WellCare Reports Third Quarter 2012 Results

WellCare Health Plans, Inc. (NYSE: WCG) today reported results for the third quarter and nine months ended September 30, 2012. As determined under generally accepted accounting principles (“GAAP”), net income for the third quarter of 2012 was $38.3 million, or $0.87 per diluted share, compared with $88.3 million, or $2.03 per diluted share, for the third quarter of 2011. Adjusted net income for the third quarter of 2012 was $46.2 million, or $1.05 per diluted share, compared with $93.2 million, or $2.15 per diluted share, for the third quarter of 2011.

WellCare’s third quarter 2012 results were below the Company’s expectation, principally as a result of an isolated matter in the Georgia Medicaid program, as well as lower-than-targeted performance of the Kentucky Medicaid program. In the Georgia program, premium revenue was reduced by $18 million in the third quarter of 2012 related to an unanticipated partial disallowance by the Centers for Medicare & Medicaid Services of a 2011 settlement. The settlement resolved issues with certain premium payments that covered the period from the inception of the program through the settlement and resulted from a comprehensive review and negotiation involving the three health plans that operate in the program. The Company is in discussions with the state regarding a resolution to this matter.

In addition, WellCare’s Kentucky Medicaid program operating results for the third quarter 2012 were below the Company’s target, due in part to unfavorable development of medical benefits payable related primarily to fourth quarter of 2011 and first quarter of 2012. Please refer to the schedule on page 12 of this news release that reconciles the Kentucky program medical benefits ratio (“MBR”) as determined in accordance with GAAP to an MBR recast to reflect the development of medical benefits payable in the period in which the services were provided. During the past few months, the Company has continued to make progress toward its long-term goals for the Kentucky program and anticipates further gains in performance in the coming months. The improvement is expected to result from the combined effect of medical expense management initiatives and a 3% increase in premium rates that was effective October 1.

As a result of these two issues, WellCare has decreased its guidance for 2012 full year adjusted net income per diluted share to between $4.90 and $5.05.

“Aside from our Georgia Medicaid and Kentucky Medicaid issues, our third quarter results were consistent with our expectations,” said Alec Cunningham, WellCare’s chief executive officer. “As we plan for 2013, we will continue to execute on our health care quality, access, and service initiatives. In addition, we have capitalized on several significant and promising growth opportunities during the past few months, and we see a number of similar opportunities available to us over the coming year.”

Highlights of Recent Accomplishments

  • WellCare has entered into an agreement to acquire Easy Choice Health Plan, which as of October 2012 served an estimated 36,000 Medicare Advantage plan members in Los Angeles, Orange, Riverside, and San Bernardino Counties in Southern California.
  • The Company recently entered into an agreement to acquire UnitedHealthcare's Medicaid business in South Carolina, which as of October 2012 served approximately 65,000 members in the South Carolina Healthy Connections Choices program.
  • WellCare was selected by the Kentucky Cabinet for Health and Human Services to serve the Medicaid program in the Commonwealth's Region 3, including Louisville and 15 surrounding counties, beginning January 1, 2013.
  • In Florida, WellCare was approved by the Department of Elder Affairs to expand its Long-Term Care Community Diversion Pilot Project service area by 17 counties, to a total of 19 counties. In the Florida Medicaid program, WellCare recently expanded its service area by four counties to a total of 42 out of Florida’s 67 counties, the largest service area of the state’s Medicaid plans. In addition, on October 1, 2012, WellCare launched its expanded service area for the Florida Healthy Kids program, increasing counties served from 18 to 65.
  • Medicare Advantage segment membership of 167,000 as of September 30, 2012, was the highest coordinated care plan membership in WellCare’s history.
  • WellCare’s Prescription Drug Plan (“PDP”) segment continued to perform better than anticipated, resulting in a 40% increase in PDP gross margin year-over-year. In conjunction with the Medicare Annual Election Period, the Company launched a new enhanced PDP that offers members a relatively low monthly premium, no deductible, no co-payment on preferred generic drugs, and generic drug coverage in the coverage gap.

Company Operations

Adjusted net income per diluted share for the third quarter of 2012 decreased by $1.10 compared with 2011. The year-over-year decrease resulted mainly from increases in the Medicaid and Medicare Advantage segments’ MBRs. These factors were partially offset by higher premium revenue in the Medicaid and Medicare Advantage segments and decreases in the Company’s PDP segment MBR and adjusted administrative expense ratio.

Membership as of September 30, 2012, increased 6% to 2.6 million, compared with 2.4 million members as of September 30, 2011. Premium revenue for the third quarter of 2012 increased 18% year–over-year to $1.8 billion. Medical benefits expense for the third quarter of 2012 was $1.5 billion, an increase of 28% from the third quarter of 2011. The Company MBR was 86.3% in the third quarter of 2012, compared with 79.8% in the third quarter of 2011.

Selling, general, and administrative (“SG&A”) expense as determined under GAAP was $177 million in the third quarter of 2012, compared with $161 million for the same period in 2011. Adjusted SG&A expense was $165 million in the third quarter of 2012, an increase of 8% from $153 million for the same period last year. The increase was driven primarily by the Kentucky Medicaid program launched in November 2011, as well as the Company’s growth initiatives. The adjusted administrative expense ratio was 9.2% in the third quarter of 2012, compared with 10.0% for the same period in 2011.

Medicaid Segment Operations

Medicaid segment membership increased by 202,000, or 15%, year-over-year, to 1.5 million members as of September 30, 2012. The increase resulted mainly from the 2011 launch of the Kentucky Medicaid program. In addition, the Company experienced growth in Florida and several other states, offset in part by the end of the Company’s participation in the Missouri program on June 30, 2012.

Premium revenue was $1.1 billion for the third quarter of 2012, an increase of 22% year-over-year, mainly due to the Kentucky program. Revenue and gross margin were reduced by the previously described reversal of premium in the Georgia Medicaid program.

The Medicaid segment MBR was 91.1% for the third quarter of 2012, an increase from 80.4% in the third quarter of 2011. The MBR increase results primarily from challenges associated with the performance of the Kentucky Medicaid program.

Medicare Advantage Segment Operations

Medicare Advantage segment membership increased by 37,000 year-over-year, or 28%, to 167,000 members, which is the highest coordinated care plan membership in WellCare’s history. Premium revenue grew 25%. The Medicare Advantage segment MBR was 86.8% in the third quarter of 2012, an increase from 82.0% in the third quarter of 2011.

Prescription Drug Plan Segment Operations

PDP segment membership decreased 88,000 year-over-year, or 9%. Premium revenue decreased 6%. The PDP segment MBR was 64.7% in the third quarter of 2012, a decrease from 74.4% in the third quarter of 2011. The decrease resulted in part from the positioning of the Company’s plans relative to member utilization and cost-sharing patterns and WellCare’s focus on generic medications.

Cash Flow and Financial Condition

Net cash used in operating activities as determined under GAAP was $134 million for the nine months ended September 30, 2012, compared with net cash provided by operating activities of $319 million for the nine months ended September 30, 2011. As previously disclosed, WellCare has experienced temporary premium payment delays by the Georgia Medicaid program. Although Georgia repaid a portion of its balance due during the third quarter, the delayed remaining payments had an adverse effect on WellCare’s operating cash flow for the nine months ended September 30, 2012. Modified for the timing of receipts from, and payments to, WellCare’s government customers, net cash provided by operating activities was $20 million for the first nine months of 2012, compared with $177 million for the first nine months of 2011.

As of September 30, 2012, unregulated cash and investments were approximately $350 million, compared with $168 million as of June 30, 2012. The increase resulted primarily from a reduction in premiums receivable from the Georgia Medicaid program and dividends received from the Company’s regulated entities, offset in part by capital contributions to certain regulated entities.

Days in claims payable were 40 days as of September 30, 2012, compared with 38 days as of June 30, 2012, and 57 days as of September 30, 2011.

Financial Outlook

WellCare is updating its financial outlook for the year ended December 31, 2012. The following elements of WellCare’s financial outlook have changed:

  • Adjusted net income per diluted share is expected to be between approximately $4.90 and $5.05. The previous guidance was for adjusted net income per diluted share of between approximately $5.25 and $5.45. The reduction results principally from the isolated revenue matter associated with the Georgia Medicaid program and lower-than-targeted performance of the Kentucky Medicaid program.
  • Premium revenue is expected to be between approximately $7.15 and 7.20 billion. Previous guidance was for premium revenue to be approximately $7.1 billion.
  • The adjusted administrative expense ratio is expected to be in the range of 8.8% to 8.9%. The prior guidance was for the adjusted administrative expense ratio to be in the range of 8.7% to 8.9%.

The following elements of WellCare’s financial outlook are unchanged:

  • The 2012 Medicaid and Medicare Advantage segments’ MBRs each are anticipated to increase relative to the respective 2011 segment MBRs.

All elements of the Company’s outlook exclude the impact of Medicaid premium taxes.

Webcast

A discussion of WellCare’s third quarter 2012 results will be webcast live on Wednesday, October 31, 2012, beginning at 8:30 a.m. Eastern Time. A replay will be available beginning approximately one hour following the conclusion of the live broadcast and will be available for 30 days. The webcast is available via the Company’s web site at www.wellcare.com and at www.earnings.com.

About WellCare Health Plans, Inc.

WellCare Health Plans, Inc. provides managed care services targeted to government-sponsored health care programs, focusing on Medicaid and Medicare. Headquartered in Tampa, Fla., WellCare offers a variety of health plans for families, children, and the aged, blind, and disabled, as well as prescription drug plans. The Company served approximately 2.6 million members nationwide as of September 30, 2012. For more information about WellCare, please visit the Company’s website at www.wellcare.com.

Basis of Presentation

Premium revenue as described in this news release excludes the impact of premium taxes. Both the Company and segment MBRs, as well as the Company’s administrative expense ratio, are calculated as a percentage of premium revenue, excluding premium taxes. In addition to results determined under GAAP, net income and certain other operating results described in this news release are reported after adjustment for certain SG&A expenses related to previously disclosed government investigations and related litigation and resolution costs that management believes are not indicative of long-term business operations. Please refer to the schedule in this news release that provides supplemental information reconciling results determined under GAAP to adjusted results.

Cautionary Statement Regarding Forward-Looking Statements

This news release 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 “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions are forward-looking statements. For example, statements regarding the Company’s financial outlook, further improvements in the Kentucky Medicaid program, and the timing of the closing of the acquisition of the Medicare Advantage plans in Mohave and Yavapai counties in Arizona and the acquisition of Easy Choice Health Plan, Inc. of California contain forward-looking statements. Forward-looking statements involve known and unknown risks and uncertainties that may cause WellCare’s 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, WellCare’s progress on top priorities such as improving health care quality and access, ensuring a competitive cost position, and delivering prudent, profitable growth, WellCare’s ability to effectively manage growth, WellCare’s ability to address operational challenges relating to new business, WellCare’s ability to effectively execute and integrate acquisitions, and WellCare’s ability to estimate and manage medical benefits effectively.

Additional information concerning these and other important risks and uncertainties can be found under the captions “Forward-Looking Statements” and “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011, and in the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2012, and other subsequent filings by WellCare with the U.S. Securities and Exchange Commission, which contain discussions of WellCare’s business and the various factors that may affect it. WellCare undertakes no duty to update these forward-looking statements to reflect any future events, developments, or otherwise.

WELLCARE HEALTH PLANS, INC.

SELECTED DATA FROM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; dollars in thousands except per share data)

For the Three Months
Ended September 30,

For the Nine Months Ended
September 30,

2012201120122011
Revenues:
Premium $ 1,795,796 $ 1,523,057 $ 5,353,083 $ 4,443,848
Medicaid premium taxes 20,581 18,869 61,048 55,838
Total premium 1,816,377 1,541,926 5,414,131 4,499,686
Investment and other income 2,018 2,433 6,772 7,050
Total revenues 1,818,395 1,544,359 5,420,903 4,506,736
Expenses:
Medical benefits 1,549,456 1,214,822 4,617,411 3,680,145
Selling, general and administrative 176,797 160,591 497,493 458,612
Medicaid premium taxes 20,581 18,869 61,048 55,838
Depreciation and amortization 8,193 6,453 22,704 19,824
Interest 1,016 3,648 3,163 3,823
Total expenses 1,756,043 1,404,383 5,201,819 4,218,242
Income before income taxes 62,352 139,976 219,084 288,494
Income tax expense 24,065 51,721 83,123 109,309
Net income $ 38,287 $ 88,255 $ 135,961 $ 179,185
Net income per common share:
Basic $ 0.89 $ 2.06 $ 3.16 $ 4.19
Diluted $ 0.87 $ 2.03 $ 3.11 $ 4.14
Weighted average common shares outstanding:
Basic 43,149,455 42,887,381 43,070,113 42,757,476
Diluted 43,844,223 43,424,414 43,785,424 43,285,969

WELLCARE HEALTH PLANS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited; dollars in thousands except share data)

Sept. 30,
2012

Dec. 31,
2011

ASSETS
Current Assets:
Cash and cash equivalents $ 1,062,340 $ 1,325,098
Investments 209,798 198,569
Premiums receivable, net 393,508 217,509
Pharmacy rebates receivable, net 121,979 109,933
Funds receivable for the benefit of members 219,967 162,745
Income taxes receivable 39,920 20,655
Prepaid expenses and other current assets, net 67,744 63,053
Deferred income tax asset 27,937 22,332
Total current assets 2,143,193 2,119,894
Property, equipment and capitalized software, net 123,875 98,238
Goodwill 111,131 111,131
Other intangible assets, net 8,506 9,896
Long-term investments 87,797 83,019
Restricted investments 66,805 60,663
Other assets 2,480 5,270
Total Assets $ 2,543,787 $ 2,488,111
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Medical benefits payable $ 671,187 $ 744,821
Unearned premiums 141 164
Accounts payable 8,802 3,294
Other accrued expenses and liabilities 197,036 215,817
Current portion of amount payable related to investigation resolution 37,016 49,557
Current portion of long-term debt 15,000 11,250
Other payables to government partners 118,409 98,237
Total current liabilities 1,047,591 1,123,140
Deferred income tax liability 22,573 1,026
Amount payable related to investigation resolution 67,642 101,705
Long-term debt 123,750 135,000
Other liabilities 8,931 10,394
Total liabilities 1,270,487 1,371,265
Commitments and contingencies
Stockholders' Equity:

Preferred stock, $0.01 par value (20,000,000 authorized, no shares issued or outstanding)

Common stock, $0.01 par value (100,000,000 authorized, 43,199,188 and 42,848,798 shares issued and outstanding at September 30, 2012 and December 31, 2011, respectively)

431 429
Paid-in capital 468,211 448,820
Retained earnings 805,319 669,358
Accumulated other comprehensive loss (661 ) (1,761 )
Total stockholders' equity 1,273,300 1,116,846
Total Liabilities and Stockholders' Equity $ 2,543,787 $ 2,488,111

WELLCARE HEALTH PLANS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; dollars in thousands)

Nine Months Ended
September 30,

20122011
Cash (used in) provided by operating activities:
Net income $ 135,961 $ 179,185
Adjustments to reconcile net income to net cash (used in)

provided by operating activities:

Depreciation and amortization 22,704 19,824
Equity-based compensation expense 13,534 13,160
Incremental tax benefit from equity-based compensation (3,666 ) (2,518 )
Deferred taxes, net 15,296 27,032
Provision for doubtful receivables 10,272 8,310
Changes in operating accounts:
Premiums receivable, net (184,632 ) (104,340 )
Pharmacy rebates receivable, net (12,046 ) (5,182 )
Prepaid expenses and other current assets, net (6,162 ) (20,050 )
Medical benefits payable (73,634 ) 14,112
Unearned premiums (23 ) 208,374
Accounts payable and other accrued expenses (11,895 ) (2,967 )
Other payables to government partners 20,172 30,067
Amount payable related to investigation resolution (46,604 ) (80,749 )
Income taxes receivable/payable, net (16,289 ) 36,995
Other, net 2,618 (2,240 )
Net cash (used in) provided by operating activities (134,394 ) 319,013
Cash used in investing activities:
Purchases of investments (357,214 ) (332,934 )
Proceeds from sale and maturities of investments 342,963 208,758
Purchases of restricted investments (30,973 ) (26,118 )
Proceeds from maturities of restricted investments 24,821 68,712
Additions to property, equipment and capitalized software, net (47,665 ) (30,773 )
Net cash used in investing activities (68,068 ) (112,355 )
Cash (used in) provided by financing activities:
Proceeds from debt, net of financing costs paid (585 ) 147,747
Proceeds from option exercises and other 9,227 4,624
Incremental tax benefit from equity-based compensation 3,666 2,518
Purchase of treasury stock (6,344 ) (3,538 )
Payments on debt (7,500 ) (1,875 )
Payments on capital leases (1,538 ) (2,006 )
Funds (paid) received for the benefit of members, net (57,222 ) 74,057
Net cash (used in) provided by financing activities (60,296 ) 221,527
(Decrease) increase in cash and cash equivalents (262,758 ) 428,185
Balance at beginning of period 1,325,098 1,359,548
Balance at end of period $ 1,062,340 $ 1,787,733
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for taxes $ 100,010 $ 46,109
Cash paid for interest $ 2,707 $ 697
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Non-cash additions to property, equipment, and capitalized software $ 1,898 $ 1,896
Non-cash issuance of subordinated notes $ $ 112,500

WELLCARE HEALTH PLANS, INC.

MEMBERSHIP STATISTICS

(Unaudited)

As of September 30,
20122011
Membership by Program
Medicaid Membership
TANF 1,183,000 1,060,000
CHIP 183,000 161,000
SSI, ABD and Other 128,000 79,000
FHP and Georgia Family Planning 21,000 13,000
Total Medicaid Membership 1,515,000 1,313,000
Medicare Membership
Medicare Advantage 167,000 130,000
Prescription Drug Plan 879,000 967,000
Total Medicare Membership 1,046,000 1,097,000
Total Membership 2,561,000 2,410,000
Medicaid Membership by State
Georgia 566,000 561,000
Florida 434,000 395,000
Total Other States 515,000 357,000
Total Medicaid Membership 1,515,000 1,313,000

WELLCARE HEALTH PLANS, INC.

SEGMENT INFORMATION

(Unaudited; dollars in thousands)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2012201120122011
Premium revenue:
Medicaid:
Georgia $ 348,322 $ 386,752 $ 1,090,386 $ 1,084,566
Florida 243,205 224,392 713,424 665,194
Other states 484,821 269,696 1,404,152 793,339
Medicaid premium taxes 20,581 18,869 61,048 55,838
Total Medicaid 1,096,929 899,709 3,269,010 2,598,937
Medicare:
Medicare Advantage plans 470,756 376,597 1,364,505 1,097,015
Prescription Drug plans 248,692 265,620 780,616 803,734
Total Medicare 719,448 642,217 2,145,121 1,900,749
Total Premium Revenue $ 1,816,377 $ 1,541,926 $ 5,414,131 $ 4,499,686
Medical benefits ratios:
Medicaid 91.1 % 80.4 % 88.7 % 82.0 %
Medicare Advantage 86.8 % 82.0 % 83.1 % 81.4 %
Prescription Drug Plans 64.7 % 74.4 % 81.9 % 87.4 %
Aggregate 86.3 % 79.8 % 86.3 % 82.8 %

WELLCARE HEALTH PLANS, INC.

SUPPLEMENTAL INFORMATION

Reconciliation of GAAP Selected Data from Consolidated Statements of Comprehensive Income

to Adjusted Selected Data from Consolidated Statements of Comprehensive Income

(Unaudited; dollars in thousands except per share data)

The Company reports adjusted operating results on a non-GAAP basis to exclude certain expenses that management believes are not indicative of longer-term business trends and operations.  Following are selected data from the Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2012 and 2011, as determined under GAAP, reconciled to adjusted selected data from the Consolidated Statements of Comprehensive Income for the same periods.

For the Three Months Ended

September 30, 2012

For the Three Months Ended

September 30, 2011

GAAPAdjustmentsAdjustedGAAPAdjustmentsAdjusted
Revenues:
Premium $ 1,795,796 $ $ 1,795,796 $ 1,523,057 $ $ 1,523,057
Medicaid premium taxes 20,581 20,581 18,869 18,869
Total premium revenues 1,816,377 1,816,377 1,541,926 1,541,926
Investment and

other income

2,018 2,018 2,433 2,433
Total revenues 1,818,395 1,818,395 1,544,359 1,544,359
Expenses:
Medical benefits 1,549,456 1,549,456 1,214,822 1,214,822
Selling, general, and administrative 176,797 (12,202 )

(a)
(b)

164,595 160,591 (7,814 )

(a)
(b)

152,777
Medicaid premium taxes 20,581 20,581 18,869 18,869
Depreciation and amortization 8,193 8,193 6,453 6,453
Interest 1,016 1,016 3,648 (2,812 ) 836
Total expenses 1,756,043 (12,202 ) 1,743,841 1,404,383 (10,626 ) 1,393,757
Income before

income taxes

62,352 12,202 74,554 139,976 10,626 150,602
Income tax expense 24,065 4,332 28,397 51,721 5,730 57,451
Net income $ 38,287 $ 7,870 $ 46,157 $ 88,255 $ 4,896 $ 93,151
Weighted average shares:
Basic 43,149,455 43,149,455 42,887,381 42,887,381
Diluted 43,844,223 43,844,223 43,424,414 43,424,414
Net income per share:
Basic $ 0.89 $ 0.18 $ 1.07 $ 2.06 $ 0.11 $ 2.17
Diluted $ 0.87 $ 0.18 $ 1.05 $ 2.03 $ 0.12 $ 2.15
Administrative

expense ratio

9.8 % (0.6 )%

(a)
(b)

9.2 % 10.5 % (0.5 )%

(a)
(b)

10.0 %

(a)

 Investigation-related legal, accounting, and other costs: Administrative expenses associated with the government investigations and related litigation amounted to $11.4 million and $7.3 million, respectively, in the three months ended September 30, 2012 and 2011.

(b)

 Liability for government investigation-related litigation resolution:  Based on the status of these matters, the Company recorded expense of $0.8 million and $0.5 million, respectively, in the three months ended September 30, 2012 and 2011.

WELLCARE HEALTH PLANS, INC.

SUPPLEMENTAL INFORMATION (Continued)

Reconciliation of GAAP Selected Data from Consolidated Statements of Comprehensive Income

to Adjusted Selected Data from Consolidated Statements of Comprehensive Income (Continued)

(Unaudited; dollars in thousands except per share data)

For the Nine Months Ended

September 30, 2012

For the Nine Months Ended

September 30, 2011

GAAPAdjustmentsAdjustedGAAPAdjustmentsAdjusted
Revenues:
Premium $ 5,353,083 $ $ 5,353,083 $ 4,443,848 $ $ 4,443,848
Medicaid premium taxes 61,048 61,048 55,838 55,838
Total premium revenues 5,414,131 5,414,131 4,499,686 4,499,686
Investment and

other income

6,772 6,772 7,050 7,050
Total revenues 5,420,903 5,420,903 4,506,736 4,506,736
Expenses:
Medical benefits 4,617,411 4,617,411 3,680,145 3,680,145
Selling, general, and administrative 497,493 (37,457 )

(a)
(b)

460,036 458,612 (30,670 )

(a)
(b)

427,942
Medicaid premium taxes 61,048 61,048 55,838 55,838
Depreciation and amortization 22,704 22,704 19,824 19,824
Interest 3,163 3,163 3,823 (2,812 ) 1,011
Total expenses 5,201,819 (37,457 ) 5,164,362 4,218,242 (33,482 ) 4,184,760
Income before

income taxes

219,084 37,457 256,541 288,494 33,482 321,976
Income tax expense 83,123 15,452 98,575 109,309 14,652 123,961
Net income $ 135,961 $ 22,005 $ 157,966 $ 179,185 $ 18,830 $ 198,015
Weighted average shares:
Basic 43,070,113 43,070,113 42,757,476 42,757,476
Diluted 43,785,424 43,785,424 43,285,969 43,285,969
Net income per share:
Basic $ 3.16 $ 0.51 $ 3.67 $ 4.19 $ 0.44 $ 4.63
Diluted $ 3.11 $ 0.50 $ 3.61 $ 4.14 $ 0.43 $ 4.57
Administrative

expense ratio

9.3 % (0.7 )%

(a)
(b)

8.6 % 10.3 % (0.7 )%

(a)
(b)

9.6 %

(a)

 Investigation-related legal, accounting, and other costs: Administrative expenses associated with the government investigations and related litigation amounted to $34.4 million and $23.9 million, respectively, in the nine months ended September 30, 2012 and 2011.

(b)

 Liability for government investigation-related litigation resolution:  Based on the status of these matters, the Company recorded expense of $3.0 million and $6.8 million, respectively, in the nine months ended September 30, 2012 and 2011.

WELLCARE HEALTH PLANS, INC.

SUPPLEMENTAL INFORMATION (Continued)

Reconciliation of GAAP Net Cash Used in or Provided by Operating Activities

to Net Cash Provided by Operating Activities,

Modified for the Timing of Receipts from, and Payments to, Government Customers

(Unaudited; dollars in thousands)

The Company reports cash used in or provided by operating activities on a non-GAAP basis modified to exclude the changes in premium receivables, unearned premiums, and other receivables from, and payables to, government customers.  The Company believes that cash used in or provided by operating activities modified to exclude these changes is a useful measure for investors, as the excluded changes are a function of the timing of cash receipts from, and payments to, federal and state government agencies at the end of each period.

Nine Months Ended
September 30,

20122011
Net cash (used in) provided by operating activities,

as reported under GAAP

$ (134,394 ) $ 319,013
Modifications to eliminate changes in:
Premiums receivable 184,632 104,340
Provision for doubtful receivables (10,272 ) (8,310 )
Unearned premiums 23 (208,374 )
Other payables to government customers (20,172 ) (30,067 )
Net cash provided by operating activities, modified for the timing of receipts from and payments to government customers $ 19,817 $ 176,602

Kentucky Medicaid Program Reconciliation of GAAP MBR to MBR Recast to Reflect Development of Medical Benefits Payable in the Period in which the Services were Provided

(Unaudited)

The Company reports Kentucky Medicaid Program MBRs on a non-GAAP basis modified to reflect the favorable or unfavorable development of medical benefits payable in the period in which the expense was incurred.  The Company believes that the recast MBRs are useful measures for investors, as the recast MBRs may better reflect changes in the Company’s Kentucky Medicaid program performance over time.

Three Months Ended
Dec. 31,

2011

March 31,

2012

June 30,

2012

Sept. 30,

2012

MBR as reported under GAAP 106.3 % 105.9 % 109.5 % 106.2 %
Development reflected in period in which services were provided 6.7 % 10.3 % (7.5 )% (5.4 )%
MBR as recast 113.0 % 116.2 % 102.0 % 100.8 %

Contacts:

WellCare Health Plans, Inc.
Investor relations:
Gregg Haddad, 813-206-3916
gregg.haddad@wellcare.com
or
Media relations:
Crystal Warwell Walker, 813-206-2697
crystal.walker@wellcare.com
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