<PAGE> 1
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 March 31, 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
UNITED INSURANCE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code (214) 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--43,438,745 shares as of May 1, 1996.
<PAGE> 2
INDEX
UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
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<S> <C> <C>
Consolidated condensed balance sheets-March 31, 1996 and
December 31, 1995 3
Consolidated condensed statements of income-Three months ended
March 31, 1996 and 1995 4
Consolidated condensed statements of cash flows-Three months ended March 31, 1996 and 1995 5
Notes to consolidated condensed financial statements-March 31, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
- -------- -----------------
Item 4. Submission of Matters to a Vote of Security Holders 13
---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K 14
--------------------------------
SIGNATURES 15
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</TABLE>
2
<PAGE> 3
UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited) (Note)
----------- ------------
<S> <C> <C>
ASSETS
Investments:
Securities available for sale--
Fixed maturities, at fair value
(cost: 1996--$737,862; 1995--$743,945) . . . . . . . . . . . $ 733,447 $ 754,473
Equity securities, at fair value
(cost: 1996--$9,029; 1995--$5,114) . . . . . . . . . . . . . 9,360 5,288
Guaranteed student loans . . . . . . . . . . . . . . . . . . . . . . 12,763 12,159
Mortgage and collateral loans . . . . . . . . . . . . . . . . . . . 14,774 15,559
Policy loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,867 24,042
Credit card loans . . . . . . . . . . . . . . . . . . . . . . . . . 39,578 36,727
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . 86,878 83,024
----------- -----------
Total investments . . . . . . . . . . . . . . . . . . . . . . 920,667 931,272
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,436 5,913
Agents' receivables . . . . . . . . . . . . . . . . . . . . . . . . . 5,612 4,538
Reinsurance receivables . . . . . . . . . . . . . . . . . . . . . . . 61,277 65,332
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 1,958 4,987
Due premiums and other receivables . . . . . . . . . . . . . . . . . . 19,571 19,256
Investment income due and accrued . . . . . . . . . . . . . . . . . . 10,915 11,283
Deferred acquisition costs . . . . . . . . . . . . . . . . . . . . . . 57,960 56,122
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,316 15,564
Furniture and equipment, net . . . . . . . . . . . . . . . . . . . . . 13,940 12,937
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,915 3,655
----------- -----------
$ 1,117,567 $ 1,130,859
=========== ===========
LIABILITIES
Policy liabilities:
Future policy and contract benefits . . . . . . . . . . . . . . . . $ 515,846 $ 526,777
Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,583 179,809
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . 70,492 68,099
Other policy liabilities . . . . . . . . . . . . . . . . . . . . . . 12,717 13,220
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 25,050 25,501
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,735 22,726
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,905 27,655
----------- -----------
844,328 863,787
MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,494 18,253
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share . . . . . . . . . . . . . . . . 383 382
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 50,594 50,554
Net unrealized investment gains (losses) . . . . . . . . . . . . . . . (2,548) 6,789
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 206,316 191,094
----------- -----------
254,745 248,819
----------- -----------
$ 1,117,567 $ 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> 4
UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
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<S> <C> <C>
REVENUES
Accident and health premiums . . . . . . . . . . . . . . . . . . . . . $ 121,671 $ 117,295
Life premiums and other considerations . . . . . . . . . . . . . . . . 11,489 10,001
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . 16,019 15,950
Fees and other income . . . . . . . . . . . . . . . . . . . . . . . . 21,545 6,803
Gains on sale of investments . . . . . . . . . . . . . . . . . . . . . 892 790
---------- ----------
171,616 150,839
BENEFITS AND EXPENSES
Benefits, claims, and settlement expenses . . . . . . . . . . . . . . 82,895 80,430
Underwriting, acquisition, and insurance expenses . . . . . . . . . . 62,995 50,916
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 668 1,110
---------- ----------
146,558 132,456
INCOME BEFORE FEDERAL INCOME TAXES
AND MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . 25,058 18,383
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 8,231 5,887
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INCOME BEFORE MINORITY INTERESTS . . . . . . . . . . . . . . . . . . 16,827 12,496
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,605 353
---------- ----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,222 $ 12,143
========== ==========
NET INCOME PER SHARE (Note B) . . . . . . . . . . . . . . . . . . . $ 0.40 $ 0.32
========== ==========
</TABLE>
See notes to consolidated condensed financial statements.
4
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UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,222 $ 12,143
Adjustments to reconcile net income to
cash provided by operating activities:
Increase in policy liabilities . . . . . . . . . . . . . . . . . . . 102 4,335
Decrease in other liabilities . . . . . . . . . . . . . . . . . . . (450) (1,169)
Decrease in federal income taxes receivable . . . . . . . . . . . . 7,575 2,298
Increase in deferred acquisition costs . . . . . . . . . . . . . . . (1,838) (516)
Decrease in accrued investment income
and reinsurance and other receivables . . . . . . . . . . . . . 4,107 1,824
Net income attributable to minority interests . . . . . . . . . . . 1,605 353
Gains on sale of investments . . . . . . . . . . . . . . . . . . . . (892) (790)
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . (819) (5)
----------- -----------
Cash Provided by Operations . . . . . . . . . . . . . . . . . . 24,612 18,473
----------- -----------
INVESTING ACTIVITIES
Increase in investments . . . . . . . . . . . . . . . . . . . . . . . (3,289) (1,407)
(Increase) decrease in agents' receivables . . . . . . . . . . . . . . (1,074) 684
----------- -----------
Cash Used in Investing Activities . . . . . . . . . . . . . . . (4,363) (723)
----------- -----------
FINANCING ACTIVITIES
Deposits from investment products . . . . . . . . . . . . . . . . . . 6,023 3,043
Withdrawals from investment products . . . . . . . . . . . . . . . . . (11,392) (8,459)
Proceeds from debt . . . . . . . . . . . . . . . . . . . . . . . . . . 7,250 1,100
Repayments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . (20,991) (20,000)
Repayment of payable to related party . . . . . . . . . . . . . . . . -- (117)
Proceeds from exercise of warrants . . . . . . . . . . . . . . . . . . 89 89
Proceeds from exercise of stock options . . . . . . . . . . . . . . . -- 6
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . (64) (26)
Distributions to minority interests . . . . . . . . . . . . . . . . . (641) --
----------- -----------
Cash Used in Financing Activities . . . . . . . . . . . . . . . . (19,726) (24,364)
----------- -----------
Net Increase (Decrease) in Cash . . . . . . . . . . . . . . . . 523 (6,614)
Net Cash at Beginning of Period . . . . . . . . . . . . . . . . 5,913 7,709
----------- -----------
Cash at End of Period . . . . . . . . . . . . . . . . . . . . . $ 6,436 $ 1,095
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements for
United Insurance Companies, Inc. and its subsidiaries (the Company) have been
prepared in accordance with generally accepted accounting principles 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 generally accepted accounting principles
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 three-month
period ended March 31, 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.
NOTE B--STOCKHOLDERS' EQUITY
Prior period per share amount has been restated to reflect the effect of the
four-for-one stock split effective June 1, 1995.
NOTE C--STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS (SFAS)
Effective January 1, 1996, the Company has adopted two new Statement of
Financial Accounting Standards (SFAS). Implementation did not have a material
effect on the Company's financial statements.
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". This statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
In October 1995, the FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation". The Company accounts for its stock compensation arrangements
under the provision of APB-25, "Accounting for Stock Issued to Employees"
therefore this standard did not have a material impact on the Company.
6
<PAGE> 7
UNITED INSURANCE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE D--SUBSEQUENT EVENTS
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, will be 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. 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 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.
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 estimated offering expenses) from
the sale of the shares was approximately $100.0 million. The Company used
$10.3 million of the proceeds to repay revolving credit indebtedness. The
Company also intends to use a portion of the proceeds for capital contributions
to its insurance subsidiaries. The remainder of the proceeds will be used for
general corporate purposes, including acquisitions of complementary businesses
and assets. There currently are no commitments or agreements with respect to
any such acquisitions.
7
<PAGE> 8
PART I. FINANCIAL INFORMATION
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
United Insurance Companies, Inc. and its subsidiaries (the "Company") reported
net income of $0.40 per share for the three months ended March 31, 1996
compared to net income of $0.32 per share for the comparable period in 1995.
Included in net income are gains from the sale of investments of $0.01 per
share in 1996 and 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, goodwill
amortization, interest expense and realized gains 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
March 31,
---------
1996 1995
---------- ----------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0%
Benefits, claims, and settlement expenses . . . . . . . . . . . . . . . . 48.3 53.3
Underwriting, acquisition and insurance expenses . . . . . . . . . . . . 36.7 33.8
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.4 0.7
---------- ----------
Income before federal income taxes and minority interests . . . . . . . . 14.6 12.2
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 3.9
---------- ----------
Income before minority interests . . . . . . . . . . . . . . . . . . . . 9.8 8.3
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9 0.2
---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.9% 8.1%
========== ==========
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS FOR FIRST QUARTER 1996 COMPARED TO 1995
Health premiums. Health premiums increased to $121.7 million in the
first quarter of 1996 from $117.3 million in 1995, an increase of $4.4 million,
or 4%. 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> 9
Life premiums. Life premiums increased to $11.5 million in the first
quarter of 1996 from $10.0 million in 1995, an increase of $1.5 million, or
15%. The increase was a result of the sale of new life policies.
Net investment income. Net investment income was comparable in the
first quarter of 1996 when compared to same period in 1995. Invested assets
increased to $920.7 million at March 31, 1996 compared to $857.7 million at
March 31, 1995, an increase of 7%. The effect of the increase in the invested
assets was offset by the lower yield on invested assets in the first quarter of
1996 compared to 1995.
Fees and other income. Fees and other income increased to $21.5
million in the first quarter of 1996 from $6.8 million in 1995, an increase of
$14.7 million, or 216%. The increase related primarily to the increase in
revenue from the Credit Services business and revenue from the companies
acquired in the third and fourth quarters of 1995 by the HealthCare Solution
Partners Division.
Gains on sale of investments. The Company recognized gains on sales
of investments of $892,000 in the first quarter of 1996 and $790,000 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 $2.5 million at March 31, 1996 compared to net
unrealized investment gains of $6.8 million at December 31, 1995.
Benefits, claims, and settlement expenses. Benefits, claims, and
settlement expenses increased to $82.9 million in the first quarter of 1996 from
$80.4 million in 1995, an increase of $2.5 million, or 3%. The increase was
primarily due to the growth in premium volume. As a percentage of revenues,
these expenses decreased to 48.3% in the first quarter of 1996 from 53.3% in
1995, as a 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 $63.0 million in the first
quarter of 1996 from $50.9 million in 1995, an increase of $12.1 million, or
24%. The increase was primarily due to the growth in premium volume and costs
associated with the operations of businesses acquired in the third and fourth
quarters of 1995 by the HealthCare Solution Partners Division. As a percentage
of revenues, these expenses increased to 36.7% in the first quarter of 1996 from
33.8% in 1995, as a result of the increased costs from the HealthCare Solution
Partners Division.
Interest expense. Interest expense decreased to $668,000 in the first
quarter of 1996 from $1.1 million in 1995, a decrease of $432,000. The
decrease was due to a lower cost of borrowing and a lower average amount of
debt outstanding in the first quarter of 1996 compared to 1995.
9
<PAGE> 10
Minority interests. Minority interests increased to $1.6 million in
the first quarter of 1996 from $353,000 in 1995, an increase of $1.2 million.
The increase was the result of increased earnings from subsidiaries of the
Company of which there is minority ownership.
Federal income taxes. The Company's effective tax rate was 32.8% in
the first quarter of 1996 compared to 32.0% 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.
Income before federal income taxes and minority interests ("operating
income"). Operating income increased to $25.1 million in the first quarter of
1996 from $18.4 million in 1995, an increase of $6.7 million, or 36%. Operating
income (loss) for each of the Company's business segments and divisions was as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1996 1995
------------ ------------
(Dollars in thousands)
<S> <C> <C>
Health Insurance:
Self-Employed Health Insurance Division . . . . . . . . . . . . . . . $ 13,649 $ 11,922
Student Health Insurance Division . . . . . . . . . . . . . . . . . . 3,786 2,674
------- -------
Total Health Insurance . . . . . . . . . . . . . . . . . . . . . . . 17,435 14,596
Life Insurance and Annuity . . . . . . . . . . . . . . . . . . . . . . . 2,378 2,872
Credit Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,631 (1,221)
Corporate and Other:
HealthCare Solution Partners Division . . . . . . . . . . . . . . . . (874) (855)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,488 2,991
------- -------
Total Corporate and Other . . . . . . . . . . . . . . . . . . . . . 2,614 2,136
------- -------
$ 25,058 $ 18,383
====== ======
</TABLE>
Health Insurance. Operating income for the Health Insurance business
increased to $17.4 million in the first quarter of 1996 from $14.6 million in
1995, an increase of $2.8 million, or 19%. This increase was due primarily to
a 4% increase in health premiums, a decrease in the combined health ratio to
91.5% in the first quarter of 1996 from 92.0% in 1995, an increase in
investment income allocated to the Health Insurance products, and profits
related to certain lead activities of UGA. Operating income increased $1.7
million for the Self-Employed Health Insurance Division and $1.1 million for
the Student Health Insurance Division.
Life Insurance and Annuity. Operating income for the Life Insurance and
Annuity business decreased to $2.4 million in the first quarter of 1996 from
$2.9 million in 1995, a decrease of $500,000 or 17%. The decrease was due
primarily to higher death claims in the first quarter of 1996 than in 1995.
10
<PAGE> 11
Credit Services. Operating income for Credit Services was $2.6 million in
the first quarter of 1996 compared to a loss of $1.2 million in 1995, an
increase of $3.8 million. The increase was due to the growth in new sales of
the credit card program and a decrease in expenses, as a percentage of
revenues.
Corporate and Other. Operating income for Corporate and Other was $2.6
million in the first quarter of 1996 compared to $2.1 million in 1995. The
HealthCare Solution Partners Division incurred an operating loss of $874,000 in
the first quarter of 1996. The loss 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 $3.5 million in the first quarter of 1996 from $3.0
million in 1995. The increase was primarily due to the decrease in interest
expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's invested assets decreased to $920.7 million at March 31, 1996
from $931.3 million at December 31, 1995, a decrease of $10.6 million. The
primary sources for the asset reduction were the decreases in market values of
the fixed maturity securities held as "available for sale", the payment of debt
and the withdrawals from investment products. The decrease in market values
was the direct result of increases in long term interest rates. The decreases
were partially offset by the cash provided by current year earnings.
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 repaid the $12.0 million of non-interest bearing promissory notes
due in January 1996.
During the first quarter of 1996, the Company borrowed $7.3 million from its
revolving credit note with AEGON. The Company borrowed an additional $3.0
million in April 1996. 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.
The Company repaid $9.0 million during the first quarter of 1996, principally
from borrowings on the AEGON revolving credit note. The remaining outstanding
balance of $1.7 million was repaid on April 3, 1996.
11
<PAGE> 12
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 estimated
offering expenses) from the sale of the shares was approximately $100.0
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 will be used for general corporate
purposes, including acquisitions of complementary businesses and assets. There
currently are no commitments or agreements with respect to any such
acquisitions. Pending such uses, the net proceeds will be invested by the
Company in accordance with its current investment policies.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on April 16,
1996. The following members were elected to the Company's Board of
Directors to hold office for the ensuing year.
<TABLE>
<CAPTION>
Nominee In Favor Withheld
------------- ----------- --------
<S> <C> <C>
Ronald L. Jensen 25,892,643 389,859
Gary L. Friedman 25,891,682 390,820
J. Michael Jaynes 25,886,649 415,853
Richard J. Estell 25,866,352 396,150
Richard T. Mockler 25,891,782 390,720
Vernon R. Woelke 25,892,855 389,647
W. Brian Harrigan 25,866,536 415,966
Charles T. Prater 25,890,451 392,051
</TABLE>
The results of the voting on the appointment of auditors were as
follows:
Ratification of Appointment of Ernst & Young, LLP as the
Company's independent auditors for the fiscal year ending
December 31, 1996.
The votes of the stockholders on this item were as follows:
<TABLE>
<CAPTION>
In Favor Opposed Abstained
-------- ------- ---------
<S> <C> <C>
26,121,523 1,300 159,679
</TABLE>
The results of the voting on the proposal to amend certificate of
incorporation to change corporate name were as follows:
Proposal to amend certificate of incorporation of the Company
to change the name of the Company to "UICI".
<TABLE>
<CAPTION>
In Favor Opposed Abstained
-------- ------- ---------
<S> <C> <C>
25,684,140 267,363 330,999
</TABLE>
The results of the voting on the proposal to amend certificate of
incorporation to increase authorized common stock and to provide for
new series of preferred stock were as follows:
Proposal to amend certificate of incorporation of the Company
to increase the authorized shares of common stock from
40,000,000 shares up to 50,000,000 shares and to create a new
class of preferred stock which shall consist of 10,000,000
shares each with a par value of $0.01.
<TABLE>
<CAPTION>
In Favor Opposed Abstained
-------- ------- ---------
<S> <C> <C>
22,513,714 3,472,028 296,760
</TABLE>
13
<PAGE> 14
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
NUMBER
<TABLE>
<CAPTION>
(a)
Exhibits. Number
------
<S> <C> <C>
Exhibit 3.1 - Copy of Certificate of Incorporation, as amended on April
16, 1996, of the Company, filed as Exhibit 3.1 to the Company's
Amendment No. 2 to Form S-3 (File No. 333-02043) filed on April 24,
1996 and incorporated by reference herein.
Exhibit 10.1(C) - Amendment No. 3 to Reinsurance Agreement between
AEGON USA Companies and UICI Companies effective April 1, 1996, and
filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated
April 1, 1996 (File No. 0-14320), and incorporated by reference herein.
The Amendment No. 3 amends the Reinsurance Agreement between AEGON USA
Companies and UICI Companies effective January 1, 1995, as amended
through November 21, 1995, filed as Exhibit 10.1(B) on Annual Report on
Form 10-K for year ended December 31, 1995, (File No. 0-14320), filed
on March 29, 1996, and incorporated by reference herein.
Exhibit 10.27 - Asset Purchase Agreement between UICI Companies and PFL
Life Insurance Company, Bankers United Life Assurance Company, Life
Investors Insurance Company of America and Monumental Life Insurance
Company and Money Services, Inc. effective April 1, 1996, and filed as
Exhibit 10.2 to the Company's Current Report on Form 8-K dated April 1,
1996 (File No. 0-14320) and incorporated by reference herein.
Exhibit 10.28 - General Agent's Agreement between Mid-West National
Life Insurance Company of Tennessee and United Group Association, Inc.
effective April 1, 1996, and filed as Exhibit 10.3 to the Company's
Current Report on Form 8-K dated April 1, 1996 (File No. 0-14320), and
incorporated by reference herein.
Exhibit 10-29 - General Agent's Agreement between The MEGA Life and
Health Insurance Company and United Group Association, Inc. effective
April 1, 1996, and filed as Exhibit 10.4 to the Company's Current
Report on Form 8-K dated April 1, 1996 (File No. 0-14320) and
incorporated by reference herein.
Exhibit 10.30 - Agreement between United Group Association, Inc. and
Cornerstone Marketing of America effective April 1, 1996, and filed as
Exhibit 10.5 to the Company's Current Report on Form 8-K dated April 1,
1996 (File No. 0-14320) and incorporated by reference herein.
Exhibit 11 - Statement Re: Computation of per share earnings.
</TABLE>
(b) Reports on Form 8-K.
A current report on Form 8-K dated April 1, 1996 concerning
the AEGON Transaction.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED INSURANCE COMPANIES, INC.
(Registrant)
Date: May 15, 1996 /s/ W. BRIAN HARRIGAN
------------------------- ---------------------------------------
W. Brian Harrigan, President
Date May 15, 1996
------------------------- /S/ VERNON R. WOELKE
---------------------------------------
Vernon R. Woelke, Treasurer
(Chief Financial Officer)
<PAGE> 16
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
11 Statement re: computation of
per share earning
27 FDS
<PAGE> 1
UNITED INSURANCE COMPANIES, INC. 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
March 31,
1996 1995
---------- ------------
<S> <C> <C>
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE:
Average shares outstanding . . . . . . . . . . . . . . . . . . . . . 38,253 37,532
Add:
Common stock equivalent of stock
options and warrants . . . . . . . . . . . . . . . . . . . . . 66 176
------ ------
38,319 37,708
====== ======
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,222 $12,143
====== ======
Primary net income per share . . . . . . . . . . . . . . . . . . . . $ 0.40 $ 0.32
==== ====
</TABLE>
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
ASSUMING FULL DILUTION:
<TABLE>
<S> <C> <C>
Average shares outstanding . . . . . . . . . . . . . . . . . . . . . 38,253 37,532
Add:
Common stock equivalent of stock
options and warrants . . . . . . . . . . . . . . . . . . . . . 67 196
------ ------
38,320 37,728
====== ======
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,222 $12,143
====== ======
Fully diluted net income per share . . . . . . . . . . . . . . . . . $ 0.40 $ 0.32
==== ====
</TABLE>
NOTE: All share and per share amounts have been restated for the prior
period presented to reflect the four-for- one stock split
effective June 1, 1995.
16
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 733,447
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 9,360
<MORTGAGE> 14,774
<REAL-ESTATE> 0
<TOTAL-INVEST> 920,667
<CASH> 6,436
<RECOVER-REINSURE> 61,277
<DEFERRED-ACQUISITION> 57,960
<TOTAL-ASSETS> 1,117,567
<POLICY-LOSSES> 699,429
<UNEARNED-PREMIUMS> 70,492
<POLICY-OTHER> 12,717
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 36,640
<COMMON> 383
0
0
<OTHER-SE> 254,362
<TOTAL-LIABILITY-AND-EQUITY> 1,117,567
133,160
<INVESTMENT-INCOME> 16,019
<INVESTMENT-GAINS> 892
<OTHER-INCOME> 21,545
<BENEFITS> 82,895
<UNDERWRITING-AMORTIZATION> (1133)
<UNDERWRITING-OTHER> 64,796
<INCOME-PRETAX> 23,453
<INCOME-TAX> 8,231
<INCOME-CONTINUING> 15,222
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,222
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
