Market Overview

Anthem Reports Second Quarter 2018 Results Reflecting Strong Overall Enterprise-Wide Execution

Share:
  • Second quarter net income was $1.1 billion, growth of 23% over the
    prior year quarter. Adjusted net income of $4.25 per share grew by 26%
    year over year.
  • Benefit Expense Ratio was 83.4%, better than expected and driven by
    strong medical cost performance across all business segments.
  • Medical enrollment totaled 39.5 million members as of June 30,
    2018, a decline of 129 thousand members during the quarter.
  • Full year 2018 GAAP net income is now expected to be greater than
    $14.20 per share. Full year 2018 adjusted net income is now expected
    to be greater than $15.40 per share.
  • Third quarter 2018 dividend of $0.75 per share declared to
    shareholders.

Anthem, Inc. (NYSE:ANTM) reported second quarter 2018 financial results
driven by strong medical cost performance and a continued focus on
optimizing execution.

"We are pleased with our second quarter 2018 financial performance,
which demonstrates our ongoing commitment to delivering strong medical
cost performance and innovative healthcare solutions to our members,"
said Gail K. Boudreaux, President and CEO. "We remain focused on
improving fundamental execution across the enterprise and we expect the
positive momentum exhibited in the first half of 2018 to persist for the
balance of the year. We will also continue to invest in capabilities
that will enable us to more effectively meet the needs of our customers
and seamlessly adapt to the ever-changing healthcare landscape. I'm
excited about the growth opportunities we see ahead of us and I'm
confident that with our trusted brand and deep local market presence, we
are well-positioned to gain share in our markets and deliver quality,
affordable healthcare to our members."

Based on second 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 $15.40* per share.

* Refer to the GAAP reconciliation table.

CONSOLIDATED HIGHLIGHTS

Membership: Medical enrollment was approximately 39.5 million
members at June 30, 2018, a decrease of 888 thousand members from 40.4
million members at June 30, 2017. The enrollment decline was driven by a
reduced footprint in the Individual ACA-compliant marketplace in
addition to membership losses in Medicaid. Medicare enrollment grew by
254 thousand, year-over-year as a result of acquisitions and organic
growth in our existing counties.

Medical enrollment was down 129 thousand lives sequentially, reflecting
declines in Medicaid, continued attrition in Individual, and declines in
the Local Group business. The decline was partially offset by growth in
Medicare enrollment.

Operating Revenue: Operating revenue was $22.7 billion in the
second quarter of 2018 compared to $22.2 billion in the prior year
quarter. The increase in operating revenue is attributable to premium
increases to cover overall cost trends and the return of the health
insurance tax in 2018 as well as acquisitions, partially offset by a
reduced footprint in the Individual marketplace.

Benefit Expense Ratio: The benefit expense ratio was 83.4
percent in the second quarter of 2018, a decrease of 270 basis points
from 86.1 percent in the prior year quarter. The decrease was a result
of the return of the health insurance tax in 2018 and enhanced medical
cost performance across our business segments.

Medical claims reserves established at December 31, 2017 developed
moderately better than the Company's expectation during the first six
months of 2018.

Medical Cost Trend: Local Group medical cost trend for the
full year 2018 is expected to be in the range of 6.0% +/- 50 basis
points, unchanged from our previous outlook.

Days in Claims Payable: Days in Claims Payable ("DCP") was
38.7 days as of June 30, 2018, a decrease of 1.6 days sequentially. The
decline was primarily due to operational improvements, our reduced
participation in the Individual ACA-compliant market, and the timing
impact of the America's 1st Choice acquisition.

SG&A Expense Ratio: The SG&A expense ratio was 15.1 percent
in the second quarter of 2018, an increase of 130 basis points from 13.8
percent in the second quarter of 2017. The increase, as expected, was
primarily driven by the return of the health insurance tax in 2018 as
well as the impact of increased investment spend in 2018 to support
growth initiatives. The increase was partially offset by the 2015 cyber
attack litigation settlement recorded in the second quarter of 2017.

Operating Cash Flow: Operating cash flow was $542 million in the
second quarter of 2018, an increase of $149 million compared to the
prior year quarter. Operating cash flow was $2.8 billion, or 1.2 times
net income for the six months ending June 30, 2018.

Share Repurchase Program: During the second quarter of 2018, the
Company repurchased 1.7 million shares of its common stock at a weighted
average price of $229.75 for approximately $0.4 billion. During the
first six months of 2018, the Company repurchased 3.4 million shares of
its common stock for $0.8 billion, or a weighted average price of
$231.61. The Company had approximately $6.4 billion of Board-approved
share repurchase authorization remaining as of June 30, 2018.

Cash Dividend: During the second quarter of 2018, the Company
paid a quarterly dividend of $0.75 per share, representing a
distribution of cash totaling $196 million.

The Audit Committee declared a third quarter 2018 dividend to
shareholders of $0.75 per share on July 24, 2018. On an annualized
basis, this equates to a dividend of $3.00 per share. The third quarter
dividend is payable on September 25, 2018 to shareholders of record at
the close of business on September 10, 2018.

Investment Portfolio & Capital Position: During the second
quarter of 2018, the Company recorded net realized gains on financial
instruments totaling $4.0 million and other-than-temporary impairment
losses totaling $4.4 million. During the second quarter of 2017, the
Company recorded net realized gains of $16.2 million and
other-than-temporary impairment losses totaling $7.2 million.

As of June 30, 2018, the Company's net unrealized loss position in the
investment portfolio was $73.3 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 June 30, 2018 cash and
investments at the parent company totaled approximately $2.2 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).

               
Anthem, Inc.
Reportable Segment Highlights
(Unaudited)
 
(In millions) Three Months Ended June 30 Six Months Ended June 30
2018 2017 Change 2018 2017 Change
Operating Revenue
Commercial & Specialty Business $9,162.9 $10,308.8 (11.1 )% $18,229.3 $20,598.4 (11.5 )%
Government Business 13,543.0 11,883.4 14.0 % 26,805.4 23,909.1 12.1 %
Other 8.9   5.8   53.4 % 22.4   10.0   124.0 %
Total Operating Revenue1 22,714.8 22,198.0 2.3 % $45,057.1 $44,517.5 1.2 %
 
Operating Gain / (Loss)
Commercial & Specialty Business $1,052.8 $967.9 8.8 % $2,461.2 $2,270.3 8.4 %
Government Business 537.4 293.3 83.2 % 1,028.3 611.9 68.1 %
Other (31.2 ) (34.2 ) NM2 (62.6 ) (69.8 ) NM2
Total Operating Gain1 $1,559.0 $1,227.0 27.1 % $3,426.9 $2,812.4 21.8 %
 
Operating Margin
Commercial & Specialty Business 11.5 % 9.4 % 210 bp 13.5 % 11.0 % 250 bp
Government Business 4.0 % 2.5 % 150 bp 3.8 % 2.6 % 120 bp
Total Operating Margin1 6.9 % 5.5 % 140 bp 7.6 % 6.3 % 130 bp

(1) See "Basis of Presentation."

(2) "NM" = calculation not meaningful.

Commercial & Specialty Business: Operating gain in the
Commercial & Specialty Business segment totaled $1,052.8 million in the
second quarter of 2018, an increase of $84.9 million, or 8.8 percent,
from $967.9 million in the second quarter of 2017. The increase was
driven by improved medical cost performance and the 2015 cyber attack
litigation settlement recorded in the second quarter of 2017, partially
offset by our reduced participation in the Individual ACA-compliant
marketplace and increased investment spend in 2018 to support growth
initiatives.

Government Business: Operating gain in the Government Business
segment was $537.4 million in the second quarter of 2018, an increase of
$244.1 million, or 83.2 percent, from $293.3 million in the second
quarter of 2017. The increase is a result of the acquisitions of
HealthSun and America's 1st Choice in addition to organic membership
growth in Medicare.

Other: The Company reported an operating loss of $31.2 million in
the Other segment for the second quarter of 2018, compared with an
operating loss of $34.2 million in the prior year quarter.

OUTLOOK

Full Year 2018:

  • Net income is now expected to be greater than $14.20 per share,
    including approximately $1.20 per share of net unfavorable items.
    Excluding these items, adjusted net income is now expected to be
    greater than $15.40 per share (refer to the GAAP reconciliation table).
  • Medical membership is now expected to be in the range of 39,900,000 -
    40,100,000. Fully-insured membership is now 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 expected to be in the range of 84.4% 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.

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 second 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:

800-230-1059 (Domestic)         800-475-6701 (Domestic Replay)
612-234-9960 (International) 320-365-3844 (International Replay)

An access code is not required for today's conference call. The access
code for the replay is 432035. The replay will be available from 11:00
a.m. EDT today, until the end of the day on August 8, 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 over
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.

 
 
Anthem, Inc.
Membership Summary
(Unaudited and in Thousands)
           
Change from

Medical Membership

June 30,

2018

June 30,

2017

December 31,
2017

June 30,

2017

December 31,
2017

Customer Type
Local Group 15,612 15,705 15,870 (0.6 )% (1.6 )%
Individual 712 1,779 1,588 (60.0 )% (55.2 )%
 
National:
National Accounts 7,833 7,760 7,683 0.9 % 2.0 %
BlueCard® 5,653   5,561   5,521   1.7 % 2.4 %
 
Total National 13,486 13,321 13,204 1.2 % 2.1 %
Medicare 1,738 1,484 1,545 17.1 % 12.5 %
Medicaid 6,391 6,529 6,475 (2.1 )% (1.3 )%
FEP® 1,560   1,569   1,562   (0.6 )% (0.1 )%
Total Medical Membership 39,499   40,387   40,244   (2.2 )% (1.9 )%
Funding Arrangement
Self-Funded 25,273 24,938 24,966 1.3 % 1.2 %
Fully-Insured 14,226   15,449   15,278   (7.9 )% (6.9 )%
Total Medical Membership 39,499   40,387   40,244   (2.2 )% (1.9 )%
Reportable Segment
Commercial & Specialty Business 29,810 30,805 30,662 (3.2 )% (2.8 )%
Government Business 9,689   9,582   9,582   1.1 % 1.1 %
Total Medical Membership 39,499   40,387   40,244   (2.2 )% (1.9 )%

Other Membership

Life and Disability Members 4,673 4,705 4,700 (0.7 )% (0.6 )%
Dental Members 5,788 5,818 5,864 (0.5 )% (1.3 )%
Dental Administration Members 5,384 5,335 5,342 0.9 % 0.8 %
Vision Members 6,760 6,791 6,867 (0.5 )% (1.6 )%
Medicare Advantage Part D Members 933 679 702 37.4 % 32.9 %
Medicare Part D Standalone Members 312 322 318 (3.1 )% (1.9 )%
 
 
Anthem, Inc.
Consolidated Statements of Income
(Unaudited)
     
(In millions, except per share data) Three Months Ended
June 30
2018 2017 Change
Revenues
Premiums $ 21,248.4 $ 20,813.1 2.1 %
Administrative fees and other revenue 1,466.4   1,384.9   5.9 %
Total operating revenue 22,714.8 22,198.0 2.3 %
Net investment income 229.3 200.2 14.5 %
Net realized gains on financial instruments 4.0 16.2 (75.3 )%
Other-than-temporary impairment losses on investments:
Total other-than-temporary impairment losses on investments (4.4 ) (7.3 ) (39.7 )%
Portion of other-than-temporary impairment losses recognized in
other comprehensive income
  0.1   NM
Other-than-temporary impairment losses recognized in income (4.4 ) (7.2 ) (38.9 )%
 
Total revenues 22,943.7 22,407.2 2.4 %
 
Expenses
Benefit expense 17,727.8 17,917.2 (1.1 )%
Selling, general and administrative expense:
Selling expense 323.6 345.5 (6.3 )%
General and administrative expense 3,104.4   2,708.3   14.6 %
Total selling, general and administrative expense 3,428.0 3,053.8 12.3 %
Interest expense 191.7 189.9 0.9 %
Amortization of other intangible assets 93.6 40.6 130.5 %
Gain on extinguishment of debt (0.9 )   NM
 
Total expenses 21,440.2   21,201.5   1.1 %
 
Income before income tax expense 1,503.5 1,205.7 24.7 %
 
Income tax expense 450.1   350.4   28.5 %
 
Net income $ 1,053.4   $ 855.3   23.2 %
 
Net income per diluted share $ 3.98   $ 3.16   25.9 %
 
Diluted shares 264.5 270.8 (2.3 )%
 
Benefit expense as a percentage of premiums 83.4 % 86.1 % (270 )bp
Selling, general and administrative expense as a percentage of total
operating revenue
15.1 % 13.8 % 130 bp
Income before income taxes as a percentage of total revenue 6.6 % 5.4 % 120 bp
 

(1) "NM" = calculation not meaningful

 
 
Anthem, Inc.
Consolidated Statements of Income
(Unaudited)
     
(In millions, except per share data) Six Months Ended
June 30
2018 2017 Change
Revenues
Premiums $ 42,151.2 $ 41,764.4 0.9 %
Administrative fees and other revenue 2,905.9   2,753.1   5.6 %
Total operating revenue 45,057.1 44,517.5 1.2 %
Net investment income 458.5 407.4 12.5 %
Net realized (losses)/gains on financial instruments (22.1 ) 23.5 NM
Other-than-temporary impairment losses on investments:
Total other-than-temporary impairment losses on investments (12.3 ) (16.9 ) (27.2 )%
Portion of other-than-temporary impairment losses recognized in
other comprehensive income
  1.6   NM
Other-than-temporary impairment losses recognized in income (12.3 ) (15.3 ) (19.6 )%
 
Total revenues 45,481.2 44,933.1 1.2 %
 
Expenses
Benefit expense 34,773.7 35,460.0 (1.9 )%
Selling, general and administrative expense:
Selling expense 641.8 694.1 (7.5 )%
General and administrative expense 6,214.7   5,551.0   12.0 %
Total selling, general and administrative expense 6,856.5 6,245.1 9.8 %
Interest expense 375.9 424.9 (11.5 )%
Amortization of other intangible assets 173.1 82.4 110.1 %
Loss on extinguishment of debt 18.2     NM
 
Total expenses 42,197.4   42,212.4   %
 
Income before income tax expense 3,283.8 2,720.7 20.7 %
 
Income tax expense 917.9   855.5   7.3 %
 
Net income $ 2,365.9   $ 1,865.2   26.8 %
 
Net income per diluted share $ 8.97   $ 6.89   30.2 %
 
Diluted shares 263.7 270.6 (2.5 )%
 
Benefit expense as a percentage of premiums 82.5 % 84.9 % (240 )bp
Selling, general and administrative expense as a percentage of total
operating revenue
15.2 % 14.0 % 120 bp
Income before income taxes as a percentage of total revenue 7.2 % 6.1 % 110 bp
 

(1) "NM" = calculation not meaningful

 
 
Anthem, Inc.
Consolidated Balance Sheets
 
(In millions) June 30,
2018
  December 31,
2017
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 4,682.0 $ 3,608.9
Fixed maturity securities 17,081.6 17,377.3
Equity securities 2,435.3 3,599.2
Other invested assets, current 23.8 17.2
Accrued investment income 161.6 162.5
Premium receivables 4,268.3 3,605.2
Self-funded receivables 2,650.0 2,579.7
Other receivables 2,182.6 2,266.5
Income taxes receivable 154.5 341.9
Securities lending collateral 624.6 455.1
Other current assets 3,106.1   2,249.3  
Total current assets 37,370.4 36,262.8
 
Long-term investments:
Fixed maturity securities 487.5 560.8
Equity securities 32.9 32.8
Other invested assets 3,495.2 3,343.8
Property and equipment, net 2,392.2 2,174.9
Goodwill 20,414.5 19,231.2
Other intangible assets 9,224.3 8,368.4
Other noncurrent assets 950.4   565.3  
Total assets $ 74,367.4   $ 70,540.0  
 
Liabilities and shareholders' equity
Liabilities
Current liabilities:
Policy liabilities:
Medical claims payable $ 7,545.3 $ 7,991.5
Reserves for future policy benefits 72.1 69.9
Other policyholder liabilities 3,009.8   2,950.3  
Total policy liabilities 10,627.2 11,011.7
Unearned income 2,089.9 860.3
Accounts payable and accrued expenses 5,931.4 5,024.4
Security trades pending payable 159.9 112.6
Securities lending payable 624.3 454.4
Short-term borrowings 1,120.0 1,275.0
Current portion of long-term debt 650.2 1,274.6
Other current liabilities 3,302.8   3,343.0  
Total current liabilities 24,505.7 23,356.0
 
Long-term debt, less current portion 17,515.4 17,382.2
Reserves for future policy benefits, noncurrent 644.7 647.3
Deferred tax liabilities, net 1,902.2 1,726.5
Other noncurrent liabilities 1,074.4   925.1  
Total liabilities 45,642.4   44,037.1  
 
Shareholders' equity
Common stock 2.6 2.6
Additional paid-in capital 9,747.9 8,547.4
Retained earnings 19,757.3 18,054.4
Accumulated other comprehensive loss (782.8 ) (101.5 )
Total shareholders' equity 28,725.0   26,502.9  
Total liabilities and shareholders' equity $ 74,367.4   $ 70,540.0  
 
 
Anthem, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
     
(In millions) Six Months Ended June 30
2018 2017
Operating activities
Net income $2,365.9 $1,865.2
Adjustments to reconcile net income to net cash provided by
operating activities:
Net realized losses/(gains) on financial instruments 22.1 (23.5 )
Other-than-temporary impairment losses recognized in income 12.3 15.3
Loss on extinguishment of debt 18.2
Loss on disposal of assets 0.5 0.4
Deferred income taxes 1.9 (209.9 )
Amortization, net of accretion 495.1 385.0
Depreciation expense 60.6 54.5
Share-based compensation 78.1 87.1
Changes in operating assets and liabilities:
Receivables, net (570.1 ) (134.7 )
Other invested assets (11.0 ) (22.4 )
Other assets (445.2 ) (322.4 )
Policy liabilities (609.9 ) 254.0
Unearned income 1,157.6 865.9
Accounts payable and accrued expenses 28.8 (53.0 )
Other liabilities 70.1 81.5
Income taxes 187.4 281.7
Other, net (105.3 ) (43.4 )
Net cash provided by operating activities 2,757.1 3,081.3
 
Investing activities
Purchases of fixed maturity securities (4,885.8 ) (7,637.0 )
Proceeds from sales and maturities of fixed maturity securities 4,881.1 6,119.3
Purchases of equity securities (657.9 ) (506.0 )
Proceeds from sales of equity securities 1,777.1 214.7
Purchases of other invested assets (246.7 ) (162.3 )
Proceeds from sales of other invested assets 197.8 121.8
Change in collateral and settlements of non-hedging derivatives (2.1 )
Changes in securities lending collateral (170.0 ) (134.8 )
Purchases of subsidiaries, net of cash acquired (1,722.5 )
Net purchases of property and equipment (532.5 ) (294.2 )
Other, net 15.2   11.8  
Net cash used in investing activities (1,344.2 ) (2,268.8 )
 
Financing activities
Net (repayments of)/proceeds from commercial paper borrowings (703.7 ) 1,347.8
Net (repayments of)/proceeds from short-term borrowings (155.0 ) 140.0
Net proceeds from/(repayments of) long-term borrowings 171.9 (929.9 )
Changes in securities lending payable 169.9 134.8
Changes in bank overdrafts 69.4 (146.2 )
Proceeds from equity put options 0.3
Proceeds from issuance of common stock under Equity Unit contracts 1,250.0
Repurchase and retirement of common stock (795.0 ) (509.0 )
Change in collateral and settlements of debt-related derivatives 21.9 (128.4 )
Cash dividends (388.3 ) (344.0 )
Proceeds from issuance of common stock under employee stock plans 94.8 151.0
Taxes paid through withholding of common stock under employee stock
plans
(75.6 ) (45.6 )
Net cash (used in) financing activities (339.4 ) (329.5 )
 
Effect of foreign exchange rates on cash and cash equivalents (0.4 ) 2.9  
 
Change in cash and cash equivalents 1,073.1 485.9
Cash and cash equivalents at beginning of year 3,608.9   4,075.3  
 
Cash and cash equivalents at end of period $4,682.0 $4,561.2
 
 
Anthem, Inc.
Reconciliation of Medical Claims Payable
 
    Six Months Ended
June 30
  Years Ended December 31
2018   2017 2017   2016   2015
(In millions) (Unaudited)   (Unaudited)
 
Gross medical claims payable, beginning of period $ 7,991.5 $ 7,892.6 $ 7,892.6 $ 7,569.8 $ 6,861.2
Ceded medical claims payable, beginning of period (104.9 ) (539.1 ) (539.1 ) (645.6 ) (767.4 )
Net medical claims payable, beginning of period 7,886.6   7,353.5   7,353.5   6,924.2   6,093.8  
 
Business combinations and purchase adjustments 199.2 75.8 121.8
 
Net incurred medical claims:
Current year 34,733.8 35,686.5 71,872.3 66,371.4 60,708.4
Prior years redundancies(1) (804.5 ) (951.0 ) (1,164.6 ) (850.4 ) (800.2 )
Total net incurred medical claims 33,929.3   34,735.5   70,707.7   65,521.0   59,908.2  
 
Net payments attributable to:
Current year medical claims 28,146.4 28,540.4 64,249.7 59,156.6 54,067.7
Prior years medical claims 6,358.2   6,070.9   6,000.7   5,935.1   5,131.9  
Total net payments 34,504.6   34,611.3   70,250.4   65,091.7   59,199.6  
 
Net medical claims payable, end of period 7,510.5 7,477.7 7,886.6 7,353.5 6,924.2
Ceded medical claims payable, end of period 34.8   491.8   104.9   539.1   645.6  
Gross medical claims payable, end of period $ 7,545.3   $ 7,969.5   $ 7,991.5   $ 7,892.6   $ 7,569.8  
 
Current year medical claims paid as a percentage of current year net
incurred medical claims
81.0 % 80.0 % 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
11.4 % 14.9 % 18.8 % 14.0 % 15.1 %
 
Prior year redundancies in the current year as a percentage of prior
year net incurred medical claims
1.1 % 1.5 % 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.

    Three Months Ended
June 30
    Six Months Ended
June 30
 
(In millions, except per share data) 2018   2017 Change 2018   2017 Change
Net income $ 1,053.4 $ 855.3 23.2 % $ 2,365.9 $ 1,865.2 26.8 %
Add / (Subtract):
Net realized losses/(gains) on financial instruments (4.0 ) (16.2 ) 22.1 (23.5 )
Amortization of other intangible assets 93.6 40.6 173.1 82.4
Other-than-temporary impairment losses recognized in income 4.4 7.2 12.3 15.3
(Gain)/Loss on extinguishment of debt (0.9 ) 18.2
2015 cyber attack litigation 115.0 115.0
Transaction related costs 51.2 9.0 150.9
Penn Treaty assessment costs 253.8
Income tax true-up of prior transaction costs (69.3 ) (69.3 )
Tax impact of non-GAAP adjustments (22.6 ) (71.4 ) (55.9 ) (212.0 )
Net adjustment items 70.5   57.1   178.8   312.6  
Adjusted net income $ 1,123.9   $ 912.4   23.2 % $ 2,544.7   $ 2,177.8   16.8 %
 
Net income per diluted share $ 3.98 $ 3.16 25.9 % $ 8.97 $ 6.89 30.2 %
Add / (Subtract):
Net realized losses/(gains) on financial instruments (0.02 ) (0.06 ) 0.08 (0.09 )
Amortization of other intangible assets 0.35 0.15 0.66 0.30
Other-than-temporary impairment losses recognized in income 0.02 0.03 0.05 0.06
Loss on extinguishment of debt 0.07
2015 cyber attack litigation 0.42 0.42
Transaction related costs 0.19 0.03 0.56
Penn Treaty assessment costs 0.94
Income tax true-up of prior transaction costs (0.26 ) (0.26 )
Tax impact of non-GAAP adjustments (0.09 ) (0.26 ) (0.21 ) (0.78 )
Rounding Impact 0.01       0.01  
Net adjustment items 0.27   0.21   0.68   1.16  
Adjusted net income per diluted share $ 4.25   $ 3.37   26.1 % $ 9.65   $ 8.05   19.9 %
 
Full Year 2018 Outlook
Net income per diluted share Greater than $14.20
Add / (Subtract):
Net realized losses on financial instruments 0.08
Other-than-temporary impairment losses recognized in income 0.05
Loss on extinguishment of debt 0.07
Transaction related costs 0.03
Amortization of other intangible assets Approximately $1.35
Tax impact of non-GAAP adjustments Approximately ($0.38)
Net adjustment items Approximately $1.20
Adjusted net income per diluted share Greater than $15.40
 
Three Months Ended
June 30
Six Months Ended
June 30
(In millions) 2018 2017 Change 2018 2017 Change
Reportable segments operating gain $ 1,559.0 $ 1,227.0 27.1 % $ 3,426.9 $ 2,812.4 21.8 %
Net investment income 229.3 200.2 458.5 407.4
Net realized gains/(losses) on financial instruments 4.0 16.2 (22.1 ) 23.5
Other-than-temporary impairment losses recognized in income (4.4 ) (7.2 ) (12.3 ) (15.3 )
Interest expense (191.7 ) (189.9 ) (375.9 ) (424.9 )
Amortization of other intangible assets (93.6 ) (40.6 ) (173.1 ) (82.4 )
Loss on extinguishment of debt 0.9     (18.2 )  
Income before income tax expense $ 1,503.5   $ 1,205.7   24.7 % $ 3,283.8   $ 2,720.7   20.7 %
 

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.

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