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, 2004
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, including 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 28, 2004
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, 2004 and December 31, 2003 2
Consolidated Statements of Operations for the Three
Ended March 31,2004 and 2003 3
Consolidated Statement of Stockholders' Equity
for the Three Months Ended March 31, 2004 4
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2004 and 2003 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 11
Part II. Other Information 11
Item 1. Legal Proceedings 11
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities 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 12
1
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTH DAKOTA STATE MEDICAL HOLDING COMPANY, INCORPORATED d/b/a DAKOTACARE
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 2004 2003
(Unaudited) (Audited)
- --------------------------------------------------------------------------------------
Cash and cash equivalents $ 13,848,568 $ 14,518,442
Investment in securities held to maturity 369,084 409,138
Certificates of deposit 1,400,000 1,400,000
Receivables 2,171,487 2,490,688
Prepaids and other assets 120,500 75,500
Deferred income taxes 1,332,100 344,200
------------- -------------
Total current assets 19,241,739 19,237,968
------------- -------------
Investment in securities held to maturity 4,805,183 3,981,591
Investment in securities available for sale 151,300 148,600
Certificates of deposit 600,000 100,000
Contracts with life insurance companies and other 103,603 96,668
------------- -------------
Total long-term investments 5,660,086 4,326,859
------------- -------------
Property and equipment, net of accum. depreciation 515,724 581,353
------------- -------------
Deferred income taxes 1,110,900 1,492,500
------------- -------------
$ 26,528,449 $ 25,638,680
============= =============
LIABILITIES
Reported and unreported claims payable $ 10,448,686 $ 12,854,487
Unearned premiums and administration fees 2,846,023 2,275,579
Accounts payable and accrued expenses 1,814,122 1,477,274
Contingency reserves payable 3,015,157 --
------------- -------------
Total current liabilities 18,123,988 16,607,340
Contingency reserves payable 3,604,898 6,080,812
------------- -------------
Total liabilities 21,728,886 22,688,152
------------- -------------
STOCKHOLDERS' EQUITY
Class A preferred, voting, no par value, $10 stated value,
2,500 shares authorized; 1,435 and 1,424 shares issued
and outstanding at March 31, 2004 and December 31, 2003;
liquidation preference of outstanding shares of $14,350 and
$14,240 at March 31, 2004 and December 31, 2003, respectively 14,350 14,240
Class B preferred, voting, no par value, $1 stated value,
2,500 shares authorized; 1,800 shares issued
and outstanding; liquidation preference of outstanding
shares of $1,800 1,800 1,800
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 Earnings 2,344,071 496,484
Accumulated other comprehensive income 4,121 2,783
Less cost of Class C common treasury stock, 140,156 shares (1,329,179) (1,329,179)
------------- -------------
4,799,563 2,950,528
------------- -------------
$ 26,528,449 $ 25,638,680
============= =============
See Condensed 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,
2004 2003
- -----------------------------------------------------------
Revenues:
Premiums, net of reins. ceded $ 20,766,562 $ 20,867,791
Third party administration fees 1,323,914 1,372,220
Investment income 95,159 104,187
Other income 361,024 342,972
------------- -------------
Total revenues $ 22,546,659 $ 22,687,170
------------- -------------
Operating expenses:
Claims incurred,
net of reins. recoveries $ 16,572,922 $ 19,547,393
Personnel expense 1,570,096 1,545,002
Commissions 831,684 820,138
Professional fees expense 312,037 192,350
Office expense 291,263 207,010
Advertising 130,530 117,204
Occupancy expense 231,938 216,233
State insurance taxes 237,911 247,781
Other general and
administrative expenses 439,484 422,531
------------- -------------
Total operating expenses $ 20,617,865 $ 23,315,642
------------- -------------
Income(loss) before income taxes
and minority interest $ 1,928,794 $ (628,472)
Income taxes (benefit) 85,300 (100,100)
------------- -------------
Income(loss) before minority
interest $ 1,843,494 $ (528,372)
Minority interest in (loss)
of subsidiaries (4,093) (3,781)
------------- -------------
Net income(loss) $ 1,847,587 $ (524,591)
============= =============
Income(loss) per common share $ 1.35 $ (0.38)
============= =============
Comprehensive income(loss) $ 1,848,925 $ (525,091)
============= =============
Weighted average number of
common shares outstanding 1,365,604 1,365,604
============= =============
See Condensed 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, 2004
(Unaudited)
Accumulated
Additional Other
Capital Paid-In Retained Comprehensive Treasury
Stock Capital Earnings Income Stock Total
- --------------------------------------------------------------------------------------------
Balance,
December 31, 2003 $31,098 $3,749,342 $ 496,484 $ 2,783 $(1,329,179) $2,950,528
Issuance of Class A
preferred stock 110 -- -- -- -- 110
Comprehensive loss:
Net income -- -- 1,847,587 -- --
Net change in un-
realized gain on
securities avail-
able for sale -- -- -- 1,338 --
Comprehensive income -- -- -- -- -- 1,848,925
-------- ----------- ------------ --------- ------------ -----------
Balance, March 31, 2004 $31,208 $3,749,342 $ 2,344,071 $ 4,121 $(1,329,179) $4,799,563
======== =========== ============ ========= ============ ===========
See Condensed 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,
2004 2003
- ----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income(loss) $ 1,847,587 $ (524,591)
Adjustments to reconcile net income(loss) to net
cash provided by operating activities:
Depreciation 73,424 86,540
Minority interest in (loss) of subsidiaries (4,093) (3,781)
Amortization of discounts and premiums on investments, net (28,538) (34,891)
Decrease in receivables 319,201 132,139
(Increase) in prepaids and other assets (45,000) (7,674)
(Increase) in deferred income taxes (606,300) (4,000)
Increase (decrease) in reported and unreported
claims payable (2,405,801) 108,604
Increase in unearned premiums and administration fees 570,444 167,088
Increase (decrease) in accounts payable and
accrued expenses 336,848 (73,817)
Increase in contingency reserves payable 539,243 751,701
------------- -------------
Net cash provided by operating activities $ 597,015 $ 597,318
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available for sale $ (1,362) $ (1,800)
Held to maturity securities:
Matured 45,000 --
Purchased (800,000) --
Proceeds from maturities of certificates of deposit 400,000 400,000
Purchase of certificates of deposit (900,000) (400,000)
(Increase) in contracts with life
insurance companies (3,000) (3,000)
Purchase of property and equipment (7,795) (9,075)
------------- -------------
Net cash (used in) investing activities $ (1,267,157) $ (13,875)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of capital stock $ 110 $ 220
Increase in minority investment of subsidiary 158 212
------------- -------------
Net cash provided by financing activities $ 268 $ 432
------------- -------------
Increase (decrease) in cash and cash equivalents $ (669,874) $ 583,875
CASH AND CASH EQUIVALENTS
Beginning 14,518,442 10,543,214
------------- -------------
Ending $ 13,848,568 $ 11,127,089
============= =============
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Income taxes, net of (refunds) $ 420,000 $ (200,000)
Supplemental Disclosures of Noncash Investing
And Financing Activities
Increase (Decrease) in unrealized gain on
securities available for sale $ 1,338 $ (500)
See Condensed 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. NET INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share is calculated by dividing net income (loss) by
the weighted average number of shares of the Class C Common Stock
("Common Stock")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 the
Common Stock in the event of death, disability, or retirement of a shareholder,
the Company's Board of Directors has a Stock Repurchase Program (the "Program").
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. There were no shares repurchased through March 31, 2004
or in the fiscal year ended December 31, 2003.
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 2003 Annual Consolidated Financial Statements, which
are included in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2003. The Company allocates payroll costs incurred based on
the activities of admitting new enrollees and in adjudicating claims.
6
The HMO segment income includes the equity in net income (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.
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, 2004
- ---------------------------------------------------------------------------------------
HMO TPA Reinsurance Totals
----------------------------------------------------------
Revenues from external sources $ 20,662,353 $ 1,441,858 $ 296,100 $ 22,400,311
Intersegment revenues -- 63,167 -- 63,167
Segment income(loss) 1,847,587 (61,124) (85,224) 1,701,239
Segment assets 25,932,042 1,872,885 862,509 28,667,436
The total segment income is less than the consolidated net income by
$146,348 because the equity in net loss of subsidiaries has not been
eliminated from the individual segment amounts.
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
5. COMPREHENSIVE INCOME AND LOSS
Comprehensive income was $1,848,925 for the three months ended March 31, 2004
and comprehensive loss was $525,091 for the three months ended
March 31, 2003. The difference between comprehensive income(loss) and net
income(loss)presented in the Consolidated Statements of Operations is attributed
solely to the 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 DAS and CW subsidiaries' 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 DAS and
CW subsidiaries market their products through a network of independent
insurance agents throughout South Dakota.
7
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, 2004, the Company's HMO medical care enrollment was approximately
31,600, while its DAS and CW subsidiaries had combined medical care
enrollment of approximately 67,700. The Company also offers ancillary
products and the resulting exclusive enrollment under the HMO was
approximately 2,300, while its DAS and CW subsidiaries had combined ancillary
product exclusive enrollment of approximately 5,400. The resulting total
population served by the Company through any of its products resulted in
a total of approximately 107,000 members at March 31, 2004.
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.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2004 AND MARCH 31, 2003
General
The Company's net income was $1,847,587 for the three months ended
March 31, 2004 as compared to a net loss of $524,591 for the three months
ended March 31, 2003, which represents an increase of $2,372,178. The resulting
net income was primarily due to the decrease in total operating expenses, while
total revenues remained fairly constant. Total revenues decreased $140,511
for the three months ended March 31, 2004, while total operating expenses
decreased $2,697,777 for the same period. This was partially offset by the
increase in the provision for income taxes of $185,400 for the three months
ended March 31, 2004 as compared to March 31, 2003.
Revenues
Total revenues decreased $140,511, or 0.6%, for the three months ended
March 31, 2004, as compared to March 31, 2003. The revenues from the
net premiums generated by the health maintenance organization decreased
$101,229, or 0.5%. This decrease is attributable to a 18.7% increase in
the premiums earned per enrollee and a decrease in the enrollment of 16.0% for
the three months ended March 31, 2004, as compared to March 31, 2003.
Revenues from the TPA fees decreased by $48,306, or 3.5%, due to a
decrease in enrollment, but was partially offset by the increase of fees
generated per employee and additional services provided for the groups.
Operating Expenses
Total operating expenses decreased $2,697,777, or 11.6%, for the three months
ended March 31, 2004, as compared to March 31, 2003. This was due to
a decrease in claims incurred, but was partially offset by an increase in
professional fees and office expense.
Net claims expense generated by the health maintenance organization decreased
$3,001,830, or 15.6%. Average claims expense per enrollee increased 0.5% for
the three months ended March 31, 2004, as compared to March 31, 2003,
while the number of enrollees decreased 16.0%. Commissions and state insurance
taxes remained relatively constant since revenues generated from the HMO
remained comparable when compared to the prior year. Professional fees
increased $119,687, or 62.2% due to the increase in consultants used for the
three months ended March 31, 2004 as compared to March 31, 2003. The extra
services were provided to assist management in assessing strengths and needs
of the Company to ensure continued success. Office expenses increased by
$84,253, or 40.7%, for the three months ended March 31, 2004 as compared to
March 31, 2003. This increase was attributable to an increase in office
supplies and an increase in printing costs.
8
Income Taxes
Income tax expense or benefit should represent 35.0% 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, 2004, the income tax provision represented 4.4% of the income
before taxes and minority interest. The generation of taxable income which
can be used to realize recorded deferred tax assets for which a valuation
allowance was previously recorded, and changes in the components of the
deferred tax assets accounted for the reversal of a portion of the valuation
allowance and for the provision to be smaller than expected.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. 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.
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 for the three months ended
March 31, 2004 was virtually the same as the amount for the three months ended
March 31, 2003. Cash provided by operations for the quarterly period ended
March 31, 2004, was mainly attributed to the net income generated. Other items
providing cash for the three month quarterly period were the decrease in
receivables, the increase in unearned premiums and administration fees, the
increase in accounts payable and accrued expenses and the increase in
contingency reserves payable. The receivables decreased primarily from the
decrease of the income tax receivable. Due to the income and other tax
reconciling items, there is an income tax payable booked at March 31, 2004,
whereas a receivable was booked at December 31, 2003. The increases in the
unearned premiums and administration fees and the increases in the accounts
payable and accrued expenses were due mainly to timing of receiving or
disbursing the various items. Generally, as revenue increase in the future
the expectation is for unearned premiums to continue to increase. There was no
payment of contingency reserves to physicians for the three months ended
March 31, 2004, which caused the increase in contingency reserves payable. The
cash generated from these were partially offset by the outflow of cash from the
increase in prepaids and other assets, the increase in deferred income taxes
and the decrease in the reported and unreported claims payable. The increase
of prepaids and other assets was due to the larger amount of insurance premiums
that are paid in advance. Deferred tax assets increased due to the increase of
contingency reserves which is a component of deferred taxes. Also, valuation
allowances also effect the deferred tax calculation as discussed in the income
tax section above. The decrease in the reported and unreported claims payable
occurred due to the loss of enrollees and the settlement of specific high dollar
claims that were in process. As indicated above, the membership decreased by
16.0%, which was the main component of the decrease.
Cash flows used in investing and financing activities increased from the prior
year. The net amount of CD's purchased was $500,000 and the net amount of
securities purchased was $755,000. Equipment was also purchased in the
normal course of business, but was minimal.
9
The Company is not contractually obligated to pay out the contingency reserves
Withheld. No dividends have been declared or paid for the three months
ended March 31, 2004. 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 to be
paid, subject to approval from the Division of Insurance. Risk based
capital requirements, budgeted cash expenditures and a number of other
factors may influence the Board's decision for these payments.
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.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are summarized in the footnotes to the
Company's financial statements included in its Annual Report on Form 10-K for
the year ended December 31, 2003, which was filed with the Securities and
Exchange Commission on April 14, 2004.
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. There were no material
changes made to the Company's critical accounting estimates or assumptions or
the judgments affecting the application of those estimates and assumptions.
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.
10
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Company conducted an
evaluation, under the supervision and with the participation of the principal
executive officer and principal financial officer, of the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934 (the "Exchange Act")). Based on this
evaluation, the principal executive officer and principal financial officer
concluded that the Company's disclosure controls and procedures are effective
to ensure that information required to be disclosed by the Company in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. There was no change in the Company's
internal control over financial reporting during the Company's most recently
completed fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial reporting.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
See Note "3. Treasury Stock" of the Company's Form 10-Q for the three months
ended March 31, 2004, which is hereby incorporated by reference.
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
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Senior Vice President and Chief Operating Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.3 Certification of Vice President Finance and Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Senior Vice President and Chief Operating Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.3 Certification of Vice President Finance and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) No reports on Form 8-K have been filed during the quarter for
which this report is filed.
11
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:_05/14/2004___ By: _/s/ L. Paul Jensen____
L. Paul Jensen
Chief Executive Officer
(Duly Authorized Officer)
Date:_05/14/2004___ By: _/s/ Kirk J. Zimmer____
Kirk J. Zimmer
Senior Vice President/Chief Operating Officer
(Principal Financial Officer)
12
Exhibit 31.1
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) Disclosed in this report any changes in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal controls over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
/s/__L. Paul Jensen_____
L. Paul Jensen
Chief Executive Officer
Date: May 14, 2004
Exhibit 31.2
CERTIFICATIONS
I, Kirk J. Zimmer, 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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) Disclosed in this report any changes in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal controls over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
/s/__Kirk J. Zimmer____
Kirk J. Zimmer
Senior Vice President/Chief Operating Officer
Date: May 14, 2004
Exhibit 31.3
CERTIFICATIONS
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 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) Disclosed in this report any changes in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal controls over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
/s/__Bruce E. Hanson_______
Bruce E. Hanson
Vice President Finance/Chief Financial Officer
Date: May 14, 2004
Exhibit 32.1
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, 2004, 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.
_/s/ L. Paul Jensen_____
Chief Executive Officer
May 14, 2004
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
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, 2004, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Kirk Zimmer, Senior Vice
President and COO 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.
_/s/ Kirk J. Zimmer_____
Senior Vice President/Chief Operating Officer
May 14, 2004
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
Exhibit 32.3
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, 2004, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Bruce Hanson, Vice President
Finance and CFO 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.
_/s/ Bruce E. Hanson____
Vice President Finance/Chief Finance Officer
May 14, 2004
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to
the Securities and Exchange Commission or its staff upon request.
17