SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996 Commission File Number 0-9934
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Health Insurance Of Vermont, Inc.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Vermont 03-0211497
- ------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Roosevelt Highway, Colchester, Vermont 05446
- ------------------------------------------ ----------
(Address of principal executive office) (Zip Code)
Issuer's telephone number, including area code 802/655-5500
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act past 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 .
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APPLICABLE ONLY TO CORPORATE ISSUERS
As of July 24, 1996, there were 550,095 shares outstanding of the issuer's
$3.00 par value common stock.
PART 1 - FINANCIAL INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31
ASSETS 1996 1995
------ -------- -----------
<S> <C> <C>
Investments:
Fixed maturities:
Bonds, available-for-sale $13,013,231 $12,385,547
Short-term investments:
Certificates of deposit 200,000 290,000
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Total Investments 13,213,231 12,675,547
Cash 665,897 1,072,807
Accrued investment income 257,235 244,743
Other assets 106,348 109,638
Intangible asset - pension 53,151 53,151
Reinsurance recoverable on paid losses 14,166 25,576
Prepaid reinsurance premium 90,805 96,409
Reinsurance receivables 1,397,335 1,685,495
Deferred policy acquisition costs 4,100,060 4,013,804
Cash surrender value of life insurance 579,822 540,386
Property and equipment, at cost:
Land and office building 602,464 602,464
Office equipment and furniture 471,161 447,814
Less accumulated depreciation (470,427) (430,030)
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Net property and equipment 603,198 620,248
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Total Assets $21,081,248 $21,137,804
=========== ===========
LIABILITIES
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Policy liabilities:
Future accident and health policy benefits and claims $10,913,064 $10,820,386
Unearned premiums 479,504 480,311
Other policy claims and benefits 398,331 444,522
Other policyholders' funds 32,159 36,741
Additional liability - pension 95,135 95,135
Other liabilities 343,242 327,460
Federal income taxes payable - 7,778
Deferred federal income taxes 150,515 205,491
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Total Liabilities 12,411,950 12,417,824
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STOCKHOLDERS' EQUITY
--------------------
Common stock, $3.00 par value, 1,000,000 shares
authorized; 549,095 shares issued and outstanding 1,647,285 1,647,285
Additional paid-in capital 1,193,642 1,193,642
Pension liability adjustment (35,724) (35,724)
Net unrealized gain (loss) on debt securities 35,371 282,893
Retained earnings, unappropriated 5,828,724 5,631,884
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Total Stockholders' Equity 8,669,298 8,719,980
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Total Liabilities and Stockholders' Equity $21,081,248 $21,137,804
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</TABLE>
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Premiums $1,603,019 $1,561,972 $3,157,728 $3,059,966
Net investment income 223,055 208,382 448,540 396,994
---------- ---------- ---------- ----------
Total Income 1,826,074 1,770,354 3,606,268 3,456,960
Benefits, Losses and Expenses:
Benefits, claims, losses and
settlement expenses 854,709 880,066 1,594,733 1,670,961
Underwriting, acquisition and
insurance expenses 885,374 858,264 1,789,437 1,723,848
---------- ---------- ---------- ----------
Total Benefits, Losses and Expenses 1,740,083 1,738,330 3,384,170 3,394,809
---------- ---------- ---------- ----------
Income Before Income Tax Expense 85,991 32,024 222,098 62,151
---------- ---------- ---------- ----------
Income Tax Expense:
Current 21,682 - 51,418 -
Deferred (7,063) 5,444 (13,661) 10,566
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Total Income Tax Expense 14,619 5,444 37,757 10,566
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Net Income $ 71,372 $ 26,580 $ 184,341 $ 51,585
========== ========== ========== ==========
Earnings Per Share $.13 $.05 $.34 $.10
==== ==== ==== ====
Shares Used To Calculate Earnings
Per Share 549,095 531,596 549,095 531,596
======= ======= ======= =======
Earnings Per Share (Fully Diluted) $.13 $.05 $.34 $.10
==== ==== ==== ====
Shares Used To Calculate Earnings Per
Share (Fully Diluted) 549,675 537,596 549,675 537,596
======= ======= ======= =======
Dividends Per Share NONE NONE NONE NONE
==== ==== ==== ====
</TABLE>
The above financial information, in the opinion of management reflects all
adjustments necessary to a fair statement, and has been prepared in
accordance with generally accepted accounting principals.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------------
1996 1995
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<S> <C> <C>
Cash flow from operations:
Net income $ 184,341 $ 51,585
Adjustments to reconcile net income to
net cash provided by operating activities:
Policy acquisition costs deferred (440,570) (503,035)
Amortization of deferred acquisition costs 354,314 299,329
Increase (decrease) in deferred federal income taxes (13,661) 10,566
Depreciation of property and equipment 40,396 43,585
Accretion of fixed maturities (9,628) (24,157)
Changes in operating assets and liabilities:
Decrease in federal income taxes payable - (3,803)
Increase in policy liabilities 45,680 493,208
(Increase) decrease in reinsurance receivables 288,160 (31,586)
Increase in accrued investment income (12,492) (9,945)
(Increase) decrease in other assets 10,498 (29,052)
Increase (decrese) in reinsurance recoverable 11,410 (982)
Increase (decrease) in other liabilities (5,048) 127,243
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Total provided by operations 453,400 422,956
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Cash flow from investing activities:
Sources:
Proceeds from matured fixed maturities 590,000 2,667,000
Principal payments on bonds 79,506 39,367
Uses:
Purchase of fixed maturities (1,495,781) (2,455,859)
Purchase of other investments (39,436) (139,708)
Purchase of furniture and equipment (23,347) (15,718)
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Total provided (used) by investing activities (889,058) 95,082
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Cash flow from financing activities:
Sources:
Increase in premium deposit funds 26,740 25,571
Other 2,008 37,467
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Total provided by financing actives 28,748 63,038
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Net increase (decrease) in cash and cash equivalents (406,910) 581,076
Cash and cash equivalents at beginning of period 1,072,807 248,455
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Cash and cash equivalents at end of period $ 665,897 $ 829,531
========== ==========
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Condition
The Company is engaged in the accident and health insurance business,
which by its nature has historically provided substantial cash flow. Cash
flow provided by operations, as shown by the Statement of Cash Flows, was
approximately 13% of total income for the six month period ended June 30,
1996. For the same period in the prior year, cash flow was approximately
12% and is expected to remain in a similar range in the near future.
The Company utilizes its excess cash flow for investing purposes and
at June 30, 1996, approximately 69%, or $14,458,950, of its assets were
readily convertible into cash. This compares to approximately 69% at March
21, 1996, and 68% at December 31, 1995.
There has been no material change in the Company's asset mix or in the
makeup of its liabilities.
The Company does not have any material commitment for capital
expenditures at this time.
Results of Operations
During the six month period under review, the volume of new business
as measured by annualized premiums amounted to approximately $706,000 as
compared to approximately $877,000 during the same period prior year and
$812,000 at June 30, 1994. During the same period, policies not renewing
amounted to approximately $610,000 for 1996, up from $573,000 in 1995. This
resulted in an increase in annualized premium in force of approximately
$96,000 to approximately $6,803,000. This compares with an increase in
annualized premium in force of approximately $304,000 for the same period in
the prior year.
An increase in investment income and continued increases in the volume
of business the Company conducts allowed for an increase in total income, as
shown by the Statements Of Income, of approximately $149,000 over that
posted for the same period in the prior year. This increase coupled with
decreases in benefits under accident and health policies of approximately
$76,000 and underwriting and insurance expenses of approximately $66,000,
together with an increase in income tax expense of $27,000, increased the
Company's net income from $52,000 for the six month period ended June 30,
1995, to approximately $184,000 for the six month period currently under
review. Translated to a per share basis this amounts to an increase of $.24
from $.10 to $.34, respectively.
With the signing of an amendment to the Agreement and Plan of Merger
by and between the Company and Penn Treaty American Corporation, both
parties continue to move forward toward completion of the transaction. The
anticipated access to Penn Treaty's agency force allows for management's
continued optimism for future premium growth.
PART II. OTHER INFORMATION
Item 1.Legal Proceedings.
The Company is not aware of any material pending legal proceedings.
Item 2.Changes in Securities.
The Company has not made any changes which would modify the rights of the
holders of its registered securities.
Item 3.Defaults Upon Senior Securities.
The Company is not in default in the payment of any principal or dividends.
Item 4.Submission of Matters to a vote of Security Holders.
The Company did not submit any matters to a vote of security-holders during
the period covered by this report.
Item 5.Other Information.
On July 11, 1996, at a special meeting of the shareholders of the Company,
the shareholders approved of and adopted the Agreement and Plan of Merger by
and between the Company and Penn Treaty American Corporation dated as of
March 15, 1996, and amended as of May 10, 1996, and, pursuant thereto, the
merger of the Company with a wholly owned subsidiary of Penn Treaty American
Corporation by the following vote:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<C> <C> <C>
465,159 4,236 5,347
</TABLE>
Completion of the merger is subject to the receipt of required regulatory
approvals and other contingencies as more fully set forth in the Merger
Agreement.
At the July 11, 1996, special meeting, the shareholders of the Company also
approved of the following actions:
1. Election of Robert J. Kecseg and David W. Menard to the Board of
Directors of the Company by the following votes:
<TABLE>
<CAPTION>
Name For Against/Withheld Abstain
---- --- ---------------- -------
<S> <C> <C> <C>
Robert J. Kecseg 423,364 78,243 253
David W. Menard 423,364 78,243 253
</TABLE>
Other Directors continuing in office were Alfred J. Beauchamp, James L.
Fraser, Robert S.W. Leong, John W. Mahoney and Robert S. Savage.
2. Approval of the reimbursement by the Board of Directors of out-
of-pocket expenses incurred by Robert S.W. Leong and the Committee to
Maximize Shareholder Value at Health Insurance of Vermont, Inc., in
connection with the proxy solicitation and other actions taken by such
persons during the period December of 1994 through September of 1995, which
totaled $54,548 by the following vote:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<C> <C> <C>
391,495 90,689 8,632
</TABLE>
3. Election of James L. Fraser as secretary of the Company by the
following vote:
<TABLE>
<CAPTION>
For Against
--- -------
<C> <C>
423,113 78,082
</TABLE>
Item 6.Exhibits and Reports on Form 8-K.
On May 13, 1996, the Company filed a Form 8-K/A amending its Form 8-K filed
on March 22, 1996. The Form 8-K/A reflected the amendment, as of May 10,
1996, of the Agreement and Plan of Merger (the "Merger Agreement") by and
between the Company and Penn Treaty American Corporation ("Penn Treaty")
dated March 15, 1996.
Pursuant to the amendment, certain changes were made with respect to the per
share price limitations imposed upon Penn Treaty stock in connection with
the proposed merger. In addition, certain other changes were made in the
formula used to determine the price of Penn Treaty stock for the purposes of
the Merger Agreement.
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HEALTH INSURANCE OF VERMONT, INC.
August 12, 1995 /s/ John W. Mahoney
John W. Mahoney, President
August 12, 1995 /s/ David W. Lesperance
David W. Lesperance, Treasurer
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 12,970,615
<DEBT-CARRYING-VALUE> 12,970,615
<DEBT-MARKET-VALUE> 13,013,231
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 12,962,331
<CASH> 865,897
<RECOVER-REINSURE> 14,166
<DEFERRED-ACQUISITION> 4,100,060
<TOTAL-ASSETS> 21,081,248
<POLICY-LOSSES> 10,913,064
<UNEARNED-PREMIUMS> 479,504
<POLICY-OTHER> 398,331
<POLICY-HOLDER-FUNDS> 32,159
<NOTES-PAYABLE> 0
0
0
<COMMON> 1,647,285
<OTHER-SE> 7,022,613
<TOTAL-LIABILITY-AND-EQUITY> 21,081,248
3,157,728
<INVESTMENT-INCOME> 448,540
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 0
<BENEFITS> 1,594,733
<UNDERWRITING-AMORTIZATION> 354,314
<UNDERWRITING-OTHER> 1,435,123
<INCOME-PRETAX> 222,098
<INCOME-TAX> 37,757
<INCOME-CONTINUING> 184,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184,341
<EPS-PRIMARY> $.34
<EPS-DILUTED> $.34
<RESERVE-OPEN> 2,115,228
<PROVISION-CURRENT> 946,632
<PROVISION-PRIOR> (136,917)
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 773,378
<RESERVE-CLOSE> 2,151,565
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
