Add
UAHC to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| UAHC > SEC Filings for UAHC > Form 10-K on 24-Sep-2009 | All Recent SEC Filings |
24-Sep-2009
Annual Report
had a material adverse effect on the Company's operations, earnings, financial
condition and cash flows.
On October 10, 2006, UAHC-TN entered into a contract with the Centers for
Medicare & Medicaid Services ("CMS") to act as a Medicare Advantage qualified
organization. The contract authorizes UAHC-TN to serve members enrolled in both
the Tennessee Medicaid and Medicare programs, commonly referred to as
"dual-eligibles," specifically to offer a Medicare Advantage Special Needs Plan
("MA-SNP") to its eligible members in Shelby County, Tennessee (including the
City of Memphis), and to operate a Voluntary Medicare Prescription Drug Plan,
both beginning January 1, 2007. The contract term is through December 31, 2009,
after which the Company will not seek renewal of the contract. After the
discontinuance of the Medicare contract in December 2009, Medicare remaining
cash outlay is estimated to be approximately $2.7 million, which includes
trailing Medicare related claims, claims processing fees, labor and facility
fees.
Due to the expiration of the TennCare contract and the impending expiration of
the Medicare contract, our board of directors and management have been engaged
in a review of a variety of long-term strategic alternatives with the objective
of pursuing a strategic alternative that satisfies three primary objectives:
providing significant revenues; providing immediate positive EBITDA; and having
long-term growth opportunities. During this review, all feasible options are
being considered, including pursuing a joint venture or other strategic
partnership, completing a strategic acquisition or merger, or liquidating our
assets. Further, it is important to note that the exploration of strategic
options includes all industries that satisfy the three primary objectives, not
solely the healthcare industry.
Since 2005, the Company has been a defendant in a lawsuit as described in
Item 3. Legal Proceedings. Subsequent to June 30, 2009, the lawsuit was settled
for $3.3 million, offset by an expected insurance recovery of $0.2 million. The
Company has recorded a reserve of $3.1 million during fiscal 2009.
Review of Consolidated Results of Operations - 2009 Compared to 2008
Total revenues decreased $10.2 million (38%) to $16.7 million for the fiscal
year ended June 30, 2009 compared to $26.8 million for the fiscal year ended
June 30, 2008. The decrease in revenue is primarily attributable to
discontinuance of the TennCare contract.
MA-SNP medical premiums revenues were $11.1 million for the fiscal year ended
June 30, 2009 compared to $10.6 million for the fiscal year ended June 30, 2008,
under UAHC-TN's contract with CMS that began January 1, 2007. The increase in
medical premiums results from additional revenue from a retroactive claims
adjustment received from CMS, as discussed below, partially offset by a decrease
in the number of SNP members.
MA-SNP premium revenue is subject to adjustment based on the health risk of its
members. This process for adjusting premiums is referred to as the CMS risk
adjustment payment methodology. Under the risk adjustment payment methodology,
managed care plans must capture, collect, and report diagnosis code information
to CMS. After reviewing the respective submissions, CMS
establishes the payments to Medicare plans generally at the beginning of the
calendar year and then adjusts premiums on two separate occasions on a
retroactive basis.
The first retroactive risk premium adjustment for a given year generally occurs
during the third quarter of such year. This initial settlement (the "Initial CMS
Settlement") represents the updating of risk scores for the current year based
on updated diagnoses from the prior year. CMS then issues a final retroactive
risk premium adjustment settlement for that year in the following calendar year
(the "Final CMS Settlement").
Prior to fiscal 2009, the Company was unable to estimate the impact of either of
these risk adjustment settlements primarily because of the lack of historical
risk-based diagnosis code data and insufficient historical experience regarding
risk premium settlement adjustments on which to base a reasonable estimate of
future risk premium adjustments and, as such, recorded them upon notification
from CMS of such amounts. The Initial CMS Settlement related to 2008 claims
recorded in fiscal year 2009 was $0.8 million.
The net MA-SNP per member per month premium rate, based on an average membership
of 699 for the year ended June 30, 2009, was $1,598 for that one-year period.
The net MA-SNP per member per month premium rate, based on an average membership
of 767 for the year ended June 30, 2008, was $1,228 for that one-year period.
Fixed administrative fees were $4.6 million for the fiscal year ended June 30,
2009, a decrease of $9.9 million (68%) from fixed administrative fees of
$14.5 million for the fiscal year ended June 30, 2008. The decrease in fixed
administrative fees is principally due to a decrease in members resulting from
the discontinuance of the TennCare contract.
Variable administrative fees resulting from the modified risk arrangement
(MRA) revenue were $0.9 million for the fiscal year ended June 30, 2009 compared
to $1.7 million for the fiscal year ended June 30, 2008. The $0.9 million in MRA
revenue recorded in the second quarter of fiscal year 2009 related to fiscal
year 2008.
Total expenses were $26.1million for the fiscal year ended June 30, 2009,
compared to $30.1 million for the prior fiscal year, a decrease of $4.1 million
(13%) The decrease in total expenses was primarily the result of a decrease in
marketing, general and administrative expenses coupled with the fact that fiscal
year 2008 included a goodwill impairment charge of $3.5 million. The decrease in
marketing, general and administrative expenses was offset by increased legal
expenses and a legal reserve established of $3.1 million, net of an expected
insurance recovery of $0.2 million resulting from the litigation settlement
described in Part I. Item 3 "Legal Proceedings."
Medical expenses for MA-SNP were $10.2 million during the fiscal year ended
June 30, 2009, an increase of $0.6 million from $9.6 million during the fiscal
year ended June 30, 2008. Medical expenses generally consist of claim payments,
pharmacy costs, and estimates of future payments of claims provided for services
rendered prior to the end of the reporting period (such estimates of medical
claims incurred but not reported are also known as "IBNR"). The IBNR was
primarily based on medical cost estimates from historical data provided by CMS
and emerging medical claims experience together with current factors using
accepted actuarial methods. The percentage of such medical expenses to medical
premiums revenues for MA-SNP, referred to as the medical loss ratio, was 90.6%
for the fiscal year ended June 30, 2009 compared to 87.8% for the fiscal year
ended June 30, 2008.
General and administrative expenses were $12.6 million for the fiscal year ended
June 30, 2009, as compared with $16.9 million for the prior fiscal year, a
decrease of $4.3 million. The decrease was principally due to reductions in
labor costs, adminstrative costs and professional services expenses resulting
from the TennCare contract expiration partially offset by severance and labor
related expenses and the legal fees associated with the litigation as described
in Item 3. Legal Proceedings.
Provision for legal settlement totaled $3.1 million, net of $0.2 million in
expected insurance recovery for fiscal year ended June 30, 2009. There was no
provision for legal settlement recorded for fiscal year ended June 30, 2008, as
the amount was not determinable at the end of fiscal year ended June 30, 2008.
Since 2005, the Company has been a defendant in a lawsuit as described in Item
3. Legal Proceedings. Subsequent to June 30, 2009, the lawsuit was settled for
$3.3 million and will be offset by expected insurance of $0.2 million.
Depreciation and amortization expense decreased slightly to $0.1 million for the
fiscal year ended June 30, 2009 compared to $0.2 million for the fiscal year
ended June 30, 2008. The decrease results from the sale of fixed assets.
Loss from operations before income taxes was $8.7 million for the fiscal year
ended June 30, 2009 compared to loss from operations before income taxes of
$1.9 million for the fiscal year ended June 30, 2008. Such increase in loss from
operations of $6.8 million, or $0.79 per basic share, is principally due to
reduction in revenue resulting from the expiration of the TennCare contract and
the increase in legal expenses associated with litigation and the reserve
established for the legal settlement.
Income tax benefit was $0.005 million for the fiscal year ended June 30, 2009
compared to expense of $2.1 million for the prior fiscal year. The Company's
effective tax rate for the fiscal year ended June 30, 2009 differs from the
statutory rate. This difference was primarily related to the change in the
valuation allowance. As a result of the expiration of the TennCare contract and
pending expiration of the Medicare contract, the Company increased its deferred
tax asset valuation allowance due to uncertainties in its expected utilization.
Net loss was $8.7 million, or $(1.02) per basic share, for the fiscal year ended
June 30, 2009, compared to net loss of $4.0 million, or $(0.47) per basic share,
for the fiscal year ended June 30, 2008, an increase in the net loss of
$4.7 million (115%).
Review of Consolidated Results of Operations - 2008 to 2007
Total revenues increased $9.9 million (58%) to $26.8 million for the fiscal year
ended June 30, 2008 compared to $17.0 million for the fiscal year ended June 30,
2007. The increase in medical premiums revenues associated with MA-SNP as well
as an increase in modified risk revenue were offset by a decrease in fixed
administrative fees.
MA-SNP medical premiums revenues were $10.6 million for the fiscal year ended
June 30, 2008 compared to $0.9 million for the fiscal year ended June 30, 2007,
under UAHC-TN's contract with CMS that began January 1, 2007. The increase in
medical premiums is a result of increased membership.
The net MA-SNP per member per month premium rate, based on an average membership
of 767 for the one year ended June 30, 2008, was $1,228 for that one-year
period.
Fixed administrative fees related to the MRA program were $14.5 million for the
fiscal year ended June 30, 2008, a decrease of $1.0 million (7%) from fixed
administrative fees of
$15.5 million for the fiscal year ended June 30, 2007. The decrease in fixed
administrative fees is principally due to a decrease in members.
Variable administrative fees resulting from the MRA were $1.7 million for the
fiscal year ended June 30, 2008 compared to $0.5 million for the fiscal year
ended June 30, 2007. Of the $1.7 million MRA revenue recorded in fiscal year
2008, $0.3 million of MRA revenue received relates to the third quarter of
fiscal year 2006 and $1.4 million of MRA revenue received relates to fiscal year
2007. The $0.5 million MRA revenue received in fiscal year 2007 relates to the
fourth quarter of fiscal year 2006. Under the MRA, UAHC-TN is at risk to lose up
to 10% of administrative fee revenue and potentially could receive up to 15%
incentive bonus revenue based on performance relative to benchmarks (through
June 30, 2007). The Company's accounting policy is to recognize MRA revenues
upon notification by TennCare that the revenue has been earned. Effective
July 1, 2007, the evaluation period for the MRA was changed from quarterly to
annually, and the incentive bonus pool was adjusted to 20% of administrative fee
revenue.
Total expenses were $30.1 million for the fiscal year ended June 30, 2008,
compared to $19.1 million for the prior fiscal year, an increase of
$11.0 million (57%). The increase is principally due to a goodwill impairment
charge of $3.5 million and medical expenses related to our MA-SNP, which was
launched in January 2007. See Note 2 to our Consolidated Financial Statements in
Item 15 of this form 10-K.
Medical expenses for MA-SNP (beginning January 1, 2007) were $9.6 million during
the fiscal year ended June 30, 2008, an increase of $8.7 million from
$0.9 million during the fiscal year ended June 30, 2007. Medical expenses
generally consist of claim payments, pharmacy costs, and IBNR. The IBNR was
primarily based on medical cost estimates from historical data provided by CMS
and emerging medical claims experience together with current factors using
accepted actuarial methods. The medical loss ratio was 87.8% for the fiscal year
ended June 30, 2008.
General and administrative expenses were $16.9 million for the fiscal year ended
June 30, 2008, as compared with $16.6 million for the prior fiscal year, an
increase of $0.3 million. The increase is principally due to marketing costs
associated with the launch of our MA-SNP.
Depreciation and amortization expense increased $0.1 million to $0.2 million for
the fiscal year ended June 30, 2008 compared to $0.1 million for the fiscal year
ended June 30, 2007.
Loss from operations before income taxes was $1.9 million for the fiscal year
ended June 30, 2008 compared to loss from operations before income taxes of
$1.1 million for the fiscal year ended June 30, 2007. Such increase in loss from
operations of $0.8 million, or $0.10 per basic share, is principally due to a
goodwill impairment charge of $3.5 million and medical expenses related to our
MA-SNP, which was launched in January 2007.
Income tax expense was $2.1 million for the fiscal year ended June 30, 2008
compared to $0.1 million for the prior fiscal year. The Company's effective tax
rate for the fiscal year ended June 30, 2008 differs from the statutory rate.
This difference was primarily related to the change in the valuation allowance
and an impairment charge against goodwill, which is not deductible for
tax purposes. As a result of the pending expiration of the TennCare contract,
the Company increased its deferred tax asset valuation allowance due to
uncertainties in its expected utilization.
Net loss was $4.0 million, or $(0.47) per basic share, for the fiscal year ended
June 30, 2008, compared to net loss of $1.1 million, or $(0.14) per basic share,
for the fiscal year ended June 30, 2007, an increase in the net loss of
$2.9 million (262%).
Cash provided by investing activities of $9.5 million was primarily due to net
sales of marketable securities. Cash proceeds from the maturity of marketable
securities of $38.7 million was offset by cash purchases of maturity securities
of $29.2 million. Property, plant and equipment decreased by $0.3 million at
June 30, 2009 compared to June 30, 2008, due to the disposal of fixed assets
associated with the sublease of the Tennessee facility and depreciation of
$0.2 million.
Cash used in financing activities of $1.0 million was primarily due to a share
repurchase program. On November 25, 2008, the Company's board of directors
approved the share repurchase program, authorizing the Company to repurchase up
to $1.0 million of the Company's outstanding common stock. As of June 30, 2009,
the Company had repurchased a total of 670,795 shares at an average price of
$1.46 per share under the share repurchase program. At June 30, 2009, there was
$18,630 available under the share repurchase program.
The net increase in cash flow was $2.4 million for the fiscal year ended
June 30, 2009, compared to a net increase in cash flow of $1.8 million for the
prior fiscal year.
The Company's wholly owned subsidiary, UAHC-TN, had a required minimum net worth
requirement using statutory accounting practices of $7.2 million at June 30,
2009. UAHC-TN had excess statutory net worth of approximately $1.3 million at
June 30, 2009. The net worth and depository requirement was in effect through
the contract expiration date of June 30, 2009. At such time, UAHC-TN, must
continue to maintain a depository requirements of at least $2.4 million as
statutory reserves for its ongoing Medicare operations.
Recently Enacted Pronouncements
The following are new accounting standards and interpretations that may be
applicable in the future to the Company:
In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations," and
SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements -
an Amendment of ARB No. 51." SFAS No. 141(R) requires an acquirer to measure the
identifiable assets acquired, the liabilities assumed and any noncontrolling
interest in the acquiree at their fair values on the acquisition date, with
goodwill being the excess value over the net identifiable assets acquired. SFAS
No. 160 clarifies that a noncontrolling interest in a subsidiary should be
reported as equity in the consolidated financial statements. The calculation of
earnings per share will continue to be based on income amounts attributable to
the parent. SFAS No. 160 also requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
noncontrolling interest. It also requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. SFAS No. 160 also
provides guidance when a subsidiary is deconsolidated and requires expanded
disclosures in the consolidated financial statements that clearly identify and
distinguish between the interests of the parent's owners and the interests of
the noncontrolling owners of a subsidiary. SFAS No. 141(R) and SFAS No. 160 are
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption is
prohibited. If the Company completes an acquisition, the Company believes that
SFAS No. 141(R) will have an effect on its financial statements. The Company
will determine the effect of SFAS No. 141(R) at the time of any such
acquisition.
Also in May 2008, the FASB issued SFAS No. 163, "Accounting for Financial
Guarantee Insurance Contracts - an Interpretation of SFAS Statement No. 60"
("SFAS 163"). SFAS 163 interprets Statement No. 60 and amends existing
accounting pronouncements to clarify their application to the financial
guarantee insurance contracts included within the scope of that Statement. SFAS
163 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and all interim periods within those fiscal years. As
such, the Company is required to adopt these provisions at the beginning of the
fiscal year ended June 30, 2010. The Company does not believe that SFAS 163 will
have an effect on its financial statements.
In June 2008, the FASB issued FSP EITF 03-6-1, "Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities" ("FSP
EITF 03-6-1"). FSP EITF 03-6-1 addresses whether instruments granted in
share-based payment transactions are participating securities prior to vesting,
and therefore need to be included in the earnings allocation in computing
earnings per share under the two-class method as described in SFAS No. 128,
"Earnings per Share." Under the guidance of FSP EITF 03-6-1, unvested
share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings-per-share pursuant to the
two-class method. FSP EITF 03-6-1 is effective for financial statements issued
for fiscal years beginning after December 15, 2008 and all prior-period earnings
per share data presented shall be adjusted retrospectively. Early application is
not permitted. The Company is evaluating the impact, if any, that FSP EITF
03-6-1 will have on its financial statements.
In June 2009, FASB issued SFAS No. 168, "The FASB Codification and the Hierarchy
of Generally Accepted Accounting Principles" ("SFAS 168" or "Codification").
When it becomes effective for financial statements covering periods ending after
September 15, 2009, the Codification will be the single source of authoritative
U.S. GAAP applicable to all non-governmental entities and will supersede all
existing FASB, AICPA, and Emerging Issues Task Force ("EITF") pronouncements and
related literature (i.e. all codified literature will carry the same level of
authority and non-codified GAAP literature will become non-authoritative). The
Codification will also include relevant portions of authoritative SEC content
relating to matters within the basic financial statements, which are considered
as sources of authoritative GAAP for SEC registrants. As of July 1, 2009, the
. . .
|
|