-----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, VTYFPYrcJdyHQ9nIt11PGpOfY1hKpnjqwnWdqT+uWk+iUzFYfqOii5hBrPQI063i 8wO6QPzcaggrU00WszOKuA== 0000936392-03-000136.txt : 20030213 0000936392-03-000136.hdr.sgml : 20030213 20030212213038 ACCESSION NUMBER: 0000936392-03-000136 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030212 ITEM INFORMATION: Other events ITEM INFORMATION: FILED AS OF DATE: 20030213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PACIFICARE HEALTH SYSTEMS INC /DE/ CENTRAL INDEX KEY: 0001027974 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 954591529 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-21949 FILM NUMBER: 03556517 BUSINESS ADDRESS: STREET 1: 3120 LAKE CENTER DRIVE CITY: SANTA ANA STATE: CA ZIP: 92704 BUSINESS PHONE: 7148255200 MAIL ADDRESS: STREET 1: 3120 LAKE CENTER DRIVE CITY: SANTA ANA STATE: CA ZIP: 92704 FORMER COMPANY: FORMER CONFORMED NAME: N T HOLDINGS INC DATE OF NAME CHANGE: 19961204 8-K 1 a87649e8vk.txt FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): February 12, 2003 PACIFICARE HEALTH SYSTEMS, INC. (Exact name of registrant as specified in its charter)
DELAWARE 000-21949 95-4591529 (State or other jurisdiction of (Commission File Number) (IRS Employer incorporation or organization) Identification Number)
5995 PLAZA DRIVE CYPRESS, CALIFORNIA 90630 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (714) 952-1121 ITEM 5. OTHER EVENTS. On February 12, 2003, PacifiCare Health Systems, Inc. ("PacifiCare"), announced in a news release (the "News Release") its fourth quarter and full year 2002 financial and operating results. A portion of the information included in the News Release is set forth below. ### PACIFICARE HEALTH SYSTEMS ANNOUNCES 4TH QUARTER AND FULL YEAR 2002 RESULTS - REPORTED 4TH QUARTER EPS TOTALED $1.00 VS. ($0.35) IN 2001, ADJUSTED FOR FAS 142 - EXCLUDING A NON-RECURRING NET CREDIT, PRO FORMA 4TH QUARTER EPS WAS $0.97, UP 28% VS. 2001 - FOURTH QUARTER PRO FORMA RESULTS COMPARED TO 2001, ON FAS 142 ADJUSTED BASIS, INCLUDED, - 37% INCREASE IN NET INCOME - 71% INCREASE IN OPERATING INCOME - 350 BASIS POINT DECREASE IN CONSOLIDATED MLR TO 86% - FULL YEAR 2002 PRO FORMA EPS TOTALED $3.92, UP 17% OVER 2001 CYPRESS, CALIF., FEBRUARY 12, 2003 -- PacifiCare Health Systems, Inc. (NASDAQ: PHSY), today announced that pro forma net income for the fourth quarter ended December 31, 2002, increased 37%, on a FAS 142 adjusted basis, to $35.9 million, or $0.97 per diluted share. The pro forma results exclude a $9.4 million loss ($5.8 million net of tax, or $0.16 per diluted share) primarily due to the disposition of the assets of its e-prescribing subsidiary, and an $11.1 million credit ($6.9 million net of tax, or $0.19 per diluted share) for excess reserves released after the completion of Office of Personnel Management (OPM) audits. Adjusting for the effects of the January 1, 2002 accounting change related to the adoption of FAS 142, fourth quarter pro forma net income in 2001 would have been $0.76 cents per diluted share, excluding a net restructuring charge amounting to $1.11 per diluted share. Reported net income for the fourth quarter of 2002, including the net credit, was $37 million, or $1.00 per diluted share, versus a $0.35 loss per share in the fourth quarter of 2001 on a FAS 142 adjusted basis. For the year ended December 31, 2002 the company's pro forma earnings per diluted share totaled $3.92, a 17% increase over the FAS 142 adjusted pro forma net income for 2001. However, the company recorded a non-cash goodwill impairment charge in the first quarter upon adoption of FAS 142, resulting in a reported full year net loss of $21.51 per diluted share. RECONCILIATION OF REPORTED RESULTS TO PRO FORMA RESULTS
THREE MONTHS ENDED YEAR ENDED DECEMBER 30, DECEMBER 30, ------------------ ---------------- (In millions, except per-share amounts) 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------------------------- Net income: As reported $ 37 $ (26) $ (758) $ 19 Cumulative effect of change in accounting, net of tax 897 Impairment, disposition, restructuring and other charges, net of tax (1) 38 2 38 - --------------------------------------------------------------------------------------------------------- Pro forma net income $ 36 $ 12 $ 141 $ 57 ========================================================================================================= Goodwill amortization adjustment (1) -- 14 58 - --------------------------------------------------------------------------------------------------------- Pro forma net income, as adjusted (1) $ 36 $ 26 $ 141 $ 115 ========================================================================================================= Diluted earnings per share: As reported $ 1.00 $ (0.77) $(21.51) $ 0.55 Cumulative effect of change in accounting, net of tax 25.46 Impairment, disposition, restructuring and other charges, net of tax (0.03) 1.11 0.07 1.11 Impact of difference between basic and diluted weighted average shares outstanding (0.10) - --------------------------------------------------------------------------------------------------------- Pro forma net income $ 0.97 $ 0.34 $ 3.92 $ 1.66 ========================================================================================================= Goodwill amortization adjustment (1) -- 0.42 -- 1.69 - --------------------------------------------------------------------------------------------------------- Pro forma net income, as adjusted (1) $ 0.97 $ 0.76 $ 3.92 $ 3.35 =========================================================================================================
(1) As adjusted for the provisions of FAS No. 142, Goodwill and Other Intangible Assets, if adopted on January 1, 2001, for comparative purposes. REVENUE AND MEMBERSHIP Fourth quarter 2002 revenue of $2.7 billion was 5% below the same quarter a year ago due to an 8% decrease in commercial membership and a 20% decrease in Medicare+Choice membership, consistent with the company's planned membership reductions in 2002. Partially offsetting the impact of the membership declines were increases in commercial premium yields of 15% and Medicare+Choice premium yields of 7%. For the full year, revenue was down 5% from 2001 to $11.1 billion. PacifiCare's medical membership was approximately 3.1 million on December 31, 2002, down 10% year-over-year and 2% below the third quarter of 2002. The year-over-year reduction in commercial membership was driven in large part by the company's planned reduction of unprofitable Texas HMO membership. The 188,000-member decrease in Medicare+Choice membership primarily was due to benefit reductions in 2002, and county exits affecting 64,000 members. Other income, principally from the company's specialty businesses, grew 10% year-over-year, primarily due to the strong performance of the company's pharmacy benefit management subsidiary, Prescription Solutions. Prescription Solutions continued to grow its unaffiliated membership, which increased by approximately 280,000 members (21%) in the fourth quarter and rose a total of 506,000 members (45%) during the year. PacifiCare Behavioral Health's unaffiliated membership increased by 308,000 (22%) over the course of 2002. Net investment income decreased 2% from the year-ago quarter primarily due to the impact of lower interest rates on marketable securities. HEALTH CARE COSTS The consolidated medical loss ratio (MLR) of 86.0% decreased 350 basis points from the fourth quarter of 2001 and increased 20 basis points sequentially. The senior MLR, which includes Medicare+Choice and Medicare Supplement products, was 84.3%, 700 basis points lower than the senior MLR in the fourth quarter of 2001 and 50 basis points lower than the third quarter of 2002. For the full year, the senior MLR decreased 350 basis points compared to 2001. The decrease was due to the implementation of significant benefit changes effective January 1, 2002, as well as the positive effect of medical management programs. Fourth quarter results included favorable changes in reserves netting to $16 million. This was made up of a $19 million favorable adjustment to senior reserves, offset by a $4 million unfavorable adjustment to commercial reserves. The adjustment to senior reserves was driven by a favorable claims experience throughout 2002, indicating the emergence of positive Medicare+Choice trends. The fourth quarter commercial MLR of 87.9% increased 100 basis points from the prior year, and 90 basis points sequentially, but decreased 130 basis points for the full year compared to 2001. The sequential quarter increase was attributable primarily to the write-off of premiums receivable from the Federal Employees Health Plan due to unexpected retroactive membership adjustments received from these groups, and an allowance for premiums receivable from CalPERS which are still being reviewed and reconciled. SELLING, GENERAL & ADMINISTRATIVE EXPENSES The selling, general and administrative (SG&A) expense ratio of 13.6% for the fourth quarter of 2002 increased by 280 basis points year-over-year. For the full year 2002 the SG&A ratio was 12.1%, 180 basis points higher than 2001. The increase in this ratio was the net result of several factors. A workforce reduction was offset by the effect of lower revenues, as well as investments made to enhance the company's infrastructure in areas such as IT and claims payment and costs related to the development and marketing of numerous new products. The SG&A ratio rose 60 basis points from the prior quarter, mainly due to increased advertising and marketing, the write-off of hardware and software associated with obsolete systems, and seasonal costs associated with the annual commercial group open enrollment process. SG&A expenses for the full year 2002 rose 12%, compared with the prior year, to $1.3 billion. OTHER FINANCIAL DATA Medical claims and benefits payable (MCBP) totaled $1 billion at December 31, 2002, which was comparable with the prior quarter, despite a 2% sequential decrease in membership. The incurred but not reported (IBNR) portion of MCBP increased slightly during the quarter, with an offsetting reduction in other provider capitation and risk-sharing liabilities. During the fourth quarter of 2002 the company issued $135 million in convertible subordinated debentures. The debt, which is convertible into PacifiCare common stock after certain conditions are met, carries a 3% rate of interest and is callable in October of 2007. Proceeds from the issuance were used to reduce the outstanding balance of the company's senior credit facility and for general corporate purposes. ### In addition, PacifiCare is filing the supplemental information set forth below, which it is making available on its website, under Item 5 of this Current Report on Form 8-K (the "Current Report"). PACIFICARE HEALTH SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) THREE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------ ------------------------ (In thousands, except per-share amounts) 2002 2001(1) 2002 2001(1) - ----------------------------------------------------------------------------------------------------------------------------------- Revenue: Commercial premiums $ 1,257,850 $ 1,169,099 $ 5,009,862 $ 4,795,741 Senior premiums 1,408,053 1,632,573 5,883,844 6,764,164 Other income 56,062 50,961 198,309 172,804 Net investment income 21,981 22,450 64,487 111,263 - ----------------------------------------------------------------------------------------------------------------------------------- Total operating revenue 2,743,946 2,875,083 11,156,502 11,843,972 Expenses: Health care services: Commercial services 1,105,096 1,015,878 4,381,426 4,258,412 Senior services 1,187,209 1,490,258 5,104,275 6,109,245 - ----------------------------------------------------------------------------------------------------------------------------------- Total health care services 2,292,305 2,506,136 9,485,701 10,367,657 - ----------------------------------------------------------------------------------------------------------------------------------- Selling, general and administrative expenses 368,933 308,540 1,346,560 1,205,478 Amortization of intangible assets 5,879 5,864 23,600 23,781 Amortization of goodwill -- 14,783 -- 59,115 Impairment, disposition, restructuring, Office of Personnel Management and other (credits) charges (1,711) 59,443 3,774 61,157 - ----------------------------------------------------------------------------------------------------------------------------------- Operating income (loss) 78,540 (19,683) 296,867 126,784 Interest expense (19,553) (15,480) (74,904) (70,282) - ----------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 58,987 (35,163) 221,963 56,502 Provision for income taxes 22,002 (8,745) 82,792 38,371 - ----------------------------------------------------------------------------------------------------------------------------------- Income before cumulative effect of a change in accounting principle and extraordinary gain 36,985 (26,418) 139,171 18,131 Cumulative effect of a change in accounting principle -- -- (897,000) -- Extraordinary gain on early retirement of debt -- -- -- 875 - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 36,985 $ (26,418) $ (757,829) $ 19,006 =================================================================================================================================== Weighted average common shares outstanding used to calculate basic earnings (loss) per share 35,738 34,382 35,237 33,775 - ----------------------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) per share: Income before cumulative effect of a change in accounting principle and extraordinary gain $ 1.03 $ (0.77) $ 3.95 $ 0.54 Cumulative effect of a change in accounting principle -- -- (25.46) -- Extraordinary gain, net -- 0.02 - ----------------------------------------------------------------------------------------------------------------------------------- Basic earnings (loss) per share $ 1.03 $ (0.77) $ (21.51) $ 0.56 =================================================================================================================================== Weighted average common shares and equivalents outstanding used to calculate diluted earnings (loss) per share(2) 36,955 34,513 35,237 34,029 - ----------------------------------------------------------------------------------------------------------------------------------- Diluted earnings (loss) per share(2): Income before cumulative effect of a change in accounting principle and extraordinary gain $ 1.00 $ (0.77) $ 3.95 $ 0.53 Cumulative effect of a change in accounting principle -- -- (25.46) -- Extraordinary gain, net 0.02 - ----------------------------------------------------------------------------------------------------------------------------------- Diluted earnings (loss) per share $ 1.00 $ (0.77) $ (21.51) $ 0.55 ===================================================================================================================================
(1) Presentation changes have been made to December 31, 2001 to conform to 2002 presentation. (2) Dilutive potential common shares are excluded from the calculation of the year ended December 31, 2002 loss per share because they are antidilutive.
THREE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------ ------------------------ OPERATING STATISTICS 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------------- Medical loss ratio (health care services as a percentage of premium revenue): Consolidated 86.0% 89.5% 87.1% 89.7% Commercial 87.9% 86.9% 87.5% 88.8% Senior 84.3% 91.3% 86.8% 90.3% Selling, general and administrative expenses as a percentage of operating revenue (excluding net investment income) 13.6% 10.8% 12.1% 10.3% Operating income as a percentage of operating revenue (excluding net investment income) 2.1% -1.5% 2.1% 0.1% Effective tax rate 37.3% 24.9% 37.3% 67.9% - -----------------------------------------------------------------------------------------------------------------------------------
- more - PACIFICARE HEALTH SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) THREE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, -------------------------- -------------------------- (In thousands) 2002 2001(1) 2002 2001(1) - ------------------------------------------------------------------------------------------------------------------------------- Operating activities: Net income (loss) $ 36,985 $ (26,418) $ (757,829) $ 19,006 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Loss on disposal of property, plant and equipment and other 14,530 3,154 12,793 6,053 Depreciation and amortization 12,201 19,000 50,284 65,808 Deferred income taxes (12,013) (8,341) 18,559 (3,966) Provision for doubtful accounts (9,517) 88 6,346 22,070 Amortization of intangible assets 5,879 5,864 23,600 23,781 Employee benefit plan contributions in treasury stock 2,546 -- 12,132 -- Impairment, disposition, restructuring, Office of Personnel Management and other (credits) charges (1,711) 59,443 3,774 61,157 Amortization of capitalized loan fees 1,161 2,739 7,784 7,560 Amortization of notes receivable from sale of fixed assets (816) -- (3,107) -- Tax benefit realized upon exercise of stock options 720 -- 1,009 21 Unearned compensation amortization 227 554 693 3,632 Amortization of discount on notes payable 157 -- 266 -- Cumulative effect of a change in accounting principle -- -- 897,000 -- Marketable and other securities impairment for other than temporary declines in value -- -- 12,543 -- Adjustment to cash received in purchase transaction -- -- 17 -- Amortization of goodwill -- 14,783 -- 59,115 Gain on early retirement of debt -- -- (1,800) Changes in assets and liabilities: Receivables, net 48,639 18,460 82,592 16,070 Prepaid expenses and other assets 5,501 8,253 2,404 7,837 Medical claims and benefits payable (16,800) (42,600) (51,400) (174,900) Accounts payable and accrued liabilities: Payments for Office of Personnel Management settlement, (11,318) (9,102) (65,441) (4,510) net of receivable Other changes in accounts payable and accrued liabilities (40,254) (50,419) 61,479 (20,706) Unearned premium revenue 413,752 (21,173) (73,119) (47,305) - ------------------------------------------------------------------------------------------------------------------------------- Net cash flows provided by (used in) operating activities $ 449,869 $ (25,715) $ 242,379 $ 38,923 - ------------------------------------------------------------------------------------------------------------------------------- Unearned premium revenue - primarily CMS(2) (413,752) 21,173 73,119 47,305 - ------------------------------------------------------------------------------------------------------------------------------- Pro forma net cash flows (used in) provided by operating activities(2) $ 36,117 $ (4,542) $ 315,498 $ 86,228 - ------------------------------------------------------------------------------------------------------------------------------- Investing activities: (Purchase) Sale of marketable securities, net $ (38,326) $ 63,011 $ (113,987) $ (190,401) Purchase of property, plant and equipment (16,296) (26,298) (59,274) (77,301) (Purchase) Sale of marketable securities - restricted (14,263) 6,496 (117,368) (17,765) Proceeds from the sale of property, plant and equipment 80 25,000 12,492 25,139 Net cash paid for acquisitions -- -- -- (500) - ------------------------------------------------------------------------------------------------------------------------------- Net cash flows provided by (used in) investing activities $ (68,805) $ 68,209 $ (278,137) $ (260,828) - ------------------------------------------------------------------------------------------------------------------------------- Financing activities: Proceeds from 3% convertible subordinated debentures $ 135,000 $ -- $ 135,000 $ -- Principal payments on senior credit facility and other (62,676) (71) (554,308) (30,284) Credit facility amendment fees and expenses (5,250) (635) (37,789) (12,949) Payments on software financing agreement (2,231) -- (2,231) -- Proceeds from issuance of common stock and treasury stock 2,211 42 4,916 83 Proceeds from the sale of 10 3/4% senior notes, net of discount -- -- 496,945 -- Common stock registration fees (1) -- (23) -- Payments of FHP senior notes -- -- (41,750) -- Proceeds from draw down on equity commitment arrangement -- -- 8,928 -- Purchase of minority interest in consolidated subsidiary -- -- -- (8,821) - ------------------------------------------------------------------------------------------------------------------------------- Net cash flows provided by (used in) financing activities $ 67,053 $ (664) $ 9,688 $ (51,971) - ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and equivalents $ 448,117 $ 41,830 $ (26,070) $ (273,876) Beginning cash and equivalents 503,572 935,929 977,759 1,251,635 - ------------------------------------------------------------------------------------------------------------------------------- Ending cash and equivalents $ 951,689 $ 977,759 $ 951,689 $ 977,759 ===============================================================================================================================
(1) Presentation changes have been made to December 31, 2001 to conform to 2002 presentation. (2) Pro forma net cash flow is computed without the impact of the change in unearned premium revenue because of timing differences in when we receive payments from CMS. - more - PACIFICARE HEALTH SYSTEMS, INC. BALANCE SHEET DATA (Unaudited)
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, (in thousands) 2002 2002 2001 - -------------------------------------------------------------------------------------------------- Assets: Cash and equivalents and marketable securities $ 2,190,552 $ 1,666,037 $ 2,040,112 Receivables, net 289,735 316,854 375,661 Property, plant and equipment, net 161,685 174,581 166,724 Goodwill and intangible assets, net 1,226,120 1,234,811 2,181,986 Other assets 383,041 410,280 331,563 - -------------------------------------------------------------------------------------------------- Total assets $ 4,251,133 $ 3,802,563 $ 5,096,046 - -------------------------------------------------------------------------------------------------- Liabilities and equity: Total medical claims and benefits payable $ 1,044,500 $ 1,061,300 $ 1,095,900 Long-term debt, due within one year 107,235 99,395 124 Long-term debt, due after one year 731,794 669,395 794,309 Other liabilities 1,039,299 683,692 1,171,928 Total stockholders' equity 1,328,305 1,288,781 2,033,785 - -------------------------------------------------------------------------------------------------- Total liabilities and equity $ 4,251,133 $ 3,802,563 $ 5,096,046 - --------------------------------------------------------------------------------------------------
MEMBERSHIP DATA
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, 2002 2002 2001 - -------------------------------------------------------------------------------------------------- Commercial: HMO 2,252,000 2,296,400 2,439,600 PPO and indemnity 75,100 63,800 38,400 Employer self-funded 34,800 34,500 42,400 ------------------------------------------- 2,361,900 2,394,700 2,520,400 ------------------------------------------- Senior Solutions: HMO 760,500 779,200 948,500 Medicare supplement 15,600 15,400 11,000 ------------------------------------------- 776,100 794,600 959,500 ------------------------------------------- Total HMO & other membership 3,138,000 3,189,300 3,479,900 ------------------------------------------- Pharmacy benefit management (A) 4,647,600 4,430,700 4,517,100 Behavioral health (A) 3,876,000 3,711,300 3,710,600 Dental (A) 615,000 631,700 832,100
- ---------- (A) Includes PacifiCare HMO membership and unaffiliated membership. PACIFICARE HEALTH SYSTEMS, INC. RECONCILIATION OF REPORTED RESULTS TO PRO FORMA RESULTS
THREE MONTHS ENDED YEAR ENDED ------------------------------------- -------------------- DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ----------------- ------------------ -------------------- (In millions, except per-share amounts) 2002 2001 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------------------------------------------------- Net (loss) income: As reported $ 37 $ (26) $ 44 $ 17 $ (758) $ 19 Cumulative effect of a change in accounting principle, net of tax -- -- -- -- 897 -- Impairment, disposition, restructuring, Office of Personnel Management and other (credits) charges, net of tax (1) 38 -- 2 2 39 Gain on early retirement of debt, net of tax -- -- -- (1) -- (1) - ---------------------------------------------------------------------------------------------------------------------------------- Pro forma net income $ 36 $ 12 $ 44 $ 18 $ 141 $ 57 ================================================================================================================================== Goodwill amortization adjustment (1) -- 14 -- 15 -- 58 - ---------------------------------------------------------------------------------------------------------------------------------- Pro forma net income, as adjusted (1) $ 36 $ 26 $ 44 $ 33 $ 141 $ 115 ================================================================================================================================== Diluted (loss) earnings per share: As reported $ 1.00 $(0.77) $ 1.20 $ 0.50 $(21.51) $ 0.55 Cumulative effect of a change in accounting principle, net of tax -- -- -- -- 25.46 -- Impairment, disposition, restructuring, Office of Personnel Management and other (credits) charges, net of tax (0.03) 1.11 -- 0.04 0.07 1.13 Gain on early retirement of debt, net of tax -- -- -- (0.02) -- (0.02) Impact of difference between basic and diluted weighted average shares outstanding (2) -- -- -- -- (0.10) -- - ---------------------------------------------------------------------------------------------------------------------------------- Pro forma net income $ 0.97 $ 0.34 $ 1.20 $ 0.52 $ 3.92 $ 1.66 ================================================================================================================================== Goodwill amortization adjustment (1) -- 0.42 -- 0.43 -- 1.69 - ---------------------------------------------------------------------------------------------------------------------------------- Pro forma net income, as adjusted (1) $ 0.97 $ 0.76 $ 1.20 $ 0.95 $ 3.92 $ 3.35 ================================================================================================================================== Operating income (loss): As reported $ 79 $ (19) $ 90 $ 50 $ 297 $ 127 Impairment, disposition, restructuring, Office of Personnel Management and other (credits) charges (2) 59 -- 3 4 61 - ---------------------------------------------------------------------------------------------------------------------------------- Pro forma operating income $ 77 $ 40 $ 90 $ 53 $ 301 $ 188 ================================================================================================================================== Goodwill amortization adjustment (1) -- 15 -- 15 -- 59 - ---------------------------------------------------------------------------------------------------------------------------------- Pro forma operating income, as adjusted (1) $ 77 $ 55 $ 90 $ 68 $ 301 $ 247 ================================================================================================================================== Operating income (loss) as a percentage of operating revenue: (3) As reported 2.1% -1.5% 2.5% 0.8% 2.1% 0.1% Pro forma operating income as a percentage of operating revenue 2.0% 0.6% 2.5% 0.9% 2.1% 0.7% Pro forma operating income as a percentage of operating revenue, as adjusted (1) 2.0% 1.1% 2.5% 1.4% 2.1% 1.2%
- ---------- (1) As adjusted for the goodwill nonamortization provisions of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,as if adopted on January 1, 2001. (2) Generally accepted accounting principles (GAAP), requires the use of basic weighted average shares outstanding when reporting a net loss. The diluted weighted average shares outstanding were 36,137 for the year ended December 31, 2002. (3) Excluding net investment income. PACIFICARE HEALTH SYSTEMS, INC. MEMBERSHIP INFORMATION
DECEMBER 31, 2002 SEPTEMBER 30, 2002 DECEMBER 31, 2001 ---------------------------- --------------------------- --------------------------- (in thousands) COMMERCIAL SENIOR TOTAL COMMERCIAL SENIOR TOTAL COMMERCIAL SENIOR TOTAL ---------------------------- --------------------------- --------------------------- HMO MEMBERSHIP Arizona 141.3 88.4 229.7 148.4 89.0 237.4 144.0 104.6 248.6 California 1,543.0 386.1 1,929.1 1,567.0 395.2 1,962.2 1,579.0 487.0 2,066.0 Colorado 178.3 57.6 235.9 181.6 58.4 240.0 202.3 60.3 262.6 Guam 32.2 - 32.2 31.5 - 31.5 36.4 - 36.4 Nevada 24.3 27.4 51.7 24.5 28.1 52.6 36.1 30.9 67.0 Oklahoma 101.1 19.8 120.9 103.7 20.5 124.2 91.3 30.2 121.5 Oregon 68.0 25.3 93.3 71.5 25.6 97.1 93.2 26.8 120.0 Texas 101.1 100.4 201.5 103.8 106.1 209.9 180.4 149.6 330.0 Washington 62.7 55.5 118.2 64.4 56.3 120.7 76.9 59.1 136.0 ---------------------------- --------------------------- --------------------------- Total HMO 2,252.0 760.5 3,012.5 2,296.4 779.2 3,075.6 2,439.6 948.5 3,388.1 ---------------------------- --------------------------- --------------------------- OTHER MEMBERSHIP PPO and indemnity 75.1 - 75.1 63.8 - 63.8 38.4 - 38.4 Medicare supplement - 15.6 15.6 - 15.4 15.4 - 11.0 11.0 Employer self-funded 34.8 - 34.8 34.5 - 34.5 42.4 - 42.4 ---------------------------- --------------------------- --------------------------- Total other membership 109.9 15.6 125.5 98.3 15.4 113.7 80.8 11.0 91.8 ---------------------------- --------------------------- --------------------------- Total HMO & other 2,361.9 776.1 3,138.0 2,394.7 794.6 3,189.3 2,520.4 959.5 3,479.9 ============================ =========================== ===========================
DECEMBER 31, 2002 SEPTEMBER 30, 2002 DECEMBER 31, 2001 -------------------------------- -------------------------------- -------------------------------- (in thousands) PACIFICARE PACIFICARE PACIFICARE HMO UNAFFILIATED TOTAL HMO UNAFFILIATED TOTAL HMO UNAFFILIATED TOTAL -------------------------------- -------------------------------- -------------------------------- SPECIALTY MEMBERSHIP Pharmacy benefit management (1) 3,012.5 1,635.1 4,647.6 3,075.6 1,355.1 4,430.7 3,388.1 1,129.0 4,517.1 Behavioral health (2) 2,194.7 1,681.3 3,876.0 2,225.6 1,485.7 3,711.3 2,337.2 1,373.4 3,710.6 Dental (2) 403.8 211.2 615.0 413.5 218.2 631.7 635.3 196.8 832.1
(1) Pharmacy benefit management PacifiCare HMO membership represents members that are in our commercial or senior HMO. All of these members either have a prescription drug benefit or are able to purchase their prescriptions utilizing our retail network contracts or our mail service. (2) Dental and behavioral health PacifiCare HMO membership represents members that are in our commercial HMO that are also enrolled in our dental or behavioral health plan. PACIFICARE HEALTH SYSTEMS, INC. PERCENT OF HMO MEMBERSHIP UNDER CAPITATED VS. RISK-BASED ARRANGEMENTS
HOSPITAL PHYSICIAN ----------------------------------------- ----------------------------------------- 12/31/02 9/30/02 6/30/02 12/31/01 12/31/02 9/30/02 6/30/02 12/31/01 ----------------------------------------- ----------------------------------------- COMMERCIAL CAPITATED 46% 46% 46% 48% 78% 78% 78% 79% RISK-BASED 54% 54% 54% 52% 22% 22% 22% 21% SENIOR CAPITATED 57% 57% 57% 57% 77% 77% 77% 77% RISK-BASED 43% 43% 43% 43% 23% 23% 23% 23% CONSOLIDATED CAPITATED 48% 48% 49% 51% 78% 78% 78% 79% RISK-BASED 52% 52% 51% 49% 22% 22% 22% 21%
### RISK FACTORS REGARDING FORWARD-LOOKING STATEMENTS The statements in this Current Report, including those made by Howard G. Phanstiel, Gregory W. Scott, and Brad Bowlus that are not historical facts are forward-looking statements within the meaning of the Federal securities laws, and may involve a number of risks and uncertainties. Such forward-looking statements include, but are not limited to, those relating to earnings guidance, the expected effect of strategies already implemented and those expected to be implemented by the company, expectations regarding commercial and specialty company membership growth, the positive benefits of new products and services, the company's ability to maintain the profitability of its Medicare+Choice business and continue its participation in the Medicare+Choice program, and the ability to execute the company's turnaround and transition into a diversified consumer health organization. Important factors that could cause results to differ materially from those expected by management include, but are not limited to, failure to implement programs to achieve expected membership targets as a result of increased premiums or benefit adjustments, inability to execute cost control strategies, including medical management programs, actual medical claims differing from current estimates, inability to maintain required capital levels at the company's regulated subsidiaries, inability to maintain profitability and growth at the company's specialty businesses, provider financial problems or bankruptcy, provider contracts oversight relations and other matters, unexpected increases in competition, new regulations or laws relating to capitation, Medicare reimbursements, benefit mandates, service, utilization management, provider contracts and similar matters, inability of proposed new portfolio offerings to improve membership and profitability, and inability to comply with existing bank covenants. Additional information on factors, risks, and uncertainties that could potentially affect our financial results may be found in documents filed with the Securities and Exchange Commission. ### ITEM 9. REGULATION FD DISCLOSURE. On February 12, 2003, PacifiCare Health Systems, Inc. ("PacifiCare"), announced in a news release (the "News Release") its fourth quarter and full year 2002 financial and operating results. A portion of the information included in the News Release is set forth below. ### Howard G. Phanstiel, PacifiCare's president and chief executive officer, said, "A consistent focus on the execution of our strategic plan in 2002 continued to produce benefits in the fourth quarter. PacifiCare's stock price rose 76% during the year, significantly outperforming the managed care sector overall. We took several steps last year designed to attract new commercial membership, with the introduction of numerous new products and services as well as new alliances that are expected to expand the visibility and non-affiliated membership of our specialty companies. As we move into 2003, our plan is to continue focussing on our goal of diversifying revenues and transforming the company into a consumer health organization." ### Commenting on membership trends, Brad Bowlus, president and chief executive officer of PacifiCare's Health Plans Division, said, "We've really been committed to our plan to maintain pricing discipline, with our January 2003 commercial price increases averaging 18.5%, net of benefit buydowns. Additionally, we've added in excess of 100,000 new commercial members in the fourth quarter of 2002 and the first quarter of 2003. ### "We are very encouraged by the performance of our Medicare+Choice business in 2002, and believe that our successful management of this program, despite its challenges, gives us more time and flexibility to grow our commercial business while we continue to assess our future in Medicare+Choice," said Phanstiel. ### Days claims payable for the fourth quarter decreased one-tenth of one day to 41.9 compared with the third quarter. However, days claims payable as adjusted to eliminate the portion of the company's business that is capitated increased by half a day, to 78.1 days. "The strength of the balance sheet is evidenced by an increase in IBNR despite a continued reduction in claims processing time, and a somewhat lower membership base," said Executive Vice President and Chief Financial Officer Gregory W. Scott. The average claim turnaround time in December was shortened by another 4% from the end of the prior quarter, bringing the total reduction for the year to 12%. Days claims receipts on hand was 6.6 days at December 31, 2002, a slight increase from 6.1 days in the third quarter and 6.2 days on hand at the close of 2001. ### FOURTH QUARTER PRO FORMA RESULTS COMPARED TO 2001, ON FAS 142 ADJUSTED BASIS, INCLUDED, - - 19% INCREASE IN FREE CASH FLOW Earnings before interest, taxes, depreciation, amortization, and the non-recurring net credit (EBITDA) totaled $94.9 million in the fourth quarter of 2002, compared with $109.3 million in the third quarter. Free cash flow, defined as net income plus depreciation and amortization, less capital expenditures and the non-recurring net credit, was $38 million. Total free cash flow for the year, net of all non-operational items, was $156 million, which was 42% higher than the prior year. ### Commenting on the progress made during the year to restructure the company's balance sheet, Scott said, "We entered 2002 with $800 million in debt maturing in less than 12 months. Now, after two refinancing transactions and an extension of our bank debt, the average time to maturity of our debt has increased to more than five years." Scott reiterated PacifiCare's previously announced 2003 guidance, stating, "We expect the momentum that was generated in 2002 to carry through into 2003, resulting in a 15% increase in net income and EPS in the range of $4.25 to $4.32." ### In addition, PacifiCare is disclosing the supplemental information set forth below, which it is making available on its website, under Item 9 of this Current Report on Form 8-K. PACFICARE HEALTH SYSTEMS, INC. MEDICAL CLAIMS AND BENEFITS PAYABLE (MCBP) INFORMATION
THREE MONTHS ENDED --------------------------------------------- DECEMBER 31, SEPTEMBER 30, DECEMBER 30, 2001 2002 2002 COMMERCIAL Days in the quarter 92 92 92 - ------------------------------------------------------------------------------------------------------------------------------------ A Medical Claims and Benefits Payable ($000s) at end of period $569,074 $604,501 $615,425 B Total HMO and PPO commercial members (000s) at end of period 2,473 2,360 2,325 C=A/B Medical Claims and Benefits Payable per member at end of period $230.11 $256.14 $264.70 D=A/ (Health care costs/ Days in quarter) Days claims payable 51.5 50.8 51.2 E IBNR ($000s) $388,130 $400,179 $410,357 F Claims expense per day $4,439 $5,238 $5,269 G=E/F IBNR days claims payable 87.4 76.4 77.9 H Days to turn claims(1)(2) 71.3 65.5 65.5 SENIOR - ------------------------------------------------------------------------------------------------------------------------------------ A Medical Claims and Benefits Payable ($000s) at end of period $526,826 $456,799 $429,075 B Total HMO and Medicare Supplement members (000s) at end of period 959 795 776 C=A/B Medical Claims and Benefits Payable per member at end of period $549.35 $574.59 $552.93 D=A/ (Health care costs/ Days in quarter) Days claims payable 32.5 34.1 33.3 E IBNR ($000s) $394,968 $320,828 $311,660 F Claims expense per day $5,464 $4,056 $3,970 G=E/F IBNR days claims payable 72.3 79.1 78.5 H Days to turn claims(1)(2) 67.2 58.8 58.8 CONSOLIDATED - ------------------------------------------------------------------------------------------------------------------------------------ A Medical Claims and Benefits Payable ($000s) at end of period $ 1,095,900 $1,061,300 $1,044,500 B Total members (000s) at end of period 3,432 3,155 3,101 C=A/B Medical Claims and Benefits Payable per member at end of period $319.32 $336.39 $336.83 D=A/ (Health care costs/ Days in quarter) Days claims payable 40.2 42.0 41.9 E IBNR ($000s) $783,098 $721,006 $722,017 F Claims expense per day $9,903 $9,294 $9,239 G=E/F IBNR days claims payable 79.1 77.6 78.1 H Days to turn claims(1)(2) 68.9 62.2 62.2 I Days receipts on hand(3) 6.2 6.1 6.6 - ------------------------------------------------------------------------------------------------------------------------------------
Note 1 - Excludes PPO, POS, Specialty Company and third party administered claims. These excluded claims do not materially impact the calculations. Note 2 - December 31, 2002 days to turn claims assumes no further improvement in speed. Note 3 - Excludes Specialty Company claims. These excluded claims do not materially impact the calculations. PACIFICARE HEALTH SYSTEMS, INC. MEDICAL CLAIMS AND BENEFITS PAYABLE (MCBP) INFORMATION
Q4 2002 COMPARED TO Q4 2001 REFERENCES/CALCULATIONS ANALYSIS COMMERCIAL SENIOR CONSOLIDATED - ------------------------------------------------------------------------------------------------------------------------------------ P=line H on MCBP information Days to turn claims - December 31, 2002 65.5 58.8 62.2 Q= line H on MCBP information Days to turn claims - December 31, 2001 71.3 67.2 68.9 ------------------------------------- R=P-Q Decrease in days to turn claims from December 31, 2001 to December 31, 2002 (5.8) (8.4) (6.7) S = line F on MCBP information Q4 2001 claims expense per day ($000s) $4,439 $5,464 $9,903 ------------------------------------- T=R*S Expected IBNR decrease from improved speed of claims payments ($25,746) ($45,898) ($66,350) U = line B on MCBP information Total members at December 31, 2001 (000s) 2,473 959 3,432 V =T/U IBNR decrease per member from improved speed of claims payments ($10.41) ($47.86) ($19.33) W = line C on MCBP information MCBP per member at December 31, 2001 $230.11 $549.35 $319.32 ------------------------------------- X =V+W Expected MCBP per member Q4 2001 assuming improved speed of claims payments $219.70 $501.49 $299.99 ------------------------------------- Y = line C on MCBP information MCBP per member at December 31, 2002 $264.70 $552.93 $336.83 ------------------------------------- Z = (Y-X)/X Medical Claims and Benefits Payable per member increase over prior year (trend covered) 20.5% 10.3% 12.3% ===================================== COMPARES TO: AA Health care cost per member - Three months ended December 31, 2001 $134.86 $512.18 $240.65 BB Health care cost per member - Three months ended December 31, 2002 $157.65 $505.84 $244.98 CC=(BB-AA)/AA Health care cost increase per member over fourth quarter of prior year 16.9% -1.2% 1.8%
PACIFICARE HEALTH SYSTEMS, INC. CHANGES IN MEDICAL CLAIMS & BENEFITS PAYABLE (in thousands) BALANCE SEPTEMBER 30, 2002 $1,061,300 IBNR claims liability increases 2,586 Provider liabilities (24,117) <--- Decrease in provider capitation liabilities, provider claims administration pools and risk sharing program liabilities. All other changes (4,731) ---------- BALANCE DECEMBER 31, 2002 $1,044,500 ==========
### RISK FACTORS REGARDING FORWARD-LOOKING STATEMENTS The statements in this Current Report, including those made by Howard G. Phanstiel, Gregory W. Scott, and Brad Bowlus that are not historical facts are forward-looking statements within the meaning of the Federal securities laws, and may involve a number of risks and uncertainties. Such forward-looking statements include, but are not limited to, those relating to earnings guidance, the expected effect of strategies already implemented and those expected to be implemented by the company, expectations regarding commercial and specialty company membership growth, the positive benefits of new products and services, the company's ability to maintain the profitability of its Medicare+Choice business and continue its participation in the Medicare+Choice program, and the ability to execute the company's turnaround and transition into a diversified consumer health organization. Important factors that could cause results to differ materially from those expected by management include, but are not limited to, failure to implement programs to achieve expected membership targets as a result of increased premiums or benefit adjustments, inability to execute cost control strategies, including medical management programs, actual medical claims differing from current estimates, inability to maintain required capital levels at the company's regulated subsidiaries, inability to maintain profitability and growth at the company's specialty businesses, provider financial problems or bankruptcy, provider contracts oversight relations and other matters, unexpected increases in competition, new regulations or laws relating to capitation, Medicare reimbursements, benefit mandates, service, utilization management, provider contracts and similar matters, inability of proposed new portfolio offerings to improve membership and profitability, and inability to comply with existing bank covenants. Additional information on factors, risks, and uncertainties that could potentially affect our financial results may be found in documents filed with the Securities and Exchange Commission. SIGNATURE 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. Dated: February 12, 2003 By: /s/ Peter A. Reynolds --------------------------- Peter A. Reynolds Senior Vice President and Corporate Controller (Chief Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----