<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission File Number 0-14320
UICI
(Exact name of registrant as specified in its charter)
Delaware 75-2044750
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 McEwen, Suite 200, Dallas, Texas 75244
------------------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (972) 960-8497
--------------
Not Applicable
--------------
Former name, former address and former fiscal year, if changed
since last report.
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 .
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. Common Stock, $.01
Par Value--43,476,431 shares as of September 30, 1996.
<PAGE>
INDEX
UICI AND SUBSIDIARIES
Page
PART I. FINANCIAL INFORMATION
Consolidated condensed balance sheets-September 30, 1996 and
December 31, 1995 3
Consolidated condensed statements of income-Three months ended
September 30, 1996 and 1995 and the nine months ended September
30, 1996 and 1995 4
Consolidated condensed statements of cash flows-Nine months
ended September 30, 1996 and 1995 5
Notes to consolidated condensed financial statements-September 30, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
--------------------------------
SIGNATURES 16
2
<PAGE>
UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Investments:
Securities available for sale--
Fixed maturities, at fair value
(cost: 1996--$744,782; 1995--$743,945) .......$ 738,938 $ 754,473
Equity securities, at fair value
(cost: 1996--$15,966; 1995--$5,114) .......... 16,034 5,288
Guaranteed student loans ............................. 14,840 12,159
Mortgage and collateral loans......................... 15,554 15,559
Policy loans.......................................... 23,188 24,042
Credit card loans .................................... 25,850 36,727
Short-term investments ............................... 191,183 83,024
---------- ----------
Total investments .............................. 1,025,587 931,272
Cash .................................................. 9,077 5,913
Agents' receivables..................................... 5,308 4,538
Reinsurance receivables................................. 65,339 65,332
Federal income taxes.................................... 1,916 4,987
Due premiums and other receivables...................... 21,059 19,256
Investment income due and accrued....................... 12,045 11,283
Deferred acquisition costs.............................. 58,761 56,122
Goodwill................................................ 17,164 15,564
Property and equipment, net............................. 24,434 12,937
Other .................................................. 5,968 3,655
---------- ----------
$1,246,658 $1,130,859
========== ==========
LIABILITIES
Policy liabilities:
Future policy and contract benefits...................$ 514,021 $ 526,777
Claims ............................................... 189,532 179,809
Unearned premiums..................................... 70,069 68,099
Other policy liabilities.............................. 13,820 13,220
Other liabilities....................................... 30,860 25,501
Short-term debt......................................... 502 22,726
Long-term debt ......................................... 27,655 27,655
---------- ----------
846,459 863,787
MINORITY INTERESTS......................................... 11,240 18,253
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share.................. 435 382
Additional paid-in capital.............................. 150,705 50,554
Net unrealized investment gains (losses)................ (3,635) 6,789
Retained earnings ...................................... 241,454 191,094
---------- ----------
388,959 248,819
---------- ----------
$1,246,658 $1,130,859
========== ==========
</TABLE>
NOTE: The balance sheet as of December 31, 1995 has been derived from the
audited financial statements at that date. See notes to consolidated condensed
financial statements.
3
<PAGE>
UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
-------- --------- --------- --------
<S> <C> <C> <C> <C>
REVENUES
Health premiums...........................................$119,306 $ 113,523 $ 366,540 $348,939
Life premiums and other considerations.................... 10,987 12,130 35,253 33,240
Net investment income..................................... 18,004 15,611 51,886 48,548
Fees and other income..................................... 28,486 18,409 80,162 31,634
Gains (losses) on sale of investments..................... (73) (1,242) 670 1,202
-------- --------- --------- --------
176,710 158,431 534,511 463,563
BENEFITS AND EXPENSES
Benefits, claims, and settlement expenses................. 75,816 73,067 242,865 232,580
Underwriting, acquisition, and insurance expenses......... 71,384 63,478 207,372 167,153
Interest expense.......................................... 605 820 1,867 2,774
-------- --------- --------- --------
147,805 137,365 452,104 402,507
INCOME BEFORE FEDERAL INCOME TAXES
AND MINORITY INTERESTS.................................. 28,905 21,066 82,407 61,056
Federal income taxes......................................... 9,410 7,197 27,025 19,848
-------- --------- --------- --------
INCOME BEFORE MINORITY INTERESTS........................ 19,495 13,869 55,382 41,208
Minority interests........................................... 1,374 1,326 5,022 2,728
-------- --------- --------- --------
NET INCOME .............................................$ 18,121 $ 12,543 $ 50,360 $ 38,480
======== ========= ========= =========
NET INCOME PER SHARE.................................... $ 0.42 $ 0.33 $ 1.23 $ 1.02
====== ====== ====== ======
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income....................................................$ 50,360 $ 38,480
Adjustments to reconcile net income to
cash provided by operating activities:
Increase (decrease) in policy liabilities .................. 16,471 (10,324)
Increase in other liabilities .............................. 4,856 5,511
Decrease (increase) in federal income taxes receivable ..... 8,163 (1,122)
(Increase) decrease in deferred acquisition costs .......... (2,639) 1,908
(Increase) decrease in accrued investment income
and reinsurance and other receivables .................. (1,701) 15,434
Net income attributable to minority interests .............. 5,022 2,728
Depreciation and amortization .............................. 4,903 1,762
Gains on sale of investments ............................... (670) (1,202)
Other items, net ........................................... (2,188) (392)
--------- ---------
Cash Provided by Operations ............................ 82,577 52,783
--------- ---------
INVESTING ACTIVITIES
Increase in investments....................................... (108,639) (14,725)
Purchase of subsidiaries, net of cash acquired
of $3,996 in 1996........................................... (13,847) (6,000)
Additions to property and equipment........................... (14,639) (1,681)
(Increase) decrease in agents' receivables ................... (770) 1,523
--------- ---------
Cash Used in Investing Activities ..................... (137,895) (20,883)
--------- ---------
FINANCING ACTIVITIES
Deposits from investment products............................ 12,228 10,616
Withdrawals from investment products......................... (29,162) (25,236)
Proceeds from debt .......................................... 10,250 10,000
Repayments of debt........................................... (33,094) (29,600)
Proceeds from payable to related party....................... 550 --
Repayment of payable to related party........................ (715) (200)
Proceeds from exercise of warrants........................... 178 178
Issuance of common stock..................................... 100,148 --
Proceeds from exercise of stock options ..................... -- 6
Purchase of treasury stock................................... (115) (26)
Distributions to minority interests ......................... (1,786) (1,042)
--------- ---------
Cash Provided by (Used in) Financing Activities ....... 58,482 (35,304)
--------- ---------
Net Increase (Decrease) in Cash ....................... 3,164 (3,404)
Cash at Beginning of Period ........................... 5,913 7,709
--------- ---------
Cash at End of Period ................................. $ 9,077 $ 4,305
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
UICI AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
September 30, 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements for UICI
and its subsidiaries (the Company) have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
nine-month period ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1995. Certain amounts in the 1995 financial statements have been
reclassified to conform with the 1996 financial statement presentation.
NOTE B--ACQUISITION
On April 1, 1996, the Company completed a transaction where substantially all
new health insurance policies sold by United Group Association, Inc. ("UGA"),
which is wholly-owned by the Company's Chairman of the Board, are directly
issued by the Company, following a transition period, pursuant to agreements
between the Company and AEGON USA, Inc. (the "AEGON Transaction"). The Company
acquired AEGON's underwriting, claims management and administrative capabilities
related to the products coinsured by the Company, through the purchase of
AEGON's insurance center building and equipment for $10.0 million in cash. The
Company and AEGON will maintain the coinsurance agreement for policies issued by
AEGON prior to April 1, 1996 and during the transition period. The Company's
coinsurance percentage is 57.5% in 1996 and 60% thereafter until December 31,
2000, at which time the Company will acquire all remaining policies from AEGON
at a formula price set forth in the agreement. The Company does not anticipate
that this transaction will have a material impact on the results of operations
for the Company in 1996.
Effective August 1, 1996, UICI acquired 20% of the minority interest of its
subsidiary, Mid-West National Life Insurance Company of Tennessee ("Mid-West")
for $9.8 million in cash. This increased UICI's ownership percentage in Mid-West
to 99% from 79%. The purchase price was based on a predetermined formula which
approximated GAAP book value. Of the 20% acquired, 18.6% was acquired from
Onward and Upward, Inc. and the five adult children of the Company's Chairman of
the Board. Onward and Upward, Inc. is a corporation owned by the five adult
children of the Company's Chairman of the Board. The effect of purchase
accounting relating to this transaction was insignificant. Accordingly, pro
forma financial information has not been presented.
6
<PAGE>
NOTE C--STOCKHOLDERS' EQUITY
At the Annual Meeting of Stockholders on April 16, 1996, approval for an
increase in authorized shares of common stock with a par value of $.01 from
40,000,000 shares to 50,000,000 shares was obtained in order to facilitate the
public offering of 5,175,000 shares of common stock at $20.50 per share,
completed on May 1, 1996. After completion of the public offering the Company
increased its common stock outstanding to 43,438,745 shares. All of the shares
were sold by the Company. The net proceeds to the Company (after deducting
underwriting discounts and commissions and offering expenses) from the sale of
the shares was approximately $100.1 million.
NOTE D--COMPANY NAME CHANGE
On June 27, 1996, the Company announced that shareholders had approved a name
change for the Company from United Insurance Companies, Inc. to UICI. The change
was effective July 1, 1996. The name change was indicative of the Company's
broadening activities beyond our historical core life, accident and health
insurance business.
NOTE E--SUBSEQUENT EVENT
In November 1996, the Company acquired through a stock exchange agreement 100%
of Amli Realty Co. ("ARC"). The Company exchanged approximately 1,650,000 shares
of its common stock for all of the outstanding common stock of ARC. The
transaction will be accounted for under the pooling of interest method. ARC is a
full- service real estate organization whose principal investment is a 14%
equity interest in Amli Residential Properties Trust, a publicly traded real
estate investment trust.
7
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UICI and its subsidiaries (the "Company") reported net income of $0.42 per share
for the three month period ended September 30, 1996 compared to net income of
$0.33 per share for the comparable period in 1995. There were no gains from the
sale of investments for the three month period ended September 30, 1996 compared
to losses on the sale of investments of $0.02 per share in 1995. For the nine
month period ended September 30, 1996, net income was $1.23 per share compared
to $1.02 per share in 1995. Included in net income were gains from the sale of
investments of $0.01 per share for the nine month period ended September 30,
1996 compared to $0.02 per share in 1995.
The Company's business segments are: (i) Health Insurance, which includes the
businesses of the Self-Employed Health Insurance Division and the Student Health
Insurance Division; (ii) Life Insurance and Annuity; (iii) Credit Services; and
(iv) Corporate and Other, which includes the businesses of the HealthCare
Solution Partners Division, investment income not allocated to the other
segments, expenses relating to corporate operations, interest expense and
realized gains (losses) on sale of investments. Net investment income is
allocated to the Health Insurance segment and the Life Insurance and Annuity
segment based on policyholder liabilities. The interest rate for the allocation
is based on a high credit quality investment portfolio with a duration
consistent with the targeted duration of the segment's policy liabilities.
The following table sets forth income statement data as a percentage of revenues
for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues............................................ 100.0% 100.0% 100.0% 100.0%
Benefits, claims, and settlement expenses........... 42.9 46.1 45.4 50.2
Underwriting, acquisition
and insurance expenses........................... 40.4 40.1 38.8 36.0
Interest expense ................................... 0.3 0.5 0.4 0.6
------ ------ ----- -----
83.6 86.7 84.6 86.8
----- ----- ----- -----
Income before federal income taxes
and minority interests........................... 16.4 13.3 15.4 13.2
Federal income taxes ............................... 5.3 4.6 5.1 4.3
----- ----- ----- -----
Income before minority interests.................... 11.1 8.7 10.3 8.9
Minority interests ................................. 0.8 0.8 0.9 0.6
----- ----- ----- -----
Net income....................................... 10.3% 7.9% 9.4% 8.3%
===== ===== ===== =====
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 1996 COMPARED TO 1995
HEALTH PREMIUMS. Health premiums increased to $119.3 million for the three
month period in 1996 from $113.5 million in 1995, an increase of $5.8 million,
or 5%, and increased to $366.5 million for the nine month period in 1996 from
$348.9 million in 1995, an increase of $17.6 million, or 5%. After deducting the
health premiums from a 1995 acquired block of health insurance policies, health
premiums increased 8% for the three and nine month periods in 1996,
respectively, compared to 1995. The increase was primarily due to the growth in
sales of new health insurance policies and increased premiums from coinsured
policies sold by UGA and issued by AEGON. In 1996, the coinsurance percentage on
both in force and new health insurance policies issued by AEGON increased to
57.5% from 55.0% in 1995.
8
<PAGE>
LIFE PREMIUMS AND OTHER CONSIDERATIONS. Life premiums and other
considerations decreased to $11.0 million for the three month period in 1996
from $12.1 million in 1995, a decrease of $1.1 million, or 9%, and increased to
$35.3 million for the nine month period in 1996 from $33.2 million in 1995, an
increase of $2.1 million, or 6%. The decrease for the three month period in 1996
relates to a reinsurance agreement entered into during the period whereby the
Company ceded a portion of its credit life business written effective January 1,
1996. The effect of the reinsurance agreement reduced life premiums by
approximately $1.5 million for the three and nine month periods in 1996. The
decrease was partially offset by an increase in the sale of new life policies.
The increase for the nine month period in 1996 was the result of the sale of new
life policies which was partially offset by the effects of the reinsurance
agreement described above.
NET INVESTMENT INCOME. Net investment income increased to $18.0 million
for the three month period in 1996 from $15.6 million in 1995, an increase of
$2.4 million , or 15%, and increased to $51.9 million for the nine month period
in 1996 from $48.5 million in 1995, an increase of $3.4 million or 7%. The
increase was due to an increase in invested assets principally from the net
proceeds from the public offering completed by the Company on May 1, 1996. The
effect of the increase in the invested assets was partially offset by the lower
yield on invested assets in 1996 compared to 1995.
FEES AND OTHER INCOME. Fees and other income increased to $28.5 million
for the three month period in 1996 from $18.4 million in 1995, an increase of
$10.1 million, or 55%, and increased to $80.2 million for the nine month period
in 1996 from $31.6 million in 1995, an increase of $48.6 million, or 154%. The
increase related primarily to the increase in revenue from the Credit Services
business, revenue from the companies acquired in the third and fourth quarters
of 1995 by the HealthCare Solution Partners Division, and administrative fees
from the administrative operation acquired from AEGON on April 1, 1996.
GAINS (LOSSES) ON SALE OF INVESTMENTS. The Company recognized gains
(losses) on the sale of investments of ($73,000) and $670,000 for the three
month and nine month periods in 1996, respectively, compared to ($1.2) million
and $1.2 million for the same periods in 1995. The amount of realized gains or
losses on the sale of investments is a function of interest rates, market trends
and the timing of sales. In addition, due to increasing long term interest rates
in 1996, the net unrealized investment losses on securities classified as
"available for sale," reported as a separate component of stockholders' equity
and net of applicable income taxes and minority interests, was $3.6 million at
September 30, 1996 compared to net unrealized investment gains of $6.8 million
at December 31, 1995.
9
<PAGE>
BENEFITS, CLAIMS, AND SETTLEMENT EXPENSES. Benefits, claims, and
settlement expenses increased to $75.8 million for the three month period in
1996 from $73.1 million in 1995, an increase of $2.7 million, or 4%, and
increased to $242.9 million for the nine month period in 1996 from $232.6
million in 1995, an increase of $10.3 million, or 4%. The increase was primarily
due to the growth in premium volume. As a percentage of revenues, these expenses
decreased to 42.9% and 45.4% for the three and nine month periods in 1996,
respectively, from 46.1% and 50.2% for the same periods in 1995. The decrease in
these expenses were the result of the increased revenues from the Credit
Services business and the HealthCare Solution Partners Division, whose expenses
are primarily classified as underwriting, acquisition, and insurance expenses.
UNDERWRITING, ACQUISITION AND INSURANCE EXPENSES. Underwriting,
acquisition and insurance expenses increased to $71.4 million for the three
month period in 1996 from $63.5 million in 1995, an increase of $7.9 million, or
12%, and increased to $207.4 million for the nine month period in 1996 from
$167.2 million in 1995, an increase of $40.2 million, or 24%. The increase was
primarily due to the growth in premium volume and costs associated with the
businesses acquired in the third and fourth quarters of 1995 by the HealthCare
Solution Partners Division, and expenses relating to the administrative
operation acquired from AEGON. As a percentage of revenues, these expenses
increased to 40.4% and 38.8% for the three and nine month periods in 1996,
respectively, from 40.1% and 36.0% for the same periods in 1995. The increase in
these expenses were primarily the result of the increased costs from the
HealthCare Solution Partners Division and costs related to the administrative
operation acquired from AEGON.
INTEREST EXPENSE. Interest expense decreased to $605,000 for the three
month period in 1996 from $820,000 in 1995, a decrease of $215,000, and
decreased to $1.9 million for the nine month period in 1996 from $2.8 million in
1995, a decrease of $900,000. The decrease was due to a lower cost of borrowing
and a lower average amount of debt outstanding in 1996 compared to 1995, due to
the use of part of the proceeds from the public offering to pay off $10.3
million of debt.
FEDERAL INCOME TAXES. The Company's effective tax rate was 32.8% for
the nine month period in 1996 compared to 32.5% for 1995 which varied from the
federal tax rate of 35% primarily due to the small life insurance company
deduction allowed for certain insurance subsidiaries of the Company.
MINORITY INTERESTS. Minority interests increased to $1.4 million for
the three month period in 1996 from $1.3 million in 1995, an increase of
$100,000, and increased to $5.0 million for the nine month period in 1996 from
$2.7 million in 1995, an increase of $2.3 million. The increase was the result
of increased earnings from subsidiaries of the Company of which there is
minority ownership. The increase was partially offset by the August 1, 1996
purchase of 20% of the minority interest of its insurance subsidiary, Mid-West
National Life Insurance Company of Tennessee ("Mid-West"). This increased the
Company's ownership percentage in Mid-West to 99% from 79%, thus reducing the
minority interest expense related to Mid-West beginning August 1, 1996.
10
<PAGE>
INCOME BEFORE FEDERAL INCOME TAXES AND MINORITY INTERESTS ("OPERATING
INCOME"). Operating income increased to $28.9 million for the three month period
in 1996 from $21.1 million in 1995, an increase of $7.8 million, or 37%, and
increased to $82.4 million for the nine month period in 1996 from $61.1 million
in 1995, an increase of $21.3 million, or 35%. Operating income (loss) for each
of the Company's business segments and divisions was as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in thousands) (Dollars in thousands)
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Health Insurance:
Self-Employed Health Insurance Division.......$15,328 $15,702 $43,131 $39,300
Student Health Insurance Division ............ 3,572 2,501 11,019 8,070
------- ------- ------- -------
Total Health Insurance ..................... 18,900 18,203 54,150 47,370
Life Insurance and Annuity ...................... 2,313 2,991 8,299 8,714
Credit Services ................................. 4,409 (577) 10,288 (1,648)
Corporate and Other:
HealthCare Solution Partners Division ........ (706) (502) (1,635) (2,810)
Other ........................................ 3,989 951 11,305 9,430
------- ------- ------- -------
Total Corporate and Other .................. 3,283 449 9,670 6,620
------- ------- ------- -------
$28,905 $21,066 $82,407 $61,056
======= ======= ======= =======
</TABLE>
HEALTH INSURANCE. Operating income for the Health Insurance business
increased to $18.9 million for the three month period in 1996 from $18.2 million
in 1995, an increase of $700,000, or 4%, and increased to $54.2 million for the
nine month period in 1996 from $47.4 million in 1995, an increase of $6.8
million or 14%. The increases were due primarily to an increase in health
premiums, an increase in investment income allocated to the Health Insurance
products, and profits related to certain lead activities of UGA. The increase
for the three month period in 1996 was partially offset by a 1% increase in the
combined health ratio for the three month period in 1996 compared to same period
in 1995. The increase in the combined ratio was the result of a lower than
normal loss ratio for the Self-Employed Health Insurance Division for the three
month period in 1995. The combined health ratio has remained constant at 91% for
both the nine month period in 1996 and 1995 and remained at 91% for the year
ended December 31, 1995.
LIFE INSURANCE AND ANNUITY. Operating income for the Life Insurance and
Annuity business decreased to $2.3 million for the three month period in 1996
from $3.0 million in 1995, a decrease of $700,000, or 23%, and decreased to $8.3
million for the nine month period in 1996 from $8.7 million in 1995, a decrease
of $400,000, or 5%. The decrease for the three month period in 1996 relates to
increased commission and agency expenses incurred. Administrative, commission
and agency expenses are comparable for the nine month period in 1996 compared to
the same period in 1995. The decrease for the nine month period in 1996 compared
to same period in 1995 relates to higher policy benefits and claims.
11
<PAGE>
CREDIT SERVICES. Operating income for the Credit Services business
increased to $4.4 million for the three month period in 1996 from a loss of
$577,000 in 1995, and increased to $10.3 million for the nine month period in
1996 from a loss of $1.6 million in 1995. This was primarily due to an increase
in the profit per card and a 45% increase in the number of cards outstanding at
September 30, 1996 compared to September 30, 1995. The remainder of the increase
was due to reduced losses on certain products which are no longer being marketed
in 1996.
CORPORATE AND OTHER. Operating income for Corporate and Other was $3.3
million and $9.7 million for the three and nine month periods in 1996,
respectively, compared to $449,000 and $6.6 million for the same periods in
1995. HealthCare Solution Partners Division incurred operating losses of
$706,000 and $1.6 million for the three and nine month periods in 1996,
respectively. The losses primarily resulted from the losses of certain companies
in the development stage which was partially offset by operating income of other
businesses. Operating income from other corporate activities increased to $4.0
million for the three month period in 1996 from $1.0 million in 1995, an
increase of $3.0 million. The increase was primarily due to an increase in
investment income not allocated to the other segments and fewer losses realized
on the sale of investments for the three month period in 1996 compared to same
period in 1995. The primary reason for the increase in investment income not
allocated to the other segments was due to the investment income earned on the
net proceeds from the public offering completed by the Company on May 1, 1996.
Operating income from other corporate activities increased to $11.3 million for
the nine month period in 1996 from $9.4 million in 1995, an increase of $1.9
million. The increase was primarily due to the increase in investment income not
allocated to the other segments and the decrease in interest expense. The
increase was partially offset by fewer gains realized on sale of investments for
the nine month period in 1996 compared to the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of cash for the Company are premium revenues from policies
issued or coinsured, investment income and fees and other income. The primary
uses of cash are payments for benefits, claims and commissions under those
policies and operating expenses. Net cash provided from operations totaled
approximately $82.6 million for the nine month period in 1996 and $52.8 million
for the nine month period in 1995. The Company's insurance subsidiaries invest a
substantial portion of these funds, pending payment of their pro rata share of
future benefits and claims.
The Company's invested assets increased to $1,025.6 million at September 30,
1996 from $931.3 million at December 31, 1995, an increase of $94.3 million. The
primary sources for the asset growth were the investment of the net proceeds
from the public offering completed May 1, 1996 and the cash provided by current
year operations. The sources were partially offset by the decreases in market
values of the fixed maturity securities held as "available for sale", the
payment of debt, the purchase of property and equipment, the acquisition of
substantially all of the minority interest of an insurance subsidiary, and the
withdrawals, net of deposits, from investment products. The decrease in market
values was the direct result of increases in long term interest rates.
12
<PAGE>
On April 1, 1996, the Company completed the AEGON Transaction. The Company
acquired the underwriting, claims management and administrative capabilities
related to the products coinsured by the Company, through the purchase of
AEGON's insurance center building and equipment for $10.0 million. The $10.0
million purchase price was funded from existing funds by one of the insurance
subsidiaries of the Company. The Company and AEGON will maintain the coinsurance
agreement for policies issued by AEGON prior to April 1, 1996 and during the
transition period. The Company's coinsurance percentage is 57.5% in 1996 and 60%
thereafter until December 31, 2000, at which time the Company will acquire all
remaining policies from AEGON at a formula price set forth in the agreement. The
Company does not anticipate that this transaction will have a material impact on
the results of operations for the Company in 1996. However, as new health
insurance policies are issued by the Company (of which the Company will retain
100%) and as health insurance policies issued by AEGON (of which the Company
will have coinsured a maximum of only 60%) lapse, the Company expects premiums
will increase as its share of premiums on the policies sold by UGA increases
from 57.5% in 1996 to 100% in 2001. In 1995, health insurance policies sold by
UGA and issued by AEGON produced premiums of $390.2 million of which the
Company's share was 55%, or $214.6 million. There can be no assurance the
Company's premium revenues from these operations will actually achieve any
specified level.
The Company repaid the $12.0 million of non-interest bearing promissory notes
due in January 1996.
During 1996, the Company borrowed $10.3 million from its revolving credit note
with AEGON. On May 1, 1996, the Company repaid the then outstanding balance of
$10.3 million with the proceeds from the public offering commenced on April 25,
1996.
At December 31, 1995, the Company owed $10.7 million to the Company's Chairman
of the Board. The note was repaid in full during 1996.
Effective April 25, 1996 the Company commenced a public offering of 5,175,000
shares of common stock at a price of $20.50 per share. The net proceeds to the
Company (after deducting underwriting discounts and commissions and offering
expenses) from the sale of the shares was approximately $100.1 million. The
Company used $10.3 million of the proceeds to repay the AEGON revolving credit
note. The Company also intends to use a portion of the proceeds for capital
contributions to its insurance subsidiaries. The insurance subsidiaries of the
Company are required by state regulation to maintain certain levels of capital
and surplus. In addition, in order to maintain the current ratings of the
Company's insurance subsidiaries or improve such ratings in the future, higher
levels of capital and surplus may be required. The required levels are generally
based on the amount of insurance issued and the quality of invested assets. As
premiums increase, the Company is generally required to increase the capital and
surplus of the insurance companies. The AEGON Transaction is expected to result
in increased premiums for the Company. While the Company is not able to project
the exact amount of additional capital and surplus which will be required in the
insurance subsidiaries, a portion of the proceeds are expected to be used for
this purpose. The remainder of the proceeds are being and will be used for
general corporate purposes, including acquisitions of complementary businesses
and assets. Pending such uses, the remaining proceeds are being invested by the
Company in accordance with its current investment policies.
13
<PAGE>
Effective August 1, 1996, UICI acquired 20% of the minority interest of its
subsidiary, Mid-West National Life Insurance Company of Tennessee ("Mid-West")
for $9.8 million in cash. This increases UICI's ownership percentage in Mid-West
to 99% from 79%. The purchase price was based on a predetermined formula which
approximated GAAP book value.
During September 1996, the Company securitized $31.6 million of credit card
loans. The securitization involved the sale of $26.4 million of asset backed
securities in which the Company purchased participating interests totaling $2.9
million. During the fourth quarter of 1996, an additional $2.6 million of
proceeds will be received from investors as the growth of the collateral pool
allows. The proceeds received by the Company were used for general corporate
purposes including the purchase of investments.
In September 1996, UICI entered into three separate stock purchase agreements
with United Dental Care, Inc. to sell its three dental benefit companies in the
HealthCare Solution Partners Division. Total proceeds to be received by UICI on
the sale will be approximately $12.0 million. UICI will realize a gain on the
sale of the companies of approximately $6.5 million. The sale of one of the
companies was completed in October 1996 and UICI realized a gain of $2.0
million. The completion of the sale of the two remaining companies is contingent
upon certain conditions including approvals from the appropriate state insurance
departments. It is likely that the sale of the two remaining companies will
occur either in the fourth quarter of 1996 or first quarter of 1997. The
operations of the dental benefit companies were not material to the operations
of the Company. For the nine month period ended September 30, 1996 these
companies contributed net income of $0.01 per share compared to no contribution
to net income per share for the same period in 1995.
As part of the Company's tax planning strategy during the fourth quarter of
1996, the Company intends to recognize certain unrealized losses in its
insurance subsidiaries investment portfolios. The insurance subsidiaries file
separate tax returns from UICI and will be able to carryback the realized losses
on sale of investments to recapture taxes paid in prior years on the realized
gains on sale of investments. By taking these losses on the sale of investments
during the fourth quarter of 1996, it will partially if not totally offset any
gain realized by UICI on the sale of the dental benefit companies.
In November 1996, the Company acquired through a stock exchange agreement 100%
of Amli Realty Co. ("ARC"). The Company exchanged approximately 1,650,000 shares
of its common stock for all of the outstanding common stock of ARC. The
transaction will be accounted for under the pooling of interest method. ARC is a
full-service real estate organization whose principal investment is a 14% equity
interest in Amli Residential Properties Trust, a publicly traded real estate
investment trust.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 -- Exhibits and Reports on Form 8-K Number
------
(a) Exhibits.
Exhibit 11 - Statement Re: Computation of per share earnings.
(b) Reports on Form 8-K.
None
15
<PAGE>
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.
UICI
(Registrant)
Date: November 12, 1996 /s/W. Brian Harrigan
----------------- ----------------------------
W. Brian Harrigan, President
Date: November 12, 1996 /s/Vernon R. Woelke
----------------- ---------------------------
Vernon R. Woelke, Treasurer
(Chief Financial Officer)
16
[TYPE] EX-11
[DESCRIPTION] Statement re: Computation of Per Share Earnings
UICI AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(Dollars and number of shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE:
Average shares outstanding ................ 43,467 37,691 40,858 37,598
Add:
Common stock equivalent of stock
options and warrants ................ 19 228 49 209
------- ------- ------- -------
43,486 37,919 40,907 37,807
======= ======= ======= =======
Net income ................................ $18,121 $12,543 $50,360 $38,480
======= ======= ======= =======
Primary net income per share............... $ 0.42 $ 0.33 $ 1.23 $ 1.02
====== ====== ====== ======
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
ASSUMING FULL DILUTION:
Average shares outstanding................. 43,467 37,691 40,858 37,598
Add:
Common stock equivalent of stock
options and warrants ................ 20 228 52 230
------- ------- ------- -------
43,487 37,919 40,910 37,828
======= ======= ======= =======
Net income................................. $18,121 $12,543 $50,360 $38,480
======= ======= ======= =======
Fully diluted net income per share......... $ 0.42 $ 0.33 $ 1.23 $ 1.02
====== ====== ====== ======
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 738,938
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 16,034
<MORTGAGE> 15,554
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,025,587
<CASH> 9,077
<RECOVER-REINSURE> 65,339
<DEFERRED-ACQUISITION> 58,761
<TOTAL-ASSETS> 1,246,658
<POLICY-LOSSES> 703,553
<UNEARNED-PREMIUMS> 70,069
<POLICY-OTHER> 13,820
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 28,157
0
0
<COMMON> 435
<OTHER-SE> 388,524
<TOTAL-LIABILITY-AND-EQUITY> 1,246,658
401,793
<INVESTMENT-INCOME> 51,886
<INVESTMENT-GAINS> 670
<OTHER-INCOME> 80,162
<BENEFITS> 242,865
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 207,372
<INCOME-PRETAX> 82,407
<INCOME-TAX> 27,025
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,360
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
