The Company currently leases approximately 30,000 aggregate square feet from which it conducts its operations in Michigan and Tennessee. The principal offices of the Company are located at 300 River Place, Suite 4950, Detroit, Michigan, where it currently leases approximately 3,800 square feet of office space.
The Company believes that its current facilities provide sufficient space suitable for all of its activities and that sufficient other space will be available on reasonable terms, if needed.
Through an amendment with an effective date of July 1, 2005, TennCare implemented a modified risk arrangement with all its contracted MCOs, including UAHC-TN, under which they are at risk for losing up to 10% of administrative fee revenue and may receive up to 15% incentive bonus revenue based on performance relative to benchmarks. TennCare also disenrolled approximately 100,000 non-medically needy adults who were not eligible for Medicaid from TennCare coverage statewide, and imposed benefit limits on the 396,000 adults left in the program who are eligible for Medicaid. As a result, UAHC-TN lost approximately 12,000 members during fiscal 2006.
As of June 30, 2006, UAHC-TN's total enrollment was 113,951 members, compared to 131,247 at June 30, 2005.
There were no medical premiums revenues for the fiscal year ended June 30, 2006, compared to medical premiums revenues of $0.02 million for the fiscal year ended June 30, 2005. Effective July 1, 2002, TennCare changed its reimbursement system to an ASO program for an initially declared 18-month stabilization period, subsequently extended through June 30, 2005. Beginning July 1, 2005, TennCare currently operates a modified risk arrangement.
million for the fiscal year ended June 30, 2005. The decrease in fixed administrative fees is principally due to a decrease in members. UAHC-TN has received notice from TennCare that it earned additional revenue of $0.2 million and $0.2 million, respectively, for its performance under the modified risk arrangement for the first and second quarters of fiscal 2006. Such additional revenue has been recorded. UAHC-TN expects to similarly earn additional revenue of approximately $0.2 million for each of the third and fourth quarters of fiscal 2006. The Company would record such earnings in fiscal 2007 only upon receipt of final notification thereof from TennCare.
Earnings from continuing operations before income taxes were $1.5 million and $6.1 million for the fiscal years ended June 30, 2006 and 2005, respectively. Such decrease in earnings from continuing operations of $4.6 million, or $0.62 per basic share, is principally due to a decrease in administrative fee revenue, coupled with an increase in general and administrative expenses as discussed above.
Medical premiums revenues were $0.02 million for the fiscal year ended June 30, 2005, a decrease of $0.48 million (96%) from medical premiums revenues of $0.5 million for the fiscal year ended June 30, 2004. The decrease came from UAHC-TN as the result of TennCare's changing its reimbursement system to an ASO program for an initially declared 18-month stabilization period beginning July 1, 2002, subsequently extended through June 30, 2005.
Total expenses were $16.0 million for the fiscal year ended June 30, 2005, compared to $15.3 million for the fiscal year ended June 30, 2004, an increase of $0.7 million (4%). The increase was principally due to an increase in costs associated with the order of administrative supervision for UAHC-TN (described under the heading " Liquidity and Capital Resources" below), and an increase in claims processing costs.
Marketing, general and administrative expenses were $15.7 million for the fiscal year ended June 30, 2005, as compared with marketing, general and administrative expenses of $14.5 million for the comparable period a year earlier, an increase of $1.2 million (8%). The increase was principally due to an increase in costs associated with the administrative supervision order for UAHC-TN, and an increase in claims processing costs.
Interest expense decreased $0.06 million (88%), to $0.008 million for the fiscal year ended June 30, 2005 from $0.07 million for the fiscal year ended June 30, 2004, principally due to debt reduction.
Accounts receivable decreased by $0.1 million at June 30, 2006 compared to June 30, 2005, primarily due to a decrease in premium tax reimbursements due from TennCare.
Property, plant and equipment decreased by $0.04 million at June 30, 2006 compared to June 30, 2005, due to recording depreciation of $0.13 million offset by equipment purchases of $0.1 million.
Medical claims payable decreased by $0.02 million at June 30, 2006 compared to June 30, 2005, which is directly related to the payment of outstanding medical claims.
The Company and the Department of Finance and Administration of the State of Tennessee, Bureau of TennCare ("TennCare") are parties to two escrow agreements under which the Company funded, on August 5, 2005, two escrow accounts held by TennCare at the State Treasury. One, in the amount of $2,300,000, is security for repayment to TennCare of any overpayments to UAHC-TN that may be determined by a pending audit of all UAHC-TN process claims since 2002; and the other, in the amount of $420,500, is security for any money damages that may be awarded to TennCare in the event of any future litigation between the parties in connection with certain pending investigations by
UAHC-TN is no longer subject to the Notice and order of administrative supervision that the Commissioner of the State of Tennessee's Department of Commerce and Insurance had issued to it on April 20, 2005. That notice and order expired in accordance with its terms on December 31, 2005. The State of Tennessee in June 2006 extended UAHC-TN's TennCare contract through December 31, 2006, by an amendment to the contract effective as of July 1, 2006.
The following are new accounting standards and interpretations that may be applicable in the future to the Company:
preferable fair-value-based method been used. Publicly traded entities (other than those filing as small business issuers are required to apply SFAS No. 123(R) as of the first annual reporting period that begins after June 15, 2005. The Company adopted this standard, as required, in the first quarter of fiscal 2006.
The Financial Accounting Standards Board's final interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"), was issued on July 13, 2006. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes." This interpretation provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Further, FIN 48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. This interpretation is effective for fiscal years beginning after December 15, 2006. The cumulative effects, if any, of applying FIN 48 will be recorded as an adjustment to retained earnings as of the beginning of the period of adoption. The Company is in the process of evaluating the expected effect of FIN 48 and is currently unable to determine the impact, if any, that FIN 48 may have on its results of operations, financial position and cash flows.