SIE Sierra Health Svcs

Sierra Health Services Inc. (NYSE:SIE) -0- *T 2005 Year Over Year Results -- Medical Premium Revenues Up 14% -- Cash Flow from Operations of $167 Million, or 139% of Net Income -- Commercial Membership Up 12% *T Sierra Health Services Inc. (NYSE:SIE) reported today that net income for the quarter ended Dec. 31, 2005, was $28.3 million, or $0.44 per diluted share, compared to $28.0 million, or $0.42 per diluted share, for the quarter ended Dec. 31, 2004. All earnings per share amounts reflect the retroactive effects of the two-for-one common stock split that was effective Dec. 30, 2005. Net income for the year ended Dec. 31, 2005, was $120.0 million, or $1.81 per diluted share, compared to $122.7 million, or $1.79 per diluted share for the year ended Dec. 31, 2004. During 2004, the company's military health services operations segment contributed 28.4% of operating income, compared to 7.6% for 2005. Revenues for the quarter were $353.7 million, a 6.3% increase over the $332.7 million for the same period in 2004. Medical premium revenues from the company's core managed care business were $332.5 million, an increase of 12.1% over the $296.6 million for the same period in 2004. Annual revenues were $1.4 billion, compared to $1.6 billion for 2004, a decrease of 12.1%. Revenues from 2004 included $372.6 million from the company's expired military health services operations. Annual medical premium revenues from the company's core managed care business were $1.3 billion in 2005, compared to $1.1 billion in 2004, an increase of 14.2%. In the fourth quarter, Sierra purchased, on a split-adjusted basis, 278,000 shares of its common stock in the open market for $10.0 million. During the year 2005, the company purchased, on a split-adjusted basis, 4.65 million shares of its common stock for $154.4 million. At Dec. 31, 2005, the company had $42.1 million authorized and available for share repurchases. Additionally, as previously reported, Sierra's amended revolving credit facility allows for unlimited share repurchases, provided certain covenant ratios are met. Cash flow from operations was $13.9 million for the fourth quarter of 2005 and $166.8 million for the year ended Dec. 31, 2005. This compares to $69.5 million for the fourth quarter of 2004 and $164.5 million for the year ended Dec. 31, 2004. The reduction in cash flow for the fourth quarter is primarily due to the timing of payments from the Center for Medicare and Medicaid Services (CMS). The company received two monthly payments from CMS during the quarter, compared to four monthly payments in the fourth quarter of 2004. In 2005, average monthly revenue from CMS has been approximately $42 million. In the fourth quarter, Sierra's medical care ratio increased 250 basis points to 76.9% from 74.4% for the same period in 2004. The increase in the ratio is primarily due to reserve strengthening and higher bed day utilization. The medical care ratio for the year 2005 increased 120 basis points to 76.5% from 75.3% in 2004. Sierra's medical claims payable balance increased to $135.9 million at Dec. 31, 2005, compared to $119.3 million at Dec. 31, 2004, and $127.0 million at Sept. 30, 2005. Days in claims payable, which is the medical claims payable balance divided by the average medical expenses per day for the period, were 47.2 days for the fourth quarter of 2005, compared to 48.3 days for the same period in 2004 and 45.0 days sequentially. In the fourth quarter, as a percentage of premium revenue, general and administrative expenses decreased 480 basis points to 13.7% from 18.5% for the same period in 2004. Excluding the general and administrative expenses related to the sold workers' compensation operations, expenses as a percentage of premium revenue would have been 13.5%, an improvement of 110 basis points from 14.6% for the same period in 2004. For the year 2005, general and administrative expenses, as a percentage of premium revenue, decreased 270 basis points to 13.4% from 16.1% for the year 2004. Excluding the general and administrative expenses related to the sold workers' compensation operations, expenses as a percentage of premium revenue would have been 13.2%, an improvement of 100 basis points from 14.2% for the same period in 2004. At Dec. 31, 2005, membership in Sierra's commercial HMO plans grew by 12.4% to 254,200 from 226,200 at Dec. 31, 2004. Membership in the company's Medicare Advantage plan grew by 5.6% in 2005 to 56,300 from 53,300 in 2004. Membership in the company's Medicaid plans grew by 9.1% in 2005 to 55,100 from 50,500 in 2004. Total membership in all of Sierra's plans grew by 13.8% to 637,900 at Dec. 31, 2005, from 560,500 at Dec. 31, 2004. As of Jan. 30, 2006, approximately 163,000 members were enrolled in the company's stand-alone Medicare Prescription Drug Plan (PDP), which became effective Jan. 1, 2006. "The year 2005 continued a period of exceptional performance from our core operations," said Anthony M. Marlon, M.D., chairman and chief executive officer of Sierra. "Despite this being the first full year of operations without our military segment, our managed care division, with its industry-leading commercial membership growth and solid revenue generation, continues to move the company forward. As I have often said, the Las Vegas market is an outstanding place in which to do business." Sierra had previously announced it expected to earn between $1.90 and $2.00 per fully diluted share for the year 2006. The company now expects to earn between $1.92 and $2.02 per fully diluted share for 2006. Sierra will host a conference call with investors, analysts and the general public on Wednesday, Feb. 1, 2006, at noon (Eastern time). Interested parties can access the call by dialing 888-988-9162 (using the passcode: EARNINGS). Listeners may also access the conference call free over the Internet by visiting the investors page of Sierra's Web site at www.sierrahealth.com. Sierra Health Services Inc., based in Las Vegas, is a diversified health care services company that operates health maintenance organizations, indemnity insurers, preferred provider organizations and multispecialty medical groups. Sierra's subsidiaries serve more than 600,000 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 and based on management's projections, assumptions and estimates; actual results may vary materially. Forward-looking statements 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 the Medicare Advantage program, the Medicare Prescription Drug Plan, Medicaid and legislative proposals to eliminate or reduce ERISA pre-emption of state laws that would increase potential managed care litigation exposure; 2) competitive forces that may affect pricing, enrollment, renewals and benefit levels; 3) unpredictable medical costs, malpractice exposure, reinsurance costs and inflation; 4) impact of economic conditions; 5) changes in health care reserves; and 6) the amount of actual proceeds to be realized from the note receivable 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. -0- *T SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES Earnings Report (In thousands, except per share data) (Unaudited) Three Months Ended Twelve Months Ended Dec. 31, Dec. 31, ------------------- ----------------------- 2005 2004 2005 2004 --------- --------- ----------- ----------- Medical premiums $332,462 $296,601 $1,291,296 $1,131,185 Military contract revenues 4 18,296 16,326 372,608 Professional fees 12,084 8,847 43,186 35,115 Investment and other revenues 9,157 9,005 34,228 36,646 --------- --------- ----------- ----------- Total Revenues 353,707 332,749 1,385,036 1,575,554 --------- --------- ----------- ----------- Medical expenses 264,975 227,339 1,020,754 877,774 Medical Care Ratio 76.9% 74.4% 76.5% 75.3% (Medical expenses/premiums and professional fees) Military contract expenses 127 4,652 2,392 317,699 General and administrative expenses 45,391 54,850 172,473 181,764 --------- --------- ----------- ----------- Operating Income From Continuing Operations 43,214 45,908 189,417 198,317 Interest expense (820) (1,123) (8,791) (4,684) Other income (expense), net 271 (10) 1,099 31 --------- --------- ----------- ----------- Income From Continuing Operations Before Income Taxes 42,665 44,775 181,725 193,664 Provision for income taxes (14,331) (16,815) (61,708) (70,245) --------- --------- ----------- ----------- Income From Continuing Operations 28,334 27,960 120,017 123,419 Loss from discontinued operations - - - (682) --------- --------- ----------- ----------- Net Income $28,334 $27,960 $120,017 $122,737 ========= ========= =========== =========== Earnings Per Common Share: (1) Income from continuing operations $0.49 $0.53 $2.16 $2.32 Loss from discontinued operations - - - (0.02) --------- --------- ----------- ----------- Net Income $0.49 $0.53 $2.16 $2.30 ========= ========= =========== =========== Earnings Per Common Share Assuming Dilution: (1) Income from continuing operations $0.44 $0.42 $1.81 $1.80 Loss from discontinued operations - - - ($0.01) --------- --------- ----------- ----------- Net Income $0.44 $0.42 $1.81 $1.79 ========= ========= =========== =========== Weighted average common shares outstanding (1) 57,747 52,449 55,556 53,262 Weighted average common shares outstanding assuming dilution (1) 65,251 68,039 67,149 69,643 (1) All applicable per share amounts and common shares outstanding reflect the retroactive effects of the two-for-one common stock split in the form of a 100% stock dividend that was effective Dec. 30, 2005. PERIOD END MEMBERSHIP At Dec. 31, ------------------- 2005 2004 --------- --------- HMO Commercial 254,200 226,200 Medicare 56,300 53,300 Medicaid 55,100 50,500 Managed indemnity 27,500 25,900 Medicare supplement 15,300 16,400 Administrative services 229,500 188,200 --------- --------- Total Members 637,900 560,500 ========= ========= SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) (Unaudited) Dec. 31, Dec. 31, 2005 2004 --------- --------- ASSETS Current Assets: Cash and cash equivalents $88,059 $207,619 Investments 281,250 147,575 Accounts receivable 14,501 15,150 Military accounts receivable 378 25,452 Current portion of deferred tax asset 23,949 17,555 Prepaid expenses and other current assets 30,218 36,123 --------- --------- Total Current Assets 438,355 449,474 Property and equipment, net 71,357 71,152 Restricted cash and investments 18,252 21,853 Goodwill 14,782 14,782 Deferred tax asset (less current portion) 13,266 13,275 Note receivable 47,000 47,000 Other assets 65,834 72,244 --------- --------- Total Assets $668,846 $689,780 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accrued and other current liabilities $97,135 $76,256 Trade accounts payable 2,347 7,123 Accrued payroll and taxes 21,469 27,668 Medical claims payable 135,867 119,337 Unearned premium revenue 10,170 50,763 Military health care payable - 17,061 Current portion of long-term debt 106 100 --------- --------- Total Current Liabilities 267,094 298,308 Long-term debt (less current portion) 52,307 125,395 Other liabilities 65,193 64,380 --------- --------- Total Liabilities 384,594 488,083 --------- --------- Commitments and contingencies Stockholders' Equity (1): Common stock 346 310 Treasury stock (377,190) (237,876) Additional paid-in capital 400,287 286,439 Deferred compensation - (288) Accumulated other comprehensive loss (1,750) (245) Retained earnings 262,559 153,357 --------- --------- Total Stockholders' Equity 284,252 201,697 --------- --------- Total Liabilities And Stockholders' Equity $668,846 $689,780 ========= ========= (1) All applicable share amounts reflect the retroactive effects of the two-for-one common stock split in the form of a 100% stock dividend that was effective Dec. 30, 2005. SIERRA HEALTH SERVICES INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) For The Years Ended Dec. 31, -------------------- 2005 2004 --------- --------- Cash Flows From Operating Activities: Net Income $120,017 $122,737 Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities: Loss from discontinued operations - 682 Depreciation 14,951 17,084 Other adjustments 7,298 23,863 Unearned premium revenue (40,593) 4,875 Military accounts receivable 25,171 21,937 Other current liabilities 19,431 (36,149) Medical claims payable 16,530 15,386 Changes in other assets and liabilities 4,030 (5,885) --------- --------- Net Cash Provided By Operating Activities Of Continuing Operations 166,835 164,530 --------- --------- Cash Flows From Investing Activities: Capital expenditures, net of dispositions (13,027) (23,102) (Purchase of) proceeds from investments, net (131,220) 42,686 --------- --------- Net Cash (Used For) Provided By Investing Activities Of Continuing Operations (144,247) 19,584 --------- --------- Cash Flows From Financing Activities: Payments on debt and capital leases (10,101) (1,760) Proceeds from other long-term debt - 10,000 Purchase of treasury stock (154,382) (133,809) Exercise of stock in connection with stock plans 22,335 26,834 --------- --------- Net Cash Used For Financing Activities Of Continuing Operations (142,148) (98,735) --------- --------- Net cash provided by discontinued operations - 3,720 --------- --------- Net (Decrease) Increase In Cash And Cash Equivalents (119,560) 89,099 Cash And Cash Equivalents At Beginning Of Period 207,619 118,520 --------- --------- Cash And Cash Equivalents At End Of Period $88,059 $207,619 ========= ========= *T