WELLCARE HEALTH PLANS, INC.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2005
or
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-32209
WELLCARE HEALTH PLANS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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47-0937650 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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8725 Henderson Road, Renaissance One
Tampa, Florida
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33634 |
(Address of principal executive offices)
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(Zip Code) |
(813) 290-6200
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act).
Yes o No þ
As of July 29, 2005, there were 39,162,722 shares of the registrants common stock, par value
$.01 per share, outstanding.
WELLCARE HEALTH PLANS, INC.
TABLE OF CONTENTS
-i-
Part I FINANCIAL INFORMATION
Item 1:Financial Statements
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
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June 30, |
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December 31, |
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2005 |
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2004 |
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Assets |
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Current Assets: |
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|
|
|
|
|
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Cash and cash equivalents |
$ |
|
253,495 |
|
$ |
|
397,627 |
|
Investments |
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|
178,090 |
|
|
|
75,515 |
|
Premiums and other receivables, net |
|
|
64,241 |
|
|
|
52,170 |
|
Prepaid expenses and other current assets |
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4,138 |
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6,119 |
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Income taxes receivable |
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10,917 |
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1,615 |
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Deferred income taxes |
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10,744 |
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15,362 |
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Total current assets |
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521,625 |
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548,408 |
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Property and equipment, net |
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22,408 |
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12,587 |
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Goodwill |
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185,779 |
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180,848 |
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Other intangibles, net |
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22,974 |
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25,441 |
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Restricted investment assets |
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35,805 |
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31,473 |
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Other assets |
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136 |
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279 |
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Total Assets |
$ |
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788,727 |
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$ |
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799,036 |
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Liabilities and Stockholders Equity |
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Current Liabilities: |
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Medical benefits payable |
$ |
|
212,327 |
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$ |
|
190,595 |
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Unearned premiums |
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233 |
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63,449 |
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Accounts payable and accrued expenses |
|
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39,895 |
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35,520 |
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Current portion of long-term debt |
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1,600 |
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1,600 |
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Total current liabilities |
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254,055 |
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291,164 |
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Notes payable to related party |
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25,000 |
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25,000 |
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Long-term debt |
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156,181 |
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156,901 |
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Deferred income taxes |
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16,665 |
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14,818 |
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Other liabilities |
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1,622 |
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2,522 |
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Total liabilities |
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453,523 |
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490,405 |
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Commitments and contingencies (see Note 4) |
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Stockholders Equity: |
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Preferred Stock, $0.01 par value (20,000,000 authorized, no shares issued or outstanding)
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Common Stock, $0.01 par value (100,000,000 authorized, 39,161,067 and 38,590,655 shares
issued and outstanding at June 30, 2005 and December 31, 2004, respectively) |
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392 |
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386 |
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Paid-in capital |
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232,560 |
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230,804 |
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Retained earnings |
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102,237 |
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77,444 |
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Accumulated other comprehensive income (expense) |
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15 |
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(3 |
) |
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Total stockholders equity |
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335,204 |
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308,631 |
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Total Liabilities and Stockholders Equity |
$ |
|
788,727 |
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$ |
|
799,036 |
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See notes to condensed consolidated financial statements.
1
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share and unit data)
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Three Months |
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Six Months |
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Ended June 30, |
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Ended June 30, |
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2005 |
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2004 |
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2005 |
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2004 |
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Revenues: |
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Premium |
$ |
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450,188 |
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$ |
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320,740 |
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$ |
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866,054 |
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$ |
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621,990 |
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Investment and other income |
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3,488 |
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691 |
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6,503 |
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1,277 |
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Total revenues |
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453,676 |
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321,431 |
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872,557 |
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623,267 |
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Expenses: |
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Medical benefits |
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365,804 |
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263,784 |
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710,730 |
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515,219 |
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Selling, general and administrative |
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59,093 |
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39,121 |
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110,341 |
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75,912 |
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Depreciation and amortization |
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2,048 |
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2,026 |
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4,090 |
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3,685 |
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Interest |
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3,566 |
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1,846 |
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6,771 |
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4,111 |
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Total expenses |
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430,511 |
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306,777 |
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831,932 |
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598,927 |
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Income before income taxes |
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23,165 |
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14,654 |
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40,625 |
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24,340 |
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Income tax expense |
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|
9,011 |
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|
5,718 |
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15,831 |
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9,582 |
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Net income |
$ |
|
14,154 |
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|
|
8,936 |
|
$ |
|
24,794 |
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14,758 |
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Class A common unit yield |
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(1,601 |
) |
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(3,172 |
) |
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Net income attributable to common units |
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$ |
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7,335 |
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$ |
|
11,586 |
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Net income per share (see Note 1): |
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Net income per share basic |
$ |
|
0.38 |
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$ |
|
0.66 |
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Net income per share diluted |
$ |
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0.36 |
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$ |
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0.64 |
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Net income attributable per common unit (see Note 1): |
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Net income attributable per common unit basic |
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$ |
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0.26 |
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$ |
|
0.42 |
|
Net income attributable per common unit diluted |
|
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$ |
|
0.23 |
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$ |
|
0.36 |
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Pro forma net income per common share (see Note 1): |
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Pro forma net income per common share basic |
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$ |
|
0.32 |
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|
|
|
|
$ |
|
0.51 |
|
Pro forma net income per common share diluted |
|
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|
$ |
|
0.28 |
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|
|
|
|
$ |
|
0.44 |
|
See notes to condensed consolidated financial statements.
2
WELLCARE HEALTH PLANS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
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Six Months |
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Ended June 30, |
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2005 |
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2004 |
|
Cash from operating activities: |
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Net income |
|
$ |
24,794 |
|
|
$ |
14,758 |
|
Adjustments to reconcile net income to net cash used in
operating activities: |
|
|
|
|
|
|
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|
Depreciation and amortization expense |
|
|
4,090 |
|
|
|
3,685 |
|
Realized gains on investments |
|
|
18 |
|
|
|
(2 |
) |
Equity-based compensation expense |
|
|
1,171 |
|
|
|
1,322 |
|
Accreted interest |
|
|
80 |
|
|
|
298 |
|
Deferred taxes, net |
|
|
6,465 |
|
|
|
373 |
|
Provision for doubtful receivables |
|
|
|
|
|
|
1,547 |
|
Net gain on loan prepayment |
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|
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|
(2,697 |
) |
Changes in operating accounts, net of effect of acquisition: |
|
|
|
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|
|
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|
Premiums and other receivables |
|
|
(12,071 |
) |
|
|
(2,809 |
) |
Prepaid expenses and other current assets |
|
|
2,084 |
|
|
|
(6,538 |
) |
Medical benefits payable |
|
|
21,732 |
|
|
|
7,240 |
|
Unearned premiums |
|
|
(63,216 |
) |
|
|
(49,489 |
) |
Accounts payable and accrued expenses |
|
|
4,250 |
|
|
|
2,822 |
|
Accrued interest |
|
|
(812 |
) |
|
|
(609 |
) |
Taxes payable |
|
|
(9,302 |
) |
|
|
1,516 |
|
Other liabilities |
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|
(53 |
) |
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|
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Net cash used in operations |
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(20,770 |
) |
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(28,583 |
) |
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Cash from investing activities: |
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|
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Purchase of business |
|
|
(4,931 |
) |
|
|
(36,542 |
) |
Proceeds from sale and maturities of investments, net |
|
|
25,719 |
|
|
|
48 |
|
Purchases of investments |
|
|
(128,294 |
) |
|
|
(5,327 |
) |
Purchases and dispositions of restricted investments |
|
|
(4,332 |
) |
|
|
(4,886 |
) |
Additions to property and equipment, net |
|
|
(11,496 |
) |
|
|
(1,274 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(123,334 |
) |
|
|
(47,981 |
) |
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|
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|
|
|
|
|
|
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Cash from financing activities: |
|
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Contribution of capital |
|
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|
95 |
|
Proceeds from options exercised |
|
|
772 |
|
|
|
|
|
Proceeds from debt issuance, net |
|
|
|
|
|
|
159,200 |
|
Payments on debt |
|
|
(800 |
) |
|
|
(104,792 |
) |
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(28 |
) |
|
|
54,503 |
|
|
|
|
|
|
|
|
Cash and cash equivalents: |
|
|
|
|
|
|
|
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Decrease during period |
|
|
(144,132 |
) |
|
|
(22,061 |
) |
Balance at beginning of period |
|
|
397,627 |
|
|
|
237,321 |
|
|
|
|
|
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|
|
Balance at end of period |
|
$ |
253,495 |
|
|
$ |
215,260 |
|
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|
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|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
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|
Cash paid for taxes |
|
$ |
18,671 |
|
|
$ |
4,601 |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
6,841 |
|
|
$ |
6,021 |
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
3
WELLCARE HEALTH PLANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except member, share and unit data)
1. |
|
ORGANIZATION, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
WellCare Health Plans, Inc., a Delaware corporation (the Company), provides managed care
services targeted exclusively to government-sponsored healthcare programs, focusing on Medicaid and
Medicare. Through its health plans, the Company offers a diverse array of products, primarily
Medicaid and related state programs, such as the State Childrens Health Insurance Program
(S-CHIP), and Medicare programs, serving approximately 808,000 members as of June 30, 2005.
Through its health maintenance organization (HMO) subsidiaries, the Company operates in the
states of Florida, Illinois, Indiana, New York, Connecticut, Louisiana and Georgia. The Company
has also formed a domestic Florida insurance company through which it intends to operate its
prescription drug plan business.
History
WellCare Holdings, LLC (Holdings), a Delaware limited liability corporation, was formed in
May 2002 for the purpose of acquiring various subsidiaries that operate health plans focused on
government programs in various states. Holdings began operating in August 2002 in conjunction with
the acquisition of its indirect operating subsidiaries and did not have any activity from May 2002
through July 2002. The Company, formerly known as WellCare Group, Inc., became the successor to
Holdings following a reorganization (the Reorganization) that took place immediately prior to the
closing of the Companys initial public offering in July 2004. The Reorganization was effected
through a merger of Holdings with and into the Company, a wholly-owned subsidiary of Holdings. The
Company issued an aggregate of 29,735,757 shares of the Companys common stock in exchange for all
of the outstanding membership interests in Holdings, plus accrued yields, pursuant to the merger.
Upon consummation of the merger, the Company changed its name to WellCare Health Plans, Inc.
In July 2004, the Company completed its initial public offering, at a price of $17 per share,
whereby 1,100,000 shares were sold by a seller shareholder and 7,333,333 shares were sold by the
Company. The offering resulted in net proceeds to the Company of approximately $112.3 million.
In December 2004, the Company completed a follow-on public offering of common stock whereby
6,000,000 shares were sold by selling stockholders and 1,500,000 shares were sold by the Company.
The Company received net proceeds of approximately $44.9 million from this offering.
In June 2005, the Company completed an additional follow-on public offering of common stock
whereby 7,475,000 shares were sold by selling stockholders. The Company received no proceeds from
this offering.
Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements should be read
in conjunction with the consolidated and combined financial statements and notes thereto for the
fiscal year ended December 31, 2004 included in the Registration Statement on Form S-1 (No.
333-125680), filed with the Securities and Exchange Commission (the SEC) in June 2005, as amended
(the 2005 Form S-1). In the opinion of the Companys management, the interim financial
statements reflect all normal recurring adjustments which the Company considers necessary for the
fair presentation of the financial position and results of operations and cash flows for the
interim periods presented. The interim financial statements included herein have been prepared in
accordance with accounting principles generally accepted in the United States of America and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information
and footnote disclosures normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America have been condensed or
omitted. Results for the interim periods presented are not necessarily indicative of results that
may be expected for the entire year or any other interim period.
4
WELLCARE HEALTH PLANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except member, share and unit data)
Certain 2004 amounts in the condensed consolidated financials statements have been
reclassified to conform to the 2005 presentation. These reclassifications have no effect on net
income, total assets, liabilities or stockholders equity as previously reported.
Earnings Per Common Share and Earnings Attributable Per Common Unit
We compute basic earnings per common share on the basis of the weighted average number of
unrestricted common shares outstanding. Diluted earnings per common share is computed on the basis
of the weighted average number of restricted common shares outstanding plus the dilutive effect of
outstanding employee stock options and restricted shares using the treasury stock method.
Basic net income attributable per unit is computed by dividing the net income less the Class A
common unit yield for the period by the weighted average number of units outstanding during the
period, less units outstanding. Diluted net income attributable per unit is computed by dividing
the net income for the period less the Class A common unit yield by the weighted average number of
units outstanding during the period, plus, other potentially dilutive securities, including the
unvested units.
Holdings historic capital structure is not indicative of the Companys current structure due
to the automatic conversion of all units of Holdings into common stock of the Company immediately
prior to the closing of the Companys initial public offering. Accordingly, historic basic and
diluted net income attributable per common unit should not be used as an indicator of the future
earnings per common share. The pro forma information in the condensed consolidated statements of
income assumes conversion of all outstanding units of Holdings into shares of the Companys common
stock resulting from the completion of the initial public offering as if it had occurred at the
beginning of all periods presented. Pro forma net income per share is computed using the weighted
average number of common shares outstanding, including the pro forma effects of automatic
conversion of all outstanding common units into shares of the Companys common stock effective
immediately prior to the closing of the Companys initial public offering on July 7, 2004.
The components of total shares outstanding at June 30, 2005 and December 31, 2004, are as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2005 |
|
|
2004 |
|
Common Shares Outstanding |
|
|
34,836,062 |
|
|
|
34,681,436 |
|
Vested restricted shares |
|
|
2,918,076 |
|
|
|
2,432,280 |
|
Unvested restricted shares |
|
|
1,406,929 |
|
|
|
1,476,939 |
|
Options outstanding |
|
|
2,656,726 |
|
|
|
2,415,075 |
|
|
|
|
|
|
|
|
Total Shares outstanding including options |
|
|
41,817,793 |
|
|
|
41,005,730 |
|
|
|
|
|
|
|
|
5
WELLCARE HEALTH PLANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except member, share and unit data)
The following table presents the calculation of net income per common share basic and
diluted and net income attributable per common unit basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(unaudited) |
|
(unaudited) |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income basic and diluted |
|
$ |
14,154 |
|
|
$ |
8,936 |
|
|
$ |
24,794 |
|
|
$ |
14,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common unit yield |
|
|
|
|
|
|
(1,601 |
) |
|
|
|
|
|
|
(3,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to common unit |
|
|
|
|
|
$ |
7,335 |
|
|
|
|
|
|
$ |
11,586 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding basic |
|
|
37,573,264 |
|
|
|
|
|
|
|
37,412,929 |
|
|
|
|
|
Dilutive effects of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
797,291 |
|
|
|
|
|
|
|
814,668 |
|
|
|
|
|
Unvested restricted common shares |
|
|
486,272 |
|
|
|
|
|
|
|
646,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding diluted |
|
|
38,856,827 |
|
|
|
|
|
|
|
38,874,120 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding basic |
|
|
|
|
|
|
27,877,804 |
|
|
|
|
|
|
|
27,745,863 |
|
Adjustment for unvested outstanding Class C common units
and equity options issued |
|
|
|
|
|
|
4,377,773 |
|
|
|
|
|
|
|
4,492,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average units outstanding diluted |
|
|
|
|
|
|
32,255,577 |
|
|
|
|
|
|
|
32,238,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares outstanding basic |
|
|
|
|
|
|
22,668,819 |
|
|
|
|
|
|
|
22,561,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average shares outstanding diluted |
|
|
|
|
|
|
26,228,603 |
|
|
|
|
|
|
|
26,214,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic |
|
$ |
0.38 |
|
|
|
|
|
|
$ |
0.66 |
|
|
|
|
|
Net income per common share diluted |
|
$ |
0.36 |
|
|
|
|
|
|
$ |
0.64 |
|
|
|
|
|
Net income attributable per common unit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable per common unit basic |
|
|
|
|
|
$ |
0.26 |
|
|
|
|
|
|
$ |
0.42 |
|
Net income attributable per common unit diluted |
|
|
|
|
|
$ |
0.23 |
|
|
|
|
|
|
$ |
0.36 |
|
Pro forma net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per common share basic |
|
|
|
|
|
$ |
0.32 |
|
|
|
|
|
|
$ |
0.51 |
|
Pro forma net income per common share diluted |
|
|
|
|
|
$ |
0.28 |
|
|
|
|
|
|
$ |
0.44 |
|
Certain options to purchase common stock were not included in the calculation of diluted
earnings per common share because their exercise prices were greater than the average market price
of the Companys common stock for the period and, therefore, the effect would be antidilutive. For the three months
ended June 30, 2005, these excluded weighted options outstanding totaled approximately 100,000
shares with exercise prices ranging from $33.60 to $36.88 per share.
6
WELLCARE HEALTH PLANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except member, share and unit data)
Equity-Based Compensation
The following table illustrates the effect on net income, and net income attributable to
common units, net income per common share and net income attributable per common unit as if the
fair value based method had been applied to all awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
Six Months Ended |
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
(unaudited) |
|
|
|
|
|
|
|
|
Net income, as reported |
|
$ |
14,154 |
|
|
$ |
8,936 |
|
|
$ |
24,794 |
|
|
$ |
14,758 |
|
Reconciling items (net of tax effects): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add: equity-based employee
compensation expense determined
under the intrinsic-value based
method for all awards |
|
|
286 |
|
|
|
300 |
|
|
|
724 |
|
|
|
458 |
|
Deduct: equity-based employee
compensation expense determined
under the fair-value based method for
all awards |
|
|
(1,983 |
) |
|
|
(758 |
) |
|
|
(4,088 |
) |
|
|
(1,257 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net adjustment |
|
|
(1,697 |
) |
|
|
(458 |
) |
|
|
(3,364 |
) |
|
|
(799 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income, as adjusted |
|
$ |
12,457 |
|
|
|
8,478 |
|
|
$ |
21,430 |
|
|
|
13,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common unit yield |
|
|
|
|
|
|
(1,601 |
) |
|
|
|
|
|
|
(3,172 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income attributable to common
units |
|
|
|
|
|
$ |
6,877 |
|
|
|
|
|
|
$ |
10,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-as reported |
|
$ |
0.38 |
|
|
|
|
|
|
$ |
0.66 |
|
|
|
|
|
Basic-as adjusted |
|
$ |
0.33 |
|
|
|
|
|
|
$ |
0.57 |
|
|
|
|
|
Diluted-as reported |
|
$ |
0.36 |
|
|
|
|
|
|
$ |
0.64 |
|
|
|
|
|
Diluted-as adjusted |
|
$ |
0.32 |
|
|
|
|
|
|
$ |
0.55 |
|
|
|
|
|
Net income attributable per common unit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-as reported |
|
|
|
|
|
$ |
0.26 |
|
|
|
|
|
|
$ |
0.42 |
|
Basic-as adjusted |
|
|
|
|
|
$ |
0.25 |
|
|
|
|
|
|
$ |
0.39 |
|
Diluted-as reported |
|
|
|
|
|
$ |
0.23 |
|
|
|
|
|
|
$ |
0.36 |
|
Diluted-as adjusted |
|
|
|
|
|
$ |
0.21 |
|
|
|
|
|
|
$ |
0.33 |
|
The Company has equity-based compensation plans for the benefit of its eligible associates,
consultants and directors. The Company accounts for equity-based compensation under Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. The Company has
adopted the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No.
123, Accounting for Stock-Based Compensation, and SFAS No. 148, Accounting for Stock-Based
Compensation Transition and Disclosure.
Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123
(revised 2004), Share-Based Payment (SFAS 123(R)), which amends FASB Statement Nos. 123 and 95.
SFAS 123(R) requires all companies to measure compensation expense for all share-based payments
(including employee stock options) at fair value and recognize the expense over the related service
period (usually the vesting period). The grant-date fair value of the award will be estimated using
option-pricing models. The Company is required to adopt SFAS 123(R) beginning January 1, 2006 under
either a modified-prospective or modified-retrospective approach. The effect of expensing stock
options under a fair value approach using the Black-Scholes pricing model is disclosed under the
section titled, Earnings Per Common Share and Earnings Attributable Per Common Unit. The Company is
currently evaluating the provisions of SFAS 123(R) and the expected effect on the Company
including, among other items, selecting an option pricing model and determining the transition
method.
In May 2005, SFAS No. 154, Accounting Changes and Error Corrections replacement of APB
Opinion No. 20 and FASB Statement No. 3, (SFAS No. 154) was issued. SFAS No. 154 changes the
accounting for and reporting of a change in accounting principle by requiring retrospective
applications to prior periods financial
statements of changes in accounting principle unless
impracticable. SFAS No. 154 is effective for accounting changes made in fiscal years beginning
after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 to have a
material impact on its results of operations, financial position or cash flows.
7
WELLCARE HEALTH PLANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(In thousands, except member, share and unit data)
2. BUSINESS ACQUISITION
In June 2004, the Company acquired Harmony Health Systems, Inc. and its subsidiaries,
(collectively, Harmony) pursuant to the terms of a merger agreement entered into in March 2004,
for $50,296, including acquisition costs of $1,609. In June 2005, the Company made a subsequent
payment of $4,932 as an adjustment in the purchase price to account for excess reserves for medical
claims as of December 31, 2003. The payment was recorded as an addition to goodwill during the
quarter ended June 30, 2005. The results of Harmonys operations have been included in the
condensed consolidated financial statements since the acquisition date.
3. SEGMENT REPORTING
The Company has two reportable segments: Medicaid and Medicare. The segments were determined
based upon the type of governmental administration, regulation and funding of the health plans.
Segment performance is evaluated based upon earnings from operations without corporate allocations.
Accounting policies of the segments are consistent with those applied at the December 31, 2004
year end.
The Medicaid segment includes operations which provide healthcare services to recipients that
are eligible for state supported programs including Medicaid and family and childrens health
programs. The Medicare segment includes operations which provide healthcare services to recipients
who are eligible for the federally supported Medicare program. The Company no longer operates a
commercial line of business.
Asset, liability and equity amounts by segment have not been disclosed, as they are not
reported by segment internally by the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Premium revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicaid |
|
$ |
330,533 |
|
|
$ |
240,479 |
|
|
$ |
639,743 |
|
|
$ |
456,599 |
|
Medicare |
|
|
119,655 |
|
|
|
79,695 |
|
|
|
226,311 |
|
|
|
164,255 |
|
Corporate and other |
|
|
|
|
|
|
566 |
|
|
|
|
|
|
|
1,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
450,188 |
|
|
|
320,740 |
|
|
|
866,054 |
|
|
|
621,990 |
|
Medical benefits expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicaid |
|
|
269,500 |
|
|
|
197,569 |
|
|
|
527,496 |
|
|
|
380,631 |
|
Medicare |
|
|
96,304 |
|
|
|
66,726 |
|
|
|
183,234 |
|
|
|
134,695 |
|
Corporate and other |
|
|
|
|
|
|
(511 |
) |
|
|
|
|
|
|
(107 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
365,804 |
|
|
|
263,784 |
|
|
|
710,730 |
|
|
|
515,219 |
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicaid |
|
|
61,033 |
|
|
|
42,910 |
|
|
|
112,247 |
|
|
|
75,968 |
|
Medicare |
|
|
23,351 |
|
|
|
12,969 |
|
|
|
43,077 |
|
|
|
29,560 |
|
Corporate and other |
|
|
|
|
|
|
1,077 |
|
|
|
|
|
|
|
1,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
84,384 |
|
|
$ |
56,956 |
|
|
$ |
155,324 |
|
|
$ |
106,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
WELLCARE HEALTH PLANS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(In thousands, except members, share and unit data)
4. COMMITMENTS AND CONTINGENCIES
The Company is involved in legal actions in the normal course of business, some of which seek
monetary damages, including claims for punitive damages, which are not covered by insurance. These
actions, when finally concluded and determined, will not, in the opinion of management have a
material adverse effect on its financial position, results of operations or cash flows. The
Company believes that it has obtained adequate insurance or rights to indemnification or, where
appropriate, has established adequate reserves in connection with these legal proceedings.
5. INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes. At June 30,
2005, net deferred tax liabilities were approximately $5,921. In assessing the realizability of
deferred tax assets, management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies. The Company expects the deferred tax
assets to be realized through the generation of future taxable income and the reversal of existing
taxable temporary differences.
6. CREDIT AGREEMENT
In May 2004, the Company and certain subsidiaries entered into a credit agreement (the Credit
Agreement) and obtained two new credit facilities, consisting of a senior secured term loan
facility in the amount of $160,000 and a revolving credit facility in the amount of $50,000, of
which $10,000 is available for short-term borrowings on a swingline basis. Interest is payable
quarterly, currently at the six month LIBOR rate option of 6.49%. The term loan matures in May
2009, and the revolving credit facility will mature in May 2008. The Company is a party to this
agreement for the purpose of guaranteeing the indebtedness of its subsidiaries that are parties to
the agreement. The revolving credit facility has not been utilized.
The Credit Agreement contains various restrictive covenants which limit, among other things,
the Companys ability to incur indebtedness and liens and to enter into business combination
transactions. In addition, the Company must maintain certain fixed charge and leverage ratios.
The Company believes that it is in compliance with all the financial and non-financial covenants at
June 30, 2005.
9
Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The following discussion of our financial condition and results of operations should be read
in conjunction with the accompanying unaudited condensed consolidated interim financial statements
and the notes to those statements appearing elsewhere in this report, our audited consolidated and
combined financial statements and the notes thereto for the year ended December 31, 2004, appearing
in the 2004 Form 10-K and additional disclosures made in our 2005 Form S-1 filing.
This Quarterly Report on Form 10-Q contains forward-looking statements that are made
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Statements that are predictive in nature, that depend upon or refer to future events or conditions,
or that include words such as may, will, should, expects, anticipates, intends,
plans, believes, estimates, predicts, potential, continues and similar expressions are
forward-looking statements.
Forward-looking statements involve known and unknown risks and uncertainties that may cause
our actual future results to differ materially from those projected or contemplated in the
forward-looking statements. These risks and uncertainties include, but are not limited to:
|
|
|
the potential expiration, cancellation or suspension of our state or
federal contracts; |
|
|
|
|
the potential denial by the Centers for Medicare & Medicaid Services of
our expansion or prescription drug plan applications; |
|
|
|
|
our lack of prior operating history, including lack of experience with
network providers and health benefits management, in expansion markets or in the
prescription drug plan business; |
|
|
|
|
our ability to accurately predict and effectively manage health benefits
and other operating expenses; |
|
|
|
|
our ability to accurately estimate incurred but not reported medical costs; |
|
|
|
|
risks associated with future changes in healthcare laws; |
|
|
|
|
potential reductions in funding for government healthcare programs; |
|
|
|
|
risks associated with periodic government reimbursement rate adjustments; |
|
|
|
|
regulatory changes and developments, including potential marketing
restrictions or sanctions and premium recoupment; |
|
|
|
|
potential fines, penalties or operating restrictions resulting from
regulatory audits, examinations, investigations or other inquiries; |
|
|
|
|
risks associated with our acquisition strategy; |
|
|
|
|
risks associated with our efforts to expand into additional states and counties; |
|
|
|
|
risks associated with our substantial debt obligations; and |
|
|
|
|
risks associated with our business obligations, including our ability to
attract and retain qualified management personnel. |
Additional information concerning these and other important risks and uncertainties can be
found under the heading Risk Factors in the 2005 Form S-1. We specifically disclaim any
obligation to update or revise any forward-looking statements, whether as a result of new
information, future developments or otherwise.
Overview
We provide managed care services targeted exclusively to government-sponsored healthcare
programs, focusing on Medicaid and Medicare. Our business currently operates health plans in
Florida, New York, Connecticut, Illinois, Indiana, Louisiana and Georgia, serving approximately
808,000 members as of June 30, 2005. The following tables summarize our membership by state and by
program as of June 30, 2005 and 2004.
10
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
June 30, |
|
|
2005 |
|
2004 |
State |
|
|
|
|
|
|
|
|
Florida |
|
|
538,000 |
|
|
|
510,000 |
|
Indiana |
|
|
82,000 |
|
|
|
35,000 |
|
New York |
|
|
80,000 |
|
|
|
63,000 |
|
Illinois |
|
|
73,000 |
|
|
|
59,000 |
|
Connecticut |
|
|
34,000 |
|
|
|
28,000 |
|
Louisiana |
|
|
1,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
808,000 |
|
|
|
695,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Program |
|
|
|
|
|
|
|
|
Medicaid |
|
|
749,000 |
|
|
|
653,000 |
|
Medicare |
|
|
59,000 |
|
|
|
42,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
808,000 |
|
|
|
695,000 |
|
|
|
|
|
|
|
|
|
|
The Company recently became licensed and received approval to offer Medicaid and Medicare
services to beneficiaries in Georgia. As of June 30, 2005, the Company did not have any members in
Georgia.
We enter into contracts generally on an annual basis with government agencies that administer
health benefits programs. We receive premiums from state and federal agencies for the members that
are assigned to or have selected us to provide healthcare services under each benefit program. The
amount of premiums we receive for each member is fixed, although it varies according to
demographics, including the government program, and the members geographic location, age and sex.
Further, the premiums we receive under each of our government benefit plans are generally
determined at the beginning of the contract period. These premiums are subsequently adjusted, up
or down, generally at the commencement of each new contract period, although the states also have
the ability to adjust the rates during the term of the contract. As the result of these periodic
premium rate adjustments, we cannot predict with certainty what our future revenues will be under
each of our government contracts.
Our largest expense is the cost of medical benefits that we provide, which is based primarily
on our arrangements with healthcare providers. Our profitability depends in part on our ability to
predict and effectively manage medical benefits expense relative to the fixed premiums we receive.
Our arrangements with providers fall into two broad categories: capitation arrangements, where we
pay the providers a fixed fee per member, and fee-for-service and risk-sharing arrangements, where
we assume all or part of the risk of the cost of the healthcare provided. Generally, capitation
payments represent less than 20% of our total medical benefits expense. Other components of medical
benefits expense are variable and require estimation and ongoing cost management.
Estimation of medical benefits expense is our most significant critical accounting estimate.
See Management Discussion and Analyses of Financial Condition and Results of Operations Critical
Accounting Policies.
We use a variety of techniques to manage our medical benefits expense, including payment
methods to providers, referral requirements, quality and disease management programs, reinsurance
and member co-payments and premiums for some of our Medicare plans. National healthcare costs have
been increasing at a higher rate than the general inflation rate, however, and relatively small
changes in our medical benefits expense relative to premiums that we receive can create significant
changes in our financial results. Changes in healthcare laws, regulations and practices, levels of
use of healthcare services, competitive pressures, hospital costs, major epidemics, terrorism or
bio-terrorism, new medical technologies and other external factors could reduce our ability to
manage our medical benefits expense effectively.
One of our primary management tools for measuring profitability is our medical benefits ratio,
the ratio of our medical benefits expense to the premiums we receive. Changes in the medical
benefits ratio from period to period result from, among other things, changes in Medicaid and
Medicare funding, changes in the mix of Medicaid and Medicare membership, our ability to manage
medical costs and changes in accounting estimates related to
incurred but not reported claims. We use medical benefits ratios both to monitor our
management of medical
11
benefits expense and to make various business decisions, including what
healthcare plans to offer, what geographic areas to enter or exit and the selection of healthcare
providers. Although medical benefits ratios play an important role in our business strategy, we
may be willing to enter into provider arrangements that might produce a less favorable medical
benefits ratio if those arrangements, such as capitation or risk-sharing, would likely lower our
exposure to variability in medical costs.
Segments
We have two reportable business segments: Medicaid and Medicare. Medicaid, a state
administered program, was enacted in 1965 to make federal matching funds available to all states
for the delivery of healthcare benefits to eligible individuals, principally those with incomes
below specified levels who meet other state specified requirements. Medicaid is structured to allow
each state to establish its own eligibility standards, benefits package, payment rates and program
administration under broad federal guidelines. Most states determine threshold Medicaid eligibility
by reference to other federal financial assistance programs, including the Temporary Assistance to
Needy Families and Supplemental Security Income programs.
The Temporary Assistance to Needy Families program provides assistance to low-income families
with children and was adopted to replace the Aid to Families with Dependent Children program.
Supplemental Security Income is a federal program that provides assistance to low-income aged,
blind or disabled individuals. However, states can broaden eligibility criteria.
The State Childrens Health Insurance Program (S-CHIP), developed in 1997, is a
federal/state matching program that provides healthcare coverage to children not otherwise covered
by Medicaid or other insurance programs. S-CHIP enables a segment of the large uninsured
population in the United States to receive healthcare benefits. States have the option of
administering S-CHIP through their Medicaid programs.
Medicare is a federal program that provides eligible persons age 65 and over and some disabled
persons a variety of hospital and medical insurance benefits. Most individuals eligible for
Medicare are entitled to receive inpatient hospital care without the payment of any premium, but
are required to pay a premium to the federal government, which is adjusted annually, to be eligible
for physician care and other services.
Under the Medicare Advantage program, managed care plans can contract with the Centers for
Medicare & Medicaid Services (CMS) to provide health insurance coverage in exchange for a fixed
monthly payment per member that varies based on the geographic areas in which the members reside.
The fixed monthly payment per member is subject to periodic adjustments determined by CMS based
upon a number of factors, including retroactive changes in members status such as Medicaid
eligibility, and risk measures based on demographic factors such as age, gender, county of
residence and health status. The weighting of the risk measures in the determination of the amount
of the periodic adjustments to the fixed monthly payments is being phased in over time. These
measures will have their full impact on the calculation of those adjustments by 2007. Individuals
who elect to participate in the Medicare Advantage program are relieved of the obligation to pay
some or all of the deductible or coinsurance amounts required under the traditional Medicare
program, but are generally required to use the services provided by the Medicare Advantage plans
network providers exclusively and may be required to pay a premium to the federal Medicare program
unless the Medicare Advantage plan chooses to pay the premium as part of its benefit package.
Acquisitions
We continually identify markets for potential acquisitions or expansion that would increase
our membership and broaden our geographic presence. These potential acquisitions or expansion
efforts are at various stages of internal consideration, and we may enter into letters of intent,
transactions or other arrangements supporting our growth strategy at any time. However, we cannot
predict when or whether such transactions or other arrangements will actually occur, and we may not
be successful in completing potential acquisitions.
12
Recent Developments
Medicare Prescription Drug Plan Benefits. We have received conditional approval from CMS to
participate as a stand-alone prescription drug plan (PDP) under Medicare Part D beginning in
January 2006. In addition, in June 2005, we filed bids with CMS for PDPs in all 34 regions
established by CMS. If our bids, which include our benefits plan designs and proposed rates, are
approved by CMS, we intend to provide stand-alone PDPs starting January 1, 2006. We believe that
many of these beneficiaries, which include dual eligibles, will enroll in Medicare Part D coverage
as a cost effective way of obtaining drug coverage. We incurred expenses relating to our PDP
business in the second quarter of 2005 which impacted our earnings per fully diluted share by
approximately $.02. We expect to incur additional expenses relating to our PDP business in the
second half of 2005, particularly in the fourth quarter of 2005,
including possibly resulting in a net loss in the fourth quarter. The expenses that we will incur
in the second half of 2005 will depend on the number of Medicare beneficiaries who are auto-assigned into
our PDP plans and the level of interest by potential beneficiaries of those plans. Depending on auto-assignments and the level of interest, these expenses may be significant.
Georgia Expansion. We were recently awarded a Medicaid managed care contract by the Georgia
Department of Community Health (DCH), pursuant to which DCH will transition approximately 1.1
million Medicaid and S-CHIP beneficiaries to Medicaid managed care plans beginning in January 2006.
We also recently became licensed to offer Medicare services to beneficiaries in Georgia and
received approval from CMS to provide Medicare services to beneficiaries in Fulton and Dekalb
counties, which together represent 140,000 eligible enrollees. As of June 30, 2005, we did not
have any Medicare or Medicaid members in Georgia. We expect to incur approximately $8 million to
$10 million in pre-tax expenses in the second half of 2005, with
spending more heavily weighted in the fourth quarter relating to our
Georgia business.
Illinois Medicaid Managed Care Funding. The Illinois state legislature recently adopted
budget legislation directing the state Medicaid agency to renegotiate its contracts with managed
care plans such as ours to significantly reduce premiums beginning on July 1, 2005. We recently
entered into a new contract with the state Medicaid agency that includes the premium reductions.
As the result of these premium rate reductions, we are reducing
spending on new sales incentives, withdrawing from three southern Illinois counties
and will experience a reduction in revenues from our Illinois
operations. We do not expect our net income from our Illinois
operations to be materially reduced as a result of these
developments.
Critical Accounting Policies
In the ordinary course of business, we make a number of estimates and assumptions relating to
the reporting of our results of operations and financial condition in conformity with accounting
principles generally accepted in the United States of America. We base our estimates on historical
experience and on various other assumptions that we believe to be reasonable under the
circumstances. Actual results could differ significantly from those estimates under different
assumptions and conditions. We believe that the accounting policies discussed below are those that
are most important to the portrayal of our financial condition and results and require managements
most difficult, subjective and complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain.
Revenue recognition. We generate revenues primarily from premiums we receive from agencies of
the federal government and the states in which we operate to provide healthcare benefits to our
members. We receive a fixed premium per member per month to provide healthcare benefits to our
members pursuant to our contracts in each of our markets. We generally receive premiums in advance
of providing services, and recognize premium revenue during the period in which we are obligated to
provide services to our members. Premiums collected in advance of the period in which we are
obligated to provide services are deferred and reported as unearned premiums. Any amounts that
have not been received remain on the balance sheet classified as premiums receivable. We also
generate revenues from investments.
We experience adjustments to our revenues based on member retroactivity. These retroactivity
adjustments reflect changes in the number and eligibility status of enrollees subsequent to when
revenue is billed. We estimate the amount of outstanding retroactivity each period and adjust
premium revenue accordingly. The estimates of retroactivity adjustments are based on historical
trends, premiums billed, the volume of member and contract renewal activity and other information.
We refine our estimates and methodologies based upon actual retroactivity experienced.
Retroactivity adjustments have not been significant.
13
Estimating medical benefits expense and medical benefits payable. The cost of medical
benefits is recognized in the period in which services are provided and includes an estimate of the
cost of medical benefits that have been incurred but not yet reported. We contract with various
healthcare providers for the provision of certain medical care services to our members and
generally compensate those providers on a fee-for-service or capitated basis or pursuant to certain
risk-sharing arrangements. Capitation represents fixed payments on a per member per month basis to
participating physicians and other medical specialists as compensation for providing comprehensive
healthcare services.
Medical benefits expense has two main components: direct medical expenses and
medically-related administrative costs. Direct medical expenses include amounts paid to hospitals,
physicians and providers of ancillary services, such as laboratory and pharmacy. Medically-related
administrative costs include items such as case and disease management, utilization review
services, quality assurance and on-call nurses.
Medical benefits payable consists primarily of benefit reserves established for reported and
unreported claims, which are unpaid as of the balance sheet date, and contractual liabilities under
risk-sharing arrangements, determined through an estimation process utilizing company-specific,
industry-wide and general economic information and data.
We have used the same methodology for estimating our medical benefits expense and medical
benefits payable since our acquisition of the WellCare group of companies in August 2002. Our
policy is to record managements best estimate of medical benefits payable. Monthly, we estimate
ultimate benefits payable based upon historical experience and other available information as well
as assumptions about emerging trends, which vary by business segment. The process for preparing
the estimate utilizes standard actuarial methodologies based on historical data. These standard
actuarial methodologies include, among other factors, contractual requirements, historic
utilization trends, the interval between the date services are rendered and the date claims are
paid, denied claims activity, disputed claims activity, benefits changes, expected health care cost
inflation, seasonality patterns and changes in membership. In developing the estimate, we apply
different estimation methods depending on the month for which incurred claims are being estimated.
For the more recent months, which constitute the majority of the amount of the medical benefits
payable, we estimate our claims incurred by applying observed trend factors to the per member per
month, or PMPM, costs for prior months, which costs have been estimated using completion factors,
in order to estimate the PMPMs for the most recent months. We validate our estimates of the most
recent PMPMs by comparing the most recent months utilization levels to the utilization levels in
older months, actuarial techniques that incorporate a historical analysis of claim payments,
including trends in cost of care provided, and timeliness of submission and processing of claims.
Also included in medical benefits payable are estimates for provider settlements due to
clarification of contract terms, out-of-network reimbursement and claims payment differences, as
well as amounts due to contracted providers under risk-sharing arrangements.
Many aspects of the managed care business are not predictable with consistency. These aspects
include the incidences of illness or disease state (such as cardiac heart failure cases, cases of
upper respiratory illness, the length and severity of the flu season, diabetes, the number of
full-term versus premature births and the number of neonatal intensive care babies). Therefore, we
must rely upon our historical experience, as continually monitored, to reflect the ever-changing
mix, needs and growth of our members in our trend assumptions. Among the factors considered by
management are changes in the level of benefits provided to members, seasonal variations in
utilization, identified industry trends and changes in provider reimbursement arrangements,
including changes in the percentage of reimbursements made on a capitation as opposed to a
fee-for-service basis. These considerations are aggregated in making assumptions regarding trends
in medical benefits expense. Other external factors such as government-mandated benefits or other
regulatory changes, catastrophes and epidemics may impact medical cost trends. Other internal
factors such as system conversions and claims processing interruptions may impact our ability to
predict accurately estimates of historical completion factors or medical cost trends. Medical cost
trends potentially are more volatile than other segments of the economy. Management is required to
use considerable judgment in the selection of medical benefits expense trends and other actuarial
model inputs.
We record reserves for estimated referral claims related to healthcare providers under
contract with us who are financially troubled or insolvent and who may not be able to honor their
obligations for the costs of medical services provided by other providers. In these instances, we may be required to honor these
obligations for legal or business reasons. Based on our current assessment of providers under
contract with us, such losses have not been and are not expected to be significant.
14
Changes in estimates of medical benefits payable are primarily the result of obtaining more
complete claims information that directly correlates with the claims and provider reimbursement
trends. Volatility in members needs for medical services, provider claims submissions and our
payment processes result in identifiable patterns emerging several months after the causes of
deviations from assumed trends occur. Since our estimates are based upon per member per month
claims experience, changes cannot typically be explained by any single factor, but are the result
of a number of interrelated variables, all influencing the resulting experienced medical cost
trend. Deviations, whether positive or negative, between actual experience and estimates used to
establish the liability are recorded in the period known.
Goodwill and intangible assets. We obtained goodwill and intangible assets as a result of the
acquisitions of our subsidiaries and the Harmony acquisition. Goodwill represents the excess of
the cost over the fair market value of net assets acquired. Intangible assets include provider
networks, membership contracts, trademarks, noncompete agreements, government contracts, licenses
and permits. Our intangible assets are amortized over their estimated useful lives ranging from
one to 26 years.
We evaluate whether events or circumstances have occurred that may affect the estimated useful
life or the recoverability of the remaining balance of goodwill and other identifiable intangible
assets. We must make assumptions and estimates, such as the discount factor, in determining the
estimated fair values. While we believe these assumptions and estimates are appropriate, other
assumptions and estimates could be applied and might produce significantly different results.
We review goodwill and intangible assets for impairment at least annually, or more frequently
if events or changes in circumstances occur that may affect the estimated useful life or the
recoverability of the remaining balance of goodwill or intangible assets. Events or changes in
circumstances would include significant changes in membership, state funding, medical contracts and
provider networks. We have selected the third quarter of each fiscal year for our annual
impairment test, which generally coincides with the finalization of state and federal contract
negotiations and our initial budgeting process.
15
Results of Operations
The following table sets forth the condensed consolidated statements of income data, expressed
as a percentage of total revenues for each period indicated. The historical results are not
necessarily indicative of results to be expected for any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months |
|
Six Months |
|
|
Ended June 30, |
|
Ended June 30, |
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premium |
|
|
99.2 |
% |
|
|
99.8 |
% |
|
|
99.3 |
% |
|
|
99.8 |
% |
Investment and other income |
|
|
0.8 |
% |
|
|
0.2 |
% |
|
|
0.7 |
% |
|
|
0.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical benefits |
|
|
80.6 |
% |
|
|
82.1 |
% |
|
|
81.5 |
% |
|
|
82.7 |
% |
Selling, general and administrative |
|
|
13.0 |
% |
|
|
12.2 |
% |
|
|
12.6 |
% |
|
|
12.2 |
% |
Depreciation and amortization |
|
|
0.5 |
% |
|
|
0.6 |
% |
|
|
0.5 |
% |
|
|
0.6 |
% |
Interest |
|
|
0.8 |
% |
|
|
0.6 |
% |
|
|
0.8 |
% |
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
94.9 |
% |
|
|
95.5 |
% |
|
|
95.4 |
% |
|
|
96.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
5.1 |
% |
|
|
4.5 |
% |
|
|
4.6 |
% |
|
|
3.9 |
% |
Income tax expense |
|
|
2.0 |
% |
|
|
1.8 |
% |
|
|
1.8 |
% |
|
|
1.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
3.1 |
% |
|
|
2.7 |
% |
|
|
2.8 |
% |
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One of our primary tools for measuring profitability is our medical benefits ratio, the ratio
of our medical benefits expense to the premiums we receive. Changes in the medical benefits ratio
from period to period result from, among other things, changes in Medicaid and Medicare funding,
changes in the mix of Medicaid and Medicare membership, our ability to manage medical costs and
changes in accounting estimates related to incurred but not reported claims. We use medical
benefits ratios both to monitor our management of medical benefits expense and to make various
business decisions, including what healthcare plans to offer, what geographic areas to enter or
exit and the selection of healthcare providers. Although medical benefits ratios play an important
role in our business strategy, we may be willing to enter into provider arrangements that might
produce a less favorable medical benefits ratio if those arrangements, such as capitation or
risk-sharing, would likely lower our exposure to variability in medical costs.
Three and Six Month Period Ended June 30, 2005 Compared to the Three and Six Month Period Ended June 30, 2004
Premium revenue. Premium revenues
for the three months ended June 30, 2005 increased $129.5
million, or 40%, to $450.2 million from $320.7 million for the same period last year. For the six
months ended June 30, 2005, premium revenues increased $244.1, or 39%, to $866.1 million from
$622.0 million for the same period last year. The increase is due to the addition of members both
organically and from the Harmony acquisition, and premium rate increases on our products. Total
membership grew by 113,000 members, or 16%, from 695,000 at June 30, 2004 to approximately 808,000
at June 30, 2005.
Our Medicaid segment includes Medicaid programs and other state-sponsored healthcare programs.
The Medicaid segment premium revenue for the three months ended June 30, 2005 increased $90.0
million, or 37%, to $330.5 million from $240.5 million for the same period last year. For the six
months ended June 30, 2005, Medicaid segment premium revenue increased $183.1 million, or 40%, to
$639.7 million from $456.6 million for the same period last year. The increase in Medicaid segment
revenue is due to organic growth in membership of 15% and the inclusion of revenue generated
on members acquired from Harmony in June 2004. In addition, increases in premium rates received
from the State of Florida effective July 1, 2004 of approximately 9% contributed to the revenue
increase. Aggregate membership in the Medicaid segment grew by 96,000 members, or 15%, from
653,000 at June 30, 2004 to approximately 749,000 at June 30, 2005.
16
Medicare segment premium revenue for the three months ended June 30, 2005 increased $40.0
million, or 50%, to $119.7 million from $79.7 million for the same period last year. For the six
months ended June 30, 2005, Medicare segment premium revenue increased $62.0 million, or 38%, to
$226.3 million from $164.3 million for the same period last year. Growth in premium revenue within
the Medicare segment was primarily due to membership growth and the premium increases associated
with the demographic mix of our membership. Membership within the Medicare segment grew by 17,000
members, or 40%, from 42,000 at June 30, 2004 to 59,000 at June 30, 2005.
Investment income. Investment income for the three months ended June 30, 2005 increased $2.8
million, or 405%, to $3.5 million from $0.7 million for the same period last year. For the six
months ended June 30, 2005, investment income increased $5.2 million, or 409%, to $6.5 million from
$1.3 million for the same period last year. The increase was due primarily to the investment of
the net proceeds we received from our initial and follow-on public offerings of approximately
$157.2 million in the aggregate and a higher interest rate environment.
Medical benefits expense. Medical benefits expense for the three months ended June 30, 2005
increased $102.0 million, or 39%, to $365.8 million from $263.8 million for the same period last
year. For the six months ended June 30, 2005, medical benefits expense increased $195.5 million,
or 38%, to $710.7 million from $515.2 million for the same period last year. The increase in
medical benefits expense was due to growth in membership. The medical benefits ratio, as a
percentage of premium revenue, for the three months ended June 30, 2005 was 81.3% compared to 82.2%
for the same period last year. For the six months ended June 30, 2005, the medical benefits ratio
was 82.1% compared to 82.8% for the same period last year. The medical benefits ratio decreased
primarily as a result of lower overall utilization of services and increases in premium rates
received.
The Medicaid segment medical benefits expense for the three months ended June 30, 2005
increased $71.9 million, or 36%, to $269.5 million from $197.6 million for the same period last
year. For the six months ended June 30, 2005, Medicaid medical benefits expense increased $146.9
million, or 39%, to $527.5 million from $380.6 million for the same period last year. The increase
in medical benefits expense was primarily due to growth in membership. The membership increase
accounted for $54.3 million of the increase when comparing the three-month periods. Increased
healthcare costs accounted for the remaining $17.6 million of the quarterly increase. The Medicaid
medical benefits ratio, as a percentage of premium revenue, for the three months ended June 30,
2005 was 81.5% compared to 82.2% for the same period last year. For the six months ended June 30,
2005, the Medicaid medical benefits ratio was 82.5% compared to 83.4% for the same period last
year. The Medicaid medical benefits ratio decreased primarily as a result of lower overall
utilization of services and increased premium rates received for Medicaid members.
Medicare segment medical benefits expense for the three months ended June 30, 2005 increased
$29.6 million, or 44%, to $96.3 million from $66.7 million for the same period last year. For the
six months ended June 30, 2005, Medicare medical benefits expense increased $48.5 million, or 36%,
to $183.2 million from $134.7 million for the same period last year. The increase was primarily
due to the growth in membership, which accounted for $25.6 million of the increase in the quarter.
Increased healthcare costs and changes in membership mix accounted for $4.0 million of the
quarterly increase. The Medicare medical benefits ratio, as a percentage of premium revenue, for
the three months ended June 30, 2005 was 80.5% compared to 83.7% for the same period last year.
For the six months ended June 30, 2005, the Medicare medical benefits ratio was 81.0% compared to
82.0% for the same period last year. The Medicare medical benefits ratio decreased due to lower
overall utilization of services by our members and increased premium rates received per Medicare
member.
Selling, general and administrative expense. Selling, general and administrative (SG&A)
expense for the three months ended June 30, 2005 increased $20.0 million, or 51%, to $59.1 million
from $39.1 million for the same period last year. For the six months ended June 30, 2005, SG&A
expense increased $34.4 million, or 45%, to $110.3 million from $75.9 million for the same period
last year. Our SG&A expense to revenue ratio was 13.0% for the three months ended June 30, 2005
compared to 12.2% for the same period last year. For the six months ended June 30, 2005, our SG&A
expense to revenue ratio was 12.6% compared to 12.2% for the same period last year. The increase
in SG&A expense was primarily due to investments in Medicare
expansion activities, information technology, and increased spending necessary to support and sustain our membership
growth. Additionally, SG&A expense increased due to costs incurred to evaluate and submit our PDP
proposal which approximated $0.02 per fully diluted share for the quarter ended June 30, 2005.
17
Interest expense. Interest expense was $3.6 million and $1.8 million for the three months
ended June 30, 2005 and 2004, respectively, and $6.8 million and $4.1 for the six months ended June
30, 2005 and 2004, respectively. The increase primarily relates to the additional amount of debt
outstanding at June 30, 2005.
Income tax expense. Income tax expense for the three months ended June 30, 2005 was $9.0
million with an effective tax rate of 39% as compared to $5.7 million for the same period last year
with an effective tax rate of 39%. Income tax expense for the six months ended June 30, 2005 was
$15.8 million with an effective tax rate of 39% as compared to $9.6 million with an effective tax
rate of 39% for the same period last year.
Net income. Net income for the three months ended June 30, 2005 was $14.2 million compared to
$8.9 million for the same period last year, representing an increase of 58%. For the six months
ended June 30, 2005, net income was $24.8 million compared to $14.8 million for the same period
last year, representing an increase of 68%.
Liquidity and Capital Resources
We have financed our operations principally through internally generated funds. We generate
cash mainly from premium revenue. Our primary use of cash is the payment of expenses related to
medical benefits and administrative costs. We generally receive premium revenue in advance of
payment of claims for related healthcare services. We expect our future funding for working
capital needs, capital expenditures, long-term debt repayments, dividends and other financing
activities will continue to be provided from these resources. From time to time, we may need to
raise additional capital or draw on our revolving credit facility to fund planned geographic and
product expansion or acquire healthcare businesses. As of June 30, 2005, no amounts have been
drawn on the revolving credit facility.
Each of our existing and projected sources of cash are impacted by operational and financial
risks that influence the overall amount of cash generated and the capital available to us. For a
further discussion of risks that can impact our liquidity, see the risk factor discussion included
in the 2005 Form S-1.
As we generally receive premiums in advance of payments of claims for healthcare services, we
maintain estimated balances of cash and cash equivalents pending payment of claims. At June 30,
2005 and June 30, 2004, cash and cash equivalents were $253.5 million and $215.3 million,
respectively. We also had short-term investments with maturities of three to twelve months of
$178.1 million and $39.1 million at June 30, 2005 and June 30, 2004, respectively.
Our investment policies are designed primarily to provide liquidity and preserve capital. The
states in which we operate prescribe the types of instruments in which our subsidiaries may invest
their funds. As of June 30, 2005 and June 30, 2004, a substantial portion of our cash was invested
in certificates of deposit and a portfolio of highly liquid money market securities with a weighted
average maturity of 54 days and 60 days, respectively. The average portfolio yield for the three
month periods ended June 30, 2005 and June 30, 2004, was approximately 2.16% and 1.68%,
respectively.
Overview of Cash Flow Activities
For the six month periods ended June 30, 2005 and 2004 our cash flows are summarized as
follows:
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
2004 |
Net cash used in operations |
|
|
(20,770 |
) |
|
|
(28,583 |
) |
Net cash used in investing activities |
|
|
(123,334 |
) |
|
|
(47,981 |
) |
Net cash (used in) provided by financing activities |
|
|
(28 |
) |
|
|
54,503 |
|
Cash Used In Operations: The decrease in cash used in operations was primarily due to changes
in outstanding receivables, unearned premiums, tax payments and liabilities based on the timing of
cash receipts and payments.
18
Cash Used in Investing Activities: The increase in cash used in investing activities during
the period ended June 30, 2005 is primarily due to additional investments made from cash
principally generated by our public offerings.
Cash from Financing Activities: The change in cash from financing activities is primarily due
to debt repayments and proceeds during the period ended June 30, 2004.
Off-Balance Sheet Arrangements
At June 30, 2005, we did not have any off-balance sheet arrangements that are required to be
disclosed under Item 303(a)(4)(ii) of SEC Regulation S-K.
Item 3: Quantitative and Qualitative Disclosures About Market Risk.
As of June 30, 2005, we had cash and cash equivalents of $253.5 million, investments
classified as current assets of $178.1 million, and restricted investments on deposit for licensure
of $35.8 million. The short-term investments classified as current assets consist of highly liquid
securities with maturities between three and twelve months and longer term bonds with floating
interest rates that are considered available for sale. Long-term restricted assets consist of cash
and cash equivalents deposited or pledged to state agencies in accordance with state rules and
regulations. These restricted assets are classified as long-term regardless of the contractual
maturity date due to the long-term nature of the states requirements. The investments classified
as long-term are subject to interest rate risk and will decrease in value if market rates increase.
Because of their short-term pricing nature, however, we would not expect the value of these
investments to decline significantly as a result of a sudden change in market interest rates.
Assuming a hypothetical and immediate 1% increase in market interest rates at June 30, 2005, the
fair value of our fixed income investments would decrease by less than $1.8 million. Similarly, a
1% decrease in market interest rates at June 30, 2005 would result in an increase of the fair value
of our investments of less than $1.8 million.
Item 4: Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management carried out an evaluation required by Rule 13a-15 under the Securities Exchange
Act of 1934, as amended (the Exchange Act), under the supervision and with the participation of
our President and Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the
effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 and 15d-15 under
the Exchange Act (Disclosure Controls). Based on the evaluation, our CEO and CFO concluded that
as of June 30, 2005, our Disclosure Controls are effective in timely alerting them to material
information required to be included in our reports filed with the SEC.
Changes in Internal Controls
There has not been any change in our internal control over financial reporting identified in
connection with the evaluation that occurred during the quarter ended June 30, 2005 that has
materially affected, or is reasonably likely to materially affect, those controls.
Limitations on the Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our Disclosure Controls and
internal controls will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control system are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of
two or more people or by management override of the controls.
19
The design of any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time, a control may become
inadequate because of changes in conditions or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be detected.
Part II OTHER INFORMATION
Item 1: Legal Proceedings.
We are involved in legal actions in the normal course of business, some of which seek
monetary damages, including claims for punitive damages, which are not covered by insurance. These
actions, when finally concluded and determined, will not, in our opinion, have a material adverse
effect on our financial position, results of operations or cash flows. We believe that we have
obtained adequate insurance or rights to indemnification or, where appropriate, have established
adequate reserves in connection with these legal proceedings.
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds.
In connection with our initial public offering of our common stock, the SEC declared our
Registration Statement on Form S-1 (No. 333-112829), filed under the Securities Act of 1933,
effective on June 30, 2004.
Upon the completion of our initial public offering, we invested the net proceeds from the
offering in short-term, interest-bearing, investment-grade securities. As of June 30, 2005, we have
not used any of the proceeds from the offering.
Item 3: Defaults Upon Senior Securities.
None.
Item 4: Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of WellCare Health Plans, Inc. (WellCare) was held
on June 15, 2005. Proxies for the meeting were solicited by the Company pursuant to Regulation 14
under the Securities Exchange Act of 1934, as amended; there was no solicitation in opposition to
managements nominees as listed in the proxy statement and all of such nominees were elected. At
the meeting, the matters listed below were submitted to a vote of the stockholders of WellCare.
|
|
|
|
|
|
|
Proposal One
|
|
The election of three directors to serve as Class 1 Directors through 2008.
The vote with respect to each nominee was as follows: |
|
(a) |
|
35,565,528 votes were cast for the election of Todd S. Farha as
a Director; 29,221 votes were withheld. |
|
|
(b) |
|
35,562,289 votes were cast for the election of Regina E.
Herzlinger as a Director; 32,460 votes were withheld. |
20
|
(c) |
|
34,410,173 votes were cast for the election of Kevin F. Hickey
as a Director; 1,184,576 votes were withheld. |
|
|
|
|
|
|
|
Proposal Two
|
|
The approval of WellCare Health Plans, Inc. 2005 Employee Stock Purchase plan: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstentions |
|
Broker Non-Votes |
|
30,770,219
|
|
|
872,203 |
|
|
|
6,120 |
|
|
|
3,946,207 |
|
|
|
|
|
|
|
|
Proposal Three:
|
|
The ratification and selection of Deloitte & Touche LLP as WellCares
independent registered public accounting firm for the year ended 2005: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For |
|
Against |
|
Abstentions |
|
Broker Non-Votes |
|
35,589,078
|
|
|
3,619 |
|
|
|
2,052 |
|
|
|
|
Item 5:Other Information.
None.
21
Item 6: Exhibits.
The following exhibits are included herein:
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.1
|
|
Registrants Amended and Restated Certificate of Incorporation,
incorporated by reference to an exhibit to the Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. |
|
|
|
3.2
|
|
Registrants Amended and Restated Bylaws, incorporated by
reference to an exhibit to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004. |
|
|
|
4.1
|
|
Specimen common stock certificate of Registrant, incorporated by
reference to an exhibit to Amendment No. 3 to the Registration
Statement on Form S-1 filed by the Registrant on June 29, 2004
(No. 333-112829). |
|
|
|
10.1
|
|
Contract (H0712/P0138) between the Centers for Medicare & Medicaid
Services and FirstChoice Health Plans of Connecticut, Inc.,
incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on April 7,
2005. |
|
|
|
10.2
|
|
Contract (P01354) between the Centers for Medicare & Medicaid
Services and Harmony Health Plan of Illinois, Inc., incorporated
by reference to an exhibit to the Registrants Current Report on
Form 8-K filed by the Registrant on April 7, 2005. |
|
|
|
10.3
|
|
Amendment to Medicaid Managed Care Model Contract between WellCare
of New York, Inc. and Rockland County, New York, incorporated by
reference to an exhibit to the Registrants Current Report on Form
8-K filed by the Registrant on April 7, 2005. |
|
|
|
10.4
|
|
Amendment to Contract No. C017720 between the New York Department
of Health and WellCare of New York, Inc., incorporated by
reference to an exhibit to the Registrants Current Report on Form
8-K filed by the Registrant on April 7, 2005. |
|
|
|
10.5
|
|
Amendment to Medicare Managed Care Contract Pursuant to Section
1860D-31 of the Social Security Act for Operation of a
Medicare-Approved Prescription Drug Discount Card between the
Centers for Medicare & Medicaid Services and WellCare of
Louisiana, Inc., incorporated by reference to an exhibit to the
Registrants Current Report on Form 8-K filed by the Registrant on
May 11, 2005. |
|
|
|
10.6
|
|
Amendment to Contract No. C-014386 between The State of New York
Department of Health and WellCare of New York, Inc., incorporated
by reference to an exhibit to the Registrants Current Report on
Form 8-K filed by the Registrant on May 11, 2005. |
|
|
|
10.7
|
|
Amendment to Contract P01162 between the Department of Health and
Human Services Centers for Medicare & Medicaid Services and
WellCare of Florida, Inc., incorporated by reference to an exhibit
to the Registrants Current Report on Form 8-K filed by the
Registrant on May 27, 2005. |
|
|
|
10.8
|
|
Amendment No. 4 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and HealthEase of Florida,
Inc., incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on May 27,
2005. |
|
|
|
10.9
|
|
Amendment No. 5 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and HealthEase of Florida,
Inc., incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on May 27,
2005. |
|
|
|
10.10
|
|
Amendment No. 5 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and Well Care HMO, Inc.
d/b/a StayWell Health Plan of Florida, incorporated by reference
to an exhibit to the Registrants Current Report on Form 8-K filed
by the Registrant on May 27, 2005. |
|
|
|
10.11
|
|
Amendment No. 6 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and Well Care HMO, Inc.
d/b/a StayWell Health Plan of Florida, incorporated by reference
to an exhibit to the Registrants Current Report on Form 8-K filed
by the Registrant on May 27, 2005. |
22
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.12
|
|
Amendment to Medicaid Managed Care Model Contract between WellCare
of New York, Inc. and the New York City Department of Health and
Mental Hygiene, incorporated by reference to an exhibit to the
Registrants Current Report on Form 8-K filed by the Registrant on
May 27, 2005. |
|
|
|
10.13
|
|
Amended and Restated Employment Agreement, dated as of June 6,
2005, by and among WellCare Health Plans, Inc., Comprehensive
Health Management, Inc. and Todd S. Farha, incorporated by
reference to an exhibit to the Registrants Current Report on Form
8-K filed by the Registrant on June 8, 2005. |
|
|
|
10.14
|
|
Non-Qualified Stock Option Agreement, dated as of June 6, 2005, by
and between WellCare Health Plans, Inc. and Todd S. Farha,
incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on June 8,
2005. |
|
|
|
10.15
|
|
Restricted Stock Award Agreement, dated as of June 6, 2005, by and
between WellCare Health Plans, Inc. and Todd S. Farha,
incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on June 8,
2005. |
|
|
|
10.16
|
|
Performance Share Award Agreement, dated as of June 6, 2005, by
and between WellCare Health Plans, Inc. and Todd S. Farha,
incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on June 8,
2005. |
|
|
|
10.17
|
|
Amendment No. 7 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and Well Care HMO, Inc.
d/b/a StayWell Health Plan of Florida, incorporated by reference
to an exhibit to the Registrants Current Report on Form 8-K filed
by the Registrant on June 22, 2005. |
|
|
|
10.18
|
|
Amendment No. 6 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and HealthEase of Florida,
Inc., incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on June 22,
2005. |
|
|
|
10.19
|
|
Contract No. 0654 between The Georgia Department of Community
Health and WellCare for Provision of Services to Georgia Healthy
Families and WellCare Health Plans of Georgia, Inc. dated July 18,
2005.* |
|
|
|
31.1
|
|
Certificate of President and Chief Executive Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002, dated August 4, 2005.* |
|
|
|
31.2
|
|
Certificate of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002, dated August 4, 2005.* |
|
|
|
32.1
|
|
Certification of President and Chief Executive Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002, dated August 4, 2005.* |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002, dated August 4, 2005.* |
|
|
|
|
|
* Filed herewith |
23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized in
Tampa, Florida on August 4, 2005.
|
|
|
|
|
|
WELLCARE HEALTH PLANS, INC.
|
|
|
By: |
/ s / Paul L. Behrens
|
|
|
|
Paul L. Behrens, Chief Financial Officer |
|
|
|
(Principal Financial and Accounting
Officer and duly authorized officer) |
|
|
24
EXHIBIT INDEX
The following exhibits are included herein:
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.1
|
|
Registrants Amended and Restated Certificate of Incorporation,
incorporated by reference to an exhibit to the Registrants
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004. |
|
|
|
3.2
|
|
Registrants Amended and Restated Bylaws, incorporated by
reference to an exhibit to the Registrants Quarterly Report on
Form 10-Q for the quarter ended June 30, 2004. |
|
|
|
4.1
|
|
Specimen common stock certificate of Registrant, incorporated by
reference to an exhibit to Amendment No. 3 to the Registration
Statement on Form S-1 filed by the Registrant on June 29, 2004
(No. 333-112829). |
|
|
|
10.1
|
|
Contract (H0712/P0138) between the Centers for Medicare & Medicaid
Services and FirstChoice Health Plans of Connecticut, Inc.,
incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on April 7,
2005. |
|
|
|
10.2
|
|
Contract (P01354) between the Centers for Medicare & Medicaid
Services and Harmony Health Plan of Illinois, Inc., incorporated
by reference to an exhibit to the Registrants Current Report on
Form 8-K filed by the Registrant on April 7, 2005. |
|
|
|
10.3
|
|
Amendment to Medicaid Managed Care Model Contract between WellCare
of New York, Inc. and Rockland County, New York, incorporated by
reference to an exhibit to the Registrants Current Report on Form
8-K filed by the Registrant on April 7, 2005. |
|
|
|
10.4
|
|
Amendment to Contract No. C017720 between the New York Department
of Health and WellCare of New York, Inc., incorporated by
reference to an exhibit to the Registrants Current Report on Form
8-K filed by the Registrant on April 7, 2005. |
|
|
|
10.5
|
|
Amendment to Medicare Managed Care Contract Pursuant to Section
1860D-31 of the Social Security Act for Operation of a
Medicare-Approved Prescription Drug Discount Card between the
Centers for Medicare & Medicaid Services and WellCare of
Louisiana, Inc., incorporated by reference to an exhibit to the
Registrants Current Report on Form 8-K filed by the Registrant on
May 11, 2005. |
|
|
|
10.6
|
|
Amendment to Contract No. C-014386 between The State of New York
Department of Health and WellCare of New York, Inc., incorporated
by reference to an exhibit to the Registrants Current Report on
Form 8-K filed by the Registrant on May 11, 2005. |
|
|
|
10.7
|
|
Amendment to Contract P01162 between the Department of Health and
Human Services Centers for Medicare & Medicaid Services and
WellCare of Florida, Inc., incorporated by reference to an exhibit
to the Registrants Current Report on Form 8-K filed by the
Registrant on May 27, 2005. |
|
|
|
10.8
|
|
Amendment No. 4 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and HealthEase of Florida,
Inc., incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on May 27,
2005. |
|
|
|
10.9
|
|
Amendment No. 5 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and HealthEase of Florida,
Inc., incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on May 27,
2005. |
|
|
|
10.10
|
|
Amendment No. 5 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and Well Care HMO, Inc.
d/b/a StayWell Health Plan of Florida, incorporated by reference
to an exhibit to the Registrants Current Report on Form 8-K filed
by the Registrant on May 27, 2005. |
|
|
|
10.11
|
|
Amendment No. 6 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and Well Care HMO, Inc.
d/b/a StayWell Health Plan of Florida, incorporated by reference
to an exhibit to the Registrants Current Report on Form 8-K filed
by the Registrant on May 27, 2005. |
25
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
10.12
|
|
Amendment to Medicaid Managed Care Model Contract between WellCare
of New York, Inc. and the New York City Department of Health and
Mental Hygiene, incorporated by reference to an exhibit to the
Registrants Current Report on Form 8-K filed by the Registrant on
May 27, 2005. |
|
|
|
10.13
|
|
Amended and Restated Employment Agreement, dated as of June 6,
2005, by and among WellCare Health Plans, Inc., Comprehensive
Health Management, Inc. and Todd S. Farha, incorporated by
reference to an exhibit to the Registrants Current Report on Form
8-K filed by the Registrant on June 8, 2005. |
|
|
|
10.14
|
|
Non-Qualified Stock Option Agreement, dated as of June 6, 2005, by
and between WellCare Health Plans, Inc. and Todd S. Farha,
incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on June 8,
2005. |
|
|
|
10.15
|
|
Restricted Stock Award Agreement, dated as of June 6, 2005, by and
between WellCare Health Plans, Inc. and Todd S. Farha,
incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on June 8,
2005. |
|
|
|
10.16
|
|
Performance Share Award Agreement, dated as of June 6, 2005, by
and between WellCare Health Plans, Inc. and Todd S. Farha,
incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on June 8,
2005. |
|
|
|
10.17
|
|
Amendment No. 7 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and Well Care HMO, Inc.
d/b/a StayWell Health Plan of Florida, incorporated by reference
to an exhibit to the Registrants Current Report on Form 8-K filed
by the Registrant on June 22, 2005. |
|
|
|
10.18
|
|
Amendment No. 6 to AHCA Contract between the State of Florida,
Agency for Health Care Administration and HealthEase of Florida,
Inc., incorporated by reference to an exhibit to the Registrants
Current Report on Form 8-K filed by the Registrant on June 22,
2005. |
|
|
|
10.19
|
|
Contract No. 0654 between The Georgia Department of Community
Health and WellCare for Provision of Services to Georgia Healthy
Families, dated July 18, 2005.* |
|
|
|
31.1
|
|
Certificate of President and Chief Executive Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002, dated August 4, 2005.* |
|
|
|
31.2
|
|
Certificate of Chief Financial Officer pursuant to Section 302 of
Sarbanes-Oxley Act of 2002, dated August 4, 2005.* |
|
|
|
32.1
|
|
Certification of President and Chief Executive Officer pursuant to
Section 906 of Sarbanes-Oxley Act of 2002, dated August 4, 2005.* |
|
|
|
32.2
|
|
Certification of Chief Financial Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002, dated August 4, 2005.*
* Filed herewith |
26