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Coventry Health Care Reports Fourth Quarter Earnings



  Coventry Health Care Reports Fourth Quarter Earnings

Business Wire

BETHESDA, Md. -- February 6, 2013

Coventry Health Care, Inc. (NYSE: CVH) today reported consolidated operating
results for the quarter and fiscal year ended December 31, 2012. Operating
revenues totaled $3.4 billion for the quarter with net earnings of $119.3
million, or earnings per diluted share (EPS) of $0.88. For the year ended
December 31, 2012, total operating revenues were $14.1 billion with net
earnings of $487.1 million, or $3.52 EPS.

“I am very pleased with the Company’s strong fourth quarter and full year 2012
results, significantly exceeding our previous guidance,” said Allen F. Wise,
chairman and chief executive officer of Coventry. “We continue to make
progress in our Kentucky Medicaid business as evidenced by the sequential
improvement in fourth quarter results. In addition, the Company recently
completed the 2013 Medicare Annual Enrollment Period with an outstanding
organic growth result in our Medicare Advantage Coordinated Care Plans. We
look forward to combining our strengths with those of Aetna to further our
shared commitment to improving the health and well-being of our members.”

Fourth Quarter and Full Year 2012 Consolidated Highlights

  * Fourth quarter total revenues up 10% from the prior year quarter

       * Full year 2012 total revenues up 16% from the prior year

  * Total membership of 5,362,000, an increase of 597,000 members from the
    prior year, driven by growth across the Company’s Government Programs
    businesses in Medicare Advantage Coordinated Care Plans (MA-CCP), Medicare
    Part D, and Medicaid
  * Sequential enrollment growth in MA-CCP and Medicare Part D
  * Successful execution during the 2013 MA-CCP Annual Enrollment Period
    resulting in growth for January 2013 of approximately 48,000 members, or
    18%
  * Awarded Kentucky Region 3 Medicaid contract with implementation effective
    January 1, 2013, representing approximately 20,000 additional members
  * Awarded four regions for the Florida Long-Term Care Program to be phased
    in during 2013 and 2014
  * Reduced selling, general, and administrative (SG&A) expense as a
    percentage of total revenue from 16.5% in 2011 to 14.7% in 2012

       * Fourth quarter SG&A expense of 16.0% of total revenue, a decline of
         120 basis points (bps) from the prior year quarter, includes costs of
         $7.7 million, or $0.03 EPS, associated with the pending Aetna
         transaction

  * GAAP cash flows from operations were $249.4 million, or 209% of net income
    in the quarter

Selected Fourth Quarter and Full Year 2012 Highlights

Medicare Advantage

  * As of December 31, 2012, MA-CCP membership was 259,000, an increase of
    37,000 members, or 17%, from the prior year quarter and an increase of
    3,000 members from the third quarter of 2012
  * The MA-CCP Medical Loss Ratio (MLR) was 83.9% in the quarter and 81.1% for
    the full year
  * Excluding the impact of the Risk Adjustment Data Validation (RADV) audit
    reserve reduction during the first quarter of 2012, the full year MLR was
    83.5%

Medicare Part D

  * As of December 31, 2012, Medicare Part D membership was 1,578,000, an
    increase of 435,000 members, or 38%, from the prior year quarter and an
    increase of 33,000 members from the third quarter of 2012
  * The Medicare Part D MLR was 70.7% in the quarter and 85.4% for the full
    year
  * Reduction in Coventry’s auto-assign footprint resulted in a loss of
    143,000 members for January 2013 compared to year-end 2012

Medicaid

  * As of December 31, 2012, Medicaid membership was 974,000, an increase of
    282,000 members, or 41%, from the prior year quarter and a net decrease of
    24,000 members from the third quarter of 2012 due to membership attrition
    during the Kentucky open enrollment period offset by growth in other
    markets
  * The Medicaid MLR was 90.4% in the quarter, a decrease of 260 bps from the
    third quarter of 2012, and 94.1% for the full year
  * The Company’s Kentucky Medicaid business produced an MLR of 96.7% in the
    fourth quarter, an improvement of 1,170 bps from the third quarter of 2012
    and an improvement of 1,990 bps from the prior year quarter. The
    significant sequential improvement was driven by receipt of the Company’s
    contractual 2012 rate increase of 5.3% effective 10/1/12, implementation
    of member co-payments, and the impact of the Company’s ongoing medical
    cost initiatives.

Commercial Risk

  * As of December 31, 2012, commercial risk membership was 1,474,000, a
    decrease of 15,000 members, or 1%, from the third quarter of 2012
  * The commercial risk MLR was 82.2% in the quarter, a decrease of 150 bps
    from the prior year quarter, and 81.7% for the full year

Balance Sheet

  * Investment portfolio in a net unrealized gain position of $111 million as
    of December 31, 2012, a decrease of $18 million from the third quarter of
    2012
  * Repurchased 9.9 million shares, or 7% of total shares outstanding, for
    $328.0 million during 2012
  * $950 million in free cash at the parent at year-end
  * Board of Directors approval of the Company’s fourth quarterly cash
    dividend paid on January 7, 2013

Cautionary Statement Regarding Forward-Looking Statements

Among the risk factors that may materially affect our business, operations or
financial condition are the ability to accurately estimate and control future
health care costs; the ability to increase premiums to offset increases in our
health care costs; general economic conditions and disruptions in the
financial markets; changes in legal requirements and healthcare industry
practices from recently enacted federal or state laws or regulations, court
decisions, or government audits, investigations and proceedings; guaranty fund
assessments under state insurance guaranty association law; changes in
government funding and various other risks associated with our participation
in Medicare and Medicaid programs; our ability to effectively implement and
manage new or less seasoned markets, such as our Kentucky Medicaid program,
including the implementation of appropriate risk adjustment revenue and
management of the associated medical costs and the effect on our medical loss
ratio; a reduction in the number of members in our health plans; the ability
to acquire additional managed care businesses, enter into new markets and to
successfully integrate acquired businesses into our operations, particularly
while our merger with Aetna is pending; an ability to attract new members or
to increase or maintain our premium rates; the non-renewal or termination of
our government contracts, unsuccessful bids for business with government
agencies or renewal of government contracts, unsuccessful bids for business
with government agencies or renewal of government contracts on less favorable
terms; failure of independent agents and brokers to continue to market our
products to employers; a failure to obtain cost-effective agreements with a
sufficient number of providers that could result in higher medical costs and a
decrease in our membership; negative publicity regarding the managed health
care industry generally or our Company in particular; a failure to effectively
protect, maintain and develop our information technology systems; compromises
of our data security; periodic reviews, audits and investigations under our
contracts with federal and state government agencies; litigation including
litigation based on new or evolving legal theories; volatility in our stock
price and trading volume; our indebtedness, which imposes certain restrictions
on our business and operations; an inability to generate sufficient cash to
service our indebtedness; our ability to receive cash from our regulated
subsidiaries; an impairment of our intangible assets; our certificate of
incorporation, our bylaws and Delaware law, which could delay, discourage or
prevent a change in control of our Company that our stockholders may consider
favorable; and our proposed merger with Aetna, including, but not limited to,
risks related to our failure to complete the merger with Aetna, our ability to
attract, retain and motivate our key employees and executives in light of the
pending merger, and limitations on our ability to conduct our business between
now and the closing of the merger.

Coventry Health Care (www.coventryhealthcare.com) is a diversified national
managed health care company based in Bethesda, Maryland, dedicated to
delivering high-quality health care solutions at an affordable price. Coventry
provides a full portfolio of risk and fee-based products including Medicare
and Medicaid programs, group and individual health insurance, workers’
compensation solutions, and network rental services. With a presence in every
state in the nation, Coventry’s products currently serve approximately 5
million individuals helping them receive the greatest possible value for their
health care investment.

                                                  
COVENTRY HEALTH CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
                                                    
                       Quarters Ended              Years Ended
                       December 31,                December 31,
                       2012          2011          2012           2011
Operating revenues:    (unaudited)   (unaudited)   (unaudited)
Managed care           $ 3,161,792   $ 2,841,976   $ 12,926,375   $ 11,014,950
premiums
Management services      284,025       287,180       1,186,988      1,171,733
Total operating          3,445,817     3,129,156     14,113,363     12,186,683
revenues
                                                                   
Operating expenses:
Medical costs            2,613,570     2,331,881     10,853,774     9,041,402
Cost of sales            65,444        73,941        266,803        283,544
Selling, general,        551,752       539,717       2,080,236      2,016,042
and administrative
Provider class           -             -             -              (159,300)
action – release
Depreciation and         36,517        34,674        152,859        136,865
amortization
Total operating          3,267,283     2,980,213     13,353,672     11,318,553
expenses
                                                                   
Operating earnings       178,534       148,943       759,691        868,130
Operating earnings
percentage of total      5.2%          4.8%          5.4%           7.1%
revenues
                                                                   
Interest expense         24,622        28,219        99,468         99,062
Other income, net        37,174        22,833        124,312        89,033
                                                                   
Earnings before          191,086       143,557       784,535        858,101
income taxes
                                                                   
Provision for income     71,745        57,861        297,472        314,996
taxes
Net earnings           $ 119,341     $ 85,696      $ 487,063      $ 543,105
                                                                   
Net earnings per
share:
Basic earnings per     $ 0.89        $ 0.60        $ 3.54         $ 3.70
common share
Diluted earnings per   $ 0.88        $ 0.60        $ 3.52         $ 3.67
common share
                                                                   
Weighted average
common shares            133,329       141,196       136,042        144,775
outstanding, basic
Weighted average
common shares            134,109       142,037       136,778        145,873
outstanding, diluted

                                                               
COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
                                                                   
                               December 31,     September 30,     December 31,
                               2012             2012              2011
                               (unaudited)      (unaudited)
Assets:
                                                                   
Current assets:
Cash and cash equivalents    $ 1,399,162      $ 1,262,078       $ 1,579,003
Short-term investments         121,742          165,811           116,205
Accounts receivable, net       272,077          289,951           270,263
Other receivables, net         892,815          1,014,567         717,736
Other current assets           196,323          192,203           286,301
Total current assets           2,882,119        2,924,610         2,969,508
                                                                   
Long-term investments          2,658,582        2,563,559         2,635,309
Property and equipment,        266,818          258,378           255,485
net
Goodwill                       2,591,488        2,590,465         2,548,834
Other intangible assets,       318,592          335,103           367,533
net
Other long-term assets         33,389           34,548            36,863
Total assets                 $ 8,750,988      $ 8,706,663       $ 8,813,532
                                                                   
                                                                   
                                                                   
Liabilities and
Stockholders’ Equity:
                                                                   
Current liabilities:
Medical liabilities          $ 1,418,914      $ 1,503,691       $ 1,308,507
Accounts payable and other     488,175          480,582           695,235
accrued liabilities
Deferred revenue               137,981          123,841           114,510
Current portion of             -                -                 233,903
long-term debt
Total current liabilities      2,045,070        2,108,114         2,352,155
                                                                   
Long-term debt                 1,585,190        1,585,067         1,584,700
Other long-term                397,813          387,159           365,686
liabilities
Total liabilities              4,028,073        4,080,340         4,302,541
                                                                   
Stockholders’ equity           4,722,915        4,626,323         4,510,991
                                                                   
Total liabilities and        $ 8,750,988      $ 8,706,663       $ 8,813,532
stockholders’ equity

                                                          
COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)
                                                              
                                       Quarter Ended         Year Ended
                                       December 31, 2012     December 31, 2012
                                                              
Cash flows from operating
activities:
Net earnings                         $ 119,341             $ 487,063
Adjustments to earnings:
Depreciation and amortization          36,517                152,859
Amortization of stock compensation     5,865                 29,643
RADV Release                           -                     (132,977)
RADV Release – deferred tax            -                     50,531
adjustment
Changes in assets and liabilities:
Accounts receivable, net               17,874                22,508
Other receivables, net                 121,782               (168,479)
Medical liabilities                    (84,777)              57,073
Accounts payable and other accrued     (1,195)               (76,561)
liabilities
Deferred revenue                       14,140                23,471
Other operating activities             19,847                25,513
Net cash flows from operating          249,394               470,644
activities
                                                              
Cash flows from investing
activities:
Capital expenditures, net              (27,989)              (89,064)
(Payments for) / Proceeds from
sales and maturities net of            (59,189)              19,061
payments for investments
Payments for acquisitions, net of      (6,465)               (54,945)
cash acquired
Net cash flows from investing          (93,643)              (124,948)
activities
                                                              
Cash flows from financing
activities:
Proceeds from issuance of stock        23,171                87,671
Payments for repurchase of stock       (28,770)              (339,985)
Repayment of debt                      -                     (233,903)
Excess tax benefit from stock          3,668                 12,210
compensation
Payments for cash dividends            (16,736)              (51,530)
Net cash flows from financing          (18,667)              (525,537)
activities
                                                              
Net change in cash and cash            137,084               (179,841)
equivalents for current period
Cash and cash equivalents at           1,262,078             1,579,003
beginning of period
Cash and cash equivalents at end     $ 1,399,162           $ 1,399,162
of period
                                                              
                                                              
Cash and Investments:
Cash and cash equivalents            $ 1,399,162           $ 1,399,162
Short-term investments                 121,742               121,742
Long-term investments                  2,658,582             2,658,582
Total cash and investments           $ 4,179,486           $ 4,179,486

                                                                                     
COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
(Unaudited)
                                                                                       
               Total                                                                  Total
               2012           Q4 2012       Q3 2012       Q2 2012       Q1 2012       2011
Membership
by Product                                                                             
(000s)
Commercial                      1,474         1,489         1,519         1,549         1,635
Risk
Health Plan
Commercial                      730           736           729           725           700
ASO
Medicare                        259           256           253           250           222
Advantage
Medicaid                        974           998           932           924           692
Risk
Other                           347           350           354           356           373
National ASO
Medicare                        1,578         1,545         1,494         1,458         1,143
Part D
Total                           5,362         5,374         5,281         5,262         4,765
Membership
                                                                                       
Revenues by
Product Type                                                                           
(000s)
Commercial     $ 5,737,626    $ 1,403,010   $ 1,409,863   $ 1,443,478   $ 1,481,275   $ 6,053,178
Risk
Commercial
Management       429,209        100,736       101,138       113,558       113,777       387,949
Services
Total
Commercial       6,166,835      1,503,746     1,511,001     1,557,036     1,595,052     6,441,127
Products
                                                                                       
Medicare         2,912,143      695,815       697,724       684,291       834,312       2,382,330
Advantage
Medicaid         2,809,579      712,845       730,996       697,679       668,060       1,381,706
Risk
Medicare         1,514,518      363,032       343,185       394,877       413,423       1,226,734
Part D
Total
Government       7,236,240      1,771,692     1,771,905     1,776,847     1,915,795     4,990,770
Programs
                                                                                       
Workers’         757,779        183,289       187,992       194,576       191,922       783,784
Compensation
Corporate
and              (47,491)       (12,910)      (13,115)      (10,663)      (10,802)      (28,998)
Eliminations
Total          $ 14,113,363   $ 3,445,817   $ 3,457,783   $ 3,517,796   $ 3,691,967   $ 12,186,683
Revenues
                                                                                       
Consolidated                                                                           
Coventry
                                                                                       
Operating
Income % of      5.4%           5.2%          4.6%          4.1%          7.5%          7.1%
Revenues
                                                                                       
SGA % of         14.7%          16.0%         15.1%         14.3%         13.6%         16.5%
Revenues
                                                                                       
Total Health
Plan Medical                  $ 1,258,279   $ 1,321,436   $ 1,315,078   $ 1,313,458   $ 1,106,174
Liabilities
(000s)^(1)
Health Plan
Days in
Claims                          49.04         50.90         49.77         49.47         50.45
Payable
(DCP) ^ (1)
                                                                                       
Total Debt                    $ 1,585.2     $ 1,585.1     $ 1,584.9     $ 1,584.8     $ 1,818.6
(millions)
Total
Capital                       $ 6,308.1     $ 6,211.4     $ 6,091.2     $ 6,287.5     $ 6,329.6
(millions)
Debt to                         25.1%         25.5%         26.0%         25.2%         28.7%
Capital

                                                                      
COVENTRY HEALTH CARE, INC.
SELECTED REVENUE AND MEDICAL COST STATISTICS
(Unaudited)
                                                                        
                   Total                                               Total
                   2012      Q4 2012   Q3 2012   Q2 2012   Q1 2012     2011
Revenue PMPM                                                            
Commercial Risk    $310.15   $310.27   $308.42   $309.91   $311.92     $303.69
Medicare           $938.71   $897.31   $908.57   $902.61   $1,048.93   $895.54
Advantage^(2)
Medicare Part      $ 85.94   $ 84.58   $ 86.24   $ 87.55   $ 85.44     $ 92.41
D^(3)
Medicaid           $242.35   $240.38   $241.92   $248.48   $238.74     $228.85
                                                                        
                                                                        
MLR%                                                                    
Consolidated       84.0%     82.7%     84.4%     85.9%     82.9%       82.1%
Total
                                                                        
Commercial Risk    81.7%     82.2%     81.5%     83.0%     79.9%       81.6%
Medicare           81.1%     83.9%     83.1%     84.1%     74.1%       82.9%
Advantage^(2)
Medicare Part D    85.4%     70.7%     84.2%     90.0%     94.9%       81.7%
Medicaid           94.1%     90.4%     93.0%     93.3%     100.0%      89.4%

      “Total Health Plan Medical Liabilities” and “Health Plan Days in Claims
      Payable” are calculated consistent with prior disclosures to exclude the
      effect of the Kentucky Medicaid business for the fourth quarter of 2011
(1)   due to the timing of the contract implementation (November 1, 2011) but
      include the effect of the Kentucky Medicaid business and the acquired
      Children’s Mercy’s Family Health Partners business beginning in the
      first quarter of 2012.
       
      First quarter 2012 Medicare Advantage statistics for Revenue PMPM and
      MLR% include the favorable impact from the release of MA-CCP RADV audit
(2)   reserves. Excluding this impact, the comparable Revenue PMPM was $923.87
      and the comparable MLR% was 82.9% for the first quarter 2012. For the
      full year, the comparable Revenue PMPM was $907.99 and the comparable
      MLR% was 83.5%.
       
(3)   Revenue PMPM excludes the impact of CMS risk-share premium adjustments
      and revenue ceded to external parties.

Contact:

Coventry Health Care, Inc.
Randy Giles
EVP, Chief Financial Officer
301-581-5687
or
Drew Asher
SVP, Corporate Finance
301-581-5717
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