<PAGE> 1
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period from ................ to ................
Commission file number 1-7067
UNITED COMPANIES FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Louisiana 71-0430414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4041 Essen Lane 70809
Baton Rouge, Louisiana (Zip Code)
(Address of principal executive office)
Registrant's telephone number, including area code (504) 924-6007
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. Yes X No
--- ---
The number of shares of $2.00 par value common stock issued and
outstanding as of November 8, 1994 was 12,445,978, excluding 526,672 treasury
shares.
================================================================================
<PAGE> 2
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I - FINANCIAL INFORMATION
Financial Statements:
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income
Three months and nine months ended September 30, 1994 and 1993 . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows
Nine months ended September 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 5-9
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-25
Review by Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Independent Accountants' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
<PAGE> 3
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30,
1994 December 31,
(Unaudited) 1993
----------- ------------
<S> <C> <C>
Assets
------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 79,749 $ 45,530
Temporary investments - reserve accounts . . . . . . . . . . . . . . . . 68,696 27,672
Bonds and stocks - net
Trading (amortized cost at September 30, 1994, $462) . . . . . . . 481 -
Available-for-sale (amortized cost at September 30, 1994, $995,651) 942,517 -
Held-to-maturity (fair value - $61,670 at September 30,
1994 and $910,816 at December 31, 1993) . . . . . . . . . . . 64,478 879,301
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,467 26,698
---------- ----------
Bonds and stocks - net . . . . . . . . . . . . . . . . . . . . . 1,032,943 905,999
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 418,040 542,633
Less: Allowance for loan losses . . . . . . . . . . . . . . . . . . . . (18,362) (21,017)
Unearned loan charges . . . . . . . . . . . . . . . . . . . . . . (1,292) (1,982)
---------- ----------
Loans - net . . . . . . . . . . . . . . . . . . . . . . . . . . . 398,386 519,634
Capitalized excess servicing income . . . . . . . . . . . . . . . . . . . 165,749 113,192
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . . . 89,077 83,495
Due from reinsurers . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,309 36,558
Accrued interest receivable . . . . . . . . . . . . . . . . . . . . . . . . 34,473 30,266
Property - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,955 28,988
Policy loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,529 19,633
Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . . . . 9,668 -
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,887 6,577
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $1,973,421 $1,817,544
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Annuity reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,396,310 $1,294,983
Notes payable:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,120 500
Long-term . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185,000 155,000
Policy benefit reserves . . . . . . . . . . . . . . . . . . . . . . . . . 120,608 125,340
Allowance for loss on loans serviced . . . . . . . . . . . . . . . . . . 24,171 12,938
Unearned premium reserves . . . . . . . . . . . . . . . . . . . . . . . . 5,577 10,260
Repurchase agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,622 30,000
Deferred income taxes payable . . . . . . . . . . . . . . . . . . . . . . - 5,468
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,065 29,687
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . 1,809,473 1,664,176
---------- ----------
Stockholders' equity:
Common stock, $2 par value;
Authorized - 100,000,000 shares;
Issued - 12,972,076 and 12,684,858 shares . . . . . . . . . . 25,944 25,370
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 81,450 76,312
Net unrealized loss on securities . . . . . . . . . . . . . . . . (34,537) -
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 99,879 59,988
Treasury stock and ESOP debt . . . . . . . . . . . . . . . . . . . (8,788) (8,302)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . 163,948 153,368
---------- ----------
Total liabilities and stockholders' equity . . . . . . . . $1,973,421 $1,817,544
========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1994 1993 1994 1993
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Interest, charges and fees on loans . . . . . . . . . . $ 31,387 $ 24,902 $ 88,493 $ 69,437
Loan sale gains . . . . . . . . . . . . . . . . . . . . 22,204 15,455 65,550 38,300
Investment income . . . . . . . . . . . . . . . . . . . 22,025 19,030 61,216 56,052
Net insurance premiums . . . . . . . . . . . . . . . . 15,028 10,137 40,180 28,830
Loan servicing income . . . . . . . . . . . . . . . . . 3,745 2,656 11,429 8,309
Investment gains . . . . . . . . . . . . . . . . . . . 230 288 329 356
-------- -------- --------- --------
Total . . . . . . . . . . . . . . . . . . . . . 94,619 72,468 267,197 201,284
-------- -------- --------- --------
Expenses:
Interest on annuity policies . . . . . . . . . . . . . 18,261 19,162 54,115 57,353
Personnel . . . . . . . . . . . . . . . . . . . . . . . 15,076 10,301 43,261 29,901
Insurance commissions . . . . . . . . . . . . . . . . . 13,545 8,637 37,249 23,010
Insurance benefits . . . . . . . . . . . . . . . . . . 3,694 4,380 10,635 14,223
Loan loss provision . . . . . . . . . . . . . . . . . . 3,400 4,284 9,711 12,109
Interest . . . . . . . . . . . . . . . . . . . . . . . 3,973 2,272 9,672 7,701
Other operating . . . . . . . . . . . . . . . . . . . . 13,183 8,416 35,484 31,395
-------- -------- --------- --------
Total . . . . . . . . . . . . . . . . . . . . . . 71,132 57,452 200,127 175,692
-------- -------- --------- --------
Income from continuing operations before income taxes . . 23,487 15,016 67,070 25,592
Provision for income taxes (benefit):
Current . . . . . . . . . . . . . . . . . . . . . . . . 2,346 6,213 19,947 11,432
Deferred . . . . . . . . . . . . . . . . . . . . . . . 5,888 (1,024) 3,461 (2,613)
-------- -------- --------- --------
Total . . . . . . . . . . . . . . . . . . . . . . 8,234 5,189 23,408 8,819
-------- -------- --------- --------
Income from continuing operations . . . . . . . . . . . . 15,253 9,827 43,662 16,773
Loss from discontinued operations:
Loss from discontinued operations net of applicable
income tax benefit of $782 . . . . . . . . . . . . . - - - (1,519)
Loss on disposal of discontinued operations, including
estimated operating losses during phaseout (net of
applicable income tax benefit of $8,326) . . . . . - - - (16,066)
-------- -------- --------- --------
Total . . . . . . . . . . . . . . . . . . . . . . - - - (17,585)
-------- -------- --------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 15,253 $ 9,827 $ 43,662 $ (812)
======== ======== ========= ========
Per share data:
Primary:
Income from continuing operations . . . . . . . . . . . $ 1.18 $ .97 $ 3.36 $ 1.75
Loss from discontinued operations . . . . . . . . . . . - - - (1.87)
-------- -------- --------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 1.18 $ .97 $ 3.36 $ ( .12)
======== ======== ========= ========
Fully diluted:
Income from continuing operations . . . . . . . . . . . $ 1.18 $ .84 $ 3.36 $ 1.63
Loss from discontinued operations . . . . . . . . . . . - - - (1.71)
-------- -------- --------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 1.18 $ .84 $ 3.36 $ ( .08)
======== ======== ========= ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1994 1993
-------- --------
<S> <C> <C>
Cash flows from continuing operating activities:
Income from continuing operations . . . . . . . . . . . . . . . . $ 43,662 $ 16,773
Adjustments to reconcile income from continuing operations to net
cash provided by continuing operating activities:
Increase in deferred policy acquisition costs . . . . . . . . (5,581) (3,387)
Decrease in due from reinsurers . . . . . . . . . . . . . . . 1,249 730
Decrease in policy loans . . . . . . . . . . . . . . . . . . . 104 936
Increase in accrued interest receivable . . . . . . .. . . . . (4,206) (1,843)
Increase in other assets . . . . . . . . . . . . . . . . . . . (3,149) (1,528)
Decrease in policy benefit reserves . . . . . . . . . . . . . (3,380) (1,276)
Interest on annuity policies . . . . . . . . . . . . . . . . . 54,115 57,353
Decrease in unearned premium reserves . . . . . . . . . . . . (4,683) (4,874)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . 3,461 (2,613)
Increase (decrease) in other liabilities . . . . . . . . . . . (1,759) 16,566
Loan loss provision . . . . . . . . . . . . . . . . . . . . . 9,711 12,109
Amortization and depreciation . . . . . . . . . . . . . . . . 2,216 2,731
Loan sale gains . . . . . . . . . . . . . . . . . . . . . . . (65,550) (38,300)
Amortization of prior loan sale gains . . . . . . . . . . . . 27,962 13,413
Investment gains . . . . . . . . . . . . . . . . . . . . . . . (329) (356)
--------- ---------
Net cash provided by continuing operating activities . . . 53,843 66,434
--------- ---------
Cash flows from discontinued operating activities . . . . . . . . . . . . - (320)
--------- ---------
Cash flows from investing activities:
Proceeds from sales of loans . . . . . . . . . . . . . . . . . . . 724,098 298,152
Principal collected on loans . . . . . . . . . . . . . . . . . . 73,668 80,825
Loan originations and acquisitions . . . . . . . . . . . . . . . . (689,964) (385,922)
Increase in reserve accounts . . . . . . . . . . . . . . . . . . . (41,024) (13,411)
Proceeds from sales of investments . . . . . . . . . . . . . . . . 9,202 15,762
Proceeds from maturities of investments . . . . . . . . . . . . . 62,127 75,458
Purchases of investments . . . . . . . . . . . . . . . . . . . . . (251,081) (224,770)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . (3,165) (461)
--------- ---------
Net cash used by investing activities . . . . . . . . . . (116,139) (154,367)
--------- ---------
Cash flows from financing activities:
Increase (decrease) in revolving credit debt . . . . . . . . . . 30,000 (20,000)
Increase in debt with maturities of three months or less . . . . . 10,650 600
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . - (15,750)
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . 970 -
Decrease in repurchase agreements . . . . . . . . . . . . . . . . (9,378)
Deposits received from annuities and interest sensitive products . 186,972 164,178
Payments on annuities and interest sensitive products . . . . . . (141,113) (91,501)
Increase in managed cash overdraft . . . . . . . . . . . . . . . . 17,101
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . (3,771) (2,563)
Proceeds from issuance of stock . . . . . . . . . . . . . . . . . 4,545 18,881
Proceeds from exercise of stock options . . . . . . . . . . . . . 539 283
--------- ---------
Net cash provided by investing activities . . . . . . . . 96,515 54,128
--------- ---------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . . . 34,219 (34,125)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . 45,530 54,707
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 79,749 $ 20,582
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION.
In the opinion of the Company's management, the accompanying
unaudited condensed consolidated financial statements contain all
adjustments, consisting of only normal accruals, necessary to present
fairly the financial position, the results of operations and the cash
flows for the interim periods presented.
These notes reflect only the major changes from those disclosures
contained in the Company's Annual Report, as amended, to the United
States Securities and Exchange Commission (Form 10-K) for the year
ended December 31, 1993.
The consolidated results of operations for the nine months ended
September 30, 1994 and 1993 are not necessarily indicative of the
results to be expected for the full year. Certain 1993 amounts have
been reclassified to conform with the current year presentations.
Such reclassifications had no effect on net income.
2. DISCONTINUED OPERATIONS.
On May 7, 1993, the Company decided to divest its subsidiary Foster
Mortgage Corporation ("FMC"). As a result of this decision, the
operations of FMC have been classified as discontinued operations,
and, accordingly, the consolidated financial statements and the
related notes of the Company segregate continuing and discontinued
operations. In connection with the decision to dispose of FMC, the
Company recorded a $17.6 million after tax loss in its financial
statements as of and for the quarter ended March 31, 1993, reflecting
the operating loss of FMC for the quarter ended March 31, 1993 of
$1.5 million, net of tax benefit and the estimated loss from disposal
of FMC of $16.1 million, net of tax benefit. The Company has not
reflected operating losses incurred by FMC subsequent to that date in
the Company's financial statements.
As of November 30, 1993, the servicing rights owned by FMC, which
constituted substantially all of its assets, were sold. On December
21, 1993, the institutional lenders under FMC's primary credit
facility (the "FMC Institutional Lenders") filed a petition in the
U.S. bankruptcy court to cause the remaining affairs of FMC to be
wound up under the supervision of the bankruptcy court. The FMC
Institutional Lenders filed and the bankruptcy court has approved a
plan of liquidation for FMC providing for the disposal of FMC's
remaining assets and distributions to FMC's creditors, and allege
therein potential claims of FMC against the Company. FMC and the
Company executed, subject to the approval of the bankruptcy court, a
settlement agreement relating to payments between FMC and the Company
in connection with the federal income tax benefits resulting from
FMC's losses and to certain prior intercompany payments between FMC
and the Company. The FMC Institutional Lenders opposed the proposed
settlement agreement. At the conclusion of a hearing on the proposed
settlement on August 18, 1994, the bankruptcy court approved the
portion of the settlement providing for a net payment by the Company
of $1.65 million to FMC in satisfaction of the federal income tax
benefits resulting from FMC's losses. The Company had previously
recorded substantially all of the impact of this portion of the
settlement in its prior financial statements. The bankruptcy court
declined to approve the other portion of the proposed settlement
relating to payments received by the Company from FMC within twelve
months of the bankruptcy filing. These matters may be pursued by the
trustee under the plan of liquidation approved by the bankruptcy
court. If the Company were required to refund such payments, the
Company has estimated the potential additional loss to be $1.9
million, net of tax benefits. The decision of the bankruptcy court
on the settlement is not final and has been appealed by the FMC
5
<PAGE> 7
Institutional Lenders. Management of the Company does not believe
that any additional amounts are owed by the Company to FMC and
intends to vigorously contest any claims which may be brought against
it for such amounts.
FMC is in payment default under its primary credit facility with the
FMC Institutional Lenders and the outstanding principal balance as of
September 30, 1994 of approximately $43.7 million is due. The
Company has not guaranteed any debt of FMC and believes, based upon
advice of its counsel, that it has no responsibility for the
obligations of FMC under such credit facility or (excluding potential
consequences of the bankruptcy filing on certain prior intercompany
transactions or potential additional payment for tax benefits as
discussed above) for any other liabilities to FMC's lenders.
3. CASH PAID FOR INTEREST AND INCOME TAXES.
During the nine months ended September 30, 1994 and 1993, the Company
paid interest on notes payable in the amount of $9.9 million and $8.2
million and income taxes in the amount of $22.2 million and $2.0
million, respectively.
4. BONDS AND STOCKS - NET.
During the first quarter of 1994, the Company implemented the
provisions of Financial Accounting Standards Board ("FASB") Statement
of Financial Accounting Standards No. 115 ("SFAS 115"), which revised
the method of accounting for certain of the Company's investments.
Prior to adoption of SFAS 115, the Company reported its investments
in fixed income investments at amortized cost, adjusted for declines
in value considered to be other than temporary. SFAS 115 requires
the classification of securities in one of three categories:
"available-for-sale", "held-to-maturity" or "trading". Securities
classified as held-to-maturity are carried at amortized cost, whereas
securities classified as trading securities or available-for-sale are
recorded at fair value. Effective with the adoption of SFAS 115, the
Company determined the appropriate classification of its investments
and, if necessary, adjusted the carrying value of such securities
accordingly as if the unrealized gains or losses had been realized.
The adjustment, net of applicable income taxes, for investments
classified as available-for-sale is recorded in "Net unrealized loss
on securities" and is included in stockholders' equity on the balance
sheet and the adjustment for investments classified as trading is
recorded in "Investment gains" in the statement of income.
6
<PAGE> 8
At September 30, 1994, the Company's portfolio of bonds and stocks
consisted of the following (in thousands):
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------------
<S> <C> <C> <C> <C>
Trading
Common stock . . . . . . . . . . $ 462 $ 35 $ 16 $ 481
========== ======== ======== =========
Available-for-sale
Debt securities
Corporate . . . . . . . . . . . $ 254,953 $ 1,251 $ 9,454 $ 246,750
U.S. Treasury . . . . . . . . . 10,719 102 140 10,681
Mortgage-backed . . . . . . . . 710,395 287 44,808 665,874
Foreign governments . . . . . . 18,455 403 438 18,420
Other . . . . . . . . . . . . . 425 24 - 449
---------- -------- -------- ---------
Total . . . . . . . . . . . . 994,947 2,067 54,840 942,174
---------- -------- -------- ---------
Equity securities . . . . . . . . 704 46 407 343
---------- -------- -------- ---------
Total . . . . . . . . . . . . $ 995,651 $ 2,113 $ 55,247 $ 942,517
========== ======== ======== =========
Held-to-maturity
Debt securities
Corporate . . . . . . . . . . . $ 11,004 $ 428 $ 11,432
U.S. Treasury . . . . . . . . . 4,750 27 $ 179 4,598
Mortgage-backed . . . . . . . . 48,574 - 3,088 45,486
Other . . . . . . . . . . . . . 150 4 - 154
---------- -------- -------- ---------
Total . . . . . . . . . . . . $ 64,478 $ 459 $ 3,267 $ 61,670
========== ======== ======== =========
Other
Investment in limited partnership $ 25,467 $ 25,467
========== =========
</TABLE>
Net unrealized losses on securities included in stockholders' equity
at September 30, 1994 is as follows (in thousands):
<TABLE>
<S> <C>
Gross unrealized gains . . . . . . . . . . $ 2,113
Gross unrealized losses . . . . . . . . . . (55,247)
Deferred income taxes . . . . . . . . . . . 18,597
--------
Total $(34,537)
========
</TABLE>
During the first nine months of 1994, net realized investment gains
of approximately $.3 million resulted from investment gains of $.5
million offset by investment losses of $.2 million.
5. OTHER LIABILITIES.
At September 30, 1994, other liabilities included approximately $17.7
million representing a managed cash overdraft in the book balances of
the Company's primary disbursement accounts.
6. SHAREHOLDER RIGHTS PLAN.
On July 27, 1994, the Board of Directors authorized the redemption of
the rights under the rights plan of the Company adopted in 1989 (the
"1989 Rights Plan") and approved a new rights plan (the "1994 Rights
Plan"). In connection with the redemption, the rights under the 1989
Rights Plan (the "1989 Rights") were redeemed at a price of $.0039526
per 1989 Right with the aggregate redemption price payable to each
holder of the l989 Rights to be rounded up to the nearest $.01. In
approving the 1994 Rights Plan, the Board of Directors declared a
dividend distribution of one preferred share purchase right for each
outstanding share of the
7
<PAGE> 9
Company's Common Stock. The rights under the 1994 Rights Plan will
become exercisable only upon the occurrence of certain events as
specified therein (primarily certain changes in ownership of the
Company).
7. CONTINGENCIES.
On March 21, 1994, the United States Court of Appeals for the
Eleventh Circuit held, in part, that a lender improperly disclosed
the collection of the Florida state intangible tax from the borrower,
thereby subjecting the loan to rescission under the Federal
Truth-in-Lending Act (the "TILA") by the borrower for three years
after it was made. Subsequent to the court's initial decision and
prior to its refusal to reconsider its decision, the Florida
Legislature amended the language of the intangible tax to clarify the
legislature's previous intention that the intangible tax be disclosed
for purposes of the TILA in the manner that had been followed by most
lenders in Florida, including the Company. Although the Florida
Legislature intended this legislation to apply retroactively, no
judicial determination has yet been made as to the effect of this
legislation on loans originated prior to its effective date. This
court decision may also apply to a similar intangible tax imposed by
other states. To its knowledge, as of November 8, 1994, no claims
have been filed against the Company under this court decision (other
than as a defense to foreclosure proceedings) and no notice of a
breach of a representation has been received under the Company's loan
sale agreements requesting it to repurchase, cure or substitute other
loans for the loans sold. If the intent of the Florida Legislature is
not upheld and if a substantial number of claims are filed by
borrowers against the Company resulting in rescission or repurchase,
the Company's financial statements and operations will be materially
adversely affected. As the financial impact, if any, of this
contingency cannot presently be reasonably estimated, the Company has
made no accrual therefor.
A substantial amount of the Company's annuity policies are marketed
through financial institutions. In August 1993, the United States
Court of Appeals for the Fifth Circuit (the "Fifth Circuit") held
that the United States Comptroller of the Currency's decision to
permit national banks to sell annuities in towns with more than 5,000
inhabitants violated the National Bank Act. In June 1994, the United
States Supreme Court granted certiorari and decided that it will hear
arguments in this action. If the Fifth Circuit ruling is upheld by
the Supreme Court, it will have a material adverse effect on the
ability of the Company to market its annuities. Furthermore, any
future regulatory restrictions on the authority of financial
institutions to market annuities could have a material adverse effect
on the ability of the Company to market this product.
8. ACCOUNTING STANDARDS.
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 114 ("SFAS 114") which addresses the accounting by
creditors for impairment of loans and specifies how allowances for
credit losses related to certain loans should be determined. SFAS
114 also addresses the accounting by creditors for all loans that are
restructured in a troubled debt restructuring involving modification
of terms of a receivable. SFAS 114 is effective for financial
statements for fiscal years beginning after December 15, 1994. The
Company is reviewing the provisions of this pronouncement but has not
yet determined the effect of its implementation on the Company's
financial condition or results of operations.
9. SUBSEQUENT EVENTS.
On November 2, 1994 the Company publicly sold $125 million of its
senior unsecured notes. The notes bear interest at the rate of 9.35%
per annum, payable semi-annually, mature on November 1, 1999 and are
not redeemable prior to maturity. The notes rank on a parity with
other unsecured and senior indebtedness of the Company. The net
proceeds from the sale of the notes were used to repay a portion of
the principal amount of indebtedness outstanding under the Company's
existing revolving credit facility with a group of banks (the "Bank
Facility"). An amendment to the Bank Facility became effective upon
consummation of the sale of the notes which (i) extends the
maturity of the Bank Facility from December 31, 1995 to December 31,
1996, (ii) provides for the release by the banks of all of their
liens on the stock of the Company's subsidiaries
8
<PAGE> 10
and other collateral, (iii) reduces the amount available under the
Bank Facility from $200 million to $113.6 million and (iv) permits
the non-insurance subsidiaries of the Company to have one or more
warehouse lines of credit with an aggregate amount outstanding of up
to $300 million.
On October 26, 1994, the Company's Board of Directors declared a 10%
common stock dividend payable to shareholders of record on December
22, 1994. The additional shares will be distributed on January 10,
1995.
9
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following analysis should be read in conjunction with the
Company's condensed consolidated financial statements and accompanying notes
presented elsewhere herein.
OVERVIEW
The table below sets forth income from continuing operations before
income taxes for each of the Company's business segments and certain home
equity loan data for the indicated periods:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1994 1993
---------- -----------
(dollars in thousands)
<S> <C> <C>
Mortgage operations
UC Lending . . . . . . . . . . . . . . . . . . $ 64,086 $ 28,510
Insurance operations
UC Life . . . . . . . . . . . . . . . . . . . . 7,207 458
UG Title . . . . . . . . . . . . . . . . . . . 196 791
Other operations . . . . . . . . . . . . . . . . 34 (175)
Corporate . . . . . . . . . . . . . . . . . . . (4,437) (4,209)
Eliminations . . . . . . . . . . . . . . . . . . (16) 217
--------- -----------
Total . . . . . . . . . . . . . . . . . . . . $ 67,070 $ 25,592
========= ===========
Home equity loan originations . . . . . . . . . . $ 656,742 $ 358,255
Home equity loans sold . . . . . . . . . . . . . 722,799 297,856
Interest spread retained on home equity
loans sold . . . . . . . . . . . . . . . . . . 4.63% 6.03%
</TABLE>
MORTGAGE OPERATIONS.
In 1993, the Company began selling its home equity loans in public
securitization transactions through a Company sponsored shelf registration
statement. During the second quarter of 1994, an increase in the size of this
shelf registration statement was declared effective by the U.S. Securities and
Exchange Commission. The Company believes loan securitizations improve its
access to funding and thereby provide a distribution outlet sufficient to meet
the Company's expanded home equity loan production. During the third quarter
of 1994, the Company formed two separate subsidiaries, UNICOR Mortgage(R), Inc.
and GINGER MAE(SM), Inc., and intends at a future date to operate its wholesale
loan origination programs for brokers and financial institutions, respectively,
through these separate subsidiaries. At September 30, 1994, the UNICOR
Mortgage division had 865 brokers in 23 states and the Ginger Mae division had
66 financial institutions in 9 states participating in the Ginger Mae program.
Wholesale loan originations are presently conducted through United Companies
Lending Corporation ("UCLC" or "UC Lending"), the Company's primary loan
origination operation which, in addition to wholesale originations, conducts
retail originations through 127 branches in 34 states. Home equity loan
production for the first nine months of 1994 increased to $657 million compared
to $358 million for the same period of 1993. The Company's strategy for
increasing home equity loan production includes continued geographic expansion,
the introduction of new loan products and wholesale loan originations and
acquisitions.
As the result primarily of increases in the level of market interest
rates, the interest spread retained on home equity loans sold declined to 4.6%
in the first nine months of 1994 from 6.0% during the same period of 1993.
Notwithstanding the decline in the interest spread retained on home equity
loans sold, income from operations before income taxes of the mortgage division
for the nine months ended September 30, 1994 increased approximately $35.6
million compared to the same period of 1993, primarily as the result of a $425
million increase in the amount of loans sold and a resulting increase in gains
and fees recognized at the time of sale.
10
<PAGE> 12
INSURANCE OPERATIONS.
Life and annuity products. Income from operations before income
taxes of United Companies Life Insurance Company ("UC Life") for the first
nine months of 1994 increased approximately $6.7 million compared to the same
period of 1993 primarily as the result of the positive effect of an increase in
the interest margin on the Company's annuity products, which rose from 2.11%
for the first nine months of 1993 to 2.80% for the same period of 1994. Income
from operations before income taxes in the first nine months of 1993 was
reduced by approximately $1.4 million as the result of an estimated loss in
connection with the termination of an agreement with a third-party
administrator of credit life insurance underwritten by UC Life.
Title insurance products. The Company's title insurance unit,
United General Title Insurance Company ("UG Title"), increased its premium
volume approximately $17.5 million compared to the first nine months of 1993.
Income from operations before income taxes of UG Title during the first nine
months of 1994 was adversely impacted by approximately $1.2 million in losses
associated with a loan broker in California and claims for escrow shortages
under title policies. UG Title underwrites title insurance in 28 states,
operating through a network of approximately 840 independent agents.
RESULTS OF OPERATIONS
The Company's financial statements present Foster Mortgage Corporation
as discontinued operations (see note 2 to consolidated financial statements).
Discussed below are results of continuing operations for the periods presented
and certain financial data by business segment for such periods.
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
The following table sets forth certain financial data for the periods
indicated.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1994 1993
------ -----
(dollars in thousands)
<S> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . $ 267,197 $ 201,284
Total expenses . . . . . . . . . . . . . . . . . 200,127 175,692
Income from continuing operations before income
taxes . . . . . . . . . . . . . . . . . . . . . 67,070 25,592
Income from continuing operations . . . . . . . 43,662 16,773
</TABLE>
Revenues. The following table sets forth information regarding the
components of the Company's revenues for the nine months ended September 30,
1994 and 1993.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1994 1993
------ -----
(dollars in thousands)
<S> <C> <C>
Interest, charges and fees on loans . . . . . $ 88,493 $ 69,437
Investment income . . . . . . . . . . . . . . 61,216 56,052
Loan sale gains . . . . . . . . . . . . . . . 65,550 38,300
Net insurance premiums . . . . . . . . . . . 40,180 28,830
Loan servicing income . . . . . . . . . . . 11,429 8,309
Investment gains . . . . . . . . . . . . . . . 329 356
-------- ---------
Total . . . . . . . . . . . . . . . . . . $267,197 $ 201,284
======== =========
</TABLE>
11
<PAGE> 13
Interest, charges and fees on loans increased $19.1 million for the
first nine months of 1994. This line item includes interest on mortgage loans
owned by the mortgage and insurance divisions and loan origination fees earned
by the mortgage division. Loan origination fees in excess of direct
origination costs on loans held by the Company are recognized over the life of
the loan or earlier at the time of sale on loans sold to third parties. During
the nine months ended September 30, 1994 and 1993, the Company sold
approximately $723 million and $298 million, respectively, in home equity loans
and recognized approximately $24.4 million and $12.6 million, respectively, in
net loan origination fees in connection with these sales. Other loan income
includes primarily prepayment fees, late charges and insurance commissions.
The following table presents the composition of interest, charges and
fees on loans for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1994 1993
------ -----
(dollars in thousands)
<S> <C> <C>
Mortgage loan interest . . . . . . . . . . . $37,619 $ 37,835
Loan origination fees . . . . . . . . . . . . 42,409 24,720
Other loan income . . . . . . . . . . . . . . 8,465 6,882
------- --------
Total interest, charges and fees on loans $88,493 $ 69,437
======= ========
</TABLE>
The Company estimates that non-accrual loans reduced mortgage loan
interest for the first nine months of 1994 and 1993 by approximately $7.6
million and $7.1 million, respectively. During the nine months ended September
30, 1994 the average amount of non-accrual loans owned by the Company was $26.6
million compared to approximately $32.0 million during the same period of 1993.
In addition, the average balance of loans serviced for third parties which were
on a non-accrual basis or in foreclosure was $53.6 million and $42.8 million
during the first nine months of 1994 and 1993, respectively, representing 4.2%
and 4.6%, respectively, of the average amount of loans serviced for third
parties. The Company is generally obligated to advance interest on delinquent
loans to the investor or holder of the mortgage-backed security, as the case
may be, at the pass-through rate until satisfaction of the note, liquidation of
the collateral or charge off of the delinquent loan. At September 30, 1994,
the Company owned approximately $8.0 million of commercial loans which were on
an accrual status, but which the Company considers as potential problem loans,
compared to $11.0 million at September 30, 1993. The Company evaluates each of
these commercial loans to estimate its risk of loss in the investment and
provides for such loss through a charge to earnings.
Investment income totaled $61.2 million on average investments of
approximately $1.0 billion for the first nine months of 1994 compared to
investment income of $56.1 million on average investments of approximately $858
million during the same period of 1993. The impact on revenue of the increased
asset base in 1994 was partially offset by lower weighted average investment
yields than those obtained during the first nine months of 1993. At September
30, 1994 the amortized cost of the fixed income portfolio totaled $1.1 billion
and was comprised principally of $748 million in investment grade
mortgage-backed securities and $291 million in investment grade bonds. At
September 30, 1994, the weighted average rating of the publicly traded bond
portfolio according to nationally recognized rating agencies was "AA". During
the third quarter of 1994, the Company established a trading account for a
portion of its investment portfolio invested in common stocks. At September
30, 1994 the carrying value of investments in the Company's trading account was
$.5 million reflecting a $19,000 unrealized gain which is included in
investment gains for the three months and nine months ended September 30, 1994.
Net insurance premiums increased $11.4 million for the first nine
months of 1994 compared with the same period of 1993. Net insurance premiums
reflect revenues associated primarily with sales of title insurance policies
underwritten by UG Title and credit insurance underwritten by UC Life. The
increase in premium income is primarily the result of an increase of $17.5
million in title insurance premiums offset by a reduction in premiums earned on
credit insurance products reflecting the impact of UC Life's decision to
discontinue sales of credit insurance products.
12
<PAGE> 14
Loan sale gains recognized by the Company's mortgage division
increased $27.3 million during the first nine months of 1994 over the same
period in 1993. Loan sale gains approximate the present value over the
estimated lives of the loans of the excess of the contractual rates on the
loans sold, over the sum of the pass through rate paid to the buyer, a normal
servicing fee, a trustee fee, a surety bond fee, if any, in mortgage-backed
securitization transactions, and an estimate of future credit losses. The
increase in the amount of loan sale gains was due primarily to a $425 million
increase in the amount of loans sold which offset a decrease in excess
servicing income retained by the Company (i.e., the stated interest rate on the
loan less the pass through rate and the normal servicing fee and other
applicable recurring fees). Interest spread retained by the Company on loans
sold includes the normal servicing fee. Guidelines were recently published by
Standard and Poor Rating Group defining a normal servicing fee as 50 basis
points for servicing "B" and "C" quality home equity loans, such as those
originated by the Company. As the result of this industry data, the servicing
fee rate used by the Company in its 1994 third quarter securitization was
50 basis points. This resulted in an increase in the amount of loan sale
gain recognized on the home equity loans sold in the 1994 third quarter
pursuant to this transaction compared to previous securitization transactions
which include a servicing fee rate of 75 basis points. The following table
presents information regarding home equity loan sale transactions for the
periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------
1994 1993
------ ------
(dollars in thousands)
<S> <C> <C>
Home equity loans sold . . . . . . . . . . . . . $722,799 $ 297,856
Average coupon on home equity loans sold . . . . 11.67% 12.13%
Interest spread retained on home equity loans
sold . . . . . . . . . . . . . . . . . . . . . 4.63% 6.03%
Home equity loan sale gains . . . . . . . . . . 65,550 38,080
</TABLE>
Historically, the Company originated and sold portfolios of home equity
loans on a whole loan basis (or participations therein) to institutional
investors or government-sponsored mortgage agencies or conduits and, during
1992, with the participation of one of these investors, securitized and
publicly sold home equity loan pass-through certificates. In the second
quarter of 1993, the Company began selling its loans in public securitization
transactions through a Company-sponsored shelf registration statement. In
comparison to the first nine months of 1993, market interest rates were higher
during the first nine months of 1994, and, as a result, the Company experienced
a decrease in the weighted average interest spread retained on home equity
loans sold from 6.0% in the nine months ended September 30, 1993, to 4.6% in
the nine months ended September 30, 1994. Fluctuations in and the level of
market interest rates will impact the interest spread retained by the Company
on loans sold, and, potentially, the amount of its loan sale gains. An
increase in the level of market interest rates will generally adversely affect
the interest spread on loans sold, whereas such interest spread generally
widens during a declining interest rate environment. Although strategic
actions can be taken by the Company during a rising interest rate environment
to mitigate the impact on earnings of fluctuations in market rates, such as
increasing the coupon rate charged on its loan products, the effect of such
action will generally lag the impact of market rate fluctuations. The weighted
average interest spread retained by the Company on loan sales during the third
quarter of 1994 declined to 4.19% from 4.88% retained on loan sales during the
first six months of 1994. This decrease is primarily attributable to increases
in the pass-through rates on mortgage backed securities sold under the Company
sponsored shelf registration statement due to increases in market rates. If
the current level of market interest rates increases during the fourth quarter
of 1994, the interest spread retained on home equity loans sold by the Company
during the fourth quarter of 1994 will likely be narrower than that received on
sales during the three months ended September 30, 1994. In connection with the
home equity loan securitization transaction which closed in the third quarter
of 1994, approximately $130.7 million is being held in a prefunding account for
purchase of the Company's home equity loans during the 1994
fourth quarter and this should mitigate the narrowing of the interest spread
retained during the fourth quarter of 1994.
Loan servicing income increased $3.1 million for the nine months ending
September 30, 1994 compared to the same period of 1993, reflecting the impact
of an increased amount of home equity loans serviced for third
13
<PAGE> 15
parties offset by an increase in the amortization of prior loan sale
gains. The reduced normal servicing fee rate from 75 to 50 basis points
as discussed above has the impact of increasing current revenues (loan
sale gains) while reducing future revenues (loan servicing income) with
respect to the loan sale transactions occurring on and after the reduction.
The following table reflects the components of loan servicing income
for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1994 1993
------ ------
(in thousands)
<S> <C> <C>
Servicing fees earned . . . . . . . . . . . . . . . . $39,391 $ 21,795
Amortization of loan sale gains . . . . . . . . . . . (27,962) (13,486)
-------- --------
Loan servicing income . . . . . . . . . . . . . . . . $ 11,429 $ 8,309
======== ========
</TABLE>
Expenses. The following table presents the components of the Company's
expenses for the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1994 1993
------ ------
(in thousands)
<S> <C> <C>
Interest on annuity policies . . . . . . . . . . . . . $ 54,115 $ 57,353
Personnel . . . . . . . . . . . . . . . . . . . . . . 43,261 29,901
Insurance commissions . . . . . . . . . . . . . . . . 37,249 23,010
Insurance benefits . . . . . . . . . . . . . . . . . 10,635 14,223
Loan loss provision . . . . . . . . . . . . . . . . . 9,711 12,109
Interest . . . . . . . . . . . . . . . . . . . . . . . 9,672 7,701
Other operating . . . . . . . . . . . . . . . . . . . 35,484 31,395
-------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . $200,127 $ 175,692
======== =========
</TABLE>
Interest on annuity policies declined $3.2 million for the first nine
months of 1994 when compared to the same period of 1993 as the result of a
reduction in the average interest crediting rate on the Company's annuity
policies offset by the impact of an increase in annuity reserves. Average
annuity reserves were $1.3 billion during the first nine months of 1994, an
increase of approximately $113 million from the same period of 1993.
Personnel expenses increased approximately $13.4 million primarily
because of costs associated with the expansion of the Company's mortgage
operations, loan production related incentives and an increase in the cost of
the Company's employee benefit and incentive plans.
Insurance commissions for the first nine months of 1994 increased by
approximately $14.2 million over commissions for the same period of 1993
primarily as the result of commissions associated with the increase in title
policies written. Commissions paid on issuance of the Company's single premium
deferred annuity products are generally capitalized as deferred policy
acquisition costs ("DPAC") and amortized over the estimated life of the policy.
During the nine months ended September 30, 1994, the Company capitalized
approximately $15.3 million in commissions paid on sales of annuities compared
to $10.9 million during the same period of 1993. Amortization of commission
expense on annuities capitalized in prior periods was $6.6 million during the
nine months ended September 30, 1994, compared to $4.2 million during the same
period of 1993.
Insurance benefits for the first nine months of 1994 declined $3.6
million over benefits for the same period of 1993 primarily as the result of a
reduction in claims on credit insurance offset by an increase in claims paid on
title insurance policies.
The Company's loan loss provision was $9.7 million and $12.1 million
for the nine months ended September 30, 1994 and 1993, respectively. The
decrease in the provision resulted from a decrease of $2.9 million in the
provision for losses on home equity loans due to a reduction in the amount of
loans owned by the Company,
14
<PAGE> 16
a decrease in the amount of property placed into foreclosure and a lower
incidence of loss per property sold offset by a $.5 million increase by UC Life
in the provision for losses on commercial real estate mortgage loans.
Interest expense for the first nine months of 1994 increased
approximately $2.0 million from the same period of 1993 primarily as the result
of an increase in the weighted average interest rate charged on debt.
Other operating expenses for the nine months ended September 30, 1994
increased approximately $4.1 million when compared to the same period of 1993.
In addition to costs associated with the expansion of the Company's mortgage
operations, other operating expenses in the first nine months of 1994 included
a $.9 million charge by UG Title in connection with losses associated with a
loan broker in California. Other operating expenses in the first nine months
of 1993 included a $2.3 million accrual for the estimated cost of a legal
settlement and $1.4 million in estimated losses in connection with termination
of a third party administrative contract for credit insurance.
15
<PAGE> 17
FINANCIAL INFORMATION ON BUSINESS SEGMENTS
The following tables reflect income from continuing operations before
income taxes for each of the Company's business segments for the nine months
ended September 30, 1994 and 1993, respectively.
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1994
------------------------------------
(in thousands)
Corporate,
Life Title Other Operations,
Mortgage Insurance Insurance & Eliminations Total
-------- --------- --------- -------------- -----
<S> <C> <C> <C> <C> <C>
Revenues
Interest, charges and fees on loans . $50,901 $ 34,427 $ 3,165 $ 88,493
Loan sale gains . . . . . . . . . . . 65,550 65,550
Investment income . . . . . . . . . . 1,461 60,344 $ 522 (1,111) 61,216
Net insurance premiums . . . . . . . . 8,200 31,980 40,180
Loan servicing income . . . . . . . . 14,896 (190) (3,277) 11,429
Investment gains (losses) . . . . . . 358 (29) 329
------- -------- --------- ------- --------
Total . . . . . . . . . . . . . . . 132,808 103,139 32,502 (1,252) 267,197
------- -------- --------- ------- --------
Expenses
Interest on annuity policies 54,115 54,115
Personnel . . . . . . . . . . . . . . 34,019 3,731 842 4,669 43,261
Insurance commissions . . . . . . . . 9,740 27,029 480 37,249
Insurance benefits . . . . . . . . . . 9,056 1,579 10,635
Loan loss provision . . . . . . . . . 5,346 4,365 9,711
Interest . . . . . . . . . . . . . . . 4,230 1,606 3,836 9,672
Other operating . . . . . . . . . . . 25,127 13,319 2,856 (5,818) 35,484
------- -------- --------- ------- --------
Total . . . . . . . . . . . . . . . 68,722 95,932 32,306 3,167 200,127
------- -------- --------- ------- --------
Income (loss) from continuing operations
before income taxes . . . . . . . . . $64,086 $ 7,207 $ 196 $(4,419) $ 67,070
======= ======== ========= ======= ========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1993
------------------------------------
(in thousands)
Corporate,
Life Title Other Operations,
Mortgage Insurance Insurance & Eliminations Total
-------- --------- --------- -------------- -----
<S> <C> <C> <C> <C> <C>
Revenues
Interest, charges and fees on loans . $ 30,992 $ 33,895 $ 4,550 $ 69,437
Investment income . . . . . . . . . . 609 55,840 $ 396 (793) 56,052
Loan sale gains . . . . . . . . . . . 38,080 220 38,300
Net insurance premiums . . . . . . . . 14,342 14,488 28,830
Loan servicing income . . . . . . . . 12,538 160 (4,389) 8,309
Investment gains (losses) . . . . . . 360 (4) 356
-------- ---------- --------- -------- ---------
Total . . . . . . . . . . . . . . . 82,219 104,597 14,884 (416) 201,284
-------- ---------- --------- -------- ---------
Expenses
Interest on annuity policies . . . . . 57,353 57,353
Personnel . . . . . . . . . . . . . . 22,908 2,876 497 3,620 29,901
Insurance commissions . . . . . . . . 10,216 12,202 592 23,010
Insurance benefits . . . . . . . . . . 13,773 450 14,223
Loan loss provision . . . . . . . . . 8,248 3,861 12,109
Interest . . . . . . . . . . . . . . . 3,130 620 3,951 7,701
Other operating . . . . . . . . . . . 19,423 15,440 944 (4,412) 31,395
-------- ---------- --------- -------- ---------
Total . . . . . . . . . . . . . . . 53,709 104,139 14,093 3,751 175,692
-------- ---------- --------- -------- ---------
Income (loss) from continuing operations
before income taxes . . . . . . . . . $ 28,510 $ 458 $ 791 $ (4,167) $ 25,592
======== ========== ========= ======== =========
</TABLE>
16
<PAGE> 18
MORTGAGE OPERATIONS
The following tables reflect results of operations and selected
financial data for the indicated periods for the Company's mortgage operations.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1994 1993 1994 1993
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Loan sale gains . . . . . . . . . . . . . $ 22,204 $ 15,455 $ 65,550 $ 38,080
Loan fees . . . . . . . . . . . . . . . 15,199 10,197 42,409 24,720
Loan servicing income . . . . . . . . . . 4,819 4,069 14,896 12,538
Other . . . . . . . . . . . . . . . . . . 4,008 2,642 9,953 6,881
-------- --------- --------- --------
Total . . . . . . . . . . . . . . . . 46,230 32,363 132,808 82,219
-------- -------- ------- --------
Expenses . . . . . . . . . . . . . . . . 23,921 17,466 68,722 53,709
-------- -------- -------- --------
Income before income taxes . . . . . . $ 22,309 $ 14,897 $ 64,086 $ 28,510
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1994 1993 1994 1993
------ ------ ------- ------
(in thousands)
<S> <C> <C> <C> <C>
SELECTED MORTGAGE FINANCIAL DATA
HOME EQUITY ORIGINATIONS:
Loan originations . . . . . . . . . . . $231,296 $148,497 $ 656,742 $ 358,255
Number of loans originated . . . . . . . 5,774 3,774 15,809 9,560
Average loan origination amount . . . . 40 39 42 37
HOME EQUITY SALES:
Loan sales . . . . . . . . . . . . . . . $262,440 $129,967 $ 722,799 $297,856
Loan sale gains . . . . . . . . . . . . . 22,204 15,455 65,550 38,080
Interest spread retained on loans sold . 4.19% 5.68% 4.63% 6.03%
LOAN PORTFOLIO - PERIOD END:
Total home equity portfolio (period end) $1,529,496 $1,003,403
Total loan portfolio (period end) . . . . 1,892,461 1,478,464
Loans 30+ days past due (period end) . . 125,104 111,348
</TABLE>
17
<PAGE> 19
INSURANCE RESULTS OF OPERATIONS
The following tables reflect results of operations and selected financial
data for the respective periods for the Company's insurance operations.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ----------------------
1994 1993 1994 1993
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Investment income . . . . . . . . . . . . $ 21,717 $ 19,298 $ 60,866 $ 56,236
Interest on loans . . . . . . . . . . . . 11,371 11,108 34,427 33,895
Title insurance premiums . . . . . . . . 12,531 6,286 31,980 14,488
Life insurance premiums . . . . . . . . . 2,497 3,849 8,200 14,342
Other . . . . . . . . . . . . . . . . . . 206 324 168 520
---------- ----------- -------- ---------
Total . . . . . . . . . . . . . . . . 48,322 40,865 135,641 119,481
---------- ----------- -------- ---------
Expenses . . . . . . . . . . . . . . . . 45,420 38,824 128,238 118,232
---------- ----------- -------- ---------
Income before income taxes . . . . . . . $ 2,902 $ 2,041 $ 7,403 $ 1,249
========== =========== ======== =========
Selected Insurance Financial Data
Annuities:
Annuity sales . . . . . . . . . . . . . . $ 70,650 $ 44,150 $ 186,972 $ 164,178
Annuity reserves - period end . . . . . . 1,396,310 1,277,569
Average interest margin on annuities . . 3.03% 2.25% 2.80% 2.11%
</TABLE>
ASSET QUALITY AND RESERVES
The quality of the Company's loan and bond portfolios and of the loan
portfolio serviced for third parties significantly affects the profitability of
the Company. The values of and markets for these assets are dependent on a
number of factors, including general economic conditions, interest rates and
governmental regulations. Adverse changes in such factors, which become more
pronounced in periods of economic decline, may affect the quality of these
assets and the Company's resulting ability to sell these assets for acceptable
prices. General economic deterioration can result in increased delinquencies
on existing loans, reductions in collateral values and declines in the value of
investments resulting from a reduced capacity of issuers to repay the bonds.
Loans. Substantially all of the loans owned by the Company were
originated by UC Lending through its branch (i.e, retail) network or wholesale
loan programs. The Company's loan portfolio at September 30, 1994 was
comprised primarily of $222 million in home equity loans and $160 million in
commercial loans. In connection with its origination of home equity loans, the
Company relies on thorough underwriting and credit review procedures by UC
Lending, a mortgage on the borrower's residence and, in some cases, other
security, and, in its retail origination program, contact with borrowers
through its branch office system to manage credit risk on its loans. In
addition to servicing the loans owned by the Company, UC Lending serviced
approximately $1.5 billion in loans for third parties at September 30, 1994.
The Company is subject to risk of loss on loans in its owned portfolio and for
loans sold under loan sale agreements that provide limited recourse against or
guarantee by the Company or subordination of cash and excess interest spread
relating to the sold loans by the Company. Such recourse, guarantees and
subordination relate to credit losses which may occur after the sale of the
loans and continues until the earlier of the payment in full of the loans or
termination of the agreement pursuant to which the loans were sold. The
Company is also obligated to cure, repurchase or replace loans which may be
determined after the sale to violate representations and warranties relating to
them and which are made by the Company at the time of the sale. The Company
regularly evaluates the quality of the loan portfolio and estimates its risk of
loss based upon historical loss experience, prevailing economic conditions,
estimated collateral value and such other factors which, in management's
judgment, are relevant in estimating the credit risk
18
<PAGE> 20
in owned and/or serviced loans. Estimated losses on the owned portfolio are
provided for by an increase in the allowance for loan losses through a charge
to current operating income. For loans sold with limited recourse, guarantees
or subordination of certain cash and excess interest spread relating to the
sold loans, the Company reduces the amount of gain recognized on the sale by
the estimated amount of credit losses, subject to the recourse or guarantee
limitation or maximum subordination amount of the related loan sale agreements,
and records such amount on its balance sheet in the allowance for loss on loans
serviced. At September 30, 1994, the maximum recourse associated with sales of
home equity loans according to terms of the loan sale agreements totaled
approximately $195.2 million, of which amount approximately $179.6 million
relates to the subordinated cash and excess interest spread. However, the
Company's estimate of its losses was approximately $24.2 million at September
30, 1994, and is recorded in the Company's allowance for loss on loans
serviced. Should credit losses on loans sold with limited recourse or
guarantee or subordination of certain cash and excess interest spread
materially exceed the Company's estimates for such losses, such consequence
will have a material adverse impact on the Company's operations.
At September 30, 1994, the contractual balance of loans serviced by UC
Lending was approximately $1.9 billion comprised of approximately $375 million
serviced for the Company and approximately $1.5 billion serviced for investors.
The geographic distribution of this portfolio by state and by loan category was
as follows at September 30, 1994:
<TABLE>
<CAPTION>
Percent
State Home Equity Commercial Conventional Consumer Total of Total
----- ----------- ---------- ------------ -------- ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Florida . . . . . . . . $ 200,206 $ 78,313 $ 9,227 $ 13 $ 287,759 15.2%
Ohio . . . . . . . . . . 196,720 6,086 1,485 - 204,291 10.8
Louisiana . . . . . . . . 144,474 12,805 39,413 24 196,716 10.4
North Carolina . . . . . 128,486 15,371 1,816 - 145,673 7.7
Tennessee . . . . . . . . 113,351 19,408 4,991 3 137,753 7.3
Alabama . . . . . . . . . 113,686 12,456 4,954 2 131,098 6.9
Georgia . . . . . . . . . 77,353 46,196 2,590 11 126,150 6.7
Indiana . . . . . . . . . 77,179 3,449 1,129 - 81,757 4.3
Virginia . . . . . . . . 49,755 23,018 2,519 - 75,292 4.0
South Carolina . . . . . 68,653 1,268 1,259 - 71,180 3.8
Michigan . . . . . . . . 64,709 - 181 - 64,890 3.4
Other States . . . . . . 294,924 66,010 8,959 10 369,903 19.5
---------- ----------- ---------- --------- ---------- ------
Total . . . . . . . . $1,529,496 $ 284,380 $ 78,523 $ 63 $1,892,462 100.0%
========== =========== ========== ========= ========== ======
</TABLE>
19
<PAGE> 21
The following table provides a summary of loans owned and/or serviced
by UC Lending which are past due 30 days or more, foreclosed properties and
loans charged off as of the dates indicated.
<TABLE>
<CAPTION>
Foreclosed Properties
------------------------
Contractual Delinquencies % of Owned Serviced Net Loans % of
Period Ended Balance Contractual Amount by the for Third Charged Average
------------ of Loans Balance Company Party Off Loans*
Investors
----------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Nine months ended September 30, 1994
------------------------------------
Home Equity . . . . . . $1,529,496 $113,498 7.42% $10,687 $ 9,415 $ 9,252 0.93%
Commercial . . . . . . 284,380 8,299 2.92% 28,433 9,363 2,965 1.25%
Conventional . . . . . 78,523 3,294 4.20% 35 - 15 0.02%
Consumer . . . . . . . 63 13 - - - (32) -
---------- -------- ------- ------- -------
Total . . . . $1,892,462 $125,104 6.61% $39,155 $18,778 $12,200
========== ======== ======= ======= =======
Year ended December 31, 1993
----------------------------
Home Equity . . . . . . $1,125,139 $ 92,974 8.26% $17,014 $ 8,355 $ 8,548 0.88%
Commercial . . . . . . 345,365 19,292 5.59% 20,871 9,275 3,579 0.95%
Conventional . . . . . 98,189 3,730 3.80% 148 - 112 0.09%
Consumer . . . . . . . 88 17 - - - (35) -
---------- -------- ------- ------- -------
Total . . . . $1,568,781 $116,013 7.40% $38,033 $17,630 $12,204
========== ======== ======= ======= =======
Year ended December 31, 1992
----------------------------
Home Equity . . . . . . $ 819,448 $ 71,762 8.76% $13,092 $ 7,244 $ 4,498 .59%
Commercial . . . . . . 404,857 29,954 7.40% 20,976 7,338 4,805 1.14%
Conventional . . . . . 143,311 2,933 2.05% 291 - 4 -
Consumer . . . . . . . 206 64 - - - 82 2.86%
---------- -------- ------- ------- -------
Total . . . . $1,367,822 $104,713 7.66% $34,359 $14,582 $ 9,389
========== ======== ======= ======= =======
</TABLE>
*Annualized for the nine months ended September 30, 1994
Management continues to focus on reducing the level of non-earning
assets owned and/or serviced by focusing on expediting the foreclosure process.
As the result of being more aggressive in liquidating foreclosed property, the
Company's net charge-offs on home equity loans for the nine months ended
September 30, 1994 increased to $9.3 million compared to $6.8 million during
the same period of 1993. During the first nine months of 1994, the balance of
foreclosed home equity loans owned and/or serviced by the Company was reduced
by $5.3 million. The Company will continue to focus resources on further
reductions in the level of foreclosed properties.
The above delinquency and loan loss experience represents the
Company's recent experience. However, the delinquency, foreclosure and net
loss percentages may be affected by the increase in the size and relative lack
of seasoning of the portfolio. As a result, the information in the above
tables should not be considered as a basis for assessing the likelihood, amount
or severity of delinquencies or losses in the future on loans and no assurance
can be given that the delinquency and loss experience presented in the tables
will be indicative of such experience on loans.
20
<PAGE> 22
A summary analysis of the changes in the Company's allowance for loan
losses for the indicated periods is as follows.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------
1994 1993
------ ------
(in thousands)
<S> <C> <C>
Balance at beginning of period . . . . . . $ 21,017 $ 15,842
Loans charged to allowance
Home equity . . . . . . . . . . . . . . . . (10,027) (7,236)
Commercial . . . . . . . . . . . . . . . . (2,968) (2,587)
Conventional . . . . . . . . . . . . . . . (21) (49)
Consumer . . . . . . . . . . . . . . . . . (7) (13)
-------- --------
Total . . . . . . . . . . . . . . . . . (13,023) (9,885)
Recoveries on loans previously
charged to allowance . . . . . . . . . . . 823 460
-------- --------
Net loans charged off . . . . . . . . . . . (12,200) (9,425)
Loan loss provision . . . . . . . . . . . . 9,711 12,109
Reserve reclassification . . . . . . . . . . (166) 81
-------- --------
Balance at end of period . . . . . . . . . . $ 18,362 $ 18,607
======== ========
Specific reserves . . . . . . . . . . . . . $ 8,549 $ 7,937
Unallocated reserves . . . . . . . . . . . . 9,813 10,670
-------- --------
Total reserves . . . . . . . . . . . . . . . $ 18,362 $ 18,607
======== ========
</TABLE>
Specific reserves are provided for foreclosures in which the carrying
value of the loan exceeds the market value of the collateral. Unallocated
reserves are provided for loans not in foreclosure and are calculated primarily
using objective measurement techniques. Unallocated reserves also include
reserves for active loans which have been modified or indicate potential
problems as well as reserves for a $32.5 million subordinated position the
Company acquired in connection with the securitization and sale of
approximately $230 million in commercial real estate mortgage loans in 1990.
At September 30, 1994, the Company owned $39.2 million of property acquired in
settlement of loans, excluding the specific reserves attributed to these
properties. These balances are included in the loans owned by the Company.
The specific reserve in the table above is provided to reduce the carrying
value of these properties to their market value.
A summary of the amounts provided by the Company for future credit
losses on loans and foreclosed properties owned by the Company and loans sold
with recourse (including for purposes hereof loans sold with limited guarantees
and subordination of cash and excess interest spread owned by the Company) as
of the dates indicated is as follows:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1994 1993 1993
------------ ----------- ------------
(in thousands)
<S> <C> <C> <C>
Allowance for loan losses
(Applicable to loans and foreclosed properties
owned by the Company) . . . . . . . . . . $ 18,362 $ 21,017 $ 18,607
Allowance for loss on loans serviced
(Applicable to loans
sold with recourse) . . . . . . . . . . . 24,171 12,938 11,005
--------- ---------- ----------
Total . . . . . . . . . . . . . . . $ 42,533 $ 33,955 $ 29,612
========= ========== ==========
</TABLE>
21
<PAGE> 23
As of September 30, 1994, approximately $1.3 billion of home equity
loans sold were serviced by UC Lending under agreements which provide limited
recourse, guarantees or subordination of cash and excess interest spread owned
by the Company, for credit losses ("loans sold with limited recourse"). The
Company's estimate of its losses, based on historical loan loss experience, was
approximately $24.2 million at September 30, 1994 and is recorded in the
Company's allowance for loss on loans serviced. Should credit losses on loans
sold with limited recourse, or subordination of cash and excess interest spread
owned by the Company, materially exceed the Company's estimate for such losses,
such consequence will have a material adverse impact on the Company's financial
statements.
Recent legal developments related to mortgage loans. On March 21,
1994, the United States Court of Appeals for the Eleventh Circuit held, in
part, that a lender improperly disclosed the collection of the Florida state
intangible tax from the borrower, thereby subjecting the loan to rescission
under the Federal Truth-in-Lending Act (the "TILA") by the borrower for three
years after it was made. Subsequent to the court's initial decision and prior
to its refusal to reconsider its decision, the Florida Legislature amended the
language of the intangible tax to clarify the Legislature's previous intention
that the intangible tax be disclosed for purposes of the TILA in the manner
that had been followed by most lenders in Florida, including the Company.
Although the Florida Legislature intended this legislation to apply
retroactively, no judicial determination has yet been made as to the effect of
this legislation on loans originated prior to its effective date. This court
decision may also apply to a similar intangible tax imposed by other states.
To its knowledge, as of November 8, 1994, no claims have been filed against the
Company under this court decision (other than as a defense in foreclosure
proceedings) and no notice of a breach of a representation has been received
under the Company's loan sale agreements requesting it to repurchase, cure or
substitute other loans for the loans sold. If the intent of the Florida
Legislature is not upheld and if a substantial number of claims are filed by
borrowers against the Company resulting in rescission or repurchase, the
Company's financial statements and operations will be materially adversely
affected. As the financial impact, if any, of this contingency cannot
presently be reasonably estimated, the Company has made no accrual therefor.
Bonds. Investment purchases are made with the intention of holding
fixed income securities until maturity. Prior to January 1, 1994 securities
were generally carried at cost adjusted for discount accretion and premium
amortization. At September 30, 1994, the amortized cost of the Company's bond
portfolio was $1.1 billion consisting primarily of $759 million in mortgage-
backed securities and $266 million in corporate bonds. In connection with the
adoption of SFAS 115 (see note 4 to the consolidated financial statements),
bonds with an amortized cost of approximately $995 million or 94% of the
Company's bond portfolio were classified in an available-for-sale category and
the carrying value adjusted to market value by means of an adjustment to
stockholders' equity. The remainder of the portfolio consists primarily of
private placements made either directly or through an investment partnership
and are classified as held-to-maturity and valued at cost. At September 30,
1994, the Company owned $.5 million in equity securities classified as trading
securities. The net unrealized loss in the bond portfolio (cost over market
value) at September 30, 1994 was $55.9 million compared to an unrealized gain
of $31.5 million at December 31, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal cash requirements consist of funding loan
originations in its mortgage operations and the payment of policyholder claims
and surrenders incurred in its insurance operations. The Company's mortgage
operations require continued access to short and long-term sources of debt
financing, the sale of loans to UC Life and the sale of loans and asset-backed
securities in the secondary market; whereas liquidity requirements for the
Company's insurance operations are generally met by funds provided from the
sale of annuities and cash flow from its investments in fixed income securities
and mortgage loans.
The Company's primary debt facility has been a revolving credit
facility (the "Bank Facility") dated as of October 11, 1988. On November 2,
1994 the Company publicly sold $125 million of its senior unsecured notes. The
net proceeds from the sale of the notes were used to repay a portion of the
principal amount of the indebtedness outstanding under the Bank Facility. The
senior notes bear interest at the rate of 9.35% per annum,
22
<PAGE> 24
are payable semi-annually, mature on November 1, 1999 and are not redeemable
prior to maturity. The senior notes rank on a parity with other unsecured and
unsubordinated indebtedness of the Company. An amendment to the Bank Facility
became effective upon the consummation of the sale of the senior notes which
(i) extends the maturity of the Bank Facility from December 31, 1995 to
December 31, 1996, (ii) provides for the release by the banks of all of their
liens on the stock of the Company's subsidiaries and other collateral, (iii)
reduces the amount available under the Bank Facility from $200 million to
$113.6 million and (iv) permits the non-insurance subsidiaries of the Company
to have one or more warehouse lines of credit with an aggregate amount
outstanding of up to $300 million.
The following discussion reflects the primary sources of liquidity and
capital for each of the Company's primary operating divisions.
UC Lending. The principal cash requirements of the Company's mortgage
operations arise from loan originations, repayments of inter-company debt
borrowed by the Company under the Bank Facility, payments of operating and
interest expenses and deposits to reserve accounts related to loan sale
transactions. Loan originations have historically been funded principally
through the Bank Facility short-term bank facilities pending loan sales to UC
Life and in the secondary market.
Substantially all of the loans originated by UC Lending are sold. Net
cash used by investing activities of the Company in the nine months ended
September 30, 1994 and 1993, respectively, reflects approximately $659 million
and $363 million, respectively, in cash used for loan originations. The
primary source of funding for loan originations is derived from the
reinvestment of proceeds from the ultimate sale of loans in the secondary
market which totaled approximately $724 million and $298 million in the first
nine months of 1994 and 1993, respectively. In connection with the loan sale
transactions in the secondary market, third- party surety bonds and cash
deposits by the Company as credit enhancements were provided. The loan sale
transactions required the subordination of certain cash flows payable to UC
Lending to the payment of principal and interest due to certificate holders.
In connection with these transaction, UC Lending was required, in some
instances, to fund an initial deposit, and thereafter, in each transaction, a
portion of the amounts receivable by UC Lending and its subsidiaries from the
excess interest spread is required to be placed and maintained in a reserve
account to the extent of the subordination requirements. The subordination
requirements generally provide that the excess interest spread is payable to a
reserve account until a specified level of cash, which is less than the maximum
subordination amount, is accumulated therein. The capitalized excess servicing
income of the Company is subject to being utilized first to replenish cash paid
from the reserve account to fund shortfalls in collections from borrowers who
default on the payment of principal or interest on the loans underlying the
pass-through certificates issued until the total of the Company's deposits into
the reserve account equal the maximum subordination amount. In the loan sale
transaction consummated in the third quarter of 1994 under the Company
sponsored shelf registration statement, in consideration of a guarantee fee
payable from a portion of the excess interest spread, a subsidiary of the
Company provided a limited guarantee to the issuer of the surety bond insuring
the pass-through certificates sold to public investors. In connection with the
issuance and sale of approximately $1.6 billion of pass-through certificates
through September 30, 1994, the aggregate subordination amounts were initially
set at approximately $179.6 million. After the Company's deposits into the
reserve account equal the maximum subordination amount for a transaction, the
subordination of the related excess interest spread (including the guarantee
fee payable therefrom) for these purposes is terminated. The excess interest
spread required to be deposited and maintained in the respective reserve
accounts will not be available to support the cash flow requirements of the
Company until such amount exceeds the maximum subordinated amount (other than
amounts, if any, in excess of the specified levels required to be maintained in
the reserve accounts, which may be distributed periodically to the Company).
At September 30, 1994, the amounts on deposit in such reserve accounts totaled
$68.7 million.
UC Life. The principal cash requirement of UC Life consists of
contractual obligations to policyholders, principally through policy claims and
surrenders. The primary sources of funding these obligations, in addition to
cash flow from investments, are the sale of annuities. Net cash flow from
underwriting operations is used to build an investment portfolio, which in turn
produces future cash flows from investment income and provides a secondary
source of liquidity for this division. Net cash provided by operating
activities of the insurance division
23
<PAGE> 25
in the nine months ended September 30, 1994 and 1993 was approximately $48.2
million and $60.4 million, respectively, resulting primarily from cash earnings
on investments. The Company monitors available cash and cash equivalents to
maintain adequate balances for current payments while maximizing cash available
for longer term investment activities. The Company's financing activities
during the first nine months of 1994 and 1993 reflect approximately $187
million and $164 million, respectively, in cash received primarily from sales
by UC Life of its annuity products. As reflected in the net cash used by
investing activities during the same periods, investment purchases were
approximately $248 million and $225 million, respectively, reflecting the
investment of these funds and the reinvestment of proceeds from maturities of
investments. Cash used by financing activities during these nine month
periods also reflects payments of $141 million and $92 million primarily on
annuity products resulting from policyholder surrenders and claims.
The increase in annuity surrenders during the first nine months of 1994 was
expected, due in part to an increase in the amount of annuity policies
which were beyond the surrender penalty period and to a planned widening of
the interest margin on the Company's annuity products by reducing annuity
crediting rates in a rising interest rate environment. The interest margin
on the Company's annuity liabilities during the first nine months of 1994
was 2.80% compared to 2.11% during the same period of 1993. UC Life's
investments at September 30, 1994, included approximately $345 million in
residential and commercial mortgage loans, and the amortized cost of its
bond portfolio included $296 million in corporate and government bonds and
private debt placements and $757 million in mortgage-backed securities.
The investment portfolio is also managed to provide a secondary source of
liquidity as investments can be sold, if necessary, to fund abnormal levels
of policy surrenders, claims and expenses. An unanticipated increase in
surrenders would impact the Company's liquidity, potentially requiring the
sale of certain assets, such as bonds and loans priorto their maturities,
which may be at a loss.
A substantial amount of the Company's annuity policies are marketed
through financial institutions. In August 1993, the United States Court of
Appeals for the Fifth Circuit (the "Fifth Circuit") held that the United States
Comptroller of the Currency's decision to permit national banks to sell
annuities in towns with more than 5,000 inhabitants violated the National Bank
Act. In June 1994, the United States Supreme Court granted certiorari and
decided that it will hear arguments in this action. If the Fifth Circuit
ruling is upheld by the Supreme Court, it will have a material adverse effect
on the ability of the Company to market its annuities. Furthermore, any future
regulatory restrictions on the authority of financial institutions to market
annuities could have a material adverse effect on the ability of the Company to
market this product.
As a Louisiana domiciled insurance company, UC Life is subject to
certain regulatory restrictions on the payment of dividends. UC Life has the
capacity at September 30, 1994 to pay dividends of $8.5 million. UC Life did
not pay any dividends to the Company during 1991, 1992, 1993 or in 1994 in
order to retain capital in UC Life.
UG Title. Liquidity requirements for the Company's title insurance
business are generally met from funds provided by the sale of title insurance
policies and cash flow from its investment portfolio. UG Title's investments
at September 30, 1994 included approximately $3.2 million in residential
mortgage loans, $6.9 million in U.S. government and agency securities and $1.7
million in temporary investments, primarily certificates of deposit. An
unanticipated increase in policy claims would impact UG Title's liquidity,
potentially requiring the sale of its investments prior to their maturities,
which may be at a loss. The principal liability of UG Title is the loss
reserve established for title policy claims.
ACCOUNTING STANDARDS
In May 1993, the FASB issued Statement of Financial Accounting
Standards No. 114 ("SFAS 114") which addresses the accounting by creditors for
impairment of loans and specifies how allowances for credit losses related to
certain loans should be determined. SFAS 114 also addresses the accounting by
creditors for all loans that are restructured in a troubled debt restructuring
involving modification of terms of a receivable. SFAS 114 is effective for
financial statements for fiscal years beginning after December 15, 1994. The
Company is reviewing the provisions of this pronouncement but has not yet
determined the effect of its implementation on the Company's financial
condition or results of operations.
24
<PAGE> 26
RIGHTS PLAN
On July 27, 1994, the Board of Directors of the Company authorized the
redemption of the rights under the Company's rights plan adopted in 1989 and
approved a new rights plan and declared a dividend distribution of rights
thereunder. The new rights plan is an update of the old plan and reduces the
threshold of beneficial ownership at which rights issued under the plan become
exercisable and trade separately from the common shares when a person or group
acquires beneficial ownership of 20% or more of the common shares. The
threshold under the old plan was 45%. The rights also become exercisable and
trade separately when a tender or exchange offer for 25% or more of the common
shares is commenced, down from 50% under the old plan. The new plan also adds
an adverse person provision whereby the rights may become exercisable and trade
separately. The trigger for a flip-in event is also reduced from 50% to 25%
ownership by a person and the redemption price of the rights is reduced from
$.01 to $.001. The new plan extends the final expiration date provided by the
old plan from January 31, 1999 to July 31, 2004 and changes the exercise
price of the rights from $80.00 to $240.00.
STOCK DIVIDEND
On October 26, 1994, the Company's Board of Directors declared a 10%
common stock dividend payable to shareholders of record on December 22, 1994.
The additional shares will be distributed on January 10, 1995.
RATINGS
THE COMPANY. As discussed above, the Company recently sold publicly
$125 million in its unsecured and unsubordinated 9.35% senior notes due
November 1, 1999. Duff and Phelps, Inc. ("D&P") has rated the issue BBB and
the Company anticipates that Standard and Poor's Ratings Group, a division of
McGraw-Hill, Inc. ("S&P") will rate the notes BBB and Moody's Investor
Services, Inc. ("Moody's") will rate the notes Ba2, respectively. D&P
previously assigned a rating of BBB to the Bank Facility.
INSURANCE SUBSIDIARIES. UC LIFE. In June, 1994, A.M. Best Company
reaffirmed its "A-" (Excellent) rating of UC Life. Best's ratings depend in
part on its analysis of an insurance company's financial strength, operating
performance and claims paying ability. In addition, UC Life's claims paying
ability has been rated "A+" by D&P. In October 1994, S&P revised the formula
used in assigning its qualified solvency ratings of insurance companies and, as
a result, revised its rating assigned to UC Life from BBBq to BBq. The Company
believes that UC Life's ratings are adequate to enable it to continue to
compete successfully.
UG TITLE. In August, 1994, D&P revised its claims paying rating of UG
Title from "A" to "A-". Operations of UG Title in 1994 have been negatively
impacted by losses associated with a loan broker in California and claims for
escrow shortages under title policies.
25
<PAGE> 27
REVIEW BY INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Deloitte & Touche LLP, have performed a
review of the accompanying unaudited consolidated balance sheet as of September
30, 1994 and the related consolidated statements of income and cash flows for
the three months and nine months ended September 30, 1994 and 1993, and
previously audited and expressed an unqualified opinion dated February 18, 1994
on the consolidated financial statements of the Company and its subsidiaries as
of December 31, 1993, from which the consolidated balance sheet as of that date
is derived.
26
<PAGE> 28
INDEPENDENT ACCOUNTANTS' REPORT
United Companies Financial Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
United Companies Financial Corporation and subsidiaries as of September 30,
1994, and the related condensed consolidated statements of income and cash
flows for the three-month and nine-month periods ended September 30, 1994 and
1993. These financial statements are the responsibility of the Corporation's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of United Companies Financial
Corporation and subsidiaries as of December 31, 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated February 18,
1994, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1993 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
November 4, 1994
27
<PAGE> 29
PART II
OTHER INFORMATION
Items 1 through 5. Inapplicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - (4) First Supplemental Indenture, dated as of
November 2, 1994, to Indenture dated as of
October 1, 1994 relating to $125 million of
9.35% Senior Notes due November 1, 1999
(10) Terms Agreement dated October 26, 1994 to
Underwriting Agreement - Basic Provisions
dated September 29, 1994 relating to $125
million of 9.35% Senior Notes due
November 1, 1999
(11) Statement re computation of earnings per share
(15) Letter of Deloitte & Touche LLP regarding
unaudited interim financial information
(27) Financial Data Schedules
(b) Reports on Form 8-K - None
28
<PAGE> 30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED COMPANIES FINANCIAL CORPORATION
Date: November 9, 1994 By: /s/ J. TERRELL BROWN
------------------------------------
J. Terrell Brown
President and Chief Executive Officer
Date: November 9, 1994 By: /s/ DALE E. REDMAN
------------------------------------
Dale E. Redman
Executive Vice President and Chief
Financial Officer
29
<PAGE> 31
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Page No.
----------- --------
<S> <C> <C>
4 First Supplemental Indenture, dated as of November 2, 1994, to 31
Indenture dated as of October 1, 1994 relating to
$125 million of 9.35% Senior Notes due November 1, 1999
10 Terms Agreement dated October 26, 1994 to Underwriting Agreement - 47
Basic Provisions dated September 29, 1994 relating to
$125 million of 9.35% Senior Notes due November 1, 1999
11 Statement re computation of 51
earnings per share
15 Letter of Deloitte & Touche LLP regarding 52
unaudited interim financial information
27 Financial Data Schedules 53
</TABLE>
30
<PAGE> 1
EXHIBIT 4
FIRST SUPPLEMENTAL INDENTURE
(Senior Debt Securities)
FIRST SUPPLEMENTAL INDENTURE dated as of November 2, 1994 (the
"First Supplemental Indenture"), to the Indenture, dated as of October 1, 1994
(the "Indenture"), between UNITED COMPANIES FINANCIAL CORPORATION, a Louisiana
corporation (hereinafter called the "Company"), having its principal executive
office at 4041 Essen Lane, Baton Rouge, Louisiana 70809, and THE FIRST NATIONAL
BANK OF CHICAGO, a national banking association (hereinafter called the
"Trustee"), having its Corporate Trust Office at One First National Plaza,
Suite 0126, Chicago, Illinois 60670-0126.
RECITALS OF THE COMPANY
WHEREAS, the Company has duly authorized the execution and
delivery of the Indenture to provide for the issuance from time to time of its
unsecured debentures, notes, bonds or other evidences of indebtedness
(hereinafter called the "Debt Securities") to be issued in one or more series,
as in the Indenture provided;
WHEREAS, the Company desires and has requested the Trustee to
join it in the execution and delivery of this First Supplemental Indenture in
order to establish and provide for the issuance by the Company of a series of
Debt Securities designated as its 9.35% Senior Notes due November 1, 1999 in
the aggregate principal amount of $125,000,000, a specimen copy of which is
attached hereto as Exhibit A (the "Notes"), on the terms set forth herein;
WHEREAS, Section 11.01 of the Indenture provides that a
supplemental indenture may be entered into by the Company and the Trustee
without the consent of any holder of any Debt Securities to, inter alia,
establish the terms of any Debt Securities as permitted by Sections 2.01 and
3.01 of the Indenture, provided certain conditions are met;
WHEREAS, the conditions set forth in the Indenture for the
execution and delivery of this First Supplemental Indenture have been complied
with; and
WHEREAS, all things necessary to make this First Supplemental
Indenture a valid agreement of the Company and the Trustee, in accordance with
its terms, and a valid amendment of, and supplement to, the Indenture have been
done;
NOW THEREFORE:
There is hereby established a series (as that term is used in
Section 3.01 of the Indenture) of Debt Securities to be issued under the
Indenture, which series of Debt Securities shall have the terms set forth
herein and in the Notes, and in consideration of the premises and the purchase
and acceptance of the Notes by the holders thereof, the Company mutually
covenants
31
<PAGE> 2
and agrees with the Trustee, for the equal and proportionate benefit of all
holders of the Notes, that the Indenture is supplemented and amended, to the
extent and for the purposes expressed herein, as follows:
ARTICLE ONE
Scope of This First
Supplemental Indenture
Section 1.1. Changes, etc. Applicable Only to the Notes. The
changes, modifications and supplements to the Indenture effected by this First
Supplemental Indenture in Sections 2.1 through 2.6 hereof shall be applicable
only with respect to, and govern the terms of, the Notes, which shall be
limited in aggregate principal amount to $125,000,000, except as provided in
Section 3.01(2) of the Indenture, and shall not apply to any other Debt
Securities which may be issued under the Indenture unless a supplemental
indenture with respect to such other Debt Securities specifically incorporates
such changes, modifications and supplements.
ARTICLE TWO
Amendments to the Indenture
Section 2.1. Amendments to Section 1.01. Section 1.01 of the
Indenture is hereby amended by adding the following definitions in their proper
alphabetical order:
"Consolidated Fixed Charge Coverage Ratio" of the
Company means, for the twelve-month period ended as of the last day of
the most recent fiscal quarter, the ratio of (a) the sum of
consolidated net income, consolidated interest expense and
consolidated income tax expense deducted in computing consolidated net
income (loss), in each case for such period, of the Company and its
consolidated Subsidiaries on a consolidated basis, to (b) the sum of
consolidated interest expense for such period and cash dividends paid
on any preferred stock of the Company during such period, all
determined in accordance with generally accepted accounting
principles.
"Moody's" means Moody's Investors Service, Inc. and its
successors in interest.
"Notes" means $125,000,000 aggregate principal amount of the
Company's 9.35% Senior Notes due November 1, 1999.
"Rating Agencies" means Moody's and S&P.
"S&P" means Standard & Poor's Ratings Group, a division of
McGraw-Hill, Inc., and its successors in interest.
32
<PAGE> 3
Section 2.2. Amendment to Article Ten. Article Ten of the
Indenture is hereby amended by deleting the words "Intentionally Omitted" and
inserting instead "Consolidation, Merger, Conveyance, Transfer or Lease" and
adding the following Sections 10.01 and 10.02:
"Section 10.01. Company May Consolidate, etc., Only
on Certain Terms.
The Company shall not consolidate with or merge into
any other corporation or convey, transfer or lease all or
substantially all of its assets as an entirety to any Person, unless:
(1) the corporation formed by such consolidation
or into which the Company is merged or the Person which acquires by
conveyance or transfer, or which leases, all or substantially all of
the assets of the Company as an entirety (the "successor corporation")
shall be a corporation organized and existing under the laws of the
United States or any State or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due
and punctual payment of the principal of (and premium, if any) and
interest on all the Notes and the performance of every covenant of
this Indenture on the part of the Company to be performed or observed;
(2) immediately after giving effect to such
transaction, no Event of Default, and no event which, after notice or
lapse of time, or both, would become an Event of Default, shall have
happened and be continuing; and
(3) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that such
consolidation, merger, conveyance, transfer or lease and such
supplemental indenture comply with this Article and that all
conditions precedent herein provided for relating to such transaction
have been complied with.
For purposes of this Section 10.01, assets of the
Company which did not account for at least 50% of the consolidated net
income of the Company for its most recent fiscal year ending prior to
the consummation of such transactions shall not in any event be deemed
to be all or substantially all of the assets of the Company.
Section 10.02. Successor Corporation Substituted.
Upon any consolidation with or merger into any other
corporation, or any conveyance, transfer or lease of all or
substantially all of the assets of the Company as an entirety in
accordance with Section 10.01, the successor corporation formed by
such consolidation or into which the Company is merged or to which
such conveyance, transfer or lease is made shall succeed to, and be
substituted for, and
33
<PAGE> 4
may exercise every right and power of, the Company under this
Indenture, as supplemented, with the same effect as if such successor
corporation had been named as the Company herein, and thereafter the
predecessor corporation shall be relieved of all obligations and
covenants under this Indenture, as supplemented, and the Notes."
Section 2.3. Amendments to Sections 12.07 and 12.08. Sections
12.07 and 12.08 of the Indenture are hereby amended by deleting the words
"Intentionally Omitted" and inserting instead the following new Sections 12.07
and 12.08:
"Section 12.07. Limitation Upon Mortgages and Liens.
The Company will not at any time directly or
indirectly create or assume, otherwise than in favor of the Company or
a Wholly-Owned Subsidiary, any mortgage, pledge or other lien or
encumbrance upon any stock of any Subsidiary directly owned by the
Company, any indebtedness of any Subsidiary to the Company or any
other property of the Company or any interest it may have therein,
whether now owned or hereafter acquired, without making effective
provision (and the Company covenants that in such case it will make or
cause to be made, effective provision) whereby the Notes shall be
secured by such mortgage, pledge, lien or encumbrance equally and
ratably with any and all other obligations and indebtedness thereby
secured, so long as any such other obligations and indebtedness shall
be so securedprovided, however, that the foregoing covenant shall not
be applicable to the following:
(a) (i) any mortgage, pledge or other lien or
encumbrance on any such asset hereafter acquired or
constructed by the Company, or on which property so
constructed is located, and created prior to,
contemporaneously with or within 180 days after, such
acquisition or construction, or the commencement of commercial
operation, of such asset to secure or provide for the payment
of any part of the purchase or construction price of such
asset, or (ii) the acquisition by the Company of such asset
subject to any mortgage, pledge, or other lien or encumbrance
upon such asset existing at the time of acquisition thereof,
whether or not assumed by the Company; provided that, in the
case of clauses (i) and (ii) of this Section 12.07(a), the
lien of any such mortgage, pledge or other lien does not
spread to an asset owned by the Company prior to such
acquisition or construction or to another asset thereafter
acquired or constructed other than fixed improvements on such
acquired or constructed property;
(b) any mortgage, pledge or other lien or
encumbrance created for the sole purpose of extending,
renewing or refunding any mortgage, pledge, lien or
encumbrance permitted by subsection (a) of this Section 12.07;
provided, however, that the principal amount of
34
<PAGE> 5
indebtedness secured thereby shall not exceed the principal
amount of indebtedness so secured at the time of such
extension, renewal or refunding and that such extension,
renewal or refunding mortgage, pledge, lien or encumbrance
shall be limited to all or any part of the same asset that
secured the mortgage, pledge or other lien or encumbrance
extended, renewed or refunded, or to another asset of the
Company not subject to the limitations of this Section 12.07;
(c) liens for taxes or assessments or
governmental charges or levies not then due and delinquent or
the validity of which is being contested in good faith, and
against which an adequate reserve has been established; liens
on any such asset created in connection with pledges or
deposits to secure public or statutory obligations or to
secure performance in connection with bids or contracts;
materialmen's, mechanics', carrier's, workmen's, repairmen's
or other like liens; or liens on any such asset created in
connection with deposits to obtain the release of such liens;
liens on any such asset created in connection with deposits to
secure surety, stay, appeal or customs bonds; liens created by
or resulting from any litigation or legal proceeding which is
currently being contested in good faith by appropriate
proceedings; leases and liens, rights of reverter and other
possessory rights of the lessor thereunder; zoning
restrictions, easements, rights-of-way or other restrictions
on the use of real property or minor irregularities in the
title thereto; and any other liens and encumbrances similar to
those described in this subsection, the existence of which
does not, in the opinion of the Company, materially impair the
use by the Company of the affected asset in the operation of
the business of the Company, or the value of such asset for
the purposes of such business;
(d) any mortgage, pledge or other lien or
encumbrance created after the date of this Indenture on any
asset leased to or purchased by the Company after that date
and securing, directly or indirectly, obligations issued by a
State, a territory or a possession of the United States, or
any political subdivision of any of the foregoing, or the
District of Columbia, to finance the cost of acquisition or
cost of construction of such asset, provided that the interest
paid on such obligations is entitled to be excluded from gross
income of the recipient pursuant to Section 103(a)(1) of the
Code (or any successor to such provision) as in effect at the
time of the issuance of such obligations;
(e) any mortgage, pledge or other lien or
encumbrance on any asset now owned or hereafter acquired or
constructed by the Company, or on which an asset so owned,
acquired or constructed is located, to
35
<PAGE> 6
secure or provide for the payment of any part of the
construction price or cost of improvements of such asset, and
created prior to, contemporaneously with or within 180 days
after, such construction or improvement; and
(f) any mortgage, pledge or other lien or
encumbrance not otherwise permitted under this Section 12.07;
provided, the aggregate amount of indebtedness outstanding at
any time secured by all such mortgages, pledges, liens or
encumbrances does not exceed the greater of $25,000,000 or 10%
of the consolidated stockholders' equity of the Company.
Section 12.08. Maintenance of Net Worth.
The consolidated stockholders' equity of the Company
at the end of any fiscal quarter shall not be less than $100,000,000
(without giving effect to any adjustment to consolidated stockholders'
equity for such fiscal quarter pursuant to Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 115);
provided that if the foregoing covenant is not satisfied for a fiscal
quarter as a result, in whole or in part, of a change in generally
accepted accounting principles which was implemented by the Company
during such fiscal quarter, the Company shall not be in default of the
foregoing covenant unless and until such covenant is not satisfied as
of the last day of the fourth fiscal quarter following the fiscal
quarter in which the change in generally accepted accounting
principles was implemented by the Company; andprovided further that
this Section 12.08 shall cease to be effective from and after the
first date on which the Notes are rated BBB- or higher by S&P and Baa3
or higher by Moody's or such other comparable ratings as such Rating
Agencies shall designate at any time in the future."
Section 2.4. Amendment to Section 12.09. The current Section
12.09 of the Indenture is hereby renumbered to become Section 12.10 of the
Indenture and the following Section 12.09 is hereby inserted immediately
following Section 12.08:
"Section 12.09. Maintenance of a Consolidated Fixed
Charge Coverage Ratio.
The Company shall maintain a Consolidated Fixed
Charge Coverage Ratio for the Company of at least 1.75:1.0; provided
that if the foregoing covenant is not satisfied for a period as a
result, in whole or in part, of a change in generally accepted
accounting principles which was implemented by the Company during the
last fiscal quarter of such period, the Company shall not be in
default of the foregoing covenant unless and until such covenant is
not satisfied at the end of the twelve-month period ended as of the
last day of the fourth fiscal quarter following the fiscal quarter in
which the change in generally accepted accounting principles was
implemented by the Company; and
36
<PAGE> 7
provided further that this Section 12.09 shall cease to be effective
from and after the first date on which the Notes are rated BBB- or
higher by S&P and Baa3 or higher by Moody's or such other comparable
ratings as such Rating Agencies shall designate at any time in the
future."
Section 2.5. Ranking. The Notes will be senior
unsecured obligations of the Company, ranking pari passu with all existing and
future senior indebtedness (including, without limitation, the indebtedness of
the Company represented by the notes and debentures referred to in Section 6.08
(c)(1) of the Indenture) of the Company and senior to all existing and future
subordinated indebtedness of the Company.
Section 2.6. Terms of the Notes. In accordance with
Section 3.01 of the Indenture, the Notes are subject to the terms set forth in
this First Supplemental Indenture including without limitation Exhibit A
hereto, the terms of which are hereby incorporated in their entirety by
reference. In addition to the other terms of the Notes which are set forth
elsewhere in this First Supplemental Indenture and Exhibit A hereto, the Notes
are subject to all of the provisions of the Indenture including, without
limitation, the Company's legal defeasance option and covenant defeasance
option pursuant to Section 15.02 of the Indenture. For purposes of Section
15.02 of the Indenture, the restrictive covenants referred to therein shall
include the covenants set forth in Article Two of this First Supplemental
Indenture.
ARTICLE THREE
Miscellaneous
Section 3.1. Defined Terms. Unless otherwise provided in this
First Supplemental Indenture, all defined terms used in this First Supplemental
Indenture shall have the meanings assigned to them in the Indenture.
Section 3.2. Conflict of Any Provision of Indenture with Trust
Indenture Act of 1939. If and to the extent that any provision of this First
Supplemental Indenture limits, qualifies or conflicts with another provision
included in this First Supplemental Indenture or in the Indenture which is
required to be included herein or therein by any of Sections 310 to 317,
inclusive, of the Trust Indenture Act of 1939, as amended, such required
provision shall control.
Section 3.3. New York Law to Govern. THIS FIRST SUPPLEMENTAL
INDENTURE AND THE NOTES SHALL BE DEEMED TO BE CONTRACTS MADE AND TO BE
PERFORMED ENTIRELY IN THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE WITHOUT
REGARD TO THE CONFLICTS OF LAW RULES OF SAID STATE.
Section 3.4. Counterparts. This First Supplemental Indenture
may be executed in any number of counterparts, each of
37
<PAGE> 8
which shall be an original, but such counterparts shall together constitute but
one and the same instrument.
Section 3.5. Effect of Headings. The Article and Section
headings herein are for convenience only and shall not affect the construction
hereof.
Section 3.6. Severability of Provisions. In case any
provision in this First Supplemental Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 3.7. Successors and Assigns. All covenants and
agreements in this First Supplemental Indenture by the parties hereto shall
bind their respective successors and assigns and inure to the benefit of their
respective successors and assigns, whether so expressed or not.
Section 3.8. Benefit of Supplemental Indenture. Nothing in
this First Supplemental Indenture, express or implied, shall give to any
Person, other than the parties hereto, any Security Registrar, any Paying Agent
and their successors hereunder, and the Holders of the Notes, any benefit or
any legal or equitable right, remedy or claim under this First Supplemental
Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed, all as of the day and year first
above written.
UNITED COMPANIES FINANCIAL CORPORATION
By:___________________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By:___________________________________
Name:
Title:
38
<PAGE> 9
EXHIBIT A
(FORM OF FACE OF NOTE)
UNITED COMPANIES FINANCIAL CORPORATION
9.35% Senior Notes due November 1, 1999
REGISTERED REGISTERED
No. R-___
CUSIP 909870 AA 5
If this Note is registered in the name of The Depository Trust
Company (the "Depositary") (55 Water Street, New York, New
York) or its nominee, this Note may not be transferred except
as a whole by the Depositary to a nominee of the Depositary or
by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such
nominee to a successor Depositary or a nominee of such
successor Depositary, unless and until this Note is exchanged
in whole or in part for Notes in definitive form. Unless this
certificate is presented by an authorized representative of
the Depositary to the Company or its agent for registration of
transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or such other name as
requested by an authorized representative of the Depositary
(and any payment is made to Cede & Co. or to such other entity
as is requested by an authorized representative of the
Depositary), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as
the registered owner hereof, Cede & Co. has an interest
herein.
UNITED COMPANIES FINANCIAL CORPORATION, a corporation duly
organized and validly existing under the laws of the State of Louisiana (herein
called the "Company", which term includes any successor corporation under the
Indenture, as defined on the reverse side hereof), for value received hereby
promises to pay to CEDE & CO., or registered assigns, the principal sum of
$ ( ) on November 1, 1999 in such
coin or currency of the United States of America as at the time of payment
shall be legal tender for the payment of public and private debts, and to pay
interest, semi-annually on May 1 and November 1 of each year, commencing May 1,
1995, on said principal sum in like coin or currency, at the rate per annum
specified in the title of this Note, from the May 1 or November 1, as the case
may be, next preceding the date of this Note to which interest has been paid or
duly provided for, unless the date hereof is a date to which interest has been
paid or duly
39
<PAGE> 10
provided for, in which case from the date of this Note, or unless no interest
has been paid or duly provided for on the Notes, in which case from November 2,
1994, until payment of said principal sum has been made or duly provided for.
Notwithstanding the foregoing, if the date hereof is after any April 15 or
October 15, as the case may be, and before the following May 1 or November 1,
this Note shall bear interest from such May 1 or November 1; provided, however,
that if (A) the Termination Date has not occurred and (B) the Company shall
consummate an acquisition of assets from, or an equity interest in, another
Person (other than a Subsidiary), in each case other than in the ordinary
course of business, or a merger or consolidation with another corporation
(other than a Subsidiary) (a "Business Combination") and (i) such Business
Combination involves the issuance of securities or other payment of
consideration by the Company to one or more third parties or the assumption by
the Company of indebtedness for borrowed money which consideration and
assumption of indebtedness for borrowed money have an aggregate Fair Market
Value in excess of $50 million and (ii) either (a) a Rating Decline occurs
during the period commencing on the date of the initial public announcement of
the proposed Business Combination and ending on the thirtieth day after such
date (the "Public Announcement Period") which is directly attributable to such
proposed Business Combination or (b) a Rating Agency publicly states that the
rating of the Notes is under review with negative or uncertain implications
either (1) during the Public Announcement Period because of the public
announcement of the proposed Business Combination or (2) during the period
commencing on the date of the initial public announcement of a material change
in the structure of the proposed Business Combination and ending on the
thirtieth day after such date because of the public announcement of such
material change, and a Rating Decline occurs subsequent thereto and prior to
the thirtieth day after the consummation of the Business Combination which is
directly attributable to such Business Combination, then the Note shall bear
interest at the Reset Rate. The interest so payable on May 1 or November 1
will be paid to the Person in whose name this Note is registered at the close
of business on the Regular Record Date, which shall be the April 15 or October
15 (whether or not a Business Day) next preceding such May 1 or November 1,
provided that any such interest not punctually paid or duly provided for shall
be payable as provided in the Indenture.
For purposes of the preceding paragraph: "Fair Market Value"
means (a) in the case of cash, the amount thereof, (b) in the case of
indebtedness for borrowed money, the principal amount thereof outstanding, (c)
in the case of any securities, the average of the last sales prices for such
securities on the five trading days ending five days prior to the date of
determination or, if such securities do not have an existing public trading
market, the fair market value reasonably ascribed to such securities in good
faith by the Board of Directors of the Company or the Executive Committee
thereof as of the date of determination (which valuation shall be evidenced by
a resolution of the Board of Directors of the Company or the Executive
Committee thereof, as the case may be, which shall be delivered
40
<PAGE> 11
to the Trustee together with an Officers' Certificate); and (d) in the case of
any other form of consideration, the fair market value reasonably ascribed to
such consideration in good faith by the Board of Directors of the Company or
the Executive Committee thereof as of the date of determination (which
valuation shall be evidenced by a resolution of the Board of Directors of the
Company or the Executive Committee thereof, as the case may be, which shall be
delivered to the Trustee together with an Officers' Certificate); "Rating
Decline" means any reduction in the rating of the Notes by either Rating Agency
to a rating which is BB+ or lower, in the case of S&P, or Ba3 or lower, in the
case of Moody's (or such comparable ratings as such Rating Agencies shall
designate at any time in the future); "Reset Rate" means, prior to the
Termination Date and so long as the Notes continuously are rated BB+ or lower
by S&P or Ba3 or lower by Moody's, 10.10% per annum, provided that if as a
result of a Rating Decline referred to in clause (a) or (b) of the first
proviso to the preceding paragraph, the Notes are rated B+ or lower by S&P or
B1 or lower by Moody's (or such comparable ratings as such Rating Agencies
shall designate at any time in the future), the Reset Rate shall be 11.35% per
annum prior to the Termination Date and so long as the Notes continuously are
rated B+ or lower by S&P or B1 or lower by Moody's (or such comparable ratings
as such Rating Agencies shall designate at any time in the future), and
provided further that if none of the foregoing is applicable, the interest rate
borne by the Notes shall be 9.35% per annum; and "Termination Date" means the
first date on which the Notes are rated BBB- or higher by S&P and Baa3 or
higher by Moody's (or such other comparable ratings as such Rating Agencies
shall designate at any time in the future) for four consecutive fiscal quarters
of the Company. If the interest rate borne by the Notes is reset as
contemplated above (including a decrease in such interest rate due to an
increase in the rating of the Notes by a Rating Agency) the Company shall
notify the Trustee in writing of such occurrence and the date thereof as
promptly as practicable and deliver therewith an Officers' Certificate
certifying the interest rate to be borne by the Notes. The Company must
provide each Holder with notice of each change in the interest rate on the
Notes (which notice shall include the new interest rate to be borne by the
Notes and the effective date of the change in the interest rate) and may
request the Trustee to give such notice to the Holders, on the Company's behalf
and at the Company's expense. The notice shall be sent to each Holder at such
Holder's last address as it shall appear upon the Security Register for the
Notes maintained by the Security Registrar pursuant to Section 3.05 of the
Indenture.
Payment of the principal of, and premium, if any, on, this
Note will be made in immediately available funds upon surrender of the Notes at
the Corporate Trust Office of the Trustee. Interest will be paid by check
mailed to the address of the Person entitled thereto as it appears in the
Security Register on the applicable Regular Record Date or, at the option of
the Company, by wire transfer to an account maintained by such Person with a
bank located in the United States.
41
<PAGE> 12
THIS NOTE SHALL BE DEEMED A CONTRACT UNDER THE LAWS OF THE
STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF SAID STATE.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to herein by manual signature, this Note shall
not be entitled to any benefit under the Indenture or be valid or obligatory
for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed under its corporate seal.
Dated: _____________________
TRUSTEE'S CERTIFICATE OF UNITED COMPANIES FINANCIAL CORPORATION
AUTHENTICATION
This is one of the series of
Debt Securities issued under
the within mentioned Indenture.
By__________________________
Title:
THE FIRST NATIONAL BANK OF
CHICAGO
As Trustee Attest
By__________________________ By__________________________
Title: Title:
42
<PAGE> 13
(REVERSE SIDE OF NOTE)
UNITED COMPANIES FINANCIAL CORPORATION
9.35% Senior Notes Due November 1, 1999
This Note is one of a duly authorized issue of Debt Securities
of the Company designated as its 9.35% Senior Notes due November 1, 1999
(herein called the "Notes"), limited in aggregate principal amount to
$125,000,000, issued and to be issued under an Indenture dated as of October 1,
1994, as amended and supplemented by the First Supplemental Indenture dated as
of November 2, 1994 (herein called the "Indenture"), between the Company and
The First National Bank of Chicago, as trustee (herein called the "Trustee,"
which term includes any successor Trustee under the Indenture), to which
Indenture reference is hereby made for a statement of the respective rights of
the Company, the Trustee and the Holders of the Notes, and the terms upon which
the Notes are, and are to be, authenticated and delivered.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Note may be registered on
the Security Register relating to the Notes, upon surrender of this Note for
registration of transfer at the office or agency of the Company maintained for
such purpose, and thereupon one or more new Notes, of authorized denominations
and for the same aggregate principal amount with like terms and conditions,
will be issued to the designated transferee.
The Notes are issuable only as registered Notes without
Coupons in the denominations of $1,000 and any integral multiple thereof. As
provided in the Indenture, and subject to certain limitations therein set
forth, the Notes are exchangeable for a like aggregate principal amount of
Notes with like terms and conditions of different authorized denominations, as
requested by the Holder surrendering the same.
Except as otherwise provided in the Indenture, no service
charge will be made for any such registration of transfer or exchange, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
Prior to due presentment for registration of transfer of this
Note, the Company, the Trustee and any agent of the Company or the Trustee may
treat the person in whose name this Note is registered as the owner hereof for
the purpose of receiving payment as herein provided and for all other purposes,
whether or not this Note be overdue, and neither the Company, the Trustee nor
any such agent shall be affected by notice to the contrary.
If an Event of Default shall occur with respect to the Notes,
the principal of all the Notes, plus accrued and unpaid interest, may be
declared due and payable in the manner and with the effect provided in the
Indenture.
43
<PAGE> 14
The Indenture contains provisions permitting the Company and
the Trustee, with the written consent of the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of each series
affected by such supplemental indenture, voting separately, to enter into
supplemental indentures for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of the Indenture or of
modifying in any manner the rights of the Holders under the Indenture of such
Debt Securities, or Coupons, if any; provided, however, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Debt Security of each such series affected thereby, (i) change the
Stated Maturity of the principal of, or installment of interest, if any, on,
any Debt Security, or reduce the principal amount thereof, or the interest
thereon or any premium payable upon redemption thereof, or change the Stated
Maturity of or reduce the amount of any payment to be made regarding any
Coupon, or change the Currency or Currencies of the payment of principal of
(and premium, if any) or interest on such Debt Security is denominated or
payable, or reduce the amount of the principal of a Discount Security that
would be due and payable upon a declaration of acceleration of the Maturity, or
adversely affect the right of repayment or repurchase, if any, at the option of
the Holder, or reduce the amount of, or postpone the date fixed for, any
payment under any sinking fund, or impair the right to institute suit for the
enforcement of any payment on or after the Stated Maturity thereof, or (ii)
reduce the percentage in principal amount of Outstanding Debt Securities of any
series, the Holders of which are required to consent to any such supplemental
indenture. The Indenture also contains provisions permitting the Holders of
not less than a majority in principal amount of the Outstanding Debt Securities
of any series, on behalf of the Holders of all the Debt Securities of any such
series, to waive compliance by the Company with certain provisions of the
Indenture and certain past defaults or Event of Default under the Indenture and
their consequences. Any such consent or waiver by the Holder of this Note
shall be conclusive and binding upon such Holder and upon all future Holders of
this Note and of any Note issued upon the registration of transfer hereof or in
exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Note.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the times, place and rate, and in the coin or currency, herein
prescribed.
No recourse shall be had for the payment of the principal of
or the interest on this Note, or any part thereof, or of indebtedness
represented hereby, or upon any obligation, covenant or agreement of the
Indenture or any indenture supplemental thereto, against any incorporator, or
against any stockholder, officer or director, as such, past, present or future,
of the Company or any predecessor or successor corporation, either directly or
indirectly through the Company, or any such predecessor or successor
corporation whether by
44
<PAGE> 15
virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise; it being expressly agreed and
understood that the Indenture or any indenture supplemental thereto and this
Note are solely corporate obligations, and that no personal liability
whatsoever shall attach to, or be incurred by, any such incorporator,
stockholder, officer or director, past, present or future, of the Company or
any predecessor or successor corporation, either directly or indirectly through
the Company or any such predecessor or successor corporation, because of the
indebtedness authorized under the Indenture or under or by reason of any of the
obligations, covenants, promises or agreements contained in the Indenture or in
this Note or to be implied therefrom or herefrom; and that any such personal
liability, by the acceptance hereof and as part of the consideration for the
issue hereof, is expressly waived and released.
All terms used in this Note which are defined in this Note
shall have the meanings assigned to them in the Indenture.
______________________________
The following abbreviations, when used in the inscription on
the face of the within Note, shall be construed as though they were written out
in full according to applicable laws and regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entirety
JT TEN -- as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT
MIN ACT -- _______________ Custodian _________________
(Cust) (Minor)
under Uniform Gifts to Minors Act
____________________________
(State)
Additional abbreviations may also be used though not in the
above list.
45
<PAGE> 16
_______________________________________
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
UNITED COMPANIES FINANCIAL CORPORATION
(a Louisiana corporation)
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
************************************
* *
* *
* *
************************************
________________________________________________________________________________
(Name and Address of Assignee, including zip code)
________________________________________________________________________________
the within Note, and all rights thereunder, hereby irrevocably constituting and
appointing
_______________________________________________________ Attorney to transfer
said Note on the books of the Company, with full power of substitution in the
premises.
Dated:
NOTICE: The signature to this assignment must correspond with
the name as it appears upon the face of the within Note in every particular,
without alteration or enlargement or any change whatever and must be
guaranteed.
46
<PAGE> 1
EXHIBIT 10
$125,000,000
Debt Securities
TERMS AGREEMENT
October 26, 1994
To: United Companies Financial Corporation
4041 Essen Lane
Baton Rouge, Louisiana 70809
Dear Sirs:
Reference is made to the United Companies Financial Corporation
Securities Underwriting Agreement-Basic Provisions dated September 29, 1994
(the "Underwriting Agreement"). This Agreement is the Terms Agreement referred
to in the Underwriting Agreement. We offer to purchase, on and subject to the
terms and conditions of the Underwriting Agreement, the following securities
("Securities") on the following terms:
<TABLE>
<S> <C>
Title: 9.35% Senior Notes due November 1, 1999
Principal Amount to be issued: $125,000,000
Date of maturity: November 1, 1999
Interest rate: 9.35%
Interest payment dates: May 1 and November 1 of each year.
Public offering price: 100.00%, plus accrued interest, if any, from November 2, 1994.
Purchase Price: 98.75%, plus accrued interest, if any, from November 2, 1994
(payable by wire transfer in same-day federal funds, less one day's
interest at the federal funds rate to an account or accounts to be
specified by the Company).
Underwriting Commission: 1.25%
Redemption provisions: The Notes are not redeemable prior to maturity.
</TABLE>
47
<PAGE> 2
<TABLE>
<S> <C>
Indenture Provisions: As described in the Indenture dated as of October 1, 1994, between
the Company and The First National Bank of Chicago, as Trustee, as
supplemented by the First Supplemental Indenture, dated as of
November 2, 1994.
Conversion or None.
Exchange Provisions:
Delayed Delivery Contracts: None.
Closing date and location: November 2, 1994, 10:00 A.M.;
Simpson Thacher & Bartlett, 425 Lexington Avenue
New York, New York 10017
Additional co-managers: Chemical Securities Inc. and NationsBanc Capital Markets, Inc.
Notices to Underwriters: Notices to the Underwriters shall be directed to:
Merrill Lynch & Co.
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, NY 10281
Attention of Peter Jachym,
with copy to:
Simpson Thacher & Bartlett,
Attention of Peter J. Gordon
Option Securities: None.
Other terms: The Company will reimburse the Underwriters up to an aggregate
amount of $200,000, pursuant to Section 4 of the Underwriting
Agreement, if the Underwriting Agreement is terminated in
accordance with the provisions of Section 5 or 9(a)(i) thereto.
</TABLE>
The Company represents and warrants to each of us that the
representations and warranties of the Company set forth in Section 1 of the
Underwriting Agreement are accurate as though expressly made at and as of the
date hereof. All of the provisions contained in the Underwriting Agreement, a
copy of which is attached hereto as Annex A, are herein incorporated by
reference in their entirety and shall be deemed to be a part of this Agreement
to the same extent as if such provisions had been set forth in full herein.
Terms defined in such document are used herein as therein defined.
As contemplated by Section 2 of the Underwriting Agreement,
attached as Schedule A hereto is a completed list of
48
<PAGE> 3
our respective underwriting commitments, which shall be a part of this
Agreement and the Underwriting Agreement.
This Agreement shall be governed by the laws of the State of
New York without regard to the conflicts of law principles thereof.
If the foregoing is in accordance with your understanding of
the agreement between the Underwriters and you, please sign and return to the
Underwriters a counterpart hereof, whereupon this instrument along with all
counterparts and together with the Underwriting Agreement shall be a binding
agreement between the Underwriters and you in accordance with its terms and the
terms of the Underwriting Agreement.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED (for itself as
Underwriter and as Representative of
the Underwriters)
By: ________________________
Peter Jachym
Director
Confirmed and accepted as of
the date first above written:
UNITED COMPANIES
FINANCIAL CORPORATION
By: ________________________
Laura T. Martin
Senior Vice President
and Treasurer
49
<PAGE> 4
SCHEDULE A
<TABLE>
<CAPTION>
Principal Amount
of Debt
Securities
Underwriter to be Purchased
----------- ---------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . $ 87,500,000
Chemical Securities Inc. . . . . . . . . . 18,750,000
NationsBanc Capital Markets, Inc.. . . . . 18,750,000
------------
Total $125,000,000
============
</TABLE>
50
<PAGE> 1
EXHIBIT 11
UNITED COMPANIES FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
--------- ----------- --------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Primary Earnings Per Share
--------------------------
Income available to common shareholders:
----------------------------------------
Income from continuing operations . . . . . . . . $ 15,253 $ 9,827 $ 43,662 $ 16,773
Less: Loss from discontinued operations . . . . . - - (17,585)
--------- ----------- --------- ---------
Net income (loss) . . . . . . . . . . . . . . . . 15,253 9,827 43,662 (812)
Less: Dividends on preferred stock . . . . . . . . - (325) (333)
--------- ----------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 15,253 $ 9,502 $ 43,662 $ (1,145)
========= =========== ========= =========
Weighted average number of common and
common equivalent shares:
-------------------------------------
Average common shares outstanding . . . . . . . . 12,444 9,329 12,396 9,128
Add: Dilutive effect of stock options and warrants
after application of treasury stock method 534 468 579 277
--------- ----------- --------- ---------
12,978 9,797 12,975 9,405
========= =========== ========= =========
Earnings (loss) per share:
--------------------------
Income from continuing operations . . . . . . . . . $ 1.18 $ .97 $ 3.36 $ 1.75
Loss from discontinued operations . . . . . . . . - - (1.87)
--------- ----------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 1.18 $ .97 $ 3.36 $ (.12)
========= =========== ========= =========
Fully Diluted Earnings Per Share
--------------------------------
Income available to common shareholders:
----------------------------------------
Income from continuing operations . . . . . . . . . $ 15,253 $ 9,827 $ 43,662 $ 16,773
Less: Loss from discontinued operations . . . . . - - - (17,585)
--------- ----------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . $ 15,253 $ 9,827 $ 43,662 $ (812)
========= =========== ========= =========
Weighted average number of common and
all dilutive contingent shares:
--------------------------------------
Average common shares outstanding . . . . . . . . . 12,444 9,329 12,396 9,128
Add: Dilutive effect of preferred stock after
application of "if converted" method . . . - 1,792 - 614
Dilutive effect of stock options and warrants
after application of treasury stock method 534 579 580 542
--------- ----------- --------- ---------
12,978 11,700 12,976 10,284
========= =========== ========= =========
Earnings (loss) per share:
--------------------------
Income from continuing operations . . . . . . . . . . $ 1.18 $ .84 $ 3.36 $ 1.63
Loss from discontinued operations . . . . . . . . . . - - - (1.71)
--------- ----------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . $ 1.18 $ .84 $ 3.36 $ (.08)
========= =========== ========= =========
</TABLE>
51
<PAGE> 1
EXHIBIT 15
United Companies Financial Corporation:
We have made a review, in accordance with standards established by the American
Institute of Certified Public Accountants, of the unaudited interim condensed
consolidated financial information of United Companies Financial Corporation
and subsidiaries for the periods ended September 30, 1994 and 1993, as
indicated in our report dated November 4, 1994; because we did not perform an
audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994, is
being incorporated by reference in the following: Registration Statement No.
33-15326 on Form S-8 pertaining to the United Companies Financial Corporation
1986 Employee Incentive Stock Option Plan, Registration Statement No. 33-17366
on Form S-8 pertaining to the United Companies Financial Corporation Employees'
Savings Plan and Trust, Registration Statement No. 33-29994 on Form S-8
pertaining to the 1989 Stock Incentive Plan and the 1989 Non-Employee Director
Stock Option Plan, Registration Statement No. 33-54955 on Form S-8 pertaining
to the 1993 Stock Incentive Plan and the 1993 Non-Employee Director Stock
Option Plan, Registration Statement No. 33-68626 on Form S-3 pertaining to the
registration of 1,951,204 shares of United Companies Financial Corporation
Common Stock, Registration Statement No. 33-55227 on Form S-3 pertaining to the
registration of $200 million of United Companies Financial Corporation Debt
Securities and Preferred Stock and Registration Statement No. 33-52739 on Form
S-3 pertaining to the registration of 200,000 shares of United Companies
Financial Corporation Common Stock.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under
the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ DELOITTE & TOUCHE LLP
Baton Rouge, Louisiana
November 4, 1994
52
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarterly period ended September 30, 1994 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 79,749
<SECURITIES> 1,032,943
<RECEIVABLES> 418,040
<ALLOWANCES> 19,654
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 29,955
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,973,421
<CURRENT-LIABILITIES> 0
<BONDS> 197,120
<COMMON> 25,944
0
0
<OTHER-SE> 138,004
<TOTAL-LIABILITY-AND-EQUITY> 1,973,421
<SALES> 0
<TOTAL-REVENUES> 267,197
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 180,744
<LOSS-PROVISION> 9,711
<INTEREST-EXPENSE> 9,672
<INCOME-PRETAX> 67,070
<INCOME-TAX> 23,408
<INCOME-CONTINUING> 43,662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,662
<EPS-PRIMARY> 3.36
<EPS-DILUTED> 3.36
</TABLE>
