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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(AMENDMENT NO. 1)
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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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 1-13177
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INTEGRA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3605119
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1060 First Avenue - Suite 410
King of Prussia, PA 19406
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(Address of principal executive offices) (Zip Code)
(610) 992-7000
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(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 ____.
As of May 1, 2000, Integra, Inc. had 10,138,552 shares of common stock $0.01 per
value, outstanding.
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This Form 10-Q/A amends Integra, Inc.'s (the "Company") 10-Q for the
period ended March 31, 2000 previously filed on May 15, 2000, to restate Item 2
to correct certain amounts reported in the sections entitled "Premium Service
Costs" and "Selling and Administrative Expense." Certain amounts listed in those
sections of the 10-Q did not agree with the Company's Consolidated Statements of
Operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
OVERVIEW
The Company provides EAP and managed behavioral healthcare services
through full and shared risk arrangements with employers, health plans and
managed care organizations to perform behavioral health services on a capitated
per employee or per member per month basis. In addition, the Company provides an
array of managed behavioral health services including employee assistance
programs, third party clinical case management and claims administration and
selected consulting services. Integra's contract service areas are principally
concentrated in Connecticut, Delaware, Maryland, New Jersey, New York,
Pennsylvania, Rhode Island, Virginia and Tennessee.
RESULTS OF OPERATIONS
PREMIUM REVENUE
Premium revenue pertains to the Company's managed behavioral healthcare
business which maintains a portfolio of agreements with managed care
organizations and corporations to provide inpatient and outpatient behavioral
health services. Revenues are primarily generated by capitated managed
behavioral healthcare and employee assistance programs. The fees are defined by
contract and are primarily calculated on a fixed per employee or per member per
month fee. Revenues under these contracts are recorded in the month for which
the member or employee is entitled to services. Generally, these contracts are
on a one to three year basis and are subject to various cancellation provisions
which are typical to industry practice.
Premium revenue for the three-month period ended March 31, 2000
increased from the corresponding period of the prior year from $6,356 to $6,480
primarily as a result of a net increase in membership for the capitated
contracts.
PREMIUM SERVICE COSTS
Premium service costs are primarily comprised of medical claims and
personnel costs associated with the Company's service delivery, support and
management of the its portfolio of behavioral healthcare contracts. The Company
estimates the medical claims cost of providing services under these agreements,
including a reserve for services incurred, but not reported, based upon
authorized healthcare services, past claim payment experience for member groups,
patient census data and other factors. The Company typically does not
subcapitate the risk of providing services under these contracts, but the
Company arranges
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discounted fee-for-service rates with independent inpatient and outpatient
behavioral health providers.
Under capitated contracts, the Company is responsible for ensuring
appropriate access to care and bears the risk for utilization levels and pricing
of the cost of services performed under these contracts. The Company believes
the future revenues under these contracts will exceed the costs of services it
will be required to provide under the terms of the contracts. An underestimation
in the utilization or price of services for these contracts could result in
material losses to the Company. Historically, Integra has managed these
capitated contracts profitably. The Company maintains no re-insurance against
the risk of loss under these contracts.
Premium service costs increased for the three month period ended March
31, 2000 to $4,775 from $4,212 in the corresponding period in the prior year.
This increase is primarily a result of an additional investment by the Company
in internal clinical and claims personnel, as well as increased utilization from
capitated contracts due to increased membership.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses are primarily comprised of
corporate office, sales and administration. Selling and administrative expenses
increased to $1,942 for the three months ended March 31, 2000 from $1,287 for
the same period in 1999. The increase is essentially a result of increased
investment in Information Systems personnel, consultants and depreciation.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations was $105 for the three months ended March
31, 2000 compared to net cash provided by operations of $1,077 for the same
period in the prior year. Unrestricted cash and cash equivalents decreased to
$377 at March 31, 2000 from $706 at December 31, 1999. At March 31, 2000, the
Company also had $1,000 in cash which is designated as a restricted reserve for
medical claims payable under the contract with HealthNow New York.
At March 31, 2000 the Company had a working capital deficit of $6,817.
The deficit is primarily attributable to accrued liabilities of $3,832 which
pertain to the exit of the outpatient provider behavioral group practice
business and reserves established for long-term care and other provider billing
matters. Although these amounts are classified as current due to their nature,
the Company does not expect that all of these amounts will require payment in
the next year. The remainder of the Company's accrued liabilities are operating
in nature.
The Company believes that the cash flow generated by the Company's
operations together with its existing cash and credit available from a
significant shareholder in the amount of $2,000 will be sufficient to meet the
Company's cash requirements in 2000.
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The Company's current ratio, working capital and debt to equity ratio
are set forth below for the dates indicated:
<TABLE>
<CAPTION>
March 31, 2000 December 31, 1999
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<S> <C> <C>
Current Ratio............................... .28:1 .35:1
Working Capital Deficit..................... $(6,522) $(6,305)
Debt to Equity.............................. -- --
</TABLE>
INFLATION
A significant portion of the Company's operating expenses have been
subject to inflationary increases, including clinical and administrative
salaries and rent expense. Based on management's assessment, the Company has
historically sought to offset inflationary increases through price increases.
Further, the Company believes it has somewhat mitigated the effect of inflation
by expanding services and increasing operating efficiencies especially through
the use of automation and technology. There can be no assurance that the Company
will be able to offset future inflationary increases in expenses, if any, which
would result in a dilutive impact on the Company's future earnings.
SIGNIFICANT CONTRACT
Effective January 1, 1999, the Company implemented coverage of a
behavioral health carve-out contract with a health plan which currently covers
over 420,000 members. The Company expects that this contract, which has a
two-year term, will generate over $13,200 in annual revenues and it is currently
the Company's largest contract. Profitability under this capitated contract will
depend upon the Company's ability to manage the utilization of services within
the premiums received. An underestimation in the expected utilization of
services for this contract could result in a material loss to the Company. In
1999 this contract performed according to plan. Management expects performance
under the contract in 2000 to be profitable and the contract to be renewed in
future years. This contract represented fifty percent of the Company's 1999
revenues and expires on December 31, 2000. The Company is currently in
discussion with the Health Plan regarding the renewal of the agreement.
POTENTIAL IMPACT OF YEAR 2000 COMPUTER ISSUES
The year 2000 problem is primarily the result of two potential
malfunctions that could have an impact on the Company's systems and equipment.
The first problem arises due to computers being programmed to use two rather
than four digits to define the applicable year. The second problem arises in
embedded chips where microchips and microcontrollers have been designed using
two rather than four digits to define the applicable year. Certain of the
Company's computers, programs, and building infrastructure components (e.g.
alarm systems and HVAC systems) are date sensitive and may recognize a date
using "00" as the year 1900 rather than the year 2000.
The Company relies on information technology ("IT") systems and other
systems and facilities such as telephones, building access control systems and
heating and ventilation equipment ("Embedded Systems") to conduct its business.
These systems may have been potentially vulnerable to year 2000 problems due to
their use of date information. The Company also has business relationships with
customers and healthcare providers and other critical vendors who are themselves
reliant on IT and Embedded Systems to conduct their businesses.
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State of Readiness. The Company's internal IT systems are largely
centralized and consist primarily of purchased software. The Company's IT
hardware infrastructure is built mainly around IBM PC compatible servers and
desktop systems. The Company's IT software primarily utilizes Microsoft systems
including SQL Server, Windows NT, Internet Information Server, Exchange and
Office. The Company believes these systems were compliant at December 31, 1999.
The Company's clinical and claims administration software were certified by the
vendor as being year 2000 compliant. The Company completed testing of this
system and believes it to be compliant. Year 2000 remediation costs incurred in
1999 and 1998 were $60 and $100, respectively.
External Relationship. The Company also faced the risk that one or more
of its critical suppliers or customers ("External Relationships") would not be
able to interact with the Company due to the third party's inability to resolve
its own year 2000 issues, including those associated with its own External
Relationships. The Company has assessed its External Relationships and has rated
its risk with each External Relationship based upon the potential business
impact, available alternatives and cost of substitution. The Company attempted
to determine the overall year 2000 readiness of its External Relationships. In
the case of significant customers and mission critical suppliers such as banks,
telecommunications providers and other utilities and IT vendors, the Company
engaged in discussions with the third parties and obtained information as to
those parties' year 2000 plans and state of readiness. The Company believes its
External Relationships are year 2000 ready.
Risks and Contingency/Recovery Planning. If the Company's year 2000
issues were unresolved, it is possible the Company would not have the ability to
accurately and timely authorize and process benefits and claims, accurately bill
customers, assess claims exposure, determine liquidity requirements, report
accurate data to management, stockholders, customers, regulators and others, and
would be subject to business interruptions or shutdowns, financial losses,
reputational harm, loss of significant customers, increased scrutiny by
regulators and litigation related to year 2000 issues. The Company attempted to
limit the potential impact of the year 2000 by monitoring the progress of its
own year 2000 project and those of its critical External Relationships and by
developing contingency/recovery plans.
The Company developed contingency/recovery plans aimed at maintaining
the continuity of critical business functions before and after December 31, 1999
and through March 1, 2000. As part of that process, the Company developed manual
work alternatives to automated processes which were designed to maintain
business continuity. These manual alternatives presume, however, that basic
infrastructure such as electrical power and telephone service, as well as
purchased systems which are advertised to be year 2000 compliant by their
manufacturers (primarily IT hardware and software) will remain unaffected by the
year 2000 problem. The Company engaged various testing techniques using Integra,
Inc. Information Technology staff and external consultants during the last half
of 1999. Minor problems revealed as a result of such testing were corrected.
Integra's Y2000 readiness was deemed complete in December 1999. No significant
problems at that time, or through March 30, 2000 were encountered and the
Company believes it will not have future difficulty.
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CAUTIONARY STATEMENT
Matters discussed above contained forward-looking statements that are
based on the Company's estimates, assumptions and projections. Major factors
which could cause results to differ materially from those expected by management
include the timing and nature of reimbursement changes, the nature of changes in
laws and regulations that govern various aspects of the Company's business, new
criteria adopted to determine medical necessity for behavioral health services,
the outcome of post-payment reviews of the Company's billings to Medicare
patients in long-term care facilities, Year 2000 issues, pricing of managed care
and other third party contracts, the utilization and cost of services under the
Company's capitated contracts, the direction and success of competitors,
management and customer retention and unanticipated market changes.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
INTEGRA, INC.
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(registrant)
May 17, 2000 /s/ Eric E. Anderson, Ph.D.
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(Date) Eric E. Anderson, Ph.D.
President and Chief Executive Officer
