-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pq5Zrm8VwBNlzS0wwXFeel4wvN2BaoGMRqH3eGUmj4uP+4bgVwHnqa6lOLqn4rLk b1nAY/ZI5n2NdIQdUUuT7A== 0000892569-99-001818.txt : 19990701 0000892569-99-001818.hdr.sgml : 19990701 ACCESSION NUMBER: 0000892569-99-001818 CONFORMED SUBMISSION TYPE: 11-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990630 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFICARE HEALTH SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0001027974 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 954591529 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 11-K SEC ACT: SEC FILE NUMBER: 000-21949 FILM NUMBER: 99656369 BUSINESS ADDRESS: STREET 1: 3120 LAKE CENTER DRIVE CITY: SANTA ANA STATE: CA ZIP: 92704 BUSINESS PHONE: 7148255200 MAIL ADDRESS: STREET 1: 3120 LAKE CENTER DRIVE CITY: SANTA ANA STATE: CA ZIP: 92704 FORMER COMPANY: FORMER CONFORMED NAME: N T HOLDINGS INC DATE OF NAME CHANGE: 19961204 11-K 1 FORM 11-K FOR THE FISCAL YEAR ENDED 12/31/98. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 11-K FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 000-21949 A. FULL TITLE OF THE PLAN AND THE ADDRESS OF THE PLAN, IF DIFFERENT FROM THAT OF THE ISSUER NAMED BELOW: THE PACIFICARE HEALTH SYSTEMS, INC. SAVINGS AND PROFIT-SHARING PLAN B. NAME OF ISSUER OF THE SECURITIES HELD PURSUANT TO THE PLAN AND THE ADDRESS OF ITS PRINCIPAL EXECUTIVE OFFICE: PACIFICARE HEALTH SYSTEMS, INC. 3120 LAKE CENTER DRIVE SANTA ANA, CA 92704 2 Financial Statements and Supplemental Schedules The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Years ended December 31, 1998 and 1997 with Report of Independent Auditors 3 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Financial Statements and Supplemental Schedules Years ended December 31, 1998 and 1997 CONTENTS Report of Independent Auditors.......................................................1 Financial Statements Statements of Net Assets Available for Benefits with Fund Information..............................................................2 Statements of Changes in Net Assets Available for Benefits with Fund Information..............................................................4 Notes to Financial Statements........................................................6 Supplemental Schedules Line 27 (a) - Schedule of Assets Held for Investment Purposes.......................15 Line 27 (b) - Schedule of Loans or Fixed Income Obligations.........................19 Line 27 (d) - Schedule of Reportable Transactions...................................20 Signature Page......................................................................21 Exhibit Index.......................................................................22 Exhibit 23 -- Consent of Ernst & Young LLP..........................................23
4 Report of Independent Auditors PacifiCare Health Systems, Inc. as Plan Administrator for The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan We have audited the accompanying statements of net assets available for benefits of The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan as of December 31, 1998 and 1997, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan at December 31, 1998 and 1997, and the changes in its net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the financial statements taken as a whole. The accompanying supplemental schedules of assets held for investment purposes and loans or fixed income obligations as of December 31, 1998, and reportable transactions for the year then ended, are presented for purposes of additional analysis and are not a required part of the financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan's management. The fund information in the statements of net assets available for benefits and the statements of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for benefits and changes in net assets available for benefits of each fund. The supplemental schedules and the fund information have been subjected to the auditing procedures applied in our audits of the financial statements and, in our opinion, are fairly stated in all material respects in relation to the financial statements taken as a whole. ERNST & YOUNG LLP Los Angeles, California June 23, 1999 5 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Statements of Net Assets Available for Benefits with Fund Information December 31, 1998
PUTNAM INVESTMENTS ------------------------------------------------------------------------ GROWTH AND GLOBAL MONEY INCOME INCOME GROWTH VOYAGER MARKET ------------------------------------------------------------------------ Investments, at fair value: Mutual funds $ 23,343,783 $ 4,695,025 $ 16,390,175 $ 35,980,282 $ 4,254,354 Common stocks -- -- -- -- -- Corporate bonds -- -- -- -- -- U.S. securities -- -- -- -- -- Short-term income fund -- -- -- -- -- Participant loans receivable -- -- -- -- -- ------------------------------------------------------------------------ Total investments 23,343,783 4,695,025 16,390,175 35,980,282 4,254,354 Contributions receivable: Employee -- -- -- -- -- Employer -- -- -- -- -- Dividends receivable -- -- -- -- -- Interest income receivable -- -- -- -- -- ------------------------------------------------------------------------ Net assets available for benefits $ 23,343,783 $ 4,695,025 $ 16,390,175 $ 35,980,282 $ 4,254,354 ========================================================================
MANAGED PACIFICARE PARTICIPANT CONTRIBUTIONS ASSETS STOCK FUND LOANS RECEIVABLE TOTAL ------------------------------------------------------------------------ Investments, at fair value: Mutual funds $ -- $ -- $ -- $ -- $ 84,663,619 Common stocks 46,843,037 2,303,592 -- -- 49,146,629 Corporate bonds 3,302,186 -- -- -- 3,302,186 U.S. securities 25,640,224 -- -- -- 25,640,224 Short-term income fund 3,567,187 92,698 -- -- 3,659,885 Participant loans receivable -- -- 2,486,259 -- 2,486,259 ------------------------------------------------------------------------ Total investments 79,352,634 2,396,290 2,486,259 -- 168,898,802 Contributions receivable: Employee -- -- -- 1,127,594 1,127,594 Employer -- -- -- 10,153,187 10,153,187 Dividends receivable 69,133 -- -- -- 69,133 Interest income receivable 449,999 -- -- -- 449,999 ------------------------------------------------------------------------ Net assets available for benefits $ 79,871,766 $ 2,396,290 $ 2,486,259 $ 11,280,781 $180,698,715 ========================================================================
See accompanying notes. 2 6 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Statements of Net Assets Available for Benefits with Fund Information December 31, 1997
PUTNAM INVESTMENTS ------------------------------------------------------------------------ GROWTH AND GLOBAL MONEY INCOME INCOME GROWTH VOYAGER MARKET ------------------------------------------------------------------------ Investments, at fair value: Mutual funds $ 18,085,644 $ 3,155,533 $ 10,770,358 $ 25,356,228 $ 2,815,680 Common stocks -- -- -- -- -- Corporate bonds -- -- -- -- -- U.S. securities -- -- -- -- -- Short-term income fund -- -- -- -- -- Participant loans receivable -- -- -- -- -- ------------------------------------------------------------------------ Total investments 18,085,644 3,155,533 10,770,358 25,356,228 2,815,680 Dividends receivable -- -- -- -- -- Interest income receivable -- -- -- -- -- ------------------------------------------------------------------------ Net assets available for benefits $ 18,085,644 $ 3,155,533 $ 10,770,358 $ 25,356,228 $ 2,815,680 ========================================================================
MANAGED PARTICIPANT ASSETS LOANS TOTAL ------------------------------------------ Investments, at fair value: Mutual funds $ -- $ -- $ 60,183,443 Common stocks 45,997,149 -- 45,997,149 Corporate bonds 3,804,191 -- 3,804,191 U.S. securities 24,083,538 -- 24,083,538 Short-term income fund 680,967 -- 680,967 Participant loans receivable -- 1,830,289 1,830,289 ------------------------------------------ Total investments 74,565,845 1,830,289 136,579,577 Dividends receivable 63,381 -- 63,381 Interest income receivable 364,324 -- 364,324 ------------------------------------------ Net assets available for benefits $ 74,993,550 $ 1,830,289 $137,007,282 ==========================================
See accompanying notes. 3 7 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Statements of Changes in Net Assets Available for Benefits with Fund Information Year ended December 31, 1998
PUTNAM INVESTMENTS --------------------------------------------------------------------------- GROWTH AND GLOBAL MONEY INCOME INCOME GROWTH VOYAGER MARKET --------------------------------------------------------------------------- Contributions: Employee $ 4,761,707 $ 1,263,458 $ 2,921,488 $ 6,771,133 $ 1,394,222 Employer 1,448,152 424,174 940,999 2,068,710 447,165 Net investment income: Interest income -- -- -- -- -- Dividends 2,044,144 248,445 477,938 2,415,969 196,446 Net realized/unrealized appreciation (depreciation) 828,355 (117,934) 2,888,828 4,148,395 -- --------------------------------------------------------------------------- Total additions 9,082,358 1,818,143 7,229,253 15,404,207 2,037,833 Benefit and withdrawal payments to participants 2,512,977 364,857 1,535,469 3,509,834 1,462,954 Administration fees 135,417 27,118 89,268 196,513 27,239 Forfeitures taken -- -- -- -- 1,135,000 --------------------------------------------------------------------------- Total deductions 2,648,394 391,975 1,624,737 3,706,347 2,625,193 Net increase (decrease) before interfund transfers 6,433,964 1,426,168 5,604,516 11,697,860 (587,360) Interfund transfers (1,175,825) 113,324 15,301 (1,073,806) 2,026,034 --------------------------------------------------------------------------- Net increase 5,258,139 1,539,492 5,619,817 10,624,054 1,438,674 Net assets available for benefits: Beginning of year 18,085,644 3,155,533 10,770,358 25,356,228 2,815,680 --------------------------------------------------------------------------- End of year $ 23,343,783 $ 4,695,025 $ 16,390,175 $ 35,980,282 $ 4,254,354 ===========================================================================
MANAGED PACIFICARE PARTICIPANT CONTRIBUTIONS ASSETS STOCK FUND LOANS RECEIVABLE TOTAL -------------------------------------------------------------------------- Contributions: Employee $ 2,025,981 $ 532,378 $ -- $ 1,127,594 $ 20,797,961 Employer 6,546,155 73,973 -- 10,153,187 22,102,515 Net investment income: Interest income 2,107,499 2,994 188,310 -- 2,298,803 Dividends 797,720 -- -- -- 6,180,662 Net realized/unrealized appreciation (depreciation) 3,603,599 315,849 -- -- 11,667,092 -------------------------------------------------------------------------- Total additions 15,080,954 925,194 188,310 11,280,781 63,047,033 Benefit and withdrawal payments to participants 7,272,815 19,112 196,100 -- 16,874,118 Administration fees 862,499 8,428 -- -- 1,346,482 Forfeitures taken -- -- -- -- 1,135,000 -------------------------------------------------------------------------- Total deductions 8,135,314 27,540 196,100 -- 19,355,600 Net increase (decrease) before interfund transfers 6,945,640 897,654 (7,790) 11,280,781 43,691,433 Interfund transfers (2,067,424) 1,498,636 663,760 -- -- ------------ ------------ ------------ ------------ ------------ Net increase 4,878,216 2,396,290 655,970 11,280,781 43,691,433 Net assets available for benefits: Beginning of year 74,993,550 -- 1,830,289 -- 137,007,282 -------------------------------------------------------------------------- End of year $ 79,871,766 $ 2,396,290 $ 2,486,259 $ 11,280,781 $180,698,715 ==========================================================================
See accompanying notes. 4 8 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Statements of Changes in Net Assets Available for Benefits with Fund Information Year ended December 31, 1997
PUTNAM INVESTMENTS --------------------------------------------------------------------------- GROWTH AND GLOBAL MONEY INCOME INCOME GROWTH VOYAGER MARKET ------------ ------------ ------------ ------------ ------------ Contributions: Employee $ 785,255 $ 180,917 $ 633,134 $ 1,317,933 $ 931,688 Employer 2,270,371 517,467 1,794,340 3,834,572 414,468 Net investment income: Interest income -- -- -- -- -- Dividends 2,298,505 192,095 1,917,370 1,494,178 140,794 Net realized/unrealized appreciation (depreciation) 937,784 45,128 (759,992) 3,425,064 6,620 ------------ ------------ ------------ ------------ ------------ Total additions 6,291,915 935,607 3,584,852 10,071,747 1,493,570 Benefit and withdrawal payments to participants 1,479,968 227,897 910,625 1,909,510 1,404,692 Administration fees 16,126 3,665 10,743 21,831 3,719 ------------ ------------ ------------ ------------ ------------ Total deductions 1,496,094 231,562 921,368 1,931,341 1,408,411 ------------ ------------ ------------ ------------ ------------ Net increase (decrease) before interfund transfers 4,795,821 704,045 2,663,484 8,140,406 85,159 Interfund transfers 804,245 (101,411) 288,841 (499,933) 241,669 ------------ ------------ ------------ ------------ ------------ Net increase 5,600,066 602,634 2,952,325 7,640,473 326,828 Net assets available for benefits: Beginning of year 12,485,578 2,552,899 7,818,033 17,715,755 2,488,852 ------------ ------------ ------------ ------------ ------------ End of year $ 18,085,644 $ 3,155,533 $ 10,770,358 $ 25,356,228 $ 2,815,680 ============ ============ ============ ============ ============
MANAGED PARTICIPANT ASSETS LOANS TOTAL ------------ ------------ ------------ Contributions: Employee $ 4,183,075 $ -- $ 8,032,002 Employer 2,063,875 -- 10,895,093 Net investment income: Interest income 1,867,766 164,676 2,032,442 Dividends 964,702 -- 7,007,644 Net realized/unrealized appreciation (depreciation) 9,606,412 -- 13,261,016 ------------ ------------ ------------ Total additions 18,685,830 164,676 41,228,197 Benefit and withdrawal payments to participants 7,528,343 175,767 13,636,802 Administration fees 396,410 -- 452,494 ------------ ------------ ------------ Total deductions 7,924,753 175,767 14,089,296 ------------ ------------ ------------ Net increase (decrease) before interfund transfers 10,761,077 (11,091) 27,138,901 Interfund transfers (1,156,554) 423,143 -- ------------ ------------ ------------ Net increase 9,604,523 412,052 27,138,901 Net assets available for benefits: Beginning of year 65,389,027 1,418,237 109,868,381 ------------ ------------ ------------ End of year $ 74,993,550 $ 1,830,289 $137,007,282 ============ ============ ============
See accompanying notes. 5 9 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Notes to Financial Statements December 31, 1998 1. DESCRIPTION OF PLAN GENERAL The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan (the "Plan"), effective July 1, 1985, as amended, is a defined contribution profit-sharing plan that covers employees of PacifiCare Health Systems, Inc. and subsidiaries (the "Company"), and is subject to the Employee Retirement Income Security Act of 1974 ("ERISA"). The Plan was amended and restated in its entirety effective February 19, 1998 to establish a new investment fund that invests primarily in shares of the Company's Class B Common Stock, to include certain subsidiaries as sponsoring employers of the Plan, and to comply with certain amendments and changes to the Internal Revenue Code (the "Code"). As amended and restated, the Plan is intended to comply with Code sections 401, 401(k) and 402(a), and is also an eligible individual account plan as defined in ERISA Section 407(d)(3), and provides for the acquisition and holding of qualifying employer securities, as defined in ERISA Section 401(d)(5). The assets of the following plans sponsored by subsidiaries of the Company were transferred into the Plan: PacifiCare of Washington, Inc., 401(k) Plan effective November 1, 1996; Preferred Solutions, Inc. 401(k) Plan, and D.P.A. Employees Investment Plan and Trust effective January 1, 1996. Employees are fully vested in contributions relating to these plans. The following description of the Plan provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan's provisions. CONTRIBUTIONS AND BENEFITS Employees are eligible to make contributions to the Plan after 12 months of employment with 1,000 hours of service. Participants may elect to defer the receipt of a portion (in whole percentages not less than 2%, nor more than 12%) of their compensation (deferred savings account). All employees were limited to a contribution of $10,000 and $9,500 in 1998 and 1997, respectively, by Code Section 402(g). If any participant's compensation deferral for a year exceeds the maximum allowable for that year, the excess contribution is returned to the Company and then paid to the participant as taxable compensation. Furthermore, Code Section 401(k) and the Plan limit the amount certain highly compensated individuals may contribute, based on amounts contributed by lower compensated individuals. 6 10 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 1. DESCRIPTION OF PLAN (CONTINUED) CONTRIBUTIONS AND BENEFITS (CONTINUED) The Company makes annual mandatory contributions to participants' accounts equal to 2% of all eligible compensation paid (profit-sharing account). Each participant's profit-sharing account is credited with an amount equal to 2% of his or her eligible compensation received during the year. The Company also contributes a matching amount on behalf of each participant equal to 50% of the amount of compensation deferred by each participant to a maximum of 3% of the participant's eligible compensation (matching account). The Company may also contribute an additional amount (discretionary profit-sharing account) at its sole discretion, as determined by the Company's Board of Directors, based on the financial success of the Company. The Company contributed $9,300,000 for the year ended December 31, 1998 and zero in 1997. The Company's discretionary contribution is allocated to active participants' accounts in proportion to their eligible compensation. Pursuant to this allocation, eligible compensation was limited to $81,000 in 1998 and 1997, respectively. Participants are immediately and fully vested in their 2% profit-sharing account and deferred savings account. Participants vest in their matching account and discretionary profit-sharing account at the rate of 10% per year for the first four years of service and 20% per year for the next three years of service. Participants become fully vested in their matching account in the event of death, disability or reaching normal retirement age. Forfeited balances of terminated participants' nonvested accounts are used to reduce future Company contributions. The balance of forfeited nonvested accounts was $350,512 and $1,306,289 as of December 31, 1998 and 1997, respectively. The income of the Plan, together with any gains or losses in the value of the investments, increase or decrease participants' accounts proportionately based on the relationship of their account balances to total account balances. 7 11 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 1. DESCRIPTION OF PLAN (CONTINUED) CONTRIBUTIONS AND BENEFITS (CONTINUED) No amounts are payable prior to the participant's normal retirement, death, disability or termination of employment. In cases of termination, the participant may elect to defer payment until five years after the normal retirement date, age 65. Retirement and disability payments greater than $5,000 may be paid in a lump sum, an annuity, or in substantially equal installments. All payments less than $5,000 will be paid in a lump sum. Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. The fully vested accounts would become payable as determined by the Administrative Committee. PARTICIPANT LOANS Plan participants may borrow, as a loan from their accumulated contributions, a minimum of $1,000 and up to a maximum of the lesser of $50,000 or 50% of their vested account balance. Loan terms generally range from 1 to 5 years or up to 10 years for hardship circumstances as defined by the Plan. The loans are secured by the balance in the participant's account and bear interest at 2% above the current prime rate. Principal and interest is paid ratably through biweekly payroll deductions. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES VALUATION OF INVESTMENTS Investments in mutual funds are carried at fair value based on the quoted market price of the underlying investments. Quoted market prices are used to value common stocks, corporate bonds and U.S. securities. 8 12 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) VALUATION OF INVESTMENTS (CONTINUED) Investments in participating units in Wells Fargo Bank's (formerly First Interstate Bank) short-term income fund are stated at redemption price which approximates cost. Purchases and sales of investments are reflected on the trade dates. Participant loans are recorded at cost, which approximates fair value at December 31, 1998 and 1997. INVESTMENT INCOME Interest and dividends are recorded as earned. Realized and unrealized net investment gains or losses are recorded based on the cost of units held by the Plan and fluctuations in the fair value of the underlying investments. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. ADMINISTRATION OF PLAN ASSETS The assets of the Plan are administered by the Plan's Administrative Committee, appointed by the Company's Board of Directors, with the assistance of the Trustees, Putnam Investments ("Putnam") and Wells Fargo Bank ("Wells Fargo"). Under the trust agreement, the Trustees hold the trust assets and make payments as directed by the Administrative Committee. Discretion as to investment decisions for the Plan's profit-sharing and discretionary profit-sharing accounts lies with the Administrative Committee, which is assisted by an investment advisor. Effective June 1, 1995, participants are permitted to direct the investment of their deferred savings and matching accounts among investment options selected by the Administrative Committee (see Note 4). The Plan pays all administrative expenses. 9 13 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 4. INVESTMENT OPTIONS The individual accounts of each participant are held and invested by the Trustees, Wells Fargo and Putnam, in one or more of the following investments in accordance with the investment options selected by the participant or the Company, as appropriate (seven options in 1998, six in 1997). PUTNAM GROWTH AND INCOME FUND Funds are invested in shares of a registered investment company that invests in U.S. and foreign common stocks that offer potential capital growth, current income or both. PUTNAM INCOME FUND Funds are invested in shares of a registered investment company that invests in a variety of government and corporate debt securities, preferred stocks and dividend-paying common stocks. PUTNAM GLOBAL GROWTH FUND Funds are invested in shares of a registered investment company that invests in common stocks traded in securities markets located in a number of foreign countries and in the United States. PUTNAM VOYAGER FUND Funds are invested in shares of a registered investment company that invests in common stocks of companies that Putnam Management believes have potential for capital appreciation that is significantly greater than that of the market averages. PUTNAM MONEY MARKET FUND Funds are invested in shares of a registered investment company that invests in bank certificates of deposit, bankers' acceptances, commercial paper, short-term corporate obligations, short-term municipal obligations, U.S. government securities and U.S. Treasury or U.S. repurchase agreements. 10 14 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 4. INVESTMENT OPTIONS (CONTINUED) MANAGED ASSETS Assets managed by a company that specializes in the management of conservative, balanced portfolios using high quality stocks and short- to intermediate-term fixed income securities. PACIFICARE STOCK FUND In 1998, the Plan was amended to offer participants the opportunity to invest in Class B common stock of the Company. Participants may change their investment options once a quarter for investments in the deferred savings and the matching accounts. However, investments in the profit-sharing and discretionary profit-sharing accounts are restricted to the Managed Assets investment vehicle. 5. INVESTMENTS During 1998 and 1997, the Plan held investments managed by an investment management company that invested in common stocks, corporate and foreign bonds and U.S. government securities in addition to participating units in Wells Fargo Bank's short-term income fund based upon the guidance provided by the investment advisor. Investments in participating units in Wells Fargo's short-term income fund held by the Trustee for the Plan at December 31, 1998 and 1997, were $3,659,885 and $680,967 (at cost, which approximates fair value), respectively. 11 15 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 5. INVESTMENTS (CONTINUED) Investments in Wells Fargo's short-term income fund are party-in-interest transactions with the Trustee for which a statutory exemption exists. Purchases, sales and income related to these investments during the years ended December 31, 1998 and 1997, were as follows:
REINVESTED YEAR ENDED INTEREST DECEMBER 31, PURCHASES SALES INCOME ------------ ----------------------------------------------------- 1998 $84,394,642 $81,365,811 $ 136,120 ===================================================== 1997 $39,130,427 $38,834,325 $ 61,677 =====================================================
The Plan's investments (including investments bought, sold and held during the year) appreciated in fair value by $11,667,092 and $13,261,016 during 1998 and 1997, respectively, as follows:
NET APPRECIATION (DEPRECIATION) IN FAIR VALUE DURING YEAR --------------------------------- 1998 1997 ------------ ------------ Investments at fair value as determined by quoted market prices: Common stocks $ 3,587,077 $ 9,245,565 Corporate bonds (4,768) (4,107) U.S. government securities 337,139 364,954 Putnam mutual funds 7,747,644 3,654,604 ------------ ------------ Net change in fair value $ 11,667,092 $ 13,261,016 ============ ============
12 16 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 6. INCOME TAX STATUS The Plan has received a determination letter from the Internal Revenue Service dated January 25, 1996, stating that the Plan is qualified, in form, under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan is qualified and the related trust is tax exempt. Subsequent amendments have been structured to, and are intended to, maintain the Plan's tax qualified status. 7. RECONCILIATION TO FORM 5500 Net assets available for benefits and benefit payments as recorded in these financial statements differ from amounts reported in the Company's Form 5500 as filed with the Department of Labor. In these financial statements, pursuant to generally accepted accounting principles, accrued benefits payable of $686,008 and $1,539,467 at December 31, 1998 and 1997, respectively, are not recognized until paid. 8. YEAR 2000 (UNAUDITED) The Company has implemented a Year 2000 compliance program to address all major computing information systems, networks, desktop systems, infrastructure and critical information supply chains. In addition, the Company is verifying that all date fields and calculations used in critical business processes will be Year 2000 compliant. As part of this program the Company is also addressing external Year 2000 related risks which arise from the Year 2000 readiness of third parties with whom the Company and the Plan maintain ongoing relationships. As part of its Year 2000 compliance program, the Company is contacting third-party vendors, provider and hospital networks, business partners, contractors, and service providers to assess their level of Year 2000 readiness. In some cases, the Company is requiring reasonable assurance with respect to Year 2000 compliance. The priority is to assess the readiness of providers and 13 17 The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan Notes to Financial Statements (continued) 8. YEAR 2000 (UNAUDITED) (CONTINUED) other third parties with which the Company electronically exchanges data or interacts. Because the Company does not control the products, services, or systems of providers, vendors or customers, the Company cannot ensure their Year 2000 compliance. The Company is developing business process contingency plans in order to mitigate the impact of potential Year 2000 non-compliance by providers, vendors and customers. 9. SUBSEQUENT EVENTS CONTRIBUTION AND BENEFIT CHANGES Effective January 1, 1999, the Company implemented five contribution and benefit changes to the Plan: (i) the Company increased mandatory annual contributions to participants' accounts from 2% to 3% (profit-sharing account), (ii) the Company increased maximum participant contributions (subject to IRS limits) from 12% to 15%, (iii) the Company shortened the vesting schedule from seven years to four years, (iv) the Company increased the number of investment options from seven funds to nine funds, and (v) employees are eligible to participate in the Plan on the first of the month after completing 75 days of service. TRANSFER OF ASSETS FROM THE FHP SAVINGS PLAN AND FHP MONEY PURCHASE PENSION PLAN On February 14, 1997, the Company acquired FHP International Corporation. On December 31, 1998, FHP terminated the FHP Money Purchase Pension Plan and the assets from the pension plan were transferred to the Plan. On April 1, 1999, assets and liabilities attributable to the FHP employees contained in the FHP Savings Plan were transferred to the Plan. As a result of the transfers from the pension plan and the FHP Savings Plan, assets totaling $85,129,175 were transferred to the Plan. Former FHP Savings Plan participants are eligible to participate and are subject to all Plan benefit and contribution policies. COMBINATION OF CLASS A AND CLASS B COMMON STOCK At the Company's June 24, 1999 annual meeting, the Company's Class A and Class B common stockholders approved an amended and restated certificate of incorporation. The amended and restated certificate combined and reclassified the Company's Class A and Class B common stock into a single class of voting common stock. Management believes that this transaction will not have a material impact on the Plan. 14 18 Supplemental Schedules 19 PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan EIN: 33-0064895 Plan: 001 Line 27(a) - Schedule of Assets Held for Investment Purposes December 31, 1998
SHARES OR CURRENT PAR VALUE IDENTITY OF ISSUE COST VALUE - -------------------------------------------------------------------------------------- MUTUAL FUNDS 1,139,277 Putnam Growth and Income Fund* $ 21,023,893 $ 23,343,783 678,472 Putnam Income Fund Class A #A04* 4,755,335 4,695,025 1,316,480 Putnam Global Growth Fund Class A* 14,092,563 16,390,175 1,641,436 Putnam Voyager Fund Class A* 28,410,482 35,980,282 4,254,354 Putnam Money Market Fund Class A* 4,254,354 4,254,354 --------------------------- TOTAL MUTUAL FUNDS 72,536,627 84,663,619 COMMON STOCKS 28,000 American Greetings Corp. Class A 821,525 1,149,750 27,800 American Home Products Corp. 1,031,748 1,567,225 21,700 Amoco Corp. 1,104,522 1,299,288 23,250 Aon Corp. 529,133 1,287,469 19,900 AT&T Corp. 1,250,884 1,507,425 15,050 Bankamerica Corp. New 1,157,002 904,881 14,300 Baxter International Inc. 863,704 919,669 18,700 Bestfoods 898,572 995,775 34,500 Burlington Northern Santa Fe Corp. 774,028 1,181,625 15,500 Citigroup Inc. 1,050,516 770,156 10,000 Consolidated Natural Gas Co. 510,921 540,000 16,000 Diageo PLC - Spons ADR 694,813 740,000 17,600 Elf Aquitaine Spons ADR 873,752 996,600 39,100 Entergy Corp. 1,125,960 1,216,988 16,400 First Union Corp. 787,789 997,325 30,000 Fleet Financial Group Inc. 1,037,838 1,340,625 34,700 Fort James Corp. 1,412,739 1,388,000 20,100 Gannett Corp. 593,104 1,296,450 20,500 Hewlett Packard Co. 1,185,253 1,400,406 29,132 Household International Inc. 668,263 1,154,356 6,500 International Business Machines Corp. 280,746 1,198,438 12,200 Loews Corp. 1,125,837 1,198,650 8,300 Magna International Inc. Class A 576,125 514,600 38,200 Masco Corp. 565,796 1,098,250 18,200 Mattel Inc. 588,383 427,700 23,758 MCI Worldcom Inc. 514,478 1,704,637 17,640 National City Corp. 1,084,201 1,278,900
15 20 PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan EIN: 33-0064895 Plan: 001 Line 27 (a) - Schedule of Assets Held for Investment Purposes (continued) December 31, 1998
SHARES OR CURRENT PAR VALUE IDENTITY OF ISSUE COST VALUE - -------------------------------------------------------------------------------------- COMMON STOCKS (CONTINUED) 44,000 Nordstrom Inc. $ 1,180,123 $ 1,526,250 28,976 PacifiCare Health Systems Class B* 2,033,880 2,303,592 32,100 Philip Morris Companies Inc. 690,372 1,717,350 30,400 Praxair Inc. 1,308,848 1,071,600 11,400 Providian Financial Corp. 166,463 855,000 28,000 Raytheon Co. Class B 1,242,876 1,491,000 1,511 Raytheon Co. Class A 78,934 78,100 18,200 SBC Communications Inc. 446,723 975,975 17,500 Schlumberger Ltd. 1,298,704 811,562 26,600 Shell Tran & Trade PLC NY SH 933,509 989,187 53,700 Sherwin Williams Co. 1,642,523 1,577,437 18,900 Torchmark Corp. 702,945 667,406 43,500 USX Marathon Group 1,430,235 1,310,437 790 Waddell & Reed Financial Inc. 16,029 18,713 3,404 Waddell & Reed Financial Inc.Class B 68,859 79,143 31,080 Washington Mutual Inc. 402,100 1,192,695 32,500 Williams Cos Inc. 887,784 1,013,594 11,800 Xerox Corp. 584,860 1,392,400 --------------------------- TOTAL COMMON STOCKS 38,223,399 49,146,629 CORPORATE BONDS 500,000 Banc One Corp. 7.00% due 3/25/02 502,410 522,935 325,000 Bankamerica Corp. 7.50% due 10/15/02 347,038 345,339 200,000 BP America Inc. 9.375% due 11/01/00 222,228 214,726 300,000 British Telecom 9.375% due 2/15/99 329,091 301,251 175,000 CNA Financial Corp. 6.25% due 11/15/03 170,436 174,060 400,000 Consolidated Rail 9.75% due 6/01/00 446,680 422,132 500,000 Ford Motor Credit Corp. 6.625% due 6/30/03 513,415 520,560 500,000 International Lease 5.75% due 1/15/99 503,090 500,070 300,000 Mobil Corp. 7.25% due 3/15/99 295,272 301,113 --------------------------- TOTAL CORPORATE BONDS 3,329,660 3,302,186
16 21 PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan EIN: 33-0064895 Plan: 001 Line 27 (a) - Schedule of Assets Held for Investment Purposes (continued) December 31, 1998
SHARES OR CURRENT PAR VALUE IDENTITY OF ISSUE COST VALUE - -------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES 300,000 Federal National Mtg. Assoc. 8.25% due 12/18/00 $ 317,156 $ 317,814 300,000 FHLMC Multiclass Mtg. 5.75% due 4/15/11 277,781 299,904 77,908 FHLMC Multiclass Mtg. 6.70% due 8/15/05 78,809 78,101 200,000 FNMA REMIC 92-193GB 7.00% due 1/25/06 209,625 202,218 264,519 FNMA REMIC 93-15E 6.75% due 1/25/05 272,072 264,353 213,228 FNMA REMIC 93-82C 6.00% due 7/25/15 212,762 212,827 99,645 GNMA II Pool #210419 8.00% due 4/20/17 105,126 104,062 62,921 GNMA Pool #255800 9.00% due 7/15/18 65,989 67,699 26,936 GNMA Pool #284915 9.00% due 3/15/20 28,620 28,948 357,140 GNMA Pool #291100 9.00% due 5/15/20 379,238 383,812 175,591 GNMA Pool #310888 9.00% due 6/15/21 188,047 188,593 193,455 GNMA Pool #311088 9.00%due 7/15/21 207,843 207,780 302,915 GNMA Pool #311458 8.00% due 6/15/22 312,192 315,695 196,364 GNMA Pool #319100 8.00% due 5/15/22 203,482 204,648 184,254 GNMA Pool #319134 8.50% due 4/15/22 189,091 195,942 42,861 GNMA Pool #320086 8.00% due 7/15/22 45,340 44,670 259,762 GNMA Pool #323135 8.00% due 6/15/22 270,396 270,721 312,918 GNMA Pool #328105 8.00% due 8/15/22 329,151 326,120 74,424 GNMA Pool #330100 7.50% due 2/15/23 76,052 76,796 115,526 GNMA Pool #342434 7.50% due 1/15/23 114,551 119,208 207,682 GNMA Pool #342515 9.00% due 3/15/23 218,585 221,914 835,591 GNMA Pool #346659 7.00% due 7/15/23 859,614 855,169 54,538 GNMA Pool #370508 7.00% due 2/15/09 52,289 55,927 285,794 GNMA Pool #371046 8.50% due 2/15/24 305,799 303,119 74,578 GNMA Pool #390623 9.00% due 5/15/24 77,282 79,566 335,672 GNMA Pool #284405 8.00% due 12/15/19 348,469 351,321 469,829 GNMA Pool #311581 8.00% due 11/15/22 494,495 489,651 420,521 GNMA Pool #327245 8.00% due 8/15/22 439,839 438,263 185,751 GNMA Pool #308018 8.50% due 4/15/21 194,980 197,882 188,399 GNMA Pool #392802 9.25% due 12/15/24 200,409 201,605 4,700,000 U.S. Treasury Note 6.625% due 4/30/02 4,731,614 4,973,211 2,000,000 U.S. Treasury Note 5.875% due 2/15/04 2,013,437 2,110,620 3,000,000 U.S. Treasury Note 6.25% due 2/15/07 3,321,094 3,290,640
17 22 PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan EIN: 33-0064895 Plan: 001 Line 27 (a) - Schedule of Assets Held for Investment Purposes (continued) December 31, 1998
SHARES OR CURRENT PAR VALUE IDENTITY OF ISSUE COST VALUE - -------------------------------------------------------------------------------------- U.S. GOVERNMENT SECURITIES (CONTINUED) 3,500,000 U.S. Treasury Note 6.375% due 8/15/02 $ 3,504,844 $ 3,691,415 1,000,000 U.S. Treasury Note 6.50% due 5/15/05 1,058,906 1,095,940 3,000,000 U.S. Treasury Note 7.25% due 8/15/04 3,239,531 3,374,070 -------------------------- TOTAL U.S. GOVERNMENT SECURITIES 24,944,510 25,640,224 SHORT-TERM INCOME FUND 3,659,885 Wells Fargo Bank Short-term Income Fund* 3,659,885 3,659,885 PARTICIPANT LOANS 2,486,259 Participant loans 8% to 11/% through 2005 -- 2,486,259 ------------- TOTAL INVESTMENTS $ 168,898,802 =============
- ------------- *Investment with a party-in-interest. 18 23 PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan EIN: 33-0064895 Plan: 001 Line 27 (b) - Schedule of Loans or Fixed Income Obligations Year ended December 31, 1998
AMOUNT RECEIVED UNPAID DESCRIPTION OF LOAN ORIGINAL DURING REPORTING YEAR BALANCE AT --------------------------------- AMOUNT OVERDUE AMOUNT OF --------------------- END OF DATE OF LOAN INTEREST --------------------- OBLIGOR LOAN PRINCIPAL INTEREST YEAR LOAN MATURITY RATE PRINCIPAL INTEREST - ------------------------------------------------------------------------------------------------------------------------------------ Martha Sanchez $ 3,000 $ 184 $ 57 $ 1,616 07/20/95 08/17/00 10.75% $ 461 $ 110 Mary F. Hardy 8,479 409 353 8,070 11/28/97 12/19/02 10.50% 969 554 Melissa R. Webber 7,500 821 194 5,015 02/20/97 03/16/00 10.25% 1,731 299 Fe A. Templado 10,000 432 266 9,147 08/11/97 08/29/02 10.50% 1,305 689 Daidre A. Streeter 1,783 158 55 1,625 05/15/98 05/20/01 10.50% 190 50 Diana L. Palmer 1,438 47 61 1,228 02/05/96 01/12/06 10.50% 76 68 Luisa V. Ferguson 3,350 613 383 2,737 04/08/97 04/25/02 10.25% 322 143 Ellen K. Dunno 4,030 504 215 2,762 09/24/96 10/11/01 10.25% 306 94 Misty D. Dunphy 6,000 67 196 5,933 12/16/97 01/04/08 10.50% 253 423 Cindy L. Haven 3,000 -- -- 2,545 07/13/95 07/14/05 11.00% 258 278
19 24 PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan EIN: 33-0064895 Plan: 001 Line 27 (d) - Schedule of Reportable Transactions Year ended December 31, 1998
CURRENT VALUE OF ASSET ON IDENTITY OF PURCHASE SELLING COST OF TRANSACTION NET GAIN PARTY INVOLVED DESCRIPTION OF ASSETS PRICE PRICE ASSET DATE (LOSS) - ----------------------------------------------------------------------------------------------------------------------------------- Category (iii) - Series of transactions in excess of 5% of plan assets: Wells Fargo Bank(1) Short-term income fund $84,394,642 $ -- $84,394,642 $84,394,642 $ -- -- 81,365,811 81,365,811 81,365,811 -- Putnam Investments(1) Growth and Income 8,538,908 -- 8,538,908 8,538,908 -- -- 4,109,123 3,598,371 3,939,578 169,545 Global Growth 4,862,837 -- 4,862,837 4,862,837 -- -- 2,131,848 1,972,295 1,923,689 208,159 Voyager Class A 11,318,707 -- 11,318,707 11,318,707 -- -- 4,843,048 3,936,519 4,555,237 287,811 Money Market Class A 4,567,934 -- 4,567,934 4,567,934 -- -- 3,131,674 3,131,674 3,131,674 --
- ------------ (1) Trustee for the Plan and, therefore, a party-in-interest for which statutory exemption exists. There were no category (i), (ii) or (iv) reportable transactions during 1998. 20 25 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Administrative Committee of the Plan has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. THE PACIFICARE HEALTH SYSTEMS, INC. SAVINGS AND PROFIT-SHARING PLAN DATE: June 29, 1999 BY: /s/ MARY C. LANGSDORF ------------------------------------ Mary C. Langsdorf Senior Vice President of Finance and Corporate Controller (Principal Accounting Officer) 21 26 EXHIBIT INDEX Exhibit 23 Consent of Independent Auditors 22 EX-23 2 CONSENT OF INDEPENDENT AUDITORS. 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 number 333-21713) and related Prospectus pertaining to the 1996 Stock Option Plan for Officers and Key Employees and the related Prospectus pertaining to the 1996 Non-Officer Directors Stock Option Plan of PacifiCare Health Systems, Inc. and in the Registration Statement (Form S-8 No. 333-48377) and related Prospectus pertaining to the 1997 Premium Priced Stock Option Plan and the related Prospectus pertaining to the Amendment and Restatement of The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan of PacifiCare Health Systems, Inc. of our report dated June 23, 1999 with respect to the financial statements and supplemental schedules of The PacifiCare Health Systems, Inc. Savings and Profit-Sharing Plan included in this Annual Report on Form 11-K for the year ended December 31, 1998. Ernst & Young LLP Los Angeles, California June 23, 1999 23 -----END PRIVACY-ENHANCED MESSAGE-----