<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 ON FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) OCTOBER 9, 1996
-------------------------------
WELLPOINT HEALTH NETWORKS INC.
- -------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
CALIFORNIA 1-14340 95-3760980
- -------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
21555 OXNARD STREET, WOODLAND HILLS, CALIFORNIA 91367
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (818) 703-4000
----------------------------
NOT APPLICABLE
- -------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE> 2
EXPLANATORY NOTE
On October 10, 1996, the Company entered into a definitive agreement
(the "Purchase Agreement") to acquire certain portions of the group health and
related life business (the "GBO Operations") of the Group Benefit Operations
Division (the "GBO Division") of John Hancock Mutual Life Insurance Company
("Hancock") for an aggregate purchase price of $86.7 million. The Company's
Current Report on Form 8-K dated October 9, 1996 (the "Form 8-K") was filed
with the Securities and Exchange Commission. This Amendment No. 1 on Form 8-K/A
is being filed in order to provide certain historical and pro forma financial
information under Item No. 7 that was unavailable at the time of the filing of
the Form 8-K. Except as specifically amended by this Form 8-K/A, the Form 8-K
shall remain unchanged.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Historical financial information as of and for the nine-month
period ended September 30, 1996 are attached hereto.
(B) PRO FORMA FINANCIAL INFORMATION
Pro forma financial information as of and for the nine-month
period ended September 30, 1996 and for the year ended December
31, 1995 are attached hereto.
(C) EXHIBITS
Exhibit No. Exhibit
- ----------- -------
2.1* Purchase and Sale Agreement dated as of October 10, 1996 entered
into between John Hancock Mutual Life Insurance Company, a mutual
life insurance company organized under the laws of Massachusetts
and the Company.
99.1* Definitions (Annex A to Purchase Agreement).
99.2* Form of Coinsurance Agreement between John Hancock Mutual Life
Insurance Company, a mutual life insurance company organized under
the laws of Massachusetts and UNICARE Life and Health Insurance
Company, a stock life insurance company organized under the laws
of Delaware (Annex B to Purchase Agreement).
* Previously filed.
2.
<PAGE> 3
99.3* Form of Assumption Reinsurance Agreement by and between John
Hancock Mutual Life Insurance Company, a mutual life insurance
company organized under the laws of Massachusetts and UNICARE Life
and Health Insurance Company, a stock life insurance company
organized under the laws of Delaware (Annex C to Purchase
Agreement).
99.4* Form of Limited License Agreement between John Hancock Mutual Life
Insurance Company, a mutual life insurance company organized under
the laws of Massachusetts and UNICARE Life and Health Insurance
Company, a stock life insurance company organized under the laws
of Delaware (Annex D to Purchase Agreement).
99.5* Form of Administration Agreement by and between John Hancock
Mutual Life Insurance Company, a mutual life insurance company
organized under the laws of Massachusetts and UNICARE Life and
Health Insurance Company, a stock life insurance company organized
under the laws of Delaware (Annex E to Purchase Agreement).
99.6* Form of Service Agreement by and between John Hancock Mutual Life
Insurance Company, a mutual life insurance company organized
under the laws of Massachusetts and UNICARE Life and Health
Insurance Company, a stock life insurance company organized under
the laws of Delaware (Annex F to Purchase Agreement).
99.7* Office Lease for Premises located at 200 Berkeley Street, Boston,
Massachusetts by and between John Hancock Mutual Life Insurance
Company, as landlord, and UNICARE Life & Health Insurance Company
as Tenant (Annex G to Purchase Agreement).
99.8* Summary of Accounting Principles and Procedures (Annex L to
Purchase and Sale Agreement).
* Previously filed.
3.
<PAGE> 4
SIGNATURE
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 hereunto duly authorized.
Date: November 12, 1996
WELLPOINT HEALTH NETWORKS INC.
By: /s/ THOMAS C. GEISER
---------------------------
Name: Thomas C. Geiser
---------------------------
Title: Executive Vice President
---------------------------
4.
<PAGE> 5
COMBINED STATEMENT OF ASSETS AND LIABILITIES
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
SEPTEMBER 30, 1996 (in thousands)
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Receivable from John Hancock $417,016
Reinsurance recoverable from reinsurers 76,065
Premiums and accounts receivable 137,621
Property and equipment, net of accumulated depreciation 18,660
Intangible assets 9,552
Other assets 7,315
--------
TOTAL ASSETS $666,229
========
LIABILITIES
Future policy benefits $297,669
Policyholders' and beneficiaries' funds 99,272
Unpaid claims and claim expense reserves 159,741
Amounts due to reinsurers 51,142
Dividends payable to policyholders 24,873
Debt 238
General insurance expenses 645
Payable to affiliate 22,307
Other liabilities 10,342
--------
TOTAL LIABILITIES $666,229
========
</TABLE>
See notes to unaudited combined financial statements
1
<PAGE> 6
COMBINED STATEMENT OF OPERATIONS AND CHANGES IN NET ASSET BALANCE
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 1996 (in thousands)
(Unaudited)
<TABLE>
<S> <C>
Revenues:
Premiums $379,717
Service fees 119,330
Investment income 37,600
Other income 36,972
--------
TOTAL REVENUES 573,619
Benefits and expenses:
Benefits to policyholders and provision for future benefits 338,951
Operating expenses 199,665
Deferred development costs 7,198
Commissions 1,426
Depreciation and amortization 3,748
Dividends to policyholders 14,032
--------
TOTAL BENEFITS AND EXPENSES 565,020
INCOME FROM OPERATIONS BEFORE INCOME TAXES 8,599
INCOME TAXES 3,010
--------
NET INCOME 5,589
NET ASSET BALANCE AT JANUARY 1 0
TRANSFER TO JOHN HANCOCK (5,589)
--------
NET ASSET BALANCE AT SEPTEMBER 30 $ 0
========
</TABLE>
See notes to unaudited combined financial statements
2
<PAGE> 7
COMBINED STATEMENT OF CASH FLOWS
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 1996 (in thousands)
(Unaudited)
<TABLE>
<S> <C>
Cash flows used in operating activities:
Net income $ 5,589
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 10,946
(Increase) decrease in certain assets:
Reinsurance recoverable from reinsurers 4,285
Premiums and accounts receivable (42,166)
Other assets (1,128)
Increase (decrease) in certain liabilities:
Future policy benefits (2,713)
Policyholders' and beneficiaries' funds 19,018
Unpaid claims and claim expense reserves (15,715)
Amounts due to reinsurers (7,668)
Dividends payable to policyholders (109)
General insurance expenses (954)
Payable to affiliates (2,566)
Other liabilities (3,068)
--------
NET CASH USED IN OPERATING ACTIVITIES (36,249)
--------
Cash flows from investing activities:
Change in receivable from John Hancock 45,859
Property and equipment purchased (4,002)
Transfer from John Hancock (5,589)
--------
NET CASH PROVIDED BY INVESTING ACTIVITIES 36,268
--------
Cash flows from financing activities:
Principal repayments of long term debt (19)
--------
NET CASH USED IN FINANCING ACTIVITIES (19)
--------
Net increase in cash and cash equivalents 0
Cash and cash equivalents at beginning of period 0
--------
Cash and cash equivalents at end of period $ 0
========
</TABLE>
See notes to unaudited combined financial statements
3
<PAGE> 8
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED)
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The accompanying unaudited combined financial statements include certain
operations of the group life and accident and health insurance business of John
Hancock Mutual Life Insurance Company (John Hancock) and Cost Care, Inc.,
Hancock Association Services Group and Tri-State, Inc. (the Group Benefits
Operations or GBO). Cost Care, Inc., Hancock Association Services Group and
Tri-State, Inc. are wholly owned, indirect subsidiaries of John Hancock.
The GBO business is expected to be acquired pursuant to an agreement between
John Hancock and WellPoint Health Networks Inc. (see Note 3). GBO has
transactions with affiliated companies, the terms and conditions of which are
determined by GBO and the members of the affiliated group. GBO operating costs
and expenses consist of direct costs, allocated costs, and allocated corporate
overhead. Accordingly, these financial statements might not be indicative of
the financial position and results of operations that would have occurred had
GBO operated as a nonaffiliated entity.
The accompanying unaudited combined financial statements of GBO have been
prepared in accordance with generally accepted accounting principles (GAAP) for
interim financial information, applied on a consistent basis, for stock life
insurance companies (stock life basis): which vary from statutory accounting
practices as prescribed or permitted by the Commonwealth of Massachusetts
Division of Insurance and the National Association of Insurance Commissioners.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine-month period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the combined financial
statements and footnotes for the years ended December 31, 1995 and 1994.
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
- ------------------------------------------------------------------------------
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In those cases where it is determined that the carrying amount is
not recoverable, an impairment loss is recognized (the difference between the
cost and fair value of the asset). The Statement also requires long-lived
assets to be disposed of (e.g., real estate held for sale) to be carried at the
lower of cost or fair value less cost to sell and does not allow such assets to
be depreciated. This Statement is effective for 1996 financial statements. The
adoption of SFAS No. 121 did not have a material effect on GBO's results of
operations or statement of assets and liabilities.
4
<PAGE> 9
NOTES TO COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
THE GROUP BENEFITS OPERATIONS OF JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY AND SUBSIDIARIES
NOTE 2-CONTINGENCIES
In the normal course of its business operations, GBO is involved in litigation
from time to time with claimants, beneficiaries and others, and a number of
litigation matters were pending as of September 30, 1996. It is the opinion of
management, after consultation with counsel, that the ultimate liability with
respect to these claims, if any, will not materially impact the financial
condition of GBO.
NOTE 3-SALE OF GBO TO WELLPOINT HEALTH NETWORKS INC.
On October 10, 1996, John Hancock and WellPoint Health Networks Inc. signed a
definitive agreement for the sale of GBO to WellPoint Health Networks Inc.
Under the terms of the definitive agreement, the sale is currently scheduled to
close in January 1997.
5
<PAGE> 10
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following sets forth the unaudited pro forma combined condensed balance
sheet for WellPoint Health Networks Inc. (the "Company" or "WellPoint") as of
September 30, 1996, and unaudited pro forma combined condensed income statements
for the nine months ended September 30, 1996 and for the year ended December 31,
1995. The Unaudited Pro Forma Combined Condensed Financial Statements include
historical amounts of Old WellPoint (the predecessor to WellPoint), adjusted to
reflect the Recapitalization including the acquisition of the BCC Commercial
Operations, and historical amounts of the Life and Health Benefits Management
Division ("MMHD") of Massachusetts Mutual Life Insurance Company (which was
acquired by the Company on March 31, 1996 (the "MMHD Acquisition")) and GBO
adjusted to reflect their acquisition by WellPoint. Reference is made to the
notes to the Unaudited Pro Forma Combined Condensed Financial Statements for a
discussion of such transactions. For the purpose of presenting the unaudited pro
forma combined condensed balance sheet, the Recapitalization and the MMHD
Acquisition are considered to have occurred on their effective dates, and the
pending acquisition of GBO is considered to have occurred as of September 30,
1996, while the unaudited pro forma combined condensed income statements are
presented on the basis that such transactions occurred as of the beginning of
each period presented.
As further discussed in the notes to the Unaudited Pro Forma Combined
Condensed Financial Statements, the acquisition of the BCC Commercial
Operations, the MMHD Acquisition and the pending acquisition of GBO are
accounted for using the purchase method of accounting, whereby the respective
assets and liabilities of the BCC Commercial Operations, MMHD and GBO are
recorded at their estimated fair value.
Certain data and notes normally included in financial statements in
accordance with generally accepted accounting principles have been condensed or
omitted. The unaudited pro forma combined condensed balance sheet is not
necessarily indicative of the financial condition had the pending acquisition of
GBO been completed as of September 30, 1996. The Unaudited Pro Forma Combined
Condensed Income Statements are not necessarily indicative of the results of
operations of WellPoint had the Recapitalization (including the acquisition of
the BCC Commercial Operations), the MMHD Acquisition and the pending acquisition
of GBO actually been completed as of the dates indicated. In addition, the
Unaudited Pro Forma Combined Condensed Financial Statements are not necessarily
indicative of the future financial condition or results of operations of
WellPoint. The pro forma financial information should be read in conjunction
with the historical consolidated financial statements of the Company, and the
historical financial statements of the BCC Commercial Operations, MMHD and GBO.
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
WELLPOINT GBO ADJUSTMENTS TOTAL
---------- -------------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and current investments..................... $2,026,935 $417,016 $ -- $2,443,951
Other current assets............................. 557,257 213,686 -- 770,943
---------- -------- -------- ----------
Total current assets.................... 2,584,192 630,702 -- 3,214,894
Intangible assets................................ 552,601 9,552 127,700(1) 689,853
Other non-current assets......................... 311,090 25,975 -- 337,065
---------- -------- -------- ----------
Total assets............................ $3,447,883 $666,229 $127,700 $4,241,812
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Medical claims payable and loss reserves......... $ 819,843 $159,741 $ -- $ 979,584
Unearned premiums................................ 160,463 -- -- 160,463
Experience rated and other refunds............... 151,191 24,873 -- 176,064
Other current liabilities........................ 470,142 84,674 41,000(1) 595,816
---------- -------- -------- ----------
Total current liabilities............... 1,601,639 269,288 41,000 1,911,927
Long-term debt................................... 747,000 - 86,700(2) 833,700
Other non-current liabilities.................... 287,134 396,941 -- 684,075
---------- -------- -------- ----------
Total liabilities....................... 2,635,773 666,229 127,700 3,429,702
Total stockholders' equity....................... 812,110 -- -- 812,110
---------- -------- -------- ----------
Total liabilities and stockholders' equity..... $3,447,883 $666,229 $127,700 $4,241,812
========== ======== ======== ==========
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
<PAGE> 11
WellPoint Health Networks Inc.
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
For the Nine Months Ended September 30, 1996
(unaudited)
<TABLE>
<CAPTION>
Recapitalization
and
BCC
(Thousands, except earnings per share) Commercial
WellPoint Operations(3) Adjustments
-------------- ------------- -------------
<S> <C> <C> <C>
Revenues $2,485,153 $319,850 ($9,667)(4)
Expenses 2,228,663 297,226 2,039 (5)
-------------- ------------ -------------
Operating and other income 256,490 22,624 (11,706)
Interest expense - 20,974 21,167 (6)
-------------- ------------ -------------
Income before provision (benefit) for income taxes 256,490 1,650 (32,873)
Provision (benefit) for income taxes 103,878 668 (13,313)(7)
-------------- ------------ -------------
Net income $152,612 $982 ($19,560)
============== ============ =============
</TABLE>
<TABLE>
<CAPTION>
WellPoint
(Thousands, except earnings per share) Post
Recapitalization MMHD(8) GBO Adjustments Total
----------------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $2,795,336 $592,420 $573,619 ($5,187)(9) $3,956,188
Expenses 2,527,928 571,860 565,020 4,849 (10) 3,669,657
----------------- ----------- ----------- ----------- -------------
Operating and other income 267,408 20,560 8,599 (10,036) 286,531
Interest expense 42,141 2,346 0 6,275 (11) 50,762
----------------- ----------- ----------- ----------- -------------
Income before provision (benefit) for income taxes 225,267 18,214 8,599 (16,311) 235,769
Provision (benefit) for income taxes 91,233 6,375 3,010 (5,741)(12) 94,877
----------------- ----------- ----------- ----------- -------------
Net income $134,034 $11,839 $5,589 ($10,570) $140,892
================= =========== =========== =========== =============
Primary and fully diluted earnings per share $2.12
=============
Weighted average number shares outstanding 66,416 (13)
=============
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
<PAGE> 12
WellPoint Health Networks Inc.
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
For the Year Ended December 31, 1995
(unaudited)
<TABLE>
<CAPTION>
BCC
(Thousands, except earnings per share) Commercial
WellPoint Operations Adjustments
--------------- ----------- -------------
<S> <C> <C> <C>
Revenues $3,107,079 $448,493 ($25,025) (4)
Expenses 2,804,292 441,988 5,111 (5)
--------------- ----------- -------------
Operating and other income 302,787 6,505 (30,136)
Interest expense - - 56,188 (6)
--------------- ----------- -------------
Income (loss) before provision (benefit) for income taxes 302,787 6,505 (86,324)
Provision (benefit) for income taxes 122,798 2,323 (34,819) (7)
--------------- ----------- -------------
Net income (loss) $179,989 $4,182 ($51,505)
=============== =========== =============
</TABLE>
<TABLE>
<CAPTION>
WellPoint
(Thousands, except earnings per share) Post
Recapitalization MMHD GBO Adjustments Total
---------------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $3,530,547 $888,542 $739,726 ($18,711) (9) $5,140,104
Expenses 3,251,391 814,675 752,440 10,883 (10) 4,829,389
---------------- ---------- ------------ ----------- ------------
Operating and other income 279,156 73,867 (12,714) (29,594) 310,715
Interest expense 56,188 - - 10,781 (11) 66,969
---------------- ---------- ------------ ----------- ------------
Income (loss) before provision (benefit)
for income taxes 222,968 73,867 (12,714) (40,375) 243,746
Provision (benefit) for income taxes 90,302 24,385 (4,450) (12,621) (12) 97,616
---------------- ---------- ------------ ----------- ------------
Net income (loss) $132,666 $49,482 ($8,264) ($27,754) $146,130
================ ========== ============ =========== ============
Primary and fully diluted earnings per share $2.20
============
Weighted average number shares outstanding 66,367 (13)
============
</TABLE>
See Notes to Unaudited Pro Forma Combined Condensed Financial Statements
<PAGE> 13
WELLPOINT HEALTH NETWORKS INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
On March 31, 1996 the Company completed the MMHD Acquisition.
On May 20, 1996, the Company, BCC and Old WellPoint completed the
Recapitalization, which has been accounted for in the Unaudited Pro Forma
Combined Condensed Financial Statements using the purchase method of accounting,
whereby the respective assets and liabilities of the BCC Commercial Operations
are recorded at their estimated fair market value. In connection with the
Recapitalization, stockholders of Old WellPoint received a cash dividend of
$10.00 per share of Old WellPoint Common Stock ($995.0 million in aggregate),
followed by the Merger of Old WellPoint with and into Converted BCC (thereafter
"WellPoint") with each share of Old WellPoint Common Stock effectively converted
into 0.667 of a share of WellPoint Common Stock. WellPoint paid $235.0 million
in cash for the BCC Commercial Operations, including the value of the Blue Cross
name and mark. The total cash paid in the Recapitalization was $1,230.0 million.
On October 10, 1996, WellPoint executed a definitive agreement to acquire
the GBO Operations for approximately $86.7 million. This transaction is expected
to close in January 1997.
(1) The net increase in intangible assets is a result of the excess of cost
over the fair market value of the net assets of GBO (purchase price of
$86.7 million) and certain purchase price adjustments related to the
pending acquisition of GBO.
(2) Reflects the issuance of long-term indebtedness of $86.7 million associated
with the pending acquisition of GBO.
(3) The historical operating results of the BCC Commercial Operations have been
adjusted for the period from the date of acquisition by WellPoint through
September 30, 1996 in the following manner: (a) WellPoint's revenues have
been increased and the BCC Commercial Operations' revenues have been
decreased by $8.3 million to reflect interest income on cash and
investments used by WellPoint to finance the acquisition of the BCC
Commercial Operations and the payment of a special dividend of $995.0
million; (b) WellPoint's expenses have been decreased and the BCC
Commercial Operations' expenses have been increased by $1.8 million to
reflect amortization of the intangible assets arising out of the
acquisition of the BCC Commercial Operations; and (c) WellPoint's interest
expense has been decreased and the BCC Commercial Operations' interest
expense has been increased by $21.0 million to reflect debt incurred to
finance the acquisition of the BCC Commercial Operations and the payment of
a special dividend.
(4) The reduction in revenues reflects the foregone interest, from January 1,
1996 through May 20, 1996 and for the year ended December 31, 1995, at
5.50% per annum on the $455.0 million of cash and investments used to fund
a special dividend and the acquisition of the BCC Commercial Operations.
(5) Reflects the adjustment required to amortize, from January 1, 1996 through
May 20, 1996 and for the year ended December 31, 1995, the intangible
assets of $204.5 million created as a result of the acquisition of the BCC
Commercial Operations on a straight-line basis over 40 years.
(6) Reflects the adjustment required to account for the interest expense (at an
assumed rate of 7.25% per annum), from January 1, 1996 through May 20, 1996
and for the year ended December 31, 1995, on the issuance of $775.0 million
of indebtedness incurred by WellPoint in connection with the payment of a
special dividend in the amount of $995.0 million. An increase in the
assumed interest rate by 0.25% results in additional interest expense of
$1.9 million on an annual basis and reduces earnings per share by $0.02 on
an annual basis.
(7) Reflects the tax effect of the pro forma adjustments to effect the
acquisition of the BCC Commercial Operations and payment of a special
dividend of $995.0 million.
(8) The historical operating results of MMHD have been adjusted for the period
from the date of acquisition through September 30, 1996 in the following
manner: (a) WellPoint's revenues have been
2
<PAGE> 14
increased and MMHD's revenues have been decreased by $8.8 million to
reflect the interest income on cash and investments used by WellPoint to
finance the MMHD Acquisition; and (b) WellPoint's interest expense has been
decreased and MMHD's interest expense has been increased by $2.3 million to
reflect the cost of debt incurred to finance the MMHD Acquisition. The
historical expenses of MMHD include amortization of $3.4 million from the
date of the acquisition to September 30, 1996, reflecting amortization of
intangible assets created as a result of the MMHD Acquisition.
(9) The reduction in revenues reflects the foregone interest at 5.50% per
annum, from January 1, 1996 through March 31, 1996 and for the year ended
December 31, 1995, on the $340.2 million of cash and investments used in
connection with the MMHD Acquisition.
(10) Reflects the adjustments required to amortize the intangible assets of
$231.9 million created as a result of the MMHD Acquisition on a
straight-line basis over 35 years, from January 1, 1996 through March 31,
1996 and for the year ended December 31, 1995, and to amortize the
intangible assets of $127.7 million expected to be created as a result of
the pending acquisition of GBO on a straight-line basis over 30 years,
from January 1, 1996 through September 30, 1996 and for the year
ended December 31, 1995.
(11) Reflects the adjustments required to account for the interest expense (at
an assumed rate of 7.25% per annum), from January 1, 1996 through March 31,
1996 and for the year ended December 31, 1995, on the issuance of $62.0
million of indebtedness incurred by WellPoint in connection with the MMHD
Acquisition, and the interest expense (at an assumed rate of 7.25% per
annum) on the issuance of $86.7 million of indebtedness expected to be
incurred by WellPoint in connection with the pending acquisition of the GBO
Operations for all periods presented. An increase in the assumed interest
rate by 0.25% results in additional interest expense of $0.4 million on an
annual basis and has minimal effect on earnings per share on an annual
basis.
(12) Reflects the tax effect of the pro forma adjustments to effect the MMHD
Acquisition and the pending acquisition of GBO.
(13) Earnings per share for the year ended December 31, 1995 has been computed
using 66,366,500 shares, the number of shares outstanding immediately
following completion of the Recapitalization. Earnings per share for the
nine months ended September 30, 1996 has been calculated using such
66,366,500 shares plus the weighted average number of shares issued since
the Recapitalization.
3
