Attached files
| file | filename |
|---|---|
| 8-K - 8-K - UNIVERSAL AMERICAN CORP. | a11-16411_18k.htm |
Exhibit 99.1
UNAUDITED CONDENSED PRO FORMA FINANCIAL DATA OF Universal American Corp. (formerly Universal American Spin Corp.)
(ACCOUNTING SUCCESSOR TO CAremArK Ulysses Holding Corp., FORMERLY UNIVERSAL AMERICAN CORP.)
On December 30, 2010, Caremark Ulysses Holding Corp. (formerly Universal American Corp.) (“Old Universal American”) entered into agreements, consisting of: (i) an Agreement and Plan of Merger with CVS Caremark Corporation (“CVS Caremark”), and Ulysses Merger Sub, L.L.C., an indirect wholly-owned subsidiary of CVS Caremark (“Merger Sub”), to provide for the purchase of Old Universal American’s Medicare Part D Business by CVS Caremark through the merger of Merger Sub with and into Old Universal American, with Old Universal American continuing as the surviving corporation and a wholly-owned subsidiary of CVS Caremark and (ii) a Separation Agreement with Universal American Corp. (formerly Universal American Spin Corp.) (“New Universal American”), to provide for the separation of Old Universal American’s Medicare Part D Business from its remaining businesses, which included the Medicare Advantage and Traditional Insurance businesses. The sale of the Medicare Part D Business to CVS Caremark and related transactions are referred to herein as the “Part D Transaction.”
On April 29, 2011, the parties consummated the Part D Transaction and shareholders of Old Universal American received $14.00 in cash and one share of New Universal American common stock for each share owned by them. At the closing of the Part D Transaction, Old Universal American separated all of its businesses other than its Medicare Part D Business, transferred those businesses to New Universal American, became a wholly-owned subsidiary of CVS Caremark, changed its name to Old Universal American, and de-registered its shares with the Securities and Exchange Commission (the “Commission”) and de-listed its shares on the NYSE.
In addition, at the closing of the Part D Transaction, New Universal American changed its name from Universal American Spin Corp. to Universal American Corp. and its shares began trading on the NYSE under the ticker symbol “UAM” on May 2, 2011. New Universal American now owns the businesses and assets that previously comprised Old Universal American’s Senior Managed Care-Medicare Advantage, Traditional Insurance and Corporate & Other segments.
As part of the Part D Transaction, New Universal American is considered as divesting the Medicare Part D Business and is treated as the “accounting successor” to Old Universal American for financial reporting purposes in accordance with ASC 505-60. For financial reporting purposes, New Universal American reports the Medicare Part D Business as discontinued operations following the consummation of the Part D Transaction.
The following unaudited condensed pro forma statements of operations of New Universal American for the three months ended March 31, 2011 and the years ended December 31, 2010, 2009 and 2008 have been prepared as though the Part D Transaction occurred as of the beginning of each period being presented. The following unaudited condensed pro forma balance sheet of New Universal American as of March 31, 2011 has been prepared as though the Part D Transaction occurred on March 31, 2011. The unaudited condensed pro forma financial statements of New Universal American are derived from the historical consolidated financial statements of Old Universal American and adjusted to give effect to the Part D Transaction.
The pro forma adjustments are based upon available information and assumptions that management believes are reasonable; however, such adjustments are subject to change. In addition, such adjustments are estimates and may not prove to be accurate.
Non-recurring charges related to the Part D Transaction have been excluded from the unaudited condensed pro forma statements of operations in accordance with Regulation S-X. In addition, the unaudited condensed pro forma statements of operations do not give effect to changes in certain costs New Universal American may incur associated with operating as a stand-alone company as the full amount of these costs are not known at this time. The pro forma data does not represent what New Universal American’s financial position or results of operations would have been had New Universal American operated as a separate, independent public company, nor does the pro forma data give effect to any events other than those discussed in the related notes. The pro forma data also does not project New Universal American’s financial position or results of operations as of any future date or for any future period.
Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in Amendment No. 1 to New Universal American’s Registration Statement on Form S-4 (No. 333-172691) filed March 31, 2011 with the Commission.
UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES
PRO FORMA STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended March 31, 2011
|
|
|
Historical |
|
|
|
|
|
Pro forma |
| ||||
|
|
|
Old Universal |
|
Historical |
|
Pro forma |
|
New Universal |
| ||||
|
|
|
American |
|
Part D |
|
Adjustments |
|
American (1) |
| ||||
|
|
|
(in thousands, per share amounts in dollars) |
| ||||||||||
|
Revenues: |
|
|
|
|
|
|
|
|
| ||||
|
Net premium and policyholder fees earned |
|
$ |
1,227,823 |
|
$ |
(647,658 |
) |
$ |
— |
|
$ |
580,165 |
|
|
Net investment income |
|
13,103 |
|
(1 |
) |
— |
|
13,102 |
| ||||
|
Fee and other income |
|
1,148 |
|
(32 |
) |
— |
|
1,116 |
| ||||
|
Net realized gains on investments |
|
(236 |
) |
241 |
|
— |
|
5 |
| ||||
|
Total revenues |
|
1,241,838 |
|
(647,450 |
) |
— |
|
594,388 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Benefits, claims and expenses: |
|
|
|
|
|
|
|
|
| ||||
|
Claims and other benefits |
|
1,126,821 |
|
(637,585 |
) |
— |
|
489,236 |
| ||||
|
Commissions |
|
19,876 |
|
(1,172 |
) |
— |
|
18,704 |
| ||||
|
Interest expense |
|
4,675 |
|
(4,675 |
) |
— |
|
— |
| ||||
|
Dividend on 8.5% manditorily redeemable preferred stock |
|
— |
|
— |
|
850 |
(6) |
850 |
| ||||
|
Amortization of present value of future profits |
|
5,144 |
|
(4,012 |
) |
— |
|
1,132 |
| ||||
|
Other operating costs and expenses |
|
137,039 |
|
(49,480 |
) |
46 |
(7) |
87,605 |
| ||||
|
Total benefits, claims and expenses |
|
1,293,555 |
|
(696,924 |
) |
896 |
|
597,527 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income (loss) before equity in earnings of unconsolidated subsidiary and income taxes |
|
(51,717 |
) |
49,474 |
|
(896 |
) |
(3,139 |
) | ||||
|
Equity in earnings of unconsolidated subsidiary |
|
— |
|
— |
|
— |
|
— |
| ||||
|
Income (loss) before income taxes |
|
(51,717 |
) |
49,474 |
|
(896 |
) |
(3,139 |
) | ||||
|
Provision for (benefit from) income taxes |
|
(19,490 |
) |
17,576 |
|
(16 |
)(8) |
(1,930 |
) | ||||
|
Net income (loss) |
|
$ |
(32,227 |
) |
$ |
31,898 |
|
$ |
(880 |
) |
$ |
(1,209 |
) |
|
|
|
|
|
|
|
|
|
|
| ||||
|
Earnings (loss) per common share: |
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
$ |
(0.41 |
) |
|
|
|
|
$ |
(0.02 |
) | ||
|
Diluted |
|
$ |
(0.41 |
) |
|
|
|
|
$ |
(0.02 |
) | ||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
|
Weighted average common shares outstanding |
|
77,390 |
|
|
|
2,971 |
(2)(3)(4) |
80,361 |
| ||||
|
Less weighted average treasury shares |
|
(3,092 |
) |
|
|
3,092 |
(2) |
— |
| ||||
|
Basic weighted shares outstanding |
|
74,298 |
|
|
|
6,063 |
|
80,361 |
| ||||
|
Weighted average common equivalent of preferred shares outstanding |
|
4,211 |
|
|
|
(4,211 |
)(3) |
— |
| ||||
|
Effect of dilutive securities |
|
— |
|
|
|
— |
(5) |
— |
| ||||
|
Diluted weighted shares outstanding |
|
78,509 |
|
|
|
1,852 |
|
80,361 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Effective tax rate |
|
37.7 |
% |
|
|
|
|
61.5 |
% | ||||
|
(1) |
At the closing of the Part D Transaction, Old Universal American made Part D Transaction-related cash payouts of approximately $5.4 million for the accelerated vesting of certain restricted stock and approximately $29.2 million for the cash settlement of outstanding stock options, including the payment of $0.5 million of dividends accrued on the restricted stock. These payouts were recorded as adjustments to equity. Unrecognized historical pre-tax stock compensation expense of $2.7 million related to the vesting of certain restricted stock and $5.8 million related to the cash settlement of outstanding stock options was recognized at the closing of the transaction in 2011 and previously recognized expense of $1.3 million related to the non-vested termination of equity awards was reversed. Also, a realized loss of $11.6 million related to the settlement of the cash flow hedges in connection with the Part D Transaction was recognized at closing. Additionally, Part D Transaction-related expenses, primarily related to investment banking, legal and accounting fees, of approximately $17.5 million, pre-tax, were incurred in connection with the Part D Transaction. Approximately $5.8 million of these Part D Transaction-related expenses were incurred through March 31, 2011, including $4.0 million during 2010, and included in the historical Old Universal American amounts. Except for the $5.8 million of Part D Transaction-related expense already incurred, these nonrecurring items have not been reflected in the pro forma statements of operations. |
|
|
|
|
(2) |
All treasury shares were retired in connection with the Part D Transaction, reducing the common shares outstanding. |
|
|
|
|
(3) |
The existing Old Universal American Series A Preferred Stock, other than a portion of the Significant Shareholder Preferred Stock (which was converted to New Universal American non-voting common stock), was converted into the right to receive the Per Share Closing Consideration and cancelled upon closing of the Merger. |
|
|
|
|
(4) |
Approximately 1.9 million shares of New Universal American Common Stock were issued in connection with the accelerated vesting of certain restricted stock and the settlement of options. |
|
|
|
|
(5) |
The accelerated vesting of certain restricted stock and the settlement of outstanding stock options eliminated all of the common stock equivalents, except for the remaining unvested restricted stock and performance shares. The effect of dilutive securities on a pro forma basis relates solely to the remaining unvested restricted stock and performance shares as determined by the treasury stock method. |
|
|
|
|
(6) |
Represents three months of dividends on the 8.5% Series A Manditorily Redeemable Preferred Stock. |
|
|
|
|
(7) |
Represents three months of amortization of the deferred preferred stock issuance costs. |
|
|
|
|
(8) |
Represents income taxes on the amortization of the deferred preferred stock issuance costs. |
UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES
PRO FORMA STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Year Ended December 31, 2010
|
|
|
Historical |
|
|
|
|
|
Pro forma |
| ||||
|
|
|
Old Universal |
|
Historical |
|
Pro forma |
|
New Universal |
| ||||
|
|
|
American |
|
Part D |
|
Adjustments |
|
American (1) |
| ||||
|
|
|
(in thousands, per share amounts in dollars) |
| ||||||||||
|
Revenues: |
|
|
|
|
|
|
|
|
| ||||
|
Net premium and policyholder fees earned |
|
$ |
5,629,700 |
|
$ |
(2,183,951 |
) |
$ |
— |
|
$ |
3,445,749 |
|
|
Net investment income |
|
42,857 |
|
(2,972 |
) |
— |
|
39,885 |
| ||||
|
Fee and other income |
|
9,673 |
|
(98 |
) |
— |
|
9,575 |
| ||||
|
Net realized gains on investments |
|
4,995 |
|
1,580 |
|
— |
|
6,575 |
| ||||
|
Total revenues |
|
5,687,225 |
|
(2,185,441 |
) |
— |
|
3,501,784 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Benefits, claims and expenses: |
|
|
|
|
|
|
|
|
| ||||
|
Claims and other benefits |
|
4,658,857 |
|
(1,798,216 |
) |
— |
|
2,860,641 |
| ||||
|
Commissions |
|
126,461 |
|
(5,107 |
) |
— |
|
121,354 |
| ||||
|
Interest expense |
|
19,893 |
|
(19,868 |
) |
— |
|
25 |
| ||||
|
Dividend on 8.5% manditorily redeemable preferred stock |
|
— |
|
— |
|
3,400 |
(6) |
3,400 |
| ||||
|
Amortization of present value of future profits |
|
23,304 |
|
(16,046 |
) |
— |
|
7,258 |
| ||||
|
Other operating costs and expenses |
|
584,397 |
|
(187,072 |
) |
184 |
(7) |
397,509 |
| ||||
|
Total benefits, claims and expenses |
|
5,412,912 |
|
(2,026,309 |
) |
3,584 |
|
3,390,187 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income before equity in earnings of unconsolidated subsidiary and income taxes |
|
274,313 |
|
(159,132 |
) |
(3,584 |
) |
111,597 |
| ||||
|
Equity in earnings of unconsolidated subsidiary |
|
— |
|
— |
|
— |
|
— |
| ||||
|
Income before income taxes |
|
274,313 |
|
(159,132 |
) |
(3,584 |
) |
111,597 |
| ||||
|
Provision for income taxes |
|
86,634 |
|
(56,805 |
) |
(64 |
)(8) |
29,765 |
| ||||
|
Net income |
|
$ |
187,679 |
|
$ |
(102,327 |
) |
$ |
(3,520 |
) |
$ |
81,832 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Earnings per common share: |
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
$ |
2.40 |
|
|
|
|
|
$ |
1.02 |
| ||
|
Diluted |
|
$ |
2.38 |
|
|
|
|
|
$ |
1.02 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
|
Weighted average common shares outstanding |
|
78,748 |
|
|
|
1,192 |
(2)(3)(4) |
79,940 |
| ||||
|
Less weighted average treasury shares |
|
(4,871 |
) |
|
|
4,871 |
(2) |
— |
| ||||
|
Basic weighted shares outstanding |
|
73,877 |
|
|
|
6,063 |
|
79,940 |
| ||||
|
Weighted average common equivalent of preferred shares outstanding |
|
4,211 |
|
|
|
(4,211 |
)(3) |
— |
| ||||
|
Effect of dilutive securities |
|
612 |
|
|
|
(469 |
)(5) |
143 |
| ||||
|
Diluted weighted shares outstanding |
|
78,700 |
|
|
|
1,383 |
|
80,083 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Effective tax rate |
|
31.6 |
% |
|
|
|
|
26.7 |
% | ||||
|
(1) |
At the closing of the Part D Transaction, Old Universal American made Part D Transaction-related cash payouts of approximately $5.4 million for the accelerated vesting of certain restricted stock and approximately $29.2 million for the cash settlement of outstanding stock options, including the payment of $0.5 million of dividends accrued on the restricted stock. These payouts were recorded as adjustments to equity. Unrecognized historical pre-tax stock compensation expense of $2.7 million related to the vesting of certain restricted stock and $5.8 million related to the cash settlement of outstanding stock options was recognized at the closing of the transaction in 2011 and previously recognized expense of $1.3 million related to the non-vested termination of equity awards was reversed. Also, a realized loss of $11.6 million related to the settlement of the cash flow hedges in connection with the Part D Transaction was recognized at closing. Additionally, Part D Transaction-related expenses, primarily related to investment banking, legal and accounting fees, of approximately $17.5 million, pre-tax, were incurred in connection with the Part D Transaction. Approximately $5.8 million of these Part D Transaction-related expenses were incurred through March 31, 2011, including $4.0 million during 2010, and included in the historical Old Universal American amounts. Except for the $5.8 million of Part D Transaction-related expense already incurred, these nonrecurring items have not been reflected in the pro forma statements of operations. |
|
|
|
|
(2) |
All treasury shares were retired in connection with the Part D Transaction, reducing the common shares outstanding. |
|
|
|
|
(3) |
The existing Old Universal American Series A Preferred Stock, other than a portion of the Significant Shareholder Preferred Stock (which was converted to New Universal American non-voting common stock), was converted into the right to receive the Per Share Closing Consideration and cancelled upon closing of the Merger. |
|
|
|
|
(4) |
Approximately 1.9 million shares of New Universal American Common Stock were issued in connection with the accelerated vesting of certain restricted stock and the settlement of options. |
|
|
|
|
(5) |
The accelerated vesting of certain restricted stock and the settlement of outstanding stock options eliminated all of the common stock equivalents, except for the remaining unvested restricted stock and performance shares. The effect of dilutive securities on a pro forma basis relates solely to the remaining unvested restricted stock and performance shares as determined by the treasury stock method. |
|
|
|
|
(6) |
Represents twelve months of dividends on the 8.5% Series A Manditorily Redeemable Preferred Stock. |
|
|
|
|
(7) |
Represents twelve months of amortization of the deferred preferred stock issuance costs. |
|
|
|
|
(8) |
Represents income taxes on the amortization of the deferred preferred stock issuance costs. |
UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES
PRO FORMA STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Year Ended December 31, 2009
|
|
|
Historical |
|
|
|
|
|
Pro forma |
| ||||
|
|
|
Old Universal |
|
Historical |
|
Pro forma |
|
New Universal |
| ||||
|
|
|
American |
|
Part D |
|
Adjustments |
|
American (1) |
| ||||
|
|
|
(in thousands, per share amounts in dollars) |
| ||||||||||
|
Revenues: |
|
|
|
|
|
|
|
|
| ||||
|
Net premium and policyholder fees earned |
|
$ |
4,918,898 |
|
$ |
(1,980,907 |
) |
$ |
— |
|
$ |
2,937,991 |
|
|
Net investment income |
|
49,814 |
|
(2,844 |
) |
— |
|
46,970 |
| ||||
|
Fee and other income |
|
19,776 |
|
(360 |
) |
— |
|
19,416 |
| ||||
|
Net realized losses on investments |
|
(24,988 |
) |
— |
|
— |
|
(24,988 |
) | ||||
|
Total revenues |
|
4,963,500 |
|
(1,984,111 |
) |
— |
|
2,979,389 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Benefits, claims and expenses: |
|
|
|
|
|
|
|
|
| ||||
|
Claims and other benefits |
|
3,998,634 |
|
(1,587,076 |
) |
— |
|
2,411,558 |
| ||||
|
Commissions |
|
118,278 |
|
(7,067 |
) |
— |
|
111,211 |
| ||||
|
Interest expense |
|
19,937 |
|
(19,937 |
) |
— |
|
— |
| ||||
|
Dividend on 8.5% manditorily redeemable preferred stock |
|
— |
|
— |
|
3,400 |
(6) |
3,400 |
| ||||
|
Amortization of present value of future profits |
|
23,560 |
|
(16,046 |
) |
— |
|
7,514 |
| ||||
|
Other operating costs and expenses |
|
588,739 |
|
(199,582 |
) |
184 |
(7) |
389,341 |
| ||||
|
Total benefits, claims and expenses |
|
4,749,148 |
|
(1,829,708 |
) |
3,584 |
|
2,923,024 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income before equity in earnings of unconsolidated subsidiary and income taxes |
|
214,352 |
|
(154,403 |
) |
(3,584 |
) |
56,365 |
| ||||
|
Equity in earnings of unconsolidated subsidiary |
|
280 |
|
(280 |
) |
— |
|
— |
| ||||
|
Income before income taxes |
|
214,632 |
|
(154,683 |
) |
(3,584 |
) |
56,365 |
| ||||
|
Provision for income taxes |
|
74,328 |
|
(55,209 |
) |
(64 |
)(8) |
19,055 |
| ||||
|
Net income |
|
$ |
140,304 |
|
$ |
(99,474 |
) |
$ |
(3,520 |
) |
$ |
37,310 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Earnings per common share: |
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
$ |
1.73 |
|
|
|
|
|
$ |
0.45 |
| ||
|
Diluted |
|
$ |
1.73 |
|
|
|
|
|
$ |
0.45 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
|
Weighted average common shares outstanding |
|
87,227 |
|
|
|
(4,242 |
)(2)(3)(4) |
82,985 |
| ||||
|
Less weighted average treasury shares |
|
(10,305 |
) |
|
|
10,305 |
(2) |
— |
| ||||
|
Basic weighted shares outstanding |
|
76,922 |
|
|
|
6,063 |
|
82,985 |
| ||||
|
Weighted average common equivalent of preferred shares outstanding |
|
4,211 |
|
|
|
(4,211 |
)(3) |
— |
| ||||
|
Effect of dilutive securities |
|
71 |
|
|
|
(71 |
)(5) |
— |
| ||||
|
Diluted weighted shares outstanding |
|
81,204 |
|
|
|
1,781 |
|
82,985 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Effective tax rate |
|
34.6 |
% |
|
|
|
|
33.8 |
% | ||||
|
(1) |
At the closing of the Part D Transaction, Old Universal American made Part D Transaction-related cash payouts of approximately $5.4 million for the accelerated vesting of certain restricted stock and approximately $29.2 million for the cash settlement of outstanding stock options, including the payment of $0.5 million of dividends accrued on the restricted stock. These payouts were recorded as adjustments to equity. Unrecognized historical pre-tax stock compensation expense of $2.7 million related to the vesting of certain restricted stock and $5.8 million related to the cash settlement of outstanding stock options was recognized at the closing of the transaction in 2011 and previously recognized expense of $1.3 million related to the non-vested termination of equity awards was reversed. Also, a realized loss of $11.6 million related to the settlement of the cash flow hedges in connection with the Part D Transaction was recognized at closing. Additionally, Part D Transaction-related expenses, primarily related to investment banking, legal and accounting fees, of approximately $17.5 million, pre-tax, were incurred in connection with the Part D Transaction. Approximately $5.8 million of these Part D Transaction-related expenses were incurred through March 31, 2011, including $4.0 million during 2010, and included in the historical Old Universal American amounts. Except for the $5.8 million of Part D Transaction-related expense already incurred, these nonrecurring items have not been reflected in the pro forma statements of operations. |
|
|
|
|
(2) |
All treasury shares were retired in connection with the Part D Transaction, reducing the common shares outstanding. |
|
|
|
|
(3) |
The existing Old Universal American Series A Preferred Stock, other than a portion of the Significant Shareholder Preferred Stock (which was converted to New Universal American non-voting common stock), was converted into the right to receive the Per Share Closing Consideration and cancelled upon closing of the Merger. |
|
|
|
|
(4) |
Approximately 1.9 million shares of New Universal American Common Stock were issued in connection with the accelerated vesting of certain restricted stock and the settlement of options. |
|
|
|
|
(5) |
The accelerated vesting of certain restricted stock and the settlement of outstanding stock options eliminated all of the common stock equivalents, except for the remaining unvested restricted stock and performance shares. The effect of dilutive securities on a pro forma basis relates solely to the remaining unvested restricted stock and performance shares as determined by the treasury stock method. |
|
|
|
|
(6) |
Represents twelve months of dividends on the 8.5% Series A Manditorily Redeemable Preferred Stock. |
|
|
|
|
(7) |
Represents twelve months of amortization of the deferred preferred stock issuance costs. |
|
|
|
|
(8) |
Represents income taxes on the amortization of the deferred preferred stock issuance costs. |
UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES
PRO FORMA STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Year Ended December 31, 2008
|
|
|
Historical |
|
|
|
|
|
Pro forma |
| ||||
|
|
|
Old Universal |
|
Historical |
|
Pro forma |
|
New Universal |
| ||||
|
|
|
American |
|
Part D |
|
Adjustments |
|
American (1) |
| ||||
|
|
|
(in thousands, per share amounts in dollars) |
| ||||||||||
|
Revenues: |
|
|
|
|
|
|
|
|
| ||||
|
Net premium and policyholder fees earned |
|
$ |
4,600,454 |
|
$ |
(1,802,126 |
) |
$ |
— |
|
$ |
2,798,328 |
|
|
Net investment income |
|
81,270 |
|
(1,053 |
) |
— |
|
80,217 |
| ||||
|
Fee and other income |
|
37,130 |
|
(20,077 |
) |
— |
|
17,053 |
| ||||
|
Net realized losses on investments |
|
(59,681 |
) |
— |
|
— |
|
(59,681 |
) | ||||
|
Total revenues |
|
4,659,173 |
|
(1,823,256 |
) |
— |
|
2,835,917 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Benefits, claims and expenses: |
|
|
|
|
|
|
|
|
| ||||
|
Claims and other benefits |
|
3,851,582 |
|
(1,533,089 |
) |
— |
|
2,318,493 |
| ||||
|
Commissions |
|
147,125 |
|
(11,590 |
) |
— |
|
135,535 |
| ||||
|
Interest expense |
|
23,694 |
|
(23,694 |
) |
— |
|
— |
| ||||
|
Dividend on 8.5% manditorily redeemable preferred stock |
|
— |
|
— |
|
3,400 |
(6) |
3,400 |
| ||||
|
Amortization of present value of future profits |
|
23,763 |
|
(16,022 |
) |
— |
|
7,741 |
| ||||
|
Other operating costs and expenses |
|
534,518 |
|
(210,722 |
) |
184 |
(7) |
323,980 |
| ||||
|
Total benefits, claims and expenses |
|
4,580,682 |
|
(1,795,117 |
) |
3,584 |
|
2,789,149 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Income before equity in earnings of unconsolidated subsidiary and income taxes |
|
78,491 |
|
(28,139 |
) |
(3,584 |
) |
46,768 |
| ||||
|
Equity in earnings of unconsolidated subsidiary |
|
72,813 |
|
(72,813 |
) |
— |
|
— |
| ||||
|
Income before income taxes |
|
151,304 |
|
(100,952 |
) |
(3,584 |
) |
46,768 |
| ||||
|
Provision for income taxes |
|
56,212 |
|
(36,098 |
) |
(64 |
)(8) |
20,050 |
| ||||
|
Net income |
|
$ |
95,092 |
|
$ |
(64,854 |
) |
$ |
(3,520 |
) |
$ |
26,718 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
Earnings per common share: |
|
|
|
|
|
|
|
|
| ||||
|
Basic |
|
$ |
1.09 |
|
|
|
|
|
$ |
0.30 |
| ||
|
Diluted |
|
$ |
1.08 |
|
|
|
|
|
$ |
0.30 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
|
Weighted average common shares outstanding |
|
74,997 |
|
|
|
14,373 |
(2)(3)(4) |
89,370 |
| ||||
|
Less weighted average treasury shares |
|
(3,635 |
) |
|
|
3,635 |
(2) |
— |
| ||||
|
Basic weighted shares outstanding |
|
71,362 |
|
|
|
18,008 |
|
89,370 |
| ||||
|
Weighted average common equivalent of preferred shares outstanding |
|
16,157 |
|
|
|
(16,157 |
)(3) |
— |
| ||||
|
Effect of dilutive securities |
|
342 |
|
|
|
(342 |
)(5) |
— |
| ||||
|
Diluted weighted shares outstanding |
|
87,861 |
|
|
|
1,509 |
|
89,370 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Effective tax rate |
|
37.2 |
% |
|
|
|
|
42.9 |
% | ||||
|
(1) |
At the closing of the Part D Transaction, Old Universal American made Part D Transaction-related cash payouts of approximately $5.4 million for the accelerated vesting of certain restricted stock and approximately $29.2 million for the cash settlement of outstanding stock options, including the payment of $0.5 million of dividends accrued on the restricted stock. These payouts were recorded as adjustments to equity. Unrecognized historical pre-tax stock compensation expense of $2.7 million related to the vesting of certain restricted stock and $5.8 million related to the cash settlement of outstanding stock options was recognized at the closing of the transaction in 2011 and previously recognized expense of $1.3 million related to the non-vested termination of equity awards was reversed. Also, a realized loss of $11.6 million related to the settlement of the cash flow hedges in connection with the Part D Transaction was recognized at closing. Additionally, Part D Transaction-related expenses, primarily related to investment banking, legal and accounting fees, of approximately $17.5 million, pre-tax, were incurred in connection with the Part D Transaction. Approximately $5.8 million of these Part D Transaction-related expenses were incurred through March 31, 2011, including $4.0 million during 2010, and included in the historical Old Universal American amounts. Except for the $5.8 million of Part D Transaction-related expense already incurred, these nonrecurring items have not been reflected in the pro forma statements of operations. |
|
|
|
|
(2) |
All treasury shares were retired in connection with the Part D Transaction, reducing the common shares outstanding. |
|
|
|
|
(3) |
The existing Old Universal American Series A Preferred Stock, other than a portion of the Significant Shareholder Preferred Stock (which was converted to New Universal American non-voting common stock), was converted into the right to receive the Per Share Closing Consideration and cancelled upon closing of the Merger. |
|
|
|
|
(4) |
Approximately 1.9 million shares of New Universal American Common Stock were issued in connection with the accelerated vesting of certain restricted stock and the settlement of options. |
|
|
|
|
(5) |
The accelerated vesting of certain restricted stock and the settlement of outstanding stock options eliminated all of the common stock equivalents, except for the remaining unvested restricted stock and performance shares. The effect of dilutive securities on a pro forma basis relates solely to the remaining unvested restricted stock and performance shares as determined by the treasury stock method. |
|
|
|
|
(6) |
Represents twelve months of dividends on the 8.5% Series A Manditorily Redeemable Preferred Stock. |
|
|
|
|
(7) |
Represents twelve months of amortization of the deferred preferred stock issuance costs. |
|
|
|
|
(8) |
Represents income taxes on the amortization of the deferred preferred stock issuance costs. |
UNIVERSAL AMERICAN CORP. AND SUBSIDIARIES
PRO FORMA BALANCE SHEET
(UNAUDITED)
March 31, 2011
|
|
|
Historical |
|
|
|
|
|
Pro forma |
| ||||
|
|
|
Old Universal |
|
Historical |
|
Pro forma |
|
New Universal |
| ||||
|
|
|
American |
|
Part D (1) |
|
Adjustments |
|
American |
| ||||
|
|
|
(in thousands, per share amounts in dollars) |
| ||||||||||
|
ASSETS |
|
|
|
|
|
|
|
|
| ||||
|
Total investments |
|
$ |
1,266,020 |
|
$ |
(63,000 |
) |
$ |
— |
|
$ |
1,203,020 |
|
|
Cash and cash equivalents |
|
83,343 |
|
(31,525 |
) |
(32,860 |
)(2) |
18,958 |
| ||||
|
Deferred policy acquisition costs |
|
142,452 |
|
— |
|
— |
|
142,452 |
| ||||
|
Reinsurance recoverables |
|
708,866 |
|
(326 |
) |
— |
|
708,540 |
| ||||
|
Amortizing intangible assets |
|
139,057 |
|
(102,796 |
) |
— |
|
36,261 |
| ||||
|
Goodwill and other indefinite lived intangible assets |
|
525,673 |
|
(448,215 |
) |
— |
|
77,458 |
| ||||
|
CMS contract deposit receivables |
|
17,737 |
|
(17,737 |
) |
— |
|
— |
| ||||
|
Other Part D receivables |
|
290,260 |
|
(290,260 |
) |
— |
|
— |
| ||||
|
Other assets |
|
385,246 |
|
(94,306 |
) |
(3,353 |
)(3) |
287,587 |
| ||||
|
Total assets |
|
$ |
3,558,654 |
|
$ |
(1,048,165 |
) |
$ |
(36,213 |
) |
$ |
2,474,276 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
LIABILITIES |
|
|
|
|
|
|
|
|
| ||||
|
Reserves and other policy liabilities - life |
|
$ |
577,407 |
|
$ |
— |
|
$ |
— |
|
$ |
577,407 |
|
|
Reserves for future policy benefits - health |
|
408,679 |
|
— |
|
— |
|
408,679 |
| ||||
|
Policy and contract claims — health |
|
397,351 |
|
(149,348 |
) |
— |
|
248,003 |
| ||||
|
Loan payable |
|
232,022 |
|
(203,256 |
) |
(28,766 |
)(11) |
— |
| ||||
|
Other long-term debt |
|
110,000 |
|
(110,000 |
) |
40,000 |
(7) |
40,000 |
| ||||
|
Other Part D liabilities |
|
87,666 |
|
(87,666 |
) |
— |
|
— |
| ||||
|
Other liabilities |
|
279,551 |
|
(56,438 |
) |
(5,226 |
)(4) |
217,887 |
| ||||
|
Total liabilities |
|
2,092,676 |
|
(606,708 |
) |
6,008 |
|
1,491,976 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
| ||||
|
Preferred Stock: |
|
|
|
|
|
|
|
|
| ||||
|
Series A Preferred Stock |
|
42 |
|
— |
|
(42 |
)(5) |
— |
| ||||
|
Series B Preferred Stock |
|
— |
|
— |
|
— |
|
— |
| ||||
|
Common stock - voting |
|
793 |
|
— |
|
23 |
(8) |
816 |
| ||||
|
Common stock - non-voting |
|
— |
|
— |
|
— |
|
— |
| ||||
|
Additional paid-in capital |
|
807,841 |
|
— |
|
(67,361 |
)(10) |
740,480 |
| ||||
|
Accumulated other comprehensive income (loss) |
|
(2,628 |
) |
— |
|
8,048 |
(12) |
5,420 |
| ||||
|
Retained earnings |
|
702,371 |
|
(441,457 |
) |
(25,330 |
)(9) |
235,584 |
| ||||
|
Less: Treasury stock |
|
(42,441 |
) |
— |
|
42,441 |
(6) |
— |
| ||||
|
Total stockholders’ equity |
|
1,465,978 |
|
(441,457 |
) |
(42,221 |
) |
982,300 |
| ||||
|
Total liabilities and stockholders’ equity |
|
$ |
3,558,654 |
|
$ |
(1,048,165 |
) |
$ |
(36,213 |
) |
$ |
2,474,276 |
|
|
|
|
— |
|
— |
|
— |
|
— |
| ||||
|
Basic Shares |
|
79,991,240 |
|
|
|
1,543,278 |
|
81,534,518 |
| ||||
|
Book value per share |
|
$ |
18.33 |
|
|
|
|
|
$ |
12.05 |
| ||
|
|
|
|
|
|
|
|
|
|
| ||||
|
Tangible Equity |
|
|
|
|
|
|
|
788,679 |
| ||||
|
Tangible BV per share |
|
|
|
|
|
|
|
$ |
9.67 |
| |||
|
(1) |
Historical Part D represents a “carve-out” of the historical results of operations, assets, and liabilities attributable to Old Universal American’s Medicare Part D Business and outstanding indebtedness and trust preferred securities (collectively referred to as “Part D”). Part D is comprised of the legal entities Old Universal American, MemberHealth LLC, UAC Holding, Inc. and Pennsylvania Life Insurance Company after giving effect to the Separation. As a result of financial statement classification differences between the consolidated balance sheets reported in Old Universal American’s Annual Report on Form 10-K for the year ended December 31, 2010 and the unaudited combined condensed balance sheets for Part D, the total assets and total liability lines on this schedule will not equal the total assets and liabilities reported in the unaudited combined condensed balance sheets. |
|
(2) |
Represents the following pro forma adjustments to cash and cash equivalents (in thousands): |
|
Payment of Part D Transaction-related costs |
|
$ |
(15,294 |
) |
|
Settlement of Old Universal American stock options and accelerated vesting of certain restricted stock in connection with the Part D Transaction |
|
(34,058 |
) | |
|
Non-Pennsylvania Life Insurance Company novation payment |
|
18,500 |
| |
|
Net proceeds from issuance of Preferred Stock |
|
38,897 |
| |
|
Settlement of interest rate swap breakage costs in connection with the Part D Transaction |
|
(12,139 |
) | |
|
Paydown of a portion of the Loan Payable by Old Universal American in connection with the Part D Transaction |
|
(28,766 |
) | |
|
|
|
$ |
(32,860 |
) |
|
(3) |
Represents the following pro forma adjustments to other assets (in thousands): |
|
Represents the release of unamortized deferred stock compensation costs for the cancellation of the unvested restricted stock and performance shares awarded to Part D Employees and the accelerated vesting of certain restricted stock as a result of the Transactions. |
|
$ |
(4,456 |
) |
|
Deferred Preferred Stock issuance costs |
|
1,103 |
| |
|
|
|
$ |
(3,353 |
) |
|
(4) |
Represents the following pro forma adjustments to other liabilities (in thousands): |
|
Release of payable for Part D Transaction-related costs accrued at December 31, 2010 |
|
$ |
(3,583 |
) |
|
Release of dividend payable amounts related to the cancellation of the unvested restricted stock and performance shares awarded to Part D Employees and the accelerated vesting of certain restricted stock as a result of the Part D Transactions |
|
(617 |
) | |
|
Tax assets arising from the payment of Part D Transaction-related costs |
|
(4,099 |
) | |
|
Net tax assets related to the settlement of options and the accelerated vesting of certain restricted stock |
|
(6,370 |
) | |
|
Tax liabilities related to the non-Pennsylvania Life Insurance Company novation payment |
|
6,475 |
| |
|
Release of the liability for the unrealized loss on the interest rate swap upon settlement in connection with the transaction |
|
(12,894 |
) | |
|
Net taxes related to the settlement of the interest rate swap breakage costs and release of the liability for the unrealized loss on the interest rate swap |
|
265 |
| |
|
Liabilities for the cash distribution related to the unvested restricted stock and performance shares |
|
15,277 |
| |
|
Other |
|
320 |
| |
|
|
|
$ |
(5,226 |
) |
|
(5) |
Conversion of the existing Old Universal American Series A Preferred Stock into the right to receive the Per Share Closing Consideration and cancellation in connection with the Part D Transaction. |
|
(6) |
Retirement of all treasury stock upon closing of the Part D Transaction. |
|
(7) |
Issuance of Preferred Stock |
|
(8) |
Represents the following pro forma adjustments to common stock (in thousands): |
|
Conversion of the existing Old Universal American Series A Preferred Stock into the right to receive the Per Share Closing Consideration and cancellation in connection with the Part D Transaction |
|
$ |
42 |
|
|
New Universal American shares issued in connection with the settlement of Old Universal American stock options in connection with the Part D Transaction |
|
16 |
| |
|
Retirement of treasury shares |
|
(35 |
) | |
|
|
|
$ |
23 |
|
|
(9) |
Represents the following pro forma adjustments to retained earnings (in thousands): |
|
After-tax income related to the non-Pennsylvania Life Insurance Company novation payment |
|
$ |
12,025 |
|
|
After-tax loss from the Part D Transaction-related costs to be recognized in 2011 |
|
(7,612 |
) | |
|
After-tax loss related to the recognition in 2011 of the unrecognized stock compensation costs for the accelerated vesting of certain restricted stock and the settlement of options in connection with the Part D Transaction |
|
(11,155 |
) | |
|
Release of dividend payable amounts related to the cancellation of the unvested restricted stock and performance shares awarded to Part D Employees |
|
103 |
| |
|
After-tax loss related to the settlement of the interest rate swap breakage costs |
|
(7,557 |
) | |
|
Liabilities for the cash distribution related to the unvested restricted stock and performance shares |
|
(4,157 |
) | |
|
Retirement of treasury shares |
|
(6,977 |
) | |
|
|
|
$ |
(25,330 |
) |
|
(10) |
Represents the following pro forma adjustments to additional paid in capital (in thousands): |
|
Change in paid in capital related to the New Universal American shares issued in connection with the settlement of Old Universal American stock options in connection with the Part D Transaction |
|
$ |
(24,635 |
) |
|
Net tax benefit recognized through additional paid in capital related to equity conversions |
|
5,784 |
| |
|
Liabilities for the cash distribution related to the unvested restricted stock and performance shares |
|
(11,119 |
) | |
|
Retirement of treasury shares |
|
(35,429 |
) | |
|
Other |
|
(1,962 |
) | |
|
|
|
$ |
(67,361 |
) |
|
(11) |
Paydown of a portion of Loan Payable by Old Universal American in connection with the Part D Transaction. |
|
(12) |
Release of the unrealized loss on the interest rate swap, net of deferred taxes, upon settlement in connection with the Part D Transaction. |