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 March 31, 1998
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 May 14, 1998.
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,555,534
<PAGE>
HEALTHPLAN SERVICES CORPORATION
TABLE OF CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet
March 31, 1998 and December 31, 1997 . . . . . . . . . . . 2
Consolidated Statement of Operations
Three Months Ended March 31, 1998 and 1997 . . . . . . . . . 3
Consolidated Statement of Changes in Common
Stockholders' Equity Three Months Ended March 31, 1998 . . 4
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1998 and 1997 . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 10
PART II - OTHER INFORMATION 13
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
1998 1997
------------ -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 1,355 $ 1,545
Restricted cash ................................ 12,172 11,256
Accounts receivable, net of allowance for
doubtful accounts of $190 and $150,
respectively ................................ 32,562 28,900
Refundable income taxes ........................ 356 1,843
Prepaid expenses and other current assets ...... 3,070 3,071
Deferred taxes ................................. 2,908 3,085
-------- --------
Total current assets ................... 52,423 49,700
Property and equipment, net ...................... 24,018 23,235
Other assets, net of accumulated amortization
of $763 and $689, respectively .............. 2,744 2,908
Deferred taxes ................................... 8,579 4,008
Notes receivable ................................. 4,293 6,334
Investments ...................................... 9,120 7,595
Intangible assets, net ........................... 151,801 149,544
-------- --------
Total assets ........................... $252,978 $243,324
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................... $12,367 $13,502
Premiums payable to carriers ................... 38,885 39,601
Commissions payable ............................ 6,563 5,484
Deferred revenue ............................... 2,911 2,015
Accrued liabilities ............................ 15,525 18,555
Current portion of long-term debt payable ...... 383 385
-------- --------
Total current liabilities .............. 76,634 79,542
Notes payable .................................... 58,228 43,309
Deferred taxes ................................... 2,429 982
Other long-term liabilities ...................... 2,751 2,925
-------- --------
Total liabilities ...................... 140,042 126,758
-------- --------
Common stockholders' equity:
Common stock voting, $0.01 par value,
100,000,000 shares authorized, 15,148,533
issued at March 31, 1998 and,
15,038,033 at December 31, 1997 ................ 152 150
Additional paid-in capital ....................... 109,421 107,325
Treasury stock, 183,200 shares ................... (4,264) --
Retained earnings ................................ 4,505 7,671
Unrealized appreciation on investment
available for sale ............................. 3,122 1,420
-------- --------
Total stockholders' equity ............. 112,936 116,566
-------- --------
Total liabilities and
stockholders' equity ................. $252,978 $243,324
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1998 1997
------- -------
Operating revenues ............................. $68,016 $72,764
Expenses:
Agent commissions ............................ 16,085 17,793
Personnel expenses ........................... 27,433 28,977
General and administrative ................... 16,009 15,223
Contract start-up costs ...................... 362 94
Integration .................................. 259 1,398
Gain on sale of investments .................. (2,685) --
Depreciation and amortization ................ 3,579 3,870
Interest expense, net ........................ 886 371
Equity in loss of joint venture .............. 11,794 --
------- -------
Total expenses ....................... 73,722 67,726
------- -------
(Loss) income before income taxes .............. (5,706) 5,038
(Benefit) provision for income taxes ........... (2,540) 2,239
------- -------
Net (loss) income .................... $(3,166) $ 2,799
======= =======
Basic net (loss) income per share .............. $(0.21) $0.19
======= =======
Basic weighted average shares outstanding ...... 14,999 14,984
======= =======
Diluted net income per share ................... $ n/a $ 0.18
======= =======
Diluted weighted average shares outstanding .... n/a 15,170
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
(IN THOUSANDS)
UNREALIZED
APPRECIATION
ON
VOTING ADDITIONAL INVESTMENTS
COMMON PAID-IN TREASURY RETAINED AVAILABLE
STOCK CAPITAL STOCK EARNINGS FOR SALE TOTAL
------- --------- -------- -------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 . . . . . . $ 150 $ 107,325 $ - $ 7,671 $ 1,420 $116,566
Vesting of management stock (unaudited). - 59 - - - 59
Issuance of 110,500 shares in connection
with stock option plans (unaudited) . 2 2,037 - - - 2,039
Change in unrealized appreciation
on investments available
for sale (unaudited) . . . . . . . . - - - - 1,702 1,702
Purchase of treasury shares (unaudited). - - (4,264) - - (4,264)
Net loss (unaudited) . . . . . . . . . . - - - (3,166) - (3,166)
------ --------- ------- ------- ------- --------
Balance at March 31, 1998 (unaudited). . $ 152 $ 109,421 $(4,264) $ 4,505 $ 3,122 $112,936
====== ========= ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
4
<PAGE>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1998 1997
-------- --------
Cash flows from operating activities:
Net (loss) income ............................ $ (3,166) $ 2,799
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation ............................... 1,762 2,101
Amortization ............................... 1,817 1,769
Equity in loss of joint venture ............ 11,794 --
Issuance of common stock to
management .............................. 59 59
Deferred taxes ............................. (3,944) 1,697
Changes in assets and liabilities net of
effect from acquisitions:
Restricted cash ............................ (916) (1,055)
Accounts receivable ........................ (3,662) (4,000)
Refundable income taxes .................... 1,487 267
Prepaid expenses and other
current assets .......................... 1 937
Other assets ............................... 90 (198)
Accounts payable ........................... (1,137) (6,280)
Premiums payable to carriers ............... (716) 24,044
Commissions payable ........................ 1,080 1,452
Deferred revenue ........................... 895 679
Accrued liabilities ........................ (3,029) (527)
-------- --------
Net cash provided by operating
activities ........................... 2,415 23,744
-------- --------
Cash flows from investing activities:
Purchases of property and equipment ........ (2,545) (3,318)
Payment for purchase of TMG
block of business ....................... -- (1,600)
Payment for purchase of Montgomery
Management .............................. (4,000) --
Increase in investments, net ............... (10,618) (2,881)
Decrease in notes receivable ............... 2,041 6,388
-------- --------
Net cash used in investing
activities .......................... (15,122) (1,411)
-------- --------
Cash flows from financing activities:
Net borrowing (payments) under
line of credit ........................... 15,000 (15,000)
Payments on other debt ..................... (257) (3,345)
Proceeds from exercise of stock options .... 2,038 238
Repurchase of Common Stock ................. (4,264) --
Proceeds from Common Stock issued .......... -- 65
-------- --------
Net cash provided by (used in)
financing activities ................ 12,517 (18,042)
-------- --------
Net (decrease) increase in cash and
cash equivalents .............................. (190) 4,291
Cash and cash equivalents at beginning
of period ..................................... 1,545 3,725
-------- --------
Cash and cash equivalents at end of period ....... $ 1,355 $ 8,016
======== ========
Supplemental disclosure of cash
flow information:
Cash paid for interest ..................... $ 975 $ 1,686
======== ========
Net (refunds received) cash paid
for income taxes ........................ $ (80) $ 373
======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
HEALTHPLAN SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
HealthPlan Services Corporation (together with its direct and indirect
wholly owned subsidiaries, the "Company") is an outsourcing company that
administers health and other benefit plans for large, self-funded companies and
for payors (insurance companies, health maintenance organizations ("HMOs"), and
other risk-takers) that have elected to outsource sales support, distribution,
and "back-office" administrative services. The Company provides these services
to approximately 120,000 small businesses, plan holders, and self-funded
organizations, covering approximately 3.0 million members in the United States.
The Company functions solely as a service provider generating fee-based income
and does not assume any underwriting risk.
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 1997 Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 30, 1998.
In the opinion of Management, 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.
The consolidated financial statements include the accounts of HealthPlan
Services Corporation and its wholly owned subsidiaries. The Company's 50% owned
joint venture investment is accounted for using the equity method. All
intercompany transactions and balances have been eliminated in consolidation.
EARNINGS PER SHARE
During 1997, Statement on Financial Accounting Standards No. 128 ("SFAS
128"), "Earnings per Share," was issued. SFAS 128 was effective for the year
ending December 31, 1997 and required a restatement of previously reported
earnings per share. Under SFAS 128, "basic" earnings per share replaced 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 common shares outstanding for the period, without
consideration for common stock equivalents. "Diluted" earnings per share
replaced "fully 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 previous accounting pronouncements.
The diluted loss per share is not shown for the three months ended March
31, 1998 as it is anti-dilutive.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." Comprehensive income (net
of taxes) for the first quarter of 1998 and 1997 was $3.1 million and
$0.3 million, respectively, which relects the inclusion of unrecognized
appreciation on investments held for sale.
6
<PAGE>
3. ACQUISITION
On February 27, 1998, the Company acquired 49% of the capital stock of
Montgomery Management Corporation ("Montgomery Management") from Provident
American Corporation ("Provident") for $4.0 million. In connection with the
purchase, the Company obtained warrants to purchase an additional 31% of
Montgomery Management for nominal consideration. Montgomery Management is a full
service managing general underwriter that has the authority to bind health
insurance coverage (on behalf of the insurance companies it represents) to
self-funded customers.
4. BLOCKS OF BUSINESS
In October 1997, the Company and Provident entered into an agreement under
which the Company assumed all of the policy issuance, billing, and claims
services for the individual health insurance policies of Provident's life
insurance subsidiaries. The Company began providing these services in January
1998.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year's presentation. These amounts do not have a material impact on the
financial statements taken as a whole.
5. NOTES PAYABLE AND CREDIT FACILITY
On May 1, 1998, the Company amended and restated its $175 million credit
facility (the "Line of Credit"), with availability limited by formula to a
multiple of trailing earnings before interest expense, income taxes, and
depreciation and amortization expense (with certain adjustments called for in
the credit agreement). This multiple is set at 3.5 through June 30, 2000 and
steps down thereafter to 2.75 over the final four quarters of the facility. The
maximum amount available through the Line of Credit as of March 31, 1998 was
approximately $153.8 million, including all debt, letters of credit, and
guarantees made by the Company. The facility operates on a revolving basis over
a five year term with the final maturity date on May 3, 2003, at which time the
entire outstanding balance must be paid. The Company's borrowing under the Line
of Credit includes interest ranging from LIBOR plus 75 to 125 basis points to
prime plus 0 to 50 basis points. The Line of Credit carries a commitment fee
ranging from 0.175% to 0.25% of the unused portion and is secured by the stock
of the Company's subsidiaries. The credit agreement contains provisions that
include (among other covenants) a requirement that the Company maintain certain
minimum financial ratios, limitations on merger and acquisition activity,
limitations on investment activity, and limitations on the payment of dividends.
The outstanding balance under the line of credit at March 31, 1998 was $55.0
million. The Company incurred approximately $770,000 of interest expense and
approximately $80,000 in commitment fees on the previous Line of Credit for the
three months ended March 31, 1998.
Prior to amending and restating 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 75 to 125 basis points. For the three months ended March 31,
1998, the Company recorded approximately $70,000 of interest expense related to
its interest rate swap agreements.
The Company has additional notes of $3.6 million relating to a 1994
acquisition, a mortgage, and equipment purchases, of which $0.4 million is
payable within one year.
7
<PAGE>
6. INVESTMENTS AND NOTE RECEIVABLE
In December 1997, the Company and Sykes Enterprises, Incorporated ("Sykes")
formed Sykes HealthPlan Services, Inc. ("SHPS"). The new company is owned 50% by
each of the founding companies and provides care management services, technology
solutions, certain customer support services, and other outsourcing capabilities
to the health care and insurance industries. The Company has invested $17.0
million in SHPS and guaranteed a line of credit of up to $37.5 million to fund
the activities of SHPS. On April 24, 1998, SHPS filed a preliminary registration
statement with the Securities and Exchange Commission for an initial public
offering of shares of its common stock. If SHPS successfully completes an
initial public offering with proceeds of at least $75 million, the Company will
no longer have an obligation to guarantee SHPS' line of credit.
The Company accounts for its investment in SHPS under the equity method of
accounting. As of March 31, 1998, the Company had invested $17.0 million in
SHPS. The Company recorded its 50% share in the $23.6 million loss incurred by
SHPS for the three months ended March 31, 1998, which was principally the result
of a charge of $23.7 million for the write-off of purchased research and
development associated with the acquisitions of Health International, Inc.
("HI") and Prudential Service Bureau, Inc. ("PSBI") by SHPS.
Summary financial information for SHPS for the three months ended March
31, 1998 is as follows (in thousands):
Condensed Income Statement
Information
Revenues $ 2,400
Loss from operations (23,527)
Net loss $ (23,589)
Condensed Balance Sheet
Information
Current assets $ 30,873
Non-current assets 50,831
Current liabilities 24,319
Non-current liabilities 52,821
Net worth $ 4,564
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. During the first quarter of
1998, the Company sold its shares in HRM and recorded a gain on the sale of $0.2
million.
On January 8, 1996, the Company entered into an agreement with Medirisk,
Inc. ("Medirisk"), 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 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 of
approximately $0.5 million 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 exercised its warrants in February of 1998
resulting in an ownership of 480,442 shares of common stock, which represented
an approximate 11% ownership interest. The average cost was $5.48 per share.
During the first quarter of 1998, the Company sold 166,000 of its shares in
Medirisk and recorded a gain on the sale of $2.5 million. On March 31, 1998,
Medirisk's shares closed at $21.25 per share of common stock. This investment is
recorded as available for sale with the unrealized holding gain reported in the
equity section of the balance sheet in accordance with SFAS 115.
8
<PAGE>
7. SUBSEQUENT EVENTS
On April 16, 1998, the Company signed a definitive agreement to acquire
National Preferred Provider Network, Inc. ("NPPN") for $25.0 million cash and
additional contingent consideration. NPPN is one of the country's largest
networks of health care providers. The transaction, which is expected to close
on or before May 15, 1998, is contingent upon completion of due diligence,
receipt of satisfactory regulatory approvals, and completion of other required
documentation.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE STATEMENTS CONTAINED IN THIS REPORT OR INCORORATED BY REFERENCE HEREIN
THAT ARE NOT PURELY HISTORICAL, INCLUDING STATEMENTS REGARDING HEALTHPLAN
SERVICES CORPORATION'S OBJECTIVES, EXPECTATIONS, HOPES, INTENTIONS, BELIEFS, OR
STRATEGIES, ARE "FORWARD-LOOKING" STATEMENTS WITHIN THE MEANING OF SECTION 27A
OF THE SECURITIES ACT OF 1933. IN PARTICULAR, THE WORDS "EXPECT," "ESTIMATE,"
"PLAN," "ANTICIPATE," "PREDICT," "INTEND," "BELIEVE," AND SIMILAR EXPRESSIONS
ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. IT IS IMPORTANT TO NOTE
THAT ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING
STATEMENTS, AND UNDUE RELIANCE SHOULD NOT BE PLACED ON SUCH STATEMENTS. AMONG
THE FACTORS THAT COULD CAUSE SUCH ACTUAL RESULTS TO DIFFER MATERIALLY ARE:
CHANGES IN LEGISLATION; FLUCTUATIONS IN BUSINESS CONDITIONS AND THE ECONOMY;
HEALTHPLAN SERVICES CORPORATION'S ABILITY TO IDENTIFY AND IMPLEMENT STRATEGIC
ACQUISITIONS; CHANGES IN COMPETITION; AND HEALTHPLAN SERVICES CORPORATION'S
ABILITY TO ATTRACT AND RETAIN KEY MANAGEMENT PERSONNEL.
INTRODUCTION
The following is a discussion of changes in the consolidated results of
operations of the Company for the three months ended March 31, 1998 and 1997.
The Company is an outsourcing company that administers health and other
benefit plans for large, self-funded companies and for payors (insurance
companies, HMOs, and other risk-takers) that have elected to outsource sales
support, distribution, and "back-office" administrative services.
A. RESULTS OF OPERATIONS
The following is a discussion of material changes in the consolidated
results of operations of the Company for the three months ended March 31, 1998
compared to the same period in 1997. The following table sets forth certain
operating data as a percentage of total revenues for the periods indicated:
THREE MONTHS ENDED
MARCH 31,
------------------
1998 1997
------ ------
Operating revenues . . . . . . . . . . . . . . . 100.0% 100.0%
------ ------
Expenses:
Agent commissions. . . . . . . . . . . . . . 23.7% 24.5%
Personnel expenses . . . . . . . . . . . . . 40.3% 39.8%
General and administrative . . . . . . . . . 23.5% 20.9%
Contract start-up costs . . . . . . . . . . 0.5% 0.2%
Integration . . . . . . . . . . . . . . . . 0.4% 1.9%
Gain on sale of investments . . . . . . . . (3.9)% 0.0%
Depreciation and amortization. . . . . . . . 5.3% 5.3%
Interest expense, net . . . . . . . . . . . 1.3% 0.5%
Equity in loss of joint venture . . . . . . 17.3% 0.0%
------ ------
Total expenses . . . . . . . . . . . . . . . 108.4% 93.1%
------ ------
Net (loss) income before income taxes. . . . . . (8.4)% 6.9%
(Benefit) provision for income taxes . . . . . . (3.7)% 3.1%
------ ------
Net (loss) income . . . . . . . . . . . . . . . (4.7)% 3.8%
====== ======
10
<PAGE>
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Revenues for the three months ended March 31, 1998 decreased $4.8 million,
or 6.6%, to $68.0 million from $72.8 million for the same period in 1997. This
decrease resulted from a reduction in revenues from fully-insured customers
($2.1 million) primarily related to the transition of the United HealthCare and
Travelers block of indemnity/preferred provider organization block of business
to Seaboard Life Insurance Company products, self-funded customers ($1.8
million) primarily related to the sale of the DGB contracts in 1997, and
alliance customers ($1.1 million) primarily related to the Company's exiting the
Kentucky alliance in 1997.
Agent commission expense for the three months ended March 31, 1998
decreased $1.7 million, or 10.0%, to $16.1 million from $17.8 million for the
same period in 1997. This decrease resulted primarily from the decrease in
revenues from fully-insured customers. The Company's commissions as a percentage
of operating revenues declined from 24.5% in the three months ended March 31,
1997 to 23.6% in the same period 1998, as self-funded customer revenues
represented a greater percentage of the Company's total revenues. Traditionally,
self-funded customer commissions represent a lower percent of revenues than
fully-insured customer commissions.
Personnel expense for the three months ended March 31, 1998 decreased $1.6
million, or 5.5%, to $27.4 million from $29.0 million for the same period in
1997. This decrease, which resulted primarily from a reduction in the Company's
workforce of approximately 180 employees, was partially offset by overtime
incurred as a result of a backlog of claims the Company received from the
Provident transition. The Company's personnel expense as a percentage of total
revenues increased to 40.3% for the three months ended March 31, 1998 from 39.8%
for the three months ended March 31, 1997.
General and administrative expense for the three months ended March 31,
1998 increased $0.8 million, or 5.3%, to $16.0 million from $15.2 million for
the three months ended March 31, 1997. This increase was primarily attributable
to the Company's outsourcing of its care management services to SHPS at a cost
of $1.3 million. On January 1, 1998, the Company began paying fees to SHPS for
performing the care management services. This was partially offset by reductions
in equipment rental and maintenance costs. The Company's general and
administrative expense as a percentage of total revenue increased to 23.5% in
the first quarter of 1998 from 20.9% for the same period in 1997.
During the first quarter of 1998, the Company sold 166,000 of its shares of
Medirisk stock and all 200,000 of its shares of HRM stock resulting in gains of
$2.5 million and $0.2 million, respectively.
Depreciation and amortization expense for the three months ended March 31,
1998 decreased $0.3 million, or 7.7%, to $3.6 million from $3.9 million for the
three months ended March 31, 1997. This decrease related primarily to a
reduction in the amortization of internally developed software related to the
Company's exiting the Kentucky alliance in 1997.
The Company recorded its 50% share of the $23.6 million loss incurred by
SHPS for the three months ended March 31, 1998, which was principally the result
of a charge of $23.7 million for the write-off of purchased research and
development associated with the acquisitions of HI and PSBI by SHPS.
B. LIQUIDITY AND CAPITAL RESOURCES
On May 1, 1998, the Company amended and restated its $175 million credit
facility ("Line of Credit") with availability equal to a multiple of trailing
earnings before interest expense, income taxes, and depreciation and
amortization expense (with certain adjustments called for in the credit
agreement). This multiple is set at 3.5 through June 30, 2000 and steps down
thereafter to 2.75 over the final four quarters of the facility. First Union
National Bank of North Carolina serves as "agency bank" and NationsBank, N.A.
serves as co-agent with respect to this facility. The credit facility contains
provisions which include the maintenance of certain minimum financial ratios,
limitations on merger and acquisition activity, and limitations on investment
activity. The outstanding draw was $55.0 million at March 31, 1998.
11
<PAGE>
In the second quarter of 1997, the Company entered into an amendment of 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 (up to $0.50 per share on an
annualized basis). The amended and restated credit facility permits continued
dividend payments, but limits such payments to no more than $0.55 per share of
the Company's capital stock on an annualized basis. On April 1, 1998, the
Company declared a dividend of $0.125 per share totalling $1.9 million for the
first quarter of 1998. This dividend was paid on April 21, 1998.
During the second quarter of 1997, the Board of Directors authorized the
Company to use up to $20.0 million to support a share repurchase. On May 12,
1998, the Board increased to $30.0 million its authorization to repurchase
shares under this program. The Company began implementing this share repurchase
program in the first quarter of 1998. Through May 14, 1998, the Company had
acquired 603,300 shares under this program at a cost of approximately $14.2
million.
In December 1997, the Company and Sykes formed SHPS. SHPS is owned 50
percent by each of the founding companies and provides care management services,
technology solutions, certain customer support services, and other outsourcing
capabilities to the health care and insurance industries. The Company has funded
the entire amount of $17.0 million it agreed to invest in the equity of SHPS. In
addition, the Company has agreed to guarantee up to $37.5 million of SHPS' $75.0
million credit line. On April 24, 1998, SHPS filed a preliminary registration
statement with the Securities and Exchange Commission for an initial public
offering of shares of its common stock. If SHPS successfully completes an
initial public offering with proceeds of at least $75.0 million, the Company
will no longer have an obligation to guarantee SHPS' line of credit.
The Company spent $2.5 million for capital expenditures during the three
months ended March 31, 1998.
During the first quarter of 1998, the Company sold 166,000 of its shares of
Medirisk stock and all 200,000 of its shares of HRM common stock resulting in
gains of $2.5 million and $0.2 million, respectively.
Based upon 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.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
27.1 Financial Data Schedule
13
<PAGE>
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: May 14, 1998 /s/ JAMES K. MURRAY, JR.
-------------------------------------------------
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
Date: May 14, 1998 /s/ DONALD W. GOULD, JR.
-------------------------------------------------
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 13,527
<SECURITIES> 0
<RECEIVABLES> 32,752
<ALLOWANCES> (190)
<INVENTORY> 0
<CURRENT-ASSETS> 52,423
<PP&E> 64,016
<DEPRECIATION> (39,998)
<TOTAL-ASSETS> 252,978
<CURRENT-LIABILITIES> 76,634
<BONDS> 58,228
0
0
<COMMON> 152
<OTHER-SE> 112,784
<TOTAL-LIABILITY-AND-EQUITY> 252,978
<SALES> 0
<TOTAL-REVENUES> 68,016
<CGS> 0
<TOTAL-COSTS> 61,042
<OTHER-EXPENSES> 11,794
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 886
<INCOME-PRETAX> (5,706)
<INCOME-TAX> (2,540)
<INCOME-CONTINUING> (3,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,166)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> 0
</TABLE>
