8-K/A 1 a2081085z8-ka.htm 8-K/A
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K/A

AMENDMENT NO. 1 TO
CURRENT REPORT

Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):    March 29, 2002

COBALT CORPORATION
(Exact name of registrant as specified in its charter)


Wisconsin
 
1-14177
 
39-1931212
(State or other jurisdiction
of incorporation)		   (Commission File
Number)		   (IRS Employer
Identification No.)

401 West Michigan Street
Milwaukee, Wisconsin 53203
(Address of principal executive offices including zip code)

(414) 226-6900
(Registrant's telephone number)

        The undersigned registrant hereby amends Item 7 of its Current Report on Form 8-K dated March 29, 2002 to provide in its entirety as follows:


Item 7.    Financial Statements and Exhibits

    (a)
    Financial Statements of Business Acquired

      Not Applicable

    (b)
    Pro Forma Financial Information

      The following unaudited financial statement information of the registrant is provided herein:

        Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2001

        Pro Forma Consolidated Statement of Operations for the Three Months Ended March 31, 2002

        Consolidated Balance Sheet as of March 31, 2002

        Notes to Pro Forma Consolidated Financial Statements

    (c)
    Exhibits

        The exhibits listed in the accompanying Exhibit Index are filed as part of this amendment to the Current Report on Form 8-K.

2


COBALT CORPORATION
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION

        On March 29, 2002, Cobalt (the "Company") and certain affiliates sold 100% of the membership interest of its subsidiary, Innovative Resource Group, LLC ("IRG"), for $27 million ($17 million in cash and $10 million in a three-year note). IRG was one of the Company's specialty companies, which provided behavioral health and medical management services. The purchase agreement provides for certain bonuses/penalties to be received/paid between IRG and the Company based on revenues generated from the Company and affiliated entities in future years. In addition, certain of the Company's affiliates entered into seven-year service agreements for the provision of services by IRG.

        The net gain on disposition of discontinued operations was $9.4 million, which includes a realized gain on the sale of $9.9 million (subject to potential post-closing costs), offset by a $0.5 million loss on IRG's operations for the three months ended March 31, 2002. The net gain on the sale will be adjusted accordingly, based on any payments made in future periods in accordance with the purchase and sale agreement. Net income from IRG's operations for the year-ended December 31, 2001 was $1.0 million.

        The unaudited consolidated balance sheet as of March 31, 2002 already reflected the historical financial position of the Company, since the sale of IRG occurred on March 29, 2002. The unaudited pro forma consolidated statements of operations reflect the historical results of operations of the Company for the fiscal year ended December 31, 2001 and the three months ended March 31, 2002. The unaudited pro forma consolidated statements of operations reflect the sale as if it had occurred as of the beginning of the respective periods. The pro forma adjustments are described in the accompanying notes and give effect to events that are (a) directly attributable to the sale, (b) factually supportable and (c) in the case of certain adjustments reflected in the statements of operations, expected to have a continuing impact.

        The unaudited pro forma consolidated financial statements should be read in connection with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.

        The unaudited consolidated pro forma financial information presented is for informational purposes only and does not purport to represent what the Company's financial position or results of operations as of the dates presented would have been had the sale in fact occurred on such date or at the beginning of the periods indicted or to project the Company's financial position or results of operations for any future date or period.

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COBALT CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001
(In thousands except share data, unaudited)

 
   Cobalt Corporation
(Historical)
   Pro Forma
Adjustments
   Cobalt Corporation
(Pro Forma)
  
Health services revenues   $ 1,438,720   $ (25,482 ) $ 1,413,238  
Investment results     12,526     (44 )   12,482  
   
 
 
 
  Total revenue     1,451,246     (25,526 )   1,425,720  

Medical and other benefits
 
 
1,121,867
 
 
(2,649
)
 
1,119,218
 
Selling, general, administrative and other     323,377     (20,169 )   303,208  
Interest     561     —     561  
Amortization of goodwill     5,908     (772 )   5,136  
   
 
 
 
  Total expenses     1,451,713     (23,590 )   1,428,123  

Operating loss
 
 
(467
)
 
(1,936
)
 
(2,403
)

Loss from investment in affiliates, net of tax
 
 
(22,724
)
 
—
 
 
(22,724
)
   
 
 
 
Pretax loss     (23,191 )   (1,936 )   (25,127 )
Income tax benefit     (886 )   (985 )   (1,871 )
   
 
 
 
Net loss   $ (22,305 ) $ (951 ) $ (23,256 )
   
 
 
 

Net loss per share:
 
 
 
 
 
 
 
 
 
 
  Basic & diluted   $ (0.58 ) $ (0.03 ) $ (0.61 )
   
 
 
 

Shares used in computing net income per share:
 
 
 
 
 
 
 
 
 
 
  Basic & diluted     38,434,459     38,434,459     38,434,459  

See accompanying notes to the pro forma consolidated financial statements.

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COBALT CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002
(In thousands except share data, unaudited)

 
   Cobalt Corporation
(Historical)
   Pro Forma
Adjustments
   Cobalt Corporation
(Pro Forma)
Health services revenue   $ 378,039   $ —   $ 378,039
Investment results     2,931     —     2,931
   
 
 
  Total revenue     380,970     —     380,970

Medical and other benefits
 
 
292,358
 
 
—
 
 
292,358
Selling, general and administrative expenses     76,868     —     76,868
Interest     172     —     172
   
 
 
  Total expenses     369,398     —     369,398

Operating income from continuing operations
 
 
11,572
 
 
—
 
 
11,572

Income from investment in affiliates, net of tax
 
 
2,852
 
 
—
 
 
2,852
   
 
 
Pretax income from continuing operations     14,424     —     14,424
Income tax expense     1,180     —     1,180
   
 
 
Income from continuing operations     13,244     —     13,244
Income from discontinued operations:                  
  Loss from discontinued operations, net of tax     (550 )   550     —
  Gain on the sale of discontinued operations, net of tax     9,909     (9,909 )   —
   
 
 

Net income
 
$
22,603
 
$
(9,359
)
$
13,244
   
 
 

Net income per share:
 
 
 
 
 
 
 
 
 
  Basic   $ 0.56   $ (0.23 ) $ 0.33
   
 
 
  Diluted   $ 0.55   $ (0.23 ) $ 0.32
   
 
 

Shares used in computing net income per share:
 
 
 
 
 
 
 
 
 
  Basic     40,637,194     40,637,194     40,637,194
  Diluted     40,967,943     40,967,943     40,967,943

See accompanying notes to the pro forma consolidated financial statements.

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COBALT CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 31, 2002
(In thousands except share data, unaudited)

ASSETS

  
Current assets:        
  Cash and cash equivalents   $ 49,200  
  Investments—available for sale     204,843  
  Due from affiliates     5,218  
  Premium receivables     31,377  
  Due from clinics and providers     7,101  
  Other receivables     56,875  
  Prepaid and other current assets     37,696  
   
 
    Total current assets     392,310  

Investments—held to maturity
 
 
10,979
 
Investment in affiliates, net     64,628  
Property and equipment, net     31,813  
Goodwill, net     89,087  
Prepaid pension     55,269  
Deferred income taxes     32,275  
Other noncurrent assets     55,324  
   
 
    Total assets   $ 731,685  
   
 

LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities:        
  Medical and other benefits payable   $ 196,181  
  Advance premiums     87,755  
  Due to affiliates     265  
  Payables and accrued expenses     51,152  
  Short-term debt     12,315  
  Other current liabilities     38,571  
   
 
    Total current liabilities     386,239  

Noncurrent liabilities:
 
 
 
 
  Other benefits payable     48,121  
  Deferred income taxes     32,275  
  Postretirement benefits other than pension     18,207  
  Other noncurrent liabilities     17,196  
   
 
    Total liabilities     502,038  

Shareholders' equity:
 
 
 
 
  Common stock (no par value, no stated value, 48,616,289 issued, 7,949,904 held in treasury and 40,666,385 outstanding at March 31, 2002)     249,921  
  Retained deficit     (18,010 )
  Accumulated other comprehensive loss     (2,264 )
   
 
    Total shareholders' equity     229,647  
   
 
  Total liabilities and shareholders' equity   $ 731,685  
   
 

See accompanying notes to the pro forma consolidated financial statements.

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NOTES TO PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1.
The unaudited consolidated balance sheet as of March 31, 2002 does not include any assets or liabilities of IRG since the sale of IRG took place on March 29, 2002. The following items were part of the transaction and impacted the March 31, 2002 balance sheet:

(a)
The receipt of $17 million in cash and a $10 million three-year interest bearing note receivable issued by the buyer as partial consideration for the business.

(b)
The reduction in goodwill applicable to the step-up in accounting basis, which was allocated based on relative fair values to IRG. This resulted in a push down of $3.0 million in goodwill as of the transaction date from the Company's books onto the books of IRG.

2.
The unaudited pro forma consolidated statements of operations for the year ended December 31, 2001 and the three months ended March 31, 2002 are based on the financial statements of the Company after giving effect to the following pro forma adjustments:

(a)
The reduction in revenue and expenses as a result of the sale of the behavioral health business.

(b)
An increase in total revenues and expenses to add back intracompany transactions, which would have been eliminated prior to the transaction.

(c)
The reduction in amortization of goodwill for the year ended December 31, 2001, resulting from the push down of goodwill to IRG. The Company's results of operations for the three months ended March 31, 2002 were not impacted as a result of the adoption of the Statement of Financial Accounting Standards Board ("FASB") No. 142, "Goodwill and Other Intangible Assets", on January 1, 2002. Under FASB No. 142, goodwill is no longer amortized.

(d)
Provision for income tax expense (benefit) resulting from the pro forma adjustments.

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SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to the report to be signed on its behalf by the undersigned thereunto duly authorized.

    COBALT CORPORATION

Date: May 24, 2002
 
By:
 
/s/  GAIL L. HANSON      
Gail L. Hanson
Senior Vice President, Treasurer and
Chief Financial Officer

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COBALT CORPORATION


EXHIBIT INDEX TO FORM 8-K/A
Report Dated March 29, 2002

Exhibit
No.
  
Description
2   Purchase and Sale Agreement, effective March 29, 2002, by and among APS Healthcare Bethesda, Inc., CC Holdings LLC, Innovative Resource Group, LLC and Cobalt Corporation. [Previously filed with this Current Report on Form 8-K]
99   Press Release, dated April 1, 2002, issued by Cobalt Corporation. [Previously filed with this Current Report on Form 8-K]

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SIGNATURE
EXHIBIT INDEX TO FORM 8-K/A Report Dated March 29, 2002