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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
--------- --- ---------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8865
SIERRA HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 88-0200415
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2724 NORTH TENAYA WAY
LAS VEGAS, NV 89128
(Address of principal executive offices) (Zip Code)
(702) 242-7000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of October 30, 1998 there were 27,130,000 shares of common stock
outstanding.
- -------------------------------------------------------------------------------
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
INDEX
Page No.
Part I - FINANCIAL INFORMATION
Item l. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997..... 3
Condensed Consolidated Statements of Operations -
three and nine months ended September 30, 1998
and September 30, 1997..................... .. 4
Condensed Consolidated Statements of Cash Flows -
nine months ended September 30, 1998
and September 30, 1997....................... 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 9
Item 3. Quantitative and Qualitative Disclosures
about Market Risk................................. 17
Part II - OTHER INFORMATION
Item l. Legal Proceedings............................... 18
Item 2. Changes in Securities........................... 18
Item 3. Defaults Upon Senior Securities................. 18
Item 4. Submission of Matters to a Vote of Security Holders....18
Item 5. Other Information......................................18
Item 6. Exhibits and Reports on Form 8-K.......................18
Signature................................................................19
Page 2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1998 1997
----------------- ----------
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents................................................... $ 84,179,000 $ 96,841,000
Short-term Investments...................................................... 134,022,000 115,498,000
Accounts Receivable (Less: Allowance for Doubtful
Accounts: 1998 - $7,767,000; 1997 - $7,916,000)......................... 80,736,000 42,041,000
Prepaid Expenses and Other Assets............................................ 47,310,000 46,226,000
------------- -------------
Total Current Assets..................................................... 346,247,000 300,606,000
------------ ------------
LAND, BUILDINGS AND EQUIPMENT................................................. 226,914,000 197,917,000
Less-Accumulated Depreciation............................................... (61,067,000) (49,086,000)
------------- -------------
Land, Buildings and Equipment - Net...................................... 165,847,000 148,831,000
LONG-TERM INVESTMENTS....................................................... 155,984,000 155,153,000
RESTRICTED CASH AND INVESTMENTS............................................. 17,895,000 16,540,000
REINSURANCE RECOVERABLE (Less Current Portion) 20,965,000 20,245,000
GOODWILL ................................................................... 41,403,000 42,803,000
OTHER ASSETS................................................................ 45,663,000 39,758,000
------------- -------------
TOTAL ASSETS.................................................................. $794,004,000 $723,936,000
============ ============
CURRENT LIABILITIES:
Accounts Payable and Other Accrued Liabilities.............................. $ 58,653,000 $ 58,439,000
Medical Claims Payable...................................................... 99,192,000 55,943,000
Current Portion of Reserves for Losses and
Loss Adjustment Expense ................................................. 74,085,000 63,358,000
Unearned Premium Revenue.................................................... 18,524,000 29,763,000
Current Portion of Long-term Debt........................................... 7,995,000 4,726,000
-------------- ------------
Total Current Liabilities................................................ 258,449,000 212,229,000
RESERVES FOR LOSSES AND LOSS ADJUSTMENT
EXPENSE (Less Current Portion).............................................. 132,394,000 139,341,000
LONG-TERM DEBT (Less Current Portion)......................................... 81,485,000 90,841,000
OTHER LIABILITIES............................................................. 19,866,000 15,843,000
------------ -------------
TOTAL LIABILITIES............................................................. 492,194,000 458,254,000
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 Par Value,
1,000,000 Shares Authorized; None Issued
Common Stock, $.005 Par Value
60,000,000 Shares Authorized;
Shares Issued: 1998 - 28,096,000; 1997 - 27,709,000...................... 140,000 139,000
Additional Paid-in Capital.................................................. 171,215,000 164,247,000
Treasury Stock: 1998 - 955,550; 1997 - 426,800 Common Shares................ (14,617,000) (5,601,000)
Unrealized Holding Gain on
Available-for-Sale Securities........................................... 1,508,000 655,000
Retained Earnings........................................................... 143,564,000 106,242,000
------------- -------------
TOTAL STOCKHOLDERS' EQUITY.................................................... 301,810,000 265,682,000
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $794,004,000 $723,936,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
Page 3
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- ---------------------
1998 1997 1998 1997
------------ ------------ ------------ --------
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Medical Premium Revenues .......................... $145,990,000 $131,528,000 $427,029,000 $379,117,000
Specialty Product Revenues ........................ 44,016,000 37,596,000 120,898,000 109,388,000
Military Contract Revenues ........................ 72,418,000 132,806,000
Professional Fees................................... 10,939,000 8,004,000 33,033,000 23,063,000
Investment and Other Revenues ...................... 7,719,000 6,731,000 22,270,000 19,190,000
--------- --------------
Total ............................................ 281,082,000 183,859,000 736,036,000 530,758,000
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Medical Expenses.................................... 122,261,000 107,258,000 356,059,000 308,747,000
Specialty Product Expenses.......................... 42,390,000 36,361,000 118,149,000 107,360,000
Military Contract Expenses.......................... 71,082,000 128,101,000
General, Administrative and Marketing............... 27,136,000 24,655,000 79,301,000 69,721,000
Merger and Start-up Expenses........................ 18,350,000 29,350,000
---------- --------------------- -----------
Total ........................................... 262,869,000 186,624,000 681,610,000 515,178,000
------------ ------------ ----------- ------------
OPERATING (LOSS) INCOME............................... 18,213,000 (2,765,000) 54,426,000 15,580,000
INTEREST EXPENSE AND OTHER, NET............... (1,207,000) (940,000) (4,107,000) (3,549,000)
---------- ----------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES............... 17,006,000 (3,705,000) 50,319,000 12,031,000
(PROVISION) BENEFIT FOR INCOME TAXES............... (4,422,000) 4,200,000 (12,997,000) 423,000
---------- ------------- -----------------------------
NET INCOME ........................................... $ 12,584,000 $ 495,000 $ 37,322,000 $ 12,454,000
============ ============= ============ ============
NET INCOME PER COMMON SHARE............... $.46 $.02 $1.36 $.46
==== ====
NET INCOME PER COMMON SHARE
ASSUMING DILUTION............... $.46 $.02 $1.34 $.46
==== ====
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING........................ 27,433,000 27,114,000 27,462,000 26,948,000
========== ============= ============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION............... 27,633,000 27,567,000 27,836,000 27,326,000
========== ================= ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended September 30
1998 1997
------------ --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income.............................................................. $37,322,000 $ 12,454,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization.................................. 13,274,000 9,921,000
Provision for Doubtful Accounts............................... 4,314,000 3,161,000
Changes in Assets and Liabilities.................................... (11,725,000) 4,753,000
------------- ------------
Net Cash Provided by Operating Activities....................... 43,185,000 30,289,000
------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, Net of Equipment Dispositions..................... (25,597,000) (34,102,000)
Changes in Short-term Investments....................................... (18,345,000) 18,708,000
Changes in Long-term Investments........................................ (38,000) (37,292,000)
Changes in Restricted Cash and Investments............................... (1,228,000) (2,106,000)
Corporate Acquisition, Net of Cash Acquired............................. (3,200,000)
Corporate Disposition, net of cash disposed............................ 1,373,000
-------------
Net Cash Used for Investing Activities............................. (43,835,000) (57,992,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Borrowings............................................... 30,200,000 17,000,000
Payments on Debt and Capital Leases................................... (39,357,000) (1,812,000)
Exercise of Stock in Connection with Stock Plans........................ 6,161,000 8,464,000
Purchase of Treasury Stock.............................................. (9,016,000) (5,471,000)
-------------- -------------
Net Cash (used for) Provided by Financing Activities............. (12,012,000) 18,181,000
-------------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS................................. (12,662,000) (9,522,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................ 96,841,000 103,587,000
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 84,179,000 $ 94,065,000
============ ============
Nine Months Ended September 30
Supplemental Condensed Consolidated
Statements of Cash Flows Information: 1998 1997
---------- -- ---- ----- ------------ ---------- ----------
Cash Paid During the Period for Interest
(Net of Amount Capitalized).............................................. $7,744,000 $4,267,000
Cash Paid During the Period for Income Taxes............................. 13,285,000 7,651,000
Non-cash Investing and Financing Activities:
Tax Benefits of Stock Issued for Exercise of Options ................. 808,000 1,405,000
Additions to Capital Leases 3,070,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited financial statements include the consolidated
accounts of Sierra Health Services, Inc. ("Sierra", a holding company, together
with its subsidiaries, collectively referred to herein as the "Company"). All
material intercompany balances and transactions have been eliminated. These
statements have been prepared in conformity with the generally accepted
accounting principles used in preparing the Company's annual audited
consolidated financial statements but do not contain all of the information and
disclosures that would be required in a complete set of audited financial
statements. They should, therefore, be read in conjunction with the Company's
annual audited consolidated financial statements and related notes thereto for
the years ended December 31, 1997 and 1996. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments, consisting only of normal and recurring adjustments, necessary for
a fair presentation of the financial results for the interim periods presented.
2. On October 31, 1998, a subsidiary of Sierra, Texas Health Choice, L.C.
(formerly HMO Texas L.C.) completed the acquisition of certain assets of Kaiser
Foundation Health Plan of Texas ("Kaiser-Texas"), a health plan operating in
Dallas-Forth Worth with approximately 109,000 members and Permanente Medical
Association of Texas ("Permanente"), an approximately 150 physician medical
group operating in that area. The acquisition was effected pursuant to a
definitive agreement dated as of June 5, 1998. The purchase price was $124
million, which is net $20 million in operating cost support to be paid to Sierra
by Kaiser Foundation Hospitals in five quarterly installments following the
closing of the transaction. The purchase price includes amounts for real estate
and eight medical and office facilities encompassing more than 500,000 square
feet. The purchase price may increase by $30 million over three years if certain
growth, member retention and accreditation goals are met by the health plan.
Sierra is assuming no prior liabilities for malpractice or other
litigation, or for any unanticipated future adjustments to claims expenses for
periods prior to closing. The transaction will be financed with a five-year
revolving credit facility. Approximately $100 million of the $200 million
revolving credit facility was used to fund the transaction. Bank of America NT &
SA is the administrative agent, NationsBanc Montgomery Securities LLC is the
lead arranger and First Union National Bank is the syndication agent for the
credit facility. The transaction had been previously approved by the Boards of
Directors of Kaiser and the Company.
3. On May 5, 1998, the Company announced a three-for-two stock split. Each
stockholder of record of the Company owning one share of common stock, par value
of $.005, as of the close of business on the record date of May 18, 1998,
received an additional one-half share on June 18, 1998. In lieu of any
fractional share resulting from the stock split, a stockholder received a cash
payment based on the closing price of the Company's common stock on the record
date. The par value remains $.005 per share. Common stock and earnings per share
amounts have been retroactively adjusted to account for the split.
4. On October 27, 1998, Sierra signed an agreement to purchase the Nevada
health care business of Exclusive Healthcare, Inc., United of Omaha Life
Insurance Company and United World Life Insurance Company, all of which are
subsidiaries of Mutual of Omaha Insurance Company. The transaction, expected to
be completed by December 31, is subject to regulatory approvals. The purchase
price is contingent based on how many members are retained through 2000 and
2001. No cash will be paid until group renewals begin in 2000.
Exclusive Healthcare is an HMO serving approximately 26,000 members in six
Nevada counties, including the Las Vegas and Reno metropolitan areas. United of
Omaha provides PPO and indemnity coverage to an additional 10,000 members.
United World provides health benefits to approximately 100 customers through
small group coverage.
Page 6
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. The following tables provide a reconciliation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Dilutive
Basic Stock Options Diluted
For the Three Months ended September 30, 1998:
<S> <C> <C> <C>
Income from Continuing Operations.......... $12,584,000 0 $12,584,000
Weighted Average Common Shares .......... 27,433,000 200,000 27,633,000
Per Share Amount................................... $.46 $.46
For the Three Months ended September 30, 1997:
Income from Continuing Operations............... $ 495,000 $ 495,000
Weighted Average Common Shares............... 27,114,000 453,000 27,567,000
Per Share Amount................................... $.02 $.02
</TABLE>
<TABLE>
<CAPTION>
Dilutive
Basic Stock Options Diluted
For the Nine Months ended September 30, 1998:
<S> <C> <C> <C>
Income from Continuing Operations................ $37,322,000 0 $37,322,000
Weighted Average Common Shares.................. 27,462,000 374,000 27,836,000
Per Share Amount.................................... $1.36 $1.34
For the Nine Months ended September 30, 1997:
Income from Continuing Operations................... $12,454,000 $12,454,000
Weighted Average Common Shares..................... 26,948,000 378,000 27,326,000
Per Share Amount.................................... $.46 $.46
</TABLE>
6. The Company has adopted Statement of Financial Accounting Standard No.
130, "Reporting Comprehensive Income" which requires companies to classify items
of other comprehensive income by their nature in a financial statement. Other
comprehensive income is comprised entirely of unrealized holding gains and
losses on available for-sale investments, net of taxes, arising during the
period, adjusted for gains and losses included in net income.
The following table presents comprehensive income for the three month and
nine month periods ended September 30, 1998 and 1997: Three Months Ended Nine
Months Ended September 30 September 30
<TABLE>
<CAPTION>
1998 1997 1998 1997
------------ ------------ ------------ --------
<S> <C> <C> <C> <C>
NET INCOME:........................... $12,584,000 $ 495,000 $37,322,000 $12,454,000
Change in net unrealized Holding
Gains (losses) on Investments,
net of income taxes................. 662,000 1,461,000 853,000 244,000
------- ---------- -----------------------------
COMPREHENSIVE INCOME................... $13,246,000 $1,956,000 $38,175,000 $12,698,000
=========== =============================================
</TABLE>
Page 7
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. During 1997 the Financial Accounting Standards Board issued "Disclosures
about Segments of an Enterprise and Related Information" ("FAS 131"). FAS 131 is
effective for fiscal years beginning after December 31, 1997; however, the
statement need not be applied to interim statements in the initial year of
application. FAS 131 establishes additional standards for segment disclosures in
the financial statements. Management is in the process of determining the effect
of this statement on its financial statement disclosure.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") issued Statement of Position
98-1 ("SOP 98-1"), "Accounting for the Costs of Computer Software Developed For
or Obtained For Internal Use." SOP 98-1 requires certain computer software costs
to be capitalized and amortized over the software's estimated useful life. In
June 1998, the AcSEC issued Statement of Position 98-5 ("SOP 98-5"), "Reporting
on the Costs of Start-Up Activities". This standard requires organization costs
and costs associated with start-up activities to be expensed as incurred. Both
statements are effective for years beginning after December 15, 1998. The
Company will adopt SOP 98-1 and SOP 98-5 for the fiscal year ending December 31,
1999 and does not believe these statements will have a material impact on its
financial statements.
In June 1998, the Financial Accounting Standards Board issued "Accounting
for Derivative Instruments and Hedging Activities" ("FAS 133"). FAS 133 is
effective for fiscal years beginning after June 15, 1999. FAS 133 addresses the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. The Company does not
believe this statement will have a material impact on its financial statements.
8. Certain amounts in the Condensed Consolidated Financial Statements for
the three and nine months ended September 30, 1997 have been reclassified to
conform with the current year presentation.
Page 8
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant for an assessment and understanding of the Company's
consolidated financial condition and results of operations. The discussion
should be read in conjunction with the Condensed Consolidated Financial
Statements and Related Notes thereto. Any forward-looking information contained
in this Management's Discussion and Analysis of Financial Condition and Results
of Operations and any other sections of this Quarterly Report on Form 10-Q
should be considered in connection with certain cautionary statements contained
in the Company's Current Report on Form 8-K dated March 19, 1998 incorporated
herein by reference, as well as cautionary statements included within this
Quarterly Report on Form 10-Q. Such cautionary statements are made pursuant to
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 and identify important risk factors that could cause the Company's actual
results to differ from those expressed in any projected, estimated or
forward-looking statements relating to the Company.
Results of Operations, three months ended September 30, 1998, compared to three
months ended September 30, 1997.
The Company's total operating revenues for the three months ended September
30, 1998 increased approximately 52.9% to $281.1 from $183.9 million for the
three months ended September 30, 1997. The increase was primarily due to
military contract revenue of $72.4 million and an increase in medical premium
revenue of $14.5 million. During the fourth quarter of 1997 Sierra Military
Health Services, Inc. ("SMHS"), a wholly-owned subsidiary of the Company, began
the implementation phase of its TRICARE contract. The military contract revenue
is a result of health care delivery which began on June 1, 1998.
Medical premium revenue from the Company's HMO and managed indemnity
insurance subsidiaries increased $14.5 million, or 11.0%. The increase in
premium revenue reflects a 5.9% increase in commercial HMO member months (the
number of months of each period that an individual is enrolled in a plan).
Medicare member months increased 19.5% which contributed to the increase in
medical premium revenue. Such growth in Medicare member months contributes
significantly to the increase in premium revenues as the Medicare per member
premium rates are over three times higher than the average commercial premium
rate. Managed indemnity member months decreased 21.3% as certain unprofitable
blocks of business were not renewed in fiscal year 1998. The Company's premium
rates increased an average of 3% to 5% for its HMO commercial groups and in
excess of 10% for its managed indemnity commercial groups. The Company also
realized a slight increase in its capitation rate established by the Health Care
Financing Administration ("HCFA"). Approximately 75% of the Company's Nevada
Medicare members are enrolled in the Social HMO Medicare program. HCFA is
considering adjusting the reimbursement factor for the Social HMO members in the
future. If the reimbursement for these members decreases significantly and
related benefit changes are not made timely, there could be a material adverse
effect on the Company's business.
Specialty product revenue increased $6.4 million, or 17.1%, for the three
months ended September 30, 1998 compared to the same three-month period in the
prior year. The increase was due to revenue growth in the workers' compensation
insurance operation offset in part by a decrease in administrative services and
other revenue of $500,000 due primarily to the termination of the Company's
workers' compensation administrative services contract with the State of Nevada.
Professional fee revenue increased approximately $2.9 million primarily due to
the acquisition of the operations of two medical clinics in southern Nevada. In
addition approximately $800,000 of the increase in professional fees is due to
the operations of Total Home Care, Inc. ("THC"). THC was acquired in the third
quarter of 1997 and provides home infusion, oxygen and durable medical equipment
services. Investment and other revenue increased approximately $1.0 million over
the comparable period in the prior year primarily due to an increase in invested
balances.
Page 9
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Results of Operations, three months ended September 30, 1998, compared to three
months ended September 30, 1997 (continued).
Medical expenses as a percentage of medical premiums and professional fees
("Medical Cost Ratio") increased from 76.9% to 77.9%. The increase in the
medical cost ratio was due to an increase in Medicare members as a percentage of
fully-insured members, continued expansion in Texas, northern Nevada and Arizona
which have higher medical cost ratios and the acquisitions of THC and two
medical clinics for which costs of operations are included in medical expenses.
The cost of providing medical care to Medicare members generally requires a
greater percentage of the premiums received. Specialty product expenses
increased $6.0 million, or 16.6%, due primarily to the 17.1% increase in
specialty product revenue discussed previously. Specialty product revenue and
expense is primarily related to the workers' compensation insurance business.
The combined ratio for the workers' compensation insurance business was
99.6% compared to 100.9% for the comparable prior year period. The reduction was
due to a 61 basis point decrease in the expense ratio and a 65 basis point
decrease in the loss ratio. The decrease in the expense ratio was primarily due
to a lower percentage increase in salaries and related benefit expenses and the
higher net earned premiums denominator base. Incurred losses for the current
accident year were reduced as a result of the Company's ability to overlay and
implement managed care techniques to the workers' compensation claims as well as
net favorable loss development on prior accident years totaling $2.6 million,
which is up from $2.3 million for the comparable prior-year period. There can be
no assurance that favorable development, or the magnitude thereof, will continue
in the future. The loss and loss adjustment expense ratio for the three months
ended September 30, 1998 reflect the Company's current projection of the
ultimate costs of claims occurring in the current as well as prior accident
years. Such projections are subject to change and any change would be reflected
in the income statement. Workers' compensation claims are paid over several
years. Until payment is made, the Company invests the monies, earning a yield on
the invested balance.
General, administrative and marketing ("G&A") costs increased $2.5 million,
or 10.1%, compared to the third quarter of 1997. As a percentage of revenues,
G&A costs for the third quarter of 1998 decreased to 9.7% from 13.4% during the
comparable period in 1997. The decrease in the G&A ratio is primarily due to the
addition of military contract revenues offset in part by costs for additional
infrastructure needed to support overall Company growth. The G&A increase is due
to increased expenses in several areas including an increase in depreciation of
$600,000. The Company markets its products primarily to employer groups, labor
unions and individuals enrolled in Medicare through its internal sales personnel
and independent insurance brokers. Such brokers receive commissions based on the
premiums received from each group. The Company's agreements with its member
groups are usually for twelve months and are subject to annual renewal. For the
quarter ended September 30, 1998, the Company's ten largest commercial HMO
employer groups were, in the aggregate, responsible for less than 10% of its
total revenues. Although none of such employer groups accounted for more than 2%
of total revenues for that period, the loss of one or more of the larger
employer groups could, if not replaced with similar membership, have a material
adverse effect on the Company's business.
Interest expense and other increased approximately $300,000 compared to the
same period in the prior year primarily due to the addition of a new mortgage as
well as capital leases for equipment at SMHS.
During the third quarter of 1997 SMHS was awarded a contract to serve
TRICARE eligible beneficiaries in Region 1. Development expenses of $18.4
million, $10.6 million net of taxes, were recorded in that quarter primarily for
expenses associated with the Company's proposal to serve TRICARE Region 1. Such
expenses had been deferred until award notification.
Page 10
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Results of Operations, three months ended September 30, 1998, compared to
three months ended September 30, 1997 (continued).
The Company recorded approximately $4.4 million of tax expense for an
effective tax rate of 26.0%, compared to tax expense of $3.5 million for an
effective tax rate of 24.0% on recurring operations in the prior year. The
Company's current low operating tax rate is primarily a result of tax-preferred
investments and the change in the deferred tax valuation allowance, which is due
primarily to the ability to use a portion of net operating loss carryovers. The
effective tax rate will increase in future periods after the remaining valuation
allowances for net operating loss carryforwards are utilized. In the third
quarter of 1997, the operating tax expense for the period was offset by
approximately $7.8 million in federal and state tax benefit resulting from the
write-off of the TRICARE start-up costs of $18.4 million. Such offset resulted
in an overall net tax benefit of $4.2 million.
Excluding the effect of the start-up expenses, net income for the three
months ended September 30, 1998, increased $1.4 million, or 13.0%.
Results of Operations, nine months ended September 30, 1998, compared to
nine months ended September 30, 1997.
The Company's total operating revenues for the nine months ended September
30, 1998 increased approximately 38.7% to $736.0 from $530.8 million for the
nine months ended September 30, 1997. The increase was primarily due to military
contract revenue of $132.8 million and an increase in premium revenue of $47.9
million. The military contract revenue is a result of the continued
implementation of the TRICARE contract as well as four months of health care
delivery.
Medical premium revenue from the Company's HMO and managed indemnity
insurance subsidiaries increased $47.9 million, or 12.6%. The increase in
premium revenue reflects a 4.1% increase in member months. Medicare member
months increased 19.4% which contributed to the increase in medical premium
revenue. Such growth in Medicare member months contributes significantly to the
increase in premium revenues as the Medicare per member premium rates are over
three times higher than the average commercial premium rate. The Company's
premium rates increased an average of 3% to 5% for its HMO commercial groups and
in excess of 10% for managed indemnity commercial groups. The Company also
realized a slight increase in its capitation rate established by HCFA.
Approximately 75% of the Company's Nevada Medicare members are enrolled in the
social HMO Medicare program. HCFA is considering adjusting the reimbursement
factor for the Social HMO members in the future. If the reimbursement for these
members decreases significantly and related benefit changes are not made timely,
there could be a material adverse effect on the Company's business.
Specialty product revenue increased $11.5 million, or 10.5%, for the nine
months ended September 30, 1998 compared to the same nine-month period in the
prior year. The increase was due to revenue growth in the workers' compensation
insurance operation offset in part by a decrease in administrative services and
other revenue of $2.8 million due primarily to the termination of the Company's
workers' compensation administrative services contract with the State of Nevada.
Professional fee revenue increased approximately $10.0 million primarily due to
the acquisition of the operations of two medical clinics in southern Nevada. In
addition approximately $2.7 million of the increase in professional fees is due
to the operations of THC. Investment and other revenue increased approximately
$3.1 million over the comparable period in the prior year primarily due to an
increase in invested balances and capital gains realized on the sale of
investments.
Page 11
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Results of Operations, nine months ended September 30, 1998, compared to
nine months ended September 30, 1997 (continued).
The medical cost ratio increased from 76.8% to 77.4% for the nine months
ended September 30, 1998 compared to the prior period. The increase in the
medical cost ratio was due to an increase in Medicare members as a percentage of
fully-insured members, continued expansion in Texas, northern Nevada and Arizona
which have higher medical cost ratios and the acquisitions of THC and two
medical clinics for which costs of operations are included in medical expenses.
The cost of providing medical care to Medicare members generally requires a
greater percentage of the premiums received. Specialty product expenses
increased $10.8 million, or 10.0%, due primarily to the 10.5% increase in
specialty product revenue discussed previously. Specialty product revenue and
expense is primarily related to the workers' compensation insurance business.
The combined ratio for the workers' compensation insurance business was
100.5% compared to 102.3% for the comparable prior year period. The reduction
was due to a 127 basis point decrease in the expense ratio and a 53 basis point
decrease in the loss ratio. The decrease in the expense ratio was primarily due
to lower salaries and related benefit expenses and the higher net earned
premiums denominator base. Incurred losses for the current accident year were
reduced as a result of the Company's ability to overlay and implement managed
care techniques to the workers' compensation claims as well as net favorable
loss development on prior accident years totaling $7.2 million compared to net
favorable loss development of $6.7 million for the comparable prior year period.
There can be no assurance that favorable development, or the magnitude thereof,
will continue in the future. The losses and loss adjustment expense ratio for
the nine months ended September 30, 1998 reflect the Company's current
projection of the ultimate costs of claims occurring in the current as well as
prior accident years. Such projections are subject to change and any change
would be reflected in the income statement. Workers' compensation claims are
paid over several years. Until payment is made, the Company invests the monies,
earning a yield on the invested balance.
G&A costs increased $9.6 million, or 13.7%, compared to the first nine
months of 1997. As a percentage of revenues, G&A costs for the first nine months
of 1998 decreased to 10.8% from 13.1% during the comparable period in 1997. The
decrease in the G&A ratio is primarily due to the addition of military contract
revenues offset in part by costs for additional infrastructure needed to support
overall Company growth. Of the $9.6 million increase in G&A, $2.4 million
consisted of increased compensation expense resulting primarily from additional
employees supporting expanded services and new benefit programs for management.
Broker, third party administration and premium tax expense increased
approximately $1.2 million due to increased membership. The remaining G&A
increase is due to additional expenses in several areas including an increase in
depreciation of $1.2 million. The Company markets its products primarily to
employer groups, labor unions and individuals enrolled in Medicare, through its
internal sales personnel and independent insurance brokers. Such brokers receive
commissions based on the premiums received from each group. The Company's
agreements with its member groups are usually for twelve months and are subject
to annual renewal. For the nine months ended September 30, 1998, the Company's
ten largest commercial HMO employer groups were, in the aggregate, responsible
for less than 10% of its total revenues. Although none of such employer groups
accounted for more than 2% of total revenues for that period, the loss of one or
more of the larger employer groups could, if not replaced with similar
membership, have a material adverse effect on the Company's business.
On March 18, 1997, the Company announced it had terminated its merger
agreement with Physician Corporation of America, Inc. and recorded expenses of
$11.0 million, $8.4 million after tax, for merger-related costs. During the
third quarter of 1997 SMHS was awarded a contract to serve TRICARE eligible
beneficiaries in Region 1. Development expenses of $18.4 million, $10.6 million
net of taxes, were recorded
Page 12
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Results of Operations, nine months ended September 30, 1998, compared to
nine months ended September 30, 1997 (continued).
in the third quarter primarily for expenses associated with the Company's
proposal to serve TRICARE Region 1. Such expenses had been deferred until award
notification.
Interest expense and other increased approximately $600,000 compared to the
same period in the prior year primarily due to the acquisition of new debt.
For the period, the Company recorded approximately $13.0 million of tax
expense for an effective tax rate of 25.8% compared to 24.0% in 1997, excluding
non-recurring items. The Company's current low operating tax rate is primarily a
result of tax-preferred investments and the change in the deferred tax valuation
allowance, which is due primarily to the ability to use a portion of net
operating loss carryovers. The effective tax rate will increase in future
periods after the remaining valuation allowances for net operating loss
carryforwards are utilized. The tax expense for the prior-year period was offset
by approximately $7.8 million in federal and state tax benefit resulting from
the write-off of TRICARE start-up costs of $18.4 million and $2.6 million
federal tax benefit resulting from the merger-related expenses. Such offset
resulted in an overall net tax benefit of $400,000.
Net income for the nine months ended September 30, 1998, increased $24.9
million compared to the nine months ended September 30, 1997. Excluding the
effect of the merger and start-up expenses, net income increased $5.9 million,
or 18.6% compared to the same period in the prior year.
Liquidity and Capital Resources
The Company's cash flow from operating activities during the nine months
ended September 30, 1998 resulted primarily from $37.3 million of net income,
$13.3 million in depreciation and amortization and $4.3 million in provision for
doubtful accounts offset by an $11.7 million net change in assets and
liabilities. The decrease in cash flow resulting from the change in assets and
liabilities was primarily due to an increase in accounts receivable and a
decrease in unearned premium revenue. The increase in accounts receivable
resulted primarily from revenues related to the Region 1 TRICARE contract for
which the Company had not been paid as of September 30, 1998. The decrease in
unearned premium revenue resulted primarily from the early receipt of the
subsequent month's HCFA Medicare capitation payment as of December 31, 1997.
These cash outflows were offset in part by an increase in medical claims
payable. This increase resulted primarily from payables incurred in conjunction
with the Region 1 TRICARE contract.
The $55.8 million used for investing and financing activities since
December 31, 1997 consisted of $25.6 million in capital expenditures for
construction costs associated with office facilities, furniture and equipment
for the newly constructed six-story headquarters building, continued
implementation of three new computer systems, computer and medical equipment,
other capital needs to support the Company's growth, and a $19.6 million net
increase in investments. The Company used $39.4 million for the reduction of
debt, offset in part by $30.2 million received from new debt. The net decrease
of $9.2 million is primarily related to net payments on the Company's line of
credit of $13 million, as well as scheduled debt payments, offset by new debt
primarily related to financing for the newly constructed headquarters building.
Additionally, the Company used $9.0 million to purchase treasury stock on the
open market. These outflows in cash were offset in part by $6.2 million received
in connection with the sale of stock through the Company's stock plans and $1.4
million received in connection with the sale of THC's Arizona operations.
Page 13
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Liquidity and Capital Resources (continued).
On October 31, 1998, Texas Health Choice, L.C. completed the acquisition of
certain assets of Kaiser-Texas, a health plan operating in Dallas-Forth Worth
with approximately 109,000 members and a 150 physician medical group operating
in that area. The acquisition was effected pursuant to a definitive agreement
dated as of June 5, 1998. The purchase price was $124 million, which is net $20
million in operating cost support to be paid to Sierra by Kaiser Foundation
Hospitals in five quarterly installments following the closing of the
transaction. The purchase price includes amounts for real estate and eight
medical and office facilities encompassing more than 500,000 square feet. The
purchase price may increase by $30 million over three years if certain growth,
member retention and accreditation goals are met by the health plan.
Sierra is assuming no prior liabilities for malpractice or other
litigation, or for any unanticipated future adjustments to claims expenses for
periods prior to closing. The transaction was financed with a five-year
revolving credit facility. Approximately $100 million of the $200 million
revolving credit facility was used to fund the transaction. Bank of America NT &
SA is the administrative agent, NationsBanc Montgomery Securities LLC is the
lead arranger and First Union National Bank is the syndication agent for the
credit facility. The transaction had been previously approved by the Boards of
Directors of Kaiser and the Company.
The holding company may receive dividends from its HMO and insurance
subsidiaries which generally must be approved by certain state insurance
departments. The Company's HMO and insurance subsidiaries are required by state
regulatory agencies to maintain certain deposits and must also meet certain net
worth and reserve requirements. The Company had restricted assets on deposit in
various states totaling $17.9 million as of September 30, 1998. The HMO and
insurance subsidiaries must also meet requirements to maintain minimum
stockholder's equity, on a statutory basis, ranging from $500,000 to $5.2
million. Of the cash and cash equivalents held at September 30, 1998, $74.6
million is designated for use only by the regulated subsidiaries. Such amounts
are available for transfer to the holding company from the HMO and insurance
subsidiaries only to the extent that they can be remitted in accordance with the
terms of existing management agreements and by dividends. Remaining amounts are
available on an unrestricted basis. The holding company will not receive
dividends from its regulated subsidiaries if such dividend payment would cause
violation of statutory net worth and reserve requirements.
On September 30, 1997, the Company was awarded a TRICARE contract to
provide managed health care coverage to eligible beneficiaries in Region 1. This
region includes more than 600,000 individuals in Connecticut, Delaware, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island, Vermont, Virginia, West Virginia and Washington, D.C. In 1998, the
award will result in a total of approximately $200.0 million of revenue for the
five-month implementation phase and seven months of health care delivery. SMHS
was notified on February 13, 1998 that the United States General Accounting
Office ("GAO") sustained a competitor's protest of the contract award for
TRICARE Managed Care Support Region 1 and recommended that the contract be
re-bid. The TRICARE Management Activity ("TMA") along with the Company, has
filed a motion requesting the GAO reconsider its recommendation. If the GAO does
not change its recommendation and the TMA follows the recommendation, there are
several possible outcomes, including litigation. While it is not possible to
predict the outcome, the Company anticipates that it will continue to provide
health care under the contract for a currently undetermined amount of time if
the TMA and the Company are unsuccessful in their reconsideration request.
The Company has a 1998 capital budget of approximately $50.0 million,
primarily for computer hardware and software, furniture and equipment for the
newly constructed 180,000 square foot, six-story corporate headquarters
building, and other requirements due to the Company's projected growth and
expansion. The Company's liquidity needs over the next 12 months will primarily
be for the capital items noted above, the Company's stock repurchase program,
debt service and expansion of the Company's operations, including
Page 14
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
potential acquisitions. The Company believes that existing working capital,
operating cash flow and, if necessary, mortgage financing, equipment leasing,
and amounts available under its credit facility will be sufficient to fund its
capital expenditures and debt service. Additionally, subject to unanticipated
cash requirements, the Company believes that its existing working capital and
operating cash flow and, if necessary, its access to new credit facilities, will
enable it to meet its liquidity needs on a longer term basis.
Year 2000
The Company is in the process of modifying or replacing its computer
systems and applications to accommodate the "Year 2000". The Year 2000 issue
exists because many computer systems and applications currently use two-digit
date fields to designate a year. As the century date change occurs,
date-sensitive systems will recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the Year 2000 may cause systems to
process critical financial and operational information incorrectly.
The Company is currently in the process of modifying or replacing its
mission critical financial and operational computer systems. The Company is also
in the process of testing its non-information system technology for Year 2000
compliance. The Year 2000 project has been broken down into five phases: (1)
inventorying Year 2000 items; (2) assessing the Year 2000 items that are
determined to be material to the Company; (3) renovating or replacing material
items that are determined not to be Year 2000 compliant; (4) testing and
validating material items; and (5) implementing renovated and validated systems.
At September 30, 1998, the inventory and assessment phases are
substantially complete as it relates to all material computer systems and
approximately 50% complete as it relates to non-information system technology.
The Company estimates that the replacement/renovation phases and the
testing/validation phases will be approximately 50% complete by December 31,
1998 and 100% complete by September 30, 1999. The Company estimates that it is
approximately 45% complete with the total project as of September 30, 1998.
Contingency planning for the mission critical business operations is scheduled
to be completed by March 1999. These plans focus on business operations
involving information systems and non-information systems technologies.
The Company has initiated formal communications with entities with whom it
does business to assess their Year 2000 issues. Evaluations of the most critical
third parties have been initiated and follow-up reviews will be conducted
through 1999. Contingency plans are being developed based on these evaluations
and will be completed by the middle of 1999. There can be no assurances that the
systems of other companies or governmental agencies, such as HCFA and the
Department of Defense ("DOD"), on which the Company relies will be timely
modified for Year 2000, or that the failure to modify by another company would
not have a material adverse effect on the Company. Based upon two separate
reports issued by the United States General Accounting Office it is doubtful
that the computer systems at both HCFA and the DOD will be fully Year 2000
compliant by the end of 1999. The Company does not currently have available data
to predict the impact of such non compliance on its business operations. Should
there be any material delays caused by Year 2000 issues, the Company anticipates
that the governmental entities will make estimated payments.
The Company is in the process of implementing three major systems at an
estimated cost of $30 million for its current operations. To date the Company
has spent approximately $12.5 million on the new computer systems and other Year
2000 items. The Company is expensing the costs to make modifications to existing
computer systems and non-computer equipment. Management currently estimates the
remaining new computer system costs and other Year 2000 costs to be $18 million
to $21 million for current operations and $8 million to $10 million for the
Kaiser-Texas operations that were acquired on October 31, 1998. While this is a
substantial effort, it will give the Company the benefits of new technology and
functionality for many of its financial and operational computer systems and
applications.
Page 15
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Year 2000 (continued)
The failure to correct a material Year 2000 problem could result in an
interruption of, or a failure of, certain business activities or operations.
Such failures could materially adversely affect the Company's operations,
liquidity and financial condition. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from uncertainty of the Year 2000
readiness of third parties with which the Company does business, the Company is
unable to determine at this time whether the consequences of potential Year 2000
failures will have a material adverse impact on the Company's results of
operations, liquidity or financial condition. The Company's Year 2000 project is
expected to significantly reduce the Company's level of uncertainty about the
Year 2000 problem. The Company believes that, with the implementation of the new
computer systems and completion of the entire project as scheduled, the
possibility of significant interruptions of operations should be reduced.
The above contains forward-looking statements including, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions, and adequate resources, that are made pursuant to the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Readers are cautioned that forward-looking statements contained in the
Year 2000 disclosure should be read in conjunction with the following disclosure
of the company:
The costs of the project and the dates on which the Company plans to
complete the necessary Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources and other factors.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, the ability of the Company's
significant suppliers, customers and others with which it conducts business,
including federal and state governmental agencies, to identify and resolve their
own Year 2000 issues and similar uncertainties.
Page 16
<PAGE>
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Membership
The Company's membership at September 30, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
Number of Members at Period Ended
September 30 September 30
1998 1997
---------------- ----------
HMO
<S> <C> <C>
Commercial.................................................... 162,600 151,500
Medicare...................................................... 40,800 34,400
Managed Indemnity............................................... 45,600 68,400
Medicare Supplement............................................. 25,500 25,200
Administrative Services (1).................................... 316,000 329,300
TRICARE Eligibles............................................... 606,400
----------
Total Members................................................... 1,196,900 608,800
========= =======
</TABLE>
(1) For comparability purposes, enrollment information has been restated to
reflect the September 30, 1997 termination of the company's workers'
compensation administrative services contract with the State of Nevada.
Enrollment in the terminated plan was approximately 175,000 members at September
30, 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Instructions to Rule 305 of Regulation S-K, the
quantitative and qualitative disclosures called for by this Item 3 and by Rule
305 of Regulation S-K are inapplicable to the Company at this time.
Page 17
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 18, 1997, the Company announced it had terminated its merger
agreement with Physician Corporation of America ("PCA"). The original agreement
had been entered into in November 1996. On March 18, 1997, prior to termination
of the merger agreement, PCA filed a lawsuit against the Company in the United
States District Court for the Southern District of Florida (the "District
Court"), seeking, among other things, specific performance of the merger
agreement and monetary damages in excess of $20 million. The lawsuit has been
dismissed (without prejudice to PCA's claims) for failure to join an
indispensable party. On March 27, 1997, the Company commenced a lawsuit against
PCA in the Court of Chancery of the State of Delaware. On July 31, 1998, the
Company filed a Second Amended Complaint alleging, among other things, breach of
the merger agreement, negligent misrepresentation, common law fraud and
equitable fraud, and seeking monetary damages and other remedies. On August 31,
1998, PCA filed an answer and counterclaim to the Company's second amended
complaint denying that the Company was entitled to any relief and seeking
monetary damages. The Company intends to vigorously pursue all remedies and
assert all defenses available to it, however, there can be no assurance that the
Company will prevail in such litigation.
The Company is subject to various claims and other litigation in the
ordinary course of business. Such litigation includes claims of medical
malpractice, claims for coverage or payment for medical services rendered to HMO
members, claims by providers for payment for medical services rendered to HMO
members. Also included in such litigation are claims for dividends and claims
denials in the workers' compensation division and claims by providers for
payment for medical services rendered to injured workers. In the opinion of the
Company's management, the ultimate resolution of pending legal proceedings
should not have a material adverse effect on the Company's financial condition.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(99) Registrant's current report on Form 8-K dated
March 19, 1998, incorporated herein by reference.
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K,
dated November 11, 1998, with the Securities and
Exchange Commission to present pro forma
financial information related to the acquisition
of Kaiser-Texas and the required financial
statements.
Page 18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIERRA HEALTH SERVICES, INC.
(Registrant)
Date November 13, 1998 /S/ PAUL H. PALMER
---------------------
Paul H. Palmer
Acting Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF CONSOLIDATED OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 84,179,000
<SECURITIES> 134,022,000
<RECEIVABLES> 88,503,000
<ALLOWANCES> 7,767,000
<INVENTORY> 0
<CURRENT-ASSETS> 346,247,000
<PP&E> 226,914,000
<DEPRECIATION> 61,067,000
<TOTAL-ASSETS> 794,004,000
<CURRENT-LIABILITIES> 258,449,000
<BONDS> 81,485,000
0
0
<COMMON> 140,000
<OTHER-SE> 301,670,000
<TOTAL-LIABILITY-AND-EQUITY> 794,004,000
<SALES> 0
<TOTAL-REVENUES> 736,036,000
<CGS> 0
<TOTAL-COSTS> 681,610,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,107,000
<INCOME-PRETAX> 50,319,000
<INCOME-TAX> 12,997,000
<INCOME-CONTINUING> 37,322,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,322,000
<EPS-PRIMARY> 1.36<F1>
<EPS-DILUTED> 1.34
<FN>
<F1>During the second quarter of 1998, the Company announced a three-for-two
stock split effective May 18, 1998. Prior Financial Data Schedules have
not been restated for the split.
</FN>
</TABLE>
