10-QPeriod: Q3 FY2008

Elevance Health, Inc. Quarterly Report for Q3 Ended Sep 30, 2008

Filed October 22, 2008For Securities:ELV

Summary

Elevance Health, Inc. (formerly WellPoint, Inc.) reported its third-quarter and year-to-date results for 2008. For the three months ended September 30, 2008, the company generated $15.3 billion in operating revenue, a slight increase from the prior year, driven by premium rate increases and growth in Medicare Advantage. However, net income decreased by 5% to $820.7 million, largely due to significant investment losses from other-than-temporary impairments, particularly in Freddie Mac, Fannie Mae, and Lehman Brothers, amounting to $562.6 million for the quarter. Despite this, diluted earnings per share saw a 10% increase to $1.60, primarily attributed to a reduced share count from ongoing share repurchases. For the nine months ended September 30, 2008, operating revenue grew by 3% to $46.2 billion, while net income declined by 13% to $2.2 billion, impacted by higher medical costs and the aforementioned investment losses. Diluted EPS increased slightly by 1% to $4.09. The company also highlighted a substantial $141.4 million impairment charge on intangible assets related to its State-Sponsored business and a notable tax benefit of $271.3 million for the quarter and $455.3 million year-to-date, primarily from IRS dispute settlements. The company maintained a strong liquidity position, though operating cash flow decreased compared to the previous year due to increased receivables and lower net income.

Financial Highlights

29 data points
Beta

Revenue

$14.96B

99.2% Gross Margin

Net Income

$820.70M

5.5% Net Margin

EPS (Diluted)

$1.60

Cash & Equivalents

$2.27B

Free Cash Flow

$818.60M

Financial Statements
Beta
Revenue$14.96B
Cost of Revenue$114.10M
Gross Profit$14.85B
SG&A Expenses$2.22B
Interest Expense$118.40M
Net Income$820.70M
EPS (Basic)$1.61
EPS (Diluted)$1.60

Key Highlights

  • 1Operating revenue for the third quarter of 2008 increased by 2% to $15.3 billion, primarily due to premium rate increases and growth in Medicare Advantage.
  • 2Net income for the third quarter decreased by 5% to $820.7 million, significantly impacted by $562.6 million in net realized investment losses, largely due to other-than-temporary impairments of securities.
  • 3Diluted earnings per share (EPS) increased by 10% to $1.60 for the third quarter, supported by a reduction in outstanding shares due to the company's active share repurchase program.
  • 4The company recorded a pre-tax impairment charge of $141.4 million on intangible assets related to its State-Sponsored business during the third quarter.
  • 5A significant income tax benefit of $271.3 million was recognized for the third quarter, mainly due to settlements of long-standing disputes with the IRS.
  • 6Operating cash flow for the nine months ended September 30, 2008, decreased to $2.0 billion from $3.2 billion in the prior year, primarily due to increased accounts receivable and lower net income.
  • 7The company maintained a strong liquidity position with $18.3 billion in cash and investments as of September 30, 2008, despite a decrease from year-end 2007 driven by share repurchases and investment value declines.

Frequently Asked Questions

Revenue increased primarily due to premium rate increases across all medical lines of business, growth in the Medicare Advantage business, and increased reimbursement in the FEP program. These positive factors were partially offset by the loss of a New York State prescription drug contract, exiting the Ohio Medicaid program, and membership declines in certain other businesses.

Net income was significantly impacted by $562.6 million in net realized investment losses. These losses were primarily due to other-than-temporary impairments recognized on investments in Freddie Mac, Fannie Mae, and Lehman Brothers, as well as other fixed maturity and equity securities affected by market conditions.

The company's active share repurchase program reduced the number of outstanding shares. This reduction in the share count had a positive impact on diluted earnings per share (EPS), contributing to the 10% increase in Q3 2008 EPS despite a decrease in net income.

The $141.4 million impairment charge relates to indefinite-lived intangible assets associated with the company's State-Sponsored business. It was triggered by ongoing changes in the economic and regulatory environment, including California budgetary cuts, which led the company to revise its outlook for this specific business segment.