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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): SEPTEMBER 30, 1998
PACIFICARE HEALTH SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 000-21949 95-4591529
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification Number)
3120 LAKE CENTER DRIVE, SANTA ANA, CALIFORNIA 92704
(Address of principal executive offices, including zip code)
(Registrant's telephone number, including area code): (714) 825-5200
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 30, 1998, PacifiCare Health Systems, Inc. (the "Company" or
"PacifiCare") sold all of the issued and outstanding stock of its wholly owned
subsidiary, PacifiCare of Utah, Inc. (the "Utah HMO"), to Elan Health Partners,
LLC, a Utah limited liability company (the "buyer"). The buyer will operate the
Utah HMO as Altius Health Plans. The sale of the Utah HMO was effected by the
Stock Purchase Agreement, dated July 6, 1998, and amended as of September 30,
1998, by and between PacifiCare Health Plan Administrators, Inc., a wholly owned
subsidiary of the Company, and the buyer. Under the terms of the Stock Purchase
Agreement, PacifiCare guaranteed the buyer that the Utah HMO would have a
minimum net equity of $10 million, based on the audited values of the Utah HMO's
assets and liabilities as of September 30, 1998. As of September 30, 1998, the
Utah HMO served approximately 102,000 commercial, 11,200 Medicare and 7,800
Medicaid members.
On September 30, 1998, both the buyer and PacifiCare extended
subordinated loans totaling $1.2 million to the Utah HMO to increase its
statutory net equity. The loans are subordinated to the Utah HMO's trade
creditors and subscribers. The $700,000 PacifiCare loan is senior to the buyer's
$500,000 loan. PacifiCare's loan is repayable after January 1, 1999 from the
Utah HMO's excess surplus. PacifiCare received no consideration at the time of
the sale, but is entitled to receive a cash payment if the Utah HMO's audited
net equity as of September 30, 1998 exceeds $10 million.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
Not applicable.
(b) Pro Forma Financial Information.
The following Unaudited Pro Forma Condensed Consolidated Statements
of Operations for the year ended December 31, 1997 and the nine
months ended September 30, 1998 present results for PacifiCare as if
the disposition occurred on January 1, 1997 and 1998, respectively.
The accompanying Unaudited Pro Forma Condensed Consolidated Balance
Sheet for PacifiCare as of September 30, 1998 gives effect to the
disposition as if it occurred on September 30, 1998.
The Unaudited Pro Forma Condensed Consolidated Financial Statements
are provided for information purposes only and do not purport to
present the financial position or results of operations of
PacifiCare had the disposition occurred on the dates specified, nor
are they necessarily indicative of the results of operations that
may be expected in the future.
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PACIFICARE HEALTH SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands except per share data)
<TABLE>
<CAPTION>
Plus
PacifiCare, Less Pro Forma PacifiCare,
as Reported Utah HMO Adjustments as Adjusted
-------------- ----------- -------------- -----------
(1) (2)
<S> <C> <C> <C> <C>
Total operating revenue $ 8,982,680 $ 223,641 $ -- $ 8,759,039
Expenses:
Health care services 7,658,879 247,810 -- 7,411,069
Marketing, general and
administrative expenses 1,055,080 32,610 5,097 1,027,567
Amortization of goodwill and
intangible assets 70,219 1,415 -- 68,804
Impairment, disposition, restructuring
and other charges 154,507 66,118 -- 88,389
----------- ----------- ----------- -----------
Operating income (loss) 43,995 (124,312) (5,097) 163,210
Interest income 80,665 2,353 -- 78,312
Interest expense (64,536) -- -- (64,536)
----------- ----------- ----------- -----------
Income (loss) before income taxes 60,124 (121,959) (5,097) 176,986
Provision for income taxes 81,825 (23,363)(3) (2,049) 103,139
----------- ----------- ----------- -----------
Net income (loss) $ (21,701) $ (98,596) $ (3,048) $ 73,847
=========== =========== =========== ===========
Preferred dividends (8,792) -- -- (8,792)
----------- ----------- ----------- -----------
Net income (loss) available to common
shareholders $ (30,493) $ (98,596) $ (3,048) $ 65,055
=========== =========== =========== ===========
Basic weighted average shares outstanding 40,523 40,523
=========== ===========
Basic earnings per share $ (0.75) $ 1.61
=========== ===========
Diluted weighted average shares outstanding 40,523 40,523
=========== ===========
Diluted earnings per share $ (0.75) $ 1.61
=========== ===========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
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PACIFICARE HEALTH SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(In thousands except per share data)
<TABLE>
<CAPTION>
Plus
PacifiCare, Less Pro Forma PacifiCare,
as Reported Utah HMO Adjustments as Adjusted
-------------- ------------ -------------- --------------
(1) (2)
<S> <C> <C> <C> <C>
Total operating revenue $ 7,179,106 $ 153,524 $ -- $ 7,025,582
Expenses:
Health care services 6,032,883 150,925 -- 5,881,958
Marketing, general and
administrative expenses 826,212 24,325 2,688 804,575
Amortization of goodwill and
intangible assets 57,444 -- -- 57,444
Disposition charges 15,644 12,932 -- 2,712
Office of Personnel Management charge 3,776 -- -- 3,776
----------- ----------- ----------- -----------
Operating income (loss) 243,147 (34,658) (2,688) 275,117
Net investment income 78,347 3,097 -- 75,250
Interest expense (48,259) -- -- (48,259)
----------- ----------- ----------- -----------
Income (loss) before income taxes 273,235 (31,561) (2,688) 302,108
Provision for income taxes 129,787 (12,688)(3) (1,081) 141,394
----------- ----------- ----------- -----------
Net income (loss) $ 143,448 $ (18,873) $ (1,607) $ 160,714
=========== =========== =========== ===========
Preferred dividends (5,258) -- -- (5,258)
----------- ----------- ----------- -----------
Net income (loss) available to common
shareholders $ 138,190 $ (18,873) $ (1,607) $ 155,456
=========== =========== =========== ===========
Basic weighted average shares outstanding 43,176 43,176
=========== ===========
Basic earnings per share $ 3.20 $ 3.60
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Diluted weighted average shares outstanding 46,019 46,019
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Diluted earnings per share $ 3.12 $ 3.49
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</TABLE>
See Notes to Unaudited Pro Forma Condensed Financial Statements.
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PACIFICARE HEALTH SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(In thousands)
<TABLE>
<CAPTION>
PacifiCare, Plus
before Utah HMO Less Pro Forma PacifiCare,
Disposition Utah HMO Adjustments as Reported
-------------- ----------- ----------- -----------
(4) (1) (5) (4)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 183,768 $ 1 $ (2,263) $ 181,504
Marketable securities 994,397 -- -- 994,397
Receivables, net 288,811 6,082 700 283,429
Prepaid expenses and other current assets 19,091 -- -- 19,091
Deferred income taxes 96,892 -- -- 96,892
----------- ----------- ----------- -----------
Total current assets 1,582,959 6,083 (1,563) 1,575,313
----------- ----------- ----------- -----------
Property, plant and equipment, net 195,141 1,560 -- 193,581
Marketable securities - restricted 153,982 -- -- 153,982
Goodwill and intangible assets, net 2,401,769 -- -- 2,401,769
Other assets 26,532 3,462 -- 23,070
----------- ----------- ----------- -----------
$ 4,360,383 $ 11,105 $ (1,563) $ 4,347,715
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Medical claims and benefits payable $ 662,591 $ 691 $ -- $ 661,900
Accounts payable and accrued liabilities 564,163 1,977 -- 562,186
Unearned premium revenue 36,931 -- -- 36,931
Long-term debt due within one year 149 -- -- 149
----------- ----------- ----------- -----------
Total current liabilities 1,263,834 2,668 -- 1,261,166
----------- ----------- ----------- -----------
Long-term debt due after one year 751,121 -- -- 751,121
Deferred income taxes 102,756 -- -- 102,756
Other liabilities 49,455 -- -- 49,455
Minority interest 355 -- -- 355
Shareholders' equity:
Common shares 463 -- -- 463
Additional paid-in capital 1,618,227 -- -- 1,618,227
Accumulated other comprehensive income 17,496 -- -- 17,496
Retained earnings 600,630 8,437 (1,563) 590,630
Treasury shares (43,954) -- -- (43,954)
----------- ----------- ----------- -----------
Total shareholders' equity 2,192,862 8,437 (1,563) 2,182,862
----------- ----------- ----------- -----------
$ 4,360,383 $ 11,105 $ (1,563) $ 4,347,715
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</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
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PACIFICARE HEALTH SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(1) Utah HMO disposition - Pro forma adjustments to remove the historical
operating results of the Utah HMO and the assets acquired and
liabilities assumed by the buyer. During the year ended December 31,
1997, PacifiCare recognized charges for the impairment of goodwill and
restructuring associated with its Utah operations totaling $63 million
($1.57 diluted loss per share) and $3 million ($2 million or $.05
diluted loss per share, net of tax), respectively.
(2) Corporate allocations - Pro forma adjustments to reflect an increase in
marketing, general and administrative expenses for corporate allocations
included in the Utah HMO results of operations that are expected to
remain after the disposition, and the related income tax effects at the
statutory tax rate of 40.2 percent.
(3) Income taxes - Pro forma adjustments to reflect the tax effects of the
disposition and related non-deductible goodwill amortization at the
statutory rates in effect during the year ended December 31, 1997 and
the nine months ended September 30, 1998 (dollars in thousands).
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, 1997 September 30, 1998
----------------- ------------------
<S> <C> <C>
Utah HMO loss before income taxes $(121,959) $ (31,561)
Non-deductible goodwill amortization 63,842 --
--------- ---------
(58,117) (31,561)
Statutory tax rate 40.2% 40.2%
--------- ---------
Pro forma income tax adjustment $ (23,363) $ (12,688)
========= =========
</TABLE>
(4) Balance sheet presentation - The column entitled `PacifiCare, before
Utah HMO Disposition' on the Unaudited Pro Forma Condensed Consolidated
Balance Sheet reflects PacifiCare's balances immediately prior to the
disposition of the Utah HMO. Because the transaction occurred on
September 30, 1998, the column entitled `PacifiCare, as Reported' does
not include the assets acquired or liabilities assumed by the buyer.
(5) Consideration - Pro forma adjustments to reflect a capital contribution
made by PacifiCare to bring the Utah HMO's net equity to $10 million,
and a $700,000 loan made to the Utah HMO by PacifiCare to satisfy its
obligation to increase the Utah HMO's statutory net equity. The sale of
the Utah HMO was effected by the Stock Purchase Agreement dated July 6,
1998, and amended as of September 30, 1998, by and between PacifiCare
Health Plan Administrators, Inc., a wholly owned subsidiary of the
Company, and Elan Health Partners, LLC. Under the Agreement, all of the
issued and outstanding shares of capital stock of the Utah HMO were
assigned to the buyer for no consideration.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (continued).
(c) Exhibits.
2.1 Stock Purchase Agreement dated July 6, 1998, by and
between PacifiCare Health Plan Administrators, Inc. and
Elan Health Partners, LLC. Incorporated by reference
herein from Exhibit 2.1 to the Company's Current Report on
Form 8-K filed October 7, 1998.
2.2 First Amendment to Stock Purchase Agreement dated
September 30, 1998, by and between PacifiCare Health Plan
Administrators, Inc. and Elan Health Partners, LLC.
Incorporated by reference herein from Exhibit 2.2 to the
Company's Current Report on Form 8-K filed October 7,
1998.
2.3 Second Amendment to Stock Purchase Agreement dated
September 30, 1998, by and between PacifiCare Health Plan
Administrators, Inc. and Elan Health Partners, LLC.
Incorporated by reference herein from Exhibit 2.3 to the
Company's Current Report on Form 8-K filed October 7,
1998.
99.1 Press release of October 2, 1998, incorporated by
reference herein from Exhibit 99.1 to the Company's
Current Report on Form 8-K filed October 7, 1998.
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 hereunto duly authorized.
PACIFICARE HEALTH SYSTEMS, INC.
(Registrant)
Date: November 20, 1998 By: /s/ ROBERT B. STEARNS
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Robert B. Stearns
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
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