As of December 31, 1999, PacifiCare leased approximately 201,000 aggregate square feet of space for its principal corporate headquarters and executive offices in Santa Ana and Costa Mesa, California. In connection with our operations, as of December 31, 1999, we leased approximately 1.8 million aggregate square feet for office space, subsidiary operations, customer service centers and space for computer facilities. Such space corresponds to areas in which our HMOs or specialty managed care products and services operate, or where we have satellite administrative offices. Our leases expire at various dates from 2000 through 2009.
- - The positive results of retention programs initiated during 1998 in California.
- - Increased pharmacy utilization, pharmacy benefit enhancements and higher prescription drug costs; partially offset by
IMPAIRMENT, DISPOSITION, RESTRUCTURING AND OTHER (CREDITS) CHARGES. We recognized impairment, disposition, restructuring and other pretax credits in 1999 totaling $2 million (after tax charges of $2 million or $0.04 diluted loss per share). The after tax and per-share amounts were losses because the goodwill impairment was not deductible for income tax purposes. See Note 9 of the Notes to Consolidated Financial Statements.
NET INVESTMENT INCOME. Net investment income increased approximately 29 percent in 1998 compared to the prior year, due primarily to gains on sales of marketable securities experienced throughout 1998 and more efficient investment through account consolidation.
NEW ACCOUNTING PRONOUNCEMENTS. See Note 2 of the Notes to Consolidated Financial Statements for a discussion of future application of accounting standards.
INTEREST EXPENSE. Interest expense increased approximately 38 percent for the three months ended December 31, 1999 compared to the three months ended September 30, 1999 due to increased borrowings on our credit facility to fund our share repurchase program. In addition, the reduction in our credit rating by the credit rating agencies combined with a higher interest fee structure in the credit facility amendment resulted in higher interest rates.
PHARMACY. Our prescription drug costs have been rising for the past few years. The increases are due to the introduction of new drugs costing significantly more than existing drugs, direct consumer advertising by the pharmaceutical industry creating consumer demand for particular brand drugs, patients seeking medications to address lifestyle changes and higher prescribed doses of medications and enhanced pharmacy benefits for members such as reduced copayments and higher benefit maximums. Our efforts to mitigate these trends and ensure appropriate utilization include formulary management, provider education, successful pharmaceutical contracting and increased utilization of our in-house mail service pharmacy operated by Prescription Solutions.
EFFECTIVE TAX RATE. We expect our effective tax rate for the year ended December 31, 2000 to be approximately 41 percent to 42 percent compared to 42.2 percent for 1999. During 1999, we recognized $14 million of Ohio HMO goodwill impairment charges, which will lower nondeductible goodwill amortization and reduce the tax rate for the year ended December 31, 2000. We cannot be certain that pretax income will increase as projected or that future business decisions will not impact the estimated effective tax rate.
- - Fluctuations in our stock price that influence the number of shares repurchased and the options exercised;