Back to GetFilings.com



Table of Contents

 

 

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 June 30, 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 July 23, 2003.

 

 

Table of Contents

WellChoice, Inc and Subsidiaries

 

INDEX TO FORM 10-Q

 

          Page

PART I FINANCIAL INFORMATION

   3

Item 1.

    Financial Statements    3
     Consolidated Balance Sheets at June 30, 2003 (Unaudited) and December 31, 2002    3
     Consolidated Statements of Income for the Three Months Ended June 30, 2003 and 2002 (Unaudited) and Six Months Ended June 30, 2003 (Unaudited) and 2002    5
     Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002 (Unaudited)    6
     Notes to Consolidated Financial Statements (Unaudited)    7
     Report of Independent Accountants    15

Item 2.

    Management’s Discussion and Analysis of Financial Condition and Results of Operations    16

Item 3.

    Quantitative and Qualitative Disclosures About Market Risk    32

Item 4.

    Controls and Procedures    33

PART II OTHER INFORMATION

   34

Item 1.

    Legal Proceedings    34

Item 4.

    Submission of Matters to a Vote of Security Holders    35

Item 5.

    Other Information    36

Item 6.

    Exhibits and Reports on Form 8-K    36

SIGNATURES

    38

INDEX TO EXHIBITS

    39

 

2

Table of Contents

PART I

FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

WellChoice, Inc. and Subsidiaries

 

Consolidated Balance Sheets

 

     June 30,
2003
    December 31,
2002
     (Unaudited)     
     (In thousands)

Assets

              

Investments:

              

Fixed maturities, at fair value (amortized cost: $930,772 and $846,617)

    $ 952,325    $ 863,290

Marketable equity securities, at fair value (cost: $60,764 and $47,022)

      63,339      44,548

Short-term investments

      33,042      359,490

Other long-term equity investments

      30,349      28,220
    
  

Total investments

      1,079,055      1,295,548

Cash and cash equivalents

      832,618      487,431
    
  

Total investments and cash and cash equivalents

      1,911,673      1,782,979

Receivables:

              

Billed premiums, net

      131,924      111,082

Accrued premiums

      268,317      247,729

Other amounts due from customers, net

      87,798      94,475

Notes receivable, net

      12,163      12,059

Advances to hospitals, net

      7,330      124

Accrued investment income

      7,701      9,829

Miscellaneous, net

      103,910      70,644
    
  

Total receivables

      619,143      545,942

Property, equipment and information systems, net of accumulated depreciation

      92,447      100,790

Prepaid pension expense

      48,360      45,209

Deferred taxes, net

      235,483      268,948

Other

      38,971      33,587
    
  

Total assets

    $ 2,946,077    $ 2,777,455
    
  

 

See notes to consolidated financial statements.

 

3

Table of Contents

WellChoice, Inc. and Subsidiaries

 

Consolidated Balance Sheets

 

     June 30,
2003
    December 31,
2002
  
     (Unaudited)       
     (In thousands, except share
and per share data)		  

Liabilities and stockholders’ equity

                

Liabilities:

                

Unpaid claims and claims adjustment expense

    $ 598,348    $ 559,924  

Unearned premium income

      92,006      127,503  

Managed cash overdrafts

      170,843      170,270  

Accounts payable and accrued expenses

      103,049      111,842  

Advance deposits

      110,520      137,762  

Group and other contract liabilities

      157,929      112,870  

Postretirement benefits other than pensions

      144,500      143,736  

Obligations under capital lease

      46,152      47,700  

Other

      183,519      129,586  
    
  

Total liabilities

      1,606,866      1,541,193  

Stockholders’ equity:

                

Class A 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)

      57,974      (38,542 )

Accumulated other comprehensive income

      24,836      18,403  
    
  

Total stockholders’ equity

      1,339,211      1,236,262  
    
  

Total liabilities and stockholders’ equity

    $ 2,946,077    $ 2,777,455  
    
  

 

See notes to consolidated financial statements.

 

4

Table of Contents

WellChoice, Inc. and Subsidiaries

 

Consolidated Statements of Income

 

     Three months ended
June 30
     Six months ended
June 30
  
     2003
     2002
     2003
     2002
  
     (Unaudited)     (Unaudited)        
     (In thousands, except share and per share date)  

Revenue:

                                 

Premiums earned

    $ 1,247,047     $ 1,203,910     $ 2,413,588     $ 2,359,817  

Administrative service fees

      113,563       99,650       222,487       194,298  

Investment income, net

      11,561       17,833       24,917       34,409  

Net realized investment gains (losses)

      1,193       (348 )     4,306       (406 )

Other income, net

      1,147       597       1,291       13,624  
    
 
 
 

Total revenue

      1,374,511       1,321,642       2,666,589       2,601,742  

Expenses:

                                 

Cost of benefits provided

      1,069,772       1,048,607       2,069,025       2,057,006  

Administrative expenses

      219,303       209,628       429,145       401,312  

Conversion and IPO expenses

      —         3,315       —         3,628  
    
 
 
 

Total expenses

      1,289,075       1,261,550       2,498,170       2,461,946  
    
 
 
 

Income from continuing operations before income taxes

      85,436       60,092       168,419       139,796  

Income tax (expense) benefit

      (36,661 )     2       (71,903 )     (20 )
    
 
 
 

Income from continuing operations

      48,775       60,094       96,516       139,776  

Loss from discontinued operations, net of taxes of $0

      —         (6 )     —         (1,056 )
    
 
 
 

Net income

    $ 48,775     $ 60,088     $ 96,516     $ 138,720  
    
 
 
 

Basic and diluted net income per common share:

    $ 0.59             $ 1.16          

Shares used to compute net income per common share, based on weighted average shares outstanding January 1, 2003 to June 30, 2003

      83,490,478               83,490,478          

 

See notes to consolidated financial statements.

 

5

Table of Contents

WellChoice, Inc. and Subsidiaries

 

Consolidated Statements of Cash Flows

 

     Six months ended June 30
  
     2003
     2002
  
     (Unaudited)        
     (In thousands)  

Cash flows from operating activities

                 

Net income

    $ 96,516     $ 138,720  

Adjustments to reconcile net income to net cash provided by operating activities:

                 

Depreciation and amortization

      18,385       16,084  

Net realized (gain) loss on sales of investments

      (4,307 )     406  

(Credit) provision for doubtful accounts

      (67 )     2,245  

Accretion of discount, net

      1,459       (2,114 )

Equity in earnings of other long-term equity investments

      (1,348 )     (1,189 )

Deferred income tax expense (benefit)

      30,001       (29,380 )

Other

      (3,151 )     (2,943 )

Changes in assets and liabilities:

                 

Billed and accrued premiums receivables

      (40,262 )     (1,830 )

Other customer receivable

      6,335       1,486  

Long-term notes receivable

      (105 )     (1,594 )

Advances to hospitals

      (7,394 )     (3,526 )

Accrued investment income

      2,149       (2,883 )

Insurance proceeds receivable

      –       10,521  

Miscellaneous receivables

      (49,125 )     (893 )

Other assets

      (5,384 )     (15,066 )

Unpaid claims and claims adjustment expenses

      38,424       (6,015 )

Unearned premium income

      (35,497 )     (33,749 )

Managed cash overdrafts

      573       2,893  

Accounts payable and accrued expenses

      (442 )     (39,098 )

Advance deposits

      (27,242 )