Anthem Blue Cross 2002 Annual Report Download - page 34

MANAGEMENT’S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations (Continued)
Anthem, Inc. 2002 Annual Report 29
changes in our ability to negotiate competitive rates with
our providers may impose further risks to our ability to
profitably underwrite our business.
This management’s discussion and analysis should be
read in conjunction with our audited consolidated financial
statements for the years ended December 31, 2002, 2001
and 2000.
Significant Transactions
On July 31, 2002, we completed the purchase of
100% of the outstanding stock of Trigon Healthcare, Inc.,
or Trigon, in accordance with an agreement and plan of
merger announced April 29, 2002. Trigon was Virginia’s
largest health benefits company and was the exclusive
Blue Cross and Blue Shield licensee in Virginia, exclud-
ing the Northern Virginia suburbs of Washington, D.C.
The merger provides us with a new segment, our
Southeast segment, with approximately 2.5 million mem-
bers and a nearly forty percent share of the Virginia mar-
ket. The Trigon merger allows us to further expand our
licensed territory as a Blue Cross Blue Shield licensee.
We believe the merger will enhance our earnings over
time, as it will allow us opportunities to leverage our cor-
porate and other fixed costs and to expand our specialty
businesses.
Trigon’s shareholders each received thirty dollars
in cash and 1.062 shares of Anthem common stock for
each Trigon share outstanding. The purchase price was
approximately $4,038.1 million, which included cash of
approximately $1,104.3 million, the issuance of approxi-
mately 39.0 million shares of Anthem common stock,
valued at approximately $2,708.1 million, Trigon stock
options converted into Anthem stock options for approx-
imately 3.9 million shares, valued at approximately
$195.5 million and approximately $30.2 million of trans-
action costs. Refer to the Liquidity and Capital Resources
section of this discussion for more information related to
the sources of funds for this acquisition. See Notes 2 and 3
of our audited consolidated financial statements for the
years ended December 31, 2002, 2001 and 2000 for addi-
tional information concerning the pro forma impact of
Trigon on our consolidated financial statements.
On May 31, 2001, we and Blue Cross and Blue Shield
of Kansas, or BCBS-KS, announced that we had signed a
definitive agreement pursuant to which BCBS-KS would
become our wholly owned subsidiary. Under the proposed
transaction, BCBS-KS would demutualize and convert to
a stock insurance company. The agreement calls for us to
pay $190.0 million in exchange for all of the shares of
BCBS-KS. On February 11, 2002, the Kansas Insurance
Commissioner disapproved the proposed transaction,
which had been previously approved by the BCBS-KS
policyholders in January 2002. On February 19, 2002, the
board of directors of BCBS-KS voted unanimously to
appeal the Kansas Insurance Commissioner’s decision and
BCBS-KS sought to have the Commissioner’s decision
overturned in Shawnee County District Court. We joined
BCBS-KS in the appeal, which was filed on March 7,
2002. On June 7, 2002, the Shawnee County District
Court ruled on the BCBS-KS appeal in favor of us and
BCBS-KS. The Shawnee County District Court directed
the Commissioner to re-evaluate her decision in accor-
dance with the Court’s very specific interpretation of the
Kansas law. On June 10, 2002, the Kansas Insurance
Commissioner appealed the District Court’s ruling to
the Kansas Supreme Court. The Kansas Supreme Court
began to hear oral arguments of the parties to this case on
March 5, 2003.
Membership—December 31, 2002
Compared to December 31, 2001
Our membership includes seven different customer
types: Local Large Group, Small Group, Individual,
National Accounts, Medicare + Choice, Federal Employee
Program and Medicaid.
•Local Large Group consists of those customers with 51
or more employees eligible to participate as a member
in one of our health plans.
•Small Group consists of those customers with one to 50
eligible employees.
•Individual members include those in our under age 65
business and our Medicare Supplement (age 65 and
over) business.