-----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, WhU54xzky0RI+XGYfwHrqdo7PxqEBmncPbKVQxoagKE7sfJbXSp3ZVJ9pDac6rWf ZUsDJrg+3IsNLQxn2X/rjg== 0000912057-97-018072.txt : 19970626 0000912057-97-018072.hdr.sgml : 19970626 ACCESSION NUMBER: 0000912057-97-018072 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFICARE HEALTH SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0001027974 STANDARD INDUSTRIAL CLASSIFICATION: 6324 IRS NUMBER: 954591529 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21949 FILM NUMBER: 97608879 BUSINESS ADDRESS: STREET 1: 5995 PLAZA DR CITY: CYPRESS STATE: CA ZIP: 90630 BUSINESS PHONE: 7149521121 MAIL ADDRESS: STREET 1: 5995 PLAZA DR CITY: CYPRESS STATE: CA ZIP: 90630 FORMER COMPANY: FORMER CONFORMED NAME: N T HOLDINGS INC DATE OF NAME CHANGE: 19961204 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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, 1997 -------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ----------------------------------------------- Commission File Number 000-21949 - - ------------------------------------------------------------------------------ PACIFICARE HEALTH SYSTEMS, INC. (Exact name of registrant as specified in its charter) Delaware 95-4591529 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 5995 Plaza Drive, Cypress, California 90630-5028 (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 ----- ----- As of April 30, 1997, there were 14,780,248 shares of the Registrant's Class A Common Stock, par value $0.01 per share, outstanding, and 26,933,507 shares of Class B Common Stock, par value $0.01 per share, outstanding. Part 1: FINANCIAL INFORMATION Item 1: FINANCIAL STATEMENTS PacifiCare Health Systems, Inc. Condensed Consolidated Balance Sheets (unaudited) - - ------------------------------------------------------------------------------ (Amounts in thousands, March 31, December 31, except per share data) 1997 1996 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Assets Current assets: Cash and equivalents $ 228,915 $ 367,748 Marketable securities 776,845 594,734 Receivables, net 348,461 156,212 Talbert rights offering receivable 59,598 - Assets held for sale 34,587 - Prepaid expenses and other 23,382 8,876 Deferred income taxes 108,516 54,745 - - ------------------------------------------------------------------------------ Total current assets 1,580,304 1,182,315 - - ------------------------------------------------------------------------------ Property, plant and equipment, net 218,330 91,239 Marketable securities - restricted 130,121 35,399 Goodwill and other intangible assets, net 2,756,557 227,422 Other assets 43,943 25,097 - - ------------------------------------------------------------------------------ $ 4,729,255 $ 1,561,472 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Liabilities and Shareholders' Equity Current liabilities: Medical claims and benefits payable $ 655,700 $ 278,800 Accounts payable and accrued liabilities 555,553 162,882 Unearned premium revenue 42,786 256,416 Long-term debt due within one year 1,019 1,511 - - ------------------------------------------------------------------------------ Total current liabilities 1,255,058 699,609 - - ------------------------------------------------------------------------------ Long-term debt due after one year 1,141,497 1,370 Deferred income taxes 154,264 - Other liabilities 75,743 - Minority interest 375 391 Shareholders' equity: Preferred shares, par value $0.01 per share; 40,000 shares authorized; 10,517 shares of Series A Convertible Preferred Stock issued and outstanding at March 31, 1997 ($262,927 aggregate liquidation value) 105 - Class A common shares, par value $0.01 per share; 100,000 shares authorized; 14,780 and 12,380 issued and outstanding at March 31, 1997 and December 31, 1996, respectively 148 124 Class B common shares, par value $0.01 per share; 100,000 shares authorized; 26,920 and 18,922 issued and outstanding at March 31, 1997 and December 31, 1996, respectively 269 189 Additional paid-in capital 1,580,580 373,405 Unrealized (losses) gains on available- for-sale securities, net of taxes (4,307) 3,451 Retained earnings 525,523 482,933 - - ------------------------------------------------------------------------------ Total shareholders' equity 2,102,318 860,102 - - ------------------------------------------------------------------------------ $ 4,729,255 $ 1,561,472 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ See accompanying notes. 2 PacifiCare Health Systems, Inc. Consolidated Statements of Income (unaudited) - - ------------------------------------------------------------------------------ Three months ended March 31, (Amounts in thousands, ------------------------ except per share data) 1997 1996 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Revenue: Commercial premiums $ 756,927 $ 467,742 Government premiums (Medicare and Medicaid) 1,074,995 678,236 Other income 11,681 11,192 - - ------------------------------------------------------------------------------ Total operating revenue 1,843,603 1,157,170 - - ------------------------------------------------------------------------------ Expenses: Health care services: Commercial services 629,793 385,396 Government services 917,862 579,731 - - ------------------------------------------------------------------------------ Total health care services 1,547,655 965,127 - - ------------------------------------------------------------------------------ Marketing, general and administrative expenses 214,514 147,771 Amortization of goodwill and intangible assets 10,319 2,307 - - ------------------------------------------------------------------------------ Operating income 71,115 41,965 Interest income 17,685 12,212 Interest expense (9,719) (829) - - ------------------------------------------------------------------------------ Income before income taxes 79,081 53,348 Provision for income taxes 35,587 21,479 - - ------------------------------------------------------------------------------ Net income $ 43,494 $ 31,869 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Weighted average common shares and equivalents outstanding used to calculate earnings per share 38,981 31,758 - - ------------------------------------------------------------------------------ Earnings per share $ 1.12 $ 1.01 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ See accompanying notes. 3 PacifiCare Health Systems, Inc. Consolidated Statements of Cash Flows (unaudited) - - ------------------------------------------------------------------------------ Three months ended March 31, ------------------------- (Amounts in thousands) 1997 1996 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Operating activities: Net income $ 43,494 $ 31,869 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of goodwill and intangible assets 10,319 2,307 Depreciation and amortization 9,141 5,787 Loss on disposal of property, plant and equipment 2,966 64 Provision for doubtful accounts 1,690 (63) Deferred income taxes 911 570 Changes in assets and liabilities, net of effects from acquisitions: Accounts receivable (27,234) (24,969) Prepaid expenses and other assets (6,205) (2,799) Medical claims and benefits payable (29,000) 10,629 Accounts payable and accrued liabilities 31,857 (3,428) Unearned premium revenue (213,630) (184,133) - - ------------------------------------------------------------------------------ Net cash flows used in operating activities (175,691) (164,166) - - ------------------------------------------------------------------------------ Investing activities: Acquisitions, net of cash acquired (980,646) (5,695) Sale of marketable securities 57,862 5,563 Purchase of property, plant and equipment (8,673) (5,673) Sale (purchase) of marketable securities - restricted 393 (140) - - ------------------------------------------------------------------------------ Net cash flows used in investing activities (931,064) (5,945) - - ------------------------------------------------------------------------------ Financing activities: Proceeds from long-term borrowing, net of expenses 1,105,639 - Principal payments on long-term debt (99,725) (1,776) Capitalization of Talbert (67,000) - Proceeds from issuance of common stock 29,912 4,804 Cash dividends paid to preferred shareholders (904) - - - ------------------------------------------------------------------------------ Net cash flows provided by financing activities 967,922 3,028 - - ------------------------------------------------------------------------------ Net decrease in cash and equivalents (138,833) (167,083) Beginning cash and equivalents 367,748 357,290 - - ------------------------------------------------------------------------------ Ending cash and equivalents $ 228,915 $ 190,207 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ See accompanying notes. 4 PacifiCare Health Systems, Inc. Consolidated Statements of Cash Flows (unaudited) - - ------------------------------------------------------------------------------ Three months ended March 31, -------------------------- (Amounts in thousands) 1997 1996 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Supplemental cash flow information Cash paid during the period for: Income taxes $ 45,092 $ 32,227 Interest $ 2,437 $ 554 - - ------------------------------------------------------------------------------ Supplemental schedule of noncash investing and financing activities: Tax benefit realized upon exercise of stock options $ 14,858 $ 1,592 Compensation awarded in Class B Common Stock $ 721 $ 1,161 Leases capitalized $ - $ 35 - - ------------------------------------------------------------------------------ Details of businesses acquired in purchase transactions: Fair value of assets acquired $ 3,384,154 $ 9,209 Liabilities assumed or created (1,194,988) (2,034) Preferred and common consideration (1,161,893) - - - ------------------------------------------------------------------------------ Cash paid 1,027,273 7,175 Cash acquired (46,627) (1,480) - - ------------------------------------------------------------------------------ Net cash paid for acquisitions $ 980,646 $ 5,695 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Details of unrealized losses on available-for-sale securities, net of acquisition: Decrease in marketable securities $ (7,530) $ (8,674) Decrease in deferred taxes 2,882 3,251 - - ------------------------------------------------------------------------------ Decrease in shareholders' equity $ (4,648) $ (5,423) - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ See accompanying notes. 5 PACIFICARE HEALTH SYSTEMS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1997 (unaudited) NOTE 1 - BASIS OF PRESENTATION PacifiCare Health Systems, Inc., formerly N-T Holdings, Inc. (the "Company"), is one of the leading health care services companies in the United States, serving approximately four million members in the commercial, Medicare and Medicaid lines of business. On February 27, 1997, the Company's board of directors approved a change in its fiscal year end from September 30 to December 31. Accordingly, the Company's current year will end on December 31, 1997. The Company will include audited financial statements for the October 1, 1996 to December 31, 1996 transition period in its Annual Report on Form 10-K for the year ended December 31, 1997. The interim condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures, normally included in the financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such SEC rules and regulations; nevertheless, the management of the Company believes that the disclosures herein are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in the Company's September 30, 1996 Annual Report on Form 10-K/A, filed with the SEC in January 1997, and the interim condensed consolidated financial statements included in the Company's December 31, 1996 Transition Report on Form 10-Q/A, filed with the SEC in February 1997. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary to present fairly the consolidated financial position of the Company with respect to the interim condensed consolidated financial statements, and the consolidated results of its operations and its cash flows for the interim periods then ended, have been included. The results of operations for the interim periods are not necessarily indicative of the results for the full year. Certain prior period amounts in the accompanying unaudited condensed consolidated financial statements have been reclassified to conform to the 1997 presentation. NOTE 2- ACQUISITIONS AND DISPOSITIONS The acquisition of FHP International Corporation ("FHP") by the Company was consummated on February 14, 1997. As a result, PacifiCare Operations, Inc. (formerly PacifiCare Health Systems, Inc.) and FHP are each direct, wholly owned subsidiaries of the Company. Pursuant to the acquisition, each outstanding share of FHP common stock (41,737,627 shares) was exchanged for $17.50 in cash, 0.056 shares of the Company's Class A Common Stock and 0.176 shares of the Company's Class B Common Stock. Each outstanding share of FHP's preferred stock (21,034,163 shares) was exchanged for $14.113 in cash and one-half of one share of the Company's Series A Cumulative Convertible Preferred Stock (the "Series A Preferred"). Further, on April 21, 1997, the Talbert Rights Offering commenced and Talbert rights were distributed to former FHP common and preferred shareholders (see Note 3 - Talbert Rights Offering). In connection with the acquisition of FHP, the Company issued 2,337,306 shares of Class A Common Stock, 7,345,822 shares of Class B Common Stock and 10,517,081 shares of Series A Preferred (see Note 6 - Shareholders' Equity). 6 The acquisition has been accounted for as a purchase. Total consideration, including transaction costs, of approximately $2.2 billion has been preliminarily allocated to the assets acquired and liabilities assumed based on estimates of their fair values. The purchase price allocation is based on currently available information which may be adjusted upon completion of the final valuation of FHP's assets and liabilities. The preliminary fair value estimates of the assets acquired and liabilities assumed were $0.9 billion and $1.2 billion, respectively. A total of $2.5 billion, net of related deferred taxes, representing the excess of the purchase price over the estimated fair values of the net assets acquired, has been preliminarily allocated to goodwill and other acquired intangible assets and is being amortized over a four to 40-year period. The Company sold the outstanding common stock of its Florida subsidiary on February 21, 1997. The sales price, which approximated the net book value, totaled $9 million. The terms of the sale agreement included a put option requiring the Company to repurchase the subsidiary for $6 million if certain regulatory approvals are not received from the state of Florida by January 1998. The Company's consolidated results of operations include FHP from February 14, 1997 and its Florida subsidiary through February 21, 1997. The pro forma information below presents combined results of operations as if the acquisition, as well as the sale of the Company's Florida subsidiary, had occurred at the beginning of 1996. The pro forma information reflects adjustments which include interest expense related to the assumed financing of the cash consideration paid for the acquisition; amortization of goodwill and other acquired intangible assets; costs associated with the integration of FHP's operations into those of the Company; the reversal of certain contingency expenses recognized that would be adjusted for in purchase accounting; and conformity of FHP's accounting policies with the Company's. No adjustment has been made to give effect to any synergies which may be realized as a result of the acquisition. The Company is performing a reveiw of its managed care operations, cost structures and information technology services, and has not yet fully estimated the costs associated with the integration of FHP's operations. The Company anticipates that it will incur costs to integrate and restructure its operations, which may result in a restructuring charge in a future period. - - ------------------------------------------------------------------------------ (Unaudited) Three months ended March 31 --------------------------- (In thousands, except per share amounts) 1997 1996 - - ------------------------------------------------------------------------------ Total operating revenue $2,396,482 $2,202,938 Pretax income $ 69,501 $ 69,671 Net income $ 35,243 $ 34,661 Earnings per share $ 0.77 $ 0.76 - - ------------------------------------------------------------------------------ NOTE 3 - TALBERT RIGHTS OFFERING The terms of the FHP acquisition required FHP to contribute $67 million to Talbert Medical Management Corporation, a wholly owned subsidiary of FHP, which increased its net worth to approximately $60 million on February 14, 1997. Also at that time, FHP sold its investment in Talbert Medical Management Holdings Corporation ("Talbert") in exchange for a $60 million non-recourse promissory note and rights to purchase shares of Talbert common stock. On April 21, 1997, Talbert commenced its rights offering and Talbert rights were distributed to former FHP shareholders. Per the terms of the FHP acquisition, the former FHP shareholders were entitled to receive one Talbert right for each 21.19154 shares of FHP common stock and one Talbert right for each 26.27752 shares of FHP preferred stock. Holders of Talbert rights may purchase one share of Talbert common stock for each Talbert right for the subscription price of $21.50 per share. Holders of Talbert rights will be entitled to subscribe for all, or any portion of, the shares of Talbert common stock underlying their Talbert rights through May 20, 1997, as well as to subscribe for any unallocated additional shares. Proceeds from the exercise of the Talbert 7 rights, to the extent subscribed, will be used to repay the note to FHP. To the extent that the Talbert rights are not fully subscribed, the note will be repaid by issuance of the underlying shares of Talbert common stock to FHP. The Company expects the Talbert Rights Offering to be fully subscribed because the trading price of the Talbert rights from April 21, 1997 to May 9, 1997 has ranged from $13.63 to $20.50 per share. There can be no assurance that the Talbert Rights Offering will be partially or fully subscribed. NOTE 4 - ASSETS HELD FOR SALE The Company intends to sell certain acquired FHP real estate, managed care operations and certain specialty products. For financial reporting purposes, the assets and liabilities attributable to these pending dispositions have been stated at the lower of cost or net realizable value, and have been classified in the accompanying unaudited condensed consolidated balance sheet as of March 31, 1997 as assets held for sale. Because management presently expects the dispositions to occur within one year, such assets have been classified as current. Net losses from February 14, 1997 through March 31, 1997 from the FHP assets held for sale totaled $4 million. These losses have been accounted for as an adjustment to the net assets acquired and are excluded from the unaudited consolidated statement of income for the three months ended March 31, 1997. NOTE 5 - LONG-TERM DEBT AND INTEREST-RATE SWAPS The Company borrowed $1.1 billion under its credit facility in February 1997. The cash was used to pay $1.0 billion in cash consideration to former holders of FHP common and preferred stock (see Note 2 - Acquisitions and Dispositions), $67 million to capitalize Talbert through the Company's FHP subsidiary and repay $19 million in outstanding debt held by FHP. During March 1997, the Company repaid $80 million of its borrowings under the credit facility, resulting in $1.0 billion outstanding as of March 31, 1997. Interest under the credit facility is presently based on the London Interbank Offering Rate ("LIBOR") plus a spread. The credit facility contains various covenants usual for financing of this type, including a minimum net worth requirement, a minimum fixed charge requirement and leverage ratios. At March 31, 1997, the Company was in compliance with all such covenants. On February 14, 1997, the Company assumed $100 million senior notes of FHP (the "FHP Notes") by entering into a supplemental indenture with The Chase Manhattan Bank. The FHP Notes carry an interest rate of seven percent, are payable semiannually and mature on September 15, 2003. The Company has entered into interest-rate swap agreements to manage interest costs and limit exposure to changing interest rates on borrowings under its credit facility. The swap agreements are contracts to exchange floating rate for fixed interest payments periodically over the life of the agreements without the exchange of the underlying notional amounts. The notional amounts of swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on swap agreements is recognized as an adjustment of interest expense. The average fixed interest rate paid by the Company on the existing swap agreements is approximately six percent, covering $350 million of borrowings under the credit facility. The swap agreements, which were implemented through seven banks, have an average remaining life of 1.5 years. Certain of the swap agreements terminate automatically if the floating rate or LIBOR exceeds seven percent over a specified three-month period. NOTE 6 - SHAREHOLDERS' EQUITY The Company's Certificate of Incorporation provides for authorized capital stock of 100,000,000 shares each of Class A Common Stock and Class B Common Stock, and 40,000,000 shares of Preferred Stock, each with a par value of $0.01 per share. The Preferred Stock authorized includes 11,000,000 authorized shares of Series A Preferred. 8 On February 14, 1997, each outstanding share of PacifiCare Operations, Inc.'s Class A and Class B Common Stock, par value $0.01 per share, was exchanged for one share of the Company's Class A and Class B Common Stock, respectively. Shares of the Company's Class A and Class B Common Stock and Series A Preferred were issued in connection with the FHP acquisition as described in Note 2 - Acquisitions and Dispositions. Each share of Series A Preferred entitles its owner to convert it at any time to 0.374 shares of Class B Common Stock, assuming no unpaid accrued dividends in arrears. Series A Preferred shareholders also have a preference of $25.00 per share over the Common Stock in the event of involuntary or voluntary liquidation. Dividends on the Series A Preferred accrue at an annual rate of $1.00 per share, are cumulative and payable quarterly in arrears when, as and if declared by the board of directors. In March 1997, the Company made a one-time special quarterly dividend payment, as required by the Certificate of Incorporation and pursuant to the acquisition of FHP, which included a proration of dividends payable on the Company's Series A Preferred from February 15, 1997 through March 15, 1997 totaling $0.9 million in the aggregate or $0.086 per share. Unpaid cumulative dividends earned were $0.4 million on the 10,517,081 Series A Preferred shares outstanding at March 31, 1997. On or after June 17, 1998, Series A Preferred may be redeemed at the option of the Company for cash plus unpaid dividends. The redemption price ranges from 103 percent to 100 percent of the stated value of Series A Preferred, or $25.00 per share, in one-half percent decrements for each successive anniversary of June 17, 1998 through 2004. Series A Preferred ranks senior to Class A and B Common Stock with respect to dividend and liquidation rights, and holders of Series A Preferred generally have no voting rights; however, there are certain exceptions including the right to elect two additional directors if the equivalent of six quarterly dividends payable on the Series A Preferred are in default. NOTE 7 - CONTINGENCIES The Company is involved in legal actions in the normal course of business, some of which seek substantial monetary damages, including claims for punitive damages which are not covered by insurance. Additionally, the Company's programs, including services provided to government employees, are subject to retrospective audits by the respective regulating agencies in the normal course of business. After review, including consultation with counsel, management believes any ultimate liability in excess of amounts accrued which could arise from audits or legal actions would not materially affect the Company's consolidated financial position, results of operations or cash flows. The Company has set aside reserves in anticipation of negotiations relating to potential governmental claims for contracts with the United States Office of Personnel Management ("OPM"). The Company's HMO subsidiaries which provide managed health care services under the Federal Employees Health Benefits Program are subject to audit, in the normal course of business, by OPM. Currently, OPM audits for multiple periods are in various stages of completion for several of the Company's HMO subsidiaries. The Company intends to negotiate with OPM on all matters to attain a mutually satisfactory result. While there is no assurance that the negotiations will be concluded satisfactorily or that additional liability will not be incurred, management believes that any ultimate liability in excess of amounts accrued which could arise upon completion of the audits by OPM of the health plans, would not materially affect the Company's consolidated financial position, results of operations or cash flows; however, such liability could be material to net income of a future quarter if resolved unfavorably. As discussed in FHP's December 31, 1996 Quarterly Report on Form 10-Q, Memorial Health Services filed a demand for arbitration against a subsidiary of FHP. The Company is in final discussions and expects this matter to be negotiated satisfactorily; any amounts resulting from the settlement are not 9 expected to be materially different from those already provided in purchase accounting for the FHP acquisition (see Note 2 - Acquisitions and Dispositions). NOTE 8 - EARNINGS PER SHARE Earnings per share were computed by dividing net income by the weighted average number of shares outstanding during the period. The weighted average number of shares outstanding includes the dilutive effect of stock options using the average market price and assuming the conversion of Series A Preferred, which are considered to be common stock equivalents, to common shares. Fully diluted earnings per share assume the maximum dilution that would have resulted from the exercise of stock options. There is not a material difference between primary and fully diluted earnings per share. 10 Part I: FINANCIAL INFORMATION Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table presents HMO membership data by state and by consumer type as of the dates indicated.
AT MARCH 31, 1997 AT MARCH 31, 1996 Government Government (Medicare & (Medicare & MEMBERSHIP DATA Commercial Medicaid) Total Commercial Medicaid) Total - - --------------------------------------------------------------------------------------------------------------- Arizona 101,692 88,364 190,056 - - - California 1,693,662 633,537 2,327,199 925,858 403,661 1,329,519 Colorado 275,497 47,329 322,826 - - - Florida - - - 50,377 4,915 55,292 Guam 42,846 - 42,846 - - - Illinois 58,613 3,455 62,068 - - - Nevada 40,051 22,786 62,837 - - - New Mexico 38,170 17,855 56,025 - - - Ohio 55,157 8,390 63,547 - - - Oklahoma 115,050 24,908 139,958 111,766 22,352 134,118 Oregon 116,146 39,931 156,077 107,922 43,988 151,910 Texas 136,995 68,926 205,921 98,987 55,624 154,611 Utah 155,833 32,570 188,403 - - - Washington 96,208 52,678 148,886 87,109 46,839 133,948 - - --------------------------------------------------------------------------------------------------------------- Total membership 2,925,920 1,040,729 3,966,649 1,382,019 577,379 1,959,398 - - --------------------------------------------------------------------------------------------------------------- - - ---------------------------------------------------------------------------------------------------------------
Three months ended March 31, ----------------------- OPERATING STATISTICS 1997 1996 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Medical loss ratio (health care services as a percent of premium revenue) Consolidated 84.5% 84.2% Commercial 83.2% 82.4% Government (Medicare and Medicaid) 85.4% 85.5% Marketing, general and administrative expenses as a percent of operating revenue 11.6% 12.8% Operating income as a percent of operating revenue 3.9% 3.6% Effective tax rate 45.0% 40.3% - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ 11 Three Months Ended March 31, 1997 Compared to the Three Months Ended March 31, 1996 RESULTS OF OPERATIONS The following discussion includes FHP's results of operations from February 14, 1997. Compared to FHP's historical financial statements, there have been presentation changes in the consolidation with the Company including classifying certain medical management costs as marketing, general and administrative expenses and excluding these amounts from health care costs. In addition, there have been conforming changes to FHP's definition of members. FHP Medicaid membership has been reclassified from commercial to government. Moreover, the Company has excluded self-funded members totaling approximately 33,000 members and is reporting Medicare members consistent with the Health Care Financing Administration ("HCFA") premium payments, a difference totaling approximately 1,800 members, which resulted in a decrease of 34,800 members previously reported. Total operating revenue increased 59 percent to $1.8 billion for the three months ended March 31, 1997 from $1.2 billion for the same period in the prior year. FHP contributed 77 percent of the increase, while enrollment gains in the HMOs' commercial and government programs, as well as increases in premium rates, contributed 22 percent of the increase in total operating revenue. Primarily as a result of the FHP acquisition, total membership increased 102 percent to approximately four million HMO members at March 31, 1997 compared to March 31, 1996. The Company's specialty managed care products and services contributed the remainder of the increase in operating revenue. FHP contributed $243 million of a $290 million increase in commercial premiums for the three months ended March 31, 1997 as compared to the same period in the prior year. Excluding the effects of the FHP acquisition, commercial membership growth combined with increases in commercial premium rates averaging two percent contributed $40 million to the increase in commercial premiums. The Company's specialty managed care products and services contributed the remainder of the increase. As a result of the FHP acquisition, the Company acquired approximately 1.5 million commercial members. Net of the FHP acquisition, growth in commercial HMO membership for the three months ended March 31, 1997 was approximately six percent compared to 30 percent for the three months ended March 31, 1996, reflecting the loss of the Florida commercial membership and the Company's more disciplined product pricing. Government premiums rose $397 million to $1.1 billion for the three months ended March 31, 1997 from $678 million in the same period of fiscal year 1996, with $286 million contributed by FHP. On January 1, 1997, the Company received average premium rate increases from HCFA averaging over six percent. Government premium rates also increased as a result of the Company's exit of its Medicaid lines of business in Florida and Oregon, offset slightly by reductions in member paid supplemental premiums in several of the Company's markets. These premium rate increases contributed an additional $76 million of premiums. Enrollment gains in the Medicare programs, net of acquisition membership, accounted for an additional nine percent of the increase in government premiums. At March 31, 1997, FHP government members totaled approximately 439,000. The increase in the commercial medical loss ratio for the three months ended March 31, 1997 as compared to the same period in the prior year was primarily due to the acquisition of FHP, whose provider contracts yield a higher commercial medical loss ratio. Net of the FHP acquisition, the Company experienced increases in out of area health care services and increased prescription drug utilization. These increases were 12 slightly offset by continued improved performance in the Company's PPO, indemnity and other specialty managed care products and services. The medical loss ratio in the government programs remained relatively consistent with the same period in the prior year. This consistency largely reflects the acquisition of FHP, which had lower medical loss ratios through lower provider reimbursements. Lower health care costs as a result of the FHP acquisition combined with premium rate increases, and the wind down of the Medicaid business, were offset by enhanced prescription drug benefits provided to enrollees and lower member paid supplemental premiums. Marketing, general and administrative expenses increased $67 million to $215 million for the three months ended March 31, 1997 from $148 million for the same period in fiscal year 1996. As a percentage of operating revenue, marketing, general and administrative expenses for the three months ended March 31, 1997 decreased approximately one percent as compared to the same period in the prior year. The decrease was primarily due to delays in staffing in addition to FHP marketing and other administrative expenditures, as well as continued administrative efficiencies allowing the Company to control its overhead. Net interest income declined approximately $3 million compared to the same period in the prior year due primarily to increased borrowings under the Company's credit facility to finance the FHP acquisition. The goodwill established in the acquisition of FHP is not deductible for income tax purposes. Therefore, the effective income tax rate for the quarter ended March 31, 1997 was 45 percent, an increase from the same period in the prior year. Net income increased $12 million to $43 million for the quarter ended March 31, 1997 compared to the same period in the prior fiscal year. While net income increased 37 percent, the impact of the equity securities issued to acquire FHP diluted the increase in earnings per share. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and equivalents plus its current marketable securities increased $43 million to $1.0 billion at March 31, 1997 from $962 million at December 31, 1996, due primarily to the acquisition of FHP. Cash flows provided by operations, excluding the impact of the January 1997 advance Medicare payment from HCFA, was $38 million and is primarily attributable to results of operations. The Company borrowed $1.1 billion under its credit facility in February 1997. The cash was used to pay $1.0 billion in cash consideration to former holders of FHP common and preferred stock (see Note 2 - Acquisitions and Dispositions), to capitalize Talbert with $67 million (see Note 3 - Talbert Rights Offering) and to repay $19 million in outstanding debt held by FHP. In March 1997, the Company repaid $80 million of its borrowings under the credit facility, resulting in $1.0 billion outstanding as of March 31, 1997. In February 1997, the Company assumed the FHP Notes by entering into a supplemental indenture with The Chase Manhattan Bank. The FHP Notes carry an interest rate of seven percent, are payable semiannually, and mature on September 15, 2003 (see Note 5 - Long-Term Debt). The Company has entered into interest-rate swap agreements to manage interest costs and limit exposure to changing interest rates on borrowings under its credit facility. The swap agreements are contracts to exchange floating rate for fixed interest payments periodically over the life of the agreements without the exchange of the underlying notional amounts. The notional amounts of swap agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on swap agreements is recognized as an adjustment of interest expense. The average fixed interest rate paid by the Company on the existing swap agreements is approximately six percent, covering $350 million of borrowings under the credit facility. The swap agreements, which were implemented through seven banks, have an average remaining life of 1.5 years. Certain of the swap 13 agreements terminate automatically if the floating rate or LIBOR exceeds seven percent over a specified three-month period. In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share," ("SFAS No. 128") which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. SFAS No. 128 requires the presentation of basic earnings per share which excludes the dilutive effect of stock options. In addition, SFAS No. 128 requires calculation and presentation of dilutive earnings per share. The impact of SFAS No. 128 on the calculation of primary and fully diluted earnings per share for the quarters ended March 31, 1997 and March 31, 1996 is not expected to be material. FORWARD LOOKING INFORMATION UNDER THE PRIVATE SECURITIES LITIGATION ACT OF 1995 The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward looking statements to encourage companies to provide prospective information about themselves without fear of litigation so long as those statements are identified as forward looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statements. The statements contained in this section, and throughout the document, are based on current expectations. These statements are forward looking and actual results may differ materially from those projected in the forward looking statements, which statements involve risks and uncertainties. In addition, past financial performance is not necessarily a reliable indicator of future performance and investors should not use historical performance to anticipate results or future period trends. Shareholders are also directed to the other risks discussed in other documents filed by the Company with the SEC including those specified below. MEMBERSHIP GROWTH. The Company's membership growth is expected to moderate in 1997 in both the commercial and government programs. As competition continues to increase and the Company shifts its emphasis from one of rapid growth to improved margin performance, it expects to see a slow-down in membership growth or possible declines in some markets. An unforeseen loss of profitable membership could have a material adverse effect on the Company. Factors which could contribute to the loss of membership include, without limitation, the integration of the Company and FHP, the exit of the Medicaid line of business, the sale of certain acquired FHP managed care operations, failure to obtain new customers or to retain existing customers, reductions in workforce by existing customers, adverse publicity and news coverage, inability to carry out marketing and sales plans, loss or retirement of key executives or key employees or denial of accreditation by independent quality accrediting agencies. HEALTH CARE PROVIDER CONTRACTS. The Company's profitability depends, in part, on its ability to maintain effective control over health care costs while providing members with quality care. Securing cost effective contracts with existing and new physician groups is more difficult due to increased competition and minimal or no commercial premium rate increases. The negotiation of provider contracts, generally as of January 1, may be impacted by adverse state and federal legislation and regulation discussed below. Factors which could impact the Company's ability to secure contracts with providers include the inability to renegotiate contracts or entering into contracts with less cost-effective rates or terms of payment and factors affecting increased competition as discussed above. COMMERCIAL MEDICAL LOSS RATIO. The commercial medical loss ratio is expected to be slightly higher for the six months ended June 30, 1997 as the Company absorbs a full three months of the higher medical loss ratio from FHP in the second quarter. For the remainder of 1997, the Company expects the commercial medical loss ratio to be comparable or decrease slightly from the ratio experienced in the first three months of 1997. Health care costs should begin to slightly decrease through the continual negotiation of current provider 14 contracts in all markets. Consolidating and renegotiating the commercial provider network contracts of the Company is expected to improve the medical loss ratio. The Company's strategic focus will be on improved product performance. Higher premium rates are anticipated to be offered with employer contract renewals, not only improving the commercial medical loss ratio through premium rates but also because unprofitable membership will not be pursued. While increased prescription drug costs are expected, these costs are anticipated to be offset due to the sale of the Florida subsidiary. GOVERNMENT MEDICAL LOSS RATIO. For the six months ended June 30, 1997, the medical loss ratio for the government programs is expected to be slightly lower than the three months ended March 31, 1997 as the Company realizes a full three months of the lower government medical loss ratio from FHP in the second quarter. For the remainder of the year the medical loss ratio is expected to remain stable as competitive pressures in the Medicare market, requiring enhanced benefits with lower supplemental premiums, offset HCFA rate increases, the disposition of the high cost Medicaid members and the lower acquired government medical loss ratio as a result of the FHP acquisition. The commercial and government medical loss ratio expectations discussed above could be affected by various uncertainties, including increases in medical and prescription drug costs, increases in utilization and costs of medical services and the effect of actions by competitors or groups of providers and termination of provider contracts or renegotiation thereof at less cost-effective rates or terms of payment. In addition, price increases in health care costs including prescription drug costs, which have been escalating faster than premium increases in recent years, as well as price increases for durable medical equipment and other covered items plus other factors, as discussed below, could also affect expectations. MARKETING, GENERAL AND ADMINISTRATIVE SUPPORT INVESTMENTS. Marketing, general and administrative expenses as a percentage of operating revenue in 1997 are expected to be slightly lower than fiscal year 1996. The Company expects to realize synergies, which are expected to be partially offset by increased investments in information systems as the Company integrates the current FHP information systems and maintains and enhances its current competitive advantage in information technology. Although the Company anticipates that the acquisition of FHP will yield increased operating margins partly resulting from a combination of reductions in marketing, general and administrative expenses, there can be no assurance that the anticipated benefits and synergies will be obtained. The ability of the Company to realize the anticipated benefits and synergies is subject to the following additional uncertainties, among others: the ability to integrate the Company's and FHP's management and information systems, on a timely basis if at all; the ability to eliminate duplicative functions while maintaining acceptable performance levels; and the possibility that the integration of FHP will result in the loss of providers, employers, members or key employees of PacifiCare, FHP or their subsidiaries. The Company is performing a reveiw of its managed care operations, cost structure and information technology services, and has not yet fully estimated the costs associated with the integration of FHP's operations. The Company anticipates that it will incur costs to integrate and restructure its operations, which may result in a restructuring charge in a future period. OFFICE OF PERSONNEL MANAGEMENT CONTINGENCIES. The Company intends to negotiate with the OPM on all matters to attain a mutually satisfactory result. While there is no assurance that the negotiations will be concluded satisfactorily or that additional liability will not be incurred, management believes that any ultimate liability in excess of amounts accrued which could arise upon completion of the audits by OPM of the health plans would not materially affect the Company's consolidated financial position, results of operations or cash flows; however, such liability could be material to net income of a future quarter if resolved unfavorably (see Note 7 - Contingencies). LIQUIDITY AND CAPITAL RESOURCES. The Company believes that cash flows from operations, its credit facility, existing cash and equivalents and marketable securities and other financing sources will provide sufficient liquidity for operations in the foreseeable future. However, cash flows could be adversely affected by changes in interest rates causing an increase in interest expense and the fact that the Company will be 15 subject to greater operating leverage due to its higher levels of indebtedness as a result of the acquisition of FHP. Additionally, should the credit facility be fully drawn, the Company's ability to make a payment on, or repayment of, its future obligations under the credit facility and the FHP Notes will be significantly dependent upon the receipt of funds from the Company's subsidiaries. These subsidiary payments represent fees for management services rendered by the Company to the subsidiaries and cash dividends by the subsidiaries to the Company. Nearly all of the subsidiaries are subject to HMO regulations or insurance regulations and may be subject to substantial supervision by one or more HMO or insurance regulators. Subsidiaries subject to regulation must meet or exceed various fiscal standards imposed by HMO or insurance regulations. These fiscal standards may, from time to time, impact the amount of funds that may be paid by subsidiaries to the Company. LEGISLATION AND REGULATION. The Company's success is significantly impacted by federal and state legislation and regulation. Actual results may differ materially from expected results discussed throughout this document because of adverse state and federal legislation and regulation. This includes limitations on premium levels; increases in minimum capital and reserves and other financial viability requirements; prohibition or limitation of capitated arrangements or provider financial incentives; benefit mandates (including mandatory length of stay and emergency room coverage) and limitations on the ability to manage care and utilization of any willing provider or pharmacy laws. It also includes adverse actions of governmental payors, including unilateral reduction of Medicare premiums payable; discontinuance of or limitation on governmentally funded programs and recovery by governmental payors of previously paid amounts; the inability to increase premiums or prospective or retroactive reductions to premium rates for federal employees; adverse regulatory determinations resulting in loss or limitations of licensure, and certification or contracts with governmental payors; delays by regulatory agencies in approval of merger of health plan licenses, consolidation of operations or other efforts to integrate FHP. Part II. OTHER INFORMATION Item 1: Legal Proceedings None Item 2: Changes in Securities In connection with the acquisition of FHP, the Company issued approximately 10.5 million shares of its Series A Preferred Stock which has rights senior to those of the Company's Class A and Class B Common Stock. See Note 6 and the Company's Form 8-K/A filed with the SEC on April 11, 1997 for additional information. Item 3: Defaults Upon Senior Securities None Item 4: Submission of Matters to a Vote of Security Holders None Item 5: Other Information None 16 Part II. OTHER INFORMATION (CONTINUED) Item 6: Exhibits and Reports a) Exhibit Index Exhibit 3.01 Bylaws of the Company Exhibit 3.02 First Amendment to the Bylaws of the Company Exhibit 4.01 First Supplemental Indenture, dated as of February 14, 1997, by and among FHP International Corporation, PacifiCare Health Systems, Inc. and The Chase Manhattan Bank Exhibit 11A Computation of Net Income per Share of Common Stock - Primary Exhibit 11B Computation of Net Income per Share of Common Stock - Fully Diluted Exhibit 27 Financial Data Schedule (filed electronically) b) Forms 8-K were filed by the Registrant and its subsidiaries during the quarter ended March 31, 1997 as follows:
Date Reporting Person Description - - --------------------------------------------------------------------------------------------------------------------------- February 21, 1997 PacifiCare Operations, Inc., formerly Acquisition of FHP International Corporation PacifiCare Health Systems, Inc. February 21, 1997 PacifiCare Health Systems, Inc., Acquisition of FHP International Corporation formerly N-T Holdings, Inc. February 21, 1997 FHP International Corporation Acquisition of FHP International Corporation March 10, 1997 PacifiCare Health Systems, Inc. Disposition of PacifiCare of Florida, Inc.
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. PACIFICARE HEALTH SYSTEMS, INC. (Registrant) Date: May 15, 1997 By: /s/ Alan R. Hoops ---------------------- ---------------------------- Alan R. Hoops President, Chief Executive Officer and Director Date: May 15, 1997 By: /s/ Wayne B. Lowell --------------------- ---------------------------- Wayne B. Lowell Executive Vice President, Chief Administrative Officer and Chief Financial Officer 18 EX-3.01 2 EX 3.01 EXHIBIT 3.01 BY-LAWS OF N-T HOLDINGS, INC. TABLE OF CONTENTS Section Page ------- ---- ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Section 1. REGISTERED OFFICE . . . . . . . . . . . . . . . . . . . . 1. Section 2. OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . . 1. ARTICLE II MEETINGS OF STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . 1. Section 1. PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . . 1. Section 2. ANNUAL MEETING OF STOCKHOLDERS. . . . . . . . . . . . . . 1. Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF . . . . . . 1. Section 4. VOTING . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Section 5. PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . 2. Section 6. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . 2. Section 7. NOTICE OF STOCKHOLDERS' MEETINGS . . . . . . . . . . . . 2. Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. . . . . . 2. Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING . 3. ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Section 1. NUMBER AND QUALIFICATION OF DIRECTORS . . . . . . . . . . 3. Section 2. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . . 3. Section 3. POWERS. . . . . . . . . . . . . . . . . . . . . . . . . . 4. Section 4. PLACE OF DIRECTORS' MEETINGS. . . . . . . . . . . . . . . 4. Section 5. REGULAR MEETINGS. . . . . . . . . . . . . . . . . . . . . 4. Section 6. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . . 4. Section 7. QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . . 4. Section 8. ACTION WITHOUT MEETING. . . . . . . . . . . . . . . . . . 4. Section 9. TELEPHONIC MEETINGS . . . . . . . . . . . . . . . . . . . 5. Section 10. COMMITTEES OF DIRECTORS. . . . . . . . . . . . . . . . . 5. Section 11. MINUTES OF COMMITTEE MEETINGS. . . . . . . . . . . . . . 5. Section 12. COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . 5. Section 13. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . 5. ARTICLE IV OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Section 1. OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . 9. Section 2. ELECTION OF OFFICERS. . . . . . . . . . . . . . . . . . . 9. Section 3. SUBORDINATE OFFICERS. . . . . . . . . . . . . . . . . . . 9. i Section 4. COMPENSATION OF OFFICERS. . . . . . . . . . . . . . . . . 9. Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES . . . . . . . . . . 9. Section 6. CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . . . 10. Section 7. PRESIDENT . . . . . . . . . . . . . . . . . . . . . . . . 10. Section 8. VICE PRESIDENT. . . . . . . . . . . . . . . . . . . . . . 10. Section 9. SECRETARY . . . . . . . . . . . . . . . . . . . . . . . . 10. Section 10. ASSISTANT SECRETARY. . . . . . . . . . . . . . . . . . . 10. Section 11. TREASURER. . . . . . . . . . . . . . . . . . . . . . . . 11. Section 12. ASSISTANT TREASURER. . . . . . . . . . . . . . . . . . . 11. ARTICLE V CERTIFICATES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . 11. Section 1. CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . 11. Section 2. SIGNATURES ON CERTIFICATES. . . . . . . . . . . . . . . . 11. Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES AND PRIVILEGES . . 12. Section 4. LOST CERTIFICATES . . . . . . . . . . . . . . . . . . . . 12. Section 5. TRANSFERS OF STOCK. . . . . . . . . . . . . . . . . . . . 12. Section 6. FIXING THE RECORD DATE. . . . . . . . . . . . . . . . . . 12. Section 7. REGISTERED STOCKHOLDERS . . . . . . . . . . . . . . . . . 13. ARTICLE VI GENERAL PROVISIONS; DIVIDENDS . . . . . . . . . . . . . . . . . . . . 13. Section 1. DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . 13. Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES . . . . . . . . . 13. Section 3. CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . 13. Section 4. FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . 13. Section 5. CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . 13. Section 6. MANNER OF GIVING NOTICE . . . . . . . . . . . . . . . . . 13. Section 7. WAIVER OF NOTICE. . . . . . . . . . . . . . . . . . . . . 14. Section 8. ANNUAL STATEMENT. . . . . . . . . . . . . . . . . . . . . 14. ARTICLE VII AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14. Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS . . . . . . . . . 14. ii BY-LAWS OF N-T HOLDINGS, INC. ARTICLE I OFFICES Section 1. REGISTERED OFFICE. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. OTHER OFFICES. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. PLACE OF MEETINGS. All meetings of the stockholders shall be held in the City of Cypress, State of California, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Section 2. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of stockholders shall be held each year on the first Wednesday in March, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m. or at such other date and time as may be determined from time to time by resolution adopted by the Board of Directors, when they shall elect by a plurality vote of the Board of Directors, and transact such other business as may properly be brought before the meeting. At each annual meeting Directors shall be elected and any other proper business transacted. Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority of the stock issued and outstanding and entitled to vote at any meeting of stockholders, the holders of which are present in person or represented by proxy, shall constitute a quorum for the transaction of business except as otherwise provided by law, by the Certificate of Incorporation, or by these By-Laws. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum and the votes present may continue to transact business until adjournment. If, however, such quorum shall not be present or represented at any meeting of the stockholders, a majority of the voting stock represented in person or by proxy may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may 1. be transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat. Section 4. VOTING. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes, or the Certificate of Incorporation, or these By-Laws, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 5. PROXIES. At each meeting of the stockholders, each stockholder having the right to vote may vote in person or may authorize another person or persons to act for him by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless said instrument provides for a longer period. All proxies must be filed with the Secretary of the Corporation at the beginning of each meeting in order to be counted in any vote at the meeting. Each stockholder shall have one vote for each share of stock having voting power, registered in his name on the books of the Corporation on the record date set by the Board of Directors as provided in Article V, Section 6 hereof. All elections shall be had and all questions decided by a plurality vote. Section 6. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose, or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, may be called by the President and shall be called by the President or the Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding, and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 7. NOTICE OF STOCKHOLDERS' MEETINGS. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which notice shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The written notice of any meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each 2. stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise provided in the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. NUMBER AND QUALIFICATION OF DIRECTORS. The number of Directors which shall constitute the whole Board shall be not less than five (5) nor more than twelve (12). The Board shall initially consist of twelve (12) members. The Directors need not be stockholders. The Directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each Director elected shall hold office until his successor is elected and qualified; provided, however, that unless otherwise restricted by the Certificate of Incorporation or By-Law, any Director or the entire Board of Directors may be removed, either with or without cause, from the Board of Directors at any meeting of stockholders by a majority of the stock represented and entitled to vote thereat. Section 2. VACANCIES. Vacancies on the Board of Directors by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, and newly created Directorships resulting from any increase in the authorized number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining Director. The Directors so chosen shall hold office until the next annual election of Directors and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no Directors in office, then an election of Directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created Directorship, the Directors then in office shall constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number 3. of the shares at the time outstanding having the right to vote for such Directors, summarily order an election to be held to fill any such vacancies or newly created Directorships, or to replace the Directors chosen by the Directors then in office. Section 3. POWERS. The property and business of the Corporation shall be managed by or under the direction of its Board of Directors. In addition to the power and authorities by these By-Laws expressly conferred upon them, the Board may exercise all such powers of the Corporation and do all lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws directed or required to be exercised or done by the stockholders. Section 4. PLACE OF DIRECTORS' MEETINGS. The Directors may hold their meetings and have one or more offices, and keep the books of the Corporation outside of the State of Delaware. Section 5. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board. Section 6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by the President on forty-eight hours' notice to each Director, either personally or by mail or by telegram; special meetings shall be called by the President or the Secretary in like manner and on like notice on the written request of two Directors unless the Board consists of only one Director; in which case special meetings shall be called by the President or Secretary in like manner or on like notice on the written request of the sole Director. Section 7. QUORUM. At all meetings of the Board of Directors a majority of the authorized number of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the vote of a majority of the Directors present at any meeting at which there is a quorum, shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these By-Laws. If a quorum shall not be present at any meeting of the Board of Directors the Directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. If only one Director is authorized, such sole Director shall constitute a quorum. Section 8. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any Committee thereof may be taken without a meeting, if all members of the Board or Committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or Committee. 4. Section 9. TELEPHONIC MEETINGS. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, members of the Board of Directors, or any Committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any Committee, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meetings can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. Section 10. COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more Committees, each such Committee to consist of one or more of the Directors of the Corporation. The Board may designate one or more Director(s) as alternate members of any Committee, who may replace any absent or disqualified member at any meeting of the Committee. In the absence or disqualification of a member of a Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such Committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such Committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the By-Laws of the Corporation; and, unless the resolution or the Certificate of Incorporation expressly so provide, no such Committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Section 11. MINUTES OF COMMITTEE MEETINGS. Each Committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 12. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, the Board of Directors shall have the authority to fix the compensation of Directors. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing Committees may be allowed like compensation for attending Committee meetings. Section 13. INDEMNIFICATION. (a) The Corporation shall indemnify any person who was or is a party or is 5. threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonable incurred by him in connection with such action, suit or proceedings if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no such indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Chancery of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which such Court of Chancery or such other court shall deem proper. (c) To the extent that a Director, officer, employee or agent of the Corporation, shall be successful on the merits or otherwise in defense, of any action, suit or proceeding referred to in paragraphs (a) and (b), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under paragraphs (a) and (b) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Director, officer, employee or agent is proper in the circumstances 6. because he has met the applicable standard of conduct set forth in paragraphs (a) and (b). Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. (e) The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director, officer, employee or agent in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to Section 13(e), no advance shall be made by the corporation to an officer, employee or agent of the corporation (except by reason of the fact that such person is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (f) The indemnification provided by this Section 13 shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) The Board of Directors may authorize, by a vote of a majority of a quorum of the Board of Directors, the Corporation to purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability 7. under the provisions of this Section 13. (h) Without the necessity of entering into an express contract, all rights to indemnification and advances to directors, officers, employees or agents under this Bylaw shall deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director, officer, employee or agent. Any right to indemnification or advances granted by this Bylaw to a director, officer, employee or agent shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer, employee or agent of the Corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such executive officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by any person to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that such person is not entitled to be indemnified, or to such advancement of expenses, under this Section 13 or otherwise shall be on the corporation. (i) For the purposes of this Section 13, references to "the Corporation" shall include, in addition to the resulting Corporation, any constituent Corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its Directors, officers, and employees or agents, so that any person who is or was a Director, officer, employee or agent of such constituent Corporation, or is or was serving at the request of such constituent Corporation as a Director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the 8. provisions of this Section with respect to the resulting or surviving Corporation as he would have with respect to such constituent Corporation if its separate existence had continued. (j) For purposes of this Section, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include service as a Director, officer, employee or agent of the Corporation which imposes duties on or involves services by such Director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Section. ARTICLE IV OFFICERS Section 1. OFFICERS. The officers of this Corporation shall be chosen by the Board of Directors and shall include a President, a Secretary and a Treasurer. The Corporation may also have at the discretion of the Board of Directors such other officers as are desired, including a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries and Assistant Treasurers, and such other officers as may be appointed in accordance with the provisions of Section 3 hereof. In the event there are two or more Vice Presidents, then one or more may be designated as Executive Vice President, Senior Vice President, or other similar or dissimilar title. At the time of the election of officers, the Directors may by resolution determine the order of their rank. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these By-Laws otherwise provide. Section 2. ELECTION OF OFFICERS. The Board of Directors, at its first meeting after each annual meeting of stockholders, shall choose the officers of the Corporation. Section 3. SUBORDINATE OFFICERS. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. Section 4. COMPENSATION OF OFFICERS. The salaries of all officers and agents of the Corporation shall be fixed by the Board of Directors. Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of the Corporation shall hold office until their successors are chosen and qualify in their stead. Any officer elected or appointed by the Board of Directors may be removed at any time by the 9. affirmative vote of a majority of the Board of Directors. If the office of any officer or officers becomes vacant for any reason, the vacancy shall be filled by the Board of Directors. Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an officer be elected, shall, if present, preside at all meetings of the Board of Directors and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or prescribed by these By-Laws. If there is no President. the Chairman of the Board shall in addition be the Chief Executive Officer of the Corporation and shall have the powers and duties described in Section 7 of this Article IV. Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the President shall be the Chief Executive Officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the Corporation. He shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board, or if there be none, at all meetings of the Board of Directors. He shall be an ex-officio member of all Committees and shall have the general powers and duties of management usually vested in the office of President and Chief Executive Officer of Corporations, and shall have such other powers and duties as may be prescribed by the Board of Directors or these By-Laws. Section 8. VICE PRESIDENT. In the absence or disability of the President, the Vice Presidents in order of their rank as fixed by the Board of Directors, or if not ranked, the Vice President designated by the board of Directors, shall perform all the duties of the President, and when so acting shall have all the powers of and be subject to all the restrictions upon the President. The Vice Presidents shall have such other duties as from time to time may be prescribed for them, respectively, by the Board of Directors. Section 9. SECRETARY. The Secretary shall attend all sessions of the Board of Directors and all meetings of the stockholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing Committees when required by the Board of Directors. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or these By-Laws. He shall keep in safe custody the seal of the Corporation, and when authorized by the Board, affix the same to any instrument requiring it, and when so affixed it shall be attested by his signature or by the signature of an Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. Section 10. ASSISTANT SECRETARY. The Assistant Secretary or, if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors or, if there be no such determination, the Assistant Secretary designated by the Board of Directors 10. shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 11. TREASURER. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements and shall render to the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, he shall give the Corporation a bond, in such sum and with such surety or sureties as shall be satisfactory to the board of Directors, for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. Section 12. ASSISTANT TREASURER. The Assistant Treasurer or, if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors or, if there be no such determination, the Assistant Treasurer designated by the Board of Directors shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE V CERTIFICATES OF STOCK Section 1. CERTIFICATES. Every holder of stock of the Corporation shall be entitled to have a certificate signed by, or signed in the name of the Corporation by, the Chairman or Vice Chairman of the Board of Directors, or the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer of the Corporation, certifying the number of shares represented by the certificate owned by such stockholder in the Corporation. Section 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. 11. Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES AND PRIVILEGES. If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represents such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth in the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 4. LOST CERTIFICATES. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 5. TRANSFERS OF STOCK. Upon surrender to the Corporation, or the transfer agent of the Corporation, of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 6. FIXING THE RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders, or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 12. Section 7. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of the State of Delaware. ARTICLE VI GENERAL PROVISIONS; DIVIDENDS Section 1. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation. Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. Before payment of any dividend there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the Directors shall think conducive to the interests of the Corporation, and the Directors may abolish any such reserve. Section 3. CHECKS. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. Section 4. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. Section 5. CORPORATE SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware". Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 6. MANNER OF GIVING NOTICE. Whenever, under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, notice is required to be given to any Director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such Director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to Directors may also be given by telegram. 13. Section 7. WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation or of these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Section 8. ANNUAL STATEMENT. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. ARTICLE VII AMENDMENTS Section 1. AMENDMENT BY DIRECTORS OR STOCKHOLDERS. These By-Laws may be altered, amended or repealed or new By-Laws may be adopted by the stockholders or by the Board of Directors, when such power is conferred upon the Board of Directors by the Certificate of Incorporation, at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or the Board of Directors if notice of such alternation, amendment, repeal or adoption of new By-Laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal By-Laws is conferred upon the Board of Directors by the Certificate of Incorporation it shall not divest or limit the power of the stockholders to adopt, amend or repeal By-Laws. 14. EX-3.02 3 EX 3.02 EXHIBIT 3.02 FIRST AMENDMENT TO BYLAWS OF PACIFICARE HEALTH SYSTEMS This First Amendment (the "First Amendment"), effective as of February 27, 1997, to the Bylaws (the "Bylaws") of PacifiCare Health Systems, Inc., a Delaware corporation (the "Company") has been adopted by the board of directors of the Company (the "Board"), at a duly held meeting with reference to the following facts: WHEREAS, Article II, Section 2 of the Company's Bylaws currently provides that the annual meeting of the stockholders shall be held each year on the first Wednesday in March, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m. or at such other date and time as may be determined from time to time by resolution adopted by the Board of Directors, when they shall elect by a plurality vote of the Board of Directors, and transact such other business as may properly be brought before the meeting. At each annual meeting Directors shall be elected and any other proper business transacted; WHEREAS, the Board deems it to be advisable and in the best interest of the Company to amend Article II Section 2 of the Bylaws to change the date of the annual meeting of shareholders from the first Wednesday in March to the first Wednesday in June beginning in 1998; WHEREAS, Section 109(a) of the Delaware General Corporation Law permits the board of directors of a corporation to adopt, amend or repeal the bylaws of such corporation if the certificate of incorporation confers such power on the board of directors; WHEREAS, Article VIII of the Company's Amended and Restated Certificate of Incorporation, as amended, and Article VII, Section 1, of the Bylaws permits the Board to adopt, amend or repeal the Bylaws; RESOLVED, that the Board deems it advisable and in the best interests of the Company that Article II, Section 2 of the Bylaws be amended and restated to read in its entirety as follows (the "Amendment"): Section 2. Beginning in 1998, the annual meeting of the stockholders shall be held each year on the first Wednesday in June, if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 a.m. or at such other date and time as may be determined from time to time by resolution adopted by the Board of Directors, when they shall elect by a plurality vote of the Board of Directors, and transact 1 such other business as may properly be brought before the meeting. At each annual meeting Directors shall be elected and any other proper business transacted RESOLVED, that the Bylaws shall not be further amended and that the Bylaws, as hereby amended, shall remain in full force and effect and shall be enforced in accordance with their terms, as amended. I, Joseph Konowiecki, hereby certify that I am the duly elected and acting secretary of PacifiCare Health Systems, Inc., a Delaware corporation (the "Company"), and that the foregoing First Amendment to the Bylaws of PacifiCare Health Systems, Inc., was duly adopted by the board of directors of the Company at a meeting duly held on February 27, 1997. --------------------------------------- Joseph S. Konowiecki Secretary 2 EX-4.01 4 EX 4.01 EXHIBIT 4.01 FIRST SUPPLEMENTAL INDENTURE FIRST SUPPLEMENTAL INDENTURE, dated as of February 14, 1997, by and among FHP International Corporation, a Delaware corporation (the "Company") having its principal office at 9900 Talbert Avenue, Fountain Valley, California 92708, PacifiCare Health Systems, Inc., a Delaware corporation, formerly known as N-T Holdings, Inc. ("PacifiCare") having its principal office at 5995 Plaza Drive, Cypress, California 90630, and The Chase Manhattan Bank ("Trustee"), a New York banking corporation having its Corporate Trust Office at 450 W. 33rd Street 15th Floor, New York, New York 10001 (successor in interest to The Chase Manhattan Bank, N.A.), as Trustee under the Indenture hereinafter mentioned. WHEREAS, by an Indenture dated as of September 22, 1993 ("Indenture") between the Company and the Trustee, the Company provided for the issuance of its 7% Senior Notes due 2003 (the "Notes"), in the aggregate principal amount of one hundred million dollars ($100,000,000), within the provisions and upon the terms stated in the Indenture; and WHEREAS, the Notes were duly executed, authenticated and delivered in the aggregate principal amount of one hundred million dollars ($100,000,000), all of which are now outstanding in the full face amount thereof; and WHEREAS, substantially contemporaneous herewith the Company has become a wholly-owned subsidiary of PacifiCare through a merger transaction whereby a subsidiary of PacifiCare has been merged into the Company (the "Merger"); and WHEREAS, PacifiCare desires to assume, jointly and severally with the Company, the obligation to make due and punctual payment of the principal of (and premium, if any) and interest on the Notes now outstanding and of certain covenants and obligations of the Company under the Indenture; and WHEREAS, although certain sections of the Indenture refer to the rights or obligations of obligors on the Notes other than the Company, the Indenture does not contain any express provisions providing for the assumption of the obligations under the Notes and the Indenture by a joint obligor with the Company; and WHEREAS, an ambiguity thus exists under the terms of the Indenture, which ambiguity 1. the Company, PacifiCare and the Trustee desire to cure; and WHEREAS, the structure of the Merger was not contemplated by the Indenture and questions have arisen under the Indenture as to certain matters related to the assumption of the Company's obligations under the Notes and the Indenture by a joint obligor; and WHEREAS, Section 901(8) of the Indenture permits the execution of a supplemental indenture, without the consent of the Holders (as defined in the Indenture), to cure any ambiguity, to correct or supplement any provision of the Indenture which may be inconsistent with any other provision therein, or to make any provision with respect to matters or questions arising under the Indenture, provided that such action does not adversely affect the interests of the Holders in any material respect; and WHEREAS, because after the assumption by PacifiCare the Holders will be entitled to look to both the Company and PacifiCare to satisfy the payment obligations under the Notes, the Company and PacifiCare are of the view that such assumption and the other terms set forth in this First Supplemental Indenture do not adversely affect the interests of the Holders in any material respect and that the execution of this First Supplemental Indenture is authorized under Section 901(8) of the Indenture; and WHEREAS, the Company and PacifiCare have been duly authorized by resolutions of their respective Boards of Directors to enter into, execute and deliver this First Supplemental Indenture providing for such assumption; and WHEREAS, all action required to make this First Supplemental Indenture a valid and binding instrument has been duly taken and performed. NOW, THEREFORE, the Indenture is hereby amended and supplemented as hereinafter provided. ARTICLE I ASSUMPTION OF PAYMENT OBLIGATIONS BY PACIFICARE SECTION 1.1 PacifiCare hereby expressly assumes, jointly and severally with the Company, the due and punctual payment of the principal of (and premium, if any) and interest on the outstanding Notes in accordance with the terms of the Notes and the Indenture when 2. and as the same become due and payable (whether at the stated maturity thereof or at such earlier dates, if any, as such Notes become due and payable by reason of redemption or otherwise or acceleration upon default). ARTICLE II AMENDMENTS SECTION 2.1 In Section 101 of the Indenture, the definition of "Discharged" is amended by inserting "and PacifiCare" after "the Company" in the first line thereof. SECTION 2.2 Section 106 of the Indenture is amended by adding thereto the following paragraph: "(3) PacifiCare by the Trustee, the Company or any Holder shall be sufficient for every purpose hereunder if in writing and mailed, first class postage prepaid, to PacifiCare at PacifiCare Health Care Systems, Inc., 5995 Plaza Drive, Cypress, California 90630 or at any other address previously furnished in writing to the Trustee by PacifiCare, Attention: Treasurer." SECTION 2.3 Section 401(a) of the Indenture is amended by deleting "the Company" in the first line thereof and substituting therefor "Each of the Company and PacifiCare" and by adding "and PacifiCare's rights and obligations under Section 404" after the reference to Section 607 in the third line thereof. SECTION 2.4 The first paragraph of Section 401(b) of the Indenture is amended by deleting "the Company" and "the Company's" wherever they appear therein and substituting therefor "each of the Company and PacifiCare" or "each of the Company's and PacifiCare's". In addition, the phrase "to the extent applicable," shall be added in the ninth line after the reference to Section 1010. Sections 401(b)(1) through (6) are each amended by inserting "or PacifiCare" after "Company" wherever it appears in each of those Sections. SECTION 2.5 Section 403 of the Indenture shall be amended by inserting "or PacifiCare" after "the Company" wherever it appears, by inserting "or PacifiCare Request, as applicable," after "Company Request" in the third line thereof and by adding to the end of such section the following: 3. "For purposes of this Section 403, the term PacifiCare Request' shall have the same meaning with respect to PacifiCare as the term Company Request' has with respect to the Company under the definition of Company Request" in Section 101 of the Indenture." SECTION 2.6 Section 404 of the Indenture is amended by inserting "and PacifiCare's" after "the Company's" in the sixth line thereof and inserting "or PacifiCare" after "Company" wherever it appears in such Section. SECTION 2.7 Sections 501(3), (4), (5), (6) and (7) of the Indenture are each amended by inserting "or PacifiCare" after "Company" wherever it appears in each of those Sections. SECTION 2.8 Section 502 of the Indenture is amended by inserting "or PacifiCare" or "or PacifiCare's" after "Company" or "Company's", as appropriate, wherever they appear in that Section. SECTION 2.9 Section 509 of the Indenture is amended by inserting "PacifiCare," after "Company," in the sixth line thereof. SECTION 2.10 Section 515 of the Indenture is amended by deleting "The Company" in the first line thereof and substituting therefor "Each of the Company and PacifiCare", and by deleting "the Company" in the seventh line thereof and substituting therefor "each of the Company and PacifiCare". SECTION 2.11 Section 704 of the Indenture is amended by deleting the text of such Section in its entirety and inserting in its stead the following: "PacifiCare shall: (1) file with the Trustee, within 15 days after PacifiCare is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which PacifiCare may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if PacifiCare is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary 4. and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; and (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by PacifiCare with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations." SECTION 2.12 Section 902 of the Indenture is amended by inserting "PacifiCare, when authorized by a Board Resolution of PacifiCare," after "Resolution". SECTION 2.13 Section 1004 of the Indenture is amended by inserting "(a)" after "Article Eight of this Indenture", in the first line thereof, and by adding thereto the following paragraph: "(b) PacifiCare will do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, rights (charter and statutory) and franchises; PROVIDED, HOWEVER, that PacifiCare shall not be required to preserve any such right or franchise if PacifiCare shall determine that the preservation thereof is no longer desirable in the conduct of the business of PacifiCare and that the loss thereof is not disadvantageous in any material respect to the Holders." SECTION 2.14 Section 1005 of the Indenture is amended by inserting "(a)" before "The" in the first line thereof, and by adding thereto the following paragraph: "(b) PacifiCare will cause all Property used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of PacifiCare may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; PROVIDED, HOWEVER, that nothing in this Section shall prevent PacifiCare from discontinuing the operation or maintenance of or disposing of any of such properties if such discontinuance or disposition is, in the judgment of PacifiCare, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. For purposes of this Section 1005(b), the term 5. 'Subsidiary' shall have the same meaning with respect to PacifiCare as it has with respect to the Company under the definition of 'Subsidiary' in Section 101 of the Indenture." SECTION 2.15 Section 1006 of the Indenture is amended by inserting "(a)" before "The" in the first line thereof, and by adding thereto the following paragraph: "(b) PacifiCare will pay or discharge or cause to be paid or discharged, before this same shall become delinquent, (1) all taxes, assessments and governmental charges levied or imposed upon PacifiCare or any Subsidiary or upon the income, profits and property in its direct custody and operating control, and (2) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a Lien upon the Property of PacifiCare or any Subsidiary; PROVIDED, HOWEVER, that PacifiCare shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. For purposes of this Section 1006, the term 'Subsidiary' shall have the same meaning with respect to PacifiCare as it has with respect to the Company under the definition of 'Subsidiary' in Section 101 of the Indenture." ARTICLE III ENDORSEMENT AND CHANGE OF FORM OF NOTES SECTION 3.1 Pursuant to Section 906 of the Indenture, Notes authenticated and delivered after the date of execution hereof in exchange or substitution for Notes then outstanding and all Notes presented or delivered to the Trustee on and after that date for such purpose shall have stamped or typewritten by the Trustee or have printed thereto the following notation in addition to, and not in lieu of, any other notations set forth thereon: PacifiCare has assumed, jointly and severally with the Company, the due and punctual payment of the principal of (and premium, if any) and interest on the Notes, pursuant to a First Supplemental Indenture, dated as of January ___, 1997 among the Company, PacifiCare and The Chase Manhattan Bank as Trustee under the within mentioned Indenture. SECTION 3.2 Notwithstanding anything to the contrary contained herein, the Trustee shall not at any time be obligated to require or cause Notes to be presented or delivered to it 6. for any purpose provided for in this Article III. ARTICLE IV MISCELLANEOUS SECTION 4.1 This First Supplemental Indenture shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by and construed in accordance with such laws. SECTION 4.2 This First Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one and the same instrument. SECTION 4.3 This First Supplemental Indenture is executed and shall be construed as an indenture supplemental to the Indenture and shall form a part thereof, and the Indenture, subject to the provisions in this First Supplemental Indenture, is hereby confirmed. SECTION 4.4 The recitals contained herein shall be taken as statements of the Company and PacifiCare, as appropriate, and the Trustee assumes no responsibility for their correctness. IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto duly affixed and attested, all as of the date and year first above written. [SEAL] FHP INTERNATIONAL CORPORATION Attest: By: ----------------------------------------- Its: ----------------------------------------- [SEAL] PACIFICARE HEALTH SYSTEMS, INC. Attest: By: ----------------------------------------- Its: ----------------------------------------- 7. [SEAL] THE CHASE MANHATTAN BANK Attest: By: ----------------------------------------- Its: ----------------------------------------- 8. EX-11.A 5 EX 11A Exhibit 11A PacifiCare Health Systems, Inc. Computation of Net Income per Share of Common Stock - Primary (Dollars and shares in thousands, except per share data) Three months ended March 31, ------------------------ 1997 1996 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Net income $ 43,494 $ 31,869 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Shares outstanding at the beginning of the period 31,302 30,987 Weighted average number of shares issued during the period in connection with: Issuance of common shares in connection with FHP acquisition 4,842 - Exercise of stock options 217 48 Dilutive shares issuable: Net of shares assumed to have been purchased (at the average market price) for treasury with assumed proceeds from the contingent exercise of stock options and registered equity purchase contracts 633 723 Assumed conversion of Series A Cumulative Convertible Preferred Stock on date of issuance 1,987 - - - ------------------------------------------------------------------------------ Total shares - primary 38,981 31,758 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Primary earnings per share $ 1.12 $ 1.01 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ EX-11.B 6 EX 11B Exhibit 11B PacifiCare Health Systems, Inc. Computation of Net Income per Share of Common Stock - Fully Diluted (Dollars and shares in thousands, except per share data) Three months ended March 31, ------------------------------ 1997 1996 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Net income $ 43,494 $ 31,869 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Shares outstanding at the beginning of the period 31,302 30,987 Weighted average number of shares issued during the period in connection with: Issuance of common shares in connection with FHP acquisition 4,842 - Exercise of stock options 217 48 Dilutive shares issuable: Net of shares assumed to have been purchased (at the greater of ending or average market price) for treasury with assumed proceeds from the contingent exercise of stock options and registered equity purchase contracts 685 724 Assumed conversion of Series A Cumulative Convertible Preferred Stock on date of issuance 1,987 - - - ------------------------------------------------------------------------------ Total shares - fully diluted 39,033 31,759 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ Fully diluted earnings per share $ 1.11 $ 1.01 - - ------------------------------------------------------------------------------ - - ------------------------------------------------------------------------------ EX-27 7 EX-27.FDS
5 This schedule contains summary financial information extracted from PacifiCare Health System Inc.'s condensed consolidated financial statements as of and for the three months ended March 31, 1997, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 228,915 776,845 348,950 489 0 1,580,304 319,912 101,582 4,729,255 1,255,058 0 0 105 417 2,101,796 4,729,255 0 1,843,603 0 1,547,655 224,833 1,690 9,719 79,081 35,587 43,494 0 0 0 43,494 1.12 1.11
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