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 June 30, 1999
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 July 30, 1999 there were 26,786,000 shares of common stock
outstanding.
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE SIX MONTHS ENDED JUNE 30, 1999
INDEX
<TABLE>
<CAPTION>
Page No.
Part I - FINANCIAL INFORMATION
Item l. Financial Statements
Condensed Consolidated Balance Sheets -
<S> <C> <C> <C> <C> <C>
June 30, 1999 and December 31, 1998...................................................... 3
Condensed Consolidated Statements of Operations -
three and six months ended June 30, 1999 and June 30, 1998............................... 4
Condensed Consolidated Statements of Cash Flows -
six months ended June 30, 1999 and June 30, 1998......................................... 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........................................................................ 16
Part II - OTHER INFORMATION
Item l. Legal Proceedings.......................................................................... 17
Item 2. Changes in Securities and Use of Proceeds................................................... 17
Item 3. Defaults Upon Senior Securities............................................................ 17
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
</TABLE>
Page 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
CURRENT ASSETS:
<S> <C> <C>
Cash and Cash Equivalents................................................... $ 29,201,000 $ 83,910,000
Short-term Investments...................................................... 78,975,000 110,008,000
Accounts Receivable (Less: Allowance for Doubtful
Accounts: 1999 - $7,503,000; 1998 - $10,540,000)........................ 46,506,000 44,100,000
Military Accounts Receivable................................................ 53,765,000 69,552,000
Reinsurance Recoverable..................................................... 39,719,000 32,076,000
Prepaid Expenses and Other Assets........................................... 59,155,000 54,285,000
Total Current Assets..................................................... 307,321,000 393,931,000
PROPERTY AND EQUIPMENT, NET................................................... 244,593,000 229,164,000
LONG-TERM INVESTMENTS......................................................... 191,873,000 180,816,000
RESTRICTED CASH AND INVESTMENTS............................................... 16,829,000 17,758,000
REINSURANCE RECOVERABLE (Less Current Portion)................................ 50,998,000 34,946,000
GOODWILL ..................................................................... 154,932,000 142,471,000
OTHER ASSETS.................................................................. 55,022,000 46,034,000
TOTAL ASSETS.................................................................. $1,021,568,000 $1,045,120,000
CURRENT LIABILITIES:
Accounts Payable and Accrued Liabilities.................................... $ 76,610,000 $ 69,284,000
Accrued Payroll and Taxes................................................... 25,970,000 19,942,000
Medical Claims Payable...................................................... 76,209,000 78,022,000
Current Portion of Reserve for Losses and
Loss Adjustment Expense ................................................. 77,723,000 79,869,000
Unearned Premium Revenue.................................................... 19,930,000 39,968,000
Military Health Care Payable................................................ 46,871,000 53,820,000
Current Portion of Long-term Debt........................................... 4,126,000 5,263,000
Total Current Liabilities................................................ 327,439,000 346,168,000
RESERVE FOR LOSSES AND LOSS ADJUSTMENT
EXPENSE (Less Current Portion) ............................................. 130,992,000 132,394,000
LONG-TERM DEBT (Less Current Portion)......................................... 246,414,000 242,398,000
OTHER LIABILITIES............................................................. 21,442,000 20,446,000
TOTAL LIABILITIES............................................................. 726,287,000 741,406,000
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: 1999 - 28,308,000; 1998 - 28,236,000...................... 142,000 141,000
Additional Paid-in Capital.................................................. 174,830,000 173,583,000
Treasury Stock; 1999 - 1,523,000; 1998 - 966,900............................ (22,789,000) (14,821,000)
Accumulated Other Comprehensive Income:
Unrealized Holding Loss on
Available-for-Sale Securities ....................................... (10,590,000) (1,027,000)
Retained Earnings........................................................... 153,688,000 145,838,000
TOTAL STOCKHOLDERS' EQUITY.................................................... 295,281,000 303,714,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $1,021,568,000 $1,045,120,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
OPERATING REVENUES:
<S> <C> <C> <C> <C>
Medical Premiums.................................... $204,649,000 $143,221,000 $411,960,000 $281,039,000
Military Contract Revenues.......................... 71,093,000 41,852,000 141,181,000 60,388,000
Specialty Product Revenues.......................... 20,949,000 40,721,000 41,628,000 76,882,000
Professional Fees................................... 13,352,000 11,171,000 27,369,000 22,094,000
Investment and Other Revenues....................... 5,775,000 7,580,000 11,754,000 14,551,000
Total ............................................ 315,818,000 244,545,000 633,892,000 454,954,000
OPERATING EXPENSES:
Medical Expenses (Note 2)........................... 176,265,000 119,482,000 365,307,000 233,798,000
Military Contract Expenses.......................... 68,460,000 40,038,000 136,104,000 57,019,000
Specialty Product Expenses.......................... 19,475,000 39,518,000 38,871,000 75,759,000
General, Administrative and Marketing Expenses 34,646,000 26,957,000 68,543,000 52,165,000
Impairment and Other Costs (Note 2)................. 5,106,000
Total ............................................ 298,846,000 225,995,000 613,931,000 418,741,000
OPERATING INCOME...................................... 16,972,000 18,550,000 19,961,000 36,213,000
INTEREST EXPENSE AND OTHER, NET ..................... (4,126,000) (1,619,000) (8,175,000) (2,900,000)
INCOME BEFORE INCOME TAXES ........................... 12,846,000 16,931,000 11,786,000 33,313,000
PROVISION FOR INCOME TAXES............................ 4,290,000 4,380,000 3,936,000 8,575,000
NET INCOME ........................................... $ 8,556,000 $ 12,551,000 $ 7,850,000 $ 24,738,000
NET INCOME PER COMMON SHARE........................... $.32 $.46 $.29 $.90
NET INCOME PER COMMON SHARE
ASSUMING DILUTION ................................. $.32 $.45 $.29 $.89
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING .................................. 26,795,000 27,546,000 26,989,000 27,476,000
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ASSUMING DILUTION....................... 26,825,000 28,023,000 27,029,000 27,939,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income............................................................. $ 7,850,000 $ 24,738,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization.................................... 13,767,000 8,455,000
Provision for Doubtful Accounts.................................. 2,277,000 3,171,000
Changes in Assets and Liabilities....................................... (51,704,000) (32,536,000)
Net Cash (Used for) Provided by Operating Activities................ (27,810,000) 3,828,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures, Net of Equipment Dispositions.................... (26,984,000) (17,211,000)
Changes in Short-term Investments...................................... 29,387,00 (5,318,000)
Changes in Long-term Investments....................................... (23,021,000) (13,062,000)
Changes in Restricted Cash and Investments............................ 560,000 (674,000)
Corporate Disposition, net of cash disposed ......................... 1,373,000
Corporate Acquisition................................................. (3,000,000) __________
Net Cash Used for Investing Activities................ (23,058,000) (34,892,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Borrowings.............................................. 43,000,000 15,450,000
Payments on Debt and Capital Leases................................... (40,121,000) (12,678,000)
Purchase of Treasury Stock............................................ (7,968,000)
Exercise of Stock in Connection with Stock Plans..................... 1,248,000 4,724,000
Net Cash (Used for) Provided by Financing Activities............. (3,841,000) 7,496,000
NET DECREASE IN CASH AND CASH EQUIVALENTS................................ (54,709,000) (23,568,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................... 83,910,000 96,841,000
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................... $29,201,000 $ 73,273,000
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30
Supplemental Condensed Consolidated
Statements of Cash Flows Information: 1999 1998
Cash Paid During the Period for Interest
<S> <C> <C>
(Net of Amount Capitalized).......................................... $8,976,000 $3,316,000
Cash Paid During the Period for Income Taxes............................ 3,029,000 8,885,000
Non-cash Investing and Financing Activities:
Tax Benefits of Stock Issued for Exercise of Options .................. - 804,000
Additions to Capital Leases............................................ - 3,070,000
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
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, 1998 and 1997. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the financial results for the interim periods presented.
2.Premium Deficiency, Impairment and Other Charges:
Medical Expenses:
Medical expenses reported in the first quarter of 1999 included a premium
deficiency charge of $8.1 million related to losses in under performing markets
primarily in Arizona and rural Nevada.
Impairment and Other Charges:
In March 1999, the Company closed all inpatient operations at Mohave Valley
Hospital, a 12-bed acute care facility in Bullhead City, Arizona and terminated
approximately 45 employees. The Company recorded a charge of $4.3 million
related primarily to the write-off of goodwill associated with the Mohave Valley
operations.
The Company also incurred $450,000 for certain legal and contractual
settlements and $400,000 to provide for the Company's portion of the write-off
of start-up costs at the Company's equity investee, TriWest Healthcare Alliance.
In accordance with Statement of Position 98-5, TriWest wrote off all remaining
start-up costs in 1999.
On October 31, 1998, a subsidiary of Sierra completed the acquisition of
certain assets of Kaiser Foundation Health Plan of Texas. In conjunction with
this acquisition, the Company recorded a liability for the estimated premium
deficiency associated with existing contracts. Based on results through June 30,
1999, the Company has revised the premium deficiency accrual originally recorded
in 1998. Revised estimates through October 31, 1999 will be offset against the
goodwill attributable to the purchase. Any revisions after October 31, 1999 will
be recorded directly in the income statement.
Page 6
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. The following table provides a reconciliation of basic and diluted
earnings per share ("EPS"):
<TABLE>
<CAPTION>
Dilutive
Basic Stock Options Diluted
For the Three Months ended June 30, 1999:
<S> <C> <C> <C>
Income from Continuing Operations $ 8,556,000 0 $ 8,556,000
Shares 26,795,000 30,000 26,825,000
Per Share Amount $.32 $.32
For the Three Months ended June 30, 1998:
Income from Continuing Operations $12,551,000 $12,551,000
Shares 27,546,000 477,000 28,023,000
Per Share Amount $.46 $.45
For the Six Months ended June 30, 1999:
Income from Continuing Operations $7,850,000 $7,850,000
Shares 26,989,000 40,000 27,029,000
Per Share Amount $.29 $.29
For the Six Months ended June 30, 1998:
Income from Continuing Operations $24,738,000 $24,738,000
Shares 27,476,000 463,000 27,939,000
Per Share Amount $.90 $.89
</TABLE>
CII Financial, Inc., a wholly-owned subsidiary of the Company has
outstanding convertible subordinated debentures (the "Debentures") due September
15, 2001. Each $1,000 in principal is convertible into 25.382 shares of the
Company's common stock at a conversion price of $39.40 per share. The Debentures
were not included in the computation of EPS because their effect would be
anti-dilutive.
5. The following table presents comprehensive income for the three-month
and six-month periods ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET INCOME: ...................... $8,556,000 $12,551,000 $7,850,000 $24,738,000
Change in net Unrealized Holding
Gains (Losses) on Investments,
net of income taxes .. (4,092,000) 708,000 (9,563,000) 191,000
COMPREHENSIVE INCOME (LOSS) ......... $4,464,000 $13,259,000 ($1,713,000) $24,929,000
</TABLE>
6. Segment Reporting
The Company has three reportable segments based on the products and
services offered: managed care and corporate operations, workers' compensation
operations and military health services operations. The managed care segment
includes managed health care services provided through HMOs, managed indemnity
plans, third- party administrative services programs for employer-funded health
benefit plans, multi-specialty medical groups, other ancillary services and
corporate operations. The workers' compensation segment insures workers'
compensation claims risk in return for premium revenues. The military health
services segment administers a managed care federal contract for the Department
of Defense's TRICARE program in Region 1. This contract is currently structured
as five one-year option periods.
Sierra evaluates each segment's performance based on segment operating
profit before interest expense and income taxes and not including charges for
premium deficiencies, impairment and non-recurring gains and losses. The
accounting policies of the operating segments are the same as those of the
consolidated company.
Page 7
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Information concerning the operations of the reportable segments is as follows:
(Amounts in thousands)
<TABLE>
<CAPTION>
Managed Care Workers' Military
and Corporate Compensation Health Services
Operations Operations Operations Total
Three Months Ended June 30, 1999
<S> <C> <C> <C> <C>
Medical Premiums.......................... $204,649 0 0 $204,649
Specialty Product Revenues................ 2,110 $18,839 20,949
Professional Fees ....................... 13,352 13,352
Military Contract Revenues ....................... $71,093 71,093
Investment and Other Revenues.................... 1,792 3,887 96 5,775
Total Revenue. ...................... $221,903 $22,726 $71,189 $315,818
Segment Operating Profit......................... $ 9,307 $ 4,942 $ 2,723 $ 16,972
Interest Expense and Other....................... (3,149) (881) (96) (4,126)
Net Income Before Income Taxes................... $ 6,158 $ 4,061 $ 2,627 $ 12,846
Three Months Ended June 30, 1998
Medical Premiums................................. $143,221 $143,221
Specialty Product Revenues....................... 3,438 $37,283 40,721
Professional Fees ........................ 11,171 11,171
Military Contract Revenues ....................... $41,852 41,852
Investment and Other Revenues..................... 2,034 5,538 8 7,580
Total Revenue. ................................ $159,864 $42,821 $41,860 $244,545
Segment Operating Profit.......................... $ 10,913 $ 5,814 $ 1,823 $ 18,550
Interest Expense and Other........................ (414) (1,063) (142) (1,619)
Net Income Before Income Taxes.................... $ 10,499 $ 4,751 $ 1,681 $ 16,931
Six Months Ended June 30, 1999
Medical Premiums.................................. $ 411,960 $ 411,960
Specialty Product Revenues........................ 4,556 $37,072 41,628
Professional Fees ....................... 27,369 27,369
Military Contract Revenues ....................... $141,181 141,181
Investment and Other Revenues..................... 3,499 8,006 249 11,754
Total Revenue. ................................ $447,384 $45,078 $141,430 $633,892
Segment Operating Profit.......................... $ 18,001 $ 9,846 $ 5,320 $ 33,167
Interest Expense and Other........................ (6,183) (1,809) (183) (8,175)
Premium Deficiency, Impairment and Other Costs.... (13,206) (13,206)
Net (Loss) Income Before Income Taxes............. $ (1,388) $ 8,037 $ 5,137 $ 11,786
Six Months Ended June 30, 1998
Medical Premiums.................................. $281,039 $281,039
Specialty Product Revenues........................ 6,397 $70,485 76,882
Professional Fees ............................... 22,094 22,094
Military Contract Revenues ....................... $60,388 60,388
Investment and Other Revenues..................... 4,265 10,274 12 14,551
Total Revenue. ................................ $313,795 $80,759 $60,400 $454,954
Segment Operating Profit.......................... $ 22,951 $ 9,880 $ 3,382 $ 36,213
Interest Expense and Other........................ (327) (2,251) (322) (2,900)
Net Income Before Income Taxes.................... $ 22,624 $ 7,629 $ 3,060 $ 33,313
</TABLE>
7. Certain amounts in the Condensed Consolidated Financial Statements for
the three and six months ended June 30, 1998 have been reclassified to conform
with the current year presentation.
Page 8
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 17, 1999, incorporated
herein by reference. 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 June 30, 1999, compared to three
months ended June 30, 1998.
The Company's total operating revenues for the three months ended June 30,
1999, increased approximately 29.2% to $315.8 million from $244.5 million for
the three months ended June 30, 1998. The increase was primarily due to
increases in medical premium revenue of $61.4 million and military contract
revenue of $29.2 million offset by a decrease in specialty product revenues of
$19.8 million.
Of the $61.4 million, or 42.9%, increase in medical premium revenue,
approximately $40.6 million is attributed to the Company's Dallas/Ft. Worth
operations which were acquired in the fourth quarter of 1998. On October 31,
1998, the Company completed the acquisition of certain assets of Kaiser
Foundation Health Plan of Texas ("Kaiser-Texas"), a health plan operating in
Dallas/Ft. Worth with approximately 109,000 members at October 31, 1998, and
Permanente Medical Association of Texas ("Permanente"), a medical group with
approximately 150 physicians. The remaining increase of $20.8 million, or 14.5%,
is due to additional premium revenue at the Company's other HMO and insurance
subsidiaries. Excluding the Dallas/Ft. Worth operations, member months (the
number of months of each period that an individual is enrolled in a plan)
increased approximately 6.1%. Medicare member months increased 20.2%. 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. Excluding the Dallas/Ft. Worth
operations, the Company's HMO and insurance subsidiaries' premium rates
increased approximately 8%. The Company's HMO commercial rates increased
approximately 4% in Nevada and approximately 13% in Texas. Compared to the
fourth quarter of 1998, commercial rates for the Company's recently acquired
Dallas/Ft. Worth operations have increased approximately 7%. The Company's
managed indemnity rates increased approximately 6% and Medicare rates increased
approximately 2%. Over 90% of the Company's Nevada Medicare members are enrolled
in the Health Care Financing Administration's ("HCFA") 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.
Military contract revenue increased from $41.9 million to $71.1 million.
The increased revenue is primarily a result of health care delivery under the
Region 1 TRICARE contract that began in June 1998. Military contract revenue in
the same prior-year period resulted from implementation of the contract and one
month of health care delivery. Specialty product revenue decreased $19.8
million, or 48.6%, for the three months ended June 30, 1999, compared to the
same prior-year period. Of the decrease, $18.4 million was due to a decrease in
revenue in the workers' compensation insurance segment and $1.3 million was due
to a decrease in administrative services revenue. The decrease in specialty
product revenues related to the workers'
Page 9
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 June 30, 1999, compared to three
months ended June 30, 1998 (continued).
compensation insurance segment was primarily due to additional ceded
reinsurance premiums on the low level reinsurance agreement totaling $13.5
million. This agreement was entered into in the fourth quarter of 1998. In
addition, ongoing price competition, especially in California, is contributing
to the reduction in revenue. The decrease in administrative services revenue was
primarily attributable to a decrease in membership. Professional fee revenue
increased approximately $2.2 million primarily due to the medical group
operations in Dallas/Ft. Worth. Investment and other revenue decreased
approximately $1.8 million over the comparable prior-year period primarily due
to a decrease in invested balances and a decrease in capital gains realized on
the sale of investments compared to the prior year quarter.
Total medical expenses increased $56.8 million over the same three-month
period last year. This increase resulted primarily from the Company's recently
acquired Dallas/Ft. Worth operations discussed previously. Excluding the effect
of the Dallas/Ft. Worth operations, medical expenses increased $20.3 million, or
17.0%, compared to the same prior-year period. Medical expenses as a percentage
of medical premiums and professional fees ("Medical Care Ratio") increased from
77.4% to 80.9%, for the quarter ended June 30, 1999, compared to the same
prior-year period. The increase in the Medical Care Ratio reflects the acquired
Kaiser- Texas membership which has a higher medical care ratio, as well as an
increase in Medicare members as a percentage of fully-insured members and higher
pharmacy costs. The cost of providing medical care to Medicare members generally
requires a greater percentage of the premiums received. Included in medical
expenses is the utilization of $7.6 million of premium deficiency reserve to
offset losses on contracts from the Kaiser-Texas acquisition. A portion of the
premium deficiency utilized during the second quarter related to retroactive
membership terminations and revised IBNR estimates related to first quarter for
the Dallas/Ft. Worth operations. Also included in medical expense is the
utilization of $2.7 million of premium deficiency reserve to offset losses
primarily on Medicare risk members in Arizona and rural Nevada.
Specialty product expenses decreased $20.0 million or 50.7% due primarily
to ceded workers' compensation losses resulting from the low level reinsurance
agreement. In addition, the Company receives a ceding commission from the
reinsurer as a partial reimbursement of operating expenses. Under the low level
reinsurance agreement, in the current year period, ceded premiums were $13.5
million, ceded losses were $17.2 million and ceding commissions were $3.2
million. Specialty product revenue and expense are primarily related to the
workers' compensation insurance business.
The combined ratio for the workers' compensation insurance business was
95.3% compared to 99.6% for the comparable prior-year period. The reduction was
due to a 12.2% decrease in the loss ratio, which was partially offset by a 7.9%
increase in the expense ratio. The reduction in the loss ratio was largely due
to a greater portion of losses being reinsured under the low level reinsurance
agreement. The current year period had no net development on prior accident
years, whereas the loss ratio for the prior year period included net favorable
loss development on prior accident years totaling $2.6 million. The prior-year
favorable loss development was largely due to actual paid losses being below
projected losses. The loss and loss adjustment expense ratio for the three
months ended June 30, 1999, reflects the Company's current projection of the
ultimate costs of claims occurring in the current as well as prior accident
years. The increase in the expense ratio was largely due to a reduction in the
net earned premium denominator base, which resulted from the increase in ceded
reinsurance premiums. This change was offset by a decrease in expenses due to a
credit for ceding commissions of $3.2 million. Workers' compensation claims are
paid over several years. Until payment is made, the Company invests the
premiums, earning a yield on the invested balance.
General, administrative and marketing ("G&A") costs increased $7.7 million
or 28.5% compared to the second quarter of 1998. As a percentage of revenues,
G&A costs for the second quarter of 1999 were consistent with
Page 10
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 June 30, 1999, compared to three
months ended June 30, 1998 (continued).
the comparable period in 1998. Of the $7.7 million increase, $4.0 million
was due to additional G&A, including amortization of goodwill, related to the
acquired HMO business in the Dallas/Ft. Worth area, net of utilization of
premium deficiency reserves for maintenance costs of approximately $4.7 million.
The most significant items included in the remaining portion of the increase
consisted of $1.6 million of additional compensation expense, resulting
primarily from additional employees supporting expanded services, increased
depreciation expense of $900,000 and increased legal expenses. 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 June 30, 1999, 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 $2.5 million for
the three months ended June 30, 1999, compared to the same prior-year period due
to an increase in debt primarily related to the Kaiser-Texas acquisition as well
as an increase in the Company's cost of borrowing.
For the current-year period, the Company recorded approximately $4.3
million of tax expense for an effective tax rate of 33.4% compared to 25.9% for
the same prior-year period. This significant increase in the effective tax rate
is the result of the tax loss valuation allowances being fully utilized by the
end of 1998. The Company's effective tax rate is less than the 35% statutory
rate primarily due to tax-preferred investments.
Results of Operations, six months ended June 30, 1999, compared to six
months ended June 30, 1998.
The Company's total operating revenues for the six months ended June 30,
1999, increased approximately 39.3% to $633.9 million from $455.0 million for
the six months ended June 30, 1998. The increase was primarily due to increases
in premium revenue of $130.9 million and military contract revenue of $80.8
million offset by a decrease in specialty product revenues of $35.3 million.
Of the $130.9 million or 46.6% increase in medical premium revenue,
approximately $83.1 million is attributed to the Company's Dallas/Ft. Worth
operations which were acquired in the fourth quarter of 1998. The remaining
increase of $47.8 million, or 17.0%, is due to additional premium revenue at the
Company's other HMO and insurance subsidiaries. Excluding the Dallas/Ft. Worth
operations, member months increased approximately 8.1%. Medicare member months
increased 23.0%. 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. Excluding the
Dallas/Ft. Worth operations, the Company's HMO and insurance subsidiaries'
premium rates increased approximately 8%. The Company's HMO commercial rates
increased approximately 4% in Nevada and approximately 15% in Texas. Compared to
the fourth quarter of 1998, the commercial rates for the Company's recently
acquired Dallas/Ft. Worth operations have increased approximately 7%. The
Company's managed indemnity rates increased approximately 6% and Medicare rates
increased approximately 2%. Over 90% of the Company's Nevada Medicare members
are enrolled in the HCFA 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.
Military contract revenue increased from $60.4 million to $141.2 million.
The increased revenue is a result of health care delivery under the Region 1
TRICARE contract that began in June 1998. Military
Page 11
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations, six months ended June 30, 1999, compared to six
months ended June 30, 1998 (continued).
contract revenue in the same period of the prior year resulted from
implementation of the contract and one month of health care delivery. Specialty
product revenue decreased $35.3 million, or 45.9%, for the six months ended June
30, 1999, compared to the same six-month prior-year period. Of the decrease,
$33.4 million was due to a decrease in revenue in the workers' compensation
insurance segment and $1.8 million was due to a decrease in administrative
services revenue. The decrease in specialty product revenues related to the
workers' compensation insurance segment was primarily due to additional ceded
reinsurance premiums on the low level reinsurance agreement totaling $27.1
million. This agreement was entered into in the fourth quarter of 1998. In
addition, ongoing price competition in California is contributing to the
reduction in revenue. The decrease in administrative services revenue was
primarily attributable to a decrease in membership.
Professional fee revenue increased approximately $5.3 million primarily due
to the Company's recently acquired medical group operations in Dallas/Ft. Worth.
Investment and other revenue decreased approximately $2.8 million over the
comparable prior-year period primarily due to a decrease in invested balances
and a decrease in capital gains realized on the sale of investments compared to
the prior-year period.
Total medical expenses increased $131.5 million over the same six-month
period last year. This increase resulted primarily from the Company's recently
acquired Dallas/Ft. Worth operations discussed previously, as well as the
premium deficiency charge of $8.1 million related to under performing markets
primarily in Arizona and rural Nevada (see note 2 to the Condensed Consolidated
Financial Statements). Excluding the effect of the Company's recently acquired
Dallas/Ft. Worth operations and the premium deficiency charge, medical expenses
increased $48.9 million or 20.9% compared to the same prior-year period. The
Medical Care Ratio increased from 77.1% to 83.2%, or 81.3%, excluding the $8.1
million premium deficiency charge, for the six months ended June 30, 1999,
compared to the prior-year period. The increase in the Medical Care Ratio
reflects the acquired Kaiser-Texas membership which has a higher medical care
ratio, and the premium deficiency charge discussed above, as well as an increase
in Medicare members as a percentage of fully- insured members and higher
pharmacy costs. The cost of providing medical care to Medicare members generally
requires a greater percentage of the premiums received. Included in medical
expenses is the utilization of $12.2 million of premium deficiency reserve to
offset losses on contracts from the Kaiser-Texas acquisition. Also included in
medical expense is the utilization of $5.3 million of premium deficiency reserve
to offset losses primarily on Medicare risk members in Arizona and rural Nevada.
Specialty product expenses decreased $36.9 million or 48.7% due primarily
to ceded workers' compensation losses resulting from the low level reinsurance
agreement. In addition, the Company receives a ceding commission from the
reinsurer as a partial reimbursement of operating expenses. Under the low level
reinsurance agreement, in the six month current year period, ceded premiums were
$27.1 million, ceded losses were $32.7 million and ceding commissions were $6.5
million. Specialty product revenue and expense are primarily related to the
workers' compensation insurance business.
The combined ratio for the workers' compensation insurance business was
95.9% compared to 101.1% for the comparable prior-year period. The reduction was
due to a 12.7% decrease in the loss ratio, which was partially offset by a 7.5%
increase in the expense ratio. The reduction in the loss ratio was largely due
to a greater portion of losses being reinsured under the low level reinsurance
agreement. The current year period had no net development on prior accident
years, whereas the loss ratio for the prior year period included net favorable
loss development on prior accident years totaling $4.5 million. The prior-year
favorable loss development was largely due to actual paid losses being below
projected losses. The loss and loss adjustment expense ratio for the six months
ended June 30, 1999, reflects the Company's current projection
Page 12
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Results of Operations, six months ended June 30, 1999, compared to six
months ended June 30, 1998 (continued).
of the ultimate costs of claims occurring in the current as well as prior
accident years. The increase in the expense ratio was largely due to a reduction
in the net earned premium denominator base, which resulted from the increase in
ceded reinsurance premiums. This change was offset by a decrease in expenses due
to a credit for ceding commissions of $6.5 million. Workers' compensation claims
are paid over several years. Until payment is made, the Company invests the
premiums, earning a yield on the invested balance.
G&A costs increased $16.4 million or 31.4% compared to the first six months
of 1998. As a percentage of revenues, G&A costs for the first six months of 1999
decreased to 10.8% from 11.5% during the comparable period in 1998. Excluding
military revenues, G&A as a percentage of revenues was 14.0% for the six-month
period ended June 30, 1999, compared to 13.2% for the first six months of the
prior year. Of the $16.4 million increase in G&A, $8.6 million was due to
additional G&A, including amortization of goodwill, related to the acquired HMO
business in the Dallas/Ft. Worth area, net of utilization of premium deficiency
reserves for maintenance costs of approximately $7.0 million. The most
significant items included in the remaining portion of the increase consisted of
$2.5 million of additional compensation expense, resulting primarily from
additional employees supporting expanded services, increased depreciation
expense of $1.6 million and increased legal expenses. 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 six months ended June
30, 1999, 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 $5.3 million for the
six months ended June 30, 1999, compared to the same prior-year period due to an
increase in debt primarily related to the Kaiser-Texas acquisition as well as an
increase in the Company's cost of borrowing.
For the period, the Company recorded approximately $3.9 million of tax
expense for an effective tax rate of 33.4% compared to 25.7% in the same
prior-year period. This significant increase in the effective tax rate is the
result of the tax loss valuation allowances being fully utilized by the end of
1998. The Company's effective tax rate is less than the 35% statutory rate
primarily due to tax-preferred investments.
Liquidity and Capital Resources
The Company had negative cash flows from operations of approximately $27.8
million for the six months ended June 30, 1999, resulting primarily from a net
change in assets and liabilities of $51.7 million offset by $13.8 million in
depreciation and amortization, $2.3 million in provision for doubtful accounts
and $7.9 million net income. The decrease in cash flow resulting from the change
in assets and liabilities was primarily due to increases in accounts receivable
and reinsurance recoverable, as well as decreases in unearned revenue and other
accrued liabilities. Such decreases in cash flow were offset in part by
collection of government receivables. During the second quarter of 1999, the
Company received $46.3 million from the government as a result of providing
health care services for a larger than expected beneficiary population in
TRICARE Region 1. The increase in reinsurance recoverable is primarily due to
the reinsurance agreement implemented by the Company's workers' compensation
subsidiary in the fourth quarter of 1998. The decrease in unearned revenue
resulted primarily from the early receipt of the subsequent month's HCFA
Medicare capitation payments as of December 31, 1998.
Page 13
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).
The $26.9 million used for investing and financing activities since
December 31, 1998 included $8.0 million used for the purchase of treasury stock
and $27.0 million in net capital expenditures including costs associated with
continued implementation of three new computer systems, as well as furniture,
equipment and other capital needs to support the Company's growth. In the first
quarter of 1999 an additional $3.0 million was paid to Kaiser Foundation Health
Plan of Texas, in accordance with the purchase agreement as certain
accreditation goals were met by the health plan. The purchase price may increase
up to an additional $27 million over three years if certain goals are met by the
health plan. The Company had net borrowings of $5.0 million under the line of
credit which was offset by $2.1 million used for the reduction of other debt.
The remaining $56.0 million available under the line of credit may be used for
additional working capital, if necessary. Offsetting the above cash outflows,
was a $6.9 million net change in investments and $1.2 million received in
connection with the sale of stock through the Company's stock plans.
The Company has a 1999 capital budget of approximately $60 million,
primarily for computer hardware and software, furniture and equipment and other
requirements due to the Company's computer system conversion and projected
growth and expansion. The Company's liquidity needs over the next six 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 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.
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 HMO and insurance subsidiaries had
restricted assets on deposit in various states totaling $16.8 million as of June
30, 1999. The HMO and insurance subsidiaries must also meet requirements to
maintain minimum stockholder's equity, on a statutory basis, ranging from $1.5
million to $5.2 million. Additionally, in conjunction with the Kaiser-Texas
acquisition, Texas Health Choice, L.C. ("TXHC") entered into a letter agreement
with the Texas Department of Insurance whereby TXHC agreed to maintain a net
worth of $20.0 million. Of the cash and cash equivalents held at June 30, 1999,
$27.7 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.
CII Financial, Inc., a California workers' compensation company that the
Company acquired in 1995, has convertible subordinated debentures (the
"Debentures") due September 15, 2001 and bearing interest at 7 1/2% which is due
semi-annually on March 15 and September 15. Each $1,000 in principal is
convertible into 25.382 shares of the Company's common stock at a conversion
price of $39.40 per share. The Debentures are general unsecured obligations of
CII and are not guaranteed by Sierra. During the six months ended June 30, 1999,
the Company purchased $55,000 of the Debentures on the open market.
Page 14
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
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 has completed replacement of its mission critical financial
systems and is in the process of replacing its mission critical operational
computer systems. The Company has completed validation of its non- information
system technology for Year 2000 compliance. The Year 2000 project has 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 June 30, 1999, the inventory and assessment phases are substantially
complete as it relates to all material computer systems and non-information
system technology. The Company estimates that the replacement/renovation phases
and the testing/validation phases will be 95% complete by October 31, 1999. The
Company estimates that it is approximately 85% complete with the total project
as of July 31, 1999.
Contingency planning for the mission critical business operations was
completed in July 1999. These plans focus on business operations involving
information systems and non-information systems technologies.
The Company has initiated formal communications with entities with which 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 are expected to 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 computer systems
at an estimated cost of $40 million to $42 million, which includes the
implementation costs related to the recently acquired Dallas/Ft. Worth
operations. To date the Company has spent approximately $33.6 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 $9.0 million to $11.0 million. 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.
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 believes that, with
the implementation of the new computer systems and completion of the
Page 15
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
Year 2000 (continued).
entire project as scheduled, the possibility of significant interruptions
of operations should be reduced.
Should utility service be disrupted by forces that are outside the control
of the Company, contingency plans have been established which include the use of
gasoline-powered generators to maintain mission critical business operations.
Management believes the Company could carry on basic functions for five days in
this scenario, with its various facilities maintaining operations for one to
five days. Contingency plans were built upon the assumption that such continued
operations are subject to established safety and environmental regulations.
The above discussion 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, retention 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.
Membership
The Company's membership at June 30, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Number of Members at Period Ended
June 30 June 30
1999 1998
HMO
<S> <C> <C>
Commercial.................................................. 272,500 161,000
Medicare.................................................... 48,900 38,600
Managed Indemnity............................................. 42,800 50,400
Medicare Supplement........................................... 27,400 25,100
Administrative Services....................................... 301,500 312,600
TRICARE Eligibles............................................. 599,000 606,400
Total Members................................................. 1,292,100 1,194,100
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 1999, unrealized holding losses on available for sale
investments have increased by $9.6 million since year-end due to an increase in
interest rates, and thus, a decline in the market value of bonds. The Company
believes that this increase in interest rates should not have a material impact
on future earnings or cash flows as it is unlikely that the Company would need
or choose to substantially liquidate its investment portfolio.
Page 16
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the second quarter of 1999, the Company filed a motion for preliminary
injunction in Clark County District Court against Universal Health Services and
the Valley Health System ("Universal"). The Company has reimbursed Universal for
services provided to health plan members based on predetermined rates
established through one of its subsidiaries. However, Universal is disputing the
validity of the contract and is billing the Company and its members additional
charges. The Company currently believes that it is adequately accrued for this
case and intends to pursue all available remedies.
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 and claims by providers for payment for medical services rendered to HMO
members. Also included in such litigation are claims for workers' compensation
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, including the Universal case, should not have a
material adverse effect on the Company's financial condition.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
Page 17
SIERRA HEALTH SERVICES, INC. AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Sierra held its annual meeting of stockholders on May 6, 1999 in Las Vegas,
Nevada.
The following persons were elected directors for a two-year term ending in
2001 based on the voting results below:
<TABLE>
Broker
<CAPTION>
Name For Withheld Abstain Non-votes
<S> <C> <C> <C> <C>
Anthony M. Marlon, M.D. 24,152,941 682,681 0 0
Thomas Y. Hartley 24,193,871 641,751 0 0
</TABLE>
The following persons' terms as directors continued after the meeting and
end in 2000.
Erin MacDonald
William J. Raggio
Charles L. Ruthe
The stockholders also ratified the appointment of Deloitte & Touche LLP as
the Company's independent auditors for the year ending 1999. The voting results
were as follows:
<TABLE>
Broker
<CAPTION>
For Against Abstain Non-votes
<S> <C> <C> <C> <C>
24,415,424 408,092 12,106 0
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(99) Registrant's current report on Form 8-K
dated March 17, 1999,
incorporated herein by reference.
(b) Reports on Form 8-K
None
Page 18
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 August 16, 1999 /S/ PAUL H. PALMER
Paul H. Palmer
Vice President of Finance,
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Page 19
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 29,201,000
<SECURITIES> 78,975,000
<RECEIVABLES> 107,774,000
<ALLOWANCES> 7,503,000
<INVENTORY> 0
<CURRENT-ASSETS> 307,321,000
<PP&E> 322,093,000
<DEPRECIATION> 77,500,000
<TOTAL-ASSETS> 1,021,568,000
<CURRENT-LIABILITIES> 327,439,000
<BONDS> 246,414,000
0
0
<COMMON> 142,000
<OTHER-SE> 295,139,000
<TOTAL-LIABILITY-AND-EQUITY> 1,021,568,000
<SALES> 0
<TOTAL-REVENUES> 633,892,000
<CGS> 0
<TOTAL-COSTS> 608,825,000
<OTHER-EXPENSES> 5,106,000<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,175,000
<INCOME-PRETAX> 11,786,000
<INCOME-TAX> 3,936,000
<INCOME-CONTINUING> 7,850,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,850,000
<EPS-BASIC> 0.90
<EPS-DILUTED> 0.89
<FN>
<F1>Impairment and Other Costs
</FN>
</TABLE>
