Sierra Notes Q4 Numbers

Las Vegas-based Sierra Health Services Inc. reported that net income for the quarter ended Dec. 31, 2005, was $28.3 million, or $0.44 per diluted share, compared to $28.0 million, or $0.42 per diluted share, for the quarter ended Dec. 31, 2004. All earnings per share amounts reflect the retroactive effects of the two-for-one common stock split that was effective Dec. 30, 2005.

Net income for the year ended Dec. 31, 2005, was $120.0 million, or $1.81 per diluted share, compared to $122.7 million, or $1.79 per diluted share for the year ended Dec. 31, 2004. During 2004, the company’s military health services operations segment contributed 28.4% of operating income, compared to 7.6% for 2005.

Revenues for the quarter were $353.7 million, a 6.3% increase over the $332.7 million for the same period in 2004. Medical premium revenues from the company’s core managed care business were $332.5 million, an increase of 12.1% over the $296.6 million for the same period in 2004. Annual revenues were $1.4 billion, compared to $1.6 billion for 2004, a decrease of 12.1%. Revenues from 2004 included $372.6 million from the company’s expired military health services operations. Annual medical premium revenues from the company’s core managed care business were $1.3 billion in 2005, compared to $1.1 billion in 2004, an increase of 14.2%.

In the fourth quarter, Sierra purchased, on a split-adjusted basis, 278,000 shares of its common stock in the open market for $10.0 million. During the year 2005, the company purchased, on a split-adjusted basis, 4.65 million shares of its common stock for $154.4 million. At Dec. 31, 2005, the company had $42.1 million authorized and available for share repurchases. Additionally, as previously reported, Sierra’s amended revolving credit facility allows for unlimited share repurchases, provided certain covenant ratios are met.

Cash flow from operations was $13.9 million for the fourth quarter of 2005 and $166.8 million for the year ended Dec. 31, 2005. This compares to $69.5 million for the fourth quarter of 2004 and $164.5 million for the year ended Dec. 31, 2004. The reduction in cash flow for the fourth quarter is primarily due to the timing of payments from the Center for Medicare and Medicaid Services (CMS). The company received two monthly payments from CMS during the quarter, compared to four monthly payments in the fourth quarter of 2004. In 2005, average monthly revenue from CMS has been approximately $42 million.

In the fourth quarter, Sierra’s medical care ratio increased 250 basis points to 76.9% from 74.4% for the same period in 2004. The increase in the ratio is primarily due to reserve strengthening and higher bed day utilization. The medical care ratio for the year 2005 increased 120 basis points to 76.5% from 75.3% in 2004. Sierra’s medical claims payable balance increased to $135.9 million at Dec. 31, 2005, compared to $119.3 million at Dec. 31, 2004, and $127.0 million at Sept. 30, 2005. Days in claims payable, which is the medical claims payable balance divided by the average medical expenses per day for the period, were 47.2 days for the fourth quarter of 2005, compared to 48.3 days for the same period in 2004 and 45.0 days sequentially.

In the fourth quarter, as a percentage of premium revenue, general and administrative expenses decreased 480 basis points to 13.7% from 18.5% for the same period in 2004. Excluding the general and administrative expenses related to the sold workers’ compensation operations, expenses as a percentage of premium revenue would have been 13.5%, an improvement of 110 basis points from 14.6% for the same period in 2004.

For the year 2005, general and administrative expenses, as a percentage of premium revenue, decreased 270 basis points to 13.4% from 16.1% for the year 2004. Excluding the general and administrative expenses related to the sold workers’ compensation operations, expenses as a percentage of premium revenue would have been 13.2%, an improvement of 100 basis points from 14.2% for the same period in 2004.

At Dec. 31, 2005, membership in Sierra’s commercial HMO plans grew by 12.4% to 254,200 from 226,200 at Dec. 31, 2004. Membership in the company’s Medicare Advantage plan grew by 5.6% in 2005 to 56,300 from 53,300 in 2004. Membership in the company’s Medicaid plans grew by 9.1% in 2005 to 55,100 from 50,500 in 2004. Total membership in all of Sierra’s plans grew by 13.8% to 637,900 at Dec. 31, 2005, from 560,500 at Dec. 31, 2004. As of Jan. 30, 2006, approximately 163,000 members were enrolled in the company’s stand-alone Medicare Prescription Drug Plan (PDP), which became effective Jan. 1, 2006.

“The year 2005 continued a period of exceptional performance from our core operations,” said Anthony Marlon, M.D., chairman and chief executive officer of Sierra. “Despite this being the first full year of operations without our military segment, our managed care division, with its industry-leading commercial membership growth and solid revenue generation, continues to move the company forward. As I have often said, the Las Vegas market is an outstanding place in which to do business.”