-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OicmHyfZ6xt2sifqj13E89Ah8J+1+dlS5ABIt+C2+NuFJjbxKmxoQnqv/UhvZ8CA 23e64S0MM/I0LN1nkM5x7g== 0000950123-97-009657.txt : 19971117 0000950123-97-009657.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950123-97-009657 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OXFORD HEALTH PLANS INC CENTRAL INDEX KEY: 0000865084 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 061118515 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19442 FILM NUMBER: 97721312 BUSINESS ADDRESS: STREET 1: 800 CONNECTICUT AVE CITY: NORWALK STATE: CT ZIP: 06854 BUSINESS PHONE: 2038521442 MAIL ADDRESS: STREET 1: 800 CONNECTICUT AVE CITY: NORWALK STATE: CT ZIP: 06854 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 -------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ___________________ Commission File Number: 0-19442 OXFORD HEALTH PLANS, INC. (Exact name of registrant as specified in its charter) Delaware 06-1118515 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 800 Connecticut Avenue - Norwalk, Connecticut 06854 (Address of principal executive offices) (Zip Code) (203) 852-1442 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of common stock, par value $.01 per share, outstanding on November 10, 1997 was 79,418,237. 1 2 OXFORD HEALTH PLANS, INC. INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION ITEM 1 Financial Statements PAGE ---- Consolidated Balance Sheets at September 30, 1997 and December 31, 1996 ................................................................ 3 Consolidated Statements of Earnings for the Three Months and Nine Months Ended September 30, 1997 and 1996 ........................................... 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 ......................................................... 5 Notes to Condensed Consolidated Financial Statements ................................... 6 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................................... 7 PART II - OTHER INFORMATION ITEM 5 Other Information ..................................................................... 12 ITEM 6 Exhibits and Reports on Form 8-K ....................................................... 12 Signatures
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
Sep. 30, Dec. 31, ASSETS 1997 1996 ---- ---- (Unaudited) Current assets: Cash and cash equivalents $ 7,072 72,160 Short-term investments - available-for-sale, at market value 652,684 767,312 Premiums receivable, net 354,091 315,126 Other receivables 37,782 26,343 Prepaid expenses and other current assets 8,503 5,814 Refundable income taxes 83,181 - Deferred income taxes 5,223 13,771 - ------------------------------------------------------------------------------------------------------------ Total current assets 1,148,536 1,200,526 Property and equipment, at cost, net of accumulated depreciation and amortization of $110,652 in 1997 and $69,739 in 1996 120,478 104,954 Deferred income taxes 8,100 5,700 Other noncurrent assets 70,010 35,559 - ------------------------------------------------------------------------------------------------------------ Total assets $1,347,124 1,346,739 ============================================================================================================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Medical costs payable $ 567,834 624,359 Trade accounts payable and accrued expenses 97,386 51,256 Income taxes payable - 9,902 Unearned premiums 36,312 63,052 - ------------------------------------------------------------------------------------------------------------ Total current liabilities 701,532 748,569 - ------------------------------------------------------------------------------------------------------------ Shareholders' equity: Preferred stock, $.01 par value, authorized 2,000,000 shares - - Common stock, $.01 par value, authorized 400,000,000 shares; issued and outstanding 79,298,190 in 1997 and 77,376,282 in 1996 793 774 Additional paid-in capital 438,800 391,602 Retained earnings 189,187 195,790 Unrealized net appreciation of investments 16,812 10,004 - ------------------------------------------------------------------------------------------------------------ Total shareholders' equity 645,592 598,170 - ------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $1,347,124 1,346,739 ============================================================================================================
See accompanying notes to condensed consolidated financial statements. 3 4 OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Nine Months Ended September 30 Ended September 30 1997 1996 1997 1996 ---- ---- ---- ---- Revenues: Premiums earned $1,045,185 797,623 3,059,810 2,158,573 Third-party administration, net 3,975 2,347 10,091 7,875 Investment and other income, net 14,854 11,213 43,352 28,203 - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues 1,064,014 811,183 3,113,253 2,194,651 - ---------------------------------------------------------------------------------------------------------------------------------- Expenses: Health care services 1,019,557 639,917 2,630,083 1,730,149 Marketing, general and administrative 176,641 123,554 492,347 343,867 - ---------------------------------------------------------------------------------------------------------------------------------- Total expenses 1,196,198 763,471 3,122,430 2,074,016 - ---------------------------------------------------------------------------------------------------------------------------------- Operating earnings (loss) (132,184) 47,712 (9,177) 120,635 Equity in net loss of affiliate (120) (1,500) (1,140) (3,550) - ---------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes (132,304) 46,212 (10,317) 117,085 Provision (credit) for income taxes (54,147) 19,562 (3,714) 49,460 - ---------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ (78,157) 26,650 (6,603) 67,625 ================================================================================================================================== Earnings (loss) per common and common equivalent share: Primary $ (.99) .33 (.08) .86 Fully diluted $ (.99) .33 (.08) .85 Weighted average common stock and common stock equivalents outstanding: Primary 79,059 80,880 78,363 79,089 Fully diluted 79,059 81,362 78,363 79,459
See accompanying notes to condensed consolidated financial statements. 4 5 OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (IN THOUSANDS) (UNAUDITED)
1997 1996 ---- ---- Cash flows from operating activities: Net earnings (loss) $ (6,603) 67,625 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 42,997 31,220 Deferred income taxes 1,417 1,617 Realized gain on sale of investments (11,137) (3,081) Equity in net loss of affiliate 1,140 3,550 Other, net 245 360 Changes in assets and liabilities: Premiums receivable (38,723) (45,301) Other receivables (10,704) (7,320) Prepaid expenses and other current assets (2,553) (2,731) Other noncurrent assets (7,251) (1,406) Medical costs payable (63,489) 225,362 Trade accounts payable and accrued expenses 35,739 24,291 Income taxes payable (64,834) 19,855 Unearned premiums (26,740) (31,515) - ---------------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities (150,496) 282,526 - ---------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (58,730) (38,607) Purchases of available-for-sale securities (417,241) (650,087) Sales and maturities of available-for-sale securities 552,821 235,949 Investments in unconsolidated affiliates (13,815) (11,729) Other, net 3,405 251 - ---------------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities 66,440 (464,223) - ---------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of common stock - 220,541 Proceeds from exercise of stock options 18,968 12,913 - ---------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 18,968 233,454 - ---------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (65,088) 51,757 Cash and cash equivalents at beginning of period 72,160 58,450 - ---------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 7,072 110,207 ================================================================================================================ Supplemental cash flow information - cash paid for income taxes $ 66,367 38,632 Supplemental schedule of noncash investing and financing activities: Unrealized appreciation (depreciation) of short-term investments 11,539 (159) Tax benefit realized on exercise of stock options 28,249 14,583 One-for-one stock dividend $ - 348
See accompanying notes to condensed consolidated financial statements. 5 6 OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION The interim condensed consolidated financial statements included herein have been prepared by Oxford Health Plans, Inc. ("Oxford") and its subsidiaries (collectively, the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures, normally included in the financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to SEC rules and regulations; nevertheless, management of the Company believes that the disclosures herein are adequate to make the information presented not misleading. The condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto as of and for each of the years in the three-year period ended December 31, 1996, included in the Company's Form 10-K filed with the SEC in March 1997. In the opinion of management, all adjustments necessary to present fairly the consolidated financial position of the Company with respect to the interim condensed consolidated financial statements have been made. See note 3 below. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. (2) CAPITAL STOCK On March 17, 1997, the Board of Directors unanimously adopted a resolution, subject to shareholder approval, proposing an amendment to the Company's Second Restated and Amended Certificate of Incorporation, as amended, to increase the number of authorized shares of the Company's common stock from 200 million shares to 400 million shares. On April 22, 1997, the Company's shareholders approved such amendment. (3) THIRD QUARTER 1997 CHARGES During the third quarter of 1997, premiums earned were reduced due to accounts receivable write-offs resulting from clean-ups of delayed group bills and terminations of nonpaying individual and group customers. Additions were also made to accounts receivable reserves. These accounts receivable write-offs and additons to reserves resulted in an after tax charge of $42.2 million, or 53 cents per share, and are a consequence of information obtained from a review and reconciliation of previously delayed premium bills. The Company also increased reserves for medical costs payable, recognizing an after tax charge of $51.9 million, or 66 cents per share, for the quarter, as the process of reviewing and reconciling previously delayed claims revealed payment obligations which exceeded the Company's original estimates. (4) SALE OF EQUITY INVESTMENT On October 13, 1997, the Company completed the sale of its interest in Health Partners, Inc. to FPA Medical Management, Inc. ("FPA") in a pooling of interests transaction. The Company received 2,090,109 shares of FPA common stock with a market value of approximately $76.4 million. As a result of the transaction, the Company will recognize an after tax gain of more than $40 million in the fourth quarter of 1997. (5) RECLASSIFICATIONS Certain reclassifications have been made to the prior year's financial statement amounts to conform to the current year's financial statement presentation. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table shows membership by product:
As of September 30 Increase Membership: 1997 1996 Amount % - ----------- ---- ---- ------ - Freedom Plan 1,286,600 958,300 328,300 34.3% HMO 256,600 181,800 74,800 41.1% Medicare 154,800 113,400 41,400 36.5% Medicaid 187,900 147,600 40,300 27.3% - ----------------------------------------------------------------------------------------------------------------------- Total fully insured 1,885,900 1,401,100 484,800 34.6% Self-funded 56,700 41,100 15,600 38.0% - ----------------------------------------------------------------------------------------------------------------------- Total membership 1,942,600 1,442,200 500,400 34.7% =======================================================================================================================
Increases in membership in the third quarter of 1997 include 20,300 fully insured and 9,400 self-funded members added in connection with the acquisition of a small Chicago-based HMO during the third quarter of 1997. The following table provides certain statement of earnings data expressed as a percentage of total revenues for the three months and nine months ended September 30, 1997 and 1996:
Three Months Nine Months Ended September 30 Ended September 30 Revenues: 1997 1996 1997 1996 ---- ---- ---- ---- Premiums earned 98.2% 98.3% 98.3% 98.4% Third-party administration, net 0.4% 0.3% 0.3% 0.4% Investment and other income, net 1.4% 1.4% 1.4% 1.2% - ----------------------------------------------------------------------------------------------------------- Total revenues 100.0% 100.0% 100.0% 100.0% - ----------------------------------------------------------------------------------------------------------- Expenses: Health care services 95.8% 78.9% 84.5% 78.8% Marketing, general and administrative 16.6% 15.2% 15.8% 15.7% - ----------------------------------------------------------------------------------------------------------- Total expenses 112.4% 94.1% 100.3% 94.5% - ----------------------------------------------------------------------------------------------------------- Operating earnings (loss) (12.4%) 5.9% (0.3%) 5.5% Equity in net loss of affiliate - (0.2%) - (0.2%) - ----------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes (12.4%) 5.7% (0.3%) 5.3% Provision (credit) for income taxes (5.1%) 2.4% (0.1%) 2.3% - ----------------------------------------------------------------------------------------------------------- Net earnings (loss) (7.3%) 3.3% (0.2%) 3.0% =========================================================================================================== Medical-loss ratio 97.5% 80.2% 86.0% 80.2% =========================================================================================================== Administrative expense as a percentage of operating revenue 16.8% 15.4% 16.0% 15.9% ===========================================================================================================
7 8 Results of Operations The three months ended September 30, 1997 compared with the three months ended September 30, 1996 Total revenues for the quarter ended September 30, 1997 were $1.06 billion, up 31% from $811.2 million during the same period in the prior year. However, the Company experienced a net loss for the third quarter of 1997 totaling $78.2 million, or 99 cents per share, compared with net earnings of $26.7 million, or 33 cents per share, for the third quarter of 1996. The net loss was primarily due to several factors attributable to delays in the Company's billing of customers and delays in the Company's payment of claims to providers as a result of software and hardware problems which arose in the conversion of the Company's computer operating system. Third quarter 1997 results reflect reduced premiums earned due to accounts receivable write-offs resulting from clean-ups of delayed group bills and terminations of nonpaying individual and group customers. Additions were also made to accounts receivable reserves. These accounts receivable write-offs and additions to reserves resulted in an after tax charge of $42.2 million, or 53 cents per share, and are a consequence of information obtained from a review and reconciliation of previously delayed premium bills. The Company also increased reserves for medical costs payable, recognizing an after tax charge of $51.9 million, or 66 cents per share, for the quarter, as the process of reviewing and reconciling previously delayed claims revealed payment obligations which exceeded the Company's original estimates. For additional information regarding the Company's reserves for medical costs payable, see "Liquidity and Capital Resources" below. Total commercial premiums earned for the three months ended September 30, 1997 increased 27% to $719.9 million from $568.3 million in the same period in the prior year. This increase is attributable to a 36% increase in member months in the Company's commercial health care programs, primarily due to a 35% member months increase in the Freedom Plan. Premium rates of commercial programs on average were 2.6% higher than in the third quarter of 1996. Premiums earned from government programs increased 42% to $325.2 million in the third quarter of 1997 compared with $229.3 million in the third quarter of 1996. Membership growth accounted for most of the change as member months of Medicare programs increased 39% when compared with the prior year third quarter, while member months of Medicaid programs increased by 29% over the level of the prior year third quarter. Legislation to reform the federal Medicare program was passed by Congress on July 31, 1997 and was signed into law. The legislation changes the way health plans are compensated for Medicare members by eliminating over five years amounts paid for graduate medical education and increasing the blend of national cost factors applied in determining local reimbursement rates over a six-year phase-in period. Both changes have the effect of reducing reimbursement in high cost metropolitan areas with a large number of teaching hospitals, such as the Company's service areas; however, the legislation includes provision for a minimum increase of 2% annually in health plan Medicare reimbursement for the next five years. The legislation also provides for expedited licensure of provider-sponsored Medicare plans and a repeal in 1999 of the rule requiring health plans to have one commercial enrollee for each Medicare or Medicaid enrollee and the immediate removal of Medicaid enrollees from the rule. These changes could have the effect of increasing competition in the Medicare and Medicaid markets. The legislation also requires Medicare plans to pay a fee which would finance the costs incurred by the Department of Health and Human Services to inform Medicare beneficiaries of new enrollment/disenrollment rules and managed care options. The manner of charging this fee to plans has not been specified and amendments to this provision have been proposed in Congress. The Company is not able at this time to determine the ultimate impact of the fee eventually imposed. Net third-party administration revenues for the three months ended September 30, 1997 increased 67% to $4.0 million from $2.4 million for the same period in the prior year, attributable to a 34% increase in member months and an 24% increase in per member per month revenue. The increase in member months is due, in part, to the acquisition of a small Chicago-based HMO during the third quarter. In the absence of such acquisition, member months would have increased by 18% while per member per month revenue would have increased by 32%. Net investment income for the three months ended September 30, 1997 increased 40% to $15.8 million from $11.3 million for the same period in 1996 due to higher realized capital gains. 8 9 The medical-loss ratio (health care services expense stated as a percentage of premium revenues) was 97.5% for the third quarter of 1997 compared with 80.2% for the third quarter of 1996. The increase is attributable to the reduction in premiums earned and the increase in medical costs described above. As previously reported, the Company expects that future results will be affected by higher expenses in its Medicare business. The Company also expects that future results will be affected by higher expenses in its Medicaid business. The Company continues to reconcile delayed claims and pay down backlogged claims. Information gained as the process continues may result in future changes to the Company's estimates of its medical costs and expected cost trends. Marketing, general and administrative expenses totaled $176.6 million in the third quarter of 1997 compared with $123.6 million in the third quarter of 1996. The increase over the third quarter of 1996 is primarily attributable to a $25.2 million rise in payroll and benefits due to increased staffing, an $8.5 million increase in broker commissions attributable to the increase in premiums earned, as well as to the increased costs associated with the growth in membership in the Company's plans and expenses related to enhancements to management information systems necessary to accommodate increased transaction volume. These expenses as a percent of operating revenue were 16.8% during the third quarter of 1997 compared with 15.4% during the third quarter of 1996. The increase is primarily attributable to increases in administrative spending and lower than expected operating revenue for the third quarter of 1997, as described above. As previously reported, the Company has increased its planned administrative expenditures in order to strengthen operations. Such additional expenditures will include the cost of independent consultants, additional internal staff and system enhancements. The Company's profitability is dependent, in part, on its ability to predict and maintain effective control over health care costs (through, among other things, appropriate benefit design, utilization review and case management programs and its case rate and risk-sharing agreements with providers) while providing members with quality health care. Factors such as utilization, new technologies and health care practices, hospital costs, major epidemics, inability to establish favorable compensation agreements with providers and numerous other external influences may affect Oxford's ability to control such costs. The Company uses its medical cost containment capabilities, such as claim auditing systems, physician tracking systems and utilization review protocols, and improved channeling to the most cost-effective providers with a view to reducing the rate of growth in health care services expense. There can be no assurance that Oxford will be successful in mitigating the effect of any or all of the above listed or other factors. Accordingly, past financial performance is not necessarily a reliable indicator of future performance, and investors should not use historical performance to anticipate results or future period trends. The Company is unable to predict what effect, if any, the recent events described herein (including any adverse publicity) may have on future enrollment in the Company's health benefit plans. The nine months ended September 30, 1997 compared with the nine months ended September 30, 1996 Total revenues for the nine months ended September 30, 1997 were $3.11 billion, up 42% from $2.19 billion during the same period in the prior year. The net loss for the first nine months of 1997 totaled $6.6 million, or 8 cents per share, compared with net earnings of $67.6 million, or 86 cents per share, for the first nine months of 1996. Total commercial premiums earned for the nine months ended September 30, 1997 increased 39% to $2.16 billion from $1.56 billion in the same period in the prior year. This increase is attributable to a 40% increase in member months in the Company's commercial health care programs, including a 39% member months increase in the Freedom Plan. Premiums earned from government programs increased 50% to $901.9 million in the first nine months of 1997 compared with $601.0 million in the first nine months of 1996. Membership growth accounted for most of the change as member months of Medicare programs increased 53% when compared with the first nine months of 1996, while member months of Medicaid programs increased by 39% over the first nine months of 1996. Net third-party administration revenues for the nine months ended September 30, 1997 increased 28% to $10.1 million from $7.9 million for the same period in the prior year, attributable to a 25% increase 9 10 in member months and a 2% increase in per member per month revenue. In the absence of the previously mentioned acquisition, member months would have increased by 20% while per member per month revenue would have increased by 4%. Net investment income for the nine months ended September 30, 1997 increased 57% to $44.3 million from $28.2 million for the same period last year due to higher realized capital gains and an increase in the average balance of invested cash compared with the prior year's period. The medical-loss ratio was 86.0% for the first nine months of 1997 compared with 80.2% for the first nine months of 1996. The increase is attributable to the reduction in premiums earned and the increase in medical costs described previously. Marketing, general and administrative expenses totaled $492.3 million in the first nine months of 1997 compared with $343.9 million in the first nine months of 1996. The increase over the first nine months of 1996 is primarily attributable to a $63.0 million rise in payroll and benefits due to increased staffing, a $28.9 million increase in broker commissions attributable to the increase in premiums earned, as well as to the increased costs associated with the growth in membership in the Company's plans and expenses related to enhancements to management information systems necessary to accommodate increased transaction volume. These expenses as a percent of operating revenue were 16.0% during the first nine months of 1997 compared with 15.9% during the first nine months of 1996. Liquidity and Capital Resources The Company's capital expenditures for the first nine months of 1997 totaled $58.7 million. Such funds were used primarily for management information systems and leasehold improvements related to business expansion. Except for the increased administrative expenditures discussed above and anticipated capital expenditures in the ordinary course of business, the Company currently has no definitive commitments for use of material cash resources. Cash flow used by operations aggregated $150.5 million in the first nine months of 1997 compared with cash flow provided by operations of $282.5 million in the first nine months of 1996, primarily as a consequence of the operating loss for the first nine months of 1997 and the reduction of medical claims payable resulting from progress in paying backlogged claims and payment of advances to providers as described below. Included in cash outflows were payments for income taxes of approximately $66.4 million. Premiums receivable at September 30, 1997 decreased to $354.1 million from $421.8 at June 30, 1997 due to the accounts receivable write-offs and reserve adjustments previously discussed. Refundable income taxes at September 30, 1997 aggregated approximately $83.2 million primarily as the result of payments of $66.4 million during the first nine months of 1997. Such payments were made prior to the recognition of the third quarter loss previously discussed. In addition, the Company is entitled to a tax benefit of approximately $28.2 million for stock option exercises through September 30, 1997. The Company's medical costs payable, which includes reserves for incurred but not reported claims, was $567.8 million as of September 30, 1997, $532.3 million as of June 30, 1997, $657.8 million as of March 31, 1997, $624.4 million as of December 31, 1996 and $525.9 million as of September 30, 1996. The relative increase in medical costs payable during the last three months of 1996 and the first three months of 1997 resulted primarily from delays in claims payments caused by the computer system conversion referred to above. Delays in claims payments continued during the first quarter of 1997, but the increase in medical costs payable was mitigated by progress in paying backlogged claims and advance payments to providers which aggregated approximately $89 million as of March 31, 1997. During the second and third quarters of 1997, the Company made significant progress in paying current and backlogged claims and continued to make claims advances to providers. Such advances aggregated approximately $271 million at June 30, 1997 and $247 million at September 30, 1997. Such advance payments have been applied against medical costs payable in the accompanying balance sheet. The Company believes that it will be able to recover outstanding advance payments, but any failure to recover funds advanced would adversely affect earnings. The Company estimates the amount of its reserves using standard actuarial methodologies based upon historical data, including the average interval between the 10 11 date services are rendered and the date claims are paid, expected medical cost inflation, seasonality patterns and increases in membership. The Company believes that its reserves are adequate in order to satisfy its ultimate claim liability. However, the Company's rapid growth, delays in paying claims and changing speed of payment affect the Company's ability to rely on historical information in making reserve estimates. As previously reported, the New York State Insurance Department is currently examining the Company's New York HMO and insurance subsidiaries. The Insurance Department has raised various issues, including concerns relating to reserves for medical costs payable and premiums earned. The Company is currently unable to predict the outcome of the Insurance Department's examination. As also previously reported, KPMG Peat Marwick LLP is auditing the Company's New York HMO and insurance subsidiaries' financial statements as of September 30, 1997. Such audit, which is expected to be completed by December 3, 1997, may result in adjustments to the unaudited condensed consolidated financial statements included in this report. As discussed above, the Company expects that future results will be affected by higher expenses in its Medicare and Medicaid businesses. As also discussed above, information gained as the Company continues to reconcile delayed claims and pay down backlogged claims may result in future changes to the Company's estimate of its medical costs and expected cost trends. These and other factors could adversely affect future results of operations or financial condition. Cautionary Statement Regarding Forward-Looking Statements Certain statements in this report, such as statements concerning the Company's future results of operations or financial condition, future health care costs and administrative costs, future premium rates and medical-loss ratio levels for commercial, Medicare and Medicaid business, operations matters, and the effect of government regulation, and other statements regarding matters that are not historical facts, are forward-looking statements (as defined in the Securities Exchange Act of 1934, as amended); and because such statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to: 1. Changes in federal or state regulation relating to health care and health benefit plans. 2. Rising medical costs or higher utilization of medical services, including higher out-of-network utilization under point-of-service plans. 3. Competition from health benefit plan providers and competitive pressure on pricing Oxford products. 4. High administrative costs in operating the Company's business, the Company's ability to develop processes and systems to support its growing operations and the cost and impact on service of changing technologies. 5. The effect, if any, of the recent events described in this report (including any adverse publicity) on future enrollment in the Company's health benefit plans. 6. Any changes in the Company's estimates of its medical costs and expected cost trends as a result of information gained in the process of continuing to reconcile delayed claims and to pay down backlogged claims. 7. The impact of litigation (including purported class actions recently filed against the Company and certain officers and directors), regulatory proceedings and other governmental action (including the current examination, investigation and review by the New York State Insurance Department and the recent inquiry by the New York State Attorney General). 8. Those factors included in the Company's 1996 Annual Report on Form 10-K under the caption "Business--Cautionary Statement Regarding Forward-Looking Statements," incorporated herein by reference. 11 12 Part II - Other Information Item 5. Other Information The following information is incorporated herein by reference: the information contained in "Item 5. Other Events" of the Company's Current Report on Form 8-K dated July 31, 1997; the information contained in "Item 5. Other Events" of the Company's Current Report on Form 8-K dated October 30, 1997; the information contained in the first paragraph of "Item 5. Other Events" of the Company's Current Report on Form 8-K dated November 4, 1997, and in Exhibit 99(b) to such report; and the information contained or incorporated by reference in "Item 5. Other Events" of the Company's Current Report on Form 8-K dated November 6, 1997. The Cautionary Statement Regarding Forward-Looking Statements in Item 2 of this report is incorporated herein by reference. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description of Document 11 Computation of Net Earnings Per Share of Common Stock 99(a) Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996 (Commission File No. 0-19442), incorporated herein by reference 99(b) Current Report on Form 8-K, dated July 31, 1997 (Commission File No. 0-19442), incorporated herein by reference 99(c) Current Report on Form 8-K, dated October 30, 1997 (Commission File No. 0-19442), incorporated herein by reference 99(d) Current Report on Form 8-K, dated November 4, 1997 (Commission File No. 0-19442), incorporated herein by reference 99(e) Current Report on Form 8-K, dated November 6, 1997 (Commission File No. 0-19442), incorporated herein by reference (b) Reports on Form 8-K In a report on Form 8-K dated July 31, 1997, and filed July 31, 1997, the Company reported, under Item 5. "Other Events," the details of an agreement with the New York State Attorney General concerning the payment of interest on unpaid claims. In a report on Form 8-K dated August 5, 1997, and filed August 5, 1997, the Company reported, under Item 5. "Other Events," its second quarter 1997 earnings press release. 12 13 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. OXFORD HEALTH PLANS, INC. -------------------------------------- (Registrant) November 13, 1997 /s/ WILLIAM M. SULLIVAN - --------------------------------- -------------------------------------- Date William M. Sullivan President and Chief Executive Officer November 13, 1997 /s/ ANDREW B. CASSIDY - --------------------------------- ------------------------------------ Date Andrew B. Cassidy Executive Vice President and Chief Financial Officer 13 14 OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES Index to Exhibits
Exhibit Page Number Description of Document Number - ------ ----------------------- ------ 11 Computation of Net Earnings Per Share of Common Stock 15 99(a) Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1996 (Commission File No. 0-19442), incorporated herein by reference 99(b) Current Report on Form 8-K, dated July 31, 1997 (Commission File No. 0-19442), incorporated herein by reference 99(c) Current Report on Form 8-K, dated October 30, 1997 (Commission File No. 0-19442), incorporated herein by reference 99(d) Current Report on Form 8-K, dated November 4, 1997 (Commission File No. 0-19442), incorporated herein by reference 99(e) Current Report on Form 8-K, dated November 6, 1997 (Commission File No. 0-19442), incorporated herein by reference
14 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 OXFORD HEALTH PLANS, INC. AND SUBSIDIARIES COMPUTATION OF NET EARNINGS PER SHARE OF COMMON STOCK (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Nine Months Ended September 30 Ended September 30 1997 1996 1997 1996 ---- ---- ---- ---- PRIMARY: Net earnings (loss) $(78,157) 26,650 (6,603) 67,625 - ------------------------------------------------------------------------------------------------------------- Weighted average number of shares of common stock and common stock equivalents: Weighted average number of shares outstanding 79,059 75,890 78,363 73,404 Dilutive effect of stock options - 4,990 - 5,685 - ------------------------------------------------------------------------------------------------------------- Weighted average number of common stock and common stock equivalents 79,059 80,880 78,363 79,089 - ------------------------------------------------------------------------------------------------------------- Earnings per common and common equivalent share $ (.99) .33 (0.08) .86 ============================================================================================================= FULLY DILUTED: Net earnings (loss) $(78,157) 26,650 (6,603) 67,625 - ------------------------------------------------------------------------------------------------------------- Weighted average number of shares of common stock and common stock equivalents: Weighted average number of shares outstanding 79,059 75,890 78,363 73,404 Dilutive effect of stock options - 5,472 - 6,055 - ------------------------------------------------------------------------------------------------------------- Weighted average number of common stock and common stock equivalents 79,059 81,362 78,363 79,459 - ------------------------------------------------------------------------------------------------------------- Earnings per common and common equivalent share $ (.99) .33 (0.08) .85 =============================================================================================================
15 EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Consolidated Balance Sheet at September 30, 1997 (Unaudited) and the Consolidated Statement of Earnings for the Nine Months Ending September 30, 1997 (Unaudited) and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 7,072 652,684 354,091 0 0 1,148,536 231,130 110,652 1,347,124 701,532 0 0 0 793 644,799 1,347,124 3,069,901 3,113,253 0 2,630,083 0 0 0 (10,317) (3,714) (6,603) 0 0 0 (6,603) (0.08) (0.08)
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