CNC Centene Corp

Item 8.01.

Other Events.

WellCare Non-GAAP Financial Measures

In addition to results determined under generally accepted accounting principles (“GAAP”), Centene is providing certain WellCare non-GAAP financial measures that management believes are useful in assessing WellCare’s performance. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP. Centene has provided a reconciliation of the historical WellCare non-GAAP financial measures with the most directly comparable financial measure calculated in accordance with GAAP.

WellCare’s earnings per share, net income and, as noted below, other specific operating and financial measures have been adjusted for the effect of certain expenses, and as appropriate, the related tax effect, related to previously disclosed government investigations and related litigation and resolution costs (“investigation costs”) in 2018; amortization expense associated with acquisitions (“acquisition-related amortization expenses”); and certain one-time transaction and integration costs related to the acquisition of WellCare by Centene and WellCare’s acquisitions of Universal American Corp., Meridian Health Plan of Michigan, Inc., Meridian Health Plan of Illinois, Inc., Meridian Rx, LLC and Aetna Inc.’s Part D prescription drug plan membership (“transaction and integration costs”).

Although the excluded items may recur, Centene believes that by providing WellCare non-GAAP measures exclusive of these items, it facilitates period-over-period comparisons and provides additional clarity about events and trends affecting WellCare’s core operating performance, as well as providing comparability to competitor results. The investigation costs are related to a discrete incident which management does not expect to reoccur. Centene has adjusted for acquisition-related amortization expenses as these transactions do not directly relate to the servicing of products for WellCare’s customers and are not directly related to the core performance of its business operations. The other costs mentioned above are related to specific events, which do not reflect the underlying ongoing performance of the business.

In addition, because reimbursements for Medicaid premium tax and the 2018 Medicaid-associated ACA industry fee are both included in the premium rates or reimbursement established in certain Medicaid contracts and also recognized separately as a component of expense, Centene excludes these reimbursements from premium revenue and total revenue when calculating key ratios as Centene believes that these components are not indicative of WellCare’s operating performance.

Reconciliation of WellCare’s Selling, General and Administrative Expense Ratios

(Unaudited; dollars in millions)

Centene is providing WellCare’s selling, general and administrative (“SG&A”) expense ratio on an adjusted or non-GAAP basis, modified to exclude the revenue effect of Medicaid premium taxes and ACA industry fee reimbursement from premiums.  The WellCare Adjusted SG&A expense ratio also excludes the effect of acquisition-related transaction and integration costs in both 2019 and 2018 and investigation costs in 2018.

⁽¹⁾ Refer to the basis of discussion of WellCare non-GAAP financial measures above.

 

Reconciliation of Certain WellCare GAAP Financial Information

 

(Unaudited; dollars in millions, except per share data)

 

Centene is providing adjusted WellCare operating results on a non-GAAP basis to exclude certain expenses and other items that management believes are not indicative of longer-term business trends and operations.  The following table presents applicable financial information, as determined under GAAP, reconciled to the adjusted financial information for the same periods. Refer to the basis of presentation for a discussion of WellCare non-GAAP financial measures.

 

⁽¹⁾ Comprised of investigation costs and transaction and integration costs, as disclosed in the “Reconciliation of WellCare’s Selling, General and Administrative Expense Ratios” table.

 

⁽²⁾ Based on the effective income tax rates applicable to adjusted (non-GAAP) results, WellCare estimated the effect on income tax expense and the effective tax rate associated with the non-GAAP adjustments. Refer to the basis of presentation for a discussion of non-GAAP financial measures.