occupies common facilities with its subsidiaries and is charged a proportionate
share of the cost of such facilities under service agreements. Cobalt’s corporate headquarters are located
in Milwaukee, Wisconsin in a 235,000 square foot building leased by
sold and serviced in four Wisconsin regional offices located in Eau Claire,
square feet in New Berlin, Wisconsin, approximately 36,750 square feet in West
15,300 square feet in Brookfield, Wisconsin, approximately 9,900 square feet in
other locations individually under 5,000 square feet. Cobalt also owns and occupies a 61,000 square foot facility in
Pewaukee, Wisconsin and a 40,000 square foot facility in Sauk City, Wisconsin.
leases and occupies approximately 63,000 square feet in three locations in
California, approximately 33,000 square feet in four locations in Virginia and
West Virginia, approximately 30,200 square feet in five locations in Illinois,
14,400 square feet in Houston, Texas and other locations individually under
in conjunction with Cobalt’s acquisition of the insurance operations of Family
Health Plan Cooperative, Inc. in November 2000, Cobalt assumed a 10-year lease
included in the calculation of earnings per share (“EPS”) because their
31,313,390 shares of Cobalt stock issued to the Foundation were used to
selling, general, administrative and other expenses as a percentage of health
Services, Inc. (“UWS”)) was created as a result of the combination of UWS and
BCBSUW converted from a service insurance corporation to a stockholder owned
became a wholly-owned subsidiary of UWS through a combination of the two
for the ownership of BCBSUW, Cobalt issued 31,313,390 shares of newly issued
Cobalt as a result of the Combination amounted to $68.6 million, of which $22.1
million related to the recognition of a valuation allowance on the net deferred
purposes, the Combination is treated as a reverse purchase transaction, whereby
adjustments for the Combination and include the accounts of both UWS and
accounts of BCBSUW, which includes BCBSUW’s 46.6% investment in UWS (see Note 6
of Notes to Consolidated Financial Statements). The consolidated statements of operations, cash flows, and
ended December 31, 2001, reflect the operations of the combined UWS and BCBSUW
Government Services, LLC (“UGS”) and minority interest in UWS and American
For purposes of calculating earnings per common share (“EPS”) of the
Company (“UHLIC”)) and other non-insurance subsidiaries. All intra-company balances and transactions
supplement, PPO and interim coverage options to individuals. The Company’s subsidiary, BCBSUW, is the
providers in all 50 states and is currently the largest Part A Medicare
also a leading provider of managed health care services and employee benefit
discussion below, the number of “members” is equivalent to the number of
the results include the operations of BCBSUW, its wholly-owned subsidiary, UGS,
and BCBSUW’s investment in UWS and AMSG accounted for using the equity
23, 2001 combination of BCBSUW and UWS to form Cobalt. UWS contributed $712.3 million in revenue in
increase in 2001 include premium rate increases on the medical insurance
million or 112.5% of the total 125.3% increase. The number of insured medical members in 2001 increased 107.8% to
resulted from the addition of $102.7 million in revenues from the UWS specialty
membership, offset by the addition of 987,252 members from the UWS specialty
revenue in 2001 includes $46.5 million related to the UWS specialty service
due to being awarded additional government contracts. Effective December 1, 2000, UGS became the Medicare Part A Intermediary
for the states of California, Nevada and Hawaii, and the territories of Guam,
month due to the targeted re-pricing of self-funded business, in order to
pricing increases were offset by a reduction of 30.2% in non-HMO self-funded membership
results include investment income and realized gains (losses) on the sale of
subsequent to March 31, 2001, due to the Combination. This intra-company investment income amounted to $5.5 million in
end of the first quarter of 2001, which increased Cobalt’s invested assets by
also reflects the effect of a premium deficiency reserve (“PDR”) of $3.6
December 31, 2000 represented estimated losses throughout 2001. The remainder of the PDR was reversed in
risk products loss ratio in 2001 improved to 74.2% compared with 77.1% for
comprised of the BCBSUW insured dental business, which showed a slight increase
overall improvement in 2001 resulted from the addition of the UWS specialty
risk products, which ran at a loss ratio of 73.1% in 2001. This loss ratio reflects improvement from
past results for the UWS specialty risk products, which on a stand-alone basis,
medical products SGA expense ratio for 2001 was 9.6%, compared with 12.0% for
2001 is the result of additional expense control measures instituted, combined
Interest expense, related to the bank line of credit in 2001 and 2000
amortization totaling $5.9 million and $0.6 million has been recorded for 2001
purchase accounting, which was being amortized on a straight-line basis over a
2001 amortization expense includes amortization related to the 1999 purchase by
BCBSUW of 1.4 million additional shares of UWS stock, which has been amortized
expenses of $0.5 million were recorded for 2001, which relate primarily to two
investment in affiliates increased to $22.7 million in 2001 from $6.5 million
is comprised of AMSG income of $2.0 million for 2001, BCBSUW’s share of UWS
income of $0.1 million, offset by a $25.2 million writedown of the investment
decision to no longer classify the investment in AMSG as a strategic long-term
from investment in affiliates of $22.7 as discussed above, offset by an income
31, 2001, Cobalt had federal net operating loss carry-forwards of approximately
$141.0 million available to offset future taxable income. A full valuation allowance has been established
current income tax benefit of $0.9 million in 2001 in conjunction with the
deferred tax benefit in 2001 and a deferred tax expense of $0.5 million in
investment in UWS and AMSG accounted for using the equity method.
in 2000 increased 24.6% to $642.7 million from $515.7 million in
30.1% to $510.6 million from $392.6 million in 1999. The increased premium is due to the number of insured medical
members in 2000 decreased 3.6% to 145,955 from 151,471 in 1999. The slight decrease in membership was offset
largely attributed to becoming the Medicare Part A Intermediary for the states
2000 decreased 48.1% to $9.6 million from $18.5 million in 1999,
primarily due to a decrease in average invested assets, as discussed
interest income were 7.0% and 6.1% for 2000 and 1999, respectively.
of $5.5 million and $4.8 million in 2000 and 1999, respectively, on a $70.0
risk products loss ratio in 2000 improved to 77.1% compared with 82.7% for
1999, primarily due to premium rate increases on the BCBSUW dental business.
Expense Ratio. The insured medical products SGA expense ratio for 2000 improved
2000 includes the effect of a $2.4 million write-off of deferred acquisition
instituted, combined with a higher premium base due to membership and premium
with company specific maximums for the participating companies. Interest expense related to the bank line of
BCBSUW purchased 1.4 million additional shares of UWS stock. The excess of cost over the fair value of
Amortization expense was $0.6 million and $0.2 million for 2000 and
recorded by Cobalt include losses of $12.7 million from UWS and $10.0 million
losses was $1.2 million in income before income taxes on government contracts. The 1999 loss was also attributable to
expense of $0.5 million in 2000, which relates to a valuation allowance from a
Net cash provided by operating activities was $13.0 million in 2001
addition, Cobalt’s cash flow from investing activities reflects the addition of
$50.0 million for UWS cash and cash equivalents as of March 31, 2001 as a
(“LIBOR”) plus 1.5%, adjusted monthly with interest payments due monthly. The LOC permits aggregate borrowings among
line of credit balance was $7.9 million as of December 31, 2001. Cobalt had no outstanding line of credit
December 31, 2001, the Company originated a term business note (“term note”)
for the corporate holding company with a commercial bank for $7.5 million. The term note had an adjustable rate of
interest with payment of principal and interest due February 15, 2002. The term note has been extended and
installments beginning June 30, 2002 and ending June 30, 2003. Interest is calculated at a rate equal to
Licensee of the BlueCross BlueShield Association (“BCA”), Cobalt is required to
maintain a prescribed liquidity ratio of certain liquid assets to average
considered larger controlled affiliate licensees by the BCA and must also
rating by Moody’s Investor Service of “Aa3” at December 31, 2001 and 2000. At December 31, 2001, $180.7 million or
available-for-sale compared with $44.4 million or 100.0% as of December 31,
31, 2001 available to Health Professionals of Wisconsin, Inc. The balance was $3.0 million and $4.6
required to maintain certain levels of statutory capital and surplus under the
compliance with these requirements as of December 31, 2001. In order
to satisfy certain intercompany receivables and continue to comply with minimum
subsidiaries, as well as some portion or all of its investment in American
particular interests in, or obligations of, affiliates. United Wisconsin Insurance Company (a
intercompany secured note from Cobalt in the amount of $21.2 million payable by
$70.0 million secured note obligation from Cobalt payable January 1, 2002. Subsequent to year-end, the maturity date on
three years in the period ended December 31, 2001, the Company incurred
participation in the Medicare Risk line of business, which the Company exited
relate to the HMO business in southeast Wisconsin. Significant actions were taken during 2001 to cancel unprofitable
operating income for 2001 was a gain of $0.9 million (see Note 1 of Notes to
complied with minimum capital and liquidity requirements of the Office of the
requested and management submitted a specific plan of action to continue
Cobalt to BCBSUW ($70 million) and UWIC ($22 million) in the statutory-basis
pledged collateral to BCBSUW and UWIC will satisfy the legal obligations, but
subsidiaries require a greater discount than for cash, marketable securities or
following action steps to maintain required capital and liquidity levels during
notably involving the lending practices previously described. The Company will not use uncollateralized
plan described above or transactions with an equivalent impact on the Company’s
medical care providers, and premium rate increases are designed to reduce the
individuals and in controlling the utilization of health care services. However, there can be no assurance that
discussion and analysis of its financial condition and results of operations
are based upon the Company’s consolidated financial statements, which have been
Company bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
employers, individuals, and providers of medical services. The Company maintains allowances for
on the Company's history of losses and changes in tax planning strategies post
were to determine that it would be able to realize its deferred tax assets in
the future in excess of its net recorded amount, an adjustment to the deferred
Company wrote down its investment in AMSG to the current market value ($12.45
downs are charged to operations, any subsequent increases in the market value
after a market writedown are not reflected in the financial statements of the
the recoverability of the Company’s goodwill and other intangibles the Company
other factors to determine the accountability of the respective assets. If these estimates or their related
Intangible Assets,” and will be required to analyze its goodwill for impairment
issues, based on fair values, during the first six months of fiscal 2002, and
on an estimation process that is very complex and uses information obtained
from both company specific and industry data, as well as general economic
information about the size of ultimate claims based on historical experience
monitors the reasonableness of the judgments made in the prior year estimation
amount of the loss reserves is sensitive to assumptions, the Company does not
totally rely on a single estimate to determine the loss reserve . To test the reasonableness of the best
methodologies that result in a range of reasonably possible loss reserve
emerge, the Company would react accordingly which could result in upward
factor that can significantly impact the loss reserve estimate is the impact of
opinion of management, adequate provision has been made for losses, which may
in which management believes that the Company will prevail. As of December 31, 2001, the Company has
developed in consultation with internal and outside legal counsel that is
Certain litigation is being addressed before juries in states where past
the extent additional information arises or strategies change, it is possible
costs of legal defense in the periods incurred. Accordingly, the future costs of defending claims are not
include questions regarding the timing and amount of deductions and the
were to prevail in matters for which accruals have been established or be required
to pay amounts in excess of its reserves, the Company’s effective tax rate in a
of the Company contain or may contain “forward-looking statements” within the
expectations at the time such statements are made and are subject to risks and
such statements, other factors could cause the Company’s actual results to
regulations govern the amount of capital required to be retained in Cobalt’s
rather than shareholders could harm the Company’s business. The Company’s business is extensively
regulated by the states in which it operates and, to a lesser extent, by the
regulations govern, among other things: (i) the amount of dividends and other
or notification; (ii) the granting and revoking of licenses to transact
proposals relating to changes in health care law have been introduced, and some
have been passed, by Congress and the states in which the Company operates or
what regulatory changes may occur or what effect any particular change may have
programs, the Company is unable to predict whether new laws or proposals will
continue to favor or hinder the growth of managed health care.
cannot predict the outcome of these legislative or regulatory proposals or the
fixed by contract, and the Company is obligated during the contract period to
provide health care services as established by contract. The Company has less control over costs
current contracts may therefore be inadequate to cover all claims, which may
profitability depends, to a significant degree, on its ability to predict and
and would reduce its ability to predict and effectively control the costs of
Although Cobalt has been able to manage medical costs through a variety
of techniques, including various payment methods to primary care physicians and
of the premium revenue the Company receives is based upon rates set before
care costs over the fixed premium period, competition, regulations and other
circumstances may limit its ability to fully base premiums on these estimated
Adjustments, if necessary, are made to medical expenses in the period
regular basis to calculate and review the adequacy of its medical liabilities,
adequate or available in the future or that the cost of such reinsurance will
cost-effective health care provider contracts may result in a loss of
addition, the inability to contract with providers, or the inability of
generally may be cancelled by either party upon 90 to 120 days’ prior written
renew such contracts or enter into new contracts enabling it to service its
to enter into agreements with providers in new markets on a timely basis or
as long as the Company uses the Blue Cross and Blue Shield names and service
marks in marketing its managed care products, any negative publicity concerning
the BCA or other BCA licensees may adversely affect its business.
Insurance Portability and Accountability Act of 1996, or HIPAA, broadened the
scope of fraud and abuse laws applicable to health care companies. HIPAA created civil penalties for, among
government has enacted, and state governments are enacting, other fraud and
failure to comply with HIPAA or these other laws could result in criminal or
imposed, would negatively impact the Company’s ability to operate its business.
Be Subject to Claims Relating to Managed Care Liability, Which Could Cause it
providers and employees involved in care management decisions may be exposed to
care organizations to be held liable for negligent treatment decisions or
of this nature, if successful, could result in substantial damage awards
against the Company that could exceed the limits of any applicable managed care
Company maintains managed care liability insurance and such other lines of
coverage as it believes are reasonable in light of its experience to date. However, this insurance may not be sufficient
or available at a reasonable cost to protect the Company from liabilities which
unsuccessful or without merit, the Company would still have to defend against
time-consuming and costly, and may distract management’s attention. As a result, the Company may incur
enhancing existing information systems and developing new systems in order to
then the Company could experience the loss of existing customers, difficulty in
performance of Cobalt, BCBSUW and Compcare, the BCA has included these entities
statutory capital and surplus based upon the RBC. As of December 31, 2001, statutory and surplus for Cobalt, BCBSUW
if BCBSUW’s statutory capital and surplus falls below the company action level
Subject to Competition Which Affects its Ability to Increase Penetration of the
the Company relies to a large degree on creating name brand recognition through
Company has only recently entered a market or competes with health plans much
and Cobalt entered into a voting trust and divestiture agreement in connection
Cobalt common stock by selling shares of Cobalt common stock. Based upon the current number of shares of
significant sales of Cobalt common stock by the Foundation, and the expectation
of these sales, could cause the Cobalt common stock price to fall. The price of the Cobalt stock could be affected
Cobalt may desire the flexibility to raise funds quickly by selling Cobalt
Cobalt’s Amended and Restated Articles of Incorporation and Bylaws May Prevent
Cobalt from Being Sold to a Third Party Unless the Cobalt Board of Directors
required by the Association for its for-profit licensees which the Association
designed to protect the independence of its for-profit licensees from any
the Cobalt voting securities, and prohibit other investors from owning 5% or
transaction that the Cobalt board of directors has not negotiated or approved
Also, these provisions can deter a party from acquiring a significant ownership
position in Cobalt prior to submitting an offer to the Cobalt board of
directors, and, as a result, the Cobalt common stock may trade at lower prices
matters that may come before the Cobalt shareholders, except for matters
shareholders will not own a majority of the shares of the resulting company.
the Cobalt shares, the Cobalt board of directors will be able to control the
and Bylaws and the election and removal of the Cobalt directors, subject to
prior OCI approval as long as the Foundation beneficially owns more than 20% of
Without the Approval of the Foundation as Long as the Foundation Beneficially
shares of the Cobalt common stock. As long as the Foundation beneficially owns
more than 50% of the Cobalt common stock, it will be able-by itself-to block
any proposed sale of Cobalt even if the Cobalt board of directors and other
shareholders would otherwise favor the transaction. In addition, for so long as
in the then existing shareholders of Cobalt owning less than a majority of the
is a non-stock, non-profit corporation with the purpose of benefiting the
by the University of Wisconsin Medical School and the Medical College of
to vote its shares of the Cobalt common stock on proposed merger and sale
transactions based upon its best interests. The interests of the Foundation in
a merger or sale transaction may be different from the interests of other
Beneficially Owns a Substantial Number of Outstanding Shares of Cobalt Common
directors are elected by plurality vote, and the Cobalt shareholders do not
have cumulative voting rights. In any election of directors, the trustee of the
voting trust must vote the Foundation’s shares in favor of each nominee
directors of Cobalt. However, if directors are eligible for public shareholder
the holders of 75% or more of the outstanding shares of Cobalt common stock
vote for removal. The trustee of the voting trust will vote all of the
Foundation’s shares held in the voting trust against the removal of a director
unless a majority of the independent directors of Cobalt and a majority of all
designate their successors for as long as the Foundation owns a substantial
pace with technological change in order to provide better service and remain
attract and retain capital for growth and operations on competitive terms;
include the financial statement schedules listed in the index at Item
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
opinion, the financial statements referred to above present fairly, in all
December 31, 2001 and 2000, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended
relation to the basic financial statements taken as a whole, present fairly in
Blue Cross & Blue Shield United of Wisconsin (“BCBSUW”) on March 23, 2001
BCBSUW, Cobalt issued 31,313,390 shares of newly issued Company common stock to
the Wisconsin United for Health Foundation, Inc. (the “Foundation”). The Foundation was established for the sole
Combination was accounted for as a purchase by BCBSUW of the remaining
over the adjusted book value of UWS for the 53.4% of UWS that BCBSUW did not
related to the recognition of a valuation allowance on the net deferred income
Company’s financial position as of December 31, 2001, reflecting the purchase
accounting adjustments for the Combination and include the accounts of both UWS
the Company presented in the December 31, 2000 balance sheet represents only
investment in American Medical Security Group, Inc. (“AMSG”) (see Note 6). The consolidated statements of operations,
cash flows, and changes in stockholders’ equity and comprehensive income (loss)
UWS and BCBSUW entities effective March 31, 2001 with AMSG continuing to be
Services, LLC (“UGS”) and BCBSUW’s investment in UWS and AMSG. For purposes of calculating earnings per
common share (“EPS”) of the Company, the 7,949,904 shares of Cobalt common
stock owned by BCBSUW is accounted for as if it were treasury stock.
balances and transactions after March 31, 2001 have been eliminated in
and processes Medicare claims for providers in all 50 states and is currently the
largest Part A Medicare processor in the nation. The Company is also a leading provider of managed health care
had occurred at the beginning of each year presented. Pro forma basic and diluted EPS calculations are based on the pro
forma weighted average of the Company’s outstanding common stock during the
Included in these losses are $27.8 million related to the Company’s
Commissioner of Insurance of the State of Wisconsin (“OCI”) and the BlueCross
October 1, 2002. Transfer of the pledged collateral to BCBSUW and UWIC will
satisfy the legal obligations, but would not assist BCBSUW in complying with
31, 2001, all of the Company’s subsidiaries are accounted for in the BCBSUW or
developed and the Cobalt board of directors approved a capital plan to improve
The capital plan, which management has provided to and discussed with the OCI
investment in AMSG common stock from 45% of the shares outstanding to less than
financing at the Company’s corporate holding company from one or more
results for Compcare for the year ending December 31, 2002 as compared to an
operating loss of $32.5 million for the year ended December 31, 2001.
obtained through external financing or by transferring the stock of Unity,
liquidity requirements may subject the Company to various regulatory actions by
the OCI and BCA, including rehabilitation, revocation of the Company’s license
actively manages its cash and cash equivalents position to maintain optimal
are classified as either held-to-maturity or available-for-sale. Investments that the Company has the intent
and ability to hold to maturity are designated as held-to-maturity and are
affiliates in which the Company does not have control, but has the ability to
periodically by Company management to determine whether there is any impairment
and as a realized loss in the Company’s consolidated statement of
receivables are stated at net realizable value, net of allowances for
uncollectible amounts of $2,371,000 and $227,000 at December 31, 2001 and 2000,
from clinics and providers are stated at net realizable value, net of
related assets, which is 3 years for computer equipment and software, 5 to
the Company’s consolidated statement of operations. On an on-going basis, the Company reviews events or changes in
circumstances that may indicate that the carrying value of an asset may not be
represents the excess of the market value over the adjusted book value for the
with the excess of cost over the fair value of other businesses acquired.
$622,000 and $191,000 for the years ended December 31, 2001, 2000 and 1999,
reviews goodwill for impairment annually or sooner if events or changes in
circumstances occur, which may affect the estimated useful life or the recoverability of the remaining
$9,488,000 and $6,930,000 at December 31, 2001 and 2000, respectively, are
consists of capitation expenses, health and disability benefit claims and life
benefits expense includes the change in estimates of reported and unreported
balance sheet date. The estimates of reported and unreported claims and accrued
capitation fees and adjustments, which are unpaid as of the balance sheet date,
patterns using standard actuarial techniques. The portion of medical and other
year from the balance sheet date, is included as other benefits payable on the
costs associated with a group of existing contracts will exceed the anticipated
management’s assessment of the profitability of its Medicare Risk line of
business, during the third quarter of 2000 the Company recorded a provision for
there was no PDR needed as a result of the Company exiting this business
effective January 1, 2002. The provision for probable future losses is
Centers for Medicare and Medicaid Services and increased medical benefits contributed
are accrued and are funded based on the minimum contribution requirements of
the Employee Retirement Income Security Act of 1974. The actuarial cost method used is the projected unit credit
in the period in which enrollees are entitled to care. Managed care consulting
for Medicare, the Company is reimbursed for administrative costs incurred in
existing assets and liabilities and their respective tax bases and tax credit
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
other services on self-funded business. The Company is reimbursed for claims
paid and a fee is received for the administrative costs associated with
excludes dilution and is computed by dividing income available to common
of EPS because their inclusion would have an antidilutive effect. EPS for the year ended December 31, 2001 was
with GAAP, which requires management to make estimates and assumptions that
statement #142, “Goodwill and Other Intangibles”. Under this statement, the Company must review the goodwill
value of its investment in AMSG for impairment based on a two-step process
step is a screen for potential impairment, while the second step measures the
charge is expected related to goodwill recorded on its balance sheet or the
carrying value of its investment in AMSG, this analysis has not yet been
the Impairment or Disposal of Long-Lived Assets”. This statement, effective for the Company on January 1, 2002,
this standard, there is no significant impact on the carrying values of
existing long-lived assets as of December 31, 2001. In addition, this statement modifies existing guidance governing
the accounting for dispositions of company assets as discontinued operations in
and administrative fees received related to these services were as follows:
subject to interpretation. The Company believes that it is in compliance with
regulations can be subject to future government review and interpretation, as
well as significant regulatory actions including fines in excess of fees
cost, gross unrealized gains (losses) and estimated fair values of investments
cost and estimated fair values of debt securities at December 31, 2001, by
investments, are loaned to third parties, primarily major brokerage firms. The
$11,409,000 and $3,866,000 were on loan under the programs at December 31,
owned 6,309,525 shares which represented approximately 45% and 44% of total
2001, the market value of AMSG stock was $12.45 per share. Under equity accounting, the Company's
portion of AMSG's income (loss) were $1,919,000, $1,078,000 and $(9,979,000) in
no longer classify the investment in AMSG as a strategic long-term asset of the
and 1999, respectively. The impact of this repurchase on the Company’s
AMSG’s total assets were $103,934,000 and $107,562,000 of goodwill and other
control of Unity and Valley is not temporary because exercise of the repurchase
would not provide a substantial economic benefit to the option holders and
terms of the Valley purchase and sale agreement, as amended, the seller
options to repurchase the net assets of the acquired companies as of
were $191,605,000 for 2001. Profit sharing expenses related to these provider
arrangements is calculated based on the profitability of the respective HMO
subsidiary and totaled $402,000 in 2001. Net income subject to repurchase
consolidated statements of operations and is allocated between the insured and
self-funded segments. These costs were associated with the data warehouse that
had been written off by the Company where the carrying value exceeded the value
contracts are accounted for in a manner consistent with the underlying
of December 31, 2001 and 2000, respectively. These balances are included
the activity for medical and other benefits payable net of reinsurance for 2001
for disability claims have been discounted on a tabular basis using the 1987
CDT Table at 7% and 6.5% and waiver of premium claims have been discounted on a
to $20,000,000. The LOC has an adjustable rate with interest payments due
monthly. The Company pledged 2,000,000 shares of AMSG common stock as
was $560,000, $300,000 and $553,000 in 2001, 2000 and 1999, respectively. The
and 8.06% as of December 31, 2001 and 2000, respectively. The original maturity date of the principal
balance was extended from April 30, 2001 to January 1, 2002. The maturity date was subsequently extended
eliminated in the accompanying consolidated balance sheet as of December 31,
has an agreement with United Wisconsin Life Insurance Company (“UWLIC”), a
and its subsidiaries file a consolidated federal income tax return. Separate
state income tax returns are filed by each subsidiary, except IRG, MRC, UGS and
December 31, 2001 and 2000, respectively, included in prepaid expenses and
recovery of the prepayment upon resolution of the disputed adjustments. The
through 2015. The Company had federal and state income tax payments (refunds)
Combination for the net deferred tax assets of UWS, based upon the Company’s
history of losses and changes in tax planning strategies post combination. This valuation allowance increased goodwill
their expiration, the valuation allowance will be reduced. Any reduction of the valuation allowance
components of the Company’s federal and state deferred tax liabilities and
included as a component of other federal deferred taxes. The net deferred tax
The agreement had an initial term of five years, with options for two
service bureau were $13,405,000, $14,986,000 and $13,945,000 in 2001, 2000 and
in 2002, 2003, 2004, 2005, 2006 and thereafter, respectively. Rental expense
Interest income amounted to $308,000 and $451,000 for 2001 and 2000,
In the opinion of management, adequate provision has been made for losses which
proceedings is not expected to have a material adverse effect on the
continually reviews its premium and benefit structure to reflect its underlying
the National Association of Insurance Commissioners (“NAIC”) and adopted by the
impact varies by subsidiary with the most significant changes in surplus
resulting from the treatment of deferred tax assets and health care and
$21,188,000 as a result of implementation of codification. The Company has taken certain actions
to permit insurers to deviate from prescribed SAP, none of the Company’s
the admitted assets and statutory surplus of BCBSUW is the $70,000,000
obligation was approved by the OCI on February 14, 2002 (see Note 12). Pursuant to the terms of the extended note,
surplus based on a percentage of premiums written. As of December 31, 2001, all
regulated subsidiaries are unable to pay dividends to the Company in 2001
the UWSI/BCBSUW Pension Plan, a multiple employer plan sponsored by BCBSUW and
assets and liabilities of the Plan and became the sole sponsor.
spun-off to a new UGS Pension Plan (the “UGS Plan”). The UGS Plan provided
the UGS Plan provide retirement benefits to covered employees based primarily
on compensation and years of service. The Company contributed $3,514,000 to the
also has postretirement benefit plans to provide medical, dental, and vision
benefits and life insurance for certain groups of retired employees. Such plans
were amended in 1997 to limit the Company’s financial contribution in future
and postretirement plans’ assets are comprised primarily of debt, equity and
received dividends in the amount of $35,000 related to the Cobalt stock held
unrecognized net asset is being amortized over the remaining estimated service
a 1% increase in the medical trend rate would be a $1,267,000 increase in the
various other profit-sharing and bonus programs. Expenses related to all of
these plans totaled $11,058,000, $2,337,000 and $2,128,000 in 2001, 2000 and
employees of the Company participated in a stock appreciation rights (“SAR”)
plan, based upon the market value of Cobalt common stock. On December 12, 2001, all 647,390
As of that date, 347,890 of the outstanding SAR’s were vested and
value over the strike price as of the date that the SAR’s were converted to
of $544,000 was reclassified to retained earnings upon conversion of the SAR’s
Combination, the Company had no stock based compensation programs other than
plan covering employees and directors of the former UWS. This plan allows for option grants of up to
respect to 1,226,000 shares were available for grant as of December 31, 2001.
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
from those of traded options and because changes in the subjective input
information, as if options were expensed in accordance with FASB 123,
from historical UWS subsidiaries; and therefore, on a historical basis this
segment does not have any activity until the second quarter of 2001. The specialty products and services are sold
allocated by segment based on the percentage of pro forma revenue for the year
ended December 31, 2001 and historical revenue for the year ended December 31,
2002, AMS repurchased from BCBSUW 1.4 million shares of AMS common stock at a
stock by BCBSUW reduces its ownership percentage in AMS from 45.2% to 39.1%.