<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 NO. 1-13772
HEALTHPLAN SERVICES CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3787901
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3501 FRONTAGE ROAD, TAMPA, FLORIDA 33607
(Address of Principal Executive Offices) (Zip Code)
(813) 289-1000
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
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
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock as of the latest
practicable date.
Total number of shares of Common Stock outstanding as of August 4, 1997.
Common Stock 15,011,403
........................................................
<PAGE> 2
HEALTHPLAN SERVICES CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet
June 30, 1997 and December 31, 1996.......................................... 2
Consolidated Statement of Income
Three and Six Months Ended June 30, 1997 and 1996............................ 3
Consolidated Statement of Changes in
Stockholders' Equity June 30, 1997........................................... 4
Consolidated Statement of Cash Flows
Six Months Ended June 30, 1997 and 1996...................................... 5
Notes to Consolidated Financial Statements................................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................................11
PART II - OTHER INFORMATION 18
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ---------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................... $ 9,246 $ 3,725
Restricted cash .............................................. 11,313 10,062
Accounts receivable, net of allowance for
doubtful accounts of $184 and $99, respectively ............. 25,756 17,899
Refundable income taxes ...................................... 91 6,083
Prepaid expenses and other current assets .................... 4,562 4,245
Deferred taxes ............................................... 2,571 4,481
-------- --------
Total current assets ................................. 53,539 46,495
Property and equipment, net .................................... 22,925 21,102
Other assets, net .............................................. 2,320 2,182
Deferred taxes ................................................. 6,711 8,327
Note receivable ................................................ -- 6,389
Investments .................................................... 6,169 3,685
Intangible assets, net ......................................... 154,212 156,521
-------- --------
Total assets ......................................... $245,876 $244,701
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 8,803 $ 18,464
Premiums payable to carriers ................................ 49,243 29,536
Commissions payable ......................................... 5,814 4,691
Deferred revenue ............................................ 2,289 1,560
Accrued liabilities ......................................... 19,624 16,456
Current portion of long-term debt ........................... 330 2,717
-------- --------
Total current liabilities ............................ 86,103 73,424
Notes payable .................................................. 43,569 59,581
Other long-term liabilities .................................... 2,926 2,913
-------- --------
Total liabilities .................................... 132,598 135,918
-------- --------
Stockholders' equity:
Common stock voting, $0.01 par value, 100,000,000 shares
authorized, 14,999,403 and 14,974,126 issued and outstanding
at June 30, 1997 and December 31, 1996, respectively ....... 150 150
Additional paid-in capital .................................. 106,634 106,153
Retained earnings ........................................... 5,826 2,480
Unrealized appreciation ..................................... 668 --
-------- --------
Total stockholders' equity ........................... 113,278 108,783
-------- --------
Total liabilities and stockholders' equity ........... $245,876 $244,701
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues .................. $ 71,780 $ 31,167 $144,543 $ 61,465
Interest income ..................... 283 696 1,112 1,405
-------- -------- -------- --------
Total revenues ............... 72,063 31,863 145,655 62,870
-------- -------- -------- --------
Expenses:
Agent commissions ................. 16,692 10,191 34,485 19,952
Personnel expenses ................ 29,144 8,458 58,121 16,850
General and administrative ........ 14,017 5,854 29,239 11,676
Pre-operating and contract start-up
costs............................. 69 309 163 586
Restructuring ..................... 1,374 -- 1,374 --
Integration ....................... 780 -- 2,178 --
Depreciation and amortization ..... 4,342 1,394 8,212 2,668
-------- -------- -------- --------
Total expenses ............... 66,418 26,206 133,772 51,732
-------- -------- -------- --------
Income before interest expense
and income taxes ................. 5,645 5,657 11,883 11,138
Interest expense .................... 996 17 2,196 33
-------- -------- -------- --------
Income before income taxes .......... 4,649 5,640 9,687 11,105
Provision for income taxes .......... 2,241 2,200 4,480 4,331
-------- -------- -------- --------
Net Income ................... $ 2,408 $ 3,440 $ 5,207 $ 6,774
======== ======== ======== ========
Historical weighted average
net income per share ............. $ 0.16 $ 0.26 $ 0.35 $ 0.50
======== ======== ======== ========
Historical weighted average
shares outstanding ............... 15,026 13,456 15,047 13,455
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 5
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Voting Additional
Common Paid-in Retained Unrealized
Stock Capital Earnings Appreciation Total
--------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 .......... $ 150 $ 106,153 $ 2,480 $ -- $ 108,783
Vesting of management stock (unaudited) -- 118 -- -- 118
Issuance of 17,000 shares in connection
with stock option plans (unaudited) .. -- 238 -- -- 238
Issuance of 8,277 shares in connection
with the employee stock purchase
plan (unaudited) ..................... -- 125 -- -- 125
Unrealized appreciation on
investments (unaudited) .............. -- -- -- 668 668
Declaration of cash
dividend (unaudited) ................. -- -- (1,861) -- (1,861)
Net income (unaudited) ................ -- -- 5,207 -- 5,207
--------- --------- --------- --------- ---------
Balance at June 30, 1997 (unaudited) .. $ 150 $ 106,634 $ 5,826 $ 668 $ 113,278
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 6
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ...................................................... $ 5,207 $ 6,774
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................................... 4,400 1,555
Amortization of intangible assets ............................... 3,310 1,014
Amortization of other assets .................................... 85 99
Disposal of computer software ................................... 417 --
Issuance of Common Stock to management .......................... 118 158
Deferred taxes .................................................. 3,526 1,114
Changes in assets and liabilities net of effect from acquisitions:
Restricted cash ................................................. (1,251) (8,333)
Accounts receivable ............................................. (7,857) (1,778)
Refundable income taxes ......................................... 5,993 1,041
Prepaid expenses and other current assets ....................... (317) (821)
Other assets .................................................... (220) 24
Accounts payable ................................................ (11,523) (2,229)
Premiums payable to carriers .................................... 19,707 8,542
Commissions payable ............................................. 1,123 208
Deferred revenue ................................................ 729 (231)
Accrued liabilities ............................................. 2,167 (2,599)
Income taxes payable ............................................ -- 314
-------- --------
Net cash provided by operating activities .................... 25,614 4,852
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ............................. (5,041) (2,153)
Sales of short-term investments, net ............................ -- 6,641
Payment for purchase of TMG block of business ................... (1,600) --
Purchase of investments, net .................................... (1,816) (2,056)
Decrease (increase) in note receivable .......................... 6,388 (6,900)
-------- --------
Net cash used in investing activities ........................ (2,069) (4,468)
-------- --------
Cash flows from financing activities:
Net payments under line of credit ............................... (15,000) (25)
Payments on other debt .......................................... (3,387) --
Proceeds from exercise of stock options ......................... 238 --
Proceeds from Common Stock issued ............................... 125 76
-------- --------
Net cash (used in) provided by financing activities .......... (18,024) 51
-------- --------
Net increase in cash and cash equivalents ........................ 5,521 435
Cash and cash equivalents at beginning of period ................. 3,725 4,738
-------- --------
Cash and cash equivalents at end of period ....................... $ 9,246 $ 5,173
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest .......................................... $ 2,588 $ 32
======== ========
Cash paid for income taxes ...................................... $ 1,528 $ 1,954
======== ========
Supplemental disclosure of noncash activities:
Issuance of Common Stock to management .......................... $ 118 $ 158
======== ========
Dividends declared and unpaid.................................... $ 1,861 $ --
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 7
HEALTHPLAN SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
HealthPlan Services Corporation (together with its direct and indirect
wholly owned subsidiaries, the "Company") provides marketing, administration,
and risk management services and solutions for health and other benefit
programs. The Company provides these services for over 120,000 small businesses
and large, self-funded organizations, covering approximately 2.9 million
members in the United States. The Company's customers include managed care
organizations, insurance companies, integrated health care delivery systems,
self-funded benefit plans, and health care purchasing alliances.
On May 19, 1995, the Company completed an initial public offering of
4,025,000 shares of its Common Stock, shares of which are presently traded on
the New York Stock Exchange. Concurrent with the initial public offering, the
Company also exchanged Redeemable Preferred Stock for 1,398,000 shares of Common
Stock.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The interim financial data is unaudited and should be read in
conjunction with the audited Consolidated Financial Statements and notes
thereto included in the Company's 1996 Annual Report on Form 10-K filed with
the Securities and Exchange Commission on March 31, 1997.
In the opinion of the Company, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for
fair presentation of financial position and results of operations for the
interim periods presented. Interim results are not necessarily indicative of
results for a full year.
CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its majority owned subsidiaries, all of which are wholly owned. All
intercompany transactions and balances have been eliminated in consolidation.
EARNINGS PER SHARE
Earnings per share have been computed based on the historical weighted
average number of shares of Common Stock outstanding during the period. Stock
options have been included as outstanding for the entire period using the
treasury stock method.
During the first quarter of 1997, Statement on Financial Accounting
Standards No. 128 ("SFAS 128"), "Earnings per Share," was issued. SFAS 128 will
be effective for the year ending December 31, 1997 and will require a
restatement of previously reported earnings per share. Under SFAS 128, "basic"
earnings per share will replace the reporting of "primary" earnings per share.
Basic earnings per share is calculated by dividing the income available to
common stockholders by the weighted average number of
6
<PAGE> 8
common shares outstanding for the period, without consideration for common
stock equivalents. "Fully diluted" earnings per share will be replaced by
"diluted" earnings per share under SFAS 128. The calculation of diluted
earnings per share is similar to that of fully diluted earnings per share under
existing accounting pronouncements.
Primary earnings per share would not be materially different from
basic earnings per share for the six months ended June 30, 1997.
INTANGIBLE ASSETS
The excess of cost over the fair value of net assets acquired is
recorded as intangible assets, primarily goodwill. Goodwill (net $153.3 million
at June 30, 1997) is amortized over 25 years. Other intangible assets, such as
contract rights (net $0.9 million at June 30, 1997), are amortized over 7
years.
INVESTMENTS
The Company's investments are classified as available for sale and
recorded at fair market value. Any unrealized change in the value of
investments is recorded in the equity section of the balance sheet.
INCOME TAXES
The Company recognizes deferred assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. For federal income tax
purposes, the Company files a consolidated tax return with its wholly owned
subsidiaries.
PRE-OPERATING AND CONTRACT START-UP COSTS
The Company expenses costs related to the preparation for and
implementation of new products and contracts for services to new customers
prior to the initiation of significant new revenue activity from these new
revenue initiatives.
RESTRUCTURE EXPENSE
In the second quarter of 1997, the Company recorded a charge of $1.4
million to reflect the cost of exiting its Framingham, Massachusetts office.
This charge reflected the cost of terminating employees and abandoning property
and equipment.
The Company's restructure plan was for the elimination of
approximately 220 jobs in management, administration, and information systems.
INTEGRATION EXPENSE
Certain costs amounting to $1.7 million incurred by the Company for
the six months ended June 30, 1997 in relation to the post-acquisition
integration of information systems at Consolidated Group Inc., together with
its affiliate ("Consolidated Group"), and Harrington Services Corporation,
together with its direct and indirect wholly owned subsidiaries ("Harrington"),
are recorded as integration expense. Other non-information systems costs
amounting to $0.5 million for items such as travel, consolidation of treasury
functions, and relocation have also been recorded as integration expense.
7
<PAGE> 9
STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25 and
related interpretations in accounting for its stock option plans and employee
stock purchase plan. Accordingly, no compensation cost has been recognized
related to these plans. Had compensation cost for the Company's stock option
and employee stock purchase plans been determined based on the fair value at
the grant dates, as prescribed in Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," the Company's net income
and net income per share would have been as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1997 1996 1997 1996
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Net income attributable to
common stock (in thousands):
As reported $2,408 $3,440 $5,207 $6,774
Pro forma 2,220 3,328 4,808 6,585
====== ====== ====== ======
Net income per share:
As reported $ 0.16 $ 0.26 $ 0.35 $ 0.50
Pro forma 0.15 0.25 0.32 0.49
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions
used for grants during the applicable year: dividend yield of 2.65% and 0.0%,
respectively, for the six months ended June 30, 1997 and 1996; expected
volatility of 30% for each of the six months ended June 30, 1997 and 1996;
risk-free interest rates of 6.54% for options granted during the six months
ended June 30, 1997 and 6.3% for options granted during the six months ended
June 30, 1996; and a weighted average expected option term of four years for
both years.
3. NOTE PAYABLE AND CREDIT FACILITY
During 1996, the Company expanded its credit facility (the "Line of
Credit") from $20 million to the lesser of (i) three times earnings before
interest expense, income taxes, and depreciation and amortization expense (with
certain adjustments called for in the credit agreement) or (ii) $175 million.
The maximum amount available through the Line of Credit as of June 30, 1997 was
approximately $111 million. The facility operates on a revolving basis until
May 18, 1998, on which date the outstanding balance shall be paid over a three
year period with the first principal payment due November 30, 1998 and the
final payment due April 30, 2001. The Company's borrowing under the Line of
Credit includes interest ranging from LIBOR plus 125 to 175 basis points to New
York prime plus 25 to 75 basis points. The Line of Credit carries a commitment
fee of 0.25% of the unused portion and is secured by the stock of the Company's
subsidiaries. The agreement contains provisions which include (among other
covenants) maintenance of certain minimum financial ratios, limitations on
capital expenditures, and limitations on acquisition activity. As of June 13,
1997, the Line of Credit was amended to, among other things, permit the
establishment of a swingline facility of up to $10 million (with a
corresponding reduction in the $175 million available within the Line of
Credit) and enable the Company to pay a quarterly dividend of up to $0.125 per
share of the Company's capital stock (or up to $0.50 per share on an annualized
basis) for 1997, which amount may be increased on an annualized basis by up to
$0.05 per share for each calendar year after 1997. The Company incurred
approximately $1.6 million of interest expense and approximately $160,000 in
commitment fees on the Line of Credit for the six months ended June 30, 1997.
Subsequent to obtaining the Line of Credit, the Company entered into
two separate interest rate swap agreements as a hedge against interest rate
exposure on the variable rate debt. The agreements, which expire in October
1999 and September 2001, effectively convert $40.0 million of variable debt
under the Line of Credit to fixed rate debt at a weighted average rate of 6.42%
plus a margin ranging from 125 to 175 basis points. For the six months ended
June 30, 1997, the Company recorded approximately $170,000 of interest expense
related to the swap agreements. The Company considers the fixed rate and
variable rate financial instruments to be representative of current market
interest rates and, accordingly, the recorded amounts approximate their present
fair market value.
8
<PAGE> 10
The Company incurred additional interest expense of $230,000 for the
six months ended June 30, 1997 relating to notes assumed in the acquisition of
the Company from the Dun and Bradstreet Corporation and notes assumed by the
Company in the acquisitions of Consolidated Group and Harrington.
4. ACQUISITIONS
THE MUTUAL GROUP INC.'S EMPLOYEE BENEFITS BUSINESS
Effective January 1, 1997, HPSI assumed the administrative
responsibilities for the group operations of The Mutual Group (U.S.) Inc.'s
Employee Benefits division ("TMG block of business"). As part of the
administration and business transfer agreement (the "Agreement"), the Company
agreed to lease a field office located in Brookfield, Wisconsin and pay $1.6
million for certain tangible and intangible assets. In addition, the Company
agreed to employ approximately 220 former TMG employees. The Company has
recorded a liability for certain obligations assumed in the Agreement,
including the closure of the Brookfield office, an event which the Company
announced during the second quarter to be executed during the third quarter.
TMG provides marketing and administrative services for medical, dental, and
group life benefits to small businesses with approximately 150,000 members and
over $100 million in annual premiums. Connecticut General Life Insurance
Company has assumed financial responsibility for the business as the reinsurer
of new and existing policies. Consistent with the Company's historical policy
of accounting for the assumption of blocks of business (as opposed to the
acquisition of companies), the intangible asset, called "contract rights," is
being amortized over 7 years.
CONSOLIDATED GROUP
On July 1, 1996, the Company acquired all the issued and outstanding
stock of Consolidated Group for approximately $61.9 million in cash.
Consolidated Group, headquartered in Framingham, Massachusetts, specializes in
providing medical benefits administration and other related services for health
care plans. In the second quarter of 1997, the Company announced plans to close
the Framingham office and recorded a $1.4 million restructuring charge. The
administration and claims services historically performed in Framingham will be
assumed in the Company's Tampa, Florida and Merrimack, New Hampshire offices.
The Company expects to have its restructure plan substantially implemented in
1997. Consolidated Group provides these services to over 26,000 small
businesses in a variety of industries covering approximately 295,000 members in
50 states. Consolidated Group employs approximately 410 people.
HARRINGTON SERVICES CORPORATION
On July 1, 1996, the Company also acquired all the issued and
outstanding stock of Harrington for approximately $32.5 million cash and
1,400,110 shares of the Company's Common Stock valued at $30.1 million.
Harrington, headquartered in Columbus, Ohio, provides administrative services
to self-funded benefit plans. Harrington provides these services to
approximately 2,750 large, self-funded plans for employers in a variety of
industries covering approximately 1.3 million members in 47 states. Harrington
employs approximately 1,600 employees, with principal offices in Columbus,
Ohio; Chicago, Illinois; and El Monte, California.
9
<PAGE> 11
UNAUDITED PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
The following unaudited pro forma consolidated results of operations
of the Company give effect to all of the above acquisitions of Consolidated
Group and Harrington, accounted for as purchases, as if they occurred on
January 1, 1996 (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
----------------
<S> <C>
Revenues $138,507
Net income $ 5,652
Net income per common share $ 0.38
</TABLE>
The above pro forma information is not necessarily indicative of the
results of operations that would have occurred had the acquisitions of
Consolidated Group and Harrington been made as of January 1, 1996 or of the
results which may occur in the future.
5. INVESTMENTS AND NOTES RECEIVABLE
On January 8, 1996, the Company entered into an agreement with
Medirisk, Inc., a provider of health care information, to purchase $2.0 million
of Medirisk preferred stock representing a 9% ownership interest and, in
addition, to lend Medirisk up to $10.0 million over four years in the form of
debt for which the Company would receive detachable warrants to purchase up to
432,101 shares of Medirisk's common stock for $0.015 per share, based on the
amount of debt actually acquired.
On March 13, 1996, Medirisk borrowed $6.9 million from the Company
bearing interest of 10% payable quarterly. In accordance with the agreement,
warrants to purchase 298,150 shares of Medirisk's common stock were issued to
the Company. The Company discounted the note receivable by the relative fair
value of the warrants, which was determined to be $573,000.
On January 28, 1997, Medirisk completed an initial public offering and
satisfied the $6.9 million debt balance in accordance with the agreement. The
remaining value of the warrants, approximately $500,000, was accreted to income
in the first quarter of 1997. Upon completion of the public offering,
Medirisk's preferred stock was converted to common stock. The Company agreed
not to sell its shares of Medirisk in the public market for 180 days after the
effective date of the initial public offering without the prior consent of the
offering's underwriters. On July 27, 1997, after the 180 day period lapsed, the
shares became eligible for sale in the public market, subject to the conditions
and restrictions of Rule 144 under the Securities Act of 1933. Assuming full
conversion of the warrants issued to the Company, its ownership amounts to
480,442 shares of common stock after the public offering, which represents an
approximate 11% ownership interest. On June 30, 1997, Medirisk's shares closed
at $8.06 per share of common stock. The Company has recorded its investment in
Medirisk at eighty percent of the market value at June 30, 1997 to reflect the
estimated value of the restricted investment. The investment has been adjusted
to this value with the unrealized holding gain reported in the equity section
of the balance sheet in accordance with Statement of Financial Accounting
Standards No. 115 ("SFAS 115"), Accounting for Certain Investments in Debt and
Equity Securities.
On March 5, 1997, the Company and Health Risk Management, Inc. ("HRM")
mutually agreed to terminate a merger agreement previously entered into on
September 12, 1996. In connection with the termination, the Company purchased
200,000 shares of HRM common stock, representing approximately 4.5% of HRM
shares outstanding, at a price of $12.50 per share. On June 30, 1997, HRM's
shares closed at $13.50 per share of common stock. The investment has been
adjusted to market value at June 30, 1997, with the unrealized holding gain
reported in the equity section of the balance sheet in accordance with SFAS
115. These shares are not registered and are subject to restrictions on
transfer. HRM provides comprehensive, integrated health care management,
information, and health benefit administration services to employers, insurance
companies, unions, health maintenance organizations ("HMO"), preferred provider
organizations ("PPO"), hospitals, and governmental units in the United States
and Canada.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This document contains certain forward-looking statements regarding
future financial condition and results of operations. The words "expect,"
"anticipate," "predict," "believe," and similar expressions are intended to
identify forward-looking statements. Such statements involve risks,
uncertainties, and assumptions, including industry and economic conditions,
customer actions, and other factors discussed herein and in the Company's other
filings with the Securities and Exchange Commission. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions
prove incorrect, actual outcomes may vary materially from those indicated.
INTRODUCTION
The following is a discussion of material changes in the consolidated
results of operations of the Company for the three and six months ended June
30, 1997 and 1996.
The Company provides marketing, administration, and risk management
services and solutions for health and other benefit programs. The Company's
customers include managed care organizations, insurance companies, integrated
health care delivery systems, self-funded benefit plans, and health care
purchasing alliances.
FACTORS AFFECTING PROFITABILITY
The Company's profitability depends on its customers' service
requirements, its ability to meet these requirements efficiently, and the
methods of determining compensation for the Company's services. The factors
affecting service requirements and compensation levels vary depending on the
business unit.
Service Requirements
In both the small group and large group businesses, the Company offers
claims payment services, but such services are typically part of the monthly
fee charged, as opposed to a function of the volume of claims filed. Thus, on
the operating side, profitability is heavily reliant on both the volume of
claims filed and the efficiency with which the Company processes claims. The
same principle applies to the Company's other support functions, such as
enrollment, billing, underwriting, customer service, and reporting.
Profitability also will be influenced by the Company's ability to increase
operational efficiencies through consolidation of plants and maximization of
economies of scale.
Compensation
In the small group business, the Company is usually compensated by way
of a percentage of premium collected (sometimes referred to as "premium
retention percentage"), and in some instances the Company charges the covered
group a fixed monthly fee. Profitability can be a function of many factors,
including the number of groups in force, the number of lives in force, the
number of lives per group, the related premium retention percentage, and the
overall volume of premium collected on a monthly basis. Profitability is
influenced by the competitive nature of the pricing offered by the payor and
its desire to maintain a presence in its geographic regions and the small group
market in general. The Company believes that a higher percentage of future
small group revenue will be derived from HMO versus traditional indemnity
business, and premium retention percentages are typically lower from HMO
business. In addition, it is possible that competitive pressures or regulatory
reform could lower future premium retention percentages on the Company's
indemnity products. The Company's premium retention percentage declined from
almost 20% in January 1996 to approximately 18.3% in June 1997. Thus, the
Company will have to increase sales volume in the future to maintain the same
operating margins.
In the large group and alliance businesses, the Company is typically
compensated on a capitated or per member, per month ("PMPM") basis. This rate
is usually the result of a competitive bidding process, and pricing is
typically fixed for a period of time. Future profitability will be influenced
by the Company's ability to create value-added services that allow it to
deviate from the commodity pricing inherent in the bidding process.
11
<PAGE> 13
Special Risks Associated With The Alliance Business
Starting in 1994, the Company pursued contracts with state-sponsored
health care purchasing alliances, initially in Florida, and in 1995-1996, with
additional contracts in North Carolina, Kentucky, and Washington. The Company
has incurred substantial expenses in connection with the start-up of these
contracts, and, to date, the alliance business has been unprofitable.
The primary material risks associated with alliance contracts are
that:
1.Private enterprises will not accept the use of a
government-sponsored program and will therefore fail to provide an adequate
number of enrollees to support a revenue base (over which fixed costs may be
spread).
2.The number of enrollees per group will be so low that margins are
insufficient to cover the fixed costs of set up for the group.
3.The level of marketing, enrollment, and customer service required
will be materially higher than expected, thereby increasing the variable costs
required under the contract.
4.The independent agents on whom the Company relies to distribute the
product will not be enthusiastic about the alliance program, resulting in lower
than expected enrollment.
In February 1997, the Kentucky alliance announced that at the
expiration of the current term of the Company's contract on June 30, 1997, the
alliance would break out various services currently being performed under the
contract and seek separate bids for those services. The Company chose not to
submit a formal bid to provide such services and closed its Lexington, Kentucky
office at the end of the contract term. Revenues from this contract during the
second quarter were $1.3 million. During the quarter ended June 30, 1997, the
Company recorded $200,000 in estimated costs and approximately $415,000 in
abandoned software associated with this closure. The Company has also notified
the State of Washington that it does not intend to renew its current contract,
the term of which expires on December 31, 1997.
The Company announced in April 1997 that it had negotiated new
contracts with each of the districts representing the Florida alliance
customers. The new contracts will result in a rate increase to the Company of
approximately 67%. The new contracts cover a three year period through June 30,
2000 and may be canceled with 180 days notice.
There can be no assurance that the Company will be able to recoup its
investment in developing its alliance relationships or that these operations
will ultimately be profitable. Unless the Company can demonstrate that these
operations can be profitable over a sustained period of time, it may elect to
exit the remaining alliance businesses.
FACTORS AFFECTING GROWTH
The Company's growth is affected greatly by its acquisitions of other
administrators. Growth through acquisition involves substantial risks,
including the risk of improper valuation of the acquired business. In addition,
the value of such an acquired business or block of business could be impaired
if the Company is not successful in integrating the business into its existing
operations. These risks are increased when the Company elects to make such
acquisitions on a leveraged basis.
There can be no assurance that the Company will successfully and
profitably integrate acquired businesses into its existing operations. In
addition, certain costs will be incurred to successfully integrate these
acquired companies. The Company will continue to evaluate on a regular basis
whether events and circumstances have occurred that indicate that the carrying
amount of intangible assets may not be recoverable. Although the net
unamortized balance of intangible assets is not considered to be impaired, any
such future determination requiring the write-off of a significant portion of
unamortized intangible assets could have a material adverse effect on the
Company's financial results.
12
<PAGE> 14
The Company now serves approximately 120,000 businesses, plan holders,
and governmental agencies in 50 states, Washington, D.C., and Puerto Rico,
covering approximately 2.9 million members.
RELIANCE ON PAYORS
Typically, the Company's insurance and managed care payors sign
contracts with the Company that are cancelable by either party without penalty
upon advance written notice of between 90 days and one year and are also
cancelable upon a significant change of ownership of the Company. The New
England, Celtic Life Insurance Company, and Ameritas Life Insurance Corporation
businesses accounted for approximately 26.4%, 20.6%, and 8.2%, respectively, of
the Company's consolidated revenue for the six months ended June 30, 1996 and
approximately 8.9%, 5.9%, and 5.2%, respectively, of the Company's consolidated
revenue for the six months ended June 30, 1997. Although this decline is due
primarily to the Company's expansion through acquisition, which has diluted its
concentration of revenues from these sources, it should be noted that the
Company continues to experience higher lapses than originations in the business
written with these payors, and it is not certain when, if ever, this trend will
be reversed. In the third quarter of 1996, Metropolitan Life Insurance Company
completed a merger with The New England. The Company is unable to predict what
effect, if any, such merger will ultimately have on the Company's relationship
with The New England.
Historically, the majority of Consolidated Group's business was
written with The Travelers Insurance Company, which recently combined with the
health insurance business of Metropolitan Life Insurance Company to form
MetraHealth. Subsequently, MetraHealth was acquired by United HealthCare, one
of the nation's leading HMO companies. For the six months ended June 30, 1997,
this business represented approximately 13.9% of the Company's consolidated
revenue. The Company has not been successful in converting the MetraHealth
indemnity/PPO business to United HealthCare's new HMO products. On July 28,
1997, the Company announced that it had formed an alliance with Seaboard Life
Insurance Company (USA) to develop and administer health benefit plans for
small businesses. During the next 12 months, the Company will seek to
transition the majority of the MetraHealth business to Seaboard Life. As the
transition occurs, the business could experience higher than normal lapse rates
and lower than normal margins.
Revenues from the Company's assumption of the TMG block of business
accounted for 13.2% of consolidated revenues for the six months ended June 30,
1997.
The abandonment of the small group market by either The New England,
Celtic Life Insurance Company, or Ameritas Life Insurance Corporation,
indemnity payors' ability to manage medical losses, the degree to which the
Company is successful in the MetraHealth conversion to Seaboard Life, or the
Company's ability to maintain the TMG block of business could have a material
adverse effect on the Company. With respect to the business serviced by the
Company, a decision by any one of these payors to administer and distribute a
significant portion of its products directly to small businesses also could
have a material adverse effect on the Company.
13
<PAGE> 15
A. RESULTS OF OPERATIONS
The following is a discussion of material changes in the consolidated
results of operations of the Company for the three and six months ended June
30, 1997 compared to the same periods in 1996. The following table sets forth
certain operating data as a percentage of total revenues for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues........................ 99.6% 97.8% 99.2% 97.8%
Interest income .......................... 0.4% 2.2% 0.8% 2.2%
Total revenues ........................... 100.0% 100.0% 100.0% 100.0%
Expenses:.................................
Agent commissions.................... 23.2% 32.0% 23.7% 31.7%
Personnel expenses................... 40.4% 26.5% 39.9% 26.8%
General and administrative........... 19.5% 18.4% 20.1% 18.6%
Pre-operating and contract
start-up costs..................... 0.1% 1.0% 0.1% 0.9%
Restructuring........................ 1.9% 0.0% 0.9% 0.0%
Integration.......................... 1.1% 0.0% 1.5% 0.0%
Depreciation and amortization........ 6.0% 4.4% 5.6% 4.3%
Total expenses..................... 92.2% 82.3% 91.8% 82.3%
Net income before interest expense and
income taxes......................... 7.8% 17.7% 8.2% 17.7%
Interest expense.......................... 1.4% 0.0% 1.5% 0.0%
Net income before income taxes............ 6.4% 17.7% 6.7% 17.7%
Provision for income taxes................ 3.1% 6.9% 3.1% 6.9%
Net income................................ 3.3% 10.8% 3.6% 10.8%
</TABLE>
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenues for the three months ended June 30, 1997 increased $40.2
million, or 126.0%, to $72.1 million from $31.9 million for the same period in
1996. This increase resulted primarily from revenues of $13.9 million, $23.3
million, and $9.3 million from the Company's acquisitions of Consolidated Group
(effective 7/1/96), Harrington (effective 7/1/96), and the TMG block of business
(effective 1/1/97), respectively. Revenues from HPSI's small and large group
customers and interest income decreased $4.5 million, $1.9 million, and $0.5
million, respectively, while revenues from alliance customers increased $0.8
million as compared to the same period in 1996. The decline in HPSI's small
group business is a result of lower premium retention rates and net lapses
experienced in HPSI's core blocks of indemnity business. It is not known when,
if ever, the Company will have net growth within its core small business
indemnity line. The reduction in large group revenue is primarily a result of
lower revenues produced by Third Party Claims Management, Inc. and Diversified
Group Brokerage, which were acquired by the Company in 1995.
Agent commission expenses for the three months ended June 30, 1997
increased $6.5 million, or 63.7%, to $16.7 million from $10.2 million for the
same period in 1996. The Company realized an increase in commissions of $9.2
million related to the acquisitions of Consolidated Group, Harrington, and the
TMG block of business. Commissions from HPSI decreased $2.7 million due
primarily to the decrease in its small group revenues. Commissions as a
percentage of operating revenues were 23.3% for the three
14
<PAGE> 16
months ended June 30, 1997 compared to 32.7% for the same period in 1996 as
large group revenues represented a greater percentage of the Company's
revenues. Large group commissions (4.0% of large group revenues) represent a
lower percent of revenues than small group commissions (40.5% of small group
revenues).
Personnel costs for the three months ended June 30, 1997 increased
$20.6 million, or 242.4%, to $29.1 million from $8.5 million for the same
period in 1996. Of this increase, $18.9 million is attributable to the
Company's acquisitions of Consolidated Group, Harrington, and the TMG block of
business. Additional costs of $1.7 million resulted from costs associated with
the increased alliance business and increased staffing at the corporate level
to handle accounting, treasury, payroll, and other related functions.
The Company incurred $1.4 million in restructuring costs during the
three months ended June 30, 1997. These costs reflect employee terminations and
the abandonment of property and equipment associated with closing the Company's
Framingham, Massachusetts office.
Integration expense for the three months ended June 30, 1997 was $0.8
million. Of this expense, $0.5 million related to the integration of
information systems at Consolidated Group and Harrington, while $0.3 million
related to other costs including travel, the consolidation of treasury
functions, and relocation.
General and administrative expenses for the three months ended June
30, 1997 increased $8.1 million, or 137.3%, to $14.0 million from $5.9 million
for the same period in 1996. Of this increase, $8.0 million is attributable to
costs associated with Consolidated Group, Harrington, and the TMG block of
business. Additional costs of $0.2 million were incurred by HPSI relating to
the closing of the Kentucky alliance office.
Depreciation and amortization expenses for the three months ended June
30, 1997 increased $2.9 million, or 207.1%, to $4.3 million from $1.4 million in
1996. Of this increase, $2.4 million relates to depreciation and amortization
on the Company's acquisitions of Consolidated Group and Harrington ($1.3
million of which is the amortization of intangible assets on the acquisitions
being calculated on a straight-line basis over 25 years), and $21,000 relates
to amortization recorded on the intangible asset resulting from the assumption
of the TMG block of business, which is being amortized over 7 years. An
additional increase of $0.4 million at HPS is primarily attributable to the
write-off of software used to administer the Kentucky alliance business.
Interest expense for the three months ended June 30, 1997 increased to
$1.0 million from $17,000 for the same period in 1996. Of this increase, $0.9
million relates to interest expense and related finance charges incurred on the
Company's Line of Credit.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues for the six months ended June 30, 1997 increased $82.8
million, or 131.6%, to $145.7 million from $62.9 million for the same period in
1996. This increase resulted primarily from revenues of $28.5 million, $45.4
million, and $19.2 million from the Company's acquisitions of Consolidated
Group (effective 7/1/96), Harrington (effective 7/1/96), and the TMG block of
business (effective 1/1/97), respectively. Revenues from HPSI's small and large
group customers decreased $8.2 million and $3.1 million, respectively, while
revenues from alliance customers increased $1.4 million as compared to the same
period in 1996. The decline in HPSI's small group business is a result of lower
premium retention rates and net lapses experienced in HPSI's core blocks of
indemnity business. The reduction in large group revenue is primarily a result
of lower revenues produced by Third Party Claims Management, Inc. and
Diversified Group Brokerage, which were acquired by the Company in 1995.
Agent commission expenses for the six months ended June 30, 1997
increased $14.5 million, or 72.5%, to $34.5 million from $20.0 million for the
same period in 1996. The Company realized an increase in commissions of $19.2
million related to the acquisitions of Consolidated Group, Harrington, and the
TMG block of business. Commissions from HPSI decreased $4.7 million due
primarily to the decrease in its small group revenues. Commissions as a
percentage of operating revenues were 23.9% for
15
<PAGE> 17
the six months ended June 30, 1997 compared to 32.5% for the same period in
1996 as large group revenues represented a greater percentage of the Company's
revenues. Large group commissions (4.3% of large group revenues) represent a
lower percent of revenues than small group commissions (40.6% of small group
revenues).
Personnel costs for the six months ended June 30, 1997 increased $41.2
million, or 243.8%, to $58.1 million from $16.9 million for the same period in
1996. Of this increase, $38.1 million is attributable to the Company's
acquisitions of Consolidated Group, Harrington, and the TMG block of business.
Additional costs of $3.2 million resulted from costs associated with the
increased alliance business and increased staffing at the corporate level to
handle accounting, treasury, payroll, and other related functions.
General and administrative expenses for the six months ended June 30,
1997 increased $17.5 million, or 149.6%, to $29.2 million from $11.7 million
for the same period in 1996. Of this increase, $16.8 million is attributable to
costs associated with Consolidated Group, Harrington, and the TMG block of
business. Additional costs of $0.7 million were incurred relating to the
consolidation of the Company's combined insurance program for property,
casualty, and other related coverages, and personal property and franchise
taxes related to the consolidation of insurance and tax functions, and
professional services related to HPSI's new business activities in the alliance
business unit and the closing of the Kentucky alliance office.
The Company incurred $1.4 million in restructuring costs during the
six months ended June 30, 1997. These costs reflect employee terminations and
the abandonment of property and equipment associated with closing the Company's
Framingham, Massachusetts office.
Integration expense for the six months ended June 30, 1997 was $2.2
million. Of this expense, $1.7 million related to the integration of
information systems at Consolidated Group and Harrington, while $0.5 million
related to other costs including travel, the consolidation of treasury
functions, and relocation.
Depreciation and amortization expenses for the six months ended June
30, 1997 increased $5.5 million, or 203.7%, to $8.2 million from $2.7 million
in 1996. Of this increase, $4.7 million relates to depreciation and
amortization on the Company's acquisitions of Consolidated Group and Harrington
($2.5 million of which is the amortization of intangible assets on the
acquisitions being calculated on a straight-line basis over 25 years), and
$71,000 relates to amortization recorded on the intangible asset resulting from
the assumption of the TMG block of business, which is being amortized over 7
years. An additional increase of $0.8 million occurred at HPSI, of which $0.4
million is attributable to the write-off of software used to administer the
Kentucky alliance business and $0.4 million is primarily attributable to
amortization of internally developed software for the other alliance business.
Interest expense for the six months ended June 30, 1997 increased to
$2.2 million from $33,000 for the same period in 1996. Of this increase, $2.0
million relates to interest expense and related finance charges incurred on the
Company's Line of Credit.
B. LIQUIDITY AND CAPITAL RESOURCES
On September 13, 1996, the Company increased its Line of Credit from
$85 million to $175 million. First Union National Bank of North Carolina serves
as "agency bank" with respect to this facility. The new facility contains
provisions which require the Company to maintain certain minimum financial
ratios and impose limitations on acquisition activity and capital spending.
During the third quarter of 1996, the Company amended the terms of its credit
facility to allow it to spread the effects of the 1996 restructuring and
integration costs recorded over three years for purposes of calculating funds
availability on its Line of Credit. Similar treatment is in place for
calculating compliance with financial covenants. The outstanding draw against
the Line of Credit was $40.0 million at June 30, 1997.
In the second quarter of 1997, the Company amended the terms of its
Line of Credit to enable it to pay a quarterly dividend of up to $0.125 per
share of the Company's capital stock (or up to $0.50 per share on an annualized
basis) for 1997, which amount may be increased on an annualized basis by up to
$0.05 per share for each calendar year after 1997. On June 16, 1997, the
Company declared a dividend of $0.125
16
<PAGE> 18
per share to shareholders of record on June 27, 1997. This dividend, in the
amount of approximately $1.9 million, was recorded as a charge against retained
earnings in the second quarter and paid on July 14, 1997. The Company expects
to continue making quarterly dividend payments for the foreseeable future.
Operating income generated and premium collected by the Company from
the new TMG block of business and existing business increased the Company's
cash flows in 1997 and allowed the Company to reduce its notes payable by
approximately $16.0 million. The TMG business should continue to provide cash
flows throughout 1997. Additionally, the Company believes that additional
revenue will be provided by new products and sales generated by other
initiatives of the Company and the expansion of its current customer base,
which will enhance the impact on its future operations and cash flows. This
statement is forward-looking in nature, however, and actual results may differ
if the Company's initiatives are unsuccessful.
The Company spent approximately $6.6 million for capital expenditures
during the six months ended June 30, 1997. Of this amount, $1.6 million was
related to assets purchased in the TMG block of business and $2.0 million was
related to new computer equipment. The remainder was primarily internally
developed software for the Company's large group and alliance business units.
The Company incurred a cash outlay of approximately $2.2 million during
the six months ended June 30, 1997 for non-recurring integration costs related
primarily to systems integration. An additional cash outlay of $3.0 million is
expected during the remainder of 1997 for the closing of the Company's
Brookfield, Wisconsin; Lexington, Kentucky; and Framingham, Massachusetts
offices as well as other integration projects.
During the second quarter of 1997, the Company announced that it had
authorized the use of up to $20.0 million to support a share repurchase
program, subject to the terms and conditions of a previously announced
agreement with Automatic Data Processing, Inc. Although limited share
repurchases may occur in 1997 to support employee stock plans, the Company does
not expect to make any repurchases to the extent they might taint pooling
treatment for future acquisitions. Further, if the Company elects to pursue a
future transaction in accordance with the pooling of interests method of
accounting, it may rescind its share repurchase program. No shares have been
repurchased as of June 30, 1997.
Based on current expectations, the Company believes that all
consolidated operating and financing activities for the foreseeable future will
be met from internally generated cash flow from operations, available cash, or
its existing Line of Credit.
C. SEASONALITY AND INFLATION
The Company has not experienced any pattern of seasonality with
respect to its sales.
The Company does not believe that inflation had a material effect on
its results of operations for the six months ended June 30, 1997 or June 30,
1996. There can be no assurance, however, that the Company's business will not
be affected by inflation in the future.
17
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Company's Annual Meeting of Stockholders, held on May 6, 1997,
the stockholders of the Company: (i) elected thirteen directors to serve for
the ensuing year or until their respective successors have been elected and
qualified or their earlier resignation or removal; (ii) adopted an amendment to
the Company's 1996 Employee Stock Option Plan; and (iii) adopted the Company's
1997 Directors Equity Plan. The results of these votes were as follows:
<TABLE>
<CAPTION>
(i) Director Nominees For Withheld
----------------- --- --------
<S> <C> <C>
James K. Murray, Jr. 11,989,908 3,707
William L. Bennett 11,989,908 3,707
Joseph A. Califano, Jr. 11,989,908 3,707
James F. Carlin, Jr. 11,989,908 3,707
Joseph S. DiMartino 11,989,908 3,707
John R. Gunn 11,989,908 3,707
Charles H. Guy, Jr. 11,989,908 3,707
Nancy Kane, D.B.A. 11,989,908 3,707
David Nierenberg 11,989,908 3,707
James G. Niven 11,989,908 3,707
Trevor G. Smith 11,989,908 3,707
Arthur F. Weinbach 11,989,908 3,707
Holyoke L. Whitney 11,988,255 5,360
(ii) Amendment to 1996 Employee For Against Abstain
--- ------- -------
Stock Option Plan 10,312,860 603,055 17,692
(iii) Adoption of Company's 1997 For Against Abstain
--- ------- -------
Directors Equity Plan 10,860,153 94,913 8,492
</TABLE>
ITEM 5. OTHER INFORMATION.
During the third quarter of 1997, Holyoke L. Whitney resigned as a
director of the Company and Vincent D. Farrell, Jr. was elected to fill the
vacancy for the unexpired portion of the term of office.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
------ ----------------------
<S> <C>
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
18
<PAGE> 20
HEALTHPLAN SERVICES CORPORATION
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.
HEALTHPLAN SERVICES CORPORATION
Date: August 13, 1997 /s/ James K. Murray, Jr.
-----------------------------------------
President and Chief Executive Officer
Date: August 13, 1997 /s/James K. Murray III
-----------------------------------------
Executive Vice President and Chief
Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HEALTHPLAN SERVICES CORPORATION FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 20,559
<SECURITIES> 0
<RECEIVABLES> 25,940
<ALLOWANCES> (184)
<INVENTORY> 0
<CURRENT-ASSETS> 53,539
<PP&E> 56,937
<DEPRECIATION> (34,012)
<TOTAL-ASSETS> 245,876
<CURRENT-LIABILITIES> 86,103
<BONDS> 43,569
0
0
<COMMON> 150
<OTHER-SE> 113,128
<TOTAL-LIABILITY-AND-EQUITY> 245,876
<SALES> 0
<TOTAL-REVENUES> 145,655
<CGS> 0
<TOTAL-COSTS> 133,772
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,196
<INCOME-PRETAX> 9,687
<INCOME-TAX> 4,480
<INCOME-CONTINUING> 5,207
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,207
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0
</TABLE>
