Attached files
| file | filename |
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| 8-K - FORM 8-K - COVENTRY HEALTH CARE INC | form8k_10302009.htm |
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Contact: |
Shawn M. Guertin |
Chief Financial Officer
(301) 581-5701
Drew Asher
SVP, Corporate Finance
(301) 581-5717
Coventry Health Care Reports Third Quarter Earnings and Increases Full Year 2009 Guidance
GAAP Earnings of $0.48 per Diluted Share; Adjusted Earnings of $0.66 per Diluted Share
BETHESDA, Md. (October 30, 2009) - Coventry Health Care, Inc. (NYSE: CVH) today reported consolidated operating results for the quarter ended September 30, 2009. Operating revenues totaled $3.4 billion for the quarter with GAAP net earnings of $70.6 million, or $0.48 earnings per diluted share (EPS). Excluding the impact of the First Health Services Corporation (FHSC) divestiture in the third quarter, which resulted in a net charge of $26.7 million, or $0.18 per diluted share, adjusted net earnings were $97.3 million, or $0.66 per diluted share.(1)
Excluding the impact of the FHSC divestiture, the Company is increasing its full year 2009 adjusted EPS guidance to a range of $2.01 to $2.03, an increase of $0.12 from the midpoint of the prior EPS range of $1.85 to $1.95. GAAP EPS for the full year is now expected to be in a range of $1.45 to $1.47 as the Company has recorded a largely non-cash full year charge of $0.56 per diluted share as a result of the FHSC divestiture, as outlined on page two.
“I continue to be pleased with the Company’s financial and operational results for 2009 including today’s increase to full year EPS guidance,” said Allen F. Wise, chairman and chief executive officer of Coventry. “In the face of a challenging environment, we feel confident that focusing on our seven core businesses and driving a low cost structure will best position Coventry for the future.”
Third Quarter Consolidated Highlights
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• |
Revenues from continuing operations increased 17.7% from the prior year quarter |
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• |
Continued growth in Medicare products |
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|
o |
Medicare Coordinated Care Product (CCP) membership growth of 38% from the prior year quarter |
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o |
Medicare Part D membership growth of 81,000 from the prior quarter |
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• |
Health plan commercial group risk medical loss ratio of 82.1% |
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• |
GAAP cash flows from operations were $314.3 million |
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• |
Excellent liquidity position |
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|
o |
Approximately $570 million of deployable free cash at the parent at quarter-end |
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|
o |
Debt repayment of $98 million during the quarter |
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• |
Share buyback of 1.5 million shares at the end of the quarter |
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• |
Investment portfolio in a net unrealized gain position at quarter-end |
1) Adjusted earnings of $0.66 per diluted share include earnings from continuing operations of $0.68 per diluted share and a loss of $0.02 per diluted share from FHSC operations during the quarter. The Company believes that adjusting earnings to exclude the unfavorable impact of the non-recurring FHSC divestiture-related charges provides a more meaningful measure of its operating results in comparison to prior and future periods (and to previously announced guidance). See page two for further details.
Selected Third Quarter Highlights
|
• |
Health Plan Commercial Group Premium Yield & Medical Loss Ratio (MLR). Reported commercial group risk premium yields rose to $304.13 PMPM (per member per month) in the quarter, an increase of 6.1% from the prior year quarter. The health plan commercial group risk MLR was 82.1% in the quarter, a decrease of 20 basis points from the prior year quarter. |
|
• |
Medicare Advantage Membership & MLR. As of September 30, 2009, Medicare Advantage membership was 521,000, an increase of 141,000 members year-to-date. Medicare Advantage CCP membership was 185,000, an increase of 48,000 members year-to-date. The Medicare Advantage MLR was 89.4% in the quarter, a sequential decrease of 100 bps driven by favorable results in Medicare Advantage Private Fee-for-Service (PFFS). The Medicare Advantage PFFS MLR improvement in the third quarter compared to the first half of 2009 contributed approximately $0.07 per diluted share in the quarter. As previously announced, the Company will exit the Medicare Advantage PFFS product effective January 1, 2010. |
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• |
Medicare Part D Membership & MLR. As of September 30, 2009, Medicare Part D membership was 1,636,000, an increase of 81,000 members from the prior quarter and 705,000 members year-to-date. The Medicare Part D MLR was 79.4% in the quarter and 91.9% year-to-date, compared to the third quarter 2008 year-to-date MLR of 91.5%. |
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• |
Medicaid Membership. As of September 30, 2009, Medicaid membership was 391,000, an increase of 6,000 members from the prior quarter. The Medicaid MLR was 86.1% in the quarter. |
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• |
First Health Services Corporation Divestiture. The previously announced divestiture of FHSC closed on July 31, 2009. In accordance with GAAP, the historical FHSC results of operations are classified as discontinued operations and are excluded from consolidated continuing operations for each period presented. In addition to the results of FHSC operations, the discontinued operations for the third quarter and year-to-date periods of 2009 include charges to reflect the impact of the FHSC divestiture. Consistent with previous guidance, in the third quarter of 2009 the Company recorded a primarily non-cash net charge of $0.18 per diluted share to complete the divestiture. When combined with the loss of $0.02 per diluted share generated from FHSC operating results in the quarter, the total EPS from discontinued operations was a loss of $0.20 for the third quarter. Including the previously disclosed $0.38 per diluted share charge recorded in the second quarter, the total year-to-date charge on the FHSC divestiture was $0.56 per diluted share, which is consistent with the lower end of the Company’s prior estimate of $0.55 to $0.60 per diluted share. When combined with the $0.06 of EPS generated from FHSC year-to-date operating results, the total EPS from discontinued operations was a loss of $0.50 for the nine months ended September 30, 2009. |
Mr. Allen F. Wise, chairman and chief executive officer of Coventry, will host a conference call at 8:30 a.m. ET on Friday, October 30, 2009. To listen to the call, dial toll-free at (888) 352-6803 or, for international callers, (719) 325-2474. Callers will be asked to identify themselves and their affiliations. The conference call will also be webcast from Coventry’s Investor Relations site at www.coventryhealthcare.com. Coventry asks participants on both the call and webcast to review and be familiar with its filings with the Securities and Exchange Commission. A replay of the call will be available for one week at (888) 203-1112 or, for international callers, (719) 457-0820. The access code is 3147061.
This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are defined as statements that are not historical facts and include those statements relating to future events or future financial performance. Actual performance may be significantly impacted by certain risks and uncertainties including those described in Coventry’s Annual Report on Form 10-K for the year ended December 31, 2008 and Coventry’s Form 10-Q for the quarter ended June 30, 2009. Coventry undertakes no obligation to update or revise any forward-looking statements.
Coventry Health Care (www.coventryhealthcare.com) is a diversified national managed healthcare company based in Bethesda, Maryland, operating health plans, insurance companies, network rental and workers’ compensation services companies. Coventry provides a full range of risk and fee-based managed care products and services to a broad cross section of individuals, employer and government-funded groups, government agencies, and other insurance carriers and administrators.
COVENTRY HEALTH CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)
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Quarters Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2009 |
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2008 |
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2009 |
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2008 |
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Operating revenues: |
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|
|
|
|
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|||
|
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Managed care premiums |
$3,153,142 |
|
$2,627,345 |
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$9,595,872 |
|
$7,891,701 |
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||
|
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Management services |
290,968 |
|
298,376 |
|
879,507 |
|
865,785 |
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||
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Total operating revenues |
3,444,110 |
|
2,925,721 |
|
10,475,379 |
|
8,757,486 |
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Operating expenses: |
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|
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|
|
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|||
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Medical costs |
2,661,131 |
|
2,200,405 |
|
8,261,102 |
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6,630,950 |
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||
|
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Cost of sales |
62,384 |
|
54,289 |
|
178,280 |
|
139,038 |
|
||
|
|
Selling, general, administrative |
527,173 |
|
478,973 |
|
1,607,142 |
|
1,411,163 |
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||
|
|
Depreciation and amortization |
40,660 |
|
35,617 |
|
110,309 |
|
109,401 |
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||
|
Total operating expenses |
3,291,348 |
|
2,769,284 |
|
10,156,833 |
|
8,290,552 |
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|
|
|
|
|
|
|
|
|
|
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||
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Operating earnings |
152,762 |
|
156,437 |
|
318,546 |
|
466,934 |
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|||
|
Operating earnings percentage of total revenues |
4.4% |
|
5.3% |
|
3.0% |
|
5.3% |
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|||
|
|
|
|
|
|
|
|
|
|
|
||
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Interest expense |
20,697 |
|
22,523 |
|
64,603 |
|
70,545 |
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|||
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Other income, net |
18,012 |
|
(9,904) |
|
69,773 |
|
52,292 |
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|||
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Earnings before income taxes |
150,077 |
|
124,010 |
|
323,716 |
|
448,681 |
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|||
|
|
|
|
|
|
|
|
|
|
|
||
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Provision for income taxes |
49,638 |
|
45,032 |
|
117,462 |
|
168,027 |
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|||
|
Income from continuing operations |
100,439 |
|
78,978 |
|
206,254 |
|
280,654 |
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|||
|
|
|
|
|
|
|
|
|
|
|
||
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(Loss) income from discontinued operations, net of tax |
(29,810) |
|
6,496 |
|
(73,033) |
|
13,000 |
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|||
|
|
|
|
|
|
|
|
|
|
|
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Net earnings |
$ 70,629 |
|
$ 85,474 |
|
$ 133,221 |
|
$ 293,654 |
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Net earnings per share: |
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Basic earnings per share from continuing operations |
$ 0.68 |
|
$ 0.54 |
|
$ 1.40 |
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$ 1.88 |
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Basic (loss) earnings per share from discontinued operations |
(0.20) |
|
0.04 |
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(0.50) |
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0.09 |
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Total basic earnings per share |
$ 0.48 |
|
$ 0.58 |
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$ 0.90 |
|
$ 1.96 |
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Diluted earnings per share from continuing operations |
$ 0.68 |
|
$ 0.53 |
|
$ 1.40 |
|
$ 1.86 |
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Diluted (loss) earnings per share from discontinued operations |
(0.20) |
|
0.04 |
|
(0.50) |
|
0.09 |
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Total diluted earnings per share |
$ 0.48 |
|
$ 0.58 |
|
$ 0.90 |
|
$ 1.94 |
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|
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Weighted average shares outstanding, basic |
147,062 |
|
146,652 |
|
146,956 |
|
149,591 |
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Weighted average shares outstanding, diluted |
147,784 |
|
147,802 |
|
147,569 |
|
151,229 |
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COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
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|
September 30, |
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June 30, |
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December 31, |
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|
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2009 |
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2009 |
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2008 |
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|
(unaudited) |
|
(unaudited) |
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Assets: |
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Current assets: |
|
|
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|
|
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Cash and cash equivalents |
$ |
1,691,847 |
$ |
1,712,152 |
$ |
1,123,114 |
|
Short-term investments |
|
355,417 |
|
112,677 |
|
338,129 |
|
Accounts receivable, net |
|
259,775 |
|
280,292 |
|
293,636 |
|
Other receivables, net |
|
501,348 |
|
607,359 |
|
524,803 |
|
Other current assets |
|
156,837 |
|
186,651 |
|
130,808 |
|
Total current assets |
|
2,965,224 |
|
2,899,131 |
|
2,410,490 |
|
|
|
|
|
|
|
|
|
Long-term investments |
|
1,888,670 |
|
1,762,120 |
|
1,709,878 |
|
Property and equipment, net |
|
270,153 |
|
292,690 |
|
308,016 |
|
Goodwill |
|
2,535,718 |
|
2,622,479 |
|
2,695,025 |
|
Other intangible assets, net |
|
491,164 |
|
513,209 |
|
546,168 |
|
Other long-term assets |
|
33,949 |
|
34,430 |
|
57,821 |
|
Total assets |
$ |
8,184,878 |
$ |
8,124,059 |
$ |
7,727,398 |
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|
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|
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Liabilities and Stockholders’ Equity: |
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|
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|
|
|
|
|
|
|
|
|
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Current liabilities: |
|
|
|
|
|
|
|
Medical liabilities |
$ |
1,702,855 |
$ |
1,752,969 |
$ |
1,446,391 |
|
Accounts payable and accrued liabilities |
|
630,190 |
|
499,602 |
|
474,561 |
|
Deferred revenue |
|
107,172 |
|
122,294 |
|
104,823 |
|
Total current liabilities |
|
2,440,217 |
|
2,374,865 |
|
2,025,775 |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
1,708,935 |
|
1,806,842 |
|
1,902,472 |
|
Other long-term liabilities |
|
433,077 |
|
416,286 |
|
368,482 |
|
Total liabilities |
|
4,582,229 |
|
4,597,993 |
|
4,296,729 |
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
3,602,649 |
|
3,526,066 |
|
3,430,669 |
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
$ |
8,184,878 |
$ |
8,124,059 |
$ |
7,727,398 |
|
|
|
|
|
|
|
|
COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
|
|
|
Quarter Ended |
|
Nine Months Ended |
|
|
|
September 30, 2009 |
|
September 30, 2009 |
|
|
|
|
|
|
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Cash flows from operating activities: |
|
|
|
|
|
Net earnings |
$ |
70,629 |
$ |
133,221 |
|
Adjustments to earnings: |
|
|
|
|
|
Depreciation and amortization |
|
40,981 |
|
112,570 |
|
Amortization of stock compensation |
|
13,552 |
|
37,332 |
|
Loss on disposal of FHSC |
|
26,738 |
|
81,557 |
|
Gain on repurchase of debt |
|
(41) |
|
(8,371) |
|
Changes in assets and liabilities: |
|
|
|
|
|
Accounts receivable, net |
|
(1,868) |
|
11,476 |
|
Medical liabilities |
|
(50,036) |
|
256,542 |
|
Accounts payable and other accrued liabilities |
|
93,173 |
|
131,467 |
|
Deferred revenue |
|
(11,640) |
|
5,831 |
|
Other operating activities |
|
132,851 |
|
27,218 |
|
Net cash flows from operating activities |
|
314,339 |
|
788,843 |
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
Capital expenditures, net |
|
(11,623) |
|
(34,795) |
|
Payments for investments, net of sales and maturities |
|
(331,469) |
|
(115,791) |
|
Proceeds from acquisition settlements |
|
112 |
|
10,197 |
|
Proceeds from FHSC disposal, net |
|
115,437 |
|
115,437 |
|
Net cash flows from investing activities |
|
(227,543) |
|
(24,952) |
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
Proceeds from issuance of stock |
|
615 |
|
1,094 |
|
Payments for repurchase of stock |
|
(10,018) |
|
(11,745) |
|
Repayment of debt |
|
(97,910) |
|
(184,930) |
|
Excess tax benefit from stock compensation |
|
212 |
|
423 |
|
Net cash flows from financing activities |
|
(107,101) |
|
(195,158) |
|
|
|
|
|
|
|
Net change in cash and cash equivalents for current period |
|
(20,305) |
|
568,733 |
|
Cash and cash equivalents at beginning of period |
|
1,712,152 |
|
1,123,114 |
|
Cash and cash equivalents at end of period |
$ |
1,691,847 |
$ |
1,691,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Investments: |
|
|
|
|
|
Cash and cash equivalents |
$ |
1,691,847 |
$ |
1,691,847 |
|
Short-term investments |
|
355,417 |
|
355,417 |
|
Long-term investments |
|
1,888,670 |
|
1,888,670 |
|
Total cash and investments |
$ |
3,935,934 |
$ |
3,935,934 |
COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
(Unaudited)
|
|
Q3 2009 |
Q2 2009 |
Q1 2009 |
Total 2008 |
Q4 2008 |
Q3 2008 |
|
Membership by Product (000s) |
|
|
|
|
|
|
|
Health Plan Commercial Risk |
1,431 |
1,477 |
1,501 |
|
1,575 |
1,587 |
|
Health Plan Commercial ASO |
689 |
697 |
702 |
|
714 |
720 |
|
Medicare Advantage CCP |
185 |
182 |
176 |
|
137 |
134 |
|
Medicaid Risk |
391 |
385 |
375 |
|
371 |
386 |
|
Health Plan Total |
2,696 |
2,741 |
2,754 |
|
2,797 |
2,827 |
|
|
|
|
|
|
|
|
|
Medicare Advantage PFFS |
336 |
329 |
318 |
|
243 |
243 |
|
Other National Risk |
5 |
15 |
21 |
|
24 |
27 |
|
Other National ASO |
567 |
571 |
575 |
|
633 |
641 |
|
Total Medical Membership |
3,604 |
3,656 |
3,668 |
|
3,697 |
3,738 |
|
|
|
|
|
|
|
|
|
Medicare Part D |
1,636 |
1,555 |
1,501 |
|
931 |
910 |
|
|
|
|
|
|
|
|
|
Total Membership |
5,240 |
5,211 |
5,169 |
|
4,628 |
4,648 |
|
|
|
|
|
|
|
|
|
Revenues by Product Type (000s) |
|
|
|
|
|
|
|
Commercial Risk |
$1,279,571 |
$1,310,645 |
$1,327,221 |
$5,421,984 |
$1,364,232 |
$1,362,956 |
|
Commercial Management Services |
81,661 |
83,675 |
83,810 |
352,369 |
97,108 |
86,672 |
|
Medicare Advantage |
1,268,592 |
1,224,011 |
1,161,590 |
3,177,244 |
847,231 |
825,504 |
|
Medicaid Risk |
281,146 |
263,039 |
260,838 |
1,087,189 |
259,926 |
260,060 |
|
Total Health Plan and Medical Services Businesses |
2,910,970 |
2,881,370 |
2,833,459 |
10,038,786 |
2,568,497 |
2,535,192 |
|
|
|
|
|
|
|
|
|
Medicare Part D |
316,654 |
397,090 |
484,123 |
847,702 |
191,899 |
170,483 |
|
Other Premiums |
23,568 |
23,746 |
23,957 |
64,783 |
22,916 |
18,937 |
|
Other Management Services(2) |
211,769 |
215,468 |
210,893 |
826,321 |
210,406 |
213,799 |
|
Total Specialized Managed Care Businesses(2) |
551,991 |
636,304 |
718,973 |
1,738,806 |
425,221 |
403,219 |
|
|
|
|
|
|
|
|
|
Total Premiums |
3,169,531 |
3,218,531 |
3,257,729 |
10,598,902 |
2,686,204 |
2,637,940 |
|
Total Management Services(2) |
293,430 |
299,143 |
294,703 |
1,178,690 |
307,514 |
300,471 |
|
Other/Eliminations |
(18,851) |
(19,300) |
(19,537) |
(43,365) |
(16,976) |
(12,690) |
|
Total Revenue(2) |
$3,444,110 |
$3,498,374 |
$3,532,895 |
$11,734,227 |
$2,976,742 |
$2,925,721 |
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Consolidated Coventry |
|
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|
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|
|
|
|
|
|
Operating Income % of Revenues(2) |
4.4% |
2.9% |
1.8% |
5.0% |
4.0% |
5.3% |
|
|
|
|
|
|
|
|
|
SGA % of Revenues(2) |
15.3% |
15.3% |
15.4% |
16.5% |
17.8% |
16.4% |
|
|
|
|
|
|
|
|
|
Total Medical Liabilities (000s) |
$1,428,766 |
$1,413,243 |
$1,416,735 |
|
$1,243,620 |
$1,209,560 |
|
Days in Claims Payable (DCP) |
54.78 |
54.07 |
55.11 |
|
54.75 |
54.94 |
|
|
|
|
|
|
|
|
|
Total Debt (millions) |
$ 1,708.9 |
$ 1,806.8 |
$ 1,902.6 |
|
$ 1,902.5 |
$ 1,472.3 |
|
Total Capital (millions) |
$ 5,311.6 |
$ 5,332.9 |
$ 5,402.8 |
|
$ 5,333.1 |
$ 4,779.3 |
|
Debt to Capital |
32.2% |
33.9% |
35.2% |
|
35.7% |
30.8% |
|
2) |
Operating statistics excluding discontinued operations. |
COVENTRY HEALTH CARE, INC.
SELECTED REVENUE AND MEDICAL COST STATISTICS
(Unaudited)
|
|
Q3 2009 |
Q2 2009 |
Q1 2009 |
Total 2008 |
Q4 2008 |
Q3 2008 |
|
Revenue PMPM |
|
|
|
|
|
|
|
Health Plan Commercial Group Risk |
$304.13 |
$299.79 |
$296.36 |
$286.30 |
$289.71 |
$286.73 |
|
Medicare Advantage(3) |
$853.90 |
$857.05 |
$860.46 |
$862.60 |
$862.79 |
$856.90 |
|
Medicare Part D(4) |
$ 84.63 |
$ 85.27 |
$ 84.35 |
$ 88.34 |
$ 89.16 |
$ 85.64 |
|
Medicaid Risk |
$239.22 |
$230.27 |
$231.93 |
$208.50 |
$228.33 |
$226.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MLR % |
|
|
|
|
|
|
|
Consolidated Total |
84.4% |
86.4% |
87.4% |
84.0% |
83.8% |
83.8% |
|
|
|
|
|
|
|
|
|
Health Plan Commercial Group Risk |
82.1% |
81.7% |
80.9% |
81.7% |
83.2% |
82.3% |
|
Medicare Advantage |
89.4% |
90.4% |
90.5% |
89.0% |
90.9% |
88.4% |
|
Medicare Part D |
79.4% |
89.9% |
101.8% |
84.1% |
58.8% |
78.5% |
|
Medicaid Risk |
86.1% |
90.2% |
88.3% |
85.3% |
85.9% |
84.2% |
|
|
|
|
|
|
|
|
|
3) |
Revenue PMPM excludes the impact of revenue ceded to external parties. |
|
4) |
Revenue PMPM excludes the impact of CMS risk-share premium adjustments and revenue ceded to external parties. |