CVH Coventry Health Care, Inc.

Coventry Health Care, Inc. (NYSE: CVH) today reported consolidated operating results for the quarter ended March 31, 2013. Operating revenues totaled $3.5 billion for the quarter with net earnings of $135.4 million, or earnings per diluted share (EPS) of $1.00.

“I am pleased to report the Company’s strong start to 2013,” said Allen F. Wise, Chairman and Chief Executive Officer of Coventry. “These first quarter results position the Company well to achieve its financial and operational goals in 2013 as we look towards combining our strengths with those of Aetna after satisfying all remaining regulatory requirements.”

First Quarter 2013 Consolidated Highlights

• First quarter EPS increased by 61% from the prior year quarter excluding the $0.58 one-time impact from the previously disclosed Medicare Advantage Risk Adjustment Data Validation (RADV) prior period reserve release during the first quarter of 2012
• Total revenues were down 4.7% from the prior year quarter
  • Excluding the $141.8 million favorable revenue impact of the RADV prior period reserve release during the first quarter of 2012, total revenues were down by less than 1%
• Selling, general, and administrative (SG&A) expense of 14.8% of total revenue includes costs of $11.1 million, or $0.05 EPS, associated with the pending Aetna transaction
• Medicare Advantage Coordinated Care Plan (MA-CCP) membership was 309,000, an increase of 59,000 members, or 24%, from the prior year quarter driven by successful execution during the 2013 Annual Enrollment Period
• The Company’s Kentucky Medicaid business generated a positive contribution to earnings with an MLR of 92.3% in the first quarter, an improvement of 440 basis points (bps) from the fourth quarter of 2012 and 2,860 bps from the first quarter of 2012
• The Company successfully launched Medicaid operations in the New East Zone in Pennsylvania during the quarter, bringing the Company’s total Medicaid membership in Pennsylvania to approximately 98,000
• GAAP cash flows from operations were $222.2 million, or 164% of net income

Selected First Quarter 2013 Highlights

Medicare Advantage

• Excluding the $141.8 million favorable revenue impact of the RADV prior period reserve release during the first quarter of 2012, Medicare Advantage revenue increased by 20% from the prior year quarter
• As of March 31, 2013, slightly more than 50% of the Company’s current MA-CCP membership resides in contracts rated 4.0 Stars
• The MA-CCP Medical Loss Ratio (MLR) was 84.6% in the quarter

Medicare Part D

• As of March 31, 2013, Medicare Part D membership was 1,450,000, a decrease of 8,000 members, or 1%, from the prior year quarter, driven by the reduction in Coventry’s auto-assign footprint for 2013
• The Medicare Part D MLR was 93.4% in the quarter, a decrease of 150 bps from the prior year quarter

Medicaid

• As of March 31, 2013, Medicaid membership was 892,000, a decrease of 32,000 members, or 3%, from the prior year quarter. The decrease was driven by the previously announced termination of the Company’s contract with the State of Kansas effective December 31, 2012, partially offset by expansion to additional regions in Pennsylvania throughout 2012 and 2013 and expansion in Nebraska effective July 1, 2012.
• The Medicaid MLR was 86.4% in the quarter, a decrease of 1,360 bps from the prior year quarter

Commercial

• As of March 31, 2013, total commercial membership was 2,182,000, a decrease of 22,000 members, or 1%, from the prior quarter
• The commercial risk MLR was 77.9% in the quarter, a decrease of 200 bps from the prior year quarter

Balance Sheet

• Investment portfolio in a net unrealized gain position of $88 million as of March 31, 2013
• Health Plan Days in Claims Payable (DCP) of 51.43, an increase of 2.39 days from the prior quarter
• $950 million in free cash at the parent at quarter-end
• Board of Directors approval of the Company’s first quarter 2013 cash dividend paid on April 9, 2013
• Debt-to-Capital of 24.7%, a 50 bps reduction from the prior year quarter

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, 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; changes in government funding related to automatic spending cuts that are occurring due to federal sequestration; 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 March 31, 2013   2012 Operating revenues: (unaudited) (unaudited) Managed care premiums $ 3,236,663 $ 3,386,268 Management services   283,572   305,699 Total operating revenues   3,520,235   3,691,967   Operating expenses: Medical costs 2,686,651 2,808,348 Cost of sales 59,485 67,952 Selling, general, and administrative 520,300 502,888 Depreciation and amortization   37,631   36,303 Total operating expenses   3,304,067   3,415,491   Operating earnings 216,168 276,476 Operating earnings percentage of total revenues 6.1% 7.5%   Interest expense 24,582 25,557 Other income, net   30,330   24,434  

Earnings before income taxes

221,916

275,353

  Provision for income taxes   86,547   104,634 Net earnings $ 135,369 $ 170,719   Net earnings per share: Basic earnings per common share $ 1.01 $ 1.21 Diluted earnings per common share $ 1.00 $ 1.20   Weighted average common shares outstanding, basic 133,464 139,323 Weighted average common shares outstanding, diluted 134,300 140,167       COVENTRY HEALTH CARE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands)   March 31, December 31, 2013 2012 (unaudited) Assets: Current assets: Cash and cash equivalents $ 1,531,678 $ 1,399,162 Short-term investments 120,745 121,742 Accounts receivable, net 260,809 272,077 Other receivables, net 945,218 892,815 Other current assets 195,479 196,323 Total current assets 3,053,929 2,882,119   Long-term investments 2,713,291 2,658,582 Property and equipment, net 261,668 266,818 Goodwill 2,591,488 2,591,488 Other intangible assets, net 302,118 318,592 Other long-term assets 32,783 33,389 Total assets $ 8,955,277 $ 8,750,988       Liabilities and Stockholders’ Equity:   Current liabilities: Medical liabilities $ 1,476,557 $ 1,418,914 Accounts payable and other accrued liabilities 509,930 488,175 Deferred revenue 150,999 137,981 Total current liabilities 2,137,486 2,045,070   Long-term debt 1,585,312 1,585,190 Other long-term liabilities 396,476 397,813 Total liabilities 4,119,274 4,028,073   Stockholders’ equity 4,836,003 4,722,915       Total liabilities and stockholders’ equity $ 8,955,277 $ 8,750,988     COVENTRY HEALTH CARE, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Amounts in thousands) (unaudited)   Quarter Ended March 31, 2013   Cash flows from operating activities: Net earnings $ 135,369 Adjustments to earnings: Depreciation and amortization 37,631 Amortization of stock compensation 5,972 Changes in assets and liabilities: Accounts receivable, net 11,268 Other receivables, net (52,403) Medical liabilities 57,643 Accounts payable and other accrued liabilities 20,252 Deferred revenue 13,018 Other operating activities (6,525) Net cash flows from operating activities 222,225   Cash flows from investing activities: Capital expenditures, net (15,871) Payments for investments, net of sales and maturities (61,321) Net cash flows from investing activities (77,192)   Cash flows from financing activities: Proceeds from issuance of stock 4,397 Payments for repurchase of stock (664) Excess tax benefit from stock compensation 565 Payments for cash dividends (16,815) Net cash flows from financing activities (12,517)   Net change in cash and cash equivalents for current period 132,516 Cash and cash equivalents at beginning of period 1,399,162 Cash and cash equivalents at end of period $ 1,531,678               Cash and Investments: Cash and cash equivalents $ 1,531,678 Short-term investments 120,745 Long-term investments 2,713,291 Total cash and investments $ 4,365,714             COVENTRY HEALTH CARE, INC. SELECTED OPERATING STATISTICS (Unaudited)   Total     Q1 2013   2012   Q4 2012   Q3 2012   Q2 2012   Q1 2012 Membership by Product (000s)                         Commercial Risk 1,404 1,474 1,489 1,519 1,549 Health Plan Commercial ASO 778 730 736 729 725 Medicare Advantage 309 259 256 253 250 Medicaid Risk 892 974 998 932 924 Other National ASO 339 347 350 354 356 Medicare Part D   1,450         1,578     1,545     1,494     1,458 Total Membership   5,172         5,362     5,374     5,281     5,262                           Revenues by Product Type (000s)                         Commercial Risk $ 1,322,718 $ 5,737,626 $ 1,403,010 $ 1,409,863 $ 1,443,478 $ 1,481,275 Commercial Management Services   108,084     429,209     100,736     101,138     113,558     113,777 Total Commercial Products 1,430,802 6,166,835 1,503,746 1,511,001 1,557,036 1,595,052   Medicare Advantage 831,378 2,912,143 695,815 697,724 684,291 834,312 Medicaid Risk 690,800 2,809,579 712,845 730,996 697,679 668,060 Medicare Part D   406,548     1,514,518     363,032     343,185     394,877     413,423 Total Government Programs 1,928,726 7,236,240 1,771,692 1,771,905 1,776,847 1,915,795   Workers’ Compensation   175,488     757,779     183,289     187,992     194,576     191,922 Corporate and Eliminations   (14,781)     (47,491)     (12,910)     (13,115)     (10,663)     (10,802) Total Revenues $ 3,520,235 $ 14,113,363 $ 3,445,817 $ 3,457,783 $ 3,517,796 $ 3,691,967                           Consolidated Coventry                           Operating Income % of Revenues 6.1% 5.4% 5.2% 4.6% 4.1% 7.5%   SGA % of Revenues 14.8% 14.7% 16.0% 15.1% 14.3% 13.6%   Total Health Plan Medical Liabilities (000s) (1) $ 1,322,392 $ 1,258,279 $ 1,321,436 $ 1,315,078 $ 1,313,458 Health Plan Days in Claims Payable (DCP) (1) 51.43 49.04 50.90 49.77 49.47   Total Debt (millions) $ 1,585.3 $ 1,585.2 $ 1,585.1 $ 1,584.9 $ 1,584.8 Total Capital (millions) $ 6,421.3 $ 6,308.1 $ 6,211.4 $ 6,091.2 $ 6,287.5 Debt to Capital 24.7% 25.1% 25.5% 26.0% 25.2%             COVENTRY HEALTH CARE, INC. SELECTED REVENUE AND MEDICAL COST STATISTICS (Unaudited)   Total     Q1 2013   2012   Q4 2012   Q3 2012   Q2 2012   Q1 2012 Revenue PMPM                         Commercial Risk $ 306.18 $ 310.15 $ 310.27 $ 308.42 $ 309.91 $ 311.92 Medicare Advantage(2) $ 899.28 $ 938.71 $ 897.31 $ 908.57 $ 902.61 $ 1,048.93 Medicare Part D(3) $ 81.10 $ 85.94 $ 84.58 $ 86.24 $ 87.55 $ 85.44 Medicaid $ 266.74 $ 242.35 $ 240.38 $ 241.92 $ 248.48 $ 238.74                             MLR%                         Consolidated Total 83.0% 84.0% 82.7% 84.4% 85.9% 82.9%   Commercial Risk 77.9% 81.7% 82.2% 81.5% 83.0% 79.9% Medicare Advantage(2) 84.6% 81.1% 83.9% 83.1% 84.1% 74.1% Medicare Part D 93.4% 85.4% 70.7% 84.2% 90.0% 94.9% Medicaid 86.4% 94.1% 90.4% 93.0% 93.3% 100.0%   (1) “Total Health Plan Medical Liabilities” and “Health Plan Days in Claims Payable” exclude the impact of the Kansas Medicaid business for the first quarter of 2013 as the contract with the State of Kansas ended effective December 31, 2012.   (2) First quarter 2012 Medicare Advantage statistics for Revenue PMPM and MLR% include the favorable impact from the release of MA-CCP RADV audit 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.