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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934.
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ___________ to ________________
Commission file number 000-19147
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
COVENTRY HEALTH CARE, INC.
RETIREMENT SAVINGS PLAN
6705 Rockledge Drive, Suite 900
Bethesda, MD 20817
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B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
COVENTRY HEALTH CARE, INC.
6705 Rockledge Drive, Suite 900
Bethesda, MD 20817
REQUIRED INFORMATION
1) Financial Statements and Schedules (and Notes thereto)
2) Consent of Independent Accountants to Incorporation By Reference
(attached)
SIGNATURES
Coventry Health Care, Inc. Retirement Savings Plan. Pursuant to the
requirements of the Securities Exchange Act of 1934, the Plan Administrators
have duly caused this Annual Report to be signed on its behalf by the
undersigned hereunto duly authorized.
COVENTRY HEALTH CARE, INC.
RETIREMENT SAVINGS PLAN
Date: June 28, 2000
By: /s/ DALE B. WOLF
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Dale B. Wolf, Plan Administrator
By: /s/ HARVEY C. DEMOVICK, JR.
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Harvey C. DeMovick, Jr., Plan Administrator
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COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Administrative Committee of the
Coventry Health Care, Inc. Retirement Savings Plan:
We have audited the accompanying statements of net assets available for benefits
of Coventry Health Care, Inc. Retirement Savings Plan (the "Plan") as of
December 31, 1999 and 1998, and the related statement of changes in net assets
available for benefits for the year ended December 31, 1999. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1999 and 1998, and the changes in its net assets available for
benefits for the year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes is presented for the purpose of additional analysis and
is not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
June 26, 2000
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COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
As of December 31, 1999 and 1998 1
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
For the Year Ended December 31, 1999 2
NOTES TO FINANCIAL STATEMENTS AND SCHEDULE
As of December 31, 1999 and 1998 3
ITEM 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
As of December 31, 1999 8
SCHEDULES OMITTED BECAUSE THERE WERE NO SUCH ITEMS
As of and for the Year Ended December 31, 1999:
ITEM 27(b) - SCHEDULE OF LOANS OF FIXED INCOME OBLIGATIONS
ITEM 27(c) - SCHEDULE OF LEASES IN DEFAULT OR CLASSIFIED AS
UNCOLLECTIBLE
ITEM 27(d) - SCHEDULE OF REPORTABLE TRANSACTIONS
ITEM 27(e) - SCHEDULE OF NONEXEMPT TRANSACTIONS
</TABLE>
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COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------
<S> <C> <C>
ASSETS:
Investments $75,676,372 $73,550,246
Receivables:
Participant contributions 266,742 171,296
Employer contributions 137,532 98,386
Interest, dividends and other 14,483 14,919
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Total receivables 418,757 284,601
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Total assets available for benefits 76,095,129 73,834,847
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LIABILITIES:
Excess contributions payable 3,897 3,439
------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $76,091,232 $73,831,408
==========================================
</TABLE>
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COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
ADDITIONS:
<S> <C>
Additions to net assets attributed to-
Investment income:
Interest and dividends $ 512,236
Net appreciation in fair value of investments 3,086,649
Net investment income in pooled separate accounts 4,808,309
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Total investment income 8,407,194
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Contributions:
Participants 8,099,251
Employer, net of forfeitures 3,444,565
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Total contributions 11,543,816
------------
Total additions 19,951,010
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DEDUCTIONS:
Deductions from net assets attributed to-
Benefits paid to participants (17,308,292)
Administrative expenses (382,894)
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Total deductions (17,691,186)
------------
Net increase 2,259,824
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 73,831,408
------------
End of year $ 76,091,232
============
</TABLE>
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COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS AND SCHEDULE
AS OF DECEMBER 31, 1999 AND 1998
1. PLAN DESCRIPTION:
The following description of the Coventry Health Care, Inc. Retirement Savings
Plan (the "Plan") is provided for general information purposes only. More
complete information regarding the Plan's provisions may be found in the Plan
document.
GENERAL
Coventry Health Care, Inc. and subsidiaries (the "Company") adopted a savings
plan and trust effective April 1, 1998. The Plan is a defined contribution plan
established by Coventry Health Care, Inc. under the provisions of Section 401(a)
of the Internal Revenue Code ("IRC"), which includes a qualified cash or
deferred arrangement as described in Section 401(k) of the IRC, for the benefit
of eligible employees of the Company. All employees of the Company are
automatically enrolled to participate in the Plan upon commencement of
employment. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"), as amended.
Effective April 1, 1998, Coventry Health Care, Inc. (formerly "Coventry
Corporation") completed its acquisition of certain health plans of Principal
Health Care, Inc. ("PHC") from Principal Life Insurance Company.
The Plan commenced operations on April 1, 1998. Effective October 1, 1998, the
Plan was merged with the Coventry Corporation Retirement Savings Plan (the
"Former Plan") and substantially all of the assets of the Former Plan, totaling
approximately $48.4 million, were transferred to the Plan. All employees that
were participants under the Former Plan became participants in the Plan on
October 1, 1998.
PLAN ADMINISTRATION
Under a trust agreement dated March 13, 1998, the Bankers Trust Company was
appointed trustee for the Plan. The Plan is administered by an employee benefits
committee, which is appointed by the Board of Directors of the Company.
CONTRIBUTIONS
Eligible employees can contribute an amount up to 15 percent of compensation, as
defined by the Plan, subject to certain limitations under the IRC. In addition,
the Company provides a matching contribution equal to 100 percent of each
participant's contribution up to a maximum of 3 percent of compensation, and 50
percent of each participant's contribution in excess of 3 percent up to a
maximum of 6 percent of
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compensation considered, for a maximum matching contribution of 4.5 percent of
eligible Plan compensation. Company matching contributions are invested in the
Company's common stock.
VESTING
Participants are fully vested in their contributions and the earnings thereon.
Vesting in employer matching contributions is based on years of service.
Employer matching contributions for participants who were covered under the
Former Plan are subject to the vesting schedules of the Former Plan in effect
until April 1, 1998. For former PHC employees, if the employment date was before
July 1, 1997, participants are fully vested in their employer matching
contributions. If the employment commencement date with PHC occurred on or after
July 1, 1997, but before April 1, 1998, a participant vests in their employer
matching contributions according to the following schedule:
<TABLE>
<S> <C>
Less than one year 0%
One year or more 100%
</TABLE>
If the employment commencement date with the Company occurs on or after April 1,
1998, a participant vests in their employer matching contributions according to
the following schedule:
<TABLE>
<S> <C>
Less than one year 0%
One year 50%
Two years or more 100%
</TABLE>
BENEFITS
Upon termination of service, a participant may elect to receive an amount equal
to the value of the participant's vested interest in his or her account. The
form of payment is a lump-sum distribution.
PARTICIPANT ACCOUNTS
Individual accounts are maintained for each of the Plan's participants to
reflect the participant's contributions and related employer matching
contributions, as well as the participant's share of the Plan's income and any
related administrative expenses. Allocations are based on the proportion that
each participant's account balance has to the total of all participants'
account balances.
PARTICIPANT LOANS
A participant may borrow a maximum of the lesser of $50,000 or 50 percent of his
or her vested account balance with a minimum loan amount of $500. Loans are
repayable through payroll deductions over periods ranging up to five years. The
interest rate is determined by the plan administrator based on prevailing market
rates available for similar loans from commercial lending institutions and is
fixed over the
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life of the note. The loans are secured by the balance in the participant's
account and bear interest at rates that range from 7 percent to 11 percent.
FORFEITURES
During 1999, $897,228 in forfeited non-vested accounts were used to reduce
employer contributions. As of December 31, 1999 and 1998, forfeited non-vested
accounts available to reduce future employer contributions totaled $5,684 and
$475,972, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires the Plan's
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
New Accounting Pronouncement
In 1999, the Accounting Standards Executive Committee issued Statement of
Position ("SOP") 99-3, "Accounting for and Reporting of Certain Defined
Contribution Plan Investments and Other Disclosure Matters", which eliminates
the requirement for a defined contribution plan to disclose
participant-directed investment programs. The SOP was adopted for the 1999
financial statements, and as such, the 1998 financial statements have been
reclassified to eliminate the participant-directed fund investment program
disclosures.
INCOME RECOGNITION
Interest income is recorded as earned on the accrual basis. Dividend income is
recorded on the ex-dividend date. Purchases and sales of securities are recorded
on a trade-date basis.
INVESTMENT VALUATION
Investments of the Plan are stated at fair market value based on quoted market
prices or quoted net asset values on the last business day of the Plan year.
Participant loans are valued at cost, which approximates fair value.
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3. INVESTMENTS:
The values of individual investments that represent 5 percent or more of the
Plan's net assets as of December 31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Principal Money Market Separate Account $4,316,202 $5,056,207
Principal Bond & Mortgage Separate Account * 4,147,727
Principal Stock Index 500 Separate Account 17,850,922 17,362,543
Principal Medium Company Value Separate Account * 3,796,865
Vanguard Asset Allocation Fund 8,675,883 10,199,888
Vanguard Growth & Income Fund 8,751,378 7,533,397
Vanguard PRIMECAP Fund 5,037,334 *
Vanguard U.S. Growth Fund 4,744,181 3,897,470
Coventry Health Care, Inc. Common Stock 6,240,813 5,237,377
</TABLE>
*Investment represents less than 5% of the Plan's net assets for the period
presented.
During 1999, the Plan's investments (including gains and losses on investments
bought and sold, as well as held during the year) appreciated (depreciated) in
value by $7,894,958 as follows:
<TABLE>
<S> <C>
Pooled separate accounts $4,808,309
Mutual funds 4,912,346
Common stock (1,825,697)
------------
$7,894,958
============
</TABLE>
4. RELATED-PARTY TRANSACTIONS:
Certain of the Plan's administrative functions are performed by Principal Life
Insurance Company ("PLIC"). In addition, certain Plan investments are shares of
pooled separate accounts managed by PLIC. Therefore, transactions with PLIC
qualify as party-in-interest transactions. Fees paid by the Plan for PLIC's
investment management services and administrative fees amounted to $362,765 for
the year ended December 31, 1999.
5. TAX STATUS:
The Plan has not yet received a determination letter from the Internal Revenue
Service stating that the Plan, as designed, is in compliance with the applicable
requirements of the Internal Revenue Code. However, the Plan Administrator and
the Plan's tax counsel believe that the Plan is currently designed and being
operated in compliance with the applicable requirements of the Internal Revenue
Code. Therefore, no provision for income taxes has been included in the Plan's
financial statements.
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6. PLAN TERMINATION:
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of plan termination,
participants will become 100 percent vested in their account balances.
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Schedule I
COVENTRY HEALTH CARE, INC. RETIREMENT SAVINGS PLAN
ITEM 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
IDENTITY OF ISSUE,
BORROWER, LESSOR, OR DESCRIPTION OF
SIMILAR PARTY INVESTMENT COST CURRENT VALUE
--------------------------- --------------------- ---------------- ---------------------
<S> <C> <C> <C>
PRINCIPAL LIFE
INSURANCE
COMPANY:*
Guaranteed
Interest
Accounts Fixed income fund $1,057,458 $1,009,269
Money Market
Separate
Account Money market 4,142,605 4,316,202
Government
Securities
Separate U.S. government
Account bond fund 812,986 823,982
Bond & Mortgage
Separate
Account Fixed income fund 3,349,400 3,371,339
Stock Index 500
Separate Account Equity mutual fund 13,606,774 17,850,922
Medium
Company
Value
Separate
Account Equity mutual fund 2,662,577 2,568,516
Small Company
Blend Separate
Account Equity mutual fund 1,134,660 1,241,898
Small Company
Growth
Separate
Account Equity mutual fund 1,327,583 2,021,812
International
Stock Separate
Account Equity mutual fund 2,649,794 3,419,074
NEUBERGER &
BERMAN GENESIS
TRUST Equity mutual fund 814,188 847,715
T. ROWE PRICE MID-
CAP GROWTH FUND Equity mutual fund 3,002,933 3,790,079
VANGUARD ASSET
ALLOCATION FUND Mixed mutual fund 8,723,189 8,675,883
VANGUARD GROWTH &
INCOME FUND Equity mutual fund 6,981,155 8,751,378
VANGUARD
PRIMECAP FUND Equity mutual fund 3,845,406 5,037,334
VANGUARD
U.S. GROWTH FUND Equity mutual fund 3,969,553 4,744,181
COVENTRY HEALTH
CARE, INC.
COMMON STOCK* Common stock 7,745,270 6,240,813
PARTICIPANT LOANS* Maturing at
various dates;
interest rates
ranging from
7.00% to 11.00% 965,975 965,975
-------------- ------------
$66,791,506 $75,676,372
=============================================
</TABLE>
* Party-in-interest
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CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 11-K, into the Company's previously filed
Registration Statements on Form S-8 (File No. 333-36735, File No. 333-39581, and
File No. 333-75615).
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
June 26, 2000
