OPERATING EXPENSES: Medical Expenses......................................... 608,757 576,738 534,606 440,265 391,507 Military Contract Expenses............................... 331,621 323,265 276,493 196,625 4,193 Specialty Product Expenses............................... 188,574 152,733 96,487 142,258 143,082 General, Administrative and Marketing Expenses........... 117,717 105,314 94,428 95,633 87,164 Asset Impairment, Restructuring, Reorganization and Other Costs (1).................... 33,836 7,808 13,851 29,350 ---------- --------- --------- -------- ------- Total.................................................. 1,246,669 1,191,886 1,009,822 888,632 655,296 --------- --------- --------- -------- -------
LOSS FROM DISCONTINUED OPERATIONS........................... (13,980) (161,122) (15,154) (5,427) (2,512) --------- --------- --------- -------- -------
EARNINGS PER COMMON SHARE ASSUMING DILUTION (2): Net Income (Loss) From Continuing Operations............. $0.61 $(1.43) $0.39 $1.63 $0.97 Loss from Discontinued Operations........................ (0.49) (5.94) (0.56) (0.20) (0.09) ----- ----- ----- ----- ----- Net Income (Loss)........................................ $0.12 $(7.37) $(0.17) $1.43 $0.88 ==== ===== ===== ==== ==== Weighted Average Number of Common Shares Outstanding Assuming Dilution................... 28,509 27,142 26,996 27,747 27,426 ====== ====== ====== ====== ======
o An increase in investment and other revenues of $2.1 million
General, Administrative and Marketing Expenses, or G&A, increased $10.9 million or 11.5%. As a percentage of revenues, G&A costs were 9.1% for both periods. As a percentage of medical premium revenue, G&A costs increased from 15.9% for 1999 to 16.5% for 2000.
Charges recorded............................... Cash used...................................... (594) (594) Noncash activity............................... Changes in estimate............................ - ------- ------ ------ ------- Balance, December 31, 2001..................... $ - $ - $ 4,447 $ 4,447 ======= ====== ====== =======
On December 28, 2000, we sold the majority of our Las Vegas real estate holdings in a sale-leaseback transaction. The transaction was recorded as a financing obligation of $113.7 million offset by mortgage notes receivable of $22.2 million and a payoff of related real estate mortgages of $9.9 million. From the proceeds, we made a permanent reduction on our revolving credit facility of $50 million for a net increase in liabilities of $31.6 million. During 2001, we received full payment on the outstanding mortgage notes receivable associated with three of the medical clinics. This allowed these clinics to qualify as a sale. The impact of the sale of the three clinics was a net reduction of $13.4 million in property and equipment, a $14.6 million net reduction in the associated financing obligation and a deferred gain of $6.1 million. The deferred gain will be recognized over the remaining 14 years of the lease term. (See Note 4 of Notes to the Consolidated Financial Statements).
Interest under the amended and restated credit agreement is variable and based on the Bank of America "prime rate" adjusted for a margin. The rate was 5.375% at December 31, 2001, which is a combination of the prime rate of 4.75% plus a margin of .625%. The margin will be reduced by 1.0% at the end of the first quarter of 2002 since we exceeded certain ratio requirements as of December 31, 2001. We can further reduce the margin in the future by completing certain transactions and meeting certain financial ratios. Of the outstanding balance, $25 million is covered by an interest-rate swap agreement. To mitigate the risk of interest rate fluctuation on the credit facility, we entered into a five-year $50 million interest-rate swap agreement during the fourth quarter of 1998. The intent of the agreement was to keep our interest rate on $50 million of the borrowing relatively fixed. In the fourth quarter of 2000, $25 million of the swap agreement was terminated. In accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" we recorded the interest-rate swap agreement to fair market value as of December 31, 2001. The fair market value indicated that we would need to pay $685,000 to terminate the swap agreement.
In the second quarter of 1997, our Board of Directors authorized a $3.0 million loan from us to our Chief Executive Officer, or CEO. In April 2000, our Board of Directors authorized an additional $2.5 million loan from us to the CEO. The entire principal balance along with accrued interest is due on June 30, 2002. During 2001, the CEO made payments of $898,000 and at the end of 2001, the aggregate principal balance outstanding and accrued interest for both instruments was $5.0 million. All amounts borrowed bear interest at a rate equal to the rate at which we could have borrowed funds under our revolving credit facility at the time of the borrowing plus 10 basis points. The amounts outstanding are collateralized by certain of the CEO's assets and rights to compensation from us.
Government regulation of health care coverage products and services is a changing area of law that varies from jurisdiction to jurisdiction. Changes in applicable laws and regulations are continually being considered, including legislative proposals to eliminate or reduce ERISA pre-emption of state laws, that would increase potential litigation exposure and interpretation of existing laws and rules also may change from time to time. Regulatory agencies generally exercise broad discretion in promulgating regulations and in interpreting and enforcing laws and regulations.
Comprehensive Income: Net Income Other Comprehensive Loss, Net of Tax: Unrealized Holding Gain on Available- for-sale Investments Reclassification Adjustment for Gains Included in Net Loss Comprehensive Income........... Issuance of Restricted Stock... 244 1 1,399 $(1,400) Amortization of Deferred Compensation 342 Common Stock Issued in Connection with Stock Plans............ 589 3 2,087 Income Tax Benefit Realized Upon Exercise of Stock Options... 97 ------ --- ------- ------ ------- BALANCE, DECEMBER 31, 2001..... 29,648 $148 $181,076 $(1,058) $(22,789) ====== === ======= ====== =======
Reserve for Losses and Loss Adjustment Expense. The reserve for workers' compensation losses and LAE consists of estimated costs of each unpaid claim reported to the Company prior to the close of the accounting period, as well as those incurred but not yet reported. The methods for establishing and reviewing such liabilities are continually reviewed and adjustments are reflected in current operations. The Company does not discount its losses and LAE reserves.
(In thousands): 2001 2000 ---------- ----------- Data Processing Equipment and Software ................ $ 333 $ 6,571 Furniture, Fixtures and Equipment...................... 3,783 Buildings.............................................. 245 245 Less: Accumulated Depreciation......................... (316) (5,552) ---- ------ Property and Equipment, Net......................... $ 262 $ 5,047 ==== ======
The Company expects that the remaining mortgages and deposits will be repaid to Sierra by the end of 2002, at which time the rest of the transaction will qualify as a sale.
Year Ended December 31, 1999: Low level reinsurance carrier.................. $21,941 $ 69,104 $60,702 Excess of loss reinsurance carriers.............. 1,730 3,188 3,025 ------ ------- ------- Total ........................................ $23,671 $ 72,292 $63,727 ====== ======= ======
For the year ended December 31, 1999, the Company recorded net adverse loss development on prior accident years of $9.9 million, primarily for accident years 1996 to 1998.
LIABILITIES Accounts Payable and Other Liabilities................. 16,407 17,158 Medical Claims Payable..................................... 36,567 37,892 Unearned Premium Revenue................................... 68 6,874 Premium Deficiency Reserve................................. 1,700 14,466 Mortgage Loan.............................................. 29,189 34,230 ------- ------- TOTAL LIABLIITIES.......................................... 83,931 110,620 ------- -------
The Company incurred legal fees of $38,000, $4,000 and $289,000 in the years ended December 31, 2001, 2000 and 1999, respectively, with a Nevada law firm of which a non-employee Board of Director member is a shareholder.
Charges recorded............................... 27,553 1,983 4,300 33,836 Cash used...................................... (1,389) (302) (1,691) Noncash activity............................... (27,553) (3,000) (30,553) Changes in estimate............................ ------- ----- ------ ------- Balance, December 31, 2000..................... - 594 4,447 5,041