<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended SEPTEMBER 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
--------------------- -----------------------
Commission File Number: 333-2796
--------
CERULEAN COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Georgia 58-2217138
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3350 Peachtree Road, N.E., Atlanta, Georgia 30326
(Address of principal executive offices) (Zip Code)
(404) 842-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class: Class A Convertible Common Stock, no par value, $0.01 stated value.
Outstanding as of October 29, 1999 - 409,597 shares
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CERULEAN COMPANIES, INC.
FORM 10-Q
SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and Page 3
December 31, 1998
Consolidated Statements of Income for the Three and Nine Page 4
Months Ended September 30, 1999 and 1998
Consolidated Statements of Comprehensive Income for the Page 4
Three and Nine Months Ended September 30, 1999 and
1998
Consolidated Statements of Cash Flows for the Nine Months Page 5
Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements Page 6
Item 2. Management's Discussion and Analysis of Financial Condition Page 10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk Page 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings Page 17
Item 2. Changes in Securities Page 17
Item 3. Defaults Upon Senior Securities Page 17
Item 4. Submission of Matters to a Vote of Security Holders Page 17
Item 5. Other Information Page 17
Item 6. Exhibits and Reports on Form 8-K Page 17
Signatures Page 19
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CERULEAN COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
Investments:
Fixed maturities:
Available-for-sale, at fair value (amortized cost: $251,157,572;
$235,441,231) $245,322,366 $239,548,185
Equity securities, at fair value (cost: $52,450,128; $55,866,571) 66,372,070 76,906,525
Short-term investments, at fair value (cost: $325,000; $9,215,878) 325,000 9,215,878
------------ ------------
Total investments 312,019,436 325,670,588
Cash and cash equivalents 61,079,658 52,159,196
Accounts receivable 72,907,951 61,777,995
Reimbursable portion of estimated benefit liabilities 47,002,000 47,816,000
FEP assets held by agent 38,786,536 38,786,536
Property and equipment 40,322,750 36,898,538
Other assets 30,682,713 24,232,739
------------ ------------
Total assets $602,801,044 $587,341,592
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Estimated benefit liabilities $196,466,599 $184,075,293
Unearned premiums 11,118,148 16,077,960
FEP stabilization reserve 38,786,536 38,786,536
Accounts payable and accrued expenses 49,829,036 43,893,056
Other liabilities 36,822,288 42,184,663
------------ ------------
Total liabilities 333,022,607 325,017,508
------------ ------------
Mandatorily redeemable preferred stock:
Class B Convertible Preferred Stock, no par value.
Authorized, issued and outstanding, 49,900 shares at September 30, 1999
and December 31, 1998; aggregate liquidation preference $49,900,000;
aggregate mandatory redemption, $44,910,000 46,645,042 46,645,042
------------ ------------
Shareholders' equity:
Blank Preferred Stock, no par value.
Authorized and unissued 100,000,000 shares -- --
Series A Preferred Stock, no par value, $0.01 stated value.
Authorized and unissued 64,000 shares -- --
Class A Convertible Common Stock, no par value, $0.01 stated value.
Authorized 50,000,000 shares; issued and outstanding 409,597 and
409,392 shares at September 30, 1999 and December 31, 1998,
respectively 4,096 4,094
Additional paid-in capital 45,188,422 45,188,422
Common Stock, no par value.
Authorized and unissued 100,000,000 shares -- --
Stock warrants exercisable 29,968,000 29,968,000
Accumulated other comprehensive income (unrealized appreciation on
securities, net of taxes) 6,606,736 19,596,908
Retained earnings 141,366,141 120,921,618
------------ ------------
Total shareholders' equity 223,133,395 215,679,042
Commitments and contingencies (Note 6) -- --
------------ ------------
Total liabilities and shareholders' equity $602,801,044 $587,341,592
============ ============
</TABLE>
See accompanying notes.
3
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CERULEAN COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Premium revenue $373,529,191 $ 311,548,165 $1,089,413,073 $ 868,229,400
Management services revenue 35,549,279 31,403,063 106,382,667 85,530,819
Investment and other income 4,619,303 4,663,390 14,799,331 12,679,249
Realized gains 726,954 1,613,090 5,708,592 7,697,457
------------ ------------- -------------- -------------
Total revenues 414,424,727 349,227,708 1,216,303,663 974,136,925
Benefits expense 328,437,470 267,832,327 957,282,081 743,711,073
Operating expenses 75,895,139 70,346,814 227,760,258 206,474,588
------------ ------------- -------------- -------------
Operating income 10,092,118 11,048,567 31,261,324 23,951,264
Endowment of a non-profit
foundation (Note 3) -- -- -- (76,157,000)
Non-operating income 63,750 63,750 191,250 191,250
------------ ------------- -------------- -------------
Income (loss) before income taxes
and minority interests 10,155,868 11,112,317 31,452,574 (52,014,486)
Income tax expense (Note 4) 3,072,000 3,331,000 8,102,000 2,497,000
Minority interest in losses (earnings)
of joint venture investments 895,816 (256,909) 1,002,784 (2,152,283)
------------ ------------- -------------- -------------
Net income (loss) $ 7,979,684 $ 7,524,408 $ 24,353,358 $ (56,663,769)
============ ============= ============== =============
</TABLE>
See accompanying notes.
CERULEAN COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ 7,979,684 $ 7,524,408 $ 24,353,358 $ (56,663,769)
Other comprehensive income
(loss), net of tax:
Unrealized holding (losses)
gains arising during period,
net of reclassification
adjustment for gains
included in net income of
$581,563, $1,290,472,
$4,566,874 and $6,157,966,
respectively
(6,377,866) (4,135,883) (12,990,172) (1,044,652)
------------ ------------- -------------- -------------
Comprehensive income (loss) $ 1,601,818 $ 3,388,525 $ 11,363,186 $ (57,708,421)
============ ============= ============== =============
</TABLE>
See accompanying notes.
4
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CERULEAN COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 24,353,358 $ (56,663,769)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Non-cash and non-operating items:
Endowment of a non-profit foundation -- 75,157,000
Depreciation 7,330,762 8,022,137
Amortization 576,674 256,746
Uncollectible receivables 263,790 1,799,943
Gain on sale of investments (5,708,592) (7,697,457)
Loss on sale of property and equipment 491,850 89,887
Non-operating income (191,250) (191,250)
(Increase) decrease in certain assets:
Accounts receivable (11,393,746) (4,276,599)
Reimbursable portion of estimated benefit liabilities 814,000 (3,297,000)
Other assets (2,379,974) (6,365,959)
Increase (decrease) in certain liabilities:
Estimated benefit liabilities 12,391,306 30,419,575
Unearned premiums (4,959,812) 5,266,281
Accounts payable and accrued expenses 5,935,980 14,021,076
Other liabilities (9,271,208) (280,424)
Minority interest in sale of stock warrants by a
subsidiary (183,750) (183,750)
------------- -------------
Net cash provided by operating activities 18,069,388 56,076,437
INVESTING ACTIVITIES
Investments available-for-sale:
Investments purchased (128,413,874) (213,332,434)
Investments sold or matured 130,136,772 180,593,593
Property and equipment purchased (11,761,330) (10,335,625)
Property and equipment sold 514,506 54,138
------------- -------------
Net cash used in investing activities (9,523,926) (43,020,328)
FINANCING ACTIVITIES
Sale of stock warrants by a subsidiary 375,000 375,000
Repayment of notes payable -- (3,500,000)
------------- -------------
Net cash provided by (used in) financing activities 375,000 (3,125,000)
------------- -------------
Increase in cash and cash equivalents 8,920,462 9,931,109
Cash and cash equivalents at beginning of period 52,159,196 35,001,855
------------- -------------
Cash and cash equivalents at end of period $ 61,079,658 $ 44,932,964
============= =============
</TABLE>
See accompanying notes.
5
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CERULEAN COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
UNAUDITED
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Cerulean Companies, Inc. (the "Company") was incorporated under the laws of the
State of Georgia on February 2, 1996 to act as the holding company for Blue
Cross and Blue Shield of Georgia, Inc. ("BCBSGA") and other subsidiaries, and
for other lawful purposes.
BASIS OF PRESENTATION
The Company's accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP")
and require the use of management's estimates. As to the Company's managed care,
health and life insurance operations, GAAP varies in some respects from
statutory accounting practices permitted or prescribed by insurance regulatory
authorities. The Company's health care plan subsidiary, its health maintenance
organization and its life insurance subsidiary are subject to regulation by the
Georgia Insurance Department including minimum capital and surplus requirements
and restrictions on payment of dividends. Because of the nature of the Company's
operations, the results for interim periods are not necessarily indicative of
results expected for the entire year. In the opinion of management, all material
adjustments necessary for a fair presentation of the financial position and
results of operations for the interim periods presented have been made. All such
adjustments are of a normal recurring nature.
PRINCIPLES OF CONSOLIDATION
The Company's accompanying unaudited consolidated financial statements include
the accounts of the Company, BCBSGA and its wholly-owned life insurance
subsidiary, a health maintenance organization subsidiary, a non-insurance
subsidiary and community health partnership network joint ventures ("CHPNs").
All significant intercompany transactions and balances have been eliminated in
consolidation.
The Company owns at least 51% of the voting shares of each CHPN. Under certain
circumstances defined in the CHPN shareholder agreements, supermajority votes of
shareholders are required for amendment of the CHPN articles of incorporation;
liquidation of the CHPN; and issuance and repurchase of CHPN equity. The net
effect of supermajority votes in these circumstances results in consensus of the
shareholders, providing minority shareholders protective rights. Only the
Company is required under the CHPN agreements to provide required additional
capital. Future capital requirements of minority shareholders are limited or
prescribed. Profits of CHPNs are allocated to shareholders in accordance with
their respective stock ownership percentages. Losses are allocated in accordance
with ownership interests up to previously contributed capital; losses exceeding
such amounts are absorbed entirely by the Company.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the current
year presentation.
2. EARNINGS PER SHARE
Earnings per share are omitted because such data is not meaningful at the
present time due to the possible dilutive events that will occur prior to the
conversion of the Class A Convertible Common Stock (the "Class A Stock") or the
Class B Convertible Preferred Stock. Presently there is no market for the Class
A Stock or any equity securities of the Company.
6
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3. 1998 RESTATEMENT
During June 1998, the Company recorded a non-recurring charge of $54.4 million
related to the endowment of a non-profit foundation under the terms of a lawsuit
settlement concerning the conversion of the Company to a for-profit corporation,
which, at that time, represented management's best judgment of the fair value as
of the date of the settlement. In connection with the Company's proposed merger
with WellPoint Health Networks Inc., the staff of the Securities and Exchange
Commission ("the Staff") reviewed the transaction during the fourth quarter of
1998. Subsequently, the Company concluded with the Staff that the fair value
determination of the endowment should be revised to $76.2 million. As a result,
the financial statements for the nine months ended September 30, 1998 have been
restated to reflect the change in fair value.
4. INCOME TAXES
The Company's income tax expense consisted primarily of federal alternative
minimum tax in all periods. The effective tax rates (excluding the effect of the
endowment of a non-profit foundation) for the periods are impacted by CHPN
subsidiaries which incur taxes at a 34% rate and which do not join in the filing
of the Company's consolidated tax return, state income taxes and other permanent
book to tax differences, including non-deductible expenses.
5. BUSINESS SEGMENT, CUSTOMER AND PRODUCT INFORMATION
The Company operates predominantly in one industry segment, health insurance
products and services, and reports its operations as one business segment. The
Company's products and services are sold principally in the State of Georgia. A
significant portion of its customer base is concentrated with companies that are
located in the metropolitan Atlanta area.
The Company's premium revenue and management services revenue by primary product
groups are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1999 1998 1999 1998
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
Indemnity and PPO insurance products
and services $229,343,363 $202,333,007 $ 686,314,206 $563,226,730
HMO and POS insurance products
and services 175,304,530 136,331,883 496,034,818 378,071,381
Life insurance products and other
services 4,430,577 4,286,338 13,446,716 12,462,108
------------ ------------ -------------- ------------
Total $409,078,470 $342,951,228 $1,195,795,740 $953,760,219
============ ============ ============== ============
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
PROPOSED MERGER
On July 9, 1998, the Company entered into an agreement and plan of merger (the
"Merger Agreement") with WellPoint Health Networks Inc. ("WellPoint") and a
subsidiary of WellPoint. As of July 9, 1999, the parties agreed upon an
extension of the Merger Agreement until October 15, 1999 and, under certain
circumstances, December 31, 1999. Effective October 15, 1999, the parties
agreed to extend the Merger Agreement through December 31, 1999. Pursuant to
the Merger Agreement, the Company will become a wholly-owned subsidiary of
WellPoint. On June 25, 1999, the shareholders of the Company approved the
transaction. Finalization of the transaction is subject to, among other things,
the approval of the Commissioner of Insurance of the State of Georgia (the
"Georgia Commissioner"), the approval of the Blue Cross and Blue Shield
Association and certain approvals of the Health Care Financing Administration.
Upon final disposition of the litigation commenced by the Richmond County
Plaintiffs described further in Note 6 Legal Proceedings below, the Company
expects that the Commissioner will schedule a public hearing. Upon closing the
transaction, shareholders of the Company will exchange their shares for
WellPoint shares or cash in a transaction valued at $500 million.
7
<PAGE> 8
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL PROCEEDINGS
On December 17, 1998, Plaintiffs Rickey Underhill, Jim Kerscher, Janice Young,
Richard Collins, Greg Lane and Keith Page, individually and on behalf of all
others similarly situated (collectively, the "Bartow County Plaintiffs"), filed
a lawsuit against the Company and BCBSGA in the Superior Court of Bartow County
("the Court of Bartow"), State of Georgia, bearing Civil Action File No.
CV98-2656. The Bartow County Plaintiffs identified themselves as six individuals
who were entitled to receive shares of the Company's stock in connection with
the conversion of BCBSGA from a non-profit corporation to a regular business
corporation. The Bartow County Plaintiffs asserted claims for specific
performance, breach of provisions of the Insurance Code of Georgia, and
requested declaratory judgment and certification of a class action consisting of
all persons who were "eligible subscribers" of the Company on September 1, 1995,
but who did not become holders of Class A Stock of the Company because their
eligible coverage terminated prior to February 1, 1996. The Bartow County
Plaintiffs alleged that they and the members of the purported class were
entitled to receive shares of Class A Stock in the Company. The Bartow County
Plaintiffs alleged alternatively that offering materials disseminated by BCBSGA
during 1996 relating to Class A Stock of the Company were not disseminated to
the Bartow County Plaintiffs and that the Bartow County Plaintiffs and the
purported class members were entitled to an award of damages in excess of $2.5
million. On January 28, 1999, the Company and BCBSGA filed answers and a motion
to dismiss. On March 11, 1999, counsel to the Company and BCBSGA argued the
motion to dismiss. On June 23, 1999, the Bartow County Plaintiffs dismissed
their complaint without prejudice. On June 23, 1999, the Bartow County
Plaintiffs filed a Petition for Declaratory Ruling (the "Bartow County
Petition") before the Georgia Commissioner. The Bartow County Petition sought a
declaration that the Bartow County Plaintiffs should have been issued shares of
Class A Stock. On July 12, 1999, the Company and BCBSGA filed their Statement of
Interested Parties in opposition to the Bartow County Petition. On August 5,
1999, BCBSGA and the Company filed their Supplemental Statement of Interested
Parties. On August 10, 1999, the Georgia Commissioner entered an order denying
the Bartow County Plaintiffs' Bartow County Petition. The time in which an
appeal of that decision can be made has elapsed. The parties have reached an
agreement to release all claims between the parties in exchange for the
Company's and BCBSGA's agreement not to seek attorney's fees from the Bartow
County Plaintiffs.
On September 18, 1998, Plaintiffs Allen Saravuth, Nga Nguyen, Chansamone
Sengsavath and Fatana Pirzad, individually and on behalf of all others similarly
situated (collectively, the "Richmond County Plaintiffs"), filed a lawsuit
against the Company, BCBSGA, James L. Laboon, Jr., Fred L. Tolbert, Jr., Richard
D. Shirk, James E. Albright, W. Daniel Barker, Elizabeth W. Camp, Louis H.
Felder, M.D., Edward M. Gillespie, Joseph D. Greene, Mel H. Gregory, Jr., Frank
J. Hanna, III, R. Pierce Head, Jr., Charles H. Keaton, James H. Leigh, Jr.,
M.D., Julia L. Mitchell-Ivey, Charles R. Underwood, M.D., W. Jerry Vereen, A.
Max Walker, Dan H. Willoughby, M.D., Joe M. Young, and John B. Zellars
(collectively, the "Defendant Directors") in the Superior Court of Richmond
County, State of Georgia, bearing Civil Action File No. 98-RCCV-806. In
addition, the Richmond County Plaintiffs filed a Motion for Temporary
Restraining Order and Interlocutory Injunctive Relief, which was heard and
denied by the Court of Richmond on September 21, 1998. The Richmond County
Plaintiffs identify themselves as four individuals who were entitled to receive
shares of the Company's stock in connection with the conversion of BCBSGA from a
non-profit corporation to a regular business corporation (the "Conversion"). The
Richmond County Plaintiffs assert claims for specific performance, fraud, breach
of provisions of the Insurance Code of Georgia, breach of fiduciary duty, and
request declaratory judgment and certification of a class action consisting of
all persons who were "eligible subscribers" of BCBSGA as of February 1, 1996,
and who did not become holders of Class A Stock of the Company. The Richmond
County Plaintiffs allege that they and the members of the purported class are
entitled to receive shares of Class A Stock in the Company. The Richmond County
Plaintiffs allege alternatively that offering materials disseminated by BCBSGA
during 1996 relating to Class A Stock of the Company contained materially
misleading and deceptive statements and omissions and that the Richmond County
Plaintiffs and the purported class members are entitled to an award of damages
in excess of $100 million. The Richmond County Plaintiffs also assert derivative
causes of action against the Defendant Directors alleging that the Defendant
Directors breached fiduciary duties by, among other things, approving the
placement and issuance of Class B Stock in the Company during 1996, the issuance
of Class A Stock in the Company, the settlement of the Let's Get Together, Inc.
et al. v. Insurance Commissioner, et al., Civil Action E-61714 (Superior
8
<PAGE> 9
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL PROCEEDINGS
Court of Fulton County, Georgia) lawsuit, and certain management compensation.
On November 9, 1998, Harrell Tiller, Charlie Deal and Olean Lokey joined the
case as additional named plaintiffs. On December 9 and 10, 1998, a hearing was
held on the plaintiffs' request for declaratory ruling on the issue of whether
plaintiffs are properly shareholders of the Company and on December 17, 1998,
the Superior Court ruled in favor of the plaintiffs. The Company filed an appeal
with the Georgia Supreme Court which accepted jurisdiction and granted expedited
treatment to the appeal. The Company's Board of Directors appointed a Special
Litigation Committee to review the derivative claims. On April 14, 1999, the
Special Litigation Committee reported to the Board of Directors that it had
concluded that the derivative claims were without substance. On May 3, 1999, the
Georgia Supreme Court reversed the ruling of the Richmond County Superior Court,
holding that the Richmond County Superior Court erred in considering and ruling
upon the plaintiffs' claims. The Georgia Supreme Court found that the Georgia
Commissioner had broad power of review over the Conversion and that sufficient
administrative remedies with the Georgia Commissioner had been available to the
plaintiffs during and following the Conversion.
The Richmond County Plaintiffs did not file a motion for reconsideration of the
Georgia Supreme Court's decision. On May 5, 1999, BCBSGA and the Company filed
motions for summary judgment on the Richmond County Plaintiffs' fraud claims. On
May 20, 1999, the Company and BCBSGA filed a motion for entry of judgment on all
remaining counts of the Richmond County Plaintiffs' Complaint. On July 29,
1999, the Superior Court of Richmond County entered an order dismissing all
claims against the Defendant Directors without prejudice. On September 21, 1999,
the Superior Court of Richmond County entered orders denying the motions for
summary judgment and the motion for entry of judgment. On October 27, 1999, the
Company and BCBSGA filed a motion for reconsideration of the motion for entry of
judgment. The case remains pending before the Superior Court.
On May 17, 1999, Harrell Tiller, Charlie Deal and Olean Lokey, who were among
the Richmond County Plaintiffs, filed two separate Petitions for Declaratory
Ruling (the "Petitions") before the Georgia Commissioner, seeking a declaration
from the Georgia Commissioner that they, and others similarly situated, should
have been issued shares of Class A Stock. On June 22, 1999, the Georgia
Commissioner entered orders on the Petitions denying the relief sought. On June
22, 1999, Harrell Tiller, Charlie Deal and Olean Lokey filed two separate
proceedings in the Superior Court of Richmond County. In these cases, styled In
Re: Harrell Tiller, individually and on behalf of all others similarly situated
v. Commissioner of Insurance of the State of Georgia, Civil Action No.
1999-RCCV-471 and In Re: Charlie Deal and Olean Lokey, individually and on
behalf of all others similarly situated v. Commissioner of Insurance of the
State of Georgia, Civil Action No. 1999-RCCV-470, the Petitioners sought
judicial review of the decisions of the Georgia Commissioner of June 22, 1999
(the "Judicial Review Proceedings"). On September 21, 1999, the Superior
Court of Richmond County entered orders reversing the Commissioner's orders. On
October 12, 1999, the Company and BCBSGA filed Applications for Discretionary
Appeal with the Supreme Court of Georgia, seeking to have that court reverse the
Superior Court of Richmond County's decisions. The appeal remains pending. On
October 21, 1999, the Commissioner filed an application from the Superior
Court's decisions with the Court of Appeals of the State of Georgia, seeking to
have that court overturn the Superior Court's decisions. That appeal remains
pending before the Court of Appeals. Management of the Company believes the case
to be without merit and, in any event, believes that its impact, if any, on the
assets of the Company would not be material.
In the normal course of business, the Company is involved in and subject to
claims, contractual disputes and other uncertainties. Management, after
reviewing with legal counsel all of these actions and proceedings, believes that
the aggregate losses, if any, will not have a material effect on the Company's
financial position or results of operations.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto. The Company's actual future
results could differ materially from its historical results, depending on, among
other factors, changing rates of utilization of medical services by its
enrollees and changing rates of medical service costs.
OVERVIEW
Cerulean Companies, Inc. (the "Company") was incorporated under the laws of the
State of Georgia on February 2, 1996 to act as the holding company for Blue
Cross and Blue Shield of Georgia, Inc. ("BCBSGA") and other subsidiaries, and
for other lawful purposes.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
Premium revenues increased $62.0 million to $373.5 million for the three months
ended September 30, 1999 from $311.5 million for the three months ended
September 30, 1998. HMO and POS premiums increased $38.0 million to $170.4
million for the three months ended September 30, 1999 primarily as a result of
increased membership and rate increases in the 1999 period. Premium revenues for
indemnity and PPO products increased $23.8 million to $198.8 million for the
three months ended September 30, 1999 as a result of rate increases and growth
in the members served in 1999.
Management services revenue increased $4.1 million to $35.5 million for the
three months ended September 30, 1999 compared to $31.4 million for the three
months ended September 30, 1998, due primarily to increased administrative fee
revenue from services provided to self-funded employer groups and other third
parties and network access fees from other Blue Cross Blue Shield plans.
Realized gains of $0.7 million on the sale of marketable securities for the
three months ended September 30, 1999 were $0.9 million lower than realized
gains for the three months ended September 30, 1998. The magnitude of realized
gains in any period can fluctuate due to fixed income and equity market
performance, as well as timing of individual sale transactions, which are
subject to decisions made by the Finance Committee of the Company's Board of
Directors or by individual investment portfolio managers. Results in one period
are not necessarily indicative of results to be expected in the future.
The Company's medical loss ratio (benefits expense as a percentage of premium
revenue) increased to 87.9% for the three months ended September 30, 1999 from
86.0% for the same period in 1998. The loss ratios for both the Company's HMO
and POS products as well as indemnity and PPO products increased in the 1999
third quarter compared to the same quarter a year ago, due to higher cost trends
identified for 1999 incurred periods for all employer group products.
Operating expenses increased 8% to $75.9 million for the third quarter of 1999
compared to the same period a year ago, while premium and management services
revenues increased 19%. As a result, operating expenses as a percentage of
premium and management services revenue improved to 18.6% for the three months
ended September 30, 1999 compared to 20.5% for the third quarter of 1998.
Operating expenses included $1.8 million and $2.0 million for Year 2000
readiness costs for the third quarter of 1999 and 1998, respectively.
Additionally, legal and other professional expenses of $1.9 million and $0.5
million related to the pending merger with WellPoint and the litigation referred
to in Note 6 of the Notes to Consolidated Financial Statements (Unaudited) were
incurred in the 1999 third quarter and the 1998 third quarter, respectively.
The Company's effective tax rate in both periods (excluding the effect of the
1998 endowment of a non-profit foundation) consists primarily of federal
alternative minimum tax and state income taxes, adjusted for the effect of
10
<PAGE> 11
other permanent book to tax differences, including non-deductible expenses and
losses from CHPN subsidiaries that are not expected to generate a tax benefit
currently or in the foreseeable future.
As a result of the foregoing factors, operating income decreased to $10.1
million for the three months ended September 30, 1999 from $11.0 million for the
three months ended September 30, 1998. The Company recognized net income of $8.0
million for the quarter ended September 30, 1999 compared to net income of $7.5
million for the quarter ended September 30, 1998.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Premium revenues increased $221.2 million to $1,089.4 million for the nine
months ended September 30, 1999 from $868.2 million for the nine months ended
September 30, 1998. HMO and POS premiums increased 31% to $481.4 million for the
1999 period primarily as a result of a 16% increase in membership and rate
increases in the 1999 period. HMO and POS insured membership increased to
400,000 members at September 30, 1999 from 344,000 members at September 30, 1998
due to new sales and in-group growth. Premium revenues for indemnity and PPO
products increased 21%, or $105.2 million, to $594.8 million for the nine months
ended September 30, 1999 as a result of rate increases in 1999 and a 9% growth
in the members served.
Management services revenue increased $20.9 million to $106.4 million for the
nine months ended September 30, 1999 compared to $85.5 million for the nine
months ended September 30, 1998, as the Company has continued to experience
increased administrative fee revenue from services provided to self-funded
employer groups and other third parties and network access fees from other Blue
Cross Blue Shield plans. Self-funded employer group membership of 857,000 at
September 30, 1999 declined slightly from 867,000 members at September 30, 1998
as certain self-funded employer groups have shifted to the national Interplan
Teleprocessing System for Blue Cross Blue Shield plans.
Membership served under insurance products and management services arrangements
totaled 1,677,000 at September 30, 1999, an increase of 5% over membership of
1,595,000 at September 30, 1998.
Realized gains of $5.7 million on the sale of marketable securities for the nine
months ended September 30, 1999 were lower than gains realized of $7.7 million
for the nine months ended September 30, 1998. The magnitude of realized gains in
any period can fluctuate due to fixed income and equity market performance, as
well as timing of individual sale transactions, which are subject to decisions
made by the Finance Committee of the Company's Board of Directors or by
individual investment portfolio managers. Results in one period are not
necessarily indicative of results to be expected in the future.
The Company's medical loss ratio (benefits expense as a percentage of premium
revenue) increased to 87.9% for the nine months ended September 30, 1999 up from
85.7% for the nine months ended September 30, 1998. Higher cost trends were
identified for 1999 incurred claims periods resulting in higher loss ratios for
all of the Company's employer group products in the 1999 period.
Operating expenses were $227.8 million for the nine months ended September 30,
1999, an increase of 10% over the same period a year ago, while premium and
management services revenues increased 25%. Due to the positive impact from
premium increases in 1999 being realized at a rate higher than operating expense
increases, operating expenses as a percentage of premium and management services
revenue continued to improve. Operating expenses were 19.0% of premiums and
management services revenue for the nine month period ended September 30, 1999
compared to 21.6% for the nine months ended September 30, 1998. Year 2000
readiness costs of $3.6 million and $4.2 million for the nine months of 1999 and
1998, respectively, were included in operating expenses. Additionally, the 1999
period includes approximately $7.3 million in legal and other professional
expenses related to the pending merger with WellPoint and the litigation
referred to in Note 6 of the Notes to Consolidated Financial Statements
(Unaudited), compared to $1.9 million incurred in the 1998 period.
On July 8, 1998, the Company entered into a stipulation and agreement of
settlement of a lawsuit concerning the conversion of the company to a for-profit
corporation. The Company endowed a new non-profit foundation and
11
<PAGE> 12
issued cash, Class A Stock and Warrants pursuant to this settlement; in
connection with this transaction, the Company recorded a non-recurring charge of
$76.2 million for the nine months ended September 30, 1998. The Company recorded
a tax benefit of $26.7 million related to this settlement, which was reduced to
its expected realizable value of $4.6 million.
The Company recorded tax expense of $8.1 million for the nine months ended
September 30, 1999 compared to a tax expense of $2.5 million for the nine months
ended September 30, 1998. The Company's effective tax rate in both periods
(excluding the effect of the 1998 endowment of a non-profit foundation) consists
primarily of federal alternative minimum tax and state income taxes, adjusted
for the effect of other permanent book to tax differences, including
non-deductible expenses and losses from CHPN subsidiaries that are not expected
to generate a tax benefit currently or in the foreseeable future.
As a result of the foregoing factors, operating income increased to $31.3
million for the nine months ended September 30, 1999 from $24.0 million for the
nine months ended September 30, 1998. The Company recognized net income of $24.4
million for the nine months ended September 30, 1999 compared to a net loss of
$56.7 million for the nine months ended September 30, 1998, after considering
the non-recurring endowment of a non-profit foundation in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The Company has both short-term and long-term liquidity needs and has structured
its investment portfolios accordingly. Short-term liquidity needs to fund
operating costs, as well as payment obligations to its customers, are met from
funds invested primarily in institutional money market accounts and short-term
government agency notes. Assets not required for short-term liquidity needs are
transferred to a portfolio of investments in the fixed income and equity
markets. This portfolio, which provides reserves for future payment obligations
and funds for long-term liquidity needs is managed by several independent
advisory firms. The Company's investment policies are designed to provide
liquidity to meet anticipated payment obligations, to preserve capital and to
maximize yield in conformance with all regulatory requirements. Of the Company's
investment portfolio of $312.0 million, $306.6 million is held at its insurance
subsidiaries and is invested subject to limitations prescribed by Georgia
insurance statutes.
The increase in cash and cash equivalents amounted to $8.9 million for the nine
months ended September 30, 1999. The Company generated positive cash flow from
operations of $18.1 million in the 1999 period due to improved profitability
offset, in part, by lower rate stabilization reserves for certain employer
groups. Capital and investment purchases exceeded sales by $9.5 million, thus
reducing the cash provided by operations for the nine months ended September 30,
1999. Because of the nature of the Company's business, current cash flows from
operations for interim periods are not necessarily indicative of cash flows from
operations expected for the entire year. The Company believes its future cash
resources will be adequate to meet its operating requirements.
Capital Resources
The Company is executing a comprehensive plan to either modify or replace
portions of its information technology software and hardware so that those
systems will properly function when processing information involving dates after
1999. Total Year 2000 computer software readiness costs are estimated at $18.9
million and are being funded through operating cash flows. Through September 30,
1999, the Company has incurred $17.8 million to date. Of that total, renovation
costs expensed total $10.4 million of which $3.6 million was incurred in the
1999 period. Remaining Year 2000 expenses are estimated at $1.1 million of
renovation expense.
The Company anticipates that the principal elements of its future capital
requirements are information technology needs, product development, and equity
contributions to its CHPN joint ventures and other subsidiaries. The Company
believes future capital requirements can be met with a combination of (i) the
Company's current resources, (ii) cash flows from operations, (iii) borrowings
and (iv) potential debt or equity offerings. Management
12
<PAGE> 13
believes that the consummation of the merger will provide the Company with
significant additional capital alternatives.
Year 2000 Computer Software Readiness
All companies that operate on mature computer software programs face the
difficult task of how to reprogram or replace their existing systems, which have
protocols that address dates in terms of two digits rather than four to define
the applicable year. Date sensitive software may recognize a date using "00" as
the year 1900 instead of the year 2000. The Company is executing a comprehensive
plan to either modify or replace portions of its software and hardware so that
those systems will properly function when processing information involving dates
beyond December 31, 1999. The Company's Year 2000 plans involve the following
phases: (1) awareness and assessment, which includes identification of
significant business processes, facilities and third party dependencies
requiring a Year 2000 solution; (2) renovation, which includes updating and
modifying critical systems and business processes; (3) validation, which
includes testing of systems that have been updated or modified; (4)
implementation, which includes placing systems into production and comprehensive
testing to identify and resolve any remaining Year 2000 issues; and (5)
contingency planning.
During 1997, the Company began its assessment of all systems that could be
significantly affected by the Year 2000 issue. Detailed plans for renovation
were finalized in early 1998. The Company has completed its certification of
Year 2000 renovation efforts based on mandated testing requirements from the
Health Care Financing Administration ("HCFA"), Federal Employees Program
("FEP"), and the Blue Cross Blue Shield Association. A more detailed description
and status of Year 2000 activities as of October 31, 1999 follows:
- - The Company's data center, software, client server, desk top computers and
standard software, telephone and voice mail systems are Year 2000
compliant. Security systems and elevators in leased and owned facilities
have been certified by outside parties as Year 2000 compliant.
- - Electronic data interchange capability that supports the exchange of data
with business partners, providers, and vendors was Year 2000 certified in
September 1999.
- - The imaging and workflow routing software that supports the majority of the
Company's healthcare membership has been Year 2000 certified.
- - The Company's claims processing, membership billing and primary claim
payment systems, which currently handle over 70% of the Company's
healthcare membership, are renovated, Year 2000 certified and in
production. Recertification testing is in progress and will continue
through November 1999.
- - The Year 2000 compliant claims processing system for the Company's
remaining healthcare membership (representing the non-HMO membership for
one of its largest customers) was implemented on October 1, 1999.
Certification testing for this customer will continue through the end of
November 1999.
- - Medicare Part A claims processing system is renovated and certified. The
system and all interfaces were recertified by HCFA during October 1999.
- - During the third quarter, the Company began remediation of the current
processing systems for its life insurance subsidiary. The renovation and
certification of this system will be completed by the end of November 1999.
- - The Company has developed and tested contingency action plans for mission
critical business operations to invoke in case of high-risk failures.
Contingency plans will continue to be updated through December 1999.
- - Year 2000 Enterprise (end-to-end) testing, which includes data exchanges
with selected critical third party business partners, began in September
1999 and will continue through November 1999.
The Company utilizes both internal and external resources to renovate, replace,
test and implement the software and equipment to satisfy Year 2000 requirements.
The total cost of the Year 2000 changes is estimated at $18.9 million and is
being funded through operating cash flows. Through September 30, 1999, the
Company has incurred $17.8 million in total expenditures. Renovation costs
expensed totaled $10.4 million of which $3.6 million was incurred during the
nine months ended September 30, 1999. Remaining Year 2000 costs are estimated at
$1.1 million of renovation expense. Costs of new software and hardware are
included in capital expenditures and will be amortized over three to five years.
13
<PAGE> 14
The Company conducts business electronically with certain external parties,
including suppliers, customers, physicians, hospitals, HCFA, FEP, financial
institutions and communications service companies. The Company has contacted all
of the external parties with which it interacts to determine Year 2000
compliance status. At the end of October, all have reported Year 2000 compliance
with the exception of approximately 10% of the physicians and 20% of the
hospitals and institutions that provide health care services to the Company's
1.7 million members. Contingency plans are being evaluated to accommodate
additional paper claim volume from potentially non-compliant physicians and
hospitals. Certification testing of interfaces with vendors, suppliers,
physicians and hospitals will continue through November 1999.
The Company holds investments in publicly traded domestic fixed-maturity and
equity securities. Non-compliance by the issuing companies which results in a
material change in the value of these securities could have a material impact on
the Company's investment earnings which have accounted for a significant portion
of operating income over the last five years. The Company believes its overall
risk should be reduced by the diversification of its investment portfolio.
The Company has received independent reviews from third parties of all its Year
2000 compliance activities. Due to the general uncertainty inherent in Year 2000
issues, especially as the uncertainty relates to the readiness of other parties,
there can be no assurances that the Company's Year 2000 readiness program has
identified all potential Year 2000 issues. Although a Year 2000 failure with a
single internal or external system may cause an intermittent disruption of
operations, the failure of multiple systems may cause a significant disruption
to the Company's business. The Company could be impacted by a number of
potential consequences, including inability to timely and accurately process
health care claims or verify member eligibility. Should the Company experience a
decline in the electronic submission of claims from health care providers, it is
possible there would be an increase in claims inventory. An increase in claims
inventory could result in decreased service levels and prevent the Company from
timely assessing emerging medical trends which could result in increased costs
of operations for the Company.
In order to decrease business risk, the Company has implemented a general freeze
on changes to hardware and software utilized in the Company's regular business
operations, effective October 1, 1999 through January 7, 2000. Updates to
Company-wide contingency plans and Year 2000 integrated testing will continue
during the remainder of 1999 as additional quality assurance measures. The
Company has begun a Year 2000 Day One planning process to ensure effective
control and responsiveness to Year 2000 issues that may arise during and after
the rollover from the year 1999 to the year 2000. A Corporate Year 2000 Control
Center and a HCFA Control Center have been designed and will be available for
Year 2000 execution drills in mid-November. These centers will be staffed 24
hours a day from December 31, 1999 through January 3, 2000, with an option to
continue this level of staffing if major Year 2000 problems and required time
for resolution warrant it. A Year 2000 Day One Plan, including action plans for
all business areas, has been drafted and will be finalized by December 15, 1999.
The Company believes it has comprehensive Year 2000 readiness and contingency
plans and that it has gathered as much information as possible in which Year
2000 issues could impact its operations. Although the Company is attempting to
limit its exposure to Year 2000 issues, there are no assurances that all
potential problems will be eliminated or mitigated by the Company's actions.
COMMITMENTS AND CONTINGENCIES
See the description under the same caption in Note 6 to the Notes to
Consolidated Financial Statements (Unaudited), which description is incorporated
herein by reference.
FORWARD-LOOKING STATEMENTS
The matters discussed in this Form 10-Q contain certain forward-looking
statements made pursuant to the safe harbor provisions of Section 27A of the
Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934,
that represent the Company's expectations or beliefs including, without
limitation, statements concerning
14
<PAGE> 15
future revenue, future investment earnings and value and certain Year 2000
information. Such statements involve risk and uncertainties that may cause
actual results to differ materially from those implied in this Form 10-Q. Among
other things, these risks and uncertainties include: the need to accurately
predict health care costs and the ability to control future health care costs
through product and benefit design, underwriting criteria, utilization
management and negotiation of favorable provider and hospital contracts; changes
in mandated benefits, utilization rates, demographic characteristics, health
care practices, inflation, new pharmaceuticals and technologies, clusters of
high-cost cases, response to the regulatory environment and numerous other
factors that are beyond the Company's control and may adversely affect its
ability to predict and control health care costs and claims; periodic
renegotiation of hospital and other provider contracts coupled with continued
consolidation of physician, hospital and other provider groups which may result
in increased health care costs, limit the Company's ability to negotiate
favorable rates and control costs and subject the Company to increased credit
risk or risks of network stability related to provider groups; competitive
pressure to contain premium prices; fiscal concerns regarding the continued
viability of government-sponsored programs such as Medicare and the potential of
decreasing reimbursement rates for these programs; and any other limitations on
the Company's ability to increase or maintain its premium levels, design
products, select underwriting criteria or negotiate competitive provider
contracts. Other risk factors are described in the Company's other Securities
and Exchange Commission reports and filings.
15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
With a primary emphasis on protection of capital, the Board of
Directors-approved investment guidelines seek appropriate asset distribution,
diversification of risk, and use of professional external money managers to
manage levels of risk. The Company maintains two investment portfolios, one
internally managed for short-term liquidity and the other externally managed in
the fixed income and equity markets for long-term liquidity needs. The Company
does not hold derivative financial instruments or derivative commodity
instruments in either portfolio and has no foreign currency exposure. The
Company is subject to market risk exposure associated with changes in interest
rates and equity prices in its investment portfolios. A sensitivity analysis to
measure potential losses in the market value of the Company's fixed income and
equity investments in both portfolios (both portfolios are classified as other
than trading) indicates the following market risk exposures:
As of September 30, 1999, approximately 78.6% of the value ($245.3 million)
of the consolidated portfolios was held in financial instruments with fixed
maturities. The primary market risk exposure is to changes in interest
rates. An immediate one percentage point decrease in interest rates would
increase the net aggregate market value of the fixed income portfolio by
$8.9 million. An immediate one percentage point increase in interest rates
would decrease the net aggregate market value of the fixed income portfolio
by $8.8 million. Corporate Treasury manages interest rate exposure by
maintaining a short duration in its fixed income portfolio. The modeling
technique used by the Company considers the net present value of cash flows
(including duration estimates). Short-term debt instruments, approximately
0.1% of the value ($0.3 million) of the consolidated portfolios, with a
fair value equal to their cost are excluded from the aggregate net market
value market risk exposure analysis.
The fair value of the common equity portfolio, excluding investments in
affiliated entities (21.3% of the common equity portfolio), was $65.0
million as of September 30, 1999. The equity portfolio is highly
diversified and limited to high quality domestic dividend-paying stocks.
The primary market risk exposure is therefore an overall decline in market
prices for balanced portfolios composed of the equity securities of
seasoned domestic companies. Assuming an immediate 10% decrease in each
equity security price, the hypothetical pre-tax loss in fair value is $6.5
million. Likewise, assuming an immediate 10% increase in each equity
security price, the hypothetical pre-tax gain in fair value is $6.5
million. The Company's unrealized net gains and losses are recorded net of
taxes as accumulated other comprehensive income in the Shareholders' equity
section of the accompanying Consolidated Financial Statements at Item 1 of
this Form 10-Q.
The Company does not anticipate any specific change in primary market risk
exposure during the remainder of 1999, however, the Company believes there is
potential for increased volatility should there be an unforeseen event with
regards to either earnings, interest rates, or Year 2000 non-compliance by
companies issuing fixed-maturity or equity securities.
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Note 6 of the Notes to Consolidated Financial Statements (Unaudited) in Part I,
Item 1 regarding the lawsuit filed on December 17, 1998 in the Superior Court of
Bartow County by nine plaintiffs on behalf of themselves and all others
similarly situated is incorporated herein by reference.
Note 6 of the Notes to Consolidated Financial Statements (Unaudited) in Part I,
Item 1 regarding the lawsuit filed on September 18, 1998 in the Superior Court
of Richmond County is incorporated herein by reference.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated July 9, 1998, by and among Cerulean
Companies, Inc., WellPoint Health Networks Inc. and Water Polo
Acquisition Corp.(1)
2.2 First Amendment to Agreement and Plan of Merger, dated July 9, 1999, by
and among Cerulean Companies, Inc., WellPoint Health Networks Inc. and
Water Polo Acquisition Corp.(2)
3.1 Amended Articles of Incorporation of Cerulean Companies, Inc.(3)
3.2 Bylaws of Cerulean Companies, Inc.(4)
4.1 Stock Escrow Agreement among Cerulean Companies, Inc., Blue Cross and
Blue Shield of Georgia, Inc. and SunTrust Bank, Atlanta.(4)
4.2 Specimen form of Class A Convertible Common Stock certificate.(4)
27 Financial Data Schedule (for SEC use only).*
</TABLE>
- -------------
* This exhibit is filed herewith.
(1) The Appendix A of Form S-4, Registration No. 333-64955, filed by WellPoint
Health Networks Inc. on September 30, 1998 is incorporated herein by
reference.
17
<PAGE> 18
(2) This exhibit to Form 10-Q filed on August 16, 1999 is incorporated herein by
reference.
(3) This exhibit to Form 10-Q filed on November 13, 1998 is incorporated herein
by reference.
(4) This exhibit to Form S-1, Registration No. 333-2796, filed on March 27, 1996
and subsequent amendments is incorporated herein by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1999.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CERULEAN COMPANIES, INC.
Registrant
Date: November 12, 1999 By: /s/ Richard D. Shirk
-------------------------------
Richard D. Shirk, President and
Chief Executive Officer
Date: November 12, 1999 By: /s/ John A. Harris
-------------------------------
John A. Harris, Treasurer
19
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CERULEAN
COMPANIES, INC.'S FINANCIAL STATEMENTS ON FORM 10-Q FOR THE PERIOD ENDED
SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 245,322,366
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 66,372,070
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 312,019,436
<CASH> 61,079,658
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 602,801,044
<POLICY-LOSSES> 196,466,599
<UNEARNED-PREMIUMS> 11,118,148
<POLICY-OTHER> 38,786,536
<POLICY-HOLDER-FUNDS> 0
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46,645,042
0
<COMMON> 4,096
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1,089,413,073
<INVESTMENT-INCOME> 14,799,331
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<OTHER-INCOME> 106,382,667
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<INCOME-PRETAX> 31,452,574
<INCOME-TAX> 8,102,000
<INCOME-CONTINUING> 24,353,358
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