Fond du Lac, Evansville and Oshkosh in 83,000 combined leased square feet. Cobalt also leases and occupies approximately
48,500 square feet of office space in Waukesha, Wisconsin, approximately 45,000
the Company reports a net loss, potentially dilutive securities are not
Company common stock to the Wisconsin United for Health Foundation, Inc. (the
established for the sole purpose of benefiting public health in Wisconsin from
(“GAAP”), goodwill was recorded representing the excess of the market price
Company presented in the December 31, 2000 balance sheet represents only the
changes in stockholders’ equity and comprehensive income (loss) for the year
Company, the 7,949,904 shares of Cobalt common stock owned by BCBSUW are
only health insurer in the state operating full-service regional sales and
services selling, general, administrative and other expenses as a percentage of
revenues are derived primarily from premiums, while medical and other benefits
constitute the majority of expenses. Profitability is directly affected by many
data in the Results of Operations section are gross numbers and, therefore, are
For this reason, some of the financial data does not precisely match the
2000 is largely explained by the addition of UWS results for the last three
in 2001 increased 125.8% to $1,451.2 million from $642.7 million in
primarily to the addition of the UWS business, which resulted from the March
2001 or 110.8% of the total 125.8% increase for the year. Other factors contributing toward the
125.3% to $1,150.4 million from $510.6 million in 2000. The increase in 2001 is primarily due to
of UWS premiums resulted in an increase to premium revenue for 2001 of $574.4
insured medical membership, offset by the addition of 293,665 members from the
premium in 2001 increased 339.1% to $131.3 million from $29.9 million in
of 973,271 reflects a decrease of 13,981 members in BCBSUW insured dental
revenue in 2001 increased 66.7% to $117.2 million from $70.3 million in 2000
addition, also effective December 1, 2000, UGS became the Regional Home Health
from an increase of approximately 60% in the administrative fee per member per
in 2001 increased 30.2% to $12.5 million from $9.6 million in
2000, as compared to $1.3 million in 2001, based on the amount recorded through
income and other interest income were 5.8% and 7.0% for 2001 and 2000,
gains (losses) are realized in the normal investment process in response to
were $0.8 million in 2001 compared to realized losses of $0.5 million in 2000.
The decrease in the medical loss ratio in 2001 is primarily the result
of pricing increases and other cost control measures instituted in response to
higher than anticipated medical utilization and cost trends. In addition, the higher loss ratio for 2000
million recorded during the second half of 2000 on the Medicare Risk
2001, as a result of the Company exiting the business effective January 1,
premium taxes and other assessments and claim interest expense. For non-insurance subsidiaries, SGA includes
with a higher premium base in 2001 due to pricing increases. In addition, the insured medical products
SGA ratio in 2000 includes the effect of a $2.4 million write-off of deferred
risk products SGA ratio in 2001 increased to 24.5% compared with 22.9% for
ratio for Government services in 2001 and 2000 remained constant at 99.3%. The expense ratio for specialty services was
has a bank line of credit, in which certain subsidiaries participate, that
million of goodwill amortization recorded for 2001, $3.4 million relates to
$68.6 million of goodwill recorded in 2001 for the Combination as a result of
on a straight-line basis over a period of 15 years (see Note 3 of Notes to Consolidated
expense for 2000 includes amortization related to the purchase by BCBSUW of the
1.4 million additional shares of UWS stock discussed above. In addition, goodwill amortization has been
in AMSG to the market value as of December 31, 2001. This writedown was deemed appropriate based on management’s
from investment in affiliates of $6.5 million is comprised of a $7.6 million
loss related to UWS, offset by a $1.1 million gain from AMSG.
million net loss in 2001 reflects an operating loss of $0.5 million and a loss
improved 2001 operating results reflect improvement in the insured loss and SGA
formation of Cobalt compared to no current income tax expense or benefit in
2000, which related to a valuation allowance from a prior period.
primarily from increased membership and premium rate increases on the medical
increases in per member per month premium due to premium rate increases.
by premium rate increases, resulting in an overall increase in revenues.
revenue in 2000 increased 34.4% to $70.3 million from $52.3 million in
decrease in self-funded administrative fees in 2000 primarily resulted from a
offset by an increase of 20.7% in the average self-funded administrative fee
revenue and membership is due to aggressive pricing on targeted group contracts
decrease in average invested assets during 2000 is a result of cash
The increase in the medical loss ratio in 2000 is primarily the result
related to BCBSUW’s Medicare Risk business, which reported premiums of $66.8
2001 was 99.3% compared to 98.4% in 1999, which reflects a change in the
overall average government reimbursement level due to changes in the mix of
has a bank line of credit that permits aggregate borrowings up to $20 million,
credit in 2000 and 1999, was $0.3 million and $0.6 million, respectively.
net assets acquired has been recorded as goodwill and was amortized on a
net results improved in 2000 to a loss of $40.0 million compared to a loss of
in 2000 resulted primarily from the combination of a $32.9 million operating
loss and a $6.5 million loss from investment in affiliates, net of tax. The $32.9 million operating loss is due to a
greater than anticipated medical utilization and cost trends, combined with a
effect of $3.3 million in transaction expenses in preparation for the
greater than anticipated utilization on the insured business and losses on the
sources of cash flow consist primarily of health services revenues and
cash include medical and other benefit payments, as well as operating expense
invested pending future payments of medical and other benefits and other
2001 operating cash flows is primarily due to the improved operating results. In
a commercial bank and has a rate equal to the London Interbank Offered Rate
interest expense on the line of credit was $0.6 million and $0.3 million in
monthly expenses, as defined, in accordance with licensure requirements of the
and Compcare maintained these required levels as of December 31, 2001.
government securities and has a limited exposure to equity securities. At December 31, 2001, $188.1 million or
98.1% of Cobalt’s total investment portfolio was invested in bonds compared
with $30.0 million or 67.5% at December 31, 2000. The bond portfolio had an average quality
amortized cost by $0.3 million and $0.2 million at December 31, 2001 and 2000,
losses on bonds classified as available-for-sale are included as a component of
shareholders’ equity, net of applicable deferred taxes. Cobalt has no investments in mortgage loans,
million as of December 31, 2001 and 2000, respectively. Interest on the line of credit is calculated
Compcare are required to maintain certain levels as determined by the BCA. Cobalt, BCBSUW and Compcare are in
aggregating $71.0 million for the first quarter of 2001 and the two years ended
to exceed the minimum capital requirements of the OCI and the BCA during 2002.
have been eliminated in the accompanying December 31, 2001 consolidated balance
sheet. However, the intra-company balances continue to be an obligation of
Cobalt is obligated to repay BCBSUW by January 2, 2003 and UWIC by
would not assist BCBSUW in complying with minimum capital and liquidity
developed and Cobalt's board of directors approved a capital plan to improve
management has provided to and discussed with the OCI and BCA, includes the
non-regulated subsidiaries owned by the Company for cash and/or notes prior to
operating loss of $32.5 million for the year ended December 31, 2001 . Management expects Compcare’s significant
change in profitability to occur as a result of efforts in the fourth quarter
has reflected the revised practices in the December 31, 2001 regulated
million debt obligation to BCBSUW by December 31, 2002, either with cash
obtained through external financing or by transferring the stock of Compcare to
million debt obligation to UWIC by September 30, 2002, either with cash
costs have been rising and are expected to continue to rise at a rate that exceeds
adverse effect of medical cost inflation on its operations. In addition, the Company utilizes its
these efforts will fully offset the impact of inflation or that premium revenue
the Company evaluates its estimates, including those related to allowances for
and liabilities that are not readily apparent from other sources. Actual results may differ from these
portion of the Company's receivable balances result from balances due from
doubtful accounts for estimated losses resulting from the inability of its
of the Company’s customers were to deteriorate or if significant employee
recorded a full valuation allowance against all of its net deferred tax assets
investment in AMSG is accounted for under the equity method of accounting. At December 31, 2001 the Company owned
value as of December 31, 2001 was $16.44 based on the Company’s share of AMSG’s
as of December 31, 2001) of such stock due to the Company’s evaluation and
announcement that its holdings in AMSG no longer represented a strategic
investment and that the Company planned an orderly reduction of its
Company until full disposition of the shares occurs or the Company’s ownership
assumptions change in the future, the Company may be required to record
impairment charges for these assets not previously recorded. On January 1, 2002, the Company adopted
During the year ended December 31, 2001, the Company did not record any
medical and other benefits payables (the “loss reserves”) is determined based
in the estimation process include determining the trend in loss costs, the
yet reported to prior year claims, changes in the timing of the reporting of
outcomes that are used to challenge the Company’s best estimate . The Company will continue to closely
monitor these developments to ensure that its conclusions on the impact are
and its affiliates are involved in various legal actions occurring in the
quarterly or annual period could be materially affected by changes in our
In addition, the Company has made no accruals for outstanding litigation
accrued its best estimate of the probable cost for the resolution of these
that the Company’s best estimate of its probable liability in these matters may
records reserves for probable exposures when identified . Based on the Company’s evaluation of our
and other documents or oral presentations prepared or delivered by and on behalf
meaning of the safe harbor provisions of the United States Private Securities
materially from those contemplated in the statements. Readers are cautioned not to place undue reliance on the
the assumptions and other factors referred to specifically in connection with
specific to the Company or related to its business may impact the performance
regulated subsidiaries and the ability of those regulated subsidiaries to pay dividends. Those state regulations include the
including meeting the requirements of the RBC promulgated by the NAIC. The OCI has broad authority to take certain
actions in the event those capital requirements are not met. Those actions could significantly impact the
operations of its regulated subsidiaries, and could have a material adverse
effect on its results of operations and financial condition. In addition, the BCA imposes certain
BCA is entitled to terminate the license agreement if the Company does not
minimum capital requirements adopted in the future by the BCA or state
laws and rules, the enactment of new laws and rules and changing
distributions that can be paid by certain subsidiaries without prior approval
forms, claims payment, licensing of agents and brokers, minimum reserve and
assessments in connection with, risk-sharing pools and guaranty funds. Such regulation is primarily intended to
interpretations of existing laws and rules may also change from time to
recent changes in government regulations, such as the removal of the
• loss of a license to act as an insurer or
related to the provision of health care than over its selling, general and
our expenses related to health benefits as a percentage of premium revenue have
fluctuated, and the percentage for any given fiscal quarter may not be
If premiums are not increased and expenses related to health benefits
rise, Cobalt’s earnings would be impacted negatively. In addition, actual health benefits costs may exceed estimated
the Number of Subscribers to the Company’s Health Care Programs May Harm
the number of subscribers to the Company’s health care programs could adversely
Changes in health care regulations and practices, level of use of health
information systems, and reinsurance arrangements, it may not be able to
may be adversely affected by rising health care costs and changes in the
services are delivered, and the related costs are usually incurred on a
Company attempts to base the premiums charged on an estimate of future health
medical expenses include estimates of medical expenses incurred but not yet
estimates its IBNR medical expenses based on a number of factors, including
during which the actual claim costs are ultimately determined or when criteria
Company utilizes the services of independent actuaries who are contracted on a
The Company cannot be sure that its IBNR estimates are adequate or that
adjustments to such IBNR estimates will not harm its results of
accurately estimate IBNR may also affect the Company’s ability to take timely
claims, but there can be no assurance that such reinsurance coverage will be
Company's ability, and the ability of its subsidiaries, to contract on
for one to two-year periods and automatically renew for successive one-year
terms, subject to termination for cause based on provider conduct or other
usually for one to two-year periods and automatically renew for successive
one-year periods, subject to termination for cause due to provider misconduct
There can be no assurance that the Company will be able to continue to
long-term relationships with many of its providers, the Company may be unable
is unable to retain current provider contracts or enter into new provider
care industry is subject to negative publicity. Negative publicity may result in increased regulation and
legislative review of industry practices which may further increase the cost of
Other Claims Against the Company Under the Health Insurance Portability and
other things, billing for medically unnecessary goods or services. HIPAA establishes new enforcement mechanisms
civil penalties and exclusion from Medicaid or other governmental health care
programs and could lead to the revocation of Cobalt’s licenses. These penalties or exclusions, were they
In addition, states are beginning to adopt legislation that permits managed
Cobalt may be subject to other litigation that may adversely affect its
might adversely affect its business or results of operations. Even if any claims brought against it were
significant expenses and may be unable to effectively operate its business.
Systems Could Result in the Loss of Customers or Decrease Profitability.
to ensure the continued integrity of proprietary information. The Company is committed to maintaining and
with the license agreement with the BCA, Cobalt and certain of its subsidiaries
in its Plan Performance Response Monitoring Process, or PPRMP. As a result, the BCA has requested that
thresholds require that BCBSUW maintain a prescribed level of escrowed assets
as a financial guarantee for its transactions with other Blue Cross plans. The PPRMP also requires that BCBSUW provide
certain notices to the BCA regarding transactions with other Blue Cross plans.
and Compcare exceeded the minimum licensure level. The BCA is entitled to terminate its license agreement with
entitled to terminate the license agreement if the Company does not satisfy
agreement, some of which are beyond the Company’s control, were to occur
contained in the Company’s Amended and Restated Articles of Incorporation or
violations of divestiture deadlines by the Foundation). Termination of this license agreement would
significantly harm the Company’s ability to compete in its markets and could
competes on the basis of size, price, quality of provider network, benefits
Some of the health plans with which the Company competes have
larger than Cobalt, the Company may be at a competitive disadvantage unless and
markets the Company competes with organizations which have a substantial market
obtain favorable financial arrangements which are not available to the Company. Without such arrangements, Cobalt cannot
the Foundation Could Cause the Cobalt Common Stock Price to Fall.
shares of Cobalt common stock within three to four years after the combination
and it must sell a total of 23.2 million shares of Cobalt common stock within
by these factors for an undetermined period of time. If the Foundation fails to meet these divestiture requirements,
Cobalt will arrange for the sale of the Foundation’s shares pursuant to the
Rights of the Foundation May Inhibit the Ability of Cobalt to Raise Additional
industry is in a state of change, and, in order to take advantage of
registration rights agreement with the Foundation could limit or make more
Approves the Sale, and May Limit or Eliminate Increases in Stock Price Based on
and Restated Articles of Incorporation and Bylaws of Cobalt include provisions
limitations that prohibit institutional investors from owning 10% or more of
least 80% of the Cobalt directors must be independent directors who are not
provisions make it more difficult for a third party to acquire Cobalt in a
but in which the Cobalt shareholders may receive a premium for their shares.
relative to other companies that do not have similar ownership limitations in
the Outcome of All Matters Other Than Change of Control Proposals that are
Submitted to the Cobalt Shareholders for a Vote as Long as the Foundation
Beneficially Owns a Substantial Percentage of the Outstanding Shares of Cobalt
all of its shares in a voting trust for a trustee to vote and dispose of under
the voting trust must, as a general matter, vote all of the Foundation’s shares
Thus, for so long as the Foundation beneficially owns a significant number of
outcome of most matters brought before the Cobalt shareholders for a vote,
including amendments to the Cobalt Amended and Restated Articles of Incorporation
the Foundation beneficially owns at least 20% of the outstanding shares of
Cobalt, Cobalt must consult with the Foundation prior to soliciting, or upon
approved by a majority of the directors of Cobalt who are deemed to be
“independent” under the Association’s standards and a majority of all of the
representation, the trustee will be directed to vote its shares in the same
proportion and for the same candidates voted for by the Cobalt shareholders.
Also, the directors of Cobalt may be removed from office only for cause as
described in the Amended and Restated Articles of Incorporation and then only if
of the directors of Cobalt initiate or consent to the removal. As a result, the
directors of Cobalt will likely be able to ensure their re-election and
risks and uncertainties that may affect the Company’s future results of
operations, financial condition or business include, but are not limited to:
“Company”) as of December 31, 2001 and 2000, and the related consolidated
income (loss) and cash flows for each of the three years in the period ended
responsibility is to express an opinion on these financial statements based on
our audits in accordance with auditing standards generally accepted in the
United States. Those standards require that we plan and perform the audits to
supporting the amounts and disclosures in the financial statements. An audit
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
As of December 31, 2001 and 2000 and the Three Years in the Period
Services, Inc. (“UWS”)) was created as a result of the Combination of UWS and
BCBSUW converted from a service insurance corporation to a shareholder owned
became a wholly-owned subsidiary of UWS through a combination of the two companies. At the time of the conversion and
purpose of benefiting public health in Wisconsin from its earnings in the
9,096,303 shares of UWS that it did not already own at a market price of $6.15
Cobalt as a result of the Combination amounted to $68,624,000, of which $22,076,000
the accounts of BCBSUW, which includes BCBSUW’s 46.6% investment in UWS and 44%
for the year ended December 31, 2001, reflect the operations of the combined
supplement and interim coverage options to individuals. The Company’s subsidiary, BCBSUW, is the
customer service centers. Through UGS, the Company is a government contractor
the pro forma (unaudited) consolidated statements of operations of the Company
for the years ended December 31, 2001 and 2000, presented as if the Combination
effective January 1, 2002. Prior to the Combination, UWS and its subsidiaries
quarter of 2001 and the two years ended December 31, 2000. These losses largely relate to the HMO
combined aggregate losses were $8.7 million of expenses relating to the
Combination. On a pro forma basis, Cobalt’s operating income for 2001 was a
BlueShield Association (“BCA”), during 2001, 2000 and 1999. The Company maintained compliance, in part,
stock of affiliated entities. OCI requested and management submitted a specific
plan of action to continue to exceed the minimum capital requirements of the
outstanding common stock of Compcare, Unity, Valley and UHI currently provide
balances continue to be an obligation of Cobalt to BCBSUW ($70 million) and
UWIC ($22 million) in the statutory-basis financial statements of BCBSUW and
UWIC. Cobalt is obligated to repay BCBSUW by January 2, 2003 and UWIC by
for cash, marketable securities or affiliated receivables. However, settlement of these
obligations in cash will assist compliance with minimum capital and liquidity
and BCA, includes the following action steps to maintain required capital and
result of efforts in the fourth quarter of 2001 to cancel unprofitable business
expects to remain in compliance with minimum capital and liquidity requirements
of the OCI and the BCA throughout 2002 by substantially completing the capital
position relative to minimum capital and liquidity requirements. Non-compliance with minimum capital and
asset levels. Cash and cash equivalents include operating cash and short-term
investments with original maturities of three months or less. These amounts are
available-for-sale and are stated at estimated fair value based on quoted
and losses from the sale of available-for-sale debt and equity securities are
Company’s investments in AMSG common stock and pre-combination UWS common stock
debt and equity securities, as well as investment in affiliates, are reviewed
in the historical cost of the investment deemed other than temporary. Any impairments deemed other than temporary
are recorded as a reduction of the historical cost of the respective investment
2001, the Company recorded a reduction in the carrying value of its investment
allowances for uncollectible amounts of $9,124,000 and $846,000 at December 31,
2001 and 2000, respectively, based upon management’s best estimate of the
computed using the straight-line method over the estimated useful lives of the
10 years for furniture and other equipment, 30 years for land
additional UWS shares purchased by BCBSUW on March 23, 2001, (see Note 1) along
Goodwill was amortized on a straight-line basis over a weighted average period
was $10,425,000 and $813,000 at December 31, 2001 and 2000, respectively.
$4,467,000, $2,661,000 and $2,946,000 were capitalized in 2001, 2000 and 1999,
contracts with various health care providers for the provision of certain
medical care services to its members and generally compensates those providers
on a fee-for-service basis or pursuant to certain risk-sharing arrangements. Medical and other benefits expense also
insurance benefits. In addition to actual benefits paid, medical and other
claims and accrued capitation fees and adjustments, which are unpaid as of the
Processing costs are accrued as operating expenses based on an estimate of the
certain life insurance products, which is estimated to be paid more than one
purposes of determining whether a premium deficiency exists, contracts are grouped
in a manner consistent with the Company’s method of acquiring, servicing and
is included in medical and other benefits payable as a PDR for this line of
calculated based on a comparison of anticipated premiums to health care related
costs, including estimated payments for providers, commissions and the cost of
that such benefits will be paid and when sufficient information exists to make
services premiums and managed behavioral health fees are recognized as revenue
federal and state government (including State of Wisconsin Medicaid as a
premium adjustments are recognized for certain groups for which actual claims
experience differs from that which was anticipated when the related premium
arrangements vary based upon the group and line of insurance involved. The amount of premium that was subject to
assets and liabilities are recognized for the estimated future tax consequences
liabilities are measured using tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
on deferred tax assets when management determines that it would be “more likely
than not” that the tax benefit of the federal and state net operating loss
respectively, are excluded from the accompanying statements of operations. Administrative fees received related to
potential dilution that could occur if all stock options were exercised and
Company reports a net loss, stock options are not included in the calculation
calculated based on 38,434,459 weighted average shares outstanding. EPS was not presented for the years ended
December 31, 2000 and 1999 because the Company was a service insurance
the Financial Accounting Standards Board (“FASB”) approved the issuance of FASB
recorded on its balance sheet and the impact of the statement on the carrying
amount of impairment, if any, based on fair value. In addition, the statement requires the discontinuance of
goodwill amortization upon adoption (January 1, 2002). Although management believes that based on
its review of the impact of adopting this standard, no significant impairment
of goodwill amortization, excluding its investment in AMSG, is estimated to
2001, the FASB approved the issuance of FASB statement #144, “Accounting for
through UGS, serves as a fiscal intermediary for Medicare and various other
all applicable laws and regulations and is not aware of any pending or
no such regulatory inquiries have been made, compliance with such laws and
sales of equity securities during 2001, 2000 and 1999 were $10,571,000,
gains (losses) are computed as the difference between estimated fair value and
for equity securities. A summary of the net change in unrealized gains/losses,
contractual maturities because borrowers may have the right to call or prepay
31, 2001, approximately $17,000,000 of invested assets, which are classified as
the insurance subsidiaries had debt securities on deposit with various state
are returnable to the Company on short-term notice and are included in
Company requires a minimum of 102% of the fair value of the loaned securities
AMSG shares outstanding at December 31, 2001 and 2000, respectively. The
Included in gain (loss) from investment in affiliates in the Company’s
consolidated statement of operations for the year ended December 31, 2001, is a
loss of $25,163,000 relating to a writedown of the Company’s investment in AMSG
stock, at cost, aggregating $2,216,000, $8,292,000 and $7,488,000 in 2001, 2000
repurchase of common stock increased the Company’s ownership in AMSG by
owned approximately 47% of the total UWS shares outstanding as of December 31,
a party to certain provider arrangements in conjunction with Unity and Valley,
retained an option to repurchase all of the capital stock of Valley as of
December 31, 2002, at a price equal to Valley’s net assets plus $400,000.
the terms of the Unity purchase agreements, as amended, the sellers retained
agreements provide for an extension through December 31, 2009. One seller has the option to repurchase a
portion of Unity’s business for $500,000 plus the proportionate share of the
net worth of such business less any unpaid amount of the maximum annual
$650,000 in total, in which $125,000 has been accrued for during 2001. The other seller has the option to
repurchase the remainder of the Unity business (as well as the legal entity) at
Total assets and total net assets subject to repurchase options were
$66,905,000 and $24,224,000, respectively, at December 31, 2001. The Company had no business subject to
equipment are stated at cost less accumulated depreciation and are summarized
carrying amount of certain computer software costs. This charge is included in
premiums and benefits are assumed from and ceded to other insurance companies
the Company with increased capacity to write larger risks and maintain its
contingently liable on reinsurance ceded in the event that the reinsurers do
assumed from and ceded to other insurance companies are summarized as follows:
claims for 2001, related to prior years, include claims incurred prior to 2001
for BCBSUW and claims incurred prior to March 31, 2001 for the former UWS
tabular basis using the 1970 Intercompany Group Life Valuation Table at 7%. The December 31, 2001 loss reserves include
The amount of discount for case reserves is $4,446,000 at December 31,
uses paid claims and completion factors based on historical payment patterns to
of December 31, 2001 and 2000, respectively. The interest expense on the LOC
weighted average interest rate on the LOC was 3.90% and 8.10% in 2001 and 2000,
31, 2001, the Company originated a term business note (“term note”) for the
the London Interbank Offered Rate plus 1.5%, adjusted monthly. The current portion of the term note
consolidated balance sheet as of December 31, 2001. The remaining $3,000,000 balance is classified in other
September 11, 1998, UWS entered into a $70,000,000 note obligation due to
BCBSUW in connection with the spin-off in 1998 of AMSG’s managed care companies
and specialty business. UWS pledged the common stock of Compcare as collateral
for the note obligation. Interest is payable quarterly at a rate equal to 9.75%
to February 15, 2002 at an interest rate of 7.38%. The note was amended and the maturity date was extended to
January 2, 2003 at an interest rate of 7.38% on February 14, 2002. The terms and extension of the note are
products on behalf of UHLIC, a wholly-owned subsidiary of the Company. The Company assumes 100% of the premium
BlueShield of Illinois) each own a 50% interest in United Heartland of
Premium receivable related to UHIL is reported in Due from Affiliates.
had net federal income tax receivables of $10,314,000 and $11,576,000 at
other current assets. Included in these amounts is a prepayment of $11,576,000
made by the Company to the Internal Revenue Service (“IRS”) relating to pending
Company has federal NOL carryforwards totaling $140,969,000 which expire in the
years 2011 through 2020, and alternative minimum tax (“AMT”) NOL carryforwards
totaling $254,879,000 at December 31, 2001, which expire in the years 2002
net of $368,000, ($194,000) and ($275,000) in 2001 2000 and 1999, respectively. The Company’s federal income tax returns are
differences between taxes computed at the federal statutory rate and recorded
When management determines that it is “more likely than not” that the
tax benefit of the federal and state NOL carryovers will be realized prior to
recorded at the time of the Combination will be recorded as a reduction to
valuation allowances recorded by the Company will be recorded to income upon
deferred benefit arising from the deductibility of state deferred tax is
assets and liabilities are included in other current or other noncurrent assets
October 1, 1998, the Company entered into an agreement with a service
bureau to obtain certain electronic data processing services for the Company.
additional one-year renewal periods which have been exercised. Expenses to this
has operating leases for office space, EDP equipment, automobiles, software and
leases with initial or remaining lease terms in excess of one year at
December 31, 2001 were $41,758,000 in total. Annually, the lease payments
may result from these actions and, accordingly, the outcome of these
excess of those anticipated could have a material adverse effect on the
insurance subsidiaries are required to file financial statements with the OCI
accounting practices (“SAP”) prescribed or permitted by the OCI, which differ
including the reallocation of capital to mitigate the impact of Codification on
recognition of deferred income tax assets based on criteria which vary from
insurance subsidiaries subject to oversight by the OCI have received approval
extension of the maturity date to January 2, 2003 of the collateralized note
of all dividends paid by the Company’s insurance subsidiaries and regulatory
compulsory surplus, calculated as prescribed by the OCI. In addition, the Company’s insurance
2001, the Company was in compliance with these capital surplus requirements. In addition, the Company is required to
$7,175,000, respectively, for BCBSUW and Compcare, the Company is subject to
by insurance and HMO subsidiaries are limited by state insurance regulations. As of December 31, 2001, the Company’s
and certain of its subsidiaries participate in two defined benefit pension
plans. In conjunction with the Combination, the pension plan previously named
the former UWS, was amended and renamed Cobalt Corporation Pension Plan (the
Combination and the aforementioned Plan name change, the Company assumed the
January 1, 1999, a portion of the assets and liabilities of the Plan were
benefits accrued prior to 1999, on the same basis as had been provided under
the Plan, with a fair value of $4,466,000 and $2,363,000 at December 31,
table summarizes the change in the pension and postretirement plan assets as of
prepaid pension and postretirement costs at December 31, 2001 and 2000:
combined ending prepaid pension balance consists of $36,964,000 for the Plan,
offset by an accrued pension liability of $493,000 for the UGS Plan. In 2001, both plans had a prepaid pension
assumptions used as of December 31, 2001 and 2000, the measurement date, in
lives of participating employees at January 1, 1986: 15.4 years for
The effect of a 1% decrease in the medical trend would be a $1,175,000
of the pension credit and postretirement benefit cost, which are included in
defined by the plans. The employer match is made in Cobalt common stock. Employee directed contributions in Cobalt
nonqualified stock options of an equal number, and at an exercise price equal
$594,000 for the year ended December 31, 2001 for the excess of the market
result of the Combination, the Company assumed the stock based compensation
4,500,000 shares of common stock as incentive or nonqualified stock options
information regarding NQSOs outstanding and exercisable as of December 31, 2001
compensation expense is recorded when the exercise price of the Company’s
employee stock options equals the market price of the underlying stock on the
using the Black-Scholes model, the weighted average, grant-date fair value of
options granted in which the exercise price equaled the market price on the
less than the market price on the date of grant was $4.10 per share for
in which the exercise price was greater than the market price on the date of
throughout the United States and for Medicaid in the State of Wisconsin. The
segment performance based on profit or loss from operations before income
proceeds from the sale will be invested by BCBSUW in fixed income