<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ____________
COMMISSION FILE NUMBER 0-24276
FPA MEDICAL MANAGEMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0604264
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
----------------
3636 NOBEL DRIVE
SUITE 200
SAN DIEGO, CA 92122
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(619) 453-1000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NONE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
----------------
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:
[X] YES [ ] NO
AS OF AUGUST 12, 1997 THERE WERE OUTSTANDING 33,206,485 SHARES OF THE
REGISTRANT'S COMMON STOCK, PAR VALUE $.002 PER SHARE.
================================================================================
<PAGE> 2
FPA MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets................... 3
Consolidated Statements of Operations
(Unaudited)................................. 4
Consolidated Statements of Cash Flows
(Unaudited)................................. 5
Notes to Consolidated Financial Statements.... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 8
PART II -- OTHER INFORMATION
Item 4. Submission of matters to a Vote of Security
Holders..................................... 16
Item 6. Exhibits and Reports on Form 8-K.............. 16
Signatures.............................................. 17
</TABLE>
2
<PAGE> 3
ITEM 1. Financial Statements
FPA MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS [1]
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 16,307,770 $ 12,648,662
Marketable securities 40,000,000 24,619,747
Accounts receivable - net of allowance for uncollectible accounts 106,978,672 155,018,465
Accounts receivable - other 25,095,247 31,367,778
Notes receivable from affiliate 1,327,822 395,000
Prepaid expenses and other assets 7,024,174 4,942,817
Prepaid income taxes -- 3,667,457
Capitation Deposits 15,409,771 --
Deferred income tax asset 3,478,751 6,158,892
------------- -------------
Total current assets 215,622,207 238,818,818
Property and equipment - net of accumulated depreciation 47,486,863 39,123,772
Restricted cash and deposits 488,535 500,000
Goodwill - net of accumulated amortization 295,594,009 303,730,344
Intangible assets - net of accumulated amortization 6,667,269 2,676,470
Investment in GLHP 4,994,900 4,994,900
Deferred income tax asset 3,189,665 3,689,058
Other assets 10,104,006 19,708,636
------------- -------------
Total $ 584,147,454 $ 613,241,998
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 63,716,039 $ 43,010,855
Claims payable, including incurred but not reported claims 100,769,268 124,044,354
Accrued payroll and related liabilities 4,124,272 19,987,173
Income tax payable 2,294,159 --
Other current liabilities 13,218,704 920,000
Current portion of accrued liability for professional liability claims 1,297,790 585,668
Long-term debt, current portion 70,610,667 12,416,613
------------- -------------
Total current liabilities 256,030,899 200,964,663
Long-term debt, net of current portion 186,131,219 271,099,787
Accrued liability for professional liability claims, net of current
portion 4,217,000 3,195,912
Other long-term liabilities 4,801,862 16,758,033
------------- -------------
Total liabilities 451,180,980 492,018,395
Stockholders' equity:
Preferred stock, $.001 par value per share, 2,000,000 shares
authorized, no shares outstanding
Common stock, $.002 par value, 98,000,000 shares authorized,
32,656,637 and 32,966,497 shares issued and outstanding at
December 31, 1996 and June 30, 1997, respectively 65,313 65,933
Additional paid-in capital 207,126,793 209,292,915
Stock payable 534,600 534,600
Due from stockholder (427,000) (427,000)
Accumulated deficit (74,333,232) (88,242,845)
------------- -------------
Total stockholders' equity 132,966,474 121,223,603
------------- -------------
Total $ 584,147,454 $ 613,241,998
============= =============
</TABLE>
See notes to consolidated financial statements.
[1] These financial statements include the balances of AHI Healthcare Systems,
Inc. and HealthCap, Inc. for all periods presented. See Note 2.
3
<PAGE> 4
FPA MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) [1]
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
------------------------------ ------------------------------
JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Managed care revenue $ 160,830,580 $ 337,816,319 $ 88,354,228 $ 173,738,800
Fee-for-service revenue, net of
contractual deductions 76,370,748 137,752,525 38,835,285 70,818,430
------------- ------------- ------------- -------------
Operating revenue 237,201,328 475,568,844 127,189,513 244,557,230
Medical services expense 177,674,950 340,833,454 97,613,362 174,725,374
------------- ------------- ------------- -------------
59,526,378 134,735,390 29,576,151 69,831,856
General and administrative expense 59,293,090 109,904,940 31,676,351 54,575,338
Merger, restructuring and other
unusual charges -- 38,004,841 -- 1,171,255
------------- ------------- ------------- -------------
Income (loss) from operations 233,288 (13,174,391) (2,100,200) 14,085,263
Other income (expense):
Interest and other income 1,007,651 4,778,925 461,793 3,826,261
Interest expense (1,675,068) (8,865,929) (990,737) (4,694,162)
------------- ------------- ------------- -------------
Total other expense (667,417) (4,087,004) (528,944) (867,901)
Income (loss) before income taxes (434,129) (17,261,395) (2,629,144) 13,217,362
Income tax (expense) benefit (3,175,048) 3,351,782 (2,015,365) (4,758,245)
------------- ------------- ------------- -------------
Net income (loss) $ (3,609,177) $ (13,909,613) $ (4,644,509) $ 8,459,117
============= ============= ============= =============
Net income (loss) per share $ (0.13) $ (0.40) $ (0.16) $ 0.25
============= ============= ============= =============
Weighted average shares outstanding 27,660,452 34,510,257 28,317,866 34,259,107
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
[1] These financial statements include the balances of AHI Healthcare Systems,
Inc. and HealthCap, Inc. for all periods presented. See Note 2.
4
<PAGE> 5
FPA MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) [1]
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
JUNE 30, JUNE 30,
1996 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,609,177) $ (13,909,613)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 5,097,791 13,009,995
Imputed interest on notes payable 40,341 --
Changes in assets and liabilities:
Accounts receivable (34,296,946) (54,246,074)
Income tax receivable/payable 3,052,810 (5,961,616)
Capitation deposit -- 15,409,771
Deferred income taxes (149,100) (3,179,534)
Accounts payable and accrued expenses 587,542 (20,705,184)
Claims payable, including incurred but not reported claims 24,879,507 23,275,086
Accrued liability for professional liability claims -- (1,733,210)
Other liabilities (148,461) (342,533)
Accrued payroll and related liabilities 2,725,107 15,862,901
Prepaid expenses and other 823,653 (7,521,473)
------------- -------------
Total adjustments 2,612,244 (26,131,871)
------------- -------------
Net cash used by operating activities (996,933) (40,041,484)
Cash flows from investing activities:
Purchase of property and equipment (5,846,239) (3,053,951)
Payments for intangible assets (1,709,493) (4,237,539)
Net payments (to) from affiliate (676,968) 932,822
Net sale of marketable securities 6,512,258 15,380,253
Investment in GLHP (3,000,000) --
Acquisitions, net of cash acquired (7,911,954) (817,667)
Payments escrowed for acquisition 85,000 (11,465)
Other (108,900) --
------------- -------------
Net cash provided (used) by investing activities (12,656,296) 8,192,453
Cash flows from financing activities:
Proceeds from merger, net 28,890 --
Proceeds from issuance of preferred stock 150,000 --
Proceeds from issuance of long-term debt 17,233,760 8,176,152
Payments on long-term debt (14,586,539) (169,336,743)
Net borrowings/(payments) under bank line of credit (788,325) 187,820,105
Proceeds from exercise of stock options and warrants 6,736,373 1,530,409
------------- -------------
Net cash provided by financing activities 8,774,159 28,189,923
------------- -------------
Net decrease in cash (4,879,070) (3,659,108)
Cash and cash equivalents, beginning of period 37,165,225 16,307,770
------------- -------------
Cash and cash equivalents, end of period $ 32,286,155 $ 12,648,662
============= =============
Supplemental cash flow information
Cash paid for interest $ 990,052 $ 9,406,161
Cash paid for income taxes 2,789,602 5,789,368
Equipment acquired under capital leases 495,900 --
Common stock issued in connection with acquisitions 9,361,657 --
Effects of acquisitions:
Fair value of assets acquired 48,227,016 9,711,610
Liabilities assumed 40,315,062 8,893,943
------------- -------------
Net cash paid for acquisitions $ 7,911,954 $ 817,667
============= =============
</TABLE>
See notes to consolidated financial statements.
[1] These financial statements include the balances of AHI Healthcare Systems,
Inc. and HealthCap, Inc. for all periods presented. See Note 2.
5
<PAGE> 6
FPA MEDICAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements include all adjustments (which consist only of normal recurring
adjustments) necessary for a fair presentation of the financial position of FPA
Medical Management, Inc. ("FPA") and subsidiaries and certain affiliated
professional corporations (collectively, the "Company"), and the results of its
operations and its cash flows for the interim periods presented. Although FPA
believes that the disclosures in these consolidated financial statements are
adequate to make the information presented not misleading, certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. Results of operations for the interim periods are not necessarily
indicative of results to be expected for any other interim period or for the
full year.
The consolidated financial statements for the three and six months ended
June 30, 1996 and June 30, 1997 are unaudited and should be read in conjunction
with the consolidated financial statements and notes thereto included in FPA's
Annual Report on Form 10-K, as amended, for the year ended December 31, 1996 and
the supplemental consolidated financial statements filed on Form 8-K dated July
31, 1997.
Consolidation Policy - The Company's financial statements include the
activity of all of its wholly-owned subsidiaries and certain affiliated
professional corporations ("Professional Corporations") over which the Company
has direct or indirect unilateral and perpetual control. FPA believes that
consolidation of the financial statements of the Professional Corporations is
necessary to present fairly the financial position and results of operations of
the Company. All intercompany transactions have been eliminated in
consolidation. These financial statements include the balances of AHI Healthcare
Systems, Inc. ("AHI") and HealthCap, Inc. ("HealthCap") for all periods
presented (see Note 2).
Net Income (Loss) per Share - Net income (loss) per share is computed based
on the weighted average number of shares and share equivalents (options and
warrants) outstanding, giving retroactive effect to all stock splits and pooling
of interests transactions.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". This
statement specifies the computation, presentation, and disclosure requirements
for earnings per share for entities with publicly held common stock. SFAS No.
128 is not in effect for the Company in the quarter ended June 30, 1997, but
will be in effect for financial statements issued for periods ending after
December 15, 1997, including interim periods. The Company does not expect the
adoption of SFAS No. 128 to have a material effect on its Net income (loss) per
share.
2. SUBSEQUENT EVENTS
The following significant events have occurred subsequent to December 31,
1996:
On March 17, 1997, FPA completed the merger (the "AHI Merger") of FPA
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of FPA,
with and into AHI. Pursuant to the AHI Merger, AHI became a wholly-owned
subsidiary of FPA and each outstanding share of AHI Common Stock was exchanged
for .391 shares of FPA Common Stock. The shares of FPA Common Stock issued to
the AHI stockholders were registered on a Registration Statement on Form S-4
filed under the Securities Act of 1933, as amended. The AHI Merger was treated
as a tax free reorganization and accounted for as a pooling of interests.
On June 30, 1997, FPA completed the merger (the "HealthCap Merger") of FPA
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of FPA,
with and into HealthCap. Pursuant to the HealthCap Merger, HealthCap became a
wholly-owned subsidiary of FPA and each outstanding share of HealthCap Common
Stock was exchanged for .0829 shares of FPA Common Stock. The shares of FPA
Common Stock issued to HealthCap stockholders were registered on a Registration
Statement on Form S-3 filed under the Securities Act of 1933. The HealthCap
Merger was treated as a tax free reorganization and accounted for as a pooling
of interests.
On July 1, 1997, FPA entered into an Agreement and Plan of Merger with
Health Partners, Inc. ("Health Partners"), providing for the acquisition of
Health Partners by FPA in a tax free reorganization anticipated to be accounted
for as a pooling of interests. The
6
<PAGE> 7
completion of the proposed merger is subject to approval by the stockholders of
Health Partners, receipt of all necessary regulatory approvals and other
customary conditions.
The Company entered into a Credit Agreement with Lehman Commercial Paper
Inc. and the several lenders from time to time parties thereto (the "Lenders")
dated as of June 30, 1997 (the "Credit Agreement") consisting of a $175 million
three-year revolving line of credit and a $100 million four and one-quarter year
term loan. The obligations of the Company under the Credit Agreement are secured
by all the assets of the Company and all the capital stock of its subsidiaries.
The Credit Agreement contains customary terms, events of default and covenants
(including financial covenants) which, among other things, limit payment of cash
dividends, the consummation of certain acquisitions and the incurrence of
additional debt. Borrowings under this agreement bear interest at either
Citibank, N.A.'s prime rate (the "Base Rate"), plus the applicable margin or
LIBOR plus the applicable margin, as defined in the agreement. As of June 30,
1997, the Company had drawn $187.8 million under the Credit Agreement.
7
<PAGE> 8
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
GENERAL
The Company derives substantially all of its operating revenue from (i) the
payments made by health maintenance organizations and other prepaid health
insurance plans (collectively, "Payors") to the Professional Corporations for
managed care medical services, (ii) fee-for-service revenues for medical centers
in the managed care business, and (iii) fee-for-service revenues from emergency
department medical services.
MANAGED CARE BUSINESS
The Company has two types of Payor contracts: contracts for both inpatient
and outpatient services ("global capitation" contracts) and those limited to
outpatient services or professional medical services ("outpatient capitation"
contracts). Under global capitation contracts, the Company receives a fixed
monthly amount per enrollee for which the Company is financially responsible to
provide the enrollees with all necessary inpatient and outpatient care. Under
outpatient capitation contracts, the Company receives a fixed monthly amount per
enrollee for which the Company is financially responsible to provide the
enrollees with all necessary outpatient care. Additionally, under these
outpatient capitation contracts, the Company is a party to shared risk
arrangements with Payors which generally reward the Company for the efficient
utilization of hospital inpatient services. Under these shared risk
arrangements, the Company shares any surplus or, in some cases, deficit, of
amounts pre-established by the Payor in relation to inpatient expense. Revenue
under global capitation contracts represented 28.2% and 21.7% for the three
months ended June 30, 1996 and 1997, respectively, and 23.1% and 21.5% for the
six months ended June 30, 1996 and 1997, respectively, of managed care business
operating revenue. Revenue under outpatient capitation contracts represented
65.7% and 61.7% for the three months ended June 30, 1996 and 1997, respectively,
and 71.1% and 62.3% for the six months ended June 30, 1996 and 1997,
respectively, of managed care business operating revenue.
The Company also generates fee-for-service revenue for the performance of
medical services through the Professional Corporations and its subsidiaries.
These revenues are presented net of contractual deductions and represented 6.1%
and 16.6% for the three months ended June 30, 1996 and 1997, respectively, and
5.8% and 16.2% for the six months ended June 30, 1996 and 1997, respectively, of
managed care business operating revenue.
Through the Professional Corporations and its subsidiaries, the Company
contracts with various healthcare providers to provide primary care and
specialty medical services to covered enrollees. Primary care physicians are
compensated on either a salary or capitation basis. Specialty care physician
services are paid for on either a discounted fee-for-service or capitation
basis. Managed care business medical services expense paid for on a capitation
basis (for certain primary care and specialty care services) or fixed salary
basis totaled 47.5% and 14.4% for the three months ended June 30, 1996 and 1997,
respectively, and 46.4% and 24.3% for the six months ended June 30, 1996 and
1997, respectively, of managed care business operating revenue, with the
remainder of medical services expense (for primary care, specialty care,
ancillary services, inpatient and outpatient services, lab charges, etc.) paid
for on a discounted fee-for-service or per diem basis.
EMERGENCY DEPARTMENT BUSINESS
Through the emergency department business, the Company provides contract
management and support services primarily to emergency departments. As of June
30, 1997 the Company provided physician practice management services on a
contract basis to
8
<PAGE> 9
108 emergency departments, one anesthesia department, three correctional
healthcare facilities and two rural health urgent care clinics located in 22
states. The Company contracts with approximately 1,300 affiliated physicians who
provide certain medical services to approximately 1.4 million patients annually.
The Company's contractual arrangements with hospitals are primarily
fee-for-service contracts whereby hospitals generally agree, in exchange for the
Company's services, to authorize the Company and its contracted healthcare
professionals to bill and collect the professional component of the charges for
medical services rendered by the Company's contracted healthcare professionals.
Fee-for-service contracts may, depending on the hospital's patient volume and
payor mix, involve the payment of a subsidy to the Company by the hospital.
During the three months ended June 30, 1996 and 1997 and the six months ended
June 30, 1996 and 1997, 84.1% and 82.4%, and 83.6% and 82.8%, respectively, of
the Company's emergency department business operating revenue was earned on a
fee-for-service basis, and the Company emphasized fee-for-service contracts in
its marketing activities.
Medical services expense for the emergency department business consists
primarily of payments made to independent contractor and employee physicians
("Physician Costs") and, to a lesser extent the costs of medical supplies and
malpractice insurance and laboratory fees. During the three months ended June
30, 1996 and 1997 and the six months ended June 30, 1996 and 1997, Physician
Costs accounted for 93.4% and 93.6%, and 93.2% and 97.2%, respectively, of
emergency department business medical services expense.
OPERATIONAL DEVELOPMENT
The future growth of FPA is largely dependent on a continued increase in
the number of new enrollees in the FPA network. This growth may come from (i)
affiliations with, or acquisitions of, individual or group physician practices
serving enrollees of Payors in the FPA network or of new Payors, (ii) increased
membership in plans of Payors with which the Professional Corporations have
contracts and whose members are patients of physicians in the FPA network or
(iii) agreements with Payors, physicians and hospitals in other geographic
markets. The process of identifying and consummating suitable acquisitions of,
or affiliations with, physician groups can be lengthy and complex. The
marketplace for such acquisitions and affiliations is subject to increasing
competitive pressures. There can be no assurance that FPA will be successful in
identifying, acquiring or affiliating with additional physician groups or
hospitals or that the Company will be able to contract with new Payors. In
addition, there can be no assurance that the Company's acquisitions will be
successfully integrated on a timely basis or that the anticipated benefits of
these acquisitions will be realized. Failure to effectively accomplish the
integration of acquired companies could have a material adverse effect on FPA's
results of operations and financial condition. FPA's ability to expand is also
dependent upon its ability to comply with legal and regulatory requirements in
the jurisdictions in which it operates or will operate and to obtain necessary
regulatory approvals, certificates and licenses.
In June 1997, the Company completed its merger with HealthCap, which
serviced approximately 85,000 enrollees. In March 1997, the Company completed
its merger with AHI, which serviced approximately 210,000 enrollees. Effective
in December 1996, the Company and certain Professional Corporations acquired two
medical groups, one each in California and Arizona, providing services to
approximately 63,000 and 157,000 enrollees, respectively. In October 1996, the
Company and Sterling Healthcare Group, Inc. (the "Sterling Merger") completed a
merger. In July 1996, the Company acquired two independent practice
associations, one in Arizona and Florida, providing services to approximately
14,000 and 4,000 enrollees, respectively. In June 1996, the Company acquired
Physicians First, Inc., operating 40 medical clinics in Florida, through which
110 primary care physicians provided services to approximately 80,000 enrollees.
In January 1996, the Company acquired three independent practice associations in
the Los Angeles, Ventura and Sacramento regions of California, which now service
approximately 76,000 enrollees and include 570 primary care physicians.
9
<PAGE> 10
Listed below is a summary of enrollees, Payor contracts, primary care
physicians, specialty care physicians, and emergency department business
contracts (including anesthesiology, urgent care and correctional facility
contracts) by region at June 30, 1997.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
NUMBER OF NUMBER OF SPECIALTY EMERGENCY
PAYOR PRIMARY CARE CARE DEPARTMENT
ENROLLEES CONTRACTS PHYSICIANS PHYSICIANS CONTRACTS
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
California 317,897 53 1,692 5,492 --
Arizona 212,078 5 434 1,055 --
New Jersey 31,281 4 896 447 --
Delaware 9,248 1 73 75 --
South Carolina 7,813 3 203 120 2
North Carolina 14,033 1 169 43 9
Texas 133,999 22 894 2,345 12
Florida 136,217 4 264 3,249 9
Michigan 39,537 2 493 1,028 6
Louisiana 6,572 4 182 183 17
Mississippi -- -- 116 -- 10
Tennessee -- -- 91 -- 8
Alabama -- -- 129 -- 6
Kentucky -- -- 42 -- 3
Pennsylvania -- -- 353 -- --
Georgia 21,841 1 237 698 4
Nevada 18,641 1 110 151 --
Missouri 15,911 3 65 280 --
Others -- -- 326 243 23
-------- ------- --------- -------- -------
Total 965,068 104 6,769 15,409 109
======== ======= ========= ======== =======
</TABLE>
RESULTS OF OPERATIONS
The following tables set forth for the three and six months ended June 30,
1996 and 1997 selected financial data (in thousands) and selected financial data
expressed as a percentage of operating revenue.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
- -------------------------------------------------------------------------------------------------------------
1996 1997
----------------------------------------- -----------------------------------------
MANAGED EMERGENCY MANAGED EMERGENCY
CARE DEPARTMENT CARE DEPARTMENT
BUSINESS BUSINESS TOTAL BUSINESS BUSINESS TOTAL
-------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating
revenue $ 94,142 $ 33,048 $127,190 $208,287 $ 36,270 $244,557
Medical services
expense 75,140 22,474 97,614 147,752 26,974 174,726
General and
administrative
expense 23,617 8,059 31,676 48,030 6,545 54,575
Merger,
restructuring
and other
unusual charges -- -- -- 1,171 -- 1,171
-------- ---------- -------- -------- ---------- --------
Income (loss)
from operations (4,615) 2,515 (2,100) 11,334 2,751 14,085
Other expense, net (303) (226) (529) (843) (25) (868)
-------- ---------- -------- -------- ---------- --------
Income (loss)
before income
taxes (4,918) 2,289 (2,629) 10,491 2,726 13,217
Income tax
benefit (expense) (1,123) (892) (2,015) (4,758) -- (4,758)
-------- ---------- -------- -------- ---------- --------
Net income (loss) $ (6,041) $ 1,397 $ (4,644) $ 5,733 $ 2,726 $ 8,459
======== ========== ======== ======== ========== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
- -------------------------------------------------------------------------------------------------------------
1996 1997
---------------------------------------- -----------------------------------------
MANAGED EMERGENCY MANAGED EMERGENCY
CARE DEPARTMENT CARE DEPARTMENT
BUSINESS BUSINESS TOTAL BUSINESS BUSINESS TOTAL
-------- ----------- ----- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Operating
revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Medical services
expense 79.8% 68.0% 76.7% 70.9% 74.4% 71.4%
General and
administrative
expense 25.1% 24.4% 24.9% 23.1% 18.0% 22.3%
Merger,
restructuring
and other
unusual charges -- -- -- 0.6% -- 0.5%
----- ----- ----- ----- ----- -----
Income (loss)
from operations (4.9%) 7.6% (1.6%) 5.4% 7.6% 5.8%
Other expense, net (0.3%) (0.7%) (0.4%) (0.4%) (0.1%) (0.4%)
----- ----- ----- ----- ----- -----
Income (loss)
before income
taxes (5.2%) 6.9% (2.0%) 5.0% 7.5% 5.4%
Income tax
benefit (expense) (1.2%) (2.7%) (1.6%) (2.3%) -- (1.9%)
----- ----- ----- ----- ----- -----
Net income (loss) (6.4%) 4.2% (3.6%) 2.7% 7.5% 3.5%
===== ===== ===== ===== ===== =====
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
- -------------------------------------------------------------------------------------------------------------
1996 1997
----------------------------------------- -----------------------------------------
MANAGED EMERGENCY MANAGED EMERGENCY
CARE DEPARTMENT CARE DEPARTMENT
BUSINESS BUSINESS TOTAL BUSINESS BUSINESS TOTAL
-------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Operating
revenue $170,805 $ 66,396 $237,201 $403,292 $ 72,277 $475,569
Medical services
expense 132,498 45,177 177,675 287,352 53,482 340,834
General and
administrative
expense 43,085 16,208 59,293 96,433 13,472 109,905
Merger,
restructuring
and other
unusual charges -- -- -- 38,005 -- 38,005
-------- ---------- -------- -------- ---------- --------
Income (loss)
from operations (4,778) 5,011 233 (18,498) 5,323 (13,175)
Other expense, net (211) (456) (667) (4,039) (48) (4,087)
-------- ---------- -------- -------- ---------- --------
Income (loss)
before income
taxes (4,989) 4,555 (434) (22,537) 5,275 (17,262)
Income tax
benefit (expense) (1,397) (1,778) (3,175) 3,352 -- 3,352
-------- ---------- -------- -------- ---------- --------
Net income (loss) $ (6,386) $ 2,777 $ (3,609) $(19,185) $ 5,275 $(13,910)
======== ========== ======== ======== ========== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
- ------------------------------------------------------------------------------------------------------------
1996 1997
-------------------------------------------- -------------------------------------------
MANAGED EMERGENCY MANAGED EMERGENCY
CARE DEPARTMENT CARE DEPARTMENT
BUSINESS BUSINESS TOTAL BUSINESS BUSINESS TOTAL
------------- ------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Operating
revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Medical services
expense 77.6% 68.0% 74.9% 71.3% 74.0% 71.7%
General and
administrative
expense 25.2% 24.4% 25.0% 23.9% 18.6% 23.1%
Merger,
restructuring
and other
unusual charges -- -- -- 9.4% -- 8.0%
----- ---- ---- ---- ----- -----
Income (loss)
from operations (2.8%) 7.6% 0.1% (4.6%) 7.4% (2.8%)
Other expense, net (0.1%) (0.7%) (0.3%) (1.0%) (0.1%) (0.8%)
----- ---- ---- ---- ---- ----
Income (loss)
before income
taxes (2.9%) 6.9% (0.2%) (5.6%) 7.3% (3.6%)
Income tax
benefit (expense) (0.8%) (2.7%) (1.3%) 0.8% -- 0.7%
----- ---- ---- ---- --- ----
Net income (loss) (3.7%) 4.2% (1.5%) (4.8%) 7.3% (2.9%)
===== ==== ==== ==== ==== ======
</TABLE>
MANAGED CARE BUSINESS
THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997
Operating Revenue -- The Company's managed care business operating revenue
increased to $208.3 million for the three months ended June 30, 1997 from $94.1
million for the three months ended June 30, 1996. The revenue increase resulted
primarily from the increase in average enrollment for the quarter to 965,000 for
the three months ended June 30, 1997. Enrollment increases resulted primarily
from the addition of (i) approximately 56,000 enrollees in California as a
result of acquisitions, (ii) approximately 157,000 enrollees in Arizona as a
result of a December 1996 acquisition, and approximately 30,000 enrollees as a
result of internal growth (iii) enrollment of 36,000 and 51,000 enrollees,
respectively, in the Mid-Atlantic region and Texas as a result of internal
growth, (iv) approximately 84,000 enrollees in Florida as a result of
acquisitions and 28,000 enrollees as a result of internal growth and (v)
approximately 31,000 enrollees in other regions. For the three months ended June
30, 1997, the Company generated fee-for-service revenue, net of contractual
deductions, of $34.5 million compared to fee-for-service revenue, net of
contractual deductions, for the three months ended June 30, 1996 of $5.8
million. The growth in fee-for-service revenue is attributable primarily to
acquisitions of medical groups by the Company.
Medical Services Expense - Medical services expense for the three months
ended June 30, 1997 was $147.8 million or 70.9% of managed care business
operating revenue as compared to $75.1 million or 79.8% of such operating
revenue for the three months ended June 30, 1996. The decrease in medical
services expense as a percent of such operating revenue for the three months
ended June 30, 1997 compared to the comparable period in 1996 resulted primarily
from the lower medical loss ratio in the expanding Florida market and in medical
groups in Sacramento and Tucson acquired since the first quarter of 1996.
General and Administrative Expense -- General and administrative expense
for the three months ended June 30, 1997 was $48.0 million or 23.1% of managed
care business operating revenue as compared to $23.6 million or 25.1% of such
operating revenue for the comparable period in 1996, as the Company continues to
achieve economies of scale in its operations.
Merger, Restructuring and Other Unusual Charges - During the second quarter
of 1997, the managed care business of the Company incurred approximately $1.2
million in merger, restructuring and other unusual charges. Such charges consist
primarily of legal fees, accounting fees, investment bankers' fees and other
costs associated with the Company's mergers. As most of the Company's mergers
are accounted for as pooling of interests transactions, generally accepted
accounting principles require that transaction costs be expensed in the period
in which the merger is consummated.
11
<PAGE> 12
Income (Loss) from Operations - For the three months ended June 30, 1997,
the managed care business of the Company generated income from operations of
$11.3 million including merger, restructuring and other unusual charges.
Excluding such merger, restructuring and other unusual charges, for the three
months ended June 30, 1997 income from operations was $12.5 million as compared
to a loss from operations of $4.6 million for the three months ended June 30,
1996.
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997
Operating Revenue -- The Company's managed care business operating revenue
increased to $403.3 million for the six months ended June 30, 1997 from $170.8
million for the six months ended June 30, 1996. The revenue increase resulted
primarily from the increase in average enrollment for the period to 956,000 for
the six months ended June 30, 1997. The enrollment increases resulted from the
addition of (i) approximately 56,000 enrollees in California primarily as a
result of acquisitions, (ii) approximately 157,000 enrollees in Arizona as a
result of a December 1996 acquisition, and approximately 30,000 enrollees as a
result of internal growth (iii) enrollment of 36,000 and 51,000 enrollees,
respectively, in the Mid-Atlantic region and Texas as a result of internal
growth, (iv) approximately 84,000 enrollees in Florida as a result of
acquisitions and 28,000 enrollees as a result of internal growth and (v)
approximately 31,000 enrollees in other regions. For the six months ended June
30, 1997, the Company generated fee-for-service revenue, net of contractual
deductions, of $65.4 million compared to fee-for-service revenue, net of
contractual deductions, for the six months ended June 30, 1996 of $9.9 million.
The growth in fee-for-service revenue is primarily attributable to acquisitions
of medical groups by the Company.
Medical Services Expense - Medical services expense for the six months
ended June 30, 1997 was $287.3 million or 71.3% of managed care business
operating revenue as compared to $132.5 million or 77.6% of such operating
revenue for the six months ended June 30, 1996. The decrease in medical services
expense as a percent of such operating revenue for the period ended June 30,
1997 compared to the comparable period in 1996 resulted primarily from the lower
medical loss ratio in the expanding Florida market and in medical groups in
Sacramento and Tucson acquired since the first quarter of 1996.
General and Administrative Expense -- General and administrative expense
for the six months ended June 30, 1997 was $96.4 million or 23.9% of managed
care business operating revenue as compared to $43.1 million or 25.2% of such
operating revenue for the comparable period in 1996, as the Company continues to
achieve economies of scale in its operations.
Merger, Restructuring and Other Unusual Charges - During the first six
months of 1997, the managed care business of the Company incurred approximately
$38.0 million in merger, restructuring and other unusual charges. Approximately
$36.8 million related to costs of legal fees, accounting fees, investment
bankers' fees and other costs associated with the merger with AHI. As the AHI
Merger was accounted for as a pooling of interests, generally accepted
accounting principles require that transaction costs be expensed in the period
in which the merger is consummated. Approximately $24.4 million arose from the
costs of severance payments, facilities and equipment lease terminations and
other costs associated with consolidating facilities and reducing staffing as a
result of the AHI Merger. Approximately $5.6 million of the charges resulted
from other related costs associated with the AHI Merger. Approximately $1.5
million related to miscellaneous unusual charges.
Income (Loss) from Operations - For the six months ended June 30, 1997, the
managed care business of the Company generated a loss from operations of $18.5
million including merger, restructuring and other unusual charges. Excluding
such merger, restructuring and other unusual charges, for the six months ended
June 30, 1997 income from operations was $19.5 million as compared to a loss
from operations of $4.8 million for the six months ended June 30, 1996.
EMERGENCY DEPARTMENT BUSINESS
THREE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997
Operating Revenue -- Emergency department business operating revenue
consists of gross patient revenue, net of contractual deductions, plus other
revenue, which consists principally of hospital subsidy payments, flat-rate
hospital contract revenue and non-patient generated revenues. Operating revenue
increased to $36.3 million for the three months ended June 30, 1997 from $33.0
million for the three months ended June 30, 1996.
Medical Services Expense -- Medical services expense increased to $27.0
million for the three months ended June 30, 1997 from $22.5 million for the
three months ended June 30, 1996 due primarily to the increase in the number of
healthcare professionals under contract, resulting from the increase in the
number of the Company's emergency department contracts, as well as negotiated
increases in fees paid to certain healthcare professionals. Medical services
expense as a percentage of emergency department business operating revenue was
74.4% for the three months
12
<PAGE> 13
ended June 30, 1997 compared to 68.0% of such operating revenue for the three
months ended June 30, 1996. The increase in medical costs as a percentage of
such operating revenue results from the fact that in 1996, the operations of
certain primary care centers were reported under the emergency department
business, while in 1997, they are included in the managed care business, due to
a change in the reporting structure of these medical groups. These medical
groups experienced a lower medical loss ratio than the core emergency department
business. The medical loss ratio as a percentage of operating revenue for the
emergency department business has remained stable.
General and Administrative Expense -- General and administrative expense
was $6.5 million or 18.0% of emergency department business operating revenue for
the three months ended June 30, 1997 as compared to $8.0 million or 24.4% of
such operating revenue for the corresponding period of the prior year. The
decrease in general and administrative expense as a percentage of such
operating revenue is primarily attributable to internal growth without added
administrative infrastructure and reductions in expense as a result of the
Sterling Merger.
Income from Operations - For the three months ended June 30, 1997, the
emergency department business of the Company generated income from operations of
$2.7 million as compared to $2.5 million for the three months ended June 30,
1996.
SIX MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997
Operating Revenue -- Emergency department business operating revenue
consists of gross patient revenue, net of contractual deductions, plus other
revenue, which consists principally of hospital subsidy payments, flat-rate
hospital contract revenue and non-patient generated revenues. Operating revenue
increased to $72.3 million for the six months ended June 30, 1997 from $66.4
million for the six months ended June 30, 1996.
Medical Services Expense -- Medical services expense increased to $53.5
million for the six months ended June 30, 1997 from $45.2 million for the six
months ended June 30, 1996 due primarily to the increase in the number of
healthcare professionals under contract, resulting from the increase in the
number of the Company's emergency department contracts, as well as negotiated
increases in fees paid to certain healthcare professionals. Medical services
expense as a percentage of operating revenue was 74.0% for the six months ended
June 30, 1997 compared to 68.0% of such operating revenue for the six months
ended June 30, 1996.
General and Administrative Expense -- General and administrative expense
was $13.5 million or 18.6% of emergency department business operating revenue
for the six months ended June 30, 1997 as compared to $16.2 million or 24.4% of
operating revenue for the corresponding period of the prior year. The decrease
in general and administrative expense as a percentage of emergency department
business operating revenue is primarily attributable to internal growth without
added administrative infrastructure and reductions in expense as a result of the
Sterling Merger.
Income from Operations - For the six months ended June 30, 1997, the
emergency department business of the Company generated income from operations of
$5.3 million as compared to $5.0 million for the six months ended June 30, 1996.
13
<PAGE> 14
QUARTERLY RESULTS
The following table presents financial information for the eight quarters
ended June 30, 1997. In the opinion of management, this information has been
prepared on the same basis as the audited consolidated financial statements and
all necessary adjustments, consisting only of normal recurring adjustments
(unless otherwise noted), have been included in the amounts presented below to
present fairly the quarterly results when read in conjunction with the audited
consolidated financial statements of the Company and notes thereto. The
Company's quarterly results have in the past been subject to fluctuation and as
a result, the operating results for any quarter are not necessarily indicative
of results for any future period. All amounts in the following table are in
thousands and retroactively include all AHI and HealthCap activity.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996 1996 1996 1997 1997
------------- ------------ --------- --------- ------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenue $ 76,945 $ 89,996 $ 110,012 $ 127,189 $ 161,190 $ 187,940 $ 231,012 $ 244,557
Medical services
expense 55,161 64,216 80,062 97,613 126,378 150,499 166,108 174,725
General and
administrative
expense 19,889 24,889 27,617 31,676 36,008 52,547 55,330 54,576
Merger,
restructuring
and other
unusual charges -- 1,590 -- -- 1,707 50,865 36,834 1,171
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss)
from operations 1,895 (699) 2,333 (2,100) (2,903) (65,971) (27,260) 14,085
Other income
(expense) (827) 111 (138) (529) (742) (2,657) (3,219) (868)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss)
before taxes 1,068 (588) 2,195 (2,629) (3,645) (68,628) (30,479) 13,217
Income tax
(expense) benefit (975) (554) (1,160) (2,015) (1,951) 4,035 8,110 (4,758)
--------- --------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ 93 $ (1,142) $ 1,035 $ (4,644) $ (5,596) $ (64,593) $ (22,369) $ 8,459
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
Operating revenue and medical services expense during the first and third
quarters have been and continue to be affected by movements of members in Payor
plans from one plan to another during periods of open enrollment for Payors.
Retroactive capitation rate increases generally take effect during the second
quarter, while medical services expense increases tend to occur ratably
throughout the year. Quarterly results may be affected by final settlements of
shared risk distributions which generally occur in the second and third quarters
of the year after which they are estimated. From time to time, final settlements
may differ from such estimated amounts. As the Company adds new Payors into the
FPA network, the timing of these adjustments may vary and, consequently,
quarterly results may be affected in the future, especially due to the start-up
of operations in new regions where there is no operating history. Similarly, if
medical services expense varies from amounts previously accrued for claims
incurred but not reported ("IBNR"), quarterly operating results may fluctuate.
The Company's expansion strategy includes the acquisition of individual and
group physician practices by the FPA network, and any such acquisition may
materially affect quarterly operating results, causing quarterly fluctuations.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily to develop physician networks,
acquire physician practices and establish an infrastructure in new regions.
Capitation arrangements positively impact cash flow because FPA generally
receives capitation revenue prior to paying costs associated with services
provided under those agreements. However, shared risk arrangements negatively
impact cash flow because settlements in connection with these arrangements are
typically not collected until significantly after the end of the period in which
they were accrued. Fee-for-service revenues also negatively impact cash flow
because payment for services rendered is generally not collected until 90 to 120
days after the service is provided.
At June 30, 1997, the Company had cash, cash equivalents and marketable
securities of $37.2 million and a working capital surplus (current assets in
excess of current liabilities) of $37.8 million compared to cash, cash
equivalents and marketable securities of $71.7 million and working capital
deficit of $40.4 million at December 31, 1996.
During the six months ended June 30, 1997, non-operating sources of cash
include advances on a new line of credit and term loan of approximately $187.8
million, proceeds of approximately $5.5 million from the exercise by the
underwriters of the overallotment of convertible subordinated debentures,
14
<PAGE> 15
issuance of a note payable of approximately $2.6 million, and proceeds from the
issuance of stock options and warrants of approximately $1.5 million.
Non-operating uses of cash include the purchase of property and equipment for
approximately $3.0 million and the payment of approximately $169.3 million in
long-term debt.
At June 30, 1997 approximately 62% of the Company's current liabilities
consist of amounts accrued as payable to specialty care physicians, ancillary
providers, hospital and other providers of medical services. These accrued
liabilities include claims received by the Company which have not yet been paid
as well as an estimate of costs for covered medical benefits incurred by
enrollees but not yet reported by providers. These amounts are not due and
payable until after the provider has presented a claim and are typically paid
within 45 business days of receipt of such claims. The increase in claims
payable, including incurred but not reported claims, from approximately $100.8
million at December 31, 1996 to $124.0 million at June 30, 1997 resulted
primarily from increased membership and a shift in Payor mix of enrollees in
which enrollees incurred varying levels of IBNR claims.
On June 30, 1997, the Company entered into a commercial paper credit
agreement for a $175 million three-year revolving line of credit ("Line of
Credit") and a $100 million four and one-quarter year term loan ("Term Loan"). A
maximum of $155 million and $30 million of the proceeds of the Line of Credit
can be used to refinance debt and to secure the Company's capitation deposits,
respectively. The remaining proceeds of the Line of Credit can be used for
working capital. The proceeds of the Term Loan may be used to refinance debt.
The borrowings bear interest based on the prime rate plus 50-75 basis points or
the Interbank Eurodollar rate plus 150-175 basis points, as defined in the
agreement. In connection with the credit agreement, the Company agreed to
maintain certain debt and equity ratios and profitability thresholds. The
facility is secured by the assets of the Company.
During 1996, the Company entered into a $55.0 million credit, security,
guarantee and pledge agreement (the "Credit Agreement") with four financial
institutions. Permitted Borrowings, as defined in the Credit Agreement,
generally include acquisitions and capital expenditures. Borrowings under this
agreement bear interest at either LIBOR plus 2-1/2%, 2-3/4% or 3%, or prime rate
plus 1%, 1-1/4% or 1-1/2%, as defined in the agreement. At December 31, 1996,
the Company had borrowed the maximum of $55.0 million under the Credit
Agreement. At June 30, 1997, this credit facility was paid in full.
In December 1996, the Company issued $75.0 million of convertible
subordinated debentures, which resulted in net proceeds to the Company of
approximately $73.0 million. The debentures bear interest at 6-1/2%, payable
semiannually, and are convertible into shares of the Company's stock at $25.95
per share. The debentures are redeemable by the Company after December 20, 1999.
Upon the occurrence of a Repurchase Event, as defined in the debentures, each
holder has the right to require repayment of the debentures at 100% of the
principal amount plus accrued interest. In January, 1997, the underwriters
exercised their overallotment and purchased an additional $5.5 million of the
debentures with identical terms.
The Company believes that its cash on hand and anticipated cash flows from
its operations will be sufficient to meet the Company's operating capital needs
through 1997. The Company may obtain additional financing to support planned
expansion through an expansion of its credit facilities or through other
potential financing alternatives including private and public offerings of debt
and equity-related securities. There can be no assurance that the Company will
be able to obtain such increased credit facility or that it will be able to
issue debt or equity-related securities on terms satisfactory to it. To the
extent that additional financing is not available, the Company may delay certain
potential acquisitions or certain geographic expansion or may seek alternate
sources of financing.
The strategy to expand the FPA network involves the acquisition of
individual and group physician practice assets and related businesses. Such
acquisitions may be consummated using cash, stock, notes or any combination
thereof. Management does not believe that inflation will have a material effect
on the operations of the Company.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Quarterly Report are forward-looking.
Although the Company believes that its expectations are based on reasonable
assumptions within the bounds of its knowledge of its business and operations,
there can be no assurance that actual results will not differ materially from
its expectations. Factors that could cause actual results to differ from
expectations include the difficulty in controlling healthcare costs, integrating
new operations from acquired companies and the possible negative effects of
prospective healthcare reform. For other important factors that may cause actual
results to differ materially from expectations and underlying assumptions, see
reports by FPA Medical Management, Inc. filed with the Securities and Exchange
Commission.
15
<PAGE> 16
ITEM 4. Submission of matters to a Vote of Security Holders
At the meeting of stockholders on July 24, 1997, the following matters were
submitted to a vote of the Registrant's stockholders:
1. Election of Director: The following director was elected until the
annual meeting of stockholders in 2000 and until his respective successor is
duly elected and qualified.
NAME OF DIRECTOR VOTES FOR WITHHELD
- ---------------- --------- --------
Dr. Sol Lizerbram 23,396,756 513,494
Mr. Sheldon Derezin, Dr. Stephen J. Dresnick, Dr. Kevin Ellis, Dr. Seth Flam,
Dr. Howard Hassman and Dr. Herbert Wertheim continue as directors of the
Registrant.
2. Amendment of the Registrant's 1995 Non-Employee Directors' Non-Qualified
Stock Option Plan (the "Directors Plan") (i) to increase (from 5,000 to 15,000)
the number of shares of the Registrants' Common Stock ("Common Stock") that may
be purchased pursuant to the automatic grant of an option to each non-employee
director following each annual meeting of stockholders of the Registrant; (ii)
to increase (from 2,500 to 7,500) the number of shares of Common Stock that may
be purchased pursuant to an option automatically granted to any non-employee
director who is elected after the date of an annual meeting of stockholders of
the Registrant to fill a vacancy on the Board of Directors; (iii) to grant to
each non-employee director annually the option to purchase an additional 2,500
(3,500 if a committee chairperson) shares of Common Stock for each committee of
the Board of Directors on which such non-employee director serves; and (iv) to
require approval by the Registrant's stockholders of any amendments or
modifications thereto only as required by applicable laws and regulations.
VOTES FOR VOTES AGAINST ABSTENTIONS
- -------- ------------- -----------
20,367,832 6,208,283 26,681
3. Amendment of the Registrant's Omnibus Stock Option Plan (the "Omnibus
Plan") (i) to increase from 6,500,000 to 8,500,000 the number of shares of the
Common Stock for which options may be granted under the Omnibus Plan; and (ii)
to require approval by the Registrant's stockholders of any amendments or
modifications thereto only as required by applicable laws and regulations.
VOTES FOR VOTES AGAINST ABSTENTIONS
- -------- ------------- -----------
12,882,254 8,403,744 39,702
4. Ratification of the selection of Deloitte & Touche, LLP as the
Registrant's independent auditors for the year ending December 31, 1997.
VOTES FOR VOTES AGAINST ABSTENTIONS
- -------- ------------- -----------
26,869,919 27,678 12,653
ITEM 6. Exhibits And Reports On Form 8-K
(b) Reports on Form 8-K: The Company filed the following Reports on Form 8-K
since March 31, 1997:
<TABLE>
<CAPTION>
DATE OF REPORT ITEMS REPORTED
-------------- --------------
<S> <C>
March 17, 1997 5
March 17, 1997 7
July 31, 1997 7
</TABLE>
16
<PAGE> 17
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.
FPA MEDICAL MANAGEMENT, INC.
(Registrant)
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ SETH FLAM Chief Executive Officer August 14, 1997
- ------------------------------------ (Principal Executive officer)
Seth Flam
/s/ STEVEN M. LASH Chief Financial Officer August 14, 1997
- ------------------------------------ (Principal Financial officer)
Steven M. Lash
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 12,648,662
<SECURITIES> 24,619,747
<RECEIVABLES> 186,386,243
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 238,818,818
<PP&E> 39,123,772
<DEPRECIATION> 0
<TOTAL-ASSETS> 613,241,998
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 65,933
<OTHER-SE> 121,157,670
<TOTAL-LIABILITY-AND-EQUITY> 613,241,998
<SALES> 0
<TOTAL-REVENUES> 224,557,230
<CGS> 0
<TOTAL-COSTS> 174,725,734
<OTHER-EXPENSES> 55,746,593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (867,901)
<INCOME-PRETAX> 13,217,362
<INCOME-TAX> (4,758,245)
<INCOME-CONTINUING> 8,459,117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,459,117
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
