The following table sets forth selected financial data and other operating information of WellPoint. The selected financial data in the table are derived from the consolidated financial statements of the Company. The data should be read in conjunction with the Consolidated Financial Statements, including the related notes and other financial information included in this annual report on Form 10-K.
Earnings per share for the year ended December 31, 2003 is based upon weighted average shares outstanding of 147.5 million shares, excluding potential Common Stock, and 151.8 million shares, assuming full dilution. Earnings per share for the year ended December 31, 2002 is based upon 144.2 million shares, excluding potential Common Stock, and 150.9 million shares, assuming full dilution. The increase in weighted average shares outstanding assuming full dilution primarily resulted from the issuance of shares related to the Cobalt acquisition, RightCHOICE acquisition and the Company's stock option and stock purchase plans. These increases were partially offset by the redemption of the Company's Zero Coupon Convertible Subordinated Debentures in 2002.
2002, were excluded from operating results for the year ended December 31, 2002. WellPoint refers to these adjusted measures of operating results as "Same-Store." While this Same-Store methodology is consistent with the analysis of the operating results for the year ended December 31, 2003 versus the year ended December 31, 2002, it is different than the methodology employed in the Company's annual report on Form 10-K for the year ended December 31, 2002. In that analysis, operating results attributable to acquired Cerulean business were excluded from both fiscal periods (nine-and-a half months of 2001 and twelve months of 2002). The difference in the methodologies does not yield any material differences. The Company uses the Same-Store methodology presented below for purposes of reporting comparative financial results to its Board of Directors.
The Company's strategy for achieving its investment goals is broad diversification of its investments, both across and within asset classes. As of December 31, 2003, the Company's investment portfolio consisted primarily of investment grade fixed-income securities. The Company's portfolio also included large capitalization and small capitalization domestic equities, foreign equities, tax-exempt municipal bonds and a small amount of non-investment grade debt securities. The fixed-income assets include both short and long-duration securities with an attempt to match the Company's funding needs. The Company's investment policy contains limitations regarding concentration in individual securities and industries and generally prohibits speculative and leveraged investments. Cash and investment balances maintained by the Company are sufficient to meet applicable regulatory financial stability and net worth requirements, including license requirements of the Blue Cross and Blue Shield Association.
WellPoint, as the parent company, requires cash for debt repayment, stock repurchases, acquisitions and other general corporate purposes. A substantial portion of WellPoint's cash requirements is funded by dividends received from its regulated operating subsidiaries. Payments of dividends to WellPoint by its regulated operating subsidiaries are subject to certain restrictions imposed by state regulations. There is no assurance that the Company will receive any regulatory approvals that might be required for future dividend payments. As of December 31, 2003, the Company, as a stand-alone entity, had $298.8 million in cash and investments.
Net cash provided by financing activities totaled $843.0 million for the year ended December 31, 2003, compared with $232.6 million for the year ended December 31, 2002. The net cash provided by financing activities for the year ended December 31, 2003 was primarily attributable to additional advances on securities lending deposits of $716.7 million, additional debt of $230.1 million, of which $125.1 million was used to partially finance the acquisition of Cobalt and the remaining balance was incurred to partially finance the $268.6 million repurchase of Company Common Stock, and the receipt of proceeds from the issuance of Common Stock related to the Company's stock option and stock purchase plans of $164.8 million.
On October 26, 2003, WellPoint entered into a merger agreement with Anthem, Inc. ("Anthem"). The consideration to be received by the stockholders of WellPoint will be composed of $23.80 in cash and one share of Anthem common stock per share of WellPoint Common Stock. Based on the closing price of Anthem's common stock on October 24, 2003, the transaction was valued at approximately $16.4 billion. Upon completion of this transaction, WellPoint will merge into a wholly owned subsidiary of Anthem and Anthem will change its name to WellPoint, Inc. Anthem, a publicly traded company, is an independent licensee of the Blue Cross and Blue Shield Association and holds the exclusive right to use the Blue Cross and Blue Shield names and marks in the states of Indiana, Kentucky, Ohio, Connecticut, New Hampshire, Colorado, Nevada, Maine and Virginia, excluding the immediate suburbs of Washington D.C. As of December 31, 2003, Anthem provided health care benefits to more than 11.9 million medical members, which includes BlueCard "host" members. Headquartered in Indianapolis, Indiana, Anthem, along with its subsidiaries, offers a diverse portfolio of complementary health and group life insurance, managed care products, pharmacy benefit management and government health program administration.
The Blue Cross and Blue Shield Association must approve the transfer to Anthem of WellPoint's licenses to use the Blue Cross and Blue Shield names and marks in WellPoint's geographical territories. Anthem and WellPoint have submitted a joint application requesting that, in connection with the completion of the merger, the Blue Cross and Blue Shield Association grant to Anthem the licenses for the WellPoint service area. The Blue Cross and Blue Shield Association committee that considers licensure matters approved the transfer in December 2003, although the transaction still awaits approval by the Board of Directors of the Blue Cross and Blue Shield Association.
The critical accounting policies described below are those that the Company believes are important to the portrayal of the Company's financial condition and results of operations, and which require management to make difficult, subjective or complex judgments. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. The Company believes that critical accounting policies include medical claims payable, reserves for future policy benefits, goodwill and other intangible assets and investments.
Health care claims are usually described as having a "short tail," which means that they are generally paid within a few months of the member receiving service from the physician or other health care provider. Based on the Company's historical claim payment patterns, less than 5% of the medical claims payable as of the end of any given year is outstanding at the end of the following year. Management expects that substantially all of the development of the estimate of medical claims payable as of December 31, 2003 will be known by the end of 2004.
Capitation costs represent monthly fees paid one month in advance to physicians, certain other medical service providers and hospitals in the Company's HMO networks as retainers for providing continuing medical care. The Company maintains various programs that provide incentives to
With the majority of investments in fixed-income securities, the Company maintains an investment portfolio that is primarily structured to maximize total return while preserving the principal asset base and provide a source of liquidity for operating needs. The Company records investment income when earned, and realized gains or losses when sold, as determined using the first-in-first-out method.