INDIANAPOLIS, Oct. 26 /PRNewswire-FirstCall/ -- WellPoint, Inc. today announced that third quarter 2005 net income reached $640.7 million, or $1.02 per share. Net income for the third quarter of 2004 was $242.1 million, or $0.85 per share.
"Our third quarter results further build upon a very successful year in which we have delivered more products and services to our members than ever before," said Larry C. Glasscock, president and chief executive officer of WellPoint, Inc. "We expect that our new Medicare products will be well received in the marketplace as they will offer access to more affordable health and prescription drug plan options than previously available. We are also anticipating good National Accounts growth, having already secured a number of new accounts for the first of the year."
"Also as we look forward, we are very excited about our pending merger with WellChoice. The combined company should be ideally positioned to offer our respective customers more innovative and cost effective solutions to help meet their health care needs than either company could accomplish alone," added Glasscock.
COMPARABLE BASIS INFORMATION
On November 30, 2004, Anthem, Inc. acquired WellPoint Health Networks Inc. and Anthem, Inc. changed its name to WellPoint, Inc. Accordingly, third quarter and year-to-date 2005 financial results include operations of both legacy companies for the entire periods. Third quarter and year-to-date 2004 financial results, however, only include operations of the former Anthem, Inc. Unless otherwise indicated, the analysis in this press release compares reported financial results to historical financial results, as reclassified to conform to current presentation, and does not adjust results for the effects of the acquisition.
In certain areas, we have included "comparable basis" analyses that we believe provide more meaningful comparisons between periods, due to the inclusion of operations for the former WellPoint Health Networks Inc. in the comparable historical results. The comparable, historical information is not calculated in accordance with generally accepted accounting principles ("GAAP") and is not intended to represent or be indicative of the results that WellPoint, Inc. would have reported had the acquisition been completed as of the dates presented, and should not be taken as representative or indicative of our future results. The methodologies for calculating the comparable, historical information are either described within the text of the press release, or in the tables at the end of the press release where such comparable historical information is reconciled to the historical GAAP information of the former Anthem, Inc. and the former WellPoint Health Networks Inc. Comparable, historical information and reconciliations for the quarterly and year-to-date periods ended March 31, 2004, and June 30, 2004, are available at http://www.wellpoint.com under "Investor Info."
CONSOLIDATED HIGHLIGHTS
Membership: Medical enrollment reached approximately 29 million members at September 30, 2005, an increase of 16.3 million members since September 30, 2004.
On a comparable basis, medical enrollment increased by more than 1.5 million members, or 5.6 percent, compared with 27.4 million members at September 30, 2004. Enrollment growth was realized in every region and across all lines of business, led by the National Accounts and Large Group operations. The Company added 145,000 new members during the third quarter of 2005.
Self-funded membership represented approximately 50 percent of enrollment at September 30, 2005, versus 47 percent of comparable enrollment at September 30, 2004. On July 1, 2005, approximately 140,000 members in the Georgia state HMO account converted from fully-insured to self-funded status.
Operating Revenue: Operating revenue approached $11.2 billion, an increase of 135.6 percent from $4.7 billion in the third quarter of 2004.
Operating revenue increased by $592.6 million on a comparable basis, representing growth of 5.6 percent, compared with $10.6 billion in the third quarter of 2004. The increase was driven primarily by strong membership gains and disciplined pricing in the Individual and Small Group ("ISG") and National Accounts businesses.
Benefit Expense Ratio: The benefit expense ratio was 79.9 percent, a decrease of 280 basis points, compared with 82.7 percent in the third quarter of 2004.
On a comparable basis, the benefit expense ratio declined by 170 basis points, compared with 81.6 percent in the third quarter 2004, reflecting lower than anticipated medical costs in the current year.
Premium and Cost Trends: Trends include Large Group and ISG fully-insured businesses and are calculated on a comparable basis, including the former Anthem, Inc. and the former WellPoint Health Networks Inc. for all applicable periods.
Medical trend for full year 2005 is now expected to be less than 8.5 percent. For the rolling 12 month period ended September 30, 2005, the highest rate of increase in medical trend was in outpatient services and costs. Commercial premium yield for full year 2005 is expected to be approximately equal to total cost trend, where total cost trend includes medical costs and selling, general and administrative ("SG&A") expense.
SG&A Expense Ratio: The SG&A expense ratio increased by 10 basis points, to 16.6 percent, compared with 16.5 percent in the third quarter of 2004.
On a comparable basis, the SG&A expense ratio increased by 70 basis points, compared with 15.9 percent in the prior year period. The increase reflected higher incentive compensation, including merger-related stay bonuses. Also impacting results were costs associated with the transition of information technology infrastructure services to an external vendor, which is expected to reduce future operating costs. During the third quarter, the Company achieved its targeted merger synergies of at least $40.0 million, net of the costs incurred to achieve those synergies.
Operating Cash Flow: Operating cash flow reached $928.3 million, or 1.4 times net income.
Days in Claims Payable: Days in claims payable as of September 30, 2005, was 46.7 days, unchanged from June 30, 2005.
Share Repurchase Program: The Company did not repurchase any shares of its common stock during the third quarter, due to trading restrictions placed on the Company during its merger negotiations with WellChoice, Inc. During the first six months of 2005, the Company repurchased a total of 5.1 million shares.
During the third quarter, the Board of Directors increased the remaining authorization under the share repurchase program from approximately $367.1 million to $1.0 billion and eliminated the expiration date on the program. On October 24, 2005, the Board increased the share repurchase authorization by an additional $1.0 billion, upon closing of the pending merger with WellChoice, Inc. The Company expects to repurchase shares following the close of the transaction.
REPORTABLE SEGMENTS
WellPoint, Inc. has three reportable segments: Health Care, Specialty and Other. Operating revenue and operating gain are the key measures used by management to evaluate performance in each segment.
WellPoint, Inc. Reportable Segment Highlights (Unaudited) Three Months Ended Nine Months Ended ($ In Millions) September 30 September 30 2005 2004 Change 2005 2004 Change Operating Revenue Health Care $10,674.5 $4,582.6 132.9% $31,814.7 $13,296.1 139.3% Specialty 723.1 279.1 159.1% 2,114.4 809.1 161.3% Other: External Customers 84.8 49.3 72.0% 274.0 150.7 81.8% Intercompany Eliminations (332.1) (177.9) 86.7% (954.0) (519.5) 83.6% Total Other (247.3) (128.6) 92.3% (680.0) (368.8) 84.4% Total Operating Revenue 11,150.3 4,733.1 135.6% 33,249.1 13,736.4 142.1% Operating Gain (Loss) Health Care $916.6 $344.6 166.0% $2,562.8 $999.3 156.5% Specialty 89.2 19.5 357.4% 273.0 54.9 397.3% Other (21.0) (21.6) (2.8%) (94.6) (49.7) 90.3%
Health Care: Operating gain for the Health Care segment was $916.6 million, an increase of 166.0 percent, compared with $344.6 million in the prior year period.
On a comparable basis, operating gain increased by $157.2 million, or 20.7 percent, compared with $759.4 million in the prior year period. The improvement resulted from strong membership growth, moderating medical costs in the current year, and merger synergies realized throughout the organization. The Large Group and ISG businesses contributed most significantly to the overall increase in operating gain.
Specialty: Operating gain totaled $89.2 million, an increase of 357.4 percent, compared with $19.5 million in the third quarter of 2004.
Operating gain increased by $3.6 million, or 4.2 percent, on a comparable basis, from $85.6 million in the third quarter of 2004. The increase reflected strong performance in the pharmacy benefit management operation, including continued growth in mail-order prescription volume, which was partially offset by unfavorable mortality experience on certain life insurance contracts.
OUTLOOK Full Year 2005: * Net income is now expected to be $3.93 per share, an increase of $0.02 per share from prior expectations of $3.91 per share. The updated estimate includes expenses of approximately $0.10 per share related to the multi-district agreement in the second quarter 2005, partially offset by tax benefits of approximately $0.04 per share due to the favorable resolution of a tax matter in the first quarter 2005. * Operating revenue is expected to total approximately $44.5 billion. * The benefit expense ratio is expected to be approximately 80.6 percent. * The SG&A expense ratio is expected to be approximately 16.3 percent. * Medical enrollment is expected to increase by approximately 5 percent, including acquisitions. Full Year 2006: * The Company remains committed to its goal of achieving 15 percent growth in net income per share, not taking into account additional synergies from the WellPoint Health Networks Inc. merger expected to be realized in 2006, the impact of expensing stock options, or the potential impact of the pending merger with WellChoice, Inc. The Company is in the process of finalizing its 2006 plan and will provide formal guidance for 2006 at its Investor Conference on December 6, 2005. A live webcast of this event will be available at http://www.wellpoint.com. Basis of Presentation 1. Operating gain is defined as operating revenue less benefit expense, selling expense, general and administrative expense, and cost of drugs. Operating gain is used to analyze profit or loss on a segment basis only and not on a consolidated basis. Consolidated operating gain is a non-GAAP measure. 2. All income per share amounts are on an after-tax, diluted per share basis and reflect the two-for-one stock split on May 31, 2005. 3. On November 30, 2004, Anthem, Inc. acquired WellPoint Health Networks Inc., and Anthem, Inc. changed its name to WellPoint, Inc. Accordingly, third quarter and year-to-date 2005 financial results include operations of both legacy companies for the entire periods. Third quarter and year-to-date 2004 reported financial results, however, only include operations of the former Anthem, Inc. 4. Certain prior period amounts have been reclassified to conform to current period presentation. Conference Call and Webcast
Management will host a conference call and webcast today at 8:30 a.m. Eastern Daylight Time ("EDT") to discuss its third quarter earnings results and outlook. The conference call should be accessed at least 15 minutes prior to the start of the call with the following numbers:
888-423-3268 (Domestic) 800-475-6701 (Domestic Replay)
651-291-5254 (International) 320-365-3844 (International Replay)
An access code is not required for today's conference call. The access code for the replay is 779659. The replay will be available from 1:45 p.m. EDT today until the end of the day on November 9, 2005. The call will also be available through a live webcast at http://www.wellpoint.com under "Investor Info." A webcast replay will be available following the call.
About WellPoint, Inc.
WellPoint, Inc. is the largest publicly traded commercial health benefits company in terms of membership in the United States. WellPoint, Inc. is an independent licensee of the Blue Cross and Blue Shield Association and serves its members as the Blue Cross licensee for California; the Blue Cross and Blue Shield licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.), Wisconsin; and through HealthLink and UniCare. Additional information about WellPoint is available at http://www.wellpoint.com.
WellPoint, Inc. Medical Membership & Specialty Metrics Summary (Unaudited and in Thousands) Medical Membership Change from Sept. 30, Sept. 30, Dec. 31, Sept. 30, Dec. 31, 2005(1) 2004 2004 2004 2004 Customer Type Large Group 13,268 4,838 13,073 174.2% 1.5% Individual and Small Group (ISG) 5,294 2,078 5,199 154.8% 1.8% National Accounts 3,505 1,916 3,212 82.9% 9.1% BlueCard 4,023 3,089 3,463 30.2% 16.2% Total National 7,528 5,005 6,675 50.4% 12.8% Senior 1,073 597 1,059 79.7% 1.3% State Sponsored 1,825 219 1,722 733.3% 6.0% Total 28,988 12,737 27,728 127.6% 4.5% Funding Arrangement Self-Funded 14,382 7,076 13,039 103.3% 10.3% Fully-Insured 14,606 5,661 14,689 158.0% (0.6%) Total 28,988 12,737 27,728 127.6% 4.5% Regional Membership Central 11,102 6,072 10,565 82.8% 5.1% West 9,146 1,133 8,655 707.2% 5.7% Southeast 6,139 2,844 5,962 115.9% 3.0% Northeast 2,601 2,688 2,546 (3.2%) 2.2% Total 28,988 12,737 27,728 127.6% 4.5% Specialty Metrics PBM Prescription Volume(2) 84,711 27,796 51,391 204.8% 64.8% Behavioral Health Membership 13,804 3,547(3) 11,753(3) NM(3) NM(3) Life and Disability Membership 5,743 2,264(3) 5,306(3) NM(3) NM(3) Dental Membership 5,107 2,208(3) 5,048(3) NM(3) NM(3) Vision Membership 785 744 773 5.5% 1.6% (1) Includes self-funded members from the Lumenos acquisition that closed in the second quarter 2005. (2) Represents quarterly PBM prescription volume. Results of the former WellPoint Health Networks Inc. are included for the entire quarter ended September 30, 2005, but are included only for the month of December in the quarter ended December 31, 2004. Results for the quarter ended September 30, 2004, only include information of the former Anthem, Inc. (3) Prior period membership information and the changes to such information are not meaningful due to different counting methodologies for these members used by the former Anthem, Inc. and the former WellPoint Health Networks Inc. WellPoint, Inc. Consolidated Statements of Income (Unaudited) ($ In Millions, Except Per Share Data) Three Months Ended September 30 2005 2004 Change Revenues Premiums $10,315.0 $4,336.9 137.8% Administrative fees 690.8 339.1 103.7% Other revenue 144.5 57.1 153.1% Total operating revenue 11,150.3 4,733.1 135.6% Net investment income 154.7 67.9 127.8% Net realized (losses) gains on investments (0.4) 6.2 (106.5%) Total revenues 11,304.6 4,807.2 135.2% Expenses Benefit expense 8,243.9 3,587.4 129.8% Selling, general and administrative expense Selling expense 370.6 116.9 217.0% General and administrative expense 1,477.2 665.7 121.9% Total selling, general and administrative expense 1,847.8 782.6 136.1% Cost of drugs 73.8 20.6 258.3% Interest expense 56.1 32.9 70.5% Amortization of other intangible assets 59.6 11.3 427.4% Total expenses 10,281.2 4,434.8 131.8% Income before income taxes 1,023.4 372.4 174.8% Income taxes 382.7 130.3 193.7% Net income $640.7 $242.1 164.6% Net income per diluted share $1.02 $0.85 20.0% Diluted shares (in millions) 627.7 285.5 119.9% Benefit expense as a percentage of premiums 79.9% 82.7% (280)bp Selling, general and administrative expense as a percentage of total operating revenue 16.6% 16.5% 10bp Income before income taxes as a percentage of total revenues 9.1% 7.7% 140bp WellPoint, Inc. Consolidated Statements of Income (Unaudited) ($ In Millions, Except Per Share Data) Nine Months Ended September 30 2005 2004 Change Revenues Premiums $30,806.7 $12,576.5 145.0% Administrative fees 2,022.8 997.4 102.8% Other revenue 419.6 162.5 158.2% Total operating revenue 33,249.1 13,736.4 142.1% Net investment income 453.2 211.8 114.0% Net realized gains on investments 1.4 40.7 (96.6%) Total revenues 33,703.7 13,988.9 140.9% Expenses Benefit expense 24,879.6 10,336.1 140.7% Selling, general and administrative expense Selling expense 1,097.7 340.0 222.9% General and administrative expense 4,312.1 1,997.3 115.9% Total selling, general and administrative expense 5,409.8 2,337.3 131.5% Cost of drugs 218.5 58.5 273.5% Interest expense 168.2 97.4 72.7% Amortization of other intangible assets 178.7 33.7 430.3% Total expenses 30,854.8 12,863.0 139.9% Income before income taxes 2,848.9 1,125.9 153.0% Income taxes 1,037.1 350.3 196.1% Net income $1,811.8 $775.6 133.6% Net income per diluted share $2.90 $2.72 6.6% Diluted shares (in millions) 624.7 285.5 118.8% Benefit expense as a percentage of premiums 80.8% 82.2% (140)bp Selling, general and administrative expense as a percentage of total operating revenue 16.3% 17.0% (70)bp Income before income taxes as a percentage of total revenues 8.5% 8.0% 50bp WellPoint, Inc. Consolidated Balance Sheets September 30, December 31, ($ In Millions) 2005 2004 (Unaudited) Assets Current assets: Investments available-for-sale, at fair value Fixed maturity securities $13,012.7 $12,413.7 Equity securities 1,566.7 1,173.2 Cash and cash equivalents 2,163.3 1,457.2 Premiums and self-funded receivables 1,757.0 1,574.6 Other receivables 945.9 876.4 Securities lending collateral 1,000.9 658.5 Deferred tax assets, net 342.6 434.0 Other current assets 783.3 769.9 Total current assets 21,572.4 19,357.5 Long-term investments 693.4 748.1 Property and equipment 966.8 1,045.2 Goodwill 10,149.4 10,017.9 Other intangible assets 8,041.5 8,211.6 Other noncurrent assets 432.1 358.1 Total assets $41,855.6 $39,738.4 Liabilities and shareholders' equity Liabilities Current liabilities: Policy liabilities: Medical claims payable $4,182.3 $4,202.0 Reserves for future policy benefits 133.7 145.0 Other policyholder liabilities 1,245.3 1,209.5 Total policy liabilities 5,561.3 5,556.5 Unearned income 1,173.0 1,046.6 Accounts payable and accrued expenses 2,250.8 2,222.1 Income taxes payable 653.5 418.8 Security trades pending payable 83.5 84.4 Securities lending payable 1,000.9 658.5 Current portion of long-term debt 459.6 150.3 Other current liabilities 1,099.3 1,433.4 Total current liabilities 12,281.9 11,570.6 Long-term debt 3,918.1 4,276.7 Reserves for future policy benefits, noncurrent 739.7 727.2 Deferred income taxes 2,620.2 2,596.4 Other noncurrent liabilities 1,061.0 1,108.5 Total liabilities 20,620.9 20,279.4 Shareholders' equity Common stock 6.1 3.0 Additional paid-in capital 17,751.9 17,433.6 Retained earnings 3,521.5 1,960.1 Unearned stock compensation (97.6) (83.5) Accumulated other comprehensive income 52.8 145.8 Total shareholders' equity 21,234.7 19,459.0 Total liabilities and shareholders' equity $41,855.6 $39,738.4 WellPoint, Inc. Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30 ($ In Millions) 2005 2004 Operating activities Net income $1,811.8 $775.6 Adjustments to reconcile net income to net cash provided by operating activities: Net realized gains on investments (1.4) (40.7) Loss (gain) on disposal of assets 2.1 (0.4) Deferred income taxes (59.1) (7.0) Amortization, net of accretion 306.0 85.7 Depreciation 171.3 95.3 Changes in operating assets and liabilities, net of effect of business combinations: Receivables, net (221.2) (83.9) Other assets (102.7) (22.6) Policy liabilities 7.1 26.6 Unearned income 122.7 (15.6) Accounts payable and accrued expenses 67.6 (62.1) Other liabilities (226.4) (60.2) Income taxes 415.1 (0.3) Net cash provided by operating activities 2,292.9 690.4 Investing activities Purchases of investments (13,674.0) (4,877.8) Sales or maturities of investments 12,509.4 4,516.7 Purchases of subsidiaries, net of cash acquired (330.2) - Proceeds from settlement of cash flow hedge - 20.3 Purchases of property and equipment (118.8) (85.6) Proceeds from sale of property and equipment 8.0 1.5 Net cash used in investing activities (1,605.6) (424.9) Financing activities Net proceeds from commercial paper borrowings 127.9 - Proceeds from long term borrowings and exchange of remarketed subordinated debentures included in Equity Security Units - 5.7 Repayment of long-term borrowings (150.0) - Repurchase and retirement of common stock (333.4) (82.2) Proceeds from sale of put options 1.1 - Proceeds from exercise of employee stock options and employee stock purchase plan 373.2 57.1 Net cash provided by (used in) financing activities 18.8 (19.4) Change in cash and cash equivalents 706.1 246.1 Cash and cash equivalents at beginning of period 1,457.2 464.5 Cash and cash equivalents at end of period $2,163.3 $710.6 WellPoint, Inc. Reconciliation of Medical Claims Payable Nine Months Ended September 30 Year Ended December 31 ($ In Millions) 2005 2004 2004 2003 2002 (Unaudited) Gross medical claims payable, beginning of period $4,202.0 $1,841.7 $1,841.7 $1,800.0 $1,323.1 Ceded medical claims payable, beginning of period (31.9) (8.7) (8.7) (2.8) (4.5) Net medical claims payable, beginning of period 4,170.1 1,833.0 1,833.0 1,797.2 1,318.6 Business combinations and purchase adjustments - (14.0) 2,394.4 (20.6) 379.4 Net incurred medical claims: Current year(1) 25,172.4 10,444.4 15,452.6 12,374.2 9,887.9 Prior years (redund- ancies)(1,2) (609.9) (171.8) (172.4) (226.2) (147.0) Total net incurred medical claims 24,562.5 10,272.6 15,280.2 12,148.0 9,740.9 Net payments attributable to: Current year medical claims(1) 21,290.3 8,725.0 12,556.3 10,598.3 8,316.6 Prior years medical claims(1) 3,291.1 1,509.3 2,781.2 1,493.3 1,325.1 Total net payments 24,581.4 10,234.3 15,337.5 12,091.6 9,641.7 Net medical claims payable, end of period 4,151.2 1,857.3 4,170.1 1,833.0 1,797.2 Ceded medical claims, end of period 31.1 11.0 31.9 8.7 2.8 Gross medical claims payable, end of period $4,182.3 $1,868.3 $4,202.0 $1,841.7 $1,800.0 Current year medical claims paid as a percent of current year net incurred medical claims 84.6% 83.5% 81.3%(3) 85.6% 84.1% Prior year redundancies in the current period as a percent of prior year net incurred medical claims 3.9%(4) 1.4% 1.4% 2.3%(5) 1.9% (1) For the nine months ended September 30, 2005, net incurred medical claims and payments for the former WellPoint Health Networks Inc. are included for the entire period. Net incurred medical claims and payments for the former WellPoint Health Networks Inc. are not included for the nine months ended September 30, 2004. For the year ended December 31, 2004, incurred and paid claims for the former WellPoint Health Networks I
