Bank of America High Yield Bond & Leveraged Finance Conference May 22, 2002.…a health and consumer...
-
Upload
cameron-dixon -
Category
Documents
-
view
214 -
download
0
Transcript of Bank of America High Yield Bond & Leveraged Finance Conference May 22, 2002.…a health and consumer...
Bank of AmericaHigh Yield Bond &
Leveraged Finance Conference
May 22, 2002
.…a health and consumer services company making people’s lives better
Safe Harbor Statement
The statements made during this presentation 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.
Factors that could cause actual results to differ materially from expectations include, but are not limited to, the risks discussed in the company’s most recent filings with the SEC, including Form 10Q as of March 31, 2002, and Form 10K as of December 31, 2001.
PacifiCare- largest purchaser of health care services in the western U.S.
A Fortune 200 company with• $11 billion in revenue• 2.4 million commercial lives• 835 thousand Medicare+Choice lives• 8.9 million specialty lives
.…a health and consumer services company making people’s lives better
Consumer Health
Organization
Expand scope of organization to offer services beyond traditional health insurance
Health Services
HMOImplement near-termcorrective action programs
Build infrastructure necessaryto support expansion of healthinsurance portfolio
Top-Level Strategy
.…a health and consumer services company making people’s lives better
Primary Challenges 2000-2001
.…a health and consumer services company making people’s lives better
• Transition of capitated business model
• Stabilization of earnings and balance sheet
• Commercial Growth Strategy
• Difficult political/regulatory environment in Texas
• Medicare+Choice reimbursement
Significant Events 2000-2001
• Turnaround plan milestones15% commercial yield increasesimproved cost mgmt/visibilityspecialty business growthslowing shift from capitationimproved claims mgmtlower MLR, increasing EBITDA
• Substantial free cash flow generation• Bank extension to 2005• OPM settlement/litigation dismissal• Secured $150M equity line of credit (Acqua
Wellington)
.…a health and consumer services company making people’s lives better
Medicare+Choice Reimbursement
Bush 2003 Budget Proposal
•Modifies M+C payment formula to better reflect actual health
care costs, and allocate resources to underpaid counties
•All plans would receive payment increases equal to national
FFS cost growth less 0.5%
•Plans in counties that received only 2-3% annual increases
over last 4 years to get 6.5% increase in 2003
.…a health and consumer services company making people’s lives better
Earnings Improvement
.…a health and consumer services company making people’s lives better
$0.52$0.37 $0.45 $0.52
$0.34
$0.87 $0.85
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
Note: EPS excludes gains/charges
2002 FY Guidance = $3.37-$3.47
$0.88
Earnings Improvement- Pro Forma
.…a health and consumer services company making people’s lives better
March 31, 2002 March 31, 2001Diluted (loss) earnings per share:As Reported per GAAP (24.86) $0.39Cumulative effect of change in accounting (FAS 142) $25.96Office of Personnel Management credit ($0.23)Favorable change in estimated restructuring charge $0.02
Pro Forma EPS $0.87 $0.37
Goodwill amortization adjustment (FAS 142) $0.42
Pro Forma EPS, as adjusted $0.87 $0.79
Pro Forma EPS Comparison
1st Quarter 2002 Results
Year-over-year operating result comparisons:
•Op income, excl. investment income, up 61% y-o-y
•Net income up 12%
•Specialty company net income up 22%
• Increased gross profit margin PMPM
commercial up 37%
M+C up 21%
•Commercial premiums PMPM up 15%
cost trends = 12-14%
•M+C premiums PMPM up 10%
cost trends = 9%
.…a health and consumer services company making people’s lives better
Earnings Improvement
.…a health and consumer services company making people’s lives better
($ millions) 3 mos. ended
1999 2000 2001 3/31/2002
Revenue $10,073 $11,576 $11,844 $2,863
EBITDA 641 504 337 82 % Margin 6.4 4.4 2.8 2.9
MLR commercial 81.7% 85.1% 88.8% 87.5% Medicare 86.9% 89.4% 90.3% 89.8%
SG&A $1,106 $1,204 $1,206 $310 % of Revenue 11.0% 10.4% 10.2% 10.8%
Year Ended 12/31
Improved Claims Management
.…a health and consumer services company making people’s lives better
9.1
6.0
0.0
2.0
4.0
6.0
8.0
10.0
2001 2002
Days Receipts on Hand
86.3
79.1
75.1
65
70
75
80
85
90
3/31/2001 12/31/2001 3/31/2002
IBNR Days Claims Payable
Free Cash Flow
.…a health and consumer services company making people’s lives better.…a health and consumer services company making people’s lives better
($millions) Q1 '01 FY '01 Q1 '02Net Income (1) $12.7 $57.2 $30.1Depreciation $15.1 $65.8 $12.1Amortization $20.9 $82.8 $5.4Less: Cap Ex ($21.7) ($77.3) ($18.6)Free Cash Flow $27.0 $128.5 $29.0
Change in Debt Balance (2) -- ($42.6) ($25.0)Change in Required Reg. Cap. ($51.9) ($22.1) ($6.3)Change in Excess Reg. Cap $70.2 ($58.9) $20.6Total Sources (Uses) of Corp. Cash $18.3 ($123.6) ($10.7)
Total Regulatory Capital $571.3 $670.6 $656.3Required Regulatory Capital $423.9 $394.1 $400.4Excess Regulatory Capital $147.4 $276.5 $255.9
(1) Excludes impairment, disposition, restructuring & other charges, OPM credits, and cumulative effect of change in accounting principle
(2) Includes $12.3M of bank fees & excludes $12M debt for equity exchange in Q301
Balance Sheet Restructuring
.…a health and consumer services company making people’s lives better.…a health and consumer services company making people’s lives better
• Recent Events
Acqua Wellington agreement•1st step in restructure process
2-year credit facility extension
$500M notes
• Future Options
Permanent bank refinancing
Convertible debt
Additional equity financing
Balance Sheet Restructuring- New Notes
.…a health and consumer services company making people’s lives better.…a health and consumer services company making people’s lives better
•$593 term loan
•$142 revolver ($55M drawn)
•LIBOR +500 bp
•50 bp int rate step-up @ 7/03
•Matures 1/2/05
•$250M reductions due by 1/03
•$85M 7% FHP bonds due 9/03
•$500M 10.75% notes due 6/09
•$55M revolver ($0 drawn)
•$274M term loan
•No interest rate step-up
•Credit facility matures 1/05
•$85M set aside for FHP bonds
BEFORE AFTER
Earnings in 2002
FY ‘02 EPS Guidance =$3.37-$3.47 (w/ FAS 142) Q2 = $0.85-$0.88 Q1 FAS 142 effect = $0.40
EOY Membership Commercial = 2.4 million M+C = 815 thousand Specialty = 11 million
Commercial premium increase high teens before buydowns, mid teens after buydowns
.…a health and consumer services company making people’s lives better
Earnings in 2002
Consolidated MLR = 87-88% commercial = 86-87% Medicare = 89-90%
SG&A ratio = 11.5%-12%
Medical cost trends: commercial- low to mid teens Medicare- high single digits pharmacy (after buydowns)-
commercial: mid teens Medicare: negative
.…a health and consumer services company making people’s lives better
Cash Flow
.…a health and consumer services company making people’s lives better
Q1022002
Guidance2001
Actual
EBITDA (ex-chg/cr) $82M $360M $336M
Free Cash Flow $29M $130M $128M
LTM EBITDA/Int. Exp.
Total Debt/LTM EBITDA
5.1x
2.3X
5.3x
2.2X
4.8x
2.4x
.…a health and consumer services company making people’s lives better.…a health and consumer services company making people’s lives better
Summary
• Higher pro forma EPS
• Increased gross profit margins PMPM
• Increased EBITDA
• Restructured balance sheet
• Declining debt-to-EBITDA
• Increased statutory capital
• Adequate cash flows and reserves