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"We are pleased to file our 2008 10-K and be current in our financial reporting," said Charles G. Berg, WellCare's executive chairman. "In addition, over the past year, we have made substantial progress in resolving our legal issues."
Historical and anticipated operating results described in this news release are adjusted to exclude certain revenue; medical benefits expense; selling, general, and administrative ("SG&A") expense; and goodwill impairment expense that management believes are not indicative of longer-term business operations. Management believes adjusted amounts are more useful measures for investors in certain cases than amounts determined under generally accepted accounting principles ("GAAP"). Where applicable, adjusted results are reconciled to the most directly comparable results determined under GAAP. In addition, please also refer to the schedules in this news release that provide supplemental information reconciling historical results determined under GAAP to historical adjusted results.
"I'm proud of our associates' accomplishments. During the past year, we have launched a new plan in Hawaii, improved administrative costs, and invested in our operating infrastructure and compliance programs," said Heath Schiesser, WellCare's president and chief executive officer. "Despite a challenging environment, the team has remained focused on serving our members, providers and government clients."
Adjusted Results for the Year Ended December 31, 2008
Adjusted net income for 2008 was $133.2 million, compared with 2007 adjusted net income of $216.1 million. Year-over-year premium revenue growth of 22% was more than offset by an increase in medical benefits expense and a decrease in investment and other income.
The 2008 net loss as determined under GAAP was $36.8 million. The variance between the net loss as determined under GAAP and net income on an adjusted basis results primarily from adjustments to medical benefits expense due to the late filing of the 2007 Form 10-K, SG&A expense associated with the previously disclosed investigations, and goodwill impairment expense. Please refer to the schedules in this news release that provide supplemental information reconciling historical results determined under GAAP to historical adjusted results.
WellCare expects to communicate further with the investment community following the release of its financial statements for the three months ended March 31, 2009.
Status of Government Investigations and Related Litigation
As previously disclosed, the Company is engaged in resolution discussions as to matters under review with the U.S. Attorney's Office for the Middle District of Florida, the Civil Division of the U.S. Department of Justice, the Office of Inspector General of the U.S. Department of Health and Human Services, and the State of Florida. To date, no resolution in principle has been reached, and the Company cannot provide any assurances regarding the potential outcomes of these matters. Based on the resolution discussions, the Company recorded a liability of $50.0 million during the year ended December 31, 2007.
About WellCare Health Plans, Inc.
WellCare Health Plans, Inc. provides managed care services exclusively for government-sponsored healthcare programs, focusing on Medicaid and Medicare. Headquartered in Tampa, Florida, WellCare offers a variety of health plans for families, children, and the aged, blind and disabled, as well as prescription drug plans. The Company served more than 2.5 million members nationwide as of December 31, 2008. For more information about WellCare, please visit the Company's website at www.wellcare.com.
Cautionary Statement Regarding Forward-Looking Statements
This news release contains forward-looking statements within the safe harbor provisions of the Private Securities Litigation Report Act of 1995. All statements other than those that are purely historical are forward-looking statements. Words such as "expect," "anticipate," "believe," "estimate," "intend," "plan," "potential," and similar expressions also identify forward-looking statements.
Investors should not rely on forward-looking statements because they are subject to a variety of risks, uncertainties and other factors, many of which are outside of WellCare's control, which could cause actual results to differ materially from WellCare's expectations.
WellCare's forward-looking statements include, but are not limited to, statements regarding the resolution discussions regarding the matters arising from the ongoing governmental investigations. The ultimate resolution may differ materially from WellCare's current expectations, including the $50 million accrual that WellCare recorded in its financial statements in 2007. These risks also include the possibility that other areas of the investigations may directly or indirectly lead to material adverse operating restrictions, material adverse disqualifications or material adverse impacts on its previously issued financial statements. If the investigations result in criminal or other sanctions against WellCare for health care related violations or otherwise, WellCare could be disqualified from doing business in one or more jurisdictions or participating in government programs under various statutes, regulations and contracts. Furthermore, there can be no assurance that additional issues or matters will not arise from the matters discussed in the 2008 10-K under the heading "Legal Proceedings."
All forward-looking statements attributable to WellCare are expressly qualified in their entirety by the cautionary statements in this news release. For a discussion of a variety of risk factors that may affect the forward-looking statements in this news release, see "Item 1A -- Risk Factors" in the 2008 10-K.
WELLCARE HEALTH PLANS, INC. UNAUDITED SUPPLEMENTAL INFORMATION Reconciliation of GAAP Statements of Income to Adjusted Statements of Income Dollars in thousands except per share amounts The Company reports operating results on a non-GAAP basis to exclude certain income and expenses that management believes are not indicative of future business trends and operations. Management believes adjusted operating results are more useful measures for investors than operating results determined under GAAP. Following are statements of income and related measures for the years 2008 and 2007 and for the three month periods ended December 31, 2008 and 2007, as determined under GAAP, reconciled to the adjusted statements of income and related measures for each of the same periods.
Years Ended December 31, 2008 Years Ended December 31, 2007
GAAP Adjustments Adjusted GAAP Adjustments Adjusted
Revenues:
Premium $ 6,483,070 $ - $ 6,483,070 $ 5,304,889 $ - $ 5,304,889
Investment and other income 38,837 - 38,837 85,903 (8,881 )(e) 77,022
Total revenues 6,521,907 - 6,521,907 5,390,792 (8,881 ) 5,381,911
Expenses:
Medical benefits 5,530,216 (92,900 )(a) 5,437,316 4,213,384 92,900 (a) 4,306,284
Selling, general, and administrative 933,418 (102,949 )(b) 830,469 766,648 (71,100 )(b)(c) 695,548
Depreciation and amortization 21,324 - 21,324 18,757 - 18,757
Interest 11,780 - 11,780 14,035 - 14,035
Goodwill impairment 78,339 (78,339 )(d) - - - -
Total expenses 6,575,077 (274,188 ) 6,300,889 5,012,824 21,800 5,034,624
Income (loss) before income taxes (53,170 ) 274,188 221,018 377,968 (30,681 ) 347,287
Income tax expense (benefit) (16,337 ) 104,191 87,854 161,732 (30,500 ) 131,232
Net income (loss) $ (36,833 ) $ 169,997 $ 133,164 $ 216,236 $ (181 ) $ 216,055
Weighted average shares outstanding:
Basic 41,396,116 - 41,396,116 40,705,454 - 40,705,454
Diluted 41,396,116 638,863 42,034,979 41,940,608 - 41,940,608
Net income per share:
Basic $ (0.89 ) $ 4.11 $ 3.22 $ 5.31 $ - $ 5.31
Diluted $ (0.89 ) $ 4.06 $ 3.17 $ 5.16 $ (0.01 ) $ 5.15
Medical benefits ratio 85.3 % (1.4 %) 83.9 % 79.4 % 1.8 % 81.2 %
Administrative expense ratio 14.3 % (1.6 %) 12.7 % 14.2 % (1.3 %) 12.9 %
Days in claims payable 54 days 54 days 46 days 8 days 54 days
Segment and Line of Business Data:
Membership at period end:
Medicaid:
Florida 473,000 473,000 445,000 445,000
Georgia 483,000 483,000 458,000 458,000
Other states 344,000 344,000 329,000 329,000
Total Medicaid 1,300,000 1,300,000 1,232,000 1,232,000
Medicare:
Medicare Advantage plans 246,000 246,000 158,000 158,000
Prescription Drug Plans 986,000 986,000 983,000 983,000
Total Medicare 1,232,000 1,232,000 1,141,000 1,141,000
Total membership 2,532,000 2,532,000 2,373,000 2,373,000
(Table continued on next page)
WELLCARE HEALTH PLANS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION (continued)
Reconciliation of GAAP Statements of Income to Adjusted
Statements of Income
Dollars in thousands except per share amounts
Years Ended December 31, 2008 Years Ended December 31, 2007
GAAP Adjustments Adjusted GAAP Adjustments Adjusted
Segment and Line of Business Data: (cont.)
Premium revenue:
Medicaid:
Florida $ 978,709 $ 978,709 $ 909,671 $ 909,671
Georgia 1,226,940 1,226,940 1,086,773 1,086,773
Other states 785,400 785,400 695,337 695,337
Total Medicaid 2,991,049 2,991,049 2,691,781 2,691,781
Medicare:
Medicare Advantage plans 2,436,225 2,436,225 1,586,266 1,586,266
Prescription Drug Plans 1,055,796 1,055,796 1,026,842 1,026,842
Total Medicare 3,492,021 3,492,021 2,613,108 2,613,108
Total premium revenue $ 6,483,070 $ 6,483,070 $ 5,304,889 $ 5,304,889
Medical benefits ratios:
Medicaid segment 84.8 % (1.3 %) 83.5 % 79.4 % 1.4 % 80.8 %
Medicare segment 85.7 % (1.5 %) 84.2 % 79.5 % 2.0 % 81.5 %
(a) Medical benefits payable development: Medical benefits expense for
2007 was affected favorably by approximately $92.9 million before
income taxes as a result of the Company's ability to review
substantially complete claims information that became available
between the date of the original actuarially determined estimate and
the filing date of the 2007 10-K. Had WellCare filed its 2007 10-K
timely and not been able to observe substantially complete claims
information, medical benefits expense for 2007 would have increased
by approximately $92.9 million, and medical benefits expense for
2008 would have decreased by $92.9 million.
(b) Investigation-related legal, accounting, employee retention, and
other costs: Administrative expenses associated with government
and Special Committee investigations in 2008 and 2007 amounted to
approximately $103.0 million and $21.1 million, respectively,
before income taxes.
(c) Liability for investigation-related matters: Based on the status of
the government and Special Committee investigations, the Company
recorded a liability of $50.0 million before and after income taxes
in 2007.
(d) Goodwill impairment: As of December 31, 2008, the Company concluded
Goodwill associated with its Medicare reporting unit was impaired.
The Company recorded expense of approximately $78.3 million before
income taxes to reflect the impairment.
(e) Gain on settlement of dispute: In the third quarter of 2007,
WellCare settled a legal dispute resulting in a gain of
approximately $9.0 million before income taxes.
Premium taxes for year ended December 31, 2008, were $90.2 million, an increase from $82.0 million in 2007.
WELLCARE HEALTH PLANS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION (Continued)
Reconciliation of GAAP Statements of Income to Adjusted
Statements of Income (Continued)
Dollars in thousands except per share amounts
Three Months Ended December 31, 2008 Three Months Ended December 31, 2007
GAAP Adjustments Adjusted GAAP Adjustments Adjusted
Revenues:
Premium $ 1,596,371 $ - $ 1,596,371 $ 1,379,908 $ - $ 1,379,908
Investment and other income 5,765 - 5,765 19,085 - 19,085
Total revenues 1,602,136 - 1,602,136 1,398,993 - 1,398,993
Expenses:
Medical benefits 1,311,962 - 1,311,962 1,076,385 (8,500 )(a) 1,067,885
Selling, general, and administrative 243,088 (16,692 )(b) 226,396 223,187 (21,100 )(b) 202,087
Depreciation and amortization 5,561 - 5,561 5,015 - 5,015
Interest 2,610 - 2,610 3,718 - 3,718
Goodwill impairment 78,339 (78,339 )(d) - - - -
Total expenses 1,641,560 (95,031 ) 1,546,529 1,308,305 (29,600 ) 1,278,705
Income (loss) before income taxes (39,424 ) 95,031 55,607 90,688 29,600 120,288
Income tax expense (benefit) (8,335 ) 36,112 27,777 31,451 10,265 41,716
Net income (loss) $ (31,089 ) $ 58,919 $ 27,830 $ 59,237 $ 19,335 $ 78,572
Weighted average shares outstanding:
Basic 41,614,728 - 41,614,728 41,090,817 - 41,090,817
Diluted 41,614,728 281,894 41,896,622 41,875,338 - 41,875,338
Net income per share:
Basic $ (0.75 ) $ 1.42 $ 0.67 $ 1.44 $ 0.47 $ 1.91
Diluted $ (0.75 ) $ 1.41 $ 0.66 $ 1.41 $ 0.47 $ 1.88
Medical benefits ratio 82.2 % - % 82.2 % 78.0 % (0.6 %) 77.4 %
Administrative expense ratio 15.2 % (1.1 %) 14.1 % 16.0 % (1.6 %) 14.4 %
Days in claims payable 54 days - 54 days 46 days 8 days 54 days
Segment and Line of Business Data:
Membership at period end:
Medicaid:
Florida 473,000 473,000 445,000 445,000
Georgia 483,000 483,000 458,000 458,000
Other states 344,000 344,000 329,000 329,000
Total Medicaid 1,300,000 1,300,000 1,232,000 1,232,000
Medicare:
Medicare Advantage plans 246,000 246,000 158,000 158,000
Prescription Drug Plans 986,000 986,000 983,000 983,000
Total Medicare 1,232,000 1,232,000 1,141,000 1,141,000
Total membership 2,532,000 2,532,000 2,373,000 2,373,000
(Table continued on next page)
WELLCARE HEALTH PLANS, INC.
UNAUDITED SUPPLEMENTAL INFORMATION (Continued)
Reconciliation of GAAP Statements of Income to Adjusted
Statements of Income (Continued)
Dollars in thousands except per share amounts
Three Months Ended December 31, 2008 Three Months Ended December 31, 2007
GAAP Adjustments Adjusted GAAP Adjustments Adjusted
Segment and Line of Business Data: (cont.)
Premium revenue:
Medicaid:
Florida $ 244,796 $ 244,796 $ 234,591 $ 234,591
Georgia 320,162 320,162 311,390 311,390
Other states 173,410 173,410 192,015 192,015
Total Medicaid 738,368 738,368 737,997 737,997
Medicare:
Medicare Advantage plans 641,786 641,786 420,362 420,362
Prescription Drug Plans 216,217 216,217 221,549 221,549
Total Medicare 858,003 858,003 641,910 641,910
Total premium revenue $ 1,596,372 $ 1,596,372 $ 1,379,907 $ 1,379,907
Medical benefits ratios:
Medicaid segment 83.7 % - % 83.7 % 77.1 % (0.7 %) 76.4 %
Medicare segment 80.9 % - % 80.9 % 79.0 % (0.5 %) 78.5 %
(a) Medical benefits payable development: Medical benefits expense for
2007 was affected unfavorably by approximately $8.5 million before
income taxes as a result of the Company's ability to review
substantially complete claims information that became available
between the date of the original actuarially determined estimate and
the filing date of the 2007 10-K. Had WellCare filed its 2007 10-K
timely and not been able to observe substantially complete claims
information, medical benefits expense for 2007 would have decreased
by approximately $8.5 million.
(b) Investigation-related legal, accounting, employee retention, and
other costs: Administrative expenses associated with government and
Special Committee investigations in the three month periods ended
December 31, 2008 and 2007, amounted to approximately $16.7 million
and $21.1 million, respectively, before income taxes.
(c) Liability for investigation-related matters: Based on the status of
the government and Special Committee investigations, the Company
recorded a liability of $50.0 million before and after income taxes
in 2007.
(d) Goodwill impairment: As of December 31, 2008, the Company concluded
that goodwill associated with its Medicare reporting unit was
impaired. The Company recorded expense of approximately $78.3
million before income taxes to reflect the impairment.
Premium taxes for the three months ended December 31, 2008, were $22.1 million, compared to $26.6 million for the same period in 2007.
SOURCE: WellCare Health Plans, Inc.
WellCare Health Plans, Inc. Investor relations: Gregg Haddad, 813-865-1284 gregg.haddad@wellcare.com or Media relations: Amy Knapp, 813-290-6208 amy.knapp@wellcare.com
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