CENTENE CORPORATION Item 8.01. Other Events.
WellCare Non-GAAP Financial Measures
In addition to results determined under generally accepted accounting principles
("GAAP"), Centene is providing certain WellCare non-GAAP financial measures that
management believes are useful in assessing WellCare's performance. Non-GAAP
financial measures should be considered in addition to, but not as a substitute
for, or superior to, financial measures prepared in accordance with GAAP.
Centene has provided a reconciliation of the historical WellCare non-GAAP
financial measures with the most directly comparable financial measure
calculated in accordance with GAAP.
WellCare's earnings per share, net income and, as noted below, other specific
operating and financial measures have been adjusted for the effect of certain
expenses, and as appropriate, the related tax effect, related to previously
disclosed government investigations and related litigation and resolution costs
("investigation costs") in 2018; amortization expense associated with
acquisitions ("acquisition-related amortization expenses"); and certain one-time
transaction and integration costs related to the acquisition of WellCare by
Centene and WellCare's acquisitions of Universal American Corp. , Meridian Health
Plan of Michigan, Inc. , Meridian Health Plan of Illinois, Inc. , Meridian Rx, LLC
and Aetna Inc.'s Part D prescription drug plan membership ("transaction and
integration costs").
Although the excluded items may recur, Centene believes that by providing
WellCare non-GAAP measures exclusive of these items, it facilitates
period-over-period comparisons and provides additional clarity about events and
trends affecting WellCare's core operating performance, as well as providing
comparability to competitor results. The investigation costs are related to a
discrete incident which management does not expect to reoccur. Centene has
adjusted for acquisition-related amortization expenses as these transactions do
not directly relate to the servicing of products for WellCare's customers and
are not directly related to the core performance of its business operations. The
other costs mentioned above are related to specific events, which do not reflect
the underlying ongoing performance of the business.
In addition, because reimbursements for Medicaid premium tax and the 2018
Medicaid-associated ACA industry fee are both included in the premium rates or
reimbursement established in certain Medicaid contracts and also recognized
separately as a component of expense, Centene excludes these reimbursements from
premium revenue and total revenue when calculating key ratios as Centene
believes that these components are not indicative of WellCare's operating
performance.
--------------------------------------------------------------------------------
Reconciliation of WellCare's Selling, General and Administrative Expense Ratios
(Unaudited; dollars in millions)
Centene is providing WellCare's selling, general and administrative ("SG&A")
expense ratio on an adjusted or non-GAAP basis, modified to exclude the revenue
effect of Medicaid premium taxes and ACA industry fee reimbursement from
premiums. The WellCare Adjusted SG&A expense ratio also excludes the effect of
acquisition-related transaction and integration costs in both 2019 and 2018 and
investigation costs in 2018.
For the Three Months Ended For the Year Ended
December 31, December 31,
2019 2018 2019 2018
Company revenue:
As determined under GAAP $ 6,988.5 $ 6,070.8 $ 27,901.0 $ 20,414.1
Medicaid premium taxes (33.9 ) (32.6 ) (132.9 ) (126.8 )
ACA industry fee reimbursement - (103.2 ) - (302.2 )
Adjusted revenue(1) $ 6,954.6 $ 5,935.0 $ 27,768.1 $ 19,985.1
SG&A Expense:
As determined under GAAP $ 667.7 $ 534.0 $ 2,225.7 $ 1,701.0
Adjustments:
Investigation costs - (0.1 ) - (0.4 )
Transaction and integration costs (54.6 ) (7.6 ) (104.2 ) (33.1 )
Adjusted SG&A Expense(1) $ 613.1 $ 526.3 $ 2,121.5 $ 1,667.5
SG&A expense ratio:
As determined under GAAP 9.6 % 8.8 % 8.0 % 8.3 %
Effect of Medicaid premium taxes - % 0.1 % - % 0.1 %
Effect of ACA industry fee reimbursement - % 0.2 % - % 0.1 %
Effect of SG&A expense adjustments above(1) (0.8 )% (0.2 )% (0.4 )% (0.2 )%
Adjusted SG&A expense ratio(1) 8.8 % 8.9 % 7.6 % 8.3 %
(1) Refer to the basis of discussion of WellCare non-GAAP financial measures above.
--------------------------------------------------------------------------------
Reconciliation of Certain WellCare GAAP Financial Information
(Unaudited; dollars in millions, except per share data)
Centene is providing adjusted WellCare operating results on a non-GAAP basis to
exclude certain expenses and other items that management believes are not
indicative of longer-term business trends and operations. The following table
presents applicable financial information, as determined under GAAP, reconciled
to the adjusted financial information for the same periods. Refer to the basis
of presentation for a discussion of WellCare non-GAAP financial measures.
For the Three Months Ended For the Three Months Ended
December 31, 2019 December 31, 2018
Adjusted
(Non- Adjusted
GAAP Adjustments GAAP) GAAP Adjustments (Non-GAAP)Selling, general, and administrative expense$ 667.7 $ (54.6 ) (1)$ 613.1 $ 534.0 $ (7.7 ) (1)$ 526.3 Depreciation and amortization$ 68.7 $ (32.4 ) $ 36.3 $ 62.6 $ (31.6 ) $ 31.0 Income tax (benefit) expense$ (7.9 ) $ 22.3 (2)$ 14.4 $ 33.3 $ 12.8 (2)$ 46.1 Effective tax rate NM NM (2) 16.6 % 37.3 % (1.4 )% (2) 35.9 % Net income$ 7.7 $ 64.7 $ 72.4 $ 55.9 $ 26.5 $ 82.4 Net income margin 0.1 % 0.9 % 1.0 % 0.9 % 0.5 % 1.4 % Earnings per share: Basic$ 0.15 $ 1.29 $ 1.44 $ 1.12 $ 0.53 $ 1.65 Diluted$ 0.15 $ 1.27 $ 1.42 $ 1.11 $ 0.52 $ 1.63 For the Year Ended For the Year Ended December 31, 2019 December 31, 2018 Adjusted (Non- Adjusted GAAP Adjustments GAAP) GAAP Adjustments (Non-GAAP) Selling, general, and administrative expense$ 2,225.7 $ (104.2 ) (1)$ 2,121.5 $ 1,701.0 $ (33.5 ) (1)$ 1,667.5 Depreciation and amortization$ 266.3 $ (129.6 ) $ 136.7 $ 179.7 $ (72.7 ) $ 107.0 Income tax expense$ 159.3 $ 57.9 (2)$ 217.2 $ 253.0 $ 23.7 (2)$ 276.7 Effective tax rate 21.5 % 0.8 % (2) 22.3 % 36.5 % (1.9 )% (2) 34.6 % Net income$ 582.9 $ 175.9 $ 758.8 $ 439.8 $ 82.5 $ 522.3 Net income margin 2.1 % 0.6 % 2.7 % 2.2 % 0.4 % 2.6 % Earnings per share: Basic$ 11.60 $ 3.50 $ 15.10 $ 9.40 $ 1.77 $ 11.17 Diluted$ 11.46 $ 3.46 $ 14.92 $ 9.29 $ 1.74 $ 11.03
(1) Comprised of investigation costs and transaction and integration costs, as disclosed in the "Reconciliation of WellCare's Selling, General and Administrative Expense Ratios" table.
(2) Based on the effective income tax rates applicable to adjusted (non-GAAP) results, WellCare estimated the effect on income tax expense and the effective tax rate associated with the non-GAAP adjustments. Refer to the basis of presentation for a discussion of non-GAAP financial measures.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The consolidated balance sheets of WellCare and its subsidiaries as ofDecember 31, 2019 and 2018 and the related consolidated statements of comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period endedDecember 31, 2019 are included as Exhibit 99.1 hereto and incorporated by reference in this Item 9.01(a).
--------------------------------------------------------------------------------
(b) Pro forma Financial Information.
The Company's unaudited pro forma condensed combined financial information and explanatory notes for the year endedDecember 31, 2019 are included as Exhibit 99.2 hereto and incorporated by reference herein. (d) Exhibits. Exhibit Number Description 99.1 Audited consolidated balance sheets ofWellCare Health Plans, Inc. and its subsidiaries as ofDecember 31, 2019 and 2018 and the related consolidated statements of comprehensive income, changes in stockholders' equity and cash flows for each of the three years in the period endedDecember 31, 2019 . 99.2 Unaudited pro forma condensed combined financial information and explanatory notes for the year endedDecember 31, 2019 . 23.1 Consent ofDeloitte & Touche LLP , independent registered public accounting firm ofWellCare Health Plans, Inc. 104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
© Edgar Online, source
