Subsequent written or oral statements attributable to USHEALTH or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements in this Report and those in the Company’s reports previously filed with the Securities and Exchange Commission (“SEC”). Copies of these filings may be obtained by each stockholder, without charge, by contacting USHEALTH. Requests should be directed to Patrick H. O’Neill, Executive Vice President and General Counsel, USHEALTH Group, Inc., 3100 Burnett Plaza, 801 Cherry Street, Unit 33, Fort Worth, Texas 76102. Such report will be furnished without Exhibits. Copies of the Exhibits will be furnished to requesting stockholders upon payment of the Company’s reasonable expenses in furnishing the same.
The following table summarizes consolidated investment results (excluding unrealized gains or losses) for the indicated year (in thousands, except percentages):
Statutory Accounting Practices. The Insurance Subsidiaries are required to report their results of operations and financial position to state regulatory agencies based upon statutory accounting practices (“SAP”). See Item 1 - “Business - Regulation” for a description of the principle differences between GAAP and SAP accounting. The immediate charge off of sales and acquisition expenses and the sometimes conservative claim cost and other reserve valuation assumptions under SAP generally cause a lag between the sale of a policy and the emergence of reported earnings. Because this lag can reduce gain from operations on a SAP basis, it can have the effect of reducing the amount of funds available for dividend distributions from the Insurance Subsidiaries (see “Liquidity, Capital Resources and Statutory Capital and Surplus”).
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2004,
The Company’s revenues result primarily from premiums and fees from the insurance products sold by its wholly-owned subsidiaries National Foundation Life Insurance Company (“NFL”), Freedom Life Insurance Company of America (“FLICA”), National Financial Insurance Company (“NFIC”) and American Insurance Company of Texas (“AICT”), and together with NFL, NFIC and FLICA, collectively, the “Insurance Subsidiaries”, and marketed by NationalCare® Marketing, Inc. (“NCM”) and AmeriCare Benefits, Inc. (“ACB”), also wholly-owned subsidiaries. The insurance subsidiaries are licensed to conduct business in 40 states and the District of Columbia. Each of the following states accounted for more than 5% of premium revenue for the year ended December 31, 2004: Florida - 17%, Texas - 13%, Colorado - 9%, Oklahoma - 6% and South Carolina - 6%. The Company has no significant concentrations of credit risks.
Earnings Per Share. Under GAAP, there are two measures of earnings per share: “basic earnings per share” and “diluted earnings per share”. Basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue common stock were converted or exercised. For the year 2004, 43,995,026 of common shares attributable to the conversion of USHEALTH’s Series B convertible participating preferred stock (see the Notes to the Condensed Consolidated Financial Statements - Note 4 - Conversion of Redeemable Convertible Preferred Stock) were included in the computation of basic and diluted earnings per share as of March 15, 2004. To include the common shares attributable to the conversion of USHEALTH’s preferred stock in the computation of diluted earnings per share from the beginning of 2004 would have been anti-dilutive. For the year 2004, stock options of 5,678,419 were anti-dilutive and were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive. For the years 2003 and 2002, stock options of 918,050 and 1,014,650, respectively, and the conversion of the preferred stock were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.
The process of estimating claim reserves involves the active participation of experienced actuaries with input from the underwriting, claims, and finance departments. The inherent uncertainty in estimating claim reserves is increased when significant changes occur. Changes impacting the Insurance Subsidiaries include: (1) changes in economic conditions; (2) changes in state or federal laws and regulations, particularly insurance reform measures; (3) writings of significant blocks of new business and (4) significant changes in claims payment patterns. Because claim reserves are estimates, management monitors reserve adequacy over time, evaluating new information as it becomes available and adjusting claim reserves as necessary. Such adjustments are reflected in current operations.
Future policy benefits and claims (3,434 ) (4,195 ) (5,303 )
The 1999 Plan became effective on the date of its adoption by the Company and will remain in effect until December 31, 2008, except with respect to awards (as that term is defined in the 1999 Plan) then outstanding, unless terminated or suspended by USHEALTH’s Board of Directors at that time. After such date no further awards shall be granted under the 1999 Plan.
The following table summarizes information about the stock options outstanding under the 1999 stock option plan at December 31, 2004:
Total $ 22,546 $ 60,660 $ 30,899 $ 111,048 $ 7,722 $ 78,299 $ 9,261 $ 39,865 $ 112,513