SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A No. 1
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
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)
Registrant's telephone number, including area code (804) 354-7000
<TABLE>
<S> <C>
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, $.01 Par Value New York Stock Exchange
(Title of Class) (Name of Exchange)
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 28, 1999 was approximately $1,311,301,000 (based on the
last reported sales price of $31 per share on April 28, 1999, on the New York
Stock Exchange).
As of April 28, 1999, 42,300,022 shares of the registrant's Class A Common
Stock, par value $.01 per share, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of Trigon Healthcare Inc.'s Annual Report to Shareholders for
the year ended December 31, 1998 into Parts II and IV of this Form 10-K.
Certain portions of Trigon Healthcare Inc.'s definitive Proxy Statement dated
March 29, 1999 for the Annual Meeting of Shareholders into Part III of this Form
10-K.
<PAGE>
The exhibits to this Form 10K/A No. 1 are amended to include the 1998 annual
reports for the Trigon Healthcare, Inc. Employee Stock Purchase Plan and the
Trigon Insurance Company 401(K) Restoration Plan. There are no other
differences.
PART I
Item 1. Business
Omitted
Item 2. Properties
Omitted
Item 3. Legal Proceedings
Omitted
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Omitted
Item 6. Selected Financial Data
Omitted
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Omitted
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Omitted
Item 8. Financial Statements and Supplementary Data
Omitted
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
Omitted
Item 11. Executive Compensation
Omitted
Item 12. Security Ownership of Certain Beneficial Owners and Management
Omitted
Item 13. Certain Relationships and Related Transactions
Omitted
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Consolidated Financial Statements from Trigon Healthcare Inc.'s Annual
Report to Shareholders are incorporated herein by reference in Item 8:
Omitted
2. Financial statement schedules
Omitted
3. Exhibits. The following is a list of exhibits to this Form 10-K.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
2 -- Amended and Restated Plan of Demutualization. (1)
3.1 -- Amended and Restated Articles of Incorporation of Trigon Healthcare, Inc. (1)
3.2 -- Amended and Restated Bylaws of Trigon Healthcare, Inc. (2)
3.3 -- Articles of Amendment to Amended and Restated Articles of Incorporation setting forth the
designation, preferences and rights of Series A Junior Participating Preferred Stock of
Trigon Healthcare, Inc. dated July 16, 1997. (4)
3.4 -- Amendment to the Amended and Restated Bylaws of Trigon Healthcare, Inc. (8)
4 -- Form of Stock Certificate (other Instruments Defining the Rights of Security-Holders). (1)
4.1 -- Rights Agreement dated as of July 16, 1997 between Trigon Healthcare, Inc. and First Chicago
Trust Company of New York, as Rights Agent. (4)
4.2 -- Form of Rights Certificate. (4)
10.1 -- License Agreement by and between the Blue Cross Blue Shield Association and the Company. (2)
(a) Blue Cross license
(b) Blue Shield license
10.2 -- Limited Fixed Return Plan for Certain Officers and Directors of Trigon Insurance Company.
(1) *
10.4 -- Non-Contributory Retirement Program for Certain Employees of Trigon Insurance Company. (1) *
10.5 -- Amended and Restated Supplemental Executive Retirement Program for Certain Employees of
Trigon Insurance Company dated as of October 1, 1998. (8) *
10.6 -- Salary Deferral Plan for Norwood H. Davis, Jr. (1) *
10.7 -- Amended and Restated Employment Agreement dated September 16, 1998 by and between Trigon
Insurance Company and Norwood H. Davis, Jr. (7) *
10.9 -- Amended and Restated Employees' Thrift Plan of Trigon Insurance Company dated as of October
1, 1998. (8) *
10.10 -- Amended and Restated Trigon Insurance Company 401(k) Restoration Plan dated as of October 1,
1998. (8) *
10.12 -- Form of Employment Agreement dated as of December 12, 1990 by
and between Trigon Insurance Company and John C. Berry and
certain other executive officers. (1) *
10.14 -- Credit Agreement dated as of February 5, 1997 among Trigon Healthcare, Inc., the banks party
thereto and Morgan Guaranty Trust Company of New York, as Agent. (2)
10.15 -- 1997 Stock Incentive Plan. (6) *
10.16 -- Employee Stock Purchase Plan. (6) *
10.17 -- Non-Employee Directors Stock Incentive Plan. (6) *
10.18 -- Amendment to the License Agreement by and between the Blue Cross Blue Shield Association and
the Company. (5)
<PAGE>
10.19 -- Amendment to the Non-Contributory Retirement Program for Certain Employees of Trigon
Insurance Company. (3) *
10.20 -- Form of Executive Continuity Agreement dated as of September 16, 1998 between Trigon
Insurance Company and Thomas G. Snead, Jr. and certain other executive officers. (7) *
10.21 -- Form of Executive Continuity Agreement dated as of September
16, 1998 between Trigon Insurance Company and John C. Berry and
certain other executive officers. (7) *
10.22 -- Amendment to the Non-Contributory Retirement Program for
Certain Employees of Trigon Insurance Company (now to be known
as) The Trigon Insurance Company Retirement Program dated as of
October 1, 1998. (8) *
10.23 -- Clarifying Amendment to the Non-Contributory Retirement
Program for Certain Employees of Trigon Insurance Company (now to
be known as) The Trigon Insurance Company Retirement Program
dated as of October 1, 1998. (8) *
11 -- Computation of per share earnings. Refer to page 51, "Note 15.
"Net Income and Pro Forma Net Income Per Share," of Trigon
Healthcare Inc.'s Annual Report to Shareholders, which is
incorporated herein by reference.
13 -- Excerpts from the Company's Annual Report to Shareholders for the year ended December 31,
1998. (8)
21 -- Subsidiaries of the Registrant. (8)
23.1 -- Consent of KPMG LLP. (8)
23.2 -- Consent of KPMG LLP.
23.3 -- Consent of KPMG LLP.
27 -- Financial Data Schedule. (8)
99.1 -- Trigon Healthcare, Inc. Employee Stock Purchase Plan Audited
Financial Statements as of December 31, 1998 and 1997 and for
year ended December 31 1998 and the period May 1, 1997
(inception) through December 31, 1997.
99.2 -- Trigon Insurance Company 401(k) Restoration Plan Audited
Financial Statements as of December 31, 1998 and 1997 and for the
three years ended December 31, 1998, 1997 and 1996.
</TABLE>
(1) Incorporated by reference to exhibits filed with the Company's Registration
Statement on Form S-1 (registration number 333-09773).
(2) Incorporated by reference to exhibits filed with the Company's Form 10-K for
the year ended December 31, 1996.
(3) Incorporated by reference to exhibits filed with the Company's Form 10-K for
the year ended December 31, 1997.
(4) Incorporated by reference to exhibits filed with the Company's Form 8-A/A
filed on July 16, 1997.
(5) Incorporated by reference to exhibits filed with the Company's Form 10-Q for
the period ended September 30, 1997.
(6) Incorporated by reference to exhibits filed with the Company's Proxy
Statement dated March 13, 1997.
(7) Incorporated by reference to exhibits filed with the Company's Form 10-Q for
the period ended September 30, 1998.
(8) Previously filed as part of the Annual Report on Form 10-K for the year
ended December 31, 1998.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c) of this Form 10-K.
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRIGON HEALTHCARE, INC.
Registrant
By:/s/ THOMAS R. BYRD
------------------
THOMAS R. BYRD
Title: SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
Date: April 29, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ NORWOOD H. DAVIS, JR.
- ------------------------- Chairman (Principal Executive Officer) April 29, 1999
NORWOOD H. DAVIS, JR.
/s/ THOMAS R. BYRD
- ------------------ Senior Vice President and Chief
THOMAS R. BYRD Financial Officer (Principal Financial
and Accounting Officer) April 29, 1999
/s/ HUNTER B. ANDREWS
- --------------------- Director April 28, 1999
HUNTER B. ANDREWS, ESQ.
/s/ LENOX D. BAKER, JR.
- ----------------------- Director April 28, 1999
LENOX D. BAKER, JR., M.D.
/s/ JAMES. K. CANDLER
- --------------------- Director April 28, 1999
JAMES K. CANDLER
/s/ ROBERT M. FREEMAN
- --------------------- Director April 28, 1999
ROBERT M. FREEMAN
/s/ WILLIAM R. HARVEY
- --------------------- Director April 28, 1999
WILLIAM R. HARVEY, Ph.D.
/s/ GARY A. JOBSON
- ------------------ Director April 28, 1999
GARY A. JOBSON
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ DONALD B. NOLAN
- -------------------- Director April 28, 1999
DONALD B. NOLAN, M.D.
/s/ WILLIAM N. POWELL
- --------------------- Director April 28, 1999
WILLIAM N. POWELL
/s/ J. CARSON QUARLES
- --------------------- Director April 28, 1999
J. CARSON QUARLES
/s/ R. GORDON SMITH
- ------------------- Director April 28, 1999
R. GORDON SMITH, ESQ.
/s/ HUBERT R. STALLARD
- ---------------------- Director April 28, 1999
HUBERT R. STALLARD
/s/ STIRLING L. WILLIAMSON, JR.
- ------------------------------ Director April 28, 1999
STIRLING L. WILLIAMSON, JR.
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
23.2 -- Consent of KPMG LLP.
23.3 -- Consent of KPMG LLP.
99.1 -- Trigon Healthcare, Inc. Employee Stock Purchase Plan Audited
Financial Statements as of December 31, 1998 and 1997 and for
year ended December 31 1998 and the period May 1, 1997
(inception) through December 31, 1997.
99.2 -- Trigon Insurance Company 401(k) Restoration Plan Audited
Financial Statements as of December 31, 1998 and 1997 and for the
three years ended December 31, 1998, 1997 and 1996.
Exhibit 23.2
Consent of Independent Auditors
The Board of Directors
Trigon Healthcare, Inc.:
We consent to incorporation by reference in the registration statement (No.
333-26187) on Form S-8 of Trigon Healthcare, Inc. of our report dated April 23,
1999, relating to the statements of financial condition of the Trigon
Healthcare, Inc. Employee Stock Purchase Plan as of December 31, 1998 and 1997,
and the related statements of income and changes in plan equity for the year
ended December 31, 1998 and the period May 1, 1997 (inception) through December
31, 1997, which report is included in this Form 10-K/A No.
1 of Trigon Healthcare, Inc.
/s/ KPMG LLP
Richmond, Virginia
April 29, 1999
Exhibit 23.3
Consent of Independent Auditors
The Board of Directors
Trigon Healthcare, Inc.:
We consent to incorporation by reference in the registration statement (No.
333-22463) on Form S-8 of Trigon Healthcare, Inc. of our report dated April 23,
1999, relating to the statements of financial condition, with fund information,
of the Trigon Insurance Company 401(k) Restoration Plan as of December 31, 1998
and 1997, and the related statements of income and changes in plan equity, with
fund information, for each of the years in the three-year period ended December
31, 1998, which report is included in this Form 10-K/A No. 1 of Trigon
Healthcare, Inc.
/s/ KPMG LLP
Richmond, Virginia
April 29, 1999
Exhibit 99.1
TRIGON HEALTHCARE, INC.
EMPLOYEE STOCK PURCHASE PLAN
Financial Statements
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
TRIGON HEALTHCARE, INC.
EMPLOYEE STOCK PURCHASE PLAN
Table of Contents
Page
Independent Auditors' Report 1
Statements of Financial Condition 2
Statements of Income and Changes in Plan Equity 3
Notes to Financial Statements 4
<PAGE>
Independent Auditors' Report
The Human Resources, Compensation and Employee
Benefits Committee of the Board of Directors
Trigon Healthcare, Inc.:
We have audited the accompanying statements of financial condition of the Trigon
Healthcare, Inc. Employee Stock Purchase Plan (Plan) as of December 31, 1998 and
1997, and the related statements of income and changes in plan equity for the
year ended December 31, 1998 and the period May 1, 1997 (inception) through
December 31, 1997. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of the Plan as of December 31,
1998 and 1997 and the income and changes in plan equity for the year ended
December 31, 1998 and the period May 1, 1997 (inception) through December 31,
1997, in conformity with generally accepted accounting principles.
/s/ KPMG LLP
Richmond, Virginia
April 23, 1999
<PAGE>
TRIGON HEALTHCARE, INC.
EMPLOYEE STOCK PURCHASE PLAN
Statements of Financial Condition
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------- -----------
<S> <C> <C>
Assets:
Investments, at estimated fair value - Trigon Healthcare, $ 2,967,244 585,523
Inc. Class A common stock (cost, $1,860,570 and
$479,487, respectively)
Contributions receivable:
Employee 259,215 318,506
Employer 45,745 56,207
------------- -----------
Total assets $ 3,272,204 960,236
============= ===========
Plan equity $ 3,272,204 960,236
============= ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
TRIGON HEALTHCARE, INC.
EMPLOYEE STOCK PURCHASE PLAN
Statements of Income and Changes in Plan Equity
Year ended December 31, 1998 and
Period May 1, 1997 through December 31, 1997
<TABLE>
<CAPTION>
May 1, 1997
through
December 31,
1998 1997
------------ -----------------
<S> <C> <C>
Income:
Net unrealized appreciation in fair value of investments $ 1,000,638 106,036
Contributions:
Employee 1,318,963 748,958
Employer 232,758 132,169
-------------- ---------
Total contributions 1,551,721 881,127
-------------- ---------
Total income 2,552,359 987,163
-------------- ---------
Distributions to employees 240,391 26,927
-------------- ---------
Net increase in plan equity 2,311,968 960,236
Plan equity, beginning of period 960,236 --
-------------- ---------
Plan equity, end of period $ 3,272,204 960,236
============== =========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
TRIGON HEALTHCARE, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) Organization
The Trigon Healthcare, Inc. Employee Stock Purchase Plan (Plan) was
adopted by the Board of Directors and approved by the shareholders of
Trigon Healthcare, Inc. (Company) in April 1997 for the purpose of
providing a means by which the employees (Participant) of the Company
and its subsidiaries can be given an opportunity to acquire the
Company's Class A common stock (Common Stock) through payroll
deductions.
The following are the significant accounting policies followed by the
Plan:
(b) Basis of Accounting
The financial statements of the Plan are prepared under the accrual
method of accounting. Accordingly, employee contributions to the Plan
are recorded as of the date the contributions are withheld from the
Participants' compensation. Employer contributions are recorded as of
the last day of each calendar quarter and represent the fifteen
percent discount given to Participants under the Plan's provisions.
Distributions to Participants are accounted for at the average
historical cost of the Common Stock distributed, plus cash paid in
lieu of fractional shares, where applicable. Cash paid by the Company
in lieu of fractional shares is accounted for at the fair market
value of the shares at the time of the distribution. The Company will
also separately refund to any withdrawing Participant employee
contributions which have been withheld but have not been forwarded to
the Plan for the purchase of Common Stock.
(c) Investment Valuation
The investments in Common Stock are stated at estimated fair value,
based on the closing price on the New York Stock Exchange on the last
trading day of the period. Investment transactions are recorded on a
trade date basis.
(d) Administrative Expenses
The Company pays all administrative expenses of the Plan.
Administrative expenses paid by the Company during 1998 and 1997 were
$10,317 and $7,967, respectively.
(e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes, including disclosure of contingent
assets and liabilities. Actual results could differ from those
estimates.
(2) Summary of Significant Provisions of the Plan
The Plan is an employee stock purchase plan and is intended to qualify
under Internal Revenue Code (Code) Section 423. The Plan is administered
by the Human Resources, Compensation and Employee Benefits Committee of
the Company's Board of Directors (Committee). The Common Stock owned by
4 (Continued)
<PAGE>
Participants prior to withdrawal from the Plan are held in individual
participant accounts in a custodian account with The Bank of New York
(Custodian). Prior to October 1998, the custodian was First Chicago Trust
Company of New York. Participants should refer to the plan agreement and
prospectus for a more complete description of the Plan's provisions.
The Company has reserved for issuance and purchase by Participants under
the Plan an aggregate of one million shares of Common Stock. These shares
are authorized but unissued. Shares needed to satisfy the requirements of
the Plan may be newly issued by the Company or acquired by purchases at
the expense of the Company on the open market or in private transactions.
During 1998 and 1997, all shares needed to satisfy the requirements of the
Plan were purchased on the open market. The Company paid the difference
between the purchase price in the open market, including brokerage fees,
and the amount provided by the employee and employer contributions.
Any person who is employed by the Company (or by any eligible subsidiary
of the Company) is eligible to participate in the Plan on the first day of
any payroll period following the employee's commencement of employment. A
Participant may make voluntary contributions to the Plan in whole
percentage amounts ranging from one to fifteen percent of compensation for
the year. Under Code section 423(b)(8), a Participant is limited to
purchases of no more than $25,000 of Common Stock, at fair value, in any
calendar year. The Plan had 743 and 599 Participants as of December 31,
1998 and 1997, respectively.
Payroll deductions are accumulated by the Company during each calendar
quarter and transferred to the Plan at the end of each calendar quarter to
be applied towards the purchase of full and partial shares of Common
Stock. The purchase price per share at which Common Stock shares are
acquired by Participants equals the lower of (a) eighty-five percent of
the fair market value of a share of Common Stock on the first trading day
of each calendar quarter (Grant Date), or (b) eighty-five percent of the
fair market value of a share of Common Stock on the last trading day of
each calendar quarter (Investment Date). The Plan defines fair market
value to be the closing trading price of the Common Stock on the New York
Stock Exchange as reported in the Wall Street Journal. During 1997, the
first Grant Date was May 1, 1997, the first payroll period after the Plan
was approved. The first Investment Date was June 30, 1997. All subsequent
purchase periods followed the calendar quarter schedule as defined in the
Plan's provisions. Participants are fully vested in their individual
participant accounts at all times and have the right at any time to obtain
certificates for full shares of Common Stock in these accounts.
Participants may cease participation in or withdraw shares from the Plan
at any time, but may not begin payroll deductions again for six months. A
Participant may change the payroll deduction percentage up to four times
per year. Participation in the Plan is automatically terminated upon
retirement, termination of active employment or death.
5 (Continued)
<PAGE>
(3) Investment in Common Stock
The net unrealized appreciation in fair value of investment in Common
Stock as of December 31, 1998 and 1997 and the change in such amount
during the period were as follows:
<TABLE>
<CAPTION>
Net
Fair unrealized
value Cost appreciation
------------ ------------ --------------
<S> <C> <C> <C>
Balance, May 1, 1997 $ -- -- --
Change for the period ended December 31, 1997 585,523 479,487 106,036
------------ ------------ --------------
Balance, December 31, 1997 585,523 479,487 106,036
Change for the year ended December 31, 1998 2,381,721 1,381,083 1,000,638
------------ ------------ --------------
Balance, December 31, 1998 $ 2,967,244 1,860,570 1,106,674
============ ============ ==============
</TABLE>
The Plan held 79,524 and 22,412 shares of Common Stock on December 31,
1998 and 1997, respectively. In addition, 12,136 shares were pending
purchase on December 31, 1998.
(4) Tax Status
The Plan is intended to qualify under the provisions of Code Section 423.
Under these provisions, Participants are taxed on amounts withheld for the
purchase of Common Stock when such amounts are actually withheld. Other
than this tax, no income is taxable to a Participant until disposition of
the Common Stock acquired. The method of taxation, as ordinary income or
as capital gains, will depend upon the holding period of the purchased
shares.
There are no federal income tax consequences to the Company by reason of
the grant or exercise of rights under the Plan. The Company is generally
entitled to a deduction to the extent the amounts are taxed as ordinary
income to a Participant.
(5) Plan Termination
Although it has not expressed any intent to do so, the Company has the
right under the Plan to terminate the Plan. In the event of a plan
termination, Participants will be refunded the amounts of any employee
contributions which have not yet been applied to the purchase of Common
Stock and the Common Stock shares in their individual participant
accounts.
(6) Year 2000 Readiness Disclosure
The Company has a unified Year 2000 plan for the Company and its
subsidiaries. As part of the Plan, the Company monitors the Year 2000
efforts of the vendors performing critical outsourced functions for the
Plan through the use of surveys. The information provided by the vendors
has been confirmed by phone but has not been independently verified. The
Plan's recordkeeper and custodian, The Bank of New York, has reported that
renovation and testing of its mission-critical systems were substantially
6 (Continued)
<PAGE>
completed by December 31, 1998 in compliance with the requirements set
forth by the Federal Financial Institutions Examination Council. In
addition, The Bank of New York has indicated that its business continuity
plans are being reviewed and upgraded in an effort to mitigate potential
risks.
The Bank of New York in turn uses third-party vendors to support its
activities for the Plan. Examples include security brokers, banks and
stock exchanges. It is not within the Company's ability to determine the
Year 2000 status of these companies. The Company must rely on the efforts
of the vendors it has selected for outsourced functions to ensure that
these vendors can conduct their business on and after January 1, 2000.
The Company will continue to monitor all critical vendors' progress, as
appropriate, in order to assess and address the potential business
exposure for the Plan if these parties fail to achieve compliance.
Depending on the volume and duration, the Plan could experience
intermittent disruptions or be significantly impacted by incomplete or
untimely resolution of the problem by the parties involved. Specifically,
without limitation, (i) a Participant's ability to make contributions,
request distributions and request account balances; and (ii) the Plan's
ability to purchase and sell or distribute Common Stock could be affected.
Although the Company is developing contingency plans designed to address
the aforementioned risks if the vendors are unable to achieve Year 2000
readiness, there can be no assurances that all potential problems will be
mitigated by these procedures.
7
Exhibit 99.2
TRIGON INSURANCE COMPANY
401(k) RESTORATION PLAN
Financial Statements
December 31, 1998 and 1997
(With Independent Auditors' Report Thereon)
<PAGE>
TRIGON INSURANCE COMPANY
401(k) RESTORATION PLAN
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 1
Statement of Financial Condition, with Fund Information - December 31, 1998 2
Statement of Financial Condition, with Fund Information - December 31, 1997 3
Statement of Income and Changes in Plan Equity, with Fund Information - Year ended
December 31, 1998 4
Statement of Income and Changes in Plan Equity, with Fund Information - Year ended
December 31, 1997 5
Statement of Income and Changes in Plan Equity, with Fund Information - Year ended
December 31, 1996 6
Notes to Financial Statements 7
</TABLE>
<PAGE>
Independent Auditors' Report
Human Resources, Compensation and Employee
Benefits Committee of the Board of Directors
Trigon Healthcare, Inc.:
We have audited the accompanying statements of financial condition, with fund
information, of the Trigon Insurance Company 401(k) Restoration Plan (Plan) as
of December 31, 1998 and 1997, and the related statements of income and changes
in plan equity, with fund information, for each of the years in the three-year
period ended December 31, 1998. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of the Plan as of December 31,
1998 and 1997 and the income and changes in plan equity for each of the years in
the three-year period ended December 31, 1998 in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The fund information in the statements of
financial condition and income and changes in plan equity is presented for
purposes of additional analysis rather than to present the financial condition
and income and changes in plan equity of each fund. The fund information has
been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ KPMG LLP
Richmond, Virginia
April 23, 1999
<PAGE>
TRIGON INSURANCE COMPANY
401(k) RESTORATION PLAN
Statement of Financial Condition, with Fund Information
December 31, 1998
Fund Information
---------------------------------------------------
Participant Directed
---------------------------------------------------
Short-term S&P 500
Fixed Equity Domestic Global
Income Bond Index Equity Equity
Fund Fund Fund Fund Fund
---------- -------- --------- --------- -------
Assets - contributions
receivable - employer
(note 4) $ 54,308 48,067 213,037 331,414 4,102
=========== ======== ========= ========= =======
Plan equity $ 54,308 48,067 213,037 331,414 4,102
=========== ======== ========= ========= =======
<TABLE>
<CAPTION>
Fund Information
----------------------------------------------------
Participant Directed
----------------------------------------------------
Domestic International
International Aggressive Aggressive Trigon
Equity Growth Growth Stock
Fund Fund Fund Fund Total
------------ ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Assets - contributions
receivable - employer
(note 4) 135,241 319,303 -- 1,060,586 2,166,058
============= ========== ============= =========== ===========
Plan equity 135,241 319,303 -- 1,060,586 2,166,058
============= ========== ============= =========== ===========
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
TRIGON INSURANCE COMPANY
401(k) RESTORATION PLAN
Statement of Financial Condition, with Fund Information
December 31, 1997
<TABLE>
<CAPTION>
Fund Information
---------------------------------------------------
Participant Directed
---------------------------------------------------
Short-term S&P 500
Fixed Equity Domestic Global
Income Bond Index Equity Equity
Fund Fund Fund Fund Fund
----------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
Assets - contributions
receivable - employer
(note 4) $ 131,784 34,430 90,585 129,669 3,532
=========== ========= ========= ========= =======
Plan equity $ 131,784 34,430 90,585 129,669 3,532
=========== ========= ========= ========= =======
<CAPTION>
Fund Information
--------------------------------------------------
Participant Directed
--------------------------------------------------
Domestic International
International Aggressive Aggressive Trigon
Equity Growth Growth Stock
Fund Fund Fund Fund Total
------------ ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Assets - contributions
receivable - employer
(note 4) 54,742 299,298 20,864 419,361 1,184,265
============ ========== ============= ========= ===========
Plan equity 54,742 299,298 20,864 419,361 1,184,265
============ ========== ============= ========= ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
TRIGON INSURANCE COMPANY
401(k) RESTORATION PLAN
Statement of Income and Changes in Plan Equity, with Fund Information
Year ended December 31, 1998
<TABLE>
<CAPTION>
Fund Information
-----------------------------------------------------
Participant Directed
-----------------------------------------------------
Short-term S&P 500
Fixed Equity Domestic Global
Income Bond Index Equity Equity
Fund Fund Fund Fund Fund
---------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Income:
Net appreciation (depreciation)
in fair value of investments $ (6,138) 650 31,216 25,853 608
Net realized gains (losses) on
investments 9,423 1,607 7,515 15,617 (256)
Contributions:
Employee 28,625 18,791 96,771 87,854 937
Employer, before reduction
for forfeitures 3,018 4,802 20,610 18,621 277
---------- --------- --------- ---------- ---------
Total income 34,928 25,850 156,112 147,945 1,566
---------- --------- --------- ---------- ---------
Expenses:
Distributions and withdrawals 115,681 9,454 -- 18,784 --
Forfeitures 47 -- -- -- --
---------- --------- --------- ---------- ---------
Total expenses 115,728 9,454 -- 18,784 --
---------- --------- --------- ---------- ---------
Transfers between funds, net 3,324 (2,759) (33,660) 72,584 (996)
---------- --------- --------- ---------- ---------
Net increase (decrease)
in plan equity (77,476) 13,637 122,452 201,745 570
Plan equity, beginning of year 131,784 34,430 90,585 129,669 3,532
---------- --------- --------- ---------- ---------
Plan equity, end of year $ 54,308 48,067 213,037 331,414 4,102
========== ========= ========= ========== =========
<CAPTION>
Fund Information
--------------------------------------------------
Participant Directed
--------------------------------------------------
Domestic International
International Aggressive Aggressive Trigon
Equity Growth Growth Stock
Fund Fund Fund Fund Total
----------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Income:
Net appreciation (depreciation)
in fair value of investments 17,207 (2,379) 1,072 243,966 312,055
Net realized gains (losses) on
investments 2,570 31,388 (5,221) 13,041 75,684
Contributions:
Employee 41,014 148,412 24,086 270,245 716,735
Employer, before reduction
for forfeitures 9,547 35,469 3,624 67,124 163,092
----------- --------- ------------ ----------- -----------
Total income 70,338 212,890 23,561 594,376 1,267,566
----------- --------- ------------ ----------- -----------
Expenses:
Distributions and withdrawals 9,669 62,746 110 69,282 285,726
Forfeitures -- -- -- -- 47
----------- --------- ------------ ----------- -----------
Total expenses 9,669 62,746 110 69,282 285,773
----------- --------- ------------ ----------- -----------
Transfers between funds, net 19,830 (130,139) (44,315) 116,131 --
----------- --------- ------------ ----------- -----------
Net increase (decrease)
in plan equity 80,499 20,005 (20,864) 641,225 981,793
Plan equity, beginning of year 54,742 299,298 20,864 419,361 1,184,265
----------- --------- ------------ ----------- -----------
Plan equity, end of year 135,241 319,303 -- 1,060,586 2,166,058
=========== ========= ============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
TRIGON INSURANCE COMPANY
401(k) RESTORATION PLAN
Statement of Income and Changes in Plan Equity, with Fund Information
Year ended December 31, 1997
Fund Information
---------------------------------------------
Participant Directed
---------------------------------------------
Short-term S&P 500
Fixed Equity Domestic
Income Bond Index Equity
Fund Fund Fund Fund
---------- --------- ---------- ---------
Income:
Net appreciation (depreciation)
in fair value of investments $ 3,886 (84) 5,326 10,118
Net realized gains (losses) on
investments 2,720 1,540 3,817 27,794
Contributions:
Employee 33,636 5,609 17,389 34,375
Employer, before reduction
for forfeitures 2,665 875 2,718 1,779
---------- --------- ---------- ---------
Total income 42,907 7,940 29,250 74,066
---------- --------- ---------- ---------
Expenses:
Distributions and withdrawals 24,591 31,431 17,608 107,094
Forfeitures -- 107 -- 975
---------- --------- ---------- ---------
Total expenses 24,591 31,538 17,608 108,069
---------- --------- ---------- ---------
Transfers between funds, net 6,485 7,373 70,065 12,598
---------- --------- ---------- ---------
Net increase (decrease)
in plan equity 24,801 (16,225) 81,707 (21,405)
Plan equity, beginning of year 106,983 50,655 8,878 151,074
---------- --------- ---------- ---------
Plan equity, end of year $ 131,784 34,430 90,585 129,669
========== ========= ========== =========
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
Fund Information
----------------------------------------------------------
Participant Directed
----------------------------------------------------------
Domestic International
Global InternationalAggressive Aggressive Trigon
Equity Equity Growth Growth Stock
Fund Fund Fund Fund Fund Total
--------- ------------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income:
Net appreciation (depreciation)
in fair value of investments (665) (18,433) (15,973) (12,346) 76,543 48,372
Net realized gains (losses) on
investments (36) 27,404 30,712 17,887 1,018 112,856
Contributions:
Employee 447 29,654 78,428 21,801 63,155 284,494
Employer, before reduction
for forfeitures 36 2,776 10,656 1,515 13,376 36,396
--------- ------------ ---------- ----------- --------- -----------
Total income (218) 41,401 103,823 28,857 154,092 482,118
--------- ------------ ---------- ----------- --------- -----------
Expenses:
Distributions and withdrawals 26,327 44,872 101,300 20,021 627 373,871
Forfeitures 68 184 573 -- -- 1,907
--------- ------------ ---------- ----------- --------- -----------
Total expenses 26,395 45,056 101,873 20,021 627 375,778
--------- ------------ ---------- ----------- --------- -----------
Transfers between funds, net 5,997 (132,068) (97,007) (139,339) 265,896 --
--------- ------------ ---------- ----------- --------- -----------
Net increase (decrease)
in plan equity (20,616) (135,723) (95,057) (130,503) 419,361 106,340
Plan equity, beginning of year 24,148 190,465 394,355 151,367 -- 1,077,925
--------- ------------ ---------- ----------- --------- -----------
Plan equity, end of year 3,532 54,742 299,298 20,864 419,361 1,184,265
========= ============ ========== =========== ========= ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
TRIGON INSURANCE COMPANY
401(k) RESTORATION PLAN
Statement of Income and Changes in Plan Equity, with Fund Information
Year ended December 31, 1996
<TABLE>
<CAPTION>
Fund Information
-------------------------------------------
Participant Directed
-------------------------------------------
Short-term S&P 500
Fixed Equity Domestic
Income Bond Index Equity
Fund Fund Fund Fund
---------- -------- --------- ----------
<S> <C> <C> <C> <C>
Income:
Net unrealized appreciation in fair
value of investments $ 3,072 765 675 13,737
Net realized gains on investments 884 633 439 3,551
Contributions:
Employee 34,630 22,379 2,885 79,591
Employer, before reduction
for forfeitures 10,583 2,717 829 13,532
---------- -------- --------- ----------
Total income 49,169 26,494 4,828 110,411
---------- -------- --------- ----------
Expenses:
Distributions and withdrawals 6,879 12,248 -- 21,241
Forfeitures -- 87 -- 184
---------- -------- --------- ----------
Total expenses 6,879 12,335 -- 21,425
---------- -------- --------- ----------
Transfers between funds, net 26,020 22,888 4,050 6,260
---------- -------- --------- ----------
Net increase in plan equity 68,310 37,047 8,878 95,246
Plan equity, beginning of year 38,673 13,608 -- 55,828
---------- -------- --------- ----------
Plan equity, end of year $ 106,983 50,655 8,878 151,074
========== ======== ========= ==========
See accompanying notes to financial statements.
<CAPTION>
Fund Information
------------------------------------------------
Participant Directed
------------------------------------------------
Domestic International
Global International Aggressive Aggressive
Equity Equity Growth Growth
Fund Fund Fund Fund Total
--------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income:
Net unrealized appreciation in fair
value of investments 456 16,995 47,671 9,798 93,169
Net realized gains on investments -- 3,089 12,055 2,972 23,623
Contributions:
Employee 1,626 76,618 190,566 70,997 479,292
Employer, before reduction
for forfeitures 621 16,934 35,223 16,005 96,444
--------- ------------ ---------- ----------- -----------
Total income 2,703 113,636 285,515 99,772 692,528
--------- ------------ ---------- ----------- -----------
Expenses:
Distributions and withdrawals -- 7,980 24,315 8,602 81,265
Forfeitures -- -- 4,319 -- 4,590
--------- ------------ ---------- ----------- -----------
Total expenses -- 7,980 28,634 8,602 85,855
--------- ------------ ---------- ----------- -----------
Transfers between funds, net 21,445 (7,368) (54,866) (18,429) --
--------- ------------ ---------- ----------- -----------
Net increase in plan equity 24,148 98,288 202,015 72,741 606,673
Plan equity, beginning of year -- 92,177 192,340 78,626 471,252
--------- ------------ ---------- ----------- -----------
Plan equity, end of year 24,148 190,465 394,355 151,367 1,077,925
========= ============ ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
TRIGON INSURANCE COMPANY
401(k) RESTORATION PLAN
Notes to Financial Statements
December 31, 1998 and 1997
(1) Summary of Significant Accounting Policies
(a) Organization
The Trigon Insurance Company 401(k) Restoration Plan (Plan), formerly
known as the Trigon Blue Cross Blue Shield 401(k) Restoration Plan,
was amended and restated effective October 1, 1998. It was originally
adopted effective January 1, 1995 by the Board of Directors of Trigon
Insurance Company (d/b/a Trigon Blue Cross Blue Shield), formerly,
Blue Cross and Blue Shield of Virginia. The purpose of the Plan is to
permit a select group of management or highly compensated employees
(Participants) of Trigon Insurance Company and any subsidiary or
affiliate, including its parent, Trigon Healthcare, Inc.,
(collectively, Company) who are selected for participation in the
Plan to defer compensation without regard to the limits imposed by
the Internal Revenue Code on the Company's tax-qualified plan, the
Employees' Thrift Plan of Trigon Insurance Company (Qualified Plan).
The Qualified Plan is a defined contribution plan of the Company
subject to the provisions of ERISA. The Plan constitutes an unfunded
"top hat" arrangement under Title I of the Employee Retirement Income
Security Act of 1974, as amended (ERISA). Accordingly, the Plan does
not require the Company to segregate assets or establish trusts for
any amounts to be paid to Participants under the Plan. In addition,
Participants do not have any right, title or interest in or to any
specific funds or property of the Company, and their interest,
including vested amounts, is that of a general creditor.
Under the provisions of the Plan, the Plan's assets and changes in
the Plan's assets are calculated based on the corresponding Qualified
Plan investment funds' asset value and adjustments of unit value,
respectively. Since the Plan is unfunded, a receivable from the
Company equivalent to the Plan's deemed investment balance as of
year-end has been recorded in the accompanying statements of
financial condition. The Company has recorded a corresponding
liability to the Plan is its consolidated financial statements.
The following are the significant accounting policies of the
Qualified Plan and are followed by the Plan:
(b) Basis of Accounting
The financial statements of the Plan are prepared under the accrual
method of accounting. Accordingly, employee and employer
contributions to the Plan are recorded as of the date the employees'
contributions are withheld from the Participants' compensation. Net
realized gains (losses) on investments and net appreciation
(depreciation) of fair value of investments are recognized as they
occur. Distributions and withdrawals are recorded when paid and are
accounted for at the fair market value of the unit value of the
Participant's account. Forfeitures are accounted for at the fair
market value of the unit value forfeited.
7 (Continued)
<PAGE>
(c) Investment Valuation and Income Recognition
The Plan's contribution receivable - employer related to deemed
investments is stated at fair value based on quoted market prices as
of year end. Purchases and sales of investments are recorded on a
trade date basis.
The Plan uses unit accounting to account for investment activity. Net
realized gains (losses) on investments are computed on an
average-cost basis. Net appreciation (depreciation) in fair value of
investments is calculated daily based on the change in the market
value and net investment earnings of the investments and participant
activity.
(d) Administrative Expenses
The Company pays all administrative expenses of the Plan.
Administrative expenses paid by the Company during 1998 and 1997 were
$10,594 and $8,824, respectively.
(e) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes, including disclosure of contingent
assets and liabilities. Actual results could differ from those
estimates.
(2) Summary of Significant Provisions of the Plan
The Plan is administered by the Human Resources, Compensation and
Employee Benefits Committee of the Company's Board of Directors
(Committee). The recordkeeper is Administrative Solutions Group, an
ADP/Mercer Alliance, Deerfield, Illinois.
Plan participants should refer to the plan agreement or summary plan
description for a more complete description of the Plan's provisions.
(a) Eligibility
Officers of the Company who are Vice Presidents or above are eligible
for participation in the Plan unless otherwise determined at the
discretion of the Committee. All Participants must be a member of a
select group of management or highly-compensated employees and must
be an eligible participant in the Qualified Plan.
8 (Continued)
<PAGE>
(b) Participant Accounts
Individual accounts are maintained by the Plan for the Participant to
reflect the Participant's contributions and related employer matching
contribution, as well as the Participant's share of the Plan's
income, including net realized gains and losses, and related
administrative expenses.
(c) Contributions
Participants may elect to make voluntary contributions to the Plan in
whole percentage amounts ranging from two to sixteen percent of their
compensation for the year, offset by amounts actually deferred in the
Qualified Plan. The Company is obligated under the matching provision
of the Plan to contribute each pay period an amount equal to the
difference between (a) fifty percent of the sum of the contributions
of each Participant in both the Plan and the Qualified Plan which do
not exceed six percent of each Participant's compensation for such
pay period and (b) the amount equal to the Company's actual matching
contribution to the Qualified Plan for such pay period.
In October 1998, the Plan was amended to permit the Company to
contribute an additional discretionary contribution to each
Participant's account. The discretionary contribution is calculated
using a Plan-prescribed formula derived from Participant data from
the Qualified Plan as of the most recent Qualified Plan year. During
1998, the Company made no discretionary contributions to the Plan.
(d) Investment Options
Each Participant's contributions are deemed to be invested in the
various funds in the same proportion as each Participant's investment
election in the Qualified Plan. No separate investment election by
the Participant in the Plan is permitted or required. Investment
options of the Qualified Plan consist of nine investment funds,
including investment in the Trigon Stock Fund, added in 1997. A
registration statement on Form S-8 has been filed with the Securities
and Exchange Commission to register the shares of Trigon Healthcare,
Inc. Class A Common Stock (Common Stock) included as an investment
option in the Plan. A description of each investment option follows:
Short-Term Fixed Income Fund - The aim of this fund is to provide
steady investment returns with lower risk than any of the other
funds. This fund may invest in short-term treasury, government
agency, and corporate bonds, money market instruments, guaranteed
investment contracts issued by life insurance companies, which offer
a fixed interest rate, or a pooled fund investing in similar
contracts.
9 (Continued)
<PAGE>
Bond Fund - This fund provides a high level of current interest
income with some opportunity for long-term growth. This fund may
invest in treasury, government agency, and corporate bonds and mutual
funds that invest in such bonds.
S&P 500 Equity Index Fund - This fund invests in the common stocks of
those companies that comprise the S&P 500 index, or a mutual fund or
commingled fund that invests in those companies. The objective of
this fund is to provide long-term growth of capital, with growth of
income as a secondary objective.
Domestic Equity Fund - This fund primarily invests in common stocks
of high quality, relatively mature domestic corporations from a
cross-section of business and industry and/or mutual funds or
collective funds that invest in such stocks. The objective of this
fund is to provide long-term capital growth from stock prices and
some current income from dividends.
Global Equity Fund - The fund primarily invests in common stocks of
high-quality, relatively mature companies based throughout the world,
including the U.S., or mutual funds or collective funds that make
such investments. The objective of this fund is to provide long-term
capital growth and some current income.
International Equity Fund - This fund is like the Domestic Equity
Fund except that it primarily invests in common stocks of high
quality foreign corporations instead of domestic corporations, and/or
mutual funds or collective funds that invest in such stocks. This
fund's objective is to provide long-term capital growth and some
current income.
Domestic Aggressive Growth Fund - The objective of this fund is
capital growth. This fund invests primarily in the common stocks of
small, rapidly growing domestic companies, or mutual or collective
funds that invest in such companies.
International Aggressive Growth Fund - The International Aggressive
Growth Fund is similar to the Domestic Aggressive Growth Fund, except
that it invests primarily in stocks of small, rapidly growing foreign
companies, or mutual or collective funds that invest in such stocks.
Pursuit of long-term capital growth is this fund's primary objective.
Effective September 30, 1998, this fund was no longer offered as an
investment selection in either the Plan or Qualified Plan. All
Participant balances were automatically transferred to the
International Equity Fund along with any investment elections
designated to this fund.
Trigon Stock Fund - This fund invests in Common Stock which is listed
on the New York Stock Exchange, and cash for liquidity purposes.
10 (Continued)
<PAGE>
Each Qualified Plan investment fund is divided into units of
participation which are calculated daily by the recordkeeper. The
daily value of each unit is determined by dividing the total fair
market value of all assets in each fund by the total number of units
in that fund. The Plan is an unfunded plan. Accordingly, under the
provisions of the Plan, net realized gains (losses) on investments
and net appreciation (depreciation) of fair value of investments are
credited to each Participant's account based on the adjustment of the
unit values in the Qualified Plan. The payment of administrative
expenses for assets of the Qualified Plan is reflected in the
calculation of plan unit value.
(e) Vesting
Participants are fully vested in their contributions and the earnings
thereon at all times. Participants are vested in employer matching
contributions and the earnings thereon upon death, disability or
retirement or after 36 months of service with the Company and any of
its affiliates or any other Blue Cross and/or Blue Shield
organization. Forfeitures reduce the Employer's contributions to the
Plan.
(f) Distributions
Plan distributions are recorded when paid and are made in cash or,
effective October 1, 1998, Common Stock for the portion of a
Participant's account invested in the Trigon Stock Fund in accordance
with a Participant's election. The Plan allows Participants to
withdraw balances in a lump sum or in specified annual installments
upon retirement, death or disability based upon elections made at the
commencement of participation in the Plan. Withdrawals prior to
retirement are distributed in a lump sum. In addition, if previously
elected by a Participant, all amounts in a Participant's account will
be distributed in a lump sum upon a plan-defined change in control of
the Company.
11 (Continued)
<PAGE>
(g) Number of Participants
There were 34 and 31 Participants in the Plan as of December 31, 1998
and 1997, respectively. The number of Participants investing in each
of the Plan's funds as of those dates were as follows:
Investment Fund (1) 1998 1997
--------------------- ---------- -----------
Short-Term Fixed Income Fund 7 12
Bond Fund 7 8
S&P 500 Equity Index Fund 15 12
Domestic Equity Fund 20 20
Global Equity Fund 3 4
International Equity Fund 17 13
Domestic Aggressive Growth Fund 23 23
International Aggressive Growth Fund -- 11
Trigon Stock Fund 21 19
========== ===========
(1) Participants may hold investments in more than one fund; accordingly, the
total participation by individual funds may exceed the total number of
Participants.
(3) Units and Unit Values
Each fund in the Plan is valued daily on a unitized basis by the
recordkeeper. The number of units and unit values of net assets, carried
to the second decimal place, as of December 31, 1998 were:
Unit
Investment Fund Units values
------------------ ------------ --------
Short-term Fixed Income Fund 4,140.37 $ 13.12
Bond Fund 3,367.36 14.27
S&P 500 Equity Index Fund 10,774.11 19.77
Domestic Equity Fund 12,497.90 26.52
Global Equity Fund 345.86 11.86
International Equity Fund 8,975.04 15.07
Domestic Aggressive Growth Fund 16,033.94 19.91
Trigon Stock Fund 56,662.39 18.72
============ ========
12 (Continued)
<PAGE>
(4) Plan Funding
As discussed in note 1, the Plan is an unfunded plan under Title 1 of
ERISA and the Plan has recorded a receivable from the Company equivalent
to the Plan's deemed investment balance as of year-end in the accompanying
statements of financial condition. The Company has recorded a
corresponding liability to the Plan in its consolidated financial
statements. In order to set aside funds for the purpose of assisting the
Company in meeting its liabilities to the Plan, the Company, through its
subsidiary Trigon Insurance Company, established the Trigon Healthcare,
Inc. Grantor Trust, formerly known as the Trigon Blue Cross Blue Shield
Grantor Trust (Trust), in 1997. Wachovia Corporate Services, Inc.
(Wachovia), Winston-Salem, North Carolina, is the custodian of the assets
of the Trust. Under the Trust, the assets contributed and income earned on
such assets must remain in the Trust until liabilities under the Plan have
been satisfied. However, the assets held in the Trust are considered to be
assets of the Company and are subject to the claims of the Company's
creditors in the event of the Company's insolvency. The Trust does not
change the unfunded status of the Plan. The Participants have no preferred
claim on, or any beneficial interest in, any assets of the Trust. If the
balance of the Trust is not sufficient to make payments in accordance with
the terms of the Plan, the Company must fund the difference using general
corporate assets. Once all payments under the Plan have been made and the
Plan is terminated, any excess assets remaining in the Trust revert back
to the Company. In the event of a change in control of the Company, the
Company will make an irrevocable contribution to the Trust to fully fund
all Participants' account balances as determined by the Plan.
13 (Continued)
<PAGE>
The estimated fair value and cost of investment securities in the Trust as
of December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998
-------------------------------------------
NET
UNREALIZED
FAIR APPRECIATION
VALUE COST (DEPRECIATION)
------------ ------------- --------------
<S> <C> <C> <C>
Mutual funds 1,079,380 1,050,758 28,622
Common stock 1,037,287 756,599 280,688
------------ ------------- --------------
2,116,667 1,807,357 309,310
============ ============= ==============
1997
-------------------------------------------
NET
UNREALIZED
FAIR APPRECIATION
VALUE COST (DEPRECIATION)
------------ ------------- --------------
Mutual funds 756,486 798,561 (42,075)
Common stock 407,001 374,631 32,370
------------ ------------- --------------
1,163,487 1,173,192 (9,705)
============ ============= ==============
</TABLE>
The Trust held 27,800 shares of Common Stock as of December 31, 1998.
The net appreciation (depreciation) in fair value of the investments in
the Trust as of December 31, 1998 and 1997 and the change in such amounts
during each year were as follows:
<TABLE>
<CAPTION>
NET
UNREALIZED
FAIR APPRECIATION
VALUE COST (DEPRECIATION)
------------ ------------- --------------
<S> <C> <C> <C>
Balance, January 1, 1997 $ -- -- --
Change for the year ended December 31, 1997 1,163,487 1,173,192 (9,705)
------------ ------------- --------------
Balance, December 31, 1997 1,163,487 1,173,192 (9,705)
Change for the year ended December 31, 1998 953,180 634,165 319,015
------------ ------------- --------------
Balance, December 31, 1998 $ 2,116,667 1,807,357 309,310
============ ============= ==============
</TABLE>
14 (Continued)
<PAGE>
(5) Tax Status
The Committee believes that the Plan has operated in accordance with the
terms of the plan document and current tax law. Accordingly, no provision
for income taxes has been included in the Plan's financial statements.
Under present Federal income tax laws and regulations, employee and
employer contributions and investment earnings thereon are not taxable to
Participants until distributed. Earnings on assets held in the trust are
taxable to the Company under ordinary tax rules on an annual basis.
(6) Plan Termination
Although it has not expressed any intent to do so, the Company's Board of
Directors has the right under the Plan to terminate the Plan. In the event
of a plan termination, Participants will become fully vested in their
accounts.
(7) Year 2000 Readiness Disclosure
The Company has a unified Year 2000 plan for the Company and its
subsidiaries. As part of the Plan, the Company monitors the Year 2000
efforts of the vendors performing critical outsourced functions for the
Plan through the use of surveys. The information provided by the vendors
has been confirmed by phone but has not been independently verified. The
Plan's recordkeeper, Administrative Solutions Group (ASG), has advised
that its system is now Year 2000 ready. During 1998, the Company
installed the vendor-certified Year 2000-enabled version of ASG system
interfaces.
While not part of the Plan, the Trust uses Wachovia as custodian of the
Trust (note 4). Wachovia has indicated that it has completed the
conversion and internal testing of all applications systems as of April
1999. In addition, the Trust has purchased mutual funds from numerous
investment firms. In addition to their individual 2000 efforts, it is the
Company's understanding that the investment firms each participate in the
securities industry-wide tests. To date, the Company has received status
reports from most of these firms indicating they are or will be Year 2000
compliant by January 1, 2000.
Each of the vendors selected by the Company to perform services for the
Plan and the Trust in turn uses third-party vendors to support their
activities. Examples include security brokers, banks and stock exchanges.
It is not within the Company's ability to determine the Year 2000 status
of these companies. The Company must rely on the efforts of the vendors it
has selected for outsourced functions to ensure that these vendors can
conduct their business on and after January 1, 2000.
15 (Continued)
<PAGE>
The Company will continue to monitor all critical vendors' progress, as
appropriate, in order to assess and address the potential business
exposure for the Plan and Trust if these parties fail to achieve
compliance. Depending on the volume and duration, the Plan and Trust could
experience intermittent disruptions or be significantly impacted by
incomplete or untimely resolution of the problem by the parties involved.
Specifically, without limitation, (i) a Participant's ability to make
contributions, request withdrawals and distributions, transfer balances
between investment funds and request account balances; (ii) the Plan's
allocation of income and administrative expenses; and (iii) the Trust's
ability to purchase and sell investment securities could be affected.
Although the Company is developing contingency plans designed to address
the aforementioned risks if the vendors are unable to achieve Year 2000
readiness, there can be no assurances that all potential problems will be
mitigated by these procedures.
16
