News Release (2004)Full Document 

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For Immediate Release   5995 Plaza Drive
Cypress, California 90630
Tel.  631-0969

News Release

  Tyler Mason
Media Relations
(714) 226-3530
  Suzanne Shirley
Investor Relations
(714) 226-3470

PacifiCare Health Systems Announces 2nd Quarter 2004 Results

    Second quarter GAAP EPS $0.80 per diluted share
    Total revenue up 12% from prior year
    Commercial risk membership grew by 29,000 from prior quarter
    SG&A ratio decreased by 40 basis points from prior year

CYPRESS, Calif., July 29, 2004 — PacifiCare Health Systems, Inc. (NYSE: PHS), today announced that reported net income for the second quarter ended June 30, 2004 was $76 million, or $0.80 per diluted share. This compares with reported net income of $73 million, or $0.96 per diluted share, for the second quarter of last year. Results in the second quarter of last year included $14 million ($8.7 million net of tax, or $0.11 per diluted share) in favorable changes in estimates for health care costs for 2002 and prior periods. Second quarter 2004 EPS includes a $0.21 per share impact of approximately 20 million additional shares of stock included in the calculation of diluted weighted average shares outstanding, as compared to the second quarter last year. All EPS and share numbers in this release have been adjusted to reflect the 2-for-1 stock split that was effective January 20, 2004.

“Overall, second quarter performance was in line with our expectations, and was highlighted by continuing, measured growth in commercial membership and profitability,” said Chairman and



Chief Executive Officer Howard Phanstiel. “Additionally, our specialty companies continued to show significant growth. At the same time, the SG&A ratio decreased, as a result of leveraging our SG&A costs against our membership and revenue growth.”

Revenue and Membership

Second quarter 2004 total revenue of $3 billion was 12% higher than the same quarter a year ago. Commercial revenue rose 14%, driven by premium increases of 9% per member per month (PMPM) and a 5% growth in membership. Senior revenue grew 6% over the second quarter of last year as the result of a premium increase of 6% PMPM and a 1% drop in membership.

Additionally, commercial risk membership rose by 29,000, or 1%, compared with the previous quarter.

Specialty and Other revenue grew 43% over the second quarter last year, primarily due to a 53% increase in revenue at the company’s pharmacy benefit management subsidiary, Prescription Solutions. This revenue growth was driven by an increase in total membership, which rose by 516,000 or 10% year-over-year, and a focused marketing initiative resulting in a year-over-year increase in the mail order prescription fulfillment rate from 20.8% to 26.2%.

Health Care Costs

The second quarter consolidated medical loss ratio (MLR) of 85.1% increased 130 basis points from the second quarter of 2003, but was flat sequentially.

This increase in the consolidated MLR was driven mainly by a 260 basis point rise in the government sector senior MLR, to 86.4%, compared with the second quarter of last year. This includes the effect of the recent passage of new Medicare legislation requiring that 100% of the increased funding for the Medicare+Choice program in 2004 be passed through to members and providers in the form of increased member benefits and provider payments.

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