<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-11506
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Value Health, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 06-1194838
- - ---------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
22 Waterville Road, Avon, Connecticut 06001
----------------------------------------------------------
(Address of principal executive offices, Zip Code)
(860) 678-3400
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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, without par value, outstanding on April
18, 1996 was 54,222,036.
<PAGE>
Value Health, Inc.
Table of Contents
- - --------------------------------------------------------------------------------
PART I -- FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996
And December 31, 1995 3
Consolidated Statements Of Operations For The Three Months
Ended March 31, 1996 And 1995 4
Consolidated Statements Of Cash Flows For The Three
Months Ended March 31, 1996 And 1995 5
Notes To Consolidated Financial Statements 6
Item 2. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations 10
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 5. Other Information 15
Item 6. Exhibits And Reports On Form 8-K 15
SIGNATURES 16
</TABLE>
2
<PAGE>
VALUE HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
(in thousands, except par value and share amounts)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
(unaudited) (audited)
---------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $72,476 $68,505
Restricted cash 4,806 5,806
Short-term investments 18,107 25,514
Accounts receivable (net of allowance for doubtful
accounts of $16,338 and $17,171, respectively) 319,458 304,272
Inventories 23,428 30,052
Prepaid expenses and other current assets 32,211 31,495
Deferred taxes 66,347 71,797
----------- ------------
Total current assets 536,833 537,441
----------- ------------
Fixed assets:
Land 3,532 3,532
Buildings 14,246 14,226
Furniture and fixtures 18,483 19,820
Equipment and software 141,856 150,425
Leasehold improvements 14,561 15,709
----------- ------------
192,678 203,712
Less accumulated depreciation and amortization (67,964) (71,242)
----------- ------------
Total fixed assets 124,714 132,470
----------- ------------
Long-term investments 9,766 12,868
Goodwill, net 216,316 190,605
Other assets 26,666 30,651
----------- ------------
252,748 234,124
----------- ------------
Total assets $914,295 $904,035
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable to providers $111,937 $116,166
Accounts payable and accrued expenses 65,119 65,195
Merger related expense 41,738 49,767
Accrued loss contracts 24,569 30,386
Restructuring reserve 24,258 30,597
Other liabilities 32,027 24,300
----------- ------------
Total current liabilities 299,648 316,411
----------- ------------
Capital lease obligations, less current portion 1,831 2,130
Other liabilities 4,828 4,450
----------- ------------
Total long-term liabilities 6,659 6,580
----------- ------------
Total liabilities 306,307 322,991
----------- ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock - $.01 par value, authorized 1,000,000
shares, no shares issued - -
Common stock - without par value, authorized 100,000,000
shares, issued and outstanding 54,217,093 and
53,688,740 shares, respectively 500,530 467,325
Retained earnings 133,044 113,950
Treasury stock, at cost, 959,998 shares at March 31, 1996 (25,353) -
Unrealized loss on securities available-for-sale, net of tax (233) (231)
----------- ------------
Total stockholders' equity 607,988 581,044
----------- ------------
Total liabilities and stockholders' equity $914,295 $904,035
=========== ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
VALUE HEALTH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
for the three months ended
March 31,
-----------------------------
1996 1995
------------ -------------
<S> <C> <C>
Revenues:
Prescription drugs - services $294,875 $238,713
Prescription drugs - products 98,849 109,422
Mental health 52,285 52,771
Workers' compensation 27,648 23,458
Disease management and information services 14,134 14,034
Other 1,389 3,262
Investment income 1,580 2,558
-------- --------
Total revenues 490,760 444,218
-------- --------
Expenses:
Costs of services 318,171 268,079
Costs of products 84,177 88,531
Selling, general and administrative 46,439 42,681
Depreciation and amortization 7,344 6,751
Amortization of goodwill 2,187 1,557
Interest expense 80 568
Loss contract - 12,600
-------- --------
Total expenses 458,398 420,767
-------- --------
Earnings before income taxes 32,362 23,451
Provision for income taxes 13,268 9,556
-------- --------
Net earnings $19,094 $13,895
======== ========
Weighted average common shares
and common share equivalents outstanding 55,125 54,118
======== ========
Net earnings per share $0.35 $0.26
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
VALUE HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended March 31, 1996 and 1995
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $19,094 $13,895
---------- --------
Adjustments to reconcile net earnings to net cash:
Depreciation and amortization 7,344 6,751
Provision for doubtful accounts and notes receivable 1,792 2,575
Deferred taxes 5,450 (3,837)
Tax effect of certain stock option transactions 2,500 250
Amortization of goodwill 2,187 1,557
Amortization of deferred revenue (4,788) (2,606)
Amortization of investment premiums 60 136
Gain on sales of securities - (542)
Change in assets and liabilities:
(Increase) decrease in assets:
Restricted cash 1,000 (113)
Accounts receivable (14,353) (24,458)
Inventories 6,624 2,741
Other current and non-current assets (3,977) (3,472)
Increase (decrease) in liabilities:
Payable to providers (4,229) 4,066
Accounts payable and accrued expenses (465) (2,481)
Merger-related expense (5,690) (1,964)
Accrued loss contracts (5,817) -
Restructuring reserve (2,940) -
Other current and non-current liabilities 12,944 18,312
---------- --------
Total adjustments (2,358) (3,085)
---------- --------
Net cash provided by operating activities 16,736 10,810
---------- --------
Cash flows from investing activities:
Capital expenditures (10,279) (12,704)
Proceeds from sale of fixed assets 6,536 -
Purchase of subsidiaries and assets, net of cash acquired (1,514) (13,014)
Advances under financing agreements - (200)
Collections under financing agreements - 1,174
Purchases of securities (14,172) (10,501)
Maturities and sales of securities 24,632 13,247
---------- --------
Net cash provided by (used in) investing activities 5,203 (21,998)
---------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock - 183
Proceeds from exercise of common stock options 7,709 1,806
Payments for common stock repurchase (25,353) -
Payments of long-term debt and capital lease obligations (324) (4,713)
---------- --------
Net cash used in financing activities (17,968) (2,724)
---------- --------
Net increase (decrease) in cash and cash equivalents 3,971 (13,912)
Cash and cash equivalents at beginning of period 68,505 84,899
---------- --------
Cash and cash equivalents at end of period $72,476 $70,987
========== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Value Health, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The unaudited interim consolidated financial statements included herein, as
of and for the three months ended March 31, 1996 and 1995, contain all
adjustments which, in the opinion of management, are necessary to present a
fair statement of the financial condition, results of operations and cash
flows for the interim periods reported. Operating results for the interim
periods are not necessarily indicative of those expected for the full year.
Certain prior year amounts have been reclassified to conform to the 1996
presentation.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and the
rules and regulations of the Securities and Exchange Commission. These
financial statements have been prepared under the presumption that users of
the interim financial information have either read or have access to the
Company's audited financial statements for the year ended December 31,
1995. Accordingly, footnote disclosures which would substantially
duplicate the disclosures contained in the Company's December 31, 1995
audited financial statements have been omitted from these interim financial
statements. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
instructions, rules and regulations. Although the Company believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these unaudited interim consolidated
financial statements be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1995.
2. Acquisitions:
On January 10, 1996, the Company completed its acquisition of Medintell
Systems Corporation ("Medintell"). Total consideration was approximately
$28.9 million and consisted of cash and Value Health common stock. In
connection with this transaction, the Company repurchased 842,500 shares of
its common stock which approximated the number of shares issued to complete
the acquisition. Medintell develops and markets advanced pharmacy
information systems and services and will be integrated into the Company's
ValueRx subsidiary. The transaction was accounted for as a purchase.
Goodwill of approximately $28.3 million was recorded and is being amortized
over 20 years.
6
<PAGE>
Value Health, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Investments:
Investments in debt and equity securities as of March 31, 1996 and December
31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
Available-for-Sale Amortized Unrealized Unrealized Aggregate
March 31, 1996 Cost Gain Loss Fair Value
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of States and
Municipalities $20,105,000 $26,000 $ -- $20,131,000
Obligations of U.S.
Government and
Agencies 6,499,000 (4,000) 6,495,000
Equity Securities 1,657,000 (410,000) 1,247,000
- - -------------------------------------------------------------------------------------
$28,261,000 $26,000 $ (414,000) $27,873,000
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Debt
Maturities: Less Than One Year One To Five Years Total
- - -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amortized Cost $18,104,000 $8,500,000 $26,604,000
Aggregate Fair Value $18,107,000 $8,519,000 $26,626,000
- - -------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sale of available-for-sale securities were $19,590,000 and
$3,303,000 for the three months ended March 31, 1996 and 1995, respectively.
Realized gains from these sales were $0 and $542,000 for the three months ended
March 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Available-for-Sale Amortized Unrealized Unrealized Aggregate
December 31, 1995 Cost Gain Loss Fair Value
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of States
and Municipalities $31,751,000 $ 14,000 $ -- $31,765,000
Obligations of U.S.
Government and
Agencies 5,364,000 4,000 -- 5,368,000
Equity Securities 1,654,000 -- (405,000) 1,249,000
- - -----------------------------------------------------------------------------------------
$38,769,000 $ 18,000 $ (405,000) $38,382,000
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
Debt
Maturities: Less Than One Year One To Five Years Total
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amortized Cost $25,499,000 $11,616,000 $37,115,000
Aggregate Fair Value $25,514,000 $11,619,000 $37,133,000
- - -----------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
Value Health, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. Merger Related Expense:
The following table is a reconciliation of the accrued merger-related
expense for the three months ended March 31, 1996.
<TABLE>
<CAPTION>
Asset
Write-Offs And
Costs Of Reduction Of
Transaction Combining Headcount
(In thousands) Costs Operations and Capacity Total
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $345 $31,468 $17,954 $49,767
Expenses Recorded -- -- -- --
Payments and Write-Offs (71) (4,792) (3,166) (8,029)
- - ----------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 $274 $26,676 $14,788 $41,738
==================================================================================================================================
</TABLE>
5. Restructuring Reserve:
The following table is a reconciliation of the restructuring reserve for
the three months ended March 31, 1996.
<TABLE>
<CAPTION>
Lease Vacation
Severance and and Other
(In thousands) Related Benefits Associated Costs Total
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1995 $ 7,732 $22,865 $30,597
Expenses Recorded -- -- --
Payments and Write-Offs (1,836) (4,503) (6,339)
- - --------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 $ 5,896 $18,362 $24,258
====================================================================================================================
</TABLE>
6. Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of."
Effective January 1, 1996, the Company adopted SFAS 121. There was no
material impact on financial condition, results of operations or cash flows
during the first quarter of 1996.
8
<PAGE>
Value Health, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Supplemental Disclosures of Cash Flow Information:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
- - ------------------------------------------------------------------
1996 1995
- - ------------------------------------------------------------------
<S> <C> <C>
Cash Paid During The Period For:
Interest $ 70,000 $ 266,000
Income Taxes $ 2,082,000 $9,498,000
- - ------------------------------------------------------------------
Noncash Transactions:
Note Receivable From Sale Of
Subsidiary $ -- $2,900,000
Common Stock Issued In Acquisitions $23,065,000 $ 662,000
- - ------------------------------------------------------------------
</TABLE>
9
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FIANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- - --------
Value Health, Inc. ("the Company") is a leading provider of specialty managed
health care benefit programs.
Revenues for the three months ended March 31, 1996 of $490.8 million increased
$46.5 million or 10.5% over the first quarter of 1995. The Company's revenues
are from specialized managed health care services in the areas of prescription
drugs, mental health and substance abuse, worker's compensation and disability
management, and disease management and information services.
The Company's net earnings for the first quarter of 1996 were $19.1 million as
compared with net earnings of $13.9 million during the first quarter of 1995.
The 1995 results include losses of $12.6 million from the Company's contract
with the State of New Jersey.
This Quarterly Report on Form 10-Q contains forward-looking statements. For
this purpose, any statements contained herein which are not statements of
historical fact may be deemed to be forward-looking statements. Without
limiting the foregoing, the words "believes, "anticipates," "plans'" "expects"
and similar expressions are intended to identify forward-looking statements.
There are a number of important factors that could cause the Company's actual
results to differ materially from those indicated by the forward-looking
statements. These factors could include, but not be limited to, the impact of
increases in health care costs and utilization on expenses, the amount of
rebates from pharmaceutical manufacturers, competition, the loss of contracts or
failure to secure new contracts, the timing of obtaining new business, the
timing of cost reductions from the Company's re-engineering programs, government
regulation, potential legal liability resulting from errors and/or omissions in
providing services, reliance on data processing and other risks detailed from
time to time in the Company's Securities and Exchange Commission filings.
10
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS
- - ---------------------
The following table sets forth certain consolidated financial data as
percentages of revenues for the three-month periods ended March 31, 1996 and
1995.
<TABLE>
<CAPTION>
Percentage of Revenues
for the three months
ended March 31,
- - -----------------------------------------------------------------
1996 1995
- - -----------------------------------------------------------------
<S> <C> <C>
Revenues:
Prescription Drugs - Services 60.1% 53.7%
Prescription Drugs - Products 20.1 24.6
Mental Health 10.7 11.9
Workers' Compensation 5.6 5.3
Disease Management and
Information Services 2.9 3.2
Other 0.3 0.7
Investment Income 0.3 0.6
- - -----------------------------------------------------------------
Total Revenues 100.0 100.0
- - -----------------------------------------------------------------
Expenses:
Costs of Services(1) 64.8 60.4
Costs of Products(2) 17.2 19.9
Selling, General & Administrative 9.5 9.6
Depreciation & Amortization 1.5 1.5
Amortization of Goodwill 0.4 0.4
Interest Expense -- 0.1
Loss Contract -- 2.8
- - -----------------------------------------------------------------
Total Expenses 93.4 94.7
- - -----------------------------------------------------------------
Earnings Before Income Taxes 6.6 5.3
Provision For Income Taxes 2.7 2.2
- - -----------------------------------------------------------------
Net Earnings 3.9% 3.1%
=================================================================
- - -----------------------------------------------------------------
(1) Costs Of Services As A Percentage
Of Services Revenues 81.8% 81.5%
=================================================================
(2) Costs Of Products As A Percentage
Of Products Revenues 85.2% 80.9%
=================================================================
</TABLE>
11
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS (Continued)
- - ---------------------------------
Revenues increased by $46.5 million or 10.5% over the first quarter of 1995.
The addition of new customers increased revenues by $75.2 million, and
acquisitions increased revenues by $4.5 million. Revenues from existing
customers declined by $30.3 million. Other revenues and investment income
declined by $1.9 million and $1.0 million, respectively from 1995.
Prescription drug service revenues (from the retail pharmacy network and
institutional businesses) increased by $56.2 million or 23.5% over the first
quarter of 1995. The addition of new customers increased revenues by $60.5
million and revenues from existing customers declined by $4.3 million. Lost
business was partially offset by increases in enrollment and expansion programs
within existing accounts.
Prescription drug product revenues (from the mail service pharmacy business) for
the first quarter decreased by $10.6 million or 9.7% over the first quarter of
1995. The addition of new customers increased revenues by $6.6 million while
revenues from existing customers declined by $17.2 million, due primarily to
lost business.
Lost prescription drug service and product business occurred as a result of
certain loss contracts canceled by the Company as well as profitable contracts
canceled by certain customers. The Company expects revenue decreases from
existing prescription drug customers to continue during the second quarter of
1996, due to its decision to cancel certain loss accounts and to resist rebids
at excessively low margins.
Mental health revenues for the first quarter of 1996 decreased by $0.5 million
or 0.9% over the first quarter of 1995. New business and acquisitions added
$3.9 million and $3.1 million, respectively to 1996 revenues. Revenues from
existing customers decreased by $7.5 million as a result of enrollment
reductions, lost business and price reductions.
Workers' compensation revenues for the first quarter of 1996 increased by $4.2
million or 17.9% from the first quarter of 1995. New business and acquisitions
added $2.1 million and $0.3 million, respectively to 1996 revenues. Revenues
from existing customers increased by $1.8 million in 1996 primarily due to
enrollment increases.
Disease management and information services revenues for the first quarter of
1996 increased by $0.1 million or 0.7% from the first quarter of 1995. New
customers, including disease management programs added $2.1 million to revenues.
Acquisitions added $1.1 million to 1996 revenues. Revenues from existing
customers decreased by $3.1 million, primarily due to enrollment reductions and
scheduled fee decreases in a certain major disease management contract. The
sale of the assets of Lewin-VHI, Inc. in May, 1996 will result in revenue
decreases during the remainder of 1996.
Other revenues for the first quarter of 1996 declined by $1.9 million from the
first quarter of 1995 due primarily to the sale of National Foot Care Program in
1995.
12
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS (Continued)
- - ---------------------------------
Investment income for the three-month period ended March 31, 1996 declined by
$1.0 million due primarily to lower investment balances in 1996.
The Company's costs of services consist of direct expenses of providing
specialty managed care and information services, including costs of retail
prescription drugs, mental health and substance abuse provider charges, salaries
and wages of medical management, customer service and claims processing
personnel and certain data processing costs. Costs of services for the three
months ended March 31, 1996 increased by $50.1 million or 18.7% over the first
quarter of 1995. Most of these increases were due to an increased number of
plan participants and provider and drug price increases. As a percentage of
service revenues, costs of services for the first quarter of 1996 were 81.8% as
compared with 81.5% during the first quarter of 1995. Despite a competitive
pricing environment, the Company maintained a stable cost of services ratio
during the first quarter of 1996 as compared with the first quarter of 1995.
This was due primarily to the reserving for and cancellation of certain loss
contracts during 1995 and resistance to rebids at excessively low margins.
The Company's costs of products consist of the cost of mail order prescription
drugs, including labor and overhead charges associated with warehousing,
processing and shipping activities. Costs of products for the three months
ended March 31, 1996 decreased by $4.4 million or 4.9% over the first quarter of
1995. As a percentage of product revenues, costs of products increased to 85.2%
for the three months ended March 31, 1996, from 80.9% during the first quarter
of 1995. The increase in the costs of products ratio is due to the competitive
pricing environment and the loss of certain profitable accounts since the first
quarter of 1995.
Selling, general and administrative expenses for the three months ended March
31, 1996, increased by $3.8 million or 8.8% over the first quarter of 1995. As
a percentage of revenues, selling, general and administrative expenses decreased
to 9.5% for the first quarter of 1996 from 9.6% during the first quarter of
1995. The selling, general and administrative expense ratio is expected to
decline further during the remainder of 1996, as the Company's restructuring
program continues.
Depreciation and amortization expense, which consists of the depreciation of
property and equipment and the amortization of intangible assets arising from
acquisitions and purchased and internally developed software, was $9.5 million
for the three months ended March 31, 1996 as compared to $8.3 million for the
first quarter of 1995. The higher level of depreciation and amortization in
1996 was attributable to increased investment in fixed assets to support growth
in the Company's business, goodwill amortization resulting from 1995 and 1996
acquisitions and increased amortization of capitalized computer software. The
Company expects depreciation and amortization to continue to increase over prior
year levels throughout the remainder of 1996, although asset write-offs are
expected to slow this increase.
13
<PAGE>
Value Health, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, Continued
RESULTS OF OPERATIONS (Continued)
- - ---------------------------------
During the first quarter of 1995, the Company recorded $12.6 million of
estimated losses from its contract with the State of New Jersey.
The provision for income taxes in both years includes estimates of federal and
state income taxes. The effective tax rate for the three months ended March 31,
1996 and 1995 was approximately 41%.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
The Company has funded its operations and capital expenditures primarily from
the proceeds of stock issuances and internally generated cash. As of March 31,
1996, the Company had working capital of $237.2 million and unrestricted cash
and marketable securities of $100.3 million.
During the first quarter of 1996, the Company repurchased 959,998 shares of its
common stock in connection with the Medintell acquisition and an earnout from a
previous acquisition.
Capital additions were approximately $10.3 million for the three months ended
March 31, 1996. Capital additions were primarily for computer hardware and
software, furniture, leasehold improvements and software development for
information services.
The Company's remaining contingent payments to CCN under its Acquisition
Agreement dated May 18, 1995, may be up to $78 million through the first half of
1997 and are not expected to have a material impact on its financial condition,
results of operations or cash flows.
The Company may in the future acquire certain businesses or products
complementary to its strategy. If the Company's available cash and marketable
securities are not sufficient to meet its acquisition-related liquidity and
funding requirements, then the Company will pursue additional capital from a
variety of sources, including but not limited to equity and debt offerings, bank
lines of credit and other sources. Although the Company is confident that it
will be able to obtain such additional financing, there can be no assurance that
the Company will be able to secure financing or that its terms will be favorable
to the Company.
Management believes that existing cash and marketable securities, together with
internally generated cash will be sufficient to meet the company's normal
operating requirements through 1996.
14
<PAGE>
Value Health, Inc.
PART II
OTHER INFORMATION
Item 1. - Legal Proceedings
- - ---------------------------
The Company is involved in certain litigation as more fully described in its
Annual Report on Form 10-K for the year ended December 31, 1995. The Company
denies the allegations in those cases and intends to defend them vigorously.
Any potential losses cannot be estimated at this time.
Item 5. - Other Information
- - ---------------------------
On April 16, 1996, the Company signed a definitive agreement to sell all the
operating assets of the Company's Lewin-VHI, Inc. subsidiary to Quintiles
Transnational Corporation.
Item 6. - Exhibits and Reports on Form 8-K
- - ------------------------------------------
(a) Exhibit II - Schedule of Computation of Net Earnings Per Share
(b) No reports on Form 8-K were filed during the three-month period ended March
31, 1996.
15
<PAGE>
Value Health, Inc.
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.
DATE: May 13, 1996 Value Health, Inc.
By: \s\ Robert E. Patricelli
------------------------
Robert E. Patricelli
Chairman, President
and Chief Executive Officer
DATE: May 13, 1996 By: \s\ David M. Wurzer
------------------------
David M. Wurzer
Senior Vice President
and Chief Financial Officer
(Principal Financial
and Accounting Officer)
16
<PAGE>
Value Health, Inc.
EXHIBIT INDEX
Exhibit Number and Description Page
- - ------------------------------ ----
Exhibit 11 - Schedule of Computation of
Net Earnings Per Share 18
17
<PAGE>
Value Health, Inc.
EXHIBIT 11 - SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------
Three Months Ended
March 31,
--------------------------
1996 1995
- - ---------------------------------------------------------------
<S> <C> <C>
Net Earnings $19,094,000 $13,895,000
- - ---------------------------------------------------------------
Weighted Average Number of Shares
Outstanding During The Period 54,697,443 52,849,190
Add:
Common Stock Equivalent Shares
Represented By Employer Stock
Options Granted Related To
Stock Plans 427,898 1,268,782
- - ---------------------------------------------------------------
Weighted Average Number Of Common
Shares Used In The Computation Of
Net Earnings Per Share 55,125,341 54,117,972
- - ---------------------------------------------------------------
Net Earnings per Share $ 0.35 $ 0.26
===============================================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 77,282 74,311
<SECURITIES> 18,107 25,514
<RECEIVABLES> 335,796 321,443
<ALLOWANCES> 16,338 17,171
<INVENTORY> 23,428 30,052
<CURRENT-ASSETS> 536,833 537,441
<PP&E> 192,678 203,712
<DEPRECIATION> 67,964 71,242
<TOTAL-ASSETS> 914,295 904,035
<CURRENT-LIABILITIES> 299,648 316,411
<BONDS> 0 0
0 0
0 0
<COMMON> 500,530 467,325
<OTHER-SE> 107,458 113,719
<TOTAL-LIABILITY-AND-EQUITY> 914,295 904,035
<SALES> 98,849 109,422
<TOTAL-REVENUES> 490,760 444,218
<CGS> 84,177 88,531
<TOTAL-COSTS> 402,348 356,610
<OTHER-EXPENSES> 55,970 63,589
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 80 568
<INCOME-PRETAX> 32,362 23,451
<INCOME-TAX> 13,268 9,556
<INCOME-CONTINUING> 19,094 13,895
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 19,094 13,895
<EPS-PRIMARY> .35 .26
<EPS-DILUTED> .35 .26
</TABLE>
