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HealthSpring, Inc. Reports 2011 Third Quarter Results

Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found under Item 1.A in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and Item 1.A in the Company’s most recent Quarterly Report on Form 10-Q for the quarter ended June 30, 2011. The Company cautions that the foregoing list of important factors that may affect future results is not exhaustive. When relying on forward-looking statements to make decisions with respect to the proposed transaction, stockholders and others should carefully consider the foregoing factors and other uncertainties and potential events. All subsequent written and oral forward-looking statements concerning the proposed transaction or other matters attributable to the Company and Cigna or any other person acting on their behalf are expressly qualified in their entirety by the cautionary statements referenced above. The forward-looking statements contained herein speak only as of the date of this communication. The Company undertakes no obligation to update or revise any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, except as may be required by law.

 
 

Supplemental Information

 

1. Membership

 
 

Sept. 30,

2011

 

June 30,

2011

 

Percent

Change

 

Dec. 31,

2010

 

Percent

Change

 

Sept. 30,

2010

 

Percent

Change

MA Membership:
Alabama 32,984 32,740 0.7 % 30,148 9.4 % 30,397 8.5 %
Florida 38,774 38,451 0.8 37,022 4.7 36,472 6.3
Pennsylvania 70,667 69,325 1.9 63,044 12.1

--

n/a
Tennessee 71,813 71,474 0.5 65,533 9.6 65,334 9.9
Texas 83,493 81,504 2.4 71,105 17.4 48,025 73.9
Other 44,395 42,954 3.4   37,752 17.6   17,827 149.0  
Total 342,126 336,448 1.7 % 304,604 12.3 % 198,055 72.7 %
 
PDP Membership 844,458 835,246 1.1 % 724,394 16.6 % 409,239 106.3 %
Medicaid Membership 2,255 1,350 67.0 %

--

n/a  

--

n/a  
 
 

2. Reconciliation of Medical Claims Payable

 

The following table provides a reconciliation of changes in the medical claims liability for HealthSpring for the nine months ended September 30, 2011 and 2010.

 
  Nine Months Ended

September 30,

(Unaudited, $ in thousands) 2011   2010
 
Balance at beginning of period $ 350,217 $ 202,308
 
Incurred related to:
Current period 3,340,448 1,794,401
Prior period (1)   (13,204 )   (15,126 )
Total incurred   3,327,244     1,779,275  
 
Paid related to:
Current period 2,927,432 1,616,709
Prior period   324,543     181,411  
Total paid   3,251,975     1,798,120  
 
Balance at the end of the period $ 425,486   $ 183,463  
 

(1) Negative amounts reported for incurred related to prior periods result from fee-for-service medical claims estimates being settled for amounts less than originally anticipated (a favorable development).

 
 

3. Segment Information

 

Financial data by reportable segment for the three and nine months ended September 30 is as follows (in thousands):

 
 
 
  MA-PD   PDP   Other   Corporate   Total

Three months ended Sept. 30, 2011

Revenue $ 1,126,924 $ 201,716 $ 2,647 $ 13 $ 1,331,300
EBITDA 138,214 24,950 (3,788 ) (11,502 ) 147,874
Depreciation and amortization expense 11,926 661

--

2,664 15,251
 
Three months ended Sept. 30, 2010
Revenue $ 631,452 $ 93,452 $ 306 $ 12 $ 725,222
EBITDA 91,656 11,938 (63 ) (7,796 ) 95,735
Depreciation and amortization expense 6,166 14

--

1,333 7,513
 
Nine months ended Sept. 30, 2011
Revenue $ 3,380,102 $ 730,175 $ 4,221 $ 42 $ 4,114,540
EBITDA 419,377 17,937 (8,778 ) (31,747 ) 396,789
Depreciation and amortization expense 37,447 2,014

--

6,406 45,867
 
Nine months ended Sept. 30, 2010
Revenue $ 1,914,754 $ 338,323 $ 1,028 $ 38 $ 2,254,143
EBITDA 273,487 11,337 (72 ) (20,294 ) 264,458
Depreciation and amortization expense 18,596 45

--

4,169 22,810
 

The Company’s “Other” segment in the above table includes its Commercial and Medicaid lines of business.

 

A reconciliation of reportable segment EBITDA to net income included in the consolidated statements of income is as follows (in thousands):

 
  Three Months Ended

September 30,

  Nine Months Ended

September 30,

2011   2010 2011   2010
EBITDA $ 147,874 $ 95,735 $ 396,789 $ 264,458
Income tax expense (47,897 ) (31,292 ) (121,800 ) (82,917 )
Interest expense (5,735 ) (3,150 ) (21,989 ) (15,375 ) (1)
Depreciation and amortization   (15,251 )   (7,513 )   (45,867 )   (22,810 )
Net Income $ 78,991   $ 53,780   $ 207,133   $ 143,356  
 

(1) Includes $7.1 million of debt extinguishment costs related to the termination of the Company’s previous credit facility.

 
 
 
 
 
 
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet Information
(in thousands)
(Unaudited)
     
September 30, December 31,
Assets 2011 2010
Current assets:
Cash and cash equivalents $ 1,055,299 $ 191,459
Accounts receivable, net 205,355 168,893
Funds due for the benefit of members - 83,429
Deferred income taxes 20,264 15,459
Prepaid expenses and other   16,235     17,481  
 
Total current assets 1,297,153 476,721
Investment securities available for sale 569,736 551,207
Property and equipment, net 69,659 60,017
Goodwill 835,237 839,001
Intangible assets, net 335,980 365,884
Restricted investments 28,886 29,136
Risk corridor receivable from CMS 9,805 -
Other   20,663     26,637  
 
Total assets $ 3,167,119   $ 2,348,603  
 
 
Liabilities and Stockholders' Equity
Current liabilities:
Medical claims liability $ 425,486 $ 350,217
Accounts payable, accrued expenses and other 61,478 101,915
Deferred revenue 445,222 -
Book overdraft - 19,629
Risk corridor payable to CMS 6,967 7,780
Funds held for the benefit of members 95,538 -
Current portion of long-term debt   37,350     61,226  
 
Total current liabilities 1,072,041 540,767
Deferred income taxes 105,607 104,301
Long-term debt, less current portion 298,099 565,649
Other long-term liabilities   9,543     5,755  
 
Total liabilities   1,485,290     1,216,472  
 
Stockholders' equity:
Common stock 720 619
Additional paid in capital 907,453 569,024
Retained earnings 830,121 622,988
Accumulated other comprehensive income, net 6,926 1,495
Treasury stock   (63,391 )   (61,995 )
 
Total stockholders' equity   1,681,829     1,132,131  
 
Total liabilities and stockholders' equity $ 3,167,119   $ 2,348,603  
 
 
 
 
 
 
 
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Income Information
(in thousands, except share data)
(Unaudited)
               
 
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Revenue:
Premium revenue $ 1,315,577 $ 712,658 $ 4,064,446 $ 2,218,378
Management and other fees 12,281 10,413 39,946 31,191
Investment income   3,442     2,151     10,148     4,574  
 
Total revenue   1,331,300     725,222     4,114,540     2,254,143  
 
Operating expenses:
Medical expense 1,049,869 561,823 3,327,244 1,779,275
Selling, general and administrative 133,557 67,664 390,507 210,410
Depreciation and amortization 15,251 7,513 45,867 22,810
Interest expense   5,735     3,150     21,989     15,375  
 
Total operating expenses   1,204,412     640,150     3,785,607     2,027,870  
 
Income before income taxes 126,888 85,072 328,933 226,273
Income taxes   (47,897 )   (31,292 )   (121,800 )   (82,917 )
Net income $ 78,991   $ 53,780   $ 207,133   $ 143,356  
 
Net Income per common share:
Basic $ 1.18   $ 0.95   $ 3.24   $ 2.52  
Diluted $ 1.16   $ 0.95   $ 3.18   $ 2.51  
 
Weighted average common shares outstanding:
Basic   67,089,603     56,482,679     63,993,661     56,872,071  
Diluted   68,186,547     56,577,063     65,170,667     57,058,075  
 
 
 
 
 
 
 
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flow Information
(in thousands)
(Unaudited)
               
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Cash flows from operating activities:
Net income $ 78,991 $ 53,780 $ 207,133 $ 143,356
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 15,251 7,513 45,867 22,810
Share-based compensation 2,027 1,882 7,001 6,659
Amortization of deferred financing cost 1,568 449 6,037 1,407
Amortization on bond investments 2,360 1,099 7,084 2,187
Loss on disposal of property and equipment 999 - 999 -
Equity in earnings of unconsolidated affiliate (104 ) (49 ) (310 ) (277 )
Deferred tax benefit (2,087 ) (4,382 ) (7,342 ) (9,883 )
Write-off of deferred financing fees - - - 5,079
Increase (decrease) in cash due to:
Accounts receivable 183,974 140,191 (35,741 ) 18,962
Prepaid expenses and other current assets (2,619 ) 1,584 1,275 (12,266 )
Medical claims liability (21,632 ) (33,067 ) 75,269 (18,845 )
Accounts payable, accrued expenses and other current liabilities (3,420 ) 8,399 (37,157 ) 1,357
Risk corridor payable to/ receivable from CMS 41,765 19,276 (10,619 ) (6,263 )
Deferred revenue 445,222 - 445,222 -
Other   2,592     (113 )   3,788     1,485  
Net cash provided by operating activities   744,887     196,562     708,506     155,768  
 
Cash flows from investing activities:
Additional consideration paid on acquisition - - - (610 )
Purchases of property and equipment (9,715 ) (3,576 ) (27,489 ) (9,120 )
Purchases of investment securities (36,674 ) (13,824 ) (127,973 ) (341,081 )
Maturities of investment securities 16,540 6,516 61,976 56,591
Sales of investment securities 23,184 4,232 49,047 55,898
Purchases of restricted investments (9,022 ) (10,660 ) (20,594 ) (43,182 )
Maturities of restricted investments 8,808 9,948 20,790 37,973
Other   176     175     261     262  
Net cash used in investing activities   (6,703 )   (7,189 )   (43,982 )   (243,269 )
 
Cash flows from financing activities:
Funds received for the benefit of members 701,476 216,660 1,729,261 633,577
Funds withdrawn for the benefit of members (636,396 ) (267,510 ) (1,550,294 ) (655,895 )
Proceeds from issuance of common stock, net - - 301,464 -
Proceeds from issuance of long-term debt - - - 200,000
Payments on long-term debt (9,337 ) (4,375 ) (291,426 ) (270,722 )
Excess tax benefit from stock options exercised - 3 6,660 127
Proceeds from stock option exercises 395 390 23,321 867
Change in book overdraft - - (19,629 ) -
Purchase of treasury stock - - - (14,304 )
Payment of debt issue costs   -     -     (41 )   (7,334 )
Net cash provided by (used in) financing activities   56,138     (54,832 )   199,316     (113,684 )
 
Net increase (decrease) in cash and cash equivalents 794,322 134,541 863,840 (201,185 )
 
Cash and cash equivalents at beginning of period   260,977     103,697     191,459     439,423  
 
Cash and cash equivalents at end of period $ 1,055,299   $ 238,238   $ 1,055,299   $ 238,238  
 
 
 




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