Cobalt Reports EPS of $0.37 in Second Quarter and Raises 2003 Guidance.Business Editors MILWAUKEE--(BUSINESS WIRE)--July 22, 2003 Cobalt Corporation (NYSE NYSE See: New York Stock Exchange :CBZ CBZ Carbamazepine CBZ Carbobenzoxy CBZ Centrale Burgerlijke Ziekeninrichting (Dutch) ): -- Second quarter 2003 diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. of $0.37 -- Sixth consecutive quarter of profitable results in all business segments -- Full year 2003 guidance raised from $1.10 to a range of $1.30 to $1.35 -- Merger with WellPoint Noun 1. wellpoint - a perforated tube driven into the ground to collect water from the surrounding area well point tube, tubing - conduit consisting of a long hollow object (usually cylindrical) used to hold and conduct objects or liquids or gases proceeding as planned for completion by year end Cobalt Corporation (NYSE:CBZ) announced today second quarter 2003 net income of $16.1 million or $0.37 per diluted share entirely from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the . For the second quarter of 2002, income from continuing operations excluding income from investment in affiliates was $10.3 million or $0.24 per diluted share. Income from affiliates was $0.2 million in the second quarter of 2003. Income from affiliates for the second quarter of 2002 was $12.5 million or $0.29 per diluted share primarily related to an investment in American American, river, 30 mi (48 km) long, rising in N central Calif. in the Sierra Nevada and flowing SW into the Sacramento River at Sacramento. The discovery of gold at Sutter's Mill (see Sutter, John Augustus) along the river in 1848 led to the California gold rush of Medical Security Group, Inc. (NYSE:AMZ AMZ see australian Milking Zebu. ) common stock. Cobalt completed the sale of its AMZ investment in January January: see month. 2003. Cobalt's second quarter 2003 income from continuing operations before income tax expense and income from investment in affiliates increased to $31.1 million from $11.4 million reported in the second quarter of 2002. Income tax expense in the second quarter of 2003 rose to $15.2 million, compared to $1.1 million for the second quarter of 2002, primarily due to the exhaustion Exhaustion Situation in which a majority of participants trading in the same asset are either long or short, leaving few investors to take the other side of the transaction when participants wish to close their positions. of the benefit of net operating loss carryforwards Net operating loss carryforwards Application of losses to offset earnings in future years. . Total revenues for the second quarter of 2003 increased 9% to $416.6 million from $382.9 million in the second quarter of 2002. "We are gratified grat·i·fy tr.v. grat·i·fied, grat·i·fy·ing, grat·i·fies 1. To please or satisfy: His achievement gratified his father. See Synonyms at please. 2. that our disciplined approach to management is continuing to produce outstanding results. We are confident that our efforts to improve independent agent community relationships will stimulate new sales later in the year and in 2004," said Stephen Stephen, 1097?–1154, king of England (1135–54). The son of Stephen, count of Blois and Chartres, and Adela, daughter of William I of England, he was brought up by his uncle, Henry I of England, who presented him with estates in England and France and E. Bablitch, Cobalt Corporation's Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . Consolidated Highlights: -- Insured Medical Care Ratio The insured medical care ratio improved to 83.2% in the second quarter of 2003, compared to 87.2% in the second quarter of 2002, and 86.6% for the first quarter of 2003. The improvement reflects favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. medical cost trends, as well as the impact of a $6.8 million release of reserves during the second quarter of 2003 from more favorable than anticipated run-out on prior period reserve estimates. -- Insured Medical SG&A Expense Ratio The selling, general and administrative expense ratio on insured medical business was 10.3% for the second quarter of 2003. This compares favorably fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. to an SG&A ratio of 11.1% in the second quarter of 2002 and 11.2% for the full year 2002. The improvement was driven by disciplined containment containment Strategic U.S. foreign policy of the late 1940s and early 1950s intended to check the expansionist designs of the Soviet Union through economic, military, diplomatic, and political means. It was conceived by George Kennan soon after World War II. of operating costs operating costs npl → gastos mpl operacionales . -- Membership Total medical membership was 785,000 as of June June: see month. 30, 2003, compared to 809,000 as of March 31, 2003. The slight decline reflects a combination of factors: the transition of self-insured self-insured Self fund Health insurance adjective Referring to the practice of carrying an individual health insurance policy for oneself; self insurance is usually more expensive than group insurance national account members to the more profitable BlueCard program, where revenue is still collected but customers are not included in Cobalt's reported membership; employee downsizing (1) Converting mainframe and mini-based systems to client/server LANs. (2) To reduce equipment and associated costs by switching to a less-expensive system. (jargon) downsizing among some customers in the large group segment, which reflects national trends; and Cobalt's commitment to rational pricing Rational pricing is the assumption in financial economics that asset prices (and hence asset pricing models) will reflect the arbitrage-free price of the asset as any deviation from this price will be "arbitraged away". in a competitive market. Cobalt successfully renewed the City of Milwaukee account, representing 18,000 members. This is a significant win in a competitive situation, and reflects the Company's ongoing commitment to maintaining positive customer relations and providing excellent service. Cobalt continues to execute on its initiative to improve broker relations, and remains well positioned for new sales in the second half of 2003 and in 2004. -- Self-Funded Products Self-funded revenue increased to $14.5 million for the second quarter of 2003, versus $7.8 million for the second quarter of 2002. Claim Management Services, Inc., which was acquired on December 31, 2002, accounted for $5.7 million of this increase. -- Cash Flow Cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses was $57.5 million for the six months ended June 30, 2003, compared to $1.7 million for the comparable period in 2002. -- Days in Claims Payable Days in claims payable on the insured medical business were 59.5 days at the end of the second quarter of 2003, compared to 60.4 days as of March 31, 2003. The decline in days in claims payable relates primarily to the $6.8 million reserve release during the second quarter of 2003. -- Income Taxes The effective income tax rate for the second quarter of 2003 was 49%, versus 10% in the second quarter of 2002. The 2002 tax rate reflected benefits from the utilization of certain net operating loss carryforwards. The higher tax rate in 2003 is due to the exhaustion of these net operating loss carryforwards during 2002, nondeductible non·de·duct·i·ble adj. Not deductible, especially for income-tax purposes. Adj. 1. nondeductible - not allowable as a deduction deductible - acceptable as a deduction (especially as a tax deduction) merger-related expenses, and additional tax expense related to an unfavorable court decision on disputed income tax matters dating back to 1987. -- Holding Company Expenses Expenses of $2.2 million relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the pending merger with WellPoint Health Networks Inc. were recorded during the second quarter of 2003 at the holding company. Earnings Outlook Cobalt raised its earnings guidance for the full year 2003 to a range of $1.30 to $1.35 per diluted share from prior guidance of $1.10 per diluted share. This increase reflects management's expectation that earnings for the second half of 2003 will be stronger than earnings reported for the first half of the year. Reconciliation of Non-GAAP Financial Measures The following is a reconciliation of net income to certain non-GAAP financial measures referred to in this press release. The Company believes that these non-GAAP financial measures provide a better comparison of ongoing core operations by segregating the effects of income from investment in affiliates and a significant increase in the Company's effective tax rate.
For the Three Months Ended June 30,
2003 2002
------------------------------------
Dollars Per Dollars Per
In Diluted In Diluted
Thousands Share Thousands Share
------------------------------------
Net Income $16,075 $0.37 $22,512 $0.53
Less:
Income (loss) from
discontinued operations - - (250) (0.01)
------------------------------------
Income from continuing
operations 16,075 0.37 22,762 0.54
Less:
Income from investment
in affiliates net of tax 200 0.00 12,465 0.29
------------------------------------
Income from continuing
operations, excluding
investment in affiliates 15,875 0.37 10,297 0.24
Add:
Income tax expense 15,227 0.35 1,124 0.03
------------------------------------
Income from continuing
operations, before
income tax expense and
income from investment
in affiliates $31,102 $0.72 $11,421 $0.27
====================================
For the Six Months Ended June 30,
2003 2002
------------------------------------
Dollars Per Dollars Per
In Diluted In Diluted
Thousands Share Thousands Share
------------------------------------
Net Income $27,217 $0.63 $45,115 $1.08
Less:
Income (loss) from
discontinued operations - - 9,109 0.22
------------------------------------
Income from continuing
operations 27,217 0.63 36,006 0.86
Less:
Income from investment
in affiliates net of tax 200 0.00 15,317 0.37
------------------------------------
Income from continuing
operations, excluding
investment in affiliates 27,017 0.63 20,689 0.50
Add:
Income tax expense 22,293 0.52 2,304 0.06
------------------------------------
Income from continuing
operations, before
income tax expense and
income from investment
in affiliates $49,310 $1.15 $22,993 $0.55
====================================
Note: Certain per share amounts for 2002 do not foot due to rounding. Cobalt and WellPoint to Merge On June 3, 2003, WellPoint Health Networks Inc. (NYSE:WLP WLP WebLogic Portal (Bea Systems) WLP Wafer Level Packaging WLP Women's Learning Partnership (Bethesda, MD) WLP Workplace Learning & Performance WLP World Library Partnership, Inc. ), the nation's second largest health insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. , and Cobalt announced that they signed a definitive agreement to merge. The transaction is structured as a merger of Cobalt Corporation with a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of WellPoint and is intended to be tax free with respect to the WellPoint stock to be received in the transaction by Cobalt shareholders. The consideration to be received by the shareholders of Cobalt will be comprised of $10.25 in cash and WellPoint stock at a fixed exchange ratio of 0.1233 of a share of WellPoint stock for each share of Cobalt stock. Based on WellPoint's stock price on June 3, 2003, the total value would be $20.50 per Cobalt share. The exchange ratio will be adjusted if WellPoint's stock price falls below $70.97 so that Cobalt shareholders receive no less than $8.75 per share in stock consideration and no less than $19.00 in the aggregate. The transaction will be accounted for under the purchase method of accounting. Completion of the merger is subject to Cobalt shareholder approval, Blue Cross and Blue Shield Association
About Cobalt Corporation Cobalt Corporation is an independent licensee licensee n. a person given a license by government or under private agreement. (See: license, licensor) LICENSEE. One to whom a license has been given. 1 M. Q. & S. 699 n. of the Blue Cross and Blue Shield Association, and holds the exclusive license to use the Blue Cross and Blue Shield Blue Shield A US not-for-profit health care insurer that is a reimbursement intermediary for physicians. Cf Blue Cross. names and marks in the state of Wisconsin Wisconsin, state, United States Wisconsin (wĭskŏn`sən, –sĭn), upper midwestern state of the United States. It is bounded by Lake Superior and the Upper Peninsula of Michigan, from which it is divided by the Menominee . Cobalt is one of four publicly traded Blue Cross and Blue Shield companies. Headquartered in Milwaukee, Wis adv. 1. Certainly; really; indeed. v. t. 1. To think; to suppose; to imagine; - used chiefly in the first person sing. present tense, I wis. See the Note under Ywis. ., Cobalt Corporation (NYSE: CBZ) offers a diverse portfolio of complementary insurance, managed care products and administrative services to employer, individual, insurer and government customers. For more information, visit our web site at www.cobaltcorporation.com. Conference Call and Web Cast Management will host a conference call and web cast on Wednesday, July 23, 2003, at approximately 11:00 a.m. Eastern time to discuss second quarter 2003 financial results. The conference call and web cast will be co-hosted with WellPoint. The conference call can be accessed by dialing (888) 285-8004 and referencing "WellPoint's and Cobalt's Earnings Call" approximately 10 minutes prior to the start of the call. International callers should call (706) 643-1656. A replay of the call will be available from July 23 through 8:00 p.m. Eastern time on July 30, 2003. To access the replay, please dial (800) 642-1687 and enter call i.d. number 1309658. International callers can access the replay by dialing (706) 645-9291 and entering call i.d. number 1309658. The call will be simulcast live over the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the at www.cobaltcorporation.com. To listen to the web cast, please visit the Events section of the Cobalt Corporation web site and click on Latest Investor Presentation at least 15 minutes prior to the start of the conference call to download To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. and install any necessary audio software. Individuals who listen to the call will be presumed to have read Cobalt's most recent Annual Report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and Quarterly Report on Form 10-Q Form 10-Q See 10-Q. for the quarter ended March 31, 2003, including the discussion under the caption "Risk Factors." A replay of the web cast will be available at http://www.cobaltcorporation.com. Cautionary Statements This release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. with respect to the financial condition, results of operations and business of Cobalt Corporation. Such forward-looking statements are subject to inherent risks and uncertainties that may cause actual results or events to differ materially from those contemplated by such forward-looking statements. Factors that may cause actual results or events to differ materially from those contemplated by such forward-looking statements include rising health care costs, business conditions, impact of elimination of memberships, competition in the managed care industry, developments in health care reform and other regulatory issues. This press release may be deemed to be solicitation solicitation In criminal law, the act of asking, inducing, or directing someone to commit a crime. The person soliciting another becomes an accomplice to the crime. The term also refers to the act of obtaining bribes, as well as to the crime of a prostitute who offers sexual material in respect of the proposed merger of Cobalt Corporation and WellPoint Health Networks Inc. In connection with the proposed merger, a registration statement on Form S-4 has been filed with the Securities and Exchange Commission. Shareholders of Cobalt Corporation are urged to read the registration statement, including the preliminary proxy statement-prospectus that is part of the registration statement, because it contains important information about the proposed merger. The proxy statement-prospectus, in its final form, will be mailed to Cobalt shareholders. The registration statement is, and each amendment to the registration statement will upon filing with the SEC be, available for free both on the SEC's web site (www.sec.gov) and from Cobalt's and WellPoint's respective corporate secretaries. Cobalt Corporation and its directors and executive officers may be deemed to be participants in respect of the proposed merger. Information regarding the interests of Cobalt's directors and executive officers is included in the proxy statement-prospectus.
COBALT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
(In thousands, except share data)
Revenues:
Health services
revenues:
Premium $ 363,310 $ 339,129 $ 720,687 $ 677,095
Government
services 29,892 27,971 57,702 56,780
Other 17,580 12,150 36,339 23,414
Investment
income, net 4,724 3,708 9,121 6,535
Net realized
investment gains
(losses) 1,083 (77) 1,307 27
---------- ---------- ---------- ----------
Total revenues 416,589 382,881 825,156 763,851
Expenses:
Medical and other
benefits 296,408 290,808 600,249 583,166
Selling, general,
administrative
and other 88,494 80,581 174,412 157,449
Interest 279 71 554 243
Amortization of
intangible assets 306 - 631 -
---------- ---------- ---------- ----------
Total expenses 385,487 371,460 775,846 740,858
---------- ---------- ---------- ----------
Income from
continuing operations
before income tax
expense and income
from investment in
affiliates 31,102 11,421 49,310 22,993
Income tax expense (15,227) (1,124) (22,293) (2,304)
Income from investment
in affiliates, net of
tax(1) 200 12,465 200 15,317
---------- ---------- ---------- ----------
Income from continuing
operations 16,075 22,762 27,217 36,006
Income (loss) from
discontinued
operations, net of
tax(2) - (250) - 9,109
---------- ---------- ---------- ----------
Net income $ 16,075 $ 22,512 $ 27,217 $ 45,115
========== ========== ========== ==========
Earnings (loss) per
common share:
Diluted EPS from
continuing
operations $ 0.37 $ 0.54 $ 0.63 $ 0.86
Diluted EPS
discontinued
operations 0.00 (0.01) 0.00 0.22
---------- ---------- ---------- ----------
Total diluted EPS $ 0.37 $ 0.53 $ 0.63 $ 1.08
========== ========== ========== ==========
Diluted weighted
average common
shares 43,099,339 42,413,553 42,902,864 41,760,291
========== ========== ========== ==========
(1) The three months ended June 30, 2002 includes a $9.4 million after
tax gain on the sale of 3.0 million shares of AMSG.
The six months ended June 30, 2002 includes a $9.8 million after
tax gain on the sale of 4.4 million shares of AMSG.
(2) The six months ended June 30, 2002 includes a $9.6 million after
tax gain on the sale of discontinued operations.
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