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 2,000 square feet of office space.
November 1, 2002) Michigan, with a targeted mix of Medicaid and commercial enrollment. OmniCare Health Plan, in Michigan ("OmniCare-MI"), an HMO then administered by the Company under a management agreement, was placed in court-ordered rehabilitation proceedings on July 31, 2001, which relieved the Company from further funding OmniCare-MI's capital deficiencies and which continued its OmniCare-MI management agreement, with substantially reduced management fee revenues from OmniCare-MI beginning August 1, 2001. In March 2002, upon the court-appointed Rehabilitator's filing a proposed rehabilitation plan for OmniCare-MI, the Company announced it anticipated eventual termination of the management agreement. Such termination occurred November 1, 2002, after which the Company's only managed plan has been UAHC Health Plan, Inc. (formerly called OmniCare Health Plan, Inc.) ("UAHC-TN"), an HMO, which is owned by the Company's wholly owned subsidiary. Accordingly, the consolidated financial statements in this annual report have been restated to present the operations related to managing OmniCare-MI as a discontinued operation.
UAHC-TN's results of operations for fiscal 2004 and 2005 are best understood in the context of certain earlier events involving several of TennCare's major contracted MCOs, which ceased doing business in fiscal 2002. Beginning in February, March and April 2002, UAHC-TN unexpectedly noticed increases in its claims payments, investigated, and found that approximately 9,500 new members added in September-December 2001 represented children with special needs with medical costs over 100% of the premiums received, and that many members transferred to UAHC-TN from failed MCOs also had medical costs in excess of UAHC-TN's premiums received. Beginning in April 2002, UAHC-TN wrote to TennCare seeking risk adjustments and reimbursements to compensate UAHC-TN for such medical expenses, including for actuarially estimated claims incurred but not yet reported to UAHC-TN.
TennCare responded to its MCOs' situation generally and in some instances individually. For all its contracted MCOs generally, TennCare changed its reimbursement system to an administrative services only ("ASO") program for an 18-month stabilization period (July 1, 2002 through December 31, 2003), during which the MCOs - including UAHC-TN - have no medical cost risk
Pursuant to a Notice of Administrative Supervision issued by the Commissioner of the State of Tennessee's Department of Commerce and Insurance on April 20, 2005, to our subsidiary, UAHC-TN was placed under administrative supervision of the Commissioner and "has until December 31, 2005 to demonstrate to the Commissioner's satisfaction" that its "continued operation and business, absent the supervision or other oversight by the Commissioner, is not hazardous, financially or operationally, to its enrollees, its creditors or the public."
UAHC-TN received no prior notice of the notice and order of administrative supervision and had no opportunity to respond to its factual assertions. UAHC-TN and the Company are fully cooperating with the State of Tennessee in accordance with the terms of the order, and we do not currently anticipate any material developments during the supervision period.
As a Michigan HMO, OmniCare-MI is subject to oversight by the State of Michigan's Commissioner of the Office of Financial and Insurance Services (the "Commissioner"). On July 31, 2001, pursuant to a motion by the Commissioner, a State circuit court judge entered an order of rehabilitation of OmniCare-MI (the "Order") and appointed the Commissioner as Rehabilitator of OmniCare-MI. The Order directed the Rehabilitator to administer all of OmniCare-MI's assets and business while attempting to effectuate its rehabilitation, preserve its provider network and maintain uninterrupted health care services to the greatest extent possible. Pursuant to and since the Order, through the management agreement's termination date, the Rehabilitator's appointed special deputy served as the Chief Executive Officer of OmniCare-MI.
Total revenues were $22.1 million for the fiscal year ended June 30, 2005 compared to $22.1 million for the fiscal year ended June 30, 2004, practically unchanged year-over-year.
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, a increase of $1.2 million (9%). The increase was principally due to an increase in costs associated with the administrative supervision order for UAHC-TN discussed above, and an increase in claims processing costs.
Income tax expense increased $1.8 million (160%), to $0.7 million for the fiscal year ended June 30, 2005 from $(1.1) million for the fiscal year ended June 30, 2004. The Company's effective tax rate for the fiscal year ended June 30, 2005 is 11% and differs from the statutory rate of 34%. This difference is the result of the utilization of net operating loss carryforwards for which a valuation allowance had previously been applied.
The Company recognized a loss of $0.1 million from discontinued operations for the fiscal year ended June 30, 2005, principally due to a liability relating to a sublease as described above, partially offset by the release of certain liabilities related to a patient care software system no longer in use by the Company. For the fiscal year ended June 30, 2004, the Company recognized a loss from discontinued operations of $0.7 million. The charges for discontinued operations are the result of the termination of the Company's longstanding management agreement with OmniCare-MI, effective November 1, 2002. See "OVERVIEW" above for more detailed discussion and analysis of such loss from discontinued operations.
Net earnings were $5.3 million, or $0.72 per basic share, for the fiscal year ended June 30, 2005, compared to net earnings of $7.2 million, or $0.99 per basic share, for the fiscal year ended June 30, 2004, an decrease of $1.9 million (23%). Such decrease in net earnings is principally due to an increase in marketing, general and administrative expenses and a higher effective tax rate for the period.
Medical premium revenues were $0.5 million for the fiscal year ended June 30, 2004, a decrease of $7.3 million (93%) from medical premium revenues of $7.8 million for the fiscal year ended June 30, 2003. 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.
Fixed administrative fees related to the ASO program were $20.4 million for the fiscal year ended June 30, 2004, an increase of $5.6 million (38%) from fixed administrative fees of $14.8
Total expenses were $15.3 million for the fiscal year ended June 30, 2004, compared to $16.6 million for the year ended June 30, 2003, a decrease of $1.3 million (8%). The decreases were principally due to the TennCare ASO program for UAHC-TN discussed above.
Depreciation and amortization expense decreased $0.07 million (23%), to $0.23 million for the fiscal year ended June 30, 2004 from $0.3 million for the fiscal year ended June 30, 2003.
Interest expense decreased $0.08 million (60%), to $0.06 million for the fiscal year ended June 30, 2004 from $0.14 million for the fiscal year ended June 30, 2003, principally due to debt reduction.
Earnings from continuing operations were $7.9 million, or $1.09 per basic share, for the fiscal year ended June 30, 2004 compared to earnings from continuing operations of $7.3 million, or $1.06 per basic share, for the fiscal year ended June 30, 2003. Such increase in earnings from continuing operations of $0.6 million, or $0.03 per basic share, is principally due to the recognition of a deferred tax asset, an increase in members of UAHC-TN and an increase in reimbursement rates effective July 1, 2003.
The Company recognized a loss from discontinued operations of $0.7 million in the fiscal year ended June 30, 2004 compared to a loss from discontinued operations of $2.1 million in the fiscal year ended June 30, 2003 as the result of the termination of the Company's longstanding management agreement with OmniCare-MI, effective November 1, 2002. See "OVERVIEW" above for more detailed discussion and analysis of such loss from discontinued operations.
Net cash from operating activities was $5.6 million in fiscal 2005 compared to net cash from operating activities of $5.0 million in fiscal 2004. Investing activities in fiscal 2005 included the purchase of marketable securities of $2.8 million. Debt repayments were $0.8 million in fiscal 2005.
Accounts receivable decreased by $0.1 million at June 30, 2005 compared to June 30, 2004, primarily due to third-party liability recovery program reimbursements due from TennCare.
The Company's wholly owned subsidiary, UAHC-TN, had a required minimum net worth requirement using statutory accounting practices of $7.6 million at June 30, 2005. UAHC-TN had excess statutory net worth of $5.5 million at June 30, 2005.
The administrative supervision order prohibits UAHC-TN from taking certain actions, including making any payments, without the approval of the Commissioner's appointed Administrative Supervisor during the supervision. It is important to recognize that administrative supervision is significantly different than receivership and that UAHC-TN is not in receivership.
The Company's de facto sublease to OmniCare-MI of the Company's leased premises in Detroit, Michigan, from November 1, 2002 to the end of the lease in May 2005 cost the Company approximately $40,000 per month through November 2004. Due to the subsequent sale of OmniCare-MI members to Coventry of Michigan approved on May 10, 2004 and effective October 1, 2004, the sale of assets did not occur and the Company accordingly recorded a loss from discontinued operations of $0.7 million in the fourth quarter of fiscal year 2004. The Company renegotiated sublease terms with Michigan HMO (formerly doing business as OmniCare Health Plan in Michigan), which continued to occupy and pay rent for reduced space in such premises. Michigan HMO's occupancy and rent obligation for the subleased premises ceased on February 28, 2005 sooner than the primary lease end in May 2005. The Company recorded a liability in the first quarter of fiscal year 2005 as it relates to the sublease obligation. Those events would increase the Company's rent expense under that lease, but management cannot currently predict the timing and amount thereof.