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FINANCECREATING SHAREHOLDER VALUE & LOOKING TOWARDS 2006
David Colby,Executive Vice President & Chief Financial Officer
Agenda
• WellPoint Earnings Growth Model
• Capital Strategy
• Strong Outlook for 2006
• Investment Considerations
WellPoint Growth Model
EPS GrowthEPS Growth15% +15% +
Profitable Enrollment Growth
Disciplined Focus on Underwriting
Effective Use of Cash Flow
SG&A Ratio Reduction
Specialty Penetration
10%
15%
20%
25%
2000 2001 2002 2003 2004 2005E* 2006E*
SG&A Expense / Total Operating Revenue
Continued SG&A Ratio Reduction
550 basis point reduction21.3%
19.6% 19.3% 18.8%17.0%
* Estimated based on current projections.
16.3% 15.8%
SG&A Expense By Function
Note: Amounts are estimated.
Sales & Marketing
Customer Service, Claims & Other Operations
Information Technology
Medical & Network
Management
Corporate & OtherShared Services
Becoming More Efficient
400
500
600
700
800
Membership Per Employee
12/31/99 12/31/01 12/31/03 9/30/0512/31/00 12/31/02 12/31/04
794
471
Increasing IVR Penetration
Each year, WellPoint representatives handle approximately 60 million telephone calls
Interactive Voice Response is around
35% of volume and is expected to increase
Leveraging Technology
71.3%
73.2%
69.0%
70.0%
71.0%
72.0%
73.0%
74.0%
4Q04 3Q05
Auto-Adjudication Rates
Process around 240 million medical and specialty claims per year
74.0%
77.0%
70.0%
72.0%
74.0%
76.0%
78.0%
80.0%
4Q04 3Q05
EDI Rates
Note: Data includes both the former Anthem, Inc. and the former WellPoint Health Networks Inc. for both periods.
Utilizing Web-Based Capabilities
3Q05 Statistics
• 24 million web-based transactions
• 508,000 website “hits” per day
• About 2 millionregistered users at end of quarter
Fully Integrated Annual Synergies $250 Million +
Corporate & Shared ServicesInformation Technology
Operations
Specialty
Note: Amounts are estimated based on current projections for the WellPoint Health Networks merger.
• Officer reduction
• Investment strategy refinement
• Increased purchasing power
• Pharmacy contracting
• Consolidating duplicative operations
• Print and mail operations
• Medical mgt. best practices
• Non-branded migration to Blue networks
• Strategy refinement
• Telecommunication rates
• Licensing
• Hardware contracting
Agenda
• WellPoint Earnings Growth Model
• Capital Strategy
• Strong Outlook for 2006
• Investment Considerations
Strong Cash Flow
2002 2003 2004Net Income Operating Cash Flow
$0.5
$1.0$0.8
$1.2$1.0
$1.3
$3.0+
~$2.5
2005E*
Operating Cash Flow vs. Net Income(in billions)
2006E*
* Estimated based on current projections.
~$3.5
~$2.8
Cash Flow Strategy
Reinvest In Our Business
New Products & Enhanced Service
Debt Repayment
Acquisitions
Return to Shareholders
1) Blues Acquisition
2) Product-Specific or Non-Blue Branded in Core Market
3) Expand Specialty Lines
4) Non-Blue Branded Outside of Core Market
Acquisition Priorities
Financial Flexibility
AM Best: a-
Fitch: A-
Moody’s: Baa1
S&P: BBB+0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
3Q05 Target
Debt-to-Capital Ratio *
* Total Debt / (Total Debt + Shareholders’ Equity) ; ** As of 9/30/05.
17.1%
Mid 20% Range
Sr. Debt Ratings **
Projected Uses of Cash – 2006
* Estimated based on current projections. Amounts do not include impact of pending WellChoice merger.
Cap Ex * ~$0.3 B
Debt & Lease Maturities *
~$0.5 B
Undesignated Cash Flow *
~$2.7 B
Operating Cash Flow * ~ $3.5 Billion
Share Repurchase Authorization
$1 Billion as of 9/30/05
$2 Billion at close of pending WC merger
Agenda
• WellPoint Earnings Growth Model
• Capital Strategy
• Strong Outlook for 2006
• Investment Considerations
The Bottom Line…
+ 0.10Add: incremental WHN synergies *
$4.69Subtotal
+ 0.60Grow by 15% ($3.99 x .15) *
$4.512006E GAAP EPS *
- 0.18Subtract: stock option expense *
$3.99Subtotal
- 0.04Subtract: ICHIA tax benefit *
+ 0.10Add: MDL settlement expense *
$3.932005E GAAP EPS *
* Estimated based on current projections.
Profitable Enrollment Growth
Year-End Medical Membership(in millions)
27.7
~ 29
* Estimated based on current projections.
~ 30
2004 2005E* 2006E*
Long-Term Target:3% - 5%
Organic Growth
~ 3%Growth
Solid Revenue Production
Total Operating Revenue(in billions)
$20.5
~ $44.5
* Estimated based on current projections.
~ $49.5
2004 2005E* 2006E*
Long-Term Target:10% Op. Rev.
Increase
Premiums: $45.8
Admin. Fees: $2.9
Other: $0.8
11%Increase
75%
77%
79%
81%
83%
85%
2004 2005E* 2006E*Benefit Expense / Premiums
Stable Benefit Expense Ratio
82.0%80.6%
* Estimated based on current projections.
80.8%
Medical trend about 8%
2006E*
Long-Term Target:• Stable benefit exp. ratio
14%
16%
18%
20%
2004 2005E* 2006E*
SG&
A E
xpen
se /
Tota
l Ope
ratin
g R
even
ueContinued SG&A Ratio Reduction
17.0%16.3%
* Estimated based on current projections.
15.8%
Long-Term Target:• Flat SG&A Expense
Per Member Per Month
50 bpDecrease
Increasing Net Investment Income
Net Investment Income(in millions)
$312
~ $620
* Estimated based on current projections.
~ $680
2004 2005E* 2006E*
10%Increase
10%20%
30%40%50%
60%70%
2000 2001 2002 2003 2004 2005E* 2006E*
Net
Inve
stm
ent I
ncom
e /
Pre-
Tax
Inco
me
Decreased Reliance onInvestment Income
61.6%
45.3%
32.5%
22.9% 21.6%15.9%
* Estimated based on current projections.
15.0%
4,660 bp decrease!
2004 2005E* 2006E*
Margin Expansion
9.1%
6.9%
8.6%
Pre-Tax Income / Total Revenues
* Estimated based on current projections.
Long-Term Target:Double-digit
pre-tax margins
50 bpIncrease
Strong Earnings Momentum
2004 2005E* 2006E*
GAAP Diluted EPS
$3.05
$3.93
* Estimated based on current projections.
$4.51
15%Growth
4Q06* $1.17
3Q06* $1.15
2Q06* $1.12
1Q06* $1.07
Modeling Assumptions – 2006E*• Cost of drugs: ~ $330 million
• Interest expense: ~ $250 million
• Amortization of intangibles: ~ $230 million
• Income tax rate: 37.5%
• ~ 629 million weighted average diluted shares
• No impact from WellChoice merger* Estimated based on current projections.
The Bottom Line…
+ 0.10Add: incremental WHN synergies *
$4.69Subtotal
+ 0.60Grow by 15% ($3.99 x .15) *
$4.512006E GAAP EPS *
- 0.18Subtract: stock option expense *
$3.99Subtotal
- 0.04Subtract: ICHIA tax benefit *
+ 0.10Add: MDL settlement expense *
$3.932005E GAAP EPS *
* Estimated based on current projections.
Agenda
• WellPoint Earnings Growth Model
• Capital Strategy
• Strong Outlook for 2006
• Investment Considerations
9) Benefits of size and scale8) Leading local market shares7) Blue brand is most recognizable in the sector6) Diversified revenue stream5) Excellent financial performance 4) Strong cash flow
2) Outstanding management team3) M&A discipline and success
1) Tremendous growth opportunities
Top 10 Reasons to Add WLPto Your Portfolio
10) Attractive industry that is rapidly expanding
Safe Harbor Statement Under the Private Securities Reform Act of 1995This presentation contains certain forward-looking information about WellPoint, Inc. (“WellPoint”), WellChoice, Inc. (“WellChoice”) and the combined company after completion of the transaction that are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. Words such as “expect(s)”, “feel(s)”, “believe(s)”, “will”, “may”, “anticipate(s)” 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 the control of WellPoint and WellChoice, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include: those discussed and identified in public filings with the U.S. Securities and Exchange Commission (“SEC”) made by WellPoint (formerly Anthem, Inc.), WellPoint Health Networks Inc. (“WellPoint Health”) and WellChoice; trends in health care costs and utilization rates; our ability to secure sufficient premium rate increases; competitor pricing below market trends of increasing costs; increased government regulation of health benefits and managed care; significant acquisitions or divestitures by major competitors; introduction and utilization of new prescription drugs and technology; a downgrade in our financial strength ratings; litigation targeted at health benefits companies; our ability to contract with providers consistent with past practice; other potential uses of cash in the future that present attractive alternatives to share repurchases; our ability to achieve expected synergies and operating efficiencies in the WellPoint Health merger within the expected time-frames or at all and to successfully integrate our operations; such integration may be more difficult, time-consuming or costly than expected; revenues following the transaction may be lower than expected; operating costs, customer loss and business disruption, including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers, may be greater than expected following the transaction; our ability to consummate WellPoint’s merger with WellChoice, to achieve expected synergies and operating efficiencies in the merger within the expected time-frames or at all, to meet expectations regarding repurchases of shares of our common stock and to successfully integrate our operations; such integration may be more difficult, time-consuming or costly than expected; revenues following the transaction may be lower than expected; operating costs, customer loss and business disruption, including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers, may be greater than expected following the transaction; the regulatory approvals required for the transaction may not be obtained on the terms expected or on the anticipated schedule; our ability to meet expectations regarding the timing, completion and accounting and tax treatments of the transaction and the value of the transaction consideration; future bio-terrorist activity or other potential public health epidemics; and general economic downturns. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Neither WellPoint nor WellChoice undertakes any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures in WellPoint’s and WellChoice’s various SEC reports, including but not limited to Annual Reports on Form 10-K for the year ended December 31, 2004 and Quarterly Reports on Form 10-Q for the reporting periods of 2005.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
This communication may be deemed solicitation material in connection with the proposed merger transaction involving WellPoint, Inc. (“WellPoint”) and WellChoice, Inc. (“WellChoice”). In connection with the proposed transaction, WellPoint has filed a registration statement on Form S-4, containing the final proxy statement/prospectus for the stockholders of WellChoice with the U.S. Securities and Exchange Commission (“SEC”). BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS ARE URGED TO READ THE FINAL STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS CAREFULLY IN THEIR ENTIRETY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The final proxy statement/prospectus was first mailed to WellChoice’s stockholders on or about November 22, 2005. Investors andsecurity holders may receive the final registration statement containing the final proxy statement/prospectus and other documents free of charge at the SEC’s web site, www.sec.gov, from WellPoint Investor Relations at 120 Monument Circle, Indianapolis, Indiana 46204, or from WellChoice Investor Relations at 11 West 42nd Street, New York, New York 10036.
PARTICIPANTS IN SOLICITATION
WellPoint, WellChoice and their respective directors and executive officers and other members of management and employees may bedeemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding WellPoint’s directors and executive officers is available in WellPoint’s proxy statement for its 2005 annual meeting of stockholders, which was filed with the SEC on April 8, 2005, and information regarding WellChoice’s directors and executive officers is available in WellChoice’s proxy statement for its 2005 annual meeting of shareholders, which was filed with the SEC on March 28, 2005. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of WellChoice stockholders in connection with the proposed transaction is set forth in the final proxy statement/prospectus.
Basis of Presentation
• On November 30, 2004, Anthem, Inc. acquired WellPoint Health Networks Inc., and Anthem, Inc. changed its name to WellPoint, Inc. Accordingly, financial results for periods prior to November 30, 2004, only include operations of the former Anthem, Inc., unless otherwise indicated.
• All per share amounts are on an after-tax, diluted per share basis and reflect the 2-for-1 stock split on May 31, 2005.
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