<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
________________
FORM 8-K/A
AMENDMENT NO. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): June 17, 1994
FHP INTERNATIONAL CORPORATION
(Exact Name of Registrant as Specified in Charter)
Delaware 0-14796 33-0072502
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
9900 Talbert Avenue, Fountain Valley, California 92708
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (714) 963-7233
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 7(b) of the Registrant's Current Report on Form 8-K, event date June 17,
1994 is amended to read in its entirety as follows:
<PAGE>
Item 7(b). Pro Forma Financial Information.
Pro forma financial information that would be required
pursuant to Article 11 of Regulation S-X.
<PAGE>
FHP INTERNATIONAL CORPORATION AND SUBSIDIARIES
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1994 (Unaudited)
Assets
Pro Forma
Acquisition
Adjustments
FHP TakeCare Increase
(Amounts in thousands) Historical Historical (Decrease)
__________ __________ __________
Cash and cash equivalents $194,884 $91,896 ($100,000)
Short-term investments 172,733 69,864
Accounts receivable 70,761 30,579
Other current assets 42,878 36,383
________ ________ ________
Total current assets 481,256 228,722 (100,000)
Property and equipment, net 368,657 16,720
Excess purchase price over
net assets acquired 3,992 236,773 778,412
less accumulated amortization (286) (13,726) 13,726
________ _________ ________
Excess purchase price over
net assets acquired, net 3,706 223,047 792,138
Long-term investments 78,629 49,159
Restricted investments 75,418
Other assets, net 30,829 2,458 (858)
________ ________ ________
Total assets $1,038,495 $520,106 $691,280
========== ======== ========
Liabilities and Stockholders' Equity
Current portion of long-term
obligations $150 $15,000 $35,000
Accounts payable 35,411 49,736
Medical claims payable 170,968 129,378
Accrued salaries and
employee benefits 79,030 6,501
Deferred premiums 146,017 18,623
Income taxes payable and
other current liabilities 16,839 5,617 10,500
________ ________ ________
Total current liabilities 448,415 224,855 45,500
Long-term obligations 103,025 22,500 239,590
Other liabilities 81,958 7,517
________ ________ ________
Total liabilities 633,398 254,872 285,090
________ ________ ________
Stockholders' equity:
Series A Cumulative Convertible
Preferred Stock 516,480
Common Stock 1,658 1,291 (981)
Paid-in capital 224,722 157,084 (2,450)
Retained earnings 178,717 106,859 (106,859)
________ ________ _________
Total stockholders'
equity 405,097 265,234 406,190
________ ________ ________
Total liabilities and
stockholders' equity $1,038,495 $520,106 $691,280
========== ======== ========
Assets (cont'd)
Pro Forma
Note Condensed
(Amounts in thousands) Reference Consolidated
_________ ____________
Cash and cash equivalents 2 $186,780
Short-term investments 242,597
Accounts receivable 101,340
Other current assets 79,261
__________
Total current assets 609,978
Property and equipment, net 385,377
Excess purchase price over
net assets acquired 1,019,177
less accumulated amortization (286)
__________
Excess purchase price over
net assets acquired, net 3 1,018,891
__________
Long-term investments 127,788
Restricted investments 75,418
Other assets, net 11 32,429
__________
Total assets $2,249,881
==========
Liabilities and Stockholders' Equity (cont'd)
Current portion of long-term
obligations 4 $50,150
Accounts payable 85,147
Medical claims payable 300,346
Accrued salaries and
employee benefits 85,531
Deferred premiums 164,640
Income taxes payable and
other current liabilities 11 32,956
__________
Total current liabilities 718,770
__________
Long-term obligations 4 365,115
Other liabilities 89,475
__________
Total liabilities 1,173,360
__________
Stockholders' equity:
Series A Cumulative Convertible
Preferred Stock 5 516,480
Common Stock 5 1,968
Paid-in capital 5 379,356
Retained earnings 5 178,717
__________
Total stockholders'
equity 1,076,521
__________
Total liabilities and
stockholders' equity $2,249,881
==========
See accompanying notes to historical and pro forma unaudited condensed
consolidated financial statements.
<PAGE>
FHP INTERNATIONAL CORPORATION AND SUBSIDIARIES
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended March 31, 1994 (Unaudited)
Comprecare
Historical Pro Forma
(Amounts in Two Months Ended Adjustments
thousands, FHP TakeCare August 31, Increase Note
except earnings Historical Historical 1993 (Decrease) Reference
per share) __________ __________ __________ __________ _________
Revenue $1,789,947 $817,649 $47,971 $ -
Expenses:
Cost of
health care 1,498,337 661,420 36,745
General, admin-
istrative and
marketing 240,086 101,730 5,084 (830) 6
__________ __________ _______ ________
Total expenses 1,738,423 763,150 41,829 (830)
__________ __________ _______ ________
Operating income 51,524 54,499 6,142 830
Interest income 14,552 4,846 202
Interest expense 3,879 2,065 259 (241) 8
__________ __________ _______ ________
Income before
provision for
income taxes 62,197 57,280 6,085 1,071
Provision for
income taxes 23,885 24,781 2,215 118 10
__________ __________ _______ ________
Net income 38,312 32,499 3,870 953
Preferred Stock
dividend
__________ __________ _______ ________
Net income
attributable
to Common Stock $38,312 $32,499 $3,870 $953
========== ========== ======= ========
Earnings
per share
attributable to
Common Stock $1.14 $2.52
========== ==========
Weighted average
shares of Common
Stock and common
stock equivalents
outstanding 33,659 12,891
========== ==========
<PAGE>
FHP INTERNATIONAL CORPORATION AND SUBSIDIARIES
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended March 31, 1994 (Unaudited) (continued)
Pro Forma
(Amounts in Pro Forma Adjustments Pro Forma
thousands, TakeCare Increase Note Condensed
except earnings Consolidated (Decrease) Reference Consolidated
per share) ____________ ___________ _________ ____________
Revenue $865,620 $ - $2,655,567
Expenses:
Cost of
health care 698,165 2,196,502
General, admin-
istrative and
marketing 105,984 13,797 6 359,867
________ __________ __________
Total expenses 804,149 13,797 2,556,369
________ __________ __________
Operating income 61,471 (13,797) 99,198
Interest income 5,048 (3,338) 7 16,262
Interest expense 2,083 10,206 8 16,168
________ __________ __________
Income before
provision for
income taxes 64,436 (27,341) 99,292
Provision for
income taxes 27,114 (2,346) 10 48,653
________ __________ ___________
Net income 37,322 (24,995) 50,639
Preferred Stock
dividend 19,368 9 19,368
________ _________ __________
Net income
attributable
to Common Stock $37,322 ($44,363) $31,271
======== ========= ==========
Earnings
per share
attributable to
Common Stock ($6.88) 9 $0.78
========= ==========
Weighted average
shares of Common
Stock and common
stock equivalents
outstanding 6,446 9 40,105
========= ==========
See accompanying notes to historical and pro forma unaudited condensed
consolidated financial statements.
<PAGE>
FHP INTERNATIONAL CORPORATION AND SUBSIDIARIES
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended June 30, 1993 (Unaudited)
Pro Forma
(Amounts in Adjustments
thousands, FHP TakeCare Comprecare Increase Note
except earnings Historical Historical Historical (Decrease) Reference
per share) __________ __________ __________ __________ _________
Revenue $2,005,854 $789,654 $254,547 $ -
Expenses:
Cost of
health care 1,681,144 644,237 215,219 (2,612) 11
General, admin-
istrative and
marketing 269,645 92,869 30,859 (5,330) 6
__________ __________ _______ ________
Total expenses 1,950,789 737,106 246,078 (7,942)
__________ __________ _______ ________
Operating income 55,065 52,548 8,469 7,942
Interest income 14,919 5,399 819
Interest expense 211 3,939 1,407 (1,309) 8
__________ __________ _______ ________
Income before
provision for
income taxes 69,773 54,008 7,881 9,251
Provision for
income taxes 25,607 23,207 2,808 1,921 10
__________ __________ _______ ________
Net income 44,166 30,801 5,073 7,330
Preferred Stock
dividend
__________ __________ _______ ________
Net income
attributable
to Common Stock $44,166 $30,801 $5,073 $7,330
========== ========== ======= ========
Earnings
per share
attributable to
Common Stock $1.33 $2.80
========== ==========
Weighted average
shares of Common
Stock and common
stock equivalents
outstanding 33,270 10,982
========== ==========
<PAGE>
FHP INTERNATIONAL CORPORATION AND SUBSIDIARIES
HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
Year Ended June 30, 1993 (Unaudited) (continued)
Pro Forma
(Amounts in Pro Forma Adjustments Pro Forma
thousands, TakeCare Increase Note Condensed
except earnings Consolidated (Decrease) Reference Consolidated
per share) ____________ ___________ _________ ____________
Revenue $1,044,201 $ - $3,050,055
Expenses:
Cost of
health care 856,844 2,537,988
General, admin-
istrative and
marketing 118,398 20,985 6 409,028
________ __________ __________
Total expenses 975,242 20,985 2,947,016
________ __________ __________
Operating income 68,959 (20,985) 103,039
Interest income 6,218 (4,670) 7 16,467
Interest expense 4,037 12,422 8 16,670
________ __________ __________
Income before
provision for
income taxes 71,140 (38,077) 102,836
Provision for
income taxes 27,936 (3,153) 10 50,390
________ __________ __________
Net income 43,204 (34,924) 52,446
Preferred Stock
dividend 25,824 9 25,824
________ _________ __________
Net income
attributable
to Common Stock $43,204 ($60,748) $26,622
======== ========= ==========
Earnings
per share
attributable to
Common Stock ($9.42) 9 $0.67
========= ==========
Weighted average
shares of Common
Stock and common
stock equivalents
outstanding 6,446 9 39,716
========= ==========
See accompanying notes to historical and pro forma unaudited condensed
consolidated financial statements.
<PAGE>
FHP INTERNATIONAL CORPORATION
NOTES TO HISTORICAL AND PRO FORMA UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
1. General
The historical and pro forma unaudited condensed consolidated
balance sheet of FHP International Corporation ("FHP" or "the
Company") reflects the Merger as though it occurred on March 31, 1994.
The historical and pro forma unaudited condensed consolidated
statements of income of the Company reflect the Merger and the
September 1993 acquisition of Comprecare, Inc. by TakeCare, Inc.
("TakeCare") as though both transactions occurred on July 1, 1992.
The Merger will be accounted for as a purchase transaction.
No effect has been given in the historical and pro forma
unaudited condensed consolidated statements of income for operating
and synergistic benefits that may be realized through the combination
of the entities, including any increased enrollment of Medicare
eligible persons in geographic areas principally served by TakeCare
(Northern California, Colorado, Illinois, and Ohio). Certain minor
reclassifications have been made to the TakeCare historical financial
statements to conform them to FHP's presentation.
TakeCare has agreed with FHP that if the expenses of TakeCare
incurred in connection with the Merger, including financial advisory
fees, accounting, legal and consulting fees, and costs in connection
with any litigation relating to the Merger, exceed $3 million, such
excess (the "Excess Expenses") will reduce pro rata the amount of cash
or shares of Series B Adjustable Rate Cumulative Preferred Stock to be
issued in the Merger upon conversion of each share of TakeCare Common
Stock. For purposes of these pro forma financial statements, the
Excess Expenses are assumed to be $8.0 million, resulting in a
reduction of the cash consideration to $27.38 from $28.00 or of the
Series B Preferred Stock from 1.12 shares to approximately 1.10 shares
for each share of TakeCare Common Stock.
Under the terms of the Merger Agreement, each outstanding share
of TakeCare common stock (estimated to be 12,912 shares for purposes
of these historical and pro forma unaudited condensed consolidated
financial statements (pro forma financial statements)) will be
converted into the right to receive, without interest, the following
consideration (valued at an aggregate of $80.00 per share less the
estimated impact of the Excess Expenses of approximately $0.62 per
share for purposes of these pro forma financial statements):
(1) 1.6 shares of Series A Cumulative Convertible Preferred
Stock (Series A Preferred Stock); plus
(2) 1.12 shares of Series B Adjustable Rate Cumulative Preferred
Stock (Series B Preferred Stock), or at the specific election of the
holder, cash of $28.00 per share of TakeCare Common Stock; plus
(3) .48 of a share of FHP Common Stock, as provided in the
Merger Agreement since FHP's stock traded at less than an average of
$25 per share for 20 consecutive trading days ending on the third
trading day prior to the effective date of the Merger.
Holders of Series A Preferred Stock with stated value of $25 will
be entitled to receive cumulative cash dividends of 5.0% per annum.
Dividends will be payable quarterly in arrears when and if declared by
FHP's Board of Directors. On or after the fourth anniversary of the
Merger, FHP may, at its option, redeem all or part of the outstanding
shares of Series A Preferred Stock, at fixed redemption prices per
share plus an amount equal to any accrued and unpaid dividends. Each
share of Series A Preferred Stock will be convertible at the option of
the holder into FHP Common Stock at any time commencing six months
after the Closing. The conversion price for the Series A Preferred
Stock is $31.00 per share.
Holders of Series B Preferred Stock with stated value of $25 will
be entitled to receive cumulative cash dividends of not less than 5.0%
per annum or greater than 11.0% per annum. The actual dividend rate
will be determined quarterly based upon prevailing market rates as
provided in the Merger Agreement. Dividends will be payable quarterly
in arrears when and if declared by FHP's Board of Directors.
Beginning nine months after June 17, 1994, FHP may, at its option,
redeem all or part of the outstanding shares of Series B Preferred
Stock, at $25.00 per share plus an amount equal to accrued and unpaid
dividends.
2. Cash and Cash Equivalents
Pro forma adjustments to cash and cash equivalents consist of the
following:
Proceeds of long-term borrowings
(net of financing costs of $1,600) $310,490
Cash consideration paid in the Merger (353,531)
Repayment of TakeCare long-term
obligations, including current portion (37,500)
Payment of estimated costs of the Merger (11,459)
Payment of Excess Expenses of
TakeCare (see Note 1) (8,000)
_________
($100,000)
=========
The pro forma financial statements assume that the holders of
TakeCare Common Stock will elect to receive cash of $27.38 per share
as Merger Consideration in lieu of the Series B Preferred Stock. (See
Note 9 for summary pro forma financial information assuming holders of
TakeCare Common Stock elect to receive approximately 1.10 shares of
Series B Preferred Stock as Merger Consideration.)
The TakeCare long-term obligations are being retired immediately
after the Closing as required by TakeCare's existing debt agreement
upon a change in control of TakeCare.
3. Excess of Purchase Price Over Net Assets Acquired
Pro forma adjustments to the excess of purchase price over net
assets acquired consist of the following:
Resulting from the Merger $1,015,185
Elimination of previously recorded excess
of purchase price over net assets acquired
of TakeCare (net of accumulated amortization
of $13,726) (223,047)
___________
$792,138
===========
Management has not completed an allocation of the purchase price
of TakeCare to the assets and liabilities that will be acquired.
However, management believes that the amounts reflected on TakeCare's
historical consolidated balance sheet as tangible assets and
liabilities approximate the fair market values of such assets and
liabilities and accordingly, such assets have not been adjusted in the
accompanying pro forma financial statements.
4. Long-term Obligations
Pro forma adjustments to long-term obligations consist of the
following:
Current Long-Term
Portion Portion Total
_______ _________ ________
Borrowings to finance the Merger $50,000 $262,090 $312,090
Repayment of TakeCare long-term
obligations (15,000) (22,500) (37,500)
________ _________ _________
$35,000 $239,590 $274,590
======== ========= =========
5. Stockholders' Equity
Pro forma adjustments to Series A Preferred Stock, FHP Common
Stock, paid-in capital and retained earnings consist of the following:
Total
Series A Common Paid-in Retained Stockholders'
Preferred Stock Stock Capital Earnings Equity
_______________ _____ _______ ________ ___________
Series A
Preferred Stock
issued $516,480 $ - $ - $ - $516,480
Common Stock issued 310 154,634 154,944
Elimination of
equity accounts of
TakeCare (1,291) (157,084) (106,859) (265,234)
_________ _______ ________ _________ ________
$516,480 ($981) ($2,450) ($106,859) $406,190
========= ======= ========= ========== =========
<PAGE>
6. General, Administrative and Marketing
Pro forma adjustments to general, administrative and marketing
expense, principally amortization, consist of the following:
TakeCare Consolidated
TakeCare Consolidated Pro Forma Pro Forma
Pro Forma Pro Forma Nine Nine
Year Year Months Months
Ended Ended Ended Ended
June 30, June 30, March 31, March 31,
1993 1993 1994 1994
_________ ____________ _________ ____________
Amortization of
excess purchase
price over net
assets acquired
resulting from the
Merger $ - $25,380 $ - $19,035
Elimination of
amortization of
excess of purchase
price over
net assets
acquired
previously
recorded by
TakeCare (4,395) (5,238)
Elimination of
amortization of
excess purchase
price over
net assets
acquired of
Comprecare (5,330) (830)
__________ _________ _________ __________
($5,330) $20,985 ($830) $13,797
========== ========= ========= ==========
The excess purchase price over net assets acquired resulting from the
Merger will be amortized on a straight-line basis over 40 years.
7. Interest Income
Pro forma adjustments to interest income consist of the following:
Pro Forma Consolidated
___________________________
Nine Months
Year Ended Ended
June 30, 1993 March 31, 1994
_____________ _______________
Elimination of interest income
(computed based on historical
rates of return on investment
of cash) used to finance a
portion of the purchase price
(4.67% for the year ended
June 30, 1993 and 4.45% for the
nine months ended March 31, 1994) $4,670 $3,338
============== ===============
8. Interest Expense
Pro forma adjustments to interest expense consist of the
following:
Pro Forma Pro Forma
Pro Forma Pro Forma TakeCare Consolidated
TakeCare Consolidated Nine Nine
Year Year Months Months
Ended Ended Ended Ended
June 30, June 30, March 31, March 31,
1993 1993 1994 1994
_________ ____________ _________ ____________
Interest expense on
long-term obliga-
tions to finance
the Merger $ - $16,041 $ - $12,031
Elimination of
interest expense
on retired long-
term obligations
of TakeCare (3,463) (1,866)
Amortization of
debt financing
costs resulting
from the long-
term borrowings
to finance the
Merger 320 240
Elimination of
deferred debt
financing costs of
TakeCare (476) (199)
Elimination of
interest expense on
long-term obliga-
tions retired as a
result of TakeCare's
acquisition of
Comprecare (1,309) (241)
____________ __________ ___________ _________
($1,309) $12,422 ($241) $10,206
============ ========== =========== =========
The interest rate on the long-term obligations incurred to
finance the Merger is a floating rate based on the principal lender's
prime rate in the London Interbank market plus 0.6% which, based upon
current rates, would be approximately 5.1%. Each 1/4% increase in
such floating rate would decrease annual pro forma consolidated net
income by $398 and pro forma consolidated earnings per share
attributable to Common Stock by $0.01 per annum.
9. Earnings Per Share
Earnings per share is based on the weighted average shares of
outstanding Common Stock and common stock equivalents during the
respective periods. The pro forma financial statements assume the
holders of TakeCare common stock will elect to receive cash in lieu of
Series B Preferred Stock issued as of the effective date. The
inclusion of additional common shares assuming the conversion of the
Series A Preferred Stock would have been antidilutive for the year
ended June 30, 1993 and the nine months ended March 31, 1994 for both
the primary and fully diluted pro forma earnings per share
computations. Accounting rules governing the computation of earnings
per share require that dividends on cumulative preferred stock,
whether declared or not, be deducted in the earnings per share
computation.
The shares used in the computation of primary earnings per share
were as follows:
Pro Forma Consolidated
_________________________________
Year Ended Nine Months Ended
June 30, 1993 March 31, 1994
_____________ _________________
Common and common stock
equivalents prior to the Merger 33,270 33,659
Assumed Common and common stock
equivalents issued as part of
the Merger 6,446 6,446
______ ______
39,716 40,105
====== ======
<PAGE>
Pro forma adjustments to dividends related to Series A Preferred Stock
consist of the following:
Pro Forma Consolidated
___________________________
Nine Months
Year Ended Ended
June 30, 1993 March 31, 1994
_____________ ______________
Cash dividends on Series A
Preferred Stock issued in the
Merger (dividend at 5%) $25,824 $19,368
======= =======
The pro forma financial statements have been prepared assuming
that all Series A Preferred Stock is outstanding for the year ended
June 30, 1993 and the nine months ended March 31, 1994.
As stated above, the pro forma financial statements assume the
holders of TakeCare Common Stock will elect to receive cash in lieu of
the Series B Preferred Stock. Accordingly, earnings per share has
been calculated assuming that no shares of Series B Preferred Stock
will be issued. If all holders of TakeCare Common Stock were to elect
to receive Series B Preferred Stock rather than cash, the principal
changes to the historical and pro forma unaudited condensed
consolidated statements of income would be as follows, assuming an
interest rate equal to 93% of the thirty-year average yield published
by the Federal Reserve Board as provided for in the Merger Agreement
(approximately 6.9% for this pro forma calculation - see Note 1 for
further explanation of range of possible dividends):
Pro Forma Consolidated
___________________________
Nine Months
Year Ended Ended
June 30, 1993 March 31, 1994
_____________ ______________
Operating income $103,039 $99,198
Interest income 18,477 17,699
Interest expense (309) (3,897)
Income taxes (59,392) (55,370)
_________ ________
Net income 61,815 57,630
Series A Preferred Stock dividend (25,824) (19,368)
Series B Preferred Stock dividend (24,264) (18,198)
_________ ________
Net income attributable to Common
Stock $11,727 $20,064
========= =======
Earnings per share attributable
to Common Stock $0.30 $0.50
========= ========
Weighted average number of shares 39,716 40,105
========= ========
<PAGE>
10. Income Taxes
Pro forma adjustment to the provision for income taxes consist of
the following:
Pro Forma Pro Forma
Pro Forma Pro Forma TakeCare Consolidated
TakeCare Consolidated Nine Months Nine Months
Year Ended Year Ended Ended Ended
June 30, June 30, March 31, March 31,
1993 1993 1994 1994
__________ ____________ ___________ ___________
Income tax effect
of:
Decrease in
interest income $ - ($2,288) $ - ($1,635)
Elimination of
TakeCare interest
expense and debt
financing costs 1,930 1,012
Increase in
interest expense
and debt financing
costs from Merger
financing (8,017) (6,013)
Elimination of
Comprecare interest
expense 641 118
Estimated increase
in effective
tax rate to 49% 5,222 4,290
Decrease in cost
of health care 1,280
__________ _____________ ___________ __________
$1,921 ($3,153) $118 ($2,346)
========== ============= =========== ==========
11. Other
Other pro forma adjustments include the restructuring of an
agreement with a physician group resulting in a reduction of pro forma
cost of health care ($2,612), recognition of deferred debt financing
costs ($1,600), elimination of deferred debt financing costs related
to debt of TakeCare retired in the Merger ($2,458) and accrual of
transaction expenses incurred by TakeCare ($3,000) and certain bonuses
that TakeCare may authorize.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this
report to be signed on its behalf by the undersigned hereunto
duly authorized.
FHP INTERNATIONAL CORPORATION
By /s/ Kenneth S. Ord
Kenneth S. Ord
Senior Vice President and
Chief Financial Officer
Date: August 30, 1994
