-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qk4i69wP+irpVhfClYuw+46foUkoJiGZWxdCh3agdFoBEUJn5907OMidB2Kf1xwm 7MTWvJzpAjWu9U6pzSzipQ== 0000897069-03-000812.txt : 20030728 0000897069-03-000812.hdr.sgml : 20030728 20030728171721 ACCESSION NUMBER: 0000897069-03-000812 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030722 ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20030728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COBALT CORP CENTRAL INDEX KEY: 0001062780 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 391931212 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14177 FILM NUMBER: 03806663 BUSINESS ADDRESS: STREET 1: 401 WEST MICHIGAN STREET CITY: MILWAUKEE STATE: WI ZIP: 53203-2896 BUSINESS PHONE: 4142266900 MAIL ADDRESS: STREET 1: 401 WEST MICHIGAN STREET CITY: MILWAUKEE STATE: WI ZIP: 52030-2896 FORMER COMPANY: FORMER CONFORMED NAME: UNITED WISCONSIN SERVICES INC DATE OF NAME CHANGE: 19981112 8-K 1 sdc477.txt 8-K CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _________________________ FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 _______________________ Date of Report (Date of earliest event reported): July 22, 2003 Cobalt Corporation (Exact name of registrant as specified in its charter) Wisconsin 1-14177 39-1931212 - ---------------------------- ------------------------ ------------------- (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 401 West Michigan Street Milwaukee, Wisconsin 53203 --------------------------------------------------------- (Address of principal executive offices including zip code) (414) 226-6900 ----------------------------- (Registrant's telephone number) Item 9. Regulation FD Disclosure (Information furnished in this Item 9 is furnished under Item 12). On July 22, 2003, Cobalt Corporation issued a press release announcing its financial results for the quarter ended June 30, 2003. A copy of the press release is furnished as Exhibit 99.1 hereto and is incorporated herein by reference. Also on July 22, 2003, Cobalt Corporation released its Consolidated Statements of Operations for the three and six month periods ended June 30, 2003 and 2002 (unaudited). A copy of these Consolidated Statements of Operations is furnished as Exhibit 99.2 hereto and is incorporated herein by reference. Finally, on July 22, 2003, Cobalt Corporation released its Quarterly Highlights for the three and six months ended June 30, 2003. A copy of these Quarterly Highlights is furnished as Exhibit 99.3 hereto and is incorporated herein by reference. The information furnished pursuant to this Item 9 of this Current Report on Form 8-K is being furnished pursuant to "Item 12. Results of Operations and Financial Condition" of Form 8-K in accordance with the guidance provided by the Securities and Exchange Commission in Securities Exchange Act Release No. 34-47583 (March 27, 2003). This Current Report on Form 8-K contains "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements can generally be identified because they are preceded by or include words like "anticipate," "believe," "estimate," "expect," "forecast," "objective," "plan," "possible," "potential," "project" and similar expressions. Forward-looking statements are statements based upon management's expectations at the time such statements are made and are subject to risks and uncertainties that could cause the Company's actual results to differ materially from those contemplated in the statements. Those risks and uncertainties include rising health care costs, business conditions, impact of elimination of memberships, competition in the managed care industry, developments in health care reform and other regulatory issues. Readers are cautioned not to place undue reliance on forward-looking statements. Item 7. Financial Statements and Exhibits. (a) Not applicable. (b) Not applicable. (c) Exhibits. (99.1) Press Release, dated July 22, 2003, issued by Cobalt Corporation. (99.2) Cobalt Corporation Consolidated Statements of Operations for the Three and Six Month Periods ended June 30, 2003 and 2002 (Unaudited). (99.3) Cobalt Corporation Quarterly Highlights (Unaudited). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. COBALT CORPORATION Date: July 28, 2003 By: /s/ Gail L. Hanson --------------------------------- Gail L. Hanson Senior Vice President, Treasurer and Chief Financial Officer COBALT CORPORATION EXHIBIT INDEX TO FORM 8-K Report Dated July 22, 2003 Exhibit No. Description - ------- --------------------------------------------------------------------- 99.1 Press Release, dated July 22, 2003, issued by Cobalt Corporation. 99.2 Cobalt Corporation Consolidated Statements of Operations for the Three and Six Month Periods ended June 30, 2003 and 2002 (Unaudited). 99.3 Cobalt Corporation Quarterly Highlights (Unaudited). EX-99.1 3 sdc477a.txt PRESS RELEASE Exhibit 99.1 For Immediate Release Media: Jill Becher July 22, 2003 414.226.5413 Investors: Cindy Klimstra 414.226.6973 Cobalt Reports EPS of $0.37 in Second Quarter and Raises 2003 Guidance o Second quarter 2003 diluted EPS of $0.37 o Sixth consecutive quarter of profitable results in all business segments o Full year 2003 guidance raised from $1.10 to a range of $1.30 to $1.35 o Merger with WellPoint proceeding as planned for completion by year end (Milwaukee, Wis.) - Cobalt Corporation (NYSE: CBZ) announced today second quarter 2003 net income of $16.1 million or $0.37 per diluted share entirely from continuing operations. For the second quarter of 2002, income from continuing operations excluding income from investment in affiliates was $10.3 million or $0.24 per diluted share. Income from affiliates was $0.2 million in the second quarter of 2003. Income from affiliates for the second quarter of 2002 was $12.5 million or $0.29 per diluted share primarily related to an investment in American Medical Security Group, Inc. (NYSE:AMZ) common stock. Cobalt completed the sale of its AMZ investment in January 2003. Cobalt's second quarter 2003 income from continuing operations before income tax expense and income from investment in affiliates increased to $31.1 million from $11.4 million reported in the second quarter of 2002. Income tax expense in the second quarter of 2003 rose to $15.2 million, compared to $1.1 million for the second quarter of 2002, primarily due to the exhaustion of the benefit of net operating loss carryforwards. Total revenues for the second quarter of 2003 increased 9% to $416.6 million from $382.9 million in the second quarter of 2002. "We are gratified that our disciplined approach to management is continuing to produce outstanding results. We are confident that our efforts to improve independent agent community relationships will stimulate new sales later in the year and in 2004," said Stephen E. Bablitch, Cobalt Corporation's Chairman and CEO. Consolidated Highlights: o Insured Medical Care Ratio The insured medical care ratio improved to 83.2% in the second quarter of 2003, compared to 87.2% in the second quarter of 2002, and 86.6% for the first quarter of 2003. The improvement reflects favorable medical cost trends, as well as the impact of a $6.8 million release of reserves during the second quarter of 2003 from more favorable than anticipated run-out on prior period reserve estimates. o Insured Medical SG&A Expense Ratio The selling, general and administrative expense ratio on insured medical business was 10.3% for the second quarter of 2003. This compares favorably to an SG&A ratio of 11.1% in the second quarter of 2002 and 11.2% for the full year 2002. The improvement was driven by disciplined containment of operating costs. o Membership Total medical membership was 785,000 as of June 30, 2003, compared to 809,000 as of March 31, 2003. The slight decline reflects a combination of factors: the transition of self-insured national account members to the more profitable BlueCard program, where revenue is still collected but customers are not included in Cobalt's reported membership; employee downsizing among some customers in the large group segment, which reflects national trends; and Cobalt's commitment to rational pricing in a competitive market. Cobalt successfully renewed the City of Milwaukee account, representing 18,000 members. This is a significant win in a competitive situation, and reflects the Company's ongoing commitment to maintaining positive customer relations and providing excellent service. Cobalt continues to execute on its initiative to improve broker relations, and remains well positioned for new sales in the second half of 2003 and in 2004. o Self-Funded Products Self-funded revenue increased to $14.5 million for the second quarter of 2003, versus $7.8 million for the second quarter of 2002. Claim Management Services, Inc., which was acquired on December 31, 2002, accounted for $5.7 million of this increase. o Cash Flow Cash flow from operations was $57.5 million for the six months ended June 30, 2003, compared to $1.7 million for the comparable period in 2002. o Days in Claims Payable Days in claims payable on the insured medical business were 59.5 days at the end of the second quarter of 2003, compared to 60.4 days as of March 31, 2003. The decline in days in claims payable relates primarily to the $6.8 million reserve release during the second quarter of 2003. o Income Taxes The effective income tax rate for the second quarter of 2003 was 49%, versus 10% in the second quarter of 2002. The 2002 tax rate reflected benefits from the utilization of certain net operating loss carryforwards. The higher tax rate in 2003 is due to the exhaustion of these net operating loss carryforwards during 2002, nondeductible merger-related expenses, and additional tax expense related to an unfavorable court decision on disputed income tax matters dating back to 1987. o Holding Company Expenses Expenses of $2.2 million relating to the pending merger with WellPoint Health Networks Inc. were recorded during the second quarter of 2003 at the holding company. Earnings Outlook Cobalt raised its earnings guidance for the full year 2003 to a range of $1.30 to $1.35 per diluted share from prior guidance of $1.10 per diluted share. This increase reflects management's expectation that earnings for the second half of 2003 will be stronger than earnings reported for the first half of the year. Reconciliation of Non-GAAP Financial Measures The following is a reconciliation of net income to certain non-GAAP financial measures referred to in this press release. The Company believes that these non-GAAP financial measures provide a better comparison of ongoing core operations by segregating the effects of income from investment in affiliates and a significant increase in the Company's effective tax rate.
For the Three Months Ended June 30, For the Six Months Ended June 30, ------------------------------------------ ------------------------------------------ 2003 2002 2003 2002 ------------------- -------------------- -------------------- ------------------- Dollars Per Dollars Per Dollars Per Dollars Per In Diluted In Diluted In Diluted In Diluted Thousands Share Thousands Share Thousands Share Thousands Share --------- ------- --------- -------- --------- -------- --------- ------- Net Income $16,075 $0.37 $22,512 $ 0.53 $27,217 $0.63 $45,115 $1.08 Less: Income (loss) from discontinued operations - - (250) (0.01) - - 9,109 0.22 ------- ----- ------- ------ ------- ----- ------- ----- Income from continuing operations 16,075 0.37 22,762 0.54 27,217 0.63 36,006 0.86 Less: Income from investment in affiliates net of tax 200 0.00 12,465 0.29 200 0.00 15,317 0.37 ------- ----- ------- ------ ------- ----- ------- ----- Income from continuing operations, excluding investment in affiliates 15,875 0.37 10,297 0.24 27,017 0.63 20,689 0.50 Add: Income tax expense 15,227 0.35 1,124 0.03 22,293 0.52 2,304 0.06 ------- ----- ------- ------ ------- ----- ------- ----- Income from continuing operations, before income tax expense and income from investment in affiliates $31,102 $0.72 $11,421 $ 0.27 $49,310 $1.15 $22,993 $0.55 ======= ===== ======= ====== ======= ===== ======= =====
Note: Certain per share amounts for 2002 do not foot due to rounding. Cobalt and WellPoint to Merge On June 3, 2003, WellPoint Health Networks Inc. (NYSE:WLP), the nation's second largest health insurer, and Cobalt announced that they signed a definitive agreement to merge. The transaction is structured as a merger of Cobalt Corporation with a wholly owned subsidiary of WellPoint and is intended to be tax free with respect to the WellPoint stock to be received in the transaction by Cobalt shareholders. The consideration to be received by the shareholders of Cobalt will be comprised of $10.25 in cash and WellPoint stock at a fixed exchange ratio of 0.1233 of a share of WellPoint stock for each share of Cobalt stock. Based on WellPoint's stock price on June 3, 2003, the total value would be $20.50 per Cobalt share. The exchange ratio will be adjusted if WellPoint's stock price falls below $70.97 so that Cobalt shareholders receive no less than $8.75 per share in stock consideration and no less than $19.00 in the aggregate. The transaction will be accounted for under the purchase method of accounting. Completion of the merger is subject to Cobalt shareholder approval, Blue Cross and Blue Shield Association approval, governmental and regulatory approvals, and other customary closing conditions. WellPoint and Cobalt currently expect the transaction to close by the end of 2003. About Cobalt Corporation Cobalt Corporation is an independent licensee of the Blue Cross and Blue Shield Association, and holds the exclusive license to use the Blue Cross and Blue Shield names and marks in the state of Wisconsin. Cobalt is one of four publicly traded Blue Cross and Blue Shield companies. Headquartered in Milwaukee, Wis., Cobalt Corporation (NYSE: CBZ) offers a diverse portfolio of complementary insurance, managed care products and administrative services to employer, individual, insurer and government customers. For more information, visit our web site at www.cobaltcorporation.com. Conference Call and Web Cast Management will host a conference call and web cast on Wednesday, July 23, 2003, at approximately 11:00 a.m. Eastern time to discuss second quarter 2003 financial results. The conference call and web cast will be co-hosted with WellPoint. The conference call can be accessed by dialing (888) 285-8004 and referencing "WellPoint's and Cobalt's Earnings Call" approximately 10 minutes prior to the start of the call. International callers should call (706) 643-1656. A replay of the call will be available from July 23 through 8:00 p.m. Eastern time on July 30, 2003. To access the replay, please dial (800) 642-1687 and enter call i.d. number 1309658. International callers can access the replay by dialing (706) 645-9291 and entering call i.d. number 1309658. The call will be simulcast live over the Internet at www.cobaltcorporation.com. To listen to the web cast, please visit the Events section of the Cobalt Corporation web site and click on Latest Investor Presentation at least 15 minutes prior to the start of the conference call to download and install any necessary audio software. Individuals who listen to the call will be presumed to have read Cobalt's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, including the discussion under the caption "Risk Factors." A replay of the web cast will be available at http://www.cobaltcorporation.com. Cautionary Statements This release contains forward-looking statements with respect to the financial condition, results of operations and business of Cobalt Corporation. Such forward-looking statements are subject to inherent risks and uncertainties that may cause actual results or events to differ materially from those contemplated by such forward-looking statements. Factors that may cause actual results or events to differ materially from those contemplated by such forward-looking statements include rising health care costs, business conditions, impact of elimination of memberships, competition in the managed care industry, developments in health care reform and other regulatory issues. This press release may be deemed to be solicitation material in respect of the proposed merger of Cobalt Corporation and WellPoint Health Networks Inc. In connection with the proposed merger, a registration statement on Form S-4 has been filed with the Securities and Exchange Commission. Shareholders of Cobalt Corporation are urged to read the registration statement, including the preliminary proxy statement-prospectus that is part of the registration statement, because it contains important information about the proposed merger. The proxy statement-prospectus, in its final form, will be mailed to Cobalt shareholders. The registration statement is, and each amendment to the registration statement will upon filing with the SEC be, available for free both on the SEC's web site (www.sec.gov) and from Cobalt's and WellPoint's respective corporate secretaries. Cobalt Corporation and its directors and executive officers may be deemed to be participants in respect of the proposed merger. Information regarding the interests of Cobalt's directors and executive officers is included in the proxy statement-prospectus. EX-99.2 4 sdc477b.txt CONSOLIDATED STMTS OF OPERATIONS COBALT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three months ended Six months ended June 30, June 30, ---------------------------- ---------------------------- 2003 2002 2003 2002 ------------ ------------ ------------ ------------ (In thousands, except share data) Revenues: Health services revenues: Premium $ 363,310 $ 339,129 $ 720,687 $ 677,095 Government services 29,892 27,971 57,702 56,780 Other 17,580 12,150 36,339 23,414 Investment income, net 4,724 3,708 9,121 6,535 Net realized investment gains (losses) 1,083 (77) 1,307 27 ------------ ------------ ------------ ------------ Total revenues 416,589 382,881 825,156 763,851 Expenses: Medical and other benefits 296,408 290,808 600,249 583,166 Selling, general, administrative and other 88,494 80,581 174,412 157,449 Interest 279 71 554 243 Amortization of intangible assets 306 -- 631 -- ------------ ------------ ------------ ------------ Total expenses 385,487 371,460 775,846 740,858 ------------ ------------ ------------ ------------ Income from continuing operations before income tax expense and income from investment in affiliates 31,102 11,421 49,310 22,993 Income tax expense (15,227) (1,124) (22,293) (2,304) Income from investment in affiliates, net of tax(1) 200 12,465 200 15,317 ------------ ------------ ------------ ------------ Income from continuing operations 16,075 22,762 27,217 36,006 Income (loss) from discontinued operations, net of tax(2) -- (250) -- 9,109 ------------ ------------ ------------ ------------ Net income $ 16,075 $ 22,512 $ 27,217 $ 45,115 ============ ============ ============ ============ Earnings (loss) per common share: Diluted EPS from continuing operations $ 0.37 $ 0.54 $ 0.63 $ 0.86 Diluted EPS from discontinued operations 0.00 (0.01) 0.00 0.22 ------------ ------------ ------------ ------------ Total diluted EPS $ 0.37 $ 0.53 $ 0.63 $ 1.08 ============ ============ ============ ============ Diluted weighted average common shares 43,099,339 42,413,553 42,902,864 41,760,291 ============ ============ ============ ============ (1) The three months ended June 30, 2002 includes a $9.4 million after tax gain on the sale of 3.0 million shares of AMSG. The six months ended June 30, 2002 includes a $9.8 million after tax gain on the sale of 4.4 million shares of AMSG. (2) The six months ended June 30, 2002 includes a $9.6 million after tax gain on the sale of discontinued operations.
EX-99.3 5 sdc477c.txt QUARTERLY HIGHLIGHTS [LOGO] Cobalt Corporation Quarterly Highlights (In thousands, except per share data) June 30, 2003
- -------------------------------------------- ---------------------------------------------------------------- Results of Operations 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total - -------------------------------------------- ---------------------------------------------------------------- 2003 - ---- Total revenues $ 408,567 $ 416,589 $ 0 $ 0 $ 825,156 Health services revenues 403,946 410,782 0 0 814,728 Net income 11,142 16,075 0 0 27,217 Diluted EPS 0.26 0.37 0.00 0.00 0.63 2002 - ---- Total revenues $ 380,970 $ 382,881 $ 390,392 $ 393,107 $1,547,350 Health services revenues 378,039 379,250 385,691 390,666 1,533,646 Income from Cobalt continuing operations (1) 13,244 22,762 13,888 15,123 65,017 Income (loss) from Cobalt discontinued operations, net of tax 9,359 (250) (171) 0 8,938 Net income 22,603 22,512 13,717 15,123 73,955 Diluted EPS from Cobalt continuing operations 0.32 0.54 0.33 0.35 1.54 Diluted EPS from Cobalt discontinued operations 0.23 (0.01) (0.01) 0.00 0.21 Diluted EPS 0.55 0.53 0.32 0.35 1.75 (1) Includes income from investment in affiliates of $2.9 million, $12.5 million, and $0.2 million in the first, second, and fourth quarter of 2002, respectively.
[LOGO] Cobalt Corporation Operating Highlights (In thousands) June 30, 2003
-------------------------------------------------- ------------------------------------------ 2002 YTD 2003 YTD -------------------------------------------------- ------------------------------------------ 3rd 4th Operating Data 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 12/31/02 1st Qtr 2nd Qtr Qtr Qtr 12/31/03 -------------------------------------------------- ------------------------------------------ Health services revenues: Insured medical products $305,127 $306,145 $311,386 $317,424 $1,240,082 $323,132 $328,832 $ $ $651,964 Specialty managed care products and services 45,328 45,434 46,504 47,844 185,110 44,045 42,985 87,030 Government services 28,809 27,971 28,375 26,564 111,719 27,810 29,893 57,703 Self-funded products 7,233 7,757 7,967 7,681 30,638 14,268 14,495 28,763 Eliminations (8,458) (8,057) (8,541) (8,847) (33,903) (5,309) (5,423) (10,732) -------- -------- -------- -------- ---------- -------- -------- ----- ----- -------- Total 378,039 379,250 385,691 390,666 1,533,646 403,946 410,782 0 0 814,728 Medical and other benefits: Insured medical products 268,222 266,976 269,652 266,844 1,071,694 279,799 273,545 553,344 Specialty managed care products and services 27,473 27,209 27,427 25,751 107,860 27,257 26,548 53,805 Eliminations (3,337) (3,377) (3,274) (2,895) (12,883) (3,215) (3,685) (6,900) -------- -------- -------- -------- ---------- -------- -------- ----- ----- -------- Total 292,358 290,808 293,805 289,700 1,166,671 303,841 296,408 0 0 600,249 Selling, general, administrative, and other expenses: Insured medical products 33,060 33,837 34,605 37,904 139,406 34,760 33,981 68,741 Specialty managed care products and services 16,381 16,956 17,265 18,535 69,137 13,767 12,867 26,634 Government services 28,277 27,499 28,110 26,275 110,161 27,310 28,713 56,023 Self-funded products 6,889 7,088 6,755 7,381 28,113 12,606 13,428 26,034 Corporate holding company (2,615) (124) (456) 634 (2,561) (429) 1,238 809 Eliminations (5,124) (4,675) (5,267) (5,951) (21,017) (2,096) (1,733) (3,829) -------- -------- -------- -------- ---------- -------- -------- ----- ----- -------- Total 76,868 80,581 81,012 84,778 323,239 85,918 88,494 0 0 174,412 Investment income, net 2,827 3,708 4,521 3,789 14,845 4,397 4,724 9,121 Net realized investment gains (losses) 104 (77) 180 (1,348) (1,141) 224 1,083 1,307 -------- -------- -------- -------- ---------- -------- -------- ----- ----- -------- Total investment results 2,931 3,631 4,701 2,441 13,704 4,621 5,807 0 0 10,428 Income from continuing operations before interest, amortization, income tax expense and income from investment in affiliates 11,744 11,492 15,575 18,629 57,440 18,808 31,687 0 0 50,495 Interest 172 71 116 316 675 275 279 554 Amortization of intangible assets 0 0 0 0 0 325 306 631 -------- -------- -------- -------- ---------- -------- -------- ----- ----- -------- Income from continuing operations before income tax expense and income from investment in affiliates 11,572 11,421 15,459 18,313 56,765 18,208 31,102 0 0 49,310 Income tax expense (1,180) (1,124) (1,574) (3,426) (7,304) (7,066) (15,227) (22,293) Income from investment in affiliates, net of tax (1) 2,852 12,465 3 236 15,556 0 200 200 -------- -------- -------- -------- ---------- -------- -------- ----- ----- -------- Income from continuing operations 13,244 22,762 13,888 15,123 65,017 11,142 16,075 0 0 27,217 Income (loss) from discontinued operations, net of tax (2) 9,359 (250) (171) 0 8,938 0 0 0 -------- -------- -------- -------- ---------- -------- -------- ----- ----- -------- Net income $ 22,603 $ 22,512 $ 13,717 $ 15,123 $ 73,955 $ 11,142 $ 16,075 $ 0 $ 0 $ 27,217 ======== ======== ======== ======== ========== ======== ======== ===== ===== ======== (1) The six months ended June 30, 2002 includes a $9.8 million after tax gain on the sale of 4.4 million shares of AMSG. (2) The first quarter of 2002 includes a $9.9 million net gain on the sale of Innovative Resource Group, LLC, which is treated as discontinued operations. During the second and third quarter of 2002, additional expenses were recorded, adjusting the net gain to $9.6 million.
(continued) Operating Highlights (In thousands) -------------------- June 30, 2003 YTD -------------------- Operating Data 06/30/02 06/30/03 -------- -------- Health services revenues: Insured medical products $611,272 $651,964 Specialty managed care products and services 90,762 87,030 Government services 56,780 57,703 Self-funded products 14,990 28,763 Eliminations (16,515) (10,732) -------- -------- Total 757,289 814,728 Medical and other benefits: Insured medical products 535,198 553,344 Specialty managed care products and services 54,682 53,805 Eliminations (6,714) (6,900) -------- -------- Total 583,166 600,249 Selling, general, administrative, and other expenses: Insured medical products 66,897 68,741 Specialty managed care products and services 33,337 26,634 Government services 55,776 56,023 Self-funded products 13,977 26,034 Corporate holding company (2,739) 809 Eliminations (9,799) (3,829) -------- -------- Total 157,449 174,412 Investment income, net 6,535 9,121 Net realized investment gains (losses) 27 1,307 -------- -------- Total investment results 6,562 10,428 Income from continuing operations before interest, amortization, income tax expense and income from investment in affiliates 23,236 50,495 Interest 243 554 Amortization of intangible assets 0 631 -------- -------- Income from continuing operations before income tax expense and income from investment in affiliates 22,993 49,310 Income tax expense (2,304) (22,293) Income from investment in affiliates, net of tax (1) 15,317 200 -------- -------- Income from continuing operations 36,006 27,217 Income (loss) from discontinued operations, net of tax (2) 9,109 0 -------- -------- Net income $ 45,115 $ 27,217 ======== ======== (1) The six months ended June 30, 2002 includes a $9.8 million after tax gain on the sale of 4.4 million shares of AMSG. (2) The first quarter of 2002 includes a $9.9 million net gain on the sale of Innovative Resource Group, LLC, which is treated as discontinued operations. During the second and third quarter of 2002, additional expenses were recorded, adjusting the net gain to $9.6 million. [LOGO] Cobalt Corporation Consolidated Statements of Operations (In thousands, except share and per share data)
--------------------------------------------------------------- June 30, 2003 2002 YTD --------------------------------------------------------------- Consolidated 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total --------------------------------------------------------------- Revenues: Health services revenues: Premium revenue $ 337,966 $ 339,129 $ 344,737 $ 351,928 $1,373,760 Other revenue 40,073 40,121 40,954 38,738 159,886 Investment income, net 2,827 3,708 4,521 3,789 14,845 Net realized investment gains (losses) 104 (77) 180 (1,348) (1,141) ---------- ---------- ---------- ---------- ---------- Total revenues 380,970 382,881 390,392 393,107 1,547,350 Expenses: Medical and other benefits 292,358 290,808 293,805 289,700 1,166,671 Selling, general, administrative, and other 76,868 80,581 81,012 84,778 323,239 Interest 172 71 116 316 675 Amortization of intangible assets 0 0 0 0 0 ---------- ---------- ---------- ---------- ---------- Total expenses 369,398 371,460 374,933 374,794 1,490,585 ---------- ---------- ---------- ---------- ---------- Income from continuing operations before income tax expense and income from investment in affiliates 11,572 11,421 15,459 18,313 56,765 Income tax expense (1,180) (1,124) (1,574) (3,426) (7,304) Income from investment in affiliates, net of tax (1) 2,852 12,465 3 236 15,556 ---------- ---------- ---------- ---------- ---------- Income from continuing operations 13,244 22,762 13,888 15,123 65,017 Income (loss) from discontinued operations, net of tax (2) 9,359 (250) (171) 0 8,938 ---------- ---------- ---------- ---------- ---------- Net income $ 22,603 $ 22,512 $ 13,717 $ 15,123 $ 73,955 ========== ========== ========== ========== ========== Weighted average common shares 40,637,194 40,904,010 41,272,729 41,550,021 41,093,967 Diluted weighted average common shares 40,967,943 42,413,553 42,625,303 42,634,726 42,229,727 Earnings (loss) per common share: Diluted EPS from continuing operations $ 0.32 $ 0.54 $ 0.33 $ 0.35 $ 1.54 Diluted EPS from discontinued operations $ 0.23 $ (0.01) $ (0.01) $ 0.00 $ 0.21 ---------- ---------- ---------- ---------- ---------- Total diluted EPS $ 0.55 $ 0.53 $ 0.32 $ 0.35 $ 1.75 ========== ========== ========== ========== ========== (1) The six months ended June 30, 2002 includes a $9.8 million after tax gain on the sale of 4.4 million shares of AMSG. (2) The first quarter of 2002 includes a $9.9 million net gain on the sale of Innovative Resource Group, LLC, which is treated as discontinued operations. During the second and third quarter of 2002, additional expenses were recorded, adjusting the net gain to $9.6 million.
(continued)
---------------------------------------------------- ----------------------- June 30, 2003 2003 YTD YTD ---------------------------------------------------- ----------------------- 3rd 4th Consolidated 1st Qtr 2nd Qtr Qtr Qtr Total 06/30/02 06/30/03 ---------------------------------------------------- ----------------------- Revenues: Health services revenues: Premium revenue $ 357,377 $ 363,310 $ $ $ 720,687 $ 677,095 $ 720,687 Other revenue 46,569 47,472 94,041 80,194 94,041 Investment income, net 4,397 4,724 0 0 9,121 6,535 9,121 Net realized investment gains (losses) 224 1,083 0 0 1,307 27 1,307 ---------- ---------- ----- ----- ---------- ---------- ---------- Total revenues 408,567 416,589 0 0 825,156 763,851 825,156 Expenses: Medical and other benefits 303,841 296,408 0 0 600,249 583,166 600,249 Selling, general, administrative, and other 85,918 88,494 0 0 174,412 157,449 174,412 Interest 275 279 0 0 554 243 554 Amortization of intangible assets 325 306 0 0 631 0 631 ---------- ---------- ----- ----- ---------- ---------- ---------- Total expenses 390,359 385,487 0 0 775,846 740,858 775,846 ---------- ---------- ----- ----- ---------- ---------- ---------- Income from continuing operations before income tax expense and income from investment in affiliates 18,208 31,102 0 0 49,310 22,993 49,310 Income tax expense (7,066) (15,227) 0 0 (22,293) (2,304) (22,293) Income from investment in affiliates, net of tax (1) 0 200 0 0 200 15,317 200 ---------- ---------- ----- ----- ---------- ---------- ---------- Income from continuing operations 11,142 16,075 0 0 27,217 36,006 27,217 Income (loss) from discontinued operations, net of tax (2) 0 0 0 0 0 9,109 0 ---------- ---------- ----- ----- ---------- ---------- ---------- Net income $ 11,142 $ 16,075 $ 0 $ 0 $ 27,217 $ 45,115 $ 27,217 ========== ========== ===== ===== ========== ========== ========== Weighted average common shares 41,827,290 41,997,147 41,912,688 40,771,339 41,912,688 Diluted weighted average common shares 42,678,666 43,099,339 42,902,864 41,760,291 42,902,864 Earnings (loss) per common share: Diluted EPS from continuing operations $ 0.26 $ 0.37 $0.00 $0.00 $ 0.63 $ 0.86 $ 0.63 Diluted EPS from discontinued operations $ 0.00 $ 0.00 $0.00 $0.00 $ 0.00 $ 0.22 $ 0.00 ---------- ---------- ----- ----- ---------- ---------- ---------- Total diluted EPS $ 0.26 $ 0.37 $0.00 $0.00 $ 0.63 $ 1.08 $ 0.63 ========== ========== ===== ===== ========== ========== ========== (1) The six months ended June 30, 2002 includes a $9.8 million after tax gain on the sale of 4.4 million shares of AMSG. (2) The first quarter of 2002 includes a $9.9 million net gain on the sale of Innovative Resource Group, LLC, which is treated as discontinued operations. During the second and third quarter of 2002, additional expenses were recorded, adjusting the net gain to $9.6 million.
[LOGO] Cobalt Corporation Consolidated Balance Sheets (In thousands)
----------------------------------------- ------------------------------------- June 30, 2003 2002(1) 2003 ----------------------------------------- ------------------------------------- 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31 - ------------------------------- ----------------------------------------- ------------------------------------- Assets - ------------------------------- Current Assets: Cash and cash equivalents $ 49,200 $ 67,478 $ 63,179 $ 49,710 $ 65,669 $ 56,718 $ $ Investments - available for sale (2) 204,843 306,270 347,121 373,870 386,459 415,238 Premium receivables 31,377 33,989 37,374 40,971 46,290 46,401 Due from clinics and providers 7,101 7,265 4,219 3,750 2,479 3,667 Reinsurance recoverables 27,762 27,706 30,847 30,046 36,220 31,672 Other receivables 42,268 41,623 47,376 43,431 46,152 47,982 Prepaid and other current assets 42,914 39,686 36,905 35,805 43,237 51,910 -------- -------- -------- -------- -------- -------- ------ ------ Total current assets 405,465 524,017 567,021 577,583 626,506 653,588 0 0 Noncurrent assets: Investments - held to maturity 10,979 12,591 12,688 12,780 12,974 13,003 Investment in AMZ (2) 63,677 0 0 0 0 0 Property and equipment, net 31,813 31,537 30,526 34,167 37,051 38,822 Goodwill and intangible assets, net 89,087 89,594 91,295 102,908 99,288 89,686 Prepaid pension 55,269 56,750 58,557 66,142 67,021 67,901 Deferred income taxes 32,275 33,088 37,868 33,528 18,658 19,508 Reinsurance recoverables 19,020 20,796 23,156 24,177 23,304 25,189 Other noncurrent assets 24,100 26,274 25,693 18,614 25,764 24,751 -------- -------- -------- -------- -------- -------- ------ ------ Total assets $731,685 $794,647 $846,804 $869,899 $910,566 $932,448 $ 0 $ 0 ======== ======== ======== ======== ======== ======== ====== ====== - ------------------------------------ Liabilities and Shareholders' Equity - ------------------------------------ Current Liabilities: Medical and other benefits payable $196,181 $194,562 $195,929 $198,101 $224,088 $218,789 $ $ Advance and unearned premiums 87,755 85,975 100,569 92,277 113,097 102,369 Payables and accrued expenses 51,152 72,527 71,226 74,641 65,863 61,933 Short-term debt 12,315 8,516 3,425 12,451 3,575 1,894 Other current liabilities 38,836 34,854 42,742 35,500 36,456 37,116 -------- -------- -------- -------- -------- -------- ------ ------ Total current liabilities 386,239 396,434 413,891 412,970 443,079 422,101 0 0 Noncurrent liabilities: Medical and other benefits payable 48,121 50,094 53,734 56,777 53,743 57,091 Deferred income taxes 32,275 33,088 34,505 36,142 33,227 35,925 Postretirement benefits other than pension 18,207 17,626 17,930 18,042 18,320 18,455 Long-term debt (3) 1,500 0 25,000 25,000 25,000 25,000 Other noncurrent liabilities 15,696 15,819 16,480 18,449 21,597 31,750 -------- -------- -------- -------- -------- -------- ------ ------ Total liabilities 502,038 513,061 561,540 567,380 594,966 590,322 0 0 Shareholders' equity: Common stock 249,965 255,095 259,443 261,482 262,437 268,625 Retained earnings (deficit) (18,054) 4,440 18,157 33,280 44,422 60,497 Accumulated other comprehensive income (loss) (2) (2,264) 22,051 7,664 7,757 8,741 13,004 -------- -------- -------- -------- -------- -------- ------ ------ Total Shareholders' equity 229,647 281,586 285,264 302,519 315,600 342,126 0 0 -------- -------- -------- -------- -------- -------- ------ ------ Total liabilities and shareholders' equity $731,685 $794,647 $846,804 $869,899 $910,566 $932,448 $ 0 $ 0 ======== ======== ======== ======== ======== ======== ====== ====== (1) Certain reclassifications have been made to the balances for 2002 to conform to the 2003 presentation. (2) Investment in the remaining 1.9 million shares of AMZ common stock as of June 30, 2002 was reclassified as Investments - available for sale. The AMZ Investment is reported at fair market value and any unrealized gain (loss) is included in Accumulated other comprehensive income (loss). (3) Amount outstanding on the revolving credit loan due beyond twelve months.
[LOGO] Cobalt Corporation Ratio Analysis from Continuing Operations
June 30, 2003 ------------------------------------- ------------------------------------- 2002 2003 - -------------------------------------- ------------------------------------- ------------------------------------- Ratio Analysis 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr - -------------------------------------- ------------------------------------- ------------------------------------- Insured Medical Products: Medical care ratio 87.9% 87.2% 86.6% 84.1% 86.6% 83.2% Selling, general and administrative expense ratio 10.8% 11.1% 11.1% 11.9% 10.8% 10.3% Combined care and selling, general and administrative expense ratio 98.7% 98.3% 97.7% 96.0% 97.4% 93.5% Specialty Managed Care Products and Services: Combined loss and expense ratio 96.7% 97.2% 96.1% 92.6% 93.1% 91.7% Government Services: Operating expense ratio 98.2% 98.3% 99.1% 98.9% 98.2% 96.1% Self-funded: Operating expense ratio 95.2% 91.4% 84.8% 96.1% 88.4% 92.6% Number of days in reserve 62.3 60.8 60.5 60.9 60.4 59.5
(continued) ------------------- June 30, 2003 YTD - -------------------------------------- ------------------- Ratio Analysis 06/30/02 06/30/03 - -------------------------------------- ------------------- Insured Medical Products: Medical care ratio 87.6% 84.9% Selling, general and administrative expense ratio 10.9% 10.5% Combined care and selling, general and administrative expense ratio 98.5% 95.4% Specialty Managed Care Products and Services: Combined loss and expense ratio 97.0% 92.4% Government Services: Operating expense ratio 98.2% 97.1% Self-funded: Operating expense ratio 93.2% 90.5% Number of days in reserve [LOGO] Cobalt Corporation Membership Analysis
----------------------------------------- ------------------------------------- June 30, 2003 2002 2003 ----------------------------------------- ------------------------------------- 3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31 - ------------------------------- ----------------------------------------- ------------------------------------- Members/Lives at Period End - ------------------------------- Insured Medical Products (by product type): HMO 158,396 156,710 159,150 151,627 151,621 151,531 PPO 156,880 155,893 161,492 166,078 167,424 166,762 Point of Service 73,954 65,266 61,925 61,126 54,453 54,154 Medicaid 4,314 4,387 4,355 4,351 4,377 4,362 Other/Individual 76,240 75,484 73,979 73,654 73,174 68,093 -------- -------- -------- -------- -------- -------- ----- ----- Total Insured Members 469,784 457,740 460,901 456,836 451,049 444,902 0 0 ======== ======== ======== ======== ======== ======== ===== ===== Self-funded Products: (1) Medical 134,730 132,905 135,238 343,525 357,884 339,777 Dental 35,648 35,416 35,000 172,045 207,797 206,109 -------- -------- -------- -------- -------- -------- ----- ----- Total Self-funded Members 170,378 168,321 170,238 515,570 565,681 545,886 0 0 ======== ======== ======== ======== ======== ======== ===== ===== Specialty Managed Care Products and Services: Life/AD&D 148,662 139,819 137,547 132,524 114,346 109,707 Dental 307,583 305,342 303,825 300,329 291,991 285,261 Disability 119,647 112,825 115,610 114,151 111,268 108,125 -------- -------- -------- -------- -------- -------- ----- ----- Total Specialty Members 575,892 557,986 556,982 547,004 517,605 503,093 0 0 ======== ======== ======== ======== ======== ======== ===== ===== Policies in force: Workers' Compensation - IL 159 153 151 152 160 147 Workers' Compensation - WI 595 617 679 696 740 747 (1) The December 31, 2002 counts and thereafter include the CMSI members acquired. CMSI was acquired on December 31, 2002.
Change in Medical and Other Benefits Payable: Six months ended Year ended June 30, 2003 December 31, 2002 ---------------------------------- (in thousands) Medical and other benefits payable at beginning of year (net of reinsurance) $ 219,560 $ 238,326 Components of medical and other benefits expense: Estimated costs incurred-current year 624,296 1,189,573 Changes in prior year estimates (24,047) (22,902) ---------------------------------- Medical and other benefits expense 600,249 1,166,671 ---------------------------------- Payments related to: Current year 444,863 1,011,959 Prior years 138,064 173,478 ---------------------------------- Total paid 582,927 1,185,437 ---------------------------------- Net medical and other benefits payable at end of period (net of reinsurance) 236,882 219,560 Reinsured reserves 38,998 35,318 ---------------------------------- Medical and other benefits payable at end of period $ 275,880 $ 254,878 ================================== -----END PRIVACY-ENHANCED MESSAGE-----