Anthem Blue Cross 2002 Annual Report Download - page 58

MANAGEMENT’S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations (Continued)
Anthem, Inc. 2002 Annual Report 53
Many of our subsidiaries are subject to various gov-
ernment regulations that restrict the timing and amount
of dividends and other distributions that may be paid to
their respective parent companies. During 2002, Anthem
received $702.0 million of dividends from its subsidiaries.
At December 31, 2002, Anthem held approximately
$200.0 million of our $6.6 billion of cash and investments.
This is available for general corporate use, including
investment in our businesses, acquisitions, share and debt
repurchases and interest payments.
Our consolidated debt-to-total-capital ratio (calcu-
lated as the sum of debt divided by the sum of debt plus
shareholders’ equity) was 24.7% as of December 31, 2002
and 28.4% as of December 31, 2001. We expect to main-
tain our debt-to-total-capital ratio at 25% or less. At
these levels, we believe our cost of capital and return on
shareholders’ equity is optimized, while maintaining a suf-
ficient level of leverage and liquidity.
Our senior debt is rated “BBB+” by Standard &
Poor’s, “A-” by Fitch, Inc., “Baa2” by Moody’s Investor
Service, Inc. and “a-” by AM Best Company, Inc.
Consistent with our intention of maintaining our senior
debt investment grade ratings, we intend to maintain our
debt-to-total-capital ratio at 25% or less. A significant
downgrade in our debt could adversely affect our borrowing
capacity and costs.
Future Sources and Uses of Liquidity
On July 2, 2002, Anthem Insurance amended and
restated its revolving lines of credit with its lender group
to make Anthem the borrower and to increase the avail-
able borrowings to $1.0 billion. Under one facility, which
expires November 5, 2006, Anthem may borrow up to
$400.0 million. Under the other facility, which expires
July 1, 2003, Anthem may borrow up to $600.0 million.
Any amounts outstanding under this facility at July 1,
2003 (except amounts which bear interest rates deter-
mined by a competitive bidding process) convert to a
one-year term loan at Anthem’s option. Anthem’s ability
to borrow under these credit facilities is subject to com-
pliance with certain covenants. We were in compliance
with these covenants as of December 31, 2002.
Anthem Insurance’s two previous revolving credit
facilities totaling $800.0 million were terminated on July 2,
2002, as well as the two credit agreements entered into in
February 2002, allowing for $135.0 million of additional
borrowings. In addition to the revolving credit facilities,
at December 31, 2001, Anthem Insurance had a commer-
cial paper program which was discontinued as of July 2,
2002. No amounts were outstanding under the current or
prior facilities as of December 31, 2002 or 2001.
On December 18, 2002, Anthem filed a shelf regis-
tration with the SEC to register any combination of debt
or equity securities in one or more offerings up to an
aggregate amount of $1.0 billion. Specific information
regarding terms of the offering and the securities being
offered will be provided at the time of the offering.
Proceeds from any offering will be used for general corpo-
rate purposes, including the repayment of debt, invest-
ments in our subsidiaries or the financing of possible
acquisitions or business expansion.
On January 27, 2003, the Board of Directors author-
ized management to establish a $1.0 billion commercial
paper program. Proceeds from any future issuance of com-
mercial paper may be used for general corporate purposes,
including the repurchase of debt and common stock of
Anthem.
As discussed above, many of our subsidiaries are sub-
ject to various government regulations that restrict the
timing and amount of dividends and other distributions
that may be paid. Based upon these requirements, we are
expecting approximately $425.0 million of dividends to
be paid to Anthem during 2003.
In 2002, our board of directors authorized, a $400.0
million stock repurchase program, which ended February
2003. Repurchases could be made from time to time at
prevailing prices, subject to certain restrictions on vol-
ume, pricing and timing. During 2002, we repurchased
4.1 million shares at an aggregate cost of approximately
$256.2 million. In 2003, the board of directors authorized
us to repurchase up to $500.0 million of stock under a
new program that will expire in February 2005. Under the
new program, repurchases may be made from time to time
at prevailing prices, subject to certain restrictions on vol-
ume, pricing and timing.