<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 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 0-19393
LIFEMARK CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-3338328
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7600 NORTH 16TH STREET
SUITE 150
PHOENIX, ARIZONA 85020
(Address of principal executive offices)
(Zip Code)
602-331-5100
(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 _______
There were 4,808,068 shares of common stock outstanding as of October 1, 1999.
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TABLE OF CONTENTS
PAGE
----
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets......................................3
Consolidated Statements of Income................................4
Consolidated Statements of Cash Flows............................5
Notes to Unaudited Consolidated Financial Statements...........6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.....................................8-12
Part II OTHER INFORMATION
Item 4. Annual Meeting of Stockholders..................................12
Item 6. Exhibits and Reports on Form 8-K................................12
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIFEMARK CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, MAY 31,
1999 1999
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
- ------
Current Assets:
Cash and cash equivalents, including restricted
cash of $10,254,000 and $9,713,000, respectively $ 13,862,000 $ 13,792,000
Short-term investments - 501,000
Accounts and notes receivable and unbilled services, net 5,747,000 5,886,000
Deferred income taxes, net 1,216,000 1,213,000
Prepaid expenses and other current assets 619,000 882,000
------------ ------------
Total current assets 21,444,000 22,274,000
Related party notes receivable 565,000 568,000
Property and equipment, net 4,519,000 4,205,000
Performance bonds 4,423,000 4,203,000
Goodwill, net 2,370,000 2,462,000
Other assets 1,004,000 1,108,000
------------ ------------
$ 34,325,000 $ 34,820,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Accounts payable $ 480,000 $ 659,000
Accrued medical claims 8,461,000 8,662,000
Risk pool payable 667,000 691,000
Related party risk pool payable 175,000 152,000
Accrued compensation 1,971,000 2,464,000
Other accrued expenses 1,607,000 1,750,000
Current portion of related party interest payable 788,000 710,000
Current portion of long-term debt 37,000 23,000
------------ ------------
Total current liabilities 14,186,000 15,111,000
Long-term debt 445,000 211,000
Related party long-term debt 3,453,000 3,440,000
Deferred income taxes, net 124,000 155,000
------------ ------------
Total liabilities 18,208,000 18,917,000
------------ ------------
Commitments and Contingencies - -
Stockholders' Equity:
Common stock, $0.01 par value
Authorized - 10,000,000 shares
Issued and outstanding 4,808,000 shares 48,000 48,000
Capital in excess of par value 16,148,000 16,148,000
Accumulated deficit (79,000) (293,000)
------------ ------------
Total stockholders' equity 16,117,000 15,903,000
------------ ------------
$ 34,325,000 $ 34,820,000
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
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LIFEMARK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
--------------------------------
AUGUST 31, AUGUST 31,
1999 1998
------------ ------------
Revenues $ 23,609,000 $ 19,244,000
------------ ------------
Direct cost of operations 17,850,000 14,300,000
Marketing, sales and administrative 5,535,000 4,387,000
------------ ------------
Total costs and expenses 23,385,000 18,687,000
------------ ------------
Operating income 224,000 557,000
------------ ------------
Interest income 255,000 253,000
Interest expense (100,000) (90,000)
------------ ------------
Net interest income 155,000 163,000
------------ ------------
Income before income taxes 379,000 720,000
Provision for income taxes 165,000 298,000
------------ ------------
Net income $ 214,000 $ 422,000
============ ============
Net income per share - basic $ 0.04 $ 0.09
============ ============
Weighted average common shares
outstanding - basic 4,808,000 4,694,000
============ ============
Net income per share - assuming dilution $ 0.04 $ 0.08
============ ============
Weighted average common shares
outstanding - assuming dilution 4,865,000 6,044,000
============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
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LIFEMARK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
--------------------------
AUGUST AUGUST
31, 31,
1999 1998
----------- -----------
Cash flows from operating activities:
Net income $ 214,000 $ 422,000
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Bad debt expense 7,000 -
Depreciation and amortization 536,000 560,000
Loss on sale of property and equipment 7,000 -
Deferred income taxes (34,000) 1,000
Interest on long-term debt 78,000 41,000
Changes in assets and liabilities:
Accounts receivable and unbilled services 132,000 (1,454,000)
Prepaid expenses and other current assets 263,000 (55,000)
Accounts payable (179,000) (330,000)
Accrued medical claims (201,000) 825,000
Risk pool payable (24,000) (21,000)
Related party risk pool payable 23,000 (6,000)
Accrued compensation (493,000) (214,000)
Accrued expenses (143,000) (14,000)
Other assets 104,000 (134,000)
----------- -----------
Net cash provided (used) by operating activities 290,000 (379,000)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (767,000) (265,000)
Proceeds from sale of property and equipment 12,000 32,000
Proceeds from maturity/sale of short-term
investments 501,000 3,000
Proceeds from related party notes receivable 3,000 131,000
Purchases of assets securing performance bond (220,000) (100,000)
----------- -----------
Net cash used in investing activities (471,000) (199,000)
----------- -----------
Cash flows from financing activities:
Proceeds from (payments on) long-term debt 251,000 (167,000)
Proceeds from common stock issuance - 111,000
----------- -----------
Net cash provided (used) by financing activities 251,000 (56,000)
----------- -----------
Net increase in cash and cash equivalents 70,000 (634,000)
Cash and cash equivalents, beginning of period 13,792,000 12,764,000
----------- -----------
Cash and cash equivalents, end of period $13,862,000 $12,130,000
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
5
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LIFEMARK CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - NATURE OF BUSINESS
- ---------------------------
In management's opinion, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair statement of the results for the
interim periods presented. The results of operations for the period ended August
31, 1999 are not necessarily indicative of the results to be expected for the
full year. The interim consolidated financial statements should be read in
conjunction with the Lifemark Corporation ("Lifemark" or "Company") consolidated
financial statements and notes thereto included in the Company's Form 10-K for
the year ended May 31, 1999.
NOTE 2 - NET INCOME PER SHARE
- -----------------------------
Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during each period. Net income per
share assuming dilution is computed by dividing net income by the weighted
average number of common shares outstanding during the period after giving
effect to dilutive stock options and warrants and adjusted for dilutive common
shares assumed to be issued on conversion of the Company's convertible loans.
The following is the computation of the reconciliation of the numerators and
denominators of net income per common share - basic and net income per common
share assuming dilution in accordance with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share".
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
AUGUST 31, 1999 AUGUST 31, 1998
-------------------------------------- -------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------ ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share:
Income available to common stockholders $ 214,000 4,808,000 $ 0.04 $ 422,000 4,694,000 $ 0.09
Effect of dilutive securities:
Stock options and warrants - 57,000 - 494,000
Convertible notes - - 40,000 856,000
------------ ------------- ----------- -------------
Net income per common share,
assuming dilution:
Income available to common
stockholders and assumed conversions $ 214,000 4,865,000 $ 0.04 $ 462,000 6,044,000 $ 0.08
============ ============= ========= =========== ============= =========
</TABLE>
6
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NOTE 3 - RESTRICTIONS ON FUND TRANSFERS
- ---------------------------------------
Certain of the Company's operating subsidiaries are subject to state
regulations, which require compliance with certain net worth, reserve and
deposit requirements. To the extent the operating subsidiaries must comply with
these regulations, they may not have the financial flexibility to transfer funds
to the parent organization, Lifemark. Net assets of subsidiaries (after
inter-company eliminations) which, at August 31, 1999, may not be transferred to
Lifemark by subsidiaries in the form of loans, advances or cash dividends
without the consent of a third party are referred to as "Restricted Net Assets".
Total Restricted Net Assets of these operating subsidiaries were $10,391,000 at
August 31, 1999, with deposit and reserve requirements (performance bonds)
representing $4,423,000 of the Restricted Net Assets and net worth requirements,
in excess of deposit and reserve requirements, representing the remaining
$5,968,000.
NOTE 4 - BUSINESS SEGMENTS
- --------------------------
The Company's business segments consist of management services, long-term care
health services and acute care health services. The management services segment
is engaged in the business of administering risk-based managed care plans and
programs in seven states. Long-term care health services is comprised of Ventana
Health Systems, Inc. ("Ventana"), which is a long-term care Medicaid health plan
operating in seven counties in Arizona, and Lifemark At Home, Inc., which
provides in-home personal, respite, companionship and homemaking services to
recipients in Arizona. Acute care health services consists of Arizona Health
Concepts, Inc. ("AHC"), an acute care Medicaid health plan currently operating
in two counties in Arizona.
Information concerning operations by business segment follows:
<TABLE>
<CAPTION>
For the Three Months Ended August 31, 1999
---------------------------------------------------------------
Management Long-Term Care Acute Care
Services Health Services Health Services Totals
------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 12,511,000 $ 8,085,000 $ 4,764,000 $ 25,360,000
Intersegment revenues (1,399,000) (352,000) - (1,751,000)
------------- -------------- -------------- ------------
Total consolidated revenues $ 11,112,000 $ 7,733,000 $ 4,764,000 $ 23,609,000
============= ============== ============== ============
Interest income $ 64,000 $ 130,000 $ 64,000 $ 258,000
Intersegment interest income - (3,000) - (3,000)
Interest expense (103,000) - - (103,000)
Intersegment interest expense 3,000 - - 3,000
------------- -------------- -------------- ------------
Net interest income (expense) $ (36,000) $ 127,000 $ 64,000 $ 155,000
============= ============== ============== ============
Depreciation and amortization $ 536,000 $ - $ - $ 536,000
============= ============== ============== ============
Segment income (loss) before taxes $ 199,000 $ 362,000 $ (182,000) $ 379,000
Income tax (expense) benefit (96,000) (138,000) 69,000 (165,000)
------------- -------------- -------------- ------------
Net income $ 103,000 $ 224,000 $ (113,000) $ 214,000
============= ============== ============== ============
Expenditures for capital assets $ 767,000 $ - $ - $ 767,000
============= ============== ============== ============
Segment total assets $ 24,560,000 $ 12,798,000 $ 6,416,000 $ 43,774,000
Intersegment assets (8,935,000) (210,000) (304,000) (9,449,000)
------------- -------------- -------------- ------------
Total assets $ 15,625,000 $ 12,588,000 $ 6,112,000 $ 34,325,000
============= ============== ============== ============
</TABLE>
7
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<TABLE>
<CAPTION>
For the Three Months Ended August 31, 1999
---------------------------------------------------------------
Management Long-Term Care Acute Care
Services Health Services Health Services Totals
------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Total revenues from reportable segments $ 9,855,000 $ 6,880,000 $ 3,931,000 $ 20,666,000
Intersegment revenues (1,152,000) (270,000) - (1,422,000)
------------- -------------- -------------- ------------
Total consolidated revenues $ 8,703,000 $ 6,610,000 $ 3,931,000 $ 19,244,000
============= ============== ============== ============
Interest income $ 49,000 $ 121,000 $ 93,000 $ 263,000
Intersegment interest income - (10,000) - (10,000)
Interest expense (100,000) - - (100,000)
Intersegment interest expense 10,000 - - 10,000
------------- -------------- -------------- ------------
Net interest income (expense) $ (41,000) $ 111,000 $ 93,000 $ 163,000
============= ============== ============== ============
Depreciation and amortization $ 560,000 $ - $ - $ 560,000
============= ============== ============== ============
Segment income before taxes $ 99,000 $ 552,000 $ 69,000 $ 720,000
Income tax expense (57,000) (214,000) (27,000) (298,000)
------------- -------------- -------------- ------------
Net income $ 42,000 $ 338,000 $ 42,000 $ 422,000
============= ============== ============== ============
Expenditures for capital assets $ 265,000 $ - $ - $ 265,000
============= ============== ============== ============
Segment total assets $ 21,953,000 $ 11,008,000 $ 7,947,000 $ 40,908,000
Intersegment assets (7,901,000) (572,000) (33,000) (8,506,000)
------------- -------------- -------------- ------------
Total assets $ 14,052,000 $ 10,436,000 $ 7,914,000 $ 32,402,000
============= ============== ============== ============
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Lifemark Corporation ("Lifemark" or the "Company"), formerly Managed Care
Solutions, Inc., is involved in a variety of health care programs, many of which
serve indigent and Medicaid populations. Two subsidiaries of the Company,
Ventana Health Systems, Inc. ("Ventana") and Arizona Health Concepts, Inc.
("AHC"), derive substantially all of their revenues through contracts with the
Arizona Health Care Cost Containment System Administration ("AHCCCSA") to
provide specified long-term and primary care health services, respectively, to
qualified members. The contract periods expire September 30, 2000 and September
30, 2002 for Ventana and AHC, respectively. Each contract provides for fixed
monthly premiums, based on negotiated per capita enrollee rates. Ventana and AHC
subcontract with nursing homes, hospitals, physicians, and other medical
providers within Arizona to care for members.
The Company also provides contract management services to county and state
governmental units and other health care organizations. The Company has nine
contracts with multi-year terms that contemplate continued renewals, for
services, which expire at various dates through the year 2002.
8
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RESULTS OF OPERATIONS
Consolidated revenues for the three-month period ended August 31, 1999 increased
23% over the same period of the previous year to $23,609,000. Direct cost of
operations increased 25% over the comparable period of the previous fiscal year
to $17,850,000. Direct cost of operations, as a percentage of revenue was 76%
for the three-month period ended August 31, 1999 versus 74% for the same period
of the prior fiscal year. The increase in both revenues and direct expenses was
due to growth in enrollment in certain plans covered by management contracts,
coupled with growth in membership of Ventana and AHC.
MANAGEMENT SERVICES. Revenues for the three-month period ended August 31, 1999
related to fees generated from management services of health plans and programs
increased 28% to $11,112,000 from $8,703,000 for the comparable period of the
prior fiscal year. The increase is primarily due to enrollment increases in the
Community Choice Michigan, Rio Grande HMO and AlohaCare plans, as well as the
acquisition of AdviNet, Inc. in March 1999. The Company also renegotiated its
administrative service agreement with AlohaCare. The one-year agreement,
effective August 1, 1999, provides for higher revenues for Lifemark.
Direct cost of operations for the three-month periods ended August 31, 1999 and
1998 included $6,805,000 and $5,345,000, respectively, related to fees generated
from management services of health plans and programs. The direct cost of
operations for management services as a percentage of related revenue remained
constant at 61% for the three-month periods ended August 31, 1999 and 1998.
LONG-TERM CARE HEALTH SERVICES. Long-term care health or personal services,
which consist of operations of Ventana and Lifemark At Home, Inc. (formerly
Community Health USA, Inc.), generated revenues of $7,733,000 and $6,610,000,
for the three-month periods ended August 31, 1999 and 1998, respectively, which
represents a 17% increase. The increase in fiscal year 2000 is primarily related
to an increase in average monthly membership for Ventana from approximately
1,200 for the three-month period ended August 31, 1998 to approximately 1,400
for the three-month period ended August 31, 1999, coupled with an average
increase of approximately 4% in the capitation rate received by Ventana from
AHCCCSA.
Direct cost of operations related to long-term care health services for the
three-month periods ended August 31, 1999 and 1998 were $6,543,000 and
$5,387,000, respectively. The primary reason for the increase is the growth in
membership in Ventana. Direct cost of operations as a percentage of related
revenue were 85% and 82% for the three-month periods ended August 31, 1999 and
1998, respectively. The increase is primarily due to a significant rise in
pharmacy costs for Ventana resulting from a terminated capitation contract with
a pharmaceutical company and an increase in hospital and adult care home
expenses as a result of current patient mix. The Company is unable to determine
if future patient mixes would significantly differ from the current patient mix
to yield lower operating costs.
ACUTE CARE HEALTH SERVICES. Acute care health services, which consists of the
operations of AHC, generated an increase in revenues of 21% to $4,764,000 for
the three-month period ended August 31, 1999 from $3,931,000 for the comparable
prior year period. The increase is due to an increase in average monthly
membership from approximately 8,300 to 9,600 for the three-month periods ended
August 31, 1998 and 1999, respectively, along with an average increase of
approximately 6% in the capitation rate received by AHC from AHCCCSA.
Direct cost of operations related to acute care health services for the
three-month periods ended August 31, 1999 and 1998 were $4,503,000 and
$3,582,000, respectively. The principal reason for the increase is the growth in
enrollment for AHC. Direct cost of operations as a percentage of related revenue
were 95% and 91% for the three-month periods ended August 31, 1999 and 1998,
respectively. The increase is due to higher utilization of health care services
by AHC members, specifically for inpatient services. The company is unable to
determine if future utilization of healthcare services would differ from the
current utilization to yield lower operating costs.
MARKETING, SALES AND ADMINISTRATIVE. Marketing, sales and administrative
expenses as a percentage of consolidated revenue for the three-month period
ended August 31, 1999 remained at 23%, which is consistent with the comparable
period of the prior year. Marketing, sales and administrative expenses for the
three-month period ended August 31, 1999 include the obligation
9
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to make severance payments pursuant to the terms of an employment agreement with
Michael D. Hernandez, the Company's former Chief Executive Officer. In addition,
marketing, sales and administrative expenses include consulting fees related to
management reorganization and process redesign intended to improve the Company's
service delivery system. The Company does not anticipate significant consulting
fees related to this initiative in the future.
INTEREST INCOME. Interest income for the three-month period ended
August 31, 1999 was $255,000 versus $253,000 for the same period of the previous
year.
INTEREST EXPENSE. Interest expense was $100,000 for the three-month period ended
August 31, 1999 as compared to $90,000 for the comparable period of the prior
fiscal year. Interest expense is primarily attributable to outstanding secured
convertible term loans in an aggregate principal amount of $3,300,000 issued by
the Company in October 1996, along with an interim funding agreement obtained
during the fourth quarter of fiscal year 1999.
INCOME TAXES. The income tax expense was $165,000 and $298,000 for the
three-month periods ended August 31, 1999 and 1998, respectively. The effective
tax rates were 44% and 41%. These rates were higher than the statutory rates
for the respective periods, primarily due to the amortization of non-deductible
goodwill expenses.
NET INCOME. Net income for the three-month periods ended August 31, 1999 and
1998 was $214,000 and $422,000, respectively. The primary reason for the
decrease in profitability are the increases in direct expenses of the long-term
care and acute care health service segments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents increased to $13,862,000 from
$12,130,000 for the corresponding period of the prior fiscal year. Operating
activities generated $290,000 for the three-month period ended August 31, 1999
versus using $379,000 in the same period of the previous fiscal year. The
primary source of cash for the three-month period ended August 31, 1999 was
earnings before non-cash charges partially offset by the decrease in accrued
compensation. The primary use of cash for the three-month period ended August
31, 1998 was an increase in accounts receivable as a result of delay in receipt
of management fees from the State of Indiana.
Investing activities used $471,000 for the three-month period ended August 31,
1999 as compared to $199,000 for the same period of the previous fiscal year.
During the three-month period ended August 31, 1999, cash was used to purchase
$767,000 of fixed assets and to increase assets securing performance bonds by
$220,000, partially offset by cash generated from the maturity of short-term
investments of $501,000. The primary use of funds during the three-month period
ended August 31, 1998 was the purchase of $265,000 of fixed assets, partially
offset by payments received on notes receivable.
Financing activities generated $251,000 for the three-month period ended August
31, 1999 versus using $56,000 for the same period of the prior fiscal year.
Funds received pursuant to an interim funding agreement with a bank were the
primary source of cash for the current period. For the three-month period ended
August 31, 1998, principal payments on long-term debt were the primary use of
funds, partially offset by proceeds received from common stock issuance related
to stock option exercises.
Certain of the Company's operating subsidiaries are subject to state
regulations, which require compliance with net worth, reserve and deposit
requirements. To the extent the operating subsidiaries must comply with these
regulations, they may not have the financial flexibility to transfer funds to
Lifemark. Net assets of subsidiaries (after inter-company eliminations) which,
at August 31, 1999, may not be transferred to Lifemark by subsidiaries in the
form of loans, advances or cash dividends without the consent of a third party
are referred to as "Restricted Net Assets". Total Restricted Net Assets of these
operating subsidiaries was $10,391,000 at August 31, 1999, with deposit and
reserve requirements (performance bonds) representing $4,423,000 of the
Restricted Net Assets and net worth requirements, in excess of deposit and
reserve requirements, representing the remaining $5,968,000. Funds provided by
Ventana to Lifemark under loan agreements totaled $77,000 at August 31, 1999.
Ventana provided these loans in the normal course of operations. All such
agreements were pre-approved as required by the Arizona Health Care Cost
Containment System Administration.
10
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The Company believes that its existing capital resources and cash flow generated
from future operations will enable it to maintain its current level of
operations and its planned operations, including capital expenditures, in fiscal
year 2000.
YEAR 2000 ISSUES
Many existing computer systems may not recognize and process dates after
December 31, 1999. Therefore, certain hardware and software, including that
utilized by the Company, may have to be modified and/or reprogrammed to properly
function in the year 2000 and beyond. The Company's year 2000 committee has
assessed all internal-use hardware, software, non-information systems equipment,
procedures and business processes. An inventory of the Company's hardware and
software has been obtained. There were several computer systems that did not
properly recognize the year 2000. Therefore, the Company has replaced several
older critical systems and plans to modify the remaining systems prior to
December 31,1999. The year 2000 committee continues to research year 2000 issues
with vendors, clients and state agencies.
The Company's operations continue to rely on automated systems and systems
applications. The internally developed software ("MC1") used to process claims
and pay providers is in the final stages of testing. To date, the Company has
certified the MC1 system for five health plans as year 2000 compliant.
Furthermore, the Company has tested its hardware and is in the process of
testing software to assess the representations of Oracle Corporation and other
vendors, who claim their hardware and software to be year 2000 compliant.
The Company realizes there are outside influences relative to its year 2000
efforts, over which it has little or no control. The year 2000 committee
continues to communicate with State agencies to assess their year 2000
readiness. The Company has been notified by certain states that they may not
assess all of their year 2000 problems prior to December 31, 1999. The Company
is unable to determine the effect, if any, that such problems may have on the
Company. However, the Company will attempt to minimize the impact of other
parties' failure to resolve year 2000 problems.
The Company has spent approximately $114,000 to date preparing and analyzing
year 2000 issues. It anticipates year 2000 costs to reach approximately
$250,000. There can be no assurances that the Company's current systems or those
acquired in the future do not or will not contain undetected defects associated
with year 2000 issues that may result in material costs to the Company.
The Company is currently in the process of finalizing a contingency plan to
address issues that may arise due to the lack of systems being year 2000
compliant. The contingency plan encompasses the Company's year 2000 efforts and
will contain general procedures to deal with year 2000 problems.
Although the Company expects its critical systems to be compliant by year-end,
there is no guarantee that these results will be achieved. A worst case scenario
might include one or more of the Company's systems being non-compliant. Such an
event could result in a material disruption to the Company's operations.
FORWARD-LOOKING INFORMATION
This report contains both historical and forward-looking information.
Forward-looking statements include, but are not limited to, discussion of the
Company's strategic goals, new contracts, possible expansion of existing plans,
expected increase in certain expenses, and cash flow. These statements speak of
the Company's plans, goals or expectations and refer to estimates. The
forward-looking statements may be significantly impacted by risks and
uncertainties, and are made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). There can
be no assurance that anticipated future results will be achieved because actual
results may differ materially from those projected in the forward-looking
statements. Readers are cautioned that a number of factors, which are described
herein, could adversely affect the Company's ability to obtain these results.
These include the effects of either federal or state health care reform or other
legislation; changes in reimbursement system trends, the ability of care
providers (including physician practice management groups) to comply with
11
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current contract terms; and renewal of the Company's contracts with various
state and other governmental entities. Such factors also include the effects of
other general business conditions, including but not limited to, government
regulation, competition and general economic conditions. The cautionary
statements made pursuant to the Reform Act herein and elsewhere by the Company
should not be construed as exhaustive or as any admission regarding the adequacy
of disclosures made by the Company prior to the effective date of the Reform
Act. The Company cannot always predict what factors would cause actual results
to differ materially from those indicated by the forward-looking statements. In
addition, readers are urged to consider statements that include the terms
"believes", "belief", "expects", "plans", "objectives", "anticipates", "intends"
or the like to be uncertain and forward-looking.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to the risk of fluctuating interest rates in the ordinary
course of business on certain assets and liabilities including cash and cash
equivalents, short-term investments and long-term debt. The Company does not
expect changes in interest rates to have a significant effect on the Company's
operations, cash flow or financial position.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of security holders during the
Company's Annual Meeting of Stockholders held September 13, 1999:
DESCRIPTION OF MATTER Votes Cast For Authority Withheld
-------------- ------------------
ELECTION OF DIRECTORS
Rhonda E. Brede 4,280,475 17,337
Richard C. Jelinek 4,280,408 17,404
John G. Lingenfelter 4,280,569 17,243
William G. Brown 4,280,541 17,271
Henry M. Kaldenbaugh 4,280,641 17,171
Risa Lavizzo-Mourey 4,280,641 17,171
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial data schedule.
(b) Reports on Form 8-K
None
12
<PAGE>
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.
LIFEMARK CORPORATION
By: /S/ RHONDA E. BREDE
----------------------------------------------
Rhonda E. Brede, President and Chief Operating
Officer
(Principal Executive Officer)
By: /S/ MICHAEL J. KENNEDY
--------------------------------------------
Michael J. Kennedy, Vice President and Chief
Financial Officer
(Principal Financial and Accounting Officer)
Dated: October 12, 1999
13
<PAGE>
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-START> JUN-01-1999
<PERIOD-END> AUG-31-1999
<EXCHANGE-RATE> 1
<CASH> 13,862,000
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0
0
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