Filed by WellPoint Health Networks Inc.
pursuant to Rule 425 of the Securities
Act of 1933 and deemed filed pursuant
to Rule 14a-12 of the Securities
Exchange Act of 1934
Subject Company: Cobalt Corporation
Commission File No.: 1-14177
Certain statements contained in this filing contain forward-looking
statements. Actual results could differ materially due to, among other things,
operational and other difficulties associated with integrating acquired
businesses, nonacceptance of managed care coverage, business conditions and
competition among managed care companies, rising health care costs, trends in
medical loss ratios, health care reform, delays in receipt of regulatory
approvals for pending transactions and other regulatory issues. Additional risk
factors are listed from time to time in WellPoint's various SEC reports,
including, but not limited to, WellPoint's Annual Report on Form 10-K for the
year ended December 31, 2002.
This filing may be deemed to be solicitation material with respect to the
proposed transaction between Cobalt Corporation and WellPoint. In connection
with the proposed transaction, WellPoint has filed with the SEC a registration
statement on Form S-4 that contains a preliminary proxy statement-prospectus
regarding the proposed transaction. The information contained in the preliminary
proxy statement-prospectus is not complete and may be changed. When it becomes
available, the final proxy statement-prospectus will be sent to the stockholders
of Cobalt seeking their approval of the proposed transaction. Stockholders of
Cobalt are encouraged to read the final proxy statement-prospectus because it
will contain important information about the proposed transaction. The final
proxy statement-prospectus and all other documents filed or to be filed by
Cobalt or WellPoint with the SEC are or will 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 and its directors and executive officers may be
deemed to be participants in the solicitation of proxies with respect to the
proposed transaction. Information regarding the interests of Cobalt's directors
and executive officers will be included in the final proxy statement-prospectus.
WellPoint Reports 2003 Second Quarter Earnings
of $1.49 Per Diluted Share
THOUSAND OAKS, Calif.--(BUSINESS WIRE)--July 22, 2003--WellPoint
Health Networks Inc. (NYSE:WLP), the nation's second largest health
insurer, today announced that net income for the quarter ended June
30, 2003 was $224.5 million, or $1.49 per diluted share. Net income
for the second quarter of 2002 was $166.7 million, or $1.09 per
diluted share, before an extraordinary gain. Including the
extraordinary gain, which was discussed in the Company's second
quarter 2002 earnings press release, net income for the second quarter
of 2002 was $170.7 million, or $1.12 per diluted share.
Medical membership was 13.4 million at June 30, 2003, compared
with 13.0 million at the end of the second quarter of 2002. The
year-over-year increase in membership resulted from strong sales in
WellPoint's key geographies, primarily California, Georgia and
Missouri. During the second quarter, the Company's medical membership
declined by 73,000 members, primarily because of membership reductions
in existing accounts related to the soft economy, higher lapse rates
in small and large group employer business in California due to price
increases, the withdrawal from the Medi-Cal program in Orange County,
California, and the attrition of two large non-risk accounts in the
Company's HealthLink business.
Specialty membership was 49.4 million at June 30, 2003, compared
with 45.3 million at June 30, 2002. The increase in specialty
membership was due primarily to growth in the pharmacy benefit
management, behavioral health, dental and life insurance businesses.
"Our ability to offer a broad array of innovative products that
are priced right is key to our outstanding performance," said Leonard
D. Schaeffer, WellPoint's chairman and chief executive officer. "We
also are effectively using technology to enhance customer service and
reduce administrative expenses."
Highlights from the second quarter of 2003 include:
-- Revenues exceeded $4.9 billion, up 15 percent from the second
quarter of 2002
-- The medical care ratio of 81.0 percent was lower than the
first quarter of 2003 (81.7 percent) and the second quarter of
2002 (81.5 percent)
-- The selling, general and administrative expense ratio of 16.0
percent was lower than the first quarter of 2003 (16.4
percent) and the second quarter of 2002 (16.7 percent)
-- WellPoint signed a definitive merger agreement on June 3, 2003
with Cobalt Corporation, the publicly traded holding company
of Blue Cross & Blue Shield United of Wisconsin
-- WellPoint completed its acquisition of Golden West Dental &
Vision, adding more than 275,000 dental and vision members, on
June 30, 2003
"WellPoint's continued focus on its business process resulted in
another strong quarter," said David C. Colby, WellPoint's chief
financial officer. "Our disciplined focus on pricing resulted in
strong revenue growth and higher operating margins. Due to this strong
performance, the Company's debt-to-total capitalization ratio was
reduced from 22.5 percent at March 31, 2003 to 20.9 percent at June
30, 2003."
Operating cash flow for the second quarter of 2003 was $108
million. Operating cash flow for the quarter was affected by income
tax payments of $306 million resulting from increased taxable income
and the timing of quarterly estimated tax payments. In addition, cash
flow was affected by the delayed timing of payments from the Medi-Cal
program ($38 million) which were received in early July 2003.
"This quarter we are providing more information for shareholders
to understand our estimate of medical claims payable," Colby
continued. "Days in medical claims payable increased by 0.1 days
during the second quarter. In addition, a six-month rollforward of
medical claims payable shows a consistent reserving methodology from
the prior year."
"As a result of our second quarter performance, we are increasing
our earnings per diluted share guidance for 2003 to the $5.60 to $5.65
range from the previous guidance of $5.50," said Colby.
A conference call to discuss WellPoint's earnings for the quarter
ended June 30, 2003 is scheduled to begin at approximately 11:00 a.m.
Eastern time on Wednesday, July 23, 2003. The conference call can be
accessed by dialing (888) 285-8004 and referencing "WellPoint's
Earnings Call" approximately 10 minutes prior to the start of the
call. (International callers should call (706) 643-1656.) Investors,
analysts and the general public are invited to listen to the
conference call free over the Internet by visiting the Company's
website at www.wellpoint.com and clicking first on "Investor Info" and
then on "Upcoming Events." A replay of the earnings call will be
available from July 23 through July 30, 2003, 8:00 p.m. EST and can be
accessed by dialing (800) 642-1687 and entering call i.d. 1309658.
(International callers should call (706) 645-9291 and enter call i.d.
1309658.) Certain financial and other information to be discussed on
the conference call, including information required to be presented
with respect to non-GAAP financial measures as defined in the SEC
rules, will be available at least 10 minutes prior to the start of the
call on the Company's website by clicking first on "Investor Info" and
then on "Supplementary Financial Info."
WellPoint Health Networks Inc. serves the health care needs of
more than 13 million medical members and over 49 million specialty
members nationwide through Blue Cross of California, Blue Cross Blue
Shield of Georgia, Blue Cross Blue Shield of Missouri, HealthLink and
UNICARE. WellPoint offers a broad spectrum of quality network-based
health products, including open access PPO, POS and hybrid products,
HMO and specialty products. Specialty products include pharmacy
benefit management, dental, medical management, vision, behavioral
health, life and disability insurance, long term care insurance,
flexible spending accounts, COBRA administration and Medicare
supplements. Additional information regarding WellPoint may be found
on the web at www.wellpoint.com. Blue Cross of California, Blue Cross
Blue Shield of Georgia and Blue Cross Blue Shield of Missouri are
independent licensees of the Blue Cross and Blue Shield Association.
Cautionary Statement: Certain statements contained in this release
are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based
on management's current expectations and are subject to uncertainty
and changes in circumstances. Actual results could differ materially
due to, among other things, operational and other difficulties
associated with integrating acquired businesses, general business
conditions, competition among managed care companies, rising health
care costs, trends in medical care ratios, health care reform and
other regulatory issues. Additional risk factors are listed from time
to time in WellPoint's various reports filed with the SEC, including,
but not limited to, its annual report on Form 10-K for the year ended
December 31, 2002.
This news release may be deemed to be solicitation material with
respect to the proposed transaction between Cobalt Corporation and
WellPoint. In connection with the proposed transaction, WellPoint has
filed with the SEC a registration statement on Form S-4 that contains
a preliminary proxy statement-prospectus regarding the proposed
transaction. The information contained in the preliminary proxy
statement-prospectus is not complete and may be changed. When it
becomes available, the final proxy statement-prospectus will be sent
to the stockholders of Cobalt seeking their approval of the proposed
transaction. Stockholders of Cobalt are encouraged to read the final
proxy statement-prospectus because it will contain important
information about the proposed transaction. The final proxy
statement-prospectus and all other documents filed or to be filed by
Cobalt or WellPoint with the SEC are or will 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 and its directors
and executive officers may be deemed to be participants in the
solicitation of proxies with respect to the proposed transaction.
Information regarding the interests of Cobalt's directors and
executive officers will be included in the final proxy
statement-prospectus.
WELLPOINT
======================================================================
Medical Membership (a)(b)(c)(d)
June 30, Percent Increase/ March 31,
---------------------- Change (Decrease) 2003 (e)
2003 2002 (e)
--------------------------------------------------
California
Large Group 4,788,890 4,490,864 6.6% 298,026 4,810,834
Individual
and Small
Group 1,626,412 1,607,429 1.2% 18,983 1,653,001
Senior 248,127 237,505 4.5% 10,622 246,605
---------------------- ---------------------
Total
California 6,663,429 6,335,798 5.2% 327,631 6,710,440
---------------------- ---------------------
Georgia
Large Group 1,643,108 1,583,767 3.7% 59,341 1,646,197
Individual and
Small Group 466,909 391,211 19.3% 75,698 449,054
Senior 69,154 70,396 -1.8% (1,242) 69,191
---------------------- ---------------------
Total
Georgia 2,179,171 2,045,374 6.5% 133,797 2,164,442
---------------------- ---------------------
Central Region (f)
Missouri
Large Group 1,245,132 1,246,513 -0.1% (1,381) 1,266,241
Individual and
Small Group 240,480 232,340 3.5% 8,140 235,779
Senior 41,239 43,056 -4.2% (1,817) 41,726
---------------------- ---------------------
Total
Missouri 1,526,851 1,521,909 0.3% 4,942 1,543,746
---------------------- ---------------------
Illinois
Large Group 570,946 749,399 -23.8% (178,453) 564,891
Individual and
Small Group 115,330 120,832 -4.6% (5,502) 113,759
Senior 12,401 12,589 -1.5% (188) 12,497
---------------------- ---------------------
Total
Illinois 698,677 882,820 -20.9% (184,143) 691,147
---------------------- ---------------------
Texas
Large Group 293,745 381,785 -23.1% (88,040) 323,503
Individual and
Small Group 194,829 196,291 -0.7% (1,462) 187,456
Senior 2,710 521 420.2% 2,189 1,260
---------------------- ---------------------
Total Texas 491,284 578,597 -15.1% (87,313) 512,219
---------------------- ---------------------
Other States
Large Group 1,690,591 1,563,875 8.1% 126,716 1,705,506
Individual and
Small Group 101,578 92,088 10.3% 9,490 98,814
Senior 26,217 21,907 19.7% 4,310 24,917
---------------------- ---------------------
Total Other
States 1,818,386 1,677,870 8.4% 140,516 1,829,237
---------------------- ---------------------
Total Medical
Membership 13,377,798 13,042,368 2.6% 335,430 13,451,231
====================== =====================
ASO Membership (g)
California 1,581,804 1,444,984 9.5% 136,820 1,578,546
Georgia 860,892 875,697 -1.7% (14,805) 865,441
Central Region 2,639,642 2,801,878 -5.8% (162,236) 2,711,588
---------------------- ---------------------
Total ASO Membership 5,082,338 5,122,559 -0.8% (40,221) 5,155,575
---------------------- ---------------------
Risk Membership
California 5,081,625 4,890,814 3.9% 190,811 5,131,894
Georgia 1,318,279 1,169,677 12.7% 148,602 1,299,001
Central Region 1,895,556 1,859,318 1.9% 36,238 1,864,761
---------------------- ---------------------
Total Risk
Membership 8,295,460 7,919,809 4.7% 375,651 8,295,656
---------------------- ---------------------
Total Medical
Membership 13,377,798 13,042,368 2.6% 335,430 13,451,231
====================== =====================
State-Sponsored Programs (h)
June 30, Percent Increase/ March 31,
---------------------- Change (Decrease) 2003
2003 2002
--------------------------------------------------
Medi-Cal/Medicaid
Calif-
ornia 836,788 783,139 6.9% 53,649 835,273
Virginia 44,187 38,083 16.0% 6,104 41,893
Puerto
Rico 269,918 209,827 28.6% 60,091 274,723
Other 98,008 62,893 55.8% 35,115 80,776
---------------------- ---------------------
Total 1,248,901 1,093,942 14.2% 154,959 1,232,665
Healthy
Families 271,316 229,721 18.1% 41,595 264,102
MRMIP / AIM /
IHRP 18,396 17,938 2.6% 458 18,190
California
Kids 20,122 19,287 4.3% 835 19,114
---------------------- ---------------------
Total 1,558,735 1,360,888 14.5% 197,847 1,534,071
====================== =====================
(a) Membership numbers are approximate and include some estimates
based upon the number of contracts at the relevant date and an
actuarial estimate of the number of members represented by the
contract.
(b) Classification between states for employer groups is determined by
the zip code of the subscriber.
(c) Medical membership includes management services and network
services members, which are primarily included in the Large Group
for each respective state.
(d) Senior membership includes members covered under both Medicare
risk and Medicare supplement products.
(e) Membership numbers as of June 30, 2002 and March 31, 2003 have
been reclassified to reflect the zip code of the subscriber of
HealthLink's commercial insurer accounts. These members were
previously included in the commercial insurers' state of domicile.
As of June 30, 2002, Missouri and Illinois members would have been
higher by 100,400 and 2,556, respectively, while California and
Other States would have been lower by 1,325 and 101,631,
respectively. As of March 31, 2003, Missouri members would have
been higher by 69,159, while California, Illinois and Other States
would have been lower by 1,876, 9,475 and 57,808, respectively.
(f) Central Region - Large Group membership includes network access
services members, primarily from HealthLink, of 1,385,622,
1,405,499 and 1,427,476 as of June 30, 2003, June 30, 2002 and
March 31, 2003, respectively.
(g) ASO membership represents members for which the Company provides
administrative services only and does not assume full insurance
risk.
(h) Medi-Cal membership is included in California - Large Group.
Medicaid membership for Virginia, Puerto Rico and Other are
included in Other States - Large Group. Healthy Families, MRMIP
(Major Risk Medical Insurance Program) /AIM (Access for Infants
and Mothers) / IHRP(Interim High Risk Program) and California Kids
membership is included in California - Large Group.
- ----------------------------------------------------------------------
Specialty Membership
June 30, Percent Increase/ March 31,
---------------------- Change (Decrease) 2003
2003 2002
----------- ---------- ------------------------------
Pharmacy Benefits
Management 35,980,533 32,912,985 9.3% 3,067,548 35,998,130
Dental 2,880,224 2,704,078 6.5% 176,146 2,655,528
Life 2,810,903 2,366,670 18.8% 444,233 2,732,911
Disability 499,970 517,811 -3.4% (17,841) 511,002
Behavioral Health 7,262,131 6,813,440 6.6% 448,691 7,307,468
WELLPOINT
Consolidated Income Statements
(Unaudited)
======================================================================
(In thousands, except earnings per share)
Quarter Ended June 30, Six Months Ended June 30,
------------------------------------------------
2003 2002 2003 2002(A)
------------------------------------------------
Revenues:
Premium revenue $4,654,854 $4,025,094 $9,203,159 $7,723,753
Management services
and other revenue 221,466 207,831 447,637 392,268
Investment income 64,037 66,148 130,352 126,062
------------------------------------------------
4,940,357 4,299,073 9,781,148 8,242,083
Operating Expenses:
Health care services
and other benefits 3,769,667 3,282,003 7,487,167 6,264,607
Selling expense 201,237 167,465 393,234 323,190
General and
administrative expense 578,000 538,586 1,167,669 1,080,675
------------------------------------------------
4,548,904 3,988,054 9,048,070 7,668,472
------------------------------------------------
Operating Income 391,453 311,019 733,078 573,611
Interest expense(B) 12,689 19,069 25,463 35,554
Other expense, net 4,646 13,978 11,650 24,901
------------------------------------------------
Income before Provision for
Income Taxes and
Extraordinary Item 374,118 277,972 695,965 513,156
Provision for income
taxes 149,649 111,267 278,443 205,351
------------------------------------------------
Income before
Extraordinary Item 224,469 166,705 417,522 307,805
Extraordinary Item:
Gain from negative
goodwill on
acquisition - 4,042 - 4,042
------------------------------------------------
Net Income $224,469 $170,747 $417,522 $311,847
================================================
Earnings Per Share
Income before
Extraordinary Item $1.54 $1.15 $2.87 $2.17
Extraordinary gain
from negative goodwill
on acquisition - 0.03 - 0.03
------------------------------------------------
Net Income $1.54 $1.18 $2.87 $2.20
================================================
Earnings Per Share Assuming
Full Dilution
Income before Extraordinary
Item $1.49 $1.09 $2.79 $2.07
Extraordinary gain from
negative goodwill on
acquisition - 0.03 - 0.03
------------------------------------------------
Net Income $1.49 $1.12 $2.79 $2.10
================================================
Weighted Average Number
of Shares Outstanding 145,711 144,852 145,662 141,986
================================================
Weighted Average Number
of Shares Outstanding
Including Common Stock
Equivalents 150,217 152,566 149,697 149,230
================================================
(A) Results of operations for the six months ended June 30, 2002
included five months of RightCHOICE operating results.
(B) In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13, and Technical Corrections
as of April 2002" ("SFAS No. 145"). With the rescission of FASB
Statement No. 4, gains and losses from the extinguishment of debt
should be classified as extraordinary items only if they meet the
criteria in APB Opinion No. 30. In applying the provisions of APB
Opinion No. 30, WellPoint had determined that the extinguishment
of debt under its Zero Coupon Convertible Subordinated Debentures
did not meet the requirements of unusual or infrequent and
therefore would not be included as an extraordinary item with the
rescission of FASB Statement No. 4. For the six months ended June
30, 2002, WellPoint reclassified an extraordinary loss of $2.1
million, which includes a tax benefit of $0.8 million, to interest
expense.
WELLPOINT
======================================================================
Condensed Consolidated Balance Sheets
(In thousands) June 30, December 31,
2003 2002 (a)
-------------------------
(Unaudited)
ASSETS
Current Assets:
Cash and Investments $7,773,690 $6,638,503
Receivables, net 1,367,685 1,223,232
Other current assets 523,992 518,956
-------------------------
Total Current Assets 9,665,367 8,380,691
Property and equipment, net 357,072 346,351
Goodwill and intangible assets, net 2,442,624 2,429,232
Long-term investments, at market value 148,222 134,274
Other non-current assets 174,352 180,083
-------------------------
Total Assets $12,787,637 $11,470,631
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Medical claims payable $2,518,384 $2,422,331
Reserves for future policy benefits 67,463 68,907
Unearned premiums 518,689 495,508
Accounts payable and accrued expenses 1,130,390 1,144,662
Experience rated and other refunds 252,069 251,743
Income taxes payable 106,276 140,881
Security trades pending payable 399,214 428,851
Other current liabilities 1,481,263 798,966
-------------------------
Total Current Liabilities 6,473,748 5,751,849
Reserves for future policy benefits,
non-current 221,417 214,328
Long-term debt 1,163,539 1,011,578
Other non-current Liabilities 520,662 516,179
-------------------------
Total Liabilities 8,379,366 7,493,934
Total Stockholders' Equity 4,408,271 3,976,697
-------------------------
Total Liabilities and
Stockholders' Equity $12,787,637 $11,470,631
=========================
Days in Medical Claims Payable (b)
2003 2002
-------------------------------------
June 30 March 31 December 31 September 30
-------------------------------------
60.8 60.7 63.2 62.8
(a) Certain amounts for the year ended December 31, 2002 have been
reclassified to conform to the current period presentation.
(b) Days in medical claims payable is a calculation of medical claims
payable at the end of the period divided by average health
care services and other benefits expense per calendar day for such
period.
WELLPOINT
Medical Claims Payable Rollforward
(Unaudited)
======================================================================
Six Months Ended June 30,
----------------------------------------
(In thousands) 2003 2002 2001
----------------------------------------
Medical claims payable as of
January 1 $2,422,331 $1,934,620 $1,566,569
Medical claims reserves from
businesses acquired during
the period 188 177,836 258,375
Health care claim expenses
incurred during period:
Related to current year 7,676,702 6,454,580 4,435,551
Related to prior years (339,250) (339,295) (233,969)
----------------------------------------
Total Incurred 7,337,452 6,115,285 4,201,582
Health care services payments
during period:
Related to current year 5,727,790 4,820,689 3,319,217
Related to prior years 1,513,797 1,094,349 900,007
----------------------------------------
Total Payments 7,241,587 5,915,038 4,219,224
----------------------------------------
Medical claims payable as of
June 30 $2,518,384 $2,312,703 $1,807,302
========================================
The table above shows the components of changes in medical claims
payable for the periods indicated. Medical claims payable include
claims in process as well as provisions for the estimate of incurred
but not reported claims and provisions for disputed claims
obligations. Such estimates are developed using actuarial principles
and assumptions that consider, among other things, contractual
requirements, historical utilization trends and payment patterns,
benefits changes, medical inflation, product mix, seasonality,
membership and other relevant factors. In developing its best estimate
of medical claims payable, the Company consistently applies the
principles and assumptions listed above from year to year, while also
giving due consideration to the potential variability of these
factors. Because medical claims payable includes various actuarially
developed estimates, the Company's actual claims expense may be more
or less than the Company's previously developed estimates. As shown in
the table above, for each of the six months ended June 30, 2003, 2002
and 2001, the Company's actual health care claim expenses related to
prior years have been less than the estimates previously made by the
Company.
CONTACT: WellPoint Health Networks Inc.
Investor Contact: John Cygul, 805-557-6789
Media Contact: Ken Ferber, 805-557-6794