-----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, IhY5YbKXsTHjx5Gkw/JycUNHkbQJB2fv71D+MRKr7JScszpSbY40bOS7BWl5uo2E 6YG5rdGWq3WZZFzUzywJ+A== 0000950130-96-001749.txt : 19960620 0000950130-96-001749.hdr.sgml : 19960620 ACCESSION NUMBER: 0000950130-96-001749 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHYSICIANS HEALTH SERVICES INC CENTRAL INDEX KEY: 0000867098 STANDARD INDUSTRIAL CLASSIFICATION: 8000 IRS NUMBER: 061116976 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21098 FILM NUMBER: 96565584 BUSINESS ADDRESS: STREET 1: 120 HAWLEY LANE STREET 2: 1243 BROADRICK DRIVE CITY: TRUMBULL STATE: CT ZIP: 06611 BUSINESS PHONE: 2033816400 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE - - --- ACT OF 1934 For the quarterly period ended March 31, 1996. ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-21098. Physicians Health Services, Inc. (Exact name of registrant as specified in charter) Delaware 06-1116976 (State or other jurisdiction of (IRS employer incorporation or organization) identification number) 120 Hawley Lane 06611 Trumbull, Connecticut (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (203) 381-6400 Not applicable ____________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by a 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 ____ --- There were 5,457,033 shares of Class A Common Stock ($0.01 par value) and 3,846,443 shares of Class B Common Stock ($0.01 par value) outstanding as of May 7, 1996. ================================================================================ PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES TABLE OF CONTENTS PAGE NO. -------- PART I. FINANCIAL INFORMATION --------------------- Item 1. Financial Statements Condensed Consolidated Balance Sheets at March 31, 1996 and December 31, 1995 3 Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 1996 and 1995 4 Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 1996 and 1995 5 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1996 and 1995 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-9 PART II. OTHER INFORMATION ----------------- Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 2 PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31, 1996 1995 (Unaudited) --------- --------- ASSETS: Current Assets Cash and Cash Equivalents $ 3,742 $ 7,536 Investments, at fair value: Fixed Maturities - (amortized cost--1996--$78,310 and 1995--$101,181) 78,720 102,130 Equity Securities - (amortized cost--1996--$1,417 and 1995--$1,417) 1,345 1,355 Accounts Receivable Less Allowances (1996--$1,882 and 1995--$1,050) 37,781 31,548 Other Receivables 18,077 14,815 Advances to Participating Hospitals 3,136 5,903 Prepaid Expenses and Other 1,268 204 -------- -------- Total Current Assets 144,069 163,491 Property, Plant, and Equipment Land 3,322 3,322 Building and Improvements 14,933 14,645 Furniture and Equipment 33,449 29,817 -------- -------- 51,704 47,784 Less Accumulated Depreciation and Amortization 11,855 11,028 -------- -------- Total Property, Plant, and Equipment 39,849 36,756 Other Assets 12,046 10,821 -------- -------- TOTAL ASSETS $195,964 $211,068 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities Accrued Health Care Expenses $ 26,430 $ 23,878 Unearned Premiums 26,787 25,022 Amounts Due to IPA's, Physicians and other Providers 23,453 37,806 Accounts Payable and Accrued Expenses 8,239 14,199 -------- -------- Total Current Liabilities 84,909 100,905 Excess of Net Assets Over Cost of Company Acquired 1,252 1,282 Stockholders' Equity Class A Common Stock, Par Value $0.01 per Share--Authorized 54 53 13,000,000 Shares, Issued and Outstanding; 1996--5,434,503 shares; 1995--5,310,347 shares Class B Common Stock, Par Value $0.01 per Share; 40 41 non-transferable--authorized and issued 1996--3,948,958 shares; 1995--4,052,974 shares; voting rights - 10 per share Additional Paid-In Capital 41,138 40,760 Unrealized Appreciation of Investments, Net of Tax 188 510 Retained Earnings 68,384 67,518 -------- -------- 109,804 108,882 Less Cost of Class B Common Stock (86,400) Shares in Treasury 1 1 -------- -------- Total Stockholders' Equity 109,803 108,881 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $195,964 $211,068 ======== ========
See Notes to Condensed Consolidated Financial Statements 3 PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (Unaudited)
THREE MONTHS ENDED MARCH 31, ------------------ 1996 1995 --------- ------- REVENUES Premiums $111,820 $79,566 Investment and Other Income 1,666 1,847 -------- ------- 113,486 81,413 COSTS AND EXPENSES Hospital Services 39,655 25,982 Physicians and Related Health Care Services 40,938 31,755 Other Health Care Services 10,719 4,740 Indemnity Costs 2,633 - Selling, General and Administrative Expenses 18,321 13,079 Proxy Defense Costs - 450 -------- ------- 112,266 76,006 -------- ------- Income before Income Taxes 1,220 5,407 Income Tax Expense 354 2,263 -------- ------- NET INCOME $ 866 $ 3,144 ======== ======= Net Income Per Common Share $ 0.09 $ 0.33 ======== ======= Weighted Average Number of Common Shares Outstanding 9,536 9,396 ======== =======
See Notes to Condensed Consolidated Financial Statements 4 PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS) (Unaudited)
THREE MONTHS ENDED --------------------- MARCH 31, MARCH 31, 1996 1995 ---------- --------- CLASS A COMMON STOCK Balance at Beginning of Period $ 53 $ 49 Conversion of Class B Common Stock into Class A Common Stock 1 1 -------- ------- Balance at End of Period $ 54 $ 50 ======== ======= CLASS B COMMON STOCK Balance at Beginning of Period $ 41 $ 45 Conversion of Class B Common Stock into Class A Common Stock (1) (1) -------- ------- Balance at End of Period $ 40 $ 44 ======== ======= ADDITIONAL PAID IN CAPITAL Balance at Beginning of Period $ 40,760 $40,514 Exercise of Stock Options 378 5 -------- ------- Balance at End of Period $ 41,138 $40,519 ======== ======= UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENTS, NET OF TAX Balance at Beginning of Period $ 510 (949) Unrealized Appreciation (Depreciation) (322) 871 -------- ------- Balance at End of Period $ 188 $ (78) ======== ======= RETAINED EARNINGS Balance at Beginning of Period $ 67,518 $51,548 Net Income 866 3,144 -------- ------- Balance at End of Period $ 68,384 $54,692 ======== ======= TREASURY STOCK -------- ------- Balance at Beginning and End of Period $ (1) $ (1) ======== ======= TOTAL STOCKHOLDERS' EQUITY Balance at Beginning of Period $108,881 $91,206 Exercise of Stock Options 378 5 Net Income 866 3,144 Unrealized Appreciation (Depreciation) of Investments (322) 871 -------- ------- Balance at End of Period $109,803 $95,226 ======== =======
See Notes to Condensed Consolidated Financial Statements 5 PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (IN THOUSANDS) (Unaudited)
THREE MONTHS ENDED --------------------- MARCH 31, MARCH 31, 1996 1995 --------- --------- OPERATING ACTIVITIES Net Income $ 866 $ 3,144 Adjustments to Reconcile Net Income to Net Cash Provided by (Used by) Operating Activities: Depreciation and Amortization 827 902 Provision for Doubtful Accounts 832 59 Amortization of Excess of Net Assets over Cost of Company Acquired (30) (30) Deferred income tax expense (319) 204 Changes in Assets and Liabilities: Accounts Receivable - Trade (7,065) (336) Other Receivables (3,262) (682) Advances to Participating Hospitals 2,767 (174) Prepaid Expenses and Other (1,064) 1,120 Accrued Health Care Expenses 2,552 1,772 Unearned Premiums 1,765 69 Due to IPA's, Physicians and Other Providers (14,353) (17,803) Accounts Payable and Accrued Expenses (5,400) (4,924) --------- --------- Net Cash Used by Operating Activities (21,884) (16,679) INVESTING ACTIVITIES Purchases of Property, Plant, and Equipment (3,926) (2,665) Proceeds from Disposal of Equipment 6 44 Increase in Other Assets (1,225) (396) Purchases of Investments (140,990) (115,843) Proceeds from Sales and Maturities of Investments 163,847 113,325 --------- --------- Net Cash Provided by (Used) by Investing Activities 17,712 (5,535) FINANCING ACTIVITIES Exercise of Stock Options 378 5 --------- --------- Net Cash Provided by Financing Activities 378 5 --------- --------- Decrease in cash and cash equivalents (3,794) (22,209) Cash and cash equivalents at beginning of period 7,536 28,467 --------- --------- Cash and cash equivalents at end of period $ 3,742 $ 6,258 ========= =========
See Notes to Condensed Consolidated Financial Statements 6 PHYSICIANS HEALTH SERVICES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1996 (UNAUDITED) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ended December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Physicians Health Services, Inc. and Subsidiaries' annual report on Form 10-K for the year ended December 31, 1995. 2. Stockholders' Equity and Per Share Data Pursuant to the Company's Certificate of Incorporation, upon conversion of Class B shares to Class A Shares, such Class B shares are canceled and cannot be reissued. Per share data are based upon the weighted average number of common and common equivalent shares outstanding during the period. 3. Tax Provision The effective tax rate for the quarter ended March 31, 1996 declined to 29.0% from 41.9% for the same 1995 period. The decrease in the effective tax rate is due to a shift of much of the Company's investment portfolio into tax exempt municipal bonds and due to pretax income being generated by investment income at the lower tax rate. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS --------------------- QUARTER ENDED MARCH 31, 1996 VERSUS MARCH 31, 1995 Premium revenue increased 40.5% to $111.8 million in the first quarter of 1996 from $79.6 million for the comparable 1995 quarter. Enrollment at March 31, 1996 was 320,660, an increase of 62.6% from enrollment of 197,253 at March 31, 1995. Overall premium revenues increased at a lower rate than the growth in enrollment due to competitive conditions which depressed pricing flexibility and due to a shift in product mix to lower revenue yielding and lower margin products such as the gatekeeper products, Healthcare Solutions products and Medicaid. Also, enrollee statistics include 100% of the enrollees in the New York Healthcare Solutions products, while premium revenue includes the Company's 50% share of revenues derived from the New York arrangement which was effective July 1, 1995. The Company expects that the growth in premium revenue may continue to lag the growth in enrollment to the extent the current competitive conditions and demand for lower margin products continue. Investment and other income decreased 9.8% to $1.7 million for the first quarter of 1996 from $1.8 million for the quarter ending March 31, 1995. The decrease is due to a decline in invested assets and lower investment yields due to lower interest rates. Health care expenses as a percentage of premium revenues (medical loss ratio) increased to 85.3% for the first quarter of 1996 as compared to 79.7% for the first quarter of 1995. Total health care expenses increased 50.4% to $93.9 million in the first quarter of 1996 from $62.4 million for the comparable 1995 quarter. As a result of the competitive market conditions and demand for the Company's lower margin products referred to above, the Company expects that the medical loss ratios will continue to be higher than those reported for the respective year earlier periods. Hospital services expenses increased 52.6% to $39.6 million from $26.0 million for the first quarter of 1995. Inpatient hospital utilization for fully- insured enrollees, excluding Medicare cost contract enrollees, decreased 6.5% to 288 days per thousand members for the quarter ended March 31, 1996 from 308 days per thousand members for the comparable 1995 period. Physician and related health care expenses increased by 28.9% from $31.8 million for the first quarter of 1995 to $40.9 million for the first quarter of 1996. The increase is reflective of the increase in membership, offset in part by more favorable utilization and improved capitation arrangements. Other health care expenses increased by $6.0 million in the first quarter of 1996 as compared to the first quarter of 1995. The increase is primarily due to higher prescription drug costs resulting from a shift in membership to drug riders that offer greater benefits and due to an increase in utilization, particularly in government programs. Additionally, for the first quarter of 1996, other health care expenses includes the Healthcare Solutions profit sharing expense which resulted from the Guardian joint marketing arrangement in Connecticut which began in the second quarter of 1995. 8 QUARTER ENDED MARCH 31, 1996 VERSUS MARCH 31, 1995 (CONT.) Indemnity costs reflect the medical costs associated with the indemnity revenue assumed in connection with the Guardian reinsurance arrangement in New York which was effective July 1, 1995. Selling, general and administrative expenses increased by 35.4% or $4.8 million in the first quarter of 1996 from the first quarter of 1995. The increase is due primarily to continuing resource commitments needed to support the geographic expansion and the enrollment growth and diversity. The selling, general and administrative expenses as a percentage of revenue improved to 16.4% for the first quarter of 1996 as compared to 17.0% for the comparable 1995 period. The Company's effective tax rate for the first quarter of 1996 declined to 29.0% from 41.9% for the quarter ending March 31, 1995. The decline in the effective tax rate is due to the shift of much of the Company's investment portfolio into tax exempt municipal bonds and due to pretax income being generated by investment income at the lower tax rate. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Cash and cash equivalents decreased $3.8 million at March 31, 1996 from December 31, 1995. For the quarter ended March 31, 1996, $21.9 million was used by operating activities, primarily to fund the payment of risk retention to IPAs, physicians and other providers and to fund the payment of accrued liabilities. Additionally, trade and other receivables increased in the first quarter of 1996, due in part to the arrangements with Guardian whereby the cash balances relating to the arrangements are held and invested by Guardian. During the first quarter of 1996, approximately $17.7 million of net cash was provided by investing activities, primarily from the sales and maturities of investments which was used to fund the risk retention payments. Stockholder's equity increased to $109.8 million during the first three months of 1996 from $108.9 million at December 31, 1995 due to net income for the period augmented by approximately $400 thousand from the exercise of stock options. These amounts were partially offset by approximately $300 thousand decline in the unrealized appreciation in the investment portfolio. The Company expects to spend additional capital, principally in computer and technology system enhancements over the next several years. Additionally, in February of 1996, the Company committed to purchase an additional building to meet the expanding space requirements necessitated by its growth. The purchase price of the building is $18,500,000 and closing is expected to take place by June 1996. The Company believes that in addition to its current capital resources and internally generated funds, it will be able to obtain financing, if necessary, sufficient for its continued operations, the funding of geographical and product expansions, system enhancements and its additional space requirements. 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K ----------------------------------------- (a) No new exhibits. (b) Reports on Form 8-K A current report on Form 8-K was filed on May 2, 1996 reporting in Item 5: Other Events, the signing of a Marketing and Services Agreement with The Guardian Life Insurance Company of America, extending the joint marketing arrangement to New Jersey. No financial statements were filed. 10 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. PHYSICIANS HEALTH SERVICES, INC. -------------------------------- (Registrant) Date: May 15, 1996 /s/ James L. Elrod, Jr. --------------------- ------------------------------ James L. Elrod, Jr. Chief Financial Officer Date May 15, 1996 /s/ Michael E. Herbert ---------------------- ------------------------------ Michael E. Herbert President 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 3,742 80,065 37,781 1,882 0 144,069 39,849 11,855 195,964 84,909 0 94 0 0 109,709 195,964 111,820 113,486 0 93,945 18,321 0 0 1,220 354 866 0 0 0 866 .09 .09
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