Free Motion for Summary Judgment - District Court of Federal Claims - federal

Case 1:05-cv-01030-LSM

Document 23-6

Filed 02/15/2007

Page 1 of 45

Mr. Robert C Gray
Highmark, Inc.
September 10, 1998
Page 2

PiicewaterhouseCoopers did not verify the projections nor do we provide any assurance as to the achievability of the projections.
Pennsylvania Blue Shield
Pennsylvania Blue Shield was established in the 1930s in Camp Hill, Pennsylvania and had

3,573 employees as of the Valuation Date. PBS is a prepaid physician service to the general
public and to organizations wishing to provide insurance coverage to their employees on a

contrbutory or non-contrbutory basis though indemnity or traditional health insurance, a
Preferred Provider Network ("PPN") or a Health Maintenance Organization ("HMO").

Pennsylvania Blue Shield serves all of Peimsylvania including the Harsburg, Philadelphia and
Pittsburgh regions.

Underwiting income for the Plan was approximately $1.4 billion for the year ending December
31, 1986, based upon the audited financial statements.

PBS had 5,011,168 group subscribers consisting of Group Remittance, Corporate Experience Rated Groups and the Federal Employee Program contract, as well as 1,073,908"ÍdividuaI

(Direct Pay) subscribers including Group Conversions as of December 31, 1986. These
relationships represented 6,085,076 covered lives to which the Plan offered insurce coverage
as of Januar 1, i 987. PBS maintained traditional provider contractual relationships with 25,08 i
physicians as of

the Valuation Date.

The Insurance Industry
As of December 1986, powerfl forces were active in the health care field. Voluntar hospital
alliances were flourishing as providers sought refuge in networks. These networks allowed
independent hospitals and independent physicians to retain control over their destinies in the face of impending radical changes in reimbursement that favored competitive pricing and full-service

arays.
Competition among managed care firms, _ a relatively new concept, was increasing in 1986,
putting pressure on premium pricing and thus pushing all suppliers in the direction of more tightly managed utilization and cost controls. As finns competed for the buyers' attention, they needed to control utilization and seek low prices from suppliers of services not offered directly
by the managed care firm itself. There was growing aniety that managed care systems would

take control of patients and usur the role of providers in the medical delivery system. Furter
concerns were that HMO's would become the dominant method of health care delivery, changig
the face of

the health care industr.

It was being forecasted that the curent emphasis on "medical" care would shift to an emphasis
on "health" care. Preventative care and healthy lifestyles would be stressed. It was also being

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PBS-000368

Case 1:05-cv-01030-LSM

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Mr. Robert C. Gray

Highrark, Inc.
September 10, 1998
Page 3

predicted that the state and federal governents would have a more active role in health care regulation. Generally, the health care system of the future would be quite different from the
system of the past. In 1986, the health care system was in the midst of a revolution with a

growing role of governent and an increasing emphasis on the managed care method of health

care delivery. The Company's management was aware of such trends and has provided
information on which this report is based that takes such trends into account.
Intangible Assets

Intangible assets include such items as subscriber relationships, softare, assembled work force, trade names, trademarks, franchises, contrcts, processes, distrbution networks, going concern value, goodwill, and other assets that contrbute to the value of a business. Although these self-created assets often do not appear on a company's balance sheet, these tyes of intangible assets have significant value to most companies. In most cases, intangible assets are present on a company's balance sheet only if there has been an acquisition or transaction involving another
company's assets or stock.

PBS had many of the foregoing intangible assets as of the Valuation Date. These include computer software, subscriber relationships, the Blue Shield trade name and trademark,
assembled employees, and. other elements of goodwil and going concern. A discussion of each intangible asset (including assembled employees and provider contracts which were separately

valued by Ernst & Young LLP ("Ernst & Young")) and the valuation methodology used to
estimate their value at the Valuation Date is presented in the following sections.

Valuation of Franchise / Trademarks / Trade Names
The Blue Shield trade name and trademarks are valuable intangible assets of the business. Their

values relate to the reception in the marketplace and resulting business (and hence value) attributable to the name and mark. The Relief-from-Royalty method results in an estimate of value for the Franchise / Trademark / Trade Name by using an ar's-length royalty rate which
would be hypothetically paid for access to the name or trademarks if they were licensed from a

third par.
The value of

the associated Franchise / Trademark / Trade Name was estimated as follows:

. Estimated a royalty rate for the use of the Franchise / Trademark / Trade Name by

pedorming a profit split analysis on the average operating profit margin of each of

the four regions which fall within PBS. This profit split analysis provides an
indicated royalty rate that would be charged by the licensor of the Franchise / Trademark / Trade Name for use of the subject asset.

REDACTED
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PBS-000369

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Mr. Robert C. Gray
Highmark, Inc. September 10, 1998
Page 4

· Estimated net revenues for the Franchise / Trademark / Trade Name to apply the
royalty rate over the projections (same as used in the valuation of the business

enterprise) with a residual value determination at the end of the projection period to capture value thereafter. The royalty income stream represents the product of net revenues and the estimated royalty rate;
· Adjusted pretax Franchise / Trademark / Trade Name royalty income for income

taxes to arve at after-tax Franchise / Trademark / Trade Name royalty income and discounted the net amount to the present at the Weighted Average Cost of Capital (W ACC);
· Estimated a residual value for the Franchise / Trademark / Trade Name by
capitalizing afer-ta royalty income in the residual year and discounting this

amount to a present value at the W ACC. The intangible asset capitalization rate is the difference between the W ACC and the long term sustainable growth rate; and

· Sumed the discounted anual after-tax royalty streams and the discounted
residual value to arve at an estimated value for the Franchise I Trademark I

Trade Name.
Based on the above calculations, as presented in Exhibit A.I and Exhibit A.2, the estimated fai

market value as of the Valuation Date for the Blue Shield Franchise / Trademark I Trade name distinctive regions in was approximately $19,250,000. This value is allocated to the 4

Pennsylvania for which PBS offers insurance coverage (see Exhibit A.3). Based upon the premiums eamed by region that were available, the total value associated with the Franchise / Trademark / Trade Name was allocated to the specific regions as detailed below:
Region
Allocated Value
($ ODDs)

Capital Blue Cross

$4,429
6,966
2,021

Independence Blue Cross
Blue Cross of Blue Cross of

Norteastem Pennsylvania
West

em Pennsylvania

5,834

Tot:!1

$19,250

AC1EO
B-125
PBS-000370

Case 1:05-cv-01030-LSM

Document 23-6

Filed 02/15/2007

Page 4 of 45

Mr. Robert C. Gray
Highmark, Inc. September i 0, 1998
Page 5

Valuation of Subscrìber Relationships
At the Valuation Date, PBS benefited from its relationships with its sUQscribers. The valuation

of these subscriber relationships has utilized the income approach. The income approach evaluates the present worth of the future economic benefits that accrue to the subscriber
relationships. This requires an estimate of the income which is attributable to each relationship over its expected remaining life. The future economic benefits are discounted to the present at a rate which is commensurate with the business' inherent risk. The income approach, as it relates
to PBS' subscriber relationships, is detailed below.
For assets which do not have contractual or stated remaining useful

lives (or term), as is the case

with PBS' subscriber-based intangibles, we calculated the remaining useful lives by observing the pattern of.historical atttion (closure of accounts). This observed attition pattern is applied
to the current suõscooers to derive the future expected closures of the existing subscriber

relationships. We determined this attrition pattern by calculating anual loss rates over a historical eight year period (i.e, i 980-1987) ending around the Valuation Date, which were based
on the total number of subscib.s which weFe active during a paricular period and the number

of subscribers that were terminatèd in each paricular year.

PBS provided us with historical account data for thee different categories of subscriber
relationships: (1) Group Remittance; (2) Corporate Experience Rated; and (3) Direct Pay Individuals including Group Conversions (4) Federal Employee Progr3I("FEP") We analyzed the account closings of group and individual relationships for a normalized historical period to
determine the attition pattern of

the subscriber relationships.

The resulting atttion rate was used to compute the economic average useful life of each

subscriber relationship assuming an exponential decay and mid-year convention in terms of the timing of the terminations.
Based on the underlying characteristics ofFEP (i.e., the ultimate relationship is with the program and not with the underlying individuals who paricipate in the program), there are no relevant observations of historical closures in this relationship to develop a meaningfl atttion pattern. Therefore, no atttion pattern was applied to the projected level of revenue for this relationship. Additionally, due to the unique relationship between FEP and PBS, the valuation methodology was modified over the long-term pei1o correspond to the characteristic of the FEP subscriber relationship. A conservative life of 1 0 years was determined for the relationship with FEP.
We estimated the anual after-tax cash flows from these relationships. For the projection period,

we estimated growt in premiums for existing relationships at the 20-year average medical
component of the Consumer Price Index which includes medical, dental and life insurance (i.e., 7%). Management provided historical premiums by market segment for the period 1982 - 1987
as well as the anual premiums in 1986 by group.
RED. . A' "~. "¡~.'L LJ" ¡

!l t ~." g ,L""

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PBS-000371

Case 1:05-cv-01030-LSM

Document 23-6

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Page 5 of 45

Mr. Robert C. Gray

Highmark, Inc.
September 10, i 998
Page 6

To this income, we applied a normalized pre-tax operating margin percentage based on

Management's assertions of the normalized loss and expense ratios for the entire Company as well as the expected level of reserves. An adjustment was made to reflect those expenses (e.g.,
advertising, association dues, softare and data processing expenses, building and equipment

related expenses, provider related expenses) to other assets for which a "retu on assets" charge was taken, as detailed below. This adjustment was based on information provided in the December 31, 1986 and 1987 statutory filings. We than applied a tax rate to the pretax income
from each customer relationship to derive the after-tax income per relationship. The marginal

combined tax rate of 20% takes into consideration certain tax aspects relating to Section 833 of the Internal Revenue Code (i.e., 833(b) special deductions), a zero effective state tax rate because PBS is exempt from state taxes, the alternative minimum tax rate, as well as net operating loss car forwards available to the Plan. Taking these factors into consideration; the Company has

indicated that a 20% tax rate would be in effect beyond 20 years. For the purpose of this
analysis, we have projected PBS' effective tax rate at approximately 20% for the first 20 years
and 34//0 thereafter.
From this cash flow, we deducted a "retu on assets" (which we estimated as a percentage of
totalpremiums). This is the reI'rn the owners of these assets would demand for their use. Such assets include working capital, fixed assets and identified intagible assets which are required in order to generate the cash flow. If such assets were not already owned, PBS would either have to purchase these assets, or they would have to lease them; in either case, PBS would incur these

charges to service their existing customers. The values of these assets at the Valnation Date were.

obtained from the December 31, 1986 PBS balance sheet (i.e., working capital), the respective independent fixed asset and computer softare appraisals, and as determined herein (e.g.
franchise, trademark and provider contracts).

When estimating the value of an intangible asset using an income approach, the present value of
the after-ta cash flows should be added to the present value of the tax deductions associated

with the intangible asset. Thus, the fair market value of an intangible asset using this
methodology is estimated inclusive of the present value of

the tax benefit as follows:

ACTED
B-127
PBS-000372

Case 1:05-cv-01030-LSM

Document 23-6

Filed 02/15/2007

Page 6 of 45

Mr. Robert e. Gray Highrark, Inc.
September 10, 1998
Page 7

FMV = DCF + (FMV x T x ADF)
Where:
FMV DCF T
ADF
Fair market value of Present value of

the intangible asset
the after-t~ cash flows;
life of

the assets;

The marginal corporate income tax rate durig the useful

and

Anuity discount factor (assuming the asset is recovered in proportion to the present value of anual cash flow as a percentage of the total
discounted cash flows over its tax life).

We calculated the cash flows for each subscriber relationship and converted these cash flows to
their present value equivalent using the W ACe. We then calculated the present value of the tax
benefit described above. Our analysis for those paricular Groujl Remittance and Corporat~

E~eriç¿t R.ated groups are shown in illustrative format in Exhibits B.2 and B.4 Results of these calculations for each Group Remittance and Corporate Experience Rated Group are
presented in sumar form in Appendices B and C. The calculation of Direct Pay Subscribers is shown in Exhibits B.3.

the subscriber relationships, as of
Based on our analysis we estimate the total fair market value of

Januar 1,1987 to be:
Market Segment

Total Fair Market Value
($ OOOs)

Group Remittance

$64,786
30,529
193,872

Direct Pay
Corporate Experience Rated

FEP
Total Subscriber Relationships

14,803

$303,990

Valuation of Provider Contracts

PBS' contrctslrelationships with providers of medical services (e.g. physicians) were valued
using a cost approach. PBS reimburses certain providers based on a "Cost Savings" system

though its traditional network of 25,081 providers (e.g., physician). Contrcts/relationships
based on the IlCost Savingsll system may provide cost savings to PBS when the reimbursements
under ths system are less than the "benefits" based system. Historically, most of the contracts

under the "Cost Savings" system have provided cost savings to PBS. These cost savings are

REDACTED
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PBS-000373

Case 1:05-cv-01030-LSM

Document 23-6

Filed 02/15/2007

Page 7 of 45

Mr. Robert C. Gray
Highmark, Inc. September i 0, 1998
Page 8

passed through to the subscribers in terms of lower premiums, enabling PBS to attract more

subscribers. Thus, the provider contracts/relationships were valuable to PBS as of the Valuation
Date.

PricewaterhouseCoopers relied on the experience and representations made by PBS'
management, as well as certain operating information relating to time and costs associated with
the reproduction of the 1986 traditional provider network.

Based upon the Ernst & Young report dated Januar 1, 1987, the estimated fair market value of
the Company's provider contracts, as of the Valuation Date, is approximately $1,972,000.

PricewaterhouseCoopers analyzed the approach and methodology employed by Ernt & Young in its appraisal of the provider contracts. The methodology used in the Ernt & Young report was the cost approach which assessed costs associated with reproducing the existing provider network, as of Januar 1, 1987. These costs included the resources dedicated to identity the provider network and perform the following: application processing, contract negotiation and administration, provider education programs as well as varous materials produced. Based upon
certain limited procedures and analyses performed by PricewaterhouseCoopers, the results

derived by Ernst & Young in estimating the fair market value of the provider contracts appear to

be reasonable. The concluded estimate of the fair market value for the provider contracts of $1,972,000 is presented in Exhibit C.l.
Valuation of Assembled Employees
In general, the value of the assembled employees is the avoided loss of profits durig star-up of

the business and would include the avoided costs for the recruitment and training of employees

and development of organizational procedures, as well as immediate use of employees.
The assembled employees consist of existing traied and experienced personneL. If PBS were to
begin its business operations anew, it would require a significant investment to assemble the

employees now in place. These costs would include recruiting, hirig and training of new
employees.

Based upon the Ernst & Young report as of Januar 1, 1987, the estimat~ fair market value of the Company's assembled employees was approximately $23,842,000. Like the provider
contract valuation, PricewaterhouseCoopers analyzed the approach and methodology employed

by the Ernt & Young in its appraisal of the assembled employees. The methodology used in the Ernst & Young report was the cost approach which applied a replacement cost to each of the employees based on the time and costs associated with recruitment, interviewig, relocation and training as well as time and costs associated with lost productivity. Based npon certain limited procedures and analyses performed by PricewaterhouseCoopers, the results derived by Ernst & Young in estimating the fair market value of the assembled employees appear to be reasonable. the PES employees based on the Ernst & young report is the fair market value of A summar of

REDACTED
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PBS-000374

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Page 8 of 45

Mr. Robert C. Gray Higlunark, Inc.
September 10, 1998
Page 9

presented in Exhibit D.1. and the calculation of fair market value for the individual employees is
presented in Appendix E.

Valuation of Computer Software
PricewaterhouseCoopers analyzed the approach and methodology taken by American Appraisal Associates in its report as of Januar 1, 1987. AA utilized the cost approach which estimates the replacement cost of software based on the cost to reproduce the functionality of the existing softare. This method identified all costs attributable to developing the existing softare and adjusting for any modifications (e.g. salaries, overhead, etc.), obsolescence and the number of executable lines of code. A further adjustment was taken to recognize any functional or

economic obsolescence that could reduce the associated computer program's value. Value attrbutable to the softare can be segregated into Developed and In-Process softare. The AA
valuation report provides fair market values for certain PBS Developed and In-Process softare. The fair market value for these softare programs are presented in Exhibit E.2.

Certain other softare applications were not identified or appraised by AA in their valuation report. PricewaterhouseCoopers has assisted PBS in valuing the other PBS applicationsrelying utilizing the cost approach and which
were identified as not having been previously valued by

upon management's assertions and supporting information. The other PBS applications were
identified as having been either purchased, developed or under development as of Januar, 1,
1987. The fair market value of purchased softare was derived based on management's

assertions on the actual cost to purchase the softare less obsolescence (see Exhibit EA). This
methodology is considered conservative in that it does not take into consideration the additional

value attributable to softare modifications and enhancements. The fair market value of the
developed 'other PBS applications' were estimated based on the replacement effort in terms of man hours and the blended hourly rate of the PBS Information Technology deparment, as

provided by management (see Exhibits EA and E.5), which would be required to recreate the
developed softare. This value was adjusted for obsolescence to arve at its fair market value.

Based upon the Ernst & Young Credit for Increasing Research Activities study dated October 30,

1995, the estimated cost associated with the development and implementation of the Oscar claims processing softare incurred by PBS was $21,978,000 dollars. These amounts were adjusted for inflation accordingly- The resulting amount equals the system began cost basis of the Oscar reproduction as of Januar
$22,921,000 as of Januar 1, 1987. The implementation of

I, 1987, therefore, no adjustment for obsolescence was made. Based upon certain limited procedures and analyses by PricewaterhouseCoopers, including detailed conversations with PBS' Information Technology deparent to understand the cost information and effort to replace the Oscar system, the fair market value as detailed in Exhibit E.3 appears to be reasonable.

A summar of the fair market values for all PBS softare applications are presented in Exhibits E.l though EA.
PBS-000375

B-130

Case 1:05-cv-01030-LSM

Document 23-6

Filed 02/15/2007

Page 9 of 45

Mr. Robert C Gray
Highmark, Inc.
September 10, 1998
Page 10

Determination of Business Enterprise Value (BEY)

To ascertain the level of economic support for its underlying asset values (both tangible and
intangible assets), as of Januar 1, 1987, a business enterprise value was estimated for PBS. A business enterprise value represents the accumulated values of a company's total assets, including

net operating working capital, fixed assets, identified intangible assets and unidentified intangible assets (e.g., going concern value and goodwill). If a business enterprise value exceeds the sum of
the asset values then there is economic support for the independently determined value of its the asset values then the the business enterprise value is less than the sum of
underlying assets. If

business canot economically support the underlying assets.

The income approach is based on the premise that value is equal to the present wort of the

futue economic benefits derived from ownership. Value indications are developed by
discounting Euture cash flow streams to a present value using a market-based risk adjusted rate of

retu.
Cash flow is an important element in the financial management of a company. The ability of an

entity to create cash inflows, meet cash requirements, and provide for related fiancial and
investing activities is an important determinant of its value. Cash inflows include earings, sale of assets, and reductions of net working capitaL. Cash outflows include investments in fixed assets and additions to net working capitaL. The projected cash flow stream is then discounted by
an appropriate rate of return.

The assumptions employed in the discounted cash flows were obtained from assertions made by management, the historical financial statements of the Company and from independent economic the Valuation Date.
and industr information obtained in the marketplace as of

The discount rate used to present value the cash flows was developed by calculating the weighted

average cost of capital ("W ACC"). TheW ACC is computed by weighting the expected costs of
debt and of equity for the Company. The cost of equity is determined by employing the Capital

Asset Pricing Model ("CAPM"). The CAPM is a market-based risk return calculation that
compares the Company against alternative investments within the marketplace.
The present value of the cash flows at a market-based adjusted rate of return provides an
indication of

value for the business enterprise ofPBS.

The market approach estimates value though an analysis of Valuation Date sales of comparable
secunties. In valuing the stock of pnvately held companies, ths approach usually compares the

publicly traded stock of companies in a similar line of business to that of the subject company. Consideration is given to the financial condition and operating pedormance of the comparable companies. For insurance companies such as PBS, multiples of invested capital (interest-beang debt and equity) to revenues and book value are developed. The multiples are then applied to the

PBS-000376

B-131

Case 1:05-cv-01030-LSM

Document 23-6

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Page 10 of 45

Mr_ Robert C Gray
Highark, inc_

September 10, 1998
Page 11

value parameters of the subject company in order to estimate the value of the business enterprisc_

Our investigation included discussions with management of PBS concerning the history and nature of the business, a study of the economic status and prospects of PBS, and an analysis of

the financial statements and other records and documents made available to
PricewaterhouseCoopers -

Based on the application of the income and market approach and the foregoing procedures, as detailed in Exhibits G_I though B-1, th busItess enterprise value for PBS, as of Januar I, 1987, was estimated to be approximately $790,000,000. The resultant business enterprise value provides economic support for the underly.ig asset vahiesJ

Conclusion
Attched hereto as Schedule 1 is a summar of the asset values of

Pennsylvania Blue Shield as of

Januar 1, 1987_

The findings stated in this letter, as well as the attached analyses, are based on data obtained directly from the management of the Company and from sources of publicly available information- We have not attempted to verifY the information received from such sources, and
therefore, canot assume responsibility for its accuracy_

These estimations are premised on the assumptions and limiting conditions as described in this letter report, Appendix A to this report and the facts and circumstances as of the Valuation Date.

This valuation was prepared solely for the purose identified in the report. Distrbution of our
valuation estimates and this letter report, which is to be distrbuted only in its entirety, is intended for and restricted to the management of Pennsylvania Blue Shield. Our findings and report are not to be used with, circulated, quoted or otherwise referred to, in whole or in par for any other purpose without our express wrtten consent.
We appreciate this opportity to have been of service to you_ If you have any questions

regarding the content of this letter, please contact Michael Wierwille, Valuation Parer at (213) 356-6172.
Very trly yours,

R ACTED
B-132
PBS-000377

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CERTIFICA TION

We certifY that, to the best of our knowledge and belief, the following:

*

The statements of fact contained in this report are true and correct.

*

We have no present or prospective interest in the business or propert that is the subject of this report, and we have no personal interest or bias with respect to the
paries involved.

*

Neither employment nor compensation is contingent upon the reporting of
predetermined conclusions and values.
This report sets forth our major assumptions and limiting conditions affecting our

*

conclusion and value.
*

varous
This analysis and report were prepared in conformity with the standards of professional

organizations including Uniform Standards ofPrQfessional Appraisal

Practice as promulgated by the Appraisal Standards Board of the Appraisal

Foundation.
*

This report was prepared under the direction of Michael Wierwille, ASA, with sigificant professional assistance from Jonathan L. Jacobs, CPA, Christina Choe,
Lisah Burhan and Jagesh Shah.

*

The Amencan Society of Appraisers has a mandatory recertification program for

all of its Senior Members. Mr. Wierwille is in compliance with that program.

PricewaterhouseCoopers LLP

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PBS-000378

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Page 12 of 45

Sched ule i
Pennsylvania Blue Shield

Summary of Asset Values

($ In Thousands)

Working Capital
Investments & Cash Equivalents
Fixed Assets

$

(172,445)
376,028 69,148
19,250

~
(i)
(2) (3) (5) (5) (4)

Exhihit

Frachise! Trademark! Trade Name
Subscriber Relationships

A
B

303,990
1,972

Provider Contracts

C

Assembled Employees

23,842
3 i,0~4
137,1-61

(4)
(4) (5)

D
E

Softare
Goodwill and Going Concern Value

(7) (5)

Indicated Business Enteiprise VaJue

$

790,000

Plus: Equity Interest in Subsidiares
Total Business Enterprise Value
$

(6)

790,000

Notes:
(I) Current Assets (excluding investments and cash equivalents) minus current liabilities (excluding checks

outstading) from i 2/3 1186 Balance Sheet (Exhibit 1.).

(2) Market value as disclosed in Financial Statements for the period ended 12/31/86.
(3) Fair Market Value per valuation report by American Appraisal Associates as of 111/87.

(4) Fair Market Value per valuation report by Ernst and Young, LLP as of 111/87.

(5) Fair Market Value as determined in i1is report

(6) The subsidianes have not been valued as of

the valuation date. The Fair Market Values of

the

subsidiares will be provided at a later time under a separte letter.
(7) The residual amount as determined by the difference between the Business Enterprise

Value and all identifiable asset values.

REDACTED
B-134
PBS-000379

Pennsylvania Blue Shield

¡'xlilbit A,2

Franchise! Tradename! Trademark Valuation

Assumptions

Valuation Date: January 1, 1987

($ In Thousands)

1986 Base
\

1987

1988

1989
i

1990
3.5 4.5
12,0%

1991

Residual Year
4.5

Discounting Convention (M id.Period)
1,423,5 10

0.5
12,0%
12,0%

1.
2,5
12.0%

12,0%

7,0%

Revenue Growth

Case 1:05-cv-01030-LSM

Marginal Corporate Income Tax Rate
15.0%

20,0%

Weighted Average Cost orCapital

HI5TOR1CAL
_ 1,~2~,5iO

1986

1985

1984

1983

1982

1981
81 i ,796

1,074,214
(25, i 50)

Revenue Operating Pronts

1.357,853 3,143

Document 23-6

Operating Margi.i

(51,744) -3.6%
0.2%

1,217,842 (19.017) -1.6%

-2.3%

922,754 (23,532) -4,6%

(28,447) -3.5%

Average Operating Margin

25% Pront Split

Indicated Royally Rate

-2,2% 25.0% -0,6%

"'
.2.2% 33.0% -0,7%

CD

(f i

0 0 0 (¡ (X 0
1987
1,594,33 \

Average Operating Margin 33% Pront Split Indicated Royalty Rate

Filed 02/15/2007

B-135
1988

1989

1990

199):'

pR01ECTED

Revenue

1,785,651
( 17,856)

2,239,920 22,399 (31,887) -2,0%
0.1% 25.0% 0,0% 0.1% 33.0% 0.0%

2,508,710 62,718
.1.0%

Operating Proms

1,999,929 (0) 0.0%

1.0%

2.5%

Operating Margin

Average Operating Margin 25% Profit Sp\ii Indicated Royally Rate

Page 13 of 45

~ ~ ~ m

Average Operating Margin 33% Profit Spili Indicated Royalty Rate

C:.'

Pennsylvania Blue Shield Francliise/Tradename/Trademark Valuation By Region

Exhibit A.3

Valuation Date: January 1, 1987

($ In Thousands)

Case 1:05-cv-01030-LSM

Concluded Tradename Value (Rounded)

$

19,250 ~(1)

Allocated
Region
Capital Blue Cross Independence Blue Cross
Blue Cross of Blue Cross of

Value (2)

4,429 6,966
2,021
$

Document 23-6

Northeastem Pennsylvania em Pennsylvania West

5,834 19,250

Filed 02/15/2007

B-136

l:

(1) See Exhibits A.I and A.2 for further detaiL.

(2) Allocated based on the Group claims from each region.

See Appendix F for details on the service areas of the four regions

Page 14 of 45

o o o w () ..

en i

"U OJ

Pennsylvania Blue Shield

Exhibit B,1

Valuation Summary of Subscriber Relationship

As of January i, 1987

Case 1:05-cv-01030-LSM

Concluded Fair Market Values:
Reference
FMV
$
64,786i 1 06

Exhibits
Exhibit B.2 Exhibit 8.3
Exhibit B.4
Exhibit B.5

&

Appendices
Appendix B

,Qr-nnp Remittan~
30,528,915 193,872,116
14~802, 792

m~U~l\Y (1)

Document 23-6

_Corporate Expedimce Rated

Appendix C

F.E (2~

-u
$

OJ

Total Fair Market Value of Subscriber RelationsJilp

303,989,929

Filed 02/15/2007

B-137

C/

o o o (¡

i

Cf

N

Notes:

(1) Direct Pay is inclusive of the Group Conversion valué,

(2) Management has indicated that the premiums. attributable to FEP could not be identified for 1986.

Page 15 of 45

~ c: ~ C" --

Therefore, FEP premiums for 1987 were used as a proxy.

\i C)

-:t.

E,'diibii 0.2

l'enn.ylvnnla nlue Shield IlIu.irltllon ofSub.crlbcr Relatlon.hlp Valu'l!on As of Janultry I, 1987

Group R"'mlttltncc

Group ~lO

I""i/, RotIW" "" .~_,.,('¡,' fl, ~~,,/HL'h'JlII" 150"1,

ftlii\.url\Clllm In''Nlnr..Ulyt.:h.l

llj"l.
C'p.l'uiIiIiWoikln¡tC:lflillll UJlO'/1 0.20.1.. 011\;:.. F\lm;l~ &: Eiujril\\l:llI~ ED? Equlfllli:nl 20,0'10

Ta' R.lli.(Flrs\ 2ilYl:llft) 11'~ R.,II:(llii.fC~lkn

)tu'!
4.~'I, 0)'/1 Sl.I1..lI/IJ Pmv¡..'f CiiriU~tl~ Tlriu.ri:l"~ 0.10-,; 0.00"1 O.4(l/, 174"1. (0',.. Lc\~i:hiih.ilml"rn\'..riii:im 0.40'1,

.~,h

¡\uju~i~.. Op.IH\llIll Mllfiiln ().llo; +, ,""(oJ

UPR rnt!\iil EP

!lc~.:I'''i: 'minh1 el ¡l.iiii liiCr~'n!'l

Case 1:05-cv-01030-LSM

9

10

Yeiir Fi.~cal yt:i(:

is'/. ':' "C' ',,'1t

Earned premium (i) Crimi/fuli,;! SlIfI'(I'uf Ruiii (1)

l.lll

IL
)1'lH
),4H~ IL7 1~ 21,

),r9

tu
),H61 4,1)1

Il
ru
IL
J,MO
If,L 165 27 5,061 4,421

',1)0
~,416

Income From Relatlon!Chips 151 15 25 15~

),542

),WI

lI u.
),720
J,1H2

IL
I"
27

l,195
),H44 111 27

!L
il

ó,200

!L .
),908
174 2H

(i,(,)-l

),912
j7(,

Undel"tlng income (:i)
J6

lóu

Yea.end UPR (4)

Year-end R~(rvc: (~)
(,22

il
óQ
6J2
641

il
(,,.j
11 2.19 . :l 191

il

il

il
Ii 7 ~ M:(,

il
1m

(i
709

2H 720

il 65)
Jj
2~5

11i\'e.~tnielllll'ccn1e (f,) 22.i 22R 231

U
1.

)j

II
2..0

11 ~4 7

IU 2~ i

Sl
2.~5

81
1.\9

Document 23-6

Profit beJorc flr

Ta",((~ (7) 179 IHH

i\
1ú IHl 1ú IH5 0 I,

il

i2
1~4

:I
19H

il
101

.u
204

~l
20R

Proni antr FIT

FaIr Rctum on As:oeL.. (R): I, i, n 1 1 1

Worldiil Capital
14 1 14 0 0 0 14 14 1 1 14 Ó 14

EDP Equipmeni

Lel...ehold ll1provenietWl

I'
1 14 0

1.1 1 1.\ 0 2

15 1 1.\ 0

IL H 1.\ 0

1,\ H 1.\ 0

In H Ii'

",

\J OJ (f 1
i i

,
If,

Filed 02/15/2007

B-138
il
il i il

ornce Funiliure &. Equiprmni 50f\\\0I'c

ProvIder COnlrQCL~

o o o (¡

franchise;

i

a

a

(1 (¡

Total Retum on AS¡:CL'Õ 132 1)4

i il

il

.u

il

il

lJ

lJ

Cß."lli Flow Attrbuiable \0 Sub~cribcr Lisl
ILL

Oisl'III/I Fm'/or(Y) Dii:couiited Ciish Flow

Il
GJ
109 Toi:i! DI¡;counled Cash llOIV Ta.'C ShIeld (see Ptlge 5)

il

IJ7
96

iL
I
5

1)9
H.I

141

14)

101(1

I4H

151

15.'

íL
1,0)'

IW
II
19

iL (i
il
LJ.H

u.

lU
,\2

46

l1

41

See Ex.hibÍ1 D.ó ror nolc,.

Page 16 of 45

~ ~ ~ .~ tFair Market Value

c:

E'IhibÜ I:D

I'.nnsylv"nl. mil, Shield illu,lratiiin ofSubs.rlber Relationship V.luatlon

As of January I, 1987 Group Remittance

Group ~IO

I ~,Q"/. 11.5'1. 111.0"/ JUr'I. ~.4% 0.1% 17,4°1. 7.U~'.

R.llliufn...ll1m

h\W~1\\\L'flt)'icld Ti," P.Uii (Fli~i 2U Y~l1r~i

Tiii rt,I~\llu:tl.;iiil.r) AdJuSIl:Ù O~ril'1i1~ MlIfglli (l,n'Y. + i ."'l~)

UPRtIlnl"EP

p.\~l.i''\fl\\inl\,EP !l111.1""''l.n~''

Case 1:05-cv-01030-LSM

ii
7,099

12

IL

I~

i,
17 9,LOL

19

10

Year

fh;ça\ year:

7,l9ó

R,l27

R.t'

9,9;6

(1
U.
4.10~
1f:2 29 10 iO

u.
/W
4,lli
19l 11 19R 201

Eanicd premium (I) Ci/liwtii//I'(' S"r"ÎI'! Ruli' 0) Income Front Relailon~hlps
4,O~R

4,171

I!
IW
4,~;4
4,~18
4,241 191

IO/I~3

11,l99

I!
fL
4,lRl
4,óOl

12,197

Q.
4,ó7R 204 lOR

ll
)2

IL,O;1

179 29

IR;

liR

Underwriting Income (~)

II

1)

II
ßQ
R~5

Year~i\d UPR (4)

Yc:IU'ocl'd R~el"~ (~)

W
732
7~4 BJ 1M,

il
11
7;1
7ó9 ß2 277 1R2 2!\(i 11 229 291

:i
1A

il
m
ROR

il
2.

1.
Rli

il
R4R

l)

B.
264

ai
27)

ni ~
2.

2.
,l%

2!
iOI

!I
jO(1

Document 23-6

l11\'eilme"\¡ncol'c(~)

Profit berore FIT 211 0 1 11 R 11 0 ß 17 0 2 19 11 R 11 0 ß 17 9 1 0 0 1 214

T3.'(C!((7)

il
llR
222 225 0 1

.l

i\

l.

~

ia
2))
0 R

ú.
19 2.37 úQ 2-10 144

Proni afief PIT

0 R

0 0 R R

faIr Return on ÄSl'e\." (R); 0 7 16 R 16 R 16 0 0 0 7

Working Capital

EOP Equipment

Ii
9

ii
9

IR 9 IR

ii
9

19 0 19

Lea...chold Impl'oYtmenL'\

Filed 02/15/2007

B-139
ló

ornce Funilturt&. CquipOle.nl

ii
0 2 úQ

IR 0 2

IR 0 2 0 2

0 2

Sof\warc Provtder ContrCL'(

a

a

lrtnehisel

.u
il6
I;R

~
ló\

II

iß
16) 25

il
. "ó
169 1 72

úl

n1 11; \11

61 IRO

Toial Return on A¡¡selS

C:i"ih Flow Attributable 10 Subiicribcr US!

Disc~J1ml Fuelor (Y) OI!lCOl.l'cd C~sh Flow

Q.
)6
1)

Q.

rJii

il

IW

II

Il

II
19

UJ
IJ

I;

Il

Q.
Il

11

Page 17 of 45

"U OJ

See E:xti¡bil ß,(¡ fot note;,

(J i

a o a w

00

~

L:diìbiI0.2

Pennsylvania ßliie S\i\old Subscriber Relationship Valuallan IlIus(ration or

As or January I, 1987 Gronp Remlth\nce

Group #10

I S,1l',~

!tiicll(Rcli.ni !l1\\.-Slnlcn11k1i.

iU'I.
~O.OV. )~.O'I. ~.'W' 07% 17,4'1. ,,(r,'. 21 2R 29 JO

Tnx R¡illl (F\r.~\ 211 '1..nr~l

Til' l\\lcIThW:iIl~'r) "i.ju~wú O¡ill1\ill~ ",1¡lll/ili 13,0.1, . i.~'¡"l Uf'1\intI" ILL ~p

Case 1:05-cv-01030-LSM

Rc~Ilf\'i; f¡IIÌli 11\ EP Rlih:im'tCilsÇS

21 IS,?RR 4,99S 22~ 229 11,101

"
2l
IR.l04
19,5Rl

2'

2~

26

YeDr

Flst:i1 )'e~r.

~ii..ncd prcni1uni (\)

Il,9M
14,942

C!llil/tulll'l. SI/\'h'iil Rare 0)
4.756
~\~ 35 .2 i ~ 222

u.
IU
4,914

í1 ',Rl'
5,011
S,I61 .~.i4(i

a.
Q.
,l,Jll
23)

Q.
2Jl
lR

Q.
l'

20.9%

i2
22,423

Il
2l,99l

I1
5,42
JAI 39

15,61J

5,SI0
245 39

incon\~ from Rclaiion!lhip:i
~ 11

Underwting lncomc 0)

Year. end UPR (4)

l'
WR11 R91 906 921 9~(¡

II

Year-end RC'clVCS (5) !H12

in
95\

l6 IW

il
m
W
Wß

l6

II

W
961 9R1

2!
999

Investment 111tome~())

2J

il
JJ
~n
JJl
14J

il il
il
321

il il
HR

il
)54

Document 23-6

160

PrOr,1 before FIT 205 0 R 20 10 20 0 lQ 0 20 10 20 0 10 20 20 R 9 0 0 0 9 21 10 21 0 lQ lOR

III

ll6

Tc.'(es (7)

.l
1l
2\2
21S 219 222

J.

li l26 il
il
il il
22/í 0

il
¡JO 0

1l
2)4
0

il il
23?, 0

Prorit afie, fIT
0 R 19 10 19 0 0 lQ bí 142 1 (, 1-i5 19 10 19 R 0

FaIr Return on As,.eLt (R):

Working Ctipltal

,
21 10 21 0

,
!I
II

,
22

?

2i
II II

EDP Equipl'cn\

Le3...ehold Improvemeni'i

!I
0

22 0

22 0

Filed 02/15/2007

B-140
.1 .1
1I
10
1'9 141

Offce furniture & (!quipment sonwilrc provldtr Crilrf~L~

J.
11 152 11 154

Jl
1l
151

II II II
IS'

franthisc-.¡

Tolal Return on A~seL~

fi
ó1

fi

U
162

1'0

Ca...h Flow Aiiiibutnble \0 Sub!iciiber U~\ Dlsmlli,J-IIt'I/,.-(9) Discbunicd Ca:di Flow
R

u.
íL

i1

QJ

(,

I! ~
5

I1
4

I!
4

I2
)

iL
)

)

Page 18 of 45

i: OJ

See E;rhlbit 0.6 for \'ot(S.

(f i

o o o w

CO

(J

E:iliibiil:1.

Pennsylvania. ntue Shl~ld

illustation or Sulis~rlb.r Relationship Vail,.ilon

As or January I, 1987 Group Remittance GroupniO

)~~QI~~!rK9~~at:i:l¿~;~iií.tit~$~~¡lili(g1'giwi~!.;W~f:.iI( IS.!),l 11 ,~~~ 11l1J'/ )~,Il'f. ~.4% 0.7% l 7.~'.'. 7 ,fl~

ftit\!l'lR.\!lum

hIW~\nll:l\l yhilJ

Tn" ~\\! (FIT,;! 10 V~¡¡s'

Tii.' P.11\!(T1i':f\!llfl\!l)

AijuS1CiJOpoti,1inl:Mnriiln(3.ll".+IAy.i

UPR,rillllt EP

R\'~,m'\llll\tlt\l EP

riiiichini:n,~\'~

Case 1:05-cv-01030-LSM

Yenr

))
)4

)~
)1í,OOÎ )A,;t2R .¡ i ,2~.j

)1.

)7
44,110
(i)R,C. 2R) 4r, J ,I ~R "'7,19R

)1

)9

40

Fiscal Yl.:ir:

IU
'i,ÓOI

17,470

29,)92
)I,4;C.O

l:llmcd pren,hinl (l) Ciinruliitii'( Srirl'l'ul Rfite! (~J Income l'r,?", Relatlonships
5,694
2~7 41 41 ~,1RR ~,RRj ~,9RO

Il
I1
G.
Ó,079
274 179 4.1

i:,MI

!L
n,t7?
(i,lRI

I1
170

ri
f1
1,1)9

u.

u.
il

,~O,,~O2 6,490 2RR 4(,

Undmvrtlng income (3)
40 41

lil9 4) 4)

11)

26\

1M

Ye3r.end UPR (4) Year.end Resel''cs (5)

21
1,016 I,O)L

m
LU
1,067 I,OR, 1,IOL

J.
Ll
1,Ili

IMO

l.
Li
44

.l
410

!.
417

1.77

hwc,tment Income (6)

il
il
lR4

il
)91

il
197
40~

il il
26ó U

.L il

il
424

Document 23-6

proni befo'~ PIT
l41
0 10 24 12 0 10 14 12 24 0 0 2.45 :lAC)

TL''' (7)

il il
~ó(

il l71 il
il
1,4
a 10 24 25R )(12

l71

il

il

il

il
271 0

il
275 0

il
2RO a

proni.nef I'IT
0 10 10 10 0

.Falr Rel\lm on A~~e:lo; (R):

Working C'pìial

a

II II 2~
12 25 0

II

EDP Equipment Leo.o:chold Improvemcl1LI(

II
II
22
0 0 0 0

II
II
12

,l
Il
24

II 1~
IL 1.\ a 12

2n IL 26 a

26

Offce Fumllure &. Equipmeiil

Filed 02/15/2007

B-141
2l
2)
12 12 81 12 ß2
176 1

sonwnre

l4

I) l6
0

Provider Conrrclo;

Fr;nc:hl,,~
11
1B 1(,7 170

II

II

12

II
ß.
179 I 1

II
B.
IR2

II
£.
IR,
ß2
IR8 &2 191

Tolal Retum on AiiJlel"

n

Ca.~h Flow Aurib\ltiibh: to S!Jbllcn~r Lls\
2 2 2

In,

DI,\'('lIttt "'lI:lfr(~J

f!

I! Il
IL
I7

Il il

IL

I

!l il
I

lL
I

I

Dliico'\Inled C;i'(h Flow

See Exhibit D.ll (or nol~.

1J

OJ

en

o o o VJ

i

Page 19 of 45

CO

(j

Exhibit 8,2

Pennsylvania Blue Shield

Tax Deduction for Terminated Contracts As of Jànuary 1, 1987 Group Remittance
% OF EXPECTED

Group # i 0
lEK.MINA TION

CALCULATION OF TAX DEDUCTIONS FOR TERMINATED CONTRACTS:

YEAR(3)

TERMINATION (4)

DISCOUNT FACTOR (5)
f

F;\ClOI\
o'f 0, \ II I

e
~ I ,034 c
2
3 4 I

TOTAL DISCOUNTED CASH FLOW (I)
0.613 i
0.4795 0
5

11,9% 10.5%

0,9325 0,8109 0.7051

TERMINATION FACTOR
6
21.1% b
8 9

0.5332 0.4636
0.4031

Case 1:05-cv-01030-LSM

0.8988 d=1.o'b
10

7

0.0854 0,0656 0.0504 0,0388 0.0298 0.0229 0.0176

EFFECT! VET AX ItA TE (2

0.3506 0.3048
0,2651 0,2305

0.0 i 35
0.0 I 04

1,15 I c/d
II
12 13 14 15 16 17 \8

FAIR MARKET VALUE OF THE SUBSCRIBER RELA TIONSHIPS

0.0080 0.0061 0,2004 0,1743
2.4%1
U. 1 5 16

s i 16 (cld)-c

9,3% 8.2% 7,3% 6.4% 5,7% 5,0% 4.4% 3,9% 3,5% 3.1% 2,7% 2.1%
1.9%
0, I 3 18

0.OU47

TAX DEDUCTION FOR TERMINATED CONTRACTS

Notes:
19

\.%
1.5% 1,3% 1.1%

Document 23-6

(1) See page \.
20
21

(2) Represents the average combined federal ~nd st~te tax rate for the forecasted period for the asset. total operating

taxes for forecasted period divided by the PV of Calculated by total PV of

profit before taxes,

0,1146 0,0997 0,0867 0,0754 0,0655 0,0570 0,0495
22 23
24

(3) Represents the expected iem' in which a customer relationship would generate cash now benefits to the plan.

0,0431

(4) The present value of each year's cash now divided by the total present value of cash nows

0.0036 0.0028 0.0021 0.0016 0.0013 0,0010 0.0007 0.0004 0,0003 0,0003 0.0002 0.0002
25 26 27 28 29 30
31

Filed 02/15/2007

B-142

for the projected period,

(5) Based on the Weighted Averge Cost orCapital of \5% (see Exhibit GJ) using the midyear conveniion.

0,0375 0,0326 0,0283 0.0246 0.02 \4 0.0186 0.0162
0.0141

0,8% 0,7% 0,6% 0,5% 0.5% 0.4% 0.4% 0,3% 0.3% 0.3% 0,2% 0,2%
32 33
34

0.0122

0.0\06
35 36
37

0,0001 0,0001 0.0001 0,0001 0.0000 0.0000 0.0000 0.0000

00000

CD

i:

0.2% 0.2% 0,1% 0.1%
0,1'/0

en i

a a a w

38 39 40

0.1% 0.1% 0.1%

0,0093 0,0081 0.0070 0,0061 0.0053 0,0046 0.0040

0.0000 0.0000 0,0000 0.0000 0.0000 0.0000
100%
0.4195 a

Page 20 of 45

() "

TOTAL

E.lllitiil13 )

l.nnlylvanla Blue Shi.ld

As or January I, 1987

Dlree Pay

ï!,'$,QEfijlg,~~1¡L~16il¡yJ;JØlil~ii~:'Ui1l;¡
l-nlf Rdiim 011 AJ.UI.I a.l Y.ClfRc\Yl1lf~

l'lt'(l(Relll

.ll.Q;
tlJ% AO~.
Or"ru1hiil. WnlkhlIlCiiii¡l.i¡ EDP E.uil'meni t."ctil\l,J Inifl0"'cm~/li~ On\çeFW'lliirool E:lpmenlJ 0,11'/, 0.4(1'. O.iO'L O.~O'I. 0,00"/. 0.200/ O,()%

(ni"eslnicni )'i~h.l

TM ~1\!(rli,,110 \I~ll)

Tiu l\io('li:~nd'l
Sollwfl
""l\VI..tCOiilrl\CU

...iill1eoOf'"'1I11l,M&f¡!\iI(l,W.+I..W.¡ UPR.Mliln10 EP !..:!\~ 1,¡'l/.

34,0'1, ~,4'1. 0,1'1.

n~'1cnCl n.ilo u\ Ep

Case 1:05-cv-01030-LSM

.Pltlnl.ri!los

Ttiiucrue

Year

I 2 L 4 5 Ó 1 R 9 10
245,854,9l1 26l,064,1I2 281,419,ll1 lOI, I 82,869 l22,265,610 344,824,261 l68,961,96I, 194,119,30l 422,424,555 45 I ,994 ,214

Fiscal year

S,m,d premium (I)

CllllflfClfl\c Sl1ll'/\al Rate (1)

a. Il iU a. IL Q. I2 o. IL I!

Income From Rel!;tlon~hlps

194,22,\,400 164,118,13 i 138,180,281 ll7,l I 0,912 99,162,964 8l,822,45' 10,855,120 59,89l,83l 50,6lR,i51 4 i.96,066
R,62l,608
00''''''' RlR,114

Underwrhln¡ Income (3)

l,2R9,536
6,l61,R44

5).011,607

4,402.1D6

),721,111

l,I4,961

2M9,286
506,614

2,2",895

1,900,14.\

Y"",nd UlR (4)

I.lR8,112
1,27;',In.~

1,lll,R19
11,984,'91
15,202,2~~

109,016

599,lll

'2R,241 12,8~O,;'OO

)61,992

)05,992

Year.end Re:eN~ (~)

35,225,310

29,115,954

Q.
1,662,221
6,476,RRI

IO,M2,321'

9,i81,09.~

1,7(ll,n2.\

Investment Income (6)

2.
9,064,01,
1,251,605

l. lt .l l. l. Li
5,414,901

J. U2 1. Ll il !.
4,621,9)9
l,91 I ,991

Document 23-6

p",ni before FIT
10,148,146
8,518,135

12,685,9l)
6,129,182

10,72l,419

T",..(7)

p",nian., FIT
0 0 0 0

l. 2. il ti Ul 2.
4,l19,926
0 0 142,498

UJ
5,\RI,504
2l5,926
555,121 211,561

m.
),702,)51
0 120,454

i,l06,RI I
),129,591

J. J. J. 1. il
16R,511

2,fi~,4.i9

fi il
0 101,820 0 R6,0C,8

2,79.\247

2,2~(i,1 qg

FaIr Rimim on Assets (8):

0

W.rldnt Capl~1 SOP Equipment

llO,IR)
116,902
656,115

219,10'

199,429

12,75)

iJ OJ (f i
l8R,451

L..hold Imp""em.nts

))5,290
)96,652 198,l26
167/14~

2R),420
141,710

2L9,S15 119,lR8

202,5 I 3 101,251

17 i, i ~4 R5,592

Offee Fumhure &. Equipment

l2R,lSl

Filed 02/15/2007

B-143
116,902
0 0

SoOwue
0

656,W

m,121

469,244 234,622 469,244

l%,652

n3,420

2l9,515

202,51l

111,IR4

o o o (¡

Providèr ContrcLt

0

0

ll.1,290 0

0

0

0

0

(X (X
1,481,R58

Franchbes

l6
6,l29,481

TOltl Return on. As~elS

l.
1. L2
5,l50,lll
l,l12,S'R
6,982,464

il 2.
l,ll2,4ll

ll il il 2. al cm 6. J. Ui Wi ll J. ll ll
4,522,621

tash Flow Aitrbutablc to Subi-eribe List

Dlsrowit Fnt'fOr (9)

!I
IU

i1

Ol5counttd eM" Flow

2,172,987

a.
S S

l,822,912

2,OL8,266

a.
26,3.9,905

l,2ll,55R

IU

2.7~ i ,r,)ó

1,'9R,21'

1,IOL,2L2

IJ
W2
lO,1

2,109,052

I2

1,9,II,R'2
809,4n8

IU
19',99'

1,649,R92

4:\7)47

iL

See E:hlblL B.6 for notes.

ToUlI Oliieountcd C:ih Flow

Tu ShIeld (!~e Page j)
fiiir Markei Value

Page 21 of 45

~; t:

(" -rT

C'-

E:ihibi( BJ

Pennsylvania Blue Shield

As or January i, 1987

DIrect Pay

~~§~_~J~t~K~~..J~t~im~~~l#f~~)fvttf1~~k~t
15.0-(,

Ri:iut RoICor

Inl"Cslmnl ylcliJ

ii.wi
10.ol.
).4.0% .(.~'Y. O,l'! 17,4'1. 7,0'1.

Tn.. P.lo(A¡it 20 V\:I)

TD:\Itti:(n,cl"I\i:)

¡\Ujusi.. O~"\LL"i, Margin (l.o/. .. i ..../0

UPRl'llo \0 EP

(te,ervl, ~\10 to EP

Case 1:05-cv-01030-LSM

R.'IIO ini;fC~..'$ IR 19

Yw
4!3,6J3,R71
517,488,244

II
~51,112,42 I

12

I)
14

IL

16 11(,,610"114

11

20

Fiscal year:

Wì)l~w.Mt1Jt~~l~1~~~~11~rr&lliWJ~ht~~~&4~l~~~ll.i'~~lJi¡f~&ftL~,t$~!~~~frJJ1\~m~~~~f~r~~Ä~~JfílltJt~t~~~~~~1f~i$i~~1%~1r~tf~E R89,I41,I49
)6,175,514
1,606,19)
1,)57,7IL
1,141,676

Eamed premium (I) C"mu!(ftlve Surl'l'ff Ralf! (2) Income From RelaiioMhips
30,579,162
25,848,566

Il

I1

I!

592,472,290

6)),945,)51

21,849,19)

il

18,469,610

a.

67,121,525

J1

125,804,012

15,612,)78

1l,191,14)

u.

810,97,036

11.55,545

9,429,182

1,910,995
41R,682

l2

Undenviilng Income (3)

970,1)1

820,052

69),190

5R5,9.~-'

495,30(1

)5),912

Ytl,.end UPR. (4)
6,560,90 I

2l8,65l

218,641

IR4,Rll

156,226

1)2M!

i i 1,629

9U60

19,162

61,42)

;'6,99)

Y. ear.cnd Reserves (5)

5,545,9)0

4,6Rl,915

),962,145

))49,10R

2,R)I,50R

il Il 2. .L l.
2,02l,204
?1R,6)O

2)93,474

1,710,214

1,445,644

Investment Income (6)

Document 23-6

Front berore FIT Tax'" (7)

2,)62,82)

1,997.294

¡,68R,)13

1,421,131

1.206,:153

1,019,1)1

R'I,91R

615,91 I

520,6)0

Profit .Ocr FIT
0 51,985 0 0 0 0 0

ó. s. 1. UJ .l uw ll ll il .l lI ll Ii il il ll ll il ll ll lB ll w. J1 .L il JJ
1,591,8)5

1,890,2lR'

1,)50,6l0

1,141,104

965,08)

815,7!4

6R9,581

582,904

492,729

415,504

F.lr Return on A",,, (8):
4),943 10),)94

0 22,435

0 18,964

0 1(1,031

0 l) ,~~ i

Working C.pltal EDP Equipment

25,l41

)1,)98 7),879
16,939 73,819 0

62,4l0
)1,225 62,450

52,n9
26)9'1
52,189 0 0

44,522
22,311 44,622

17,719
IR,R60

Leehold Jmpro'iements

Offce furnIture & êquipmcnt
122,317

122,)17 51,158

ll,691
103,)94
0

)1,8R4 15,942

Filed 02/15/2007

B-144
61,498 144,702 72,151 144,702
0 0

Softare

)7,145 87,)99 4),100 87,)99

)1,719

ProvIder ConinclJ Franchises

Tola' Return on Ai:~tLS

l2 il .l ~ il il
mi
842,)62

U1

0

if .l iI ll 1. JJ li 2. il ll .l lJ
0 0

.31,8&4 0

Cash Flow Attrbutable to Subseiibei' LIsl

1,)94,65)

D/.mmnt Facwr (9)

IW
2)6,294
113,(186

1,178,901

Q.

996,l25

Qlseounted .Cash Flow

)21,469

il
Q.
12,651

112,049
9),841

50l,R95

Il

Q.

SOR,782

4)0,01)

)6)1:'41

)01,)01

Wi
6R,97?

0J
50,101

)7,261

Il

QJ
21,)9)
20,1:'5

iJ

Set Exhibh 8,6 for nol~.

OJ

Page 22 of 45

(j

o o o w

i

CD CO

E.,h;bit n.)

PennsylvanIa Blue Shield As or January I, 1987 DIrect Pay

I~1!.tl\!!iK~~':.wæg~~1t~~~'tt,¡mí¡!.
15.U"/. 11.51, in,o% 34.0'. 4....1. 0.7'1. 17.4-;. 1.0Y.

Rni..ofRclut InVCUni.nlyh:li.

Tu P.IO (Flnt io y~,,)

1M ~,~ (Thetai\er)

I'ilJIUIi:Oriii11Ilit Mnrgln (),OY. -+, ,..y.)

tJAniilnloEP

fh.'SL"t,niloloEP

Case 1:05-cv-01030-LSM

P.ttlt'NltIlJ

Yw

21 22 2l 24 25 26 27 28 29 LO
ii~¡¡¡¡ti~~~~tì.~~ø.W1ì~Y¡lij\¡~~j!j;litÍi~!m¡?iíP~~~~~!&)ti~~~¡íí¥t'i1)¡t)~(~1ifil'i~~f~~~1t1i'l1W~~i:~rt;,\irBWÄ!¡
951,l81,029 1,017,917,701 \,089,2)6,140 \,165,482,670 1,247,066,47 1,))4,361,109 1,427,766,)87 1,527,710,0)4 1,634,649,7l6 \,749,075,217
6,7l7,882 5,695,532 4,814,4)) 4,069,640 ),440,067 2,907,888 2,458,0)8 2,077,780 1,151,)47 1,484,640
299,162
252,882
109,137

Fiscal yur:

Earned premium (i) CUIIiilall'lt SI(M'lvol Rale (i) Income From RelatloNlhips
21l,761
18Ò,692 29,098 24,596 20,791 17,575

IJ ~ Q. D. I1 a. IL f1 0J Il

152,7l9

129,110

92,25)

77,982
12,558

65,918

Underwiing In",me ())
48,176

Yea.end UPR (4)

40,72

l4,42l

14,856

Yea.end Resiirves (5)

22
1O
7)8,082
62),901

lQ

I ,222,0)

1,0)2,959

a.
527,)84
445,797

87),160

il ll il ll
lU
224,090

InvC$tmcnllneomc (6)
440,088

i. il
ß.
189,9l0

ri
160,548

)76,8)2

)18,5)6

lú
0

il

10,615

2ú9,259

Document 23-6

Proli before FIT
290,458
0

l72,007

l14,457

265,811

Il5,711

114,717

96,970

T..". (7)
245,524

2Q
148,295

2!
M.
125,)54
0

pron! .ncr FIT
0 0 0

il ll ll ll ll
207,542
175,4)5

105,%2

1l .t il ~ s. ll ll
89,569
75,71 ) 0 0

64,000

Filr Return on Aii~cL~ (R):

0

9,682

8,185
19,258 9,629 16,279 19,258 0 0

4,94)
11,632 5,816

4,179

l,m
9,8)2
4,916

i,986

2,524

8,ll\
4,156

7,025

5,9)9

Working C.pllOl EOP Equipment l.chold Improvements
11,454 26,952 1),476

22,782 11,)91
22,782
0

6,918 16,279 8,IL9

0 5,848 IL,760 6,880

l,51)
11,6l2

2,969

Filed 02/15/2007

B-145
26,952 0
1),760 0

9,m

7,025
0 0

i,9l9
8,)11 0
0 0

Of'cc furniture & Equipment Softwar provid~ Contrcts .Franchi~d

.L
Ul

TOLat ReNm on AlÖSC.lJ 198,149 167,496 141,584

2U
119,681

li ia
ól
Mi

2.

i\
ru
4,484

11
101,166

6.

.I l2
85,516

:l ll
12,m

Ul 2U
61 ,IO~

l. M.
51,651

2Q

UI

run Flow AtnibuUblt to Subscnber LiS.l

Dl'iL'olmt FacJur (9) 11,290

1W
8,299 6,100

!L

Q.

),296

Il

QJ
2,422

i!
1.781

1,09

fJ

Q.
962
707

4).661

Ol~,coun.ied Ca.o¡h Flow

See E",hibll B.G for iio\(',

ìJ

Page 23 of 45

OJ

(f i

o o o w o

CD

b1"lbilBJ

Pennsylvania Blue Shield As or January i, 1987 Direct Pay

t~~:q~~rttJQ~~~tit61~i-ìi~t~_~!fijlt.~ft~~~..IU
IS.U'!.

R.IC1'(RL111m

liiycsiiiii:n.iylclu 2fi.O'r.

iiyi,
)(('1. ',4%
0.1% 11"W. 7.0%

Tni Rille (Fina 20 Venn) T".,~I..(Til\..~I\cr)

¡\ùhis\~'l Op:,~\h'ii Mri~';T\ () ,(1% 'l \ .'%)

UPRr;llClIn EP

Case 1:05-cv-01030-LSM

R.c~cr\'i: r~11ri 10 El ¡li~ 1I\cf\:Ll(l1

Year
i ,871,510,4B)

II )2 )) )4 )5 )6 )1 )g )9 AO
l.440,r,95,6BB l,2I,60l,447 g,~il!iÆ\î~f.;¡iEl~:~~~~R,.tJ!lti~¡híl;î.6),2If~f1~lt;)'t~,~~~i~iï\i¥1¥~m1W.¡¡&~tf&Æ~W$:li(;t'i~i(ífioo~i%q~%\~~~/'0¡j'ttK\%t;K~;f,~j:j:fNi;;~;f:i,i J,005,2J6,B61i 2,808,6J2,585 2,624,890,266

Fiscal

year
2,002,516,216 2,142,092.152
2,292,680,&1,

2,45),168,41)

Eamed premium (I)
1,154,966
55,121 7,5B5 1101,6)\ 41,101

Crmiitfafil'(!SJlM'!i'al Rare (2)

Q.
QÆ
Mm
541,610
24,OAl

Q.

Q.

Q.

IL

1,060,Bll
39,814
5,420
9B,228 4,5BI

ii
11,IB) 2,767 10,181

896,114

757,992

640,1)1

451,B2
20J21
3,273

3B6,998

321,129
14,525

276,522
12,i7B

ll

Ineame From Reh.\iomihlps

3),655

2B,448

Underviing Income (3)
8,91)
192,)94

6,412

3,gl)

Year'end UPR (4) Yearacnd R~erves (5)
221,1i05

ll
lR
IJ1,412
116,205

il
!l
JL
5g,5M
49,509
4\,B50

l.
0 118

iú
2J39

i&

1,1)77

Document 23-6

Invest1lentlncomc (6)

ii in J. u. ll
8l,0l2

ll

2.
19,90l

ú1 ß.
25,277

59,l29

ó.
21,)61

50,151

.í

l. ll
69,2B8

I B,061

l5,)76

gl,969

Profit berore FIT

r""", (1)
54,099
0 1,524 \,2B9 L,OL2 1,516 2,LCL 1,2BI 0

21
45,1)0
. )B,651i )2,1i16 21,621

ll
J1
2l,348
0 921 ° I,Og9

1.
.L
2,166
I,OBl

J2

J.

R.
19,71(, 16,6B3 0 ó.'B

Uf
14,102

11,920

fi
~%

Frofit after FIT
0

410

Fair Return on Aiiscls (~): Working Capital

2,ll3
5,020 2,510
2,122
1,193 4,2C\)

0 l,gOi

SOP Equipment

I,Bl\
916

1,548 774

1,109 654 1,,\09

1,106

),5Bl
J,587

m
2,166 0
I,SLL 0 1,54B 0 0 1.0(1 0

Filed 02/15/2007

B-146
4,24l

LUOtehold Improve:mcnll

Offce 'Furniture &. EquIpment

),On
0

So,,vare Provid~ ContrCls

5,020 0

franckliies

TOlll Rtium on As!õcts
16,906

11
JI,197
2(),371

2.

2.
22,291 206

0

.!

0

¡,56l 0

J.
U1
IB,84J

ll ll
I2
)82
281

ll J.
a.

LJ

ú.
15,928 11,464

il

21 UQ

il

lI
I1
1. J2
152

il

Ca.'~h Flow AttbutAble 10 Subscrber List
520

OISCUllnl rUt'lor (9)

Mi

Q.

i!
112

Q.
B2 1i0

II,lBI

ll I!

9,620
44

I!

g,I.12 ).1

D\~i:o\lntcd Cash Flow

'"

Page 24 of 45

OJ

See E~hiblt 8.6 ror nol(',

en i

o o o VJ ..

CO

Exhibii OJ

Pennsylvania Blue Shield Tax Deduction for Terminated Contracts

As of January 1, 1987

Direct Pay
TERMrNA TION

CALCULATION OF TAX DEDUCTIONS FOR TERMINATED CONTRACTS:
YEAR (3)
f
I

DISCOUNT FACTOR (5)

FACTOR

e'f

0,9325
0.8 \ 09

TOTAL DISCOUNTED CASH FLOW (I)
2
3

$26,339,905 c

0,705 i

TERMINATION FACTOR
5

0,6851 a
6

4

0.6131

0.5332 0.4636
0.403 \

Case 1:05-cv-01030-LSM

EFFECTIVE 8

TAX RATE

(2)
9
10

20.0% b

0,8628 d=1.a'b

7

% OF EXPECTED TERMINA TION (4) e 26,5% 19.5% 14.3% 10,5% 7.7% 5.7% 4.2% 3.1% 2.3%

0.3506 0.3048

FAIR MARKET VALUE OF THE SUBSCRIBER RELATIONSHIPS
12

30,528,915 c/d
II
i3

1.%
1.2%

TAX DEDUCTION FOR TERMINATED CONTRACTS
14
i5

$4,189,010 (c/d)-c
16
17 18 19

0.2651 0.2305 0.2004 0,1743

0.2472 0,1580 0.1010 0,0645 0.0413 0.0264 0.0169 0,0108 0,0069 0.0044 0.0028 0.0018 0,1516
0.13 18 0, i 146

Notes:

0.9% 0.7% 0,5% 0.4% 0.3% 0.2%

Document 23-6

(I) See page 1.

0.\%

(2) Represents the average combined federal and state tax rate for the forecasted period for the asset.

Calculated by total PV ofiaxes for forecasted period divided by the PV of total operating profit befoie taxes.

20
2i

0.0997 0.0867 0,0754 0.0655 0.0570 0.0495
22 23
0.043 i

(3) Represents the expected term in which a customer relationship would generate cash now benenis to the plan,

(4) The present value of each yeats cash now divided by the total present valuc of cash nows

Filed 02/15/2007

B-147
Capital of 15% (see Exhibit 0.3) using the mid.

for ihe projected period.

(5) Based on the Weighted Average CoSI of year convention.

24 25 26 27 28 29 30
31

0.0375 0.0326 0,0283 0.0246 0,0214 0.0186 0,0162 0.0141
32 33 34 35
0,0 122

-0

to

36
37

(f i

Page 25 of 45

o o o w

(0

38 39 40

0,1% 0.1% 0.0% 0.0% 0.0% 0.0% 0,0% 0,0% 0,0% 0.0% 0.0% 0,0% 0.0% 0,0% 0,0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

0.0106 0,0093 0.0081 0.0070 0,006\ 0.0053 0.0046 0,0040

0.0011 0.0007 0.0005 0.0001 0.0002 0.0001 0.0001 0.0001 0.0000 0.0000 0.0000 0.0000 0.0000 0.0000 0,0000 0.0000 0,0000 0,0000 0.0000 0,0000 0.0000 0,0000 0,0000 0,0000 0,0000 0,0000 0,0000 0,0000
100%
0.6851 a

N

TOTAL

E:hibii o.~

PennsYIY8nl, lllue Shield

IlIu$lr,llon Subscriber or

Relationship Valu,tion

I\s or January I, 1987

Corporølt Experience Rated

Group# \5

,'"it R4'Ilni,m ,I.'.":/J 1/, ~"/R~\\'",,,, 15.11'/. IIJ~'. ~O.O'l1 l4.rr/. LiiI~o,h(11.. hi\~IUWln~'fI~ o 11k.;FlIfThulCt. Újuipni\'\\IS So.ilwai,; nJJll/, UJO'l. Pfl1\l..fCiil\lt:i~U TIÕIJ.nõui'.. O.!O'I, 1\.411'1 0,40'1, EDP Eiirlro'111 (Jr..miitn!: Wnrldni: Ciirill~) n,f1~'.

R.;il~' iirA~lum

111\~.,'nl.;111 )'klJ

T,u Rni.. \Fii~i ~o Y..m.)

O\i'/,

Tn:' Rilt ¡Th~r,;\(¡~.t)

¡\ilj\l~I.;J()f'/i\¡111! "-hir.iiI1Il.0%+IA'I) 0,1"/. IU"r. 1,0%

u~'\

UlRm1hl\i,U

R\,~..rn~ r;ii!i, hI EP

Rn\i: 11I.!tCll~"'~

Case 1:05-cv-01030-LSM

y,,,
2,914,40~

10

Flsc,,1 )leu:

.J....\
l,001,4io

ll
tL
l,.li,OI)
iJ.~ol.1M
~,292,r'~)

Enmed preml\ln1(i) Crriiulrlll"t' Slirl'I'lfl RUlt' (1)

),lli,4"
),))ó,101

Intome from Rcl:\llonshlps
12.'i,99ó

2,IB',7~~

ll
IL
1/i90,4;l1

J,l10,210
),i20,1 ~9

1,i6~, 112

~
2,619,69l
116,.14

il
4,Oil,('02 2,LLO,10S

I1
1,4!l),709
110,211

~,)7,m

iL
IO',~'ó

4,('10,i9(
2,.iIR,HR

i!
11.191

Il
i 0'1 ,.~52

,1,lJ.10H
1,2~1,.~,q 101,SO.\ 1)9, ¡ Z ~

fJ
11,,!ll
I (i,394

Underwriting ¡nconie ())
20,290 19,1.\(,

In,MD

\\9,4.%

iij,B~

Year.ond UPR (4)
)14,6ó4
.101,128

10,2l1

li,7l1

I ~,2)~

11,7)9

15,%.'

Yt!r.end R~ervcs (51
481,949
41~,1 ló 462,n20

ll il ii il ll il :l il ~ ll
450,~~l

4lR,óOI,

'21,011

.i 15,~)q

'0',901

Invesiment income (6)

.l

i1

iU
11~,72R 111,101 1.16,885

Document 23-6

lroni berorci rir
14R,2M

i ii,l49
166/,01

liO,m
J44JliO

ló2,22.\

I'll,95i

i ,1J.04

1~9,1.10

I4I,R20

T3."its (1)

l1
140,5il
0 4,697 , I,O~2 10,762 10,479 0 '1,57'1 0 4,4~)

:I
1.)),H5
0

Pront Ilner FIT

.l
4))6
10,20.1

:! il ~ íl iL Ul lW .l ll .l ll .l li l2
129,lRO

J2ó,J(i1

12),04.

119,1;07

i I fi.ri.~(,

0 0 4,:222 0,9.15 0 4,111 9,674

0

Ü

"'
ii ,\~ 1 ~,fi7fi

Fllir Reluni on AsselS (R): Working Capital EOP EquIpment
'1,R:!4

4,00l
',961
4,~)7
9,419 ~,7 \0

CD

Lea.~eliold Improvcmenl~ ornee fumlture &. EquIpment

),)11
10,7fi2 0

S,n9
10,479 0

J,ii9R 9,111 cl,5Rfi 5,102 10,107 0 9,9.'5 0 9.rJ7'¡ 0

), i9.~ R,9JO

Filed 02/15/2007

B-148
JI,J.q
0 5,52(\ i ,0~2

(J i

9,4J9

9, \ 71

.j "H,.~ /\.9,'0

w
109,402 IOó,S2S

co

a a a w
Ul
10l,1))
0

Soriwart Prol.idtrControcl.. Fr:ndiiseo

TOlal Return Otl Asscl~

i. lU
.1
UJ
i¡',l1R

!. 1i
IL
1),1)6

i. .l
100,9%
61,92~

ll lA
9R,))0
52,4)1

lL
05,1"
44,)9)

U6

i. il
I!

ll
Ul

0

lL

:U

0

lQ

l.

Ca."h Flow Aiiribuiable 10 Sub~eribtr Li~i

Dl,\'('oirm Fu('wr (Y) 10J,01R

rL

ll
ólo,1l0

t!
JU "

IL

ol,Jll
)1 ,l~l

Jl

90,71)
) I ,~2\

IU

88.79.\

/L
2(\,Q4Ú

R6,Q70

12,R15

DI~eounicd CQ.'ih Flow

Page 26 of 45

~ ~ ?:
TOlal Dj~eounted ra~h flow T:i;i Shield (see Page 5) Fair Market Value

See E:(lilblL 8,(1 ror notei:,

-¡¡

r-... ,

E:'lhi\.ÎI U.~

lonn.ylvønlu Blue Shield Illustration or Subscrllier RelationshIp Valua'Ion As or January t, 1987

Corporate Experience Raled

Group # 15

-:~~~~.K,(&))l'~~-~'~!&~:N/h'~fiKy~;7,t.~Fii:.rf,r:;jM:;~,~~/¿,,)/¿ 15.11'% 11.~'I. 2U.U% )4.0'1. 4.~% O,W. 17,4'1. '.fr/.

~1l1.\llRi:tum h\Yl.$llilinlylohl Ta.. ItU\l(FlriI20 'iell"¡

Tn., R.tttl.(Th~'",.'IJl~r) "iJju.~h... ()~milnl: Mril!În ().rw. +l.~~,\)

upnnillniol:P

!li':iwn'l rnliii hi EP

Rile iiiirejl~L'l 17

Case 1:05-cv-01030-LSM

Y..
fi,I)4,lR9
!Í,~(Í),79(1

II

12

I)
14

I~

1(,

ii
19

20

"
11,177,R24 1 ~.O(iU12

J.
IL
1,710.225 I ,(\(\\2~(\

"
\~,9il,%\

FI~co.l yeaI':

Etli"i:d premium (I)

7,OD,lfi2
2,0(10,995 91,SOR R9,102 Ri,1,~R M,47A ~2,255 iO,091 2,OO(¡,791

7,lI4,i90
1,9l4,o12
i ,902/i2J I ,R.)2,5R~

i,0~0,9)l
I,ROl,i60

i,(,0),79i
9,20(1,0(,4

9,RlO,~i~

Cil/r/llitll~' SJr:I'iI'tfl RUff! (2) lnconic From Rchiilonships

2, m,RJ
9Ci,51R

!U
2,IIIi,Ml
9.\9RO

(J
l2
14,)49
1),971 I l,60~ I :I.2~(\ 12,MR

u.
U.
l~',)ió

IO,5~O,022 1,7.'(1,01 IR 77,l)'1l.)

Il
l';,06l
.')5,990
)27,15-1 124,171 121,002 9n,R02 i 11,1\20

Il

Il

I!

t2
.,.~ ,9.'-1 I 2.~5H I 2,22~ 3IR,5.19

IL
I ,r,21 ,~~O 7.'.93' 11,907

iL9n

Underwiiilng Income! ())

IU9.i
)10,171
)02,01-1

Y"",nd UPR (~)

Il,l41

IL,IL4

14,?:t.

l2
1\4,121
111,704

Venr.end Rcsiil"'~ (:')

)94,2~)

in

~
lW
10S,1(¡(1

J9~ ,0 71

~R3,Rl5

)7),7ii

~Ú\9SR

hl\c:t1"~nllncon'c (ti)
141,9RS 13R,251

il ll .l .l il lJ .l i2 ll il ~ il iJ ~ ~ .l ll 1! l.
1)4/115

IO\I)On

Document 23-6

Profit berorc~ rlT

IJI,07l
12 ,6)1

Tu~ (7)
lii,5RR
0 0 0 L,LO~ R,24~ 0 0 0 IIO,fiOI 107,692

lB
IO',i60
\02,102
99,417

ll

Ui
l,1l4
7,610 ~,R05 7,tí10 0 0

l.

l5
lU

ls

l.

9',2lfi
0 ~,149

l1

91,777

~
0 l,Ofi7 0

)J
R9,.Hi) 0 2,901

1UR()

.l .l
0 2,~~ i

(i9,R9R

pront .ner FIT

fair Rclum Oil AiiselS (8):

Worllng C'pltal

2,7.C¡(i

eOfl EquIpment
$1,467

Leo.schold ln1provCn'cnL~

l,Mil i,69.\
',l4R
4,2)~
R,4(i7 0

l,l9i
4,122

7,410

7,115

2,9M 1,02(\

6,i4
.\70l
7,410 0

fiNil

ti,'Hìl'

Omce Fumilurc 8: Equlpment

l,412 i,027 4,01'

),)21 7,il6 ),90i
7,i16

lMi
7,:15
0

\5i~
7,02(, 0

~,420 Ü,R'¡I 0

),))0
(,,(,,1 0

\2.0
(i,'¡P,(i 0

Filed 02/15/2007

B-149
i,ó9l
0

Sol-wtlrc

Provider ConlraCL'I

R,i44 0

R,Ol1 0

Franchii-e.r.

Toial RelUIT on Assets
Rl,R07

2ß
i 1,ó2
Il,R,9
79 ,4~ri

Ul
17,l67

J. 2.

i. ll
Q.
11,12fi

2ó
7~,~~2

UQ

ll Ui
7l.ll1

i.
UD
71,422

ii J.
(¡9J~)

.w

UJ
(17, 71 ~

il ll

l. 2l
(i~,9J~ 4,'i.9i2

l. ~

,\7 J'i:~

Cii.;h flow Aiiibutablc to Subi;criber Lli;i

DI.~L'/I1I1 fut'rol'(V) Discounted Ca.~h flow

U: ~ ~
19,)17

o.
lfi,)lfi

I!

il

I1
9,92
i,~oó

I1

7,111

Il

!L
f-,016

S,IO!

~

iL
~,.20

~,790

l.

~)fi1

-0

OJ

(J i

See E:'hibli B.6 for Mleii.

o o o (,

Page 27 of 45

CD

.¡

EAh:till ß.4

Penn,ylyanla BI"e Shield Subscriber Relailon,hlp Viu"aiion 1I",lr.llon or

As or JKnUllr)' 1,1987

Corporale Experience Raled GroupHIS

IHI"!

RNli!llll\i:i\'rt Inl'L"WIMiiy\i:lil

iu%
2U.cI'Y. )~.llJ. 4.4% 0.1% 17.4% 7,1)'.

h,t r\ilc (Fir~1 ~ll ''l~¡dS)

1M Riil\! nlwri.mikr)

A.J\lsl..l. Op.lIiin~ Miir.i1n (),1W, +1.~.1,)

UPP'r",hiiotlP p.\1l1n\'\f\lh\IiIEP

R.ill! iii\:'~'iw~ 29 22,IRS,IR7

Case 1:05-cv-01030-LSM

Year
13,RI.I,819 1~,7R2.927

II
l4
2~ 2A 18,109,721 19,)71,401

27

lR

)0
2),ï3R,150

II

:'.

)J
2\~99,R20

2J
i ,242,09(,

)4
','; :~"; ': 2,, ::: .' ~ 20,OF:O.254 ",I17,R07

P¡~cai yc:ir.

Earned prellÎlin\ (I)
1,51R,RoG

IS,RI7,7ll
16.92'¡.97~

Cii",lllnrfl1'SlIr\'II'ol R(/rlt(2) Income From Rt!ls\lonships
1.537,183
1 ,49t\~~2 M,4AO 10,147 250,61 ) 244,022 9,RRO 9,n20 1,4S7,4RS 1,419,1.1)

f1
UJ
U4S,4RR 59,740

IJ
IL
I.RI,R30
AI,313

I!
I1
UIO,IO\
Si,lAR
9,~(17

20,73J,RI9

I1

iL

IL
1,275,M6
.Vi,ClJ9

Ii
0,121

IL
55, I ~9

CL
R,MI

1,209,429

1,177 ,Ú21

Underwiiiln¡; IneorlH: (3)

70,099

nR,ll5

64,712

6),010

S),ó9

,~2.2 f;(, 1',(,47

~,420

YCIr.cl1d UPR (4)

11,2M

10,992

10,70)

10,421

Ye;ir.cnd R~crvr. (;\)
2Ró,)37

ll :! = ll
n!U;Oó
271,47.:

2(4)34
2,~i,~ln

2i
l1
90,W
R7,R"
,19"lnR ,IR,OOl 0 0

2.

ll
2t l2
2,2R7

21

B7,604

lU
R,I,S70

lJl,JSS

1i1V~mi~ni Income: (fl) ¡0),121 (,R,OAO 100,40R 97,7(i~ 9S,19A

lL
9l,n9l
66,270

l2
1.49
5,527 2,7M .~,.t27 0

lJ
5JP,i
i,tí91

JJ

l! l. l.
215,270
219.34(i
fì),319
5A,476

ll i.
l1 l2
0

2I
~1.\2P,
,\4,991
7R.99.J

ilJSìi

7(1,917 ,~2, 1 ~(l .~O, 7(15

Document 23-6

Pront beror~ FIT

T,,,, (1)
M,527
(12,R30 A 1,17

li ll l. ll ll
0 0 0 0

~ l.
~)¡:2 0

2.
0

l1
5l,,\;,\
0

lú
2,227
,~.240 2,1(19

~ .l
0

Proliiiif\er l1T
0

r:iir Rciuni on A!'."CL\; (R):

0

WorkIng CepÍl::1

(!OV l:quipn\cnt

1,M4
A,31l

2,613

2545
S,9Rl 2.99~ .1917 0 2,915 5,A77

Lea.'lcliold IniprO\'cn\cn\~

6,1~9

l,47R S,filO

2,m
l,8l8
5,(171 0

2,0%
2.112 4,%R

2,002

4,3R
.1103 J,"i,q
~,IOL 0 2A¡:.i ~.%R

4,i10
.:,~ ,~5

omce Furniture &. Equipn\c:nt 0 0

Filed 02/15/2007

B-150
3,IS8 (,,)15
),07,1 6,149

sonware ProvIder Conmicis

Fr.nehlse:;

Toi:il Reiurn on ASSC:L~

:l ll

.l l.
lJ
44,OLO

i",,8Al

5,fi)0 0

l. J.
Q.
1,114

1t
41,7l5

1.

2,(i10 5,2-10 0

l. J.

l. l.

l.
fl
Q.
1,028 40,A,\? R70

.u J1
IL
)9,)6R

Ul

2Æ

0

~ J.
J1 IL
1)7
JR"IlR
(,24

2,419 4,~)R 0

iJ.
IL
J7,514
52R ~(i,~2R

4,7.10 0

\~J(11

~.i ,11~ 2

46,4l0

45,l09

C:i'lh Flow Aiiribut::ble to Sub:criber L1sl Of.H'wml F(ll/fr (Y)

a.
UJ
I,A94

UJ
1,4l4

CL

IL
447

U)79

J~I

Dli-couflied Cash flow

2,000

-0

OJ

See E:c;hibit 0.6 for noles,

en i

Page 28 of 45

o o o VJ

(0

ui

t:i;hibi! lH

Pennsylv.nl. Biiie Shield IIl1isirallon of Siibsorlbcr Relsllonshlp Valiisrion

As of Janii",y I, i 987

CQrporRte E"pcrlcncc Rated

Group" IS

1\¡ai.lirRClum

i ~-ilY.

liiwsu\l\:1i1yh:l-J 2Iui.l,. )4.1l'/~ 4.4% 0.1"1. 11.-4"1. 7,tly,

I\S'/.

rii" ii1,.:(Fir~1 JO Viiii",)

TI\xl'lIli:tTh",'1WIIlirl

Adjus..... Op.Mill~ Mllfijln (J.ll'. +1..t'I.)

UPRtilill\ioEP ,
3~

R\.iii.rw n\II.,I~1 EP

Kiiioli,.:~I~1.

Case 1:05-cv-01030-LSM

Yenr
'~;:r?!t;f7t¡2J,.,~:rX:~q:r¡~n!ri~~%wj~¡f~t£t~~~~fQ¡.;::fiÄ~~gi~~¥~f~jrÆ;~&~.i¡~;~~Wi~V~t~~lhfif/;;0tt~;¡~)í.WAA~( 4),Ml,i20 40.1R6,~61 )R.IIR,2RI .t~.624.%2 )3,29),9R) 31,I15,R12

)6
J7

JR

)9

40

Fhu:iil y(!3r:

Ëarned prcmluiu (I) C,,,lIlulh'(' Sun;,,,,/ Rotl! ()
1,146,6~0
~O,911

InC:Ol1lt From Jt.elaitol1shlp:o

~

1,116,9)
r,OR1,I29

Q.

Il

IMR,~ll
I,OlO,69R 45,163 44,~,19

Il

fJ

I1

I,OOL,~91

Undel'\'tllng lncotnt (j)
R,ig9
202,491
191,16~ 191.9RO

49,n2
48,269

46,999

Year-end UPR(4)
201,960
IR6,9JI
IR2,014

l,9R3

l,11l
1,569

l,l69
1,116

Year. end Rc:cervcs (.~)

mi

.1
.L
u.
2I
61,.\21 4.l,4~2 ó~,~50 11,OOÓ

ll
ll
lU 4l,lól
0 1.70(1 4,014 2,001 4,OI-l 2,0(11 4,123 0 0

Jnve.o;tmenl Income (6) 14,R94

ll
72,924

Jl ll
u.
0 1,152

Document 23-6

Prof'i before fIT

(,9,ll9

Ta:\t:(Ï)
49,4l0
4R,IlO
0 I,R4R I,ROO 0 0 '¡6,¡i;(,~ 4~ ,/i)2

2t
Wi
I,Rn
4,46/i

ll l:
4,J49
2,174

.l i.
4,2)4

P