UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2010
Commission File Number: 001-32739
HealthSpring, Inc.
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
|
|
20-1821898
(I.R.S. Employer Identification No.)
|
|
|
|
9009 Carothers Parkway
|
|
|
Suite 501
|
|
|
Franklin, Tennessee
|
|
37067
|
(Address of Principal Executive Offices)
|
|
(Zip Code)
|
(615) 291-7000
(Registrants Telephone Number, Including Area Code)
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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).
Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated Filer
þ
|
|
Accelerated Filer
o
|
|
Non-accelerated Filer
o
|
|
Smaller reporting company
o
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
|
|
|
|
|
Outstanding at July 28, 2010
|
|
|
|
Common Stock, Par Value $0.01 Per Share
|
|
57,208,381 Shares
|
Part I FINANCIAL INFORMATION
|
|
|
Item 1:
Financial Statements
|
HEALTHSPRING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
103,697
|
|
|
$
|
439,423
|
|
Accounts receivable, net
|
|
|
213,671
|
|
|
|
92,442
|
|
Investment securities available for sale
|
|
|
|
|
|
|
8,883
|
|
Investment securities held to maturity
|
|
|
|
|
|
|
13,965
|
|
Funds due for the benefit of members
|
|
|
|
|
|
|
4,028
|
|
Deferred income taxes
|
|
|
5,167
|
|
|
|
6,973
|
|
Prepaid expenses and other assets
|
|
|
10,805
|
|
|
|
9,586
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
333,340
|
|
|
|
575,300
|
|
Investment securities available for sale
|
|
|
259,875
|
|
|
|
13,574
|
|
Investment securities held to maturity
|
|
|
42,567
|
|
|
|
38,463
|
|
Property and equipment, net
|
|
|
29,498
|
|
|
|
30,316
|
|
Goodwill
|
|
|
624,507
|
|
|
|
624,507
|
|
Intangible assets, net
|
|
|
194,822
|
|
|
|
203,147
|
|
Restricted investments
|
|
|
20,856
|
|
|
|
16,375
|
|
Risk corridor receivable from CMS
|
|
|
26,083
|
|
|
|
|
|
Other assets
|
|
|
20,654
|
|
|
|
6,585
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,552,202
|
|
|
$
|
1,508,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Medical claims liability
|
|
$
|
216,530
|
|
|
$
|
202,308
|
|
Accounts payable, accrued expenses and other
|
|
|
44,396
|
|
|
|
50,954
|
|
Risk corridor payable to CMS
|
|
|
2,720
|
|
|
|
2,176
|
|
Funds held for the benefit of members
|
|
|
24,504
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
17,500
|
|
|
|
43,069
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
305,650
|
|
|
|
298,507
|
|
Long-term debt, less current portion
|
|
|
153,125
|
|
|
|
193,904
|
|
Deferred income taxes
|
|
|
75,037
|
|
|
|
80,434
|
|
Other long-term liabilities
|
|
|
5,458
|
|
|
|
5,966
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
539,270
|
|
|
|
578,811
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value, 180,000,000 shares authorized, 61,256,707 issued and 57,202,775 outstanding at June 30, 2010, and 60,758,958 issued and 57,560,350 outstanding at December 31, 2009
|
|
|
613
|
|
|
|
608
|
|
Additional paid-in capital
|
|
|
553,731
|
|
|
|
548,481
|
|
Retained earnings
|
|
|
518,341
|
|
|
|
428,765
|
|
Accumulated other comprehensive income (loss), net
|
|
|
2,224
|
|
|
|
(1,044
|
)
|
Treasury stock, at cost, 4,053,932 shares at June 30, 2010, and 3,198,608 shares at December 31, 2009
|
|
|
(61,977
|
)
|
|
|
(47,354
|
)
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,012,932
|
|
|
|
929,456
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,552,202
|
|
|
$
|
1,508,267
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
1
HEALTHSPRING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium revenue
|
|
$
|
756,342
|
|
|
$
|
671,450
|
|
|
$
|
1,505,720
|
|
|
$
|
1,306,046
|
|
Management and other fees
|
|
|
10,590
|
|
|
|
9,987
|
|
|
|
20,778
|
|
|
|
19,956
|
|
Investment income
|
|
|
1,547
|
|
|
|
1,106
|
|
|
|
2,423
|
|
|
|
2,656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
768,479
|
|
|
|
682,543
|
|
|
|
1,528,921
|
|
|
|
1,328,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical expense
|
|
|
604,933
|
|
|
|
558,403
|
|
|
|
1,217,452
|
|
|
|
1,088,002
|
|
Selling, general and administrative
|
|
|
66,216
|
|
|
|
62,306
|
|
|
|
142,746
|
|
|
|
134,557
|
|
Depreciation and amortization
|
|
|
7,510
|
|
|
|
7,642
|
|
|
|
15,297
|
|
|
|
15,166
|
|
Interest expense
|
|
|
2,254
|
|
|
|
3,970
|
|
|
|
12,225
|
|
|
|
8,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
680,913
|
|
|
|
632,321
|
|
|
|
1,387,720
|
|
|
|
1,245,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
87,566
|
|
|
|
50,222
|
|
|
|
141,201
|
|
|
|
82,682
|
|
Income tax expense
|
|
|
(31,791
|
)
|
|
|
(18,331
|
)
|
|
|
(51,625
|
)
|
|
|
(30,179
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
55,775
|
|
|
$
|
31,891
|
|
|
$
|
89,576
|
|
|
$
|
52,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.98
|
|
|
$
|
0.59
|
|
|
$
|
1.57
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.98
|
|
|
$
|
0.58
|
|
|
$
|
1.56
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
56,917,219
|
|
|
|
54,497,780
|
|
|
|
57,069,994
|
|
|
|
54,490,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
57,049,980
|
|
|
|
54,770,212
|
|
|
|
57,302,567
|
|
|
|
54,794,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial statements.
2
HEALTHSPRING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
89,576
|
|
|
$
|
52,503
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
15,297
|
|
|
|
15,166
|
|
Share-based compensation
|
|
|
4,777
|
|
|
|
5,158
|
|
Amortization of deferred financing cost
|
|
|
958
|
|
|
|
1,203
|
|
Amortization on bond investments
|
|
|
1,088
|
|
|
|
485
|
|
Equity in earnings of unconsolidated affiliate
|
|
|
(228
|
)
|
|
|
(103
|
)
|
Deferred tax benefit
|
|
|
(5,501
|
)
|
|
|
(6,585
|
)
|
Write-off of deferred financing fees
|
|
|
5,079
|
|
|
|
|
|
Increase (decrease) in cash due to:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(121,229
|
)
|
|
|
(75,159
|
)
|
Prepaid expenses and other assets
|
|
|
(13,850
|
)
|
|
|
(2,734
|
)
|
Medical claims liability
|
|
|
14,222
|
|
|
|
31,315
|
|
Accounts payable, accrued expenses, and other current liabilities
|
|
|
(7,042
|
)
|
|
|
(9,246
|
)
|
Risk corridor payable to/receivable from CMS
|
|
|
(25,539
|
)
|
|
|
(20,602
|
)
|
Other
|
|
|
1,598
|
|
|
|
654
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(40,794
|
)
|
|
|
(7,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Additional consideration paid on acquisition
|
|
|
(610
|
)
|
|
|
(910
|
)
|
Purchases of property and equipment
|
|
|
(5,544
|
)
|
|
|
(5,502
|
)
|
Purchases of investment securities
|
|
|
(327,257
|
)
|
|
|
(28,687
|
)
|
Maturities of investment securities
|
|
|
50,075
|
|
|
|
22,737
|
|
Sales of investment securities
|
|
|
51,666
|
|
|
|
|
|
Purchases of restricted investments
|
|
|
(32,522
|
)
|
|
|
(10,123
|
)
|
Maturities of restricted investments
|
|
|
28,025
|
|
|
|
6,344
|
|
Distributions received from unconsolidated affiliate
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(236,080
|
)
|
|
|
(16,141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Funds received for the benefit of the members
|
|
|
416,917
|
|
|
|
325,004
|
|
Funds withdrawn for the benefit of members
|
|
|
(388,385
|
)
|
|
|
(271,476
|
)
|
Proceeds received on issuance of debt
|
|
|
200,000
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(266,347
|
)
|
|
|
(16,678
|
)
|
Excess tax benefit from stock options exercised
|
|
|
124
|
|
|
|
|
|
Proceeds from stock options exercised
|
|
|
477
|
|
|
|
6
|
|
Purchase of treasury stock
|
|
|
(14,304
|
)
|
|
|
|
|
Payment of debt issue costs
|
|
|
(7,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(58,852
|
)
|
|
|
36,856
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(335,726
|
)
|
|
|
12,770
|
|
Cash and cash equivalents at beginning of period
|
|
|
439,423
|
|
|
|
282,240
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
103,697
|
|
|
$
|
295,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
6,050
|
|
|
$
|
7,329
|
|
Cash paid for taxes
|
|
$
|
55,628
|
|
|
$
|
37,749
|
|
See accompanying notes to condensed consolidated financial statements
3
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Organization and Basis of Presentation
HealthSpring, Inc., a Delaware corporation (the Company), was organized in October 2004 and
began operations in March 2005 in connection with a recapitalization transaction accounted for as a
purchase. The Company is a managed care organization whose primary focus is on Medicare, the
federal government sponsored health insurance program for United States citizens aged 65 and older,
qualifying disabled persons, and persons suffering from end-stage renal disease. Through its health
maintenance organization (HMO) and regulated insurance subsidiaries, the Company operates
Medicare Advantage health plans in the states of Alabama, Florida, Georgia, Illinois, Mississippi,
Tennessee, and Texas and offers Medicare Part D prescription drug plans on a national basis. The
Company also provides management services to physician practices.
The accompanying condensed consolidated financial statements are unaudited and should be read
in conjunction with the consolidated financial statements and notes thereto of HealthSpring, Inc.
as of and for the year ended December 31, 2009, included in the Companys Annual Report on Form
10-K for the year ended December 31, 2009 as filed with the Securities and Exchange Commission (the
SEC) on February 11, 2010 (the 2009 Form 10-K).
The accompanying unaudited condensed consolidated financial statements reflect the Companys
financial position as of June 30, 2010, the Companys results of operations for the three and six
months ended June 30, 2010 and 2009, and cash flows for the six months ended June 30, 2010 and
2009. Certain 2009 amounts have been reclassified to conform to the 2010 presentation.
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles (GAAP) for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the
Securities Exchange Act of 1934, as amended (the Exchange Act). Accordingly, certain information
and footnote disclosures normally included in complete financial statements prepared in accordance
with GAAP have been condensed or omitted pursuant to the rules and regulations applicable to
interim financial statements. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (including normally recurring accruals)
necessary to present fairly the Companys financial position at June 30, 2010, its results of
operations for the three and six months ended June 30, 2010 and 2009, and its cash flows for the
six months ended June 30, 2010 and 2009.
The results of operations for the 2010 interim periods are not necessarily indicative of the
operating results that may be expected for the full year ending December 31, 2010.
The preparation of the condensed consolidated financial statements requires management of the
Company to make a number of estimates and assumptions relating to the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the period. The most
significant item subject to estimates and assumptions is the actuarial calculation for obligations
related to medical claims. Other significant items subject to estimates and assumptions include the
Companys estimated risk adjustment payments receivable from the Centers for Medicare & Medicaid
Services (CMS), the valuation of goodwill and intangible assets, the useful life of
definite-lived intangible assets, the valuation of debt securities carried at fair value, and
certain amounts recorded related to the Companys Part D operations. Actual results could differ
significantly from those estimates and assumptions.
The Companys regulated insurance subsidiaries are restricted from making distributions
without appropriate regulatory notifications and approvals or to the extent such distributions
would cause non-compliance with statutory capital requirements. At June 30, 2010, $370.7 million of
the Companys $427.0 million of cash, cash equivalents, investment securities, and restricted
investments were held by the Companys insurance subsidiaries and subject to these dividend
restrictions.
4
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(2) Recently Adopted Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board (FASB) issued new guidance for
determining whether an entity is a variable interest entity (VIE) and requires an enterprise to
perform an analysis to determine whether the enterprises variable interest or interests give it a
controlling financial interest in a VIE. The guidance requires an enterprise to assess whether it
has an implicit financial responsibility to ensure that a VIE operates as designed when determining
whether it has power to direct the activities of the VIE that most significantly impact the
entitys economic performance. The guidance also requires ongoing assessments of whether an
enterprise is the primary beneficiary of a VIE, requires enhanced disclosures, and eliminates the
scope exclusion for qualifying special-purpose entities. The adoption of the new guidance on
January 1, 2010 did not impact our financial statements.
Effective January 1, 2010, the Company adopted the FASBs updated guidance related to fair
value measurements and disclosures, which requires a reporting entity to disclose separately the
amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to
describe the reasons for the transfers. In addition, in the reconciliation for fair value
measurements using significant unobservable inputs, or Level 3, a reporting entity should disclose
separately information about purchases, sales, issuances and settlements. The updated guidance also
requires that an entity should provide fair value measurement disclosures for each class of assets
and liabilities and disclosures about the valuation techniques and inputs used to measure fair
value for both recurring and non-recurring fair value measurements for Level 2 and Level 3 fair
value measurements. The guidance is effective for interim or annual financial reporting periods
beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and
settlements in the roll forward activity in Level 3 fair value measurements, which are effective
for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal
years. Therefore, the Company has not yet adopted the guidance with respect to the roll forward
activity in Level 3 fair value measurements. The adoption of the updated guidance for Levels 1 and
2 fair value measurements did not have an impact on the Companys consolidated results of
operations or financial condition.
(3) Accounts Receivable
Accounts receivable at June 30, 2010 and December 31, 2009 consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Medicare premium receivables
|
|
$
|
130,302
|
|
|
$
|
48,524
|
|
Rebates
|
|
|
74,887
|
|
|
|
34,879
|
|
Due from providers
|
|
|
19,630
|
|
|
|
10,320
|
|
Other
|
|
|
3,509
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
228,328
|
|
|
|
96,123
|
|
Allowance for doubtful accounts
|
|
|
(2,166
|
)
|
|
|
(3,681
|
)
|
|
|
|
|
|
|
|
Total
(including portions classified as current and non-current assets)
|
|
$
|
226,162
|
|
|
$
|
92,442
|
|
|
|
|
|
|
|
|
Medicare premium receivables at June 30, 2010 and December 31, 2009 consists primarily of
receivables from CMS related to the accrual of retroactive risk adjustment payments. The Company will receive retroactive risk payments from CMS of $119.7 million in the 2010 third quarter. Accounts receivable relating to unpaid health
plan enrollee premiums are recorded during the period the Company is obligated to provide services
to enrollees and do not bear interest. The Company does not have any off-balance sheet credit
exposure related to its health plan enrollees.
Rebates for drug costs represent estimated rebates owed to the Company from prescription drug
companies. The Company has entered into contracts with certain drug manufacturers that provide for
rebates to the Company based on the utilization of specific prescription drugs by the Companys
members. Due from providers primarily includes management fees receivable as well as amounts owed
to the Company for the refund of certain medical expenses paid by the Company under risk sharing
agreements.
5
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(4) Investment Securities
Investment securities, which consist primarily of debt securities, have been categorized as
either available for sale or held to maturity. Held to maturity securities are those securities
that the Company does not intend to sell, nor expect to be required to sell, prior to maturity. The
Company holds no trading securities. At June 30, 2010, investment securities are classified as
non-current assets based on the Companys intention to reinvest such assets upon sale or maturity
and to not use such assets in current operations. At December 31, 2009, the Company classified its
investment securities based upon maturity dates. Restricted investments include U.S. Government
securities, money market fund investments, deposits and certificates of deposit held by the various
state departments of insurance to whose jurisdiction the Companys subsidiaries are subject. These
restricted assets are recorded at amortized cost and classified as long-term regardless of the
contractual maturity date because of the restrictive nature of the states requirements.
Available for sale securities are recorded at fair value. Held to maturity debt securities are
recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts.
Unrealized gains and losses (net of applicable deferred taxes) on available for sale securities are
included as a component of stockholders equity and comprehensive income until realized from a sale
or other than temporary impairment. Realized gains and losses from the sale of securities are
determined on a specific identification basis. Purchases and sales of investments are recorded on
their trade dates. Dividend and interest income are recognized when earned.
There were no available for sale securities classified as current assets as of June 30, 2010.
Available for sale securities classified as current assets at December 31, 2009 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
|
Municipal bonds
|
|
$
|
8,691
|
|
|
|
192
|
|
|
|
|
|
|
|
8,883
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities classified as non-current assets were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Government obligations
|
|
$
|
10,453
|
|
|
|
110
|
|
|
|
|
|
|
|
10,563
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency obligations
|
|
|
2,966
|
|
|
|
37
|
|
|
|
|
|
|
|
3,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
86,565
|
|
|
|
1,175
|
|
|
|
(97
|
)
|
|
|
87,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
(Residential)
|
|
|
66,491
|
|
|
|
1,445
|
|
|
|
(1
|
)
|
|
|
67,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other structured securities
|
|
|
12,461
|
|
|
|
219
|
|
|
|
|
|
|
|
12,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
|
77,467
|
|
|
|
613
|
|
|
|
(29
|
)
|
|
|
78,051
|
|
|
|
13,407
|
|
|
|
176
|
|
|
|
(9
|
)
|
|
|
13,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
256,403
|
|
|
|
3,599
|
|
|
|
(127
|
)
|
|
|
259,875
|
|
|
$
|
13,407
|
|
|
|
176
|
|
|
|
(9
|
)
|
|
|
13,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
There were no held to maturity securities classified as current assets at June 30, 2010.
Held to maturity securities classified as current assets at December 31, 2009 were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Government obligations
|
|
$
|
1,154
|
|
|
|
1
|
|
|
|
|
|
|
|
1,155
|
|
Agency obligations
|
|
|
3,225
|
|
|
|
16
|
|
|
|
|
|
|
|
3,241
|
|
Corporate debt securities
|
|
|
6,416
|
|
|
|
74
|
|
|
|
|
|
|
|
6,490
|
|
Municipal bonds
|
|
|
3,170
|
|
|
|
20
|
|
|
|
|
|
|
|
3,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,965
|
|
|
|
111
|
|
|
|
|
|
|
|
14,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity securities classified as non-current assets were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
Government obligations
|
|
$
|
1,417
|
|
|
|
7
|
|
|
|
|
|
|
|
1,424
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency obligations
|
|
|
3,160
|
|
|
|
39
|
|
|
|
|
|
|
|
3,199
|
|
|
|
1,610
|
|
|
|
12
|
|
|
|
|
|
|
|
1,622
|
|
Corporate debt securities
|
|
|
14,875
|
|
|
|
311
|
|
|
|
(5
|
)
|
|
|
15,181
|
|
|
|
13,505
|
|
|
|
325
|
|
|
|
|
|
|
|
13,830
|
|
Mortgage-backed
securities (Residential)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,575
|
|
|
|
6
|
|
|
|
|
|
|
|
1,581
|
|
Municipal bonds
|
|
|
23,115
|
|
|
|
751
|
|
|
|
|
|
|
|
23,866
|
|
|
|
21,773
|
|
|
|
546
|
|
|
|
(1
|
)
|
|
|
22,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
42,567
|
|
|
|
1,108
|
|
|
|
(5
|
)
|
|
|
43,670
|
|
|
$
|
38,463
|
|
|
|
889
|
|
|
|
(1
|
)
|
|
|
39,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains or losses related to investment securities for the three and six months ended June
30, 2010 and 2009 were immaterial.
Maturities of investments were as follows at June 30, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
Held to maturity
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
Due within one year
|
|
$
|
12,494
|
|
|
|
12,572
|
|
|
$
|
11,299
|
|
|
|
11,440
|
|
Due after one year
through five years
|
|
|
129,203
|
|
|
|
130,580
|
|
|
|
29,205
|
|
|
|
30,032
|
|
Due after five
years through ten
years
|
|
|
26,535
|
|
|
|
26,867
|
|
|
|
2,063
|
|
|
|
2,198
|
|
Due after ten years
|
|
|
9,220
|
|
|
|
9,242
|
|
|
|
|
|
|
|
|
|
Mortgage and
asset-backed
securities
|
|
|
78,951
|
|
|
|
80,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
256,403
|
|
|
|
259,875
|
|
|
$
|
42,567
|
|
|
|
43,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Gross unrealized losses on investment securities and the fair value of the related
securities, aggregated by investment category and length of time that individual securities have
been in a continuous unrealized loss position, at June 30, 2010, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
More Than
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Total
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
$
|
(102
|
)
|
|
|
10,285
|
|
|
|
|
|
|
|
|
|
|
|
(102
|
)
|
|
|
10,285
|
|
Mortgage-backed securities
(Residential)
|
|
|
(1
|
)
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
|
(29
|
)
|
|
|
8,223
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
8,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(132
|
)
|
|
|
19,550
|
|
|
|
|
|
|
|
|
|
|
|
(132
|
)
|
|
|
19,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized losses on investment securities and the fair value of the related
securities, aggregated by investment category and length of time that individual securities have
been in a continuous unrealized loss position, at December 31, 2009, were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
More Than
|
|
|
|
|
|
|
12 Months
|
|
|
12 Months
|
|
|
Total
|
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal bonds
|
|
$
|
(10
|
)
|
|
|
1,920
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
1,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company reviews fixed maturities and equity securities with a decline in fair value
from cost for impairment based on criteria that include duration and severity of decline; financial
viability and outlook of the issuer; and changes in the regulatory, economic and market environment
of the issuers industry or geographic region.
All issuers of securities the Company owned in an unrealized loss as of June 30, 2010 remain
current on all contractual payments. The unrealized losses on investments were caused by an
increase in investment yields as a result of a widening of credit spreads. The contractual terms of
these investments do not permit the issuer to settle the securities at a price less than the
amortized cost of the investment. The Company determined that it did not intend to sell these
investments and that it was not more-likely-than-not to be required to sell these investments prior
to their recovery, thus these investments are not considered other-than-temporarily impaired.
(5) Fair Value Measurements
The Companys 2010 second quarter condensed consolidated balance sheet includes the following
financial instruments: cash and cash equivalents, accounts receivable, investment securities,
restricted investments, accounts payable, medical claims liabilities, funds due (held) from CMS for
the benefit of members, and long-term debt. The carrying amounts of accounts receivable, funds due
(held) from CMS for the benefit of members, accounts payable, and medical claims liabilities
approximate their fair value because of the relatively short period of time between the origination
of these instruments and their expected realization. The fair value of the Companys long-term debt
(including the current portion) was $167.2 million at June 30, 2010 and consisted solely of
non-tradable bank debt.
Cash and cash equivalents consist of such items as certificates of deposit, commercial paper,
and money market funds. The original cost of these assets approximates fair value due to their
short-term maturity. In February 2010, the Company terminated its interest rate swap agreements in
connection with the termination of the related credit agreement. See Note 12 Debt. The fair
value of the Companys interest rate swaps at December 31, 2009 reflected a liability of
approximately $2.1 million and was included in
other long term liabilities in the accompanying condensed consolidated balance sheet. The fair
values of available for sale securities is determined by quoted market prices or pricing models
developed using market data provided by a third party vendor.
8
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following are the levels of the hierarchy as and a brief description of the type of
valuation information (inputs) that qualifies a financial asset for each level:
|
|
|
Level Input
|
|
Input Definition
|
Level I
|
|
Inputs are unadjusted quoted prices for
identical assets or liabilities in active markets
at the measurement date.
|
|
|
|
Level II
|
|
Inputs other than quoted prices included in
Level I that are observable for the asset or
liability through corroboration with market data
at the measurement date.
|
|
|
|
Level III
|
|
Unobservable inputs that reflect
managements best estimate of what market
participants would use in pricing the asset or
liability at the measurement date.
|
When quoted prices in active markets for identical assets are available, the Company uses
these quoted market prices to determine the fair value of financial assets and classifies these
assets as Level I. In other cases where a quoted market price for identical assets in an active
market is either not available or not observable, the Company obtains the fair value from a third
party vendor that uses pricing models, such as matrix pricing, to determine fair value. These
financial assets would then be classified as Level II. In the event quoted market prices were not
available, the Company would determine fair value using broker quotes or an internal analysis of
each investments financial statements and cash flow projections. In these instances, financial
assets would be classified based upon the lowest level of input that is significant to the
valuation. Thus, financial assets might be classified in Level III even though there could be some
significant inputs that may be readily available.
There were no transfers to or from Levels I and II during the six months ended June 30, 2010.
The following tables summarize fair value measurements by level at June 30, 2010 and December 31,
2009 for assets and liabilities measured at fair value on a recurring basis (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
103,697
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
103,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government obligations
|
|
$
|
8,424
|
|
|
$
|
2,139
|
|
|
$
|
|
|
|
$
|
10,563
|
|
Agency obligations
|
|
|
|
|
|
|
3,003
|
|
|
|
|
|
|
|
3,003
|
|
Corporate debt securities
|
|
|
|
|
|
|
87,643
|
|
|
|
|
|
|
|
87,643
|
|
Mortgage-backed securities (Residential)
|
|
|
|
|
|
|
67,935
|
|
|
|
|
|
|
|
67,935
|
|
Other structured securities
|
|
|
|
|
|
|
12,680
|
|
|
|
|
|
|
|
12,680
|
|
Municipal securities
|
|
|
|
|
|
|
78,051
|
|
|
|
|
|
|
|
78,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,424
|
|
|
$
|
251,451
|
|
|
$
|
|
|
|
$
|
259,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Level I
|
|
|
Level II
|
|
|
Level III
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
439,423
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
439,423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments: available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
|
|
|
|
22,457
|
|
|
|
|
|
|
|
22,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative interest rate swaps
|
|
$
|
|
|
|
$
|
2,066
|
|
|
$
|
|
|
|
$
|
2,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) Medical Liabilities
The Companys medical liabilities at June 30, 2010 and December 31, 2009 consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Medicare medical liabilities
|
|
$
|
172,911
|
|
|
$
|
156,660
|
|
Pharmacy liabilities
|
|
|
43,619
|
|
|
|
45,648
|
|
|
|
|
|
|
|
|
|
|
$
|
216,530
|
|
|
$
|
202,308
|
|
|
|
|
|
|
|
|
(7) Medicare Part D
Total Part D related net assets (excluding medical claims payable) of $1.9 million at December
31, 2009 all relate to the 2009 CMS plan year. The Companys Part D related assets and liabilities
(excluding medical claims payable) at June 30, 2010 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related to the
|
|
|
Related to the
|
|
|
|
|
|
|
2009 plan year
|
|
|
2010 plan year
|
|
|
Total
|
|
Current assets (liabilities):
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds due (held) for the benefit of members
|
|
$
|
4,135
|
|
|
$
|
(28,639
|
)
|
|
$
|
(24,504
|
)
|
|
|
|
|
|
|
|
|
|
|
Risk corridor payable to CMS
|
|
$
|
(2,720
|
)
|
|
$
|
|
|
|
$
|
(2,720
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk corridor receivable from CMS
|
|
$
|
|
|
|
$
|
26,083
|
|
|
$
|
26,083
|
|
|
|
|
|
|
|
|
|
|
|
Balances associated with risk corridor amounts are expected to be settled in the second
half of the year following the year to which they relate. Current year Part D amounts are routinely
updated in subsequent periods as a result of retroactivity.
(8) Derivatives
In October 2008, the Company entered into two interest rate swap agreements in a total
notional amount of $100.0 million, relating to the floating interest rate component of the term
loan agreement under its previous credit facility (collectively, the 2007 Credit Agreement). In
February 2010, the Company terminated its interest rate swap agreements in connection with the
termination of the 2007 Credit Agreement. See Note 12 Debt. The interest rate swap agreements
were classified as cash flow hedges. See Note 5 Fair Value Measurements.
All derivatives were recognized on the balance sheet at their fair value. To the extent that
the cash flow hedges are effective, changes in their fair value were recorded in other
comprehensive income (loss) until earnings are affected by the variability of cash flows of the
hedged transaction (e.g. until periodic settlements of a variable asset or liability are recorded
in earnings). Any hedge ineffectiveness (which represents the amount by which the changes in the
fair value of the derivatives differ from changes in the fair value of the hedged instrument) was
recorded in current-period earnings. As a result of terminating the interest rate swap agreements,
the Company settled the swap obligations with the counterparties for approximately $2.0 million and
reclassified such amount from other comprehensive income to interest expense during the first
quarter of 2010.
10
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company had no derivative financial instruments outstanding at June 30, 2010. A summary of
the aggregate notional amounts, balance sheet location and estimated fair values of derivative
financial instruments at December 31, 2009 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
Estimated Fair Value
|
|
Hedging instruments
|
|
Amount
|
|
|
Balance Sheet Location
|
|
Asset
|
|
|
(Liability)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
100,000
|
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
(2,066
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the effect of cash flow hedges on the Companys financial statements for the periods
presented is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Portion
|
|
|
|
|
|
|
|
|
|
|
|
|
Hedge Gain
|
|
|
|
|
|
|
|
|
|
|
Income Statement
|
|
(Loss)
|
|
|
|
|
|
|
Pretax Hedge
|
|
|
Location of Gain
|
|
Reclassified
|
|
|
Ineffective Portion
|
|
|
|
Gain (Loss)
|
|
|
(Loss) Reclassified
|
|
from
|
|
|
Income
|
|
|
|
|
|
Recognized in
|
|
|
from Accumulated
|
|
Accumulated
|
|
|
Statement
|
|
|
|
|
|
Other
|
|
|
Other
|
|
Other
|
|
|
Location of
|
|
Hedge Gain
|
|
|
|
Comprehensive
|
|
|
Comprehensive
|
|
Comprehensive
|
|
|
Gain (Loss)
|
|
(Loss)
|
|
Type of Cash Flow Hedge
|
|
Income
|
|
|
Income
|
|
Income
|
|
|
Recognized
|
|
Recognized
|
|
|
For the three months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
|
|
|
Interest Expense
|
|
$
|
|
|
|
None
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
374
|
|
|
Interest Expense
|
|
$
|
|
|
|
None
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
38
|
|
|
Interest Expense
|
|
$
|
(1,253
|
)
|
|
None
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
588
|
|
|
Interest Expense
|
|
$
|
|
|
|
None
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9) Intangible Assets
A breakdown of the identifiable intangible assets and their assigned value and accumulated
amortization at June 30, 2010 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Net
|
|
Trade name
|
|
$
|
24,497
|
|
|
$
|
|
|
|
$
|
24,497
|
|
Noncompete agreements
|
|
|
800
|
|
|
|
800
|
|
|
|
|
|
Provider network
|
|
|
137,679
|
|
|
|
26,875
|
|
|
|
110,804
|
|
Medicare member network
|
|
|
93,620
|
|
|
|
35,136
|
|
|
|
58,484
|
|
Management contract right
|
|
|
1,555
|
|
|
|
518
|
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
258,151
|
|
|
$
|
63,329
|
|
|
$
|
194,822
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense on identifiable intangible assets for the three months ended June 30,
2010 and 2009 was approximately $4.5 million and $4.6 million, respectively. Amortization
expense on identifiable intangible assets for the six months ended June 30, 2010 and 2009 was
approximately $8.9 million and $9.2 million, respectively.
11
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(10) Share-Based Compensation
Stock Options
The Company granted options to purchase 535,712 shares of common stock pursuant to the 2006
Equity Incentive Plan during the six months ended June 30, 2010. Options for the purchase of
351,487 shares of common stock either were forfeited or expired during the six months ended June
30, 2010. Options for the purchase of 4,049,202 shares of common stock were outstanding under this
plan at June 30, 2010. The outstanding options vest and become exercisable based on time, generally
over a four-year period, and expire ten years from their grant dates.
Restricted Stock
During the six months ended June 30, 2010, the Company granted 415,945 shares of restricted
stock to employees pursuant to the 2006 Equity Incentive Plan, the restrictions of which generally
lapse over a four-year period. Additionally, 35,043 shares were purchased by certain executives
pursuant to the Management Stock Purchase Plan (the MSPP). The restrictions on shares purchased
under the MSPP generally lapse on the second anniversary of the grant date. Unvested restricted
stock at June 30, 2010 totaled 726,975 shares.
During the six months ended June 30, 2010, the Company awarded 29,035 shares of restricted
stock to certain of its directors pursuant to the 2006 Equity Incentive Plan, all of which were
outstanding at June 30, 2010. The restrictions relating to the restricted stock awarded to
non-employee directors in 2010 generally lapse one year from the grant date. In the event a
director resigns or is removed prior to the lapsing of the restriction, or if the director fails to
attend 75% of the board and applicable committee meetings during the one-year period, shares will
be forfeited unless resignation or failure to attend is caused by death or disability.
In May 2010, the Companys stockholders approved an amendment and restatement of the 2006 Equity
Incentive Plan. Among other items, the amendments increased the number of shares available for
issuance under the plan by 3,250,000 shares, 1,750,000 of which are available for restricted share
awards.
Stock Repurchase Program
In May 2010, the Companys Board of Directors authorized a stock repurchase program to buy
back up to $100.0 million of the Companys common stock through June 30, 2011. The program
authorizes purchases of common stock from time to time in either the open market or through private
transactions, in accordance with SEC and other applicable legal requirements. The timing, prices,
and sizes of purchases depends upon prevailing stock prices, general economic and market
conditions, and other considerations. Funds for the repurchase of shares have, and are expected
to, come primarily from unrestricted cash on hand and unrestricted cash generated from operations.
The repurchase program does not obligate the Company to acquire any particular amount of common
stock and the repurchase program may be suspended at any time at the Companys discretion. As of
June 30, 2010, the Company had repurchased 837,634 shares of its common stock under the program in
open market transactions for approximately $14.3 million, at an average cost of $17.10 per share,
and had approximately $85.7 million in remaining repurchase authority under the program.
12
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(11) Net Income Per Common Share
The following table presents the calculation of the Companys net income per common share
basic and diluted (in thousands, except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
55,775
|
|
|
$
|
31,891
|
|
|
$
|
89,576
|
|
|
$
|
52,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic
|
|
|
56,917,219
|
|
|
|
54,497,780
|
|
|
|
57,069,994
|
|
|
|
54,490,155
|
|
Dilutive effect of stock options
|
|
|
44,949
|
|
|
|
71,278
|
|
|
|
88,500
|
|
|
|
74,652
|
|
Dilutive effect of unvested restricted shares
|
|
|
87,812
|
|
|
|
201,154
|
|
|
|
144,073
|
|
|
|
229,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted
|
|
|
57,049,980
|
|
|
|
54,770,212
|
|
|
|
57,302,567
|
|
|
|
54,794,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.98
|
|
|
$
|
0.59
|
|
|
$
|
1.57
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.98
|
|
|
$
|
0.58
|
|
|
$
|
1.56
|
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share (EPS) reflects the potential dilution that could occur from
outstanding equity plan awards, including unexercised stock options and unvested restricted shares.
The dilutive effect is computed using the treasury stock method, which assumes all share-based
awards are exercised and the hypothetical proceeds from exercise are used by the Company to
purchase common stock at the average market price during the period. The incremental shares
(difference between shares assumed to be issued versus purchased), to the extent they would have
been dilutive, are included in the denominator of the diluted EPS calculation. Options with
respect to 4.2 million shares and 4.1 million shares were antidilutive and therefore excluded from
the computation of diluted earnings per share for the three months ended June 30, 2010 and 2009,
respectively. Options with respect to 4.1 million shares were antidilutive and therefore excluded
from the computation of diluted earnings per share for the six months ended June 30, 2010 and 2009.
(12) Debt
Long-term debt at June 30, 2010 and December 31, 2009 consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Credit agreement
|
|
$
|
170,625
|
|
|
$
|
236,973
|
|
Less: current portion of long-term debt
|
|
|
(17,500
|
)
|
|
|
(43,069
|
)
|
|
|
|
|
|
|
|
Long-term debt less current portion
|
|
$
|
153,125
|
|
|
$
|
193,904
|
|
|
|
|
|
|
|
|
On February 11, 2010, the Company entered into a $350.0 million credit agreement (the New
Credit Agreement), which, subject to the terms and conditions set forth therein, provides for a
five-year $175.0 million term loan credit facility and a four-year $175.0 million revolving credit
facility (the New Credit Facilities). Proceeds from the New Credit Facilities, together with cash
on hand, were used to fund the repayment of $237.0 million in term loans outstanding under the
Companys 2007 credit agreement as well as transaction expenses related thereto.
Borrowings under the New Credit Agreement accrue interest on the basis of either a base rate
or a LIBOR rate plus, in each case, an applicable margin depending on the Companys debt-to-EBITDA
leverage ratio (275 basis points for LIBOR borrowings at June 30, 2010). The Company also pays a
commitment fee of 0.500% per annum, which may be reduced to 0.375% if certain leverage ratios are
achieved, on the actual daily unused portions of the New Credit Facilities. The revolving credit
facility under the New Credit Agreement matures, the commitments thereunder terminate, and all
amounts then outstanding thereunder will be payable on February 11, 2014.
13
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The term loans under the New Credit Agreement are payable in equal quarterly principal
installments aggregating 10% of the aggregate initial principal amount of the term loans in the
first year, with the remaining outstanding principal balance of the term loans being payable in
equal quarterly installments aggregating 10%, 10%, 15%, and 55% in the second, third, fourth, and
fifth years, respectively. The net proceeds from certain asset sales, casualty/condemnation events,
and certain incurrences of indebtedness (subject, in the cases of asset sales and
casualty/condemnation events, to certain reinvestment rights), and a portion of the net proceeds
from equity issuances and, under certain circumstances, the Companys excess cash flow, are
required to be used to make prepayments in respect of loans outstanding under the New Credit
Facilities. The term loans made under the New Credit Agreement mature, and all amounts then
outstanding thereunder will be payable on February 11, 2015.
In connection with entering into the New Credit Agreement, the Company wrote-off unamortized
deferred financing costs of approximately $5.1 million incurred in connection with the Companys
2007 credit agreement. The Company also terminated its outstanding interest rate swap agreements,
which resulted in a payment of approximately $2.0 million to the swap counterparties. Such amounts
are reflected as interest expense in the financial results of the Company for the six
months ending June 30, 2010.
(13) Comprehensive Income
The following table presents details supporting the determination of comprehensive income for
the three and six months ended June 30, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Net income
|
|
$
|
55,775
|
|
|
$
|
31,891
|
|
|
$
|
89,576
|
|
|
$
|
52,503
|
|
Net unrealized gain on available for sale investment securities, net of tax
|
|
|
2,223
|
|
|
|
14
|
|
|
|
1,992
|
|
|
|
138
|
|
Net gain on interest rate swaps, net of tax
|
|
|
|
|
|
|
230
|
|
|
|
23
|
|
|
|
394
|
|
Reclass of accumulated other comprehensive income on interest rate swap termination
(1)
|
|
|
|
|
|
|
|
|
|
|
1,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income, net of tax
|
|
$
|
57,998
|
|
|
$
|
32,135
|
|
|
$
|
92,844
|
|
|
$
|
53,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Accumulated other comprehensive income balances related to interest rate swap derivatives
were reclassified to interest expense and recognized in the three months ended March 31, 2010.
See Note 8, Derivatives.
|
(14) Segment Information
The Company reports its business in three segments: Medicare Advantage, stand-alone PDP, and
Corporate. Medicare Advantage (MA-PD) consists of Medicare-eligible beneficiaries receiving
healthcare benefits, including prescription drugs, through a coordinated care plan qualifying under
Part C and Part D of the Medicare Program. Stand-alone PDP (PDP) consists of Medicare-eligible
beneficiaries receiving prescription drug benefits on a stand-alone basis in accordance with
Medicare Part D. The Corporate segment consists primarily of corporate expenses not allocated to
the other reportable segments. These segment groupings are also consistent with information used by
the Companys chief executive officer in making operating decisions.
The accounting policies of each segment are the same and are described in Note 1 to the 2009
Form 10-K. The results of each segment are measured and evaluated by earnings before interest
expense, depreciation and amortization expense, and income taxes (EBITDA). The Company does not
allocate certain corporate overhead amounts (classified as selling, general and administrative
expenses, or SG&A) or interest expense to the segments. The Company evaluates interest expense,
income taxes, and asset and liability details on a consolidated basis as these items are managed in
a corporate shared service environment and are not the responsibility of segment operating
management.
Revenue includes premium revenue, management and other fee income, and investment income.
14
HEALTHSPRING, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Asset and equity details by reportable segment have not been disclosed, as the Company does
not internally report such information.
Financial data by reportable segment for the three and six months ended June 30 is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MA-PD
|
|
|
PDP
|
|
|
Corporate
|
|
|
Total
|
|
Three months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
653,074
|
|
|
$
|
115,395
|
|
|
$
|
10
|
|
|
$
|
768,479
|
|
EBITDA
|
|
|
99,371
|
|
|
|
4,162
|
|
|
|
(6,203
|
)
|
|
|
97,330
|
|
Depreciation and amortization expense
|
|
|
6,238
|
|
|
|
|
|
|
|
1,272
|
|
|
|
7,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
595,034
|
|
|
$
|
87,496
|
|
|
$
|
13
|
|
|
$
|
682,543
|
|
EBITDA
|
|
|
64,263
|
|
|
|
3,302
|
|
|
|
(5,731
|
)
|
|
|
61,834
|
|
Depreciation and amortization expense
|
|
|
6,366
|
|
|
|
20
|
|
|
|
1,256
|
|
|
|
7,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,284,024
|
|
|
$
|
244,871
|
|
|
$
|
26
|
|
|
$
|
1,528,921
|
|
EBITDA
|
|
|
181,822
|
|
|
|
(601
|
)
|
|
|
(12,498
|
)
|
|
|
168,723
|
|
Depreciation and amortization expense
|
|
|
12,430
|
|
|
|
31
|
|
|
|
2,836
|
|
|
|
15,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,148,519
|
|
|
$
|
180,114
|
|
|
$
|
25
|
|
|
$
|
1,328,658
|
|
EBITDA
|
|
|
116,241
|
|
|
|
2,256
|
|
|
|
(12,398
|
)
|
|
|
106,099
|
|
Depreciation and amortization expense
|
|
|
12,722
|
|
|
|
40
|
|
|
|
2,404
|
|
|
|
15,166
|
|
As of January 1, 2010, the Company revised its methodology for allocating SG&A expenses
within its prescription drug operations to its MA-PD and PDP segments, which resulted in allocating
a greater share of such expenses to its PDP segment. As a result of these revisions, the segment
EBITDA amounts for the 2009 period include reclassification adjustments between segments such that
the periods presented are comparable.
The Company uses segment EBITDA as an analytical indicator for purposes of assessing segment
performance, as is common in the healthcare industry. Segment EBITDA should not be considered as a
measure of financial performance under generally accepted accounting principles and segment EBITDA,
as presented, may not be comparable to other companies.
A reconciliation of reportable segment EBITDA to net income included in the consolidated
statements of income for the three and six months ended June 30 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
EBITDA
|
|
$
|
97,330
|
|
|
$
|
61,834
|
|
|
$
|
168,723
|
|
|
$
|
106,099
|
|
Income tax expense
|
|
|
(31,791
|
)
|
|
|
(18,331
|
)
|
|
|
(51,625
|
)
|
|
|
(30,179
|
)
|
Interest expense
|
|
|
(2,254
|
)
|
|
|
(3,970
|
)
|
|
|
(12,225
|
)
|
|
|
(8,251
|
)
|
Depreciation and amortization
|
|
|
(7,510
|
)
|
|
|
(7,642
|
)
|
|
|
(15,297
|
)
|
|
|
(15,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
55,775
|
|
|
$
|
31,891
|
|
|
$
|
89,576
|
|
|
$
|
52,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
|
Item 2:
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
You should read the following discussion and analysis in conjunction with our condensed
consolidated financial statements and related notes included elsewhere in this report and our
audited consolidated financial statements and the notes thereto for the year ended December 31,
2009, appearing in our Annual Report on Form 10-K that was filed with the Securities and Exchange
Commission (SEC) on February 11, 2010 (the 2009 Form 10-K). Statements contained in this
Quarterly Report on Form 10-Q that are not historical fact are forward-looking statements that the
company intends to be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. Statements that are predictive
in nature, that depend on or refer to future events or conditions, or that include words such as
anticipates, believes, could, estimates, expects, intends, may, plans, potential,
predicts, projects, should, will, would, and similar expressions are forward-looking
statements.
The company cautions that forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause our actual results, performance, or achievements to
be materially different from any future results, performance, or achievements expressed or implied
by the forward-looking statements. Forward-looking statements reflect our current views with
respect to future events and are based on assumptions and subject to risks and uncertainties. Given
these uncertainties, you should not place undue reliance on these forward-looking statements.
In evaluating any forward-looking statement, you should specifically consider the information
set forth under the captions Special Note Regarding Forward-Looking Statements and Item 1A. Risk
Factors in the 2009 Form 10-K and the information set forth under Cautionary Statement Regarding
Forward-Looking Statements in our earnings and other press releases, as well as other cautionary
statements contained elsewhere in this report, including the matters discussed in Critical
Accounting Policies and Estimates. We undertake no obligation beyond that required by law to update
publicly any forward-looking statements for any reason, even if new information becomes available
or other events occur in the future. You should read this report and the documents that we
reference in this report and have filed as exhibits to this report completely and with the
understanding that our actual future results may be materially different from what we expect.
Overview
General
HealthSpring, Inc. (the company or HealthSpring) is one of the countrys largest
coordinated care plans whose primary focus is Medicare, the federal government-sponsored health
insurance program for U.S. citizens aged 65 and older, qualifying disabled persons, and persons
suffering from end-stage renal disease. We operate Medicare Advantage plans in Alabama, Florida,
Georgia, Illinois, Mississippi, Tennessee, and Texas and offer Medicare Part D prescription drug
plans on a national basis. The company also provides management services to physician practices. We
sometimes refer to our Medicare Advantage plans, including plans providing prescription drug
benefits, or MA-PD, collectively as Medicare Advantage plans and our stand-alone prescription
drug plan as our PDP. For purposes of additional analysis, the company provides membership and
certain financial information, including premium revenue and medical expense, for our Medicare
Advantage (including MA-PD) and PDP plans.
Medicare premiums, including premiums paid to our PDP, account for substantially all of our
revenue. As a consequence, our profitability is dependent on government funding levels for
Medicare programs. The Centers for Medicare and Medicaid Services (CMS) is the federal agency
responsible for overseeing the Medicare program. The companys Tennessee Medicare Advantage plan is
currently undergoing an audit by CMS relating to compliance with CMSs risk score coding
requirements (herein, the RADV Audit). In February 2010, the company responded to the RADV Audit
information request, including retrieving and providing medical records that support diagnosis
codes and risk scores relating to 2006 dates of service and 2007 plan premiums. The company is
currently unable to predict the outcome of the RADV Audit, or to predict the amount of premiums, if
any, that may be subject to repayment by the Tennessee plan to CMS.
Recent health insurance reform, as embodied in the Patient Protection and Affordable Care Act,
as amended by the Health Care and Education Reconciliation Act (collectively, PPACA) signed by
the President into law in March 2010, is projected to result in a significant reduction in federal
spending on the Medicare Advantage program. In addition to Medicare Advantage funding cuts, PPACA
reduces enrollment periods, establishes medical loss ratio, or MLR, minimum levels, ties certain rate and rebate benefits to
quality ratings, and imposes federal premium taxes. These changes may have a significant adverse
impact on our business, including member growth prospects and financial results. Most of the
provisions of PPACA that are material to our business phase in over a number of years and
regulations defining and implementing key provisions of PPACA applicable to us are not yet
developed. Consequently, we are currently unable
to predict with any reasonable certainty or otherwise quantify the likely impact of PPACA on
our business model, financial condition, or results of operations.
16
We report our business in three segments: Medicare Advantage; PDP; and Corporate. The
following discussion of our results of operations includes a discussion of revenue and certain
expenses by reportable segment. See Segment Information below for additional information
related thereto.
Results of Operations
The consolidated results of operations include the accounts of HealthSpring and its
subsidiaries. The following table sets forth the consolidated statements of income data expressed
in dollars (in thousands) and as a percentage of total revenue for each period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium revenue
|
|
$
|
756,342
|
|
|
|
98.4
|
%
|
|
$
|
671,450
|
|
|
|
98.4
|
%
|
Management and other fees
|
|
|
10,590
|
|
|
|
1.4
|
|
|
|
9,987
|
|
|
|
1.5
|
|
Investment income
|
|
|
1,547
|
|
|
|
0.2
|
|
|
|
1,106
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
768,479
|
|
|
|
100.0
|
%
|
|
|
682,543
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical expense
|
|
|
604,933
|
|
|
|
78.7
|
|
|
|
558,403
|
|
|
|
81.8
|
|
Selling, general and administrative
|
|
|
66,216
|
|
|
|
8.6
|
|
|
|
62,306
|
|
|
|
9.1
|
|
Depreciation and amortization
|
|
|
7,510
|
|
|
|
1.0
|
|
|
|
7,642
|
|
|
|
1.1
|
|
Interest expense
|
|
|
2,254
|
|
|
|
0.3
|
|
|
|
3,970
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
680,913
|
|
|
|
88.6
|
|
|
|
632,321
|
|
|
|
92.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
87,566
|
|
|
|
11.4
|
|
|
|
50,222
|
|
|
|
7.4
|
|
Income tax expense
|
|
|
(31,791
|
)
|
|
|
(4.1
|
)
|
|
|
(18,331
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
55,775
|
|
|
|
7.3
|
%
|
|
$
|
31,891
|
|
|
|
4.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium revenue
|
|
$
|
1,505,720
|
|
|
|
98.4
|
%
|
|
$
|
1,306,046
|
|
|
|
98.3
|
%
|
Management and other fees
|
|
|
20,778
|
|
|
|
1.4
|
|
|
|
19,956
|
|
|
|
1.5
|
|
Investment income
|
|
|
2,423
|
|
|
|
0.2
|
|
|
|
2,656
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
1,528,921
|
|
|
|
100.0
|
%
|
|
|
1,328,658
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical expense
|
|
|
1,217,452
|
|
|
|
79.6
|
|
|
|
1,088,002
|
|
|
|
81.9
|
|
Selling, general and administrative
|
|
|
142,746
|
|
|
|
9.3
|
|
|
|
134,557
|
|
|
|
10.1
|
|
Depreciation and amortization
|
|
|
15,297
|
|
|
|
1.0
|
|
|
|
15,166
|
|
|
|
1.1
|
|
Interest expense
|
|
|
12,225
|
|
|
|
0.9
|
|
|
|
8,251
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
1,387,720
|
|
|
|
90.8
|
|
|
|
1,245,976
|
|
|
|
93.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
141,201
|
|
|
|
9.2
|
|
|
|
82,682
|
|
|
|
6.2
|
|
Income tax expense
|
|
|
(51,625
|
)
|
|
|
(3.3
|
)
|
|
|
(30,179
|
)
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
89,576
|
|
|
|
5.9
|
%
|
|
$
|
52,503
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
Membership
Our primary source of revenue is monthly premium payments we receive based on membership
enrolled in Medicare. The following table summarizes our membership as of the dates specified:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2009
|
|
Medicare Advantage Membership
|
|
|
|
|
|
|
|
|
|
|
|
|
Alabama
|
|
|
30,724
|
|
|
|
31,330
|
|
|
|
30,101
|
|
Florida
|
|
|
35,975
|
|
|
|
32,606
|
|
|
|
30,892
|
|
Georgia
|
|
|
741
|
|
|
|
|
|
|
|
|
|
Illinois
|
|
|
11,814
|
|
|
|
11,261
|
|
|
|
10,821
|
|
Mississippi
|
|
|
5,321
|
|
|
|
4,591
|
|
|
|
4,152
|
|
Tennessee
|
|
|
64,791
|
|
|
|
58,252
|
|
|
|
55,917
|
|
Texas
|
|
|
48,070
|
|
|
|
51,201
|
|
|
|
50,348
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
197,436
|
|
|
|
189,241
|
|
|
|
182,231
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare PDP Membership
|
|
|
394,599
|
|
|
|
313,045
|
|
|
|
294,753
|
|
|
|
|
|
|
|
|
|
|
|
Medicare Advantage.
Our Medicare Advantage membership increased by 8.3% to 197,436 members at
June 30, 2010, as compared to 182,231 members at June 30, 2009, with membership gains in all our
health plans except our Texas plan. Our Medicare Advantage net membership gain of 15,205 members
since June 30, 2009 reflects both focused sales and marketing efforts through the annual open
enrollment and election periods and better retention rates resulting from, we believe, the relative
attractiveness of our various plans benefits. Effective as of January 1, 2010, we also began
operating Medicare Advantage plans in three counties in Northern Georgia. We currently anticipate
small but incremental Medicare Advantage membership growth throughout the remainder of 2010 through
the offering of products to beneficiaries whose enrollment is not restricted by lock-in rules,
including age-ins, dual-eligibles, and beneficiaries eligible for one of our special needs plans
(SNPs).
PDP.
PDP membership increased by 33.9% to 394,599 members at June 30, 2010 as compared to
294,753 at June 30, 2009, primarily as a result of the auto-assignment of members at the beginning
of the year. We do not actively market our PDP and have relied on CMS auto-assignments of
dual-eligible beneficiaries for membership. We have continued to receive assignments or otherwise
enroll dual-eligible beneficiaries in our PDP plans during lock-in and expect incremental growth
for the balance of the year.
Comparison of the Three-Month Period Ended June 30, 2010 to the Three-Month Period Ended June 30,
2009
Revenue
Total revenue was $768.5 million in the three-month period ended June 30, 2010 as compared
with $682.5 million for the same period in 2009, representing an increase of $86.0 million, or
12.6%. The components of revenue were as follows:
Premium Revenue:
Total premium revenue for the three months ended June 30, 2010 was $756.3
million as compared with $671.5 million in the same period in 2009, representing an increase of
$84.8 million, or 12.6%. The components of premium revenue and the primary reasons for changes were
as follows:
Medicare Advantage:
Medicare Advantage (including MA-PD) premiums were $640.8 million for
the three months ended June 30, 2010 as compared to $583.2 million in the second quarter of
2009, representing an increase of $57.6 million, or 9.9%. The increase in Medicare Advantage
premiums in 2010 is primarily attributable to increases in membership. PMPM premiums for the
2010 second quarter averaged $1,082, which is flat compared to the 2009 second quarter. PMPM
premiums in the current quarter reflect increases related to member risk scores, offset by
decreases in CMS-calculated base rates.
PDP:
PDP premiums (after risk corridor adjustments) were $115.4 million in the three months
ended June 30, 2010 compared to $87.4 million in the same period of 2009, an increase of
$28.0 million, or 32.0%. The increase in premiums for the 2010 second quarter is primarily
the result of increases in membership. Our average PMPM premiums (after risk corridor
adjustments) were $98 in the 2010 second quarter, as compared to $100 during the 2009 second
quarter.
18
Medical Expense
Medicare Advantage.
Medicare Advantage (including MA-PD) medical expense for the three months
ended June 30, 2010 increased $21.2 million, or 4.4%, to $499.2 million from $478.0 million for the
comparable period of 2009, which is primarily attributable to membership increases in the 2010
period as compared to the 2009 period. For the three months ended June 30, 2010, the Medicare
Advantage MLR was 77.9% versus 82.0% for the same period of 2009. The
MLR improvement in the 2010 second quarter is primarily attributable to changes in benefit design
and lower inpatient utilization, combined with premium revenue increases. Our Medicare Advantage
medical expense calculated on a PMPM basis was $843 for the three months ended June 30, 2010,
compared with $881 for the comparable 2009 quarter.
PDP.
PDP medical expense for the three months ended June 30, 2010 increased $25.6 million to
$105.2 million, compared to $79.6 million in the same period last year. PDP MLR for the 2010
second quarter was 91.2%, compared to 91.1% in the 2009 second quarter.
Selling, General, and Administrative Expense
Selling, general, and administrative, or SG&A, expense for the three months ended June 30,
2010 was $66.2 million as compared with $62.3 million for the same prior year period, an increase
of $3.9 million, or 6.3%. The increase in the 2010 second quarter as compared to the prior year
period is primarily the result of additional personnel costs. As a percentage of revenue, SG&A expense
decreased approximately 50 basis points for the three months ended June 30, 2010 compared to the
prior year period. As a result of the shortened 2011 enrollment
period which will no longer permit enrollment elections after the calendar year end, the company will accelerate marketing expenses typically spread over the fourth quarter of the current year and first quarter of the subsequent year into the fourth quarter of 2010.
Interest Expense
Interest expense was $2.3 million in the 2010 second quarter, compared with $4.0 million in
the 2009 second quarter. The decrease in the current quarter was the result of lower average debt
amounts outstanding and lower interest rates compared to the 2009 second quarter. The weighted
average interest rate incurred on our borrowings during the three months ended June 30, 2010 and
2009 were 5.1% and 6.1%, respectively (3.4% and 4.9%, respectively, exclusive of amortization of
deferred financing costs and credit facility fees).
Income Tax Expense
For the three months ended June 30, 2010, income tax expense was $31.8 million, reflecting an
effective tax rate of 36.3%, versus $18.3 million, reflecting an effective tax rate of 36.5%, for
the same period of 2009. The company expects the effective tax rates for the full 2010 year will
approximate 36.5%.
Comparison of the Six-Month Period Ended June 30, 2010 to the Six-Month Period Ended June 30, 2009
Revenue
Total revenue was $1.5 billion in the six-month period ended June 30, 2010 as compared with
$1.3 billion for the same period in 2009, representing an
increase of $200.2 million, or 15.1%. The
components of revenue were as follows:
Premium Revenue:
Total premium revenue for the six months ended June 30, 2010 was $1.5
billion as compared with $1.3 billion in the same period in
2009, representing an increase of $199.7 million, or 15.3%. The components of premium revenue and the primary reasons for changes were as
follows:
Medicare
Advantage:
Medicare Advantage (including MA-PD) premiums
increased $135.5 million, or 12.1%, to $1.3 billion for the
six months ended June 30, 2010 as compared to the same period of 2009. The increase in Medicare Advantage
premiums in 2010 is primarily attributable to increases in membership. PMPM premiums for the
current six month period averaged $1,072, which reflects an increase of 1.0% as compared to
the 2009 comparable period. The PMPM premium increase in the current period is primarily the
result of increases related to member risk scores, which were partially offset by decreases
in CMS-calculated base rates.
PDP:
PDP premiums (after risk corridor adjustments) were $244.9 million in the six months
ended June 30, 2010 compared to $179.9 million in the same period of 2009, an increase of
$65.0 million, or 36.1%. The increase in premiums for the current six month period is primarily the result of increases in membership. Our average
PMPM premiums (after risk corridor adjustments) were $105 in the current six month period, as
compared to $104 during the 2009 comparable period.
19
Medical Expense
Medicare Advantage.
Medicare Advantage (including MA-PD) medical expense for the six months
ended June 30, 2010 increased $65.6 million, or 7.1%, to $983.9 million from $918.3 million for the
comparable period of 2009, which is primarily attributable to membership increases in the 2010
period as compared to the 2009 period. For the six months ended June 30, 2010, the Medicare
Advantage MLR was 78.1% versus 81.7% for the same period of 2009. The MLR improvement in the
current period is primarily attributable to changes in benefit design and lower inpatient
utilization, combined with premium revenue increases. Our Medicare Advantage medical expense
calculated on a PMPM basis was $837 for the six months ended June 30, 2010, compared with $867 for
the comparable 2009 period.
PDP.
PDP medical expense for the six months ended June 30, 2010 increased $64.7 million to
$232.9 million, compared to $168.2 million in the same period last year. PDP MLR for the 2010 six
month period was 95.1%, compared to 93.5% in the same period in 2009. The increase in PDP MLR for
the current period was primarily attributable to changes in benefit design and increased transition
prescription drug costs in the 2010 period.
Selling, General, and Administrative Expense
SG&A expense for the six months ended June 30, 2010 was $142.7 million as compared with $134.6
million for the same prior year period, an increase of $8.1 million, or 6.1%. The increase in the
2010 period as compared to the prior year period is primarily the result of additional personnel
costs, increases in sales commissions attributable to membership growth, and increases in
advertising costs. As a percentage of revenue, SG&A expense decreased approximately 80 basis
points for the six months ended June 30, 2010 compared to the prior year period.
Interest Expense
Interest expense was $12.2 million in the 2010 six month period, compared with $8.3 million in
the 2009 same period. The companys interest expense in the 2010 period includes debt
extinguishment costs of $7.1 million resulting from the companys entering into a new credit
facility and terminating its prior credit facility during the first quarter. Net of extinguishment
costs, interest expense decreased $3.2 million in the 2010 period, reflecting lower average debt
amounts outstanding and lower interest rates compared to the 2009 period. The weighted average
interest rate incurred on our borrowings during the six month periods ended June 30, 2010 and 2009
were 5.3% and 6.2%, respectively (3.7% and 5.1%, respectively, exclusive of amortization of
deferred financing costs and credit facility fees).
Income Tax Expense
For the six months ended June 30, 2010, income tax expense was $51.6 million, reflecting an
effective tax rate of 36.6%, versus $30.2 million, reflecting an effective tax rate of 36.5%, for
the same period of 2009.
Segment Information
We report our business in three segments: Medicare Advantage, stand-alone PDP, and Corporate.
Medicare Advantage (MA-PD) consists of Medicare-eligible beneficiaries receiving healthcare
benefits, including prescription drugs, through a coordinated care plan qualifying under Part C and
Part D of the Medicare Program. Stand-alone PDP consists of Medicare-eligible beneficiaries
receiving prescription drug benefits on a stand-alone basis in accordance with Medicare Part D. The
Corporate segment consists primarily of corporate expenses not allocated to the other reportable
segments. These segment groupings are also consistent with information used by our chief executive
officer in making operating decisions.
The results of each segment are measured and evaluated by earnings before interest expense,
depreciation and amortization expense, and income taxes (EBITDA). We do not allocate certain
corporate overhead amounts (classified as SG&A expense) or interest expense to our segments. We
evaluate interest expense, income taxes, and asset and liability details on a consolidated basis as
these items are managed in a corporate shared service environment and are not the responsibility of
segment operating management.
Revenue includes premium revenue, management and other fee income, and investment income.
20
Asset and equity details by reportable segment have not been disclosed, as the company does
not internally report such information.
Financial data by reportable segment for the three and six months ended June 30 is as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MA-PD
|
|
|
PDP
|
|
|
Corporate
|
|
|
Total
|
|
Three months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
653,074
|
|
|
$
|
115,395
|
|
|
$
|
10
|
|
|
$
|
768,479
|
|
EBITDA
|
|
|
99,371
|
|
|
|
4,162
|
|
|
|
(6,203
|
)
|
|
|
97,330
|
|
Depreciation and amortization expense
|
|
|
6,238
|
|
|
|
|
|
|
|
1,272
|
|
|
|
7,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
595,034
|
|
|
$
|
87,496
|
|
|
$
|
13
|
|
|
$
|
682,543
|
|
EBITDA
|
|
|
64,263
|
|
|
|
3,302
|
|
|
|
(5,731
|
)
|
|
|
61,834
|
|
Depreciation and amortization expense
|
|
|
6,366
|
|
|
|
20
|
|
|
|
1,256
|
|
|
|
7,642
|
|
|
|
Six months ended June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,284,024
|
|
|
$
|
244,871
|
|
|
$
|
26
|
|
|
$
|
1,528,921
|
|
EBITDA
|
|
|
181,822
|
|
|
|
(601
|
)
|
|
|
(12,498
|
)
|
|
|
168,723
|
|
Depreciation and amortization expense
|
|
|
12,430
|
|
|
|
31
|
|
|
|
2,836
|
|
|
|
15,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,148,519
|
|
|
$
|
180,114
|
|
|
$
|
25
|
|
|
$
|
1,328,658
|
|
EBITDA
|
|
|
116,241
|
|
|
|
2,256
|
|
|
|
(12,398
|
)
|
|
|
106,099
|
|
Depreciation and amortization expense
|
|
|
12,722
|
|
|
|
40
|
|
|
|
2,404
|
|
|
|
15,166
|
|
As of January 1, 2010, the company revised its methodology for allocating selling, general,
and administrative expenses within its prescription drug operations to its MA-PD and PDP segments,
which resulted in allocating a greater share of such expenses to its PDP segment. As a result of
these revisions, the segment EBITDA amounts for the 2009 period includes reclassification
adjustments between segments such that the periods presented are comparable.
We use segment EBITDA as an analytical indicator for purposes of assessing segment
performance, as is common in the healthcare industry. Segment EBITDA should not be considered as a
measure of financial performance under generally accepted accounting principles and segment EBITDA,
as presented, may not be comparable to other companies.
A reconciliation of reportable segment EBITDA to net income included in the consolidated
statements of income for the three and six months ended June 30 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
EBITDA
|
|
$
|
97,330
|
|
|
$
|
61,834
|
|
|
$
|
168,723
|
|
|
$
|
106,099
|
|
Income tax expense
|
|
|
(31,791
|
)
|
|
|
(18,331
|
)
|
|
|
(51,625
|
)
|
|
|
(30,179
|
)
|
Interest expense
|
|
|
(2,254
|
)
|
|
|
(3,970
|
)
|
|
|
(12,225
|
)
|
|
|
(8,251
|
)
|
Depreciation and amortization
|
|
|
(7,510
|
)
|
|
|
(7,642
|
)
|
|
|
(15,297
|
)
|
|
|
(15,166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
55,775
|
|
|
$
|
31,891
|
|
|
$
|
89,576
|
|
|
$
|
52,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity and Capital Resources
We finance our operations primarily through internally generated funds. We generate cash
primarily from premium revenue and our primary uses of cash are payment of medical and SG&A
expenses and principal and interest on indebtedness. We anticipate that our current level of cash
on hand, internally generated cash flows, and borrowings available under our revolving credit
facility will be sufficient to fund our working capital needs, our debt service, and anticipated
capital expenditures over at least the next twelve months.
21
The reported changes in cash and cash equivalents for the six month period ended June 30,
2010, compared to the same period of 2009, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
Net cash used in operating activities
|
|
$
|
(40,794
|
)
|
|
$
|
(7,945
|
)
|
Net cash used in investing activities
|
|
|
(236,080
|
)
|
|
|
(16,141
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(58,852
|
)
|
|
|
36,856
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
$
|
(335,726
|
)
|
|
$
|
12,770
|
|
|
|
|
|
|
|
|
We will receive risk premium settlement payments from CMS of approximately $119.7 million in the
2010 third quarter.
Cash Flows from Operating Activities
Our primary sources of liquidity are cash flows provided by our operations and available cash
on hand. To date, we have not had to borrow under our $175.0 million revolving credit facility to
fund operating activities. We used cash in operating activities of $40.8 million during the six
months ended June 30, 2010, compared to using cash of $7.9 million during the six months ended June
30, 2009. The negative variance in cash flow from operations for the 2010 period compared to the
2009 period is primarily the result of the increase in risk payments due from CMS and the timing of
drug rebate collections in the 2010 period. Cash flows from operations typically lag net income
for the first half of the year as a result of the timing and amount of risk adjustment payments
from CMS.
Cash Flows from Investing and Financing Activities
For the six months ended June 30, 2010, the primary investing activities consisted of
expenditures of $359.8 million to purchase investment securities and restricted investments, the
receipt of $129.8 million in proceeds from the sale or maturity of investment securities and
restricted investments, and $5.5 million spent on property and equipment additions. The investing
activity in the prior year period consisted primarily of $38.8 million to purchase investment
securities, the receipt of $29.1 million in proceeds from the maturity of investment securities,
and $5.5 million in property and equipment additions.
During the six months ended June 30, 2010, the companys financing activities consisted
primarily of the receipt of $200.0 million in proceeds from the issuance of debt, the expenditure
of $266.3 million for the repayment of existing long-term debt, and $28.5 million of funds received
in excess of funds withdrawn from CMS for the benefit of members. The financing activity in the
prior year period consisted primarily of $53.5 million of funds received in excess of funds
withdrawn from CMS for the benefit of members, and $16.7 million for the repayment of long-term
debt. Funds due (held) for the benefit of members from CMS are recorded on our balance sheet at
June 30, 2010 and at December 31, 2009. We anticipate settling approximately $1.4 million of such
Part D related amounts (including risk corridor settlements) relating to 2009 with CMS during the
second half of 2010 as part of the final settlement of Part D payments for the 2009 plan year.
Cash and Cash Equivalents
At June 30, 2010, the companys cash and cash equivalents were $103.7 million, $56.3 million
of which was held in unregulated subsidiaries. Approximately
$28.6 million of the regulated subsidiary cash
balance relates to amounts held by the company for the benefit of its Part D members, which we
expect to settle with CMS during the second half of 2011.
Substantially all of the companys liquidity is in the form of cash and cash equivalents
($103.7 million at June 30, 2010), a portion of which ($47.4 million at June 30, 2010) is held by
the companys regulated insurance subsidiaries, which amounts are required by law and by our credit
agreement to be invested in low-risk, short-term, highly-liquid investments (such as government
securities, money market funds, deposit accounts, and overnight repurchase agreements). The
company also invests in securities ($323.3 million at June 30, 2010), primarily corporate,
asset-backed and government debt securities, that it generally intends, and has the ability, to
hold to maturity. Because the company is not relying on these investment securities for near-term
liquidity, short term fluctuations in market pricing generally do not affect the companys ability
to meet its liquidity needs. To date, the company has not experienced any material issuer defaults
on its investment securities.
22
Statutory Capital Requirements
The companys regulated insurance subsidiaries are required to maintain satisfactory minimum
net worth requirements established by their respective state departments of insurance. At June 30,
2010, the statutory minimum net worth requirements and actual statutory net worth were $18.5
million and $108.9 million for the Tennessee HMO; $1.1 million and $54.5 million for the Alabama
HMO; $10.6 million and $27.8 million for the Florida HMO; $38.4 million (at 200% of authorized
control level) and $83.5 million for the Texas HMO; and $14.6 million (at 200% of authorized
control level) and $37.0 million for the accident and health subsidiary, respectively. Each of
these subsidiaries was in compliance with applicable statutory requirements as of June 30, 2010.
Notwithstanding the foregoing, the state departments of insurance can require our regulated
insurance subsidiaries to maintain minimum levels of statutory capital in excess of amounts
required under the applicable state law if they determine that maintaining additional statutory
capital is in the best interest of the companys members. In addition, as a condition to its
approval of the LMC Health Plans acquisition, The Florida Office of Insurance Regulation has
required the Florida plan to maintain 115% of the statutory surplus otherwise required by Florida
law until September 2010.
The regulated insurance subsidiaries are restricted from making distributions without
appropriate regulatory notifications and approvals or to the extent such dividends would put them
out of compliance with statutory net worth requirements.
Indebtedness
Long-term debt at June 30, 2010 and December 31, 2009 consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Credit agreement
|
|
$
|
170,625
|
|
|
$
|
236,973
|
|
Less: current portion of long-term debt
|
|
|
(17,500
|
)
|
|
|
(43,069
|
)
|
|
|
|
|
|
|
|
Long-term debt less current portion
|
|
$
|
153,125
|
|
|
$
|
193,904
|
|
|
|
|
|
|
|
|
On February 11, 2010, the company entered into a $350.0 million credit agreement (the New
Credit Agreement), which, subject to the terms and conditions set forth therein, provides for a
five-year, $175.0 million term loan credit facility and a four-year, $175.0 million revolving
credit facility (the New Credit Facilities). Proceeds from the New Credit Facilities, together
with cash on hand, were used to fund the repayment of $237.0 million in term loans outstanding
under the companys 2007 credit agreement as well as transaction expenses related thereto.
Borrowings under the New Credit Agreement accrue interest on the basis of either a base rate
or a LIBOR rate plus, in each case, an applicable margin depending on the companys debt-to-EBITDA
leverage ratio (275 basis points for LIBOR borrowings at June 30, 2010). The company also pays a
commitment fee of 0.500% per annum, which may be reduced to 0.375% if certain leverage ratios are
achieved, on the actual daily unused portions of the New Credit Facilities. The revolving credit
facility under the New Credit Agreement matures, the commitments thereunder terminate, and all
amounts then outstanding thereunder will be payable on February 11, 2014. As of the date of this
report the revolving credit agreement was undrawn.
In connection with entering into the New Credit Agreement, the company wrote-off unamortized
deferred financing costs of approximately $5.1 million incurred in connection with the 2007 credit
agreement. The company also terminated both interest rate swap agreements, which resulted in a
payment of approximately $2.0 million to the swap counterparties. Such amounts are classified as
interest expense and are reflected in the financial results of the company for the six months ended
June 30, 2010.
Off-Balance Sheet Arrangements
At June 30, 2010, we did not have any off-balance sheet arrangement requiring disclosure.
Contractual Obligations
We did not experience any material changes to contractual obligations outside the ordinary
course of business during the six months ended June 30, 2010.
23
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires our management to make a
number of estimates and assumptions relating to the reported amount of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the period. Our estimates are
based on historical experience and on various other assumptions that we believe are reasonable
under the circumstances. Changes in estimates are recorded if and when better information becomes
available. As future events and their effects cannot be determined with precision, actual results
could differ significantly from these estimates. Changes in estimates resulting from continuing
changes in the economic environment will be reflected in the financial statements in future
periods.
We believe that the accounting policies discussed below are those that are most important to
the presentation of our financial condition and results of operations and that require our
managements most difficult, subjective, and complex judgments. For a more complete discussion of
these and other critical accounting policies and estimates of the company, see our 2009 Form 10-K.
Medical Expense and Medical Claims Liability
Medical expense is recognized in the period in which services are provided and includes an
estimate of the cost of medical expense that has been incurred but not yet reported, or IBNR.
Medical expense includes claim payments, capitation payments, risk sharing payments and pharmacy
costs, net of rebates, as well as estimates of future payments of claims incurred, net of
reinsurance. Capitation payments represent monthly contractual fees disbursed to physicians and
other providers who are responsible for providing medical care to members. Pharmacy costs represent
payments for members prescription drug benefits, net of rebates from drug manufacturers. Rebates
are recognized when earned, according to the contractual arrangements with the respective vendors.
Premiums we pay to reinsurers are reported as medical expense and related reinsurance recoveries
are reported as deductions from medical expense.
Medical claims liability includes medical claims reported to the plans but not yet paid as
well as an actuarially determined estimate of claims that have been incurred but not yet reported.
The IBNR component of total medical claims liability is based on our historical claims data,
current enrollment, health service utilization statistics, and other related information.
Estimating IBNR is complex and involves a significant amount of judgment. Accordingly, it
represents our most critical accounting estimate. The development of the IBNR includes the use of
standard actuarial developmental methodologies, including completion factors and claims trends,
which take into account the potential for adverse claims developments, and considers favorable and
unfavorable prior period developments. Actual claims payments will differ, however, from our
estimates. A worsening or improvement of our claims trend or changes in completion factors from
those that we assumed in estimating medical claims liabilities at June 30, 2010 would cause these
estimates to change in the near term and such a change could be material.
As discussed above, actual claim payments will differ from our estimates. The period between
incurrence of the expense and payment is, as with most health insurance companies, relatively
short, however, with over 90% of claims typically paid within 60 days of the month in which the
claim is incurred. Although there is a risk of material variances in the amounts of estimated and
actual claims, the variance is known quickly. Accordingly, we expect that substantially all of the
estimated medical claims payable as of the end of any fiscal period (whether a quarter or year end)
will be known and paid during the next fiscal period.
Our policy is to record the best estimate of medical expense IBNR. Using actuarial models, we
calculate a minimum amount and maximum amount of the IBNR component. To most accurately determine
the best estimate, our actuaries determine the point estimate within their minimum and maximum
range by similar medical expense categories within lines of business. The medical expense
categories we use are in-patient facility, outpatient facility, all professional expense, and
pharmacy.
We apply different estimation methods depending on the month of service for which incurred
claims are being estimated. For the more recent months, which account for the majority of the
amount of IBNR, we estimate our claims incurred by applying the observed trend factors to the
trailing twelve-month PMPM costs. For prior months, costs have been estimated using completion
factors. In order to estimate the PMPMs for the most recent months, we validate our estimates of
the most recent months utilization levels to the utilization levels in older months using
actuarial techniques that incorporate a historical analysis of claim payments, including trends in
cost of care provided, and timeliness of submission and processing of claims.
24
The following table illustrates the sensitivity of the completion and claims trend factors and
the impact on our operating results caused by changes in these factors that management believes are
reasonably likely based on our historical experience and June 30, 2010 data (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Completion Factor (a)
|
|
|
Claims Trend Factor (b)
|
|
|
|
|
|
Increase
|
|
|
|
|
|
|
Increase
|
|
|
|
|
|
(Decrease)
|
|
|
|
|
|
|
(Decrease)
|
|
Increase
|
|
|
in Medical
|
|
|
Increase
|
|
|
in Medical
|
|
(Decrease)
|
|
|
Claims
|
|
|
(Decrease)
|
|
|
Claims
|
|
in Factor
|
|
|
Liability
|
|
|
in Factor
|
|
|
Liability
|
|
|
3
|
%
|
|
$
|
(5,089
|
)
|
|
|
(3
|
)%
|
|
$
|
(2,890
|
)
|
|
2
|
|
|
|
(3,432
|
)
|
|
|
(2
|
)
|
|
|
(1,924
|
)
|
|
1
|
|
|
|
(1,736
|
)
|
|
|
(1
|
)
|
|
|
(961
|
)
|
|
(1
|
)
|
|
|
1,777
|
|
|
|
1
|
|
|
|
958
|
|
|
|
|
(a)
|
|
Impact due to change in completion factor for the most recent three months. Completion
factors indicate how complete claims paid to date are in relation to estimates for a given
reporting period. Accordingly, an increase in completion factor results in a decrease in the
remaining estimated liability for medical claims.
|
|
(b)
|
|
Impact due to change in annualized medical cost trends used to estimate PMPM costs for the
most recent three months.
|
Each month, we re-examine the previously established medical claims liability estimates based
on actual claim submissions and other relevant changes in facts and circumstances. As the liability
estimates recorded in prior periods become more exact, we increase or decrease the amount of the
estimates, and include the changes in medical expenses in the period in which the change is
identified. In every reporting period, our operating results include the effects of more completely
developed medical claims liability estimates associated with prior periods.
In establishing medical claims liability, we also consider premium deficiency situations and
evaluate the necessity for additional related liabilities. There were no required premium
deficiency accruals at June 30, 2010 or December 31, 2009.
Premium Revenue Recognition
We generate revenues primarily from premiums we receive from CMS to provide healthcare
benefits to our members. We receive premium payments on a PMPM basis from CMS to provide healthcare
benefits to our Medicare members, which premiums are fixed (subject to retroactive risk adjustment)
on an annual basis by contracts with CMS. Although the amount we receive from CMS for each member
is fixed, the amount varies among Medicare plans according to, among other things, plan benefits,
demographics, geographic location, age, gender, and the relative risk score of the membership.
We generally receive premiums on a monthly basis in advance of providing services. Premiums
collected in advance are deferred and reported as deferred revenue. We recognize premium revenue
during the period in which we are obligated to provide services to our members. Any amounts that
have not been received are recorded on the balance sheet as accounts receivable.
Our Medicare premium revenue is subject to periodic adjustment under what is referred to as
CMSs risk adjustment payment methodology based on the health risk of our members. Risk adjustment
uses health status indicators to correlate the payments to the health acuity of the member, and
consequently establishes incentives for plans to enroll and treat less healthy Medicare
beneficiaries. Under the risk adjustment payment methodology, coordinated care plans must capture,
collect, and report diagnosis code information to CMS. After reviewing the respective submissions,
CMS establishes the payments to Medicare plans generally at the beginning of the calendar year, and
then adjusts premium levels on two separate occasions on a retroactive basis. The first retroactive
risk premium adjustment for a given fiscal year generally occurs during the third quarter of such
fiscal year. This initial settlement (the Initial CMS Settlement) represents the updating of risk
scores for the current year based on the prior years dates of service. CMS then issues a final
retroactive risk premium adjustment settlement for that fiscal year in the following year (the
Final CMS Settlement). We estimate and record on a monthly basis both the Initial CMS Settlement
and the Final CMS Settlement.
We develop our estimates for risk premium adjustment settlement utilizing historical
experience and predictive actuarial models as sufficient member risk score data becomes available
over the course of each CMS plan year. Our actuarial models are populated with available risk score
data on our members. Risk premium adjustments are based on member risk score data from the
previous year. Risk score data for members who entered our plans during the current plan year,
however, is not available for use in our models; therefore, we make assumptions regarding the risk
scores of this subset of our member population.
25
All such estimated amounts are periodically updated as additional diagnosis code information
is reported to CMS and adjusted to actual amounts when the ultimate adjustment settlements are
either received from CMS or the company receives notification from CMS of such settlement amounts.
As a result of the variability of factors, including plan risk scores, that determine such
estimations, the actual amount of CMSs retroactive risk premium settlement adjustments could be
materially more or less than our estimates. Consequently, our estimate of our plans risk scores
for any period and our accrual of settlement premiums related thereto, may result in favorable or
unfavorable adjustments to our Medicare premium revenue and, accordingly, our profitability. There
can be no assurance that any such differences will not have a material effect on any future
quarterly or annual results of operations.
The following table illustrates the sensitivity of the Final CMS Settlements and the impact on
premium revenue caused by differences between actual and estimated settlement amounts that
management believes are reasonably likely, based on our historical experience and premium revenue
for the six months ending June 30, 2010 (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
Increase
|
|
|
|
|
(Decrease)
|
|
(Decrease)
|
|
|
|
|
In Settlement
|
|
in Estimate
|
|
|
|
|
Receivable
|
|
|
1.5
|
%
|
|
|
|
$
|
18,705
|
|
|
1.0
|
|
|
|
|
|
12,470
|
|
|
0.5
|
|
|
|
|
|
6,235
|
|
|
(0.5
|
)
|
|
|
|
|
(6,235
|
)
|
Goodwill and Indefinite-Life Intangible Assets
Goodwill represents the excess of cost over fair value of assets of businesses acquired.
Goodwill and intangible assets acquired in a purchase business combination and determined to have
an indefinite useful life are not amortized, but instead are tested for impairment at least
annually. An impairment loss is recognized to the extent that the carrying amount exceeds the
assets fair value. This determination is made at the reporting unit level and consists of two
steps. First, the company determines the fair value of the reporting unit and compares it to its
carrying amount. Second, if the carrying amount of the reporting unit exceeds its fair value, an
impairment loss is recognized for any excess of the carrying amount of the units goodwill over the
implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating
the fair value of the reporting units in a manner similar to a purchase price allocation. The
residual fair value after this allocation is the implied fair value of the reporting units
goodwill. Goodwill currently exists at four of our reporting units Alabama, Florida, Tennessee
and Texas.
Goodwill valuations have been determined using an income approach based on the present value
of future cash flows of each reporting unit. In assessing the recoverability of goodwill, we
consider historical results, current operating trends and results, and we make estimates and
assumptions about premiums, medical cost trends, margins and discount rates based on our budgets,
business plans, economic projections, anticipated future cash flows and regulatory data. Each of
these factors contains inherent uncertainties and management exercises substantial judgment and
discretion in evaluating and applying these factors.
Although we believe we have sufficient current and historical information available to us to
test for impairment, it is possible that actual cash flows could differ from the estimated cash
flows used in our impairment tests. We could also be required to evaluate the recoverability of
goodwill prior to the annual assessment if we experience various triggering events, including
significant declines in margins or sustained and significant market capitalization declines. These
types of events and the resulting analyses could result in goodwill impairment charges in the
future. Impairment charges, although non-cash in nature, could adversely affect our financial
results in the periods of such charges. In addition, impairment charges may limit our ability to
obtain financing in the future.
26
Item 3: Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 2010 and December 31, 2009, we had the following assets that may be sensitive
to changes in interest rates:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
Asset Class
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands)
|
|
Investment securities, available for sale:
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
|
|
|
$
|
8,883
|
|
Non-current portion
|
|
|
259,875
|
|
|
|
13,574
|
|
Investment securities, held to maturity:
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
|
|
|
|
13,965
|
|
Non-current portion
|
|
|
42,567
|
|
|
|
38,463
|
|
Restricted investments
|
|
|
20,856
|
|
|
|
16,375
|
|
We have not purchased any of our investments for trading purposes. Investment securities,
which consist primarily of debt securities, have been categorized as either available for sale or
held to maturity. Held to maturity securities are those securities that the company does not intend
to sell, nor expect to be required to sell, prior to maturity. At June 30, 2010, investment
securities are classified as non-current assets based on the companys intention to reinvest such
assets upon sale or maturity and to not use such assets in current operations. At December 31,
2009, the company classified its investment securities based upon maturity dates. These investment
securities consist of highly liquid government and corporate debt obligations, the majority of
which mature in five years or less. The investments are subject to interest rate risk and will
decrease in value if market rates increase. Because of the relatively short-term nature of our
investments and our portfolio mix of variable and fixed rate investments, however, we would not
expect the value of these investments to decline significantly as a result of a sudden change in
market interest rates. Moreover, because of our intention not to sell these investments prior to
their maturity, we would not expect foreseeable changes in interest rates to materially impair
their carrying value. Restricted investments consist of deposits, certificates of deposit,
government securities, and mortgage backed securities, deposited or pledged to state departments of
insurance in accordance with state rules and regulations. At June 30, 2010 and December 31, 2009,
these restricted assets are recorded at amortized cost and classified as long-term regardless of
the contractual maturity date because of the restrictive nature of the states requirements.
Assuming a hypothetical and immediate 1% increase in market interest rates at June 30, 2010,
the fair value of our fixed income investments would decrease by approximately $8.5 million.
Similarly, a 1% decrease in market interest rates at June 30, 2010 would result in an increase of
the fair value of our investments of approximately $8.0 million. Unless we determined, however,
that the increase in interest rates caused more than a temporary impairment in our investments, or
unless we were compelled by a currently unforeseen reason to sell securities, such a change should
not affect our future earnings or cash flows.
We are subject to market risk from exposure to changes in interest rates based on our
financing, investing, and cash management activities. At June 30, 2010, we had $170.6 million of
outstanding indebtedness, bearing interest at variable rates at specified margins above either the
agent banks alternate base rate or its LIBOR rate, at our election. Holding other variables
constant, including levels of indebtedness, a 0.125% increase in interest rates would have an
estimated negative impact on pre-tax earnings and cash flows for the next twelve month period of
$213,000. Although changes in the alternate base rate or the LIBOR rate would affect the costs of
funds borrowed in the future, we believe the effect, if any, of reasonably possible near-term
changes in interest rates on our consolidated financial position, results of operations or cash
flow would not be material.
At December 31, 2009, we had interest rate swap agreements to manage a portion of our exposure
to these fluctuations. The interest rate swaps converted a portion of our indebtedness to a fixed
rate with a notional amount of $100.0 million. The company designated its interest rate swaps as
cash flow hedges which were recorded in the companys consolidated balance sheet at their fair
value. The fair value of the companys interest rate swaps at December 31, 2009 were reflected as a
liability of approximately $2.1 million and were included in other current liabilities in the
accompanying consolidated balance sheet. In connection with the New Credit Agreement, the interest
rate swap agreements were terminated and approximately $2.0 million was paid by us to the swap
counterparties to settle the terminations. As of June 30, 2010, we had not taken any other action
to cover interest rate risk and were not a party to any interest rate market risk management
activities. We may re-enter into interest rate swap agreements in the future depending on market
conditions and other factors.
27
Item 4: Controls and Procedures
Our senior management carried out the evaluation required by Rule 13a-15 under the Exchange
Act, under the supervision and with the participation of our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act (Disclosure Controls). Based on
the evaluation, our senior management, including our CEO and CFO, concluded that, as of June 30,
2010, our Disclosure Controls were effective.
There has been no change in our internal control over financial reporting identified in
connection with the evaluation that occurred during the quarter ended June 30, 2010 that has
materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Our management, including our CEO and CFO, does not expect that our Disclosure Controls and
internal controls will prevent all errors and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, with the company
have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error and mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people, or by management override of controls.
The design of any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time, a control may become
inadequate because of changes in conditions or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and may not be detected.
28
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently involved in any pending legal proceeding that we believe is material to
our financial condition or results of operations. We are, however, involved from time to time in
routine legal matters and other claims incidental to our business, including employment-related
claims; claims relating to our health plans contractual relationships with providers, members, and
vendors; and claims relating to marketing practices of sales agents and agencies that are employed
by, or independent contractors to, our health plans.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should consider carefully
the risks and uncertainties previously reported and described under the captions Part I Item
1A. Risk Factors in the 2009 Form 10-K and Part II Item 1A. Risk Factors in our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2010 (2010 First Quarter 10-Q), the
occurrence of any of which could materially and adversely affect our business, prospects, financial
condition, and operating results. The risks previously reported and described in our 2009 Form
10-K and 2010 First Quarter 10-Q are not the only risks facing our business. Additional risks and
uncertainties not currently known to us or that we currently consider to be immaterial also could
materially and adversely affect our business, prospects, financial condition, and operating
results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In May 2010, the Companys Board of Directors authorized a stock repurchase program to
repurchase up to $100.0 million of the Companys common stock. The program authorizes purchases
made from time to time in either the open market or through privately negotiated transactions, in
accordance with SEC and other applicable legal requirements. The timing, prices, and sizes of
purchases depend upon prevailing stock prices, general economic and market conditions, and other
factors. Funds for the repurchase of shares have, and are expected to, come primarily from
unrestricted cash on hand and unrestricted cash generated from operations. The repurchase program
does not obligate the Company to acquire any particular amount of common stock and the repurchase
program may be suspended at any time at the Companys discretion. The program is scheduled to
expire on June 30, 2011.
During the quarter ended June 30, 2010, the Company repurchased the following shares of its
common stock pursuant to the Companys $100.0 million stock repurchase program:
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Value of Shares that
|
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
May Yet Be Purchased
|
|
|
|
Total Number of
|
|
|
Average Price Paid
|
|
|
Announced Plans or
|
|
|
Under the Plans or
|
|
Period
|
|
Shares Purchased
|
|
|
per Share ($)
|
|
|
Programs
|
|
|
Programs ($)
|
|
04/01/10 04/30/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
05/01/10 05/31/10
|
|
|
837,634
|
|
|
|
17.10
|
|
|
|
837,634
|
|
|
|
85,696,320
|
|
06/01/10 06/30/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
837,634
|
|
|
|
17.10
|
|
|
|
837,634
|
|
|
|
85,696,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our ability to purchase common stock and to pay cash dividends is limited by our credit
agreement. As a holding company, our ability to repurchase common stock and to pay cash dividends is
also dependent on the availability of cash dividends from our regulated HMO subsidiaries, which are
restricted by the laws of the states in which we operate and CMS, as well as limitations under our
credit agreement.
29
Item 3. Defaults Upon Senior Securities.
Inapplicable.
Item 5. Other Information.
Inapplicable.
Item 6. Exhibits.
See Exhibit Index following signature page.
30
SIGNATURE
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.
|
|
|
|
|
|
HEALTHSPRING, INC.
|
|
Date: July 30, 2010
|
By:
|
/s/
Karey L. Witty
|
|
|
|
Karey L. Witty
|
|
|
|
Executive Vice President and Chief
Financial
Officer (Principal Financial
and
Accounting
Officer)
|
|
31
EXHIBIT INDEX
|
|
|
|
|
|
10.1
|
|
|
Non-Employee Director Compensation Policy*
|
|
|
|
|
|
|
31.1
|
|
|
Certifications of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
31.2
|
|
|
Certifications of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
32.1
|
|
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
|
32.2
|
|
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
*
|
|
Indicates management contract or compensatory plan, contract, or arrangement.
|
32
Healthspring (NYSE:HS)
Historical Stock Chart
From Jul 2024 to Aug 2024
Healthspring (NYSE:HS)
Historical Stock Chart
From Aug 2023 to Aug 2024