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 September 30, 2004
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 x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 84,005,079 shares of common stock, $0.01 par value, and one share of Class B common stock, $0.01 par value per share, as of October 25, 2004.
WellChoice, Inc and Subsidiaries
INDEX TO FORM 10-Q
WellChoice, Inc. and Subsidiaries
Consolidated Balance Sheets
| September 30, 2004 |
December 31, 2003 | |||||
| (Unaudited) | ||||||
| (In thousands) | ||||||
| Assets |
||||||
| Investments: |
||||||
| Fixed maturities, at fair value (amortized cost: $1,289,232 and $1,036,747) |
$ | 1,287,092 | $ | 1,037,255 | ||
| Marketable equity securities, at fair value (cost: $46,971 and $52,890) |
48,538 | 60,414 | ||||
| Short-term investments |
177,968 | 232,474 | ||||
| Other long-term equity investments |
32,903 | 31,686 | ||||
| Total investments |
1,546,501 | 1,361,829 | ||||
| Cash and cash equivalents |
696,936 | 697,518 | ||||
| Total investments and cash and cash equivalents |
2,243,437 | 2,059,347 | ||||
| Receivables: |
||||||
| Billed premiums, net |
106,459 | 92,399 | ||||
| Accrued premiums |
315,501 | 285,773 | ||||
| Other amounts due from customers, net |
104,520 | 107,062 | ||||
| Notes receivable, net |
12,160 | 12,410 | ||||
| Advances to hospitals, net |
4,455 | 10,788 | ||||
| Accrued investment income |
11,273 | 9,613 | ||||
| Miscellaneous, net |
65,464 | 51,333 | ||||
| Total receivables |
619,832 | 569,378 | ||||
| Property, equipment and information systems, net of accumulated depreciation |
106,577 | 113,526 | ||||
| Prepaid pension expense |
63,945 | 53,515 | ||||
| Deferred taxes, net |
170,402 | 216,534 | ||||
| Other |
34,496 | 30,693 | ||||
| Total assets |
$ | 3,238,689 | $ | 3,042,993 | ||
See notes to consolidated financial statements.
3
WellChoice, Inc. and Subsidiaries
Consolidated Balance Sheets
| September 30, 2004 |
December 31, 2003 |
|||||||
| (Unaudited) | ||||||||
| (In thousands, except share and per share data) |
||||||||
| Liabilities and stockholders’ equity |
||||||||
| Liabilities: |
||||||||
| Unpaid claims and claims adjustment expense |
$ | 681,603 | $ | 609,491 | ||||
| Unearned premium income |
98,344 | 134,174 | ||||||
| Managed cash overdrafts |
174,214 | 197,995 | ||||||
| Accounts payable and accrued expenses |
73,726 | 104,526 | ||||||
| Advance deposits |
157,038 | 113,843 | ||||||
| Group and other contract liabilities |
101,756 | 112,204 | ||||||
| Postretirement benefits other than pensions |
146,027 | 142,743 | ||||||
| Obligations under capital lease |
45,144 | 48,345 | ||||||
| Other |
140,978 | 147,315 | ||||||
| Total liabilities |
1,618,830 | 1,610,636 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $0.01 par value, 225,000,000 shares authorized; shares issued and outstanding 2004—84,005,079; 2003—83,676,446 |
840 | 837 | ||||||
| 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 |
1,273,553 | 1,262,222 | ||||||
| Retained earnings |
349,096 | 162,584 | ||||||
| Unearned restricted stock compensation |
(12,565 | ) | (6,027 | ) | ||||
| Accumulated other comprehensive income |
8,935 | 12,741 | ||||||
| Total stockholders’ equity |
1,619,859 | 1,432,357 | ||||||
| Total liabilities and stockholders’ equity |
$ | 3,238,689 | $ | 3,042,993 | ||||
See notes to consolidated financial statements.
4
WellChoice, Inc. and Subsidiaries
Consolidated Statements of Income
| Three months ended September 30, |
Nine months ended September 30, | ||||||||||||
| 2004 |
2003 |
2004 |
2003 | ||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||
| (In thousands, except share and per share data) | |||||||||||||
| Revenue: |
|||||||||||||
| Premiums earned |
$ | 1,305,897 | $ | 1,209,296 | $ | 3,915,074 | $ | 3,622,884 | |||||
| Administrative service fees |
128,339 | 113,825 | 373,505 | 336,312 | |||||||||
| Investment income, net |
15,859 | 14,067 | 43,264 | 38,984 | |||||||||
| Net realized investment gains |
861 | 2,650 | 7,550 | 6,956 | |||||||||
| Other income (expense), net |
43 | (499 | ) | 219 | 792 | ||||||||
| Total revenue |
1,450,999 | 1,339,339 | 4,339,612 | 4,005,928 | |||||||||
| Expenses: |
|||||||||||||
| Cost of benefits provided |
1,122,593 | 1,020,356 | 3,371,702 | 3,089,381 | |||||||||
| Administrative expenses |
228,590 | 231,522 | 676,740 | 660,667 | |||||||||
| Total expenses |
1,351,183 | 1,251,878 | 4,048,442 | 3,750,048 | |||||||||
| Income from continuing operations before income taxes |
99,816 | 87,461 | 291,170 | 255,880 | |||||||||
| Income tax expense |
37,921 | 35,403 | 104,658 | 107,306 | |||||||||
| Net income |
$ | 61,895 | $ | 52,058 | $ | 186,512 | $ | 148,574 | |||||
| Basic earnings per common share |
$ | 0.74 | $ | 0.62 | $ | 2.23 | $ | 1.78 | |||||
| Diluted earnings per common share |
0.74 | 0.62 | 2.23 | 1.78 | |||||||||
| Shares used to compute basic earnings per common share based on weighted average shares outstanding |
83,559,141 | 83,490,478 | 83,514,673 | 83,490,478 | |||||||||
| Shares used to compute diluted earnings per common share based on weighted average shares outstanding |
83,908,346 | 83,490,478 | 83,832,419 | 83,490,478 | |||||||||
See notes to consolidated financial statements.
5
WellChoice, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
| Nine months ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| (Unaudited) | ||||||||
| (In thousands) | ||||||||
| Cash flows from operating activities |
||||||||
| Net income |
$ | 186,512 | $ | 148,574 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
29,138 | 28,238 | ||||||
| Net realized (gain) on sales of investments |
(7,550 | ) | (6,956 | ) | ||||
| (Credit) provision for doubtful accounts |
(3,923 | ) | 361 | |||||
| Accretion of discount, net |
1,596 | 4,418 | ||||||
| Equity in earnings of other long-term equity investments |
(2,369 | ) | (2,247 | ) | ||||
| Deferred income tax expense |
47,816 | 41,169 | ||||||
| Other |
(10,429 | ) | (4,383 | ) | ||||
| Changes in assets and liabilities: |
||||||||
| Billed and accrued premiums receivables |
(42,561 | ) | (11,689 | ) | ||||
| Other customer receivable |
2,006 | 297 | ||||||
| Long-term notes receivable |
250 | (214 | ) | |||||
| Advances to hospitals |
6,866 | (10,777 | ) | |||||
| Accrued investment income |
(1,661 | ) | 836 | |||||
| Miscellaneous receivables |
(11,201 | ) | (18,537 | ) | ||||
| Other assets |
(3,802 | ) | (4,883 | ) | ||||
| Unpaid claims and claims adjustment expenses |
72,112 | 46,517 | ||||||
| Unearned premium income |
(35,830 | ) | (28,917 | ) | ||||
| Managed cash overdrafts |
(23,782 | ) | (12,029 | ) | ||||
| Accounts payable and accrued expenses |
(23,057 | ) | (5,927 | ) | ||||
| Advance deposits |
43,195 | (15,304 | ) | |||||
| Group and other contract liabilities |
(10,448 | ) | 45,063 | |||||
| Postretirement benefits other than pensions |
3,285 | 905 | ||||||
| Other liabilities |
(2,139 | ) | 33,478 | |||||
| Net cash provided by operating activities |
214,024 | 227,993 | ||||||
| Cash flows from investment activities |
||||||||
| Purchases of property, equipment and information systems |
(25,152 | ) | (42,394 | ) | ||||
| Proceeds from sale of property, equity and information systems |
16 | 1,096 | ||||||
| Purchases of available for sale investments |
(1,086,744 | ) | (1,062,021 | ) | ||||
| Proceeds from sales and maturities of available for sale investments |
900,475 | 1,179,418 | ||||||
| Net cash (used in) provided by investing activities |
(211,405 | ) | 76,099 | |||||
| Cash flows from financing activities |
||||||||
| (Decrease) increase in capital lease obligations |
(3,201 | ) | 1,588 | |||||
| Net cash (used in) provided by financing activities |
(3,201 | ) | 1,588 | |||||
| Net change in cash and cash equivalents |
(582 | ) | 305,680 | |||||
| Cash and cash equivalents at beginning of period |
697,518 | 487,431 | ||||||
| Cash and cash equivalents at end of period |
$ | 696,936 | $ | 793,111 | ||||
| Supplemental disclosure |
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