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 September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE 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 November 11, 1999.
Common Stock ..................................................... 13,665,072
<PAGE>
HEALTHPLAN SERVICES CORPORATION
TABLE OF CONTENTS
PAGE NO.
----------------
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheet
September 30, 1999 and December 31, 1998 ...................... 2
Consolidated Statement of Operations
Three and Nine Months Ended September 30, 1999 and 1998 ........ 3
Consolidated Statement of Changes in Common
Stockholders' Equity Nine Months Ended September 30, 1999 ...... 4
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1999 and 1998 .................. 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.................................................. 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------- ---------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................................ $ 5,530 $ 4,582
Restricted cash ...................................................... 7,363 11,373
Accounts receivable, net ............................................. 22,249 21,834
Receivable from sale of investments .................................. 290 --
Refundable income taxes .............................................. 270 --
Prepaid expenses and other current assets ............................ 4,007 3,604
Deferred taxes ....................................................... 3,217 1,448
--------- ---------
Total current assets ......................................... 42,926 42,841
Property and equipment, net ............................................ 27,576 27,172
Other assets, net ...................................................... 2,355 2,744
Deferred taxes ......................................................... -- 1,145
Notes receivable ....................................................... -- 3,499
Investments ............................................................ 4,821 6,647
Intangible assets, net ................................................. 192,777 192,757
--------- ---------
Total assets ................................................. $ 270,455 $ 276,805
========= =========
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS' EQUITY
Current
liabilities:
Accounts payable ..................................................... $ 10,776 $ 13,917
Premiums payable to carriers ......................................... 35,284 38,146
Commissions payable .................................................. 5,439 5,232
Deferred revenue ..................................................... 2,608 3,707
Accrued liabilities .................................................. 27,811 16,769
Income taxes payable ................................................. -- 1,397
Current portion of long-term debt payable ............................ 93,475 486
--------- ---------
Total current liabilities .................................... 175,393 79,654
Notes payable .......................................................... 5,505 96,837
Deferred taxes ......................................................... 956 --
Other long-term liabilities ............................................ 2,507 2,732
--------- ---------
Total liabilities ............................................ 184,361 179,223
--------- ---------
Minority interest ...................................................... -- 5,930
--------- ---------
Common stockholders' equity:
Common stock voting, $0.01 par value, 100,000,000 shares
authorized, 15,184,472 issued at September 30, 1999 and,
15,174,315 at December 31, 1998 ................................... 152 152
Additional paid-in capital .......................................... 109,936 109,887
Treasury stock, 1,519,400 shares .................................... (30,006) (28,088)
Retained earnings ................................................... 5,517 9,736
Unrealized appreciation on investments
available for sale, net of tax ................................... 495 (35)
--------- ---------
Total stockholders' equity ................................... 86,094 91,652
--------- ---------
Total liabilities, minority interest, and stockholders' equity $ 270,455 $ 276,805
========= =========
</TABLE>
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)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues ......................... $ 65,479 $ 74,526 $ 210,886 $ 214,282
--------- --------- --------- ---------
Expenses:
Agent commissions ........................ 12,305 17,359 43,121 51,436
Personnel expenses ....................... 27,632 33,324 85,978 91,939
General and administrative ............... 19,164 18,892 57,261 53,591
Restructure charge ....................... -- 2,052 920 2,052
Integration .............................. -- 2,349 310 2,608
Other expense ............................ 298 1,436 298 1,798
Third quarter adverse claims ............. 5,658 -- 5,658 --
Gain on sale of investments .............. (973) (27,875) (4,556) (33,240)
Depreciation and amortization ............ 4,265 4,209 12,474 11,658
Interest expense, net .................... 1,985 1,784 5,260 4,084
Equity in loss of joint venture .......... -- -- 208 11,752
--------- --------- --------- ---------
Total expenses ...................... 70,334 53,530 206,932 197,678
--------- --------- --------- ---------
(Loss) income before provision for income
taxes and minority interest ............. (4,855) 20,996 3,954 16,604
(Benefit) provision for income taxes ....... (1,539) 9,173 2,272 7,962
--------- --------- --------- ---------
(Loss) income before minority interest ..... (3,316) 11,823 1,682 8,642
Minority interest .......................... -- (433) 245 (671)
--------- --------- --------- ---------
Net (loss) income .................. $ (3,316) $ 12,256 $ 1,437 $ 9,313
========= ========= ========= =========
Basic net (loss) income per share .......... $ (0.24) $ 0.88 $ 0.10 $ 0.64
Basic weighted average number
of shares outstanding ................... 13,663 13,993 13,768 14,497
Diluted net income per share ............... n/a $ 0.88 $ 0.10 $ 0.64
Diluted weighted average number of
shares outstanding ...................... n/a 13,993 13,948 14,651
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
HEALTHPLAN SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION
ON
VOTING ADDITIONAL INVESTMENTS
COMPREHENSIVE COMMON PAID-IN TREASURY RETAINED AVAILABLE
INCOME STOCK CAPITAL STOCK EARNINGS FOR SALE TOTAL
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 .............. $ 152 $109,887 $(28,088) $ 9,736 $ (35) $ 91,652
Refund of overpayment in connection
with stock option plans (unaudited) ..... (13) (13)
Issuance of 10,157 shares in
connection with the employee
stock purchase plan (unaudited) ......... 62 62
Cash dividends declared (unaudited) ........ (5,656) (5,656)
Purchase of 242,700
treasury shares (unaudited) ............. (1,918) (1,918)
Net income (unaudited) ..................... $ 1,437 1,437 1,437
Unrealized appreciation on investment
available for sale (unaudited) .......... 530 530 530
-------- -------- -------- -------- -------- -------- --------
Balance at
September 30, 1999 (unaudited) ............. $ 1,967 $ 152 $109,936 $(30,006) $ 5,517 $ 495 $ 86,094
======== ======== ======== ======== ======== ======== ========
</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)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................... $ 1,437 $ 9,313
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation ......................................................... 5,603 5,648
Amortization ......................................................... 6,871 6,010
Third quarter adverse claims ......................................... 5,658 --
Gain on sale of investments .......................................... (4,556) (33,240)
Equity in loss of joint venture ...................................... 208 11,751
Minority interest .................................................... 245 (671)
Issuance of Common Stock to management ............................... -- 177
Deferred taxes ....................................................... 21 2,932
Changes in assets and liabilities net of effect from acquisitions:
Restricted cash ...................................................... 4,010 (549)
Accounts receivable .................................................. 162 8,785
Income taxes payable ................................................. (1,667) 4,691
Prepaid expenses and other current assets ............................ (403) (780)
Other assets ......................................................... 64 (349)
Accounts payable ..................................................... (3,141) (1,013)
Premiums payable to carriers ......................................... (2,861) (1,360)
Commissions payable .................................................. 208 (284)
Deferred revenue ..................................................... (1,099) 94
Accrued liabilities .................................................. 695 (1,517)
-------- --------
Net cash provided by operating activities ..................... 11,455 9,638
-------- --------
Cash flows from investing activities:
Purchases of property and equipment .................................. (6,006) (5,999)
Cash paid for acquisitions net of cash acquired ...................... (8,674) (37,508)
Purchase of investments .............................................. (919) (19,835)
Proceeds from sale of investments .................................... 8,013 40,152
Receivable from sale of investments, net ............................. (290) --
Proceeds from note receivable ........................................ 3,498 2,609
-------- --------
Net cash used in investing activities ......................... (4,378) (20,581)
-------- --------
Cash flows from financing activities:
Net borrowing (payments) under line of credit ........................ 2,000 48,000
Net payments on other debt ........................................... (567) (3,587)
Cash dividends paid .................................................. (5,688) (3,801)
Proceeds from exercise of stock options .............................. -- 2,220
Repurchase of Common Stock ........................................... (1,919) (27,415)
Proceeds from Common Stock issued .................................... 45 119
-------- --------
Net cash provided by (used in) financing activities ........... (6,129) 15,536
-------- --------
Net increase in cash and cash equivalents ............................... 948 4,593
Cash and cash equivalents at beginning of period ........................ 4,582 1,545
-------- --------
Cash and cash equivalents at end of period .............................. $ 5,530 $ 6,138
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................... $ 5,393 $ 4,494
======== ========
Cash paid for income taxes ........................................... $ 3,914 $ 416
======== ========
Supplemental disclosure of noncash activities:
Dividends declared and unpaid ........................................ $ 1,879 $ 1,910
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
HEALTHPLAN SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
HealthPlan Services Corporation (together with its direct and indirect
wholly owned subsidiaries, "HealthPlan Services") is a leading managed health
care services outsourcing company, providing distribution, enrollment, billing
and collection, claims administration, and risk management services for health
care payors and providers. HealthPlan Services provides these services to
approximately 140,000 groups covering over 3 million members in the United
States. HealthPlan Services 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 HealthPlan Services' 1998 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 30, 1999.
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 subsidiaries. As of December 31, 1998, HealthPlan
Services had consolidated its investment in CENTRA HealthPlan LLC ("CENTRA") and
Montgomery Management Corporation ("Montgomery Management") and recorded the
interest of the minority shareholders of those entities on the balance sheet and
statement of operations. As of September 30, 1999, HealthPlan Services had
acquired the remaining minority shares of both CENTRA and Montgomery Management
(see Note 3). All intercompany transactions and balances have been eliminated in
consolidation.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the income available
to common stockholders by the weighted average number of shares outstanding for
the period, without consideration for common stock equivalents. The calculation
of diluted earnings per share reflects the effect of outstanding options and
warrants using the treasury stock method, unless antidilutive.
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.
6
<PAGE>
GAIN ON SALE OF INVESTMENTS
In May 1998, HealthPlan Services invested $5.8 million in a convertible
note of HealthAxis.com, Inc. ("HealthAxis.com"), which was a wholly owned
subsidiary of Provident American Corporation ("PAMCO"), and received warrants to
purchase 100,000 shares of PAMCO stock. In October 1998, the note and accrued
interest on the note were converted into 2,365,365 shares of HealthAxis.com.
In February 1999, Provident Indemnity Life Insurance Company ("PILIC")
and PAMCO asserted a demand against HealthPlan Services, and HealthPlan Services
asserted claims against PILIC and PAMCO. In May 1999, the parties agreed to
resolve all claims connected with the demand and exchange mutual releases. In
connection with the resolution, HealthPlan Services: will continue providing
administrative services to PILIC and Provident American Life and Health
Insurance Company ("PALHIC"), the latter of which is now owned by Ceres Group,
Inc.; acquired the remaining 20% interest in Montgomery Management; agreed to
sell 1,415,000 shares of HealthAxis.com stock; exercised its warrants to
purchase 100,000 shares of PAMCO stock at $9.00 per share; and will receive a
net cash consideration of $9.3 million, $9.0 million of which was received
during the second and third quarters. The agreement resulted in a pretax gain
of $4.6 million.
3. ACQUISITIONS
On June 16, 1998, HealthPlan Services acquired a 50.1% interest in
CENTRA. CENTRA was formed by an agreement between HealthPlan Services and CENTRA
Benefit Services, Inc. ("CBS") in which substantially all the assets in CBS's
third party administration business, which administers self-insured employee
benefit plans, were transferred to CENTRA. HealthPlan Services paid $0.2 million
for a 1% interest in CENTRA and acquired an additional 49.1% interest from CBS
in exchange for the payment of $7.4 million ($9.3 million purchase price net of
the payoff of a CBS note), the issuance of $4.0 million in five year 5.75% notes
convertible into approximately 180,000 shares of HealthPlan Services' stock, a
purchase price holdback of up to $1.2 million, and additional contingent
consideration. In addition to such contingent consideration, CBS was given the
right to put its remaining interest in CENTRA at a contractual price not to
exceed $6.0 million within two years of the acquisition date if it met certain
financial performance criteria. CBS exercised its put right and on April 29,
1999, HealthPlan Services paid CBS $4.4 million, which represented a payment of
$5.5 million for CBS's 49.9% interest in CENTRA, offset by amounts due to
HealthPlan Services in connection with the CENTRA acquisition. CENTRA is a major
administrator of self-funded health plans for large corporations and is
headquartered in Richardson, Texas. CENTRA also has processing facilities in
Houston, Texas, Duncan, Oklahoma, Lynnwood, Washington, and Charleston, West
Virginia.
On May 18, 1998, HealthPlan Services acquired National Preferred
Provider Network, Inc. ("NPPN") for $25.0 million cash and additional contingent
consideration of up to $25.0 million if NPPN achieved certain financial
performance objectives. On May 28, 1999, HealthPlan Services agreed to pay
NPPN's former owner net consideration of approximately $6.6 million in
settlement of the additional contingent consideration. Headquartered in
Middletown, New York, NPPN is a preferred provider organization network which
consists of over 450,000 physician offices, 4,000 hospitals, and 50,000
ancillary care providers covering all 50 states and the District of Columbia.
On February 27, 1998, HealthPlan Services acquired 49% of the capital
stock of Montgomery Management from PILIC for $4.0 million. In connection with
the purchase, HealthPlan Services obtained a warrant to purchase an additional
31% of Montgomery Management for nominal consideration. On October 26, 1998,
HealthPlan Services exercised this warrant for an additional 31% of Montgomery
Management's capital stock for a cost of $8,060. In May 1999, in connection with
HealthPlan Services' agreement with PILIC and PAMCO (See Note 2, Gain on Sale
of Investments),
7
<PAGE>
HealthPlan Services acquired the remaining 20% interest in Montgomery
Management. 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.
UNAUDITED PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
The following unaudited pro forma consolidated results of operations of
HealthPlan Services give effect to acquisitions in 1998, accounted for as
purchases, as if they occurred on January 1, 1998 (in thousands):
NINE MONTHS ENDED
-----------------
SEPTEMBER 30,1998
-----------------
Revenues $ 233,954
Net income 8,011
Net income per common share 0.55
The above pro forma information is not necessarily indicative of the
results of operations that would have occurred had the acquisitions been made as
of January 1, 1998 or of the results which may occur in the future.
4. NOTES PAYABLE AND CREDIT FACILITY
Under HealthPlan Services' May 1, 1998 Amended and Restated Credit
Agreement, as amended, HealthPlan Services maintains a line of credit of $115.0
million (the "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 3.25 through June 30, 2001 and steps down
thereafter to 2.75 during the remaining term 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, limitations on capital
expenditures, limitations on dividends and distributions, and limitations on
investment activity. HealthPlan Services' borrowing under the Line of Credit
includes interest ranging from LIBOR plus 75 to 150 basis points to New York
prime plus 0 to 50 basis points. Current rates are based on LIBOR and New York
prime drawings on the Line of Credit at September 30, 1999 were 6.4% and 8.5%,
respectively. 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 HealthPlan Services'
subsidiaries. The outstanding draw was $93.0 million at September 30, 1999, and
the maximum amount available was $115.0 million. This outstanding draw, which is
due upon the consummation of the acquisition of HealthPlan Services by UICI (See
Note 7), has been reclassified as a current liability as of September 30, 1999.
HealthPlan Services incurred $4.5 million of interest expense on the Line of
Credit for the nine months ended September 30, 1999.
HealthPlan Services did not meet certain financial performance
requirements under the credit facility for the third quarter of 1999 and expects
that it will not meet these requirements for the fourth quarter of 1999. The
lenders under the credit facility and HealthPlan Services have entered into an
amendment and waiver (the "Waiver Agreement") under which the lenders waive
default with respect to these requirements, provided that: (i) HealthPlan
Services meets certain minimum performance objectives; (ii) the proposed
acquisition of HealthPlan Services by UICI is consummated on or prior to
February 10, 2000; (iii) the Agreement and Plan of Merger between HealthPlan
Services and UICI ("the Merger Agreement") does not otherwise terminiate prior
to closing of the transaction contemplated thereby; and (iv) HealthPlan Services
refrains from issuing dividends and observes certain limits on its investments
and capital expenditures. The amendment and waiver also reduced the amount
available under the Line of Credit from $175.0 million to $115.0 million. On
October 7, 1999, UICI announced that it had received a commitment for a $250
million revolving credit facility from Bank of America, N.A. The new facility is
expected to replace HealthPlan Services' existing Line of Credit and UICI's
existing $100 million credit line.
8
<PAGE>
HealthPlan Services has also 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 September and December 2001, effectively
convert $40.0 million of variable debt under the Line of Credit to fixed rate
debt at a weighted average rate of 6.18% plus a margin ranging from 75 to 150
basis points. For the nine months ended September 30, 1999, HealthPlan Services
recorded $0.3 million of interest expense related to the swap agreements.
HealthPlan Services 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.
HealthPlan Services has additional notes of $6.1 million relating to a
1993 acquisition, the 1998 acquisition of CENTRA, and equipment purchases, of
which $0.5 million is payable within one year.
5. INVESTMENTS
HealthPlan Services owns 109,732 shares of Caredata.com Inc.
("Caredata.com"), formerly known as Medirisk, Inc., a provider of health care
information. During the six months ended June 30, 1998, HealthPlan Services sold
370,711 of shares it previously owned in Caredata.com and recorded a gain on the
sale of $5.2 million. On September 30, 1999, Caredata.com's shares closed at
$9.13 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 Statement of Financial Accounting Standards No.
115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities."
In May 1998, HealthPlan Services invested $5.8 million in a convertible
note of HealthAxis.com, which was a wholly owned subsidiary of PAMCO, and
received warrants to purchase 100,000 shares of PAMCO stock. In May 1999, in
connection with HealthPlan Services' agreement with PILIC and PAMCO (see Note 2,
"Gain on Sale of Investments"), HealthPlan Services exercised its warrants to
purchase 100,000 shares of PAMCO stock at $9.00 per share resulting in an
average price per share of $11.12. On September 30, 1999, PAMCO's shares closed
at $15.00 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.
In October 1998, the $5.8 million note and accrued interest on the note
were converted into 2,365,365 shares of HealthAxis.com stock. In connection with
HealthPlan Services' agreement with PILIC and PAMCO (see Note 2, "Gain on Sale
of Investments"), HealthPlan Services also agreed to sell 1,415,000 shares of
HealthAxis.com stock, which resulted in a pretax gain of $4.6 million. The
average cost of the HealthAxis.com shares was $2.39 per share.
6. CERTAIN CLAIMS
During the third quarter of 1999, a claim exceeding $7.0 million was
asserted by a former HealthPlan Services customer; two customers and seven
insurance brokers asserted unquantified claims; and HealthPlan Services was
unsuccessful in mediation efforts with a former customer that had previously
asserted a claim exceeding $2.0 million. The customers alleged breach of
contract and related claims, and the brokers alleged loss of profits due to
small group business declines.
While HealthPlan Services intends to mount a vigorous defense related to
these claims, the ultimate financial effect of these claims cannot be fully
determined at this time. As a result of these claims and other items, HealthPlan
Services recorded $5.7 million in pretax expense in the third quarter,
reflecting management's best estimate of the possible ultimate liability for
these claims to HealthPlan Services.
9
<PAGE>
7. SUBSEQUENT EVENTS
As of October 5, 1999, HealthPlan Services and UICI, a diversified
financial services company, entered into the Merger Agreement that provides for
UICI's acquisition of HealthPlan Services in a stock-for-stock merger
transaction. Upon completion of the acquisition, which remains subject to
satisfaction of closing conditions including approval by HealthPlan Services'
stockholders and minimum earnings requirements for the fourth quarter,
HealthPlan Services will become a wholly owned subsidiary of UICI. The
transaction is subject to satisfaction of various conditions and is expected to
close in January 2000. On October 7, 1999, HealthPlan Services filed a report on
form 8-K with respect to the transaction.
On October 7, 1999 HealthPlan Services also announced its intention to
take a restructure charge of between $2.0 million and $3.0 million during the
fourth quarter of 1999. The charge will be aimed at reducing operating expenses
primarily in HealthPlan Services' large group business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE STATEMENTS CONTAINED IN THIS REPORT OR INCORPORATED 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
OPPORTUNITIES TO ADMINISTER NEW BLOCKS OF BUSINESS; 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 HealthPlan Services for the three and nine months ended September
30, 1999 and 1998.
HealthPlan Services is a leading managed health care services company,
providing distribution, enrollment, billing and collection, claims
administration, and risk management services for health care payors and
providers. HealthPlan Services functions solely as a service provider generating
fee-based income and does not assume any underwriting risk.
10
<PAGE>
A. RESULTS OF OPERATIONS
The following is a discussion of material changes in the consolidated
results of operations of HealthPlan Services for the three and nine months ended
September 30, 1999 compared to the same period in 1998. The following table sets
forth certain operating data as a percentage of total revenues for the periods
indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Operating revenues .......................... 100.0 % 100.0 % 100.0 % 100.0 %
Expenses:
Agent commissions ...................... 18.8 % 23.3 % 20.4 % 24.0 %
Personnel expenses ..................... 42.2 % 44.7 % 40.8 % 42.9 %
General and administrative ............. 29.3 % 25.3 % 27.2 % 25.0 %
Restructure charge ..................... 0.0 % 2.8 % 0.4 % 1.0 %
Integration ............................ 0.0 % 3.2 % 0.2 % 1.2 %
Other expense .......................... 0.5 % 1.9 % 0.1 % 0.8 %
Third quarter adverse claims ........... 8.7 % 0.0 % 2.7 % 0.0 %
Gain on sale of investments ............ (1.5)% (37.4)% (2.2)% (15.5)%
Depreciation and amortization .......... 6.5 % 5.6 % 5.9 % 5.5 %
Interest expense, net .................. 3.0 % 2.4 % 2.5 % 1.9 %
Equity in loss (income)
of joint venture ..................... 0.0 % 0.0 % 0.1 % 5.5 %
Total expenses ....................... 107.5 % 71.8 % 98.1 % 92.3 %
(Loss) income before provision for income
taxes and minority interest ............ (7.5)% 28.2 % 1.9 % 7.7 %
(Benefit) provision for
income taxes ........................... (2.4)% 12.3 % 1.1 % 3.7 %
Income (loss) before
minority interest ...................... (5.1)% 15.9 % 0.8 % 4.0 %
Minority interest ........................... 0.0 % (0.5)% 0.1 % (0.3)%
Net income (loss) ........................... (5.1)% 16.4 % 0.7 % 4.3 %
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues for the three months ended September 30, 1999 decreased $9.0
million, or 12.1%, to $65.5 million from $74.5 million for the same period in
1998. Revenues from fully insured customers declined by $9.3 million, primarily
due to the transition of a block of indemnity/preferred provider organization
business from The Travelers Insurance Company and United HealthCare Corporation
to Seaboard Life Insurance Company (USA) products, a decrease in revenues from
the block of business assumed from TMG Life Insurance Company in 1997,
termination of HealthPlan Services' contracts with SunStar HealthPlan, a Florida
health maintenance organization, and a decrease in revenues from PILIC and
PALHIC.
Agent commission expense for the three months ended September 30, 1999
decreased $5.1 million, or 29.3%, to $12.3 million from $17.4 million for the
same period in 1998. This decrease is consistent with the decrease in fully
insured revenues described above for the period indicated.
11
<PAGE>
Personnel expense for the three months ended September 30, 1999 decreased
$5.7 million, or 17.1%, to $27.6 million from $33.3 million for the same period
in 1998. This decrease resulted from a reduction of 440 employees in HealthPlan
Services' workforce, reduction in use of overtime and temporary help, and the
outsourcing of its care management services for CENTRA to Sykes HealthPlan
Services ("SHPS"). These services are now included as professional services
within general and administrative expense.
General and administrative expense for the three months ended September
30, 1999 increased $0.3 million, or 1.6%, to $19.2 million from $18.9 million
for the three months ended September 30, 1998. This increase was primarily
attributable to an increase of $1.9 million in CENTRA professional services due
to the outsourcing of its care management services to SHPS beginning in the
fourth quarter of 1998. This increase was offset by reductions in rent from
previous office closures and a reduction in telephone, printing, and office
supply costs.
HealthPlan Services incurred $2.1 million in restructuring costs during
the three months ended September 30, 1998. These costs reflect employee
terminations, lease terminations, and the abandonment of property and equipment
associated with closing HealthPlan Services' Framingham, Massachusetts, Chicago,
Illinois, and Atlanta, Georgia offices. There were 47, 43, and 48 employees
terminated in management, claims administration, and information systems in the
Framingham, Chicago, and Atlanta offices, respectively.
During the third quarter of 1999, HealthPlan Services recorded $5.7
million in pretax expense primarily related to claims asserted by four former
customers and seven insurance brokers (See Note 6).
During the second quarter of 1999, HealthPlan Services entered into an
agreement to sell up to 1,415,000 of its shares of HealthAxis.com stock
resulting in a pretax gain of $3.6 million. During the third quarter of 1999, an
additional gain of $1.0 million was recognized in accordance with terms of the
agreement. During the second quarter of 1998, HealthPlan Services sold its 50%
interest in Sykes HealthPlan Services ("SHPS") and recognized a gain on the sale
of $27.9 million.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenues for the nine months ended September 30, 1999 decreased $3.4
million, or 1.6%, to $210.9 million from $214.3 million for the same period in
1998. New revenues of $13.2 million and $5.9 million recognized as a result of
the CENTRA and NPPN acquisitions, respectively, were offset by a decrease of
$20.9 million in revenues from fully insured customers, primarily related to the
transition of a block of indemnity/preferred provider organization business from
The Travelers Insurance Company and United HealthCare Corporation to Seaboard
Life Insurance Company (USA) products and a decrease in revenues from the block
of business assumed from TMG Life Insurance Company in 1997. This reduction in
fully insured revenues was partially offset by revenues from new carrier
relationships. Other revenue decreases of $3.5 million were realized from
self-funded customers, primarily related to the loss of nine large customers
which terminated between April and October 1998.
Agent commission expense for the nine months ended September 30, 1999
decreased $8.3 million, or 16.2%, to $43.1 million from $51.4 million for the
same period in 1998. This decrease is consistent with the decrease in fully
insured revenues described above for the period indicated.
Personnel expense for the nine months ended September 30, 1999 decreased
$5.9 million, or 6.4%, to $86.0 million from $91.9 million for the same period
in 1998. HealthPlan Services incurred
12
<PAGE>
$6.6 million of personnel expense associated with the consolidation of CENTRA
and NPPN. These consolidation expenses were offset by reduced salaries resulting
from a reduction of approximately 350 employees in HealthPlan Services'
workforce and reduction in use of overtime and temporary help, and the
outsourcing of its care management services for CENTRA to SHPS. These services
are now included as professional services within general and administrative
expense.
General and administrative expense for the nine months ended September
30, 1999 increased $3.7 million, or 6.9%, to $57.3 million from $53.6 million
for the nine months ended September 30, 1998. This increase was primarily
attributable to $8.9 million of general and administrative expense associated
with the consolidation of CENTRA's and NPPN's financial results and increase of
$1.9 million in CENTRA professional services due to the outsourcing of its care
management services to SHPS beginning in the fourth quarter of 1998. This
increase was offset by reductions in rent due to office closings and reductions
in telephone, postage, printing, and travel costs.
HealthPlan Services recorded $0.9 million in restructuring costs during
the nine months ended September 30, 1999. These costs reflect employee
terminations associated with reductions in HealthPlan Services' fully insured
customer workforce in Tampa, Florida during the second quarter of 1999. There
were 63 employees terminated in management, claims administration, and
information systems. HealthPlan Services recorded $2.1 million in restructuring
costs during the nine months ended September 30, 1998. These costs reflect
employee terminations, lease terminations, and the abandonment of property and
equipment associated with closing HealthPlan Services' Framingham,
Massachusetts, Chicago, Illinois, and Atlanta, Georgia offices. There were 47,
43, and 48 employees terminated in management, claims administration, and
information systems in the Framingham, Chicago, and Atlanta offices,
respectively.
Other expense of $1.8 million for the nine months ended September 30,
1998 reflects costs of $1.4 million associated with the write-off of customer
balances due to a billing system conversion and uncollectability of accounts
among HealthPlan Services' self-funded customers, and costs of $0.4 million
related to the start-up of the Provident block of business.
During the third quarter of 1999, HealthPlan Services recorded $5.7
million in pretax expense primarily related to claims asserted by four former
customers and seven insurance brokers (See Note 6).
During the second quarter of 1999, HealthPlan Services entered into an
agreement to sell 1,415,000 of its shares of HealthAxis.com stock resulting in a
pretax gain of $3.6 million. During the third quarter of 1999, an additional
gain of $1.0 million was recognized in accordance with terms of the agreement.
During the nine months ended September 30, 1998, HealthPlan Services sold
370,711 of its shares of Medirisk stock and all 200,000 of its shares of Health
Risk Management, Inc. stock, resulting in pretax gains of $5.2 million and $0.2
million, respectively. On September 11, 1998, HealthPlan Services sold its 50%
interest in SHPS to Sykes Enterprises, Incorporated for $30.6 million and
recognized a pretax gain on the sale of SHPS of $27.9 million.
Depreciation and amortization expense for the nine months ended September
30, 1999 increased $0.8 million, or 6.8%, to $12.5 million from $11.7 million
for the nine months ended September 30, 1998. This increase related primarily to
amortization of goodwill on HealthPlan Services' CENTRA and NPPN acquisitions.
Net interest expense for the nine months ended September 30, 1999
increased to $5.3 million from $4.1 million in 1998. This increase resulted
primarily from HealthPlan Services' acquisitions of CENTRA and NPPN, along with
the shares repurchased in 1998 and 1999.
HealthPlan Services recorded its 50% share of the $23.6 million loss
incurred by SHPS for the six months ended June 30, 1998, which was principally
the result of a charge for the write-off of
13
<PAGE>
purchased research and development associated with acquisitions by SHPS.
HealthPlan Services sold its interest in SHPS in September 1998.
B. YEAR 2000 COMPLIANCE
INTRODUCTION
The "Year 2000 Problem" arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of the familiar
"19." If not corrected, many computer applications could fail or create
erroneous results. The problems created by using abbreviated dates appear in
hardware (such as microchips), operating systems, and other software programs.
HealthPlan Services' Year 2000 ("Y2K") compliance project is intended to prepare
HealthPlan Services' business for the Year 2000. HealthPlan Services defines Y2K
"compliance" to mean that the computer code will process all defined future
dates properly and give accurate results.
PLAN TO ADDRESS YEAR 2000 COMPLIANCE
HealthPlan Services has conducted a review of its computer systems and
capabilities and has created a three-pronged program for addressing issues
related to the Year 2000. This program includes the purchase and implementation
of software packages from vendors, an upgrade of vendor packages to Year 2000
compliant versions, and the internal development and implementation of new
software applications to increase the capabilities of HealthPlan Services'
systems for the future.
The implementation of this plan commenced in 1996 with the upgrade of the
mainframe operating system. HealthPlan Services has since purchased and replaced
its accounting and financial system and workers compensation system and written
and implemented a new system for the unemployment compensation business.
HealthPlan Services has received from the vendor and has implemented, for all
current accounts, the latest version of its claims processing software, which is
Year 2000 compliant. HealthPlan Services' billing and administrative system has
been upgraded to be Year 2000 compliant.
HealthPlan Services has requested Year 2000 compliance information from
its significant customers and vendors, including landlords and other third
parties that are responsible for non-information technology systems such as
security and environmental controls. In particular, HealthPlan Services has
asked each vendor and customer for information regarding (a) the status of the
vendor's or customer's Year 2000 readiness initiative, and (b) information
regarding any expected changes in the vendor's or customer's data interface with
HealthPlan Services. A team of HealthPlan Services' information system
professionals is coordinating its Year 2000 compliance efforts and is testing
any new interfaces with vendors and customers.
COST OF PROJECT
Between January 1, 1996 and September 30, 1999, HealthPlan Services spent
$10.8 million for Year 2000 compliance system upgrades and expects to spend $0.5
million during the fourth quarter of 1999 and the first quarter of 2000 in both
capital and modification costs to complete its Year 2000 program. These costs
include the expense of replacing any existing systems with Year 2000 compliant
systems, even in cases where the system would have been replaced or upgraded
regardless of Year 2000 requirements.
14
<PAGE>
STATE OF READINESS, RISKS, AND CONTINGENCY PLANS
HealthPlan Services has completed its primary systems and software
upgrades for Year 2000 compliance and continues to validate the changes and
complete the required migrations of data. During the third quarter, HealthPlan
Services completed off-site testing of material systems using dates into the
Year 2000. No critical errors were discovered during the testing. In accordance
with the HealthPlan Services' contingency plan, the HealthPlan Services' Year
2000 compliance team resolved some minor errors that arose during the testing.
Although HealthPlan Services has made best efforts to validate Year 2000
compliance of critical systems, there can be no assurance that there will not be
a disruption in service due to Year 2000 noncompliance. In particular, there are
risks relating to the external vendors and customers with which HealthPlan
Services exchanges data. Because HealthPlan Services does not control these
vendors and customers or their resources, HealthPlan Services can provide no
assurance that such vendors and customers will complete their respective Year
2000 solutions in time for HealthPlan Services to fully test system interfaces
with them.
HealthPlan Services has contacted all of its critical suppliers to
request confirmation of their compliance. If HealthPlan Services learns of any
supplier that is not Year 2000 compliant, it plans to secure an alternate
supplier by year-end. There is no assurance, however, that HealthPlan Services
will be able to remedy all disruptions in service, in particular any disruption
from a vendor's or customer's failure to be Year 2000 compliant or to inform
HealthPlan Services of a change in its data interface. HealthPlan Services
cannot estimate the cost that would be associated with a disruption in service
resulting from its own or a vendor's or customer's Year 2000 compliance failure.
C. LIQUIDITY AND CAPITAL RESOURCES
Under HealthPlan Services' May 1, 1998 Amended and Restated Credit
Agreement, as amended, HealthPlan Services maintains a line of credit of $115.0
million (the "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 3.25 through June 30, 2001 and steps down
thereafter to 2.75 during the remaining term 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, limitations on capital
expenditures, limitations on dividends and distributions, and limitations on
investment activity. HealthPlan Services' borrowing under the Line of Credit
includes interest ranging from LIBOR plus 75 to 150 basis points to New York
prime plus 0 to 50 basis points. Current rates on LIBOR and New York prime
drawings on the Line of Credit at September 30, 1999 were 6.4% and 8.5%,
respectively. 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 HealthPlan Services'
subsidiaries. The outstanding draw was $93.0 million at September 30, 1999, and
the maximum amount available was $115.0 million.
HealthPlan Services did not meet certain financial performance
requirements under the credit facility for the third quarter of 1999 and expects
that it will not meet these requirements for the fourth quarter of 1999. The
lenders under the credit facility and HealthPlan Services have entered into the
Waiver Agreement under which the lenders waive default with respect to these
requirements, provided that: (i) HealthPlan Services meets certain minimum
financial performance objectives; (ii) the proposed acquisition of HealthPlan
Servics by UICI is consummated on or prior to February 10, 2000; (iii) the
Merger Agreement does not otherwise terminate prior to closing of the
transaction contemplated thereby; and (iv) HealthPlan Services refrains from
issuing dividends and observes certain limits on its investments and capital
expenditures. The amendment and waiver also reduced the amount available under
the line of credit from $175.0 million to $115.0 million. On October 7, 1999,
UICI announced that it had received a commitment for a $250 million revolving
credit facility from Bank of America, N.A. The new facility is expected to
replace HealthPlan Services' existing Line of Credit and UICI's existing $100
million credit line.
15
<PAGE>
Pursuant to the HealthPlan Services' Line of Credit, and prior to the
fourth quarter of 1999, HealthPlan Services was permitted to pay a quarterly
dividend of up to $0.1375 per share of HealthPlan Services' capital stock (up to
$0.55 per share on an annualized basis). During 1999 HealthPlan Services has
declared dividends totaling $5.7 million. These dividends were paid on April 20,
July 20, and October 19, 1999. HealthPlan Services does not intend to continue
paying quarterly dividends in the future and is prohibited from doing so under
the terms of the Waiver Agreement.
During the second quarter of 1997, the Board of Directors authorized
HealthPlan Services to use up to $20.0 million to support a share repurchase
program. HealthPlan Services began implementing this share repurchase program in
the first quarter of 1998. On May 12, 1998, the Board increased to $30.0 million
its authorization to repurchase shares under this program. During the second
quarter of 1999, HealthPlan Services completed this share repurchase program.
During 1998 and the first six months of 1999, a total of 1,519,400 shares were
repurchased.
HealthPlan Services spent $6.0 million for capital expenditures during
the nine months ended September 30, 1999.
Based upon current expectations, and assuming consummation of the UICI
merger prior to February 10, 2000, HealthPlan Services 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. If the merger with UICI does not occur, HealthPlan
Services will be required to negotiate alternative financing at favorable terms
and such financing may not be available on terms as favorable as contained in
its current credit agreement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
HealthPlan Services is exposed to certain market risks inherent in
HealthPlan Services' financial instruments. These instruments arise from
transactions entered into in the normal course of business and, in some cases,
relate to HealthPlan Services' acquisitions of related businesses. HealthPlan
Services is subject to interest rate risk on its existing Line of Credit and any
future financing requirements. HealthPlan Services' fixed rate debt consists
primarily of outstanding balances on its notes issued to C G Insurance Services,
Inc. and the former owner of CENTRA and certain equipment notes, and its
variable rate debt relates to borrowings under its Line of Credit (See
Liquidity and Capital Resources).
The following table presents the future principal payment obligations (in
thousands) and weighted-average interest rates associated with HealthPlan
Services' existing long-term debt instruments, assuming HealthPlan Services'
actual level of indebtedness of $99.0 million as of September 30, 1999:
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 THEREAFTER
------- ------- -------- ------ ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term Debt Fixed Rate
(weighted average interest
rate of 6.23%) .............. $ 149 $ 417 $ 292 $ 216 $ 4,182 $ 724
Variable Rate (weighted
average interest rate
of 6.99%) .................... 93,000
</TABLE>
HealthPlan Services' primary market risk exposure relates to (i) the
interest rate risk on long-term and short-term borrowings, (ii) the impact of
interest rate movements on its ability to meet interest expense requirements and
exceed financial covenants, and (iii) the impact of interest rate movements on
HealthPlan Services' ability to obtain adequate financing to fund future
acquisitions.
HealthPlan Services manages interest rate risk on its variable rate debt
through its use of two separate interest rate swap agreements. The agreements,
which expire in September and December 2001, effectively convert $40.0 million
of variable rate debt under the Line of Credit to fixed rate debt at a weighted
average rate of 6.18%.
16
<PAGE>
While HealthPlan Services cannot predict its ability to refinance
existing debt or the impact interest rate movements will have on its existing
debt, management continues to evaluate its financial position on an ongoing
basis.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.1 Third Amendment and Waiver to the
Restated Credit Agreement dated as
of May 1, 1998 by and among
HealthPlan Services Corporation,
First Union National Bank, and other
lenders named therein, as amended by
the First Amendment thereto dated as
of June 23, 1998, and the Second
Amendment and Waiver dated as of
December 15, 1998.
27.1 Financial Data Schedule
(b) Form 8-K.
On October 7, 1999, HealthPlan Services filed a report on Form 8-K with
respect to its Agreement and Plan of Merger with UICI.
18
<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: November 15, 1999 /s/ JAMES K. MURRAY, JR.
----------------------------------------------------
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
Date: November 15, 1999 /s/ PHILLIP S. DINGLE
----------------------------------------------------
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
10.1 Third Amendment and Waiver to the
Restated Credit Agreement dated as
of May 1, 1998 by and among
HealthPlan Services Corporation,
First Union National Bank, and other
lenders named therein, as amended by
the First Amendment thereto dated as
of June 23, 1998, and the Second
Amendment and Waiver dated as of
December 15, 1998.
27.1 Financial Data Schedule
THIRD AMENDMENT AND WAIVER
THIS THIRD AMENDMENT AND WAIVER to the Credit Agreement referred to below
(this "Amendment and Waiver"), is made and entered into as of this ___ day of
November, 1999 by the Lenders party to such Credit Agreement and FIRST UNION
NATIONAL BANK, as Administrative Agent for the Lenders and HEALTHPLAN SERVICES
CORPORATION, a corporation organized under the laws of Delaware (the
"Borrower").
STATEMENT OF PURPOSE
The Lenders have extended certain credit facilities to the Borrower
pursuant to the Amended and Restated Credit Agreement dated as of May 1, 1998,
(as amended by the First Amendment dated as of June 23, 1998 (the "First
Amendment") and the Second Amendment, dated as of December 15, 1998 (the "Second
Amendment"), and as further amended, restated or otherwise modified, the "Credit
Agreement"), by and among the Borrower, the Lenders party thereto, and the
Administrative Agent.
Pursuant to Section 9.3 of the Credit Agreement (as amended and set forth
in the Second Amendment), the Borrower is required to maintain a minimum EBITDA.
The Borrower anticipates that its minimum EBITDA for the period of July 1, 1999
- - December 31, 1999 (the "Waiver Calculation Period") will not meet that minimum
requirement and the Borrower has requested that the Administrative Agent and the
Lenders waive the requirements of Section 9.3 for such period. In addition, the
Borrower anticipates that it will also fail to meet the requirements set forth
in Sections 9.1 (maximum Leverage Ratio, as amended and set forth in the First
Amendment) and 9.5 (minimum Cash Flow Ratio, as amended and set forth in the
Second Amendment) for the Waiver Calculation Period.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized undefined terms used in this Waiver and
Amendment shall have the meanings assigned thereto in the Credit Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT.
(a) Section 1.1 of the Credit Agreement shall be amended by deleting
the definition of "Aggregate Commitment" in its entirety and inserting the
following in lieu thereof:
"AGGREGATE COMMITMENT" means the aggregate amount of the Lenders'
Commitments hereunder, as such amount may be reduced or modified at any
time or from time to time pursuant to the terms hereof. On the date of
the Third Amendment, the Aggregate Commitment shall be One Hundred
Fifteen Million Dollars ($115,000,000).
(b) Section 1.1 of the Credit Agreement shall be amended by inserting the
following defined term in the correct alphabetical order:
<PAGE>
"THIRD AMENDMENT" means the Third Amendment and Waiver dated as of
November __, 1999 by and among, the Borrower, the Lenders and the
Administrative Agent.
3. WAIVERS AND AGREEMENTS.
(a) The Administrative Agent and the Lenders hereby waive the provisions of
Sections 9.1, 9.3 and 9.5 and any Default or Event of Default which shall or may
have occurred as a result of non-compliance therewith solely for the Waiver
Calculation Period; PROVIDED, that:
(i) Borrower's EBITDA shall not be less than (A) $6,000,000 for
the fiscal quarter ending September 30, 1999 and (B) $7,500,000 for the
fiscal quarter ending December 31, 1999;
(ii) the waivers set forth herein shall terminate and an Event of
Default shall be deemed to have occurred and be continuing under the
Credit Agreement on the earlier to occur of (i) the date which is no
later than five (5) Business Days after the date on which the Agreement
and Plan of Merger dated as of October 5, 1999 by and among UICI, UICI
Acquisition Co. and the Borrower is terminated or (ii) February 10,
2000 if the transactions contemplated by the Merger Agreement shall
have failed to be consummated on or prior to such date (the "Waiver
Termination Date"); PROVIDED FURTHER, that nothing set forth herein
shall be deemed to be a consent to or approval of the Merger, which
Merger is prohibited by the terms and conditions set forth in the
Credit Agreement;
(iii) during the period from and after the date hereof to and
including the Waiver Termination Date, the Borrower shall not be
permitted to make the dividends otherwise permitted pursuant to Section
10.7(d) of the Credit Agreement;
(iv) during the period from and after the date hereof to and
including the Waiver Termination Date, the Borrower shall not be
permitted to make the investments otherwise permitted pursuant to
Section 10.4(g); and
(v) during the period from and after the date hereof to and
including the Waiver Termination Date, the Borrower shall not permit
Capital Expenditures to exceed $8,000,000 in the aggregate for any
period of four (4) consecutive fiscal quarters ending during such
period.
(b) The Administrative Agent and the Lenders hereby acknowledge and agree
that the calculation of Net Income for the purposes of calculating the minimum
EBITDA required pursuant to clause (a)(i) above shall be increased by (i)
$5,658,000 in connection with a non-recurring non-cash charge taken during the
fiscal quarter ending September 30, 1999 with respect to reserves established
for litigation claims in accordance with FASB #5, (ii) $973,000 in connection
with a non-recurring cash gain taken during the fiscal quarter ending September
30, 1999 and (iii) approximately
2
<PAGE>
$1,000,000 to 2,000,000 in connection with a non-recurring cash and non-cash
restructuring charge to be taken during the fiscal quarter ending December 31,
1999.
(c) The Administrative Agent and the Lenders hereby acknowledge and agree
that the Borrower's failure to comply with Sections 9.1, 9.3 and 9.5 as
described and as limited in paragraph (a) above does not in and of itself
constitute a material adverse change in the properties, businesses, results of
operations, or financial or other condition of the Credit Parties taken as a
whole.
(d) The Administrative Agent and the Lenders hereby waive any Default or
Event of Default which shall or may have occurred as a result of the
non-compliance by the Borrower with Section 10.1(c) of the Credit Agreement
solely by reason of the Borrower's December 1998 renewal of the following two
Letters of Credit with The Fifth Third Bank of Columbus: (i) Irrevocable Standby
Letter of Credit dated April 14, 1995 in the amount of $25,000 for the benefit
of the State of South Carolina Budget and (ii) Irrevocable Standby Letter of
Credit dated September 9, 1994 in the amount of $490,696.29 for the benefit of
the State of South Carolina Budget.
(e) The parties hereto hereby acknowledge and agree that the "Amendment
Period" (as defined and set forth in the Second Amendment) has not yet
terminated and, notwithstanding any of the terms and provisions of such
definition, shall not terminate at any time prior to the Waiver Termination
Date.
4. CONDITIONS. The effectiveness of this Amendment and Waiver shall be
conditioned upon receipt by the Administrative Agent of this Amendment and
Waiver executed by Lenders constituting Required Lenders.
5. LIMITED AMENDMENT AND WAIVER. Except as expressly amended herein, the
Credit Agreement and each other Loan Document shall continue to be, and shall
remain, in full force and effect. This Amendment and Waiver shall not be deemed
(a) to be a waiver of, or consent to, or a modification or amendment of, any
other term or condition of the Credit Agreement or any other Loan Documents or
(b) to prejudice any other right or rights which the Administrative Agent or
Lenders may now have or may have in the future under or in connection with the
Credit Agreement or the Loan Documents or any of the instruments or agreements
referred to therein, as the same may be amended, restated or otherwise modified
from time to time.
6. REPRESENTATIONS AND WARRANTIES. By its execution hereof, the Borrower
hereby certifies on behalf of itself and the other Credit Parties that each of
the representations and warranties set forth in the Credit Agreement and the
other Loan Documents is true and correct as of the date hereof as if fully set
forth herein and that as of the date hereof, and no Default or Event of Default
(other than those specifically and expressly waived hereunder) has occurred and
is continuing.
7. FEES. The Borrower shall pay to each of the Lenders party to this Second
Amendment an amendment fee in an amount equal to the product of (i) 0.10%
multiplied
3
<PAGE>
by (ii) the commitment of such Lender under the Credit Agreement, as reduced
pursuant to the Third Amendment.
8. EXPENSES. The Borrower shall pay all reasonable out-of-pocket expenses
of the Administrative Agent in connection with the preparation, execution and
delivery of this Amendment and Waiver, including without limitation, the
reasonable fees and disbursements of counsel for the Administrative Agent.
9. GOVERNING LAW. This Amendment and Waiver shall be governed by and
construed in accordance with the laws of the State of North Carolina.
10. COUNTERPARTS. This Amendment and Waiver may be executed in separate
counterparts, each of which when executed and delivered is an original but all
of which taken together constitute one and the same instrument.
[SIGNATURE PAGES FOLLOW]
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be duly executed as of the date and year first above written.
FIRST UNION NATIONAL BANK, as
Administrative Agent and Lender
By______________________________
Name:___________________________
Title:__________________________
[Signature Pages Continue]
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH, as
Lender
By______________________________
Name:___________________________
Title:__________________________
[Signature Pages Continue]
<PAGE>
SUNTRUST BANK, TAMPA BAY, as Lender
By______________________________
Name:___________________________
Title:__________________________
[Signature Pages Continue]
<PAGE>
FLEET NATIONAL BANK, as Lender
By______________________________
Name:___________________________
Title:__________________________
[Signature Pages Continue]
<PAGE>
SOUTHTRUST BANK, NATIONAL
ASSOCIATION, as Lender
By______________________________
Name:___________________________
Title:__________________________
[Signature Pages Continue]
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH, as
Lender
By______________________________
Name:___________________________
Title:__________________________
[Signature Pages Continue]
<PAGE>
BANK OF AMERICA, N.A., as Lender
By______________________________
Name:___________________________
Title:__________________________
[Signature Pages Continue]
<PAGE>
AMSOUTH BANK, as Lender
By______________________________
Name:___________________________
Title:__________________________
[Signature Pages Continue]
<PAGE>
HIBERNIA NATIONAL BANK, as Lender
By______________________________
Name:___________________________
Title:__________________________
[Signature Pages Continue]
<PAGE>
THE FIFTH THIRD BANK OF COLUMBUS,
as Lender
By______________________________
Name:___________________________
Title:__________________________
<PAGE>
[CORPORATE SEAL] HEALTHPLAN SERVICES
CORPORATION, as Borrower
By______________________________
Name:___________________________
Title:__________________________
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 12,893
<SECURITIES> 0
<RECEIVABLES> 25,932
<ALLOWANCES> (3,683)
<INVENTORY> 0
<CURRENT-ASSETS> 42,926
<PP&E> 57,243
<DEPRECIATION> (29,667)
<TOTAL-ASSETS> 270,455
<CURRENT-LIABILITIES> 175,393
<BONDS> 5,505
0
0
<COMMON> 152
<OTHER-SE> 85,942
<TOTAL-LIABILITY-AND-EQUITY> 270,455
<SALES> 0
<TOTAL-REVENUES> 210,886
<CGS> 0
<TOTAL-COSTS> 201,464
<OTHER-EXPENSES> 453
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,260
<INCOME-PRETAX> 3,709
<INCOME-TAX> 2,272
<INCOME-CONTINUING> 1,437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,437
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
