WellChoice, Inc. (NYSE: WC): -- Second quarter 2005 net income of
$74.6 million, or $0.88 per diluted share -- Commercial managed
care membership, excluding NYC and NYS PPO, increased by 152,000,
or 6.1%, over the second quarter 2004 and 2.9% since year-end 2004
-- Full-year 2005 earnings guidance raised to a range of $3.37 to
$3.43 per diluted share, from a range of $3.35 to $3.41 per diluted
share WellChoice, Inc. (NYSE: WC) today reported results for the
second quarter ended June 30, 2005. WellChoice reported net income
for the second quarter 2005 of $74.6 million, or $0.88 per diluted
share, and for the six months ended June 30, 2005 of $145.5
million, or $1.72 per diluted share. "WellChoice once again
delivered strong financial performance this quarter," said Michael
A. Stocker, M.D., President and Chief Executive Officer of
WellChoice. "We continue to experience solid growth in our managed
care products and also benefit from our continued focus on
achieving administrative expense efficiencies." "Our second quarter
2005 results reflect pricing discipline, expense control and
membership growth," said John W. Remshard, Senior Vice President
and Chief Financial Officer. "We expect to see solid earnings
growth in 2005." Compared to December 31, 2004, enrollment in the
Commercial Managed Care segment, excluding New York State and New
York City PPO membership, increased by 2.9% as of June 30, 2005.
Membership in the entire Commercial Managed Care segment increased
by 1.7% to 4,455,000 since December 31, 2004. Membership in the
Other Insurance Products and Services segment, which includes
indemnity and individual products, declined by 0.7% since December
31, 2004. Total membership at June 30, 2005 was 5,025,000, an
increase of 1.4% since December 31, 2004. Self-funded membership
grew 2.7% since December 31, 2004 to 2,002,000 as of June 30, 2005,
and now accounts for 39.8% of overall membership, an increase of 40
basis points over the prior year-end. Total revenues for the six
months ended June 30, 2005 were $3.2 billion compared to $2.9
billion for the six months ended June 30, 2004. Administrative
service fees increased $35.9 million to $281.1 million. Insured
premiums were $2.88 billion for the six months ended June 30, 2005,
compared to $2.61 billion in the first half of last year. The
overall medical loss ratio was 86.2% for the six months ended June
30, 2005, flat compared to the six months ended June 30, 2004.
Compared to the six months ended June 30, 2004, administrative
expenses increased by $36.8 million to $485.0 million in the six
months ended June 30, 2005. Total revenues for the second quarter
2005 were $1.65 billion compared to $1.50 billion for the second
quarter last year. Insured premiums were $1.49 billion compared to
$1.36 billion in the second quarter last year. Administrative
service fees increased $15.9 million to $139.8 million. The overall
medical loss ratio was 86.1% in the second quarter 2005, a 90 basis
point improvement compared to the second quarter last year.
Administrative expenses increased by $28.2 million to $251.9
million in the second quarter 2005 compared to the prior year
second quarter. On June 29, 2005, the company entered into a final
settlement agreement with the New York State Insurance Department
for contributions and distributions related to its participation in
Non-Medicare Supplemental Regulation 146 pools. The results of this
agreement and a litigation reserve adjustment led to a net income
benefit of $1.7 million, or $0.02 per diluted share for both the
quarter and the six months. Cash flow from operating activities was
$241.7 million for the six months ending June 30, 2005. The Company
experienced net positive prior period reserve development of $2.2
million for the second quarter 2005 for its prospectively rated
business, excluding the impact of the Regulation 146 settlement
agreement and the litigation reserve adjustment referenced above.
Days claims payable was 53.6 days for the quarter ended June 30,
2005, unchanged from the quarter ended March 31, 2005. EARNINGS
OUTLOOK WellChoice is increasing its earnings guidance for 2005 to
be in the range of $3.37 to $3.43 per diluted share, based on 85
million weighted average shares outstanding. For the third quarter
2005, WellChoice expects earnings to be in the range of $0.84 to
$0.88 per diluted share. About WellChoice WellChoice, Inc. is the
parent company of the largest health insurer in the State of New
York based on PPO and HMO membership. WellChoice, through its
Empire Blue Cross Blue Shield subsidiaries, has the exclusive right
to use the Blue Cross and Blue Shield names and marks in 10
downstate New York counties and one or both of these names and
marks in selected counties in upstate New York. WellChoice offers a
broad portfolio of products, including managed care and traditional
indemnity products, and has a broad customer base including large
group, middle-market and small group, individual, and national
accounts. Additional information on WellChoice can be found at
www.wellchoice.com. Conference Call and Webcast The Company will
host a conference call and webcast today at 5:30 PM (EST) to review
these results, as well as to discuss the outlook for the third
quarter 2005. Financial, statistical and other information,
including non-GAAP reconciliations, related to the conference call
will be available under the "Quarterly Financial Reporting and
Supplemental Data" section of the Financial Reporting tab at
www.wellchoice.com/investors. The conference call can be accessed
domestically by dialing (800) 784-3697. International participants
dial (706) 643-1656. Please ask for reference number 7401664 ten
minutes prior to the start of the call. An audio replay of the call
will be available for seven days following the conference call. To
access the replay, please dial (800) 642-1687 and enter reference
number 7401664. International callers can access the replay by
dialing (706) 645-9291 and enter reference number 7401664.
Investors, analysts and the general public are also invited to
listen to the conference call over the Internet by visiting
WellChoice's web site at www.wellchoice.com. Cautionary Statement
Some of the information contained in this press release is
forward-looking, including statements relating to future financial
or business results. Forward-looking information is based on
management's estimates, assumptions and projections and is subject
to significant uncertainties and other factors, many of which are
beyond the company's control. Important risk factors could cause
future results to differ materially from those estimated by
management. Those risks and uncertainties include but are not
limited to: our ability to accurately predict health care costs and
to manage those costs through underwriting criteria, quality
initiatives and medical management; product design and negotiation
of favorable provider reimbursement rates; our ability to maintain
or increase our premium rates; possible reductions in enrollment in
our products or changes in membership including the loss of either
the New York City or the New York State account; the regional
concentration of our business in the New York metropolitan area and
the effects of economic downturns in that region or generally;
future bio-terrorist activity or other potential public health
epidemics; the impact of health care reform and other regulatory
matters; and the outcome of litigation. For a more detailed
discussion of these and other important factors that may materially
affect WellChoice, please see WellChoice's filings with the
Securities and Exchange Commission, including the discussion of
risk factors and historical results of operations and financial
condition in its Annual Report on Form 10-K for the year ended
December 31, 2004 and its Quarterly Report on Form 10-Q for the
three months ended March 31, 2005 and for the six months ended June
30, 2005 to be filed with the Commission this afternoon. -0- *T
EXHIBIT A WellChoice, Inc. Membership June 30, March 31, December
31, (In thousands) 2005 2004 2005 2004
----------------------------------- Products and services:
---------------------- Commercial managed care: Group PPO, HMO, EPO
and other (1)(2) 2,631 2,479 2,627 2,558 New York City and New York
State PPO 1,824 1,815 1,823 1,823 ----- ----- ---------
------------ Total commercial managed care 4,455 4,294 4,450 4,381
Other insurance products and services: Indemnity 366 373 367 364
Individual 204 213 207 210 ----- ----- --------- ------------ Total
other insurance products and services 570 586 574 574 ----- -----
--------- ------------ Overall total 5,025 4,880 5,024 4,955 =====
===== ========= ============ Customers: ---------- Large group
3,002 2,945 3,003 2,986 Small group and middle market 490 455 484
472 Individual 264 266 265 266 National accounts 1,269 1,214 1,272
1,231 ----- ----- --------- ------------ Overall total 5,025 4,880
5,024 4,955 ===== ===== ========= ============ Funding type:
------------- Commercial managed care: Insured 2,705 2,644 2,699
2,678 Self-funded 1,750 1,650 1,751 1,703 ----- ----- ---------
------------ Total commercial managed care 4,455 4,294 4,450 4,381
===== ===== ========= ============ Other insurance products and
services: Insured 318 335 323 327 Self-funded 252 251 251 247 -----
----- --------- ------------ Total other insurance products and
services 570 586 574 574 ----- ----- --------- ------------ Overall
total 5,025 4,880 5,024 4,955 ===== ===== ========= ============
(1) Our HMO product includes Medicare+Choice. As of June 30, 2005,
June 30, 2004, March 31, 2005 and December 31, 2004, we had
approximately 60,000 members, 54,000 members, 58,000 members and
56,000 members, respectively, enrolled in Medicare+Choice. (2)
"Other" principally consists of our members enrolled in dental only
coverage and includes POS members. EXHIBIT B WellChoice, Inc.
Consolidated Statements of Income Three Months Ended June 30, 2005
2004 ----------- ----------- ($ in millions, except share and per
share data) Revenues: Premium earned $1,491.1 $1,363.7
Administrative service fees 139.8 123.9 Investment income, net 23.1
16.5 Other (expense) income, net (0.1) - ----------- -----------
Total revenue 1,653.9 1,504.1 Expenses: Cost of benefits provided
1,283.2 1,186.2 Administrative expenses 251.9 223.7 -----------
----------- Total expenses 1,535.1 1,409.9 Income before income
taxes 118.8 94.2 Income tax expense 44.2 28.8 -----------
----------- Net income $74.6 $65.4 =========== =========== Basic
net income per common share $0.89 $0.78 Diluted net income per
common share $0.88 $0.78 Shares used to compute basic net income
per common share, based on weighted average shares outstanding
83,715,312 83,493,145 Shares used to compute diluted net income per
common share based on weighted average shares outstanding
84,758,059 83,798,907 Additional data: ---------------- Medical
loss ratio (1) 86.1% 87.0% Administrative expense ratio (2) 15.4%
15.0% (1) Medical loss ratio represents cost of benefits provided
as a percentage of premiums earned. (2) Administrative expense
ratio represents administrative expense as a percentage of premiums
earned and administrative service fees. As presented, our
administrative expense ratio does not take into account a
significant portion of our activity generated by self-funded, or
ASO, business, which, at June 30, 2005, represented approximately
39.8% of total membership. Therefore, in the following table, we
provide the information regarding premium equivalents and the
administrative expense ratio on a "premium equivalent" basis
because that ratio measures administrative expenses relative to the
entire volume of insured and self-funded business serviced by us
and is commonly used in the health insurance industry to compare
operating efficiency among companies. Administrative expense ratio
on a premium equivalent basis is calculated by dividing
administrative expenses by "premium equivalents" for the relevant
periods. Premium equivalents is the sum of premium earned,
administrative service fees and the amount of paid claims
attributable to our self-funded business pursuant to which we
provide a range of customer services, including claims
administration, billing and membership services. Claims paid for
our self-funded health business is not our revenue. EXHIBIT B
(continued) The premium equivalents for the years indicated were as
follows: Three Months Ended June 30, 2005 2004 -------- --------
Revenue: Premiums earned $1,491.1 $1,363.7 Administrative service
fees 139.8 123.9 Claims paid for our self-funded health business
1,098.2 888.7 -------- -------- Premium equivalents $2,729.1
$2,376.3 ======== ======== Administrative expense ratio, premium
equivalent basis 9.2% 9.4% ======== ======== EXHIBIT C WellChoice,
Inc. Consolidated Statements of Income Six Months Ended June 30,
2005 2004 ----------- ----------- ($ in millions, except share and
per share data) Revenue: Premiums earned $2,876.2 $2,609.2
Administrative service fees 281.1 245.2 Investment income, net 41.5
34.1 Other (expense) income, net (0.2) 0.2 ----------- -----------
Total revenue 3,198.6 2,888.7 Expenses: Cost of benefits provided
2,480.5 2,249.1 Administrative expenses 485.0 448.2 -----------
----------- Total expenses 2,965.5 2,697.3 Income before income
taxes 233.1 191.4 Income tax expense 87.6 66.7 -----------
----------- Net income $145.5 $124.7 =========== =========== Basic
net income per common share $1.74 $1.49 Diluted net income per
common share $1.72 $1.49 Shares used to compute basic net income
per common share, based on weighted average shares outstanding
83,695,867 83,492,194 Shares used to compute diluted net income per
common share, based on weighted average shares outstanding
84,647,354 83,762,915 Additional data: ---------------- Medical
loss ratio (1) 86.2% 86.2% Administrative expense ratio (2) 15.4%
15.7% (1) Medical loss ratio represents cost of benefits provided
as a percentage of premiums earned. (2) Administrative expense
ratio represents administrative expense as a percentage of premiums
earned and administrative service fees. As presented, our
administrative expense ratio does not take into account a
significant portion of our activity generated by self-funded, or
ASO, business, which, at June 30, 2005, represented approximately
39.8% of total membership. Therefore, in the following table, we
provide the information needed to calculate the administrative
expense ratio on a "premium equivalent" basis because that ratio
measures administrative expenses relative to the entire volume of
insured and self-funded business serviced by us and is commonly
used in the health insurance industry to compare operating
efficiency among companies. Administrative expense ratio on a
premium equivalent basis is calculated by dividing administrative
expenses by "premium equivalents" for the relevant periods. Premium
equivalents is the sum of premium earned, administrative service
fees and the amount of paid claims attributable to our self-funded
business pursuant to which we provide a range of customer services,
including claims administration, billing and membership services.
Claims paid for our self-funded health business is not our revenue.
The premium equivalents for the years indicated were as follows:
Premium Equivalents Table: Six Months Ended June 30, 2005 2004
-------- -------- Revenue: Premiums earned $2,876.2 $2,609.2
Administrative service fees 281.1 245.2 Claims paid for our
self-funded health business 2,077.9 1,712.4 -------- --------
Premium equivalents $5,235.2 $4,566.8 ======== ========
Administrative expense ratio, premium equivalent basis 9.3% 9.8%
======== ======== EXHIBIT D WellChoice, Inc. Consolidated Balance
Sheets June 30, December 31, 2005 2004 --------------------------
(In millions, except share and per share data) Assets Investments:
Fixed maturities, at fair value (amortized cost: $1,572.7 and
$1,374.6) $1,558.2 $1,361.9 Marketable equity securities, at fair
value (cost: $44.1 and $43.8) 55.0 53.4 Short-term investments
215.2 170.6 Other long-term equity investments 19.3 18.6
-------------------------- Total investments 1,847.7 1,604.5 Cash
and cash equivalents 750.4 758.5 -------------------------- Total
investments and cash and cash equivalents 2,598.1 2,363.0
Receivables: Billed premiums, net 108.7 107.6 Accrued premiums
344.1 340.8 Other amounts due from customers, net 129.2 125.8 Notes
receivable, net 13.1 12.7 Accrued investment income 12.7 10.7
Miscellaneous, net 119.5 73.2 -------------------------- Total
receivables 727.3 670.8 Property, equipment and information
systems, net of accumulated depreciation 101.8 107.1 Prepaid
pension expense 62.6 60.7 Deferred taxes, net 127.6 157.7 Other
30.9 30.8 -------------------------- Total assets $3,648.3 $3,390.1
========================== EXHIBIT D (continued) WellChoice, Inc.
Consolidated Balance Sheets (Continued) June 30, December 31, 2005
2004 -------------------------- (In millions, except share and per
share data) Liabilities and stockholders' equity Liabilities:
Unpaid claims and claims adjustment expense $755.1 $678.8 Unearned
premium income 96.9 138.7 Managed cash overdrafts 196.5 215.4
Accounts payable and accrued expenses 81.9 67.4 Advance deposits
220.3 160.6 Group and other contract liabilities 84.9 99.3
Postretirement benefits other than pensions 144.2 144.6 Obligations
under capital lease 41.5 44.0 Other 191.4 159.0
-------------------------- Total liabilities 1,812.7 1,707.8
Stockholders' equity: Common stock, $0.01 par value, 225,000,000
shares authorized; shares issued and outstanding: 2005--84,125,288;
2004--84,047,152 0.8 0.8 Class B common stock, $0.01 par value, one
share authorized, issued and outstanding - - Preferred stock, $0.01
per share value, 25,000,000 shares authorized; none issued and
outstanding - - Additional paid-in capital 1,280.0 1,275.2 Retained
earnings 554.2 408.7 Unearned restricted stock compensation (6.8)
(9.9) Accumulated other comprehensive income 7.4 7.5
-------------------------- Total stockholders' equity 1,835.6
1,682.3 -------------------------- Total liabilities and
stockholders' equity $3,648.3 $3,390.1 ==========================
EXHIBIT E WellChoice, Inc. Consolidated Statements of Cash Flows
Six Months Ended June 30, ---------------- 2005 2004
---------------- ($ in millions) Cash flows from operating
activities Net income $145.5 $124.6 Adjustments to reconcile net
income to net cash provided by operating activities: Depreciation
and amortization 18.9 20.5 Net realized gain on sales of
investments (3.5) (6.7) Provision (credit) for doubtful accounts
1.0 (2.0) Accretion of discount, net 1.4 1.0 Equity in earnings of
other long-term equity investments (0.3) (1.3) Deferred income tax
expense 30.2 30.0 Other (1.9) (3.4) Changes in assets and
liabilities: Billed and accrued premiums receivables (5.2) (49.3)
Other customer receivable (12.3) 9.9 Notes receivable (0.4) 0.4
Accrued investment income (1.9) (0.5) Miscellaneous receivables
(46.4) (1.4) Other assets 8.4 (1.0) Unpaid claims and claims
adjustment expenses 76.3 76.4 Unearned premium income (41.8) (33.4)
Managed cash overdrafts (18.8) (14.2) Accounts payable and accrued
expenses 16.5 (30.2) Advance deposits 59.7 38.9 Group and other
contract liabilities (14.5) 2.2 Postretirement benefits other than
pensions (0.3) 3.0 Other liabilities 31.1 2.8 ---------------- Net
cash provided by operating activities 241.7 166.3 ----------------
Cash flows from investing activities Purchases of property,
equipment and information systems (11.3) (17.5) Purchases of
available for sale investments (625.8) (812.1) Proceeds from sales
and maturities of available for sale investments 386.3 719.8
---------------- Net cash used in investing activities (250.8)
(109.8) ---------------- Cash flows from financing activities
Decrease in capital lease obligations (2.5) (2.1) Proceeds from the
exercise of stock options and employee stock purchase plan, net of
treasury stock repurchases 2.8 - Excess tax benefits on stock
compensation 0.7 - ---------------- Net cash provided by (used in)
financing activities 1.0 (2.1) ---------------- Net change in cash
and cash equivalents (8.1) 54.4 Cash and cash equivalents at
beginning of period 758.5 697.5 ---------------- Cash and cash
equivalents at end of period $750.4 $751.9 ================
Supplemental disclosure: Income taxes paid $43.5 $38.5
================ EXHIBIT F WellChoice, Inc. Segment Operating
Results Three Months Ended June 30, 2005 2004 ------------------ ($
in millions) Commercial Managed Care: Total revenue $1,422.6
$1,281.0 Income before income taxes 80.3 78.3 Medical loss ratio
(1): Commercial managed care total 88.1% 87.8% Commercial managed
care, excluding New York City and New York State PPO (2) 84.8%
84.2% Administrative expense ratio (3) 13.4% 12.6% Other Insurance
Products and Services: Total revenue $231.3 $223.1 Income before
income taxes 38.5 15.9 Medical loss ratio (1) 71.1% 81.6%
Administrative expense ratio (3) 27.9% 29.3% (1) Medical loss ratio
represents cost of benefits provided as a percentage of premiums
earned. (2) We present commercial managed care medical loss ratio,
excluding New York City and New York State PPO, because these
accounts differ from our standard PPO product in that they are
hospital-only accounts which have lower premiums relative to claim
expense than accounts with full medical and hospital coverage. The
lower premiums and the size of these accounts distort our
performance when the total medical loss ratio is presented. (3)
Administrative expense ratio represents administrative expenses as
a percentage of premiums earned and administrative service fees.
EXHIBIT G WellChoice, Inc. Segment Operating Results Six Months
Ended June 30 2005 2004 ------------------ ($ in millions, except
earnings per share) Commercial Managed Care: Total revenue $2,737.7
$2,440.1 Income before income taxes 181.1 165.4 Medical loss ratio
(1): Commercial managed care total 87.4% 86.7% Commercial managed
care, excluding New York City and New York State PPO (2) 84.1%
82.9% Administrative expense ratio (3) 13.3% 13.3% Other Insurance
Products and Services: Total revenue $460.9 $448.6 Income before
income taxes 52.0 26.0 Medical loss ratio (1) 78.3% 83.2%
Administrative expense ratio (3) 27.7% 28.9% (1) Medical loss ratio
represents cost of benefits provided as a percentage of premiums
earned. (2) We present commercial managed care medical loss ratio,
excluding New York City and New York State PPO, because these
accounts differ from our standard PPO product in that they are
hospital-only accounts which have lower premiums relative to claim
expense than accounts with full medical and hospital coverage. The
lower premiums and the size of these accounts distort our
performance when the total medical loss ratio is presented. (3)
Administrative expense ratio represents administrative expenses as
a percentage of premiums earned and administrative service fees. *T
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