Coventry Health Care Reports Third Quarter Earnings and Increases Full Year 2009 Guidance

Coventry Health Care, Inc. (NYSE:CVH) today reported consolidated operating results for the quarter ended September 30, 2009. Operating revenues totaled $3.4 billion for the quarter with GAAP net earnings of $70.6 million, or $0.48 earnings per diluted share (EPS). Excluding the impact of the First Health Services Corporation (FHSC) divestiture in the third quarter, which resulted in a net charge of $26.7 million, or $0.18 per diluted share, adjusted net earnings were $97.3 million, or $0.66 per diluted share.⁽¹⁾

Excluding the impact of the FHSC divestiture, the Company is increasing its full year 2009 adjusted EPS guidance to a range of $2.01 to $2.03, an increase of $0.12 from the midpoint of the prior EPS range of $1.85 to $1.95. GAAP EPS for the full year is now expected to be in a range of $1.45 to $1.47 as the Company has recorded a largely non-cash full year charge of $0.56 per diluted share as a result of the FHSC divestiture, as outlined on page two.

“I continue to be pleased with the Company’s financial and operational results for 2009 including today’s increase to full year EPS guidance,” said Allen F. Wise, chairman and chief executive officer of Coventry. “In the face of a challenging environment, we feel confident that focusing on our seven core businesses and driving a low cost structure will best position Coventry for the future.”

Third Quarter Consolidated Highlights

Revenues from continuing operations increased 17.7% from the prior year quarter
Continued growth in Medicare products
- Medicare Coordinated Care Product (CCP) membership growth of 38% from the prior year quarter
- Medicare Part D membership growth of 81,000 from the prior quarter
Health plan commercial group risk medical loss ratio of 82.1%
GAAP cash flows from operations were $314.3 million
Excellent liquidity position
- Approximately $570 million of deployable free cash at the parent at quarter-end
- Debt repayment of $98 million during the quarter
Share buyback of 1.5 million shares at the end of the quarter
Investment portfolio in a net unrealized gain position at quarter-end

1) Adjusted earnings of $0.66 per diluted share include earnings from continuing operations of $0.68 per diluted share and a loss of $0.02 per diluted share from FHSC operations during the quarter. The Company believes that adjusting earnings to exclude the unfavorable impact of the non-recurring FHSC divestiture-related charges provides a more meaningful measure of its operating results in comparison to prior and future periods (and to previously announced guidance). See page two for further details.

Selected Third Quarter Highlights

Health Plan Commercial Group Premium Yield & Medical Loss Ratio (MLR). Reported commercial group risk premium yields rose to $304.13 PMPM (per member per month) in the quarter, an increase of 6.1% from the prior year quarter. The health plan commercial group risk MLR was 82.1% in the quarter, a decrease of 20 basis points from the prior year quarter.
Medicare Advantage Membership & MLR. As of September 30, 2009, Medicare Advantage membership was 521,000, an increase of 141,000 members year-to-date. Medicare Advantage CCP membership was 185,000, an increase of 48,000 members year-to-date. The Medicare Advantage MLR was 89.4% in the quarter, a sequential decrease of 100 bps driven by favorable results in Medicare Advantage Private Fee-for-Service (PFFS). The Medicare Advantage PFFS MLR improvement in the third quarter compared to the first half of 2009 contributed approximately $0.07 per diluted share in the quarter. As previously announced, the Company will exit the Medicare Advantage PFFS product effective January 1, 2010.
Medicare Part D Membership & MLR. As of September 30, 2009, Medicare Part D membership was 1,636,000, an increase of 81,000 members from the prior quarter and 705,000 members year-to-date. The Medicare Part D MLR was 79.4% in the quarter and 91.9% year-to-date, compared to the third quarter 2008 year-to-date MLR of 91.5%.
Medicaid Membership. As of September 30, 2009, Medicaid membership was 391,000, an increase of 6,000 members from the prior quarter. The Medicaid MLR was 86.1% in the quarter.
First Health Services Corporation Divestiture. The previously announced divestiture of FHSC closed on July 31, 2009. In accordance with GAAP, the historical FHSC results of operations are classified as discontinued operations and are excluded from consolidated continuing operations for each period presented. In addition to the results of FHSC operations, the discontinued operations for the third quarter and year-to-date periods of 2009 include charges to reflect the impact of the FHSC divestiture. Consistent with previous guidance, in the third quarter of 2009 the Company recorded a primarily non-cash net charge of $0.18 per diluted share to complete the divestiture. When combined with the loss of $0.02 per diluted share generated from FHSC operating results in the quarter, the total EPS from discontinued operations was a loss of $0.20 for the third quarter. Including the previously disclosed $0.38 per diluted share charge recorded in the second quarter, the total year-to-date charge on the FHSC divestiture was $0.56 per diluted share, which is consistent with the lower end of the Company’s prior estimate of $0.55 to $0.60 per diluted share. When combined with the $0.06 of EPS generated from FHSC year-to-date operating results, the total EPS from discontinued operations was a loss of $0.50 for the nine months ended September 30, 2009.

Mr. Allen F. Wise, chairman and chief executive officer of Coventry, will host a conference call at 8:30 a.m. ET on Friday, October 30, 2009. To listen to the call, dial toll-free at (888) 352-6803 or, for international callers, (719) 325-2474. Callers will be asked to identify themselves and their affiliations. The conference call will also be webcast from Coventry’s Investor Relations site at www.coventryhealthcare.com. Coventry asks participants on both the call and webcast to review and be familiar with its filings with the Securities and Exchange Commission. A replay of the call will be available for one week at (888) 203-1112 or, for international callers, (719) 457-0820. The access code is 3147061.

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are defined as statements that are not historical facts and include those statements relating to future events or future financial performance. Actual performance may be significantly impacted by certain risks and uncertainties including those described in Coventry’s Annual Report on Form 10-K for the year ended December 31, 2008 and Coventry’s Form 10-Q for the quarter ended June 30, 2009. Coventry undertakes no obligation to update or revise any forward-looking statements.

Coventry Health Care (www.coventryhealthcare.com) is a diversified national managed healthcare company based in Bethesda, Maryland, operating health plans, insurance companies, network rental and workers’ compensation services companies. Coventry provides a full range of risk and fee-based managed care products and services to a broad cross section of individuals, employer and government-funded groups, government agencies, and other insurance carriers and administrators.


COVENTRY HEALTH CARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
(unaudited)

	Quarters Ended				Nine Months Ended
	September 30,				September 30,
		2009		2008		2009		2008
Operating revenues:
Managed care premiums	$	3,153,142	$	2,627,345	$	9,595,872	$	7,891,701
Management services		290,968		298,376		879,507		865,785
Total operating revenues		3,444,110		2,925,721		10,475,379		8,757,486

Operating expenses:
Medical costs		2,661,131		2,200,405		8,261,102		6,630,950
Cost of sales		62,384		54,289		178,280		139,038
Selling, general, administrative		527,173		478,973		1,607,142		1,411,163
Depreciation and amortization		40,660		35,617		110,309		109,401
Total operating expenses		3,291,348		2,769,284		10,156,833		8,290,552

Operating earnings		152,762		156,437		318,546		466,934
Operating earnings percentage of total revenues		4.4%		5.3%		3.0%		5.3%

Interest expense		20,697		22,523		64,603		70,545
Other income, net		18,012		(9,904)		69,773		52,292
Earnings before income taxes		150,077		124,010		323,716		448,681

Provision for income taxes		49,638		45,032		117,462		168,027
Income from continuing operations		100,439		78,978		206,254		280,654

(Loss) income from discontinued operations, net of tax		(29,810)		6,496		(73,033)		13,000

Net earnings	$	70,629	$	85,474	$	133,221	$	293,654

Net earnings per share:
Basic earnings per share from continuing operations	$	0.68	$	0.54	$	1.40	$	1.88
Basic (loss) earnings per share from discontinued operations		(0.20)		0.04		(0.50)		0.09
Total basic earnings per share	$	0.48	$	0.58	$	0.90	$	1.96
Diluted earnings per share from continuing operations	$	0.68	$	0.53	$	1.40	$	1.86
Diluted (loss) earnings per share from discontinued operations		(0.20)		0.04		(0.50)		0.09
Total diluted earnings per share	$	0.48	$	0.58	$	0.90	$	1.94
Weighted average shares outstanding, basic		147,062		146,652		146,956		149,591
Weighted average shares outstanding, diluted		147,784		147,802		147,569		151,229


COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)

		September 30,		June 30,		December 31,
		2009		2009		2008
		(unaudited)		(unaudited)
Assets:

Current assets:
Cash and cash equivalents	$	1,691,847	$	1,712,152	$	1,123,114
Short-term investments		355,417		112,677		338,129
Accounts receivable, net		259,775		280,292		293,636
Other receivables, net		501,348		607,359		524,803
Other current assets		156,837		186,651		130,808
Total current assets		2,965,224		2,899,131		2,410,490

Long-term investments		1,888,670		1,762,120		1,709,878
Property and equipment, net		270,153		292,690		308,016
Goodwill		2,535,718		2,622,479		2,695,025
Other intangible assets, net		491,164		513,209		546,168
Other long-term assets		33,949		34,430		57,821
Total assets	$	8,184,878	$	8,124,059	$	7,727,398



Liabilities and Stockholders’ Equity:

Current liabilities:
Medical liabilities	$	1,702,855	$	1,752,969	$	1,446,391
Accounts payable and accrued liabilities		630,190		499,602		474,561
Deferred revenue		107,172		122,294		104,823
Total current liabilities		2,440,217		2,374,865		2,025,775

Long-term debt		1,708,935		1,806,842		1,902,472
Other long-term liabilities		433,077		416,286		368,482
Total liabilities		4,582,229		4,597,993		4,296,729

Stockholders’ equity		3,602,649		3,526,066		3,430,669

Total liabilities and stockholders’ equity	$	8,184,878	$	8,124,059	$	7,727,398


COVENTRY HEALTH CARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(unaudited)

		Quarter Ended		Nine Months Ended
		September 30, 2009		September 30, 2009

Cash flows from operating activities:
Net earnings	$	70,629	$	133,221
Adjustments to earnings:
Depreciation and amortization		40,981		112,570
Amortization of stock compensation		13,552		37,332
Loss on disposal of FHSC		26,738		81,557
Gain on repurchase of debt		(41)		(8,371)
Changes in assets and liabilities:
Accounts receivable, net		(1,868)		11,476
Medical liabilities		(50,036)		256,542
Accounts payable and other accrued liabilities		93,173		131,467
Deferred revenue		(11,640)		5,831
Other operating activities		132,851		27,218
Net cash flows from operating activities		314,339		788,843

Cash flows from investing activities:
Capital expenditures, net		(11,623)		(34,795)
Payments for investments, net of sales and maturities		(331,469)		(115,791)
Proceeds from acquisition settlements		112		10,197
Proceeds from FHSC disposal, net		115,437		115,437
Net cash flows from investing activities		(227,543)		(24,952)

Cash flows from financing activities:
Proceeds from issuance of stock		615		1,094
Payments for repurchase of stock		(10,018)		(11,745)
Repayment of debt		(97,910)		(184,930)
Excess tax benefit from stock compensation		212		423
Net cash flows from financing activities		(107,101)		(195,158)

Net change in cash and cash equivalents for current period		(20,305)		568,733
Cash and cash equivalents at beginning of period		1,712,152		1,123,114
Cash and cash equivalents at end of period	$	1,691,847	$	1,691,847



Cash and Investments:
Cash and cash equivalents	$	1,691,847	$	1,691,847
Short-term investments		355,417		355,417
Long-term investments		1,888,670		1,888,670
Total cash and investments	$	3,935,934	$	3,935,934


COVENTRY HEALTH CARE, INC.
SELECTED OPERATING STATISTICS
(Unaudited)

	Q3 2009		Q2 2009		Q1 2009		Total 2008		Q4 2008		Q3 2008
Membership by Product (000s)
Health Plan Commercial Risk		1,431		1,477		1,501				1,575		1,587
Health Plan Commercial ASO		689		697		702				714		720
Medicare Advantage CCP		185		182		176				137		134
Medicaid Risk		391		385		375				371		386
Health Plan Total		2,696		2,741		2,754				2,797		2,827

Medicare Advantage PFFS		336		329		318				243		243
Other National Risk		5		15		21				24		27
Other National ASO		567		571		575				633		641
Total Medical Membership		3,604		3,656		3,668				3,697		3,738

Medicare Part D		1,636		1,555		1,501				931		910

Total Membership		5,240		5,211		5,169				4,628		4,648

Revenues by Product Type (000s)
Commercial Risk	$	1,279,571	$	1,310,645	$	1,327,221	$	5,421,984	$	1,364,232	$	1,362,956
Commercial Management Services		81,661		83,675		83,810		352,369		97,108		86,672
Medicare Advantage		1,268,592		1,224,011		1,161,590		3,177,244		847,231		825,504
Medicaid Risk		281,146		263,039		260,838		1,087,189		259,926		260,060
Total Health Plan and Medical Services Businesses		2,910,970		2,881,370		2,833,459		10,038,786		2,568,497		2,535,192

Medicare Part D		316,654		397,090		484,123		847,702		191,899		170,483
Other Premiums		23,568		23,746		23,957		64,783		22,916		18,937
Other Management Services⁽²⁾		211,769		215,468		210,893		826,321		210,406		213,799
Total Specialized Managed Care Businesses⁽²⁾		551,991		636,304		718,973		1,738,806		425,221		403,219

Total Premiums		3,169,531		3,218,531		3,257,729		10,598,902		2,686,204		2,637,940
Total Management Services⁽²⁾		293,430		299,143		294,703		1,178,690		307,514		300,471
Other/Eliminations		(18,851)		(19,300)		(19,537)		(43,365)		(16,976)		(12,690)
Total Revenue⁽²⁾	$	3,444,110	$	3,498,374	$	3,532,895	$	11,734,227	$	2,976,742	$	2,925,721

Consolidated Coventry

Operating Income % of Revenues⁽²⁾		4.4%		2.9%		1.8%		5.0%		4.0%		5.3%

SGA % of Revenues⁽²⁾		15.3%		15.3%		15.4%		16.5%		17.8%		16.4%

Total Medical Liabilities (000s)	$	1,428,766	$	1,413,243	$	1,416,735			$	1,243,620	$	1,209,560
Days in Claims Payable (DCP)		54.78		54.07		55.11				54.75		54.94

Total Debt (millions)	$	1,708.9	$	1,806.8	$	1,902.6			$	1,902.5	$	1,472.3
Total Capital (millions)	$	5,311.6	$	5,332.9	$	5,402.8			$	5,333.1	$	4,779.3
Debt to Capital		32.2%		33.9%		35.2%				35.7%		30.8%

2) Operating statistics excluding discontinued operations.


COVENTRY HEALTH CARE, INC.
SELECTED REVENUE AND MEDICAL COST STATISTICS
(Unaudited)

	Q3 2009	Q2 2009	Q1 2009	Total 2008	Q4 2008	Q3 2008
Revenue PMPM
Health Plan Commercial Group Risk	$304.13	$299.79	$296.36	$286.30	$289.71	$286.73
Medicare Advantage⁽³⁾	$853.90	$857.05	$860.46	$862.60	$862.79	$856.90
Medicare Part D⁽⁴⁾	$84.63	$85.27	$ 84.35	$ 88.34	$ 89.16	$ 85.64
Medicaid Risk	$239.22	$230.27	$231.93	$208.50	$228.33	$226.08


MLR %
Consolidated Total	84.4%	86.4%	87.4%	84.0%	83.8%	83.8%

Health Plan Commercial Group Risk	82.1%	81.7%	80.9%	81.7%	83.2%	82.3%
Medicare Advantage	89.4%	90.4%	90.5%	89.0%	90.9%	88.4%
Medicare Part D	79.4%	89.9%	101.8%	84.1%	58.8%	78.5%
Medicaid Risk	86.1%	90.2%	88.3%	85.3%	85.9%	84.2%

3)		Revenue PMPM excludes the impact of revenue ceded to external parties.

4)		Revenue PMPM excludes the impact of CMS risk-share premium adjustments and revenue ceded to external parties.

Coventry Health Care (CVH)

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