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 June 30, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
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Commission File Number 0-14320
UICI
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(Exact name of registrant as specified in its charter)
Delaware 75-2044750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 McEwen, Suite 200, Dallas, Texas 75244
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(Address of principal executive office (Zip Code)
Registrant's telephone number, including area code (972) 233-8200
Not Applicable
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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--45,283,427 shares as of June 30, 1997.
<PAGE>
INDEX
UICI AND SUBSIDIARIES
Page
PART I. FINANCIAL INFORMATION
Consolidated condensed balance sheets-June 30, 1997 and December 31,
1996 3
Consolidated condensed statements of income-Three months ended June 30,
1997 and 1996 and the six months ended June 30, 1997 and 1996 4
Consolidated condensed statements of cash flows-Six months ended June 30,
1997 and 1996 5
Notes to consolidated condensed financial statements-June 30, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 2(c) Changes in the rights of the Company's Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
--------------------------------
SIGNATURES 14
2
<PAGE>
UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(Unaudited) (Note)
---------- ------------
<S> <C> <C>
ASSETS
Investments:
Securities available for sale--
Fixed maturities, at fair value
(cost: 1997--$765,061; 1996--$761,168) ................... $ 768,596 $ 762,927
Equity securities, at fair value
(cost: 1997--$11,463; 1996--$13,553) ..................... 13,391 15,106
Trading--
Fixed maturities, at fair value (cost: 1997--$49,951;
1996--$0) ................................................. 49,278 --
Student loans .................................................... 13,867 18,042
Mortgage and collateral loans .................................... 28,258 15,282
Policy loans ..................................................... 22,488 22,689
Credit card loans ................................................ 34,840 22,489
Real estate investments .......................................... 29,930 30,822
Short-term investments ........................................... 89,852 195,536
---------- ----------
Total investments .......................................... 1,050,500 1,082,893
Cash ............................................................... 18,025 15,420
Agents' receivables ................................................ 20,096 6,740
Reinsurance receivables ............................................ 70,255 68,438
Due premiums and other receivables ................................. 37,449 25,149
Investment income due and accrued .................................. 13,402 12,735
Deferred acquisition costs ......................................... 67,110 59,955
Goodwill ........................................................... 64,969 17,126
Property and equipment, net ........................................ 33,808 26,061
Other .............................................................. 8,496 6,471
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$1,384,110 $1,320,988
========== ==========
LIABILITIES
Policy liabilities:
Future policy and contract benefits .............................. $502,761 $512,670
Claims ........................................................... 209,557 201,276
Unearned premiums ................................................ 73,247 79,378
Other policy liabilities ......................................... 14,466 14,000
Federal income taxes ............................................. 8,909 4,705
Other liabilities .................................................. 42,050 32,214
Short-term debt .................................................... 6,403 1,032
Long-term debt ..................................................... 29,788 29,911
887,181 875,186
MINORITY INTERESTS .................................................... 21,182 12,884
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share ............................. 453 451
Additional paid-in capital ......................................... 165,604 165,668
Net unrealized investment gains .................................... 3,548 2,153
Retained earnings .................................................. 306,142 264,646
475,747 432,918
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$1,384,110 $1,320,988
========== ==========
</TABLE>
NOTE: The balance sheet as of December 31, 1996 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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Health premiums .................................. $ 144,739 $ 125,563 $ 281,775 $ 247,234
Life premiums and other considerations ........... 11,277 12,777 22,944 24,266
Net investment income ............................ 20,869 17,863 41,195 33,882
Fees and other income ............................ 41,586 30,131 77,419 51,676
Gains (losses) on sale of investments ............ 264 (149) 1,102 743
--------- --------- --------- ---------
218,735 186,185 424,435 357,801
BENEFITS AND EXPENSES
Benefits, claims, and settlement expenses ........ 98,563 85,380 192,268 169,456
Underwriting, acquisition, and other expenses .... 86,682 71,767 166,398 133,581
Interest expense ................................. 671 594 1,351 1,262
--------- --------- --------- ---------
185,916 157,741 360,017 304,299
INCOME BEFORE FEDERAL INCOME TAXES
AND MINORITY INTERESTS ......................... 32,819 28,444 64,418 53,502
Federal income taxes ................................ 11,100 9,384 21,225 17,615
--------- --------- --------- ---------
INCOME BEFORE MINORITY INTERESTS ............... 21,719 19,060 43,193 35,887
Minority interests .................................. 775 2,043 1,957 3,648
--------- --------- --------- ---------
NET INCOME ..................................... $ 20,944 $ 17,017 $ 41,236 $ 32,239
========= ========= ========= =========
NET INCOME PER SHARE ........................... $ 0.46 $ 0.41 $ 0.91 $ 0.81
====== ====== ====== ======
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE>
UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
Net income ............................................ $ 41,236 $ 32,239
Adjustments to reconcile net income to
cash provided by operating activities:
Increase in policy liabilities ...................... 4,458 825
Increase in other liabilities ....................... 4,662 1,647
Increase (decrease) in federal income taxes payable . (76) 2,999
Increase in deferred acquisition costs .............. (7,155) (1,830)
Increase in accrued investment income
and reinsurance and other receivables ........... (13,562) (222)
Depreciation and amortization ....................... 4,210 3,150
Net income attributable to minority interests ....... 1,957 3,648
Gains on sale of investments ........................ (1,102) (743)
Other items, net .................................... (1,931) (1,631)
--------- ---------
Cash Provided by Operations ..................... 32,697 40,082
--------- ---------
INVESTING ACTIVITIES
Decrease (increase) in investments .................... 48,956 (79,345)
Increase in agents' receivables ....................... (7,252) (4,665)
Purchase of subsidiary and assets, net of cash
acquired of $1,171 in 1997 .......................... (38,265) --
Minority interest purchased ........................... (15,062) --
Additions to property and equipment ................... (6,141) (13,094)
--------- ---------
Cash Used in Investing Activities ............... (17,764) (97,104)
--------- ---------
FINANCING ACTIVITIES
Deposits from investment products ..................... 9,127 7,685
Withdrawals from investment products .................. (20,878) (20,911)
Proceeds from debt .................................... 2,016 10,250
Repayments of debt .................................... (1,068) (32,976)
Proceeds from payable to related party ................ -- 550
Repayment of payable to related party ................. -- (715)
Proceeds from issuance of common stock, net of expenses -- 100,148
Proceeds from exercise of stock options and warrants .. 131 89
Purchase of treasury stock ............................ (194) (64)
Distributions to minority interests ................... (1,462) (1,252)
Cash (used in) provided by Financing Activities . (12,328) 62,804
--------- ---------
Net Increase in Cash ............................ 2,605 5,782
Net Cash at Beginning of Period ................. 15,420 5,913
--------- ---------
Cash at End of Period ........................... $ 18,025 $ 11,695
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE>
UICI AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited)
June 30, 1997
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
six-month period ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1997. 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, 1996. Certain amounts in the 1996 financial statements have been
reclassified to conform with the 1997 financial statement presentation.
NOTE B--STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS (SFAS)
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share", which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effective of stock options will be excluded. The impact of
Statement No. 128 on the calculation of fully diluted earnings per share for
these quarters is not expected to be material.
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," which is effective for fiscal years beginning after December 15, 1997,
with earlier application permitted. This statement establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements.
Also in June 1997, the FAB issued Statement No. 131, "Disclosures About Segments
of an Enterprise and Related Information." The statement is effective for fiscal
years beginning after December 15, 1997 with earlier application permitted. This
statement significantly changes the way public companies report segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial reports to
shareholders.
6
<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements set forth herein or incorporated by reference herein from the
Company's filings that are not historical facts are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act. Actual
results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, the following: changes in general economic
conditions, including the performance of financial markets, and interest rates;
competitive, regulatory or tax changes that affect the cost of or demand for the
Company's products; health care reform, ability to predict and effectively
manage claims related to health care costs; reliance on key management and
adequacy of claim liabilities. The Credit Card segment's future results also
could be adversely affected by the possibility of future economic downturns
causing an increase in credit losses. Investors are also directed to other risks
and uncertainties discussed in documents filed by the Company with the
Securities and Exchange Commission, specifically the Company's prospectus filed
April 26, 1996 and the Company's report on Form 10-K for the year ended December
31, 1996.
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 $0.46 per share
for the three month period ended June 30, 1997 compared to net income of $0.41
per share for the comparable period in 1996. There were no gains from the sale
of investments for the three month periods ended June 30, 1997 and 1996. For the
six month period ended June 30, 1997, net income was $0.91 per share compared to
$0.81 per share in 1996. Included in net income were gains from the sale of
investments of $0.01 per share for the six month periods ended June 30, 1997 and
in 1996.
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
Solutions Division, the Real Estate Division, investment income not allocated to
the other segments, interest expense, and general expenses relating to corporate
operations, goodwill 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 duration of the segment's policy
liabilities.
7
<PAGE>
The following table sets forth income statement data as a percentage of revenues
for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues ....................................... 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Benefits, claims, and settlement expenses ...... 45.1 45.9 45.3 47.4
Underwriting, acquisition and other expenses ... 39.6 38.5 39.2 37.3
Interest expense ............................... 0.3 0.3 0.3 0.3
----- ----- ----- -----
85.0 84.7 84.8 85.0
----- ----- ----- -----
Income before federal income taxes
and minority interests ...................... 15.0 15.3 15.2 15.0
Federal income taxes ........................... 5.1 5.0 5.0 5.0
----- ----- ----- -----
Income before minority interests ............... 9.9 10.3 10.2 10.0
Minority interests ............................. 0.4 1.1 0.5 1.0
----- ----- ----- -----
Net income .................................. 9.5% 9.2% 9.7% 9.0%
===== ===== ===== =====
</TABLE>
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1997 COMPARED TO 1996
HEALTH PREMIUMS. Health premiums increased to $144.7 million for the three
month period in 1997 from $125.6 million in 1996, an increase of $19.1 million,
or 15%, and increased to $281.8 million for the six month period in 1997 from
$247.2 million in 1996, an increase of $34.6 million, or 14%. The increase was
primarily due to the growth in sales of new health insurance policies sold by
Cornerstone Marketing of America ("CMA") and the increase in direct business
sold by United Group Association ("UGA"). In 1997, the coinsurance percentage on
both in force and new health insurance policies issued by AEGON increased to
60.0% from 57.5% in 1996.
LIFE PREMIUMS AND OTHER CONSIDERATIONS. Life premiums and considerations
decreased to $11.3 million for the three month period in 1997 from $12.8 million
in 1996, a decrease of $1.5 million, or 12%, and decreased to $22.9 million for
the six month period in 1997 from $24.3 million in 1996, a decrease of $1.4
million, or 6%. The decrease was the result of the decrease in retention of
credit life business which was partially offset by the sale of new life
policies.
NET INVESTMENT INCOME. Net investment income increased to $20.9 million for
the three month period in 1997 from $17.9 million in 1996, an increase of $3.0
million, or 17%, and increased to $41.2 million for the six month period in 1997
from $33.9 million in 1996, an increase of $7.3 million or 22%. The increase was
due to an increase in invested assets and an increase in yield on invested
assets.
FEES AND OTHER INCOME. Fees and other income increased to $41.6 million for
the three month period in 1997 from $30.1 million in 1996, an increase of $11.5
million, or 38%, and increased to $77.4 million for the six month period in 1997
from $51.7 million in 1996, an increase of $25.7 million, or 50%. The increase
related primarily to the increase in revenue from the Credit Services segment,
growth in sales from the HealthCare Solutions Division, revenues from the
companies acquired in the third quarter of 1996 and first quarter of 1997 by the
HealthCare Solutions Division, revenues from agency operations in the health
insurance segment and revenues from the Real Estate Division. 8
<PAGE>
GAINS (LOSSES) ON SALE OF INVESTMENTS. The Company recognized gains
(losses) on the sale of investments of $264,000 and $1.1 million for the three
month and six month periods in 1997, respectively, compared to ($149,000) and
$743,000 for the same periods in 1996. Included in the gains on sale of
investments for the six months ending June 30, 1997 are $673,000 of losses that
the Company recognized on securities classified as "trading" and a $3.2 million
gain from the sale of a dental benefit company. 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, the net unrealized investment gains 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 $3.5 million at June 30, 1997 compared to $2.2 million at December
31, 1996.
BENEFITS, CLAIMS, AND SETTLEMENT EXPENSES. Benefits, claims, and settlement
expenses increased to $98.6 million for the three month period in 1997 from
$85.4 million in 1996, an increase of $13.2 million, or 15%, and increased to
$192.3 million for the six month period in 1997 from $169.5 million in 1996, an
increase of $22.8 million, or 13%. The increase was primarily due to the growth
in premium volume and a higher loss ratio in the Health Insurance segment. As a
percentage of revenues, these expenses decreased to 45.1% and 45.3% for the
three and six month periods in 1997, respectively, from 45.9% and 47.4% for the
same periods in 1996. The decrease in these expenses were the result of the
increased revenues from the Credit Services segment, the HealthCare Solutions
Division and the Real Estate Division whose expenses are primarily classified as
underwriting, acquisition and other expenses.
UNDERWRITING, ACQUISITION AND OTHER EXPENSES. Underwriting, acquisition and
other expenses increased to $86.7 million for the three month period in 1997
from $71.8 million in 1996, an increase of $14.9 million, or 21%, and increased
to $166.4 million for the six month period in 1997 from $133.6 million in 1996,
an increase of $32.8 million, or 25%. The increase was primarily due to the
growth in premium volume, costs associated with the operations of the Credit
Services segment, businesses acquired in the third quarter of 1996 and first
quarter of 1997 by the HealthCare Solutions Division, and agency operations in
the Health Insurance segment. As a percentage of revenues, these expenses
increased to 39.6% and 39.2% for the three and six month periods in 1997,
respectively, from 38.5% and 37.3% for the same periods in 1996. The increase
was primarily the result of the increased costs from the HealthCare Solutions
Division.
INTEREST EXPENSE. Interest expense increased to $671,000 for the three
month period in 1997 from $594,000 in 1996, an increase of $77,000, and
increased to $1.4 million for the six month period in 1997 from $1.3 million in
1996, an increase of $100,000.
MINORITY INTERESTS. Minority interests decreased to $775,000 for the three
month period in 1997 from $2.0 million in 1996, a decrease of $1.2 million, and
decreased to $2.0 million for the six month period in 1997 from $3.6 million in
1996, a decrease of $1.6 million. The decrease was the result of the purchase of
the remaining minority interest from certain subsidiaries of the Company during
the third quarter of 1996 and the first quarter of 1997.
FEDERAL INCOME TAXES. The Company's effective tax rate was 33% for the six
month period in 1997 and 1996 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.
9
<PAGE>
INCOME BEFORE FEDERAL INCOME TAXES AND MINORITY INTERESTS ("OPERATING
INCOME"). Operating income increased to $32.8 million for the three month period
in 1997 from $28.4 million in 1996, an increase of $4.4 million, or 15%, and
increased to $64.4 million for the six month period in 1997 from $53.5 million
in 1996, an increase of $10.9 million, or 20%. Operating income (loss) for each
of the Company's business segments and divisions was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) (Dollars in thousands)
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Health Insurance:
Self-Employed Health Insurance Division ... $ 14,973 $ 14,154 $ 30,204 $ 27,803
Student Health Insurance Division ......... 4,248 3,661 7,989 7,447
-------- -------- -------- --------
Total Health Insurance .................. 19,221 17,815 38,193 35,250
Life Insurance and Annuity ................... 3,474 4,479 7,885 7,649
Credit Services .............................. 5,274 3,248 9,696 5,879
Corporate and Other:
HealthCare Solutions Division ............. (923) 337 (2,470) (146)
Real Estate Division ...................... 1,044 -- 1,820 --
Other ..................................... 4,729 2,565 9,294 4,870
-------- -------- -------- --------
Total Corporate and Other ............... 4,850 2,902 8,644 4,724
-------- -------- -------- --------
$ 32,819 $ 28,444 $ 64,418 $ 53,502
======== ======== ======== ========
</TABLE>
HEALTH INSURANCE. Operating income for the Health Insurance business
increased to $19.2 million for the three month period in 1997 from $17.8 million
in 1996, an increase of $1.4 million, or 8%, and increased to $38.2 million for
the six month period in 1997 from $35.3 million in 1996, an increase of $2.9
million or 8%. The increases were due primarily to an increase in health
premiums, which was partially offset by an increase in the combined health ratio
from 91% to 92% as compared to previous year.
LIFE INSURANCE AND ANNUITY. Operating income for the Life Insurance and
Annuity business decreased to $3.5 million for the three month period in 1997
from $4.5 million in 1996, a decrease of $1.0 million, or 22%, and increased to
$7.9 million for the six month period in 1997 from $7.6 million in 1996, an
increase of $300,000, or 4%. The decrease for the three month period was
primarily due to an increase in agency expenses and a decrease in retention of
credit life business.
CREDIT SERVICES. Operating income for the Credit Services segment increased
to $5.3 million for the three month period in 1997 from $3.2 million in 1996, an
increase of $2.1 million or 66%, and increased to $9.7 million for the six month
period in 1997 compared to $5.9 million in 1996, an increase of $3.8 million, or
64%. The increase is primarily due to the continued growth in new sales which
increases revenue and operating income and the continuing downward trend in the
gross charge offs when measured against the balances outstanding. The downward
trend is a result of improved collection efforts resulting from an investment in
better technology during the fourth quarter of 1996.
CORPORATE AND OTHER. Operating income for Corporate and Other increased to
$4.9 million for the three month period in 1997 from $2.9 million in 1996, an
increase of $2.0 million, and
10
<PAGE>
increased to $8.6 million for the six month period in 1997 from $4.7 million in
1996, an increase of $3.9 million. HealthCare Solutions Division incurred
operating losses of $923,000 for the three month period in 1997 compared to
operating earnings of $336,000 in 1996, and operating losses of $2.5 million for
the six month period ended in 1997 compared to an operating loss of $146,000 in
1996. The increase in the losses in the HealthCare Solutions Division primarily
resulted from companies acquired or started in the third quarter of 1996 and the
first quarter of 1997 and continuing increased marketing expenses which are
expected to benefit future periods.
The Company reported operating income for the Real Estate Division of $1.0
million for the three month period and $1.8 million for the six month period
ended June 30, 1997. The Real Estate Division was started in the fourth quarter
of 1996 with the acquisition of Amli Realty Co.
Operating income from other corporate activities increased to $4.7 million for
the three month period in 1997 from $2.6 million in 1996, an increase of $2.1,
million and $9.3 million for the six month period in 1997 from $4.9 million in
1996, an increase of $4.4 million. The increase was primarily due to an increase
in investment income not allocated to the other segments. The primary reason for
the increase in investment income not allocated to the other segments was due to
the investment income earned on the increased equity resulting from earnings and
the net proceeds from the public offering completed by the Company on May 1,
1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's invested assets decreased to $1,050.5 million at June 30, 1997
from $1,082.9 million at December 31, 1996, a decrease of $32.4 million. The
primary reasons for this decrease were the $53.0 million in acquisitions, the
increase in property plant and equipment, and the withdrawals, net of deposits,
from investment products during the six month period ended June 30, 1997. The
decreases were partially offset by the cash provided by operations.
In September 1996, the Company entered into three separate stock purchase
agreements with United Dental Care, Inc. to sell its three dental benefit
companies in the HealthCare Solutions Division. The Company completed two of the
sales, one in October 1996, and one in January 1997, for a realized gain of $2.0
million and $3.2 million, respectively. Subsequent to June 30, 1997, the Company
completed the third and final sale of its dental benefit companies realizing a
$1.5 million gain. The operations of the dental benefit companies were not
material to the operations of the Company.
Effective January 1, 1997, the Company acquired the remaining interest of
Insurdata Incorporated ("Insurdata") and UICI Administrators, Incorporated
("UAI") formerly Insurnational Insurance Administrators, Inc., based on a
predetermined formula price of $15.1 million. The Company acquired a majority
interest in Insurdata and UAI in October 1995.
On April 1, 1996, the Company acquired AEGON's underwriting, claims management
and administrative capabilities related to products coinsured by the Company. In
connection with this transaction, UGA agents began to market health insurance
products of the Company rather than the coinsured product. Effective January 1,
1997, the Company acquired the agency force and certain assets of UGA for a
price equal to the net book value of the tangible assets acquired and assumed
11
<PAGE>
certain agents commitments of $3.9 million. UGA was owned 100% by the Company's
Chairman at December 31, 1996. The tangible assets acquired consist primarily of
agent debit balances, a building, and related furniture and fixtures having a
net book value of $9.2 million, which approximates market value of the tangible
assets. The elimination of the sharing of business with AEGON and the
acquisition of the agency force are expected to have a positive impact on the
long term future of the Company.
In May 1997, the Company acquired 100% of Barron Risk Management Services, Inc.
("Barron") for a purchase price of $5.0 million. The acquisition of Barron was
funded with existing cash.
In June 1997, the Company acquired controlling interest in Education Finance
Group ("EFG") for a purchase price of $20.0 million. The acquisition of EFG was
funded with existing cash of $18.0 million and a $2.0 million note payable due
on demand. The $2.0 million note payable was paid off on July 11, 1997.
For financial reporting purposes, the Barron and EFG acquisitions were accounted
for using the purchase method of accounting, and as a result, the assets and
liabilities acquired were recorded at fair value on the date acquired.
The Company loaned $15.0 million to two limited partnerships sponsored by AMLI
Realty Co., a wholly owned subsidiary of the Company. These loans are
collateralized by real estate with interest computed at the LIBOR rate plus 2%
and due monthly. The loans are due on March 31, 2000.
Goodwill increased $47.8 million when compared to December 31, 1996, as a result
of the 1997 acquisitions of the remaining interests of Insurdata and UAI, the
agency force and certain assets of UGA, Barron and EFG.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 2--Changes in the Rights of the
Company's Security Holders
In April 1997, the Company acquired through a stock
exchange 100% of Excess, Inc. ("Excess"). Pursuant to
the stock exchange agreement, the Company issued an
aggregate of 145,133 shares of common stock to the
stockholders of Excess. Exemption from registration for
this issuance was claimed pursuant to Section 4(2) of
the Securities Act of 1933, as amended, as a private
placement pursuant to a privately negotiated
transaction.
ITEM 6 -- Exhibits and Reports on Form 8-K Number
------
(a) Exhibits.
Exhibit 11 - Statement Re: Computation of per share earnings 15
(b) Reports on Form 8-K
None.
13
<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: August 13, 1997 /s/W. Brian Harrigan
--------------- --------------------
W. Brian Harrigan, President
Date: August 13, 1997 /s/Vernon R. Woelke
--------------- -------------------
Vernon R. Woelke, Treasurer
(Chief Financial Officer)
14
<PAGE>
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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE:
Average shares outstanding ........ 45,209 41,714 45,174 39,736
Add:
Common stock equivalent of stock
options and warrants ........ 19 60 32 63
------- ------- ------- -------
45,228 41,774 45,206 39,799
======= ======= ======= =======
Net income ........................ $20,944 $17,017 $41,236 $32,239
======= ======= ======= =======
Primary net income per share ...... $ 0.46 $ 0.41 $ 0.91 $ 0.81
======= ======= ======= =======
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
ASSUMING FULL DILUTION:
Average shares outstanding ........ 45,209 41,714 45,174 39,736
Add:
Common stock equivalent of stock
options and warrants ........ 26 60 38 71
------- ------- ------- -------
45,235 41,774 45,212 39,807
======= ======= ======= =======
Net income ........................ $20,944 $17,017 $41,236 $32,239
======= ======= ======= =======
Fully diluted net income per share $ 0.46 $ 0.41 $ 0.91 $ 0.81
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 768,596
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 13,391
<MORTGAGE> 28,258
<REAL-ESTATE> 29,930
<TOTAL-INVEST> 1,050,500
<CASH> 18,025
<RECOVER-REINSURE> 70,255
<DEFERRED-ACQUISITION> 67,110
<TOTAL-ASSETS> 1,384,110
<POLICY-LOSSES> 712,318
<UNEARNED-PREMIUMS> 73,247
<POLICY-OTHER> 14,466
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 36,191
0
0
<COMMON> 453
<OTHER-SE> 475,294
<TOTAL-LIABILITY-AND-EQUITY> 1,384,110
304,719
<INVESTMENT-INCOME> 41,195
<INVESTMENT-GAINS> 1,102
<OTHER-INCOME> 77,419
<BENEFITS> 192,268
<UNDERWRITING-AMORTIZATION> (445)
<UNDERWRITING-OTHER> 166,843
<INCOME-PRETAX> 64,418
<INCOME-TAX> 21,225
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,236
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
