UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] 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 0-23430
South Dakota State Medical Holding Company, Incorporated
(Exact name of registrant as specified in its charter)
South Dakota 46-0401087
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1323 South Minnesota Avenue, Sioux Falls, South Dakota 57105
(Address of principal executive office)
(Zip Code)
(605) 334-4000
(Registrant's telephone number, including area code)
______________________________
(Former name, former address, and former fiscal year, if changed
since last report)
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 X NO
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) YES NO X
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 21, 2003
Class C Common Stock 1,365,604
SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
FORM 10-Q
INDEX
Page Number
Part 1. Financial Information (unaudited)
Item 1. Financial Statements
Consolidated Balance Sheets at
March 31, 2003 and December 31, 2002 2
Consolidated Statements of Operations for
the Three Months Ended March 31, 2003 and 2002 3
Consolidated Statement of Stockholders' Equity
for the Three Months Ended March 31, 2003 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2003 and 2002 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7-10
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 10
Item 4. Controls and Procedures 10
Part II. Other Information 11
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote
of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
Certifications 12-13
Exhibit 99.1 CEO Certification 14
Exhibit 99.2 CFO Certification 15
1
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTH DAKOTA STATE MEDICAL HOLDING
COMPANY, INCORPORATED d/b/a DAKOTACARE
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
ASSETS 2003 2002
- -------------------------------------------------------------------------------
Cash and cash equivalents $ 11,127,089 $ 10,543,214
Investments in securities held to maturity 498,156 448,229
Certificates of deposit 1,400,000 1,400,000
Receivables 1,912,952 2,045,091
Prepaids and other assets 57,672 49,998
Deferred income taxes 895,400 891,400
------------- -------------
Total current assets 15,891,269 15,377,932
------------- -------------
Investment in securities held to maturity 4,262,381 4,277,417
Investment in securities available for sale 147,800 146,500
Certificate of deposit 100,000 100,000
Contracts with life insurance companies 96,532 93,532
------------- -------------
Total long-term investments 4,606,713 4,617,449
------------- -------------
Property and equipment, net of accum. depreciation 625,156 702,621
------------- -------------
$ 21,123,138 $ 20,698,002
============= =============
LIABILITIES
Reported and unreported claims payable $ 10,014,987 $ 9,906,383
Unearned premiums and administration fees 2,482,833 2,315,745
Accounts payable and accrued expenses 1,244,261 1,318,078
Contingency reserves payable 2,215,750 2,215,750
------------- -------------
Total current liabilities 15,957,381 15,755,956
Contingency reserves payable 3,726,509 2,974,808
------------- -------------
Total liabilities 19,684,340 18,730,764
------------- -------------
Minority interest in subsidiaries 3,107 6,676
------------- -------------
STOCKHOLDERS' EQUITY
Class A preferred, voting, no par value, $10 stated
value, 2,500 shares authorized; 1,372 and 1,350
shares issued and outstanding at March 31, 2003 and
December 31, 2002; liquidation preference of
outstanding shares of $13,720 and $13,500 at
March 31, 2003 and December 31, 2002, respectively 13,720 13,500
Class B preferred, voting, no par value, $1 stated
value, 2,500 shares authorized; issued and
outstanding 1,300 shares; liquidation preference
of outstanding shares of $1,300 1,300 1,300
Class C common, nonvoting, $.01 par value, 10,000,000
shares authorized; issued 1,505,760 shares 15,058 15,058
Additional paid-in capital 3,749,342 3,749,342
Retained (deficit) (1,020,079) (495,488)
Accumulated other comprehensive income 5,529 6,029
Less cost of Class C common treasury stock,
140,156 shares (1,329,179) (1,329,179)
------------- -------------
1,435,691 1,960,562
------------- -------------
$ 21,123,138 $ 20,698,002
============= =============
See Notes to Consolidated Financial Statements. 2
SOUTH DAKOTA STATE MEDICAL HOLDING
COMPANY, INCORPORATED d/b/a DAKOTACARE
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
2003 2002
- -----------------------------------------------------------
Revenues:
Premiums, net of reins. ceded $ 20,867,791 $ 18,096,903
Third party administration fees 1,372,220 1,285,450
Investment income 104,187 120,779
Other income 342,972 320,608
------------- -------------
Total revenues $ 22,687,170 $ 19,823,740
------------- -------------
Operating expenses:
Claims incurred,
net of reins. recoveries $ 19,547,393 $ 16,582,669
Personnel expense 1,545,002 1,381,753
Commissions 820,138 765,216
Professional fees expense 192,350 245,749
Office expense 207,010 245,002
Advertising 117,204 161,612
Occupancy expense 216,233 187,907
State insurance taxes 247,781 238,388
Other general and
administrative expenses 422,531 320,328
------------- -------------
Total operating expenses $ 23,315,642 $ 20,128,624
------------- -------------
(Loss) before income taxes
and minority interest $ (628,472) $ (304,884)
Income taxes (benefit) (100,100) (12,100)
------------- -------------
(Loss) before minority
interest $ (528,372) $ (292,784)
Minority interest in (loss)
of subsidiaries (3,781) (5,634)
------------- -------------
Net (loss) $ (524,591) $ (287,150)
============= =============
(Loss) per common share $ (0.38) $ (0.21)
============= =============
Comprehensive (loss) $ (525,091) $ (288,557)
============= =============
Weighted average number of
common shares outstanding 1,365,604 1,365,604
============= =============
See Notes to Consolidated Financial Statements.
3
SOUTH DAKOTA STATE MEDICAL HOLDING
COMPANY, INCORPORATED d/b/a DAKOTACARE
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 2003
(Unaudited)
Accumulated
Additional Other
Capital Paid-In Retained Comprehensive Treasury
Stock Capital (Deficit) Income Stock Total
- --------------------------------------------------------------------------------------------
Balance,
December 31, 2002 $29,858 $3,749,342 $ (495,488) $ 6,029 $(1,329,179) $1,960,562
Issuance of Class A
preferred stock 220 -- -- -- -- 220
Comprehensive (loss):
Net (loss) -- -- (524,591) -- --
Net change in un-
realized gain on
securities avail-
able for sale -- -- -- (500) --
Comprehensive (loss) -- -- -- -- -- (525,091)
-------- ----------- ------------ --------- ------------ -----------
Balance, March 31, 2003 $30,078 $3,749,342 $(1,020,079) $ 5,529 $(1,329,179) $1,435,691
======== =========== ============ ========= ============ ===========
See Notes to Consolidated Financial Statements.
4
SOUTH DAKOTA STATE MEDICAL HOLDING
COMPANY, INCORPORATED d/b/a DAKOTACARE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31,
2003 2002
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (524,591) $ (287,150)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation 86,540 63,154
Minority interest in (loss) of subsidiaries (3,781) (5,634)
Amortization of discounts and premiums on investments, net (34,891) (36,358)
Decrease in receivables 132,139 152,897
(Increase) decrease in prepaids and other assets (7,674) 1,488
(Increase) decrease in deferred income taxes (4,000) 2,900
Increase in reported and unreported claims payable 108,604 597,223
Increase in unearned premiums and administration fees 167,088 347,795
(Decrease) in accounts payable and accrued expenses (73,817) (13,980)
Increase in contingency reserves payable 751,701 652,899
------------- -------------
Net cash provided by operating activities $ 597,318 $ 1,475,234
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale $ (1,800) $ (1,707)
Held to maturity securities:
Matured -- 165,000
Purchased -- (200,005)
Proceeds from maturities of certificates of deposit 400,000 400,000
Purchase of certificates of deposit (400,000) (500,000)
(Increase) decrease in contracts with life
insurance companies (3,000) 339
Purchase of property and equipment (9,075) (145,165)
------------- -------------
Net cash (used in) investing activities $ (13,875) $ (281,538)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of capital stock $ 220 $ --
Increase in minority investment of subsidiary 212 511
------------- -------------
Net cash provided by financing activities $ 432 $ 511
------------- -------------
Increase in cash and cash equivalents $ 583,875 $ 1,194,207
CASH AND CASH EQUIVALENTS
Beginning 10,543,214 8,673,787
------------- -------------
Ending $ 11,127,089 $ 9,867,994
============= =============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Income taxes, net of (refunds) $ (200,000) $ 0
Supplemental Disclosures of Noncash Investing
And Financing Activities
Increase (Decrease) in unrealized gain on
securities available for sale $ 500 $ (1,407)
See Notes to Consolidated Financial Statements.
5
SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED
D/B/A DAKOTACARE
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements of South Dakota State Medical Holding
Company, Incorporated, d/b/a DAKOTACARE, (the "Company") and its
wholly-owned subsidiaries, DAKOTACARE Administrative Services, Incorporated
(DAS), and DAKOTACARE Insurance Ltd. (DIL), and its majority owned subsidiary,
CareWest, Inc. (CW) contained in this report are unaudited but reflect all
adjustments, consisting only of normal recurring adjustments, which, in the
opinion of management, are necessary for a fair presentation of the financial
information for the periods presented and are not necessarily indicative of
the results to be expected for the full year.
2. (LOSS) PER COMMON SHARE
(Loss) per common share is calculated by dividing net (loss) by the weighted
average number of Class C common shares outstanding during the period. All
references to (loss) per share in the consolidated financial statements are
to basic (loss) per share, as the Company has no potentially issuable common
stock.
3. TREASURY STOCK
As a service to the Company's shareholders to facilitate liquidity for Class
C common stock (Common Stock) in the event of death, disability, or retirement
of a shareholder, the Company's Board of Directors adopted a Stock Repurchase
Program (Program) in February 1998. Participation in the Program is
voluntary. No shareholder is required to sell his or her shares of Common
Stock under the Program nor is the Company required to purchase any Common
Stock under the Program. The purchase and sale of Common Stock under the
Program is subject to repurchase conditions as described in the Program. The
Board of Directors of the Company may, at any time, modify or terminate the
Program. The Company may also, at its discretion, offer to repurchase shares
of Common Stock outside the Program in compliance with applicable laws.
4. SEGMENT INFORMATION
The Company has three reportable segments: Health Maintenance Organization
(HMO), Third Party Administration (TPA) and Reinsurance. The HMO segment
consists of the operations of the Company. The Company is a South Dakota
licensed HMO engaged in the development of comprehensive health care delivery
systems. The TPA segment consists of the operations of DAS and CW. These
subsidiaries are TPA's of health care plans for independent employer companies.
The reinsurance segment consists of the operations of DIL. DIL's primary
activity is in providing reinsurance quota share excess medical stop loss
coverage to DAS's self funded customers.
The Company evaluates performance and allocates resources based on net income
determined under accounting principles generally accepted in the United States
of America. The accounting policies of the reportable segments are the same
as those described in the summary of significant accounting policies as
indicated in the Company's 2002 Annual Consolidated Financial Statements. The
Company allocates payroll costs incurred based on the activities of admitting
new enrollees and in adjudicating claims. The HMO segment (loss)
includes the equity in net (loss) of the TPA and reinsurance segments.
Intersegment revenues primarily relate to equipment rental charges which are
based on the depreciation of the underlying assets. Segment assets include
the investment in subsidiaries.
6
The Company's reportable segments are derived from the operations of the
Company and subsidiaries that offer different products. The reportable
segments are managed separately because they provide distinct services.
For the Three Months Ended March 31, 2003
- ---------------------------------------------------------------------------------------
HMO TPA Reinsurance Totals
----------------------------------------------------------
Revenues from external sources $ 20,879,396 $ 1,463,259 $ 329,293 $22,671,948
Intersegment revenues -- 58,999 -- 58,999
Segment (loss) (524,591) (4,711) (14,293) (543,595)
Segment assets 20,450,343 1,588,985 791,370 22,830,698
The total segment loss is greater than the consolidated net loss by
$19,004 because the equity in net loss of subsidiaries has not been
eliminated from the individual segment amounts.
For the Three Months Ended March 31, 2002
- ---------------------------------------------------------------------------------------
HMO TPA Reinsurance Totals
----------------------------------------------------------
Revenues from external sources $ 18,451,605 $ 1,383,672 $ 76,514 $ 19,911,791
Intersegment revenues -- 49,569 -- 49,569
Segment (loss) (287,150) (21,559) (72,126) (380,835)
Segment assets 20,326,254 1,195,477 552,636 22,074,367
The total segment loss is greater than the consolidated net loss by
$93,685 because the equity in net loss of subsidiaries has not been
eliminated from the individual segment amounts.
5. COMPREHENSIVE (LOSS)
Comprehensive (loss) was ($525,091) and ($288,557) for the three months
ended March 31, 2003 and 2002, respectively. The difference between
comprehensive (loss) and net (loss) presented in the Consolidated Statements
of Operations is attributed solely to change in unrealized gains and losses
on securities available for sale during the periods presented.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The Company markets its products under the tradename of DAKOTACARE. Its
products include group managed health care products such as HMO products and
cafeteria plan administration and workers compensation managed care services.
Its subsidiaries' (DAS and CW) products are managed care and claims
administration services for self-insured employer groups. Its subsidiary,
DIL, accepts reinsurance risk on some of DAS's self-funded and insured
customers' life and stop-loss insurance policies. The Company and its
subsidiaries DAS and CW, market their products through a network of independent
insurance agents throughout South Dakota.
The Company contracts with over 98% of the physicians in the state of South
Dakota, 100% of the hospitals in the state of South Dakota, and many other
health care providers to provide medical services to its enrollees. At
March 31, 2003, the Company's HMO medical care enrollment was approximately
37,900, while its subsidiaries DAS and CW had combined medical care
enrollment of approximately 64,700. The Company also offers ancillary
products and the resulting exclusive enrollment under the HMO was
approximately 2,000, while its subsidiaries DAS and CW had combined ancillary
product exclusive enrollment of approximately 15,600. The resulting total
population served by the Company through any of its products resulted in
a total of approximately 120,200 at March 31, 2003.
This discussion and analysis contains certain forward-looking terminology such
as "believes," "anticipates," "will," and "intends," or comparable terminology.
Such statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those projected. Potential
purchasers of the Company's securities are cautioned not to place undue
reliance on such forward-looking statements which are qualified in their
entirety by the cautions and risks described herein and in other reports filed
by the Company with the Securities and Exchange Commission.
7
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2003 AND MARCH 31, 2002
General
The Company's net loss increased $237,441 to $524,591 for the three months
ended March 31, 2003, as compared to a net loss of $287,150 for the three
months ended March 31, 2002. This increase in net losses was primarily due
to the increase in operating expenses over the increase in total revenues.
Total operating expenses increased $3,187,018 for the three months ended
March 31, 2003, while total revenues increased $2,863,430 for the same
period. This was somewhat offset by the increase in income tax benefits of
$88,000 for the three months ended March 31, 2002 as compared to
March 31, 2002.
Revenues
Total revenues increased $2,863,430, or 14.4%, for the three months ended
March 31, 2003, as compared to March 31, 2002. The revenues from the
net premiums generated by the health maintenance organization increased
$2,518,714, or 14.0%. This increase is attributable to a 15.2% increase
in the premiums earned per enrollee and a decrease in the enrollment of 1.0%
for the three months ended March 31, 2003, as compared to March 31, 2002.
Revenues from the TPA fees increased by $86,770 due to a small net increase
in enrollment and additional fees generated with existing enrollment.
Investment income decreased by $16,592 due to lower yields overall. The
reduction in income due to the lower yields was partially offset by an increase
in invested assets when compared to the quarter ended March 31, 2002.
Operating Expenses
Total operating expenses increased $3,187,018, or 15.8%, for the three months
ended March 31, 2003, as compared to March 31, 2002. This was due to
an increase in claims incurred, personnel expense, commissions, state
insurance taxes, occupancy expense, and other general and administrative
expenses, but was somewhat offset by a decrease in professional fees expense,
advertising and office expense.
Net claims expense generated by the health maintenance organization increased
$2,816,496, or 17.1%. Average claims expense per enrollee increased 18.3%
for the three months ended March 31, 2003, as compared to March 31, 2002,
while the number of enrollees decreased 1.0%. Personnel expense increased
$163,249, or 11.8% for the three months ended March 31, 2003, as compared
to March 31, 2002. This is due to the increased number of personnel and the
annual salary adjustments made June of each year. Some of the increase in
personnel was needed to eliminate and reduce expenses for temporary help. This
was seen by the reduction in temporary help expenses within the professional
fees. Commissions and state insurance taxes increased due to the increase in
net premiums and TPA fees for the three months ended March 31, 2003 as
compared to March 31, 2002. Occupancy expense increased $28,326, or 15.1% due
to increased depreciation expense. Other general and administrative expenses
increased $102,203 for the three months ended March 31, 2003, as compared to
March 31, 2002. Insurance expense continued to increase as coverages were
renewed which accounted for most of the increase. Professional fees decreased
$53,399, or 21.7%, for the three months ended March 31, 2003 as compared to
March 31, 2002. Legal, accounting fees, and temporary help decreased when
compared to the prior year which accounted for the majority of the change.
Office expense decreased $37,992, or 15.5% due to a decrease in printing,
supplies, and telephone, which were greater than the increase in postage costs.
Income Taxes
Income tax expense or benefit should represent 35% of income or loss, but
fluctuates each period due to adjustments for a valuation allowance for
deferred tax assets and permanent tax differences. For the three months
ended March 31,2003, income tax benefit represented 15.9% of the loss
before taxes and minority interest. The valuation allowance for deferred
tax assets exists due to the fact that the recoverable amount of deferred
taxes is limited to the amount paid by the Company to the Internal Revenue
Service and is available to be recovered if taxable losses occur. The
valuation allowance is also effected by the losses incurred by a subsidiary
which has no prior cumulative taxable income from which to recover the taxes.
Even though the subsidiary files within the consolidated tax return, cumulative
losses are nondeductible due to an agreement signed with the government of
the foreign subsidiary, which prohibits the deductions until income is
produced by the subsidiary.
8
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of cash have been premium and fee revenue,
collection of premiums in advance of the claims costs associated with them, and
an agreement with participating physicians in which a percentage of fees for
services is withheld for cash flows of the Company. The Company in the past has
had borrowings from banks and affiliated companies, but currently does not need
to borrow for liquidity purposes.
Net cash provided by operating activities decreased by $877,916 to $597,318
for the three months ended March 31, 2003, as compared to March 31, 2002.
Cash provided by operations was mainly attributed to the increase in reported
and unreported claims payable, the increase in unearned premiums, the increase
in contingency reserves payable. The cash provided by these changes were
somewhat offset by the net loss for the three months ended March 31, 2003, and
a decrease in accounts payable. Reported and unreported claims payable have
increased due to the need for additional reserves on the HMO and Reinsurance
segments. Unearned premiums increased since the prior year end, which is due
to the higher premium income and fluctuates based somewhat on the timing of
premiums received from clients. The Company implemented a new plan whereby
delinquent paying clients are suspended immediately for pharmacy coverage.
Due to this change, premium payments have been accelerated by clients to the
HMO and thus has added to the amount of unearned premiums received. There was
no payment of contingency reserves to physicians for the three months ended
March 31, 2003, which caused the increase in contingency reserves payable.
Cash flows provided from investing activities were minimal. Equity securities
were purchased with the reinvestment of dividends from those equity securities.
Equipment was also purchased in the normal course of business. Four
Certificates of Deposit matured and renewed into new Certificates of Deposit
which generated no cash flow.
The Company is not contractually obligated to pay out the contingency reserves
withheld but has historically elected to pay out a majority of the amounts
withheld. No dividends have been declared or paid for the three months
ended March 31, 2003. Future dividend payments are dependent on operations
and liquidity of the Company. The Company believes that cash flows generated
by operations, withholding of contingency reserves payable, cash on hand, and
short-term investment balances will be sufficient to fund operations, pay out
the projected contingency reserves payable, and pay dividends on the Class C
common stock. Even though cash flows may provide for the payment of dividends
and contingency reserves, the Board of Directors determine the amounts that are
paid. Risk based capital requirements, budgeted cash expenditures and a number
of other factors may influence the Board's decision for these payments.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are summarized in the footnotes to our
financial statements for our latest 10K which we filed March 29, 2003.
Estimates are used extensively in determining the claims liability at the
date of the balance sheet. The information used to determine the liability
is historical data, current enrollment levels and other trends as they may
apply. The liability is then adjusted to a number which represents
management's best estimate at that time. The actual liability may change
continuously for 18 months, but becomes more determinable as the length
of time increases from the balance sheet date.
9
INFLATION
A substantial portion of the Company's operating expenses consist of health
care costs, which, in the general economy, have been rising at a rate greater
than that of the overall Consumer Price Index. The Company believes that its
cost control measures and risk sharing arrangements reduce the effect of
inflation on such costs. Historically, market conditions and the regulatory
environment in which the Company operates have permitted the Company to offset
a portion or all of the impact of inflation on the cost of health care
benefits through premium increases. If the Company was not able to continue to
increase premiums, a material adverse impact on the Company's operations could
result. Inflation has not had a material effect on the remainder of the
Company's operating expenses.
TRENDS, EVENTS, OR UNCERTAINTIES
In recent years, there has been a trend by clients to switch to plans with
higher employee cost-sharing levels in order to maintain lower premiums. As a
provider of cost effective managed care plans for medium and small employers,
the Company believes it is delivering products and services that address
current health care reform issues. The Company will continue to evaluate its
business strategy as necessary to maximize its ability to adapt to the
changing health care marketplace.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company does not have any material risk as defined by Item 305 of
Regulation S-K. The Company has market risk with its cash and investments, but
due to the conservative nature of the invested assets, management feels that
the market risk is limited.
Item 4. Controls and Procedures
(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this quarterly
report on Form 10-Q, our principal executive officer and principal financial
officer have concluded that our disclosure and controls procedures (as defined
in Rules 13a-14(c) and 15d-14(c) under the Exchange Act) are effective to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.
(b) Changes in internal controls. There were no significant changes in our
internal controls or in other factors that could significantly affect those
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
10
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 99--CEO and CFO Certification
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
South Dakota State Medical Holding Company, Incorporated
(Registrant)
Date:______________ By: ______________________
L. Paul Jensen
Chief Executive Officer
(Duly Authorized Officer)
Date:______________ By: _______________________
Kirk J. Zimmer
Senior Vice President
(Principal Financial Officer)
11
Certifications
I, L. Paul Jensen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of South Dakota State
Medical Holding Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
_________________
L. Paul Jensen
Chief Executive Officer
May 15, 2003
12
I, Bruce E. Hanson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of South Dakota State
Medical Holding Company, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
________________________
Bruce E. Hanson
Chief Finance Officer
May 15, 2003
13
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. Sec. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of South Dakota State Medical Holding
Company, Inc., dba DAKOTACARE(the "Company") on Form 10-Q for the period ended
March 31, 2003, as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, L. Paul Jensen, Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
________________________
Chief Executive Officer
May 15, 2003
A signed original of this written statement required by Section 906 has been
provided to South Dakota State Medical Holding Co., Inc. and will be retained
by South Dakota State Medical Holding Co., Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
14
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. Sec. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of South Dakota State Medical Holding
Company, Inc., dba DAKOTACARE(the "Company") on Form 10-Q for the period ended
March 31, 2003, as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Bruce Hanson, Chief Finance Officer of the
Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my
knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
________________________
Chief Finance Officer
May 15, 2003
A signed original of this written statement required by Section 906 has been
provided to South Dakota State Medical Holding Co., Inc. and will be retained
by South Dakota State Medical Holding Co., Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
15