UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 2003
OR
¨ TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-31513
WELLCHOICE, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE |
71-0901607 | |
| (State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| 11 WEST 42ND STREET NEW YORK, NEW YORK |
10036 | |
| (Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (212) 476-7800
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 83,490,477 shares of common stock, $0.01 par value, and one share of Class B common stock, $0.01 par value per share, as of April 24, 2003.
WellChoice, Inc and Subsidiaries
INDEX TO FORM 10-Q
| Page | ||||
| 3 | ||||
| 3 | ||||
| Consolidated Balance Sheets at March 31, 2003 (Unaudited) and |
3 | |||
| 5 | ||||
| Consolidated Statements of Cash Flows for the Three Months Ended |
6 | |||
| 7 | ||||
| 14 | ||||
| Management’s Discussion and Analysis of Financial Condition and |
15 | |||
| 26 | ||||
| 27 | ||||
| 28 | ||||
| 28 | ||||
| 29 | ||||
| 30 | ||||
| 31 | ||||
| 33 | ||||
2
WellChoice, Inc. and Subsidiaries
| March 31, |
December 31, | |||||
| 2003 |
2002 | |||||
| (Unaudited) |
||||||
| (In thousands) | ||||||
| Assets |
||||||
| Investments: |
||||||
| Fixed maturities, at fair value (amortized cost: $1,029,483 and $846,617) |
$ |
1,042,007 |
$ |
863,290 | ||
| Marketable equity securities, at fair value (cost: $47,022 and $47,022) |
|
44,409 |
|
44,548 | ||
| Short-term investments |
|
183,950 |
|
359,490 | ||
| Other long-term equity investments |
|
29,494 |
|
28,220 | ||
| Total investments |
|
1,299,860 |
|
1,295,548 | ||
| Cash and cash equivalents |
|
610,818 |
|
487,431 | ||
| Total investments and cash and cash equivalents |
|
1,910,678 |
|
1,782,979 | ||
| Receivables: |
||||||
| Billed premiums, net |
|
113,593 |
|
111,082 | ||
| Accrued premiums |
|
254,722 |
|
247,729 | ||
| Other amounts due from customers, net |
|
72,542 |
|
94,475 | ||
| Notes receivable, net |
|
12,138 |
|
12,059 | ||
| Accrued investment income |
|
7,288 |
|
9,829 | ||
| Miscellaneous, net |
|
49,976 |
|
70,768 | ||
| Total receivables |
|
510,259 |
|
545,942 | ||
| Property, equipment and information systems, net of accumulated depreciation |
|
98,858 |
|
100,790 | ||
| Prepaid pension expense |
|
46,452 |
|
45,209 | ||
| Deferred taxes, net |
|
271,396 |
|
268,948 | ||
| Other |
|
31,481 |
|
33,587 | ||
| Total assets |
$ |
2,869,124 |
$ |
2,777,455 | ||
See notes to consolidated financial statements.
3
WellChoice, Inc. and Subsidiaries
Consolidated Balance Sheets
| March 31, |
December 31, |
||||||
| 2003 |
2002 |
||||||
| (Unaudited) |
|||||||
| (In thousands, except share and per share data) |
|||||||
| Liabilities and stockholders’ equity |
|||||||
| Liabilities: |
|||||||
| Unpaid claims and claims adjustment expense |
$ |
579,499 |
$ |
559,924 |
| ||
| Unearned premium income |
|
105,828 |
|
127,503 |
| ||
| Managed cash overdrafts |
|
149,330 |
|
170,270 |
| ||
| Accounts payable and accrued expenses |
|
118,659 |
|
111,842 |
| ||
| Advance deposits |
|
157,525 |
|
137,762 |
| ||
| Group and other contract liabilities |
|
148,202 |
|
112,870 |
| ||
| Postretirement benefits other than pensions |
|
144,357 |
|
143,736 |
| ||
| Obligations under capital lease |
|
46,912 |
|
47,700 |
| ||
| Other |
|
137,519 |
|
129,586 |
| ||
| Total liabilities |
|
1,587,831 |
|
1,541,193 |
| ||
| Stockholders’ equity: |
|||||||
| Common stock, $0.01 par value, 225,000,000 shares authorized; 83,490,477 shares issued and outstanding |
|
835 |
|
835 |
| ||
| Class B common stock, $0.01 per share value, one share authorized; one share issued and outstanding |
|
— |
|
— |
| ||
| Preferred stock, $0.01 per share value, 25,000,000 shares authorized; none issued and outstanding |
|
— |
|
— |
| ||
| Additional paid-in capital |
|
1,255,566 |
|
1,255,566 |
| ||
| Retained earnings (deficit) |
|
9,199 |
|
(38,542 |
) | ||
| Accumulated other comprehensive income |
|
15,693 |
|
18,403 |
| ||
| Total stockholders’ equity |
|
1,281,293 |
|
1,236,262 |
| ||
| Total liabilities and stockholders’ equity |
$ |
2,869,124 |
$ |
2,777,455 |
| ||
See notes to consolidated financial statements.
4
WellChoice, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
| Three months ended March 31 |
|||||||
| 2003 |
2002 |
||||||
| (In thousands, except share and per share date) |
|||||||
| Revenue: |
|||||||
| Premiums earned |
$ |
1,166,541 |
$ |
1,155,907 |
| ||
| Administrative service fees |
|
108,924 |
|
94,648 |
| ||
| Investment income, net |
|
13,355 |
|
16,576 |
| ||
| Net realized investment gains (losses) |
|
3,114 |
|
(58 |
) | ||
| Other income, net |
|
144 |
|
13,027 |
| ||
| Total revenue |
|
1,292,078 |
|
1,280,100 |
| ||
| Expenses: |
|||||||
| Cost of benefits provided |
|
999,253 |
|
1,008,399 |
| ||
| Administrative expenses |
|
209,842 |
|
191,684 |
| ||
| Conversion and IPO expenses |
|
— |
|
313 |
| ||
| Total expenses |
|
1,209,095 |
|
1,200,396 |
| ||
| Income from continuing operations before income taxes |
|
82,983 |
|
79,704 |
| ||
| Income tax expense |
|
35,242 |
|
23 |
| ||
| Income from continuing operations |
|
47,741 |
|
79,681 |
| ||
| Loss from discontinued operations, net of taxes of $0 |
|
— |
|
1,050 |
| ||
| Net income |
$ |
47,741 |
$ |
78,631 |
| ||
| Basic and diluted net income per common share |
$ |
0.57 |
|||||
| Shares used to compute net income per common share, based on weighted average shares outstanding January 1, 2003 to March 31, 2003 |
|
83,490,478 |
|||||
See notes to consolidated financial statements.
5
WellChoice, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
| Three months ended March 31 |
||||||||
| 2003 |
2002 |
|||||||
| (In thousands) |
||||||||
| Cash flows from operating activities |
||||||||
| Net income |
$ |
47,741 |
|
$ |
78,631 |
| ||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
|
9,041 |
|
|
7,751 |
| ||
| Net realized (gain) loss on sales of investments |
|
(3,114 |
) |
|
58 |
| ||
| Credit for doubtful accounts |
|
(182 |
) |
|
(283 |
) | ||
| Accretion of discount, net |
|
207 |
|
|
(1,311 |
) | ||
| Equity in earnings of other long-term equity investments |
|
(773 |
) |
|
(224 |
) | ||
| Deferred income tax benefit |
|
(988 |
) |
|
(14,354 |
) | ||
| Other |
|
(1,243 |
) |
|
(988 |
) | ||
| Changes in assets and liabilities: |
||||||||
| Billed and accrued premiums receivables |
|
(8,938 |
) |
|
3,673 |
| ||
| Other customer receivable |
|
21,224 |
|
|
474 |
| ||
| Notes receivable |
|
(79 |
) |
|
(371 |
) | ||
| Accrued investment income |
|
2,541 |
|
|
(2,622 |
) | ||
| Insurance proceeds receivable |
|
— |
|
|
14,055 |
| ||
| Miscellaneous receivables |
||||||||