<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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: 0-27276
------------------
MEDPARTNERS/MULLIKIN, INC
(Exact name of Registrant as specified in it charter)
Delaware 63-1151076
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3000 Galleria Tower, Suite 1000
Birmingham, Alabama 35244
(Address of Principal executive offices)
(205)733-8996
(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 ____
As of May 10, 1996, 50,792,415 shares of the Registrant's Common Stock
par value $.001 per share, were outstanding.
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MEDPARTNERS/MULLIKIN, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
Caption>
DECEMBER 31, MARCH 31,
1995 1996
------------ -----------
(AUDITED) (UNAUDITED)
ASSETS (IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................... $ 55,328 $157,744
Marketable securities............................................................... 35,567 -
Accounts receivable, less allowances for bad debts of $29,777,000 and $33,849,000... 135,176 153,896
Inventories......................................................................... 9,779 10,328
Income tax receivable............................................................... 977 7,905
Prepaid expenses and other current assets........................................... 19,214 19,393
-------- --------
Total current assets........................................................... 256,041 349,266
Property and equipment, net........................................................... 155,376 160,485
Intangible assets, net................................................................ 111,971 123,749
Deferred tax asset.................................................................... 35,002 38,307
Other assets.......................................................................... 18,343 19,726
-------- --------
Total assets.................................................................... $576,733 $691,533
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $32,158 $26,012
Payable to physician groups......................................................... 31,810 49,439
Accrued compensation................................................................ 15,949 20,142
Accrued medical claims payable...................................................... 43,433 41,220
Other accrued expenses and liabilities.............................................. 31,650 30,712
Current portion of long-term liabilities............................................ 9,149 8,109
-------- --------
Total current liabilities....................................................... 164,149 175,634
Long-term debt, net of current portion................................................ 200,814 105,880
Other long-term liabilities........................................................... 9,053 12,150
Stockholders' equity:
Common stock, $.001 par value; 200,000,000 shares authorized; issued--
42,508,000 in 1995 and 50,604,000 in 1996........................................ 42 51
Additional paid-in capital.......................................................... 214,422 430,396
Notes receivable from stockholders.................................................. (1,930) (1,866)
Unrealized loss on marketable equity securities, net of deferred taxes............. (7) (26)
Unamortized deferred compensation................................................... (2,682) -
Accumulated deficit................................................................. (7,128) (30,686)
-------- --------
Total stockholders' equity...................................................... 202,717 397,869
-------- --------
Total liabilities and stockholders' equity...................................... $576,733 $691,533
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
MEDPARTNERS/MULLIKIN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------
1995 1996
-------- --------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net revenue................................................... $259,750 $332,549
Operating expenses:
Cost of affiliated physician services....................... 114,272 141,970
Clinic salaries, wages and benefits......................... 50,570 56,533
Outside hospitalization expense............................. 22,193 35,667
Clinic rent and lease expense............................... 9,717 11,813
Clinic supplies............................................. 10,983 15,168
Other clinic costs.......................................... 20,711 27,856
General corporate expenses.................................. 15,703 19,013
Depreciation and amortization............................... 6,605 8,161
Net interest expense........................................ 1,885 3,355
Merger expenses............................................. - 34,448
-------- --------
Net operating expenses.................................. 252,639 353,984
-------- --------
Income (loss) before income taxes............................. 7,111 (21,435)
Income tax expense (benefit).................................. 2,176 (5,935)
-------- --------
Net income (loss)............................................. $4,935 $(15,500)
======== ========
Pro forma net income (loss) per share........................ $ 0.12 $ (0.34)
======== ========
Number of shares used in pro forma net income (loss) per share 39,916 45,927
</TABLE>
See accompanying notes to consolidated financial statements.
3
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MEDPARTNERS/MULLIKIN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1995 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Operating activities:
Pro forma net income (loss)............................................. $ 4,935 $(15,500)
Adjustments to reconcile pro forma net income (loss) to net cash and cash
provided by (used in) operating activities:
Depreciation and amortization......................................... 6,605 8,161
Provision for deferred taxes.......................................... 227 (3,023)
Merger expenses....................................................... - 34,448
Other................................................................. 317 -
Changes in operating assets and liabilities, net of effects of
acquisitions.......................................................... (5,537) (44,085)
-------- --------
Net cash and cash equivalents provided by (used in) operating
activities........................................................ 6,547 (19,999)
Investing activities:
Net cash used to fund acquisitions...................................... (16,927) (12,312)
Additions of intangible assets, net of effects of acquisitions.......... (1,218) (1,464)
Purchase of property and equipment...................................... (6,986) (8,421)
Proceeds from sale of property and equipment............................ 201 -
Net proceeds (purchases) of marketable securities....................... (6,207) 27,482
Other................................................................... (919) 5
-------- --------
Net cash and cash equivalents provided by (used in) investing
activities........................................................ (32,056) 5,290
Financing activities:
Capital contributions................................................... 60,682 212,014
Capital distributions................................................... (5,252) -
Net proceeds from debt.................................................. 26,623 -
Repayment of debt....................................................... (39,667) (95,758)
Other................................................................... - 64
-------- --------
Net cash and cash equivalents provided by financing activities...... 42,386 116,320
-------- --------
Net increase in cash and cash equivalents............................... 16,877 101,611
Cash and cash equivalents at beginning of period........................ 66,623 56,133
-------- --------
Cash and cash equivalents at end of period.............................. $ 83,500 $157,744
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for:
Interest............................................................ $ 5,616 $ 2,765
======== ========
Income taxes........................................................ $ 1,882 $ 291
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries and have been prepared in accordance with
generally accepted accounting principles for interim financial reporting and in
accordance with Rule 10-01 of Regulation S-X. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. As a result of the merger with
Pacific Physician Services, Inc. (PPSI) in February 1996, certain
reclassifications have been made to the financial statements.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of normal recurring
items) necessary for a fair presentation of results for the interim periods
presented. The results of operations for any interim period are not
necessarily indicative of results for the full year. These financial
statements and footnote disclosures should be read in conjunction with the
December 31, 1995 audited consolidated financial statements and the notes
thereto.
Restatement of Financial Statements
During the first quarter of 1996 the Company combined with PPSI in a
business combination that was accounted for as a pooling of interests.
Accordingly, the financial statements for all periods prior to February 22,
1996, the effective date of the merger, have been restated to include the
results of PPSI.
Fiscal Year
At January 1, 1996 PPSI changed its fiscal year-end from July 31 to
December 31. Amounts consolidated for PPSI prior to January 1, 1996 were based
on an October 31 year-end. As a result, the consolidated financial statements
for the three months ending March 31, 1995 include the three months ending
January 31, 1995 for PPSI.
Pro Forma Net Income (Loss) Per Share
Pro forma net income (loss) per share is computed by dividing net income
(loss) by the number of common and common equivalent shares outstanding during
the periods in accordance with the applicable rules of the Securities and
Exchange Commission. All stock options issued have been considered as
outstanding common stock equivalents for all periods presented, even if
anti-dilutive, under the treasury stock method. Shares of common stock issuable
upon conversion of the Series A and Series B Convertible Preferred Stock of
MedPartners in February 1995 are assumed to be common share equivalents for all
periods presented.
5
<PAGE> 6
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. BASIS OF PRESENTATION - (CONTINUED)
Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (ABP 25) and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options.
Under APB 25, because the exercise price of the Company's employee stock option
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
2. CAPITALIZATION
The Company's Restated Certificate of Incorporation provides that the
Company may issue 9,500,000 shares of Preferred Stock, par value $0.001 per
share, 500,000 shares of Series C Junior Participating Preferred Stock, par
value $0.001 per share, and 200,000,000 shares of Common Stock, par value
$0.001 per share. As of December 31, 1995 and March 31, 1996 no shares of the
preferred stock were outstanding.
On March 13, 1996, the Company completed a secondary public offering of
6,632,800 shares of its Common Stock. The net proceeds of the offering were
$194 million. Proceeds of the offering were used to pay all outstanding
indebtedness under the bank credit facility of $70 million. In April 1996,
$69 million of the proceeds were used to pay-off the Company's convertible
subordinated debentures. The remainder of the net proceeds will be used to
fund acquisitions of certain assets of physician practices, expansion of
physician services, working capital and other general corporate purposes.
During 1996 the number of shares covered under the 1995 Stock Option Plan
(the Plan) were increased on two occasions. At a special meeting of the
stockholders on February 22, 1996, the Plan was increased by 1,325,000 shares
and on April 25, 1996 at the Annual Meeting of Stockholders it was increased by
1,200,000 shares. As of April 25, 1996 a maximum of 7,099,150 shares of Common
Stock were covered by the Plan.
3. ACQUISITIONS
Effective February 22, 1996, PPSI merged with the Company in a transaction
that was accounted for as a pooling of interests. Accordingly, the Company's
historical statements for all periods prior to the effective date of the merger
have been restated to include the results of PPSI. The Company exchanged
10,983,346 shares of its common stock in exchange for all of the outstanding
common stock of PPSI.
PPSI's revenues for three months ended March 31, 1996 and 1995 were
$107,146,000 and $94,970,000, respectively. PPSI's net income for the
corresponding periods, excluding non-recurring merger charges, was $3,996,000
and $3,137,000, respectively.
Prior to its merger with the Company, PPSI reported on a fiscal year
ending on July 31. The restated financial statements for all periods prior to
and including December 31, 1995 are based on a combination of the Company's
results for its December 31 fiscal year and an October 31 fiscal year for PPSI.
Beginning January 1, 1996, PPSI adopted a December 31 fiscal year end;
accordingly, all consolidated financial
6
<PAGE> 7
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. ACQUISITIONS - (CONTINUED)
statements for periods after December 31, 1995 are based on a consolidation of
all of the Company's subsidiaries on a December 31 year end. PPSI's historical
results of operations for the two months ending December 31, 1995 are not
included in the Company's consolidated statements of operations or cash flows.
An adjustment has been made to stockholders' equity as of January 1, 1996 to
adjust for the effect of excluding PPSI's results of operations for the two
months ending December 31, 1995. The following is a summary of operations and
cash flows for the two months ending December 31, 1995 (in thousands):
<TABLE>
<S> <C>
Statement of Operations Data:
Net revenue............................................................... $69,850
Operating expenses:
Cost of affiliated physician services..................................... 32,600
Clinic salaries, wages and benefits....................................... 13,142
Outside hospitalization expenses.......................................... 14,861
Clinic rent and lease expense............................................. 1,963
Clinic supplies........................................................... 3,556
Other clinic costs........................................................ 7,373
General corporate expenses................................................ 5,235
Depreciation and amortization............................................. 2,371
Net interest expense...................................................... 426
Loss on disposal of assets................................................ 41
-------
Net operating expenses.................................................. 81,568
Income before taxes....................................................... (11,718)
Income tax benefit........................................................ (3,661)
-------
Net loss.................................................................. $(8,057)
Statement of Cash Flow Data:
Net cash used by operating activities..................................... $(3,569)
Net cash provided by investing activities................................. 4,455
Net cash used in financing activities..................................... (81)
-------
Net increase in cash and cash equivalents................................. $ 805
=======
</TABLE>
During the three months ended March 31, 1996, the Company, through its
wholly-owned subsidiaries, acquired certain operating assets of various medical
practices. Simultaneously with each medical practice acquisition, the Company
entered into practice management agreements which generally have 20 to 40 year
terms. Pursuant to the practice management agreements, the Company manages all
aspects of the affiliated practice other than the provision of medical
services, which is controlled by the physician groups. Generally, the practice
management agreements cannot be terminated by the physician group or Company
without cause, which includes material default or bankruptcy. Upon termination
for cause or expiration of the clinic services agreement, the physician group
has the option to purchase some or all of the assets owned by the Company,
generally at current book values.
7
<PAGE> 8
MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. ACQUISITIONS - (CONTINUED)
The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase price has been allocated to the net
assets based on the estimated fair values at the date of acquisition. The
estimated fair value of assets acquired during the three months ended March 31,
1996 are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Accounts receivable, net............................. $ 6,748
Property and equipment............................... 2,923
Liabilities assumed.................................. (13,946)
Excess of costs over fair value of assets acquired... 16,587
-------
Cash purchase price, net of cash received............ $12,312
=======
</TABLE>
5. CONTINGENCIES
In addition to the general liability and malpractice insurance carried by
the individual physicians, the Company is insured with respect to general
liability and medical malpractice risks on a claims made basis. Management is
not aware of any claims against the Company which might have a material impact
on the Company's consolidated financial position.
Employed physicians are also covered by a general liability and
malpractice insurance policy. The Company has not accrued a loss for reported
or unreported incidents, as the amount, if any, cannot be reasonably estimated
and the probability of an adverse outcome cannot be determined at this time. It
is the opinion of management that the ultimate resolution of any asserted or
unasserted claims will not have a material adverse effect on the financial
position or operating results of the Company.
PPSI, through its wholly-owned captive insurance company, Pacific
Indemnity, Ltd., has provided for an estimate of the cost of the incurred but
not reported claims and deductible amounts for the employed physicians
servicing emergency departments. At July 31, 1995, Pacific Indemnity, Ltd.
purchased insurance to cover all claims for incidents occurring through July
31, 1995 ("tail coverage") for all employee physicians of the affiliated
medical organizations. Team Health has an agreement with its insurance carrier
to purchase insurance associated with claims incurred and not yet reported.
Management believes that the recorded accruals for such losses and deductibles
related to malpractice claims for the hospital-based contracting physicians and
the hospital are sufficient to cover incidents occurring prior to March 31,
1996.
PPSI is self-insured for employee and dependent health insurance costs and
certain workers' compensation costs. Reinsurance of defined excess cost has
been purchased from an outside insurance company. Management believes that
amounts accrued are sufficient to cover claims and costs incurred through March
31, 1996.
8
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MEDPARTNERS/MULLIKIN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. SUBSEQUENT EVENTS
On March 11, 1996, the Company agreed to acquire CHS Management, Inc., a
health care management service organization that provides management services
to an IPA of 325 primary care and specialist physicians and a medical group of
43 primary care physicians. The consideration for this transaction is expected
to be approximately $47 million of the Company's Common Stock. The transaction
is expected to be accounted for as a pooling of interests and is expected to
close prior to June 30, 1996.
On May 14, 1996, the Company agreed to merge with Caremark International,
Inc., a leading provider of healthcare services in the United States and
overseas. Caremark, through its large, multi-specialty group practices, is
affiliated with 1,604 physicians and provides care to more than one million
people, 663,000 of whom are in prepaid health plans. Caremark also provides
pharmaceutical services, disease management, and international services. The
consideration for this transaction is expected to be approximately $2.5 billion
of the Company's Common Stock. The transaction is expected to be accounted for
as a pooling of interests and is expected to close prior to September 30, 1996.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and notes thereto included elsewhere in this
document.
GENERAL
MedPartners/Mullikin is the result of the business combination between
MedPartners and MME, which was consummated on November 29, 1995. The financial
information referred to in this discussion reflects the combined operations of
several entities. In February of 1996, MedPartners/Mullikin combined with
Pacific Physician Services, Inc. ("PPSI") in a business combination that was
accounted for as a pooling of interests.
The Company acquires existing medical practices and enters into long-term
contractual relationships pursuant to practice management agreements, for
periods ranging from 20 to 44 years, to provide management and administrative
services. The practice management agreements convey to the Company perpetual
and unilateral control over the assets and operations of the various affiliated
professional corporations. Notwithstanding the lack of technical majority
ownership of the stock of such entities, consolidation of the professional
corporation is necessary to present fairly the financial position and results
of operations of the Company. Control by the Company is perpetual rather than
temporary because of (i) the length of the original term of the agreements,
(ii) the continuing investment of capital by the Company, (iii) the employment
of the majority of the non-physician personnel, and (iv) the nature of the
services provided to the professional corporations by the Company. The
Company's financial relationship with each practice offers the physicians
access to capital, management expertise, sophisticated information systems, and
managed care contracts. The Company's revenue is derived from medical services
provided by physicians under the practice management agreements, which has been
assigned to the Company. Approximately 48.5% of this revenue is derived
through contracts with HMO's. The Company contracts directly with the HMOs to
provide medical services to HMO enrollees who have chosen the Company's
affiliated physicians, or, in some cases, physicians who are members of the
Mullikin Independent Physician Association ("MIPA"). The Company's
profitability depends on enhancing operating efficiency, expanding health care
services provided, increasing market share and assisting affiliated physicians
in managing the delivery of medical care.
10
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RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996 AND 1995
The following table sets forth the breakdown of net revenue for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1995 1996
------ ------
<S> <C> <C>
Prepaid health care..................................... 53.3% 48.5%
Fee-for-service......................................... 45.4 50.8
Other................................................... 1.3 0.7
------------------
Net Revenue............................................. 100.0% 100.0%
==================
</TABLE>
Enrollment
The Company's prepaid health care revenue is reflective of the number of
HMO enrollees for whom it receives monthly capitation payments. Enrollment is
categorized as either "commercial enrollment" (enrollees generally under the
age of 65 whose health coverage is sponsored by employers) or "senior
enrollment" (enrollees over the age of 65 who are retired and whose coverage is
sponsored by Medicare). The Company receives professional capitation to
provide physician services and institutional capitation to provide hospital
care and other non-professional services. The table below sets forth the
changes in enrollment for professional and institutional capitation. Most of
the enrollment growth is related to acquisitions and increased enrollment in
the northern California operations.
<TABLE>
<CAPTION>
COMMERCIAL SENIOR TOTAL
ENROLLEES ENROLLEES OTHER ENROLLEES
----------------------------------------------
<S> <C> <C> <C> <C>
PROFESSIONAL CAPITATION:
March 31, 1996 586,822 61,177 39,375 687,374
March 31, 1995 505,731 47,017 45,077 597,825
INSTITUTIONAL CAPITATION:
March 31, 1996 316,117 35,512 12,930 364,559
March 31, 1995 230,340 20,304 3,061 253,705
</TABLE>
Three Months Ended March 31, 1996 and 1995
For the three months ended March 31, 1996, net revenue was $333 million,
compared to $260 million for the same period in 1995. The increase in net
revenue resulted from the affiliation with new physician practices, existing
clinic growth and the increase in prepaid enrollees.
Excluding non-recurring items related to the PPSI merger, operating
expenses, at the clinic level were $289 million, or 86.8% of net revenue for
the quarter ended March 31, 1996 compared to $228 million or 87.7% of net
revenue for the same period in 1995. Clinic salaries, wages and benefits
decreased as a percentage of net revenue from the three months ended March 31,
1995 to the three months ended March 31, 1996 as certain operational
efficiencies were implemented and the IPA business, which requires a low support
staff ratio, continued to grow. Outside hospitalization expense increased from
$22 million for the three months ended March 31, 1995 to $36 million for the
three months ended March 31, 1996, and also increased as a percentage of net
revenue from 8.5% for the three months ended March 31, 1995 to 10.8% for the
three months ended March 31, 1996. This is directly related to the increase of
the Company's global capitation from 29.8% to 34.7% of the total capitation for
the three months ended March 31, 1995 compared to the same period of 1996.
General corporate expenses increased from $16 million during the first quarter
of 1995 to $19 million during the first quarter of 1996. As a percent of net
revenue, general corporate expenses decreased from 6.2% in the first quarter
of 1995 to 5.7% in the first quarter of 1996.
11
<PAGE> 12
Included in pre-tax loss for the three months ended March 31, 1996 were
merger expenses totaling $34.4 million relating to the business combination
with PPSI. The major components of the $34.4 million included: $13.8 million
for restructuring of operations, $6.6 million in brokerage fees, $5.9 million
in severance costs, $2.6 million in professional fees, $2.4 million for the
impairment of assets and $1.9 million in unamortized bond issue costs.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had working capital of $174 million,
including cash and cash equivalents of $158 million. For the first three
months of 1996, cash flow from operations, excluding cash paid for merger
costs, was ($2.2) million compared to $6.5 million for the same period of 1995.
The negative cash flow from operations for the first three months of 1996 was
created by the build-up of accounts receivable relative to the growth of the
existing practices.
For the three months ended March 31, 1996, the Company invested $12.3
million in acquisitions of the assets of physician practices, $8.4 million in
equipment for the physician practices and the corporate office and $1.4 million
in intangible assets related to corporate name/trademarks and other intangible
assets. For the three months ended March 31, 1995, the Company's investing
activities totaled $32.1 million, which was primarily composed of $16.9 million
related to practice acquisitions, $6.9 million related to the purchase of
property and equipment and $6.2 million related to the purchase of marketable
securities. These expenditures were funded from approximately $60.7 million
from equity proceeds.
On March 13, 1996, the Company sold 6.6 million shares of Common Stock at
$30.25 per share. The Company raised net proceeds of $194 million, $70 million
of which was applied to reduce the indebtedness under the Company's Revolving
Credit and Reimbursement Agreement (the Bank Credit Facility). In April 1996
$69 million of the proceeds were used to pay-off the Company's convertible
subordinated debentures.
On November 29, 1995, the Company entered into the Bank Credit Facility
with a syndicate of banks which provides a revolving credit facility of up to
$150 million. Advances under the Bank Credit Facility bear interest at the
London Interbank Offered Rate (LIBOR) plus 2.0%. The Bank Credit Facility has
an expiration date of May 10, 1998 and is renewable for two additional one-year
periods. In conjunction with the Bank Credit Facility, the Company granted the
banks a first priority security interest in all shares of stock of its
subsidiaries and provided a negative pledge on substantially all assets.
The Bank Credit Facility contains affirmative and negative covenants
which, among other things, require the Company to maintain certain financial
ratios (including maintain net worth, minimum fixed charge overage ratio,
maximum indebtedness to cash flow), limit the amount of additional
indebtedness, and set certain restrictions on investments, mergers and sales of
assets. Additionally, the Company is required to obtain bank consent for
acquisitions with an aggregate purchase price in excess of $15 million. As of
March 31, 1996, the Company was in compliance with the covenants in the Bank
Credit Facility.
12
<PAGE> 13
The Company intends to acquire the assets of additional physician
practices and to fund this growth with existing cash and cash equivalents and
borrowings under the Bank Credit Facility. The Company believes that its
existing cash resources, the use of the Company's Common Stock for selected
practice and other acquisitions, and available borrowings under the Bank Credit
Facility, will be sufficient to meet the Company's anticipated acquisition,
expansion and working capital needs for the foreseeable future. The Company
may raise additional capital through the issuance of long-term or short-term
indebtedness or the issuance of additional equity securities in private or
public transactions, at such times and terms as management deems appropriate
and the market allows.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 22, 1996, a Special Meeting of the Stockholders of the Company
was held, at which the following actions were taken:
1. The shares of Common Stock represented at the Special
Meeting were voted for the Plan and Agreement of Merger and
Reorganization, dated December 11, 1995 among the Company, PPS
Merger Corporation and Pacific Physician Services, Inc. as follows:
<TABLE>
<CAPTION>
Number Broker
Voting For Against Abstentions Non-Votes
---------- ---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
26,289,601 23,117,494 7,944 24,401 3,139,762
</TABLE>
2. The shares of Common Stock represented at the Special
Meeting were voted to adopt the Amendment to the 1995 Stock
Option Plan to increase the number of shares of the Company's
Common Stock covered under the plan by 1,325,000 as follows:
<TABLE>
<CAPTION>
Number
Voting For Against Abstentions
---------- ---------- ------- -----------
<S> <C> <C> <C>
26,289,601 23,045,917 3,209,638 34,046
</TABLE>
On April 25, 1966, the Annual Meeting of the Stockholders of the Company
was held, at which the following actions were taken:
1. The shares of Common Stock represented at the Annual Meeting
were voted to elect Scott F. Meadow as a director of the Company
as follows:
<TABLE>
<CAPTION>
Number
Voting For Withheld
---------- ---------- --------
<S> <C> <C>
41,403,453 41,287,647 115,806
</TABLE>
2. The shares of Common Stock represented at the Annual Meeting
wer voted to elect Larry D. Striplin as a director of the Company as
follows:
<TABLE>
<CAPTION>
Number
Voting For Withheld
---------- ---------- --------
<S> <C> <C>
41,403,453 41,287,409 116,044
</TABLE>
3. The shares of Common Stock represented at the Annual Meeting
were voted to elect Walter T. Mullikin as a director of the Company
as follows:
<TABLE>
<CAPTION>
Number
Voting For Withheld
---------- ---------- --------
<S> <C> <C>
41,403,453 41,287,399 116,054
</TABLE>
4. The shares of Common Stock represented at the Annual
Meeting were voted to increase the authorized Common Stock of
the Company to 200,000,000 shares as follows:
<TABLE>
<CAPTION>
Number Broker
Voting For Against Abstentions Non-Votes
---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
41,403,453 33,751,562 7,582,660 68,607 624
</TABLE>
5. The shares of Common Stock represented at the Annual Meeting
were voted to adopt the Amendment to the 1995 Stock Option Plan
to increase the number of shares of the Company's Common Stock
covered under the plan by 1,200,000 as follows:
<TABLE>
<CAPTION> Number Broker
Voting For Against Abstentions Non-Votes
---------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
41,403,453 33,425,903 7,685,872 117,659 174,019
</TABLE>
The remaining directors whose terms continued after the meeting were Larry
R. House, Richard M. Scrushy, Charles W. Newhall III, Ted H. McCourtney, Jr.,
John S. McDonald, Rosalio J. Lopez and Richard J. Kramer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits filed as a part of the Quarterly Report are listed in
Item 6(c) of this Quarterly Report on Form 10-Q, which is hereby incorporated
herein by reference.
(b) Reports on Form 8-K
1. Current Report on Form 8-K filed February 23, 1996 reporting the
acquisition of Pacific Physician Services, Inc.
(c) Exhibits
The exhibits required by Regulation S-K are set forth in the following
list.
(11) - Statement re: Computation of Per Share Earnings (Unaudited)
(27) - Financial Data Schedule (for SEC use only)
(99) - Press Release, dated as of May 14, 1996, announcing proposed
acquisition of Caremark International Incorporated.
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.
MedPartners/Mullikin, Inc.
By: /s/ Harold O. Knight, Jr.
-----------------------------------------------------------------------------
Harold O. Knight, Jr. Executive Vice President and Chief Financial Officer
Date: May 15, 1996
By: /s/ Larry R. House
-----------------------------------------------------------------------------
Larry R. House Chairman, President and Chief Executive Officer
Date: May 15, 1996
14
<PAGE> 1
EXHIBIT 11 - (UNAUDITED)
MEDPARTNERS/MULLIKIN, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
AND PRO FORMA NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
-------- -------
<S> <C> <C>
Net income (loss) $(15,500) $ 4,935
======== =======
PRIMARY
Weighted average common shares outstanding 44,861 31,482
Weighted average redeemable convertible preferred stock - 2,334
Net common shares issuable on exercise of certain stock options (1)(2) 1,387
-------- -------
Average common and common equivalent shares outstanding 44,861 35,203
======== =======
Per share amounts $ (0.35) $ 0.14
======== =======
FULLY DILUTED
Weighted average common shares outstanding 44,861 31,482
Weighted average redeemable convertible preferred stock - 2,334
Net common shares issuable on exercise of certain stock options (1)(2) 1,433
-------- -------
Average common and common equivalent shares outstanding 44,861 35,249
======== =======
Per share amounts $ (0.35) $ 0.14
======== =======
PRO FORMA (3)
Weighted average common shares outstanding 44,861 31,482
Weighted average redeemable convertible preferred stock - 7,001
Net common shares issuable on exercise of certain stock options 1,066 1,433
-------- -------
Average pro forma common and common equivalent shares
outstanding 45,927 39,916
======== =======
Per share amounts $ (0.34) $ 0.12
======== =======
</TABLE>
(1) Net common shares issuable on exercise of certain stock options is
calculated based on the treasury stock method using the average market
price for the primary calculation and the ending market price, if higher
than average, for the fully diluted calculation.
(2) Common shares issuable on exercise of certain stock options were not
included in the calculation of average common and common equivalent shares
outstanding for the three months ended March 31, 1996 since the effect of
inclusion would be antidilutive.
(3) Pro forma net loss per share is computed by dividing net income (loss) by
the number of common and common equivalent shares outstanding during the
periods in accordance with the applicable rules of the Securities and
Exchange Commission. All stock options and warrants issued have been
considered as outstanding common stock equivalents for all periods
presented, even if anti-dilutive, under the treasury stock method. Shares
of common stock issued upon conversion of the redeemable convertible
preferred stock were assumed to be common stock equivalents for all
periods presented.
15
<PAGE> 1
EXHIBIT 99
MEDPARTNERS
MULLIKIN
Phonw: (205) 733-8996 NEWS RELEASE Fax (205) 733-4154
_____________________________________________________________________________
For Immediate Release
MEDPARTNERS/MULLIKIN AND CAREMARK MERGER TO CREATE $4.4 BILLION REVENUE
PHYSICIAN PRACTICE MANAGEMENT COMPANY
BIRMINGHAM, AL AND NORTHBROOK, IL - MAY 14, 1996--MedPartners/Mullikin, Inc.
(NYSE: MDM) and Caremark International Inc. (NYSE: CK) the nation's two largest
physician practice management (PPM) companies, today announced that they have
agreed to merge in a transaction valued at $2.5 billion. The combined
enterprise has annualized first quarter revenues of $4.4 billion and
approximately 7,250 affiliated physicians providing care to patients
nationwide, including almost 1.5 million prepaid enrollees. Combined with
Caremark's prescription benefit management (PBM) and disease management
businesses, the new enterprise will offer HMOs and other payors comprehensive
healthcare solutions.
Under the terms of the agreement, which has been approved by the Boards of
Directors of both companies, each Caremark share will be converted into
MedPartners/Mullikin common stock at a fixed ratio of 1.21 shares of
MedPartners/Mullikin per Caremark share. The agreement contains no provisions
for termination based on fluctuations in either company's stock price. The
merger is expected to close in the third quarter 1996, and is subject to
regulatory and shareholder approval. The transaction, which will be tax-free
to shareholders and accounted for as a pooling of interests, is expected to be
accretive to MedPartners/Mullikin's earnings per share in 1996 and 1997.
The combined enterprise, which will be known as MedPartners, Inc., will be led
by Larry R. House, who will be Chairman, President and Chief Executive Officer.
C.A. Lance Piccolo, Caremark's Chairman and Chief Executive Officer, will join
the Board of Directors and serve as Vice Chairman. The new Board will be
comprised of the nine MedPartners/Mullikin directors, Mr. Piccolo and three
additional Caremark directors.
Mr. House said, "This merger further enhances our leadership role in the
provision of physician directed and patient-centered healthcare nationwide.
We have now formed the premier physician practice management company in the
country, with unparalleled depth and breadth of management and expertise in
fee-for-service as well as prepaid markets nationwide. As a combined company,
we have outstanding internal and external growth opportunities which will have
an immediate positive financial impact for our shareholders."
Mr. Piccolo added, "The merger is a preemptive strategic move to build an
organization that is ideally positioned to deliver quality patient care that
is affordable. Our mutual commitment to physician-led, patient-centered care
is enhanced by the depth of clinical data collected over more than a decade in
our PBM and disease management businesses. Combined, we will be better able to
provide physicians with the support they need to provide medical care and to
shape the future of healthcare in the United States and around the world."
Caremark is a leading provider of healthcare services in the United States and
overseas. Its affiliated physician organizations are large, multi-specialty
group practices located in six major metropolitan markets. These networks,
which are affiliated with 1,604 physicians, provide care to more than one
million people, 663,000 of whom are in prepaid health plans. In addition to
its PPM business, the Northbrook, Illinois company helps care
<PAGE> 2
for millions of people through its pharmaceutical services, disease management
and international services, using clinical expertise and advanced technology to
improve patient care and manage healthcare costs. Caremark was recently named
one of America's most admired healthcare companies by Fortune Magazine.
Caremark had 1995 revenues of $2.4 billion from continuing operations.
MedPartners/Mullikin is a leading physician practice management company that
develops, consolidates and manages integrated healthcare delivery systems.
Through the company's network of affiliated group and IPA physicians,
MedPartners/Mullikin provides primary and specialty healthcare services to
prepaid managed care enrollees and fee-for-service patients. The company
operates in 23 states and is affiliated with 5,645 physicians including 1,457
in group practices, 3,731 through IPA relationships and 457 hospital-based
physicians. MedPartners/Mullikin physicians provide prepaid healthcare to
over 800,000 enrollees through 45 HMO relationships.
When the merger is complete, the combined healthcare operations will be managed
as one organization, with a management team drawn from both companies. "On a
combined basis, MedPartners will have a management team unmatched by any other
company in the industry today. We will integrate the PPM organizations and
continiue to rely on Caremark's divisional management to run the PBM, the
disease management and the international businesses. Together, we will
collectively possess the knowledge, skill and expertise to successfully grow
the business going forward," said Mr. House. "We have had enormous success in
integrating the operations of Mullikin and Pacific Physician Services and in
recognizing the synergies of complementary service markets. The addition of
Caremark will add great value to all of our existing payor, hospital and
provider relationships."
The new company expects to realize significant financial benefits from
synergies, including enhanced revenues through additional prepaid enrollees and
new opportunities between the PPM, PBM and disease management businesses, plus
reductions in operating expenses. "We expect to be able to deliver substantial
growth in earnings per share in 1997 and beyond as we take full advantage of
the potential synergies," said Mr. House.
Smith Barney Inc. and CS First Boston acted as financial advisors to
MedPartners/Mullikin and Caremark, respectively.
SELECTED PRO FORMA STATISTICA DATA
<TABLE>
<CAPTION>
MedPartners/ Caremark Combined
Mullikin (1)
------------------------------------------
<S> <C> <C> <C>
Revenues (2) $1,330 MM $3,056 MM $4,386 MM
Physicians:
Group 1,457 979 2,436
IPA 3,731 625 4,356
Hospital-Based 457 -- 457
Total 5,645 1,604 7,249
PPM States 23 6 25
PPM Prepaid Membership 800,000 663,000 1,463,000
PBM 1995 Members -- 15 MM 15 MM
PBM 1995 Prescriptions -- 41 MM 41 MM
(1) Includes pending CHS acquisition.
(2) 3/31/96 annualized
</TABLE>
EDITOR'S NOTE: FOR ADDITIONAL INFORMATION ON MEDPARTNERS/MULLIKIN AND
CAREMARK, CALL (212) 696-4455 EXT. 329 TO RECEIVE FACILITY MAPS AND COMPANY
FACT SHEETS VIA FACSIMILE. THIS INFORMATION, AS WELL AS MANAAGEMENT PHOTOS, IS
ALSO AVAILABLE ON THE WORLD WIDE WEB AT: http://www.noonanrusso.com
CONTACTS:
Noonan/Russo Communications, Inc.
(212) 696-4455
Investors: Susan Noonan (ext. 203)
Media: Mari Hope (ext. 210) or Michele Helm (ext. 225)
MedPartners/Mullikin, Inc.
Birmingham: (205) 733-8996
Investors: Randy Pittman or Pete Clemens
Media: Pam Huff
Los Angeles: (310) 497-4076
Mark Wagar
Caremark International Inc.
Investors: Tamra Sweeney (847) 559-4635 or Lisa Henige (847) 559-4696
Media: Sally Benjamin Young (847) 559-4892
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 157,744
<SECURITIES> 0
<RECEIVABLES> 153,896
<ALLOWANCES> 0
<INVENTORY> 10,328
<CURRENT-ASSETS> 349,266
<PP&E> 160,485
<DEPRECIATION> 0
<TOTAL-ASSETS> 691,533
<CURRENT-LIABILITIES> 175,634
<BONDS> 105,880
0
0
<COMMON> 51
<OTHER-SE> 397,818
<TOTAL-LIABILITY-AND-EQUITY> 691,533
<SALES> 0
<TOTAL-REVENUES> 332,549
<CGS> 0
<TOTAL-COSTS> 289,007
<OTHER-EXPENSES> 61,622
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,355
<INCOME-PRETAX> (21,435)
<INCOME-TAX> (5,935)
<INCOME-CONTINUING> (15,500)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,500)
<EPS-PRIMARY> (0.35)
<EPS-DILUTED> (0.35)
</TABLE>
