8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 21, 2007 (February 21, 2007)

HEALTHSPRING, INC.

(Exact name of registrant as specified in charter)

Delaware	001-32739	20-1821898
(State or other jurisdiction of	(Commission	(IRS Employer
incorporation)	File Number)	Identification No.)

44 Vantage Way, Suite 300
Nashville, Tennessee	37228
(Address of principal executive offices)	(Zip Code)

(615) 291-7000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

     o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

     o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

     o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

     o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

     On February 21, 2007, the Company issued a press release announcing its earnings results for the fourth quarter and year ended December 31, 2006. A copy of the press release is attached hereto as Exhibit 99.1.

     The attached press release includes a presentation of certain financial measures not computed in accordance with United States generally accepted accounting principles, or GAAP. The Company believes that the non-GAAP measures used in the 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. These non-GAAP measures should be considered in addition to, but not as a substitute for, items prepared in accordance with GAAP that are presented in the release. A reconciliation of these non-GAAP financial measures to the nearest comparable GAAP financial measure has been provided in the release.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

Exhibit 99.1      Press Release issued by HealthSpring, Inc. dated February 21, 2007.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

HEALTHSPRING, INC.
By:	/s/ J. Gentry Barden
	J. Gentry Barden
	Senior Vice President, Corporate General Counsel, and Secretary

Date: February 21, 2007

EXHIBIT INDEX

No.		Exhibit
	99.1	Press Release issued by HealthSpring, Inc. dated February 21, 2007.

EX-99.1

Company Contact:	Lankford Wade
	Vice President
	HealthSpring, Inc.
	(615) 401-4632

HealthSpring, Inc. Reports 2006 Fourth Quarter and Full Year Results

Fourth Quarter Net Income of $20.1 Million, or $0.35 per Diluted Share

NASHVILLE, Tenn. (February 21, 2007) — HealthSpring, Inc. (NYSE:HS) today announced its results for the fourth quarter and year ended December 31, 2006. Highlights included:

• Fourth quarter diluted EPS of $0.35. Full year diluted EPS of $1.44 and pro-forma EPS of $1.50.

• Medicare Advantage membership of 115,132 at December 31, 2006; up 13.7% year over year.

• Total revenue in the quarter of $335.7 million; an increase of 36.4% over the 2005 fourth quarter.

• Total revenue for the year of $1.3 billion; an increase of 52.8% over 2005.

• Medicare Advantage medical loss ratio (MLR) of 79.6% for the quarter and 78.8% for the year.

• Net cash provided by operating activities for the year of $167.7 million, or 2.1x net income.

• Cash and cash equivalents of $338.4 million at December 31, 2006, including $78.5 million held at unregulated subsidiaries.

Commenting on 2006 fourth quarter results, Herb Fritch, Chairman, President, and Chief Executive Officer, said, “HealthSpring’s fourth quarter results reflect a solid finish to our first year as a public company. With our investments in the fourth quarter in corporate infrastructure and marketing and a strong balance sheet, we believe we are well positioned for 2007.”

Fourth Quarter Results
($ in thousands)

	Three Months Ended
	December 31,				Percent
	2006		2005		Change
Premium revenue	$	324,930	$	240,012		35.4	%
Total revenue		335,670		246,062		36.4
Medical expense		253,858		188,123		34.9
Adjusted SG&A (1)		48,530		35,610		36.3
Adjusted EBITDA (1)		33,328		22,581		47.6
Net income		20,101		7,987		151.7
Net income available to common stockholders (2)		20,101		3,139		540.4

(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.
(2)	Net income available to common stockholders is used in the calculation of earnings per share.

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HS Reports Fourth Quarter, Year-end Results
Page 2
February 21, 2007

Fourth Quarter Operating Highlights

Revenue ⁽¹⁾

• Medicare Advantage plan membership increased to 115,132. Medicare Advantage (including MA-PD) premiums were $274.7 million for the 2006 fourth quarter, reflecting an increase of 32.3% over the 2005 fourth quarter. The Company received retroactive risk adjustment payments in the 2006 fourth quarter of approximately $5.7 million from the Centers for Medicare and Medicaid Services (CMS). By comparison, retroactive risk adjustment payments from CMS in the quarter ended December 31, 2005 were $1.8 million.

• PDP membership at fourth quarter end was 88,753. PDP premium revenue was $23.8 million for the 2006 fourth quarter.

• Commercial membership was 31,970 at December 31, 2006. Commercial premiums were $26.4 million for the 2006 fourth quarter. Commercial membership as of January 1, 2007 was approximately 16,500 and the Company expects commercial premium revenue to be less than 4% of total revenue in 2007.

⁽¹⁾ See supplemental non-GAAP schedule entitled “Medicare Advantage Results” at www.myhealthspring.com under the Investor Relations link for a schedule that conforms the presentation of Medicare premium revenue in the first two quarters of 2006 to the presentation for the third and fourth quarters. The schedule also includes pro-forma adjustments that allocate the CMS risk adjustment payment, received in the third quarter of 2006, over the first two quarters of 2006.

Medical Expense

• Medicare Advantage (including MA-PD) MLR was 79.6% for the 2006 fourth quarter, compared with 78.4% for the prior year’s fourth quarter. The increase in MLR was primarily the result of increases in medical cost trends and the inclusion of MA-PD drug costs in the current period.

• The MLR for the Company’s PDP was 45.8% for the 2006 fourth quarter and 73.4% for the year ended December 31, 2006. PDP expenses, as anticipated under the benefit design, were disproportionately higher in the first half of the year, compared with the last half of the year.

Adjusted SG&A

• Adjusted SG&A expense represented 14.5% of total revenue in the 2006 fourth quarter and in the same prior-year period.

• Adjusted SG&A expense in the 2006 fourth quarter increased $12.9 million, or 36.3%, over the 2005 fourth quarter, primarily as a result of growth in personnel, increases in marketing expenses associated with open enrollment, stock compensation expense, and public company expenses, including costs related to complying with Sarbanes-Oxley Section 404 in 2007.

• Adjusted SG&A expense in the fourth quarter of 2006 includes $1.8 million of stock compensation expense measured in accordance with FAS 123R.

Income Taxes

• The Company’s effective tax rate for the three-months ended December 31, 2006, was 34.0%. The tax rate for the fourth quarter reflects adjustments related primarily to the completion of the 2005 consolidated tax return and state tax planning.

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HS Reports Fourth Quarter, Year-end Results
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February 21, 2007

Full Year Results
($ in thousands)

	Year Ended
	December 31,				Percent
	2006		2005		Change
Premium revenue	$	1,270,348	$	832,549		52.6	%
Total revenue		1,308,956		856,763		52.8
Medical expense		1,008,526		660,179		52.8
Adjusted SG&A (1)		156,940		111,854		40.3
Adjusted EBITDA (1)		143,799		85,012		69.2
Net income		80,836		29,256		176.3
Net income available to common stockholders (2)		78,815		13,649		477.4

(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.
(2)	Net income available to common stockholders is used in the calculation of earnings per share.

Full Year 2006 Operating Highlights

• Medicare Advantage (including MA-PD) premiums were $1.05 billion for 2006, reflecting an increase of 48.6% over the prior year. PDP premiums were $101.4 million.

• Medicare premiums (including premiums related to Part D) represented 90.5% of total premium revenue and 87.8% of total revenue for 2006.

• Fee and investment income for the year was $38.6 million, an increase of $14.4 million, or 59.4%, over 2005. Approximately $4.7 million of this amount ($1.3 million in the fourth quarter of 2006) related to the Company’s management agreement with a health plan in Florida, which was terminated as of December 31, 2006.

• Medicare Advantage (including MA-PD) MLR was 78.8% in 2006, a 40-basis-point increase over 78.4% in the prior year. The increase in MLR was primarily the result of the inclusion of MA-PD drug costs in the current year.

• PDP MLR was 73.4% in 2006.

• Adjusted SG&A increased $45.0 million, or 40.3% compared with the prior year, primarily as the result of membership growth, the implementation of Part D, stock compensation expense resulting from FAS 123R, and public company expenses, including costs related to complying with Sarbanes-Oxley Section 404. Adjusted SG&A was 12.0% of total revenue compared with 13.1% in the prior year.

Balance Sheet Highlights

• At December 31, 2006, the Company’s cash and cash equivalents were $338.4 million, $78.5 million of which was held at unregulated subsidiaries.

• Days in claims payable were 44 at the end of the 2006 fourth quarter compared with 40 at the end of 2005. Medical claims payable at December 31, 2006 includes amounts payable for Part D claims to CMS under CMS’s state-to-plan reconciliation process and to other health plans under CMS’s plan-to-plan reconciliation process. Similar amounts are not included in claims payable at December 31, 2005 as the Part D program did not exist in 2005. Excluding these amounts, days in claims payable at the end of 2006 would have been 41.

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HS Reports Fourth Quarter, Year-end Results
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February 21, 2007

2007 Guidance

As previously reported:

• Membership: The Company estimates that its Medicare Advantage membership (including MA-PD and MA-only) will be in the range of 130,000 to 135,000 by the end of 2007, compared with 115,132 at the end of 2006. Medicare Advantage membership (including MA-PD and MA-only) for January 2007 was 117,615. January 2007 PDP membership approximated 108,000.

• Revenue: The Company estimates that 2007 total revenue will be between $1.5 billion and $1.6 billion, with approximately 96% of total revenue for the year attributable to the Medicare business.

• Medical Loss Ratios (MLRs): The Company projects Medicare Advantage MLRs will be at or below 80.0% for the full year. PDP MLRs are expected to range between 85.0% and 90.0% for the year.

• EPS: The Company estimates earnings per share for 2007, on a fully diluted basis, will be in the range of $1.55 to $1.65, on weighted average shares outstanding of approximately 57.6 million.

Recapitalization

HealthSpring, Inc. completed a recapitalization on March 1, 2005, which was accounted for as a purchase, of NewQuest, LLC (its “Predecessor”), resulting in the Predecessor becoming a wholly owned subsidiary of HealthSpring. The information included in this release compares results for HealthSpring for the year ended December 31, 2006, with 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. Per share amounts for the 12-month period ended December 31, 2005, are not comparable with results for the same period in 2006 because the ownership of the Predecessor was composed of member units for the first two months of 2005, and HealthSpring ownership is represented by common stock.

Conference Call

A live audio webcast of the conference call regarding fourth quarter and year-end results, 2007 guidance, and other recent developments, will begin at 9:00 a.m. ET on Thursday, February 22, 2007. 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 1105405. 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 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. Effective January 1, 2007, HealthSpring also offers Medicare Part D prescription drug plans on a nationwide basis to persons in all 50 states who are eligible for Medicare. The Company also uses its infrastructure and provider networks in Tennessee and Alabama to offer commercial health plans to employer groups.

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HS Reports Fourth Quarter, Year-end Results
Page 5
February 21, 2007

Cautionary Statement Regarding Forward Looking Statements

Statements contained in this release that are not historical fact are forward-looking statements, which 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. Such statements include statements regarding future operating and earnings guidance. The Company cautions that forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause its actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

The following important factors could cause actual results to differ materially from those in the forward-looking statements: membership enrollment and dis-enrollment patterns; changes in utilization; changes in medical and prescription drug cost trends; the Company’s ability to accurately estimate and calculate Part D risk corridor adjustments; CMS retroactive risk adjustments to Medicare rates; marketing expenses related to limited open enrollment; increasing competition and potential confusion in the marketplace regarding other MA, MA-PD, PDP, and PFFS plan offerings; the Company’s ability to accurately estimate incurred but not reported medical claims; contractual disputes with providers; increases in costs or liabilities associated with litigation; legislative and regulatory actions or changes; costs associated with information and data systems conversions and compliance with regulatory mandates; recent management changes; and changes in tax estimates, assets, or liabilities and valuation allowances related thereto. The foregoing list of important factors is not intended to be exhaustive. Additional information concerning these and other important risks and uncertainties can be found under the headings “Special Note Regarding Forward-Looking Statements” and “Item 1A. — Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, and in the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006. Any projections or other forward-looking information in this release are based on limited information currently available to HealthSpring, which is subject to change. Although any such projections and forward-looking information and the factors influencing them will likely change, HealthSpring will not necessarily update the information except as required by law, as HealthSpring will only provide guidance at certain points during the year. Such information speaks only as of the date of this release.

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HS Reports Fourth Quarter, Year-end Results
Page 6
February 21, 2007

Supplemental Information

1. Non-GAAP Measures

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 financial and business trends regarding the Company’s ongoing business and operating performance. These 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:

The Company uses Adjusted EBITDA, or adjusted earnings before interest, taxes, depreciation, amortization, transaction expenses, 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 useful comparison of its business performance from period to period.

The following table provides a reconciliation of Adjusted EBITDA as used in this release to net income calculated in accordance with GAAP:

	Three Months Ended				Year Ended
	December 31,				December 31,
(in thousands)	2006		2005		2006		2005
Net income	$	20,101	$	7,987	$	80,836	$	29,256
Plus: income tax expense		10,362		5,005		43,811		19,772
Plus: interest expense		119		4,320		8,695		14,511
Plus: depreciation and amortization		2,746		2,208		10,154		7,305
		33,328		19,520		143,496		70,844
Plus: transaction expenses (a)		—		2,300		—		10,941
Plus: minority interest		—		761		303		3,227
Adjusted EBITDA	$	33,328	$	22,581	$	143,799	$	85,012

(a) Transaction expenses in 2005 represent costs of $6.9 million that were expensed during the two-month period ended February 28, 2005 related to the recapitalization and $4.0 million of recapitalization-related transaction costs that were expensed during the ten-month period ended December 31, 2005 ($2.3 million of which relates to the fourth quarter of 2005).

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).

	Three Months Ended				Year Ended
	December 31,				December 31,
(in thousands)	2006		2005		2006		2005
Selling, general and administrative (SG&A) expense, as reported	$	48,530	$	37,910	$	156,940	$	122,795
Less: transaction expenses (a)		—		2,300		—		10,941
Adjusted SG&A expense	$	48,530	$	35,610	$	156,940	$	111,854

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HS Reports Fourth Quarter, Year-end Results
Page 7
February 21, 2007

The following table adjusts GAAP net income available to common stockholders for the year ended December 31, 2006 to give pro-forma effect to the IPO as if it occurred on January 1, 2006:

(in thousands, except share data)
Net income available to common stockholders (GAAP)	$	78,815
Adjustments:
Preferred dividends		2,021
Minority interest		303
Interest expense (after tax)		5,346
Incremental FAS 123(R) expense (after tax)		(239	)
Pro-forma net income	$	86,246
Weighted average shares outstanding assuming a January 1, 2006 IPO		57,344	(1)
Non-GAAP pro-forma EPS	$	1.50	(2)

(1)	Diluted shares outstanding on a GAAP-basis for the year ended December 31, 2006 were 54,720,373.
(2)	EPS on a GAAP basis for the year ended December 31, 2006 was $1.44 (basic and diluted).

2. Reconciliation of Medical Claims Payable

The following table provides a reconciliation of changes in the medical claims liability for HealthSpring for the year ended December 31, 2006, the combined ten-month period ended December 31, 2005 and the Predecessor for the two-month period ended February 28, 2005, and the year ended December 31, 2004:

	(Unaudited)
	Year Ended December 31,
($ in thousands)	2006			2005			2004
	(combined)
Balance at beginning of period	$	82,645		$	53,187		$	47,729
Incurred related to:
Current period		1,017,100			665,407			467,289
Prior period		(8,574	)		(5,228	)		(3,914	)
Total incurred		1,008,526			660,179			463,375
Paid related to:
Current period		894,684			582,944			415,136
Prior period		73,709			47,777			42,781
Total paid		968,393			630,721			457,917
Balance at the end of the period	$	122,778		$	82,645		$	53,187
Current-year medical claims paid as a percent of current-year incurred medical claims		88.0	%		87.6	%		88.8	%
Prior-period reserve development as a percent of prior-year medical claims		1.3	%		1.1	%		1.3	%
Prior-year reserve development in the current period as a percent of prior-year medical claims liability		10.4	%		9.8	%		8.2	%

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HS Reports Fourth Quarter and Full Year Results
Page 8
February 21, 2007

HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet Information
(in thousands)
(Unaudited)

	December 31,
	2006			2005
Assets
Current Assets:
Cash and cash equivalents	$	338,443		$	110,085
Accounts receivable, net of allowance for doubtful accounts		17,588			7,248
Investment securities available for sale		7,874			8,646
Current portion of investment securities held to maturity		10,566			14,313
Deferred income tax asset		3,644			5,778
Prepaid expenses and other assets		4,047			3,148
Total current assets		382,162			149,218
Investment securities held to maturity, less current portion		19,560			22,993
Property and equipment, net		8,831			4,287
Goodwill		341,619			315,057
Intangible assets, net		81,175			87,675
Investment in and receivable from unconsolidated affiliate		1,301			1,469
Deferred financing fee		802			5,487
Restricted investments		7,195			5,652
Total assets	$	842,645		$	591,838
Liabilities and Stockholders’ Equity
Current Liabilities:
Medical claims liability	$	122,778		$	82,645
Current portion of long-term debt		—			16,500
Accounts payable and accrued expenses		25,149			17,408
Funds held for the benefit of members		62,125			—
Risk corridor payable to CMS		27,587			—
Other current liabilities		899			727
Total current liabilities		238,538			117,280
Long-term debt, less current portion		—			172,026
Deferred tax liability		28,444			29,782
Other long-term liabilities		381			316
Total liabilities		267,363			319,404
Minority Interest		—			11,890
Stockholders’ Equity:
Preferred stock		—			2
Common stock		573			322
Additional paid-in capital		485,004			249,317
Retained earnings		89,758			10,943
Treasury Stock		(53	)		(40	)
Total stockholders’ equity		575,282			260,544
Total liabilities and stockholders’ equity	$	842,645		$	591,838

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HS Reports Fourth Quarter and Full Year Results
Page 9
February 21, 2007

HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Income Information
(in thousands, except share data)
(Unaudited)

	Three-Month Period Ended						Year Ended
	Decemer 31, 2006						December 31,
	2006			2005			2006			2005
										(Combined)(1)
Revenue:
Premium:
Medicare	$	298,549		$	207,701		$	1,149,844		$	705,677
Commercial		26,381			32,311			120,504			126,872
Total premium revenue		324,930			240,012			1,270,348			832,549
Management and fee revenue		6,692			4,937			26,688			20,416
Investment income		4,048			1,113			11,920			3,798
Total revenue		335,670			246,062			1,308,956			856,763
Operating Expenses:
Medical Expense:
Medicare		229,645			162,777			900,358			553,084
Commercial		24,213			25,346			108,168			107,095
Total medical expenses		253,858			188,123			1,008,526			660,179
Selling, general and administrative		48,530			37,910			156,940			122,795
Depreciation and amortization		2,746			2,208			10,154			7,305
Interest		119			4,320			8,695			14,511
Total operating expenses		305,253			232,561			1,184,315			804,790
Income before equity in earnings of unconsolidated affiliate, minority interest and income taxes		30,417			13,501			124,641			51,973
Equity in earnings of unconsolidated affiliate		46			252			309			282
Income before minority interest and income taxes		30,463			13,753			124,950			52,255
Minority interest		—			(761	)		(303	)		(3,227	)
Income before income taxes		30,463			12,992			124,647			49,028
Income taxes		(10,362	)		(5,005	)		(43,811	)		(19,772	)
Net income		20,101			7,987			80,836			29,256
Preferred dividends		—			(4,848	)		(2,021	)		(15,607	)
Net income available to common stockholders and members	$	20,101		$	3,139		$	78,815		$	13,649
Net Income per common share:
Basic	$	0.35		$	0.10		$	1.44			—
Diluted	$	0.35		$	0.10		$	1.44			—
Weighted average common shares outstanding:
Basic		57,217,796			32,283,969			54,617,744			—
Diluted		57,320,186			32,283,969			54,720,373			—

(1) Includes the 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. 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. See “Condensed Consolidated Statement of Income Information” herein on page 11.

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HS Reports Fourth Quarter and Full Year Results
Page 10
February 21, 2007

HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Cash Flow Information
(in thousands)
(Unaudited)

							Predecessor
	Twelve-Month			Ten-Month			Two-Month
	Period Ended			Period ended			Period ended
	Dec. 31, 2006			Dec. 31, 2005			February 28, 2005
Cash flows from operating activities:
Net income	$	80,836		$	26,550		$	2,706
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,154			6,990			315
Amortization of deferred financing cost		242			879			—
Amortization of accrued loss on assumed lease		—			—			(97	)
Equity in earnings of unconsolidated affiliate		(309	)		(282	)		—
Minority interest		303			1,979			1,248
PIK interest		116			901			—
Stock-based compensation		5,687			377			—
Deferred tax benefit		687			(1,060	)		93
Write off of deferred financing cost		5,375			—			—
Increase (decrease) in cash and cash equivalents due to changes in:
Accounts receivable		(10,340	)		8,368			(2,470	)
Prepaid expenses and other current assets		(899	)		(3,266	)		1,240
Medical claims liability		40,133			23,629			5,829
Accounts payable, accrued expenses and other current liabilities		8,214			(7,460	)		6,202
Risk corridor payable to CMS		27,587
Other long-term liabilities		174			(335	)		11
Deferred revenue		(301	)		(131	)		(113	)
Net cash provided by operating activities		167,659			57,139			14,964
Cash flows from investing activities:
Purchase of property and equipment		(7,177	)		(2,653	)		(149	)
Purchase of investment securities		(10,368	)		(16,313	)		(5,942	)
Sale/maturity of investment securities		18,283			12,524			836
Purchase of restricted investments		(1,543	)		(119	)		(214	)
Distributions from affiliates		355			—			—
Purchase of minority interest		—			(44,358	)		—
Acquisition, net of cash acquired		—			(219,958	)		—
Net cash used in investing activities		(450	)		(270,877	)		(5,469	)
Cash flows from financing activities:
Payments on borrowings		(188,642	)		(17,733	)		(117	)
Proceeds from issuance of common stock and preferred stock		188,611			140,087			—
Funds received for the benefit of members		62,125			—			—
Purchase of treasury stock		(13	)		(40	)		—
Deferred financing cost		(932	)		(6,366	)		—
Proceeds from issuance of notes payable		—			200,000			—
Proceeds from sale of units in consolidated subsidiary		—			7,875			—
Distribution to minority stockholders		—			—			(1,771	)
Cash advanced in recapitalization		—			—			1,000
Net cash provided by (used in) financing activities		61,149			323,823			(888	)
Net increase in cash and cash equivalents		228,358			110,085			8,607
Cash and cash equivalents at beginning of period		110,085			—			67,834
Cash and cash equivalents at end of period	$	338,443		$	110,085		$	76,441

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HS Reports Fourth Quarter and Full Year Results
Page 11
February 21, 2007

HealthSpring, Inc. and Subsidiaries
Condensed Consolidated Statement of Income Information
(in thousands)
(Unaudited)

	Predecessor			HealthSpring, Inc.			Combined(1)
	Period from			Period from			Twelve
	January 1, 2005 to			March 1, 2005 to			Months Ended
	February 28, 2005			Dec. 31, 2005			Dec. 31, 2005
Revenue:
Premium:
Medicare	$	94,764		$	610,913		$	705,677
Commercial		20,704			106,168			126,872
Total premium revenue		115,468			717,081			832,549
Management and 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 expense		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, minority interest and income taxes		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 taxes		(2,628	)		(17,144	)		(19,772	)
Net income		2,706			26,550			29,256
Preferred dividends		—			(15,607	)		(15,607	)
Net income available to common stockholders and members	$	2,706		$	10,943		$	13,649

(1) Includes the 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. 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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