UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from .................. to ...............
Commission File Number: 001-12617
Trigon Healthcare, Inc.
(Exact name of registrant as specified in its charter)
Virginia 54-1773225
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2015 Staples Mill Road, Richmond, VA 23230
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (804) 354-7000
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the 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. [x] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Title of each class Outstanding at August 12, 1998
------------------- ------------------------------
Class A Common Stock, $0.01 par value 42,300,022 shares
<PAGE>
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
SECOND QUARTER 1998 FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and
December 31, 1997 1
Consolidated Statements of Operations for the Three Months
and Six Months Ended June 30, 1998 and 1997 2
Consolidated Statements of Comprehensive Income for the
Three Months and Six Months Ended June 30, 1998 and 1997 3
Consolidated Statements of Changes in Shareholders' Equity for the
Three Months and Six Months Ended June 30, 1998 and 1997 4
Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
Assets 1998 1997
------------------ ------------------
<S> <C>
Current assets
Cash $ 2,554 $ 7,010
Investment securities, at estimated fair value 1,506,410 1,363,858
Premiums and other receivables 351,071 360,941
Other 12,085 7,607
------------------ ------------------
Total current assets 1,872,120 1,739,416
Property and equipment, net 45,411 43,912
Deferred income taxes 44,444 45,185
Goodwill and other intangibles, net 65,518 68,354
Restricted investments, at estimated fair value 10,153 10,139
Other assets 23,066 21,814
------------------ ------------------
Total assets $ 2,060,712 $ 1,928,820
================== ==================
Liabilities and Shareholders' Equity
Current liabilities
Medical and other benefits payable $ 447,266 $ 412,710
Unearned premiums 98,139 93,157
Accounts payable and accrued expenses 57,987 53,240
Deferred income taxes 4,855 4,298
Other liabilities 207,041 184,414
------------------ ------------------
Total current liabilities 815,288 747,819
Obligations for employee benefits, noncurrent 66,710 59,467
Medical and other benefits payable, noncurrent 70,522 66,541
Long-term debt 90,147 90,147
Minority interest in subsidiary 7,140 6,109
------------------ ------------------
Total liabilities 1,049,807 970,083
------------------ ------------------
Shareholders' equity
Common stock 423 423
Capital in excess of par 840,103 842,035
Retained earnings 133,742 78,982
Accumulated other comprehensive income
Net unrealized gain on investment securities,
net of deferred income taxes of $19,727
and $20,083 36,637 37,297
------------------ ------------------
Total shareholders' equity 1,010,905 958,737
Commitments and contingencies (note 7)
------------------ ------------------
Total liabilities and shareholders' equity $ 2,060,712 $ 1,928,820
================== ==================
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months and six months ended June 30, 1998 and 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------------------------------------
1998 1997 1998 1997
--------------- -------------- --------------- --------------
<S> <C>
Revenues
Premium and fee revenues
Commercial $ 377,912 $ 357,908 $ 751,121 $ 704,750
Federal Employee Program 106,116 99,411 202,345 190,485
Amounts attributable to self-funded arrangements 268,627 269,775 542,231 515,956
Less: amounts attributable to claims under
self-funded arrangements (242,269) (244,199) (489,684) (466,449)
--------------- -------------- --------------- --------------
510,386 482,895 1,006,013 944,742
Investment income 21,399 17,903 42,507 35,585
Net realized gains 4,591 2,505 34,219 27,817
Other revenues 5,956 6,738 11,405 13,661
--------------- -------------- --------------- --------------
Total revenues 542,332 510,041 1,094,144 1,021,805
Expenses
Medical and other benefit costs
Commercial 314,571 300,741 625,808 592,582
Federal Employee Program 101,005 94,380 192,874 181,063
--------------- -------------- --------------- --------------
415,576 395,121 818,682 773,645
Selling, general and administrative expenses 94,439 90,428 190,332 178,598
Interest expense 1,336 1,337 2,673 1,909
--------------- -------------- --------------- --------------
Total expenses 511,351 486,886 1,011,687 954,152
--------------- -------------- --------------- --------------
Income before income taxes 30,981 23,155 82,457 67,653
Income tax expense 10,270 7,813 27,697 23,078
--------------- -------------- --------------- --------------
Net income $ 20,711 $ 15,342 $ 54,760 $ 44,575
=============== ============== =============== ==============
Net income after Demutualization and IPO (note 5) $ 28,504
==============
Earnings per share (note 5)
Basic net income after Demutualization and IPO $ 0.49 $ 0.36 $ 1.29 $ 0.67
=============== ============== =============== ==============
Diluted net income after Demutualization and IPO $ 0.48 $ 0.36 $ 1.28 $ 0.67
=============== ============== =============== ==============
Pro forma earnings per share (note 5)
Basic and diluted pro forma net income $ 1.04
==============
Weighted average number of common shares outstanding
Basic 42,300 42,300 42,300 42,300
=============== ============== =============== ==============
Diluted 42,858 42,308 42,735 42,304
=============== ============== =============== ==============
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the three months and six months ended June 30, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------------
1998 1997
----------------- ------------------
<S> <C>
Net Income $ 20,711 $ 15,342
Other comprehensive income
Net unrealized gains on investment securities,
net of income taxes
Net unrealized holding gains arising during the
period, net of income taxes of $4,074
and $16,023 7,529 29,740
Less reclassification adjustment for net gains included
in net income, net of income taxes of $1,607
and $877 (2,984) (1,628)
----------------- ------------------
Other comprehensive income 4,545 28,112
----------------- ------------------
Comprehensive income $ 25,256 $ 43,454
================= ==================
Six Months Ended June 30,
---------------------------------------
1998 1997
----------------- ------------------
Net Income $ 54,760 $ 44,575
Other comprehensive loss
Net unrealized losses on investment securities,
net of income taxes
Net unrealized holding gains arising during the period,
net of income taxes of $11,621 and $5,116 21,582 9,467
Less reclassification adjustment for net gains included
in net income, net of income taxes of $11,977
and $9,736 (22,242) (18,081)
----------------- ------------------
Other comprehensive loss (660) (8,614)
----------------- ------------------
Comprehensive income $ 54,100 $ 35,961
================= ==================
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
For the three months and six months ended June 30, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
1998 1997
----------------- ------------------
<S> <C>
Balance at April 1 $ 986,542 $ 856,062
Net income 20,711 15,342
Net unrealized gains on investment
securities, net of income taxes 4,545 28,112
----------------- ------------------
Comprehensive income 25,256 43,454
----------------- ------------------
Adjustment to cash payments to eligible
policyholders in lieu of shares of common
stock in the Demutualization - 276
Adjustment to Initial Public Offering expenses - 10
Purchase and reissuance of common stock under
Employee benefit plans (205) -
Stock option plan, net of income taxes of $186 (512) -
Common stock held by consolidated grantor trusts (176) -
----------------- ------------------
Balance at June 30 $ 1,010,905 $ 899,802
================= ==================
Balance at January 1 $ 958,737 $ 739,780
Net income before Demutualization - 16,071
Net income after Demutualization 54,760 28,504
Net unrealized losses on investment
securities, net of income taxes (660) (8,614)
----------------- ------------------
Comprehensive income 54,100 35,961
----------------- ------------------
Issuance of 24,475 shares to eligible
policyholders in the Demutualization and
cash payments to eligible policyholders in
lieu of shares of common stock - (91,144)
Adjustment to cash payments to eligible
policyholders in lieu of shares of common
stock in the Demutualization (705) -
Issuance of 17,825 shares in the Initial
Public Offering, net of expenses - 215,205
Purchase and reissuance of common stock under
Employee benefit plans (261) -
Stock option plan, net of income taxes of $186 (512) -
Common stock held by consolidated grantor trusts (454) -
----------------- ------------------
Balance at June 30 $ 1,010,905 $ 899,802
================= ==================
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended June 30, 1998 and 1997
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
--------------------------------------
1998 1997
---------------- ----------------
<S> <C>
Net income $ 54,760 $ 44,575
Adjustments to reconcile net income to net cash
provided (used) by operating activities
Depreciation and amortization 8,704 8,425
Accretion of discounts and amortization of premiums, net (11,513) (4,994)
Change in allowance for doubtful accounts receivable (390) 96
Decrease in premiums and other receivables 12,328 25,621
Increase in other assets (6,691) (4,096)
Increase in medical and other benefits payable 38,537 7,094
Increase in unearned premiums 4,982 3,901
Increase (decrease) in accounts payable and accrued expenses 4,747 (34,120)
Increase (decrease) in other liabilities 7,063 (10,498)
Change in deferred income taxes 1,654 9,075
Decrease in obligation for Commonwealth Payment - (175,000)
Increase in minority interest 1,031 750
Increase in obligations for employee benefits 7,243 2,366
(Gain) loss on disposal of property and equipment and other assets (31) 59
Net realized gains (34,219) (27,817)
---------------- ----------------
Net cash provided (used) by operating activities 88,205 (154,563)
---------------- ----------------
Cash flows from investing activities
Proceeds from sale of property and equipment and other assets 98 496
Capital expenditures (8,001) (5,369)
Investment securities purchased (1,818,468) (2,707,454)
Proceeds from investment securities sold 1,168,616 2,160,734
Maturities of fixed income securities 571,670 478,467
---------------- ----------------
Net cash used by investing activities (86,085) (73,126)
---------------- ----------------
Cash flows from financing activities
Proceeds from long-term debt - 85,439
Payments to members in lieu of common stock
pursuant to Plan of Demutualization (705) (91,144)
Net proceeds from issuance of common stock - 215,205
Purchase and reissuance of common stock under
employee benefit and stock option plans (773) -
Common stock purchased by consolidated grantor trusts (454) -
Change in outstanding checks in excess of bank balance (4,644) (5,293)
---------------- ----------------
Net cash provided (used) by financing activities (6,576) 204,207
---------------- ----------------
Net decrease in cash (4,456) (23,482)
Cash - beginning of period 7,010 31,482
---------------- ----------------
Cash - end of period $ 2,554 $ 8,000
================ ================
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
TRIGON HEALTHCARE, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements prepared by Trigon
Healthcare, Inc. and its subsidiaries (collectively, "Trigon" or the
"Company") are unaudited, except for the balance sheet information as
of December 31, 1997, which is derived from the Company's audited
consolidated financial statements, pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and the footnotes required
by generally accepted accounting principles for complete financial
statements. These consolidated interim financial statements should be
read in conjunction with the audited consolidated financial statements
included in the Company's annual report on Form 10-K for the year
ended December 31, 1997.
In the opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of
such consolidated financial statements have been included. The results
of operations for the three months and six months ended June 30, 1998
are not necessarily indicative of the results for the full year.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. PROPERTY AND EQUIPMENT
In the first quarter of 1998 the Company adopted AICPA Statement of
Position (SOP) 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. The SOP requires that certain
costs related to the development or purchase of internal-use software
be capitalized and amortized over the estimated useful life of the
software. The SOP may not be applied to the costs associated with the
Year 2000 conversion. In accordance with the SOP, no prior year
amounts were restated and no costs incurred prior to January 1, 1998,
the initial application of the SOP, for ongoing projects were
capitalized. Expenses incurred related to internal-use software of
$1.1 million and $1.8 million were capitalized for the three months
and six months ended June 30, 1998, respectively.
3. LONG TERM DEBT
In February 1997, the Company entered into a $300 million revolving
credit agreement with a syndicate of banks, which expires February
2002. The credit agreement provides for various borrowing options and
rates and requires the Company to pay a facility fee on a quarterly
basis. The credit agreement also contains certain financial covenants
and restrictions including minimum net worth requirements as well as
limitations on dividend payments. As of June 30, 1998, $85 million had
been borrowed and remained outstanding under the credit agreement. The
weighted average interest rate for the period the borrowings were
outstanding during the three months ended June 30, 1998 and 1997 was
5.89% and 5.86%, respectively, and 5.92% and 5.81% for the six months
ended June 30, 1998 and 1997, respectively.
6
<PAGE>
4. INCOME TAXES
The effective tax rate for the three months ended June 30, 1998 and
1997 was 33.1% and 33.7%, respectively. The effective tax rate was
33.6% and 34.1% for the six months ended June 30, 1998 and 1997,
respectively. During 1998, the Company increased its investment in tax
exempt municipal bonds. Accordingly, the effective tax rate was
reduced by the effect of the increased tax exempt investment income
earned.
5. PRO FORMA FINANCIAL INFORMATION AND NET INCOME AND PRO FORMA NET INCOME
PER SHARE
Net income and net income per share after Demutualization and IPO
reflect net income and net income per share for the period after
February 5, 1997, the effective date of the Demutualization and IPO.
The following pro forma information for the six months ended June 30,
1997 gives effect to the Demutualization and IPO as if they had
occurred on January 1, 1997, consistent with the Company's pro forma
presentation in its Form S-1 filed on January 29, 1997 in connection
with its IPO (in thousands):
-----------------------------------------------------------------------
As reported
Income before income taxes $ 67,653
Income tax expense 23,078
Pro forma adjustments
Pro forma interest expense 634
Pro forma income tax benefit (217)
------------------------------------------------------------------------
Pro forma net income $ 44,158
------------------------------------------------------------------------
The difference between the pro forma net income and actual net income
in 1997 is due to interest expense, net of income taxes, assumed for
the period prior to the actual borrowing of funds using the actual
weighted average rate of 5.675% per annum in effect during the first
quarter of 1997. Actual interest expense for the periods subsequent to
the borrowings is included in income before income taxes. Actual
interest rates can vary on the current borrowing. A 1/8 percent change
in the interest rate of the current outstanding borrowings would have
changed interest expense by approximately $106,000 per annum.
7
<PAGE>
Net Income and Pro forma Net Income per Share
The following table sets forth the computation of basic and diluted
earnings per share for the three months ended June 30, 1998 and 1997 and
for the six months ended June 30, 1998 and the period after the
Demutualization and IPO, February 5, 1997 through June 30, 1997 (in
thousands, except per share data):
<TABLE>
<CAPTION>
Six Months Feb. 5, 1997
Ended Through
Three Months Ended June 30, June 30, June 30,
1998 1997 1998 1997
---------------------------------------------------------------------------------------
<S> <C>
Numerator for basic and diluted
earnings per share - net income $ 20,711 15,342 54,760 28,504
---------------------------------------------------------------------------------------
Denominator
Denominator for basic earnings per
share-weighted average shares 42,300 42,300 42,300 42,300
Effect of dilutive
securities-employee and
director stock options 558 8 435 4
---------------------------------------------------------------------------------------
Denominator for diluted
earnings per share 42,858 42,308 42,735 42,304
---------------------------------------------------------------------------------------
Basic net income per share $ 0.49 0.36 1.29 0.67
---------------------------------------------------------------------------------------
Diluted net income per share $ 0.48 0.36 1.28 0.67
---------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the computation of basic and diluted pro
forma earnings per share for the six months ended June 30, 1997 (in
thousands, except per share data):
-----------------------------------------------------
Numerator for basic and diluted pro forma
earnings per share-pro forma net income $ 44,158
-----------------------------------------------------
Denominator for basic pro forma earnings per
share -pro forma weighted average shares 42,300
Effect of dilutive securities- employee and
director stock options 5
-----------------------------------------------------
Denominator for diluted pro
forma earnings per share 42,305
-----------------------------------------------------
Basic and diluted pro forma net
income per share $ 1.04
-----------------------------------------------------
The pro forma weighted average shares outstanding gives effect to the
Demutualization and IPO as if they had occurred on January 1, 1997,
consistent with the Company's pro forma presentation in its Form S-1 filed
on January 29, 1997, in connection with its IPO.
6. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, for all periods presented. This statement
establishes standards for the reporting and display of comprehensive
income and its components. The purpose of comprehensive income is to
report all changes in equity resulting from recognized transactions and
other economic events of the period. Other comprehensive income refers to
revenues, expenses, gains and losses that under generally accepted
accounting principles are included in comprehensive income but are
excluded from net income, such as unrealized gains and losses on certain
investments in debt and equity
8
<PAGE>
securities and foreign currency items. The adoption of SFAS No. 130 had no
impact on the Company's financial condition or results of operations.
7. LITIGATION
The Company is the defendant in one lawsuit that has been filed by a
self-funded employer group in connection with the Company's past practices
regarding provider discounts. The suit claims that the Company was
obligated to credit the self-funded plan with the full amount of the
discounts that the Company negotiated with facilities providing health
care to members covered by the plan. The suit seeks an audit and
unspecified compensatory, punitive and other damages. The Company is also
presently the subject of three other claims by self-funded employer groups
related to the Company's past practices regarding provider discounts. The
Company is communicating with these groups, and lawsuits have not been
filed in connection with these claims. Although the ultimate outcome of
such claims and litigation cannot be estimated, the Company believes that
the discount-related claims and litigation brought by these self-funded
employer groups will not have a material adverse effect on the financial
condition of the Company.
The Company and certain of its subsidiaries are involved in various other
legal actions occurring in the normal course of their business. While the
ultimate outcome of such litigation cannot be predicted with certainty, in
the opinion of Company management, after consultation with counsel
responsible for such litigation, the outcome of those actions is not
expected to have a material adverse effect on the financial condition of
the Company.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Substantially all of the revenues of Trigon Healthcare, Inc. and subsidiaries
(collectively, Trigon or the Company) are generated from premiums and fees
received for health care services provided to its members and from investment
income. Trigon's expenses are primarily related to health care services provided
which consist of payments to physicians, hospitals and other providers. A
portion of medical costs expense for each period consists of an actuarial
estimate of claims incurred but not reported to Trigon during the period. The
Company's results of operations depend in large part on its ability to
accurately predict and effectively manage health care costs.
The Company offers a diversified mix of managed care products, including health
maintenance organizations (HMO), preferred provider organizations (PPO),
point-of-service (POS) and traditional indemnity products with access to the
Company's participating provider network (PAR). The Company also provides a
broad array of Medicare supplement plans as well as specialty products including
pharmacy, dental, life, worker's compensation, preventive care, disability,
behavioral health, COBRA and flexible benefits account administration.
The Company participates in the Federal Employee Program (FEP), a national
contract with the U.S. Office of Personnel Management (OPM), to provide benefits
through its PPO network for approximately 214,000 federal employees and their
dependents living in Virginia. FEP revenues represent the reimbursement by OPM
of medical costs incurred including the actual cost of administering the
program, as well as a performance-based share of the national program's overall
profit.
Within the Company's network product offerings, employer groups may choose
various funding options ranging from fully-insured to partially or fully
self-funded financial arrangements. While self-funded customers participate in
Trigon's networks, the customers bear all or a portion of the underwriting risk.
ENROLLMENT
The following table sets forth the Company's enrollment data by network:
As of June 30,
1998 1997
- ---------------------------------------------------------
Commercial:
HMO 257,384 250,136
PPO 276,155 245,867
PAR 180,535 220,157
Medicaid HMO 31,583 33,505
Medicare Supplement 123,658 127,314
Non-Virginia 93,044 57,821
- ---------------------------------------------------------
Subtotal 962,359 934,800
Self-funded/ASO 669,754 675,990
Federal Employee Program 213,793 207,800
- ---------------------------------------------------------
Fully-Insured and Self-Funded
Enrollment 1,845,906 1,818,590
Processed for other Blue Cross
and Blue
Shield Plans (ASO) 9,318 38,438
- ---------------------------------------------------------
Total 1,855,224 1,857,028
- ---------------------------------------------------------
10
<PAGE>
PREMIUM AND PREMIUM EQUIVALENTS BY NETWORK SYSTEM
The following table sets forth the Company's premium and premium equivalents by
network (in thousands):
For the Three Months For the Six Months
Ended June 30, Ended June 30,
- ------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------
Commercial:
HMO $ 93,083 88,762 186,004 173,089
PPO 106,917 91,346 210,587 178,318
PAR 79,480 91,624 160,420 183,853
Medicaid HMO 13,985 14,216 28,239 26,953
Medicare Supplement 55,922 52,709 111,169 105,557
Non-Virginia 28,525 19,251 54,702 36,980
- ------------------------------------------------------------------------------
Subtotal 377,912 357,908 751,121 704,750
Self-funded/ASO 268,627 269,775 542,231 515,956
Federal Employee Program 106,116 99,411 202,345 190,485
- ------------------------------------------------------------------------------
Total $ 752,655 727,094 1,495,697 1,411,191
- ------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Premium and fee revenues increased 5.7% to $510.4 million in the second quarter
of 1998 from $482.9 million in the second quarter of 1997. The $27.5 million
increase is due to a combination of commercial rate increases and enrollment
growth in the Company's HMO, PPO and Non-Virginia networks, offset by expected
declines in PAR network enrollment. Total commercial HMO revenues grew to $107.1
million in the second quarter from $103.0 million last year, a 4.0% increase,
driven by average revenue per member increases of 2.2% and a 1.7% increase in
member months. Commercial PPO revenues increased 17.0% to $106.9 million in the
second quarter of 1998 from $91.3 million for the same period last year. The
$15.6 million increase in commercial PPO revenues is a result of increased
enrollment attributable to a shift in members from the PAR network and from
enrollment of new PPO members, as well as, an increase of 4.0% in the average
revenue per member. Commercial PAR revenues declined to $79.5 million from $91.6
million in the second quarter of 1997 primarily as a result of the continued
transition of members to the more tightly managed HMO and PPO networks.
Non-Virginia revenues increased 48.2% to $28.5 million up from $19.3 million
last year. The $9.2 million increase is a result of growth in enrollment which
can be attributed to the positive acceptance of the Company's product designs by
both small group and individual market segments. Overall, premium revenues on a
per member per month basis for the Company's commercial business increased 3.0%
to $132.30 for the second quarter of 1998 from $128.48 for the second quarter of
1997. FEP revenues increased 6.7% to $106.1 million in the second quarter from
$99.4 million last year. The increase is due to increased medical costs to be
reimbursed by OPM and a 2.9% increase in enrollment.
Total enrollment declined to 1,855,224 as of June 30, 1998 from 1,857,028 as of
June 30, 1997. The slight decline was the net result of a decline of 35,356
self-funded/ASO members offset by an increase of 27,559 members in commercial
business mainly from Non-Virginia and PPO network growth. Specifically, total
commercial enrollment increased 2.9% to 962,359 members as of June 30, 1998 from
934,800 members as of June 30, 1997. Excluding the impact of ceding student
business and exiting the Richmond Medicaid market, both actions explained
further below, adjusted enrollment growth would have been 4.3% on commercial
business. Enrollment in the HMO network increased by 1.9% over the prior year
and accounts for 30.0% of total commercial enrollment. HMO enrollment growth was
11
<PAGE>
partially impacted by the decision to withdraw from the Medicaid HMO program in
the Richmond, Virginia area effective December 31, 1997. The Company took action
because enrollment in an HMO is not mandatory for Medicaid recipients in the
Richmond area and business volumes were considered insufficient to sustain the
HMO as a viable, competitive program. As of June 30, 1997, the Company had
approximately 4,500 Medicaid members in the Richmond area. Enrollment in the PPO
network as of June 30, 1998 increased 12.3% over the same period last year and
accounts for 28.7% of the Company's commercial enrollment. Non-Virginia
enrollment increased 60.9% over the prior year and now accounts for 9.7% of
total commercial enrollment. Growth in PPO and Non-Virginia enrollment was
offset by an expected decline of 18.0% in the Company's PAR network as members
migrate into more tightly managed networks and as a result of ceding all student
business with approximately 8,400 members. The PAR network enrollment represents
18.8% of the Company's total commercial enrollment. The decline in
self-funded/ASO enrollment of 35,356 members partially reflects the Company's
efforts to increase fees to levels that appropriately reflect the value
delivered through the Company's network design and medical management
techniques. The decline also reflects the migration of approximately 29,000
national account members (ASO only) from the Company's systems to an interplan
system where the Company continues to process claims for other Blue Cross and
Blue Shield Plans.
Other revenue decreased by 11.6% to $6.0 million in the second quarter of 1998
from $6.7 million in the second quarter of 1997. The decrease reflects the
Company's strategy of redirecting the health and wellness subsidiary's efforts
toward providing its product offerings and services to the Company instead of
selling these services to third parties. In addition, 1998 revenues are reduced
for revenues associated with the Company's network development subsidiary which
ceased operations as of the end of 1997.
Investment income increased 19.5% to $21.4 million in the second quarter of 1998
compared to $17.9 million in the second quarter of 1997. Net realized gains
increased to $4.6 million in the second quarter of 1998 from $2.5 million in the
second quarter of 1997. The increase in investment income is due to increased
cash flow from realized gains. During 1998, the Company has increased its
percentage of tax-exempt municipal bonds and medium quality bonds and has
lengthened the duration for portions of the bond portfolio. The increase in
realized gains was primarily a result of favorable market gains and active
portfolio management.
Medical costs increased 5.2% to $415.6 million in the second quarter of 1998
from $395.1 million in the second quarter of 1997. The $20.5 million increase is
primarily the result of expected levels of medical cost inflation, growth in
commercial enrollment and an increase in FEP medical costs reimbursed by OPM.
The medical cost per member per month for the Company's commercial business
increased 2.0% to $110.13 for the second quarter of 1998 from $107.96 for the
same period last year. Combined with a 3.0% increase in commercial premium
revenues per member per month, the loss ratio on commercial business improved to
83.2% for the second quarter of 1998 from 84.0% for the same period last year.
The loss ratio improvement can be attributed to a combination of factors
including, higher than expected 1997 utilization in Medicare Supplement products
caused by flu-related illnesses; favorable impact on 1998 of the cost
containment actions, pricing initiatives, improved processing controls and a
change in management during 1997 at one of the Company's HMO subsidiaries;
favorable impact on 1998 of a number of medical cost management initiatives; and
the negative impact on 1998 of certain products performing substantially behind
plan at the Mid-South Insurance Company subsidiary. Regarding medical cost
management initiatives, the Company continues to diligently work at negotiating
lower reimbursement rates with facilities and to better manage utilization.
During the second quarter of 1998, inpatient days per thousand were down 4.7%
and the average length of stay was down 2.1% as compared to last year. By the
end of the second quarter, 80% of acute care facilities in the Company's service
area have been converted to a fixed fee schedule for outpatient services.
12
<PAGE>
Also, the Company is taking a more active role in managing physicians with
emphasis on specialty services. Efforts include adding eight new medical
directors in the past several months, the January 1998 implementation of
national medical management guidelines, recent completion of a program to
improve both quality and costs by strengthening the Company's pre-certification
requirements for hospital admissions and finalizing contracting efforts in the
Eastern portion of Virginia to improve product marketability and help reduce
health care costs.
Selling, general and administrative expenses (SG&A) increased by 4.4% to $94.4
million in the second quarter of 1998 from $90.4 million in the second quarter
of 1997. The increase is a result of higher volumes and the incremental cost of
certain initiatives. SG&A expenses increased by $2.5 million as a result of
increased Non-Virginia volume and as a result of a higher broker commission
scale for business sold in Virginia. Medicare HMO start-up costs, development of
customer service "call center" technology and incremental costs associated with
preparing systems for the century date change have increased expenses by $2.0
million in the second quarter of 1998 compared to the same period in 1997. In
the first quarter of 1998 the Company adopted AICPA Statement of Position (SOP)
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. The SOP requires the capitalization and amortization of certain
costs related to internal-use software but may not be applied to the costs
associated with the Year 2000 conversion. The adoption of the SOP resulted in a
$1.1 million reduction in expenses in the second quarter of 1998 and, including
the first six months of 1998, is expected to reduce SG&A expenses approximately
$4 to $5 million during 1998. Overall, the SG&A ratio was 12.4% for the current
quarter as compared to 12.3% for the same quarter last year.
Interest expense remained constant at $1.3 million in the second quarter of 1998
and 1997 as a result of negligible changes in the weighted average interest rate
for the periods on the $85 million debt outstanding.
Income before income taxes increased 33.8% to $31.0 million in the second
quarter of 1998 from $23.2 million in the second quarter of 1997. The increase
is a result of an increase in investment income of $3.5 million, an increase in
net realized gains of $2.1 million and an increase in operating income of $2.2
million. Operating income increased because of improving commercial margins
resulting from medical cost management efforts.
The effective tax rate for the three months ended June 30, 1998 decreased to
33.1% from 33.7% for the same period in the prior year. During 1998, the Company
increased its investment in tax exempt municipal bonds thereby increasing the
amount of tax exempt investment income earned.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Premium and fee revenues increased 6.5% to $1,006.0 million in the first six
months of 1998 from $944.7 million in the first six months of 1997. The $61.3
million increase is due to a combination of commercial rate increases and
enrollment growth in the Company's HMO, PPO and Non-Virginia networks, offset by
expected declines in PAR network enrollment. Total commercial HMO revenues grew
to $214.2 million in the first half of 1998 from $200.0 million last year, a
7.1% increase, driven by average revenue per member increases of 4.4% and a 2.6%
increase in member months. Commercial PPO revenues increased 18.1% to $210.6
million in the first half of 1998 from $178.3 million for the same period last
year. The $32.3 million increase in commercial PPO revenues is a result of
increased enrollment attributable to a shift in members from the PAR network and
from enrollment of new PPO members, as well as, an increase of 4.5% in the
average revenue per member. Commercial PAR revenues declined to $160.4 million
from $183.9 million in the first half of 1997 primarily as a result of the
continued transition of members to the more tightly managed HMO and PPO
networks. Non-
13
<PAGE>
Virginia revenues increased 47.9% to $54.7 million from $37.0 million last year.
The $17.7 million increase is a result of growth in enrollment which can be
attributed to the positive acceptance of the Company's product designs by both
small group and individual market segments. Overall, premium revenues on a per
member per month basis for the Company's commercial business increased 4.2% to
$132.44 for the first half of 1998 from $127.16 for the first half of 1997. FEP
revenues increased 6.2% to $202.3 million in the first half of 1998 from
$190.5 million last year. The increase is due to increased medical costs to be
reimbursed by OPM and 2.9% increase in enrollment.
Other revenue decreased by 16.5% to $11.4 million in the first six months of
1998 from $13.7 million in the first six months of 1997. The decrease reflects
the Company's strategy of redirecting the health and wellness subsidiary's
efforts toward providing its product offerings and services to the Company
instead of selling these services to third parties. In addition, 1998 revenues
are reduced for revenues associated with the Company's network development
subsidiary which ceased operations as of the end of 1997.
Investment income increased 19.5% to $42.5 million in the first six months of
1998 from $35.6 million in the same period of 1997. Net realized gains increased
to $34.2 million in the first six months of 1998 from $27.8 million for the same
period in 1997. The increase in investment income reflects a shift in the
portfolio mix from direct equity securities to fixed income securities, the
increase in medium quality bonds and the duration lengthening for portions of
the bond portfolio during 1998. The equity portfolio was reduced to less than 7%
of the total portfolio as of June 30, 1998 as compared to approximately 13% of
the total portfolio at June 30, 1997. In addition, the Company reduced its
investment management expenses beginning in the first quarter of 1998 by
managing a larger portion of the investment portfolio in-house. The sale of
equity securities in conjunction with active portfolio management was the
primary component of the net realized gains for the first six months of 1998.
Medical costs increased 5.8% to $818.7 million in the first six months of 1998
from $773.6 million in the first six months of 1997. The $45.0 million increase
is primarily the result of expected levels of medical cost inflation, growth in
commercial enrollment and an increase in FEP medical costs reimbursed by OPM.
The medical cost per member per month for the Company's commercial business
increased 3.2% to $110.35 for the first half of 1998 from $106.92 for the same
period last year. Combined with a 4.2% increase in commercial premium revenues
per member per month, the loss ratio on commercial business improved to 83.3%
for the first half of 1998 from 84.1% for the same period last year. The loss
ratio improvement can be attributed to a combination of factors including,
higher than expected 1997 utilization in Medicare Supplement products caused by
flu-related illnesses; favorable impact on 1998 of the cost containment actions,
pricing initiatives, improved processing controls and a change in management
during 1997 at one of the Company's HMO subsidiaries; favorable impact on 1998
of a number of medical cost management initiatives; and the negative impact on
1998 of certain Mid-South products performing substantially behind plan.
Regarding medical cost management initiatives, the Company continues to
diligently work at negotiating lower reimbursement rates with facilities and to
better manage utilization. Consequently, inpatient days per thousand for the six
months ended June 30, 1998 were down 4.7% as compared to last year. By the end
of the second quarter, 80% of acute care facilities in the Company's service
area have been converted to a fixed-fee schedule for outpatient services. Other
management initiative efforts include adding eight new medical directors in the
past several months, the January 1998 implementation of national medical
management guidelines, recent completion of programs to improve both quality and
costs by strengthening the Company's pre-certification requirements for hospital
admissions and finalizing contracting efforts in the Eastern portion of Virginia
to improve product marketability and help reduce health care costs.
14
<PAGE>
Selling, general and administrative expenses (SG&A) increased by 6.6% to $190.3
million in the first six months of 1998 from $178.6 million in the first six
months of 1997. The increase is a result of higher volumes, the incremental cost
of certain initiatives and the impact of general inflationary pressure, such as
salary merit increases. SG&A expenses increased by $6.0 million as a result of
increased Non-Virginia volume and as a result of a higher broker commission
scale for business sold in Virginia. Medicare HMO start-up costs, development of
customer service "call center" technology and incremental costs associated with
preparing systems for the century date change have increased expenses by $3.4
million in the first half of 1998 compared to the same period last year. The
first quarter of 1998 adoption of AICPA SOP 98-1, which requires the
capitalization and amortization of certain costs related to internal-use
software, resulted in a $1.8 million reduction in expenses through the first six
months of 1998. Including the first six months of 1998, capitalization of
internal-use software is expected to reduce SG&A expenses approximately $4 to $5
million during 1998. Overall, the SG&A ratio was 12.6% for the first half of
1998 as compared to 12.5% for the same period last year.
Interest expense increased 40.0% to $2.7 million in the first six months of 1998
from $1.9 million in the first six months of 1997. The increase is primarily due
to the full six month impact in 1998 of the outstanding $85 million revolving
credit agreement which was initiated in late February 1997.
Income before income taxes increased 21.9% to $82.5 million in the first six
months of 1998 from $67.7 million in the first six months of 1997. The increase
is a result of an increase in investment income of $6.9 million, an increase in
net realized gains of $6.4 million and an increase in operating income of $2.2
million offset by an increase in interest expense of $0.7 million. Operating
income increased because of improving commercial margins resulting from medical
cost management efforts.
The effective income tax rate decreased to 33.6% in the first six months of 1997
from 34.1% in the first six months of 1997. During 1998, the Company increased
its investment in tax exempt municipal bonds thereby increasing the amount of
tax exempt investment income earned.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of cash are premiums and fees received and
investment income. The primary uses of cash include health care benefit expenses
and capitation payments, brokers' and agents' commissions, administrative
expenses, income taxes and repayment of long-term debt. Trigon generally
receives premium revenues in advance of anticipated claims for related health
care services.
The Company's investment policies are designed to provide liquidity to meet
anticipated payment obligations and preserve capital. Trigon fundamentally
believes that concentrations of investments in any one asset class are unwise
due to constantly changing interest rates as well as market and economic
conditions. Accordingly, the Company maintains a diversified investment
portfolio consisting both of fixed income and equity securities, with the
objective of reducing risk and maximizing overall return. The fixed income
portfolio includes government and corporate securities, both domestic and
international, with an average quality rating of A as of June 30, 1998. The
portfolio had an average contractual maturity of 9.3 years as of June 30, 1998.
A portion of the fixed income portfolio is designated as a short-term fixed
income portfolio and is intended to cover near term cash flow needs and to serve
as a buffer for unanticipated business needs. The equity portfolios contain
readily marketable securities ranging from small growth to well-established
Fortune 500 companies. The international equity portfolio is diversified by
industry, country and currency-related exposure. The Company enters into foreign
currency forward contracts and foreign currency options
15
<PAGE>
to manage its exposure to fluctuations in foreign currency exchange rates on its
foreign debt and equity investments. As of June 30, 1998, the equity portfolio
was 6.3% of the total portfolio, down from 27.8% as of December 31, 1996 and
10.5% as of December 31,1997, with the majority of the shift occurring prior to
March 31, 1997. The Company has been continuing to reallocate the portfolio
during 1998 with a greater emphasis on domestic, tax-exempt municipal bonds and
a longer duration for certain portions of the bond portfolio.
Cash provided (used) by operating activities for the six months ended June 30,
1998 and 1997 was $88.2 million and $(154.6) million, respectively. The
significant increase in cash provided by operations in 1998 is primarily due to
the $175 million Commonwealth Payment made in the first quarter of 1997 to the
Commonwealth of Virginia in connection with the Demutualization in February 1997
and the timing of premiums receipts and claims and other operating liability
payments between years.
Net cash used by investing activities increased to $86.1 million for the six
months ended June 30, 1998 from $73.1 million for the same period of 1997. The
increase is attributed to a net increase in investment activity and an increase
in capital expenditures.
Cash provided (used) by financing activities decreased to $(6.6) million for the
first six months of 1998 from $204.2 million for the same period of 1997
primarily due to the IPO and borrowing under a credit agreement which occurred
in early 1997. The IPO and borrowings under the credit agreement generated
$208.8 million in net cash flows for the Company in 1997.
In connection with the Demutualization and IPO, the Company entered into a $300
million revolving credit agreement which expires in February 2002. The credit
agreement calls for various borrowing options and rates and requires the Company
to pay a facility fee on a quarterly basis. The credit agreement also contains
certain financial covenants and restrictions including minimum net worth
requirements as well as limitations on dividend payments. As of June 30, 1998,
$85 million had been borrowed and remained outstanding under this credit
agreement, the proceeds of which were used to pay a portion of the Commonwealth
Payment at the time of the Demutualization and IPO.
The Company believes that cash flow generated by operations and its cash and
investment balances will be sufficient to fund continuing operations, capital
expenditures and debt repayment costs for the foreseeable future. The nature of
the Company's operations is such that cash receipts are principally premium
revenues typically received up to three months prior to the expected cash
payment for related health care services. The Company's operations are not
capital intensive, and there are currently no commitments for major capital
expenditures to support existing business.
The Company has developed and is currently executing a comprehensive plan to
prepare the computer systems and application software for the year 2000. Project
completion for the Company's core systems and software is scheduled for the end
of 1998, allowing adequate time for testing. The Company is using both external
and internal resources for the project. The incremental costs for the project
were $10.7 million through June 30,1998, including $1.9 million incurred during
the second quarter of 1998. Total incremental costs are expected to approximate
$20.0 million through 1999. The costs will be expensed as incurred and will be
funded through operating cash flows.
In addition, the Company is surveying hospitals, providers and others depended
upon for electronic commerce in an effort to determine whether such third
parties are assessing and correcting any issues relating to the year 2000 which
could impact their ability to conduct business with the Company.
16
<PAGE>
Lack of appropriate action on the part of these third parties could impact the
Company's ability to serve its customers. The Company will continue to monitor
the progress of these entities.
In June 1998, the Company's Board of Directors authorized a Stock Repurchase
Program under which up to 10 percent of the Company's outstanding Class A common
stock may be repurchased. Such purchases may be made from time to time at
prevailing prices in the open market, by block purchase or in private
transactions, and may be discontinued at any time. The repurchases will be
subject to restrictions relating to volume, price and timing. As of June 30,
1998, there had been no activity under the program.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits. The new standard, issued in February 1998, becomes effective for
fiscal years beginning after December 15, 1997. This standard revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition principles of those plans. It standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
considered useful. The new disclosures will be effective for the 1998 fiscal
year.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The
Statement is effective for fiscal years beginning after June 15, 1999, with
earlier adoption encouraged. The new standard requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The Company is presently evaluating the effect
of SFAS No. 133 on its financial statements.
FORWARD-LOOKING INFORMATION
This Item, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and this Form 10-Q contain certain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, including among other things statements concerning future earnings,
premium rates, enrollment and medical and administrative costs. Such
forward-looking statements are subject to inherent risks and uncertainties, many
of which are beyond the control of the Company, that may cause actual results to
differ materially from those contemplated by such forward-looking statements.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, but are not limited to,
rising health care costs, business conditions and competition in the managed
care industry, government action and other regulatory issues. Additional
information concerning factors that could cause actual results to differ
materially from those in forward-looking statements is contained in the
Company's Annual Report on Form 10-K under the caption "Forward-Looking
Information".
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(a) The Company is the defendant in one lawsuit that has been filed by a
self-funded employer group in connection with the Company's past practices
regarding provider discounts. The suit claims that the Company was obligated to
credit the self-funded plan with the full amount of the discounts that the
Company negotiated with facilities providing health care to members covered by
the plan. The suit seeks an audit and unspecified compensatory, punitive and
other damages. The Company is also presently the subject of three other claims
by self-funded employer groups related to the Company's past practices regarding
provider discounts. The Company is communicating with these groups, and lawsuits
have not been filed in connection with these claims. Although the ultimate
outcome of such claims and litigation cannot be estimated, the Company believes
that the discount-related claims and litigation brought by these self-funded
employer groups will not have a material adverse effect on the financial
condition of the Company.
The Company and certain of its subsidiaries are involved in various other legal
actions occurring in the normal course of their business. While the ultimate
outcome of such litigation cannot be predicted with certainty, in the opinion of
Company management, after consultation with counsel responsible for such
litigation, the outcome of those actions is not expected to have a material
adverse effect on the financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on April 29, 1998, the
following members were elected to the Board of Directors:
Votes For Votes Withheld
James K. Candler 26,614,120 1,284,328
William R. Harvey, Ph.D. 26,614,777 1,283,671
Gary A. Jobson 26,611,046 1,287,402
William N. Powell 26,616,298 1,282,150
J. Carson Quarles 26,613,092 1,285,356
R. Gordon Smith 26,612,886 1,285,562
The matters voted upon at the Annual Meeting of Shareholders and the results of
the voting were as follows:
Votes
Votes For Votes Against Abstained Nonvotes
Ratification of KPMG
Peat Marwick LLP as
independent auditors of
the Company for 1998 27,698,818 28,945 170,685 --
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following is a list of exhibits filed with the Form 10-Q:
Exhibit
Number Description
- -------- -----------
11 -- Computation of per share earnings for the three months and six
months ended June 30, 1998. Exhibit omitted as the detail
necessary to determine the computation of per share earnings can be
clearly determined from the material contained in Part I of this
Form 10-Q.
27 --Financial Data Schedule.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(b) Reports on Form 8-K:
None filed during the three months ended June 30, 1998.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRIGON HEALTHCARE, INC.
Registrant
Dated: August 13, 1998 By:/s/ Thomas R.Byrd
-------------------
THOMAS R. BYRD
SENIOR VICE PRESIDENT & CHIEF
FINANCIAL OFFICER
(PRINCIPAL ACCOUNTING AND
FINANCIAL OFFICER)
<PAGE>
EXHIBIT INDEX
Exhibit
Number
27 --Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
INCLUDED IN THE TRIGON HEALTHCARE, INC. AND SUBSIDIARIES FORM 10-Q FOR THE
SIX MONTHS ENDED JUNE 20, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,554
<SECURITIES> 1,506,410
<RECEIVABLES> 351,071
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,872,120
<PP&E> 133,263
<DEPRECIATION> 87,852
<TOTAL-ASSETS> 2,060,712
<CURRENT-LIABILITIES> 815,288
<BONDS> 90,147
0
0
<COMMON> 423
<OTHER-SE> 1,010,482
<TOTAL-LIABILITY-AND-EQUITY> 2,060,712
<SALES> 1,017,418
<TOTAL-REVENUES> 1,094,144
<CGS> 818,682
<TOTAL-COSTS> 1,009,014
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,673
<INCOME-PRETAX> 82,457
<INCOME-TAX> 27,697
<INCOME-CONTINUING> 54,760
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,760
<EPS-PRIMARY> 1.29
<EPS-DILUTED> 1.28
</TABLE>
