Anthem Blue Cross 2002 Annual Report Download - page 77

NOTES
to Consolidated Financial Statements (Continued)
72 Anthem, Inc. 2002 Annual Report
investment account. The purchase price per share is 85%
of the lower of the fair market value of a share of common
stock on either the first or last trading day of the plan
quarter. Employee purchases under the Stock Purchase
Plan were $6.9, with 135,593 shares issued to employees
during the period ending December 31, 2002. As of
December 31, 2002, payroll deductions of $1.2 have been
accumulated toward purchases for the plan quarter ending
February 28, 2003. As of December 31, 2002, there were
2,864,407 shares of common stock available for issuance
under the Stock Purchase Plan.
Pro Forma Disclosure
The pro forma information regarding net income
and earnings per share have been determined as if the
Company accounted for its stock-based compensation
using the fair value method. The fair value for the
stock options was estimated at the date of grant using a
Black-Scholes option valuation model with the following
weighted-average assumptions:
2002 2001
Risk-free interest rate 4.16% 4.96%
Volatility factor 45.00% 42.00%
Dividend yield ——
Weighted-average expected life 4 years 4 years
The Black-Scholes option valuation model was
developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require
the input of highly subjective assumptions including the
expected stock price volatility. Because the Company’s
stock option grants have characteristics significantly dif-
ferent from those of traded options, and because changes
in the subjective input assumptions can materially affect
the fair value estimate, in management’s opinion, the
existing models do not necessarily provide a reliable sin-
gle measure of the fair value of its stock option grants.
For purposes of pro forma disclosures, compensation
expense is increased for the estimated fair value of the
options amortized over the options’ vesting periods and
for the difference between the market price of the stock
and discounted purchase price of the shares on the pur-
chase date for the employee stock purchases. The
Company’s pro forma information is as follows:
2002 2001
Reported net income $549.1 $342.2
Total stock-based employee compensation
expense determined under fair value
based method for all awards (net of tax) (13.1) (1.1)
Pro forma net income $536.0 $341.1
2002 2001
As Pro As Pro
Reported Forma Reported Forma
Earnings per share:
Basic net income $4.61 $ 4.50 $3.31 $3.30
Diluted net income 4.51 4.42 3.30 3.30
Basic and diluted
net income after
demutualization and
initial public offering ——0.54 0.53
Weighted-average fair
value of options granted
during the year — 28.16 — 14.12
Weighted-average fair
value of employee
stock purchases
during the year — 15.23 ——
Weighted-average fair
value of restricted
stock awards granted
during the year — 62.57 ——
Initial Public Offering and Equity Security Units
On November 2, 2001, Anthem completed an ini-
tial public offering of 55,200,000 shares of common stock,
at an initial public offering price of $36.00 per share.
The shares issued in the initial public offering were in
addition to 48,095,675 shares of common stock (which