Sierra Reports 2004 3rd Quarter Earnings of $0.90 Per Diluted Share; Guidance Provided for 2005 and Raised for 2004; Bank Line of Credit Amended.LAS VEGAS Las Vegas (läs vā`gəs), city (1990 pop. 258,295), seat of Clark co., S Nev.; inc. 1911. It is the largest city in Nevada and the center of one of the fastest-growing urban areas in the United States. -- Sierra Health Services health services Managed care The benefits covered under a health contract Inc. (NYSE NYSE See: New York Stock Exchange : SIE SIE Sierra Health (stock symbol) SIE Serial Interface Engine SIE Serviciul de Informatii Externe (Romanian: Intelligence Service for the Exterior) SIE Società Italiana di Endocrinologia ) reported today that net income for the quarter ended Sept. 30, 2004 was $30.7 million or $0.90 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share. This compares to net income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the of $22.2 million or $0.72 per diluted share reported for the same period in 2003, an increase in earnings per diluted share of 25%. If adjusted for the impact of the company's 2 1/4% senior convertible debentures Convertible Debenture Any type of debenture that can be converted into some other security. Notes: For example, a convertible bond can be converted into stock. , 2003 third quarter earnings per diluted share would have been $0.61, resulting in a 48% increase quarter over quarter. Based on Sierra's current share price and under the terms of its 2 1/4% senior convertible debentures, due 2023, debenture debenture (dəbĕn`chər), document acknowledging indebtedness. In Great Britain a debenture is practically the same as a bond, and debenture stock is similar to preferred stock. holders can exercise their right to convert their debentures during the fourth quarter of 2004. Analysts who follow the company on average had expected Sierra to post third quarter 2004 earnings per diluted share of $0.80, and annual earnings per diluted share of $3.37. The company had previously announced it expected to earn between $3.35 and $3.45 per diluted share for the year 2004. Sierra now expects to earn between $3.45 and $3.50 per diluted share in 2004, including expected earnings of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $0.84 per diluted share from the company's military health services subsidiary, Sierra Military Health Services L.L.C. (SMHS SMHS Sisters of Mercy Health System SMHS San Marcos High School (California) SMHS San Mateo High School SMHS St. Mary's High School SMHS San Marino High School (California) ). In 2005, the company expects to earn between $3.15 and $3.25 per diluted share. The reduction in the 2005 earnings per diluted share amounts reflects the termination of the TRICARE military health care contract with SMHS. Revenues for the quarter were $393.3 million compared to revenues from continuing operations of $389.2 for the same period in 2003. Medical premium revenues for the quarter were $288.5 million, compared to $242.9 million for the same period in 2003, an increase of 19%. Military contract revenues for the quarter were $86.0 million, compared to $132.8 million for the third quarter of 2003. Revenues for the current quarter reflect only two months contribution under the health care contract from SMHS, which ended its full healthcare delivery operations on Aug. 31, 2004. For the next two quarters, these operations will phase out, with revenues of approximately $10 million per quarter. In the third quarter, Sierra's medical care ratio improved 50 basis points to 75.4% from 75.9% for the third quarter of 2003. Sequentially se·quen·tial adj. 1. Forming or characterized by a sequence, as of units or musical notes. 2. Sequent. se·quen , the medical care ratio improved 20 basis points from 75.6%. Sierra's medical claims payable balance increased to $115.6 million at Sept. 30, 2004 from $113.1 million at June June: see month. 30, 2004. Days in claims payable, which is the medical claims payable balance divided by the average medical expenses per day for the period, were 47 days, flat sequentially. In the third quarter, as a percentage of medical premium revenue, general and administrative expenses were 15.4%, a 70 basis point sequential One after the other in some consecutive order such as by name or number. improvement from 16.1% and a 150 basis point increase from 13.9% for the third quarter of 2003. In the past, Sierra has reported these expenses as a percentage of total revenue. The increase is due to the company's reporting of expenses for workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. administrative costs administrative costs, n.pl the overhead expenses incurred in the operation of a dental benefits program, excluding costs of dental services provided. under the general and administrative expense line of the statement of operations See Income statement. . These costs are offset by revenues associated with these services, which are reflected under the investment and other revenues line item of the statement of operations. In April 2004 Sierra reported that it had closed the sale of its workers' compensation insurance operations. A third-party claims administrator was engaged to administer To give an oath, as to administer the oath of office to the president at the inauguration. To direct the transactions of business or government. Immigration laws are administered largely by the Immigration and Naturalization Service. workers' compensation claims for a period of 15 years. As part of this agreement, Sierra receives revenue for maintaining responsibility for the administrator's costs and for performing certain workers' compensation transition and managed care services. Operating cash flow Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. from continuing operations was $16.1 million for the quarter, compared to $49.8 million for the same period in 2003. Operating cash flow from continuing operations, adjusted for the timing of payments from the Centers for Medicare and Medicaid Services The Centers for Medicare and Medicaid Services (CMS), previously known as the Health Care Financing Administration (HCFA), is a federal agency within the United States Department of Health and Human Services (DHHS) that administers the Medicare program and (CMS (1) See content management system and color management system. (2) (Conversational Monitor System) Software that provides interactive communications for IBM's VM operating system. ), was $129.7 million for the nine months ended Sept. 30, 2004, compared to $97.9 million for the first nine months of 2003. The company received eight monthly payments from CMS in the first nine months of 2004 and 2003 as the January January: see month. CMS payments were received at the end of December December: see month. . The company believes that reflecting nine monthly CMS payments provides a more useful measure of cash provided by operations. Sierra's total external debt from continuing operations was $125.4 million, compared to $116.7 million at Sept. 30, 2003, and includes $115.0 million for the convertible debentures issued in March 2003 and $10.0 million drawn on the revolving credit Revolving Credit A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is usually used for operating purposes, fluctuating each month depending on the customers current cash flow needs. facility. During the quarter, Sierra repurchased 705,000 shares of its common stock for $29.5 million. Since the January 2003 inception of the board authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: share repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. program, and through Sept. 30, 2004, the company has repurchased 8.2 million shares of its common stock for $211.7 million. The company is also announcing that it has amended a·mend v. a·mend·ed, a·mend·ing, a·mends v.tr. 1. To change for the better; improve: amended the earlier proposal so as to make it more comprehensive. 2. its revolving credit facility. Effective Oct. 19, 2004, the availability has increased to $100.0 million from $65.0 million, and the maturity extended to December 2009 from April 2006. Borrowing rates have been decreased under the amended facility and limits on share repurchases have been eliminated, provided that a certain leverage ratio is met. The amended line of credit increases Sierra's flexibility in its share repurchase program. In the third quarter of 2004, sequential membership in the company's core Las Vegas market grew by 3.1% or 6,600 lives. For the nine months ended Sept. 30, 2004, Las Vegas commercial membership grew by 10.0% or 19,800 lives. Sequentially, Medicare Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. membership grew by 1.5% or 800 lives for the third quarter of 2004. For the nine months ended Sept. 30, 2004, Medicare membership grew by 3.5% or 1,800 lives. Approximately 97% of the company's Medicare members are enrolled in the Social HMO HMO health maintenance organization. HMO n. A corporation that is financed by insurance premiums and has member physicians and professional staff who provide curative and preventive medicine within certain financial, program, which provides higher federal reimbursement Reimbursement Payment made to someone for out-of-pocket expenses has incurred. . In 2004, this program is subject to only a 10% risk modifier (programming) modifier - An operation that alters the state of an object. Modifiers often have names that begin with "set" and corresponding selector functions whose names begin with "get". , but will be subject to a 30% risk modifier in 2005. The Social HMO program is set to expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. at the end of 2007 at which time the company will transition to the Medicare Advantage Program beginning in 2008. "All indications are that 2004 is turning into another very successful year for Sierra," said Anthony M. Marlon Marlon may refer to:
adj. Sustaining an original intensity or maintaining full force with no decrease: an unabated windstorm; a battle fought with unabated violence. , we are optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that we will expand on this success as we head into 2005." Sierra Health Services Inc., based in Las Vegas, is a diversified diversified (di·verˑ·s health care services company that operates health maintenance organizations, indemnity Recompense for loss, damage, or injuries; restitution or reimbursement. An indemnity contract arises when one individual takes on the obligation to pay for any loss or damage that has been or might be incurred by another individual. insurers, preferred provider organizations pre·ferred provider organization n. Abbr. PPO A medical insurance plan in which members receive more coverage if they choose health care providers approved by or affiliated with the plan. and multi-specialty medical groups. Sierra's subsidiaries serve over 550,000 people through health benefit plans for employers, government programs and individuals. For more information, visit the company's Web site at www.sierrahealth.com. Statements in this news release that are not historical facts are forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. and based on management's projections, assumptions and estimates; actual results may vary materially. Forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. are subject to certain risks and uncertainties, which include but are not limited to: 1) potential adverse changes in government regulations, contracts and programs, including Medicare, Medicaid Medicaid, national health insurance program in the United States for low-income persons; established in 1965 with passage of the Social Security Amendments and now run by the Centers for Medicare and Medicaid Services. and legislative proposals to eliminate or reduce ERISA See Employee Retirement Income Security Act. ERISA See Employee Retirement Income Security Act (ERISA). pre-emption PRE-EMPTION, intern. law. The right of preemption is the right of a nation to detain the merchandise of strangers passing through her territories or seas, in order to afford to her subjects the preference of purchase. 1 Chit. Com. Law, 103; 1 Bl. Com. 287. 2. of state laws that would increase potential managed care litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. exposure; 2) competitive forces that may affect pricing, enrollment, renewals and benefit levels; 3) unpredictable medical costs, malpractice malpractice, failure to provide professional services with the skill usually exhibited by responsible and careful members of the profession, resulting in injury, loss, or damage to the party contracting those services. exposure, reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. costs and inflation; 4) impact of economic conditions; 5) changes in healthcare reserves; 6) the ultimate costs associated with the phase-out Noun 1. phase-out - the act or instance of a planned discontinuation discontinuance, discontinuation - the act of discontinuing or breaking off; an interruption (temporary or permanent) of the TRICARE contract and; 7) the amount of actual proceeds to be realized from the note receivable note receivable A debt due from borrowers and evidenced by a written promise of payment. Note receivable, an entry on the asset side of many corporate balance sheets, indicates the dollar amount of loans due to be repaid by borrowers. related to the sale of the workers' compensation insurance operation. Further factors concerning financial risks and results may be found in documents filed with the Securities and Exchange Commission and which are incorporated herein by reference. Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements, and there can be no assurance that the actual results or developments anticipated by Sierra will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, Sierra or its business or operations. Sierra assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise.
SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES
EARNINGS REPORT
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
2004 2003 2004 2003
------------------ -----------------
(In thousands, except per share data)
Medical Premiums $288,485 $242,875 $834,584 $717,097
Military Contract Revenues 85,983 132,788 354,312 352,632
Professional Fees 8,705 8,984 26,268 27,403
Investment and Other Revenues 10,107 4,590 27,545 14,580
-------- -------- --------- ---------
Total Revenues 393,280 389,237 1,242,709 1,111,712
-------- -------- --------- ---------
Medical Expenses 224,219 191,248 650,705 572,009
Medical Care Ratio 75.4% 75.9% 75.6% 76.8%
(Medical Expenses/Premiums
and Professional Fees)
Military Contract Expenses 75,830 128,966 313,047 344,109
General and Administrative
Expenses 44,496 33,845 126,895 101,845
-------- -------- --------- ---------
Operating Income from
Continuing Operations 48,735 35,178 152,062 93,749
Interest Expense (1,221) (1,295) (3,561) (4,445)
Other Income (Expense), Net (49) 100 114 (243)
-------- -------- --------- ---------
Income from Continuing
Operations Before Income
Taxes 47,465 33,983 148,615 89,061
Provision for Income Taxes (16,738) (11,806) (53,352) (30,946)
-------- -------- --------- ---------
Income from Continuing
Operations 30,727 22,177 95,263 58,115
Income (Loss) from
Discontinued Operations - 30 (486) (621)
-------- -------- --------- ---------
Net Income $30,727 $22,207 $94,777 $57,494
======== ======== ========= =========
Earnings per Common Share:
Income from Continuing
Operations $1.16 $.78 $3.56 $2.05
Loss from Discontinued
Operations - - (.02) (.02)
----- ---- ----- -----
Net Income $1.16 $.78 $3.54 $2.03
===== ==== ===== =====
Earnings per Common Share
Assuming Dilution:
Income from Continuing
Operations $.90 $.72 $2.75 $1.90
Loss from Discontinued
Operations - - (.01) (.02)
==== ==== ===== =====
Net Income $.90 $.72 $2.74 $1.88
Weighted Average Common Shares
Outstanding 26,498 28,423 26,767 28,265
Weighted Average Common Shares
Outstanding Assuming Dilution 34,454 30,897 35,032 30,561
PERIOD END MEMBERSHIP
At Sept. 30,
-------------------
2004 2003
---- ----
HMO
Commercial 222,200 199,400
Medicare 53,000 50,400
Medicaid 49,100 38,800
Managed Indemnity 25,600 23,700
Medicare Supplement 16,600 17,900
Administrative Services 186,600 191,800
------- -------
Subtotal 553,100 522,000
TRICARE Eligibles - 704,300
------- -------
Total Members 553,100 1,226,300
======= =========
SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited) Sept. 30, Dec. 31,
2004 2003
---- ----
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $194,061 $118,473
Investments 111,735 197,573
Accounts Receivable 13,671 12,080
Military Accounts Receivable 36,293 47,389
Current Portion of Deferred Tax Asset 22,589 33,708
Prepaid Expenses and Other Current Assets 44,088 37,478
Assets of Discontinued Operations 4,124 533,756
-------- --------
Total Current Assets 426,561 980,457
PROPERTY AND EQUIPMENT, NET 69,432 63,109
RESTRICTED CASH AND INVESTMENTS 20,616 17,646
GOODWILL 14,782 14,782
DEFERRED TAX ASSET (Less Current Portion) 12,617 11,501
NOTE RECEIVABLE 62,000 -
OTHER ASSETS 70,624 46,626
-------- --------
TOTAL ASSETS $676,632 $1,134,121
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued Liabilities $76,629 $56,327
Trade Accounts Payable 18,289 37,787
Accrued Payroll and Taxes 31,492 15,879
Medical Claims Payable 115,622 103,749
Unearned Premium Revenue 17,502 45,888
Military Health Care Payable 39,131 76,605
Current Portion of Long-Term Debt 78 163
Liabilities of Discontinued Operations 759 472,407
-------- --------
Total Current Liabilities 299,502 808,805
LONG-TERM DEBT (Less Current Portion) 125,352 116,645
OTHER LIABILITIES 69,060 57,907
-------- --------
TOTAL LIABILITIES 493,914 983,357
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock 176 166
Treasury Stock (217,122) (112,737)
Additional Paid-in Capital 276,299 227,417
Deferred Compensation (2,233) (22)
Accumulated Other Comprehensive Loss (112) (479)
Retained Earnings 125,710 36,419
-------- --------
TOTAL STOCKHOLDERS' EQUITY 182,718 150,764
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $676,632 $1,134,121
======== ==========
SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
Sept. 30,
-----------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $94,777 $57,494
Adjustments to Reconcile Net Income to Net
Cash
Provided by Operating Activities:
Loss from Discontinued Operations 486 621
Depreciation 12,372 11,750
Other Adjustments 5,549 3,255
Unearned Premium Revenue (28,386) (28,286)
Changes in Other Assets and
Liabilities 11,992 23,202
------- -------
Net Cash Provided by Operating
Activities of Continuing
Operations 96,790 68,036
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, Net of Dispositions (16,766) (13,728)
Change in Investments 74,805 43,606
------- -------
Net Cash Provided by Investing
Activities of Continuing Operations 58,039 29,878
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Debt and Capital Leases (1,544) (60,496)
Proceeds from Other Long-Term Debt 10,000 1,327
Purchase of Treasury Stock (112,277) (52,765)
Exercise of Stock in Connection with Stock
Plans 22,686 12,639
Proceeds from Senior Convertible Debentures - 115,000
Debt Issue Costs - (5,834)
------- -------
Net Cash (Used for) Provided by
Financing Activities of
Continuing Operations (81,135) 9,871
------- -------
NET CASH PROVIDED BY (USED FOR) DISCONTINUED
OPERATIONS 1,894 (25,013)
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 75,588 82,772
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 118,473 45,778
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $194,061 $128,550
======== ========
Reconciliation of Non-GAAP Financial Measures
In this press release, the company presented "cash flow from
continuing operations adjusted for the timing of payments from the
Centers for Medicare and Medicaid Services (CMS)." This is a non-GAAP
financial measure. The company received eight monthly payments from
CMS in the first nine months of 2004 and 2003 as the January CMS
payments were received at the end of December. The company believes
that reflecting nine monthly CMS payments provides a more useful
measure of cash provided by operations during the nine month period.
The following is a reconciliation to the most directly comparable GAAP
financial measure:
Nine Months Ended
Sept. 30,
-----------------
2004 2003
---- ----
GAAP Net Cash Provided by Operating Activities
of Continuing Operations $96,790 $68,036
Add: January CMS payment received in December 32,924 29,883
-------- -------
Cash flow from continuing operations adjusted for
the timing of payments from CMS $129,714 $97,919
======== =======
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