<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
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 1-11628
WELLPOINT HEALTH NETWORKS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4384275
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
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, former address and former fiscal year,
if changed since last report)
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
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OUTSTANDING AT MAY 15, 1996
------------------- ---------------------------
<S> <C>
Class A Common Stock, $0.01 par value 19,500,000 shares
Class B Common Stock, $0.01 par value 80,000,000 shares
</TABLE>
<PAGE> 2
WELLPOINT HEALTH NETWORKS INC.
FIRST QUARTER 1996 FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996 and
December 31, 1995...................................... 1
Consolidated Income Statements for the Three Months
Ended March 31, 1996 and 1995.......................... 2
Consolidated Statement of Changes in Stockholders' Equity
for the Three Months Ended March 31, 1996.............. 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and 1995............. 4
Notes to Consolidated Financial Statements.................. 5
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 18
ITEM 5. Other Information........................................... 18
ITEM 6. Exhibits and Reports on Form 8-K............................ 19
SIGNATURES ................................................................... 26
</TABLE>
<PAGE> 3
ITEM 1. Financial Statements
WELLPOINT HEALTH NETWORKS INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(In thousands, except share data) March 31, December 31,
1996 1995
----------- ------------
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 914,774 $1,069,631
Investment securities, at market value 1,424,694 1,175,404
Receivables, net 380,800 149,081
Deferred tax assets 50,184 42,969
Other current assets 30,024 25,651
----------- ----------
Total Current Assets 2,800,476 2,462,736
Property and equipment, net 44,953 42,964
Intangible assets 317,937 124,956
Other non-current assets 67,441 48,601
----------- ----------
Total Assets $ 3,230,807 $2,679,257
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Medical claims payable $ 568,786 $ 362,881
Loss and loss adjustment expense reserves 151,236 66,489
Unearned premiums 136,321 132,298
Accounts payable and accrued expenses 90,106 96,298
Experience rated and other refunds 125,040 93,478
Due to parent 23,041 14,707
Income taxes payable and other current liabilities 145,623 74,197
----------- ----------
Total Current Liabilities 1,240,153 840,348
Accrued postretirement benefits 51,213 50,158
Loss and loss adjustment reserves, non-current 121,597 107,000
Notes payable 84,372 --
Other non-current liabilities 21,764 11,525
----------- ----------
Total Liabilities 1,519,099 1,009,031
Stockholders' Equity:
Preferred Stock
$0.01 par value, 50,000,000 shares
authorized -- --
Class A Common Stock
$0.01 par value, 200,000,000 shares
authorized, 19,500,000 issued and outstanding 195 195
Class B Common Stock
$0.01 par value, 100,000,000 shares
authorized, 80,000,000 issued and outstanding 800 800
Additional paid-in capital 1,100,288 1,100,288
Unrealized valuation adjustment (16,811) 1,820
Retained earnings 627,236 567,123
----------- ----------
Total Stockholders' Equity 1,711,708 1,670,226
----------- ----------
Total Liabilities and Stockholders' Equity $ 3,230,807 $2,679,257
=========== ==========
</TABLE>
See the accompanying notes to the consolidated financial statements.
1
<PAGE> 4
WELLPOINT HEALTH NETWORKS INC.
Consolidated Income Statements
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except earnings per share) Three Months Ended March 31,
----------------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues:
Premium revenue $763,284 $725,942
Management services revenue 18,228 13,562
Investment income 36,070 28,628
-------- --------
817,582 768,132
Operating Expenses:
Health care services and other benefits 571,785 530,287
Selling expense 49,466 46,961
General and administrative expense 92,274 87,869
-------- --------
713,525 665,117
-------- --------
Operating Income 104,057 103,015
Other expense, net 3,012 3,121
-------- --------
Income before Provision for Income Taxes 101,045 99,894
Provision for income taxes 40,932 40,424
-------- --------
Net Income $ 60,113 $ 59,470
======== ========
Earnings Per Share $ 0.60 $ 0.60
======== ========
</TABLE>
See the accompanying notes to the consolidated financial statements.
2
<PAGE> 5
WELLPOINT HEALTH NETWORKS INC.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Class A Class B
Common Stock Common Stock Additional Unrealized
Preferred ---------------- --------------- Paid-in Valuation Retained
Stock Shares Amount Shares Amount Capital Adjustment Earnings Total
--------- ------ ------ ------ ------ ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1995 $ - 19,500 $ 195 80,000 $ 800 $1,100,288 $ 1,820 $567,123 $1,670,226
Net income 60,113 60,113
Change in unrealized valuation
adjustment on investment
securities, net of tax (18,631) (18,631)
------ ------ ------ ------ ------ ---------- ---------- -------- ----------
Balance as of March 31, 1996 $ - 19,500 $ 195 80,000 $ 800 $1,100,288 $ (16,811) $627,236 $1,711,708
====== ====== ====== ====== ====== ========== ========== ======== ==========
</TABLE>
See the accompanying notes to the consolidated financial statements.
3
<PAGE> 6
WELLPOINT HEALTH NETWORKS INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(In thousands) Three Months Ended March 31,
----------------------------
1996 1995
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 60,113 $ 59,470
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net of accretion 6,287 6,387
Gains on sales of assets, net (5,778) (3,625)
Provision for deferred income tax benefits 5,950 --
(Increase) decrease in certain assets, net of acquisitions:
Receivables, net (8,230) (23,474)
Other current assets (4,289) 1,113
Other non-current assets (23,689) --
Increase (decrease) in certain liabilities, net of acquisitions:
Medical claims payable (10,670) (15,729)
Loss and loss adjustment expense reserves 15,380 1,381
Unearned premiums 4,023 5,468
Accounts payable and accrued expenses (6,192) 15,346
Experience rated and other refunds (6,842) (6,869)
Due to parent 8,334 960
Income taxes payable and other current liabilities 53,808 41,267
Accrued postretirement benefits 1,055 948
Other non-current liabilities 813 (119)
----------- ---------
Net cash provided by operating activities 90,073 82,524
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments purchased (83,419) (199,385)
Proceeds from investments sold 137,200 218,233
Proceeds from matured investments 3,357 30,041
Property and equipment purchased, net (4,333) (5,682)
Purchase of subsidiaries, net of cash acquired (297,735) (13,177)
----------- ---------
Net cash provided by (used in) investing activities (244,930) 30,030
----------- ---------
Net increase (decrease) in cash and cash equivalents (154,857) 112,554
Cash and cash equivalents at beginning of period 1,069,631 163,444
----------- ---------
Cash and cash equivalents at end of period $ 914,774 $ 275,998
=========== =========
Reconciliation of Subsidiaries Purchased and Liabilities Assumed:
Purchase Price $ 380,000 $ 13,344
Estimated purchase price adjustment based on closing equity 22,372 --
----------- ---------
402,372 13,344
Less Series A buyer note (62,000) --
Less accrual for Series B buyer note (22,372) --
----------- ---------
318,000 13,344
Plus costs paid in connection with the acquisition 7,860 --
Less subsidiary cash acquired (28,125) (167)
----------- ---------
Purchase of subsidiary, net of cash acquired $ 297,735 $ 13,177
=========== =========
</TABLE>
See the accompanying notes to the consolidated financial statements.
4
<PAGE> 7
WELLPOINT HEALTH NETWORKS INC.
Notes to Consolidated Financial Statements
(unaudited)
1. BASIS OF PRESENTATION
WellPoint Health Networks Inc. (the "Company" or "WellPoint"),
incorporated in 1992, is a publicly traded, majority-owned for-profit
subsidiary of Blue Cross of California ("BCC").
The accompanying unaudited consolidated financial statements of
WellPoint, in the opinion of management, reflect all material
adjustments (which are of a normal recurring nature) necessary for the
fair presentation of its financial condition as of March 31, 1996, the
results of operations and cash flows for each of the three months
ended March 31, 1996 and 1995, and the statement of changes in
stockholders' equity for the three months ended March 31, 1996.
The results of operations for the interim periods presented are
not necessarily indicative of the operating results for the full year.
Certain amounts in previously issued financial statements have been
reclassified to conform to the 1996 presentation. The reclassifications
had no effect on net income or stockholders' equity as previously
reported.
2. PURCHASE OF MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY'S LIFE AND
HEALTH BENEFITS MANAGEMENT DIVISION
On March 31, 1996, the Company completed its acquisition of the Life
and Health Benefits Management Division of Massachusetts Mutual Life
Insurance Company, which will do business under the name UniCARE Life
and Health Insurance Company ("UL&H"), through the acquisition of its
parent MassMutual Holding Company Two, Inc. The purchase price is
$380.0 million plus an estimated $22.4 million purchase price
adjustment. The $380.0 million was funded with $318.0 million in
existing cash and a Series A term note for $62.0 million. In
addition, the Company expects to issue a Series B term note, to the
seller, based on closing equity for an estimated $22.4 million. The
exact amount of the Series B term note will be determined based upon
a post-closing audit that will be completed on or prior to June 30,
1996. The purchase method of accounting has been used to account for
the acquisition. At March 31, 1996, the excess purchase price over
assets acquired was approximately $194.2 million and is being
amortized on a straight-line basis over 30 years.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company and UL&H as if the acquisition had
occurred as of the beginning of each period presented after giving
effect to pro forma adjustments, which represent interest expense on
the notes issued by WellPoint, amortization of intangible assets,
forgone interest on the net cash used for the purchase and the
related income tax effect. The pro forma financial information is
presented for informational purposes only and may not be indicative
of the results of operations as they would have been if
5
<PAGE> 8
WELLPOINT HEALTH NETWORKS INC.
Notes to Consolidated Financial Statements
(unaudited)
2. PURCHASE OF MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY'S LIFE AND
HEALTH BENEFITS MANAGEMENT DIVISION (CONTINUED)
the Company and UL&H had been a single entity during the three months
ended March 31, 1996 and 1995, nor is it necessarily indicative of
the results of operations which may occur in the future.
<TABLE>
<CAPTION>
Pro Forma
(In millions, except earnings per share) Three Months Ended March 31,
----------------------------
1996 1995
-------- ------
<S> <C> <C>
Revenues $1,015.3 $1,008.7
Net Income $ 58.6 $ 63.6
Earnings Per Share $ 0.59 $ 0.64
</TABLE>
Due to higher utilization and seasonality, UL&H's first quarter is the
least profitable of the year. Although the Company expects this
trend to continue, no assurance can be given that the results of
operations in subsequent quarters will reflect seasonality.
UL&H provides medical services to approximately 1.1 million members,
focusing on the large employer market (groups of 251 to 3,000), and has
medical members in all 50 states. In addition, UL&H also has
approximately 0.9 million dental members, 0.9 million life insurance
members, 0.5 million pharmacy members and 0.2 million disability
members. The Company expects to incur approximately $30 - $40 million
of restructuring costs related to this acquisition, a portion of which
is expected to be reflected in the Company's results of operations.
3. LONG-TERM DEBT
Notes Payable
During the first quarter of 1996 in connection with the acquisition of
UL&H, the Company issued a Series A term note for $62.0 million. In
addition, the Company has accrued a Series B term note for $22.4
million in connection with the acquisition of UL&H, which is expected
to be issued during the second quarter of 1996. The amount of this
note is subject to possible adjustment under certain circumstances.
Both notes will mature on March 31, 1999. From March 31, 1996 through
June 30, 1996, the interest rate has been set at 5.72%. Thereafter,
the interest rate will be equal
6
<PAGE> 9
WELLPOINT HEALTH NETWORKS INC.
Notes to Consolidated Financial Statements
(unaudited)
3. LONG-TERM DEBT (CONTINUED)
to the Company's average cost of borrowing, including interest, fees
and other remuneration, by reason of the availability of the revolving
credit facility, as described below. Interest will be paid quarterly.
Revolving Credit Facility
The Company is expected to enter into an agreement with a consortium of
financial institutions for a five-year unsecured revolving credit
facility which provides a line of credit up to $1.25 billion through
May 2001 with extension options through May 2003. The agreement
will provide for interest on committed advances at a rate equal to the
London Interbank Offered Rate plus the applicable margin determined by
the unsecured debt ratings or the leverage ratio as outlined in the
agreement or reference rate. A facility fee based on the facility
amount, regardless of utilization, will be payable quarterly.
The facility fee rate will also be determined by the unsecured debt
ratings or the leverage ratio of the Company. The agreement will
require maintenance of certain financial ratios and other
restrictive covenants. A portion of the facility will be committed
for the payment of a dividend to WellPoint stockholders in connection
with the Recapitalization. (See Note 6. Subsequent Event -
Recapitalization and Purchase of BCC Commercial Operations.)
4. EARNINGS PER SHARE
Earnings per share is determined by dividing net income by the weighted
average number of common shares outstanding during the period. The
average number of common shares outstanding was 99.5 million for each
of the three month periods ended March 31, 1996 and 1995. Fully diluted
earnings per share is equivalent to the earnings per share indicated.
5. COMMITMENTS AND CONTINGENCIES
WellPoint has had lawsuits filed against it on behalf of its
stockholders pertaining to an alleged breach by its Board of Directors
of fiduciary duties by pursuing the Health Systems International
("HSI") transaction and allegedly rejecting certain other proposals
without due consideration. BCC is also a defendant in the lawsuits
against WellPoint. WellPoint believes that its directors acted in good
faith and in an independent, informed and appropriate manner in all
aspects of their decision to approve the HSI transaction and not to
approve alternative proposals. Based upon the foregoing, WellPoint
believes that these lawsuits are without merit and intends to
vigorously defend such actions.
7
<PAGE> 10
WELLPOINT HEALTH NETWORKS INC.
Notes to Consolidated Financial Statements
(unaudited)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, WellPoint and certain of its subsidiaries are also parties
to various other legal proceedings, many of which involve claims for
coverage encountered in the ordinary course of business. WellPoint,
like HMOs and health insurers generally, excludes certain health care
services from coverage under its HMO, PPO and other plans. WellPoint
is, in its ordinary course of business, subject to the claims of its
enrollees arising out of decisions to restrict treatment or to restrict
reimbursement for certain services. The loss of even one such claim, if
it results in a significant punitive damage award, could have a
material adverse affect on WellPoint. In addition, the risk of
potential liability under punitive damage theories may increase
significantly the difficulty of obtaining reasonable settlements of
coverage claims. However, the financial and operational impact that
such evolving theories of recovery will have on the managed care
industry generally, or WellPoint in particular, is at present unknown.
Certain of such legal proceedings are or may be covered under insurance
policies or indemnification agreements. Based upon information
presently available, management of WellPoint is of the opinion that the
final outcome of all such proceedings should not have a material
adverse effect on WellPoint's results of operations or financial
condition.
6. SUBSEQUENT EVENT - RECAPITALIZATION AND PURCHASE OF BCC COMMERCIAL
OPERATIONS
At a special stockholders meeting held on May 8, 1996, the stockholders
of the Company approved a proposal to recapitalize (the
"Recapitalization") the Company, pursuant to the Amended and Restated
Recapitalization Agreement dated as of March 31, 1996 (the "Amended
Recapitalization Agreement"), by and among the Company, BCC and two
newly formed California nonprofit foundations, Western Health
Partnerships (the "Health Foundation") and Western Foundation for
Health Improvement (the "Western Foundation"). Pursuant to the Amended
Recapitalization Agreement, (a) the Company will distribute an
aggregate of $995.0 million by means of a special dividend of $10.00
per share to the holders of its common stock, and BCC will thereupon
immediately donate its portion thereof ($800.0 million) to the Western
Foundation; (b) BCC will donate its assets, other than BCC's WellPoint
Class B Common Stock and BCC's commercial operations (the "BCC
Commercial Operations"), to the Health Foundation; (c) BCC will change
its status to a California for-profit business corporation in
conformity with the terms of orders of the California Department of
Corporations by means of filing amended and restated articles of
incorporation with the California Secretary of State, immediately
following which converted BCC ("Converted BCC") will issue to the
Health Foundation
8
<PAGE> 11
WELLPOINT HEALTH NETWORKS INC.
Notes to Consolidated Financial Statements
(unaudited)
6. SUBSEQUENT EVENT - RECAPITALIZATION AND PURCHASE OF BCC COMMERCIAL
OPERATIONS (CONTINUED)
53.4 million shares of Converted BCC Common Stock; and (d) the
Company will be merged with and into Converted BCC (the "Merger"),
and Converted BCC will change its name to WellPoint Health
Networks Inc. ("New WellPoint"). In the Merger, (i) each outstanding
share of WellPoint Class A Common Stock will be converted into 0.667
shares of New WellPoint Common Stock, (ii) the outstanding shares of
Converted BCC Common Stock in the aggregate will be converted into 53.4
million shares of New WellPoint Common Stock and a cash payment of $235
million to reflect the value of the BCC Commercial Operations, which
cash payment is subject to downward adjustment under certain
circumstances. New WellPoint Common Stock will be entitled to one vote
per share, and as a result of the Recapitalization, the 10 to 1 voting
rights of WellPoint's Class B Common Stock will be eliminated. The
Recapitalization is expected to be consummated on May 20, 1996.
In connection with the Recapitalization, the Blue Cross/Blue Shield
Association (the "BCBSA") has authorized a new license agreement with
New WellPoint, which will make New WellPoint the exclusive licensee of
the right to use the Blue Cross name and related service marks in
California. The BCBSA has also required that the Health Foundation
deposit into a voting trust the number of shares of New WellPoint
Common Stock sufficient to reduce its holdings outside such voting
trust to a level not exceeding 50% of the outstanding shares of New
WellPoint Common Stock. In addition, the Health Foundation will be
required, either through sales or additional deposits into the voting
trust, to reduce its holdings outside the voting trust to 20% and 5%
of the outstanding New WellPoint Common Stock after the third and
fifth anniversaries, respectively, of the Recapitalization. In
connection with the Recapitalization, New WellPoint and the Health
Foundation will enter into a Registration Rights Agreement with
respect to the shares of New WellPoint Common Stock to be received
by the Health Foundation.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
WellPoint Health Networks Inc. ("WellPoint" or the "Company"), a majority-owned
for-profit subsidiary of Blue Cross of California ("BCC"), is one of the
nation's largest publicly traded managed health care companies with
approximately 3.9 million medical members, 11.4 million pharmacy members, 1.5
million dental members and 1.2 million life members. The Company offers a
comprehensive array of managed care health plans through a health maintenance
organization ("HMO"), a preferred provider organization ("PPO") and specialty
managed care networks. WellPoint also provides claims processing, administrative
and cost containment services to self-funded employers. The Company also offers
workers' compensation and life insurance products. The Company's primary market
for all of the products it offers, excluding pharmacy managed care services, is
the state of California.
The Company is actively pursuing expansion into new markets outside of
California. With the acquisitions of UniCARE Life and Health Insurance Co.
("UL&H"), formally the Life and Health Benefits Management Division of
Massachusetts Mutual Life Insurance Company, and AHI Healthcare Corporation
("AHI"), WellPoint serves medical members in 50 states. Approximately 45% of
UL&H's medical membership is concentrated in six states: California, New York,
Texas, Georgia, Illinois and Massachusetts. Due in part to these
acquisitions, the Company's internal business units are now organized on a
geographic basis, California and National. These business units target both
individual and small business purchasers with up to 50 employees and large
employers with 51 or more employees. The Company's networks and broad range of
specialty managed care products allow it to pursue growth with individual,
small business and large business purchasers.
Certain of the statements contained in this Quarterly Report on Form 10-Q are of
a forward-looking nature and involve a number of risks and uncertainties which
could cause actual results to differ from those projected and which are
described in the section of this report entitled "External Influences Which May
Impact Future Operations," the Company's 1995 Annual Report to Stockholders and
in other documents filed from time to time with the Securities and Exchange
Commission.
RESULTS OF OPERATIONS
WellPoint's revenues are generated from premiums earned for health care and
specialty services provided to its members, fees for administrative services,
which includes claims processing and access to provider networks provided to
self-insured employers, and investment income. WellPoint's operating expenses
include: health care services and other benefits expenses consisting of payments
to physicians, hospitals and other providers
10
<PAGE> 13
RESULTS OF OPERATIONS (CONTINUED)
for health care and specialty products claims; selling expenses for broker
and agent commissions; and general and administrative expenses.
The Company's consolidated results of operations for the three months ended
March 31, 1996 and 1995 do not include the results of operations of UL&H which
was acquired on March 31, 1996 and is accounted for using the purchase method of
accounting.
In connection with the UL&H acquisition, the Company expects to incur certain
pre-tax restructuring costs during the remainder of 1996. These restructuring
costs are currently anticipated to be between $30 million and $40 million,
a portion of which is expected to be reflected in the Company's results of
operations.
The following table sets forth selected operating ratios. The loss ratio for
health care services and other benefits is shown as a percentage of premium
revenue. All other ratios are shown as a percentage of premium revenue and
management services revenue combined.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1996 1995
------ ------
<S> <C> <C>
Operating Revenues:
Premium revenue 97.7% 98.2%
Management services revenue 2.3 1.8
------ ------
100.0 100.0
Operating Expenses:
Health care services and other
benefits (loss ratio) 74.9 73.0
Selling expense 6.3 6.4
General and administrative expense 11.8 11.9
</TABLE>
11
<PAGE> 14
MEMBERSHIP
The following table sets forth membership data and the percent change in
membership:
<TABLE>
<CAPTION>
As of March 31,
----------------------
Percent
1996 1995 Change
--------- --------- -------
<S> <C> <C> <C>
MEDICAL MEMBERSHIP:
CALIFORNIA
Consumer Services:
HMO 228,726 179,678 27.3%
PPO and Other 1,166,920 1,173,411 (0.6%)
--------- ---------
Total Consumer Services 1,395,646 1,353,089 3.1%
--------- ---------
Medi-Cal HMO Programs 44,695 32,530 37.4%
--------- ---------
Group Services:
HMO 627,385 624,304 0.5%
PPO and other (a) 941,830 747,464 26.0%
--------- ---------
Total Group Services (b) 1,569,215 1,371,768 14.4%
--------- ---------
Total California Medical Membership 3,009,556 2,757,387 9.1%
--------- ---------
NATIONAL
Consumer Services:
PPO and Other 9,376 -- N/A
--------- ---------
Total Consumer Services 9,376 -- N/A
--------- ---------
Group Services:
HMO 2,506 -- N/A
PPO and Other (a) 905,382 -- N/A
--------- ---------
Total Group Services (c) 907,888 -- N/A
--------- ---------
Total National Membership 917,264 -- N/A
--------- ---------
TOTAL MEDICAL MEMBERSHIP 3,926,820 2,757,387 42.4%
========= =========
HMO 903,312 836,512 8.0%
PPO and Other 3,023,508 1,920,875 57.4%
--------- ---------
TOTAL MEDICAL MEMBERSHIP 3,926,820 2,757,387 42.4%
========= =========
</TABLE>
(a) California and National include 583,533 and 495,303 management services
members, respectively, as of March 31, 1996.
(b) The 1996 California membership includes the acquisition of UL&H which
had approximately 158,500 members as of March 31, 1996
(c) The 1996 National membership includes the acquisition of UL&H which had
approximately 908,000 members as of March 31, 1996
12
<PAGE> 15
MEMBERSHIP (CONTINUED)
<TABLE>
<CAPTION>
As of March 31,
-------------------------
Percent
1996 1995 Change
---------- --------- -------
<S> <C> <C> <C>
SPECIALTY MEMBERSHIP:
Pharmacy 11,445,589 7,436,577 53.9%
Dental 1,488,106 481,878 208.8%
Disability 208,250 -- N/A
Behavioral Health 437,428 331,911 31.8%
Life 1,215,490 332,569 265.5%
</TABLE>
The 1996 specialty membership includes the acquisition of UL&H which
had approximately 0.5 million pharmacy members, 0.9 million dental
members, 0.2 million disability members and 0.9 million life members as
of March 31, 1996.
COMPARISON OF RESULTS FOR FIRST QUARTER 1996 TO FIRST QUARTER 1995
Premium revenue increased 5.1% to $763.3 million for the quarter ended March 31,
1996 from $725.9 million for the quarter ended March 31, 1995. This increase
primarily resulted from growth in the Company's HMO and PPO medical membership
which grew 5.7% excluding Cost Plus membership, a 28% increase in dental
membership, and moderate increases in the premium per member for PPO products in
the individual market. In addition, workers' compensation premiums
increased 67.6% from the 1995 first quarter to the 1996 first quarter due to a
large increase in the number of insured employer groups, primarily in the small
employer and California schools workers' compensation markets. The increase in
premium revenue was partially offset by the conversion of some PPO Cost Plus
members to management services arrangements in 1995. This conversion was
principally due to regulatory actions taken by the California Department of
Corporations ("DOC") related to licensure requirements. Management services
revenue increased $4.7 million to $18.2 million for the quarter ended March 31,
1996 from $13.6 million in 1995. The increase was due to a number of factors,
including new pharmacy and clinical management accounts as well as continued
growth in existing accounts and the acquisition of AHI Healthcare Corporation
("AHI") in February of 1995. The conversion of PPO Cost Plus members to
management services arrangements also contributed to the increase. This
transfer, which was substantially completed by December 1995, did not have a
material impact on net income.
Investment income increased to $36.1 million for the quarter ended March 31,
1996 as compared to $28.6 million for the same period in 1995 due in part to
1996 pretax net gains on the sales of investment securities of $5.0 million as
compared to pretax net losses in 1995 of $0.3 million. The increase also
reflected a higher average yield on a larger average portfolio balance,
resulting in interest income of $31.1 million for the quarter ended March 31,
1996 compared to $28.9 million for the quarter ended March 31, 1995.
13
<PAGE> 16
COMPARISON OF RESULTS FOR FIRST QUARTER 1996 TO FIRST QUARTER 1995 (CONTINUED)
Health care services and other benefits expense increased 7.8% to $571.8 million
for the quarter ended March 31, 1996 from $530.3 million in 1995. The loss ratio
for the first quarter of 1996 increased to 74.9% compared to 73.0% in 1995
primarily due to the introduction of the PPO co-pay product and benefit design
changes that eliminate deductibles for some pharmacy products. The PPO co-pay
replaces deductibles with modest co-pays for office visits and other services.
This product contributed to a higher loss ratio in the first quarter of 1996 as
more medical expenses were absorbed up front. Also contributing to the higher
loss ratio was the increase in loss and loss adjustment expense reserves related
to a portion of the Company's workers' compensation business. In addition,
continued moderate increases in medical cost trends and a continued competitive
pricing environment also contributed to the higher loss ratio in 1996. The
Company will experience higher medical loss ratios during the remainder
of 1996 due to the incremental effect of the business of UL&H and the commercial
operations of BCC on the Company's overall results. Both of these businesses
have traditionally experienced higher medical loss ratios than the Company.
Selling expense consists of commissions paid to outside brokers and agents
representing the Company. Selling expense for the first quarter of 1996
increased 5.3% to $49.5 million compared to $47.0 million for the first quarter
of 1995, corresponding with continued overall premium revenue growth. The
selling expense ratio decreased slightly for the quarter ended March 31, 1996 to
6.3% from 6.4% for the prior year largely due to the increase in Medi-Cal
revenues which are not broker supported. Excluding the increase in Medi-Cal
revenues, the selling expense ratio would have remained constant at 6.4%.
General and administrative expense for the quarter ended March 31, 1996
increased 5.0% to $92.3 million from $87.9 million for the comparable quarter in
1995. The administrative expense ratio decreased to 11.8% for the quarter ended
March 31, 1996 compared to 11.9% in for the quarter ended March 31, 1995
primarily due to a decrease in policyholder dividends resulting from the open
rating environment in the workers' compensation industry. Excluding the
decrease in policyholder dividends, the administrative expense ratio would have
increased to 12.2%, reflecting the increases related to investments in new
products and geographic regions.
WellPoint's net income for the quarter ended March 31, 1996 was $60.1 million or
$0.60 per share compared to $59.5 million or $0.60 per share for the quarter
ended March 31, 1995.
14
<PAGE> 17
FINANCIAL CONDITION
The Company's consolidated assets increased by $551.6 million to $3,230.8
million as of March 31, 1996. This represents a 20.6% increase from $2,679.3
million as of December 31, 1995 and resulted primarily from the acquisition of
UL&H as well as cash flow generated from operations. Cash and investments were
$2,339.5 million as of March 31, 1996 or 72.4% of total assets.
A Series A term note for $62.0 million was issued for the acquisition of UL&H,
which was outstanding as of March 31, 1996. In addition, the Company has
accrued a Series B term note for $22.4 million, which is expected to be
issued in the second quarter of 1996. (See Note 3. Long-Term Debt.) The
Company had no long-term borrowings outstanding as of December 31, 1995.
Equity totaled $1,711.7 million as of March 31, 1996, an increase of $41.5
million from December 31, 1995. The increase resulted primarily from net income
of $60.1 million for the first quarter of 1996, offset by an $18.6 million
decrease in the unrealized valuation adjustment on investment securities, net of
deferred taxes, due to an increase in market interest rates in 1996 compared to
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are from premiums received, management
services revenues and investment income. The primary uses of cash include
health care claims, capitation payments, broker and agent commissions and
administrative expenses. The Company receives premium revenue in advance of
anticipated claims for related health care services and other benefits.
The resulting cash balances in excess of current requirements are invested in
interest-bearing securities. The Company's investment policies are designed
to provide liquidity, preserve capital and maximize yield. As of March 31,
1996, the Company's investment portfolio consisted primarily of fixed maturity
securities (which are primarily rated "A" or better by rating agencies) and
equity securities.
Net cash flow provided by operating activities was $90.1 million for the quarter
ended March 31, 1996 compared with $82.5 million for the comparable period in
1995. The positive cash flow from operations is mainly due to net income and an
increase in income taxes payable and loss and loss adjustment expense
reserves. The cash provided by these activities was partially offset by an
increase in other non-current assets due to a net $23.6 million that the
Company paid in the 1996 first quarter in connection with the new
headquarters building lease.
Net cash used by investing activities for the first quarter of 1996 totaled
$244.9 million, compared with net cash provided by investing activities of $30.0
million for the first quarter of 1995. The decrease resulted primarily from the
acquisition of UL&H during the first quarter of 1996 for a purchase price of
$380.0 million plus an estimated purchase
15
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
price adjustment based on closing equity of $22.4 million. The Company issued,
to the seller, a Series A term note for $62.0 million and expects to issue a
Series B term note for $22.4 million during the second quarter of 1996.
Additional costs incurred in connection with the acquisition were $7.9
million, and subsidiary cash acquired was $28.1 million. The net cash used for
the acquisition of UL&H amounted to $297.7 million. During the remainder of
1996, the Company expects to incur approximately $30-$40 million of
restructuring costs related to this acquisition, a portion of which is
expected to be reflected in the Company's results of operations. The net
proceeds from the sale and maturities of investments were invested in highly
liquid securities in anticipation of the cash requirements for the acquisition
of UL&H. (See Note 2. Purchase of Massachusetts Mutual Life Insurance
Company's Life and Health Benefits Management Division.)
The Company believes that cash flow generated by operations, its cash and
investment balances and its new credit facility (see Note 3. Long-Term Debt)
will be sufficient to fund continuing operations and other capital requirements
for the foreseeable future, including funding requirements for the proposed
Recapitalization and purchase of BCC commercial operations.
EXTERNAL INFLUENCES WHICH MAY IMPACT FUTURE OPERATIONS
The health care industry is being affected by various external factors including
rising health care costs and intense price competition. As the Company focuses
on its future as a leader in the health care industry, management continues to
monitor these and other factors that contribute to uncertainty in the health
care environment.
The Company's profitability will depend in large part on accurately predicting
health care costs and upon its ability to control future health care costs
through underwriting criteria, utilization management and negotiation of
favorable provider contracts. The aging of the population and other demographic
characteristics and advances in medical technology continue to contribute to
rising health care costs. Changes in health care practices, inflation, new
technologies and numerous other factors affecting the delivery and cost of
health care may adversely affect the Company's ability to predict and control
health care costs and claims.
WellPoint operates primarily in a single industry segment, managed health
care. The two primary business activities within the segment ([a] managed care
products and [b] management services products, including specialty managed
care services) are marketed through two internal business units which are
organized on a geographic basis, California and National. The geographic
business units are divided further into individual and small group businesses
versus larger employers because of the distinctive differences in the focus
needed in targeting each of these markets. The combined cost ratios (medical
costs
16
<PAGE> 19
EXTERNAL INFLUENCES WHICH MAY IMPACT FUTURE OPERATIONS (CONTINUED)
and expenses) for the small group and individual businesses and the
large group business vary due primarily to differing product mix between the
managed care and management services products and different distribution
costs. A greater percentage of small group and individual membership is
comprised of higher risk managed care products which tend to be more
profitable than the lower risk managed care and management services products
as a result of higher deductible and co-pays and increased profit margins to
cover higher underwriting risks. The group services membership is comprised
primarily of capitated managed care products and management services products
which result in lower margins as a result of the lower level of underwriting
risk related to the capitated products and the non-risk nature of the
management services products. The spread between the profitability of the
individual and small group business and large group business in California
was 10.4% for the quarter ended March 31, 1996 and 9.2% for the quarter ended
March 31, 1995. However, over the past three years, margin erosion has been
greater in the individual and small group business than in the large group
business primarily as a result of higher medical cost trends, slower growth
in membership, product mix change and greater competitive pressure on premium
increases.
17
<PAGE> 20
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
See Note 5 - Commitments and Contingencies for information regarding legal
proceedings.
ITEM 5. Other Information
See Note 2 - Purchase of Massachusetts Mutual Life Insurance Company's Life and
Health Benefits Management Division and Note 6 - Recapitalization and Purchase
of BCC Commercial Operations.
18
<PAGE> 21
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibit
------- -------
2.01 Purchase and Sale Agreement, dated as of January 5, 1996,
by and among the Registrant and Massachusetts Mutual Life
Insurance Company, incorporated by reference to Exhibit
2.1 of Registrant's 8-K dated January 5, 1996
2.02 Amended and Restated Recapitalization Agreement, dated as
of March 31, 1995, by and among Blue Cross of California,
the Registrant, Western Health Partnerships and Western
Foundation for Health Improvement, incorporated by
reference to Exhibit 99.1 of Registrant's Form 8-K dated
February 20, 1996
3.01 Restated Certificate of Incorporation of the Registrant,
as amended, incorporated by reference to Exhibit 3.1 of
the Registrant's Form S-1 Registration Statement No.
33-54898
3.02 Form of Bylaws of the Registrant, incorporated by
reference to Exhibit 3.2 of the Registrant's Form S-1
Registration Statement No. 33-54898
4.01 Specimen of Class A Common Stock certificate of the
Registrant, incorporated by reference to Exhibit 4.1 of
the Registrant's Form S-1 Registration Statement No.
33-54898
10.01 Line of Business Assignment and Assumption Agreement
dated as of February 1, 1993 among the Registrant, its
subsidiaries and BCC, incorporated by reference to
exhibit 10.01 of Registrant's Form 10-K for the fiscal
year ended December 31, 1992
10.02 Administrative Services and Product Marketing Agreement
dated as of February 1, 1993 among the Registrant, its
subsidiaries and BCC, incorporated by reference to
Exhibit 10.02 of Registrant's Form 10-K for the fiscal
year ended December 31, 1992
10.03 Master Subscriber Agreements dated as of January 27, 1993
between the Registrant's subsidiaries and BCC,
incorporated by reference to Exhibit 10.03 of
Registrant's Form 10-K for the fiscal year ended December
31, 1992
10.04 Tax Allocation Agreement dated as of February 1, 1993
among the Registrant, its subsidiaries and BCC and its
subsidiaries, incorporated by reference to Exhibit 10.04
of Registrant's Form 10-K for the fiscal year ended
December 31, 1992
10.05 Office Building Lease for Corporate Headquarters, dated
December 17, 1987, between BCC and JMB/Warner Center
Associates, incorporated by reference to Exhibit 10.05 of
the Registrant's Form S-1 Registration Statement No.
33-54898
19
<PAGE> 22
(a) Exhibits (continued)
Exhibit
Number Exhibit
------- -------
10.06 Office Space Lease for Oakland, CA offices, dated
December 10, 1985, between BCC and Webster Street
Partners, Ltd., incorporated by reference to Exhibit
10.06 of the Registrant's Form S-1 Registration Statement
No. 33-54898
10.07 Office Space Lease for Westlake, CA offices, dated
October 29, 1986, between BCC and Westlake Business Park,
Ltd., incorporated by reference to Exhibit 10.07 of the
Registrant's Form S-1 Registration Statement No. 33-54898
10.08 Administrative Agreement, dated as of June 1, 1988,
between BCC and INSURx, Inc., incorporated by reference
to Exhibit 10.08 of the Registrant's Form S-1
Registration Statement No. 33-54898
10.09 License Agreement dated January 1, 1991 between the Blue
Cross Blue Shield association and BCC, incorporated by
reference to Exhibit 10.22 of Registrant's Form S-1
Registration Statement No. 33-54898
10.10 Controlled Affiliate License Agreement dated January 8,
1993 among the Blue Cross Blue Shield Association,
CaliforniaCare Health Plans and BCC, incorporated by
reference to Exhibit 10.23 of Registrant's Form S-1
Registration Statement No. 33-54898
10.11 Undertakings dated January 7, 1993 by BCC, the Registrant
and the Registrant's subsidiaries to the California
Department of Corporations, incorporated by reference to
Exhibit 10.24 of Registrant's Form S-1 Registration
Statement No. 33-54898
10.12 Office Space Lease for Newbury Park, CA offices, dated
January 13, 1993 between BCC and Metropolitan Life
Insurance Company, incorporated by reference to Exhibit
10.12 of Registrant's Form 10-K for the fiscal year ended
December 31, 1992
10.13 Office Space Lease for Calabasas, CA offices, dated
August 26, 1992 between BCC and Lost Hills Office
Partners, First Amendment to Office Lease between Lost
Hills Office Partners and BCC, dated November 1, 1992,
and Subordination, Non-Disturbance and Attornment
Agreement, dated January 7, 1993, between BCC and DAG
Management, incorporated by reference to Exhibit 10.13 of
Registrant's Form 10-K for the fiscal year ended December
31, 1992
10.14 WellPoint Health Networks Inc. Officer Change in Control
Plan, incorporated by reference to Exhibit 10.14 of
Registrant's Form 10-K for the fiscal year ended December
31, 1993
20
<PAGE> 23
(a) Exhibits (continued)
Exhibit
Number Exhibit
------- -------
10.15 Supplemental Pension Plan of Blue Cross of California,
incorporated by reference to Exhibit 10.15 of
Registrant's Form 10-K for the fiscal year ended December
31, 1992
10.16 Blue Cross of California Deferred Compensation Plan,
incorporated by reference to Exhibit 10.13 of the
Registrant's Form S-1 Registration Statement No. 33-54898
10.17 Form of Supplemental Life and Disability Insurance
Policy, incorporated by reference to Exhibit 10.14 of the
Registrant's Form S-1 Registration Statement No. 33-54898
10.18 Employment Agreement, dated June 6, 1991, between the
Registrant and Leonard D. Schaeffer, incorporated by
reference to Exhibit 10.15 of the Registrant's Form S-1
Registration Statement No. 33-54898
10.19 Special Executive Retirement Plan dated as of March 29,
1993 among BCC, the Registrant and Leonard D. Schaeffer,
incorporated by reference to Exhibit 10.19 of
Registrant's Form 10-K for the fiscal year ended December
31, 1992
10.20 Form of Indemnification Agreement between the Registrant
and its Directors and Officers, incorporated by reference
to Exhibit 10.17 of the Registrant's Form S-1
Registration Statement No. 33-54898
10.21 Management Retention Agreement, dated as of January 8,
1993 between the Registrant and D. Mark Weinberg,
incorporated by reference to Exhibit 10.21 of
Registrant's Form 10-K for the fiscal year ended December
31, 1992
10.22 Management Retention Agreement, dated as of January 8,
1993 between the Registrant and Ronald Williams,
incorporated by reference to Exhibit 10.22 of
Registrant's Form 10-K for the fiscal year ended December
31, 1992
10.23 Management Retention Agreement, dated as of January 8,
1993 between the Registrant and Yon Y. Jorden,
incorporated by reference to Exhibit 10.23 of
Registrant's Form 10-K for the fiscal year ended December
31, 1993
10.24 Officer Severance Agreement, dated as of July 1, 1993,
between the Registrant and Thomas C. Geiser, incorporated
by reference to Exhibit 10.24 of Registrant's Form 10-K
for the fiscal year ended December 31, 1993
10.25 First Amendment to Special Executive Retirement Plan
dated as of March 29, 1993 among BCC, the Registrant and
Leonard D. Schaeffer (Exhibit 10.19), effective January
1, 1993, incorporated by reference to Exhibit 10.25 of
Registrant's Form 10-K for the fiscal year ended December
31, 1993
21
<PAGE> 24
(a) Exhibits (continued)
Exhibit
Number Exhibit
------- -------
10.26 WellPoint Health Networks Inc. Long-Term Performance
Incentive Plan, effective February 1, 1993, incorporated
by reference to Exhibit 10.26 of Registrant's Form 10-K
for the fiscal year ended December 31, 1993
10.27 WellPoint Companies Management Incentive Award Plan 1993,
incorporated by reference to Exhibit 10.27 of
Registrant's Form 10-K for the fiscal year ended December
31, 1993
10.28 CaliforniaCare Health Plans Management Incentive Award
Plan 1993, incorporated by reference to Exhibit 10.28 of
Registrant's Form 10-K for the fiscal year ended December
31, 1993
10.29 Executive Benefiting You Highlights Brochure,
incorporated by reference to Exhibit 10.29 of
Registrant's Form 10-K for the fiscal year ended December
31, 1993
10.30 Employment Agreement, dated November 9, 1994, between the
Registrant and Leonard D. Schaeffer, incorporated by
reference to Exhibit 10.30 of Registrant's Form 10-K for
the fiscal year ended December 31, 1994
10.31 Amendment to Employment Agreement dated June 6, 1991
between BCC and Leonard D. Schaeffer (Exhibit 10.18),
effective December 8, 1994, incorporated by reference to
Exhibit 10.31 of Registrant's Form 10-K for the fiscal
year ended December 31, 1994
10.32 WellPoint Health Networks Inc. 1994 Long-Term Incentive
Plan, incorporated by reference to Exhibit 10.32 of
Registrant's Form 10-K for the fiscal year ended December
31, 1994
10.33 WellPoint Health Networks Inc. Officer Change in Control
Plan as amended January 5, 1995, incorporated by
reference to Exhibit 10.33 of Registrant's Form 10-K for
the fiscal year ended December 31, 1994
10.34 Form of Officer Severance Agreement of the Registrant,
incorporated by reference to Exhibit 10.34 of
Registrant's Form 10-K for the fiscal year ended December
31, 1994
10.35 WellPoint Health Networks Inc. Management Retention
Agreement between the Registrant and Ronald A. Williams,
amended and restated effective as of January 5, 1995,
incorporated by reference to Exhibit 10.35 of
Registrant's Form 10-K for the fiscal year ended December
31, 1994
22
<PAGE> 25
(a) Exhibits (continued)
Exhibit
Number Exhibit
------- -------
10.36 WellPoint Health Networks Inc. Management Retention
Agreement between the Registrant and D. Mark Weinberg,
amended and restated effective as of January 5, 1995,
incorporated by reference to Exhibit 10.36 of
Registrant's Form 10-K for the fiscal year ended December
31, 1994
10.37 WellPoint Health Networks Inc. Management Retention
Agreement between the Registrant and David S. Helwig,
amended and restated effective as of January 5, 1995,
incorporated by reference to Exhibit 10.37 of
Registrant's Form 10-K for the fiscal year ended December
31, 1994
10.38 WellPoint Health Networks Inc. Management Retention
Agreement between the Registrant and Yon Y. Jorden,
amended and restated January 5, 1995, incorporated by
reference to Exhibit 10.38 of Registrant's Form 10-K for
the fiscal year ended December 31, 1994
10.39 Amendment to Administrative Services and Product
Marketing Agreement dated as of February 1, 1993 among
the Registrant, its subsidiaries and BCC (Exhibit 10.02),
amended as of January 1, 1995, incorporated by reference
to Exhibit 10.39 of Registrant's Form 10-K for the fiscal
year ended December 31, 1994
10.40 Amendment to Administrative Services and Product
Marketing Agreement dated as of February 1, 1993 among
the Registrant, its subsidiaries and BCC (Exhibit 10.02),
amended as of February 1, 1995, incorporated by reference
to Exhibit 10.40 of Registrant's Form 10-K for the fiscal
year ended December 31, 1994
10.41 Agreement of Purchase and Sale and Escrow Instructions,
dated as of December 16, 1994, between Registrant and
Pardee Construction Company, incorporated by reference to
Exhibit 10.41 of Registrant's Form 10-K for the fiscal
year ended December 31, 1994
10.42 First Amendment to Office Building Lease for Corporate
Headquarters dated December 17, 1987 between BCC and
JMB/Warner Center Associates (Exhibit 10.05), dated as of
February 7, 1989, incorporated by reference to Exhibit
10.42 of Registrant's Form 10-K for the fiscal year ended
December 31, 1994
10.43 Credit Agreement, dated as of October 19, 1994, among the
Registrant, Bank of America, National Trust and Savings
Association, Chemical Bank and Other Financial
Institutions, incorporated by reference to Exhibit 10.43
of Registrant's Form 10-K for the fiscal year ended
December 31, 1994
10.44 First Amendment to Credit Agreement, dated as of March 7,
1995, among the Registrant, Bank of America National
Trust and Savings Association, and other Financial
Institutions, incorporated by reference to Exhibit 10.44
of Registrant's Form 10-K for the fiscal year ended
December 31, 1994
23
<PAGE> 26
(a) Exhibits (continued)
Exhibit
Number Exhibit
------- -------
10.45 Orders Approving Notice of Material Modification and
Undertakings dated September 7, 1995 by BCC, the
Registrant and the Registrant's subsidiaries to the
California Department of Corporations, incorporated by
reference to Exhibit 10.47 of Registrant's Form 10-Q for
the quarter ended September 30, 1995
10.46 Second Amendment to Credit Agreement, dated as of October
16, 1995, among the Registrant, Bank of America National
Trust and Savings Association and other Financial
Institutions, incorporated by reference to Exhibit 10.48
of Registrant's Form 10-Q for the quarter ended September
30, 1995
10.47 WellPoint Health Networks Inc. Stock Option/Award Plan,
incorporated by reference to Exhibit 10.45 of
Registrant's Form 10-K for the fiscal year ended December
31, 1995
10.48 Lease Agreement, dated as of January 1, 1996, by and
between TA/Warner Center Associates II, L.P., and the
Registrant (supersedes Exhibit 10.05 and Exhibit 10.42),
incorporated by reference to Exhibit 10.46 of
Registrant's Form 10-K for the fiscal year ended December
31, 1995
10.49 Letter, dated November 13, 1995, from the Registrant to
Ronald A. Williams regarding severance benefits, together
with underlying Officer Severance Agreement, incorporated
by reference to Exhibit 10.47 of Registrant's Form 10-K
for the fiscal year ended December 31, 1995
10.50 Letter, dated November 31, 1995 from the Registrant to D.
Mark Weinberg regarding severance benefits, together with
underlying Officer Severance Agreement, incorporated by
reference to Exhibit 10.48 of Registrant's Form 10-K for
the fiscal year ended December 31, 1995
10.51 Letter, dated November 13, 1995, from the Registrant to
Thomas C. Geiser regarding severance benefits,
incorporated by reference to Exhibit 10.49 of
Registrant's Form 10-K for the fiscal year ended December
31, 1995
10.52 Amended and Restated Undertakings dated March 5, 1996 by
BCC, the Registrant and the Registrant's Subsidiaries to
the California Department of Corporations, incorporated
by reference to Exhibit 99.1 of the Registrant's Current
Report on Form 8-K dated March 5, 1996
10.53 Senior Series A Term Note dated March 31, 1996 between
the Registrant and Massachusetts Mutual Life Insurance
Company
21 List of Subsidiaries of the Registrant, incorporated by
reference to Exhibit 21 of Registrant's Form 10-K for the
fiscal year ended December 31, 1995
23 Consent of Independent Accountants, incorporated by
reference to Exhibit 23 of Registrant's Form 10-K for the
fiscal year ended December 31, 1995
24
<PAGE> 27
(a) Exhibits (continued)
Exhibit
Number Exhibit
------- -------
24 Power of Attorney, incorporated by reference to Exhibit
24 of Registrant's Form 10-K for the fiscal year ended
December 31, 1995
(b) Reports on Form 8-K
A current report on Form 8-K was filed on January 5,
1996, reporting recent events pertaining to the proposed
acquisition of the Group Life and Health subsidiary of
Massachusetts Mutual Life Insurance Company.
A current report on Form 8-K was filed on February 20,
1996, reporting recent events pertaining to the execution
of an Amended and Restated Recapitalization Agreement by
and among Blue Cross of California, WellPoint, Western
Health Partnerships and Western Foundation for Health
Improvement
A current report on Form 8-K was filed on March 5, 1996,
reporting recent events pertaining to the approval by the
California Department of Corporations of the proposed
recapitalization of WellPoint.
25
<PAGE> 28
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.
WELLPOINT HEALTH NETWORKS INC.
Registrant
Date: May 14, 1996 By: \s\ LEONARD D. SCHAEFFER
-----------------------------------
Leonard D. Schaeffer
Chairman of the Board of Directors
and Chief Executive Officer
Date: May 14, 1996 By: \s\ HOWARD G. PHANSTIEL
-----------------------------------
Howard G. Phanstiel
Executive Vice President
Finance and Information Services
Date: May 14, 1996 By: \s\ YON Y. JORDEN
-----------------------------------
Yon Y. Jorden
Senior Vice President and
Chief Financial Officer
26
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Description Page
- ------ ------------------- ------------
<S> <C> <C>
10.53 Senior Series A Term Note dated March 31, 1996 between the
Registrant and Massachusetts Mutual Life Insurance Company
</TABLE>
27
<PAGE> 1
EXHIBIT 10.55
WELLPOINT HEALTH NETWORKS INC.
Senior Term Note due March 31, 1999
Series A
Sixty Two Million Dollars ($62,000,000)
WELLPOINT HEALTH NETWORKS INC., a Delaware corporation (the "Company"), for
value received, hereby promises to pay to MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY ("MassMutual"), or registered assigns, the principal amount of Sixty Two
Million Dollars ($62,000,000) on March 31, 1999, with interest (computed on the
basis of the actual number of days elapsed over a 360 day year) on the unpaid
balance of such principal amount at a rate per annum equal to the Interest Rate
for each Interest Period, from the date hereof, payable quarterly on the last
day of each calendar quarter after the date hereof, commencing on June 30, 1996,
until the principal hereof shall have become due and payable (whether at
maturity or at a date fixed for prepayment or by declaration or otherwise), and
with interest on any overdue principal (including any overdue prepayment of
principal) and (to the extent permitted by applicable law) on any overdue
installment of interest, at a rate per annum equal to 1.00% above the rate
otherwise applicable hereunder until paid, payable quarterly as aforesaid or, at
the option of the holder hereof, on demand; provided that in no event shall the
amount payable by the Company as interest on the Notes exceed the highest lawful
rate permissible under any law applicable hereto. Payments of principal and
interest on the Notes shall be made in lawful money of the United States of
America by the method and at the address for such purpose specified-in Schedule
I attached hereto or by such other method or at such other address as you or any
subsequent holder of the Notes may designate in writing, without requiring any
presentation or surrender of the Notes, except that if any Note is paid or
prepaid in full it shall be promptly surrendered to the Company and canceled.
This Note is one of a series of Notes (together the "Notes") issued in
connection with the acquisition of Mirus Insurance Company and related
businesses by the Company.
Section 1: Prepayment of Notes
Mandatory Prepayments.
(i) the Company shall prepay the Notes to the extent that it receives
Extraordinary Dividends from Mirus Insurance Company in excess of $2.6 million,
using the full proceeds of such Extraordinary Dividends to make such prepayments
in excess of $2.6 million ratably in proportion to the Series A and B Notes then
outstanding. Such prepayments shall be due and payable 10 Business Days after
any such Extraordinary Dividend is paid.
(ii) if either (a) the Bank Agreement Committed Amount shall be
reduced below $400 million, or (b) the Bank Agreement Committed Amount having
been reduced below $400 million is thereafter further reduced, then the Company
shall prepay a portion of the Notes equal to the Percentage Interest, such
prepayment being made ratably in proportion to the Series A and B Notes then
outstanding.
(b) Optional Prepayments. At any time, or from time to time, the Company
may, at its option, prepay all or any part (in an integral multiple of $250,000
and at a minimum of $1,000,000 or such lesser amount as shall then be
outstanding) of the Notes. Such optional prepayments shall be made ratably in
proportion to the Series A and B Notes then outstanding. In the event of any
such prepayment, the Company shall
<PAGE> 2
give written notice thereof to the holders of the Notes setting forth the
aggregate principal amount of and accrued interest on the Notes being prepaid.
Section 2: Representations and Warranties
The Company represents and warrants that:
(a) The Notes have been duly authorized by the Company and, when executed
and delivered, will constitute the valid and legally binding obligation of the
Company, enforceable against it in accordance with its terms.
(b) The execution, delivery and performance by the Company of the Notes
will not violate or conflict with or constitute a default under, or result in
the creation of any mortgage, lien, charge or encumbrance upon any of the
properties or assets of the Company pursuant to any term of the charter, by-laws
or other organizational document of the Company or of any agreement, instrument,
judgment, decree, order, law, statute, rule or regulation applicable to the
Company or any of its respective properties or assets.
(c) The Company is not bound by or subject to any charter, by-law or other
organizational document, or any agreement, instrument, judgment, decree, order,
law, statute, rule or regulation under the terms of or pursuant to which its
obligation to pay interest or principal of the Notes, or to perform its
obligations thereunder, is in any way restricted .
(d) Neither the Company nor any agent, broker, dealer or other party
authorized or employed by the Company in connection with the offering or sale of
the Notes has offered the Notes or any similar security of the Company for sale
to, or solicited offers to buy any thereof from, or otherwise approached or
negotiated with, any prospective purchaser, other than MassMutual, who was
offered all or a portion of the Notes at private sale for investment.
Section 3: Remedies
Each of the following shall be Events of Default under the Notes:
(a) the Company defaults in the due and punctual payment of all or any part
of the principal of the Notes when and as the same shall become due and payable,
whether at the stated maturity thereof, by notice of prepayment, or otherwise;
(b) the Company defaults in the due and punctual payment of any interest on
the Notes when and as such interest shall become due and payable and such
default shall have continued for a period of ten (10) days;
(c) Priority Debt shall at any time exceed twenty-five percent (25%) of
Consolidated Net Worth;
(d) the Company fails to promptly, upon becoming aware thereof, notify the
holders of the Notes of any event of default, or receipt of notice of any event
which with the passage of time would become an event of default, under the Bank
Agreement;
(e) the Company fails to ensure that the claims and rights of the holders
of the Notes against it under the Notes will rank at all times at least pari
passu with, and shall not at any time be subordinate to, the Bank Agreement or
the claims and rights of any other of its unsecured creditors, except as may be
limited by bankruptcy, insolvency, moratorium or other similar laws affecting
the enforcement of creditors" rights in general;
(f) any representation or warranty made by the Company herein shall prove
to be untrue in any material respect as of the date of the issuance or making
thereof;
<PAGE> 3
(g) the Company defaults in the performance or observance of any other of
the provisions contained in the Notes and such default shall have continued for
a period of 30 days after the earlier of (i) the Company's obtaining actual
knowledge of such default or (ii) the Company's receipt of written notice of
such default;
(h) the Company (i) defaults in the performance, observance or discharge of
any provision in the Bank Agreement, if the effect of such default is to cause
indebtedness under the Bank Agreement or any part thereof to become immediately
due and payable or (ii) defaults in the performance, observance or discharge of
any provision in the Bank Agreement, if the effect of such failure is to permit
a holder or holders under the Bank Agreement to cause indebtedness under the
Bank Agreement or any part thereof to become due and payable, and such default
is not cured or waived within the time permitted therein for cure or waiver
(including any extensions thereof);
(i) the Company shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official for the Company or any substantial part of its assets, or
shall consent to any such relief or to the appointment or taking possession by
any such official in any involuntary case or other proceeding commenced against
it, or shall make a general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing; and
(j) an involuntary case or other proceeding shall be commenced against the
Company seeking liquidation, reorganization or other relief with respect to it
or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official for the Company or any
substantial part of its assets, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of 60 days.
If an Event of Default specified in clauses (i) and (j) of this Section 3 shall
exist, the Notes shall automatically become immediately due and payable together
with interest accrued thereon, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived.
If an Event of Default other than those specified in clauses (i) and (j) shall
exist, any holder or holders of Notes representing fifty percent (50%) or more
of the Notes may exercise any right, power or remedy permitted to the holders by
applicable law, and shall have, in particular, without limiting the generality
of the foregoing, the right to declare the entire principal of, and interest
accrued on, the Notes then outstanding to be, and the Notes shall thereupon
become, forthwith due and payable, without any presentment, demand, protest, or
other notice of any kind, all of which are hereby expressly waived, and the
Company shall forthwith pay to the holder of the Notes the entire principal of,
and interest accrued on, the Notes .
No course of dealing on the part of any holder of the Notes nor any delay or
failure on the part of any holder of the Notes to exercise any right shall
operate as a waiver of such right or otherwise prejudice such holder's rights,
powers and remedies. If the Company fails to comply with any provision of the
Notes the Company shall pay to such holder, to the extent permitted by
applicable law, such further amounts as shall be sufficient to cover the costs
and expenses, including but not limited to reasonable attorneys' fees, incurred
by such holder in collecting any sums due on the Notes or in otherwise
assessing, analyzing or enforcing any rights or remedies that are or may be
available to such holder.
<PAGE> 4
Section 4: Registration, Transfer and Exchange
(a) The Notes shall be issued in registered form. The Company shall keep at
its principal executive office registers in which the Company shall provide for
the registration and transfer of the Notes. The name and address of each holder
of the Notes shall be registered in such registers. All payments of principal
and interest due hereunder shall be made solely to registered holders of the
Notes on the dates fixed for such payments. The Company shall give to am
institutional holder of the Notes promptly (but in any event within 10 days)
following request therefor, a complete and correct copy of the names and
addresses of all registered holders of the Notes. Whenever the Notes shall be
surrendered for transfer or exchange, the Company, at its expense, will execute
and deliver in exchange therefor a new Note or Notes (in such denominations and
registered in such name or names as may be requested by the holder of the
Notes), in the same aggregate unpaid principal amount as that of the Note
surrendered. The Company may treat the person in whose name any Note is
registered as the owner of such Note for all purposes.
(b) Each holder of the Notes agrees by its acceptance hereof not to
transfer the Notes to any person other than an institutional investor or
financial institution and to promptly notify the Company in writing of any such
transfer, and agrees that no partial transfer of a Note shall be in principal
amount of less than Five Million Dollars ($5,000,000); each holder further
agrees that the Company shall not be required to register any transfer of a Note
or recognize the transferee as a holder thereof if, as a result of such
transfer, the Notes would be held by more than ten (10) investors.
(c) The Company will take, or will cause to be taken, such action as any
holder of the Notes may reasonably request from time to time to facilitate any
sale or disposition by any such holder of the Notes without registration under
the Securities Act of 1933 (the "Act") and/or any applicable securities laws
within the limitation of the exemptions provided by any rule or regulation
thereunder, including, without limitation, Rule 144A under the Act; provided
that nothing herein shall be construed to require registration of the offer or
sale of the Notes under the Act or disclosure of any material non-public
information of the Company.
Section 5: Definitions
"Bank Agreement" shall mean the facility or facilities expected to be provided
under a Credit Agreement among the Company, certain financial institutions named
as Banks therein, Bank of America National Trust and Savings Association, as
Administrative Agent, NationsBank of Texas, N.A., as Documentation Agent, and
others, whether revolving or term loans, pursuant to which the Company incurred
and will incur Indebtedness utilized in the payment of a portion of the Special
Dividend and for other financing purposes, together with any renewal, extension,
refinancing, or replacement of all or any portion thereof.
"Bank Agreement Committed Amount" shall mean the sum of (i) all principal
amounts outstanding under term loans that are included in the facilities
provided by the Bank Agreement plus (ii) the principal outstanding plus the
amount which lenders are committed to lend to the Company under revolving loans
that are included in the facilities provided by the Bank Agreement.
"Business Day" shall mean, at any time, a day other than a Saturday, a Sunday,
or a day on which banks in Los Angeles, California or New York, New York are
authorized or required by applicable law (other than a general banking
moratorium or holiday for a period exceeding four consecutive days) to be
closed.
<PAGE> 5
"Consolidated Net Worth" shall mean, at any date, the sum of (a) the capital
stock (excluding treasury stock and capital stock subscribed and unissued) and
(b) surplus (including retained earnings, additional paid-in capital and the
balance of the current profit and loss account not transferred to surplus) at
such date of the Company and its Restricted Subsidiaries (whether or not
ordinarily consolidated in consolidated financial statements of the Company and
Restricted Subsidiaries), all consolidated in accordance with GAAP, after giving
appropriate effect to outside minority interests, if any, in Restricted
Subsidiaries.
"Extraordinary Dividend" shall mean an extraordinary dividend paid as an
"extraordinary dividend" pursuant to Section 5005(b) of the Delaware Insurance
Code.
"GAAP" shall mean generally accepted accounting principles as in effect in the
United States of America from time to time, consistently applied.
"Indebtedness" shall mean all obligations which are, at any time and without
duplication,
a. liabilities for borrowed money;
b. any liabilities secured by Liens;
c. liabilities in respect of any capitalized lease;
d. obligations in respect of letters of credit or instruments
serving a similar function issued or accepted by banks and
other financial institutions for the account of the Company
and its Subsidiaries; and
e. guarantees of any liabilities of another person or entity
constituting liabilities of a type set forth above.
"Interest Period" shall mean the period commencing on the first day of each
calendar quarter and ending the last day of such calendar quarter. The first
Interest Period shall commence on the date of the Notes and end on June 30,
1996.
"Interest Rate" shall mean, for the Interest Period beginning on March 31, 1996
and ending on June 30, 1996, 5.72%. For each interest Period thereafter, the
Interest Rate shall equal the Company's average cost of borrowing under the Bank
Agreement during such Interest Period, said Interest Rate to be determined by
dividing (x) the total amount of interest, fees, and other remuneration,
excluding (i) facility fees, administration fees and similar fees payable solely
be reason of the availability of the credit facility under the Bank Agreement,
but only to the extent such fees are not in excess of the fees charged pursuant
to the Summary of Terms and Conditions dated March 15, 1996, setting forth the
terms of the Bank Agreement and (ii) amounts paid to reimburse attorneys' fees
and costs incurred to third parties in connection with the Bank Agreement,
charged by the Banks under the Bank Agreement during such Interest Period by (y)
the product of (i) the average principal amount outstanding under the Bank
Agreement during such Interest Period multiplied by (ii) the number of days
borrowings were outstanding-under the Bank Agreement during such interest Period
over 360; provided, however, that if the Bank Agreement has not closed by June
30, 1996, the Interest Rate for any subsequent Interest Period until the first
Interest Period during which the Bank Agreement has closed shall be equal to the
LIBOR Rate for such Interest Period plus 28 basis points.
"LIBOR Rate" shall mean, for any Interest Period, the per annum rate of interest
reported on Page 3750 of the Telerate Screen as the three-month London Interbank
Offered Rate (LIBOR) for the first Business Day of the then current Interest
Period; provided that if at least two such offered rates appear on said Telerate
Screen in respect of such Interest Period, the arithmetic mean of all such rates
will be the rate used.
"Lien" shall mean any interest in property securing an obligation owed to, or a
claim by, a person or entity other than the owner of the property, whether such
interest is
<PAGE> 6
based on the common law, statute or contract, and including but not limited to
the security interest lien arising from a mortgage, encumbrance, pledge,
conditional sale or trust receipt or a lease, consignment or bailment for
security purposes, but excluding any landlord's, workman's or similar statutory
lien.
"Percentage Interest" shall mean the amount obtained by multiplying (i) the
outstanding principal balance on the Notes by (ii) a ratio the numerator of
which is the Reduction Amount with respect to the Bank Agreement Committed
Amount that results in a mandatory prepayment pursuant to Section I(a)(ii) and
the denominator of which is the Bank Agreement Committed Amount existing
immediately before such reduction (but not more than $400 million) .
"Priority Debt" shall mean, without duplication, the sum of (i) the aggregate
amount of all outstanding Indebtedness of Restricted Subsidiaries plus (ii) the
aggregate amount of all outstanding Indebtedness of the Company secured by
Liens.
"Reduction Amount, shall mean (i) in the case of a reduction of the Bank
Agreement Committed Amount that first causes the Bank Agreement Committed Amount
to be reduced below $400 million, the amount by which the Bank Agreement
Committed Amount is reduced below $400 million, and (ii) thereafter the amount
of a reduction of the Bank agreement Committed Amount below the amount existing
immediately before such reduction.
"Restricted Subsidiary" means any Subsidiary other than: (i) a Subsidiary formed
specifically for the purpose of providing financing to the Company or its
customers or other similar operations, but only if neither the Company nor any
Restricted Subsidiary shall be liable, as guarantor or otherwise, on the
Indebtedness of such Subsidiary; and (ii) a Subsidiary formed or acquired after
the date hereof for the purpose of acquiring the business or assets of another
Person and which does not acquire all or any substantial part of the business or
assets of the Company or any Restricted Subsidiary.
"Special Dividend" shall mean that certain dividend which the Company issued to
the holders of its Common Stock pursuant to the terms of the Recapitalization
Agreement dated March 31, 1995 by and among the Company, Blue Cross of
California, a California nonprofit public benefit corporation, Western Health
Partnerships, a California nonprofit public benefit corporation, and the Western
Foundation for Health Improvement, a California nonprofit public benefit
corporation, as the same may be amended.
"Subsidiary" shall mean any corporation, trust or association of which more than
50% (by number of votes) of the Voting Stock at the time outstanding shall be
owned, directly or indirectly, by the Company or by any other corporation,
association or trust which is itself a Subsidiary within the meaning of this
definition, or collectively by the Company and any one or more such Subsidiaries
"Voting Stock" shall mean securities of any class or classes of a corporation,
the holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors (or persons performing similar
functions).
Section 6: Notices
The Company's address for all communications related to the Notes shall be as
follows:
WellPoint Health Networks Inc.
21555 Oxnard Street
Woodland Hills, CA 91367
Attn: Thomas Geiser
General Counsel
Fax: (818) 703-4406
<PAGE> 7
The holder's address for all communications related to the Notes the method and
at the address for such purpose specified in Schedule I attached hereto or
otherwise as such holder or any subsequent holder of the Notes may designate in
writing.
Section 7: Successors and Assigns
The Notes shall inure to the benefit of and be binding upon the successors and
assigns of the holder and the Company. The provisions hereof are intended to be
for the benefit of all holders, from time to time, of the Notes, and shall be
enforceable by am such holder, whether or not an express assignment to such
holder of rights hereunder shall have been made by the holder or any successor
or assign.
Section 8: Payments due on Non-Business Days
If any payment due on the Notes shall fall on a day other than a Business Day,
then such payment shall be made on the first Business Day following the day on
which such payment shall have so fallen due; provided, that if all or any
portion of such payment shall consist of a payment of interest, for purposes of
calculating such interest, such payment shall be deemed to have been originally
due on such first following Business Day, such interest shall accrue and be
payable to but not including) the actual date of payment, and the amount of the
next succeeding interest payment shall be adjusted accordingly.
Section 9: Governing Law
The Notes shall be construed in accordance with and governed by the domestic
substantive laws of California without giving effect to any choice of law or
conflicts of law provision or rule that would cause the application of the
domestic substantive laws of any other jurisdiction.
WELLPOINT HEALTH NETWORKS INC.
By: Howard Phanstiel
Its: Executive Vice President,
Finance
<PAGE> 8
SCHEDULE I
Name and Address of Purchaser Principal Amount of
MASSACHUSETTS MUTUAL LIFE Notes to be Purchased
INSURANCE COMPANY $62,000,0001 (Series A)
1295 State Street $[ ] (Series B)
Springfield, MA 01111
Attn: Securities Investment Division
Payments
All payments on account of the Note
shall be made by crediting in the form
of bank wire transfer of Federal or
other immediately available funds
(identifying each payment as WellPoint
Health Networks Inc., Series A Buyer
Note, interest and principal) to:
Citibank, N.A.
111 Wall Street
New York, NY 10043
ABA No. 021000089
For MassMutual Corporate Investment
Account No. 4065-5458
Re: Description of security, principal and
interest split
With telephone advice of payment to the
Securities Custody and Collection
Department of Massachusetts Mutual Life
Insurance Company at (413) 744-3878
Notices
All notices and communications to be addressed as first provided above, except
notices with respect to payments and corporate actions to be addressed to:
Attention: Securities Custody and
Collection Department
F 381
Tax Identification No. 04-1590850
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
PRESENTED IN THE FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 914,774
<SECURITIES> 1,424,694
<RECEIVABLES> 380,800
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,800,476
<PP&E> 44,953
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,230,807
<CURRENT-LIABILITIES> 1,240,153
<BONDS> 84,372
0
0
<COMMON> 995
<OTHER-SE> 1,710,713
<TOTAL-LIABILITY-AND-EQUITY> 3,230,807
<SALES> 0
<TOTAL-REVENUES> 817,582
<CGS> 0
<TOTAL-COSTS> 571,785
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 101,045
<INCOME-TAX> 40,932
<INCOME-CONTINUING> 60,113
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,113
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
