CNU Continucare Corp.

Continucare Corporation (NYSE: CNU) today reported strong financial results for its fourth quarter and fiscal year ended June 30, 2011. Financial and operational highlights for the quarter include:

• Total revenue increased 12% to $88.5 million, compared to $79.3 million in the fourth quarter of fiscal 2010;
• Income from operations was $7.6 million, compared to $9.1 million in the fourth quarter of fiscal 2010;
• Net income was $4.7 million, or $0.07 per diluted share, compared to $5.7 million, or $0.09 per diluted share, in the fourth quarter of fiscal 2010;
• In June, Continucare entered into a definitive merger agreement with Metropolitan Health Networks, Inc. whereby Metropolitan will acquire Continucare in a cash and stock transaction valued at approximately $416 million; and
• Excluding $2.4 million of expenses incurred during the quarter related to the pending merger with Metropolitan, adjusted income from operations and net income increased to $10.0 million and $6.1 million (or $0.10 per diluted share), respectively, compared to the fourth quarter of fiscal 2010.

Full Year Results

For the fiscal year ended June 30, 2011, total revenue increased 7% to $333.5 million compared to $310.8 million in the prior fiscal year. Income from operations for fiscal 2011 increased to $37.4 million compared to $36.1 million for fiscal 2010. Net income for fiscal 2011 increased to $23.9 million, or $0.38 per diluted share, compared to $22.2 million, or $0.36 per diluted share for fiscal 2010. Excluding $2.5 million of expenses incurred during fiscal 2011 related to the pending merger with Metropolitan, adjusted income from operations and net income increased to $39.9 million and $25.5 million (or $0.41 per diluted share), respectively, compared to fiscal 2010.

Balance Sheet

Continucare’s cash and cash equivalents increased to $50.5 million at June 30, 2011 compared to $37.5 million at June 30, 2010, while working capital increased to $64.9 million at June 30, 2011 compared to $49.5 million at June 30, 2010. Total liabilities were $18.9 million at June 30, 2011 compared to $17.8 million at June 30, 2010. Shareholders’ equity increased to $162.0 million at June 30, 2011 from $136.0 million at June 30, 2010.

“Our track record of consistent improvement in operating results continued in our fourth quarter,” said Richard C. Pfenniger, Jr., Continucare’s Chairman and Chief Executive Officer. “Revenues and operating income, excluding expenses related to our pending merger with Metropolitan Health Networks, exceeded the prior fiscal year’s fourth quarter results, marking our 17th consecutive quarter of year-over-year improvement. In addition, our balance sheet continued to strengthen with our cash and working capital positions reaching new record levels at fiscal year-end while our balance sheet remained virtually free of long-term debt.”

Definitive Merger Agreement with Metropolitan Health Networks, Inc.

On June 27, 2011, Continucare announced that it entered into a definitive merger agreement providing for the merger of Continucare with and into a wholly-owned subsidiary of Metropolitan Health Networks, Inc. (NYSE Amex: MDF) in a cash and stock transaction valued at approximately $416 million at the time of the announcement. Under the terms of the merger agreement, each holder of an outstanding share of Continucare common stock will receive $6.25 per share in cash, and 0.0414 of a share of Metropolitan common stock, which, based upon the share price at the time of announcement, is equal to approximately $0.20. The exact value of the consideration per share will depend on Metropolitan’s share price at closing. The merger is subject to the satisfaction of the closing conditions contained in the merger agreement. Continucare’s shareholders approved the proposed merger at a Special Meeting of Shareholders on August 22, 2011. Continucare currently expects to complete the merger on or about the end of September 2011.

About Continucare Corporation

Continucare provides primary care physician services on an outpatient basis through a network of medical facilities. Continucare has 18 well appointed medical offices equipped with state-of-the-practice technology and staffed with experienced physicians and a comprehensive support staff. In addition, Continucare provides medical management services to independent primary physician affiliates in South Florida, assisting them with medical utilization, pharmacy management and specialist network development, thereby allowing them more time for patient care. Also, through its subsidiary, Seredor Corporation, Continucare operates or manages more than 70 sleep diagnostic centers in 15 states. For more information please visit www.continucare.com.

Except for historical matters contained herein, statements made in this press release are forward-looking and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors and others are cautioned that forward-looking statements are subject to risks and uncertainties that may affect our business and prospects and cause our actual results to differ materially from those set forth in the forward-looking statements including the following: risks relating to the completion of the merger transaction with Metropolitan Health Networks; our operations are dependent on three health maintenance organizations; under our most important contracts we are responsible for the cost of medical services to our patients in return for a capitated fee; our revenues will be affected by the Medicare Risk Adjustment program; if we are unable to manage medical benefits expense effectively, our profitability will likely be reduced; a failure to estimate incurred but not reported medical benefits expense accurately will affect our profitability; we compete with many health care providers for patients and HMO affiliations; we may not be able to successfully recruit or retain existing relationships with qualified physicians and medical professionals; our business exposes us to the risk of medical malpractice lawsuits; we primarily operate in Florida; a significant portion of our voting power is concentrated; we are dependent on our executive officers and other key employees; we depend on the management information systems of our affiliated HMOs; we depend on our information processing systems; the volatility of our stock price; a failure to successfully implement our business strategy could materially and adversely affect our operations and growth opportunities; our intangible assets represent a substantial portion of our total assets; competition for acquisition targets and acquisition financing and other factors may impede our ability to acquire other businesses and may inhibit our growth; our acquisitions could result in integration difficulties, unexpected expenses, diversion of management’s attention and other negative consequences; recently enacted health care reform, including The Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010, could have a material adverse effect on our business; a decrease to our Medicare capitation payments may have a material adverse effect on our results of operations, financial position and cash flows; we are subject to government regulation; the health care industry is subject to continued scrutiny; our insurance coverage may not be adequate, and rising insurance premiums could negatively affect our profitability; deficit spending and economic downturns could negatively impact our results of operations; and many factors that increase health care costs are largely beyond our ability to control. These and other applicable risks, cautionary statements and factors that could cause actual results to differ from our forward-looking statements are included in our most recent annual report on Form 10-K and other filings with the SEC and we urge you to read those documents. We undertake no obligation to update or revise these forward-looking statements to reflect events or circumstances after the date hereof except as required by law.

 

CONTINUCARE CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

  June 30, ASSETS 2011   2010 Current assets: Cash and cash equivalents $ 50,480,963 $ 37,542,445 Certificate of deposit

-

668,755 Due from HMOs, net of a liability for incurred but not reported medical claims expense of approximately $23,889,000 and $23,394,000 at June 30, 2011 and 2010, respectively

19,575,901

18,920,388

Prepaid expenses and other current assets 4,870,628 2,631,136 Deferred income tax assets   642,844   140,057 Total current assets 75,570,336 59,902,781 Property and equipment, net 16,084,193 12,728,184 Goodwill 79,625,601 73,994,444 Intangible assets, net of accumulated amortization of approximately $6,602,000 and $4,705,000 at June 30, 2011 and 2010, respectively

6,307,565

4,296,507

Deferred income tax assets 3,178,884 2,830,929 Other assets, net   138,429   112,747 Total assets $ 180,905,008 $ 153,865,592 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,754,938 $ 810,376 Accrued expenses and other current liabilities 8,608,832 9,041,162 Income taxes payable   262,261   590,673 Total current liabilities 10,626,031 10,442,211 Deferred income tax liabilities 8,078,793 7,145,507 Other liabilities   183,382   249,248 Total liabilities 18,888,206 17,836,966 Commitments and contingencies Shareholders’ equity: Common stock, $0.0001 par value: 100,000,000 shares authorized; 60,663,266 shares issued and outstanding at June 30, 2011 and 60,504,012 shares issued and outstanding at June 30, 2010

6,066

6,050

Additional paid-in capital 109,936,415 107,860,204 Accumulated earnings   52,074,321   28,162,372 Total shareholders’ equity   162,016,802   136,028,626 Total liabilities and shareholders’ equity $ 180,905,008 $ 153,865,592      

CONTINUCARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 

(Unaudited)

Three-Months Ended

June 30,

Year Ended

June 30,

2011   2010 2011   2010   Revenue $ 88,549,817 $ 79,288,452 $ 333,458,208 $ 310,791,463 Operating expenses: Medical services: Medical claims 58,334,362 53,795,138 216,226,209 208,857,229 Other direct costs   10,066,005   8,059,502   38,892,426   31,484,513   Total medical services   68,400,367   61,854,640   255,118,635   240,341,742   Administrative payroll and employee benefits 4,242,658 4,048,112 16,297,890 16,308,854 General and administrative 5,875,548 4,249,594 22,140,000 18,021,123 Merger transaction expenses   2,383,876  

-

  2,487,939  

-

  Total operating expenses   80,902,449   70,152,346   296,044,464   274,671,719   Income from operations 7,647,368 9,136,106 37,413,744 36,119,744 Interest income (expense), net   9,288   14,344   199,523   (50,084 ) Income before income tax provision 7,656,656 9,150,450 37,613,267 36,069,660 Income tax provision   2,992,977   3,471,772   13,701,318   13,893,353   Net income $ 4,663,679 $ 5,678,678 $ 23,911,949 $ 22,176,307     Net income per common share: Basic $ .08 $ .09 $ .39 $ .37   Diluted $ .07 $ .09 $ .38 $ .36     Weighted average common shares outstanding: Basic   60,635,280   60,144,343   60,584,930   59,777,789   Diluted   62,647,621   61,675,272   62,439,900   61,565,397      

CONTINUCARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

  For the Year Ended June 30, 2011   2010   2009 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 23,911,949 $ 22,176,307 $ 15,281,121 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,134,437 2,895,621 2,303,327 Change in liability for unrecognized tax benefit (899,357 )

-

-

Gain on change in fair value of contingent consideration (620,946 ) - - Loss on impairment of fixed assets - 96,000 - Loss on disposal of fixed assets 19,821 18,668 65,760 Provision for bad debts 392,702 118,895 - Compensation expense related to issuance of stock options 1,823,107 1,391,768 1,163,472 Excess tax benefits related to exercise of stock options (164,411 ) (1,374,921 ) (116,593 ) Deferred income tax expense 82,544 675,796 230,923 Changes in operating assets and liabilities: Due from HMOs, net (655,513 ) (1,596,789 ) (1,997,816 ) Prepaid expenses and other current assets (60,643 ) 88,596 (104,129 ) Other assets, net (8,216 ) 56,365 42,735 Accounts payable 676,841 137,270 249,587 Accrued expenses and other current liabilities (229,780 ) 3,270,660 (33,689 ) Income taxes payable   (328,412 )   (984,838 )   549,398   Net cash provided by operating activities 28,074,123 26,969,398 17,634,096   CASH FLOWS FROM INVESTING ACTIVITIES Purchases of certificates of deposit - (10,705 ) (682,948 ) Proceeds from maturities of certificates of deposit 668,755 575,603 723,442 Acquisition of sleep diagnostic centers, net of cash acquired (11,497,530 ) (1,507,858 ) - Purchase of property and equipment   (4,372,181 )   (3,337,260 )   (3,100,935 ) Net cash used in investing activities (15,200,956 ) (4,280,220 ) (3,060,441 )   CASH FLOWS FROM FINANCING ACTIVITIES Principal repayments under capital lease obligations (187,769 ) (300,584 ) (115,225 ) Proceeds from exercise of stock options 455,200 1,417,287 23,375 Shares withheld in connection with exercise of stock options (366,491 ) (1,408,079 ) - Excess tax benefits related to exercise of stock options 164,411 1,374,921 116,593 Purchase of noncontrolling interest in sleep diagnostic centers - (126,101 ) - Repurchase of common stock   -     -     (10,608,315 ) Net cash provided by (used in) financing activities   65,351     957,444     (10,583,572 )   Net increase in cash and cash equivalents 12,938,518 23,646,622 3,990,083 Cash and cash equivalents at beginning of fiscal year   37,542,445     13,895,823     9,905,740   Cash and cash equivalents at end of fiscal year $ 50,480,963   $ 37,542,445   $ 13,895,823      

CONTINUCARE CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

  For the Year Ended June 30, 2011   2010   2009 SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING TRANSACTIONS:   Purchase of equipment, furniture and fixtures with proceeds of capital lease obligations $ 184,941 $ 228,413 $ 123,831 Retirement of treasury stock

$

-

$ - $ 10,608,315   SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:   Cash paid for taxes $ 14,450,184 $ 13,870,000 $ 8,820,000 Cash paid for interest $ 19,675 $ 19,041 $ 16,255