Document and Entity Information
Document and Entity Information | ||
3 Months Ended
Mar. 31, 2010 | Apr. 15, 2010
| |
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | 2010-03-31 | |
Document Fiscal Year Focus | 2,010 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | WLP | |
Entity Registrant Name | WELLPOINT, INC | |
Entity Central Index Key | 0001156039 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 427,187,403 |
Consolidated Balance Sheets
Consolidated Balance Sheets (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 12 Months Ended
Dec. 31, 2009 |
Current assets: | ||
Cash and cash equivalents | 3526.2 | 4816.1 |
Investments available-for-sale, at fair value: | ||
Fixed maturity securities (amortized cost of $15,031.7 and $15,203.1) | 15601.1 | 15696.9 |
Equity securities (cost of $793.9 and $799.1) | 1056.6 | 1010.7 |
Other invested assets, current | 19.3 | 26.5 |
Accrued investment income | 170.7 | 172.8 |
Premium and self-funded receivables | 3298.6 | 3,281 |
Other receivables | 1038.1 | 879.5 |
Securities lending collateral | 600.5 | 394.8 |
Deferred tax assets, net | 481.6 | 523.8 |
Other current assets | 1323.8 | 1268.6 |
Total current assets | 27116.5 | 28070.7 |
Long-term investments available-for-sale, at fair value: | ||
Fixed maturity securities (amortized cost of $222.4 and $223.0) | 229.6 | 230.4 |
Equity securities (cost of $32.4 and $33.4) | 31.9 | 32.5 |
Other invested assets, long-term | 802.4 | 775.3 |
Property and equipment, net | 1144.5 | 1099.6 |
Goodwill | 13265.7 | 13264.6 |
Other intangible assets | 8177.8 | 8259.3 |
Other noncurrent assets | 412.5 | 393 |
Total assets | 51180.9 | 52125.4 |
Policy liabilities: | ||
Medical claims payable | 5487.3 | 5450.5 |
Reserves for future policy benefits | 59.4 | 62.6 |
Other policyholder liabilities | 1652.9 | 1617.6 |
Total policy liabilities | 7199.6 | 7130.7 |
Unearned income | 1117.7 | 1,050 |
Accounts payable and accrued expenses | 2686.7 | 2994.1 |
Income taxes payable | 380.8 | 1228.7 |
Security trades pending payable | 263.6 | 37.6 |
Securities lending payable | 602 | 396.6 |
Current portion of long-term debt | 759.9 | 60.8 |
Other current liabilities | 1800.2 | 1775.2 |
Total current liabilities | 14810.5 | 14673.7 |
Long-term debt, less current portion | 7630.4 | 8338.3 |
Reserves for future policy benefits, noncurrent | 663.8 | 664.6 |
Deferred tax liabilities, net | 2,501 | 2470.4 |
Other noncurrent liabilities | 1,056 | 1115.1 |
Total liabilities | 26661.7 | 27262.1 |
Commitments and contingencies - Note 10 | ||
Shareholders' equity | ||
Preferred stock, without par value, shares authorized - 100,000,000; shares issued and outstanding - none | ||
Common stock, par value $0.01, shares authorized - 900,000,000; shares issued and outstanding: 431,360,762 and 449,789,672 | 4.3 | 4.5 |
Additional paid-in capital | 14552.5 | 15192.2 |
Retained earnings | 9795.6 | 9598.5 |
Accumulated other comprehensive income | 166.8 | 68.1 |
Total shareholders' equity | 24519.2 | 24863.3 |
Total liabilities and shareholders' equity | 51180.9 | 52125.4 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) (USD $) | ||
In Millions, except Share data | Mar. 31, 2010
| Dec. 31, 2009
|
Fixed maturity securities, amortized cost | 15031.7 | 15203.1 |
Equity securities, cost | 793.9 | 799.1 |
Fixed maturity securities, amortized cost | 222.4 | 223 |
Equity securities, cost | 32.4 | 33.4 |
Preferred stock, par value | $0 | $0 |
Preferred stock, shares authorized | 100,000,000 | 100,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | 0.01 | 0.01 |
Common stock, shares authorized | 900,000,000 | 900,000,000 |
Common stock, shares issued | 431,360,762 | 449,789,672 |
Common stock, shares outstanding | 431,360,762 | 449,789,672 |
Consolidated Statements of Inco
Consolidated Statements of Income (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Revenues | ||
Premiums | 13909.9 | 14203.2 |
Administrative fees | 952.9 | 941.5 |
Other revenue | 5.9 | 154 |
Total operating revenue | 14868.7 | 15298.7 |
Net investment income | 201.1 | 197.1 |
Net realized gains (losses) on investments | 48.4 | -47.5 |
Other-than-temporary impairment losses on investments: | ||
Total other-than-temporary impairment losses on investments | -27.9 | (305) |
Portion of other-than-temporary impairment losses recognized in other comprehensive income | 8.2 | |
Other-than-temporary impairment losses recognized in income | -19.7 | (305) |
Total revenues | 15098.5 | 15143.3 |
Expenses | ||
Benefit expense | 11381.4 | 11724.4 |
Selling, general and administrative expense: | ||
Selling expense | 402.4 | 432 |
General and administrative expense | 1798.2 | 1796.9 |
Total selling, general and administrative expense | 2200.6 | 2228.9 |
Cost of drugs | 112.4 | |
Interest expense | 99.4 | 116.1 |
Amortization of other intangible assets | 60.7 | 67.9 |
Impairment of other intangible assets | 21.1 | |
Total expenses | 13763.2 | 14249.7 |
Income before income tax expense | 1335.3 | 893.6 |
Income tax expense | 458.5 | 313.2 |
Net income | 876.8 | 580.4 |
Net income per share | ||
Basic | 1.99 | 1.17 |
Diluted | 1.96 | 1.16 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Operating activities | ||
Net income | 876.8 | 580.4 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||
Net realized (gains) losses on investments | -48.4 | 47.5 |
Other-than-temporary impairment losses recognized in income | 19.7 | 305 |
(Gain) loss on disposal of assets | -0.5 | 0.3 |
Deferred income taxes | 40.2 | -10.5 |
Amortization, net of accretion | 111.9 | 109.6 |
Impairment of other intangible assets | 21.1 | |
Depreciation expense | 27.6 | 26.1 |
Share-based compensation | 14.1 | 24.8 |
Excess tax benefits from share-based compensation | -21.6 | -0.7 |
Changes in operating assets and liabilities, net of effect of business combinations: | ||
Receivables, net | -279.8 | -486.1 |
Other invested assets, current | 7 | 13.8 |
Other assets | -74.5 | -7.5 |
Policy liabilities | 68.1 | 31.2 |
Unearned income | 67.7 | 65.4 |
Accounts payable and accrued expenses | -288.8 | 120.3 |
Other liabilities | -21.2 | 16.8 |
Income taxes | -830.3 | 347.1 |
Other, net | (12) | 8.5 |
Net cash (used in) provided by operating activities | -322.9 | 1,192 |
Investing activities | ||
Purchases of fixed maturity securities | -1642.1 | (2,051) |
Proceeds from fixed maturity securities: | ||
Sales | 960.6 | 869.5 |
Maturities, calls and redemptions | 1213.7 | 289.5 |
Purchases of equity securities | -37.4 | -31.3 |
Proceeds from sales of equity securities | 45.6 | 168.4 |
Purchases of other invested assets | -28.8 | -18.8 |
Proceeds from sales of other invested assets | 7.4 | 0.9 |
Changes in securities lending collateral | -205.4 | 54.9 |
Purchases of subsidiaries, net of cash acquired | -0.3 | -1.1 |
Purchases of property and equipment | -120.2 | -68.9 |
Proceeds from sales of property and equipment | 3.1 | 0.2 |
Other, net | -4.3 | -3.2 |
Net cash provided by (used in) investing activities | 191.9 | -790.9 |
Financing activities | ||
Net proceeds from (repayments of) commercial paper borrowings | 0.1 | -273.1 |
Repayment of long-term borrowings | -15.1 | -228.1 |
Proceeds from long-term borrowings | 990.3 | |
Net proceeds from short-term borrowings | 2 | |
Changes in securities lending payable | 205.4 | -54.9 |
Changes in bank overdrafts | -50.8 | 19.5 |
Repurchase and retirement of common stock | -1388.4 | -681.2 |
Proceeds from exercise of employee stock options and employee stock purchase plan | 69.5 | 17.9 |
Excess tax benefits from share-based compensation | 21.6 | 0.7 |
Net cash used in financing activities | -1157.7 | -206.9 |
Effect of foreign exchange rates on cash and cash equivalents | -1.2 | |
Change in cash and cash equivalents | -1289.9 | 194.2 |
Cash and cash equivalents at beginning of period | 4816.1 | 2183.9 |
Cash and cash equivalents at end of period | 3526.2 | 2378.1 |
Consolidated Statements of Shar
Consolidated Statements of Shareholders' Equity (USD $) | |||||
In Millions | Common Stock
| Additional Paid-in Capital
| Retained Earnings
| Accumulated Other Comprehensive Income (Loss)
| Total
|
Beginning Balance at Dec. 31, 2008 | $5 | $16,843 | 5479.4 | -895.7 | 21431.7 |
Beginning Balance (in shares) at Dec. 31, 2008 | 503.2 | ||||
Net income | 580.4 | 580.4 | |||
Change in net unrealized gains/losses on investments | 152.6 | 152.6 | |||
Change in net unrealized gains/losses on cash flow hedges | -2.2 | -2.2 | |||
Change in net periodic pension and postretirement costs | -0.2 | -0.2 | |||
Comprehensive income | 730.6 | ||||
Repurchase and retirement of common stock (in shares) | -17.7 | ||||
Repurchase and retirement of common stock | -0.2 | -591.8 | -89.2 | -681.2 | |
Issuance of common stock under employee stock plans, net of related tax benefits (in shares) | 0.8 | ||||
Issuance of common stock under employee stock plans, net of related tax benefits | 26.9 | 26.9 | |||
Ending Balance (in shares) at Mar. 31, 2009 | 486.3 | ||||
Ending Balance at Mar. 31, 2009 | 4.8 | 16278.1 | 5970.6 | -745.5 | 21,508 |
Beginning Balance at Dec. 31, 2009 | 4.5 | 15192.2 | 9598.5 | 68.1 | 24863.3 |
Beginning Balance (in shares) at Dec. 31, 2009 | 449.8 | ||||
Net income | 876.8 | 876.8 | |||
Change in net unrealized gains/losses on investments | 99.2 | 99.2 | |||
Non-credit component of other-than-temporary impairment losses on investments, net of taxes | -3.1 | -3.1 | |||
Change in net unrealized gains/losses on cash flow hedges | 0.2 | 0.2 | |||
Change in net periodic pension and postretirement costs | 3.4 | 3.4 | |||
Foreign currency translation adjustments | (1) | (1) | |||
Comprehensive income | 975.5 | ||||
Repurchase and retirement of common stock (in shares) | -20.9 | ||||
Repurchase and retirement of common stock | -0.2 | -708.5 | -679.7 | -1388.4 | |
Issuance of common stock under employee stock plans, net of related tax benefits (in shares) | 2.5 | ||||
Issuance of common stock under employee stock plans, net of related tax benefits | 68.8 | 68.8 | |||
Ending Balance (in shares) at Mar. 31, 2010 | 431.4 | ||||
Ending Balance at Mar. 31, 2010 | 4.3 | 14552.5 | 9795.6 | 166.8 | 24519.2 |
Organization
Organization | |
3 Months Ended
Mar. 31, 2010 | |
Organization | 1. Organization References to the terms we, our, us, WellPoint or the Company used throughout these Notes to Consolidated Financial Statements refer to WellPoint, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries. We are the largest health benefits company in terms of commercial membership in the United States, serving 33.8 medical members as of March31, 2010. We offer a broad spectrum of network-based managed care plans to large and small employer, individual, Medicaid and senior markets. Our managed care plans include: preferred provider organizations, or PPOs; health maintenance organizations, or HMOs; point-of-service, or POS, plans; traditional indemnity plans and other hybrid plans, including consumer-driven health plans, or CDHPs; and hospital only and limited benefit products. In addition, we provide a broad array of managed care services to self-funded customers, including claims processing, underwriting, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other administrative services. We also provide an array of specialty and other products and services such as life and disability insurance benefits, dental, vision, behavioral health benefit services, radiology benefit management, analytics-driven personal health care guidance, long-term care insurance and flexible spending accounts. We are licensed to conduct insurance operations in all 50 states through our subsidiaries. We are an independent licensee of the Blue Cross and Blue Shield Association, or BCBSA, an association of independent health benefit plans. We serve our members as the Blue Cross licensee for California; the Blue Cross and Blue Shield, or BCBS, licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (as the BCBS licensee in 10 New York City metropolitan and surrounding counties and as the Blue Cross or BCBS licensee in selected upstate counties only), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of these service areas we do business as Anthem Blue Cross, Anthem Blue Cross Blue Shield or Empire Blue Cross Blue Shield (in our New York service areas). We also serve customers throughout much of the country as UniCare. During the first quarter of 2010, the U.S. Congress passed and the President signed into law the Patient Protection and Affordable Care Act as well as the Health Care and Education Reconciliation Act of 2010, which represent significant changes to the current U.S. health care system. The legislation is far-reaching and is intended to expand access to health insurance coverage over time by increasing the eligibility thresholds for most state Medicaid programs and providing certain other individuals and small businesses with tax incentives to subsidize a portion of the cost of health insurance coverage. The legislation includes a requirement that most individuals obtain health insurance coverage beginning in 2014 and that most large employe |
Basis of Presentation
Basis of Presentation | |
3 Months Ended
Mar. 31, 2010 | |
Basis of Presentation | 2. Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, including normal recurring adjustments, necessary for a fair statement of the consolidated financial statements as of and for the three months ended March31, 2010 and 2009 have been recorded. The results of operations for the three months ended March31, 2010 are not necessarily indicative of the results that may be expected for the full year ending December31, 2010. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December31, 2009 included in our Annual Report on Form 10-K. Certain of our subsidiaries operate outside of the United States and have functional currencies other than the U.S. dollar, or USD. We translate the assets and liabilities of those subsidiaries to USD using the exchange rate in effect at the end of the period. We translate the revenues and expenses of those subsidiaries to USD using the average exchange rates in effect during the period. The net effect of these translation adjustments is included in Foreign currency translation adjustments in our consolidated statements of shareholders equity. Our benefit expense includes costs of care for health services consumed by our members, such as outpatient care, inpatient hospital care, professional services (primarily physician care) and pharmacy benefit costs. Beginning January1, 2010, we began classifying certain claims-related costs, which were historically classified as administrative expense, as benefit expense to better reflect costs incurred for our members traditional medical care as well as those expenses which improve our members health and medical outcomes. These reclassified costs are comprised of expenses incurred for: (i)medical management, including case and utilization management; (ii)health and wellness, including disease management services for such things as diabetes, high-risk pregnancies, congestive heart failure and asthma management and wellness initiatives like weight-loss programs and smoking cessation treatments; and (iii)clinical health policy. These types of claims-related costs ultimately lower our members cost of care. Prior year amounts have been reclassified to conform to the new presentation. Certain other prior year amounts have been reclassified to conform to the current year presentation. |
Investments
Investments | |
3 Months Ended
Mar. 31, 2010 | |
Investments | 3. Investments We evaluate our investment securities for other-than-temporary declines based on qualitative and quantitative factors. Other-than-temporary impairment losses recognized in income totaled $19.7 and $305.0 for the three months ended March31, 2010 and 2009, respectively. There were no individually significant other-than-temporary impairment losses on investments by issuer during the three months ended March31, 2010 and 2009. We continue to review our investment portfolios under our impairment review policy. Given the current market conditions and the significant judgments involved, there is a continuing risk that further declines in fair value may occur and additional material other-than-temporary impairment losses on investments may be recorded in future periods. The changes in the amount of the credit component of other-than-temporary impairment losses on fixed maturity securities recognized in income, for which a portion of the other-than-temporary impairment losses was recognized in other comprehensive income, was not material for the three months ended March31, 2010. A summary of current and long-term investments, available-for-sale, at March31, 2010 and December31, 2009 is as follows: Cost or Amortized Cost Gross Unrealized Gains GrossUnrealizedLosses Estimated Fair Value Non-Credit Component of Other-Than- Temporary Impairments Recognized in AOCI Less than 12Months Greaterthan 12 Months March31, 2010: Fixed maturity securities: United States Government securities $ 610.5 $ 14.0 $ (0.7 ) $ (0.3 ) $ 623.5 $ Government sponsored securities 434.1 7.9 (0.1 ) 441.9 States, municipalities and political subdivisions - tax-exempt 4,157.7 160.6 (7.0 ) (32.5 ) 4,278.8 Corporate securities 6,257.6 383.3 (10.9 ) (14.5 ) 6,615.5 (0.9 ) Options embedded in convertible debt securities 92.3 92.3 Residential mortgage-backed securities 3,219.0 127.4 (5.1 ) (40.2 ) 3,301.1 (6.0 ) Commercial mortgage-backed securities 148.2 5.2 (3.5 ) 149.9 Other debt obligations 334.7 10.5 (2.2 ) (15.3 ) 327.7 (1.3 ) Total fixed maturity securities 15,254.1 708.9 (26.0 ) (106.3 ) 15,830.7 $ (8.2 ) Equity securities 826.3 270.9 (8.7 ) 1,088.5 Total investments, available-for-sale $ 16,080.4 $ 979.8 $ (34.7 ) $ (106.3 ) $ 16,919.2 December31, 2009: Fixed maturity securities: United States Government securities $ 715.4 $ 14.8 $ (2.4 ) $ (0.2 ) $ 727.6 $ Government sponsored securities 632.8 8.3 (0.4 ) 640.7 Stat |
Derivative Instruments and Hedg
Derivative Instruments and Hedging Activities | |
3 Months Ended
Mar. 31, 2010 | |
Derivative Instruments and Hedging Activities | 4. Derivative Instruments and Hedging Activities In accordance with Financial Accounting Standards Board, or FASB, guidance, all investments in derivatives are recorded as assets or liabilities at fair value. A derivative is typically defined as an instrument whose value is derived from an underlying instrument, index or rate, has a notional amount, requires little or no initial investment and can be net settled. We typically invest in the following types of derivative financial instruments: interest rate swaps, forward contracts, call options, credit default swaps, embedded derivatives and warrants. Derivatives embedded within non-derivative instruments (such as options embedded in convertible fixed maturity securities) are bifurcated from the host instrument when the embedded derivative is not clearly and closely related to the host instrument. Our use of derivatives is limited by statutes and regulations promulgated by the various regulatory bodies to which we are subject, and by our own derivative policy. Our derivative use is generally limited to hedging purposes and we generally do not use derivative instruments for speculative purposes. We have exposure to economic losses due to interest rate risk arising from changes in the level or volatility of interest rates. We attempt to mitigate our exposure to interest rate risk through active portfolio management, which includes rebalancing our existing portfolios of assets and liabilities, as well as changing the characteristics of investments to be purchased or sold in the future. In addition, derivative financial instruments are used to modify the interest rate exposure of certain liabilities or forecasted transactions. These strategies include the use of interest rate swaps and forward contracts, which are used to lock interest rates or to hedge (on an economic basis) interest rate risks associated with variable rate debt. We have used these types of instruments as designated hedges against specific liabilities. If certain correlation, hedge effectiveness and risk reduction criteria are met, a derivative may be specifically designated as a hedge of exposure to changes in fair value or cash flow. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the nature of any hedge designation thereon. Amounts excluded from the assessment of hedge effectiveness, if any, as well as the ineffective portion of the gain or loss, are reported in results of operations immediately. We test for hedge effectiveness at hedge inception and re-assess at the end of each reporting period. No amounts were excluded from the assessment of hedge effectiveness. If the derivative is not designated as a hedge, the gain or loss resulting from the change in the fair value of the derivative is recognized in results of operations in the period of change. We discontinue hedge accounting prospectively when it is determined that one of the following has occurred: (i)the derivative is no longer highly effective in offsetting changes in the fair value or cash flows of a hedged item; (ii)the derivative expires or is sold, terminated or exercised; (iii)the d |
Fair Value
Fair Value | |
3 Months Ended
Mar. 31, 2010 | |
Fair Value | 5. Fair Value Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by FASB guidance for fair value measurements and disclosures, are as follows: LevelInput: Input Definition: LevelI Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. LevelII Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date. LevelIII Unobservable inputs that reflect managements best estimate of what market participants would use in pricing the asset or liability at the measurement date. Transfers between Levels, if any, are recorded as of the beginning of the reporting period. The following methods and assumptions were used to determine the fair value of each class of the following assets and liabilities recorded at fair value in the consolidated balance sheets: Cash equivalents: Cash equivalents primarily consist of highly rated money market funds with maturities of three months or less, and are purchased daily at par value with specified yield rates. Due to the high ratings and short-term nature of the funds, we designate all cash equivalents as Level I. Fixed maturity securities, available-for-sale: Fair values of available-for-sale fixed maturity securities are based on quoted market prices, where available. These fair values are obtained primarily from third party pricing services, which generally use Level I or Level II inputs, for the determination of fair value to facilitate fair value measurements and disclosures. United States Government securities represent Level I securities, while Level II securities primarily include corporate securities, securities from states, municipalities and political subdivisions and residential mortgage-backed securities. For securities not actively traded, the third party pricing services may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, broker quotes, benchmark yields, credit spreads, default rates and prepayment speeds. We also have certain fixed maturity securities, primarily corporate debt and other fixed maturity securities, that are designated Level III securities. For these securities, the valuation methodologies may incorporate broker quotes or assumptions for benchmark yields, credit spreads, default rates and prepayment speeds that are not observable in the markets. Equity securities, available-for-sale: Fair values of equity securities are generally designated as Level I and are based on quoted market prices. For certain equity securities, quoted market prices for the identical security are not always available and the fair value is estimated by reference to similar securities for which quoted prices are available. These |
Income Taxes
Income Taxes | |
3 Months Ended
Mar. 31, 2010 | |
Income Taxes | 6. Income Taxes As of March31, 2010, as further described below, certain of our tax years are being examined by the Internal Revenue Service, or IRS, and various state and local authorities. In addition, we continue to discuss certain industry issues with the IRS. As of March31, 2010, the examinations of our 2008, 2007, 2006, 2005 and 2004 tax years are nearing conclusion. In addition, there are several years with ongoing disputes related to our companies pre-acquisition years that are nearing conclusion. Many of the issues in open tax years have been resolved; however, several of the examinations still require approval from the Joint Committee on Taxation before they can be finalized. During the three months ended March31, 2010 and 2009, we recognized income tax expense of $458.5 and $313.2, respectively, which represents effective tax rates of 34.3% and 35.0%, respectively. During the three months ended March31, 2010, we made tax payments of $1,208.0 to the IRS, principally related to the gain we realized on the sale of our prescription benefits management, or PBM, business which occurred in the fourth quarter of 2009. In March 2010, the Court of Appeals in the Seventh Circuit issued a decision ruling that various payments made to several states in prior years should be a deferred tax asset and not a current tax deduction for the year being litigated. The ruling did not have a material impact on our results of operations, financial position or cash flow. |
Goodwill and Other Intangible A
Goodwill and Other Intangible Assets | |
3 Months Ended
Mar. 31, 2010 | |
Goodwill and Other Intangible Assets | 7. Goodwill and Other Intangible Assets In the first quarter of 2010, we recognized an impairment charge of $21.1 for certain intangible assets associated with the UniCare provider networks, due to a decision we made to transfer certain membership to an alternative network. |
Retirement Benefits
Retirement Benefits | |
3 Months Ended
Mar. 31, 2010 | |
Retirement Benefits | 8. Retirement Benefits The components of net periodic benefit (credit) cost included in the consolidated statements of income for the three months ended March31, 2010 and 2009 are as follows: Pension Benefits Other Benefits 2010 2009 2010 2009 Service cost $ 4.3 $ 5.5 $ 1.9 $ 1.8 Interest cost 22.2 22.7 8.7 7.9 Expected return on assets (34.9 ) (35.5 ) (2.6 ) (0.6 ) Recognized actuarial loss 6.4 0.6 1.9 1.7 Amortization of prior service credit (0.2 ) (0.2 ) (2.4 ) (2.4 ) Net periodic benefit (credit) cost $ (2.2 ) $ (6.9 ) $ 7.5 $ 8.4 For the year ending December31, 2010, no material contributions are expected to be necessary to meet the Employee Retirement Income Securities Act, or ERISA, required funding levels; however, we may elect to make discretionary contributions up to the maximum amount deductible for income tax purposes. Contributions of $15.0 were made to our retirement benefit plans during the three months ended March31, 2010. |
Debt
Debt | |
3 Months Ended
Mar. 31, 2010 | |
Debt | 9. Debt We have a senior revolving credit facility, or the facility, with certain lenders for general corporate purposes. The facility, as amended, provides credit up to $2,392.0, which matures on September30, 2011. The interest rate on this facility is based on either (i)the LIBOR rate plus a predetermined percentage rate based on our credit rating at the date of utilization, or (ii)a base rate as defined in the facility agreement. Our ability to borrow under this facility is subject to compliance with certain covenants. There were no amounts outstanding under this facility as of March31, 2010 or during the three months then ended. At March31, 2010, we had $2,392.0 available under this facility. We have an authorized commercial paper program of up to $2,500.0, the proceeds of which may be used for general corporate purposes. At March31, 2010, we had $500.7 outstanding under this program. Commercial paper borrowings have been classified as long-term debt at March31, 2010 and December31, 2009 in accordance with FASB guidance for short-term obligations expected to be refinanced, as our practice and intent is to replace short-term commercial paper outstanding at expiration with additional short-term commercial paper for an uninterrupted period extending for more than one year or our ability to redeem our commercial paper with borrowings under the senior credit facility described above. We are a member of the Federal Home Loan Bank of Indianapolis and the Federal Home Loan Bank of Cincinnati, collectively, the FHLBs, and as a member we have the ability to obtain cash advances subject to certain requirements. In order to obtain cash advances, we are required to pledge securities as collateral to the FHLBs, initially equal to a certain percentage of the cash borrowings, depending on the type of securities pledged as collateral. The market value of the collateral is monitored daily by the FHLBs, and if it falls below the required percentage of the cash borrowings, we are required to pledge additional securities as collateral or repay a portion of the outstanding cash advance balance. In addition, our borrowings may be limited based on the amount of our investment in the FHLBs common stock. Our investment in the FHLBs common stock at March31, 2010 totaled $9.4, which is reported in Investments available-for- sale Equity securities on the consolidated balance sheets. There were no advances outstanding from the FHLBs under this facility as of March31, 2010 or at any time during the three months then ended. Subsequent to March31, 2010, we borrowed $100.0 under this facility for a two year term at a fixed rate of 1.43%. Securities, primarily certain U.S. government sponsored mortgage-backed securities, with a fair value of $234.3 at March31, 2010, have been pledged as collateral. The securities pledged are reported in Investments available-for-sale Fixed maturity securities on the consolidated balance sheets. Subsequent to March31, 2010, we repaid our 9.125% surplus notes with a remaining outstanding face amount of $42.0. |
Commitments and Contingencies
Commitments and Contingencies | |
3 Months Ended
Mar. 31, 2010 | |
Commitments and Contingencies | 10. Commitments and Contingencies Litigation In various California state courts, we are defending a number of individual lawsuits, including one filed by the Los Angeles City Attorney, and four purported class actions alleging the wrongful rescission of individual insurance policies. The suits name WellPoint as well as Blue Cross of California, or BCC, and BC Life Health Insurance Company, or BCLH (which name changed to Anthem Blue Cross Life and Health Insurance Company in July 2007), both WellPoint subsidiaries. The lawsuits generally allege breach of contract, bad faith and unfair business practices in a purported practice of rescinding new individual members following the submission of large claims. The parties agreed to mediate most of these lawsuits and the mediation resulted in the resolution of some of these lawsuits. In addition, the California Department of Managed Health Care and California Department of Insurance conducted investigations of the allegations. In June 2007, the California Department of Insurance issued its final report in which it issued a number of citations alleging violations of fair-claims handling laws. On February12, 2008, Empire Blue Cross Blue Shield, along with 15 other health benefit companies, was served with a subpoena by the New York Attorney General. The subpoena was part of an industry-wide investigation of how insurance companies use databases maintained by Ingenix, Inc., or Ingenix, a wholly-owned subsidiary of UnitedHealth Group, in determining out-of network reimbursement. Since the beginning of the investigation, we have been cooperating fully with the Attorney Generals office and have complied with the Attorney Generals requests for information regarding out-of-network reimbursement in New York. On February18, 2009, we announced that we reached an agreement with the New York Attorney General regarding the manner in which out-of-network reimbursement to providers will be determined. We agreed to discontinue the use of the Ingenix database, which some of our subsidiaries use in determining out-of-network reimbursement for certain products and in certain states. We also agreed to contribute $10.0 towards the funding of a not-for profit entity that will develop a database of provider charges that can be accessed both by health care plans and their members. This payment was made on October2, 2009. The settlement did not have a material effect on our consolidated financial position or results of operations. We are currently defending several putative class actions filed as a result of the 2001 Anthem Insurance Companies, Inc., or AICI,demutualization.The suits name AICI as well as Anthem, Inc., or Anthem, n/k/aWellPoint, Inc.The suits are captioned as Ronald Gold, et al. v. Anthem, Inc. et al.; Mary E. Ormond, et al. v. Anthem, Inc,. et al.; Ronald E. Mell, Sr., et al. v. Anthem, Inc., et al; and Jeffrey D. Jorling, et al., v. Anthem, Inc. (n/k/a WellPoint, Inc.) et al. AICIs 2001 Plan of Conversion, or the Plan, provided for the conversion of AICI from a mutual insurance company into a stock insurance company pursuant to Indiana law.Under the Plan, AICI distributed the fair value of the c |
Capital Stock
Capital Stock | |
3 Months Ended
Mar. 31, 2010 | |
Capital Stock | 11. Capital Stock Stock Repurchase Program We regularly review the appropriate use of capital. Accordingly, under our Board of Directors authorization, we maintain a common stock repurchase program. Repurchases may be made from time to time at prevailing market prices, subject to certain restrictions on volume, pricing and timing. The repurchases are effected from time to time in the open market, in private transactions, including accelerated share repurchase agreements, and through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended. During the three months ended March31, 2010, we repurchased and retired approximately 20.9 shares at an average per share price of $62.22 (calculated including the final settlement shares of the accelerated share repurchase program discussed below), for an aggregate cost of $1,388.4. Under the share repurchase program, on February24, 2010, we entered into an accelerated share repurchase, or ASR, program with a counterparty. The agreement provides for a repurchase of a number of shares, equal to $500.0, as determined by the dollar volume weighted average share price during a one to two month period. At March31, 2010 we had repurchased 6.7 shares under the agreement and the counterparty is purchasing shares of our stock in the open market at prevailing market prices over the remaining term of the ASR. At the end of the term of the ASR, the initial amount of shares will be adjusted up or down based on the dollar volume weighted average price during the same period. The agreement allowed us to settle any negative final adjustment at our option in either cash or shares of our stock. Accordingly, we reported the effects of this agreement within shareholders equity. The shares repurchased under the ASR are included in the amount disclosed above as shares repurchased during the three months ended March31, 2010. Subsequent to March31, 2010, we repurchased an additional 1.3 shares, for a total of 8.0 shares repurchased pursuant to the ASR, and settled the agreement with our counterparty. The shares repurchased under the ASR subsequent to March31, 2010 are included in the amount disclosed below as shares repurchased through April15, 2010. During the three months ended March31, 2009, we repurchased and retired approximately 17.7 shares at an average per share price of $38.55, for an aggregate cost of $681.2. The excess of cost of the repurchased shares over par value is charged on a pro rata basis to additional paid-in capital and retained earnings. On January26, 2010, our Board of Directors increased the share repurchase authorization by $3,500.0. As of March31, 2010, $2,495.4 remained authorized for future repurchases. Subsequent to March31, 2010, we repurchased and retired approximately 4.2 shares for an aggregate cost of approximately $180.2, leaving approximately $2,315.2 for authorized future repurchases at April15, 2010. Our stock repurchase program is discretionary as we are under no obligation to repurchase shares. We repurchase shares under the program when we believe it is a prudent use of capital. Stock Incentive Plans A summary of stock option act |
Earnings per Share
Earnings per Share | |
3 Months Ended
Mar. 31, 2010 | |
Earnings per Share | 12. Earnings per Share The denominator for basic and diluted earnings per share for the three months ended March31, 2010 and 2009 is as follows: ThreeMonthsEnded March31 2010 2009 Denominator for basic earnings per share weighted average shares 441.1 496.0 Effect of dilutive securities employee and director stock options and non-vested restricted stock awards 5.5 2.2 Denominator for diluted earnings per share 446.6 498.2 During the three months ended March31, 2010 and 2009, weighted average shares related to certain stock options of 16.2 and 21.1, respectively, were excluded from the denominator for diluted earnings per share because the stock options were anti-dilutive. During the three months ended March31, 2010, we issued approximately 1.6 restricted stock units under our stock incentive plans, 0.3 of whose vesting is contingent upon us meeting specified annual operating gain targets for 2010. The 0.3 restricted stock units have been excluded from the denominator for diluted earnings per share and will be included only if and when the contingency is met. |
Segment Information
Segment Information | |
3 Months Ended
Mar. 31, 2010 | |
Segment Information | 13. Segment Information Our organizational structure is comprised of three reportable segments: Commercial, Consumer and Other. Our Commercial and Consumer segments both offer a diversified mix of managed care products, including PPOs, HMOs, traditional indemnity benefits and POS plans, as well as a variety of hybrid benefit plans, including CDHPs, hospital only and limited benefit products. Our Commercial segment includes Local Group (including UniCare), National Accounts and certain other ancillary business operations (dental, vision, life and disability and workers compensation). Business units in the Commercial segment offer fully-insured products and provide a broad array of managed care services to self-funded customers, including claims processing, underwriting, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other administrative services. Our Consumer segment includes Senior, State-Sponsored and Individual business. Senior business includes services such as Medicare Part D, Medicare Advantage, and Medicare Supplement, while State-Sponsored business includes our managed care alternatives for the Medicaid and State Childrens Health Insurance Plan programs. Our Other segment includes the Comprehensive Health Solutions Business unit, or CHS, that brings together our resources focused on optimizing the quality of health care and cost of care management. CHS included our prescription benefits management, or PBM, business until its sale to Express Scripts on December1, 2009, and also includes provider relations, care and disease management, employee assistance programs, including behavioral health, radiology benefit management and analytics-driven personal health care guidance. Our Other segment also includes results from our Federal Government Solutions, or FGS, business. FGS business includes the Federal Employee Program and National Government Services, Inc., which acts as a Medicare contractor in several regions across the nation. The Other segment also includes other businesses that do not meet the quantitative thresholds for an operating segment, as well as intersegment sales and expense eliminations and corporate expenses not allocated to the other reportable segments. As a result of cost-reduction initiatives implemented in 2009, we recorded liabilities for employee termination costs and lease and other contract exit costs. Activity related to these liabilities for the three months ended March31, 2010 is as follows: Commercial Consumer Other Total Employee termination costs: Beginning balance at January1, 2010 $ 89.7 $ 19.6 $ 9.9 $ 119.2 Payments (16.9 ) (3.6 ) (1.9 ) (22.4 ) Employee termination costs ending balance at March31, 2010 72.8 16.0 8.0 96.8 Lease and other contract exit costs: Beginning balance at January1, 2010 31.8 3.2 9.1 44.1 Payments (3.3 ) (0.1 |
Comprehensive Income
Comprehensive Income | |
3 Months Ended
Mar. 31, 2010 | |
Comprehensive Income | 14. Comprehensive Income The components of comprehensive income for the three months ended March31, 2010 and 2009 are as follows: Three Months Ended March31 2010 2009 Net income $ 876.8 $ 580.4 Change in net unrealized gains/losses on investments 99.2 152.6 Change in non-credit component of other-than-temporary impairment losses on investments (3.1 ) Change in net unrealized gains/losses on cash flow hedges 0.2 (2.2 ) Change in net periodic pension and postretirement costs 3.4 (0.2 ) Foreign currency translation adjustments (1.0 ) Comprehensive income $ 975.5 $ 730.6 |
Subsequent Events
Subsequent Events | |
3 Months Ended
Mar. 31, 2010 | |
Subsequent Events | 15. Subsequent Events We have evaluated subsequent events for recognition or disclosure in our consolidated financial statements filed on Form 10-Q with the SEC and no events, other than those described in these notes, have occurred that require disclosure. |