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 March 31, 2005
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 87,129,000 shares of common stock outstanding on April 29, 2005.
PACIFICARE HEALTH SYSTEMS, INC.
FORM 10-Q
INDEX
i
PACIFICARE HEALTH SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
| March 31, 2005 |
December 31, 2004 |
|||||||
| (unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and equivalents |
$ | 817,665 | $ | 824,104 | ||||
| Marketable securities |
2,007,174 | 1,936,765 | ||||||
| Receivables, net |
333,923 | 317,362 | ||||||
| Prepaid expenses and other current assets |
56,878 | 54,746 | ||||||
| Deferred income taxes |
139,318 | 148,702 | ||||||
| Total current assets |
3,354,958 | 3,281,679 | ||||||
| Property, plant and equipment, net |
226,155 | 226,594 | ||||||
| Marketable securities-restricted |
140,830 | 140,298 | ||||||
| Goodwill |
1,274,975 | 1,278,677 | ||||||
| Intangible assets, net |
221,541 | 227,122 | ||||||
| Other assets |
73,597 | 72,547 | ||||||
| $ | 5,292,056 | $ | 5,226,917 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Medical claims and benefits payable |
$ | 1,202,300 | $ | 1,192,400 | ||||
| Accounts payable and accrued liabilities |
486,990 | 514,336 | ||||||
| Unearned premium revenue |
95,068 | 89,496 | ||||||
| Current portion of long-term debt |
36,349 | 37,534 | ||||||
| Total current liabilities |
1,820,707 | 1,833,766 | ||||||
| Long-term debt |
907,707 | 916,520 | ||||||
| Convertible subordinated debentures |
135,000 | 135,000 | ||||||
| Deferred income taxes |
108,920 | 114,733 | ||||||
| Other liabilities |
43,633 | 38,460 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.01 par value; 200,000 shares authorized; issued 87,106 shares in 2005 and 85,976 shares in 2004 |
871 | 861 | ||||||
| Unearned compensation |
(62,895 | ) | (32,207 | ) | ||||
| Additional paid-in capital |
1,628,363 | 1,569,118 | ||||||
| Accumulated other comprehensive income (loss) |
(14,486 | ) | 3,498 | |||||
| Retained earnings |
724,236 | 647,168 | ||||||
| Total stockholders’ equity |
2,276,089 | 2,188,438 | ||||||
| $ | 5,292,056 | $ | 5,226,917 | |||||
See accompanying notes.
1
PACIFICARE HEALTH SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(Amounts in thousands, except per share data)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Revenue: |
||||||||
| Commercial |
$ | 1,566,332 | $ | 1,386,318 | ||||
| Senior |
1,619,705 | 1,410,113 | ||||||
| Specialty and other |
221,694 | 149,847 | ||||||
| Net investment income |
27,892 | 17,845 | ||||||
| Total operating revenue |
3,435,623 | 2,964,123 | ||||||
| Expenses: |
||||||||
| Health care services and other: |
||||||||
| Commercial |
1,288,400 | 1,168,563 | ||||||
| Senior |
1,408,941 | 1,224,961 | ||||||
| Specialty and other |
132,332 | 81,072 | ||||||
| Total health care services and other |
2,829,673 | 2,474,596 | ||||||
| Selling, general and administrative expenses |
449,131 | 369,052 | ||||||
| Operating income |
156,819 | 120,475 | ||||||
| Interest expense, net |
(16,777 | ) | (10,817 | ) | ||||
| Income before income taxes |
140,042 | 109,658 | ||||||
| Provision for income taxes |
54,336 | 42,657 | ||||||
| Net income |
$ | 85,706 | $ | 67,001 | ||||
| Basic earnings per share |
$ | 1.00 | $ | 0.80 | ||||
| Diluted earnings per share |
$ | 0.89 | $ | 0.71 | ||||
See accompanying notes.
2
PACIFICARE HEALTH SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(Amounts in thousands)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Operating activities: |
||||||||
| Net income |
$ | 85,706 | $ | 67,001 | ||||
| Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
15,133 | 12,016 | ||||||
| Tax benefit realized for stock option exercises |
12,273 | 9,811 | ||||||
| Deferred income taxes |
11,066 | 2,215 | ||||||
| Stock-based compensation expense |
7,064 | 9,452 | ||||||
| Amortization of intangible assets |
5,581 | 4,946 | ||||||
| Amortization of notes receivable from sale of fixed assets |
(1,296 | ) | (1,360 | ) | ||||
| Recovery of doubtful accounts |
(1,293 | ) | (1,220 | ) | ||||
| Amortization of capitalized loan fees |
1,034 | 1,077 | ||||||
| Loss on disposal of property, plant and equipment and other |
309 | 205 | ||||||
| Amortization of discount on 10 3/4% senior notes |
71 | 71 | ||||||
| Changes in assets and liabilities net of effects of acquisition: |
||||||||
| Receivables, net |
(13,972 | ) | (47,373 | ) | ||||
| Prepaid expenses and other assets |
(4,216 | ) | (12,615 | ) | ||||
| Medical claims and benefits payable |
9,900 | 77,000 | ||||||
| Accounts payable and accrued liabilities: |
||||||||
| Accrued taxes |
17,838 | 32,240 | ||||||
| Other changes in accounts payable and accrued liabilities |
(22,586 | ) | 10,285 | |||||
| Unearned premium revenue |
5,572 | (381,782 | ) | |||||
| Net cash flows provided by (used in) operating activities |
128,184 | (218,031 | ) | |||||
| Investing activities: |
||||||||
| Purchase of marketable securities, net |
(99,683 | ) | (58,689 | ) | ||||
| Purchase of property, plant and equipment |
(15,003 | ) | (14,241 | ) | ||||
| Acquisitions, net of cash acquired |
(7,357 | ) | — | |||||
| Sale (purchase) of marketable securities-restricted, net |
(532 | ) | 29,190 | |||||
| Net cash flows used in investing activities |
(122,575 | ) | (43,740 | ) | ||||
| Financing activities: |
||||||||
| Purchase and retirement of common stock |
(12,671 | ) | (2,512 | ) | ||||
| Proceeds from issuance of common stock |
10,692 | 21,246 | ||||||
| Principal payments on long-term debt |
(8,713 | ) | (491 | ) | ||||
| Payments on software financing agreements |
(1,356 | ) | (2,605 | ) | ||||
| Net cash flows provided by (used in) financing activities |
(12,048 | ) | 15,638 | |||||
| Net decrease in cash and equivalents |
(6,439 | ) | (246,133 | ) | ||||
| Beginning cash and equivalents |
824,104 | 1,198,422 | ||||||
| Ending cash and equivalents |
$ | 817,665 | $ | 952,289 | ||||
Table continued on next page.
See accompanying notes.
3
PACIFICARE HEALTH SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(unaudited)
(Amounts in thousands)
| Three Months Ended March 31, |
||||||||
| 2005 |
2004 |
|||||||
| Supplemental cash flow information: |
||||||||
| Cash paid during the period for: |
||||||||
| Income taxes, net of refunds |
$ | 6,071 | $ | 439 | ||||
| Interest |
$ | 13,542 | $ | 7,995 | ||||
| Supplemental schedule of noncash investing and financing activities: |
||||||||
| Details of accumulated other comprehensive income (loss): |
||||||||
| Change in market value of marketable securities |
$ | (29,274 | ) | $ | 9,737 | |||
| Decrease (increase) in deferred income taxes |
11,290 | (2,541 | ) | |||||
| Change in stockholders’ equity |
$ | (17,984 | ) | $ | 7,196 | |||
| Stock-based compensation |
$ | 2,193 | $ | 3,674 | ||||
| Discount on 10 3/4% senior notes |
$ | (1,174 | ) | $ | (1,458 | ) | ||
| Details of businesses acquired in purchase transactions: |
||||||||
| Adjustment to fair value of assets acquired |
$ | (3,702 | ) | $ | — | |||
| Adjustment to liabilities assumed |
$ | 3,702 | $ | — | ||||