Sierra Reports Second Quarter 2004 Earnings of $1.10 Per Diluted Share; Net Income Increases 89%; Guidance Raised for 2004.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 June June: see month. 30, 2004 was $38.2 million or $1.10 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 compared to net income of $20.3 million, or $0.67 per diluted share, for the same period in 2003. Compared to the same period in 2003, this quarter's net income has increased 89%. As previously announced on May 18, 2004, earnings for the second quarter of 2004 from Sierra's wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. , Sierra Military Health Services, LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control (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) ), included gains from contractual settlements with the Department of Defense, including change orders and bid price adjustments, along with other adjustments on the TRICARE Program. These adjustments resulted in pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta gains for the quarter of $16.3 million, which represents an after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. contribution to diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of $0.30. Diluted earnings per share for the second quarter of 2004 include 6.3 million shares related to the company's convertible debt. Based on Sierra's current share price and under the terms of its 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. , due 2023, debenture-holders can exercise their right to convert their debentures during the second or third quarters of 2004. Assuming dilution Dilution A reduction in earnings per share of common stock that occurs through the issuance of additional shares or the conversion of convertible securities. Notes: Adding to the number of shares outstanding reduces the value of holdings of existing shareholders. , analysts who follow the company had expected Sierra to post an average second quarter 2004 earnings per share, minus the contractual settlement gain from SMHS, of $0.74, and annual earnings per share of $2.95. The company had previously announced it expected to earn between $2.90 and $3.00 per share for the year 2004. Sierra now expects to earn between $3.35 and $3.45 per diluted share in 2004. Revenues for the quarter were $441.2 million, compared to $370.2 million for the same period in 2003, an increase of 19%. Medical premium revenues for the quarter were $280.7 million, compared to $239.1 million for the same period in 2003, an increase of 17%. Military contract revenues for the quarter were $140.7 million, compared to $115.4 million for the same period in 2003, an increase of 22%. In the second quarter, Sierra's medical care ratio improved 70 basis points to 75.6% from 76.3% for the second 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 10 basis points from 75.7%. Sierra's medical claims payable balance increased to $113.1 million at June 30, 2004 from $107.3 million at March 31, 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 second quarter, as a percentage of total revenue, Sierra's general and administrative expenses increased 120 basis points to 10.3% from 9.1% for the second quarter of 2003. Sequentially, these expenses also increased 120 basis points to 10.3% from 9.1%. This 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 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 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 was $48.4 million for the quarter, compared to $19.0 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 $113.6 million for the six months ended June 30, 2004 compared to $48.2 million for the same period in 2003. The company received five monthly payments from CMS in the first six 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 six monthly CMS payments provides a more useful measure of cash provided by operations. Sierra's total external debt from continuing operations was $115.3 million, compared to $115.4 million at June 30, 2003, and includes $115.0 million for the senior convertible debentures issued in March 2003. During the second quarter of 2004, no amounts were drawn on the company's line of credit. During the quarter, Sierra repurchased 1.2 million shares of its common stock for $50.8 million. Since the January 2003 inception of the board-authorized 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 June 30, 2004, the company has repurchased 7.5 million shares of its common stock for $182.2 million. In the second quarter of 2004, sequential One after the other in some consecutive order such as by name or number. membership in the company's core Las Vegas commercial market grew by 1.7%, or 3,500 lives. For the six months ended June 30, 2004, Las Vegas commercial membership grew by 6.7% or 13,200 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 1.0%, or 500 lives, for the second quarter of 2004. For the six months ended June 30, 2004, Medicare membership grew by 2.0% or 1,000 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. "Sierra is well on target for another successful year," said Anthony M. Marlon Marlon may refer to:
On Aug. 31, 2004, SMHS will terminate Terminate (terminat.exe) was a shareware modem terminal and host program for MS-DOS and compatible operating systems developed from the early to the late 1990s by the Dane Bo Bendtsen. The last release (5. its contract with the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Department of Defense to serve TRICARE beneficiaries in Region 1. SMHS will continue full operations until that time, followed by a phase out of activities for a period of six months thereafter. 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, military health programs, 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 multispecialty medical groups. Sierra's subsidiaries serve more than 1.2 million 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 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 TRICARE, 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) our failure to obtain an extension of the Medicare Social HMO 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.
Three Months Ended Six Months Ended
SIERRA HEALTH SERVICES INC. June 30, June 30,
AND SUBSIDIARIES ------------------ -----------------
EARNINGS REPORT 2004 2003 2004 2003
(Unaudited) ---- ---- ---- ----
(In thousands, except per share data)
Medical Premiums $280,661 $239,142 $546,099 $474,222
Military Contract Revenues 140,705 115,431 268,329 219,844
Professional Fees 8,085 9,715 17,563 18,419
Investment and Other Revenues 11,788 5,917 17,438 9,990
------- ------- ------- -------
Total Revenues 441,239 370,205 849,429 722,475
------- ------- ------- -------
Medical Expenses 218,421 189,775 426,486 380,761
Medical Care Ratio 75.6% 76.3% 75.7% 77.3%
(Medical Expenses/Premiums
and Professional Fees)
Military Contract Expenses 116,420 113,347 237,217 215,143
General and Administrative
Expenses 45,231 33,787 82,399 68,000
------- ------- ------- -------
Operating Income from
Continuing Operations 61,167 33,296 103,327 58,571
Interest Expense (1,175) (1,530) (2,340) (3,150)
Other Income (Expense), Net 41 (332) 163 (343)
------ ------ ------ ------
Income from Continuing
Operations Before Income
Taxes 60,033 31,434 101,150 55,078
Provision for Income Taxes (21,812) (10,924) (36,614) (19,140)
------ ------ ------ ------
Income from Continuing
Operations 38,221 20,510 64,536 35,938
Loss from Discontinued
Operations - (245) (486) (651)
------ ------ ------ ------
Net Income $38,221 $20,265 $64,050 $35,287
====== ====== ====== ======
Earnings per Common Share:
--------------------------
Income from Continuing
Operations $1.43 $.75 $2.40 $1.27
Loss from Discontinued
Operations - (.01) (.02) (.02)
---- ---- ---- ----
Net Income $1.43 $.74 $2.38 $1.25
==== ==== ==== ====
Earnings per Common Share
Assuming Dilution:
-------------------------
Income from Continuing
Operations $1.10 $ .68 $1.85 $1.18
Loss from Discontinued
Operations - (.01) (.01) (.02)
---- ---- ---- ----
Net Income $1.10 $ .67 $1.84 $1.16
==== ==== ==== ====
Weighted Average Common
Shares Outstanding 26,766 27,451 26,903 28,185
Weighted Average Common
Shares Outstanding
Assuming Dilution 35,059 29,994 35,325 30,447
PERIOD END MEMBERSHIP
At June 30,
-------------------
2004 2003
---- ----
HMO
Commercial 215,700 194,100
Medicare 52,200 49,600
Medicaid 50,800 37,900
Managed Indemnity 24,800 25,000
Medicare Supplement 16,700 18,400
Administrative Services 173,700 186,500
TRICARE Eligibles 710,400 672,200
--------- ---------
Total Members 1,244,300 1,183,700
--------- ---------
SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
June 30, Dec. 31,
2004 2003
ASSETS ---- ----
CURRENT ASSETS:
Cash and Cash Equivalents $177,310 $118,473
Investments 139,757 197,573
Accounts Receivable 18,091 12,080
Military Accounts Receivable 37,460 47,389
Current Portion of Deferred
Tax Asset 26,698 33,708
Prepaid Expenses and Other
Current Assets 47,454 37,478
Assets of Discontinued Operations 2,605 533,756
--------- ---------
Total Current Assets 449,375 980,457
PROPERTY AND EQUIPMENT, NET 64,422 63,109
RESTRICTED CASH AND INVESTMENTS 19,543 17,646
GOODWILL 14,782 14,782
DEFERRED TAX ASSET
(Less Current Portion) 12,393 11,501
NOTE RECEIVABLE 62,000 -
OTHER ASSETS 59,337 46,626
--------- ---------
TOTAL ASSETS $681,852 $1,134,121
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued Liabilities $82,416 $56,327
Trade Accounts Payable 20,221 37,787
Accrued Payroll and Taxes 29,758 15,879
Medical Claims Payable 113,101 103,749
Unearned Premium Revenue 20,202 45,888
Military Health Care Payable 65,366 76,605
Current Portion of Long-Term Debt 43 163
Liabilities of Discontinued
Operations 733 472,407
--------- ---------
Total Current Liabilities 331,840 808,805
LONG-TERM DEBT
(Less Current Portion) 115,288 116,645
OTHER LIABILITIES 67,560 57,907
--------- ---------
TOTAL LIABILITIES 514,688 983,357
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock 174 166
Treasury Stock (187,877) (112,737)
Additional Paid-in Capital 265,081 227,417
Deferred Compensation (4,319) (22)
Accumulated Other Comprehensive Loss (831) (479)
Retained Earnings 94,936 36,419
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 167,164 150,764
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $681,852 $1,134,121
========= =========
SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended June 30,
-------------------------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $64,050 $35,287
Adjustments to Reconcile Net
Income to Net Cash
Provided by Operating Activities:
Loss from Discontinued
Operations 486 651
Depreciation 8,274 7,715
Other Adjustments 1,688 2,283
Unearned Premium Revenue (25,686) (27,876)
Changes in Other Assets and
Liabilities 31,839 221
-------- --------
Net Cash Provided by
Operating Activities
of Continuing Operations 80,651 18,281
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, Net of
Dispositions (7,892) (9,586)
Change in Investments 50,057 34,687
-------- --------
Net Cash Provided by Investing
Activities of Continuing
Operations 42,165 25,101
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Debt and Capital Leases (1,524) (60,460)
Purchase of Treasury Stock (82,759) (34,267)
Exercise of Stock in Connection with
Stock Plans 16,920 4,294
Proceeds from Senior Convertible
Debentures - 115,000
Debt Issue Costs - (5,137)
-------- --------
Net Cash (Used for) Provided
by Financing Activities of
Continuing Operations (67,363) 19,430
-------- --------
NET CASH PROVIDED BY (USED FOR)
DISCONTINUED OPERATIONS 3,384 (29,785)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 58,837 33,027
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 118,473 45,778
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $177,310 $78,805
======== ========
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 five monthly payments from CMS in the first six months of 2004 and 2003 as the January CMS payments were received at the end of December. The company believes that reflecting six monthly CMS payments provides a more useful measure of cash provided by operations during the six-month period. The following is a reconciliation to the most directly comparable GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). financial measure:
Six Months Ended June 30,
-------------------------
2004 2003
---- ----
GAAP Net Cash Provided by Operating
Activities of Continuing Operations $80,651 $18,281
Add: January CMS payment received
in December 32,924 29,883
-------- --------
Cash flow from continuing operations
adjusted for the timing of payments
from CMS $113,575 $48,164
======== ========
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