The following Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report contains various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our expectations or beliefs concerning future events, including statements regarding future plans and strategy for our business, earnings and the sufficiency of our cash balances and cash generated from operating, investing, and financing activities for our future liquidity and capital resource needs. We caution that although forward-looking statements reflect our good faith beliefs and reasonable judgment based upon current information, these statements are qualified by important factors that could cause actual results to differ materially from those in the forward-looking statements, because of risks, uncertainties, and factors including, but not limited, to: the ongoing U.S. recession, the termination of the TennCare contract, the wind down of the CMS Medicare business, the review of strategic alternatives, the existing global credit and financial crisis and other changes in general economic conditions, and adverse changes in the healthcare industry. Other risks and uncertainties are detailed from time to time in reports filed with the SEC, and in particular those set forth under “Risk Factors” in Part1 Item 1a. Given such uncertainties, you should not place undue reliance on any such forward-looking statements. Except as required by law, we may not update these forward-looking statements, even if new information becomes available in the future.
The Company provides comprehensive management and consulting services to UAHC Health Plan of Tennessee, Inc. (“UAHC-TN”), a managed care organization (“MCO”) which is a wholly owned second-tier subsidiary of United American Healthcare Corporation. From November 1993 to June 30, 2009, UAHC-TN has had a contract with the State of Tennessee for the State’s “TennCare” program, to arrange for the financing and delivery of healthcare services on a capitated basis to eligible Medicaid beneficiaries and non-Medicaid individuals who lack access to private or employer sponsored health insurance or to another government health plan. On April 22, 2008, the Company learned that UAHC-TN would no longer be authorized to provide managed care services as a TennCare contractor when its present TennCare contract expired on June 30, 2009. UAHC-TN’s TennCare members transferred to other managed care organizations on November 1, 2008, after which UAHC-TN continued to perform its remaining contractual obligations through its TennCare contract expiration date of June 30, 2009. However, revenue under this contract was only earned through October 31, 2008. Total net loss related to this contract discontinuance was $4.0 million, which includes claim processing costs, employee severance and retention payments, and other corporate general administrative expenses beginning November 2008 through June 2009. The discontinuance of the TennCare contract has
Total revenues decreased $10.2 million (38%) to $16.7 million for the fiscal year ended June 30, 2009 compared to $26.8 million for the fiscal year ended June 30, 2008. The decrease in revenue is primarily attributable to discontinuance of the TennCare contract.
Provision for legal settlement totaled $3.1 million, net of $0.2 million in expected insurance recovery for fiscal year ended June 30, 2009. There was no provision for legal settlement recorded for fiscal year ended June 30, 2008, as the amount was not determinable at the end of fiscal year ended June 30, 2008. Since 2005, the Company has been a defendant in a lawsuit as described in Item 3. Legal Proceedings. Subsequent to June 30, 2009, the lawsuit was settled for $3.3 million and will be offset by expected insurance of $0.2 million.
Net loss was $8.7 million, or $(1.02) per basic share, for the fiscal year ended June 30, 2009, compared to net loss of $4.0 million, or $(0.47) per basic share, for the fiscal year ended June 30, 2008, an increase in the net loss of $4.7 million (115%).
Fixed administrative fees related to the MRA program were $14.5 million for the fiscal year ended June 30, 2008, a decrease of $1.0 million (7%) from fixed administrative fees of
Variable administrative fees resulting from the MRA were $1.7 million for the fiscal year ended June 30, 2008 compared to $0.5 million for the fiscal year ended June 30, 2007. Of the $1.7 million MRA revenue recorded in fiscal year 2008, $0.3 million of MRA revenue received relates to the third quarter of fiscal year 2006 and $1.4 million of MRA revenue received relates to fiscal year 2007. The $0.5 million MRA revenue received in fiscal year 2007 relates to the fourth quarter of fiscal year 2006. Under the MRA, UAHC-TN is at risk to lose up to 10% of administrative fee revenue and potentially could receive up to 15% incentive bonus revenue based on performance relative to benchmarks (through June 30, 2007). The Company’s accounting policy is to recognize MRA revenues upon notification by TennCare that the revenue has been earned. Effective July 1, 2007, the evaluation period for the MRA was changed from quarterly to annually, and the incentive bonus pool was adjusted to 20% of administrative fee revenue.
Income tax expense was $2.1 million for the fiscal year ended June 30, 2008 compared to $0.1 million for the prior fiscal year. The Company’s effective tax rate for the fiscal year ended June 30, 2008 differs from the statutory rate. This difference was primarily related to the change in the valuation allowance and an impairment charge against goodwill, which is not deductible for
On April 22, 2008, we learned that UAHC-TN will cease providing managed care services as a TennCare contractor when its present TennCare contract expires. The discontinuance of the TennCare contract has had and will continue to have a material adverse impact on the Company’s operations and financial statements. Total costs related to this contract discontinuance were $4.0 million, which includes claim processing costs, employee severance, lease termination costs and other corporate general administrative expenses beginning November 2008 through June 2009.
Cash provided by investing activities of $9.5 million was primarily due to net sales of marketable securities. Cash proceeds from the maturity of marketable securities of $38.7 million was offset by cash purchases of maturity securities of $29.2 million. Property, plant and equipment decreased by $0.3 million at June 30, 2009 compared to June 30, 2008, due to the disposal of fixed assets associated with the sublease of the Tennessee facility and depreciation of $0.2 million.
The net increase in cash flow was $2.4 million for the fiscal year ended June 30, 2009, compared to a net increase in cash flow of $1.8 million for the prior fiscal year.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an Amendment of ARB No. 51.” SFAS No. 141(R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 160 clarifies that a noncontrolling interest in a subsidiary should be reported as equity in the consolidated financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS No. 160 also requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. SFAS No. 160 also provides guidance when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary. SFAS No. 141(R) and SFAS No. 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is
Also in May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts - an Interpretation of SFAS Statement No. 60” (“SFAS 163”). SFAS 163 interprets Statement No. 60 and amends existing accounting pronouncements to clarify their application to the financial guarantee insurance contracts included within the scope of that Statement. SFAS 163 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and all interim periods within those fiscal years. As such, the Company is required to adopt these provisions at the beginning of the fiscal year ended June 30, 2010. The Company does not believe that SFAS 163 will have an effect on its financial statements.