Cigna 2013 Annual Report Download - page 106

PART II
ITEM 8. Financial Statements and Supplementary Data
Merger consideration of $3.8 billion was determined as follows:
(Dollars in millions, except per share amounts)
HealthSpring, Inc. common shares outstanding at January 30, 2012 (In thousands) 67,828
Less: common shares outstanding not settled in cash (In thousands) (100)
Common shares settled in cash (In thousands) 67,728
Price per share $55
Cash consideration for outstanding shares $ 3,725
Fair value of share-based compensation awards 65
Additional cash and equity consideration 21
Total merger consideration $ 3,811
Fair value of share-based compensation awards. On the date of were generally consistent with those disclosed in Note 20 to the
the acquisition, HealthSpring employees’ awards of options and Company’s 2012 Consolidated Financial Statements, except the
restricted shares of HealthSpring stock were rolled over to Cigna stock expected life assumption of these options ranged from 1.8 to 4.8 years
options and restricted stock. Each holder of a HealthSpring stock and the exercise price did not equal the market value at the grant date.
option or restricted stock award received 1.24 Cigna stock options or Fair value of the new stock options approximated intrinsic value
restricted stock awards. The conversion ratio of 1.24 at the date of because the exercise price at the acquisition date for substantially all of
acquisition was determined by dividing the acquisition price of the options was significantly below Cigna’s stock price.
HealthSpring shares of $55 per share by the price of Cigna stock on The fair value of these options and restricted stock awards was
January 31, 2012 of $44.43. The Cigna stock option exercise price included in the purchase price to the extent that services had been
was determined by using this same conversion ratio. Vesting periods provided prior to the acquisition based on the grant date of the
and the remaining life of the options rolled over with the original original HealthSpring awards and vesting periods. The remaining fair
HealthSpring awards. value not included in the purchase price was recorded as
The Company valued the share-based compensation awards as of the compensation expense subsequent to the acquisition date over the
acquisition date using Cigna’s stock price for restricted stock and a remaining vesting periods. Most of the expense was recognized in
Black-Scholes pricing model for stock options. The assumptions used 2012 and 2013.
The following table summarizes the effect of these rollover awards for former HealthSpring employees.
Compensation
Number of Average exercise/ Fair value Included in expense
(Awards in thousands, dollars in millions, except per share amounts) awards award price of awards purchase price post-acquisition
Vested options 589 $ 14.04 $ 18 $ 18 $ -
Unvested options 1,336 $ 16.21 37 28 9
Restricted stock 786 $ 44.43 35 19 16
Total 2,711 $ 90 $ 65 $ 25
Purchase price allocation. In accordance with GAAP, the total purchase price has been allocated to the tangible and intangible net assets
acquired based on management’s estimates of their fair values. Goodwill has been allocated to the Government operating segment and is not
deductible for federal income tax purposes. The condensed balance sheet of HealthSpring at the acquisition date was as follows:
(In millions)
Investments $ 612
Cash and cash equivalents 492
Premiums, accounts and notes receivable 320
Goodwill 2,541
Intangible assets 795
Other 96
Total assets acquired 4,856
Insurance liabilities 505
Deferred income taxes 214
Debt 326
Total liabilities acquired 1,045
Net assets acquired $ 3,811
In accordance with debt covenants, HealthSpring’s debt obligation reported as a financing activity in the statement of cash flows for the
was paid immediately following the acquisition. This repayment is year ended December 31, 2012.
74 CIGNA CORPORATION - 2013 Form 10-K