UNITED STATES
FORM 10-Q
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(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the Quarterly Period Ended June 30, 2002 | ||
| OR | ||
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o
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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 000-21949
PACIFICARE HEALTH SYSTEMS, INC.
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Delaware
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95-4591529 | |
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(State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification Number) |
5995 Plaza Drive, Cypress, California 90630-5028
(Registrant’s Telephone Number, Including Area Code) (714) 952-1121
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 o
There were approximately 35,529,000 shares of common stock outstanding on July 31, 2002.
PACIFICARE HEALTH SYSTEMS, INC.
FORM 10-Q
| Page | ||||||
| PART I. FINANCIAL INFORMATION | ||||||
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Item 1.
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Financial Statements | |||||
| Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001 | 1 | |||||
| Condensed Consolidated Statements of Operations for the three months ended June 30, 2002 and 2001 | 2 | |||||
| Condensed Consolidated Statements of Operations for the six months ended June 30, 2002 and 2001 | 3 | |||||
| Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 | 4 | |||||
| Notes to Condensed Consolidated Financial Statements | 6 | |||||
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | ||||
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk | 48 | ||||
| PART II. OTHER INFORMATION | ||||||
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Item 1.
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Legal Proceedings | 49 | ||||
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Item 2.
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Changes in Securities/ Recent Sales of Unregistered Securities | 49 | ||||
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Item 3.
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Defaults Upon Senior Securities | 49 | ||||
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Item 4.
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Submission of Matters to a Vote of Security Holders | 49 | ||||
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Item 5.
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Other Information | 50 | ||||
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Item 6.
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Exhibits and Reports on Form 8-K | 50 | ||||
| Signatures | 52 | |||||
| Exhibits | 53 | |||||
i
PART I. FINANCIAL INFORMATION
PACIFICARE HEALTH SYSTEMS, INC.
| June 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (unaudited) | ||||||||||
| ASSETS | ||||||||||
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Current assets:
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||||||||||
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Cash and equivalents
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$ | 422,027 | $ | 977,759 | ||||||
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Marketable securities
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1,064,715 | 1,062,353 | ||||||||
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Receivables, net
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320,991 | 375,661 | ||||||||
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Prepaid expenses and other current assets
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49,991 | 40,254 | ||||||||
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Deposits against letters of credit
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23,977 | — | ||||||||
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Deferred income taxes
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110,981 | 132,159 | ||||||||
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Total current assets
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1,992,682 | 2,588,186 | ||||||||
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Property, plant and equipment at cost, net
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165,074 | 166,724 | ||||||||
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Marketable securities-restricted
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148,753 | 112,167 | ||||||||
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Restricted cash collateral for FHP senior notes
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44,578 | — | ||||||||
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Goodwill, net
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985,934 | 1,915,370 | ||||||||
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Intangible assets, net
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255,397 | 266,616 | ||||||||
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Other assets
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53,531 | 46,983 | ||||||||
| $ | 3,645,949 | $ | 5,096,046 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
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Current liabilities:
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||||||||||
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Medical claims and benefits payable
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$ | 1,046,500 | $ | 1,095,900 | ||||||
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Accounts payable and accrued liabilities
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402,650 | 466,808 | ||||||||
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Unearned premium revenue
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63,052 | 550,910 | ||||||||
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Long-term debt due within one year
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60,620 | 124 | ||||||||
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Total current liabilities
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1,572,822 | 2,113,742 | ||||||||
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Long-term debt due after one year
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725,865 | 794,309 | ||||||||
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Deferred income taxes
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106,653 | 137,127 | ||||||||
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Other liabilities
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18,056 | 17,083 | ||||||||
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Stockholders’ equity:
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||||||||||
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Common stock, $0.01 par value; 200,000 shares
authorized; issued 47,387 shares in 2002 and 47,313 shares in
2001
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474 | 473 | ||||||||
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Unearned compensation
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(1,277 | ) | (1,153 | ) | ||||||
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Additional paid-in capital
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1,559,722 | 1,582,566 | ||||||||
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Accumulated other comprehensive income
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8,290 | 1,951 | ||||||||
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Retained earnings
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269,625 | 1,108,198 | ||||||||
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Treasury stock, at cost; 11,922 shares in 2002
and 12,776 shares in 2001
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(614,281 | ) | (658,250 | ) | ||||||
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Total stockholders’ equity
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1,222,553 | 2,033,785 | ||||||||
| $ | 3,645,949 | $ | 5,096,046 | |||||||
See accompanying notes.
1
PACIFICARE HEALTH SYSTEMS, INC.
| Three Months Ended | ||||||||||
| June 30, | ||||||||||
| 2002 | 2001 | |||||||||
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Revenue:
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Commercial premiums
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$ | 1,243,076 | $ | 1,198,286 | ||||||
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Senior premiums
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1,476,795 | 1,703,704 | ||||||||
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Other income
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46,626 | 39,054 | ||||||||
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Net investment income
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2,863 | 32,682 | ||||||||
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Total operating revenue
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2,769,360 | 2,973,726 | ||||||||
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Expenses:
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Health care services:
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Commercial services
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1,088,096 | 1,069,074 | ||||||||
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Senior services
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1,296,222 | 1,538,904 | ||||||||
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Total health care services
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2,384,318 | 2,607,978 | ||||||||
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Selling, general and administrative expenses
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309,581 | 294,088 | ||||||||
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Amortization of intangible assets
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5,845 | 5,891 | ||||||||
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Amortization of goodwill
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— | 14,802 | ||||||||
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Impairment, disposition, restructuring and other
charges (credits)
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18,336 | (295 | ) | |||||||
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Operating income
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51,280 | 51,262 | ||||||||
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Interest expense
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(18,955 | ) | (17,834 | ) | ||||||
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Income before income taxes
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32,325 | 33,428 | ||||||||
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Provision for income taxes
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12,058 | 18,159 | ||||||||
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Net income
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$ | 20,267 | $ | 15,269 | ||||||
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Basic earnings per share
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$ | 0.58 | $ | 0.46 | ||||||
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Diluted earnings per share
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$ | 0.56 | $ | 0.45 | ||||||
See accompanying notes.
2
PACIFICARE HEALTH SYSTEMS, INC.
| Six Months Ended | ||||||||||
| June 30, | ||||||||||
| 2002 | 2001 | |||||||||
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Revenue:
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Commercial premiums
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$ | 2,494,014 | $ | 2,428,438 | ||||||
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Senior premiums
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3,023,895 | 3,436,139 | ||||||||
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Other income
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93,218 | 77,120 | ||||||||
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Net investment income
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21,684 | 62,728 | ||||||||
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Total operating revenue
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5,632,811 | 6,004,425 | ||||||||
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Expenses:
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Health care services:
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Commercial services
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2,182,303 | 2,169,749 | ||||||||
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Senior services
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2,686,048 | 3,110,842 | ||||||||
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Total health care services
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4,868,351 | 5,280,591 | ||||||||
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Selling, general and administrative expenses
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619,424 | 587,007 | ||||||||
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Amortization of intangible assets
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11,219 | 12,060 | ||||||||
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Amortization of goodwill
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— | 29,550 | ||||||||
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Impairment, disposition, restructuring and other
charges (credits)
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18,336 | (1,223 | ) | |||||||
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Office of Personnel Management credits
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(12,851 | ) | — | |||||||
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Operating income
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128,332 | 96,440 | ||||||||
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Interest expense
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(35,146 | ) | (37,969 | ) | ||||||
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Income before income taxes
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93,186 | 58,471 | ||||||||
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Provision for income taxes
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34,759 | 30,054 | ||||||||
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Income before cumulative effect of a change in
accounting principle
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58,427 | 28,417 | ||||||||
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Cumulative effect of a change in accounting
principle
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(897,000 | ) | — | |||||||
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Net (loss) income
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$ | (838,573 | ) | $ | 28,417 | |||||
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Basic (loss) earnings per share:
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Income before cumulative effect of a change in
accounting principle
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$ | 1.68 | $ | 0.85 | ||||||
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Cumulative effect of a change in accounting
principle
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(25.75 | ) | — | |||||||
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Basic (loss) earnings per share
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$ | (24.07 | ) | $ | 0.85 | |||||
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Diluted (loss) earnings per share:
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Income before cumulative effect of a change in
accounting principle
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$ | 1.68 | $ | 0.84 | ||||||
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Cumulative effect of a change in accounting
principle
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(25.75 | ) | — | |||||||
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Diluted (loss) earnings per share
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$ | (24.07 | ) | $ | 0.84 | |||||
See accompanying notes.
3
PACIFICARE HEALTH SYSTEMS, INC.
| Six Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
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Operating activities:
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Net (loss) income
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$ | (838,573 | ) | $ | 28,417 | |||||||
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Adjustments to reconcile net (loss) income
to net cash flows (used in) provided by operating activities:
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Cumulative effect of a change in accounting
principle
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897,000 | — | ||||||||||
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Depreciation and amortization
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25,323 | 30,810 | ||||||||||
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Deferred income taxes
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19,383 | (1,541 | ) | |||||||||
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Provision for doubtful accounts
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19,223 | 10,187 | ||||||||||
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Impairment, disposition, restructuring and other
charges (credits)
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18,336 | (1,223 | ) | |||||||||
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Office of Personnel Management credits
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(12,851 | ) | — | |||||||||
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Marketable and other securities impairment for
other than temporary declines in value
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12,543 | — | ||||||||||
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Amortization of intangible assets
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11,219 | 12,060 | ||||||||||
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Employee benefit plan contributions in treasury
stock
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6,581 | — | ||||||||||
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Amortization of capitalized loan fees
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5,810 | 2,568 | ||||||||||
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(Gain) loss on disposal of property, plant and
equipment
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(2,886 | ) | 1,206 | |||||||||
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Amortization of notes receivable from sale of
fixed assets
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(1,502 | ) | — | |||||||||
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Unearned compensation amortization
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289 | 1,959 | ||||||||||
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Tax benefit realized for stock option exercises
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164 | 21 | ||||||||||
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Amortization of discount on 10 3/4% senior notes
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48 | — | ||||||||||
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Amortization of goodwill
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— | 29,550 | ||||||||||
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Changes in assets and liabilities:
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Receivables, net
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36,949 | 2,432 | ||||||||||
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Prepaid expenses and other assets
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(7,940 | ) | 753 | |||||||||
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Medical claims and benefits payable
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(49,400 | ) | (145,800 | ) | ||||||||
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Accounts payable and accrued liabilities:
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Payments for Office of Personnel Management
settlement, net of amounts received
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(53,875 | ) | 221 | |||||||||
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Other changes in accounts payable and accrued
liabilities
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5,186 | 8,102 | ||||||||||
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Unearned premium revenue
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(487,858 | ) | 4,921 | |||||||||
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Net cash flows used in operating activities
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(396,831 | ) | (15,357 | ) | ||||||||
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Investing activities:
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Purchase of marketable securities-restricted
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(81,164 | ) | (23,125 | ) | ||||||||
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Purchase of property, plant and equipment
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(33,195 | ) | (37,113 | ) | ||||||||
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Proceeds from the sale of property, plant and
equipment
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12,408 | 107 | ||||||||||
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Purchase of marketable securities, net
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(4,809 | ) | (177,308 | ) | ||||||||
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Net cash paid for acquisitions
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— | (500 | ) | |||||||||
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Net cash flows used in investing activities
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(106,760 | ) | (237,939 | ) | ||||||||
Table continued on next page.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
| Six Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
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Financing activities:
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||||||||||||
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Proceeds from the sale of 10 3/4% senior
notes, net of discount
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497,145 | — | ||||||||||