Sierra Reports Year-End, Fourth Quarter 2003 Results

January 29, 2004

Las Vegas-based Sierra Health Services Inc. reported that income from continuing operations for the quarter ended Dec. 31, 2003 was $24.0 million, or $0.80 per diluted share, compared to income from continuing operations of $12.2 million, or $0.39 per diluted share for the quarter ended Dec. 31, 2002, an increase of 96.3 percent. For discontinued operations, net losses were $19.2 million for the quarter, compared to net losses of $7.7 million for the same period in 2002. Net income for the quarter was $4.8 million, or $0.16 per diluted share, compared to $4.5 million, or $0.14 per diluted share for the same period in 2002.

Income from continuing operations for the year ended Dec. 31, 2003 was $82.1 million, or $2.70 per diluted share, compared to $42.3 million, or $1.36 per diluted share for the year ended Dec. 31, 2002, an increase of 94.1 percent. For discontinued operations, net losses were $19.8 million for the year, compared to net losses of $5.9 million for 2002. Net income for the year was $62.3 million, or $2.05 per diluted share, compared to $36.4 million, or $1.17 per diluted share for the year 2002.

Revenues from continuing operations for the quarter were $373.4 million, an increase of 14.2 percent over the $326.9 million for the same period in 2002. Annual revenues from continuing operations were $1.5 billion for 2003, compared to $1.3 billion for 2002, an increase of 16.2 percent.

“In 2003, we saw exceptional performance from our core operations,” said Anthony M. Marlon M.D., chairman, president and chief executive officer of Sierra. “This performance has allowed us to grow membership, revenues and income, and generate strong cash flow. Additionally, with the exception of the company’s debentures, we have virtually no external debt. I am very comfortable with our projections for 2004 and remain confident in the company’s ability to return significant value to its shareholders.”

Medical premium revenues for 2003 were $962.2 million, an increase of 12.2 percent from the $857.7 million in 2002. For 2003, same-store commercial membership grew 8.1 percent. Medicare membership grew 7.1 percent. Over 96 percent of the company’s Medicare members are enrolled in the Social HMO program, which provides higher federal reimbursement. In 2003 this program was not subject to risk modifiers.

Military contract revenues for 2003 were $465.3 million, an increase of 24.6 percent from the $373.6 million reported in 2002. This increase is due primarily to change orders and expanded beneficiary eligibility as a result of the mobilization of reservists within Region 1. Sierra Military Health Services'(SMHS) accounts receivable balance at Dec. 31, 2003 was $47.4 million, compared to $47.1 million at Dec. 31, 2002. In September 2003, the company filed a protest of the loss of its bid for the TRICARE Next Generation (T-NEX) contract for the North Region. In December, the protest was denied by the Comptroller General of the United States General Accounting Office. Sierra is continuing to evaluate its options relative to the T-Nex contract. Should the company decide not to pursue further legal remedies, it is expected that SMHS will continue full operations through August 2004, followed by a phase out of activities for a period of six months thereafter.

In November 2003, Sierra announced it had reached a definitive agreement to sell its workers’ compensation subsidiary, California Indemnity Insurance Company Inc. (CIIC), to Folksamerica Holdings Company Inc. for $79.5 million, subject to certain adjustments. In the fourth quarter, Sierra recorded a charge of $15.6 million to reflect the reduction in the value of this business to its estimated net sales value. Additionally, the company incurred $3.4 million in other losses, primarily for reserve strengthening related to adverse claims development for prior accident years.

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