þ
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the transition period from
to
|
Commission
File Number: 1-8865
|
SIERRA
HEALTH SERVICES, INC.
(Exact
Name of Registrant as Specified in Its
Charter)
|
||
|
|
|
Nevada
|
|
88-0200415
|
(State
or Other Jurisdiction
of
Incorporation or Organization)
|
|
(I.R.S.
Employer Identification No.)
|
|
|
|
2724
North Tenaya Way, Las Vegas, NV
|
|
89128
|
(Address
of Principal Executive Offices)
|
|
(Zip
Code)
|
Title
of each class
|
|
Name
of each exchange which registered
|
Common
Stock, par value $.005
|
|
New
York Stock Exchange
|
Securities
Registered Pursuant to Section 12(g) of the Act:
None
|
|
Indicate
by check mark if the registrant is a well-known seasoned issuer,
as
defined in Rule 405 of the Securities Act. YesR
No
|
|
Indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act. Yes No R
|
|
Indicate
by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter
period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past
90 days. Yes R No
|
|
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained,
to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any
amendment to this Form 10-K. ྈ
|
|
Indicate
by check mark whether the registrant is a large accelerated filer,
an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer” and “large accelerated filer” in Rule 12b-2 of
the Exchange Act (check one).
|
Large
accelerated filerR Accelerated
filer Non-accelerated
filer
|
|
Indicate
by check mark whether the registrant is a shell company (as defined
in
Rule 12b-2 of the Exchange Act). YesNoR
|
|
The
aggregate market value of the voting stock held by non-affiliates
of the
registrant at June 30, 2006 was $2,301,974,000 (which represents
shares of 51,121,000 Common Stock held by such non-affiliates multiplied
by $45.03, the closing sales price of such stock on the New York
Stock
Exchange on June 30, 2006).
|
|
The
number of shares outstanding of the registrant’s Common Stock as of
February 23, 2007 was 55,755,000.
|
|
Documents
Incorporated By Reference
|
Part
III of this Form 10-K incorporates by reference certain information
from
the registrant’s definitive proxy statement for the 2007 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission
not
later than 120 days after the end of the fiscal
year.
|
Page
|
||||
PART
I
|
||||
Item
|
1.
|
1
|
||
Item
|
1A.
|
18
|
||
Item
|
1B.
|
25
|
||
Item
|
2.
|
25
|
||
Item
|
3.
|
26
|
||
Item
|
4.
|
27
|
||
PART
II
|
||||
Item
|
5.
|
28
|
||
Item
|
6.
|
30
|
||
Item
|
7.
|
32
|
||
Item
|
7A.
|
51
|
||
Item
|
8.
|
52
|
||
Item
|
9.
|
85
|
||
Item
|
9A.
|
85
|
||
Item
|
9B.
|
88
|
||
PART
III
|
||||
Item
|
10.
|
89
|
||
Item
|
11.
|
89
|
||
Item
|
12.
|
89
|
||
Item
|
13.
|
89
|
||
Item
|
14.
|
89
|
||
PART
IV
|
||||
Item
|
15.
|
90
|
||
94
|
·
|
a
federally qualified health maintenance organization
(HMO);
|
·
|
managed
indemnity plans;
|
·
|
ancillary
products and services that complement our managed health care product
lines; and
|
·
|
a
third-party administrative services program for employer-funded health
benefit plans and self-insured workers’ compensation
plans.
|
·
|
Southwest
Medical Associates, Inc. (SMA), a Nevada corporation, is Nevada’s largest
multi-specialty medical group serving as the primary care provider
for 73%
of our southern Nevada HMO members.
|
·
|
Behavioral
Healthcare Options, Inc. (BHO), a Nevada corporation, provides mental
health and substance abuse
services.
|
·
|
Sierra
Home Medical Products, Inc., a Nevada corporation, provides home
infusion
care and home medical equipment and
supplies.
|
·
|
Family
Health Care Services, a Nevada corporation, is a Medicare certified
full
service home health agency licensed by the state of Nevada, providing
in-home care and case management.
|
·
|
Family
Home Hospice, Inc., a Nevada corporation, is a Medicare/Medicaid
certified
agency that provides full-service hospice care and counseling for
the
terminally ill.
|
·
|
Sierra
Health-Care Options, Inc., a Nevada corporation, operates third-party
network access and utilization review services for employer-funded
health
benefit plans.
|
·
|
Sierra
Nevada Administrators, Inc., a Nevada corporation, operates as a
third-party administrator of workers’ compensation claims primarily for
self-insured Nevada employers.
|
·
|
Sierra
Military Health Services, LLC (SMHS), a Delaware LLC, administered
a
managed care federal contract for the DoD's TRICARE program in Region
1
and its operations were substantially phased-out by June 30,
2005.
|
·
|
CII
Financial, Inc. (CII), a California corporation, was the parent company
of
our four workers’ compensation insurance companies that were sold in March
2004.
|
At
December 31,
|
||||||||||||||||
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
|
2002
|
||||
HMO:
|
||||||||||||||||
Commercial
|
279,100
|
254,200
|
226,200
|
202,400
|
187,300
|
|||||||||||
Medicare
|
56,600
|
56,000
|
53,300
|
51,200
|
47,800
|
|||||||||||
Medicaid
|
60,500
|
55,100
|
50,500
|
39,000
|
36,400
|
|||||||||||
PPO:
|
||||||||||||||||
Commercial
|
32,900
|
27,500
|
25,900
|
24,500
|
26,400
|
|||||||||||
Medicare
|
1,900
|
300
|
¾
|
¾
|
¾
|
|||||||||||
Medicare
Part D
|
184,900
|
¾
|
¾
|
¾
|
¾
|
|||||||||||
Medicare
supplement
|
13,600
|
15,300
|
16,400
|
17,500
|
19,300
|
|||||||||||
Administrative
services
|
222,000
|
229,500
|
188,200
|
193,100
|
221,400
|
|||||||||||
Subtotal
|
851,500
|
637,900
|
560,500
|
527,700
|
538,600
|
|||||||||||
TRICARE
eligibles
|
¾
|
¾
|
¾
|
707,000
|
678,200
|
|||||||||||
Total
Membership
|
851,500
|
637,900
|
560,500
|
1,234,700
|
1,216,800
|
Membership
By Commercial Employer Group Size
|
Membership
By Commercial Employer Group Type
|
||||||||||||
2006
|
2005
|
2006
|
2005
|
||||||||||
1-50
employees (small)
|
7%
|
6%
|
Gaming
|
53,500
|
19%
|
51,500
|
20%
|
||||||
51-500
employees (mid-size)
|
31%
|
33%
|
School
districts
|
26,400
|
9%
|
24,800
|
10%
|
||||||
501
+ employees (large)
|
62%
|
61%
|
Government
|
30,400
|
11%
|
31,300
|
12%
|
||||||
Total
|
100%
|
100%
|
National
accounts
|
25,400
|
9%
|
24,600
|
10%
|
||||||
Unions
|
31,500
|
12%
|
26,100
|
10%
|
|||||||||
All
others
|
111,900
|
40%
|
95,900
|
38%
|
|||||||||
Total
|
279,100
|
100%
|
254,200
|
100%
|
A.M.
Best Company, Inc. (1)
|
Fitch
Ratings (2)
|
||||||||
Rating
|
Ranking
|
Rating
|
Ranking
|
||||||
Financial
strength rating:
|
|||||||||
HMO
and health and life insurance subsidiaries
|
B++
Very Good
|
5th
of 16
|
A-
Strong
|
7th
of 23
|
|||||
Issuer
credit ratings:
|
|||||||||
HMO
and health and life insurance subsidiaries
|
bbb+
Very Good
|
8th
of 22
|
n/a
|
n/a
|
|||||
Parent
company
|
bb+
Speculative
|
11th
of 22
|
BBB
Good
|
9th
of 23
|
|||||
Senior
convertible debentures
|
bb+
Speculative
|
11th
of 22
|
BBB-
Investment Grade
|
10th
of 23
|
Standard
& Poor's Corp. (1)
|
|||||
Rating
|
Ranking
|
||||
Counterparty
credit rating
|
BB+
Speculative
|
11th
of 22
|
|||
Senior
convertible debentures
|
BB+
Speculative
|
11th
of 22
|
·
|
variation
from actuarial assumptions used to price our bid proposals for
the
Medicare Prescription Drug Program and our Medicare Advantage
programs can
lead to higher than expected medical
costs;
|
·
|
failure
to design and price our products appropriately and
competitively;
|
·
|
loss
of health care premium revenues due to heightened pricing competition
or
other factors;
|
·
|
loss
of health care premium revenues due to inadequate membership data
provided
by CMS;
|
·
|
inadequate
premium revenues due to heightened competition, miscalculations of
underlying health care cost inflation and other trends, utilization
and
other factors in our rate filings and in underwriting
accounts;
|
·
|
significant
reductions in account and member
retention;
|
·
|
inability
or delays in making timely changes to health care benefits to offset
the
impact of inadequate premium rates;
|
·
|
loss
of Medicare, Medicaid, or large commercial
contracts;
|
|
·
|
a
reduction in the actual proceeds to be realized from the note receivable
related to the sale of our workers’ compensation insurance
business;
|
·
|
loss
of or significant changes in our health care provider contracts;
|
·
|
inability
or unwillingness of our contracted providers to provide health care
services to our members;
|
·
|
inability
to control our admissions to non-contracted
facilities;
|
·
|
inadequate
capacity at contracted facilities;
|
·
|
higher
than expected and unreasonable billed charges at non-contracted
facilities;
|
·
|
higher
than expected medical costs including utilization of
services;
|
·
|
the
introduction of new medical technologies and
pharmaceuticals;
|
·
|
higher
costs of medical malpractice and other insurance, increased claims,
reduced coverage that increases our risk exposure or the unavailability
of
coverage that either affects us or our contracted
providers;
|
·
|
unpaid
health care claims and health care costs resulting from insolvencies
of
providers with whom we have capitated
contracts;
|
·
|
terrorist
acts that directly affect the operation of our business and/or our
providers, customers, policyholders and
members;
|
·
|
a
sustained economic recession, especially in
Nevada;
|
·
|
adverse
loss development on health care payables resulting from unanticipated
increases or changes in our claims
costs;
|
·
|
actual
provider settlements that are higher than our recorded estimates;
|
·
|
adverse
legal judgments that are not covered by insurance or that indirectly
impact our ability to obtain insurance in the future at reasonable
costs;
|
·
|
significant
declines in investment rates or a decline in real estate values could
result in an impairment of our investments in trust deed mortgage
notes or
real estate joint ventures;
|
·
|
inability
to implement material regulatory requirements on a timely, accurate
and
cost effective basis;
|
·
|
a
ratings downgrade from insurance rating agencies, such as A.M. Best
Company and Fitch Ratings, and from health care quality rating
organizations, such as the NCQA or
URAC;
|
·
|
changes
in federal or state regulations and laws or programs, including but
not
limited to, health care reform, other initiatives and taxes;
|
·
|
inability
to maintain or enhance, as required, our management information systems
to
ensure, among other things, the timely and accurate billing of premiums
and the timely and accurate payment of claims, in compliance with
applicable governmental and contractual
requirements;
|
·
|
inability
to expand our e-business initiatives on a timely basis and in compliance
with government regulations; and
|
·
|
other
factors referenced in this Annual Report on Form 10-K, including
those set
forth under the caption “Risk
Factors.”
|
High
|
Low
|
||||||
2006
|
|||||||
First
quarter
|
$
|
43.30
|
$
|
37.94
|
|||
Second
quarter
|
45.03
|
36.12
|
|||||
Third
quarter
|
46.86
|
37.84
|
|||||
Fourth
quarter
|
39.18
|
30.90
|
|||||
2005
|
|||||||
First
quarter
|
$
|
32.34
|
$
|
25.75
|
|||
Second
quarter
|
36.08
|
29.50
|
|||||
Third
quarter
|
37.06
|
31.53
|
|||||
Fourth
quarter
|
41.15
|
33.90
|
Period
|
Total
Number
Of
Shares
Repurchased
(1)
|
Average
Price
Paid
Per
Share
|
Total
Number
Of
Shares Purchased
As
Part Of Publicly
Announced
Plan
Or
Program
|
Approximate
Dollar
Value
Of Shares
That
May Yet Be
Purchased
Under
The
Plan (2)
|
|||||||||||||||
(In
thousands, except per share data)
|
|||||||||||||||||||
Beginning
approximate dollar value of shares that may yet be
purchased
|
$ |
42,125
|
|
||||||||||||||||
January
1, 2006 - January 31, 2006
|
70
|
$
|
39.30
|
70
|
39,392
|
||||||||||||||
February
1, 2006 - February 28, 2006
|
1,010
|
40.35
|
1,010
|
73,675
|
|||||||||||||||
March
1, 2006 - March 31, 2006
|
1,121
|
42.49
|
1,121
|
26,056
|
|||||||||||||||
April
1, 2006 - April 30, 2006
|
633
|
39.97
|
633
|
75,764
|
|||||||||||||||
May
1, 2006 - May 31, 2006
|
290
|
39.15
|
290
|
64,427
|
|||||||||||||||
June
1, 2006 - June 30, 2006
|
¾
|
¾
|
¾
|
64,427
|
|||||||||||||||
July
1, 2006 - July 31, 2006
|
¾
|
¾
|
¾
|
64,427
|
|||||||||||||||
August
1, 2006 - August 31, 2006
|
¾
|
¾
|
¾
|
64,427
|
|||||||||||||||
September
1, 2006 - September 30, 2006
|
¾
|
¾
|
¾
|
64,427
|
|||||||||||||||
October
1, 2006 - October 31, 2006
|
300
|
35.51
|
300
|
128,781
|
|||||||||||||||
November
1, 2006 - November 30, 2006
|
2,608
|
32.89
|
2,608
|
43,030
|
|||||||||||||||
December
1, 2006 - December 31, 2006
|
544
|
34.77
|
544
|
24,142
|
(1)
|
Certain
repurchases were made pursuant to a 10b5
plan.
|
(2) | At January 1, 2006, $42.1 million remained available for purchase under previously approved plans. On February 16, 2006, April 20, 2006 and October 19, 2006, our Board of Directors authorized $75.0 million each in additional share repurchases for a total of $225.0 million. On January 25, 2007, our Board of Directors authorized an additional $50.0 million in share repurchases. The repurchase program has no stated expiration date. |
Period
|
Total
Dollar Value of Debentures Converted(1)
|
Average
Price
Paid
Per
Debenture
|
Total
Dollar Value
Of
Debentures
Purchased
As
Part Of Publicly
Announced
Plan
Or
Program
|
Approximate
Dollar
Value
Of Debentures
That
May Yet Be
Purchased
Under
The
Plan
|
January
1, 2006 - January 31, 2006
|
$500,000
|
109.35
shares of common stock for each $1,000 principal amount of
debentures
|
none
|
none
|
February
1, 2006 - February 28, 2006
|
¾
|
¾
|
¾
|
¾
|
March
1, 2006 - March 31, 2006
|
¾
|
¾
|
¾
|
¾
|
April
1, 2006 - April 30, 2006
|
¾
|
¾
|
¾
|
¾
|
May
1, 2006 - May 31, 2006
|
¾
|
¾
|
¾
|
¾
|
June
1, 2006 - June 30, 2006
|
¾
|
¾
|
¾
|
¾
|
July
1, 2006 - July 31, 2006
|
¾
|
¾
|
¾
|
¾
|
August
1, 2006 - August 31, 2006
|
¾
|
¾
|
¾
|
¾
|
September
1, 2006 - September 30, 2006
|
8,000,000
|
109.35
shares of common stock for each $1,000 principal amount of
debentures
|
none
|
none
|
October
1, 2006 - October 31, 2006
|
¾
|
¾
|
¾
|
¾
|
November
1, 2006 - November 30, 2006
|
¾
|
¾
|
¾
|
¾
|
December
1, 2006 - December 31, 2006
|
¾
|
¾
|
¾
|
¾
|
(1)
|
On
January 18, 2007, we entered into a privately negotiated transaction
with
a holder pursuant to which the holder converted $21.7 million in
debentures for approximately 2.4 million shares of common stock in
accordance with the indenture governing the
debentures.
|
Years
Ended December 31,
|
||||||||||||||||
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
Statement
of income data:
|
(In
thousands, except per share data)
|
|||||||||||||||
Operating
revenues:
|
||||||||||||||||
Medical
premiums
|
$
|
1,623,515
|
$
|
1,291,296
|
$
|
1,131,185
|
$
|
962,176
|
$
|
862,379
|
||||||
Military
contract revenues
|
¾
|
16,326
|
372,608
|
465,313
|
373,589
|
|||||||||||
Professional
fees
|
52,266
|
43,186
|
35,115
|
37,367
|
30,923
|
|||||||||||
Investment
and other revenues
|
43,111
|
34,228
|
36,646
|
20,440
|
16,535
|
|||||||||||
Total
|
1,718,892
|
1,385,036
|
1,575,554
|
1,485,296
|
1,283,426
|
|||||||||||
Operating
expenses:
|
||||||||||||||||
Medical
expenses
|
1,295,978
|
1,020,754
|
877,774
|
761,063
|
703,357
|
|||||||||||
Military
contract expenses
|
138
|
2,392
|
317,699
|
452,554
|
360,375
|
|||||||||||
General
and administrative expenses
|
205,342
|
172,473
|
181,764
|
137,887
|
135,885
|
|||||||||||
Asset
impairment, restructuring, reorganization
|
||||||||||||||||
and
other costs
|
¾
|
¾
|
¾
|
¾
|
5,000
|
|||||||||||
Total
|
1,501,458
|
1,195,619
|
1,377,237
|
1,351,504
|
1,204,617
|
|||||||||||
Operating
income from continuing operations
|
217,434
|
189,417
|
198,317
|
133,792
|
78,809
|
|||||||||||
Interest
expense
|
(3,901
|
)
|
(8,791
|
)
|
(4,684
|
)
|
(5,491
|
)
|
(7,650
|
)
|
||||||
Other
income (expense), net
|
1,960
|
1,099
|
31
|
3,176
|
6,271
|
|||||||||||
Income
from continuing operations before income taxes
|
215,493
|
181,725
|
193,664
|
131,477
|
77,430
|
|||||||||||
Provision
for income taxes
|
(75,022
|
)
|
(61,708
|
)
|
(70,245
|
)
|
(46,268
|
)
|
(26,650
|
)
|
||||||
Income
from continuing operations
|
140,471
|
120,017
|
123,419
|
85,209
|
50,780
|
|||||||||||
Loss
from discontinued operations
|
¾
|
¾
|
(682
|
)
|
(22,883
|
)
|
(14,332
|
)
|
||||||||
Net
income
|
$
|
140,471
|
$
|
120,017
|
$
|
122,737
|
$
|
62,326
|
$
|
36,448
|
||||||
Net
income per common share:
|
||||||||||||||||
Income
from continuing operations
|
$
|
2.49
|
$
|
2.16
|
$
|
2.32
|
$ |
1.52
|
$
|
0.88
|
||||||
Loss
from discontinued operations
|
¾
|
¾
|
(0.02
|
)
|
(0.41
|
)
|
(0.25
|
)
|
||||||||
Net
income
|
$
|
2.49
|
$
|
2.16
|
$
|
2.30
|
$ |
1.11
|
$
|
0.63
|
||||||
Weighted
average number of common shares outstanding
|
56,391
|
55,556
|
53,262
|
56,106
|
57,511
|
|||||||||||
Net
income per common share assuming dilution:
|
||||||||||||||||
Income
from continuing operations
|
$
|
2.25
|
$
|
1.81
|
$
|
1.80
|
$
|
1.21
|
$
|
0.82
|
||||||
Loss
from discontinued operations
|
¾
|
¾
|
(0.01
|
)
|
(0.32
|
)
|
(0.23
|
)
|
||||||||
Net
income
|
$
|
2.25
|
$
|
1.81
|
$
|
1.79
|
$
|
0.89
|
$
|
0.59
|
||||||
Weighted
average number of common shares
|
||||||||||||||||
outstanding
assuming dilution
|
62,712
|
67,149
|
69,643
|
71,265
|
62,283
|
December
31,
|
||||||||||||||||
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
(In
thousands)
|
||||||||||||||||
Balance
Sheet Data:
|
||||||||||||||||
Working
capital
|
$
|
141,000
|
$
|
171,261
|
$
|
151,166
|
$
|
170,118
|
$
|
121,147
|
||||||
Total
assets
|
809,412
|
668,846
|
689,780
|
1,134,121
|
1,065,966
|
|||||||||||
Long-term
debt (net of current portion)
|
118,734
|
52,307
|
125,395
|
116,645
|
75,671
|
|||||||||||
Cash
dividends per common share
|
none
|
none
|
none
|
none
|
none
|
|||||||||||
Stockholders’
equity
|
216,718
|
284,252
|
201,697
|
150,764
|
156,565
|
Years
Ended December 31,
|
||||||||||||||||
2006
|
2005
|
2004
|
2003
|
2002
|
||||||||||||
(In
thousands, except ratio data)
|
||||||||||||||||
Income
from continuing operations before income taxes
|
$
|
215,493
|
$
|
181,725
|
$
|
193,664
|
$
|
131,477
|
$
|
77,430
|
||||||
Fixed
Charges:
|
||||||||||||||||
Interest
expense (including capitalized interest)(1)
|
3,901
|
8,791
|
4,698
|
5,506
|
7,700
|
|||||||||||
Interest
relating to rental expense(2)
|
6,321
|
6,603
|
7,695
|
6,795
|
5,205
|
|||||||||||
Total
Fixed Charges
|
10,222
|
15,394
|
12,393
|
12,301
|
12,905
|
|||||||||||
Earnings
Available For Fixed Charges
|
$
|
225,715
|
$
|
197,119
|
$
|
206,057
|
$
|
143,778
|
$
|
90,335
|
||||||
Ratio
Of Earnings To Fixed Charges
|
22.08
|
12.80
|
16.63
|
11.69
|
7.00
|
Percent
Of Revenue
|
Increase
|
||||||||||||||||||||||||||||||
Years
Ended December 31,
|
Years
Ended December 31,
|
(Decrease)
|
|||||||||||||||||||||||||||||
|
2006
|
2005
|
2004
|
2006
|
2005
|
2004
|
2006
vs. 2005
|
2005
vs. 2004
|
|||||||||||||||||||||||
(In
thousands, except per share and percentages)
|
|||||||||||||||||||||||||||||||
Operating
revenues:
|
|||||||||||||||||||||||||||||||
Medical
premiums
|
$
|
1,623,515
|
$
|
1,291,296
|
$
|
1,131,185
|
94.5
|
%
|
93.2
|
%
|
71.8
|
%
|
$
|
332,219
|
25.7
|
%
|
$
|
160,111
|
14.2
|
%
|
|||||||||||
Military
contract revenues
|
¾
|
16,326
|
372,608
|
¾
|
1.2
|
23.7
|
(16,326
|
)
|
(100.0
|
)
|
(356,282
|
)
|
(95.6
|
)
|
|||||||||||||||||
Professional
fees
|
52,266
|
43,186
|
35,115
|
3.0
|
3.1
|
2.2
|
9,080
|
21.0
|
8,071
|
23.0
|
|||||||||||||||||||||
Investment
and other revenues
|
43,111
|
34,228
|
36,646
|
2.5
|
2.5
|
2.3
|
8,883
|
26.0
|
(2,418
|
)
|
(6.6
|
)
|
|||||||||||||||||||
Total
|
1,718,892
|
1,385,036
|
1,575,554
|
100.0
|
100.0
|
100.0
|
333,856
|
24.1
|
(190,518
|
)
|
(12.1
|
)
|
|||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||||||
Medical
expenses
|
1,295,978
|
1,020,754
|
877,774
|
75.4
|
73.7
|
55.7
|
275,224
|
27.0
|
142,980
|
16.3
|
|||||||||||||||||||||
Medical
care ratio
|
77.3
|
%
|
76.5
|
%
|
75.3
|
%
|
0.8
|
1.2
|
|||||||||||||||||||||||
Military
contract expenses
|
138
|
2,392
|
317,699
|
¾
|
0.2
|
20.2
|
(2,254
|
)
|
(94.2
|
)
|
(315,307
|
)
|
(99.3
|
)
|
|||||||||||||||||
General
and administrative expenses
|
205,342
|
172,473
|
181,764
|
12.0
|
12.5
|
11.5
|
32,869
|
19.1
|
(9,291
|
)
|
(5.1
|
)
|
|||||||||||||||||||
Total
|
1,501,458
|
1,195,619
|
1,377,237
|
87.4
|
86.4
|
87.4
|
305,839
|
25.6
|
(181,618
|
)
|
(13.2
|
)
|
|||||||||||||||||||
Operating
income from
|
|||||||||||||||||||||||||||||||
continuing
operations
|
217,434
|
189,417
|
198,317
|
12.6
|
13.6
|
12.6
|
28,017
|
14.8
|
(8,900
|
)
|
(4.5
|
)
|
|||||||||||||||||||
Interest
expense
|
(3,901
|
)
|
(8,791
|
)
|
(4,684
|
)
|
(0.2
|
)
|
(0.6
|
)
|
(0.3
|
)
|
4,890
|
(55.6
|
)
|
(4,107
|
)
|
87.7
|
|||||||||||||
Other
income (expense), net
|
1,960
|
1,099
|
31
|
0.1
|
0.1
|
¾
|
861
|
78.3
|
1,068
|
3,445.2
|
|||||||||||||||||||||
Income
from continuing operations
|
|||||||||||||||||||||||||||||||
Before
income taxes
|
215,493
|
181,725
|
193,664
|
12.5
|
13.1
|
12.3
|
33,768
|
18.6
|
(11,939
|
)
|
(6.2
|
)
|
|||||||||||||||||||
Provision
for income taxes
|
(75,022
|
)
|
(61,708
|
)
|
(70,245
|
)
|
(4.3
|
)
|
(4.4
|
)
|
(4.5
|
)
|
(13,314
|
)
|
21.6
|
8,537
|
(12.2
|
)
|
|||||||||||||
Tax
rate
|
34.8
|
%
|
34.0
|
%
|
36.3
|
%
|
0.8
|
(2.3
|
)
|
||||||||||||||||||||||
Income
from continuing operations
|
140,471
|
120,017
|
123,419
|
8.2
|
8.7
|
7.8
|
20,454
|
17.0
|
(3,402
|
)
|
(2.8
|
)
|
|||||||||||||||||||
Loss
from discontinued operations
|
¾
|
¾
|
(682
|
)
|
¾
|
¾
|
¾
|
¾
|
682
|
(100.0
|
)
|
||||||||||||||||||||
Net
income
|
$
|
140,471
|
$
|
120,017
|
$
|
122,737
|
8.2
|
%
|
8.7
|
%
|
7.8
|
%
|
$
|
20,454
|
17.0
|
%
|
$
|
(2,720
|
)
|
(2.2
|
)%
|
||||||||||
Earnings
per common share assuming dilution:
|
|||||||||||||||||||||||||||||||
Income
from continuing operations
|
$
|
2.25
|
$
|
1.81
|
$
|
1.80
|
$
|
0.44
|
24.3
|
%
|
$
|
0.01
|
0.6
|
%
|
|||||||||||||||||
Loss
from discontinued operations
|
¾
|
¾
|
(0.01
|
)
|
¾
|
0.01
|
(100.0
|
)
|
|||||||||||||||||||||||
Net
income
|
$
|
2.25
|
$
|
1.81
|
$
|
1.79
|
$
|
0.44
|
24.3
|
%
|
$
|
0.02
|
1.1
|
%
|
|||||||||||||||||
Increase
|
|||||||||||||||||||
Years
Ended December 31,
|
(Decrease)
|
||||||||||||||||||
2006
|
2005
|
2004
|
2006
vs. 2005
|
2005
vs. 2004
|
|||||||||||||||
Membership
|
|||||||||||||||||||
HMO:
|
|||||||||||||||||||
Commercial
|
279,100
|
254,200
|
226,200
|
24,900
|
9.8
|
%
|
28,000
|
12.4
|
%
|
||||||||||
Medicare
|
56,600
|
56,000
|
53,300
|
600
|
1.1
|
2,700
|
5.1
|
||||||||||||
Medicaid
|
60,500
|
55,100
|
50,500
|
5,400
|
9.8
|
4,600
|
9.1
|
||||||||||||
Subtotal
HMO
|
396,200
|
365,300
|
330,000
|
30,900
|
8.5
|
35,300
|
10.7
|
||||||||||||
PPO:
|
|||||||||||||||||||
Commercial
|
32,900
|
27,500
|
25,900
|
5,400
|
19.6
|
1,600
|
6.2
|
||||||||||||
Medicare
|
1,900
|
300
|
¾
|
1,600
|
533.3
|
300
|
¾
|
||||||||||||
Subtotal
PPO
|
34,800
|
27,800
|
25,900
|
7,000
|
25.2
|
1,900
|
7.3
|
||||||||||||
Medicare
Part D
|
184,900
|
¾
|
¾
|
184,900
|
¾
|
¾
|
¾
|
||||||||||||
Medicare
supplement
|
13,600
|
15,300
|
16,400
|
(1,700)
|
(11.1)
|
(1,100)
|
(6.7)
|
||||||||||||
Administrative
services
|
222,000
|
229,500
|
188,200
|
(7,500)
|
(3.3)
|
41,300
|
21.9
|
||||||||||||
Total
membership
|
851,500
|
637,900
|
560,500
|
213,600
|
33.5
|
%
|
77,400
|
13.8
|
%
|
||||||||||
Member
months
|
|||||||||||||||||||
HMO:
|
|||||||||||||||||||
Commercial
|
3,208,000
|
2,949,600
|
2,612,100
|
258,400
|
8.8
|
%
|
337,500
|
12.9
|
%
|
||||||||||
Medicare
|
679,700
|
656,400
|
628,500
|
23,300
|
3.5
|
27,900
|
4.4
|
||||||||||||
Medicaid
|
684,300
|
629,200
|
586,600
|
55,100
|
8.8
|
%
|
42,600
|
7.3
|
%
|
·
|
Total
operating revenues increased by 24.1%. This improvement was primarily
driven by a 25.7% increase in medical premiums due to our participation
in
the new Medicare Part D prescription drug program (PDP), an increase
in
our HMO membership and premium rate increases. Also contributing
to the
improvement in operating revenues was a 26.0% increase in investment
and
other revenues, which increased due to an increase in yield during
2006
and higher average invested
balances.
|
· |
Commercial and Medicaid HMO membership increased
9.8% as
a result of new accounts and in-case growth on commercial membership
and
continued growth in Medicaid
membership.
|
·
|
Medical expenses, as a percentage of medical
premiums
and professional fees, or medical care ratio, increased by 80 basis
points
as a result of the higher medical care ratio related to the
PDP.
|
·
|
General
and administrative (G&A) expenses as a percentage of medical premiums
decreased to 12.7% in 2006 from 13.4% in 2005. G&A expenses increased
19.1% primarily due to PDP related expenses, higher employee compensation
related expenses, premium taxes, and brokers’ fees.
|
·
|
Operating
income from our managed care and corporate operations improved 24.3%
primarily driven by our participation in the PDP, medical premium
revenue
growth from new members and premium rate increases. Our operating
margin
from our managed care and corporate operations, which is operating
income
divided by total revenues, decreased 10 basis points as a result
of the
lower operating margin for the PDP.
|
·
|
We
repurchased 6.6 million shares of our common stock during 2006. Our
weighted average common shares outstanding assuming dilution has
decreased
from 67.1 million in 2005 to 62.7 million in 2006, or 6.6%.
|
·
|
Our
net income per common share assuming dilution increased
24.3%.
|
·
|
Our
contract with our 2006 primary Las Vegas area contracted hospital
group,
HCA Inc. (HCA) expired on December 31, 2006. While we believe our
efforts
to move the majority of our HCA hospital days to other contracted
hospitals will be successful, there will be emergency situations
that will
require us to use the HCA hospitals in 2007. See Medical Expenses
below
for more details.
|
·
|
Cash
flows from operating activities increased to $190.4 million from
$166.8
million during 2005. This increase is mostly due to the fact that
we had a
$13.5 million increase in income taxes payable due to the timing
of tax
payments, recorded an $11.8 million payable to the Centers for Medicare
and Medicaid Services (CMS) as a result of favorable pharmacy utilization
in our Medicare Advantage PDP, and had an increase in our non-PDP
medical
claims payable during 2006 compared to 2005. This was partially offset
by
negative cash flow of $7.9 million related to our stand-alone PDP.
The
negative cash flow is primarily due to insufficient funding from
CMS for
our reimbursable low-income subsidy and reinsurance costs. These
costs
should be fully reimbursed after CMS performs their year-end
reconciliation, which is currently expected to be completed by the
third
quarter of 2007.
|
|
The increase in medical premiums for 2006 includes $197.1 million from our stand-alone PDP described below, which was effective January 1, 2006. We recognize medical premiums from the PDP as earned over the contract period. The increase in medical premiums for 2006 also reflects the annual Medicare increase described below and a 3.5% increase in HMO Medicare member months. The growth in Medicare member months contributes significantly to the increase in medical premiums as the Medicare per member premium rates are more than three times the |
Years
Ended December 31,
|
|||||||
2006
|
2005
|
||||||
(In
thousands)
|
|||||||
Sources
of cash:
|
|||||||
Cash
provided by operating activities
|
$
|
190,371
|
$
|
166,832
|
|||
Exercise
of stock in connection with stock plans
|
14,464
|
22,346
|
|||||
Proceeds
from other long-term debt, net of payments
|
75,000
|
¾
|
|||||
Other
|
9,853
|
¾
|
|||||
Total
cash sources
|
289,688
|
189,178
|
|||||
Uses
of cash:
|
|||||||
Purchase
of investments, net of proceeds
|
(59,263
|
)
|
(131,220
|
)
|
|||
Purchase
of treasury stock
|
(243,136
|
)
|
(154,382
|
)
|
|||
Other
|
(16,430
|
)
|
(23,136
|
)
|
|||
Total
cash uses
|
(318,829
|
)
|
(308,738
|
)
|
|||
Net
decrease in cash
|
$
|
(29,141
|
)
|
$
|
(119,560
|
)
|
Long-Term
|
Capital
|
Operating
|
Purchase
|
|||||||||||||
Debt
(1)
|
Leases
|
Leases
|
Obligations(2)
|
Total
|
||||||||||||
Payments
due in less than 1 year
|
$
|
979
|
$
|
144
|
$
|
18,976
|
$
|
10,984
|
$
|
31,083
|
||||||
Payments
due in 1 to 3 years
|
1,957
|
176
|
35,909
|
¾
|
38,042
|
|||||||||||
Payments
due in 3 to 5 years
|
76,957
|
74
|
33,425
|
¾
|
110,456
|
|||||||||||
Payments
due in more than 5 years
|
54,756
|
31
|
64,211
|
¾
|
118,998
|
|||||||||||
Total
|
$
|
134,649
|
$
|
425
|
$
|
152,521
|
$
|
10,984
|
$
|
298,579
|
(1)
|
The
senior convertible debentures mature in March 2023; however, holders
of
the debentures may require us to repurchase all or a portion of their
debentures on March 15 in 2008, 2013 and 2018 or upon certain corporate
events including a change in control. In either case, we may choose
to pay
the purchase price of such debentures in cash or common stock or
a
combination of cash and common stock. Since December 2003, our share
price
has exceeded 120% of the conversion price, which provides debenture
holders the option to convert their debentures into our common stock.
We
can redeem the debentures for cash beginning on or after March 20,
2008.
See Note 8 - "Long-Term Debt" in the Notes to Consolidated Financial
Statements for additional information related to our senior convertible
debentures.
|
(2)
|
Purchase
obligations include a $10.0 million investment commitment to purchase
a
limited partnership interest in a private equity group and purchase
obligations totaling $984,000 that have a remaining commitment in
excess
of $100,000 at December 31, 2006.
|
Completion
Factor (a)
|
PMPM
Factor (b)
|
|||||||||
Increase
|
Increase
|
|||||||||
Increase
|
(Decrease)
In
|
Increase
|
(Decrease)
In
|
|||||||
(Decrease)
|
Medical
Claims
|
(Decrease)
|
Medical
Claims
|
|||||||
In
Factor
|
Payable
|
In
Factor
|
Payable
|
|||||||
(In
thousands, except percentages)
|
||||||||||
(3)
%
|
$
|
29,975
|
(3)
|
%
|
$
|
(4,528
|
)
|
|||
(2)
%
|
19,777
|
(2)
|
%
|
(3,018
|
)
|
|||||
(1)
%
|
9,787
|
(1)
|
%
|
(1,509
|
)
|
|||||
1
%
|
(5,707
|
)
|
1
|
%
|
1,509
|
|||||
2
%
|
(7,995
|
)
|
2
|
%
|
3,018
|
|||||
3
%
|
(9,338
|
)
|
3
|
%
|
4,528
|
(a)
|
Reflects
estimated potential changes in medical claims payable caused by changes
in
the completion factors for claims incurred in months prior to the
most
recent three months. Completion factors are not increased beyond
100%.
|
(b)
|
Reflects
estimated potential changes in medical claims payable caused by changes
in
PMPM factors for claims incurred in the most recent three
months.
|
Years
Ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
|
(In
thousands)
|
|||||||||
Medical
claims payable, beginning of period
|
$
|
135,867
|
$
|
119,337
|
$
|
103,951
|
||||
Add:
components of incurred medical expenses
|
||||||||||
Current
period medical claims
|
1,311,854
|
1,034,089
|
889,921
|
|||||||
Changes
in prior periods’ estimates
|
(15,876
|
)
|
(13,335
|
)
|
(12,147
|
)
|
||||
Total
incurred medical expenses
|
1,295,978
|
1,020,754
|
877,774
|
|||||||
Less:
medical claims paid
|
||||||||||
Current
period
|
1,104,093
|
912,806
|
780,934
|
|||||||
Prior
period
|
104,857
|
91,418
|
81,454
|
|||||||
Total
claims paid
|
1,208,950
|
1,004,224
|
862,388
|
|||||||
Medical
claims payable, end of period
|
$
|
222,895
|
$
|
135,867
|
$
|
119,337
|
Page
|
|
53
|
|
54
|
|
55
|
|
56
|
|
57
|
|
58
|
2006
|
2005
|
||||||
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
58,918
|
$
|
88,059
|
|||
Investments
|
323,846
|
281,250
|
|||||
Accounts
receivable (less allowance for doubtful accounts:
|
|||||||
2006
- $5,518; 2005 - $5,792)
|
21,308
|
14,501
|
|||||
Current
portion of deferred tax asset
|
29,861
|
23,949
|
|||||
Prepaid
expenses and other current assets
|
110,020
|
30,596
|
|||||
Total
current assets
|
543,953
|
438,355
|
|||||
Property
and equipment, net
|
71,893
|
71,357
|
|||||
Restricted
cash and investments
|
19,428
|
18,252
|
|||||
Goodwill
(less accumulated amortization: 2006 and 2005 - $6,972)
|
14,782
|
14,782
|
|||||
Deferred
tax asset (less current portion)
|
18,656
|
13,266
|
|||||
Note
receivable (less valuation allowance: 2006 and 2005 -
$15,000)
|
47,000
|
47,000
|
|||||
Other
assets
|
93,700
|
65,834
|
|||||
Total
assets
|
$
|
809,412
|
$
|
668,846
|
|||
Liabilities
and stockholders’ equity
|
|||||||
Current
liabilities:
|
|||||||
Accrued
and other current liabilities
|
$
|
100,390
|
$
|
58,238
|
|||
Trade
accounts payable
|
1,552
|
2,347
|
|||||
Accrued
payroll and taxes
|
25,925
|
21,469
|
|||||
Medical
claims payable
|
222,895
|
135,867
|
|||||
Unearned
premium revenue
|
52,075
|
49,067
|
|||||
Current
portion of long-term debt
|
116
|
106
|
|||||
Total
current liabilities
|
402,953
|
267,094
|
|||||
Long-term
debt (less current portion)
|
118,734
|
52,307
|
|||||
Other
liabilities
|
71,007
|
65,193
|
|||||
Total
liabilities
|
592,694
|
384,594
|
|||||
Commitments
and contingencies
|
|||||||
Stockholders’
equity:
|
|||||||
Preferred
stock, $.01 par value, 1,000 shares authorized;
|
|||||||
none
issued or outstanding
|
¾
|
¾
|
|||||
Common
stock, $.005 par value, 120,000 shares authorized;
|
|||||||
2006
- 70,835; 2005 - 69,136 shares issued
|
354
|
346
|
|||||
Treasury
stock: 2006 - 17,011; 2005 - 11,006 common stock shares
|
(600,539
|
)
|
(377,190
|
)
|
|||
Additional
paid-in capital
|
436,643
|
400,287
|
|||||
Accumulated
other comprehensive loss
|
(8,635
|
)
|
(1,750
|
)
|
|||
Retained
earnings
|
388,895
|
262,559
|
|||||
Total
stockholders’ equity
|
216,718
|
284,252
|
|||||
Total
liabilities and stockholders’ equity
|
$
|
809,412
|
$
|
668,846
|
2006
|
2005
|
2004
|
||||||||
Operating
revenues:
|
||||||||||
Medical
premiums
|
$
|
1,623,515
|
$
|
1,291,296
|
$
|
1,131,185
|
||||
Military
contract revenues
|
¾
|
16,326
|
372,608
|
|||||||
Professional
fees
|
52,266
|
43,186
|
35,115
|
|||||||
Investment
and other revenues
|
43,111
|
34,228
|
36,646
|
|||||||
Total
|
1,718,892
|
1,385,036
|
1,575,554
|
|||||||
Operating
expenses:
|
||||||||||
Medical
expenses
|
1,295,978
|
1,020,754
|
877,774
|
|||||||
Military
contract expenses
|
138
|
2,392
|
317,699
|
|||||||
General
and administrative expenses
|
205,342
|
172,473
|
181,764
|
|||||||
Total
|
1,501,458
|
1,195,619
|
1,377,237
|
|||||||
Operating
income from continuing operations
|
217,434
|
189,417
|
198,317
|
|||||||
Interest
expense
|
(3,901
|
)
|
(8,791
|
)
|
(4,684
|
)
|
||||
Other
income (expense), net
|
1,960
|
1,099
|
31
|
|||||||
Income
from continuing operations before income taxes
|
215,493
|
181,725
|
193,664
|
|||||||
Provision
for income taxes
|
(75,022
|
)
|
(61,708
|
)
|
(70,245
|
)
|
||||
Income
from continuing operations
|
140,471
|
120,017
|
123,419
|
|||||||
Loss
from discontinued operations (net of
|
||||||||||
income
tax benefit of 2006 - $0; 2005 - $0; 2004 - $839)
|
¾
|
¾
|
(682
|
)
|
||||||
Net
income
|
$
|
140,471
|
$
|
120,017
|
$
|
122,737
|
||||
Net
income per common share:
|
||||||||||
Income
from continuing operations
|
$
|
2.49
|
$
|
2.16
|
$
|
2.32
|
||||
Loss
from discontinued operations
|
¾
|
¾
|
(0.02
|
)
|
||||||
Net
income
|
$
|
2.49
|
$
|
2.16
|
$ |
2.30
|
||||
Net
income per common share assuming dilution:
|
||||||||||
Income
from continuing operations
|
$
|
2.25
|
$
|
1.81
|
$
|
1.80
|
||||
Loss
from discontinued operations
|
¾
|
¾
|
(0.01
|
)
|
||||||
Net
income
|
$
|
2.25
|
$
|
1.81
|
$
|
1.79
|
Accumulated
|
Total
|
|||||||||||||||||||||||||||
Additional
|
Deferred
|
Other
|
Stock-
|
|||||||||||||||||||||||||
Common
Stock
|
In
Treasury
|
Paid-in
|
Compen-
|
Comprehensive
|
Retained
|
holders’
|
||||||||||||||||||||||
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
Capital
|
sation
|
Gain
(Loss)
|
Earnings
|
Equity
|
|||||||||||||||||
Balance,
January 1, 2004
|
60,125
|
$
|
301
|
6,221
|
$
|
(112,737
|
)
|
$
|
227,282
|
$
|
(22
|
)
|
$
|
(479
|
)
|
$
|
36,419
|
$
|
150,764
|
|||||||||
Common
stock issued in connection
|
||||||||||||||||||||||||||||
with
stock plans
|
4,800
|
24
|
(415
|
)
|
8,670
|
30,268
|
(6,313
|
)
|
¾
|
(5,799
|
)
|
26,850
|
||||||||||||||||
Stock-based
compensation expense
|
¾
|
¾
|
¾
|
¾
|
1,602
|
6,047
|
¾
|
¾
|
7,649
|
|||||||||||||||||||
Tax
benefits from share-based
|
||||||||||||||||||||||||||||
payment
arrangement
|
¾
|
¾
|
¾
|
¾
|
27,287
|
¾
|
¾
|
¾
|
27,287
|
|||||||||||||||||||
Repurchase
of common stock shares
|
¾
|
¾
|
3,386
|
(133,809
|
)
|
¾
|
¾
|
¾
|
¾
|
(133,809
|
)
|
|||||||||||||||||
Treasury
shares not included in stock
|
||||||||||||||||||||||||||||
dividend
|
(2,971
|
)
|
(15
|
)
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
(15
|
)
|
||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||
Net
income
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
122,737
|
122,737
|
|||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||||||
Net
unrealized holding gain on
|
||||||||||||||||||||||||||||
available-for-sale
investments
|
||||||||||||||||||||||||||||
($359
pretax)
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
234
|
¾
|
234
|
|||||||||||||||||||
Total
comprehensive income
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
234
|
122,737
|
122,971
|
|||||||||||||||||||
Balance,
December 31, 2004
|
61,954
|
310
|
9,192
|
(237,876
|
)
|
286,439
|
(288
|
)
|
(245
|
)
|
153,357
|
201,697
|
||||||||||||||||
Common
stock issued in connection
|
||||||||||||||||||||||||||||
with
stock plans
|
2,106
|
11
|
(511
|
)
|
15,068
|
18,089
|
(7
|
)
|
¾
|
(10,815
|
)
|
22,346
|
||||||||||||||||
Stock-based
compensation expense
|
¾
|
¾
|
¾
|
¾
|
7,096
|
295
|
¾
|
¾
|
7,391
|
|||||||||||||||||||
Common
stock issued in connection
|
||||||||||||||||||||||||||||
with
conversion of debentures
|
6,890
|
34
|
¾
|
¾
|
62,966
|
¾
|
¾
|
¾
|
63,000
|
|||||||||||||||||||
Tax
benefits from share-based
|
||||||||||||||||||||||||||||
payment
arrangement
|
¾
|
¾
|
¾
|
¾
|
25,697
|
¾
|
¾
|
¾
|
25,697
|
|||||||||||||||||||
Repurchase
of common stock shares
|
¾
|
¾
|
2,325
|
(154,382
|
)
|
¾
|
¾
|
¾
|
¾
|
(154,382
|
)
|
|||||||||||||||||
Treasury
shares not included in stock
|
||||||||||||||||||||||||||||
dividend
|
(1,814
|
)
|
(9
|
)
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
(9
|
)
|
||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||
Net
income
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
120,017
|
120,017
|
|||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||||||
Net
unrealized holding loss on
|
||||||||||||||||||||||||||||
available-for-sale
investments
|
||||||||||||||||||||||||||||
($2,315
pretax)
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
(1,505
|
)
|
¾
|
(1,505
|
)
|
|||||||||||||||||
Total
comprehensive income
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
(1,505
|
)
|
120,017
|
118,512
|
||||||||||||||||||
Balance,
December 31, 2005
|
69,136
|
346
|
11,006
|
(377,190
|
)
|
400,287
|
¾
|
(1,750
|
)
|
262,559
|
284,252
|
|||||||||||||||||
Common
stock issued in connection
|
||||||||||||||||||||||||||||
with
stock plans
|
770
|
3
|
(571
|
)
|
19,755
|
8,847
|
¾
|
¾
|
(14,141
|
)
|
14,464
|
|||||||||||||||||
Stock-based
compensation expense
|
¾
|
¾
|
¾
|
32
|
9,161
|
¾
|
¾
|
6
|
9,199
|
|||||||||||||||||||
Common
stock issued in connection
|
||||||||||||||||||||||||||||
with
conversion of debentures
|
929
|
5
|
¾
|
¾
|
8,495
|
¾
|
¾
|
¾
|
8,500
|
|||||||||||||||||||
Excess
tax benefits from share-based
|
||||||||||||||||||||||||||||
payment
arrangements
|
¾
|
¾
|
¾
|
¾
|
9,853
|
¾
|
¾
|
¾
|
9,853
|
|||||||||||||||||||
Repurchase
of common stock shares
|
¾
|
¾
|
6,576
|
(243,136
|
)
|
¾
|
¾
|
¾
|
¾
|
(243,136
|
)
|
|||||||||||||||||
Adjustment
to initially apply SFAS 158, net of tax
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
(6,024
|
)
|
¾
|
(6,024
|
)
|
|||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||
Net
income
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
140,471
|
140,471
|
|||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||||||
Net
unrealized holding loss on
|
||||||||||||||||||||||||||||
available-for-sale
investments
|
||||||||||||||||||||||||||||
($224
pretax)
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
(146
|
)
|
¾
|
(146
|
)
|
|||||||||||||||||
Unfunded
portion of defined benefit
|
||||||||||||||||||||||||||||
pension
plan ($1,100 pretax)
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
(715
|
)
|
¾
|
(715
|
)
|
|||||||||||||||||
Total
comprehensive income
|
¾
|
¾
|
¾
|
¾
|
¾
|
¾
|
(861
|
)
|
140,471
|
139,610
|
||||||||||||||||||
Balance,
December 31, 2006
|
70,835
|
$
|
354
|
17,011
|
$
|
(600,539
|
)
|
$
|
436,643
|
$
|
¾
|
$
|
(8,635
|
)
|
$
|
388,895
|
$
|
216,718
|
2006
|
2005
|
2004
|
||||||||
Cash
flows from operating activities:
|
||||||||||
Net
income
|
$
|
140,471
|
$
|
120,017
|
$
|
122,737
|
||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||
Loss
from discontinued operations
|
¾
|
¾
|
682
|
|||||||
Depreciation
|
16,570
|
14,951
|
17,084
|
|||||||
Stock
based compensation expense
|
9,199
|
7,391
|
7,332
|
|||||||
Excess
tax benefits from share-based payment arrangements
|
(9,853
|
)
|
¾
|
¾
|
||||||
Provision
for doubtful accounts
|
2,715
|
2,017
|
1,667
|
|||||||
Loss
(gain) on property and equipment dispositions
|
256
|
(2,110
|
)
|
(136
|
)
|
|||||
Valuation
allowance on note receivable
|
¾
|
¾
|
15,000
|
|||||||
Change
in operating assets and liabilities:
|
||||||||||
Military
accounts receivable
|
75
|
25,171
|
21,937
|
|||||||
Deferred
tax asset
|
2,257
|
20,124
|
41,588
|
|||||||
Other
current assets
|
(90,127
|
)
|
4,679
|
11,364
|
||||||
Other
assets
|
(7,217
|
)
|
1,671
|
(7,757
|
)
|
|||||
Accrued
payroll and taxes
|
4,456
|
(6,199
|
)
|
11,095
|
||||||
Medical
claims payable
|
87,028
|
16,530
|
15,386
|
|||||||
Military
healthcare payable
|
¾
|
(17,061
|
)
|
(59,544
|
)
|
|||||
Other
current liabilities
|
31,462
|
(19,466
|
)
|
(36,149
|
)
|
|||||
Unearned
premium revenue
|
3,008
|
(1,696
|
)
|
4,875
|
||||||
Other
liabilities
|
71
|
813
|
(2,631
|
)
|
||||||
Net
cash provided by operating activities of continuing
operations
|
190,371
|
166,832
|
164,530
|
|||||||
Cash
flows from investing activities:
|
||||||||||
Capital
expenditures
|
(16,749
|
)
|
(13,946
|
)
|
(26,237
|
)
|
||||
Property
and equipment dispositions
|
430
|
919
|
3,135
|
|||||||
Purchase
of available-for-sale investments, including restricted
investments
|
(814,737
|
)
|
(870,143
|
)
|
(561,190
|
)
|
||||
Proceeds
from sales/maturities of available-for-sale investments, including
restricted investments
|
799,691
|
755,843
|
631,951
|
|||||||
Purchase
of other investments
|
(63,449
|
)
|
(39,420
|
)
|
(30,825
|
)
|
||||
Proceeds
from sales/maturities of other investments
|
19,232
|
22,500
|
2,750
|
|||||||
Net
cash (used for) provided by investing activities of continuing
operations
|
(75,582
|
)
|
(144,247
|
)
|
19,584
|
|||||
Cash
flows from financing activities:
|
||||||||||
Payments
on debt and capital leases
|
(111
|
)
|
(10,109
|
)
|
(1,775
|
)
|
||||
Proceeds
from other long-term debt
|
75,000
|
¾
|
10,000
|
|||||||
Purchase
of treasury stock
|
(243,136
|
)
|
(154,382
|
)
|
(133,809
|
)
|
||||
Excess
tax benefits from share-based payment arrangements
|
9,853
|
¾
|
¾
|
|||||||
Exercise
of stock options in connection with stock plans
|
14,464
|
22,346
|
26,849
|
|||||||
Net
cash used for financing activities of continuing operations
|
(143,930
|
)
|
(142,145
|
)
|
(98,735
|
)
|
||||
Net
cash (used for) provided by continuing operations
|
(29,141
|
)
|
(119,560
|
)
|
85,379
|
|||||
Cash
flows of discontinued operations
|
||||||||||
Operating
cash flows
|
¾
|
¾
|
(9,866
|
)
|
||||||
Investing
cash flows
|
¾
|
¾
|
13,586
|
|||||||
Financing
cash flows
|
¾
|
¾
|
¾
|
|||||||
Net
cash provided by discontinued operations
|
¾
|
¾
|
3,720
|
|||||||
Net
(decrease) increase in cash and cash equivalents
|
(29,141
|
)
|
(119,560
|
)
|
89,099
|
|||||
Cash
and cash equivalents at beginning of year
|
88,059
|
207,619
|
118,520
|
|||||||
Cash
and cash equivalents at end of year
|
$
|
58,918
|
$
|
88,059
|
$
|
207,619
|
Cash
paid during the year for interest (net of amount
capitalized)
|
$
|
(2,564
|
)
|
$
|
(8,600
|
)
|
$
|
(3,025
|
)
|
|
Cash
paid during the year for income taxes
|
(55,748
|
)
|
(44,732
|
)
|
(12,900
|
)
|
||||
Non-cash
investing and financing activities:
|
||||||||||
Senior
convertible debentures converted into Sierra common stock
|
8,500
|
63,000
|
¾
|
|||||||
Tax
benefits from share-based payment arrangements
|
¾
|
25,697
|
27,287
|
|||||||
Assets
and liabilities recorded in conjunction with the sale of the
workers’
|
||||||||||
compensation
operations
|
¾
|
¾
|
54,060
|
|||||||
Additions
to capital leases
|
47
|
19
|
253
|
|||||||
Investments
purchased but not settled
|
9,900
|
3,330
|
1,851
|
Buildings
and Improvements
|
10
|
-
|
30
|
years
|
Leasehold
Improvements
|
3
|
-
|
10
|
years
|
Data
Processing Hardware and Software
|
3
|
-
|
10
|
years
|
Furniture,
Fixtures and Equipment
|
3
|
-
|
5
|
years
|
Gross
|
Gross
|
||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
||||||||||
Cost
|
Gains
|
Losses
|
Value
|
||||||||||
(In
thousands)
|
|||||||||||||
Available-for-sale
investments:
|
|||||||||||||
Classified
as current:
|
|||||||||||||
U.S.
government and its agencies
|
$
|
41,134
|
$
|
6
|
$
|
1,051
|
$
|
40,089
|
|||||
Municipal
obligations
|
196,522
|
124
|
341
|
196,305
|
|||||||||
Mortgage
backed securities
|
6,745
|
51
|
73
|
6,723
|
|||||||||
Corporate
bonds
|
19,498
|
24
|
1,234
|
18,288
|
|||||||||
Other
|
236
|
¾
|
90
|
146
|
|||||||||
Total
current
|
264,135
|
205
|
2,789
|
261,551
|
|||||||||
Classified
as restricted:
|
|||||||||||||
U.S.
government and its agencies
|
12,529
|
4
|
339
|
12,194
|
|||||||||
Municipal
obligations
|
3,244
|
20
|
16
|
3,248
|
|||||||||
Other
debt securities
|
3,986
|
¾
|
¾
|
3,986
|
|||||||||
Total
restricted
|
19,759
|
24
|
355
|
19,428
|
|||||||||
Total
available-for-sale
|
$
|
283,894
|
$
|
229
|
$
|
3,144
|
$
|
280,979
|
Gross
|
Gross
|
||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
||||||||||
Cost
|
Gains
|
Losses
|
Value
|
||||||||||
(In
thousands)
|
|||||||||||||
Available-for-sale
investments:
|
|||||||||||||
Classified
as current:
|
|||||||||||||
U.S.
government and its agencies
|
$
|
70,847
|
$
|
44
|
$
|
1,384
|
$
|
69,507
|
|||||
Municipal
obligations
|
152,796
|
94
|
519
|
152,371
|
|||||||||
Mortgage
backed securities
|
298
|
¾
|
2
|
296
|
|||||||||
Corporate
bonds
|
11,840
|
14
|
562
|
11,292
|
|||||||||
Total
debt securities
|
235,781
|
152
|
2,467
|
233,466
|
|||||||||
Preferred
stock
|
3,871
|
¾
|
82
|
3,789
|
|||||||||
Total
current
|
239,652
|
152
|
2,549
|
237,255
|
|||||||||
Classified
as restricted:
|
|||||||||||||
U.S.
government and its agencies
|
12,000
|
2
|
308
|
11,694
|
|||||||||
Municipal
obligations
|
2,722
|
34
|
23
|
2,733
|
|||||||||
Other
debt securities
|
3,825
|
¾
|
¾
|
3,825
|
|||||||||
Total
restricted
|
18,547
|
36
|
331
|
18,252
|
|||||||||
Total
available-for-sale
|
$
|
258,199
|
$
|
188
|
$
|
2,880
|
$
|
255,507
|
2006
|
2005
|
||||||
Other
investments:
|
(In
thousands)
|
||||||
Classified
as current
|
|||||||
Trust
deed mortgage notes
|
$
|
62,295
|
$
|
43,995
|
|||
Classified
as long-term
|
|||||||
Trust
deed mortgage notes
|
6,270
|
1,000
|
|||||
Real
estate joint ventures
|
19,897
|
¾
|
|||||
Total
long-term
|
26,167
|
1,000
|
|||||
Total
other investments
|
$
|
88,462
|
$
|
44,995
|
Less
Than 12 Months
|
12
Months Or More
|
Total
|
|||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
||||||||||||||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
||||||||||||||
(In
thousands)
|
|||||||||||||||||||
Description
of securities:
|
|||||||||||||||||||
U.S.
government and its agencies
|
$
|
12,950
|
$
|
549
|
$
|
20,804
|
$
|
841
|
$
|
33,754
|
$
|
1,390
|
|||||||
Municipal
obligations
|
118,758
|
331
|
6,379
|
26
|
125,137
|
357
|
|||||||||||||
Mortgage
backed securities
|
728
|
14
|
249
|
59
|
977
|
73
|
|||||||||||||
Corporate
bonds
|
9,704
|
445
|
2,918
|
789
|
12,622
|
1,234
|
|||||||||||||
Other
|
146
|
90
|
¾
|
¾
|
146
|
90
|
|||||||||||||
Total
temporarily impaired securities
|
$
|
142,286
|
$
|
1,429
|
$
|
30,350
|
$
|
1,715
|
$
|
172,636
|
$
|
3,144
|
Amortized
|
Fair
|
||||||
Cost
|
Value
|
||||||
(In
thousands)
|
|||||||
Due
in one year or less
|
$
|
80,727
|
$
|
80,685
|
|||
Due
after one year through five years
|
115,587
|
113,506
|
|||||
Due
after five years through ten years
|
28,866
|
28,655
|
|||||
Due
after ten years through fifteen years
|
25,949
|
25,932
|
|||||
Due
after fifteen years
|
32,765
|
32,201
|
|||||
Total
|
$
|
283,894
|
$
|
280,979
|
2006
|
2005
|
||||||
|
(In
thousands)
|
||||||
Land
|
$
|
15,220
|
$
|
15,010
|
|||
Buildings
and improvements
|
31,632
|
28,079
|
|||||
Furniture,
fixtures and equipment
|
40,589
|
39,964
|
|||||
Data
processing equipment and software
|
102,870
|
98,910
|
|||||
Software
in development and construction in progress
|
358
|
518
|
|||||
Less:
accumulated depreciation
|
(118,776
|
)
|
(111,124
|
)
|
|||
Property
and equipment, net
|
$
|
71,893
|
$
|
71,357
|
2006
|
2005
|
||||||
(In
thousands)
|
|||||||
Buildings
and improvements
|
$
|
278
|
$
|
278
|
|||
Furniture,
fixtures and equipment
|
475
|
428
|
|||||
Less:
accumulated depreciation
|
(452
|
)
|
(355
|
)
|
|||
Property
and equipment, net
|
$
|
301
|
$
|
351
|
2006
|
2005
|
2004
|
|||||||||||
(In
thousands)
|
|||||||||||||
Provision
for income taxes:
|
|||||||||||||
Current
|
$
|
84,229
|
$
|
69,466
|
$
|
52,035
|
|||||||
Deferred
|
(9,207
|
)
|
(7,758
|
)
|
18,210
|
||||||||
Total
|
$
|
75,022
|
$
|
61,708
|
$
|
70,245
|
2006
|
|
|
2005
|
|
|
2004
|
||||
Statutory
rate
|
35
|
%
|
35
|
%
|
35
|
%
|
||||
State
income taxes, net of federal benefit
|
¾
|
¾
|
1
|
|||||||
Tax
preferred investments
|
(1
|
)
|
(1
|
)
|
(1
|
)
|
||||
Change
in valuation allowance
|
¾
|
¾
|
1
|
|||||||
Compensation
and benefit plans
|
¾
|
1
|
¾
|
|||||||
Intangibles
|
¾
|
(1
|
)
|
¾
|
||||||
Other
|
1
|
¾
|
¾
|
|||||||
Effective
rate
|
35
|
%
|
34
|
%
|
36
|
%
|
2006
|
2005
|
||||||
(In
thousands)
|
|||||||
Deferred
tax assets:
|
|||||||
Medical
claims payable
|
$
|
9,196
|
$
|
8,106
|
|||
Accruals
not currently deductible
|
11,867
|
10,970
|
|||||
Compensation
accruals
|
27,521
|
18,332
|
|||||
Bad
debt allowances
|
1,017
|
911
|
|||||
Loss
carryforwards and credits
|
15,192
|
15,192
|
|||||
Depreciation
and amortization
|
758
|
¾
|
|||||
Other
|
1,381
|
1,337
|
|||||
Total
|
66,932
|
54,848
|
|||||
Deferred
tax liabilities:
|
|||||||
Prepaid
expenses
|
2,756
|
2,470
|
|||||
Depreciation
and amortization
|
¾
|
881
|
|||||
Other
|
1,177
|
1,172
|
|||||
Total
|
3,933
|
4,523
|
|||||
Net
deferred tax asset before valuation allowance
|
62,999
|
50,325
|
|||||
Less:
valuation allowance
|
14,842
|
15,082
|
|||||
Net
deferred tax asset
|
$
|
48,157
|
$
|
35,243
|
Years
Ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
|
(In
thousands)
|
|||||||||
Medical
claims payable, beginning of period
|
$
|
135,867
|
$
|
119,337
|
$
|
103,951
|
||||
Add:
components of incurred medical expenses
|
||||||||||
Current
period medical claims
|
1,311,854
|
1,034,089
|
889,921
|
|||||||
Changes
in prior periods’ estimates
|
(15,876
|
)
|
(13,335
|
)
|
(12,147
|
)
|
||||
Total
incurred medical expenses
|
1,295,978
|
1,020,754
|
877,774
|
|||||||
Less:
medical claims paid
|
||||||||||
Current
period
|
1,104,093
|
912,806
|
780,934
|
|||||||
Prior
period
|
104,857
|
91,418
|
81,454
|
|||||||
Total
claims paid
|
1,208,950
|
1,004,224
|
862,388
|
|||||||
Medical
claims payable, end of period
|
$
|
222,895
|
$
|
135,867
|
$
|
119,337
|
Years
Ended December 31,
|
|||||||
2005
|
|
|
2004
|
||||
(In
thousands)
|
|||||||
Military
health care payable, beginning of period
|
$
|
17,061
|
$
|
76,605
|
|||
Add:
components of incurred medical expenses
|
|||||||
Current
period medical claims
|
¾
|
220,710
|
|||||
Changes
in prior periods’ estimates:
|
|||||||
Earnings
related charges
|
(4,539
|
)
|
(14,118
|
)
|
|||
Non-earnings
related charges
|
853
|
(6,462
|
)
|
||||
Total
incurred medical expenses
|
(3,686
|
)
|
200,130
|
||||
Less:
military contract claims paid
|
|||||||
Current
period
|
¾
|
201,950
|
|||||
Prior
period
|
13,375
|
57,724
|
|||||
Total
military contract claims paid
|
13,375
|
259,674
|
|||||
Military
health care payable, end of period
|
$
|
¾
|
$
|
17,061
|
2006
|
2005
|
||||||
|
(In
thousands)
|
||||||
2¼%
Senior convertible debentures
|
$
|
43,500
|
$
|
52,000
|
|||
Revolving
credit facility
|
75,000
|
¾
|
|||||
Capital
leases
|
350
|
413
|
|||||
Total
|
118,850
|
52,413
|
|||||
Less
current portion
|
(116
|
)
|
(106
|
)
|
|||
Long-term
debt
|
$
|
118,734
|
$
|
52,307
|
Obligations
|
|||||||
Long-Term
|
Under
Capital
|
||||||
Debt
|
Leases
|
||||||
(In
thousands)
|
|||||||
Years
Ending December 31,
|
|||||||
2007
|
$
|
¾
|
$
|
144
|
|||
2008
|
¾
|
104
|
|||||
2009
|
¾
|
72
|
|||||
2010
|
¾
|
43
|
|||||
2011
|
75,000
|
31
|
|||||
Thereafter
|
43,500
|
31
|
|||||
Total
|
$
|
118,500
|
425
|
||||
Less:
amounts representing interest
|
(75
|
)
|
|||||
Present
value of minimum lease payments
|
$
|
350
|
Years
Ended December 31,
|
||||||||||
2006
|
2005
|
$2004
|
||||||||
|
(In
thousands)
|
|||||||||
Medical
expenses
|
$
|
1,074
|
$
|
¾
|
$
|
¾
|
||||
General
and administrative expenses
|
8,125
|
7,391
|
7,332
|
|||||||
Stock-based
compensation expense before income taxes
|
9,199
|
7,391
|
7,332
|
|||||||
Income
tax benefit
|
(3,220
|
)
|
(2,587
|
)
|
(2,566
|
)
|
||||
Total
stock-based compensation expense after income taxes
|
$
|
5,979
|
$
|
4,804
|
$
|
4,766
|
Year
Ended December 31, 2006
|
||||||||||
Under
APB
25
|
As
Reported Under
SFAS
123R
|
Difference
|
||||||||
|
(In
thousands, except per share data)
|
|||||||||
Operating
income
|
$
|
221,243
|
$
|
217,434
|
$
|
(3,809
|
)
|
|||
Income
before income taxes
|
$
|
219,302
|
$
|
215,493
|
$
|
(3,809
|
)
|
|||
Net
income
|
$
|
142,947
|
$
|
140,471
|
$
|
(2,476
|
)
|
|||
Net
income per share
|
$
|
2.53
|
$
|
2.49
|
$
|
(0.04
|
)
|
|||
Net
income per share assuming dilution
|
2.29
|
2.25
|
(0.04
|
)
|
||||||
Cash
flow from operating activities
|
$
|
200,224
|
$
|
190,371
|
$
|
(9,853
|
)
|
|||
Cash
flow from financing activities
|
(153,783
|
)
|
(143,930
|
)
|
9,853
|
2005
|
2004
|
|||||||||
(In
thousands, except per share data)
|
||||||||||
Net
income, as reported
|
$
|
120,017
|
$
|
122,737
|
||||||
Add:
stock-based employee compensation expense
|
||||||||||
for
restricted stock and stock awards included
in reported net income, net of tax
|
4,804
|
4,766
|
||||||||
Less:
total stock-based employee compensation expense
|
||||||||||
determined
under fair value based methods for all awards, net of tax
|
(12,724
|
)
|
(13,420
|
)
|
||||||
Pro
forma net income
|
$
|
112,097
|
$
|
114,083
|
||||||
Net
income per share, as reported
|
$
|
2.16
|
$
|
2.30
|
||||||
Pro
forma net income, per share
|
2.02
|
2.14
|
||||||||
Net
income per share assuming dilution, as reported
|
$
|
1.81
|
$
|
1.79
|
||||||
Pro
forma net income, per share
|
1.69
|
1.66
|
|
2006
(1)
|
2005
|
2004
|
|||||||
Average
expected term (years)
|
¾
|
3.37
|
4.63
|
|||||||
Risk-free
interest rates
|
¾
|
3.94
|
%
|
3.48
|
%
|
|||||
Expected
volatility
|
¾
|
45.09
|
%
|
74.27
|
%
|
|||||
Dividend
yield
|
¾
|
¾
|
¾
|
|||||||
Weighted-average
fair value at grant date
|
¾
|
$
|
23.29
|
$
|
20.65
|
(1)
|
No
stock options were granted during the
period.
|
2006
|
2005
|
2004
|
||||||||
Average
expected term (years)
|
.50
|
.50
|
.50
|
|||||||
Risk-free
interest rates
|
4.32
|
%
|
2.95
|
%
|
1.32
|
%
|
||||
Expected
volatility
|
34.70
|
%
|
21.25
|
%
|
40.77
|
%
|
||||
Dividend
yield
|
¾
|
¾
|
¾
|
|||||||
Weighted-average
fair value at grant date
|
$
|
9.95
|
$
|
10.83
|
$
|
8.99
|
Number
|
Weighted
|
Weighted
|
Aggregate
|
||||||||||
Of
|
Average
|
Average
Contractual
|
Intrinsic
|
||||||||||
Shares
|
Exercisable
Price
|
Life
Remaining
|
Value
|
||||||||||
|
(In
thousands)
|
(In
years)
|
|
(In
thousands)
|
|
||||||||
Outstanding,
January 1, 2006
|
2,844
|
$
|
11.09
|
||||||||||
Granted
|
¾
|
¾
|
|||||||||||
Exercised
|
(1,003
|
)
|
7.91
|
||||||||||
Canceled
|
(66
|
)
|
9.95
|
||||||||||
Outstanding,
December 31, 2006
|
1,775
|
12.94
|
5.58
|
$
|
40,992
|
||||||||
Exercisable
At December 31, 2006
|
808
|
$
|
11.31
|
5.13
|
$
|
19,987
|
Number
|
Weighted-Average
|
||||||
Of
|
Grant
Date
|
||||||
Shares
|
Fair
Value
|
||||||
|
(In
thousands)
|
||||||
Nonvested
shares, January 1, 2006 (1)
|
1,558
|
$
|
6.44
|
||||
Granted
|
¾
|
¾
|
|||||
Vested
|
(714
|
)
|
5.47
|
||||
Canceled
|
(41
|
)
|
5.80
|
||||
Nonvested
shares, December 31, 2006 (1)
|
803
|
$
|
7.34
|
(1)
|
Excludes
172,000 and 164,000 shares at January 1, 2006 and December 31, 2006,
respectively, which vested in 2005, but are not exercisable until
2008.
|
Number
|
Aggregate
|
||||||
Of
|
Intrinsic
|
||||||
Shares
|
Value
|
||||||
|
(In
thousands)
|
||||||
Outstanding,
January 1, 2006(1)
|
¾
|
||||||
Granted
|
234
|
||||||
Vested
|
(130
|
)
|
|||||
Canceled
|
¾
|
||||||
Outstanding,
December 31, 2006(2)(3)
|
104
|
$
|
3,748
|
Years
Ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
|
(In
thousands)
|
|||||||||
Change
in benefit obligation
|
||||||||||
Benefit
obligation at beginning of year
|
$
|
28,695
|
$
|
23,097
|
$
|
29,896
|
||||
Service
cost
|
504
|
377
|
425
|
|||||||
Interest
cost
|
1,596
|
1,283
|
1,674
|
|||||||
Actuarial
loss (gain)
|
1,321
|
4,998
|
(8,114
|
)
|
||||||
Benefits
paid
|
(730
|
)
|
(1,060
|
)
|
(784
|
)
|
||||
Benefit
obligation at end of year
|
$
|
31,386
|
$
|
28,695
|
$
|
23,097
|
||||
Change
in
plan assets
|
||||||||||
Fair
value of plan assets at beginning of year
|
$
|
¾
|
$
|
¾
|
$
|
¾
|
||||
Employer
contributions
|
730
|
1,060
|
784
|
|||||||
Benefits
paid
|
(730
|
)
|
(1,060
|
)
|
(784
|
)
|
||||
Fair
value of plan assets at end of year
|
$
|
¾
|
$
|
¾
|
$
|
¾
|
||||
Funded
status
|
$
|
(31,386
|
)
|
$
|
(28,695
|
)
|
$
|
(23,097
|
)
|
|
Unrecognized
prior service cost (1)
|
4,515
|
5,725
|
6,936
|
|||||||
Unrecognized
net actuarial loss (1)
|
5,853
|
4,660
|
(338
|
)
|
||||||
Accrued
net benefit cost
|
(21,018
|
)
|
(18,310
|
)
|
(16,499
|
)
|
||||
Unfunded
accumulated benefit obligation
|
(31,386
|
)
|
(22,936
|
)
|
(17,581
|
)
|
||||
Additional
liability
|
(10,368
|
)
|
(4,626
|
)
|
(1,082
|
)
|
||||
Intangible
asset
|
¾
|
4,626
|
1,082
|
|||||||
Benefit
liability
|
$
|
(31,386
|
)
|
$
|
(22,936
|
)
|
$
|
(17,581
|
)
|
|
Discount
rate
|
5.60
|
%
|
5.75
|
%
|
5.75
|
%
|
||||
Rate
of compensation increase
|
3.00
|
%
|
3.00
|
%
|
3.00
|
%
|
||||
Components
of net periodic benefit cost:
|
||||||||||
Service
cost
|
$
|
504
|
$
|
377
|
$
|
425
|
||||
Interest
cost
|
1,596
|
1,283
|
1,674
|
|||||||
Amortization
of prior service credits
|
1,211
|
1,211
|
1,211
|
|||||||
Recognized
actuarial loss
|
128
|
¾
|
435
|
|||||||
Net
periodic benefit cost
|
$
|
3,439
|
$
|
2,871
|
$
|
3,745
|
(1)
|
Included
in accumulated comprehensive income for
2006.
|
Before
SFAS
158 adjustment
|
SFAS
158 adjustment
|
After
application of SFAS 158
|
||||||||
|
(In
thousands)
|
|||||||||
Deferred
tax asset - LT
|
$
|
15,412
|
$
|
3,244
|
$
|
18,656
|
||||
Other
assets
|
98,215
|
(4,515
|
)
|
93,700
|
||||||
Total
assets
|
$
|
810,683
|
$
|
(1,271
|
)
|
$
|
809,412
|
|||
Other
liabilities
|
$
|
66,254
|
$
|
4,753
|
$
|
71,007
|
||||
Total
liabilities
|
587,941
|
4,753
|
592,694
|
|||||||
Accumulated
other comprehensive loss
|
(2,611
|
)
|
(6,024
|
)
|
(8,635
|
)
|
||||
Total
stockholders' equity
|
222,742
|
(6,024
|
)
|
216,718
|
||||||
Total
liabilities and stockholders' equity
|
$
|
810,683
|
$
|
(1,271
|
)
|
$
|
809,412
|
|
(In
thousands)
|
|||
2007
|
$
|
947
|
||
2008
|
2,301
|
|||
2009
|
2,395
|
|||
2010
|
2,602
|
|||
2011
|
2,602
|
|||
2012
through 2042
|
62,230
|
|||
Total
|
$
|
73,077
|
Years
Ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
|
(In
thousands, except per share data)
|
|||||||||
Basic
income (loss) per share:
|
||||||||||
Income
from continuing operations
|
$
|
140,471
|
$
|
120,017
|
$
|
123,419
|
||||
Loss
from discontinued operations
|
¾
|
¾
|
(682
|
)
|
||||||
Net
income
|
$
|
140,471
|
$
|
120,017
|
$
|
122,737
|
||||
Weighted
average common shares outstanding
|
56,391
|
55,556
|
53,262
|
|||||||
Earnings
per common share:
|
||||||||||
Income
from continuing operations
|
$
|
2.49
|
$
|
2.16
|
$
|
2.32
|
||||
Loss
from discontinued operations
|
¾
|
¾
|
(0.02
|
)
|
||||||
Net
income
|
$
|
2.49
|
$
|
2.16
|
$
|
2.30
|
||||
Diluted
income (loss) per share:
|
||||||||||
Income
from continuing operations
|
$
|
140,471
|
$
|
120,017
|
$
|
123,419
|
||||
Loss
from discontinued operations
|
¾
|
¾
|
(682
|
)
|
||||||
Net
income
|
140,471
|
120,017
|
122,737
|
|||||||
Interest
expense on Sierra debentures, net of tax
|
721
|
1,256
|
1,682
|
|||||||
Income
for purposes of computing diluted net
|
||||||||||
income
per share
|
$
|
141,192
|
$
|
121,273
|
$
|
124,419
|
||||
Weighted
average common shares outstanding
|
56,391
|
55,556
|
53,262
|
|||||||
Dilutive
options and restricted shares outstanding
|
935
|
2,266
|
3,806
|
|||||||
Dilutive
impact of conversion of Sierra debentures
|
5,386
|
9,327
|
12,575
|
|||||||
Weighted
average common shares outstanding
|
||||||||||
assuming
dilution
|
62,712
|
67,149
|
69,643
|
|||||||
Earnings
per common share assuming dilution:
|
||||||||||
Income
from continuing operations
|
$
|
2.25
|
$
|
1.81
|
$
|
1.80
|
||||
Loss
from discontinued operations
|
¾
|
¾
|
(0.01
|
)
|
||||||
Net
income
|
$
|
2.25
|
$
|
1.81
|
$
|
1.79
|
2004
|
||||
|
(In
thousands)
|
|||
Operating
revenues:
|
||||
Specialty
product revenues
|
$
|
19,015
|
||
Investment
and other revenues
|
1,290
|
|||
Total
|
20,305
|
|||
Operating
expenses:
|
||||
Specialty
product expenses
|
21,917
|
|||
Interest
expense and other, net
|
(91
|
)
|
||
Total
|
21,826
|
|||
Loss
from discontinued operations before income tax
|
(1,521
|
)
|
||
Income
tax benefit
|
839
|
|||
Net
loss from discontinued operations
|
$
|
(682
|
)
|
Years
Ended December 31,
|
(In
thousands)
|
|
||
2007
|
$
|
18,976
|
||
2008
|
18,347
|
|||
2009
|
17,562
|
|||
2010
|
16,677
|
|||
2011
|
16,748
|
|||
Thereafter
|
64,211
|
|||
Total
|
$
|
152,521
|
Managed
Care And Corporate Operations
|
Military
Health Services Operations
|
Total
|
||||||||
(In
thousands)
|
||||||||||
Year
Ended December 31, 2006
|
||||||||||
Medical
premiums
|
$
|
1,623,515
|
$
|
¾
|
$
|
1,623,515
|
||||
Military
contract revenues
|
¾
|
¾
|
¾
|
|||||||
Professional
fees
|
52,266
|
¾
|
52,266
|
|||||||
Investment
and other revenues
|
43,062
|
49
|
43,111
|
|||||||
Total
revenue
|
$
|
1,718,843
|
$
|
49
|
$
|
1,718,892
|
||||
Segment
operating profit (loss)
|
$
|
217,523
|
$
|
(89
|
)
|
$
|
217,434
|
|||
Interest
expense
|
(3,901
|
)
|
¾
|
(3,901
|
)
|
|||||
Other
income (expense), net
|
1,960
|
¾
|
1,960
|
|||||||
Income
(loss) before income taxes
|
$
|
215,582
|
$
|
(89
|
)
|
$
|
215,493
|
|||
Segment
assets
|
$
|
809,331
|
$
|
81
|
$
|
809,412
|
||||
Capital
expenditures
|
(16,749
|
)
|
¾
|
(16,749
|
)
|
|||||
Depreciation
|
16,570
|
¾
|
16,570
|
|||||||
Year
Ended December 31, 2005
|
||||||||||
Medical
premiums
|
$
|
1,291,296
|
$
|
¾
|
$
|
1,291,296
|
||||
Military
contract revenues
|
¾
|
16,326
|
16,326
|
|||||||
Professional
fees
|
43,186
|
¾
|
43,186
|
|||||||
Investment
and other revenues
|
33,698
|
530
|
34,228
|
|||||||
Total
revenue
|
$
|
1,368,180
|
$
|
16,856
|
$
|
1,385,036
|
||||
Segment
operating profit
|
$
|
174,953
|
$
|
14,464
|
$
|
189,417
|
||||
Interest
expense
|
(8,779
|
)
|
(12
|
)
|
(8,791
|
)
|
||||
Other
income (expense), net
|
1,407
|
(308
|
)
|
1,099
|
||||||
Income
before income taxes
|
$
|
167,581
|
$
|
14,144
|
$
|
181,725
|
||||
Segment
assets
|
$
|
667,618
|
$
|
1,228
|
$
|
668,846
|
||||
Capital
expenditures
|
(13,946
|
)
|
¾
|
(13,946
|
)
|
|||||
Depreciation
|
14,735
|
216
|
14,951
|
|||||||
Year
Ended December 31, 2004
|
||||||||||
Medical
premiums
|
$
|
1,131,185
|
$
|
¾
|
$
|
1,131,185
|
||||
Military
contract revenues
|
¾
|
372,608
|
372,608
|
|||||||
Professional
fees
|
35,115
|
¾
|
35,115
|
|||||||
Investment
and other revenues
|
35,144
|
1,502
|
36,646
|
|||||||
Total
revenue
|
$
|
1,201,444
|
$
|
374,110
|
$
|
1,575,554
|
||||
Segment
operating profit
|
$
|
141,906
|
$
|
56,411
|
$
|
198,317
|
||||
Interest
expense
|
(4,624
|
)
|
(60
|
)
|
(4,684
|
)
|
||||
Other
income (expense), net
|
136
|
(105
|
)
|
31
|
||||||
Income
before income taxes
|
$
|
137,418
|
$
|
56,246
|
$
|
193,664
|
||||
Segment
assets
|
$
|
630,090
|
$
|
59,690
|
$
|
689,780
|
||||
Capital
expenditures
|
(26,214
|
)
|
(23
|
)
|
(26,237
|
)
|
||||
Depreciation
|
15,904
|
1,180
|
17,084
|
March
|
June
|
September
|
December
|
||||||||||
31
|
30
|
30
|
31
|
||||||||||
(In
thousands, except per share data)
|
|||||||||||||
Quarter
ended 2006:
|
|||||||||||||
Operating
revenues
|
$
|
438,248
|
$
|
424,438
|
$
|
429,997
|
$
|
426,209
|
|||||
Operating
income
|
50,390
|
52,471
|
55,012
|
59,561
|
|||||||||
Net
income
|
32,671
|
33,534
|
34,929
|
39,337
|
|||||||||
Basic
earnings per share:
|
|||||||||||||
Net
income
|
$
|
0.57
|
$
|
0.60
|
$
|
0.62
|
$
|
0.71
|
|||||
Diluted
earnings per share:
|
|||||||||||||
Net
income
|
$
|
0.51
|
$
|
0.54
|
$
|
0.56
|
$
|
0.65
|
|||||
Quarter
ended 2005:
|
|||||||||||||
Operating
revenues
|
$
|
335,859
|
$
|
348,027
|
$
|
347,443
|
$
|
353,707
|
|||||
Operating
income
|
45,324
|
56,370
|
44,509
|
43,214
|
|||||||||
Net
income
|
29,405
|
33,836
|
28,442
|
28,334
|
|||||||||
Basic
earnings per share:
|
|||||||||||||
Net
income
|
$
|
0.55
|
$
|
0.62
|
$
|
0.50
|
$
|
0.49
|
|||||
Diluted
earnings per share:
|
|||||||||||||
Net
income
|
$
|
0.44
|
$
|
0.51
|
$
|
0.43
|
$
|
0.44
|
(a)(1)
|
Financial
Statements. See Index to Financial Statements and Schedule on page
51.
|
|||||||
(a)(2)
|
Financial
Statement Schedules:
|
|||||||
Schedule
I
|
S-1
|
|||||||
Schedule
II
|
S-5
|
|||||||
All
other schedules are omitted because they are not applicable, not
required,
or because the required information is in the consolidated financial
statements or notes thereto.
|
||||||||
(a)(3)
|
The
following exhibits are filed as part of, or incorporated by reference
into, this Report as required by Item 601 of Regulation
S-K:
|
|||||||
(3.1)
|
Articles
of Incorporation, as amended through September 10, 2003, incorporated
by
reference to Exhibit 3.1 to the Registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2003.
|
|||||||
(3.2)
|
Articles
of Incorporation, together with amendments thereto to date, incorporated
by reference to Exhibit 4 (b) to the Registrant’s Registration Statement
on Form S-8 (No. 33-41543) effective July 3, 1991.
|
|||||||
(3.3)
|
Certificate
of Change pursuant to NRS 78.209 incorporated by reference to Exhibit
3.1
to the Registrant’s Current Report on Form 8-K filed on December 9,
2005.
|
|||||||
(3.4)
|
Amended
and Restated Bylaws of the Registrant, as amended through March 21,
2002,
incorporated by reference to Exhibit 3.3 to the Registrant’s Annual Report
on Form 10-K for the fiscal year ended December 31, 2001.
|
|||||||
(3.5)
|
Amendment
No. 8 to the Amended and Restated Bylaws of Sierra Health Services,
Inc.,
incorporated by reference to Exhibit 3.2 to the Registrant’s Current
Report on Form 8-K filed on December 9, 2005.
|
|||||||
(4.1)
|
Specimen
Common Stock Certificate, incorporated by reference to Exhibit 4.3
to the
Registrant’s Annual Report on Form 10-K for the fiscal year ended December
31, 2001.
|
|||||||
(10.1)
|
Form
of Contract With Eligible Medicare Part D Prescription Drug Contractor
and
the Centers for Medicare and Medicaid Services for the period January
1,
2006 to December 31, 2006.
|
|||||||
(10.2)
|
Form
of Contract With Eligible Medicare+Choice Organization and the Centers
for
Medicare and Medicaid Services for the period January 1, 2005 to
December
31, 2005, renewable annually and incorporated by reference to Exhibit
10.5
to the Registrant’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2005.
|
|||||||
(10.3)
|
Form
of Medicaid Contract between Health Plan of Nevada and the State
of Nevada
Department of Health and Human Services Health Care Financing and
Policy
Division effective November 1, 2006 to June 30, 2009, and incorporated
by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed on August 16, 2006.
|
|||||||
(10.4)
|
Credit
Agreement dated as of March 3, 2003, among Sierra Health Services,
Inc. as
Borrower, Bank of America N.A. as Administrative Agent and L/C Issuer,
Credit Lyonnais New York Branch as Syndication Agent, U.S. Bank National
Association as Documentation Agent and Banc of America as Sole Lead
Arranger and Sole Book Manager, incorporated by reference to Exhibit
10.5
to the Registrant’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2002.
|
|||||||
(10.5)
|
First
Amendment to the Credit Agreement dated as of March 3, 2003, among
Sierra
Health Services, Inc. as Borrower, Bank of America N.A. as Administrative
Agent and L/C Issuer, Credit Lyonnais New York Branch as Syndication
Agent, U.S. Bank National Association as Documentation Agent and
Banc of
America
|
|||||||
90
|
||||||||
|
||||||||
as Sole Lead Arranger and Sole Book Manager, incorporated by reference to Exhibit 10.3 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2003. | ||||||||
(10.6)
|
Second
Amendment to the Credit Agreement dated as of March 3, 2003, among
Sierra
Health Services, Inc. as Borrower, Bank of America N.A. as Administrative
Agent and L/C Issuer, Credit Lyonnais New York Branch as Syndication
Agent, U.S. Bank National Association as Documentation Agent and
Banc of
America as Sole Lead Arranger and Sole Book Manager, incorporated
by
reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2003.
|
|||||||
(10.7)
|
Fourth
Amendment to the Credit Agreement dated as of March 3, 2003, among
Sierra
Health Services, Inc. as Borrower, Bank of America N.A. as Administrative
Agent and L/C Issuer, Calyon New York Branch (formerly known as Credit
Lyonnais New York Branch) and U.S. Bank National Association as
Syndication Agents, Banc of America Securities LLC, Calyon New York
Branch
and U.S. Bank National Association as Joint Book Managers and Banc
of
America Securities LLC as Sole Lead Arranger, incorporated by reference
to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K on October 19,
2004.
|
|||||||
(10.8)
|
Fifth
Amendment to the Credit Agreement dated as of March 3, 2003, among
Sierra
Health Services, Inc. as Borrower, and lenders including, among others,
Bank of America, N.A., as administrative agent and US Bank, N.A.
and
Calyon New York Branch as syndication agents. Documentation agents
include
The Bank of New York, JPMorgan Chase Bank, N.A., Harris, N.A. and
Wells
Fargo Bank, N.A. Banc of America Securities LLC is serving as the
sole
lead arranger and book manager under this amended credit
facility
and incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2006.
|
|||||||
(10.9)
|
Compensatory
Plans, Contracts and Arrangements.
|
|||||||
(a)
|
Employment
Agreement with Jonathon W. Bunker dated August 16, 2006, and incorporated
by reference to Exhibit 10.1 to the Registrant’s
Current
Report on Form 8-K filed on August 16,
2006.
|
|||||||
(b)
|
Employment
Agreement with Frank E. Collins dated August 16, 2006, and incorporated
by
reference to Exhibit 10.2 to the Registrant’s
Current
Report on Form 8-K filed on August 16, 2006.
|
|||||||
(c)
|
Employment
Agreement with Darren G.D. Sivertsen dated August 16, 2006, and
incorporated by reference to Exhibit 10.3 to the Registrant’s
Current Report on Form 8-K filed on August 16, 2006.
|
|||||||
(d)
|
Employment
Agreement with Donald J. Giancursio dated August 16, 2006, and
incorporated by reference to Exhibit 10.4 to the Registrant’s Current
Report on Form 8-K filed on August 16, 2006.
|
|||||||
(e)
|
Employment
Agreement with Marc R. Briggs dated August 16, 2006, and incorporated
by
reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K
filed on August 16, 2006.
|
|||||||
(f)
|
Employment
Agreement with Anthony M. Marlon, M.D. dated November 16, 2000,
incorporated by reference to Exhibit 10.5 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2000,
and as
further amended on December 13, 2004, and incorporated by reference
to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on
December 16, 2004.
|
|||||||
(g)
|
Employment
Agreement with Paul H. Palmer dated December 1, 2001, incorporated
by
reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2001, and as further amended
on
December 13, 2004, and incorporated by reference to Exhibit 10.5
to the
Registrant’s Current Report on Form 8-K filed on December 16,
2004.
|
|||||||
(h)
|
Form
of Split Dollar Life Insurance Agreement effective as of August 25,
1998,
by and between Sierra Health Services, Inc., and Jonathon W. Bunker,
Frank
E. Collins, William R. Godfrey, Laurence S. Howard, Erin E. MacDonald,
Anthony M. Marlon, M.D., Kathleen M. Marlon, Michael A. Montalvo,
John A.
Nanson, M.D., Paul H. Palmer and Marie H. Soldo, incorporated by
reference
to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K for
the
fiscal year ended December 31, 2000.
|
|||||||
91
|
||||||||
|
||||||||
Table of Contents | ||||||||
(i)
|
Sierra
Health Services, Inc. Deferred Compensation Plan effective May 1,
1996, as
Amended and Restated Effective January 1, 2006.
|
|||||||
(j)
|
Sierra
Health Services, Inc. Supplemental Executive Retirement Plan effective
July 1, 1997, as Amended and Restated August 10, 2006, incorporated
by
reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K
filed on August 16, 2006.
|
|||||||
(k)
|
Sierra
Health Services, Inc. Supplemental Executive Retirement Plan effective
as
of March 1, 1998, as Amended and Restated August 10, 2006, incorporated
by
reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K
filed on August 16, 2006.
|
|||||||
(l)
|
Sierra
Health Services, Inc. Supplemental Executive Retirement Plan III
effective
January 1, 2005 and incorporated by reference to Exhibit 10.1 to
the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter
ended
September 30, 2006.
|
|||||||
(m)
|
Sierra
Health Services, Inc. Management Incentive Compensation Plan for
the year
ended December 31, 2006.
|
|||||||
(n)
|
Sierra
Health Services, Inc. 1995 Long-Term Incentive Plan, as amended and
restated through December 11, 2001, incorporated by reference to
Exhibit
10.5 to the Registrant’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2001.
|
|||||||
(o)
|
Sierra
Health Services, Inc. 1995 Non-Employee Directors' Stock Plan, as
amended
and restated through August 10, 2000, incorporated by reference to
Exhibit
10.7 to the Registrant's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 2000.
|
|||||||
(p)
|
Form
of Sierra Health Services, Inc. 1995 Long-Term Incentive Plan
Non-Qualified Stock Option Agreement, incorporated by reference to
Exhibit
10.6 to the Registrant's Annual Report on Form 10-K for the fiscal
year
ended December 31, 2004.
|
|||||||
.
|
(q)
|
Form
of Sierra Health Services, Inc. 1995 Non-Employee Directors’ Stock Plan
Non-Qualified Stock Option Agreement, incorporated by reference to
Exhibit
10.6 to the Registrant's Annual Report on Form 10-K for the fiscal
year
ended December 31, 2004.
|
||||||
(r)
|
Form
of Sierra Health Services, Inc. 1995 Long-Term Incentive Plan Restricted
Stock Units Agreement, incorporated by reference to Exhibit 10.6
to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December
31, 2004.
|
|||||||
(10.10)
|
Stock
Purchase Agreement, dated as of November 25, 2003, as amended on
December
17, 2003, as further amended on December 29, 2003 and as further
amended
on January 12, 2004, among Sierra Health Services, Inc., CII Financial,
Inc. and Folksamerica Holding Company, Inc., incorporated by reference
to
Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2003.
|
|||||||
(10.11)
|
Form
of Contingent Purchase Price Note Agreement among Folksamerica Holding
Company, Inc., Sierra Health Services, Inc., CII Financial, Inc.,
and,
with respect to Article 5 only, Folksamerica Reinsurance Company,
incorporated by reference to Exhibit 10.7 to the Registrant’s Annual
Report on Form 10-K for the fiscal year ended December 31,
2003.
|
|||||||
(12.1) | Statement re: Computation of Ratios. | |||||||
92
|
||||||||
|
||||||||
Table of Contents | ||||||||
(21)
|
Subsidiaries
of the Registrant (listed herein):
|
|||||||
There
is no parent of the Registrant. The following is a listing of the
active
subsidiaries of the Registrant:
|
Jurisdiction
of
Incorporation
|
|
Behavioral
Healthcare Options, Inc.
|
Nevada
|
CII
Financial, Inc.
|
California
|
Family
Health Care Services
|
Nevada
|
Family
Home Hospice, Inc.
|
Nevada
|
Health
Plan of Nevada, Inc.
|
Nevada
|
Northern
Nevada Health Network, Inc.
|
Nevada
|
Sierra
Health and Life Insurance Company, Inc.
|
California
|
Sierra
Health Holdings, Inc.
(Sierra
Military Health Services, LLP, Texas Health Choice, L.C.)
|
Nevada
|
Sierra
Health-Care Options, Inc.
|
Nevada
|
Sierra
Home Medical Products, Inc.
|
Nevada
|
Sierra
Medical Management, Inc. and Subsidiaries
|
Nevada
|
Sierra
Nevada Administrators, Inc.
|
Nevada
|
Southwest
Medical Associates, Inc.
|
Nevada
|
Southwest
Realty, Inc.
|
Nevada
|
(23.1)
|
Consent
of Deloitte & Touche LLP.
|
|||
(31.1)
|
Rule
13a - 14(a) Certification of Chief Executive Officer.
|
|||
(31.2)
|
Rule
13a - 14(a) Certification of Chief Financial Officer.
|
|||
(32.1)
|
Certification
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 of Principal Executive Officer dated
February 27, 2007.
|
|||
(32.2)
|
Certification
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 of Principal Financial Officer dated
February 27, 2007.
|
|||
All
other Exhibits are omitted because they are not
applicable.
|
||||
(c)
|
Financial
Statement Schedules
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act
of 1934, the Registrant has caused this report to be signed on its
behalf
by the undersigned thereto duly authorized.
|
||||||||||
SIERRA
HEALTH SERVICES, INC.
|
||||||||||
By:
|
/s/
Anthony M. Marlon, M.D.
|
|||||||||
Date:
February 27, 2007
|
Anthony
M. Marlon, M.D.
|
|||||||||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report
has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
|
||||||||||
Signature
|
Title
|
Date
|
||||||||
/s/
Anthony M. Marlon, M.D.
Anthony
M. Marlon, M.D.
|
Chief
Executive Officer
and
Chairman of the Board
(Chief
Executive Officer)
|
February
27, 2007
|
||||||||
/s/
Paul H. Palmer
Paul
H. Palmer
|
Senior
Vice President of Finance,
Chief
Financial Officer
and
Treasurer
|
February
27, 2007
|
||||||||
/s/
Marc R. Briggs
Marc
R. Briggs
|
Vice
President of Finance
(Chief
Accounting Officer)
|
February
27, 2007
|
||||||||
/s/
Thomas Y. Hartley
Thomas
Y. Hartley
|
Lead
Director
|
February
27, 2007
|
||||||||
/s/
Charles L. Ruthe
Charles
L. Ruthe
|
Director
|
February
27, 2007
|
||||||||
/s/
Albert L. Greene
Albert
L. Greene
|
Director
|
February
27, 2007
|
||||||||
/s/
Michael E. Luce
|
Director
|
February
27, 2007
|
||||||||
Michael
E. Luce
|
||||||||||
/s/
Anthony L. Watson
Anthony
L. Watson
|
Director
|
February
27, 2007
|
December
31,
|
|||||||
2006
|
2005
|
||||||
(In
thousands)
|
|||||||
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
17,379
|
$
|
29,302
|
|||
Short-term
investments
|
27,147
|
47,532
|
|||||
Current
portion of deferred tax asset
|
8,617
|
4,713
|
|||||
Prepaid
expenses and other current assets
|
22,550
|
26,451
|
|||||
Total
current assets
|
75,693
|
107,998
|
|||||
Property
and equipment, net
|
23,959
|
25,425
|
|||||
Restricted
cash and investments
|
727
|
613
|
|||||
Equity
in net assets of subsidiaries
|
232,834
|
199,770
|
|||||
Notes
receivable from subsidiaries
|
8,732
|
8,880
|
|||||
Goodwill
|
2,154
|
2,154
|
|||||
Deferred
tax asset
|
21,393
|
13,932
|
|||||
Other
assets
|
70,578
|
54,223
|
|||||
Total
assets
|
$
|
436,070
|
$
|
412,995
|
|||
Liabilities
and stockholders’ equity
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable and other accrued liabilities
|
$
|
33,278
|
$
|
19,669
|
|||
Current
portion of long-term debt
|
42
|
29
|
|||||
Total
current liabilities
|
33,320
|
19,698
|
|||||
Long-term
debt (less current portion)
|
118,588
|
52,086
|
|||||
Other
liabilities
|
67,444
|
56,959
|
|||||
Total
liabilities
|
219,352
|
128,743
|
|||||
Commitments
and contingencies
|
|||||||
Stockholders’
equity:
|
|||||||
Common
stock
|
354
|
346
|
|||||
Treasury
stock
|
(600,539
|
)
|
(377,190
|
)
|
|||
Additional
paid-in capital
|
436,643
|
400,287
|
|||||
Accumulated
other comprehensive loss
|
(8,635
|
)
|
(1,750
|
)
|
|||
Retained
earnings
|
388,895
|
262,559
|
|||||
Total
stockholders’ equity
|
216,718
|
284,252
|
|||||
Total
liabilities and stockholders’ equity
|
$
|
436,070
|
$
|
412,995
|
Years
Ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
(In
thousands)
|
||||||||||
Revenues:
|
||||||||||
Management
fees
|
$
|
157,116
|
$
|
147,698
|
$
|
142,178
|
||||
Subsidiary
dividends
|
35,500
|
55,307
|
52,250
|
|||||||
Investment
and other income
|
11,552
|
10,026
|
6,934
|
|||||||
Total
revenues
|
204,168
|
213,031
|
201,362
|
|||||||
Expenses:
|
||||||||||
Depreciation
|
6,805
|
6,798
|
9,161
|
|||||||
Other
|
53,078
|
44,780
|
53,113
|
|||||||
Interest
expense and other, net
|
348
|
6,166
|
1,164
|
|||||||
Total
expenses
|
60,231
|
57,744
|
63,438
|
|||||||
Income
before income taxes
|
143,937
|
155,287
|
137,924
|
|||||||
Provision
for income taxes
|
(40,094
|
)
|
(34,488
|
)
|
(22,363
|
)
|
||||
Income
of parent company
|
103,843
|
120,799
|
115,561
|
|||||||
Equity
in undistributed income of subsidiaries from continuing
operations
|
36,628
|
(782
|
)
|
7,858
|
||||||
Income
from continuing operations
|
140,471
|
120,017
|
123,419
|
|||||||
Loss
from discontinued operations
|
¾
|
¾
|
(682
|
)
|
||||||
Net
income
|
$
|
140,471
|
$
|
120,017
|
$
|
122,737
|
Years
Ended December 31,
|
||||||||||
2006
|
2005
|
2004
|
||||||||
(In
thousands)
|
||||||||||
Cash
flows from operating activities:
|
||||||||||
Income
from continuing operations
|
$
|
140,471
|
$
|
120,017
|
$
|
123,419
|
||||
Adjustments
to reconcile net income to net cash provided by
|
||||||||||
Operating
Activities:
|
||||||||||
Depreciation
|
6,805
|
6,798
|
9,161
|
|||||||
Stock
based compensation expense
|
9,199
|
7,391
|
7,332
|
|||||||
Excess
tax benefits from share-based payment arrangements
|
(9,853
|
)
|
||||||||
Loss
(gain) on property and equipment dispositions
|
55
|
(2,272
|
)
|
(89
|
)
|
|||||
Equity
in undistributed income of subsidiaries from continuing
operations
|
36,628
|
(782
|
)
|
7,858
|
||||||
Change
in assets and liabilities
|
(88,196
|
)
|
(46,142
|
)
|
(17,281
|
)
|
||||
Net
cash provided by operating activities
|
95,109
|
85,010
|
130,400
|
|||||||
Cash
flows from investing activities:
|
||||||||||
Capital
expenditures
|
(5,273
|
)
|
(2,034
|
)
|
(9,495
|
)
|
||||
Property
and equipment dispositions
|
(74
|
)
|
988
|
1,750
|
||||||
Decrease
(increase) in investments
|
6,666
|
(15,785
|
)
|
(32,501
|
)
|
|||||
Dividends
from subsidiaries
|
35,500
|
55,307
|
52,250
|
|||||||
Net
cash provided by investing activities
|
36,819
|
38,476
|
12,004
|
|||||||
Cash
flows from financing activities:
|
||||||||||
Payments
on debt and capital leases
|
(32
|
)
|
(10,029
|
)
|
(55
|
)
|
||||
Proceeds
from other long-term debt
|
75,000
|
¾
|
10,000
|
|||||||
Purchase
of treasury stock
|
(243,136
|
)
|
(154,382
|
)
|
(133,809
|
)
|
||||
Excess
tax benefits from share-based payment arrangements
|
9,853
|
|||||||||
Exercise
of stock in connection with stock plans
|
14,464
|
22,338
|
26,834
|
|||||||
Net
cash used for financing activities
|
(143,851
|
)
|
(142,073
|
)
|
(97,030
|
)
|
||||
Net
(decrease) increase in cash and cash equivalents
|
(11,923
|
)
|
(18,587
|
)
|
45,374
|
|||||
Cash
and cash equivalents at beginning of year
|
29,302
|
47,889
|
2,515
|
|||||||
Cash
and cash equivalents at end of year
|
$
|
17,379
|
$
|
29,302
|
$
|
47,889
|
Supplemental
condensed statements of cash flows information:
|
||||||||||
2006
|
2005
|
2004
|
||||||||
Cash
paid during the year for interest (net of amount
capitalized)
|
$
|
(2,535
|
)
|
$
|
(8,557
|
)
|
$
|
(2,979
|
)
|
|
Cash
paid during the year for income taxes
|
(55,750
|
)
|
(44,924
|
)
|
(12,620
|
)
|
||||
Non-cash
investing and financing activities:
|
||||||||||
Senior
convertible debentures converted into Sierra common stock
|
8,500
|
63,000
|
¾
|
|||||||
Tax
benefits from share-based payment arrangements
|
¾
|
25,697
|
27,287
|
|||||||
Additions
to capital leases
|
47
|
19
|
120
|
December
31,
|
(In
thousands)
|
|
||
2007
|
$
|
42
|
||
2008
|
44
|
|||
2009
|
33
|
|||
2010
|
12
|
|||
2011
|
75,000
|
|||
Thereafter
|
43,500
|
|||
Total
|
$
|
118,631
|
(In
thousands)
|
Additions
Charged To
|
||||||||||||
Years
Ended December 31,
|
Balance
At Beginning Of Period
|
Costs
And Expenses
|
Other
|
Deductions
|
|||||||||
2006
|
$
|
15,000
|
$
|
¾
|
$
|
¾
|
$
|
¾
|
|||||
2005
|
15,000
|
¾
|
¾
|
¾
|
|||||||||
2004
|
¾
|
15,000
|
¾
|
¾
|
(In
thousands)
|
Additions
Charged To
|
||||||||||||
Years
Ended December 31,
|
Balance
At Beginning Of Period
|
Costs
And Expenses
|
|
|
Other
|
|
|
Deductions
|
|||||
2006
|
$
|
15,082
|
$
|
(240
|
)
|
$
|
¾
|
$
|
¾
|
||||
2005
|
15,082
|
¾
|
¾
|
¾
|
|||||||||
2004
|
15,082
|
¾
|
¾
|
¾
|