INDIANAPOLIS, Jan. 25 /PRNewswire-FirstCall/ -- WellPoint, Inc. today announced that fourth quarter 2005 net income was $652.0 million, or $1.04 per share, including net realized investment losses of $0.01 per share. Net income for the fourth quarter of 2004 was $184.5 million, or $0.46 per share, which included expenses of $0.24 per share due to the repurchase of high coupon surplus notes and $0.15 per share for undertakings related to the Anthem-WellPoint Health Networks merger.
Net income for the full year of 2005 was $2.5 billion, or $3.94 per share. These results included expenses of $0.10 per share due to the multi-district litigation settlement agreement in the second quarter and net realized investment losses of $0.01 per share, partially offset by benefits of approximately $0.04 per share for the favorable resolution of a tax matter in the first quarter.
Full year 2004 net income was $3.05 per share, which included expenses of $0.30 per share for the surplus note repurchase and $0.20 per share for the merger-related undertakings, partially offset by benefits of $0.14 per share for a first quarter tax law change and net realized investment gains of $0.09 per share.
“Looking back, 2005 was truly an exceptional year for our company as we accomplished a number of milestones including achieving organic growth of 1.2 million members, acquiring WellChoice and Lumenos, delivering strong financial results in all four quarters, and generating $3.3 billion in full year operating cash flow,” said Larry C. Glasscock, chairman, president and chief executive officer of WellPoint, Inc. “Going forward, we have high expectations for 2006 and believe we are uniquely positioned in the marketplace resulting from our broad portfolio of products, extensive and cost-effective provider networks, and distinctive customer service.”
COMPARABLE BASIS INFORMATION
On November 30, 2004, Anthem, Inc. acquired WellPoint Health Networks Inc. and Anthem, Inc. changed its name to WellPoint, Inc. Accordingly, fourth quarter and full year 2005 financial results include operations of the combined company for the entire periods. Fourth quarter and full year 2004 financial results, however, only include operations of the former WellPoint Health Networks Inc. for the one month ended December 31, 2004.
On December 28, 2005, WellPoint, Inc. acquired WellChoice, Inc. For accounting purposes, the transaction was assumed to have closed on December 31, 2005. Accordingly, fourth quarter and full year 2005 income statement and operating cash flow results do not include operations of the former WellChoice, Inc. However, balance sheet and membership information as of December 31, 2005, does include the former WellChoice, Inc.
Unless otherwise indicated, the analysis in this press release compares reported financial results and does not adjust results for the effects of these acquisitions. In certain areas, we have included “comparable basis” analyses that we believe provide more meaningful comparisons between periods, due to the inclusion of operations of the former WellPoint Health Networks Inc. in the comparable historical results. The “comparable basis” 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 acquisitions 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 basis 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 basis information is reconciled to WellPoint, Inc.'s reported GAAP financial results.
CONSOLIDATED HIGHLIGHTS
Membership: Medical enrollment totaled approximately 33.9 million members at December 31, 2005, an increase of 6.1 million members since December 31, 2004. The increase included approximately 4.8 million members acquired on December 28, 2005, through the WellChoice transaction.
Organically, enrollment increased by almost 1.2 million members during 2005, with growth realized in every region and across all lines of business. The increase in organic enrollment was driven by the National Accounts business unit and also included strong gains in State Sponsored operations. Enrollment grew organically by 81,000 members during the fourth quarter, with most of the increase in the State Sponsored and National Accounts businesses.
Self-funded membership represented approximately 48 percent of medical enrollment at December 31, 2005, compared with approximately 50 percent at September 30, 2005, reflecting the addition of WellChoice’s enrollment base during the quarter. Self-funded membership represented approximately 47 percent of medical enrollment at December 31, 2004.
Operating Revenue: Operating revenue was $11.3 billion in the fourth quarter 2005, an increase of 67.5 percent from $6.7 billion in the prior year quarter. Full year 2005 operating revenue exceeded $44.5 billion, more than double the total of $20.5 billion in 2004.
On a comparable basis, fourth quarter 2005 operating revenue increased by $617.6 million, or 5.8 percent, compared with $10.6 billion in the prior year period. The increase was driven primarily by disciplined pricing, with membership gains in the Individual and Small Group (“ISG”) and Senior businesses also contributing to the overall operating revenue increase.
Full year 2005 operating revenue increased by more than $2.9 billion, or 7.0 percent, versus the comparable prior year results. Increases were realized in every line of business, led by the ISG, Large Group and National Accounts operations. Revenue growth resulted from disciplined pricing and membership growth and reflected the shift in business mix towards more self- funded medical enrollment that occurred prior to the merger with WellChoice, Inc.
Benefit Expense Ratio: The benefit expense ratio was 80.1 percent in the fourth quarter of 2005, a decrease of 140 basis points, compared with 81.5 percent in the fourth quarter of 2004. The ratio was 80.6 percent for the full year of 2005, a decrease of 140 basis points from 82.0 percent in 2004.
On a comparable basis, the fourth quarter 2005 ratio declined by 110 basis points, compared with 81.2 percent in the prior year quarter. The full year 2005 ratio declined by 50 basis points from the comparable prior year ratio of 81.1 percent. The decrease in both the fourth quarter and full year 2005 reflected lower than anticipated medical costs and successful results from the Company’s medical management and health improvement initiatives.
Premium and Cost Trends: Trends include Large Group and ISG fully-insured businesses.
Medical trend for the rolling 12-month period ended December 31, 2005, continued to decline and was less than 8.5 percent. The primary drivers of medical trend were outpatient and inpatient costs. The Company’s contracting and medical cost management programs continue to be successful, and certain of the synergies related to the Anthem-WellPoint Health Networks merger have reduced medical costs.
Commercial premium yield for the rolling 12-month period ended December 31, 2005, exceeded total cost trend, where total cost trend included medical costs and selling, general and administrative (“SG&A”) expense, resulting in an improvement in underwriting margin.
SG&A Expense Ratio: The SG&A expense ratio decreased by 50 basis points, to 16.5 percent in the fourth quarter 2005, compared with 17.0 percent in the fourth quarter 2004. The full year 2005 ratio declined by 70 basis points to 16.3 percent, versus 17.0 percent in the prior year.
On a comparable basis, the SG&A expense ratio increased by 20 basis points in the fourth quarter 2005, compared with 16.3 percent in the prior year period. The increase reflected advertising and implementation spending for Medicare Part D, higher incentive compensation accruals due to strong financial results, and the more rapid growth in self-funded membership. Collectively, these items offset increased efficiencies in the Company’s administrative cost structure, including the realization of synergies from the Anthem-WellPoint Health Networks merger.
The full year SG&A ratio improved by 10 basis points from the comparable 2004 ratio of 16.4 percent. The effective management of administrative costs across a growing membership base, including the achievement of Anthem- WellPoint Health Networks merger synergies, resulted in a lower ratio for 2005, despite the trend towards self-funded enrollment and additional expenses incurred during the year for Medicare Part D, the multi-district litigation settlement agreement, information technology outsourcing costs, and higher incentive compensation accruals.
Operating Cash Flow: Full year 2005 operating cash flow reached $3.3 billion, or 1.3 times net income. In the fourth quarter of 2005, operating cash flow was $964 million, or 1.5 times net income.
Days in Claims Payable: In order to provide a more meaningful comparison between periods, days in claims payable as of December 31, 2005, has been calculated without the medical claims payable balance of the former WellChoice, Inc. Calculations of days in claims payable, and any related reconciliations, are provided in the tables at the end of this press release.
Days in claims payable as of December 31, 2005, was 45.7 days, a decrease of one day from 46.7 days as of September 30, 2005. The decrease resulted primarily from a further reduction in the length of time between the date of service and claim payment.
Prior year reserve redundancies incurred during 2005 represented 2.1 percent of net medical claims incurred during 2004, assuming that the former WellPoint Health Networks Inc. had been owned for all of 2004. This percentage is consistent with historical experience and demonstrates the consistency and adequacy of the Company’s reserving methodologies.
Share Repurchase Program: The Company did not repurchase shares of its common stock during the fourth quarter of 2005 due to trading restrictions during the process of closing the WellChoice, Inc. merger. As of December 31, 2005, the Company’s share repurchase authorization totaled $2.0 billion and the Company intends to begin repurchasing shares by the end of January, subject to market conditions.
REPORTABLE SEGMENTS
WellPoint, Inc. has three reportable segments: Health Care, Specialty and Other. Operating revenue and operating gain are the key measures used by management to evaluate performance in each segment.
WellPoint, Inc. Reportable Segment Highlights (Unaudited) Three Months Ended ($ In Millions) December 31 2005 2004 Change Operating Revenue Health Care $10,782.8 $6,458.4 67.0% Specialty 748.7 426.1 75.7% Other: External Customers 76.4 67.3 13.5% Intercompany Eliminations (343.9) (227.3) (51.3%) Total Other (267.5) (160.0) (67.2%) Total Operating Revenue 11,264.0 6,724.5 67.5% Operating Gain (Loss) Health Care $896.2 $506.0 77.1% Specialty 115.1 46.0 150.2% Other (20.0) (56.1) 64.3% Year Ended ($ In Millions) December 31 2005 2004 Change Operating Revenue Health Care $42,597.5 $19,754.5 115.6% Specialty 2,863.1 1,235.2 131.8% Other: External Customers 350.4 218.0 60.7% Intercompany Eliminations (1,297.9) (746.8) (73.8%) Total Other (947.5) (528.8) (79.2%) Total Operating Revenue 44,513.1 20,460.9 117.6% Operating Gain (Loss) Health Care $3,459.0 $1,505.3 129.8% Specialty 388.1 100.9 284.6% Other (114.6) (105.8) (8.3%)
Health Care: Operating gain for the Health Care segment was $896.2 million in the fourth quarter of 2005, an increase of 77.1 percent, compared with $506.0 million in the fourth quarter of 2004.
On a comparable basis, fourth quarter 2005 operating gain increased by $111.7 million, or 14.2 percent, compared with $784.5 million in the prior year quarter. The improvement resulted primarily from disciplined pricing and membership growth, lower than anticipated medical costs and successful cost optimization activities, including medical management initiatives and synergies generated through the Anthem-WellPoint Health Networks merger. The Large Group and ISG businesses contributed most significantly to the overall increase in operating gain.
Specialty: Operating gain totaled $115.1 million in the fourth quarter of 2005, an increase of 150.2 percent compared with $46.0 million in the fourth quarter of 2004.
Fourth quarter 2005 operating gain increased by $18.0 million, or 18.5 percent on a comparable basis, from $97.1 million in the prior year quarter. The increase reflected strong performance in the Company’s pharmacy benefit management (“PBM”) and behavioral health operations. Continued growth of the recently developed specialty drug pharmacy also contributed to the overall increase in operating gain.
During the fourth quarter 2005, prescription volume at the PBM increased by 3.2 million scripts on a comparable basis, including a 17 percent increase in mail-order volume. The Company also successfully transitioned behavioral health service for approximately 1.9 million members to an internal subsidiary from an outside vendor. The Specialty segment continues to benefit from the realization of Anthem-WellPoint Health Networks merger synergies.
OUTLOOK
The Company’s outlook now includes the operations of the former WellChoice, Inc.
Full Year 2006: * The Company now expects net income of $4.54 per share, compared with prior guidance of $4.51 per share. The updated estimate assumes the Company completes $2.0 billion of share repurchases during 2006 and includes costs of $0.20 per share for the impact of expensing stock options. * Operating revenue is expected to total approximately $57.3 billion. * The benefit expense ratio is expected to be approximately 81.5 percent. * The SG&A expense ratio is expected to be approximately 15.7 percent. * Medical enrollment is expected to grow at the Company’s targeted range of 3 percent to 5 percent per year, but closer to the lower end due to the loss of the State of Georgia PPO account. First Quarter 2006: * The Company continues to expect net income of $1.07 per share. 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. Unless otherwise indicated, fourth quarter and full year 2005 financial results include operations of both pre-merger companies for the entire periods. Fourth quarter and full year 2004 reported financial results, however, only include operations of the former WellPoint Health Networks Inc. for the one month ended December 31, 2004. 4. On December 28, 2005, WellPoint, Inc. acquired WellChoice, Inc. Unless otherwise indicated, fourth quarter and full year 2005 income statement and operating cash flow results do not include operations of the former WellChoice, Inc. However, balance sheet and membership information as of December 31, 2005, does include the former WellChoice, Inc. 5. Amounts for 2005 and prior do not include the impact of expensing stock options. The Company’s outlook for 2006, however, does include this impact. 6. 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 Standard Time (“EST”) to discuss its fourth quarter earnings results and updated 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 810505. The replay will be available from 1:45 p.m. EST today until the end of the day on February 9, 2006. 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 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, New York (as Blue Cross Blue Shield in 10 New York City metropolitan counties and as Blue Cross or Blue Cross Blue Shield in selected upstate counties only), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.), Wisconsin; and through 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 WLP WLP As Reported (1) WC (2) “Stand-Alone” (3) December 31, December 31, December 31, 2005 2005 2005 Customer Type Large Group 16,362 3,085 13,277 Individual and Small Group (ISG) 5,645 349 5,296 National Accounts 4,776 1,235 3,541 BlueCard 3,915 (93) 4,008 Total National 8,691 1,142 7,549 Senior 1,224 147 1,077 State Sponsored 1,934 64 1,870 Total 33,856 4,787 29,069 Funding Arrangement Self-Funded 16,234 1,798 14,436 Fully-Insured 17,622 2,989 14,633 Total 33,856 4,787 29,069 Regional Membership East 13,800 5,030 8,770 Central 10,970 (125) 11,095 West 9,086 (118) 9,204 Total 33,856 4,787 29,069 Specialty Metrics PBM Prescription Volume - As Reported (4) 91,813 - 91,813 PBM Prescription Volume - Comparable Basis (4) 91,813 - 91,813 Behavioral Health Membership 15,669 - 15,669 Life and Disability Membership 5,826 - 5,826 Dental Membership 5,195 265 4,930 Vision Membership 816 - 816 Medical Membership WLP “Stand-Alone” Change from December 31, September 30, December 31, September 30, 2004 2005 2004 2005 Customer Type Large Group 13,073 13,268 1.6% 0.1% Individual and Small Group (ISG) 5,199 5,294 1.9% - National Accounts 3,212 3,505 10.2% 1.0% BlueCard 3,463 4,023 15.7% (0.4%) Total National 6,675 7,528 13.1% 0.3% Senior 1,059 1,073 1.7% 0.4% State Sponsored 1,722 1,825 8.6% 2.5% Total 27,728 28,988 4.8% 0.3% Funding Arrangement Self-Funded 13,039 14,382 10.7% 0.4% Fully-Insured 14,689 14,606 (0.4%) 0.2% Total 27,728 28,988 4.8% 0.3% Regional Membership East 8,508 8,740 3.1% 0.3% Central 10,565 11,102 5.0% (0.1%) West 8,655 9,146 6.3% 0.6% Total 27,728 28,988 4.8% 0.3% Specialty Metrics PBM Prescription Volume - As Reported (4) 51,391 84,711 78.7% 8.4% PBM Prescription Volume - Comparable Basis (4) 88,620 84,711 3.6% 8.4% Behavioral Health Membership 11,753 (5) 13,804 NM (5) 13.5% Life and Disability Membership 5,306 (5) 5,743 NM (5) 1.4% Dental Membership 5,048 (5) 5,107 NM (5) (3.5%) Vision Membership 773 785 5.6% 3.9%
(1) Amounts reported at December 31, 2005, include membership from the WellChoice, Inc. (“WC”) acquisition that closed on December 28, 2005.
(2) Represents WC membership at December 31, 2005. Medical membership is shown net of eliminations for overlapping BlueCard host membership.
(3) “Stand-Alone” membership was calculated by subtracting WC membership from WellPoint, Inc.'s reported membership at December 31, 2005.
(4) Represents quarterly PBM prescription volume. Results of the former WellPoint Health Networks Inc. (“WHN”) are included for the entire quarters ended December 31, 2005, and September 30, 2005. Reported results for the quarter ended December 31, 2004, only include operations of WHN for the month of December. Comparable Basis results for the quarter ended December 31, 2004, include operations of WHN for the entire quarter.
(5) 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 December 31 2005 2004 Change Revenues Premiums $10,410.0 $6,195.1 68.0% Administrative fees 707.1 439.5 60.9% Other revenue 146.9 89.9 63.4% Total operating revenue 11,264.0 6,724.5 67.5% Net investment income 179.9 99.9 80.1% Net realized (losses) gains on investments (11.6) 1.8 (744.4%) Total revenues 11,432.3 6,826.2 67.5% Expenses Benefit expense 8,340.3 5,051.7 65.1% Selling, general and administrative expense Selling expense 376.5 197.2 90.9% General and administrative expense 1,486.4 943.2 57.6% Total selling, general and administrative expense 1,862.9 1,140.4 63.4% Cost of drugs 69.5 36.5 90.4% Interest expense 58.0 44.9 29.2% Amortization of other intangible assets 60.2 27.7 117.3% Merger-related undertakings - 61.5 (100.0%) Loss on extinguishment of debt - 146.1 (100.0%) Total expenses 10,390.9 6,508.8 59.6% Income before income taxes 1,041.4 317.4 228.1% Income taxes 389.4 132.9 193.0% Net income $652.0 $184.5 253.4% Net income per diluted share $1.04 $0.46 126.1% Diluted shares (in millions) 629.1 401.1 56.8% Benefit expense as a percentage of premiums 80.1% 81.5% (140)bp Selling, general and administrative expense as a percentage of total operating revenue 16.5% 17.0% (50)bp Income before income taxes as a percentage of total revenues 9.1% 4.6% 450 bp WellPoint, Inc. Consolidated Statements of Income (Unaudited) ($ In Millions, Except Per Share Data) Year Ended December 31 2005 2004 Change Revenues Premiums $41,216.7 $18,771.6 119.6% Administrative fees 2,729.9 1,436.9 90.0% Other revenue 566.5 252.4 124.4% Total operating revenue 44,513.1 20,460.9 117.6% Net investment income 633.1 311.7 103.1% Net realized (losses) gains on investments (10.2) 42.5 (124.0%) Total revenues 45,136.0 20,815.1 116.8% Expenses Benefit expense 33,219.9 15,387.8 115.9% Selling, general and administrative expense Selling expense 1,474.2 537.2 174.4% General and administrative expense 5,798.5 2,940.5 97.2% Total selling, general and administrative expense 7,272.7 3,477.7 109.1% Cost of drugs 288.0 95.0 203.2% Interest expense 226.2 142.3 59.0% Amortization of other intangible assets 238.9 61.4 289.1% Merger-related undertakings - 61.5 (100.0%) Loss on extinguishment of debt - 146.1 (100.0%) Total expenses 41,245.7 19,371.8 112.9% Income before income taxes 3,890.3 1,443.3 169.5% Income taxes 1,426.5 483.2 195.2% Net income $2,463.8 $960.1 156.6% Net income per diluted share $3.94 $3.05 29.2% Diluted shares (in millions) 625.8 314.6 98.9% Benefit expense as a percentage of premiums 80.6% 82.0% (140)bp Selling, general and administrative expense as a percentage of total operating revenue 16.3% 17.0% (70)bp Income before income taxes as a percentage of total revenues 8.6% 6.9% 170 bp WellPoint, Inc. Consolidated Balance Sheets December 31, December 31, ($ In Millions) 2005 2004 (Unaudited) Assets Current assets: Investments available-for-sale, at fair value Fixed maturity securities $15,332.2 $12,413.7 Equity securities 1,448.2 1,173.2 Cash and cash equivalents 2,740.2 1,457.2 Premiums and self-funded receivables 2,295.2 1,574.6 Other receivables 988.2 876.4 Securities lending collateral 1,389.9 658.5 Deferred tax assets, net 728.2 434.0 Other current assets 1,022.7 769.9 Total current assets 25,944.8 19,357.5 Long-term investments 815.4 748.1 Property and equipment 1,078.6 1,045.2 Goodwill 13,469.1 10,017.9 Other intangible assets 9,686.4 8,211.6 Other noncurrent assets 410.9 358.1 Total assets $51,405.2 $39,738.4 Liabilities and shareholders’ equity Liabilities Current liabilities: Policy liabilities: Medical claims payable $4,923.4 $4,202.0 Reserves for future policy benefits 82.1 145.0 Other policyholder liabilities 1,761.1 1,209.5 Total p
