The financial statements included at Tab R and S of Book 2 are GAAP basis consolidated financial statements. These statements include the revenues, expenses, assets and liabilities of the AICI mutual insurance company and all its subsidiary companies where AICI has ownership of 50% or more. Subsidiary companies included in these consolidated financial statements can be seen on the legal organization chart for year-end 1998 and 1997, attached hereto as document numbers AN-00050 through AN-00061.

The differences between the revenues and assets in GAAP basis financial statements at Tab R and the SAP basis financial statements at Tab J are due to the following principal items:

The SAP basis revenues include only the revenues from the AICI mutual insurance company stand-alone, as none of the revenues of it subsidiary companies are included (no consolidation). The GAAP basis revenues include the revenues of all subsidiary companies where AICI ownership is 50% or more. Hence, the GAAP basis revenues are significantly more than the SAP basis revenues.

The SAP basis assets include only the assets of the AICI mutual insurance company, whereby the net assets of all subsidiary companies are carried as "Investment in subsidiaries". For SAP purposes the basis of the investment in subsidiary is equal to the statutory equity of the subsidiary, if it is a regulated company or at their GAAP basis equity (net assets) balance for a non-regulated company. The GAAP basis assets include the assets of the AICI mutual insurance company and all subsidiary companies added together and are significantly higher than SAP basis assets.

As described in the Form A previously filed with the Bureau, Anthem believes that an important part of its core strategy is to establish regional centers of focus having a significant share of the region's health insurance and managed care market. Creation of regional centers offers the ability to consolidate operational functions where appropriate to eliminate redundancies, improve the efficiency of backroom processing and take advantage of best practices – all resulting in more efficiently run and cost effective individual operations.

More specifically, to achieve these efficiencies Anthem operates with a management system that consists of Corporate, Shared Service, Regional and State level functions. The "Corporate" functions are generally performed in Indiana, and include activities such as payroll, treasury and compensation/benefits design. "Shared Service" functions refers to those activities which are delivered on a standardized basis under the direction of a single corporate executive (e.g. information systems and legal), but the employees are distributed throughout the Anthem services areas. "Regional" services are managed regionally and include claims and billing and enrollment.

The intent is to deliver internal services more efficiently (and therefore less expensively) by having one group of specialists, rather than several smaller departments delivering the same functionality. Anthem intends to pursue this same approach if the proposed purchase of BCBSME is approved.

Finally, as part of a larger organization, Blue Cross and Blue Shield of Maine will be able to take advantage of Anthem’s superior purchasing power. Computer equipment, telephone service, office supplies and printing services are just a few examples of necessary expenditures for which bulk purchasing can often reduce per unit costs.

Consistent with Anthem’s approach of creating efficient operations, Anthem’s practice is to keep local those functions that are most efficiently performed locally. For example, local employees will be responsible for coordinating and overseeing enrollment activity, supervising educational activities, providing service to accounts, tracking customer satisfaction, and provider contracting and medical management and will serve as local contact centers for members, providers, employees and regulatory authorities. In addition, the marketing of health care coverage to Maine residents will be performed by local employees.

In sum, Anthem’s intention is to build a strong New England region (similar to Anthem’s position in the Midwest) to take advantage of the efficiencies outlined above. Anthem’s merger with Blue Cross and Blue Shield of Connecticut, its completed purchase of the business of BCBSNH, and its proposed purchase of BCBSME, are significant steps toward realizing that goal.

Anthem inquires as to felony and misdemeanor convictions in its standard employment application and in its standard Personal Data Sheet. In addition, a background check is completed for every new hire. The Personal Data Sheet is completed by every new agent as well as by every existing agent during the recredentialing process.

No decision made with respect to whether Anthem’s existing practices will be used by Anthem Blue Cross and Blue Shield in Maine. After closing, there will be an evaluation of the efficacy of Anthem's practices versus those used by Blue Cross and Blue Shield of Maine. Those deemed superior will be adopted as a best practice.

As set forth in Section 2.02, the excluded liabilities are:

(1) All liabilities relating to or arising out of the Seller's rights under the Agreement and the Ancillary Agreements, and the Tax Refunds (to the extent provided in Section 7.07). As stated above, BCBSME is analyzing the tax issues and will provide that analysis when it is available. Amounts other than the tax liability are hypothetical and unquantifiable at this time.

(2) All liabilities relating to Blue Alliance. According to BCBSME, there currently exist no liabilities relating to Blue Alliance.

(3) Any liabilities in the aggregate in excess of an amount equal to three percent (3%) of the Total Consideration (i.e., $120,000,000 less the consideration paid by Purchaser to Blue Alliance in connection with Purchaser's acquisition of Blue Alliance's equity interest in Machigonne, Inc.), after all adjustments, with regard to services/actions of BCBSME under Medicare. According to BCBSME, there currently exist no liabilities relating to Medicare.

(4) Other sums for which Seller is liable pursuant to this Agreement and the Ancillary Agreements, including without limitation, liability pursuant to Articles VII (Tax Matters) and IX (Indemnification) of this Agreement. As stated above, BCBSME is analyzing the tax issues and will provide that analysis when it is available. Amounts other than the tax liability are hypothetical and unquantifiable at this time.

(5) Seller's Aggregate Tax Liability. As stated above, BCBSME is analyzing the tax issues and will provide that analysis when it is available.