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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Period Ended September 30, 1995
Commission File #2-80840
UNIVERSAL HOLDING CORP.
(Exact name of registrant as specified in its charter)
NEW YORK 11-2580136
----------------------- -------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
Mt. Ebo Corporate Park, Brewster, NY 10509
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 278-4094
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- ------
The number of shares outstanding of each of the Registrant's Common Stock
and Common Stock Warrants as of November 1, 1995 were 6,877,097 and 679,611,
respectively.
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<PAGE>
UNIVERSAL HOLDING CORP.
FORM 10-Q
CONTENTS
Page No.
PART I - FINANCIAL INFORMATION
Consolidated Balance Sheets at September 30, 1995
and December 31, 1994 ..................................... 3
Consolidated Statements of Operations for the nine
months ended September 30, 1995 and September 30, 1994 .... 4
Consolidated Statements of Operations for the three
months ended September 30, 1995 and September 30, 1994 .... 5
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1995 and September 30, 1994 .... 6
Notes to Consolidated Financial Statements .................. 7-10
Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................... 10-13
PART II - OTHER INFORMATION .......................................... 14
Signature ................................................... 14
<PAGE>
UNIVERSAL HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS:
Investments:
Cash and cash equivalents, at cost which approximates market .............................. $ 10,413,794 $ 16,420,763
Fixed maturities (Notes 5 and 6):
Held to maturity, at amortized cost (fair value $34,994,336 and $33,356,133) ........... 36,240,000 38,354,572
Available for sale, at fair value (amortized cost $74,636,612 and $67,647,704) ......... 74,577,965 63,845,179
Equity securities, at fair value (cost $46,133 and $61,133) ............................... 19,982 33,502
Policy loans .............................................................................. 5,899,236 5,510,141
Property tax liens ........................................................................ 251,118 175,675
Mortgage loans ............................................................................ 1,084,037 1,147,409
------------ ------------
Total investments ......................................................................... 128,486,132 125,487,241
Accrued investment income .................................................................... 2,460,704 2,151,759
Amounts due from reinsurers .................................................................. 14,666,778 11,943,628
Deferred policy acquisition costs ............................................................ 16,105,712 14,485,850
Present value of future profits .............................................................. 1,693,960 1,847,383
Deferred income tax asset .................................................................... 391,073 391,073
Other assets ................................................................................. 10,910,823 8,555,232
------------ ------------
Total assets............................................................................. $174,715,182 $164,682,166
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Policyholder account balances................................................................. $114,008,326 $108,777,009
Reserves for future policy benefits .......................................................... 21,715,143 22,674,799
Policy and contract claims-life .............................................................. 754,095 834,855
Policy and contract claims-health ............................................................ 7,918,577 8,698,434
Short-term debt .............................................................................. 800,000 800,000
Notes payable ................................................................................ 369,698 1,987,760
Amounts due to reinsurers .................................................................... 1,689,106 862,349
Deferred revenue ............................................................................. 719,118 645,203
Other liabilities ............................................................................ 4,731,751 4,261,165
------------ ------------
Total liabilities ....................................................................... 152,705,814 149,541,574
------------ ------------
STOCKHOLDERS' EQUITY (Notes 7 and 8):
Series B preferred stock .................................................................... 4,000,000 4,000,000
Common stock (authorized 20,000,000, issued and outstanding 6,866,247 and 6,176,290) ........ 68,662 61,763
Common stock warrants (authorized, issued and outstanding 682,961 and 689,871) .............. -- --
Additional paid-in capital .................................................................. 15,709,026 14,501,889
Retained earnings ........................................................................... 2,310,370 183,686
Net unrealized investment loss .............................................................. (78,690) (3,426,746)
------------ ------------
Total stockholders' equity .............................................................. 22,009,368 15,320,592
------------ ------------
Total liabilities and stockholders' equity................................................. $174,715,182 $164,862,166
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
UNIVERSAL HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1995 1994
----------- ------------
<S> <C> <C>
REVENUES:
Premiums and policyholder fees earned............................. $28,145,711 $28,701,548
Net investment income ............................................ 2,116,364 2,392,501
Realized gains on investments .................................... 616,721 47,553
Fee income ....................................................... 2,580,266 2,969,457
Amortization of deferred revenue ................................. 163,377 164,445
----------- -----------
Total revenue ................................................ 33,622,439 34,275,504
----------- -----------
BENEFITS, CLAIMS & OTHER DEDUCTIONS:
Increase (decrease) in future policy benefits .................... (1,284,357) 1,004,845
Claims and other benefits ........................................ 17,530,820 16,004,652
Increase in deferred acquisition costs ........................... (2,642,376) (2,251,985)
Amortization of present value of future profits .................. 153,423 177,537
Other operating costs and expenses ............................... 17,729,208 17,692,241
----------- -----------
Total benefits, claims & other deductions .................... 31,486,718 32,627,290
----------- -----------
Operating income before income taxes .............................. 2,135,721 1,648,214
Provision for income taxes ........................................ 9,037 --
----------- -----------
Net income ........................................................ 2,126,684 1,648,214
Dividends on Series A preferred stock ............................. -- 427,398
----------- -----------
Net income applicable to common shares ............................ $ 2,126,684 $ 1,220,816
=========== ===========
Earnings per common equivalent shares (Note 3): ................... $ 0.20 $ 0.15
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
UNIVERSAL HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1995 1994
----------- -----------
<S> <C> <C>
REVENUES:
Premiums and policyholder fees earned ............................ $ 9,641,907 $ 9,946,873
Net investment income ............................................ 463,841 836,954
Realized gains (losses) on investments ........................... 214,384 (67,153)
Fee income ....................................................... 709,835 1,077,416
Amortization of deferred revenue ................................. 80,825 54,815
----------- -----------
Total revenue ................................................ 11,110,792 11,848,905
----------- -----------
BENEFITS, CLAIMS & OTHER DEDUCTIONS:
Increase in future policy benefits ............................... 225,780 11,659
Claims and other benefits ........................................ 5,478,678 6,198,174
Increase in deferred acquisition costs ........................... (1,029,378) (1,050,167)
Amortization of present value of future profits .................. 51,141 59,179
Other operating costs and expenses ............................... 5,899,062 6,096,552
----------- -----------
Total benefits, claims & other deductions .................... 10,625,283 11,315,397
----------- -----------
Operating income before income taxes .............................. 485,509 533,508
Provision for income taxes ........................................ -- --
----------- -----------
Net income ........................................................ 485,509 533,508
Dividends on Series A preferred stock ............................. -- 145,472
----------- -----------
Net income applicable to common shares ............................ $ 485,509 $ 388,036
=========== ===========
Earnings per common equivalent shares (Note 3): .................. $ 0.05 $ 0.05
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
UNIVERSAL HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................................... $ 2,126,684 $ 1,648,214
Adjustments to reconcile net income to net cash provided by operating activities:
Change in reserves for future policy benefits ........................................ (959,656) 4,746,495
Change in policy and contract claims ................................................. (860,617) (1,582,363)
Change in deferred acquisition costs ................................................. (2,642,376) (2,251,985)
Amortization of present value of future profits ...................................... 153,423 177,537
Change of deferred revenue ........................................................... (163,377) (164,445)
Change in policy loans ............................................................... (389,095) (442,516)
Change in accrued investment income .................................................. (308,945) (994,815)
Change in reinsurance balances ....................................................... (1,232,552) (1,653,237)
Realized gains on investments ........................................................ (616,721) (47,553)
Change in other assets & liabilities ................................................. (1,524,116) (624,727)
------------ ------------
Net cash used by operating expenses ..................................................... (6,417,348) (1,189,395)
------------ ------------
Cash flows from investing activities:
Proceeds from sale of fixed maturities-available for sale ........................... 31,480,237 50,200,771
Proceeds from sale of fixed maturities-held to maturity .............................. 928,180 187,500
Proceeds from redemption of fixed maturities-available for sale ...................... 6,546,371 5,527,929
Proceeds from redemption of fixed maturities-held to maturity ........................ 1,934,886 5,527,943
Cost of fixed maturities purchased-available for sale ................................ (44,498,774) (67,387,162)
Cost of fixed maturities purchased-held to maturity .................................. (795,741) (8,086,764)
Cost of equity securities purchased .................................................. -- (46,133)
Change in other invested assets ...................................................... (12,071) 675,381
Purchase of business, net of cash acquired ........................................... -- (502,843)
------------ ------------
Net cash used by investing activities ................................................... (4,416,912) (13,903,378)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock ............................................... 1,214,036 261,216
Increase in policyholder account balances ............................................ 5,231,317 2,329,303
Change in notes payable .............................................................. (1,618,062) 384,698
Change in short-term debt ............................................................ -- 400,000
------------ ------------
Net cash provided from financing activities ............................................. 4,827,291 3,375,217
------------ ------------
Net decrease in cash and cash equivalents ............................................... (6,006,969) (11,717,556)
Cash and cash equivalents at beginning of period ........................................ 16,420,763 19,468,454
------------ ------------
Cash and cash equivalents at end of period .............................................. $ 10,413,794 $ 7,750,898
============ ============
Supplemental cash flow information:
Cash paid during the year for interest.................................................. $ 74,525 $ 25,358
============ ============
Cash paid during the year for income taxes.............................................. $ -- $ 80,000
============ ============
Supplemental disclosure of non-cash investing activities:
Implementation of Statement 115
Transfer of securities available for sale to held to maturity........................... $ -- $ 16,624,288
============ ============
Transfer of securities held to maturity to available for sale........................... $ -- $ 18,780,607
============ ============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
UNIVERSAL HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles and consolidate the accounts of
Universal Holding Corp. ("Universal), and its subsidiaries (collectively the
"Company"), American Progressive Life & Health Insurance Company of New York
("American Progressive"), American Pioneer Life Insurance Company ("American
Pioneer"), Quincy Coverage Corp. ("Quincy") and WorldNet Services Corp.
("WorldNet").
The interim financial information herein is unaudited, but in the opinion
of management, includes all adjustments (consisting of normal, recurring
adjustments) necessary to present fairly the financial position and results of
operations for such periods. The results of operations for the nine months ended
September 30, 1995 are not necessarily indicative of the results to be expected
for the full year. The consolidated financial statements should be read in
conjunction with the Form 10-K for the year ended December 31, 1994. Certain
reclassifications have been made to prior period's financial statements to
conform with current period classifications.
2. Federal Income Taxes
The Company and its non life subsidiaries file a consolidated Federal
income tax return. The life insurance subsidiaries file a separate consolidated
Federal income tax return.
3. Earnings Per Share
Earnings per common equivalent share was computed by dividing the net
income applicable to common shareholders by the weighted average number of
common equivalent shares outstanding during each period. Net income for the nine
and three month periods ended September 30, 1994 was adjusted to reflect the
dividend requirements of the Series A preferred stock.
4. Midland National Life Insurance Company Debenture
In connection with the redemption of the Series A preferred stock on
December 30, 1994, the Company issued to Midland National Life Insurance Company
("Midland"), a convertible debenture with a fair value of $1,618,062 and a face
amount of $1,000,000 (the "Debenture"). The Debenture was called for redemption
on February 12, 1995, at which time $106,496 of principal was paid in cash and
the balance of the principal was converted into 671,807 shares of common stock.
5. Investments
Fixed maturity securities classified as investments held to maturity
are carried at amortized cost because the Company has the positive intent and
ability to hold such investments until maturity. As of September 30, 1995, all
other fixed maturity securities are classified as available for sale and are
carried at fair value, with the unrealized gain or loss, net of tax and other
adjustments (deferred policy acquisition costs), included in stockholders'
equity.
7
<PAGE>
The amortized cost and fair value of debt securities classified as fixed
maturity investments held to maturity by category of securities as of September
30, 1995 and December 31, 1994 are as follows:
<TABLE>
<CAPTION>
September 30, 1995
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
US Treasury securities and obligations of
US government ............................... $ 5,210,999 $ 44,923 $ (62,774) $ 5,193,148
Foreign government debt securities ............ 100,000 3,763 (475) 103,288
Corporate debt securities ..................... 17,028,351 98,372 (658,607) 16,468,116
Mortgage-backed securities .................... 13,900,650 50,108 (720,974) 13,229,784
------------ ------------ ------------ ------------
$ 36,240,000 $ 197,166 $ (1,442,830) $ 34,994,336
============ ============ ============ ============
<CAPTION>
December 31, 1994
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
US Treasury securities and obligations of
US government ............................... $ 7,665,033 $ 7,821 $ (679,517) $ 6,993,337
Foreign government debt securities ............ 560,167 -- (66,322) 493,845
Corporate debt securities ..................... 17,481,855 -- (2,629,351) 14,852,504
Mortgage-backed securities .................... 12,647,517 110,518 (1,741,588) 11,016,447
------------ ------------ ------------ ------------
$ 38,354,572 $ 118,339 $ (5,116,778) $ 33,356,133
============ ============ ============ ============
</TABLE>
The amortized cost and fair value of debt securities classified as
available for sale as of September 30, 1995 and December 31, 1994 are as
follows:
<TABLE>
<CAPTION>
September 30, 1995
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
US Treasury securities and obligations of
US government ............................... $ 11,441,931 $ 149,908 $ (77,251) $ 11,514,588
Foreign government debt securities ............ 721,208 73,192 -- 794,400
Corporate debt securities ..................... 50,861,291 1,196,513 (458,555) 51,599,249
Mortgage-backed securities .................... 11,612,182 84,431 (1,026,885) 10,669,728
------------ ------------ ------------ ------------
$ 74,636,612 $ 1,504,044 $ (1,562,691) $ 74,577,965
============ ============ ============ ============
<CAPTION>
December 31, 1994
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Classification Cost Gains Losses Value
- -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
US Treasury securities and obligations of
US government ............................... $ 11,896,393 $ 12,616 $ (540,946) $ 11,368,063
Corporate debt securities ..................... 41,025,877 68,346 (2,288,755) 38,805,468
Mortgage-backed securities .................... 14,725,434 93,814 (1,147,600) 13,671,648
------------ ------------ ------------ ------------
$ 67,647,704 $ 174,776 $ (3,977,301) $ 63,845,179
============ ============ ============ ============
</TABLE>
The amortized cost and fair value of fixed maturities at September 30, 1995
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
8
<PAGE>
Amortized Fair
Cost Value
----------- -----------
Held to Maturity:
Due in 1 year or less ......................... $ 2,017,418 $ 2,006,776
Due after 1 year through 5 years .............. 2,141,548 2,114,086
Due after 5 years through 10 years ............ 3,099,591 3,126,288
Due after 10 years ............................ 15,080,793 14,517,402
Mortgage-backed securities .................... 13,900,650 13,229,784
----------- -----------
$36,240,000 $34,994,336
=========== ===========
Amortized Fair
Cost Value
----------- -----------
Available for Sale:
Due in 1 year or less ......................... $ 7,228,099 $ 7,325,385
Due after 1 year through 5 years .............. 20,048,495 19,975,645
Due after 5 years through 10 years ............ 25,311,634 26,031,012
Due after 10 years ............................ 4,433,887 4,582,622
Mortgage-backed securities .................... 17,614,497 16,663,301
----------- -----------
$74,636,612 $74,577,965
=========== ===========
6. Financial Instruments with Concentrations of Credit Risk
At September 30, 1995 and December 31, 1994, the Company held unrated or
less-than-investment grade corporate debt securities with carrying and fair
values as follows:
September 30, December 31,
1995 1994
------------ ----------
Carrying value ............................... $ 6,183,803 $4,446,205
============ ==========
Fair value ................................... $ 6,146,888 $4,314,977
============ ==========
Percentage of total assets ................... 3.5% 2.7%
============ ==========
7. Series B Preferred Stock
The Company has 2,000,000 authorized shares of preferred stock to be issued
in series with 400 shares, par value $10,000 classified as Series B, issued and
outstanding at September 30, 1995 and December 31, 1994. The Series B preferred
stock carries no interest and is convertible into common stock at $2.25 per
share.
8. Stockholders' Equity
Common Stock
The par value of common stock is $.01 per share with 20,000,000 shares
authorized for issuance. The shares issued and outstanding at September 30, 1995
and December 31, 1994 were 6,866,247 and 6,176,290, respectively.
Common Stock Warrants
At September 30, 1995 and December 31, 1994, the Company had 682,961 and
689,871 common stock warrants issued and outstanding, respectively, which are
registered under the Securities Exchange Act of 1934 (the "Act"). The warrants
have no par value and an exercise price to purchase common stock at $1.00 per
share.
The Company also has 2,015,760 outstanding common stock warrants which are
not registered under the Securities Exchange Act of 1934, with exercise prices
of $1.00 and expire on December 31, 1999.
9. Reinsurance
On September 26, 1995, the Company executed a reinsurance contract with an
effective date of July 1, 1995 with an unaffiliated reinsurer. The contract was
75% quota share coinsurance on an existing block of major medical health
insurance. The Company received $862,500 in ceding commissions. The deferred
acquisition cost relating to this block of insurance was approximately $625,000
and was written off. The remaining $237,500 is being classified as deferred
revenue and will be earned over the expected life of the reinsured business.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Parent Company
In connection with the redemption of the Series A preferred stock on
December 30, 1994, the Company issued to Midland National Life Insurance Company
("Midland"), a convertible debenture with a fair value of $1,618,062 and a face
amount of $1,000,000 (the "Debenture"). The Debenture was called for redemption
on February 12, 1995, at which time $106,496 of principal was paid in cash and
the balance of the principal was converted into 671,807 shares of common stock.
On September 30, 1994, the Company entered into an agreement with its
commercial bank, under which it borrowed $800,000 on a one year term loan,
extendable by the Company for a second year. The loan is secured by the pledge
of 100% of the outstanding common stock of Quincy, the receivables of Quincy and
WorldNet and 9.9% of the outstanding common stock of American Progressive. The
loan bears interest at 2.0% over prime. On September 30, 1995, the Company
renewed this loan for a term of one year. The loan matures on September 30,
1996.
Insurance Subsidiaries
American Progressive and American Pioneer are required to maintain minimum
amounts of capital and surplus as determined by statutory accounting ("statutory
capital"). The minimum statutory capital and surplus requirements of American
Progressive and American Pioneer as of September 30, 1995 for the maintenance of
authority to do business were $2,500,000 and $1,812,390, respectively, but
substantially more than this is needed to permit continued writing of new
business. At September 30, 1995 the adjusted statutory capital and surplus,
including the asset valuation and interest maintenance reserves, of American
Progressive and American Pioneer were $9,114,249 and $13,105,229, respectively.
Neither American Progressive nor American Pioneer have any surplus relief
reinsurance treaties in force as of September 30, 1995.
At September 30, 1995, the investment portfolios of the life insurance
subsidiaries included cash and short-term investments totalling $10,414,000, as
well as fixed maturity securities with carrying values of $110,818,000 (fair
values totalling $109,572,000) that could be readily converted to cash. These
liquid investments' fair values totalled more than $119,986,000 and constituted
approximately 93% of the Company's investments at September 30, 1995. At
September 30, 1995, all of the Company's investments were income producing and
current in interest and principal payments. In addition, the Company has no
investment in any derivative instruments or other hybrid securities that
contained any off balance sheet risk or investments in other securities whose
market values and principal repayments would be highly volatile to changes in
interest rates, except for GNMA's, FNMA's and investment grade corporate
collateralized mortgage obligations.
On September 26, 1995, the Company executed a reinsurance contract with an
effective date of July 1, 1995 with an unaffiliated reinsurer. The contract was
75% quota share coinsurance on an existing block of major medical health
insurance. The Company received $862,500 in ceding commissions. The deferred
acquisition cost relating to this block of insurance was approximately $625,000
and was written off. The remaining $237,500 is being classified as deferred
revenue and will be earned over the expected life of the reinsured business.
Results of Operations
Nine Months Ended September 30, 1995
The results of operations for the nine months ended September 30, 1995 and
1994 include the operations of American Progressive, American Pioneer, WorldNet
and Quincy.
Net Income. For the nine months ended September 30, 1995, the Company
earned net income of approximately $2,127,000 resulting in an earnings per share
applicable to common shareholders of $0.20. For the nine months ended September
30, 1994, the Company reported net income of approximately $1,648,000 before its
dividend requirement on the Series A preferred stock of approximately $427,000,
resulting in net income applicable to common shareholders of $1,221,000 or $0.15
per share.
10
<PAGE>
Revenues. Total revenues decreased approximately $653,000 to approximately
$33,622,000 for the nine months ended September 30, 1995 compared to total
revenues of approximately $34,275,000 for the nine months ended September 30,
1994. Premiums and policyholder fees earned decreased approximately $556,000.
These decreases were primarily due to the implementation of strategic decisions
by the Company as to the focus of its marketing efforts. American Progressive is
focusing on providing supplemental accident & health insurance (such as Medicare
supplement, hospital indemnity, special accident and New York State DBL)
premiums on which lines produced increased by approximately $2,700,000. American
Pioneer is focusing on life insurance, premiums for which increased by
approximately $1,800,000, and group dental insurance, premiums for which
increased revenues by approximately $800,000. These increases totaled
approximately $5,300,000, but were offset by the combined effect of a reduction
(of approximately $4,800,000) in premiums on the runoff block of individual
accident & health insurance, which is not within the area of the present
strategic focus at either of the insurance subsidiaries and a new quota share
reinsurance entered into on September 26, 1995, as of July 1, 1995, which ceded
premiums of approximately $1,100,000. Net investment income decreased
approximately $276,000 and realized gains on investments increased approximately
$569,000 (1995 - gain of $617,000; 1994 - gain of $48,000) and is primarily
attributed to decreasing interest rates in 1995 and the Company's intention to
shorten the duration of its investment portfolio.
Fee income represents the fees earned by WorldNet for managed care, travel
assistance, claims administration and communication services and, for the nine
months ended September 30, 1995, these fees decreased approximately $389,000.
This reduction is a result of the Company's termination of certain nonprofitable
contracts.
For the nine months ended September 30, 1995, the Company amortized
approximately $163,000 of the deferred revenue compared to $164,000 amortized in
the same period in 1994.
Benefits, Claims and Other Deductions. Total benefits, claims and other
deductions decreased approximately $1,141,000 to $31,487,000 for the nine months
ended September 30, 1995. The change in future policy benefits amounted to a
decrease of approximately $2,289,000. The decrease in reserves for the nine
months ended September 30, 1995 was $1,284,000 and primarily related to the
reduction of inforce business noted in the premium discussion above. Claims and
other benefits increased approximately $1,526,000. This increase is a direct
result of increased mortality and the increase in supplemental health benefits
at both insurance companies. The increase in deferred acquisition costs
increased approximately $390,000 due to the increase in new business production
noted above.
Other operating costs and expenses increased approximately $37,000.
Expenses incurred by the insurance subsidiaries during 1995 exceeded the 1994
amount by approximately $705,000. Commission, new business expenses and premium
taxes increased approximately $915,000, while the general overhead expenses
decreased approximately $210,000. The remaining decrease of $668,000 results
from a decrease of continuing operation expenses incurred by WorldNet
(approximately $405,000), the relocation of WorldNet to Florida from Texas in
1994 (approximately $500,000) and an increase in expenses incurred by the Parent
Company (approximately $237,000). Amortization of the present value of future
profits was approximately $153,000 in the first nine months of 1995 compared to
$178,000 in the same period of 1994, which decrease is due to the lower amount
of insurance inforce.
Results of Operations
Three Months Ended September 30, 1995
The results of operations for the three months ended September 30, 1995 and
1994 include the operations of American Progressive, American Pioneer, WorldNet
and Quincy.
Net Income. For the three months ended September 30, 1995, the Company
earned net income of approximately $486,000 resulting in an earnings per share
applicable to common shareholders of $0.05. For the three months ended September
30, 1994, the Company reported net income of approximately $533,000 before its
dividend requirement on the Series A preferred stock of approximately $145,000,
resulting in net income applicable to common shareholders of $388,000 or $0.05
per share.
Revenues. Total revenues decreased approximately $738,000 to approximately
$11,111,000 for the three months ended September 30, 1995 compared to total
revenues of approximately $11,849,000 for the three months ended September 30,
1994. Premiums and policyholder fees earned decreased approximately $305,000.
These decreases were primarily due to the implementation of strategic decisions
by the Company as to the focus of its marketing efforts. American Progressive is
focusing on providing supplemental accident & health insurance (such as Medicare
supplement, hospital indemnity, special accident and New York State DBL)
premiums on which lines produced increased by approximately $1,600,000. American
Pioneer is focusing on life insurance, premiums for which increased by
approximately $610,000, and group dental insurance, premiums for which increased
revenues by approximately $260,000. These increases totaled approximately
$2,470,000, but were offset by a combined effect of a reduction (of
approximately $1,675,000) in premiums on the runoff block of individual accident
& health insurance, which is not within the area of the present strategic focus
at either of the insurance subsidiaries and a new quota share reinsurance
entered into on September 26, 1995, as of July 1, 1995, which ceded premiums of
approximately $1,100,000. Net investment income decreased approximately $373,000
and realized gains on investments increased approximately $282,000 (1995 - gain
of $214,000; 1994 - loss of $67,000) and is primarily attributed to decreasing
interest rates in the third quarter of 1995 and the Company's intention to
shorten the duration of its investment portfolio.
11
<PAGE>
Fee income represents the fees earned by WorldNet for managed care, travel
assistance, claims administration and communication services and for the three
months ended September 30, 1995, these fees decreased approximately $368,000.
This reduction is a result of the Company's termination of certain nonprofitable
contracts.
For the three months ended September 30, 1995, the Company amortized
approximately $81,000 of the deferred revenue compared to $55,000 amortized in
the same period in 1994.
Benefits, Claims and Other Deductions. Total benefits, claims and other
deductions decreased approximately $690,000 to $10,625,000 for the three months
ended September 30, 1995. The change in future policy benefits amounted to an
increase of approximately $214,000. Claims and other benefits decreased
approximately $719,000. This decrease is a direct result of the quota share
reinsurance agreement entered into and the reduction in the runoff block of
individual accident & health insurance discussed above. The increase in deferred
acquisition costs decreased approximately $21,000 as a result of lower first
year individual accident & health premium written due to the quota share
reinsurance agreement discussed above.
Other operating costs and expenses decreased approximately $197,000.
Expenses incurred by the insurance subsidiaries during 1995 exceeded the 1994
amount by approximately $285,000 resulting from an increase in new business
production (approximately $390,000) offset by a decrease in general overhead
expenses (approximately $105,000). The remaining decrease of $482,000 results
from a decrease of continuing operation expenses incurred by WorldNet
(approximately $553,000) resulting from the termination of certain nonprofitable
contracts discussed above and an increase in expenses incurred by the Parent
Company (approximately $71,000). Amortization of the present value of future
profits was approximately $51,000 in the nine months of 1995 compared to $59,000
in 1994, which decrease is due to the lower amount of insurance inforce.
Investments
The Company's investment policy is to balance the portfolio between
long-term and short-term investments so as to continue to achieve the highest
investment returns consistent with the preservation of capital and maintenance
of liquidity adequate to meet payment of policy benefits and claims. The Company
invests in assets permitted under the insurance laws of the various states in
which it operates, which laws prescribe the nature, quality of and limitations
on various types of investments which may be made. Current policy is to invest
primarily in fixed maturity securities of the U.S. Government and its agencies
and in corporate fixed maturity securities with investment grade ratings of Baa3
(Moody's) or BBB- (Standard & Poors) or better with the intent to hold them for
long term investment. However, the Company recognizes as a result of changes in
economic factors, such as changes in interest rates, cash flow needs, regulatory
requirements or the credit worthiness of particular issues, the Company may from
time to time decide to sell certain securities prior to their scheduled
maturities, such securities are therefore classified as "available for sale",
even though the Company has no present intention of selling them.
The Company classifies approximately 67% of its fixed maturity portfolio as
available for sale, which is carried at fair value, and approximately 33% as
held to maturity, which is carried at amortized cost. Changes in the fair values
of available for sale securities result in increases or decreases in
stockholders' equity. Net unrealized losses on fixed maturity securities
available for sale totalled $59,000, net of increases in the deferred cost of
business acquired of $36,000 at September 30, 1995.
The Company invests its funds primarily in fixed income securities and has
invested in a limited number of non-investment grade securities which provide
higher yields than investment grade securities. As of September 30, 1995 and
December 31, 1994, the Company held unrated or less-than-investment grade
corporate debt securities of approximately $6,184,000 and $4,446,000,
respectively. These holdings amounted to 4.8% of total investments and 3.5% of
total assets at September 30, 1995 compared to 3.5% of total investments and
2.7% of total assets at December 31, 1994.
12
<PAGE>
UNIVERSAL HOLDING CORP.
PART II - OTHER INFORMATION
NONE
-------------------------------------------
SIGNATURE
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.
UNIVERSAL HOLDING CORP.
By:
----------------------------
Robert A. Waegelein
Senior Vice President
Chief Financial Officer
Date: November 13, 1995
13
<PAGE>
UNIVERSAL HOLDING CORP.
PART II - OTHER INFORMATION
NONE
-------------------------------------------
SIGNATURE
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.
UNIVERSAL HOLDING CORP.
By: /S/ ROBERT A. WAEGELEIN
----------------------------
Robert A. Waegelein
Senior Vice President
Chief Financial Officer
Date: November 13, 1995
14
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 74,577,965
<DEBT-CARRYING-VALUE> 110,817,965
<DEBT-MARKET-VALUE> 109,572,301
<EQUITIES> 19,982
<MORTGAGE> 1,084,037
<REAL-ESTATE> 0
<TOTAL-INVEST> 128,486,132
<CASH> 10,413,794
<RECOVER-REINSURE> 14,666,778
<DEFERRED-ACQUISITION> 16,105,712
<TOTAL-ASSETS> 174,715,812
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 21,715,143
<POLICY-HOLDER-FUNDS> 114,008,326
<NOTES-PAYABLE> 369,698
<COMMON> 68,662
0
4,000,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,009,368
28,145,711
<INVESTMENT-INCOME> 2,116,364
<INVESTMENT-GAINS> 616,721
<OTHER-INCOME> 2,743,643
<BENEFITS> 16,246,463
<UNDERWRITING-AMORTIZATION> (2,642,376)
<UNDERWRITING-OTHER> 153,423
<INCOME-PRETAX> 2,135,721
<INCOME-TAX> 9,037
<INCOME-CONTINUING> 2,126,684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,126,684
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
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