Anthem Reports Third Quarter 2018 Results Reflecting Strengthening Operating Performance
- Third quarter net income was $960 million, growth of 29% over the prior year quarter. Adjusted net
income of $3.81 per share grew by 44% year over year.
- Medical enrollment increased by 5 thousand members sequentially, totaling approximately 39.5
million members as of September 30, 2018.
- Benefit Expense Ratio was 84.8% driven by solid medical cost performance.
- Full year 2018 GAAP net income is now expected to be greater than $14.46 per share. Full year 2018
adjusted net income is now expected to be greater than $15.60 per share.
- Fourth quarter 2018 dividend of $0.75 per share declared to shareholders.
Anthem, Inc. (NYSE: ANTM) announced third quarter 2018 financial results that reflect improving fundamental execution across the
business.
"Our third quarter 2018 results reflect solid operating performance and ongoing positive momentum across our businesses, and I
am confident that we are entering 2019 in a position of strength. We have made significant progress towards improving execution and
are focused on advancing our consumer, clinical, and digital capabilities. We remain committed to accelerating growth and will
continue to invest in innovative, effective, and scalable healthcare solutions designed to improve the quality and total cost of
care for our members," said Gail K. Boudreaux, President and CEO. "I am pleased with our results through the first nine months of
2018. As result, we have increased our 2018 outlook to reflect our expectation for continued growth."
Based on third quarter results and the business outlook for the remainder of the year, Anthem has increased its outlook for 2018
adjusted net earnings to be greater than $15.60* per share.
* Refer to the GAAP reconciliation tables.
CONSOLIDATED HIGHLIGHTS
Membership: Medical enrollment totaled approximately 39.5 million members at September 30, 2018, an increase of 5
thousand lives compared to the second quarter of 2018. Local Group and Medicare enrollment grew by 91 thousand and 27 thousand,
respectively. The increase was partially offset by declines in the National, Individual, and Medicaid businesses.
Medical enrollment declined by 753 thousand members from 40.3 million members at September 30, 2017. The enrollment decline
was driven by a reduced footprint in the Individual ACA-compliant marketplace and membership losses in Local Group and Medicaid.
The decline was partially offset by enrollment growth in Medicare which grew 267 thousand as a result of acquisitions and organic
growth in our existing counties.
Operating Revenue: Operating revenue was $23.0 billion in the third quarter of 2018, an increase of $883 million, or 4.0
percent, versus $22.1 billion in the prior year quarter. The increase in operating revenue reflects premium increases to cover
overall cost trends and the return of the health insurance tax in 2018 as well as growth in Medicare, partially offset by a reduced
footprint in the Individual ACA-compliant marketplace.
Benefit Expense Ratio: The benefit expense ratio was 84.8 percent in the third quarter of 2018, a decrease of 220 basis
points from 87.0 percent in the prior year quarter. The decrease, as expected, was driven by the return of the health insurance tax
in 2018 and enhanced medical cost performance in our Commercial & Specialty Business.
Medical claims reserves established at December 31, 2017 developed moderately better than the Company’s expectation during the
first nine months of 2018.
Medical Cost Trend: For the full year 2018, Local Group medical cost trend is expected to be in the range of 6.0% +/- 50
basis points, with a bias slightly below the midpoint of the range.
Days in Claims Payable: Days in Claims Payable (“DCP”) was 38.7 days as of September 30, 2018, unchanged from 38.7
days as of June 30, 2018.
SG&A Expense Ratio: The SG&A expense ratio was 15.4 percent in the third quarter of 2018, an increase of 180
basis points from 13.6 percent in the third quarter of 2017. The increase, as expected, was largely driven by the return of the
health insurance tax in 2018 and the impact of increased investment spend in 2018 to support growth initiatives.
Operating Cash Flow: Operating cash flow was $607 million, or 0.6 times net income in the third quarter of 2018, and $3.4
billion, or 1.0 times net income for the nine months ending September 30, 2018.
Share Repurchase Program: During the third quarter of 2018, the Company repurchased 1.5 million shares of its common
stock for $397 million, or a weighted average price of $259.30. During the first nine months of 2018, the Company repurchased 5.0
million shares of its common stock for $1.2 billion, or a weighted average price of $240.15. As of September 30, 2018, the Company
had approximately $6.0 billion of Board-approved share repurchase authorization remaining.
Cash Dividend: During the third quarter of 2018, the Company paid a quarterly dividend of $0.75 per share, representing a
distribution of cash totaling $195 million.
The Audit Committee declared a fourth quarter 2018 dividend to shareholders of $0.75 per share on October 30, 2018. On an
annualized basis, this equates to a dividend of $3.00 per share. The fourth quarter dividend is payable on December 21, 2018 to
shareholders of record at the close of business on December 5, 2018.
Investment Portfolio & Capital Position: During the third quarter of 2018, the Company recorded net realized gains on
financial instruments totaling $27 million and other-than-temporary impairment losses totaling $6 million. During the third quarter
of 2017, the Company recorded net realized gains of $115 million and other-than-temporary impairment losses totaling $6
million.
As of September 30, 2018, the Company’s net unrealized loss position in the investment portfolio was $119 million,
consisting of fixed maturity securities. The adoption of a change in accounting standards has resulted in the Company accounting
for changes in the value of equity securities in realized gains or losses. As of September 30, 2018 cash and investments at the
parent company totaled approximately $2.4 billion.
REPORTABLE SEGMENTS
Anthem, Inc. has three reportable segments: Commercial & Specialty Business (comprised of the Local Group, National
Accounts, Individual and Specialty businesses); Government Business (comprised of the Medicaid and Medicare businesses, National
Government Services, and the Federal Employee Program); and Other (comprised of unallocated corporate expenses and certain other
businesses that do not meet the quantitative thresholds for separate reportable segment disclosure).
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Anthem, Inc. |
|
Reportable Segment Highlights |
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(Unaudited) |
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(In millions) |
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Three Months Ended September 30 |
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Nine Months Ended September 30 |
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2018 |
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2017 |
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Change |
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2018 |
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2017 |
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Change |
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Operating Revenue |
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Commercial & Specialty Business |
|
$9,128 |
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|
$10,052 |
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|
(9.2 |
)% |
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|
$27,357 |
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|
$30,651 |
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(10.7 |
)% |
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Government Business |
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13,841 |
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12,037 |
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15.0 |
% |
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40,647 |
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35,946 |
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13.1 |
% |
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Other |
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11 |
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8 |
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37.5 |
% |
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33 |
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17 |
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94.1 |
% |
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Total Operating Revenue1 |
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$22,980 |
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$22,097 |
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4.0 |
% |
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$68,037 |
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$66,614 |
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2.1 |
% |
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Operating Gain / (Loss) |
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Commercial & Specialty Business |
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$833 |
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$535 |
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55.7 |
% |
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$3,295 |
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$2,805 |
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17.5 |
% |
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Government Business |
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466 |
|
|
457 |
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2.0 |
% |
|
|
1,494 |
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|
1,069 |
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39.8 |
% |
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Other |
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(50 |
) |
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(10 |
) |
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NM2 |
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(113 |
) |
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(80 |
) |
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NM2 |
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Total Operating Gain1 |
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$1,249 |
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$982 |
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27.2 |
% |
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$4,676 |
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$3,794 |
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23.2 |
% |
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Operating Margin |
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Commercial & Specialty Business |
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9.1 |
% |
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5.3 |
% |
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380 bp |
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12.0 |
% |
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9.2 |
% |
|
280 bp |
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Government Business |
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3.4 |
% |
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3.8 |
% |
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(40) bp |
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3.7 |
% |
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3.0 |
% |
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70 bp |
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Total Operating Margin1 |
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5.4 |
% |
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4.4 |
% |
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100 bp |
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6.9 |
% |
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5.7 |
% |
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120 bp |
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(1) See “Basis of Presentation”
(2) "NM" = calculation not meaningful.
Commercial & Specialty Business: Operating gain in the Commercial & Specialty Business segment totaled $833
million in the third quarter of 2018, an increase of $298 million, or 55.7 percent, from $535 million in the third quarter of 2017.
The increase was driven by improved medical cost performance in the Individual business and a decrease in certain allocated
expenses compared to the prior year quarter.
Government Business: Operating gain in the Government Business segment was $466 million in the third quarter of 2018, an
increase of $9 million, or 2.0 percent, from $457 million in the third quarter of 2017. The increase is a result of the
acquisitions of HealthSun and America's 1st Choice and the return of the health insurance tax in 2018, partially offset by higher
medical costs in the Medicaid business.
Other: The Company reported an operating loss of $50 million in the Other segment for the third quarter of 2018, compared
with an operating loss of $10 million in the prior year quarter.
OUTLOOK
Full Year 2018:
- Net income is now expected to be greater than $14.46 per share, including approximately $1.14 per
share of net unfavorable items. Excluding these items, adjusted net income is now expected to be greater than $15.60 per share
(refer to the GAAP reconciliation table).
- Medical membership is expected to be in the range of 39,900,000 - 40,100,000. Fully-insured
membership is expected to be in the range of 14,600,000 - 14,700,000 and self-funded membership is expected to be in the range of
25,300,000 - 25,400,000.
- Operating revenue is expected to be in the range of $91.0 - $92.0 billion.
- Benefit expense ratio is now expected to be in the range of 84.2% plus or minus 30 basis points.
- SG&A ratio is expected to be in the range of 15.4% plus or minus 30 basis points.
- Operating cash flow is expected to be greater than $4.0 billion.
- Share count is expected to be between 263 - 265 million.
- Tax rate is expected to be between 26.5% - 27.5%.
- Investment income is expected to be $900 million.
Basis of Presentation
1. Operating revenue and operating gain are the key measures used by management to evaluate performance in each of its reporting
segments, allocate resources, set incentive compensation targets and to forecast future operating performance. Operating gain is
calculated as total operating revenue less benefit expense and selling, general and administrative expense. It does not include net
investment income, net realized gains/losses on financial instruments, other-than-temporary impairment losses recognized in income,
interest expense, amortization of other intangible assets, gains/losses on extinguishment of debt or income taxes, as these items
are managed in a corporate shared service environment and are not the responsibility of operating segment management. Refer to the
GAAP reconciliation tables.
2. Operating margin is defined as operating gain divided by operating revenue.
Conference Call and Webcast
Management will host a conference call and webcast today at 8:30 a.m. Eastern Daylight Time (“EDT”) to discuss the company’s
third quarter results and outlook. The conference call should be accessed at least 15 minutes prior to the start of the call with
the following numbers:
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| 800-230-1059 (Domestic) |
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800-475-6701 (Domestic Replay) |
| 612-288-0337 (International) |
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320-365-3844 (International Replay) |
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An access code is not required for today’s conference call. The access code for the replay is 432037. The replay will be
available from 11:00 a.m. EDT today, until the end of the day on November 14, 2018. The call will also be available through a live
webcast at
www.antheminc.com under the “Investors” link. A webcast replay will be available following the
call.
About Anthem, Inc.
Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products
and services that give their members access to the care they need. With more than 73 million people served by its affiliated
companies, including nearly 40 million within its family of health plans, Anthem is one of the nation’s leading health benefits
companies. For more information about Anthem’s family of companies, please visit
www.antheminc.com/companies.
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| Anthem, Inc. |
| Membership Summary |
| (Unaudited and in Thousands) |
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Change from |
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September 30, |
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September 30, |
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December 31, |
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September 30,
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December 31, |
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Medical Membership
|
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2018 |
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2017 |
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2017 |
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2017 |
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2017 |
| Customer Type |
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| Local Group |
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15,703 |
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|
15,857 |
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15,870 |
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(1.0 |
)% |
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(1.1 |
)% |
| Individual |
|
692 |
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|
1,696 |
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|
1,588 |
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|
(59.2 |
)% |
|
(56.4 |
)% |
|
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| National: |
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| National Accounts |
|
7,783 |
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|
7,718 |
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7,683 |
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|
0.8 |
% |
|
1.3 |
% |
| BlueCard® |
|
5,630 |
|
|
5,491 |
|
|
5,521 |
|
|
2.5 |
% |
|
2.0 |
% |
|
|
|
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| Total National |
|
13,413 |
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|
13,209 |
|
|
13,204 |
|
|
1.5 |
% |
|
1.6 |
% |
| Medicare |
|
1,765 |
|
|
1,498 |
|
|
1,545 |
|
|
17.8 |
% |
|
14.2 |
% |
| Medicaid |
|
6,374 |
|
|
6,433 |
|
|
6,475 |
|
|
(0.9 |
)% |
|
(1.6 |
)% |
| FEP® |
|
1,557 |
|
|
1,564 |
|
|
1,562 |
|
|
(0.4 |
)% |
|
(0.3 |
)% |
| Total Medical Membership |
|
39,504 |
|
|
40,257 |
|
|
40,244 |
|
|
(1.9 |
)% |
|
(1.8 |
)% |
| Funding Arrangement |
|
|
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| Self-Funded |
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25,284 |
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|
24,945 |
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24,966 |
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|
1.4 |
% |
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1.3 |
% |
| Fully-Insured |
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14,220 |
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15,312 |
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15,278 |
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(7.1 |
)% |
|
(6.9 |
)% |
| Total Medical Membership |
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39,504 |
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|
40,257 |
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|
40,244 |
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(1.9 |
)% |
|
(1.8 |
)% |
| Reportable Segment |
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| Commercial & Specialty Business |
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29,808 |
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|
30,762 |
|
|
30,662 |
|
|
(3.1 |
)% |
|
(2.8 |
)% |
| Government Business |
|
9,696 |
|
|
9,495 |
|
|
9,582 |
|
|
2.1 |
% |
|
1.2 |
% |
| Total Medical Membership |
|
39,504 |
|
|
40,257 |
|
|
40,244 |
|
|
(1.9 |
)% |
|
(1.8 |
)% |
|
Other Membership
|
|
|
|
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|
| Life and Disability Members |
|
4,701 |
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|
4,717 |
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|
4,700 |
|
|
(0.3 |
)% |
|
— |
% |
| Dental Members |
|
5,804 |
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|
5,803 |
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|
5,864 |
|
|
— |
% |
|
(1.0 |
)% |
| Dental Administration Members |
|
5,367 |
|
|
5,351 |
|
|
5,342 |
|
|
0.3 |
% |
|
0.5 |
% |
| Vision Members |
|
6,906 |
|
|
6,905 |
|
|
6,867 |
|
|
— |
% |
|
0.6 |
% |
| Medicare Advantage Part D Members |
|
951 |
|
|
693 |
|
|
702 |
|
|
37.2 |
% |
|
35.5 |
% |
| Medicare Part D Standalone Members |
|
312 |
|
|
320 |
|
|
318 |
|
|
(2.5 |
)% |
|
(1.9 |
)% |
|
|
|
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| Anthem, Inc. |
| Consolidated Statements of Income |
| (Unaudited) |
|
|
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|
Three Months Ended |
|
|
|
(In millions, except per share data)
|
|
September 30 |
|
|
|
|
2018 |
|
2017 |
|
Change |
| Revenues |
|
|
|
|
|
|
| Premiums |
|
$ |
21,451 |
|
|
$ |
20,797 |
|
|
3.1 |
% |
| Administrative fees and other revenue |
|
1,529 |
|
|
1,300 |
|
|
17.6 |
% |
| Total operating revenue |
|
22,980 |
|
|
22,097 |
|
|
4.0 |
% |
| Net investment income |
|
250 |
|
|
220 |
|
|
13.6 |
% |
| Net realized gains on financial instruments |
|
27 |
|
|
115 |
|
|
(76.5 |
)% |
| Other-than-temporary impairment losses on investments: |
|
|
|
|
|
|
| Total other-than-temporary impairment losses on investments |
|
(8 |
) |
|
(6 |
) |
|
33.3 |
% |
| Portion of other-than-temporary impairment losses recognized in other
comprehensive income |
|
2 |
|
|
— |
|
|
NM |
| Other-than-temporary impairment losses recognized in income |
|
(6 |
) |
|
(6 |
) |
|
— |
% |
|
|
|
|
|
|
|
| Total revenues |
|
23,251 |
|
|
22,426 |
|
|
3.7 |
% |
|
|
|
|
|
|
|
| Expenses |
|
|
|
|
|
|
| Benefit expense |
|
18,185 |
|
|
18,104 |
|
|
0.4 |
% |
| Selling, general and administrative expense: |
|
|
|
|
|
|
| Selling expense |
|
330 |
|
|
348 |
|
|
(5.2 |
)% |
| General and administrative expense |
|
3,216 |
|
|
2,663 |
|
|
20.8 |
% |
| Total selling, general and administrative expense |
|
3,546 |
|
|
3,011 |
|
|
17.8 |
% |
| Interest expense |
|
188 |
|
|
150 |
|
|
25.3 |
% |
| Amortization of other intangible assets |
|
91 |
|
|
42 |
|
|
116.7 |
% |
| (Gain) loss on extinguishment of debt |
|
(1 |
) |
|
— |
|
|
NM |
|
|
|
|
|
|
|
| Total expenses |
|
22,009 |
|
|
21,307 |
|
|
3.3 |
% |
|
|
|
|
|
|
|
| Income before income tax expense |
|
1,242 |
|
|
1,119 |
|
|
11.0 |
% |
|
|
|
|
|
|
|
| Income tax expense |
|
282 |
|
|
372 |
|
|
(24.2 |
)% |
|
|
|
|
|
|
|
| Net income |
|
$ |
960 |
|
|
$ |
747 |
|
|
28.5 |
% |
|
|
|
|
|
|
|
| Net income per diluted share |
|
$ |
3.62 |
|
|
$ |
2.80 |
|
|
29.3 |
% |
|
|
|
|
|
|
|
| Diluted shares |
|
265.4 |
|
|
267.0 |
|
|
(0.6 |
)% |
|
|
|
|
|
|
|
| Benefit expense as a percentage of premiums |
|
84.8 |
% |
|
87.0 |
% |
|
(220 |
)bp |
| Selling, general and administrative expense as a percentage of total operating
revenue |
|
15.4 |
% |
|
13.6 |
% |
|
180 |
bp |
| Income before income taxes as a percentage of total revenue |
|
5.3 |
% |
|
5.0 |
% |
|
30 |
bp |
|
|
|
|
|
|
|
|
|
|
(1) "NM" = calculation not meaningful
| |
| Anthem, Inc. |
| Consolidated Statements of Income |
| (Unaudited) |
|
|
|
|
|
|
|
|
|
Nine Months Ended |
|
|
|
(In millions, except per share data)
|
|
September 30 |
|
|
|
|
2018 |
|
2017 |
|
Change |
| Revenues |
|
|
|
|
|
|
| Premiums |
|
$ |
63,602 |
|
|
$ |
62,561 |
|
|
1.7 |
% |
| Administrative fees and other revenue |
|
4,435 |
|
|
4,053 |
|
|
9.4 |
% |
| Total operating revenue |
|
68,037 |
|
|
66,614 |
|
|
2.1 |
% |
| Net investment income |
|
708 |
|
|
628 |
|
|
12.7 |
% |
| Net realized (losses)/gains on financial instruments |
|
5 |
|
|
138 |
|
|
NM |
| Other-than-temporary impairment losses on investments: |
|
|
|
|
|
|
| Total other-than-temporary impairment losses on investments |
|
(20 |
) |
|
(23 |
) |
|
(13.0 |
)% |
| Portion of other-than-temporary impairment losses recognized in other
comprehensive income |
|
2 |
|
|
2 |
|
|
NM |
| Other-than-temporary impairment losses recognized in income |
|
(18 |
) |
|
(21 |
) |
|
(14.3 |
)% |
|
|
|
|
|
|
|
| Total revenues |
|
68,732 |
|
|
67,359 |
|
|
2.0 |
% |
|
|
|
|
|
|
|
| Expenses |
|
|
|
|
|
|
| Benefit expense |
|
52,959 |
|
|
53,564 |
|
|
(1.1 |
)% |
| Selling, general and administrative expense: |
|
|
|
|
|
|
| Selling expense |
|
972 |
|
|
1,042 |
|
|
(6.7 |
)% |
| General and administrative expense |
|
9,430 |
|
|
8,214 |
|
|
14.8 |
% |
| Total selling, general and administrative expense |
|
10,402 |
|
|
9,256 |
|
|
12.4 |
% |
| Interest expense |
|
564 |
|
|
575 |
|
|
(1.9 |
)% |
| Amortization of other intangible assets |
|
265 |
|
|
124 |
|
|
113.7 |
% |
| (Gain) loss on extinguishment of debt |
|
17 |
|
|
— |
|
|
NM |
|
|
|
|
|
|
|
| Total expenses |
|
64,207 |
|
|
63,519 |
|
|
1.1 |
% |
|
|
|
|
|
|
|
| Income before income tax expense |
|
4,525 |
|
|
3,840 |
|
|
17.8 |
% |
|
|
|
|
|
|
|
| Income tax expense |
|
1,200 |
|
|
1,228 |
|
|
(2.3 |
)% |
|
|
|
|
|
|
|
| Net income |
|
$ |
3,325 |
|
|
$ |
2,612 |
|
|
27.3 |
% |
|
|
|
|
|
|
|
| Net income per diluted share |
|
$ |
12.58 |
|
|
$ |
9.70 |
|
|
29.7 |
% |
|
|
|
|
|
|
|
| Diluted shares |
|
264.3 |
|
|
269.4 |
|
|
(1.9 |
)% |
|
|
|
|
|
|
|
| Benefit expense as a percentage of premiums |
|
83.3 |
% |
|
85.6 |
% |
|
(230 |
)bp |
| Selling, general and administrative expense as a percentage of total operating
revenue |
|
15.3 |
% |
|
13.9 |
% |
|
140 |
bp |
| Income before income taxes as a percentage of total revenue |
|
6.6 |
% |
|
5.7 |
% |
|
90 |
bp |
|
|
|
|
|
|
|
|
|
|
(1) "NM" = calculation not meaningful
| |
| Anthem, Inc. |
| Consolidated Balance Sheets |
| |
|
|
September 30, |
|
December 31, |
|
(In millions)
|
|
2018 |
|
2017 |
| Assets |
|
(Unaudited) |
|
|
| Current assets: |
|
|
|
|
| Cash and cash equivalents |
|
$ |
4,260 |
|
|
$ |
3,609 |
|
| Fixed maturity securities |
|
17,390 |
|
|
17,377 |
|
| Equity securities |
|
2,272 |
|
|
3,599 |
|
| Other invested assets, current |
|
21 |
|
|
17 |
|
| Accrued investment income |
|
163 |
|
|
163 |
|
| Premium receivables |
|
4,312 |
|
|
3,605 |
|
| Self-funded receivables |
|
2,631 |
|
|
2,580 |
|
| Other receivables |
|
2,374 |
|
|
2,267 |
|
| Income taxes receivable |
|
69 |
|
|
342 |
|
| Securities lending collateral |
|
741 |
|
|
455 |
|
| Other current assets |
|
2,875 |
|
|
2,249 |
|
| Total current assets |
|
37,108 |
|
|
36,263 |
|
|
|
|
|
|
| Long-term investments: |
|
|
|
|
| Fixed maturity securities |
|
496 |
|
|
561 |
|
| Equity securities |
|
34 |
|
|
33 |
|
| Other invested assets |
|
3,572 |
|
|
3,344 |
|
| Property and equipment, net |
|
2,592 |
|
|
2,175 |
|
| Goodwill |
|
20,468 |
|
|
19,231 |
|
| Other intangible assets |
|
9,101 |
|
|
8,368 |
|
| Other noncurrent assets |
|
1,074 |
|
|
565 |
|
|
Total assets
|
|
$ |
74,445 |
|
|
$ |
70,540 |
|
|
|
|
|
|
| Liabilities and shareholders’ equity |
|
|
|
|
| Liabilities |
|
|
|
|
| Current liabilities: |
|
|
|
|
| Policy liabilities: |
|
|
|
|
| Medical claims payable |
|
$ |
7,658 |
|
|
$ |
7,992 |
|
| Reserves for future policy benefits |
|
71 |
|
|
70 |
|
| Other policyholder liabilities |
|
2,929 |
|
|
2,950 |
|
| Total policy liabilities |
|
10,658 |
|
|
11,012 |
|
| Unearned income |
|
896 |
|
|
860 |
|
| Accounts payable and accrued expenses |
|
6,286 |
|
|
5,024 |
|
| Security trades pending payable |
|
168 |
|
|
113 |
|
| Securities lending payable |
|
741 |
|
|
454 |
|
| Short-term borrowings |
|
1,270 |
|
|
1,275 |
|
| Current portion of long-term debt |
|
849 |
|
|
1,275 |
|
| Other current liabilities |
|
3,306 |
|
|
3,343 |
|
| Total current liabilities |
|
24,174 |
|
|
23,356 |
|
|
|
|
|
|
| Long-term debt, less current portion |
|
17,300 |
|
|
17,382 |
|
| Reserves for future policy benefits, noncurrent |
|
669 |
|
|
647 |
|
| Deferred tax liabilities, net |
|
2,063 |
|
|
1,727 |
|
| Other noncurrent liabilities |
|
1,145 |
|
|
925 |
|
| Total liabilities |
|
45,351 |
|
|
44,037 |
|
|
|
|
|
|
| Shareholders’ equity |
|
|
|
|
| Common stock |
|
3 |
|
|
3 |
|
| Additional paid-in capital |
|
9,720 |
|
|
8,547 |
|
| Retained earnings |
|
20,182 |
|
|
18,054 |
|
| Accumulated other comprehensive loss |
|
(811 |
) |
|
(101 |
) |
| Total shareholders’ equity |
|
29,094 |
|
|
26,503 |
|
| Total liabilities and shareholders’ equity |
|
$ |
74,445 |
|
|
$ |
70,540 |
|
|
|
|
|
|
|
|
|
|
| |
| Anthem, Inc. |
| Consolidated Statements of Cash Flows |
| (Unaudited) |
|
|
|
|
|
|
|
Nine Months Ended |
|
(In millions)
|
|
September 30 |
|
|
2018 |
|
2017 |
| Operating activities |
|
|
|
|
| Net income |
|
$3,325 |
|
$2,612 |
| Adjustments to reconcile net income to net cash provided by operating
activities: |
|
|
|
|
| Net realized losses/(gains) on financial instruments |
|
(5 |
) |
|
(138 |
) |
| Other-than-temporary impairment losses recognized in income |
|
18 |
|
|
21 |
|
| Loss on extinguishment of debt |
|
17 |
|
|
— |
|
| Loss on disposal of assets |
|
2 |
|
|
3 |
|
| Deferred income taxes |
|
141 |
|
|
(238 |
) |
| Amortization, net of accretion |
|
752 |
|
|
581 |
|
| Depreciation expense |
|
92 |
|
|
82 |
|
| Share-based compensation |
|
135 |
|
|
131 |
|
| Changes in operating assets and liabilities: |
|
|
|
|
| Receivables, net |
|
(823 |
) |
|
612 |
|
| Other invested assets |
|
(17 |
) |
|
(26 |
) |
| Other assets |
|
(734 |
) |
|
(517 |
) |
| Policy liabilities |
|
(556 |
) |
|
275 |
|
| Unearned income |
|
(42 |
) |
|
970 |
|
| Accounts payable and accrued expenses |
|
756 |
|
|
563 |
|
| Other liabilities |
|
190 |
|
|
251 |
|
| Income taxes |
|
273 |
|
|
356 |
|
| Other, net |
|
(160 |
) |
|
(52 |
) |
| Net cash provided by operating activities |
|
3,364 |
|
|
5,486 |
|
|
|
|
|
|
| Investing activities |
|
|
|
|
| Purchases of fixed maturity securities |
|
(6,790 |
) |
|
(10,271 |
) |
| Proceeds from sales and maturities of fixed maturity securities |
|
6,413 |
|
|
9,056 |
|
| Purchases of equity securities |
|
(812 |
) |
|
(481 |
) |
| Proceeds from sales of equity securities |
|
2,119 |
|
|
621 |
|
| Purchases of other invested assets |
|
(324 |
) |
|
(253 |
) |
| Proceeds from sales of other invested assets |
|
251 |
|
|
164 |
|
| Change in collateral and settlements of non-hedging derivatives |
|
— |
|
|
65 |
|
| Changes in securities lending collateral |
|
(286 |
) |
|
172 |
|
| Purchases of subsidiaries, net of cash acquired |
|
(1,732 |
) |
|
(34 |
) |
| Net purchases of property and equipment |
|
(888 |
) |
|
(513 |
) |
| Other, net |
|
17 |
|
|
12 |
|
| Net cash used in investing activities |
|
(2,032 |
) |
|
(1,462 |
) |
|
|
|
|
|
| Financing activities |
|
|
|
|
| Net (repayments of)/proceeds from commercial paper borrowings |
|
(54 |
) |
|
687 |
|
| Net (repayments of)/proceeds from short-term borrowings |
|
(5 |
) |
|
740 |
|
| Net repayments of long-term borrowings |
|
(558 |
) |
|
(930 |
) |
| Changes in securities lending payable |
|
287 |
|
|
(173 |
) |
| Changes in bank overdrafts |
|
97 |
|
|
(127 |
) |
| Proceeds from sale of put options |
|
— |
|
|
1 |
|
| Proceeds from issuance of common stock under Equity Units stock purchase
contracts |
|
1,250 |
|
|
— |
|
| Repurchase and retirement of common stock |
|
(1,192 |
) |
|
(1,635 |
) |
| Change in collateral and settlements of debt-related derivatives |
|
22 |
|
|
(176 |
) |
| Cash dividends |
|
(583 |
) |
|
(525 |
) |
| Proceeds from issuance of common stock under employee stock plans |
|
133 |
|
|
178 |
|
| Taxes paid through withholding of common stock under employee stock
plans |
|
(77 |
) |
|
(46 |
) |
| Net cash used in financing activities |
|
(680 |
) |
|
(2,006 |
) |
|
|
|
|
|
| Effect of foreign exchange rates on cash and cash equivalents |
|
(1 |
) |
|
4 |
|
|
|
|
|
|
| Change in cash and cash equivalents |
|
651 |
|
|
2,022 |
|
| Cash and cash equivalents at beginning of year |
|
3,609 |
|
|
4,075 |
|
|
|
|
|
|
| Cash and cash equivalents at end of period |
|
$4,260 |
|
$6,097 |
|
|
|
|
|
| |
| Anthem, Inc. |
| Reconciliation of Medical Claims Payable |
| |
|
|
Nine Months Ended |
|
|
|
|
September 30 |
|
Years Ended December 31 |
|
|
2018 |
|
2017 |
|
2017 |
|
2016 |
|
2015 |
|
(In millions)
|
|
(Unaudited) |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross medical claims payable, beginning of period |
|
$ |
7,992 |
|
|
$ |
7,893 |
|
|
$ |
7,893 |
|
|
$ |
7,570 |
|
|
$ |
6,861 |
|
| Ceded medical claims payable, beginning of period |
|
(105 |
) |
|
(539 |
) |
|
(539 |
) |
|
(646 |
) |
|
(767 |
) |
| Net medical claims payable, beginning of period |
|
7,887 |
|
|
7,354 |
|
|
7,354 |
|
|
6,924 |
|
|
6,094 |
|
|
|
|
|
|
|
|
|
|
|
|
| Business combinations and purchase adjustments |
|
199 |
|
|
— |
|
|
76 |
|
|
— |
|
|
122 |
|
|
|
|
|
|
|
|
|
|
|
|
| Net incurred medical claims: |
|
|
|
|
|
|
|
|
|
|
| Current year |
|
52,576 |
|
|
53,505 |
|
|
71,872 |
|
|
66,371 |
|
|
60,708 |
|
| Prior years redundancies(1) |
|
(866 |
) |
|
(1,066 |
) |
|
(1,165 |
) |
|
(850 |
) |
|
(800 |
) |
| Total net incurred medical claims |
|
51,710 |
|
|
52,439 |
|
|
70,707 |
|
|
65,521 |
|
|
59,908 |
|
|
|
|
|
|
|
|
|
|
|
|
| Net payments attributable to: |
|
|
|
|
|
|
|
|
|
|
| Current year medical claims |
|
45,514 |
|
|
45,998 |
|
|
64,250 |
|
|
59,157 |
|
|
54,068 |
|
| Prior years medical claims |
|
6,662 |
|
|
5,932 |
|
|
6,001 |
|
|
5,935 |
|
|
5,132 |
|
| Total net payments |
|
52,176 |
|
|
51,930 |
|
|
70,251 |
|
|
65,092 |
|
|
59,200 |
|
|
|
|
|
|
|
|
|
|
|
|
| Net medical claims payable, end of period |
|
7,620 |
|
|
7,863 |
|
|
7,887 |
|
|
7,354 |
|
|
6,924 |
|
| Ceded medical claims payable, end of period |
|
38 |
|
|
101 |
|
|
105 |
|
|
539 |
|
|
646 |
|
| Gross medical claims payable, end of period |
|
$ |
7,658 |
|
|
$ |
7,964 |
|
|
$ |
7,992 |
|
|
$ |
7,893 |
|
|
$ |
7,570 |
|
|
|
|
|
|
|
|
|
|
|
|
| Current year medical claims paid as a percentage of current year net incurred medical
claims |
|
86.6 |
% |
|
86.0 |
% |
|
89.4 |
% |
|
89.1 |
% |
|
89.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
| Prior year redundancies in the current year as a percentage of prior year net medical
claims payable less prior year redundancies in the current year |
|
12.3 |
% |
|
17.0 |
% |
|
18.8 |
% |
|
14.0 |
% |
|
15.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
| Prior year redundancies in the current year as a percentage of prior year net
incurred medical claims |
|
1.2 |
% |
|
1.6 |
% |
|
1.8 |
% |
|
1.4 |
% |
|
1.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Negative amounts reported for net incurred medical claims related to prior years
result from claims being settled for amounts less than originally estimated.
|
| |
| |
| Anthem, Inc. |
| GAAP Reconciliation |
|
(Unaudited)
|
| |
|
Anthem, Inc. has referenced “Adjusted Net Income” and “Adjusted Net Income Per Share,” which are
non-GAAP measures, in this document. These non-GAAP measures are not intended to be alternatives to any measure calculated in
accordance with GAAP. In addition to these non-GAAP measures, references are made to the measures “Operating Revenue” and
“Operating Gain.” Each of these measures is provided to further aid investors in understanding and analyzing the company’s
core operating results and comparing Anthem, Inc.’s financial results. A reconciliation of Operating Revenue to Total Revenue
is set forth in the Consolidated Statements of Income herein. A reconciliation of the non-GAAP measures to the most directly
comparable measures calculated in accordance with GAAP, together with a reconciliation of reportable segments operating gain
to income before income tax expense, is reported below. Prior amounts may be rounded differently to conform to current
presentation.
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
|
|
September 30 |
|
|
|
September 30 |
|
|
|
(In millions, except per share data)
|
|
2018 |
|
2017 |
|
Change |
|
2018 |
|
2017 |
|
Change |
| Net income |
|
$ |
960 |
|
|
$ |
747 |
|
|
28.5 |
% |
|
$ |
3,325 |
|
|
$ |
2,612 |
|
|
27.3 |
% |
| Add / (Subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
| Net realized losses/(gains) on financial instruments |
|
(27 |
) |
|
(115 |
) |
|
|
|
(5 |
) |
|
(138 |
) |
|
|
| Amortization of other intangible assets |
|
91 |
|
|
42 |
|
|
|
|
265 |
|
|
124 |
|
|
|
| Other-than-temporary impairment losses recognized in income |
|
6 |
|
|
6 |
|
|
|
|
18 |
|
|
21 |
|
|
|
| (Gain)/Loss on extinguishment of debt |
|
(1 |
) |
|
— |
|
|
|
|
17 |
|
|
— |
|
|
|
| Transaction related costs |
|
— |
|
|
6 |
|
|
|
|
9 |
|
|
157 |
|
|
|
| 2015 cyber attack litigation |
|
— |
|
|
— |
|
|
|
|
— |
|
|
115 |
|
|
|
| Penn Treaty assessment costs |
|
— |
|
— |
|
— |
|
|
|
|
— |
|
|
254 |
|
|
|
| Income tax true-up of prior transaction costs |
|
— |
|
|
— |
|
|
|
|
— |
|
|
(69 |
) |
|
|
| Tax impact of non-GAAP adjustments |
|
(18 |
) |
|
22 |
|
|
|
|
(73 |
) |
|
(191 |
) |
|
|
| Net adjustment items |
|
51 |
|
|
(39 |
) |
|
|
|
231 |
|
|
273 |
|
|
|
| Adjusted net income |
|
$ |
1,011 |
|
|
$ |
708 |
|
|
42.8 |
% |
|
$ |
3,556 |
|
|
$ |
2,885 |
|
|
23.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income per diluted share |
|
$ |
3.62 |
|
|
$ |
2.80 |
|
|
29.3 |
% |
|
$ |
12.58 |
|
|
$ |
9.70 |
|
|
29.7 |
% |
| Add / (Subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
| Net realized losses/(gains) on financial instruments |
|
(0.10 |
) |
|
(0.43 |
) |
|
|
|
(0.02 |
) |
|
(0.51 |
) |
|
|
| Amortization of other intangible assets |
|
0.34 |
|
|
0.16 |
|
|
|
|
1.00 |
|
|
0.46 |
|
|
|
| Other-than-temporary impairment losses recognized in income |
|
0.02 |
|
|
0.02 |
|
|
|
|
0.07 |
|
|
0.08 |
|
|
|
| (Gain)/Loss on extinguishment of debt |
|
— |
|
|
— |
|
|
|
|
0.06 |
|
|
— |
|
|
|
| Transaction related costs |
|
— |
|
|
0.02 |
|
|
|
|
0.03 |
|
|
0.58 |
|
|
|
| 2015 cyber attack litigation |
|
— |
|
|
— |
|
|
|
|
— |
|
|
0.43 |
|
|
|
| Penn Treaty assessment costs |
|
— |
|
|
— |
|
|
|
|
— |
|
|
0.94 |
|
|
|
| Income tax true-up of prior transaction costs |
|
— |
|
|
— |
|
|
|
|
— |
|
|
(0.26 |
) |
|
|
| Tax impact of non-GAAP adjustments |
|
(0.07 |
) |
|
0.08 |
|
|
|
|
(0.28 |
) |
|
(0.71 |
) |
|
|
| Rounding Impact |
|
— |
|
|
— |
|
|
|
|
0.01 |
|
|
— |
|
|
|
| Net adjustment items |
|
0.19 |
|
|
(0.15 |
) |
|
|
|
0.87 |
|
|
1.01 |
|
|
|
| Adjusted net income per diluted share |
|
$ |
3.81 |
|
|
$ |
2.65 |
|
|
43.8 |
% |
|
$ |
13.45 |
|
|
$ |
10.71 |
|
|
25.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Full Year 2018 Outlook |
|
|
|
|
|
|
|
|
| Net income per diluted share |
|
Greater than $14.46 |
|
|
|
|
|
|
|
|
| Add / (Subtract): |
|
|
|
|
|
|
|
|
|
|
| Net realized losses/(gains) on financial instruments |
|
(0.02 |
) |
|
|
|
|
|
|
|
|
| Other-than-temporary impairment losses recognized in income |
|
0.07 |
|
|
|
|
|
|
|
|
|
| (Gain)/Loss on extinguishment of debt |
|
0.06 |
|
|
|
|
|
|
|
|
|
| Transaction related costs |
|
0.03 |
|
|
|
|
|
|
|
|
|
| Amortization of other intangible assets |
|
Approximately $1.36 |
|
|
|
|
|
|
|
|
| Tax impact of non-GAAP adjustments |
|
Approximately ($0.36) |
|
|
|
|
|
|
|
|
| Net adjustment items |
|
Approximately $1.14 |
|
|
|
|
|
|
|
|
| Adjusted net income per diluted share |
|
Greater than $15.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
Nine Months Ended |
|
|
|
|
September 30 |
|
|
|
September 30 |
|
|
|
(In millions)
|
|
2018 |
|
2017 |
|
Change |
|
2018 |
|
2017 |
|
Change |
| Reportable segments operating gain |
|
$ |
1,249 |
|
|
$ |
982 |
|
|
27.2 |
% |
|
$ |
4,676 |
|
|
$ |
3,794 |
|
|
23.2 |
% |
| Net investment income |
|
250 |
|
|
220 |
|
|
|
|
708 |
|
|
628 |
|
|
|
| Net realized gains/(losses) on financial instruments |
|
27 |
|
|
115 |
|
|
|
|
5 |
|
|
138 |
|
|
|
| Other-than-temporary impairment losses recognized in income |
|
(6 |
) |
|
(6 |
) |
|
|
|
(18 |
) |
|
(21 |
) |
|
|
| Interest expense |
|
(188 |
) |
|
(150 |
) |
|
|
|
(564 |
) |
|
(575 |
) |
|
|
| Amortization of other intangible assets |
|
(91 |
) |
|
(42 |
) |
|
|
|
(265 |
) |
|
(124 |
) |
|
|
| (Gain)/Loss on extinguishment of debt |
|
1 |
|
|
— |
|
|
|
|
(17 |
) |
|
— |
|
|
|
| Income before income tax expense |
|
$ |
1,242 |
|
|
$ |
1,119 |
|
|
11.0 |
% |
|
$ |
4,525 |
|
|
$ |
3,840 |
|
|
17.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward-Looking Statements
This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements reflect our views about future events and financial performance and are generally not historical
facts. Words such as “expect,” “feel,” “believe,” “will,” “may,” “should,” “anticipate,” “intend,” “estimate,” “project,”
“forecast,” “plan” and similar expressions are intended to identify forward-looking statements. These statements include, but are
not limited to: financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and
expectations with respect to future operations, products and services; and statements regarding future performance. Such statements
are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could
cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking statements. You
are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. You are also
urged to carefully review and consider the various risks and other disclosures discussed in our reports filed with the U.S.
Securities and Exchange Commission from time to time, which attempt to advise interested parties of the factors that affect our
business. Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to republish
revised forward-looking statements to reflect events or circumstances after the date hereof. These risks and uncertainties include,
but are not limited to: the impact of federal and state regulation, including ongoing changes in the Patient Protection and
Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended, or collectively the ACA; trends in
healthcare costs and utilization rates; our ability to contract with providers on cost-effective and competitive terms; our ability
to secure sufficient premium rates including regulatory approval for and implementation of such rates; reduced enrollment; risks
and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations
imposed thereon, our ability to maintain and achieve improvement in Centers for Medicare and Medicaid Services, or CMS, Star
ratings and other quality scores and funding risks with respect to revenue received from participation therein; competitive
pressures, including competitor pricing, which could affect our ability to maintain or increase our market share; a negative change
in our healthcare product mix; our ability to adapt to changes in the industry and develop and implement strategic growth
opportunities; costs and other liabilities associated with litigation, government investigations, audits or reviews; the ultimate
outcome of litigation between Cigna Corporation, or Cigna, and us related to the merger agreement between the parties, including
our claim for damages against Cigna, Cigna’s claim for payment of a termination fee and other damages against us, and the potential
for such litigation to cause us to incur substantial costs, materially distract management and negatively impact our reputation and
financial positions; medical malpractice or professional liability claims or other risks related to healthcare services provided by
our subsidiaries; possible restrictions in the payment of dividends by our subsidiaries and increases in required minimum levels of
capital; the potential negative effect from our substantial amount of outstanding indebtedness; a downgrade in our financial
strength ratings; the effects of any negative publicity related to the health benefits industry in general or us in particular;
unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of any
investigations, inquiries, claims and litigation related thereto; failure to effectively maintain and modernize our information
systems; non-compliance by any party with the Express Scripts, Inc. pharmacy benefit management services agreement, which could
result in financial penalties, our inability to meet customer demands, and sanctions imposed by governmental entities, including
CMS; state guaranty fund assessments for insolvent insurers; events that may negatively affect our licenses with the Blue Cross and
Blue Shield Association; regional concentrations of our business and future public health epidemics and catastrophes; general risks
associated with mergers, acquisitions and strategic alliances; our ability to repurchase shares of our common stock and pay
dividends on our common stock due to the adequacy of our cash flow and earnings and other considerations; possible impairment of
the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; changes in
economic and market conditions, as well as regulations that may negatively affect our liquidity and investment portfolios; changes
in U.S. tax laws; intense competition to attract and retain employees; various laws and provisions in our governing documents that
may prevent or discourage takeovers and business combinations; and general economic downturns.
Anthem Inc.:
Investor Relations
Chris Rigg
Chris.rigg@anthem.com
or
Media
Jill Becher, 414-234-1573
Jill.becher@anthem.com
View source version on businesswire.com: https://www.businesswire.com/news/home/20181031005148/en/