Anthem Blue Cross 2002 Annual Report Download - page 75

NOTES
to Consolidated Financial Statements (Continued)
70 Anthem, Inc. 2002 Annual Report
The effect of reinsurance on benefit expense for the
years ended December 31 is as follows:
2002 2001 2000
Assumed—increase in
benefit expense $ 6.7 $ 6.2 $ 8.6
Ceded—decrease in
benefit expense 27.4 38.0 233.0
The effect of reinsurance on certain assets and liabil-
ities at December 31 is as follows:
2002 2001
Policy liabilities assumed $37.5 $38.5
Unearned premiums assumed 0.8 0.7
Premiums payable ceded 6.4 7.8
Premiums receivable assumed 0.3 0.3
10. Capital Stock
Shares Issued for the Trigon Acquisition
Effective July 31, 2002, as partial consideration for
the purchase of Trigon, the Company issued 1.062 shares
of Anthem common stock for each Trigon share out-
standing, resulting in additional outstanding shares of
38,971,908. The $2,708.1 fair value of the common
shares issued was determined based on the average market
price of Anthem’s common stock over the two-day period
before and after the terms of the acquisition were agreed
to and announced. Offering costs of $4.1 reduced the
aggregate fair value and $2,704.0 was recorded as par
value of common stock and additional paid in capital.
Stock Repurchase Program
Anthem’s Board of Directors approved a common
stock repurchase program under which the Company may
purchase up to $400.0 of shares from time to time, subject
to business and market conditions. Subject to applicable
law, shares may be repurchased in the open market and in
negotiated transactions for a period of twelve months
beginning February 6, 2002. Under this completed pro-
gram, the Company repurchased and retired 4,121,392
shares at a cost of $256.2. The excess of cost of the repur-
chased shares over par value is charged on a pro rata basis
to additional paid in capital and retained earnings.
On January 27, 2003, the Board of Directors author-
ized the repurchase of up to $500.0 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.
Stock Incentive Plans
The Company’s 2001 Stock Incentive Plan (“Stock
Plan”) provides for the granting of stock options,
restricted stock awards, performance stock awards, per-
formance awards and stock appreciation rights to eligible
employees and non-employee directors. The Company
has registered 7,000,000 shares of its common stock for
issuance under the Stock Plan, including 2,000,000
shares solely for issuance under grants of stock options to
substantially all employees and for issuance under similar
grants to new employees. Awards are granted by the
Compensation Committee of the Board of Directors.
Options vest and expire over terms as set by the Com-
mittee at the time of grant.
In accordance with the Plan, options to purchase
shares of common stock at an amount equal to the fair
market value of the stock at the date of grant were
granted to eligible employees and non-employee directors
during 2002 and 2001. These options generally vest at the
end of two or three years and expire 10 years from the
grant date.
In connection with the acquisition of Trigon,
Anthem assumed the Trigon 1997 Stock Incentive Plan
and the Trigon 1997 Non-Employee Directors Stock
Incentive Plan, which collectively provided for the grant-
ing of stock options to employees and non-employee
directors. Trigon stock options were converted to Anthem
stock options and 3,877,606 shares of Anthem common
stock were registered on July 31, 2002. Pursuant to this
registration, no additional options may be granted under
the converted Trigon plans. The converted stock options
were recorded at the acquisition date as additional paid
in capital and valued at $195.5 using a Black-Scholes
option-pricing model with weighted-average assumptions
as follows:
Risk-free interest rate 4.96%
Volatility factor 42.00%
Dividend yield —
Weighted-average expected life 7 years