FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
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 0-14796
FHP INTERNATIONAL CORPORATION
a Delaware Corporation
I.R.S. Employer Identification No. 33-0072502
9900 Talbert Avenue, Fountain Valley, CA 92708-8000
(Address of principal executive offices) (Zip Code)
(714) 963-7233
(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 ___.
The registrant had 40,476,738 shares of common stock, par value
$0.05 per share, outstanding at February 7, 1996.
The Exhibit Index Appears on Page 17<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
FHP INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
(amounts in thousands, December 31, June 30,
except share data) 1995 1995
_____________ ___________
Cash and cash equivalents $ 351,283 $ 299,144
Short-term investments 144,993 157,220
Accounts receivable 149,499 141,840
Prepaid expenses and other
current assets 127,307 44,091
Deferred income taxes 31,984 31,984
___________ ___________
Total current assets 805,066 674,279
Property and equipment, net 233,248 229,765
Assets held for sale (Note 5) 78,804 138,164
Long-term investments 54,137 71,492
Restricted investments 97,528 105,482
Goodwill and other intangibles,
net 1,043,601 1,059,507
Other assets, net 37,806 37,127
___________ ___________
Total assets $2,350,190 $2,315,816
=========== ===========
__________
See accompanying notes to consolidated financial statements.<PAGE>
FHP INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
(amounts in thousands, December 31, June 30,
except share data) 1995 1995
_____________ ___________
Current portion of long-term
obligations $ 30,095 $ 30,168
Accounts payable 66,449 64,762
Medical claims payable 370,197 341,222
Accrued salaries and employee
benefits 78,624 77,716
Unearned premiums 209,661 207,961
Restructuring reserve (Note 5) 11,323 15,038
Income taxes payable and other
current liabilities 42,120 15,791
____________ ___________
Total current liabilities 808,469 752,658
Long-term obligations 290,299 337,817
Other liabilities 93,096 85,200
____________ ___________
Total liabilities 1,191,864 1,175,675
____________ ___________
Commitments and contingencies
(Note 4)
Stockholders' equity:
Series A Convertible and Series B
Preferred Stock, $0.05 par value;
40,000,000 shares authorized (Note 3) 1,052 1,056
Common Stock, $0.05 par value;
100,000,000 shares authorized;
issued and outstanding 40,415,849
and 40,220,941 shares at December 31,
1995 and June 30, 1995, respectively 2,021 2,011
Paid-in capital 929,693 927,882
Unrealized holding gains (losses) on
available-for-sale investments, net of
tax effect of $(266) at
December 31, 1995 and $1,232 at
June 30, 1995 289 (1,446)
Retained earnings 225,271 210,638
____________ ____________
Total stockholders' equity 1,158,326 1,140,141
____________ ____________
Total liabilities and
stockholders' equity $2,350,190 $2,315,816
============ ============
__________
See accompanying notes to consolidated financial statements.
FHP INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For The
(amounts in thousands, Three Months Ended
except per share data) December 31,
1995 1994
___________ ___________
Revenues $1,015,746 $ 954,407
___________ ___________
Expenses:
Primary health care 831,071 759,987
Other health care 29,865 29,681
General, administrative and
marketing 127,751 126,079
Provision for restructuring 3,900
___________ ___________
Total expenses 992,587 915,747
___________ ___________
Operating income 23,159 38,660
Interest income 9,163 7,263
Interest expense (5,963) (6,429)
___________ ___________
Income before income taxes 26,359 39,494
Provision for income taxes 12,438 18,167
___________ ___________
Net income 13,921 21,327
Preferred Stock dividends 6,608 6,630
___________ ___________
Net income attributable to
Common Stock $ 7,313 $ 14,697
=========== ===========
Primary earnings per share
attributable to Common Stock (Note 2) $ 0.18 $ 0.36
=========== ===========
Weighted average number of common
shares and common share equivalents 41,289 41,234
=========== ===========
__________
See accompanying notes to consolidated financial statements.
FHP INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
For The
(amounts in thousands, Six Months Ended
except per share data) December 31,
1995 1994
___________ ___________
Revenues $2,020,379 $1,908,747
___________ ___________
Expenses:
Primary health care 1,650,042 1,522,995
Other health care 60,710 55,704
General, administrative and
marketing 252,877 254,152
Provision for restructuring 9,659
___________ ___________
Total expenses 1,973,288 1,832,851
___________ ___________
Operating income 47,091 75,896
Interest income 18,299 14,535
Interest expense (12,387) (12,566)
___________ ___________
Income before income taxes 53,003 77,865
Provision for income taxes 25,155 35,818
___________ ___________
Net income 27,848 42,047
Preferred Stock dividends 13,215 12,135
___________ ___________
Net income attributable to
Common Stock $ 14,633 $ 29,912
=========== ===========
Primary earnings per share
attributable to Common Stock (Note 2) $ 0.36 $ 0.73
=========== ===========
Weighted average number of common
shares and common share equivalents 41,146 41,044
=========== ===========
Fully diluted earnings per share
(Note 2) - $ 0.72
=========== ===========
Fully diluted weighted average number
of common shares and common share
equivalents - 58,005
=========== ===========
__________
See accompanying notes to consolidated financial statements.
<PAGE>
FHP INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For The
Six Months Ended
(amounts in thousands) December 31,
1995 1994
___________ ___________
Operating Activities
Net income $27,848 $ 42,047
Adjustments to reconcile
net income to net cash
provided by operating activities:
Provision for restructuring 9,659
Depreciation and amortization 36,714 41,048
Increase in allowance for doubtful
accounts 1,782 2,589
Loss on disposal of equipment 48 1,648
Deferred income taxes (522)
Effect on cash of changes
in operating assets and
liabilities:
Accounts receivable (9,441) (25,895)
Prepaid expenses and other
current assets 3,784 (6,854)
Other assets (2,621) (476)
Accounts payable 1,687 279
Medical claims payable 28,975 31,596
Accrued salaries and
employee benefits 908 1,807
Deferred premiums 1,700 145,933
Other liabilities (5,668) (38,728)
___________ ___________
Net cash provided by operating
activities 95,375 194,472
___________ ___________
Investing Activities
Purchases of available-for-sale
investments (112,706) (236,197)
Proceeds from sales/maturities
of available-for-sale investments 154,216 247,984
Loss on sale of
available-for-sale investments 258 476
Gain on sale of
available-for-sale investments (999) (200)
Purchases of property and
equipment (28,747) (26,745)
Proceeds from sales of assets held for sale 1,228
___________ ___________
Net cash provided by (used in) investing
activities 13,250 (14,682)
___________ ___________
FHP INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS(continued)
(unaudited)
For The
Six Months Ended
(amounts in thousands) December 31,
1995 1994
___________ ___________
Financing Activities
Payments on long-term
obligations (45,088) (75)
Exercise of stock options 3,797 4,577
Cash dividends paid to preferred
shareholders (13,215) (12,952)
Redemption of Series B Preferred
Stock (1,980)
___________ ___________
Net cash used in
financing activities (56,486) (8,450)
___________ ___________
Increase in cash and
cash equivalents 52,139 171,340
Cash and cash equivalents at
beginning of period 299,144 60,571
___________ ___________
Cash and cash equivalents at end
of period $351,283 $231,911
=========== ===========
Supplemental cash flow information:
Interest payments $ 10,603 $ 11,191
Income tax payments (net of
refunds) $ 27,072 $ 43,240
__________
See accompanying notes to consolidated financial statements.
FHP INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1. Organization and Accounting Policies
FHP International Corporation (the "Company"), through its direct
and indirect subsidiaries, delivers managed health care services and
sells indemnity medical, group life, and workers' compensation
insurance.
Interim periods are viewed as an integral part of the annual
period of the Company. Accordingly, the results for the interim
periods reported are based on the accounting principles and practices
followed by the Company as presented in its Annual Report on Form 10-K
for the year ended June 30, 1995. In the opinion of management, all
adjustments necessary to fairly present the financial position and the
results of operations for the six months ended December 31, 1995 and
1994 are included in these consolidated financial statements.
NOTE 2. Earnings Per Share
Primary earnings per share attributable to Common Stock for the
six months ended December 31, 1995 and 1994 are computed by dividing
net income after Preferred Stock dividends by the weighted average
number of common shares and dilutive common stock options (using
average market price), which are considered common share equivalents,
outstanding during the periods.
Fully diluted earnings per share for the six months ended
December 31, 1994 assume the conversion of the Series A Cumulative
Convertible Preferred Stock, the elimination of the related Preferred
Stock dividend requirement and market price as of the end of the
quarter for dilutive common stock options.
NOTE 3. Preferred Stock
The issued and outstanding, and aggregate liquidation preference
of the Company's two series of preferred stock are as follows:
December 31, 1995 June 30, 1995
-------------------- ----------------------------
Series B
Series A Series A Adjustable
Cumulative Cumulative Rate
Convertible Convertible Cumulative
------------- --------------------------
Issued and outstanding 21,040,307 21,040,307 79,218
Aggregate liquidation
preference $526,032,000 $526,027,000 $1,999,000
The Company redeemed all of its outstanding Series B Preferred
Stock at Stated Value in December 1995.
NOTE 4. Commitments and Contingencies
During the ordinary course of business, the Company and its
subsidiaries have become a party to pending and threatened legal
actions and proceedings, a significant number of which involve alleged
claims of medical malpractice. Management is of the opinion, taking
into account its insurance coverage and reserves that have been
established, that the outcome of the currently known legal actions and
proceedings will not, singly or in the aggregate, have a material
effect on the consolidated financial position or results of operations
or cash flows of the Company and its subsidiaries.
NOTE 5. Restructuring Charge
In June, 1995, the Company's Board of Directors approved a
restructuring plan involving the discontinuance of services and
programs that do not meet the Company's strategic and economic return
objectives, a reduction in workforce, and the creation of a subsidiary
physician practice management company, Talbert Medical Management
Corporation ("TMMC"). TMMC became operational January 1, 1996.
The Board of Directors also decided to sell the Company's
Fountain Valley, California hospital campus and its Salt Lake City,
Utah hospital campus and other nonproductive real estate. The Company
has sold its Fountain Valley, California hospital campus for gross
proceeds of $87 million. The gross proceeds were deposited in escrow
and will be released to the Company upon the purchaser obtaining
certain operating licenses, which are expected to be obtained before
the end of the current fiscal year. The receivable created by this
escrow has been included in prepaid expenses and other current assets
in the Consolidated Balance Sheet, as of December 31, 1995.
During six months ended December 31, 1995, the Company recorded a
pretax restructuring charge of approximately $9.7 million ($6.0
million, net of tax) in the accompanying Consolidated Statements of
Income. Included in this charge are the costs of employee separations
(approximately $4.7 million), and certain other costs associated with
the Company's restructuring of its operations (approximately $5.0
million). Affected employees were notified prior to December 31,
1995. Assets identified as those to be sold as part of the
restructuring have been reclassified as assets held for sale in the
accompanying Consolidated Balance Sheets as of December 31, 1995, and
June 30, 1995, and are expected to be disposed of by the end of fiscal
year 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Business Restructuring
In June, 1995, FHP International Corporation ("FHP" or the
"Company") announced an internal restructuring (the "Restructuring
Plan") of its operations. The Restructuring Plan was formulated in
response to the intensely competitive environment in the HMO industry
and continued declining membership in its Company operated medical
facilities. The Restructuring Plan consists of the sale or other
disposition of the Company's owned and operated hospitals and other in-
patient facilities; certain nonproductive real estate and other
assets; a reduction in the Company's work force; and the creation of
three distinct business segments: 1) a physician practice management
company, Talbert Medical Management Corporation ("TMMC"); 2) the
contract model health maintenance organization ("HMO"); and 3) the
Company's group life, health and accident and workers' compensation
insurance and related products (collectively, the "Insurance Group").
Costs associated with restructuring, including administrative facility
closure costs and employee separation costs, resulted in pretax
charges against earnings of approximately $75.1 million in the fourth
quarter of fiscal year 1995, and $5.8 million and $3.9 million in the
first and second quarters of fiscal year 1996, respectively. Net
proceeds available from the sales of assets will be used for various
corporate purposes including the reduction of indebtedness.
The Company has made the following progress with regard to the
Restructuring Plan:
* Disposition of Assets
The Company has sold its Fountain Valley, California,
hospital campus for gross proceeds of $87 million.
Proceeds will be released from escrow upon the
purchaser obtaining certain operating licenses, which
are expected to be obtained before the end of fiscal
year 1996. The transaction was recorded in the second
quarter of fiscal year 1996 and had no material affect
on operating results for the second quarter. The
campus includes primary and specialty care medical
clinics and other buildings. The transaction included
the lease of the primary and specialty care clinics by
TMMC. In January, 1996, the Company signed a non-
binding letter of intent for the sale of the Company's
acute care hospital and surrounding campus located in
Salt Lake City, Utah. Also, the Company has reached
agreements to transfer the operations of its two other
in-patient facilities to other operators during the
second half of fiscal year 1996. The Company expects
to complete sales of other assets and certain vacant
land by the end of fiscal year 1996.
* Work Force Reductions
The Company reduced its work force by approximately 250
employees in the three month period ended December 31,
1995. This reduction was in addition to reductions of
approximately 750 employees between June and September,
1995. In addition, the approximately 700 employees of
the Company's Fountain Valley hospital became employees
of the Purchaser effective with the transaction.
* TMMC
The Restructuring Plan included the creation of TMMC,
operational January 1, 1996, as a new subsidiary of the
Company, together with the creation of several new
professional corporations (the "PCs"). Approximately
4,100 of the Company's employees, including health care
professionals, became employees of TMMC or of the PCs
on January 1, 1996. At the same time: 1) TMMC leased
or subleased all of the Company's medical centers and
related assets located in California, Arizona, Utah and
Nevada; and 2) the Company's HMO contracted with the
PCs to provide health care services to approximately
20% of the Company's HMO members who were already
receiving health care in the medical centers. The
contractual arrangements between the Company's HMO and
the PCs are financially similar to existing contracts
between the HMO and other contract health care
providers. Also, the PCs entered into long-term
practice management agreements with TMMC, thereby
enabling the PCs and TMMC to do business with other
payors and HMOs, as well as with the Company's HMO.
These third party arrangements will allow TMMC to
utilize excess capacity in the medical centers.
Three Months Ended December 31, 1995
Compared to the Three Months Ended December 31, 1994
Revenue and Membership
The Company generates substantially all of its revenue from
premiums received for health care services provided to the HMO members
of its wholly-owned subsidiaries. Total revenue for the three-month
period ended December 31, 1995, was $1,016 million increasing 6.5%
over revenue of $954 million for the same period in the previous year.
The Company's commercial and senior enrollment each generate
approximately half of the Company's HMO revenue. The Company's
ability to increase its commercial HMO premium rates during the last
two fiscal years and the first two fiscal quarters of fiscal year 1996
were adversely impacted by intense competition in all the Company's
major markets, particularly in California. In addition, certain large
employer groups and other purchasers of health care services continue
to demand minimal increases or reductions in premium rates. Downward
pressure on premium rates is expected to continue in fiscal year 1996
in all of the Company's major service areas. A substantial portion of
the Company's HMO commercial premium rate increases becomes effective
in January of each year.
Total HMO membership grew 5.1% to approximately 1,825,000 at
December 31, 1995, from approximately 1,737,000 at December 31, 1994.
During fiscal year 1995, the Company experienced slower membership
growth than in prior years, due primarily to intense competition in
all its key markets. The membership growth rate of 5.1% shows an
improvement over the Company's membership growth rate of 3.9% for the
prior fiscal year; however, growth is slower than the Company
experienced in earlier years, and is slower than the HMO industry in
general.
From December 31, 1994, to December 31, 1995, total commercial
membership increased by 64,000 or 4.7% from approximately 1,375,000 to
approximately 1,439,000. The Company's ability to increase its
commercial membership during the last two fiscal years and the first
and second quarters of fiscal year 1996 has been adversely impacted by
intense competition in all the Company's major markets, particularly
in California.
Senior membership grew by 24,000 or 6.6% to approximately 386,000
at December 31, 1995, from approximately 362,000 at December 31, 1994.
Almost all of the Company's senior HMO revenue is generated from
premiums paid to the Company by the Health Care Financing
Administration ("HCFA"). Revenue per senior member is substantially
higher than revenue per commercial member because senior members use
substantially more health care services. In September of each year,
HCFA announces the annual Medicare rate increases that will become
effective on January 1 of the subsequent year. These rate increases
vary geographically and become the basis for determining the amounts
that HCFA will pay to the Company. For calendar year 1995, the
Company received an average 5.8% rate increase. For calendar year
1996, the Company will receive an average 5.1% rate increase.
Cost of Health Care
Health care costs increased 9.0% to $861 million for the three
months ended December 31, 1995, from $790 million for the three months
ended December 31, 1994, due to operational growth and cost increases.
Health care costs increased as a percentage of revenue by 2.1
percentage points, to 84.8% from 82.7% for the same three month period
in the prior fiscal year. The increase as a percent of revenue
resulted primarily from lower commercial premium rates and higher
health care costs in almost all states in which the Company operates.
General, Administrative and Marketing Costs
General, administrative and marketing ("G & A") expenses
increased by $2 million or 1.3% to $128 million for the three month
period ended December 31, 1995, from $126 million for the three month
period ended December 31, 1994. The small increase is the result of
higher sales and marketing costs, offset by cost savings from
workforce reductions and other cost controls. Further reductions in
the Company's work force may take place in the second half of fiscal
year 1996. G & A expenses for the three month period ended December
31, 1995, decreased as a percentage of revenue to 12.6% from 13.2% for
the same period in the prior fiscal year.
Interest Income
Net interest income was $3 million for the three month period
ended December 31, 1995, as compared to $1 million for the three month
period ended December 31, 1994. Net interest income increased year-
over-year primarily because of growth in the Company's investment
portfolio and lower debt.
Six Months Ended December 31, 1995
Compared to the Six Months Ended December 31, 1994
Revenue and Membership
Revenue for the six month period ended December 31, 1995, totaled
$2,020 million, increasing 5.8% over revenue of $1,909 million for the
same period in the previous fiscal year. Membership and revenue
growth have both been constrained by intense competition in all the
Company's major markets and by downward pressure on commercial premium
rate increases
Cost of Health Care
Health care costs increased 8.4% to $1,711 million for the six-
month period ended December 31, 1995, from $1,579 million for the
comparable six-month period ended December 31, 1994. Health care
costs during the six-month period ended December 31, 1995, increased
to 84.7% of total revenue from 82.7% of total revenue for the same
period last year. Cost of health care has been increasing relative to
revenues as competitive pressures have slowed the growth of the
Company's revenues; also, the Company has been experiencing higher
health care costs in almost all its major markets.
General, Administrative and Marketing Costs
G & A expenses decreased 0.5% to $253 million for the six-month
period ended December 31, 1995, from $254 million for the same period
in the previous year, primarily due to cost reductions resulting from
the Company's Restructuring Plan. G & A expenses were 12.5% of total
revenue for the six-month period ended December 31, 1995, versus 13.3%
of total revenue for the comparable period in the previous year.
Interest Income
Net interest income was $6 million for the six-month period ended
December 31, 1995, compared to $2 million for the same period in the
previous fiscal year. Net interest income increased $4 million year-
over-year primarily as the result of growth in the Company's
investment portfolio and lower debt.
Liquidity and Capital Resources
The Company's consolidated cash, cash equivalents and short-term
investments increased by $40 million to $496 million at December 31,
1995, from $456 million at June 30, 1995. The total reflects the
receipt in December, 1995, of approximately $167 million of premiums
from HCFA due on January 1, 1996, for medical services to be provided
to senior members in January, 1996. (The Company's June 30, 1995 cash
balances were similarly affected.) Other major sources of cash during
the six month period ended December 31, 1995, included cash generated
from operations (net of the early receipt of HCFA premiums) of $80
million, and net transfers of $7 million from long-term and restricted
investments. Major uses of cash during the period included $29
million for capital expenditures, $13 million for preferred stock
dividends, and $45 million of debt repayment. Also, the Company
redeemed all of its outstanding Series B Preferred Stock for
approximately $2 million.
The Company entered into a $350 million Credit Agreement in
March, 1994. The Credit Agreement, as amended, provides for a $200
million Revolving Credit Loan and a $150 million Term Loan. The Term
Loan and Revolving Credit Loan carry interest rates currently ranging
from 6.1% to 6.3% based on LIBOR rate borrowings. The Term Loan is
repayable at the rate of $15 million every six months. The first
repayment was made on September 29, 1995. The final payment is due
March 31, 2000. The Credit Agreement contains financial and other
covenants, including limitations on indebtedness, liens, dividends,
sale and lease-back transactions, and certain other transactions.
The Company's ability to make a payment on, or repayment of, its
obligations under the Notes, the Credit Agreement, and the Preferred
Stock is significantly dependent upon the receipt of funds by the
Company from the Company's direct and indirect subsidiaries. These
subsidiary payments represent: (a) fees for management services
rendered by the Company to the subsidiaries; and (b) cash dividends by
the subsidiaries to the Company. Nearly all of the subsidiaries are
subject to HMO regulations or insurance regulations (the "Regulated
Subsidiaries"). Each of the Regulated Subsidiaries must meet or
exceed various fiscal standards imposed by HMO regulations or
insurance regulations. These fiscal standards may, from time to time,
impact the amount of funds paid by one or more of the Regulated
Subsidiaries to the Company.
The Company believes the payments referred to above by the
Regulated Subsidiaries, together with other financing sources,
including the Credit Agreement, should be sufficient to enable the
Company to meet its payment obligations (totaling approximately $75
million annually) under the Notes, the Credit Agreement and the
Company's Preferred Stock. The Company believes that cash flow from
operations, the Credit Agreement and existing cash balances will be
sufficient to continue to fund operations and capital expenditures for
the foreseeable future.
Also, sales of real property under the Restructuring Plan are expected
to generate net cash to the Company. As stated above, gross proceeds
of $87 million from the sale of the Company's Fountain Valley hospital
campus were deposited into escrow. These proceeds, together with
interest earned, should be available to the Company before the end of
fiscal year 1996. Cash generated from this and other real property
sales under the Restructuring Plan will be used for various corporate
purposes including the reduction of indebtedness.
Effects of Regulatory Changes and Inflation
Effective January 1, 1996, the Company received an average
premium rate increase from HCFA of approximately 5.1% for its senior
HMO members. Over calendar years 1994 and 1995, annual senior premium
increases from HCFA were approximately 2.0% and 5.8%, respectively.
The Company evaluates the effects of HCFA premium adjustments on its
liquidity and capital resources, and incorporates the actual and
anticipated impact of such adjustments into its planning process.
The Company has been experiencing significant downward pressures
on commercial HMO premium rates, due to competition and counter-
inflationary measures by large commercial employers attempting to hold
their costs down. Also, in recent years health care costs have been
rising at a rate higher than that for consumer goods as a whole, as a
result of inflation, new technology and medical advances. The Company
believes that internal cost control measures and financial risk-
sharing arrangements with its contract medical providers will help to
mitigate the effects of inflation on its operations. However, there
can be no assurance that the Company's efforts to reduce the impact of
the increasing cost of health care will be as successful in the future
as they have been in the past, or that the Company will be able to
obtain premium rate increases in the commercial sector in the short
term.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Information relating to certain litigation as set forth in Note
4 of Notes to Consolidated Financial Statements in Part I of this
report is incorporated herein by this reference.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders was held on
November 16, 1995.
(b) Richard M. Burdge, Sr., Robert C. Maxson and
Robert W. Jamplis were elected as Directors to serve
three year terms ending in 1998. Other Directors whose
terms of office continued after the meeting were Burke F.
Gumbiner, Warner Heineman, Jack R. Anderson, Westcott W.
Price III and Joseph F. Prevratil.
(c) The Stockholders elected Richard M. Burdge, Sr.
as a Director by vote of 26,662,427 for and 1,105,161
authority withheld. The Stockholders elected Robert C.
Maxson as a Director by a vote of 26,695,250 for and
1,072,340 authority withheld. The Stockholders elected
Robert W. Jamplis as a Director by a vote of 26,674,004
for and 1,093,584 authority withheld.
(d) The Stockholders approved by a vote of
16,995,622 for, 8,445,855 against, 119,684 abstaining and
1,193,565 broker non-votes, the ratification and approval
of amendments to the Company's Executive Incentive Plan.
(e) The Stockholders approved by a vote of
27,569,862 for, 99,360 against and 98,365 abstaining the
ratification of the appointment of Deloitte & Touche as
independent auditors of the Company for the fiscal year
ending June 30, 1996.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See Index to Exhibits at page 17 of
this report.
(b) Reports on Form 8-K. None filed during the
second quarter of Fiscal 1996.
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.
FHP INTERNATIONAL CORPORATION
Dated: February 12, 1996 By: /s/ Kenneth S. Ord
Senior Vice President and
Chief (Principal) Financial Officer
INDEX TO EXHIBITS
Exhibit
Number
4.1 Registrant agrees to furnish to the Commission upon
request a copy of each instrument with respect to issues of
long-term debt of the Registrant, the authorized principal
amount of which does not exceed 10% of total assets of
Registrant.
11.1 Statement Re: Computation of Earnings Per Share.
27.1 Financial Data Schedule.
EXHIBIT 11.1
FHP INTERNATIONAL CORPORATION
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(unaudited)
For The
(amounts in thousands, Three Months Ended
except per share data) December 31,
1995 1994
___________ ___________
Primary earnings per share
attributable to Common Stock:
Net income attributable to
Common Stock $ 7,313 $14,697
=========== ===========
Weighted average number of
Common Shares and Common
Share equivalents:
Common Stock 40,324 39,878
Assumed exercise of options 965 1,356
___________ ___________
Total shares 41,289 41,234
=========== ===========
Primary earnings per share
attributable to Common Stock $ 0.18 $ 0.36
=========== ===========
Fully diluted earnings per share:
Net income attributable to
Common Stock assuming
conversion of Series A
cumulative convertible
Preferred Stock $13,888 $21,300
=========== ===========
Weighted average number of
common shares and common
share equivalents:
Common Stock 40,324 39,878
Assumed exercise of options 1,242 1,356
Assumed conversion of
Series A Cumulative
Convertible Preferred Stock 16,968 16,961
___________ ___________
Total shares, assuming
full dilution 58,534 58,195
=========== ===========
Fully diluted earnings per share $ 0.24(1) $ 0.37(1)
=========== ===========
(1) This computation is submitted in accordance with Regulation S-K,
Item 601(b)(11) although it is contrary to paragraph 40 of
Accounting Principles Board Opinion No. 15 because it produces an
anti-dilutive result.
EXHIBIT 11.1
FHP INTERNATIONAL CORPORATION
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(unaudited)
For The
(amounts in thousands, Six Months Ended
except per share data) December 31,
1995 1994
___________ ___________
Primary earnings per share
attributable to Common Stock:
Net income attributable to
Common Stock $14,633 $29,912
=========== ===========
Weighted average number of
common shares and common
share equivalents:
Common Stock 40,287 39,719
Assumed exercise of options 859 1,325
___________ ___________
Total shares 41,146 41,044
=========== ===========
Primary earnings per share
attributable to Common Stock $ 0.36 $ 0.73
=========== ===========
Fully diluted earnings per share:
Net income attributable to
Common Stock assuming
conversion of Series A
Cumulative Convertible
Preferred Stock $27,785 $42,003
=========== ===========
Weighted average number of
common shares and common
share equivalents:
Common Stock 40,287 39,719
Assumed exercise of options 1,242 1,325
Assumed conversion of
Series A Cumulative
Convertible Preferred Stock 16,968 16,961
___________ ___________
Total shares, assuming
full dilution 58,497 58,005
=========== ===========
Fully diluted earnings per share $ 0.48(1) $ 0.72
=========== ===========
(1)This computation is submitted in accordance with Regulation S-K,
Item 601(b)(11) although it is contrary to paragraph 40 of
Accounting Principles Board Opinion No. 15 because it produces an
anti-dilutive result.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
STATEMENTS OF INCOME, BALANCE SHEETS AND CASH FLOWS OF FHP INTERNATIONAL
CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH DECEMBER 31,
1995 QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 351,283
<SECURITIES> 144,993
<RECEIVABLES> 173,855
<ALLOWANCES> 24,356
<INVENTORY> 12,767
<CURRENT-ASSETS> 805,066
<PP&E> 387,478
<DEPRECIATION> 154,230
<TOTAL-ASSETS> 2,350,190
<CURRENT-LIABILITIES> 808,469
<BONDS> 290,299
<COMMON> 406,760
0
526,006
<OTHER-SE> 225,560
<TOTAL-LIABILITY-AND-EQUITY> 2,350,190
<SALES> 2,020,379
<TOTAL-REVENUES> 2,020,379
<CGS> 1,963,629
<TOTAL-COSTS> 1,963,629
<OTHER-EXPENSES> 9,659
<LOSS-PROVISION> 1,782
<INTEREST-EXPENSE> 12,387
<INCOME-PRETAX> 53,003
<INCOME-TAX> 25,155
<INCOME-CONTINUING> 27,848
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,848
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.48
</TABLE>
