SIE Sierra Health Svcs

Sierra Health Services, Inc. (NYSE:SIE) 1st Quarter Results Premium Revenues Up 13% Year over Year and 16% over Q4 2006 Investment and Other Revenues Up 9% Year over Year and 16% over Q4 2006 Bed Days at Las Vegas Non-Contracted Facilities Better than Projected Sierra Health Services, Inc. (NYSE:SIE) reported today that the Company incurred a net loss for the quarter ended March 31, 2007, of $1.2 million, or $0.02 per share. Included in the loss is the Company�s full year estimated pre-tax loss on its enhanced benefits Medicare Part D Prescription Drug (PDP) product of $48.8 million. Of the total loss, $4.3 million was incurred during the quarter with the remaining $44.5 million recorded as a premium deficiency reserve at March 31, 2007. Excluding the loss on the enhanced benefits PDP product the Company earned $0.52 per share which includes $2.6 million, or $0.03 per share, in expenses related to its pending merger with UnitedHealth Group. The Company had previously announced on February 27, 2007, that it expected to incur losses on its enhanced benefits PDP product and would record a premium deficiency reserve once an amount could be reasonably estimated. Revenues for the quarter were $494.6 million, a 13% increase over the $438.2 million for the same period in 2006. Medical premium revenues were $468.1 million, an increase of 13% over the $414.4 million for the same period in 2006. Medical premium revenues for the current quarter include $85.3 million in revenues for its PDP products compared to $62.0 million in 2006, which only included the Company�s basic PDP product. Revenues from professional fees for the quarter were $14.6 million, compared to $12.9 million for the same period in 2006, an increase of 13%. Investment and other revenues for the quarter were $11.9 million, compared to $10.9 million for the same period in 2006, an increase of 9%. Excluding the impact of both PDP products, Sierra�s medical care ratio for the quarter came in at 77.7%, an increase of 30 basis points sequentially and 210 basis points over the first quarter of 2006. This is slightly lower than the Company�s prior projections. Sierra�s overall medical care ratio was 90.2%, which includes the impact of the premium deficiency reserve recorded in the quarter for the enhanced benefits PDP product. Sierra�s medical claims payable balance was $219.2 million at March 31, 2007, compared to $222.9 million at December 31, 2006. Days in claims payable, which is the medical claims payable balance divided by the average medical expenses per day for the period, were 45 days for the first quarter of 2007, compared to 43 days for the same period in 2006. Excluding both PDP products, days in claims payable were 50 days for the first quarter of 2007, compared to 52 days sequentially and 47 days for the first quarter of 2006. For the quarter, as a percentage of premium revenue, general and administrative expenses increased 20 basis points to 12.6% from the 12.4% reported in the same period of 2006. The general and administrative expenses for the quarter include $6.1 million in expenses related to our enhanced benefits PDP product, including the amount recorded as a premium deficiency reserve, and $2.6 million in merger related expenses. Cash flow from operations was $85.2 million for the quarter, compared to $129.5 million for the same period in 2006. Cash flow from operations, adjusted for the timing of monthly payments from the Centers for Medicare and Medicaid Services (CMS), was $5.7 million for the first quarter of 2007, compared to $55.6 million for the same period in 2006. Sierra received four months of payments from CMS in the first three months of 2007 and in the first three months of 2006. The April CMS payments were received at the end of March in both years. Sierra believes that reflecting three months of CMS payments provides a more useful measure of cash provided by operations during the three-month period. When adjusted for the timing of payments from CMS, Sierra�s basic PDP product had negative cash flow of $34.7 million for the first quarter of 2007. Sierra expects the basic PDP product to earn pre-tax income of $11 million to $14 million for the year and any cash shortfall would be a result of the timing of payments from CMS. During the quarter, Sierra purchased 585,000 shares of its common stock in the open market for $21.1 million, at an average price of $36.04. Sierra has halted its share repurchase program pending the merger with UnitedHealth Group. For the quarter, the Company had 7,700 new commercial lives, comparable to the growth in the first quarter of 2006. Overall commercial membership decreased by 3,300 lives or 1% after the Company absorbed the loss of 11,000 lives on January 1, 2007 as previously disclosed. For the quarter, Medicare Advantage membership grew 400 lives or 1% compared to growth of 1,000 lives in the first quarter of 2006. �Our core operations continue to perform very well as demonstrated by our strong revenue and membership growth trends,� said Anthony M. Marlon, M.D., chairman and chief executive officer. �We were very pleased to announce last month that we had entered into a definitive agreement to be acquired by UnitedHealth Group. We believe that this combination will be very positive for our customers, providers, employees and shareholders. Although it is disappointing to announce the loss on our enhanced benefits PDP product, fortunately it is only a 2007 event as we will not be offering the enhanced benefits product again in 2008.� Sierra had previously announced it expected to earn between $2.30 and $2.40 per share for 2007. The Company now expects to earn between $1.76 and $1.86 per share for the year 2007. This revised guidance includes $48.8 million, or $0.54 per share, in expected losses from the Company�s enhanced benefits PDP product offering along with costs associated with its pending merger with UnitedHealth Group. Sierra will host a conference call with investors, analysts and the general public on Wednesday, April 25, 2007 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 website at www.sierrahealth.com. Sierra Health Services, Inc., based in Las Vegas, is a diversified healthcare services company that operates health maintenance organizations, indemnity insurers, preferred provider organizations, prescription drug plans and multi-specialty medical groups. Sierra�s subsidiaries serve over 860,000 people through health benefit plans for employers, government programs and individuals. For more information, visit the Company�s website 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 and any potential reconciliation issues, 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, changes in provider contracts and inflation; 4) impact of economic conditions; 5) changes in healthcare reserves; 6) the effects of the termination of the HCA contract; 7) termination of the pending merger with UnitedHealth Group; 8) actual losses on the enhanced benefits PDP exceeding estimates and 9) 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. Additional Information and Where to Find It In connection with the proposed merger between Sierra and a subsidiary of UnitedHealth Group Incorporated and the other transactions contemplated by the Plan and Agreement of Merger (the �Merger Agreement�) between Sierra and UnitedHealth Group, Sierra intends to file relevant materials with the Securities and Exchange Commission (the �SEC�), including a proxy statement and related proxy solicitation materials. BECAUSE THOSE DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION, INVESTORS AND HOLDERS OF SIERRA COMMON STOCK ARE URGED TO READ THEM, IF AND WHEN THEY BECOME AVAILABLE. When filed with the SEC, they will be available for free (along with other documents and reports filed by Sierra and UnitedHealth Group with the SEC), at the SEC�s website, http://www.sec.gov. In addition, investors and Sierra stockholders may obtain free copies of the documents filed with the SEC by Sierra by a written request to Sierra Health Services, Inc., P.O. Box 15645, Las Vegas, NV 89114-5645, Attention: Investor Relations. Participants in the Solicitation Sierra and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the holders of Sierra common stock in connection with the transactions contemplated by the Merger Agreement. Information about the directors and executive officers of Sierra is set forth in the proxy statement for Sierra�s Annual Meeting of Stockholders, which was filed with the SEC on April 14, 2006. Investors may obtain additional information regarding the interests of such participants in the Merger and the other transactions contemplated by the Merger Agreement by reading the proxy statement and related proxy solicitation materials if and when they become available. UnitedHealth Group and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the holders of Sierra common stock in connection with the proposed transactions. Information about the directors and executive officers of UnitedHealth Group is set forth in the proxy statement for UnitedHealth Group�s 2006 Annual Meeting of Stockholders, which was filed with the SEC on April 26, 2006. Investors may obtain additional information regarding the interests of such participants by reading the prospectus and proxy solicitation statement if and when it becomes available. SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES Earnings Report (In thousands, except per share data) (Unaudited) � Three Months Ended March 31, 2007� 2006� � Medical premiums $ 468,074� $ 414,444� Professional fees 14,642� 12,915� Investment and other revenues 11,921� 10,889� � Total revenues 494,637� 438,248� � Medical expenses 435,311� 336,519� Medical care ratio 90.2% 78.7% (Medical expenses/premiums and professional fees) � General and administrative expenses 59,192� 51,339� � Operating income 134� 50,390� � Interest expense (1,955) (776) Other income (expense), net 650� (33) � (Loss) income before income taxes (1,171) 49,581� � Provision for income taxes (68) (16,910) � Net (loss) income $ (1,239) $ 32,671� � � Net (loss) income per common share ($0.02) $0.57� � Net (loss) income per common share assuming dilution ($0.02) $0.51� � Weighted average common shares outstanding 55,414� 57,727� Weighted average common shares outstanding assuming dilution 55,414� 64,727� PERIOD END MEMBERSHIP Number Of Members At March 31, 2007� 2006� HMO: Commercial 275,300� 260,800� Medicare 56,800� 56,400� Medicaid 59,600� 55,000� Commercial PPO and HSA 34,300� 28,600� Medicare PPO and PFFS 2,900� 900� Medicare Part D-Basic 159,100� 160,800� Medicare Part D-Enhanced 43,200� -� Medicare supplement 13,100� 14,600� Administrative services 218,200� 214,600� Total membership 862,500� 791,700� SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) (Unaudited) March 31, December 31, 2007� 2006� ASSETS Current assets: Cash and cash equivalents $ 77,242� $ 58,918� Investments 345,460� 323,846� Accounts receivable 24,881� 21,308� Current portion of deferred tax asset 47,955� 29,861� Prepaid expenses and other current assets 126,757� 110,020� Total current assets 622,295� 543,953� � Property and equipment, net 70,269� 71,893� Restricted cash and investments 19,470� 19,428� Goodwill 14,782� 14,782� Deferred tax asset (less current portion) 25,983� 18,656� Note receivable 47,000� 47,000� Other assets 90,349� 93,700� Total assets $ 890,148� $ 809,412� � LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accrued and other current liabilities $ 97,801� $ 99,314� Trade accounts payable 1,902� 1,552� Accrued payroll and taxes 23,906� 25,925� Medical claims payable 219,170� 222,895� Premium deficiency reserve 45,309� 1,076� Unearned premium revenue 121,958� 52,075� Current portion of long-term debt 132� 116� Total current liabilities 510,178� 402,953� � Long-term debt (less current portion) 70,523� 118,734� Other liabilities 90,712� 71,007� Total liabilities 671,413� 592,694� � Commitments and contingencies � Stockholders' equity: Common stock 368� 354� Treasury stock (620,951) (600,539) Additional paid-in capital 464,804� 436,643� Accumulated other comprehensive loss (8,559) (8,635) Retained earnings 383,073� 388,895� Total stockholders' equity 218,735� 216,718� Total liabilities and stockholders' equity $ 890,148� $ 809,412� SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (In thousands) (Unaudited) � � Three Months Ended March 31, 2007� 2006� Cash flows from operating activities: Net (loss) income $ (1,239) $ 32,671� Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 3,954� 4,318� Excess tax benefits from share-based payment arrangements (1,055) (5,109) Other adjustments 2,855� 2,306� Other current assets (21,210) (23,128) Deferred tax asset (24,283) 2,628� Medical claims payable (3,725) 26,434� Other current liabilities 2,547� 33,531� Unearned premium revenue 69,883� 61,154� Premium deficiency 44,233� -� Changes in other assets and liabilities 13,217� (5,256) Net cash provided by operating activities 85,177� 129,549� � Cash flows from investing activities: Capital expenditures, net of dispositions (2,233) (2,785) Purchase of investments, net of proceeds (22,029) (57,630) Net cash used for investing activities (24,262) (60,415) � Cash flows from financing activities: Payments on debt and capital leases (25,039) (25) Proceeds from other long-term debt -� 20,000� Purchase of treasury stock (21,081) (91,131) Excess tax benefits from share-based payment arrangements 1,055� 5,109� Exercise of stock in connection with stock plans 2,474� 7,808� Net cash used for financing activities (42,591) (58,239) � Net increase in cash and cash equivalents 18,324� 10,895� Cash and cash equivalents at beginning of period 58,918� 88,059� Cash and cash equivalents at end of period $ 77,242� $ 98,954� Reconciliation of Non-GAAP Financial Measures � Earnings Per Share In this press release, the Company presented its earnings per share excluding the effects of its enhanced Medicare Part D prescription drug program (Enhanced PDP). This is a non-GAAP financial measure. The Company believes that reflecting the earnings per share excluding the effects of the Enhanced PDP provides a more comparable measure of its earnings per share from quarter to quarter and to its historical results. The following is a reconciliation to the most directly comparable GAAP financial measure: Three Months Ended March 31, 2007 Non-GAAP Items GAAP ExcludingEnhanced PDP Enhanced PDP As reported (In thousands, except per share amounts) Medical premiums $ 434,760� $ 33,314� $ 468,074� Professional fees 14,642� -� 14,642� Investment and other revenues 11,921� -� 11,921� � Total revenues 461,323� 33,314� 494,637� � Medical expenses 359,271� 76,040� 435,311� General and administrative expenses 53,113� 6,079� 59,192� � Operating income (loss) 48,939� (48,805) 134� � Interest expense (1,955) -� (1,955) Other income (expense), net 650� -� 650� � Income (loss) before income taxes 47,634� (48,805) (1,171) � (Provision) benefit for income taxes (1) (17,150) 17,082� (68) � Net income (loss) $ 30,484� $ (31,723) $ (1,239) � Net income (loss) per common share $0.55� ($0.57) ($0.02) � Net income (loss) per common share assuming dilution $0.52� ($0.54) ($0.02) � Weighted average common shares outstanding 55,414� 55,414� 55,414� Weighted average common shares outstanding assuming dilution (2) 58,960� 58,960� 55,414� � (1) � The Company used the statutory tax rate of 35% to calculate its income tax benefit related to the Enhanced PDP. This may or may not be equal to the Company's actual tax rate for the year-ended December 31, 2007. (2) � The Company�s Enhanced PDP had a net loss for the quarter. In calculating the per share adjustment for this loss, the Company included the dilutive effects of stock options, restricted shares, and convertible debentures in the diluted share computation for comparability purposes. Medical Care Ratio In this press release, the Company presented its medical care ratio, excluding the effects of the Medicare Part D prescription drug program (PDP). This is a non-GAAP financial measure. The Company believes that reflecting the ratio excluding the effects of the PDP provides a more comparable measure of its medical care ratio from quarter to quarter and to its historical results. The following is a reconciliation to the most directly comparable GAAP financial measure: Three Months Ended March 31, 2007 Non-GAAP Items GAAP Other Medical PDP Reporting (In thousands) Medical premiums $ 382,750� $ 85,324� $ 468,074� Professional fees 14,642� -� 14,642� Total medical premiums and professional fees 397,392� 85,324� 482,716� � Medical expenses 308,950� 126,361� 435,311� Medical care ratio (medical expenses/premiums and professional fees) 77.7% 148.1% 90.2% � � Three Months Ended March 31, 2006 Non-GAAP Items GAAP Other Medical PDP Reporting (In thousands) Medical premiums $ 352,421� $ 62,023� $ 414,444� Professional fees 12,915� -� 12,915� Total medical premiums and professional fees 365,336� 62,023� 427,359� � Medical expenses 276,020� 60,499� 336,519� Medical care ratio (medical expenses/premiums and professional fees) 75.6% 97.5% 78.7% Operating Cash Flow In this press release, the Company presented operating cash flow, adjusted for the timing of payments from the Centers for Medicare and Medicaid Services (CMS) for both 2007 and 2006. These are non-GAAP financial measures. The Company received four months of payments from CMS in the first three months of 2007 and in the first three months of 2006. The April CMS payments were received at the end of March in both years. The Company believes that reflecting three months of CMS payments provides a more useful measure of cash provided by operations during the three-month period. The following is a reconciliation to the most directly comparable GAAP financial measure: � Three Months Ended March 31, 2007� 2006� (In thousands) GAAP net cash provided by operating activities $ 85,177� $ 129,549� Less: April CMS payments received in March (79,433) (73,962) Cash flow from operations adjusted for the timing of payments from CMS $ 5,744� $ 55,587�