank line of credit is December 31,
1999. The bank and the Company are in the process of restructuring the
loan agreement and promissory note.
The Company has an outstanding $625,000 promissory note dated December
11, 1998, issued in a shareholder lawsuit settlement, payable in 15 equal
monthly installments beginning January 3, 2000, with interest at 4% per annum.
The Company's outstanding debt is as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
-----------------------------------
<S> <C> <C>
Line of credit $ 3,973 $ 12,487
Promissory note 625 625
-----------------------------------
4,598 13,112
Less debt payable within one year 4,348 12,737
===================================
Long-term debt, less current portion $ 250 $ 375
===================================
</TABLE>
- --------------------------------------------------
NOTE 5 - LIQUIDITY
- --------------------------------------------------
At September 30, 1999, the Company had (i) cash and cash equivalents
and short-term marketable securities of $20.0 million, compared to $18.6 million
at June 30, 1999; (ii) negative working capital of $1.9 million, compared to
negative working capital of $1.7 million at June 30, 1999; and (iii) a current
assets-to-current liabilities ratio of .94-to-1, compared to .96-to-1 at June
30, 1999. The principal sources of funds for the Company during the three months
ended September 30, 1999 were $2.3 million provided from net operating
activities and cash proceeds and payments received on the notes from the sale of
CHF of $8.4 million -- offset by $8.5 million to repay bank debt, purchases of
marketable securities of $0.7 million, repurchase of common stock of $0.4
million and the purchase of property and equipment of $0.3 million.
The maturity date of the Company's line of credit is December 31, 1999.
The bank and the Company are in the process of restructuring of the loan
agreement and promissory note by that date.
The Company's ability to generate adequate amounts of cash to meet its
future cash needs will depend on a number of factors, including the continued
stabilization of OmniCare-MI and continuation of its restructuring efforts.
Management expects that the OmniCare-MI corrective action plan, which
has been implemented, will continue to stabilize that Plan. The Plan has
successfully renegotiated certain major hospital provider contracts, including
its most significant hospital contract, which was one of the major components of
the corrective action plan, the effects of which will reduce medical costs.
- --------------------------------------------------
NOTE 6 - NET EARNINGS PER COMMON SHARE
- --------------------------------------------------
Basic net earnings per share excluding dilution has been computed by
dividing net earnings by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share is computed the same as
basic for the months ended September 30, 1999 and 1998, since the Company did
not have any outstanding securities having a dilutive effect on earnings per
share.
7
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999 AND 1998
- -----------------------------------------------------
NOTE 7 - YEAR 2000 COMPLIANCE
- -----------------------------------------------------
The Company has developed and followed a plan to ensure all
modifications and conversions to its primary information systems are implemented
and thoroughly tested on a timely basis. Management believes that all major
modifications and conversions have been completed and that the Company's primary
computerized information systems are Year 2000 compliant.
The Company continues to bear some risk related to the Year 2000 issue
due to its voluntary interaction with other entities not affiliated with the
Company (e.g., vendors and customers) who must address their own Year 2000
issues. For this reason, the Company has been monitoring the Year 2000 issues of
certain third parties with which it interacts. The Company has asked such third
parties to demonstrate, or give some indication as to, their ability to become
Year 2000 compliant. With respect to any third party who appears unlikely to
remedy its Year 2000 issues, the Company intends to take appropriate steps to
mitigate the exposure to the risk posed by such third party's failure to timely
address its Year 2000 issues. However, due to the uncertainty inherent in both
the Year 2000 problem and the efforts of third parties to timely resolve their
own Year 2000 issues, there can be no assurances the Company's mitigation
efforts will be successful or that the failure of any third party or the Company
to timely resolve its Year 2000 issues will not have a material adverse impact
on the Company's operations, operating results or financial position.
Both internal and external resources have been utilized in the
Company's efforts to become Year 2000 compliant. The total costs of the
Company's efforts to become Year 2000 compliant are not expected to exceed $1.6
million, of which approximately 60% represents capital costs. Costs related to
software modifications have been, and will continue to be, expensed as incurred.
- -----------------------------------------------------
NOTE 8 - CONTINGENCIES
- -----------------------------------------------------
A demand for arbitration was filed on May 20, 1999 with the American
Arbitration Association by Ronald R. Dobbins, who had been President and Chief
Operating Officer of the Company until May 1998. The claimant seeks termination
benefits of approximately $650,000. The arbitration hearing has been scheduled
for January 17-19, 2000. The Company intends to vigorously defend this matter.
8
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UNITED AMERICAN HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999 AND 1998
- -----------------------------------------------------
NOTE 9 - UNAUDITED SEGMENT FINANCIAL INFORMATION
- -----------------------------------------------------
Summarized financial information for the Company's
principal operations is as follows (in thousands):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Management HMOs &
Companies Managed Plans Corporate & Consolidated
SEPTEMBER 30, 1999 (1) (2) Eliminations Company
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues - external customers $ 4,449 $ 20,311 $ - $ 24,760
Revenues - intersegment 2,960 - (2,960) -
Interest and other income 229 308 (94) 443
===========================================================================
Total revenues $ 7,638 $ 20,619 $ (3,054) $ 25,203
========================================================================================================================
Interest expense $ 189 $ - $ - $ 189
Operating earnings (losses) (213) 745 (168) 364
Segment assets 28,661 21,159 (7,168) 42,652
Purchase of equipment 328 - - 328
Depreciation and amortization 665 - 169 834
- ------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1998
- --------------------------------------------
Revenues - external customers $ 5,302 $ 16,585 $ - $ 21,887
Revenues - intersegment 2,380 - (2,380) -
Interest and other income 317 302 (154) 465
===========================================================================
Total revenues $ 7,999 $ 16,887 $ (2,534) $ 22,352
========================================================================================================================
Interest expense $ 495 $ - $ - $ 495
Operating earnings (losses) 329 29 (190) 168
Segment assets 39,531 19,407 (224) 58,714
Purchase of equipment 12 - - 12
Depreciation and amortization 696 - 191 887
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Management Companies: United American Healthcare Corporation (1999,
1998) and United American of Tennessee, Inc. (1999, 1998).
(2) HMOs and Managed Plans: OmniCare Health Plan of Tennessee (1999, 1998)
and County Care (1999).
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The Company continues to implement the restructuring plan initiated in
fiscal 1998, which during the first quarter of fiscal 1999 included changes in
senior management, sale of CHF, renegotiation of the bank credit facility and
continued efforts to achieve further cost reductions and maintain Company
revenue.
In August 1998, the then Chief Executive Officer of the Company retired
and the Board of Directors elected Gregory H. Moses, Jr. as the new Chief
Executive Officer of the Company, and the Company's Corporate Controller became
its new Treasurer.
In September 1998, effective as of August 31, 1998, CHF was sold for
$17.75 million, comprised of $2.0 million in cash and the buyer's secured and
unsecured notes for $13.25 million and $2.5 million, respectively. Including
payments on the secured note, $9.2 million of the sales price plus $0.8 million
of interest in cash was received through June 30, 1999. On August 16, 1999, the
Company was paid $8.5 million, the remaining principal balance of the secured
and unsecured notes and accrued interest ($0.1 million), net of a $250,000
discount granted as an inducement for the buyer to prepay both notes. As
required by the Company's line of credit facility, the sale was approved by the
bank and all proceeds were used to reduce the Company's indebtedness to the
bank.
In September 1998, the Company and its bank lender amended the
Company's loan agreement and promissory note to: (i) decrease the principal
amount to $20.94 million and (ii) require reductions in the outstanding balance
owed to the bank at scheduled future dates, including the permanent reduction of
the outstanding balance to the lesser of the then outstanding principal balance
or $8.0 million by April 15, 1999.
In May 1999, the Company and its bank lender amended the Company's loan
agreement and promissory note requiring the Company to: (i) decrease the
principal sum to $16.6 million by September 1, 1999, (ii) permanently reduce the
bank's commitment to the lesser of the then outstanding principal balance or
$16.6 million by September 1, 1999, (iii) meet with the lender to establish
financial covenants for minimum net worth, debt service coverage ratio and
maximum debt to worth ratio prior to September 1, 1999, and (iv) obtain or
arrange for the return or cancellation of the existing $0.5 million letter of
credit provided by the Company on behalf of its wholly owned subsidiary, UA-LA
and its wholly owned subsidiary, OmniCare Health Plan of Louisiana, Inc., by
June 30, 1999. The maturity date of the Company's bank line of credit is
December 31, 1999. The bank and the Company are in the process of
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the restructuring the loan agreement and promissory note.
Effective April 1, 1999, the Company entered into the County Care
contract to arrange for the delivery of health care services, including the
assumption of underwriting risk, on a capitated basis to certain enrollees
residing in Wayne County (Michigan) who lack access to private or employer
sponsored health insurance or to another government health plan. The initial
contract period was for six months, with automatic renewal for successive
periods of one year unless terminated by either party as provided in the
contract. The contract currently expires ending September 30, 2000. Although
Company management does not expect significant net earnings directly from the
County Care contract, management believes that entering into this contract is
consistent with the Company's strategic objective of expanding the enrollment
base and achieving size sufficient to enable the Company to negotiate better
rates, save on administrative costs and increase profits.
On May 6, 1999, the Company's Board of Directors authorized the
repurchase by the Company of up to 250,000 of the Company's common shares
(approximately 3.6% of the total outstanding common shares) in the open market.
At June 30, 1999, 12,900 shares had been repurchased by the Company, and the
additional 237,100 shares were repurchased in the three months ended September
30, 1999.
FOR THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1998
Total revenues increased $2.8 million (12%), from $22.4 million in the
three months ended September 30, 1998 to $25.2 million in the three months ended
September 30, 1999.
Medical premium revenues were $20.3 million in the three months ended
September 30, 1999, an increase of $3.7 million (22%) from medical premium
revenues of $16.6 million in the three months ended September 30, 1998. Medical
premiums for OmniCare Health Plan, Inc. in Tennessee ("OmniCare-TN"), a managed
care organization owned 75% by the Company, increased $1.4 million (8%), from
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$16.6 million in the three months ended September 30, 1998 to $18.0 million in
the three months ended September 30, 1999.
The OmniCare-TN per member per month ("PMPM") premium rate -- based on
an average membership of 43,200 for the three months ended September 30, 1999
compared to 45,800 for the three months ended September 30, 1998 -- was $139 for
the three months ended September 30, 1999, compared to $120 for the three months
ended September 30, 1998, an increase of $19.00 (16%) or $2.4 million in total.
$16.00 of the $19.00 rate increase represents an adjustment by the State of
Tennessee's TennCare Bureau to adjust the funding level for benefits covered by
TennCare, of which $12.40 (77.5%) is earmarked for payments to providers. The
effect of the rate increase was offset by a 6% decrease in member months or
approximately $1.0 million. The enrollment decrease is primarily due to the
TennCare Bureau's disenrollment of working uninsured who were determined to be
no longer eligible for coverage based on a questionnaire sent by the TennCare
Bureau. OmniCare-TN is reviewing the eligibility status of the disenrolled
members for possible reenrollment.
Premium revenues from the County Care program totaled $2.3 million for
the three months ended September 30, 1999.
Management fees were $4.5 million in the three months ended September
30, 1999, a decrease of $0.8 million (15%) from fees of $5.3 million in the
three months ended September 30, 1998, and represent management fees earned from
OmniCare-MI. The decrease is due to a reduction in operating revenues of
OmniCare-MI in the first quarter of fiscal 2000 due primarily to enrollment and
rate decreases of approximately 12% and 5%, respectively. The enrollment
decrease is primarily in the commercial market. Management believes that
a major contributing factor to the enrollment decrease was the negative
publicity from newspaper stories in May 1998 regarding state regulations of
OmniCare-MI. Company management vigorously addressed and improved that
situation, and in fiscal 2000 OmniCare-MI is experiencing a steady increase in
signing up new employer groups and raising the average number of members in each
group. The rate decrease is attributable mainly to the Medicaid market and is
due primarily to changes in the Medicaid membership mix.
Total expenses before income taxes totaled $24.8 million in the three
months ended September 30, 1999, compared to $22.2 million in the three months
ended September 30, 1998, an increase of $2.6 million (12%).
Medical service expenses were $16.9 million in the three months ended
September 30, 1999, an increase of $2.8 million (20%) from medical service
expenses of $14.1 million in the three months ended September 30, 1998. Medical
service expenses for OmniCare-TN increased $0.7 million (5%), from $14.1 million
in the three months ended September 30, 1998 to $14.8 million in the three
months ended September 30, 1999. The percentage of medical service expenses to
medical premium revenues -- the medical loss ratio ("MLR") -- was 82% for the
three months ended September 30, 1999 and 85% for the three months ended
September 30, 1998 for
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OmniCare-TN.
Medical service expenses for County Care were $2.0 million for the
three months ended September 30, 1999. The MLR for County Care is estimated at
88%, a rate management believes is adequate to establish reserves sufficient to
cover anticipated program medical expenses.
Interest expense decreased $0.3 million (60%), to $0.2 million for the
three months ended September 30, 1999, from $0.5 million for the three months
ended September 30, 1998, due to debt reduction.
As a result of the foregoing, the Company recognized earnings before
income taxes of $0.4 million for the three months ended September 30, 1999,
double the earnings from operations before income taxes of $0.2 million for the
three months ended September 30, 1998. Net earnings were $0.3 million for the
three months ended September 30, 1999, compared to net earnings of $0.1 million
for the three months ended September 30, 1998, an increase of $0.2 million.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had (i) cash and cash equivalents
and short-term marketable securities of $20.0 million, compared to $18.6 million
at June 30, 1999; (ii) negative working capital of $1.9 million, compared to
negative working capital of $1.7 million at June 30, 1999; and (iii) a current
assets-to-current liabilities ratio of .94-to-1, compared to .96-to-1 at June
30, 1999. The principal sources of funds for the Company during the three months
ended September 30, 1999 were $2.3 million provided from net operating
activities and cash proceeds and payments received on the notes from the sale of
CHF of $8.4 million -- offset by $8.5 million to repay bank debt, purchases of
marketable securities of $0.7 million, repurchase of common stock of $0.4
million and the purchase of property and equipment of $0.3 million.
The maturity date of the Company's line of credit is December 31, 1999.
The bank and the Company are in the process of restructuring of the loan
agreement and promissory note by that date.
The Company's ability to generate adequate amounts of cash to meet its
future cash needs will depend on a number of factors, including the continued
stabilization of OmniCare-MI and continuation of its restructuring efforts.
Management expects that the OmniCare-MI corrective action plan, which
has been implemented, will continue to stabilize that Plan. The Plan has
successfully
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<PAGE> 15
renegotiated certain major hospital provider contracts, including its most
significant hospital contract, which was one of the major components of the
corrective action plan, the effects of which will reduce medical costs.
PART II.
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
NEW YORK STOCK EXCHANGE
The Company's common stock is listed on the New York Stock Exchange,
Inc. ("Exchange"). In 1998, the Exchange and the Company had communications
about the Company not meeting applicable listing standards, and the Company
consequently presented to the Exchange a definitive action plan for meeting
those standards within a reasonable period. In February 1999, the Exchange
notified the Company that, based on its review of the plan submitted by the
Company, the Exchange would continue the listing of the Company currently and
would review the Company's continued listing on a quarterly basis for compliance
with the plan submitted. In July 1999, the Exchange notified the Company of new
continued listing requirements and requested the Company to submit a revised
definitive action plan to demonstrate how the Company would meet the new
requirements over a 12-month period. The Company submitted its plan in September
1999 and provided additional information in October 1999. There can be no
assurance as to the Company's continued listing on the Exchange.
SHARE REPURCHASE PROGRAM
On May 6, 1999, the Company's Board of Directors authorized the
repurchase by the Company of up to 250,000 of the Company's common shares
(approximately 3.6% of the total outstanding common shares) in the open market.
At June 30, 1999,
14
<PAGE> 16
12,900 shares had been repurchased by the Company, and the additional 237,100
shares were repurchased during the three months ended September 30, 1999.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements to encourage management to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by
meaningful cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the statements.
Certain statements contained in this Form 10-Q report, including, without
limitation, statements containing the words "believes", "anticipates", "will",
"may", "might", and words of similar import, constitute "forward-looking
statements" within the meaning of this "safe harbor."
Such forward-looking statements are based on management's current
expectations and involve known and unknown risks, uncertainties and other
factors, many of which the Company is unable to predict or control, that may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
potentially include, among others, the following:
1. Inability of OmniCare-MI to remain as a viable entity.
2. Inability to increase premium rates commensurate with
increases in medical costs due to utilization, government
regulation, or other factors.
3. Discontinuation of, limitations upon, or restructuring of
government-funded programs, including but not limited to the
TennCare program.
4. Increases in medical costs, including increases in
utilization and costs of medical services and the effects of
actions by competitors or groups of providers.
5. Adverse state and federal legislation and initiatives,
including limitations upon or reductions in premium
payments; prohibition or limitation of capitated
arrangements or financial incentives to providers; federal
and state benefit mandates (including mandatory length of
stay and emergency room coverage); limitations on the
ability to manage care and utilization; and any willing
provider or pharmacy laws.
6. The shift of employers from insured to self-funded coverage,
resulting in reduced operating margins to the Company.
7. Failure to obtain new customer bases or retain existing
customer bases or reductions in work force by existing
customers; and failure to sustain commercial enrollment to
maintain an enrollment mix required by government programs.
8. Termination of the OmniCare-MI management agreement.
15
<PAGE> 17
9. Increased competition between current organizations, the
entrance of new competitors and the introduction of new
products by new and existing competitors.
10. Adverse publicity and media coverage.
11. Inability to carry out marketing and sales plans.
12. Loss or retirement of key executives.
13. Termination of provider contracts or renegotiations at less
cost-effective rates or terms of payment.
14. The selection by employers and individuals of higher
co-payment/deductible/ coinsurance plans with relatively
lower premiums or margins.
15. Adverse regulatory determinations resulting in loss or
limitations of licensure, certification or contracts with
governmental payors.
16. Higher sales, administrative or general expenses occasioned
by the need for additional advertising, marketing,
administrative or MIS expenditures.
17. Increases by regulatory authorities of minimum capital,
reserve and other financial solvency requirements.
18. Denial of accreditation by quality accrediting agencies,
e.g., the National Committee for Quality Assurance (NCQA).
19. Adverse results from significant litigation matters.
20. Adverse impact from Year 2000 issues.
21. Inability to maintain continued New York Stock Exchange
listing.
22. Inability to renegotiate bank loan agreement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description of Document
27 Financial data schedule
(b) Reports on Form 8-K
None.
16
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED AMERICAN HEALTHCARE CORPORATION
Dated: November 9, 1999 By: /s/ Gregory H. Moses, Jr.
-----------------------------------
Gregory H. Moses, Jr.
President & Chief Executive Officer
Dated: November 9, 1999 By: /s/ Paul G. Samuels
-----------------------------------
Paul G. Samuels
Chief Financial Officer
17
<PAGE> 19
EXHIBIT INDEX
Exhibit Number Description of Document
27 Financial data schedule
18
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF OPERATIONS
FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q FOR THE THREE MONTHS
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<SECURITIES> 1,804,000
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<CURRENT-ASSETS> 29,422,000
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<COMMON> 11,151,000
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<INTEREST-EXPENSE> 189,000
<INCOME-PRETAX> 364,000
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