EX-99.1 2 g00223exv99w1.htm EX-99.1 PRESS RELEASE EX-99.1 PRESS RELEASE
 

Exhibit 99.1

(HEALTHSPRING LOGO)
     
Company Contact:
  J. Gentry Barden, Esq.
 
  Senior Vice President & General Counsel
 
  HealthSpring, Inc.
 
  (615) 401-4531
HealthSpring, Inc. Announces 2005 Fourth Quarter and Full Year Results
NASHVILLE, Tenn. (March 14, 2006) — HealthSpring, Inc. (NYSE:HS) today announced its results for the fourth quarter and year ended December 31, 2005. Highlights included:
  •   101,281 Medicare Advantage members at December 31, 2005; an increase of 58.8% over the prior year-end
 
  •   2005 total combined revenue of $856.8 million; an increase of 43% over the prior year
 
  •   Cash and investments on hand at 2005 year-end of $161.7 million
 
  •   Completed IPO on February 8, 2006
  •   Paid off all outstanding debt
 
  •   Minority interests and preferred stock converted into common stock
 
  •   57.3 million shares of common stock outstanding
HealthSpring, Inc. (“HealthSpring” or the “Company”) completed a recapitalization, which was accounted for as a purchase, of NewQuest, LLC (its “Predecessor”) on March 1, 2005, resulting in the Predecessor becoming a wholly owned subsidiary of HealthSpring. The information included in this release compares results for HealthSpring for the fourth quarter ended December 31, 2005, to the fourth quarter of 2004 for the Predecessor. For the year ended December 31, 2005, the combined results of the Predecessor for the two months ended February 28, 2005, and for HealthSpring for the ten-month period from March 1, 2005 to December 31, 2005, are compared with the results of the Predecessor for the 12-month period ended December 31, 2004. Per share amounts for the corresponding periods are not comparable because the ownership of the Predecessor was composed of member units and HealthSpring ownership is represented by common stock and common stock equivalents.
GAAP Results
Net income available to common stockholders for the quarter ended December 31, 2005, calculated in accordance with U.S. generally accepted accounting principles, or GAAP, was $3.1 million compared with a net loss available to members of $13.4 million for the Predecessor for the quarter ended December 31, 2004. Net income available to members of the Predecessor for the two months ended February 28, 2005 was $2.7 million and net income available to common stockholders for the Company for the ten months ended December 31, 2005 was $10.9 million. Consequently, net income available to common stockholders for the combined 12 months ended December 31, 2005, which is not a GAAP measurement, was $13.6 million compared with net income available to members of $24.3 million for the Predecessor for the year ended December 31, 2004. Combined 2005 results are reconciled to GAAP for the two months of the Predecessor and the ten months of HealthSpring subsequently in this release.

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HS Reports Fourth Quarter, Year-end Results
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March 14, 2006
Fourth Quarter Highlights
($ in thousands)
                         
    Three Months Ended        
    December 31,     Percent  
    2005     2004     Change  
Premium revenue
   $ 240,012     $ 154,190       55.7  
Total revenue
     246,062       159,229       54.5  
Medical expense
     188,123       124,307       51.3  
Adjusted SG&A(1)
     35,358       19,873       77.9  
Adjusted EBITDA (1)
     22,581       15,049       50.0  
 
(1)   See “Supplemental Information” below and the accompanying reconciliation of HealthSpring’s and the Predecessor’s non-GAAP Adjusted Selling, General & Administrative Expense and non-GAAP Adjusted EBITDA to GAAP Selling, General & Administrative Expense and GAAP Net Income, respectively.
Medicare Revenue
•   Medicare membership increased by 8,100, or 8.7%, to 101,281 during the fourth quarter.
 
•   Medicare premiums were $207.7 million for the 2005 fourth quarter, reflecting an increase of 74% over the 2004 fourth quarter.
 
•   Medicare premiums represented 86.5% of total premium revenue and 84.4% of total revenue for the 2005 fourth quarter.
 
•   Medicare PMPM rates averaged $699.55 in fourth quarter 2005, reflecting an increase of 9.9% compared with the prior year’s fourth quarter.
Commercial Revenue
•   Commercial membership was 41,769, relatively flat compared with the end of the third quarter, although member months were down by 14.2% compared with the 2004 fourth quarter.
 
•   Commercial premiums were $32.3 million for the 2005 fourth quarter, reflecting a decline of 7.2% compared with the 2004 fourth quarter.
 
•   Commercial premiums represented 13.5% of total premium revenue and 13.1% of total revenue in the 2005 fourth quarter.
 
•   Commercial PMPM rates averaged $258.41 in fourth quarter 2005, reflecting an increase of 8.2% compared with the prior year’s fourth quarter.
Medical Expense
•   Medicare medical loss ratio, or MLR, was 78.4% for the 2005 fourth quarter, reflecting an improvement of 120 basis points compared with the prior year’s fourth quarter.
 
•   Commercial MLR was 78.4% for the 2005 fourth quarter, a 580-basis-point improvement compared with the prior year’s fourth quarter.
Adjusted SG&A
•   Increase of $15.5 million, or 77.9%, for the 2005 fourth quarter compared with the 2004 fourth quarter, primarily attributable to supporting membership growth and expansion into new geographic areas.
 
•   Increases also attributable to the following items in the 2005 fourth quarter that were not present in the 2004 fourth quarter:
• Stock compensation expense of $1.4 million
• Part D implementation expense of $2.7 million
 
•   Represented 14.4% of total revenue in the fourth quarter of 2005, compared with 12.5% in the 2004 fourth quarter.

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HS Reports Fourth Quarter, Year-end Results
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March 14, 2006
Full Year Highlights
($ in thousands)
                         
    Year Ended        
    December 31,     Percent  
    2005     2004     Change  
Premium revenue
   $ 832,549     $ 580,047       43.5  
Total revenue
     856,763       599,415       42.9  
Medical expense
     660,179       463,375       42.5  
Adjusted SG&A (1)
     111,572       68,634       62.6  
Adjusted EBITDA (1)
     85,012       67,406       26.1  
 
(1)   See “Supplemental Information” below and the accompanying reconciliation of HealthSpring’s and the Predecessor’s non-GAAP Adjusted Selling, General & Administrative Expense and non-GAAP Adjusted EBITDA to GAAP Selling, General & Administrative Expense and GAAP Net Income, respectively.
Medicare Revenue
•   Medicare membership increased by 37,489, or 58.8% compared with the prior year-end.
 
•   Medicare premiums were $705.7 million for 2005, reflecting an increase of 62.7% over the prior year.
 
•   Medicare premiums represented 84.8% of premium revenue and 82.4% of total revenue in 2005.
 
•   Medicare PMPM averaged $707.85 for 2005, reflecting an increase of 11.4% over the prior year.
Commercial Revenue
•   Commercial membership at December 31, 2005, declined by 6,611, or 13.7%, compared with the prior year-end.
 
•   Commercial premiums were $126.9 million for 2005, reflecting a decline of 13.3% compared with the prior year, although member months were down by 18.9% compared with 2004.
 
•   Commercial premiums represented 15.2% of premium revenue and 14.8% of total revenue in 2005.
 
•   Commercial PMPM rates averaged $254.78 in 2005, reflecting an increase of 7.0% compared with the prior year.
Medical Expense
•   Medicare MLR was 78.4% in 2005, a 30-basis-point increase over 78.1% in the prior year.
 
•   Commercial MLR was 84.4% in 2005, reflecting an improvement by 90 basis points from the prior year.
 
•   Favorable prior period reserve development in 2005 was $5.2 million, or 1.1% of 2004 medical expense, as compared to a favorable $3.9 million in 2004, representing 1.3% of 2003 medical expense.
Adjusted SG&A Expenses
•   Increase of $42.9 million, or 62.6%, compared with the prior year, primarily to support membership growth.
 
•   Increases in 2005 were also attributable to the following items not present in 2004:
• $6.8 million of expenses associated with market expansion
• $4.0 million of Part D preparation expenses
• $1.7 million of stock compensation expenses
 
•   13.0% of total revenue compared with 11.5% in the prior year.

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HS Reports Fourth Quarter, Year-end Results
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March 14, 2006
Balance Sheet Highlights
•   At December 31, 2005, the Company’s cash and investments were $161.7 million, only $13.5 million of which was held at unregulated subsidiaries.
 
•   Net cash provided by operating activities for the 2005 combined 12 months ended was $76.3 million compared with $53.2 million, taking into account the January 2004 CMS payment of $28.6 million that was received in December 2003, for the year ended December 31, 2004.
Management Comments
Commenting on 2005 results, Herb Fritch, Chairman and Chief Executive Officer, said, “We are pleased that, in our first earnings release as a public company, we can report eclipsing 100,000 Medicare members in 2005, reflecting growth in Medicare membership across all of our markets. We continue to make progress with further developing our strategy of aligning our interests with those of our providers, particularly physicians. This strategy, together with our intense focus on medical management, has again resulted in 2005 MLRs below 80%, increased risk adjustment payments associated with higher risk scores, and, we believe, better healthcare outcomes for our members. The completion of our IPO in February strengthens our balance sheet and allows us to better capitalize on the significant Medicare opportunities created by the Medicare Modernization Act of 2003 including the implementation of the Part D prescription drug benefits. Our 2005 results and our IPO have allowed us to enter 2006 with considerable momentum in our Medicare business.”
2006 Guidance
•   Membership: The Company estimates that its MA-PD membership will increase by 15,000 to 20,000 lives during 2006. HealthSpring estimates that PDP membership will average between 70,000 and 80,000 lives during the year. Commercial lives are projected to decline by 10,000 to 15,000 in 2006.
 
•   Revenue: The Company estimates that 2006 total revenue will be between $1.25 billion and $1.35 billion, with approximately 90% of total revenue attributable to MA-PD and PDP premiums. Based on PDP membership estimates, the Company believes stand-alone PDP premium revenue will account for approximately $90 million — $100 million of the total revenue.
 
•   MLRs: The Company is budgeting for Medicare (without Part D) MLRs of approximately 80%; Part D MLRs of approximately 90%; and Commercial MLRs of 83%-84%. Part D medical expenses are expected to be higher, as a percent of premiums, in the first half of the year.
 
•   EPS: Assuming weighted average shares outstanding of 55.1 million on a fully-diluted basis in 2006 (46.9 million for the first quarter as a result of the IPO), the Company estimates GAAP earnings per share for 2006 will be in the range of $1.00 to $1.05. Based on current options outstanding, option expense associated with the adoption of FASB 123R included in the Company’s estimates is expected to account for approximately $2.7 million of after tax expense, or approximately $0.05 per fully diluted share. In 2006, interest expense is estimated to be approximately $8.0 million, approximately $7.5 million of which relates to the Company’s indebtedness paid off in February 2006 with proceeds from the IPO. Included in the $7.5 million is a write-off of deferred financing costs of $5.4 million and pre-payment premiums of approximately $1.1 million. On an after-tax basis, pre-IPO indebtedness will account for approximately $4.7 million of interest, translating to approximately $0.08 per fully diluted share.

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March 14, 2006
Conference Call
A live audio webcast of the conference call regarding fourth-quarter and year-end results will begin at 11:00 a.m. ET today (March 14, 2006). The public may access the conference call through HealthSpring’s website, www.myhealthspring.com, under the Investor Relations tab. The conference call can also be accessed by dialing (913) 981-5568, confirmation number 8844588. An online replay will be available approximately two hours following the conclusion of the live broadcast and will continue for 30 days.
About HealthSpring, Inc.
HealthSpring, Inc. is one of the largest managed care organizations in the United States whose primary focus is the Medicare Advantage market. The Company currently owns and operates Medicare Advantage and stand-alone Medicare prescription drug plans in Tennessee, Texas, Alabama, Illinois, and Mississippi. In addition, the Company uses its infrastructure and provider networks in Tennessee and Alabama to offer commercial health plans to individuals and employer groups.
Cautionary Statement Regarding Forward Looking Statements
Statements contained in this release that are not historical fact may be forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Company intends such statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 21E of the Exchange Act. 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. Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause the Company’s actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the following: federal governmental action, including action by The Centers for Medicare and Medicaid Services (“CMS”), reducing Medicare funding (as a result of “budget neutrality” or otherwise), adjusting on a retroactive basis the Company’s risk-based premium, or canceling or suspending the Company’s Medicare contracts; recent challenges experienced by CMS’s and most Medicare plans’ systems, including the Company’s, resulting in incomplete and erroneous enrollment and payment reports, particularly relating to the implementation of Medicare Part D; the Company’s lack of prior experience under Medicare Part D, including the relation of premiums paid by the government for Medicare prescription drug benefits to the Company’s costs to provide those benefits under its MA-PD and PDP plans; the potential for confusion in the marketplace concerning Medicare prescription drug benefits and the potential corresponding negative impact on the Company’s MA-PD and PDP membership resulting from, among other things, the proliferation of health care options facing Medicare beneficiaries and the complexity of the drug benefits offered; the proper accounting treatment for the premiums and costs relating to Medicare prescription drug benefits; the impact of limited annual enrollment, or “lock-in,” on our sales and marketing efforts and the recruitment of new MA-PD members; increasing competition in our service areas; the Company’s ability to accurately estimate incurred but not reported medical costs; the Company’s ability to accurately predict and effectively manage medical expenses (including prescription drug costs) and other operating costs; future changes in healthcare laws and other regulatory changes or developments; changes in state laws affecting, among other things, licensure or capital reserve requirements or our contractual relationships with providers; the Company’s ability to develop processes and systems to support its operations and future growth; potential fines, penalties, or operating restrictions resulting from regulatory audits, examinations, investigations, or other inquiries; the Company’s ability to implement effective internal controls in a

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HS Reports Fourth Quarter, Year-end Results
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March 14, 2006
manner or on a timetable required by the Sarbanes-Oxley Act of 2002; risks associated with the Company’s acquisition strategy, including the Company’s ability to effectively integrate acquired operations; risks associated with the Company’s efforts to expand into additional states and counties; and risks associated with the Company’s rapid growth, including the Company’s ability to attract and retain qualified senior management. Additional information concerning these and other important risks and uncertainties can be found under the headings “Risk Factors” and “Special Note Regarding Forward-Looking Statements” in the Company’s Registration Statement on Form S-1 and related Prospectus, dated February 2, 2006, as filed with the Securities and Exchange Commission. Except as required by law, the Company assumes no obligation to update any forward-looking statement publicly, or to update the reasons actual results could differ materially from those predicted in any forward-looking statement, even if new information becomes available in the future.
Supplemental Information
The Company believes that the non-GAAP measures used in this release, when presented in conjunction with comparable GAAP measures, are useful to both management and investors in analyzing the Company’s ongoing business and operating performance. Non-GAAP measures should be considered in addition to, but not as a substitute for, items prepared in accordance with GAAP.
This press release includes a presentation of the following non-GAAP financial measures:
1)   Combined results of operations of the Predecessor from January 1, 2005 through February 28, 2005, and of the Company from March 1, 2005 through December 31, 2005, which is not a financial measure recognized under GAAP. The Company has included this non-GAAP financial measure because it believes that it permits a more meaningful comparison of the Company’s operating performance between the periods presented.
 
2)   The Company uses Adjusted EBITDA, or adjusted earnings before interest, taxes, depreciation, amortization, and minority interest, to assess business performance among its health plans and related management companies. Although some excluded items may recur, management believes that this measure provides a more useful comparison of its business performance from period to period.

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March 14, 2006
The following tables provide a reconciliation of Adjusted EBITDA as used in this release to net income before preferred dividends calculated in accordance with GAAP.
                                 
    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2005     2004     2005     2004  
Net income (loss) before preferred dividends
   $ 7,988     $ (13,356 )   $ 29,256     $ 24,317  
Plus: income tax expense
     5,005       2,117       19,772       9,193  
Plus: interest expense
     4,319       56       14,511       214  
Plus: depreciation and amortization
     2,208       858       7,305       3,210  
 
                        
    19,520       (10,325 )     70,844       36,934  
 
                        
 
                                
Plus: transaction expenses (a)
     2,300       —       10,941       —  
Plus: phantom stock compensation (b)
     —       24,200       —       4,200  
Plus: minority interest
     761       1,174       3,227       6,272  
 
                        
Adjusted EBITDA
   $ 22,581     $ 15,049     $ 85,012     $ 67,406  
 
                        
 
                        
 
  (a)   Transaction expenses represent transaction costs of $6.9 million that were expensed during the two-month period ended February 28, 2005, related to the recapitalization and the Company has accrued a charge of $4.0 million of transaction costs that were expensed during the ten-month period ended December 31, 2005 ($2.3 million relates to the fourth quarter) related to a settlement with Renaissance Physician Organization.
 
  (b)   During 2004, the Company recognized $24.2 million of compensation expense related to the conversion of the phantom shares into NewQuest, LLC Series D membership units and the subsequent cancellation of the phantom membership plan.
3)   For purposes of this release, the Company has calculated “Adjusted SG&A” to eliminate from SG&A calculated in accordance with GAAP, transaction expenses in 2005 associated with the recapitalization (see note (a) to the table above), and compensation expenses in 2004 related to the phantom unit conversion (see note (b) to the table above). Equity in earnings of unconsolidated affiliate has been included in Adjusted SG&A expense for purposes of this presentation.
                                 
    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2005     2004     2005     2004  
Selling, general and administrative (SG&A) expense, as reported
   $ 37,910     $ 44,115     $ 122,795     $ 93,068  
Less: equity earnings of unconsolidated affiliate
     252       42       282       234  
Less: transaction expenses (a)
     2,300       —       10,941       —  
Less: phantom stock compensation (b)
     —       24,200       —       24,200  
 
                        
Adjusted SG&A expense
   $ 35,358     $ 19,873     $ 111,572     $ 68,634  
 
                        

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HS Reports Fourth Quarter, Year-end Results
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March 14, 2006
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except unit and share data)
                 
            Predecessor  
    December 31,     December 31,  
Assets
   2005     2004  
 
                
Current Assets:
                
Cash and cash equivalents
   $ 110,085     $ 67,834  
Accounts receivable, net of allowance for doubtful accounts
     7,248       14,605  
Investment securities available for sale
     8,646       8,460  
Current portion of investment securities held to maturity
     14,313       9,413  
Deferred income tax asset
     5,778       868  
Prepaid expenses and other assets
     3,148       4,732  
 
            
Total current assets
     149,218       105,912  
Investment securities held to maturity, less current portion
     22,993       20,248  
Property and equipment, net
     4,287       1,876  
Goodwill
     317,856       6,478  
Intangible assets, net
     87,675       350  
Investment in and receivable from unconsolidated affiliate
     1,469       172  
Deferred income tax asset
     —       2,319  
Deferred financing fee
     5,487       —  
Restricted investments
     5,652       5,319  
 
            
Total assets
   $ 594,637     $ 142,674  
 
            
 
                
Liabilities and Stockholders’ and Members’ Equity
                
Current Liabilities:
                
Medical claims liability
   $ 82,645     $ 53,187  
Current portion of long-term debt
     16,500       700  
Accounts payable and accrued expenses
     17,408       11,801  
Deferred revenue
     365       608  
Other current liabilities
     362       4,600  
 
            
Total current liabilities
     117,280       70,896  
Long-term debt, less current portion
     172,026       4,775  
Deferred income tax liability
     29,782       —  
Deferred rent
     205       1,365  
Other long-term liabilities
     111       1,592  
 
            
Total liabilities
     319,404       78,628  
 
            
Minority Interest
     11,890       8,611  
 
            
Commitments and contingencies
                
Stockholders’ and Members’ equity:
                
Founder’s and membership units. Authorized 22,000,000 units; issued and outstanding 4,884,176 units at December 31, 2004
     —       31,787  
Redeemable convertible preferred stock, $.01 par value, authorized 1,000,000 shares, 227,154 shares issued and outstanding at December 31, 2005
     2       —  
Common stock, $.01 par value, authorized 37,000,000 shares, 32,283,950 shares issued and 32,083,950 shares outstanding at December 31, 2005
     321       —  
Additional paid in capital
     254,002       —  
Unearned compensation
     (1,885 )     —  
Retained earnings
     10,943       23,648  
Treasury Stock, at cost, 200,000 shares at December 31, 2005
     (40 )     —  
 
            
Total members’ and stockholders’ equity
     263,343       55,435  
 
            
Total liabilities and members’ and stockholders’ equity
   $ 594,637     $ 142,674  
 
            

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HS Reports Fourth Quarter, Year-end Results
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March 14, 2006
HealthSpring, Inc.
Condensed Consolidated Statements of Income
(in thousands)
                                 
    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2005     2004     2005 (1)     2004  
 
          
(Predecessor)
          
(Predecessor)
Revenue:
                                
Premium revenue
   $ 240,012     $ 154,190     $ 832,549     $ 580,047  
Management and other fees
     4,937       4,411       20,416       17,919  
Investment income
     1,113       628       3,798       1,449  
 
                        
Total revenue
     246,062       159,229       856,763       599,415  
 
                        
 
                                
Operating expenses:
                                
Medical expenses
     188,123       124,307       660,179       463,375  
Selling, general and administrative
     37,910       44,115       122,795       93,068  
Depreciation and amortization
     2,208       858       7,305       3,210  
Interest expense
     4,319       56       14,511       214  
 
                        
Total operating expenses
     232,560       169,336       804,790       559,867  
 
                        
 
                                
Income (loss) before equity in earnings of unconsolidated affiliate, minority interest and income taxes
     13,502       (10,107 )     51,973       39,548  
Equity in earnings of unconsolidated affiliate
     252       42       282       234  
 
                        
Income (loss) before minority interest and income taxes
     13,754       (10,065 )     52,255       39,782  
Minority interest
     (761 )     (1,174 )     (3,227 )     (6,272 )
 
                        
Income (loss) before income taxes
     12,993       (11,239 )     49,028       33,510  
Income tax expense
     5,005       2,117       19,772       9,193  
 
                        
Net income (loss)
     7,988       (13,356 )     29,256       24,317  
Preferred dividends
     4,848       —       15,607       —  
 
                        
Net income (loss) available to members and common stockholders
   $ 3,140     $ (13,356 )   $ 13,649     $ 24,317  
 
                        
 
(1) Combined results of operations of the Predecessor from January 1, 2005 through February 28, 2005, and of the Company from March 1, 2005 through December 31, 2005, which is not a financial measure recognized under GAAP. The Company has included this non-GAAP financial measure because it believes that it permits a more meaningful comparison of the Company’s operating performance between the periods presented.

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HS Reports Fourth Quarter, Year-end Results
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March 14, 2006
HealthSpring, Inc.
Condensed Consolidated Statements of Income
For the year ended December 31, 2005
(in thousands)
                           
    Predecessor     HealthSpring, Inc.          
    Period from     Period from       Combined Twelve  
    January 1, 2005 to     March 1, 2005 to       Months Ended  
    February 28, 2005     December 31, 2005       December 31, 2005  
 
                          
Revenue:
                          
Premium revenue
   $ 115,468     $ 717,081       $ 832,549  
Fee revenue
     3,461       16,955         20,416  
Investment income
     461       3,337         3,798  
 
                    
Total revenue
     119,390       737,373         856,763  
 
                          
Operating expenses:
                          
Medical expenses
     90,843       569,336         660,179  
Selling, general and administrative
     21,608       101,187         122,795  
Depreciation and amortization
     315       6,990         7,305  
Interest
     42       14,469         14,511  
 
                    
Total operating expenses
     112,808       691,982         804,790  
 
                          
Income before equity in earnings of unconsolidated affiliate
     6,582       45,391         51,973  
Equity in earnings of unconsolidated affiliate
     —       282         282  
 
                    
 
                          
Income before minority interest and income taxes
     6,582       45,673         52,255  
Minority interest
     (1,248 )     (1,979 )       (3,227 )
 
                    
 
                          
Income before income taxes
     5,334       43,694         49,028  
Income tax expense
     2,628       17,144         19,772  
 
                    
 
                          
Net income before preferred dividends
     2,706       26,550         29,256  
Preferred dividends
     —       15,607         15,607  
 
                    
 
                          
Net income available to members and common stockholders
   $ 2,706     $ 10,943       $ 13,649  
 
                    

-MORE-

 

HS Reports Fourth Quarter, Year-end Results
Page 11
March 14, 2006
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
                 
    HealthSpring, Inc.     Predecessor  
    Fourth Quarter     Fourth Quarter  
    Ended     Ended  
    December 31,     December 31,  
    2005     2004  
Cash flows from operating activities:
                
Net income (loss)
   $ 3,140     $ (13,356 )
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
                
Depreciation and amortization
     2,208       858  
Equity in earnings of unconsolidated affiliate
     (252 )     (42 )
Preferred dividends
     4,848       —  
Minority interest
     761       1,174  
Deferred tax expense
     2,443       141  
Other
     652       (146 )
Compensation expense related to phantom stock plan cancellation
     —       24,200  
Increase (decrease) in cash and cash equivalents due to changes in:
                
Accounts receivable
     1,482       (6,499 )
Interest receivable
     (315 )     (75 )
Investments in and receivable from unconsolidated affiliate
     (1,023 )     (64 )
Prepaid expenses and other current assets
     189       (2,380 )
Medical claims payable
     13,622       6,964  
Accounts payable, accrued expenses and other current liabilities
     2,082       9,315  
Deferred revenue
     (67,740 )     (601 )
 
            
Net cash (used in) provided by operating activities
     (37,903 )     19,489  
 
            
 
                
Cash flows from investing activities:
                
Purchase of property and equipment
     (570 )     (46 )
Purchase of investment securities
     (4,119 )     4,504  
Sale / maturity of investment securities
     6,379       —  
Purchase of restricted investments
     15       —  
Distribution received from unconsolidated affiliate
     —       134  
 
            
Net cash provided by investing activities
     1,705       4,592  
 
            
 
                
Cash flows from financing activities:
                
Payments on notes payable
     (4,125 )     (175 )
Distributions to minority stockholders
     —       (74 )
Distributions to members
     —       (2 )
 
            
Net cash (used in) financing activities
     (4,125 )     (251 )
 
            
 
                
Net (decrease) increase in cash and cash equivalents
     (40,323 )     23,830  
 
                
Cash at beginning of period
     150,408       44,004  
 
                
 
            
Cash at end of period
   $ 110,085     $ 67,834  
 
            

-MORE-

 

HS Reports Fourth Quarter, Year-end Results
Page 12
March 14, 2006
HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
                                   
    Predecessor       HealthSpring, Inc.     Combined  
            Two Months       Ten Months     Twelve Months  
    Year Ended     Ended       Ended     Ended  
    December 31,     February 28,       December 31,     December 31,  
    2004     2005       2005     2005  
Cash flows from operating activities:
                                  
Net income available to common stockholders and members
   $ 24,317     $ 2,706       $ 10,943     $ 13,649  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
                                  
Depreciation and amortization expense
     3,210       315         6,990       7,305  
Equity in earnings of unconsolidated affiliate
     (234 )     —         (282 )     (282 )
Preferred dividends
     —       —         15,607       15,607  
Minority interest
     6,272       1,248         1,979       3,227  
Deferred tax expense (benefit)
     2,163       93         (1,060 )     (967 )
Compensation expense related to phantom stock plan cancellation
     24,200       —         —       —  
Other
     (580 )     (97 )       2,176       2,079  
Increase (decrease) in cash and cash equivalents due to changes in:
                                  
Accounts receivable
     (9,977 )     (2,470 )       9,827       7,357  
Interest receivable
     (299 )     38         (439 )     (401 )
Investments in and receivable from unconsolidated affiliate
     —       5         (1,050 )     (1,045 )
Prepaid expenses and other current assets
     (3,849 )     1,197         829       2,026  
Medical claims liability
     5,458       5,829         23,629       29,458  
Accounts payable, accrued expenses and other current liabilities
     2,562       6,202         (6,557 )     (355 )
Deferred rent
     —       11         (1,171 )     (1,160 )
Deferred revenue
     (28,578 )     (113 )       (131 )     (244 )
 
                          
Net cash provided by operating activities
     24,665       14,964         61,290       76,254  
 
                          
 
                                  
Cash flows from investing activities:
                                  
Purchase of property and equipment
     (2,512 )     (149 )       (2,596 )     (2,745 )
Purchase of investment securities, held to maturity
     (23,777 )     (5,942 )       (21,980 )     (27,922 )
Purchase of investment securities, available for sale
     (8,460 )     —         —       —  
Sale / maturity of investment securities
     —       836         18,192       19,028  
Purchase of restricted investments
     —       (214 )       (119 )     (333 )
Distributions received from unconsolidated affiliate
     134       —         —       —  
Purchase of minority interest
     —       —         (44,358 )     (44,358 )
Acquisition, net of cash received
     —       —         (224,833 )     (224,833 )
 
                          
Net cash used in investing activities
     (34,615 )     (5,469 )       (275,694 )     (281,163 )
 
                          
 
                                  
Cash flows from financing activities:
                                  
Proceeds from issuance of long-term debt
     —       —         200,000       200,000  
Payments on long-term debt
     (700 )     (117 )       (11,474 )     (11,591 )
Deferred financing cost
     —       —         (6,259 )     (6,259 )
Proceeds from issuance of common and preferred stock
     —       —         139,977       139,977  
Distributions to minority stockholders
     (3,065 )     (1,771 )       —       (1,771 )
Proceeds from sale of units in consolidated subsidiary
     —       —         7,875       7,875  
Distributions to members
     (19,546 )     —         —       —  
Cash advanced (applied) in recapitalization
     —       1,000         (5,630 )     (4,630 )
 
                          
Net cash (used in) provided by financing activities
     (23,311 )     (888 )       324,489       323,601  
 
                          
 
                                  
Net (decrease) increase in cash and cash equivalents
     (33,261 )     8,607         110,085       118,692  
 
                                  
Cash at beginning of period
     101,095       67,834         —       67,834  
Less: Cash acquired in acquisition
     —       —         —       (76,441 )
 
                          
Cash at beginning of period (Adjusted)
     101,095       67,834         —       (8,607 )
 
                          
 
                                  
Cash at end of period
   $ 67,834     $ 76,441       $ 110,085     $ 110,085  
 
                          

-END-