Cigna 2012 Annual Report Download - page 100

PART II
ITEM 8 Financial Statements and Supplementary Data
The condensed balance sheet at the acquisition date was as follows:
(In millions)
Investments $ 211
Cash and cash equivalents 36
Reinsurance recoverables 448
Goodwill 168
Value of business acquired (reported in Deferred policy acquisition costs in the Consolidated Balance Sheet) 144
Other assets, including other intangibles 35
Total assets acquired 1,042
Insurance liabilities 707
Accounts payable, accrued expenses and other liabilities 9
Total liabilities acquired 716
Net assets acquired $ 326
The results of this business have been included in the Company’s the District of Columbia, as well as a large, national stand-alone
Consolidated Financial Statements from the date of acquisition. The Medicare prescription drug business. The acquisition of HealthSpring
pro forma effects on total revenues and net income assuming the strengthens the Company’s ability to serve individuals across their life
acquisition had occurred as of January 1, 2011 were not material to stages as well as deepens its presence in a number of geographic
the Company for the years ended December 31, 2012 and 2011. markets. The addition of HealthSpring brings industry leading
physician partnership capabilities and creates the opportunity to
deepen the Company’s existing client and customer relationships, as
C. Acquisition of HealthSpring, Inc.
well as facilitates a broader deployment of its range of health and
On January 31, 2012 the Company acquired the outstanding shares wellness capabilities and product offerings. The Company funded the
of HealthSpring, Inc. (‘‘HealthSpring’’) for $55 per share in cash and acquisition with internal cash resources.
Cigna stock awards, representing a cost of approximately $3.8 billion.
HealthSpring provides Medicare Advantage coverage in 13 states and
Merger consideration: The estimated merger consideration of $3.8 billion was determined as follows:
(In millions, except per share amounts)
HealthSpring, Inc. common shares outstanding at January 30, 2012 67.8
Less: common shares outstanding not settled in cash (0.1)
Common shares settled in cash 67.7
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 21 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 will be recorded as
The Company valued the share-based compensation awards as of the compensation expense in future periods over the remaining vesting
acquisition date using Cigna’s stock price for restricted stock and a periods. Most of the expense is expected to be recognized in 2012 and
Black-Scholes pricing model for stock options. The assumptions used 2013.
78 CIGNA CORPORATION - 2012 Form 10-K