Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good day, everyone, and welcome to the Universal American Business Update Call. At this time, I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode. I will now turn the conference over to Mr. Richard Barasch, Chairman and CEO. Please go ahead, sir.
RICHARD BARASCH, CHAIRMAN AND CEO, UNIVERSAL AMERICAN CORP.: Good morning everyone. Thanks, everyone, for participating on this call in short notice. I am here with Bob Waegelein, our CFO, who is going to read our Safe Harbor statement.
BOB WAEGELEIN, EVP AND CFO, UNIVERSAL AMERICAN CORP.: Thanks, Richard. Matters discussed in this news release and oral statements made from time to time by representatives of Universal American may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the Federal Securities Laws. Although Universal American believes that the expectations reflected in any forward-looking statements are based upon reasonable assumptions, it can give no assurance that its expectations will be achieved. Forward-looking information is subject to risks, trends and uncertainties that can cause actual results to differ materially from those projected. Many of these factors are beyond Universal American's ability to control or predict.
Important factors that may cause actual results to differ materially and could impact Universal American and the statements contained in this news release can be found in Universal American's filings with the Securities and Exchange Commission, including quarterly reports on Form 10-Q, current reports on Form 8-K and annual reports on Form 10-K. For forward-looking statements in this news release, Universal American claims the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Universal American assumes no obligation to update or supplement any forward-looking statements, whether as a result of new information, future events or otherwise. Thank you.
RICHARD BARASCH: Thanks, Bob. On this morning's call, I am going to give context on the two issues that we addressed in our release and discuss the settlement that we have reached with the sellers of MemberHealth, which we believe has fairly addressed these issues. The issues are complex and we will do our best to address them as clearly as possible. I will begin by giving you the highlights and then I will go into details.
First, we identified issues in MemberHealth's 2008 Part D bid, that result in significantly less revenue than we originally projected. This reduction in revenue has let us to revise our range of 2008 guidance. In addition, we discovered that the first quarter 2007 financial statements from MemberHealth that were included in the proxy were incorrect, in that pretax income was overstated by approximately $26 million for that reporting period. Finally, we have reached the settlement with the sellers of MemberHealth that we believe is fair to Universal American and its shareholders.
Let me talk first to that the first issue which affects our 2008 guidance for our MemberHealth subsidiary. As of now, our preliminary conclusion is that MemberHealth will generate between $60 million and $75 million less net revenue than we had originally projected. The most important reason for this revision is that we have discovered a miscalculation in the risk scores that were used in the 2008 MemberHealth bids, which will lead to lower premium per member per month than we had originally projected. As a result, we are revising our earnings guidance to a range of $1.56 to $1.74 per share.
The reason our guidance didn't go down by the full amount of the revenue reduction is because the obligation to enter into the CMS contract that we assumed as part of the MemberHealth acquisition contained a miscalculation of the risk scores that resulted in a below market margin in the 2008 bid. Since the terms of the obligation we assumed were not equivalent to market terms, we believe that the appropriate accounting to the portion of the shortfall that relates to this miscalculation is to record a liability for this that will be recognized as income during 2008. However, a portion of the revenue shortfall will still impact our earnings negatively. I recognize that this is a complex accounting issue and we are certainly happy to answer any questions that you have about this.
As to the second item, as you recall, our agreement to acquire MemberHealth was subject to approval by Universal American shareholders …