UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 30, 2004
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 001-31700
PACIFICARE HEALTH SYSTEMS, INC.
(Exact name of Registrant as Specified in its Charter)
| Delaware | 95-4591529 | |
| (State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification Number) |
5995 Plaza Drive, Cypress, California 90630
(Address of Principal Executive Offices, Including Zip Code)
(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 ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes x No ¨
There were approximately 84,259,000 shares of common stock outstanding on October 29, 2004.
PACIFICARE HEALTH SYSTEMS, INC.
FORM 10-Q
i
PACIFICARE HEALTH SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
| September 30, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and equivalents |
$ | 867,595 | $ | 1,198,422 | ||||
| Marketable securities |
1,586,605 | 1,359,720 | ||||||
| Receivables, net |
303,945 | 265,943 | ||||||
| Prepaid expenses and other current assets |
46,279 | 57,299 | ||||||
| Deferred income taxes |
119,557 | 149,817 | ||||||
| Total current assets |
2,923,981 | 3,031,201 | ||||||
| Property, plant and equipment, net |
152,920 | 149,407 | ||||||
| Marketable securities-restricted |
137,051 | 166,546 | ||||||
| Goodwill |
983,104 | 983,104 | ||||||
| Intangible assets, net |
206,269 | 221,108 | ||||||
| Other assets |
68,657 | 67,938 | ||||||
| $ | 4,471,982 | $ | 4,619,304 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Medical claims and benefits payable |
$ | 1,066,600 | $ | 1,027,500 | ||||
| Accounts payable and accrued liabilities |
498,828 | 490,810 | ||||||
| Unearned premium revenue |
94,957 | 496,480 | ||||||
| Current portion of long-term debt |
6,059 | 7,496 | ||||||
| Total current liabilities |
1,666,444 | 2,022,286 | ||||||
| Long-term debt |
472,470 | 477,700 | ||||||
| Convertible subordinated debentures |
135,000 | 135,000 | ||||||
| Deferred income taxes |
101,942 | 104,777 | ||||||
| Other liabilities |
35,572 | 28,004 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.01 par value; 200,000 shares authorized; issued and outstanding 84,230 shares in 2004 and 84,854 shares in 2003 |
842 | 848 | ||||||
| Unearned compensation |
(34,097 | ) | (16,843 | ) | ||||
| Additional paid-in capital |
1,509,770 | 1,458,310 | ||||||
| Accumulated other comprehensive income |
8,628 | 18,815 | ||||||
| Retained earnings |
575,411 | 390,407 | ||||||
| Total stockholders’ equity |
2,060,554 | 1,851,537 | ||||||
| $ | 4,471,982 | $ | 4,619,304 | |||||
All applicable share and per share amounts reflect the retroactive effects of the two-for-one common stock split in the form of a stock dividend that was effective January 20, 2004.
See accompanying notes.
1
PACIFICARE HEALTH SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Amounts in thousands, except per share data)
| Three Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Revenue: |
||||||||
| Commercial |
$ | 1,419,140 | $ | 1,264,072 | ||||
| Senior |
1,480,778 | 1,334,318 | ||||||
| Specialty and other |
181,199 | 127,577 | ||||||
| Net investment income |
24,509 | 16,200 | ||||||
| Total operating revenue |
3,105,626 | 2,742,167 | ||||||
| Expenses: |
||||||||
| Health care services and other: |
||||||||
| Commercial |
1,192,632 | 1,056,512 | ||||||
| Senior |
1,257,631 | 1,130,124 | ||||||
| Specialty and other |
101,678 | 66,019 | ||||||
| Total health care services and other |
2,551,941 | 2,252,655 | ||||||
| Selling, general and administrative expenses |
401,050 | 364,257 | ||||||
| Operating income |
152,635 | 125,255 | ||||||
| Interest expense, net |
(10,182 | ) | (16,924 | ) | ||||
| Income before income taxes |
142,453 | 108,331 | ||||||
| Provision for income taxes |
54,285 | 40,841 | ||||||
| Net income |
$ | 88,168 | $ | 67,490 | ||||
| Basic earnings per share |
$ | 1.05 | $ | 0.91 | ||||
| Diluted earnings per share |
$ | 0.94 | $ | 0.86 | ||||
All applicable share and per share amounts reflect the retroactive effects of the two-for-one common stock split in the form of a stock dividend that was effective January 20, 2004.
See accompanying notes.
2
PACIFICARE HEALTH SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Amounts in thousands, except per share data)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Revenue: |
||||||||
| Commercial |
$ | 4,219,045 | $ | 3,733,378 | ||||
| Senior |
4,332,078 | 4,059,687 | ||||||
| Specialty and other |
501,891 | 363,912 | ||||||
| Net investment income |
64,183 | 55,019 | ||||||
| Total operating revenue |
9,117,197 | 8,211,996 | ||||||
| Expenses: |
||||||||
| Health care services and other: |
||||||||
| Commercial |
3,559,411 | 3,156,147 | ||||||
| Senior |
3,730,703 | 3,427,000 | ||||||
| Specialty and other |
276,170 | 191,767 | ||||||
| Total health care services and other |
7,566,284 | 6,774,914 | ||||||
| Selling, general and administrative expenses |
1,142,525 | 1,041,100 | ||||||
| Operating income |
408,388 | 395,982 | ||||||
| Interest expense, net |
(31,852 | ) | (56,884 | ) | ||||
| Income before income taxes |
376,536 | 339,098 | ||||||
| Provision for income taxes |
145,343 | 127,840 | ||||||
| Net income |
$ | 231,193 | $ | 211,258 | ||||
| Basic earnings per share |
$ | 2.74 | $ | 2.90 | ||||
| Diluted earnings per share |
$ | 2.44 | $ | 2.76 | ||||
All applicable share and per share amounts reflect the retroactive effects of the two-for-one common stock split in the form of a stock dividend that was effective January 20, 2004.
See accompanying notes.
3
PACIFICARE HEALTH SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Amounts in thousands)
| Nine Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Operating activities: |
||||||||
| Net income |
$ | 231,193 | $ | 211,258 | ||||
| Adjustments to reconcile net income to net cash flows used in operating activities: |
||||||||
| Depreciation and amortization |
37,407 | 34,465 | ||||||
| Deferred income taxes |
32,899 | (12,119 | ) | |||||
| Stock-based compensation expense |
27,822 | 13,135 | ||||||
| Tax benefit realized upon exercise of stock-based compensation |
15,982 | 7,708 | ||||||
| Amortization of intangible assets |
14,839 | 16,477 | ||||||
| Amortization of notes receivable from sale of fixed assets |
(4,172 | ) | (4,188 | ) | ||||
| Amortization of capitalized loan fees |
3,232 | 6,376 | ||||||
| Loss on disposal of property, plant and equipment |
2,749 | 18,345 | ||||||
| Provision for doubtful accounts |
425 | 3,479 | ||||||
| Amortization of discount on 10 3/4% senior notes |
213 | 327 | ||||||
| Employee benefit plan contributions in treasury stock |
— | 1,363 | ||||||
| Changes in assets and liabilities: |
||||||||
| Receivables, net |
(41,555 | ) | (283 | ) | ||||
| Prepaid expenses and other assets |
1,087 | (29,923 | ) | |||||
| Medical claims and benefits payable |
39,100 | (6,200 | ) | |||||
| Accounts payable and accrued liabilities: |
||||||||
| Payments for Office of Personnel Management settlement, net of amounts received |
— | (10,000 | ) | |||||
| Accrued taxes |
(971 | ) | 36,390 | |||||
| Other changes in accounts payable and accrued liabilities |
27,909 | 30,427 | ||||||
| Unearned premium revenue |
(394,223 | ) | (417,998 | ) | ||||
| Net cash flows used in operating activities |
(6,064 | ) | (100,961 | ) | ||||
| Investing activities: |
||||||||
| Purchase of marketable securities, net |
(242,546 | ) | (136,617 | ) | ||||
| Purchase of property, plant and equipment |
(45,087 | ) | (37,047 | ) | ||||
| Sale of marketable securities-restricted, net |
29,495 | 17,637 | ||||||
| Proceeds from the sale of property, plant and equipment |
— | 21 | ||||||
| Net cash flows used in investing activities |
(258,138 | ) | (156,006 | ) | ||||
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