WELLPOINT REPORTS FOURTH QUARTER AND FULL YEAR 2012 RESULTS AND PROVIDES 2013 OUTLOOK
WELLPOINT REPORTS FOURTH QUARTER AND FULL YEAR 2012 RESULTS AND PROVIDES 2013 OUTLOOK
Fourth quarter 2012 net income was $1.51 per share, including $0.48 per share of net
income from certain items. Adjusted net income was $1.03 per share (refer to page 14).
Full year 2012 net income was $8.18 per share, including $0.62 per share of net income
from certain items. Adjusted net income was $7.56 per share (refer to page 14).
Medical enrollment exceeded 36 million members as of December 31, 2012.
Full year 2013 operating revenue is expected to be in the range of $71.5 to $73.0 billion.
Full year 2013 net income is expected to be at least $7.60 per share, including integration
costs related to the Amerigroup acquisition.
Indianapolis, Ind. – Jan. 23, 2013 – WellPoint, Inc. (NYSE: WLP) today announced that fourth
quarter 2012 net income was $464.2 million, or $1.51 per share. These results included $0.48 per
share of net income resulting primarily from a favorable income tax settlement and net investment
gains, partially offset by acquisition related costs. Net income in the fourth quarter of 2011 was $335.3
million, or $0.96 per share, and included net investment losses of $0.03 per share.
Excluding the items noted in each period, adjusted net income was $1.03 per share in the fourth quarter
of 2012, an increase of 4.0 percent compared with adjusted net income of $0.99 per share in the prior
year quarter (refer to page 14 for a reconciliation to the most directly comparable measure calculated in
accordance with U.S. generally accepted accounting principles, or “GAAP”).
Full year 2012 net income totaled approximately $2.7 billion, or $8.18 per share, including $0.62 per
share of net income related to certain items. Full year 2011 net income was approximately $2.6
billion, or $7.25 per share, including net investment gains of $0.25 per share. Excluding the items
noted in each period, adjusted net income was $7.56 per share for the full year of 2012, an increase of
8.0 percent compared with adjusted net income of $7.00 per share in 2011 (refer to page 14).
“Our fourth quarter results were stronger than originally expected, reflecting improved operating
performance, solid expense management and improving execution in our core operations,” said John
Cannon, interim president and chief executive officer. “We are encouraged by this strong
performance, and believe it positions us well for a solid 2013. We are optimistic about our company’s
long-term positioning and believe the alignment of our core businesses, leadership and 2013
investments prepare us well for the emerging opportunities in health care.”
“Our fourth quarter results reflected lower than anticipated Commercial medical costs and stability in
our membership base. Our results were supported by the strength of our operating cash flow and yearend
balance sheet metrics,” said Wayne DeVeydt, executive vice president and chief financial officer.
“We are encouraged by the performance of our associates and the business in the last six months, but
we also want to retain an appropriately prudent stance in our outlook, in light of what we expect to be a
fluid and dynamic market over the next 18 to 24 months. This is reflected in our initial expectation
for 2013 EPS of at least $7.60.”
Membership: Medical enrollment totaled 36.1 million members at December 31, 2012, an increase of
approximately 1.9 million members, or 5.5 percent, from 34.3 million at December 31, 2011. The
acquisition of Amerigroup added nearly 2.7 million State Sponsored members during the fourth quarter
of 2012. Membership also grew by 74,000 in the Senior business, primarily due to the Company’s
geographic expansion into new Medicare Advantage service areas during 2012.
The increases in State Sponsored and Senior membership were partially offset by declines in the Local
Group and National businesses of 578,000 and 321,000 members, respectively. These declines
reflected the Company’s small group product repositioning in New York and changes to its
administrative fee structure for certain National Accounts. Enrollment was also impacted by economyrelated
in-group membership attrition and competitive situations in certain Local Group markets.
Operating Revenue: Operating revenue totaled approximately $15.3 billion in the fourth quarter of
2012, an increase of $95.8 million, or 0.6 percent, compared with the prior year quarter. This increase
included revenue of approximately $316.8 million related to the Amerigroup and 1-800 CONTACTS
acquisitions, collectively. Operating revenue declined organically by $221.0 million, or 1.5 percent,
due primarily to lower fully insured Local Group membership volume.
Benefit Expense Ratio: The benefit expense ratio was 87.3 percent in the fourth quarter of 2012, a
decrease of 30 basis points from 87.6 percent in the fourth quarter of 2011. The decline reflected an
improvement in the Commercial segment benefit expense ratio, partially offset by increases in the
Senior and State Sponsored businesses. The consolidated benefit expense ratio was below the
Company’s expectation for the quarter, due primarily to favorable Commercial medical cost
Medical Cost Trend: For the full year 2012, underlying Local Group medical cost trend was near the
low end of the 7.0 percent, plus or minus 50 basis points, range. Unit cost increases continue to be the
primary driver of medical trend, while utilization moderated over the second half of 2012. The
Company anticipates that underlying Local Group medical cost trend will increase during 2013 and be
within the range of 7.0 percent, plus or minus 50 basis points, for the full year.
Days in Claims Payable: Including Amerigroup, Days in Claims Payable (“DCP”) was 45.9 days as
of December 31, 2012. This result was significantly impacted by the timing of the Amerigroup
acquisition closing. The Company’s fourth quarter 2012 benefit expense included only eight days of
Amerigroup operating activity, while the year-end medical claims payable balance fully reflected the
Excluding Amerigroup, DCP was 40.8 days as of December 31, 2012, a decrease of 1.6 days from 42.4
days as of September 30, 2012. This was driven primarily by favorable reserve development and
business seasonality, including changes in the timing of claims payments. DCP was 0.2 days higher
than the 40.6 days reported as of December 31, 2011.
SG&A Expense Ratio: The SG&A expense ratio was 15.8 percent in the fourth quarter of 2012, an
increase of 110 basis points from 14.7 percent in the fourth quarter of 2011. The increase was driven
primarily by closing costs related to the Amerigroup acquisition and other severance and impairment
expense items recognized during the fourth quarter of 2012.
Effective Income Tax Rate: The Company’s fourth quarter 2012 effective income tax rate was
abnormally low as a result of the favorable settlement of certain tax issues with the IRS. This included
amounts related to not-for-profit conversion and corporate reorganizations in prior years, as well as
amounts associated with issues related to certain of WellPoint’s acquired companies.
Operating Cash Flow: Fourth quarter 2012 operating cash flow totaled $759.8 million, or 1.6 times
net income. Full year 2012 operating cash flow exceeded $2.7 billion and was 1.0 times net income.
Share Repurchase Program: During the fourth quarter of 2012, the Company repurchased 11.0
million shares of its common stock for $668.0 million. For the full year of 2012, the Company
repurchased 39.7 million shares for $2.5 billion. As of December 31, 2012, the Company had
approximately $1.8 billion of Board-approved share repurchase authorization remaining.
Cash Dividend: During the fourth quarter of 2012, the Company paid a quarterly dividend of $0.2875
per share, representing a distribution of cash totaling $87.1 million. Cash dividend payments totaled
$367.1 million for the full year of 2012.
Investment Portfolio & Capital Position: During the fourth quarter of 2012, the Company recorded
net investment gains of $85.7 million pre-tax, consisting of net realized gains from the sale of
securities totaling $102.9 million, partially offset by other-than-temporary impairments totaling $17.2
million. In the fourth quarter of 2011, the Company recorded net investment losses of $18.0 million
pre-tax, consisting of other than temporary impairments totaling $59.6 million, partially offset by net
realized gains from the sale of securities totaling $41.6 million.
As of December 31, 2012, the Company’s net unrealized gain position in the investment portfolio was
$1.2 billion, consisting of net unrealized gains on fixed maturity and equity securities totaling $885.2
million and $345.8 million, respectively. As of December 31, 2012, cash and investments at the parent
company totaled $2.0 billion.