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United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the Period Ended June 30, 2003

Commission File Number 1-14177

COBALT CORPORATION
(Exact name of registrant as specified in its charter)

        Indicate by check mark whether 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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12-b-2 of the Exchange Act). Yes ý    No o

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date:

        42,340,405 shares of common stock were outstanding as of July 31, 2003.

COBALT CORPORATION

INDEX TO
QUARTERLY REPORT ON FORM 10-Q

        For the Period Ended June 30, 2003

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements and Supplementary Data

Cobalt Corporation
Consolidated Balance Sheets

See notes to interim consolidated financial statements.

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Cobalt Corporation
Consolidated Statements of Operations
(Unaudited)

See notes to interim consolidated financial statements.

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Cobalt Corporation
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive Income
(Unaudited)

See notes to interim consolidated financial statements.

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Cobalt Corporation
Consolidated Statements of Cash Flows
(Unaudited)

See notes to interim consolidated financial statements.

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Cobalt Corporation
Notes To Interim Consolidated Financial Statements
(Unaudited)

Note A. Basis of Presentation

        The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States ("GAAP") for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2002 and footnotes thereto included in the Cobalt Corporation (the "Company," "we," "us," or "Cobalt") Annual Report on Form 10-K for the year ended December 31, 2002, as filed with the Securities and Exchange Commission.

        Certain reclassifications have been made to the interim consolidated financial statements for 2002 to conform with the 2003 presentation.

Note B. Merger Agreement

        On June 3, 2003, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with WellPoint Health Networks Inc. ("WellPoint") and Crossroads Acquisition Corp., a wholly-owned subsidiary of WellPoint ("Merger Sub"). Under the Merger Agreement, we will merge with Merger Sub, on the terms and subject to the conditions specified in the Merger Agreement (the "Merger").

        The Merger Agreement provides that each share of Cobalt common stock outstanding immediately prior to the effective time of the Merger (other than treasury stock of Cobalt, shares of Cobalt common stock held by Blue Cross & Blue Shield United of Wisconsin ("BCBSUW") and shares of Cobalt common stock owned by WellPoint) shall be converted at the effective time of the merger into the right to receive: (i) $10.25 in cash and (ii) 0.1233 of a share of WellPoint common stock, subject to adjustment as described in the next sentence. If the average closing price of WellPoint common stock on the New York Stock Exchange for the 15 consecutive trading days ending on the trading day immediately after the day on which all of the closing conditions have been satisfied or waived (other than the condition that the price of WellPoint's common stock be at least $62.50 and those conditions that can only be satisfied on the closing date) is less than $70.97, then each share of Cobalt common stock will be converted into the right to receive (i) $10.25 and (ii) a fraction of a share of WellPoint common stock, the numerator of which is equal to $8.75 and the denominator of which is equal to the average closing price of WellPoint common stock over such 15 day period ending on and including the determination date, rounded to the nearest 1/10,000.

        Completion of the Merger is subject to approval of our shareholders, Blue Cross and Blue Shield Association (the "Association") approval, government and regulatory approvals and other customary closing conditions. The Merger is intended to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

        Concurrently with the execution of the Merger Agreement, the Wisconsin United for Health Foundation, Inc. (the "Foundation"), which owns approximately 59% of our outstanding shares of common stock, entered into a Voting and Lockup Agreement with WellPoint (the "Lockup Agreement"). Under the Lockup Agreement, the Foundation agreed, among other things, to vote all of

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its shares of Cobalt stock in favor of the Merger, on the terms and subject to the conditions specified in the Lockup Agreement.

Note C. Acquisition of Claim Management Services, Inc.

        On December 31, 2002, we purchased all of the outstanding stock of Claim Management Services, Inc. ("CMSI"), a third-party administrator of self-funded employee benefit plans. CMSI is headquartered in Green Bay, Wisconsin. For the year ended December 31, 2002, CMSI recorded revenue and pre-tax income of $21,965,000 and $2,316,000, respectively. Our consolidated financial statements include the results of operations for CMSI for periods subsequent to the acquisition date.

Note D. Discontinued Operations

        On March 29, 2002, we sold our behavioral health and medical management subsidiary, Innovative Resource Group, LLC ("IRG"). As a result, IRG is accounted for as a discontinued operation for all periods presented for 2002. The agreement required certain subsidiaries of Cobalt to enter into seven-year service agreements for the provision of services by IRG and also provides for certain bonuses/penalties to be received/paid between IRG and Cobalt based on IRG revenues generated from Cobalt in future years.

Note E. Earnings Per Share

        Basic earnings per share ("EPS") is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding, including restricted stock, during the period. The 7,949,904 shares of Cobalt Corporation common stock owned by BCBSUW are not included in the calculation of outstanding shares. Diluted earnings per share is calculated similarly, except that it includes the dilutive effect of the assumed exercise of stock options using the treasury stock method.

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        Basic and diluted EPS are calculated as follows:

Note F. Stock Based Compensation

        We account for stock option awards under Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Under APB No. 25, no stock-based employee compensation cost is reflected in net income to the extent that stock options granted have an exercise price equal to the market value of the underlying common stock on the date of grant and no modifications are made to option terms subsequent to their grant date.

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        The following table illustrates the effect on net income and earnings per share as if we had applied the fair value expense recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended:

Note G. Stock Option and Restricted Stock Awards

        During the six months ended June 30, 2003, we granted to certain eligible executives, employees and non-employee directors options to purchase a total of 852,800 shares of Cobalt common stock. The exercise price of these options was equal to the fair value of the stock on the grant date. No compensation expense has been recorded related to these grants.

        During the six months ended June 30, 2003, we also granted 155,900 shares of Cobalt common stock as restricted stock awards to certain eligible executives. The aggregate fair market value of the stock at the grant date was $2.2 million. Twenty-five percent of the shares vest annually on the anniversary date of the grant over the next four years. None of the shares of restricted stock may be transferred or encumbered, except as provided for in the award agreements, until the restrictions on such shares lapse or are removed. For grants of restricted stock, unearned compensation equivalent to the fair market value of the shares at the date of grant is recorded as a component of shareholders' equity and subsequently amortized to compensation expense over the vesting period.

Note H. Income from Investment in Affiliates

        Income from investment in affiliates, net of tax, for the three and six months ended June 30, 2002 is primarily comprised of gains on the sale of American Medical Security Group, Inc. ("AMSG") common stock and our equity in the income of AMSG. We accounted for our investment in AMSG under the equity method of accounting through May 31, 2002. Because of decreased ownership and the fact that the Company no longer had the ability to exercise significant influence over AMSG, the equity method of accounting was discontinued subsequent to May 31, 2002 and the investment in AMSG was

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reclassified in our consolidated balance sheets from investment in affiliates to investments available-for-sale. On January 3, 2003, we sold all of our remaining investment in AMSG.

Note I. Medical and Other Benefits Payable

        The components of the change in medical and other benefits payable, net of reinsurance, are as follows:

        The net medical and other benefits payable above excludes reinsured reserves of $38,998,000 as of June 30, 2003 and $35,318,000 as of December 31, 2002.

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Note J. Debt

        During 2002, we entered into a three-year revolving credit arrangement ("revolver") with M&I Marshall & Ilsley Bank. This revolver provides for borrowings up to $30.0 million by Cobalt with the availability declining to $25.0 million on August 7, 2003 and to $15.0 million on August 7, 2004. The revolver is collateralized by the common stock of BCBSUW and Compcare Health Services Insurance Corporation ("CompcareBlue"). The revolver bears interest at a rate of London Interbank Offered Rate ("LIBOR") plus 1.5% to 2.5% depending on the timing and amount of the borrowings. A commitment fee of ³/8% annually is payable quarterly on the unused portion of the revolver. As of June 30, 2003, the outstanding balance on the revolver was $26.8 million with interest at a rate of 3.82%.

        Debt covenants under the revolver include compliance with a minimum tangible net worth, minimum debt-service/liquidity ratio, and risk-based capital ("RBC") requirements on a quarterly basis. As of June 30, 2003, we are in compliance with the covenants contained in the revolver.

        We also have two separate lines-of-credit ("LOC") with a commercial bank. One LOC permits borrowings by certain subsidiaries, excluding the corporate holding company, up to $20.0 million in the aggregate. The other LOC permits aggregate borrowings by United Government Services, LLC ("UGS") and Trust Solutions, LLC ("TS"), up to $2.0 million with company specific maximums. Borrowings under each LOC are subject to an adjustable interest rate of LIBOR plus 2% or, at our discretion, prime rate, with interest payments due monthly. As of June 30, 2003, there were no outstanding borrowings under either LOC.

        In addition, United Wisconsin Insurance Company ("UWIC") has two Irrevocable Standby Letters of Credit from a commercial bank which permit aggregate draws of $16.9 million at an annual commission rate of 1.0%. As of June 30, 2003, there were no outstanding draws on either letter of credit.

Note K. Comprehensive Income

        Comprehensive income consists of the following:

Note L. Common Stock

        The common stock of Cobalt has no par or stated value. The authorized, issued and outstanding shares of common stock are as follows:

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Note M. Segment Reporting

        We have four reportable business segments: insured medical products, specialty managed care products and services, government services, and self-funded products. Insured medical products include full coverage, copayment, preferred provider organization ("PPO"), Medicare supplement, interim coverage, health maintenance organization ("HMO"), and point-of-service ("POS") products sold primarily in Wisconsin. The specialty managed care products and services segment includes dental, life, disability, and workers' compensation products, along with managed care consulting, electronic claim submission services, subrogation and hospital bill audit services, and receivables management services. The specialty managed care products and services are sold throughout the United States. The self-funded products consist of administrative services and access to our extensive provider networks for uninsured contracts and the BlueCard Program. Government services include Medicare claim processing and other services provided under contracts with the federal government throughout the United States; Medicaid processing, audit and reimbursement services in the states of Wisconsin, West Virginia, and Hawaii; and program integrity, consulting and safeguard services in connection with publicly funded health programs.

        Corporate holding company and other includes activities not directly related to the business segments and unallocated corporate overhead expenses. We evaluate segment performance based on profit or loss from operations before income taxes. The accounting policies of the reportable segments are the same as those described in our December 31, 2002 audited financial statements in the summary of significant accounting policies.

        Financial data from continuing operations by segment is as follows:

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        Eliminations by operating segment presented above are as follows: