We also offer supplemental benefit programs developed by us under the brand name “HealthExtras”, which include lump sum accidental disability benefits, accidental death and dismemberment benefits, and emergency accident and sickness medical benefits. We contract with insurance companies to underwrite the insurance components of these programs. As a result, the financial responsibility for the payment of claims resulting from a qualifying event covered by the insurance features of our programs is borne by the third-party insurers. Our supplemental benefits segment accounted for approximately 9%, 14% and 27% of our revenue in the years ended 2004, 2003 and 2002, respectively. Individuals are the major purchasers of these programs.
Interest Expense. Interest expense increased to $1.1 million in the year ended December 31, 2004 from $598,000 in the year ended December 31, 2003. With our acquisition of MHS on June 18, 2004, we entered into a $20.0 million term loan and increased our current line of credit. As a result, the increase in interest expense was attributable to significantly larger amounts of outstanding debt in the year ended December 31, 2004 compared to 2003.
Net Cash Provided by (Used in) Financing Activities. Net cash provided by financing activities for year ended December 31, 2004 was $72.4 million compared to cash used in financing activities of $7.2 million in 2003. In 2004, we received $54.8 million in net proceeds from the sale of shares in a public offering. We made payments totaling $21.8 million on our line of credit in 2004 compared to payments of $8.0 million in 2003. We also increased borrowings by $37.3 million to finance the acquisition of MHS and received approximately $2.2 million in proceeds from the exercise of stock options.
We anticipate continuing to generate positive operating cash flow which, combined with available cash resources, should be sufficient to meet our planned working capital, capital expenditures and operating expenses. However, there can be no assurance that we will not require additional capital. Even if such funds are not required, we may seek additional equity or debt financing. We cannot be assured that such financing will be available on acceptable terms, if at all, or that such financing will not be dilutive to our stockholders.
Management’s Discussion and Analysis of the Financial Condition and Results of Operations discusses our consolidated financial statements. Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The most significant estimates included in these financial statements include the following: the value of intangible assets acquired in business combinations and related amortization periods, income tax provisions and related valuation allowances, rebates due from pharmaceutical manufacturing companies, and, in years prior to 2004, the estimate of the value and number of common stock warrants to be issued to a distributor under a marketing compensation agreement.
The Company accounts for its intangible assets under Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” Under SFAS No. 142, the Company does not have any intangible assets with indefinite lives. The Company does have other intangible assets subject to amortization and these assets are amortized over 5 months to 20 years, depending on each intangible asset’s estimated useful life.
Many of our clients put their contracts out for competitive bidding prior to expiration. Competitive bidding requires costly and time-consuming efforts on our behalf and, even after we have won such bidding processes, we can incur significant expense in proceedings or litigation contesting the adequacy or fairness of these bidding processes. We could lose clients if they cancel their agreements with us, if we fail to win a competitive bid at the time of contract renewal, if the financial condition of any of our clients deteriorates or if our clients are acquired by, or acquire, companies with which we do not have contracts. Over the past several years, self-funded employers, TPAs and other managed care companies have experienced significant consolidation. Consolidations by their very nature reduce the number of clients who may need our services. A client involved in a merger or acquisition by a company that is not a client of ours may not renew, and in some instances may terminate, its contract with us. Our clients have been and may continue to be, subject to consolidation pressures.
If we lose relationships with one or more key pharmaceutical manufacturers or if rebate payments we receive from pharmaceutical manufacturers decline, our business, results of operations and financial condition could suffer.
we could lose key employees or customers of the acquired business.