UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 1997
Commission File No. 0-18485
Life USA HOLDING, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-1578384
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
Suite 95, Interchange North Building
300 South Highway 169
Minneapolis, Minnesota 55426
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (612) 546-7386
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.
Class Outstanding at June 30, 1997
----------------- ----------------------------
Common Stock, 21,609,406
Par Value $.01 Per Share
<PAGE>
Life USA HOLDING, INC.
Securities and Exchange Commission Form 10-Q
for the Second Quarter Ended June 30, 1997
I N D E X
Page
Number
------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Consolidated Balance Sheet (Unaudited)
June 30, 1997 and December 31, 1996............................3-4
Condensed Consolidated Statement of Income
(Unaudited) Three months and six months ended
June 30, 1997 and June 30, 1996..................................5
Condensed Consolidated Statement of Cash Flows
(Unaudited) Six months ended June 30, 1997
and June 30, 1996................................................6
Notes to Condensed Consolidated Financial Statements
(Unaudited)....................................................7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................9-21
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings...............................................22
Item 2. Changes in Securities...........................................22
Item 3. Defaults Upon Senior Securities.................................22
Item 4. Submission of Matters to a Vote of Security Holders.............22
Item 5. Other Information...............................................23
Item 6. Exhibits and Reports on Form 8-K................................23
SIGNATURES:...................................................................24
<PAGE>
Life USA HOLDING, INC.
Condensed Consolidated Balance Sheet
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Investments:
Fixed maturity investments:
Available for sale, at fair value (amortized cost:
$894,849 at June 30, 1997 and $864,400 at
December 31, 1996) $ 902,487 $ 878,279
Held to maturity, at amortized cost (fair value:
$1,072,398 at June 30, 1997 and $1,013,761 at
December 31, 1996) 1,060,515 1,003,197
Policy loans 26,416 23,908
---------- ----------
Total investments 1,989,418 1,905,384
Cash and cash equivalents 42,735 20,989
Accrued investment income 29,301 27,834
Future policy benefits recoverable and amounts due
from reinsurers 2,295,733 2,179,999
Deferred policy acquisition costs 222,183 212,138
Other assets 42,861 40,379
---------- ----------
$4,622,231 $4,386,723
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
Life USA HOLDING, INC.
Condensed Consolidated Balance Sheet (Continued)
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Future policy benefits $ 4,281,027 $ 4,078,621
Other policyholders' funds 13,072 5,381
Amounts due reinsurers 36,415 23,605
Accrued commissions to agents 7,277 10,243
Taxes, licenses and fees payable 16,614 17,868
Accounts payable 4,262 6,967
Convertible subordinated debentures 36,030 36,030
Deferred income taxes 11,973 12,924
Other liabilities 29,403 22,469
----------- -----------
Total liabilities 4,436,073 4,214,108
Shareholders' equity:
Preferred stock, $.01 par value; 15,000,000
shares authorized, none issued -- --
Common stock, $.01 par value; 45,000,000
shares authorized, 21,609,406 issued and
outstanding (20,953,517 shares at December 31, 1996) 216 210
Common stock to be issued, 24,757 shares
(21,384 shares at December 31, l996) 419 357
Additional paid-in capital 92,924 86,474
Notes receivable from stock sales (5,643) (3,888)
Net unrealized gain on fixed maturity
investments - available for sale 1,782 3,335
Retained earnings 96,460 86,127
----------- -----------
Total shareholders' equity 186,158 172,615
----------- -----------
$ 4,622,231 $ 4,386,723
=========== ===========
</TABLE>
See accompanying notes
<PAGE>
Life USA HOLDING, INC.
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Policyholder charges $ 12,853 $ 12,763 $ 24,655 $ 23,847
Net investment income 35,278 31,644 69,584 62,571
Net realized gains (losses) on investments - (8) 1,234 1,671
Commissions and expense allowances, net 43,649 32,932 75,028 62,749
Other 36 98 667 145
----------- ------------ ----------- -----------
Total revenues 91,816 77,429 171,168 150,983
Benefits and expenses:
Interest credited to policyholder account values 26,612 24,253 52,857 48,484
Other benefits to policyholders 5,569 4,680 10,468 9,349
Amortization of deferred policy acquisition costs 7,448 6,743 14,029 12,911
Commissions 25,567 19,167 43,541 36,318
Taxes, licenses and fees 1,363 1,100 1,932 2,337
Operating expenses 16,509 12,536 31,513 25,311
----------- ------------ ----------- -----------
Total benefits and expenses 83,068 68,479 154,340 134,710
----------- ------------ ----------- -----------
Income before income taxes 8,748 8,950 16,828 16,273
Income taxes 3,417 3,284 6,352 5,986
----------- ------------ ----------- -----------
Net income $ 5,331 $ 5,666 $ 10,476 $ 10,287
=========== ============ =========== ===========
Income per common and common equivalent share:
Primary $ .23 $ .25 $ .45 $ .46
=========== ============ =========== ===========
Fully diluted $ .23 $ .25 $ .45 $ .46
=========== ============ =========== ===========
Number of shares used in per share calculation:
Primary 24,389,155 23,349,003 24,253,382 23,126,263
Fully diluted 24,613,383 23,373,323 24,364,418 23,138,417
</TABLE>
See accompanying notes.
<PAGE>
Life USA HOLDING, INC.
Condensed Consolidated Statement of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,476 $ 10,287
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Accretion of discount on investments, net (1,249) (1,033)
Net realized gains on investments (1,234) (1,671)
Policy acquisition costs deferred (20,222) (18,839)
Amortization of deferred policy acquisition costs 14,029 12,911
Other changes 17,743 (12,677)
--------- ---------
Net cash provided by (used in) operating activities 19,543 (11,022)
Cash flows from investing activities:
Fixed maturity investments-available for sale:
Purchases (68,476) (90,886)
Proceeds from sales 33,504 37,682
Proceeds from maturities and principal payments
on mortgage-backed securities 5,970 4,069
Fixed maturity investments-held to maturity:
Purchases (63,980) (41,340)
Proceeds from maturities and principal payments
on mortgage-backed securities 7,698 4,181
Investments in and loans to field marketing
organizations (4,998) -
--------- ---------
Net cash used in investing activities (90,282) (86,294)
Cash flows from financing activities:
Receipts from universal life and investment products 151,498 139,992
Withdrawals on universal life and investment products (124,543) (99,721)
Interest credited to policyholder account values 52,857 48,484
Other financing activities 12,673 7,881
--------- ---------
Net cash provided by financing activities 92,485 96,636
--------- ---------
Net increase (decrease) in cash and cash equivalents 21,746 (680)
Cash and cash equivalents at beginning of the period 20,989 33,222
--------- ---------
Cash and cash equivalents at end of the period $ 42,735 $ 32,542
========= =========
</TABLE>
See accompanying notes.
<PAGE>
Life USA HOLDING, INC.
Notes to Condensed Consolidated Financial Statements
June 30, 1997
(Unaudited)
1. The condensed consolidated balance sheet of Life USA Holding, Inc. (the
Company) at June 30, 1997 and the related condensed consolidated
statements of income and cash flows for the three months and six months
ended June 30, 1997 and 1996, are unaudited; however, in the opinion of
management, all adjustments necessary for a fair presentation have been
included and are of a normal recurring nature. The results of operations
for the three months and six months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
The balance sheet at December 31, 1996 is derived from the audited
balance sheet as of that date.
2. Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
3. The accompanying condensed consolidated financial statements should be
read in conjunction with the notes to the December 31, 1996 consolidated
financial statements.
4. The net unrealized gain on fixed maturity investments - available for
sale included in shareholders' equity consists of the following:
June 30, December 31,
1997 1996
------- --------
Gross unrealized gain on fixed maturity
investments - available for sale $ 7,638 $ 13,879
Adjustments for:
Deferred tax liability (2,673) (4,858)
Deferred policy acquisition costs (4,896) (8,748)
Deferred tax asset 1,713 3,062
------- --------
Net unrealized gain on fixed maturity
investments - available for sale $ 1,782 $ 3,335
======= ========
5. In 1996, the Company introduced a single premium deferred annuity product
with a portion of the policy annuitization value defined by the growth in
the Standard & Poor's 500 Index over a seven-year term. To provide for
these benefits, the Company has purchased option contracts which match
the term and expected persistency of the policies sold. These options are
reported at fair value in other assets on the consolidated balance sheet.
Unrealized gains and losses on the contracts are recorded in other
revenues to offset the expense of increases in the future policy benefits
liability for the index benefit.
The Financial Accounting Standards Board (FASB) has issued an exposure
draft, "Accounting for Derivative and Similar Financial Instruments and
for Hedging Activities," which addresses the accounting for derivative
instruments, such as the options owned by the Company, used as hedges
against changes in the fair value of specified assets or liabilities. The
Company's use of option contracts to hedge against increases in the
future policy benefits liability and the
<PAGE>
Company's accounting treatment of these contracts fully meets the
criteria for fair value hedge accounting defined in this exposure draft.
A final statement from the FASB could be issued by the end of 1997. The
Company's accounting treatment is also consistent with the fair value
treatment prescribed by Statement of Financial Accounting Standards
(SFAS) No. 80, "Accounting for Futures Contracts" for hedges of
liabilities carried at fair value.
6. In February 1997, the FASB issued SFAS No. 128, "Earnings per Share."
SFAS No. 128 establishes standards for computing and presenting earnings
per share for all entities with complex capital structures. SFAS No. 128
is effective for financial statements issued for periods ending after
December 15, 1997 and will be adopted by the Company in the fourth
quarter of 1997. SFAS No. 128 will replace primary earnings per share
with basic earnings per share. Basic earnings per share is calculated
using actual weighted average shares outstanding and excludes the effects
of common stock equivalents currently used in the primary earnings per
share calculation. The Company expects basic earnings per share to be
higher than previously reported primary earnings per share because of
this difference in calculation. SFAS No. 128 also replaces fully diluted
earnings per share with diluted earnings per share. The Company does not
expect diluted earnings per share to differ from fully diluted earnings
per share.
7. In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 defines the financial statement presentation for
all changes in a company's equity during a period except those resulting
from investments by owners and distributions to owners. SFAS No. 130 is
effective for financial statements issued for fiscal years beginning
after December 15, 1997 and will be adopted by the Company in the first
quarter of 1998. Because the statement is merely a change in
presentation, the Company does not expect the adoption of this statement
to have any impact on the amount of net income, earnings per share or
total shareholders' equity reported.
8. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 131 supersedes SFAS
No. 14 "Financial Reporting for Segments of a Business Enterprise" and
defines financial and descriptive information about a company's operating
segments that is to be disclosed in financial statements. Currently, the
Company considers its insurance operations to be its only material
operating segment. The Company is in the process of defining additional
business segments and developing allocation methods to assess their
performance. Once the process is completed, additional disclosures will
be provided in accordance with SFAS No. 131.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following analysis of the results of operations and financial condition of
Life USA Holding, Inc. (the Company) and its wholly-owned subsidiaries, LifeUSA
Insurance Company (LifeUSA), LifeUSA Securities, Inc. (LifeUSA Securities) and
LifeUSA Marketing, Inc. (LifeUSA Marketing), should be read in conjunction with
the Company's consolidated financial statements and notes thereto included
elsewhere in this Report.
During 1996, the Company formed two wholly-owned subsidiaries: LifeUSA
Securities and LifeUSA Marketing. LifeUSA Securities has received approval from
the National Association of Securities Dealers, Inc. as a retail broker-dealer
to market a family of LifeUSA mutual funds established through a joint-venture
agreement with a $16 billion asset management firm and distributes variable life
insurance and annuity contracts on a wholesale basis. LifeUSA Marketing conducts
a variety of marketing activities for the Company, including the acquisition of
and investment in national field marketing organizations. The results of
operations and financial condition of LifeUSA Securities and LifeUSA Marketing,
both individually and in the aggregate, are not material to the 1997 or 1996
consolidated financial statements of the Company. Therefore, the analysis that
follows will focus primarily on the Company and LifeUSA.
Since its inception in 1987, LifeUSA has entered into various agreements to
reinsure a substantial portion of the new life insurance and annuity business
written each year. Entering into these reinsurance agreements has allowed
LifeUSA to write a larger volume of business than it would otherwise have been
able to write due to regulatory restrictions based on the amount of its
statutory capital and surplus.
Since April 1, 1991, LifeUSA has ceded a substantial portion of its new life
insurance and annuity business to the following three reinsurers (the
Reinsurers):
* Employers Reassurance Corporation, a subsidiary of Employers Reinsurance
Corporation, a member of the General Electric Company group (Employers);
* Munich American Reassurance Company, a subsidiary of Munich Reinsurance
Company, one of the largest German insurance companies (Munich); and
* Republic-Vanguard Life Insurance Company, a member of the Winterthur
Swiss Insurance Group, one of the largest Swiss insurance companies
(Republic-Vanguard).
Since 1987, under the terms of agreements between the Company and Allianz Life
Insurance Company of North America (Allianz Life), LifeUSA agents have produced
life insurance and annuity business on Allianz Life policies which are similar
to LifeUSA policies. The Company receives service fees on the business produced
by LifeUSA agents for Allianz Life.
<PAGE>
Effective October 1, 1995, LifeUSA began ceding 75% of its new life insurance
and annuity business to the reinsurers and assuming 25% of the new life
insurance and annuity business produced by its agents for Allianz Life. For
comparative purposes, LifeUSA's net retention (the percentage of new life
insurance and annuity business retained by LifeUSA and assumed by LifeUSA from
Allianz Life) was a constant 25% throughout 1996 and the first two quarters of
1997. LifeUSA receives commissions and expense allowances on business ceded to
the Reinsurers.
The following table shows LifeUSA's life insurance and annuity in force
information at June 30, 1997 and December 31, 1996 (in millions):
June 30, 1997 December 31, 1996
Life insurance account values:
All policies produced by LifeUSA agents (1) $ 280.1 $ 260.1
Direct and assumed business (2) 240.7 223.4
Net of reinsurance (3) 92.3 85.5
Life insurance face amounts:
All policies produced by LifeUSA agents (1) 8,116.4 8,204.2
Direct and assumed business (2) 7,043.9 7,132.5
Net of reinsurance (3) 2,332.8 2,385.2
Annuity account values:
All policies produced by LifeUSA agents (1) 5,108.2 4,876.7
Direct and assumed business (2) 3,593.5 3,496.3
Net of reinsurance (3) 1,695.5 1,655.5
- -------------------------
(1) Includes all policies produced by LifeUSA agents, including policies
produced by LifeUSA agents for Allianz Life.
(2) Includes all LifeUSA policies and the portion of policies produced by
LifeUSA agents for Allianz Life that have been assumed by LifeUSA.
(3) Includes the portion of LifeUSA policies that have been retained by
LifeUSA and the portion of policies produced by LifeUSA agents for
Allianz Life that have been assumed by LifeUSA.
Reference is made to Note 2 (Reinsurance) to the December 31, 1996 consolidated
financial statements for further details regarding the Company's reinsurance
agreements.
From its inception through March 31, 1997, the Company issued its common stock,
convertible debentures or granted options to purchase its common stock to Field
Marketing Organizations (FMOs) and agents as production bonuses. Management
believed that in the early years of the Company these forms of equity
participation provided agents with additional incentives to place profitable
business with LifeUSA, to encourage policyholder persistency and to seek good
underwriting risks for LifeUSA. From 1992 through March 31, 1997, stock options
were granted to FMOs and agents at an exercise price which was equal to the
greater of $10.00 per share or 150% of the average closing bid price for the
Company's common stock for the twenty trading days immediately preceding the end
of the quarter for which the stock option was granted. The Company discontinued
the granting of stock options as production bonuses following the calendar
quarter ended March 31, 1997. Management currently believes that the Company's
entire agent compensation package, which includes LifeUSA's standard cash
commissions, annual cash production bonuses for major producers and Producer
Perks Certificates which are redeemable for merchandise and earned by achieving
certain levels of production, along with Life USA's proven service and product
offerings, continue to encourage strong agent participation.
<PAGE>
RESULTS OF OPERATIONS
PREMIUMS AND DEPOSITS. Total collected premiums and deposits, including premiums
and deposits on policies produced by LifeUSA agents for Allianz Life, were
$319.6 million and $258.6 million in the second quarter of 1997 and 1996,
respectively, an increase of 24%. Total collected premiums and deposits were
$554.6 million and $482.5 million for the first six months, respectively, an
increase of 15%. The following table shows the amounts of premiums and deposits
collected, ceded and retained for the comparable three- and six-month periods
(in thousands):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Collected Premiums and Deposits (1):
LifeUSA:
Life:
First year $ 2,032 $ 3,423 $ 4,422 $ 7,301
Single and renewal 12,992 12,037 26,201 24,134
-------- -------- -------- --------
Total Life 15,024 15,460 30,623 31,435
Annuities 136,368 162,302 234,509 297,222
-------- -------- -------- --------
Total LifeUSA collected premiums and deposits 151,392 177,762 265,132 328,657
Allianz Life:
Life:
First year 613 800 1,152 1,707
Single and renewal 3,746 3,658 7,543 7,339
-------- -------- -------- --------
Total Life 4,359 4,458 8,695 9,046
Annuities 163,816 76,411 280,781 144,815
-------- -------- -------- --------
Total Allianz Life collected premiums and deposits 168,175 80,869 289,476 153,861
-------- -------- -------- --------
Total collected premiums and deposits $319,567 $258,631 $554,608 $482,518
======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Premiums and Deposits Not Retained or Assumed (2):
LifeUSA:
Life:
First year $ 1,524 $ 2,192 $ 3,318 $ 4,512
Single and renewal 8,414 7,821 16,920 15,805
-------- -------- -------- --------
Total Life 9,938 10,013 20,238 20,317
Annuities 99,984 117,811 170,961 214,080
-------- -------- -------- --------
Total LifeUSA premiums and deposits not retained 109,922 127,824 191,199 234,397
Allianz Life:
Life:
First year 460 540 864 1,094
Single and renewal 2,202 2,131 4,413 4,281
-------- -------- -------- --------
Total Life 2,662 2,671 5,277 5,375
Annuities 120,709 54,672 206,634 102,754
-------- -------- -------- --------
Total Allianz Life premiums and deposits not assumed 123,371 57,343 211,911 108,129
-------- -------- -------- --------
Total collected premiums and deposits not retained or assumed $233,293 $185,167 $403,110 $342,526
======== ======== ======== ========
Retained or Assumed Premiums and Deposits (3):
LifeUSA:
Life:
First year $ 508 $ 1,231 $ 1,104 $ 2,789
Single and renewal 4,578 4,216 9,281 8,329
------- ------- -------- --------
Total Life 5,086 5,447 10,385 11,118
Annuities 36,384 44,491 63,548 83,142
------- ------- -------- --------
Total LifeUSA retained premiums and deposits 41,470 49,938 73,933 94,260
Allianz Life:
Life:
First year 153 260 288 613
Single and renewal 1,544 1,527 3,130 3,058
------- ------- -------- --------
Total Life 1,697 1,787 3,418 3,671
Annuities 43,107 21,739 74,147 42,061
------- ------- -------- --------
Total Allianz Life assumed premiums and deposits 44,804 23,526 77,565 45,732
======= ======= ======== ========
Total retained or assumed premiums and deposits $86,274 $73,464 $151,498 $139,992
======= ======= ======== ========
</TABLE>
- ----------------------------
(1) Includes premiums and deposits related to all policies produced by
LifeUSA agents, including policies produced by LifeUSA agents for Allianz
Life.
(2) Includes premiums and deposits related to LifeUSA policies that have been
ceded by LifeUSA to the Reinsurers and premiums and deposits related to
policies produced by LifeUSA agents for Allianz Life that have not been
assumed by LifeUSA.
(3) Includes premiums and deposits related to LifeUSA policies that have been
retained by LifeUSA and premiums and deposits related to policies
produced by LifeUSA agents for Allianz Life that have been assumed by
LifeUSA. LifeUSA invests these premiums and deposits for the purpose of
providing future benefits to its policyholders.
Reference is made to Note 2 (Reinsurance) to the December 31, 1996 consolidated
financial statements for further details regarding the Company's reinsurance
agreements.
<PAGE>
REVENUES. Total revenues were $91.8 million and $77.4 million in the second
quarter of 1997 and 1996, respectively, and $171.2 million and $151.0 million
for the first six months of 1997 and 1996, respectively. The increases in total
revenues of 19% for the quarter and 13% for the first six months were primarily
due to the increase in net commissions and expense allowances associated with
increased production of business not retained or assumed. Also contributing to
the increase in revenues was the increase in net investment income generated by
the growth of annuities in force and invested assets.
Increases in net investment income of 11% for the quarter and the first six
months are attributable to increases in invested assets (fixed maturity
investments and cash and cash equivalents) to $2.01 billion at June 30, 1997
from $1.79 billion at June 30, 1996. The weighted average annual yield on
invested assets (exclusive of realized and unrealized gains and losses) was
7.42% at both June 30, 1997 and 1996.
In accordance with generally accepted accounting principles, net realized gains
(losses) on investments had the following impact on the amortization of deferred
policy acquisition costs, other benefits to policyholders, net income and
earnings per share for the three and six months ended June 30, 1997 and 1996
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
------------------------------ ------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net realized gains (losses) on investments $ - $ (8) $ 1,234 $ 1,671
Increase (decrease) in:
Amortization of deferred policy acquisition costs - (3) 453 615
Other benefits to policyholders - (2) 324 443
------------- ------------- ------------- -------------
Income before income taxes - (3) 457 613
Income taxes - (1) 164 228
------------- ------------- ------------- -------------
Net income $ - $ (2) $ 293 $ 385
============= ============= ============= =============
Earnings per share $ - $ - $ .01 $ .02
============= ============= ============= =============
</TABLE>
<PAGE>
Net commissions and expense allowances on premiums and deposits collected on
reinsured policies and service fees on business produced for Allianz Life
increased 33%, or $10.7 million, in the second quarter of 1997 compared to 1996
and 20%, or $12.3 million, in the first six months of 1997 compared to 1996.
Through the first six months of 1997, 48% of total collected premiums and
deposits were from LifeUSA policies and 52% of total collected premium and
deposits were from Allianz Life policies. Of the total collected premiums and
deposits through the first six months of 1996, 68% were from LifeUSA policies
and 32% were from Allianz Life policies. The Company earns service fees on all
Allianz Life policies produced, and earns commission and expense allowances on
the portion of LifeUSA policies not retained.
The following table shows the amounts of net commissions and expense allowances
for the comparable quarters and six-month periods ended June 30, 1997 and 1996
(in thousands):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
LifeUSA:
Life:
First year $ 1,881 $ 2,657 $ 3,912 $ 5,437
Single and renewal 1,370 1,293 2,754 2,610
-------- -------- -------- --------
Total Life 3,251 3,950 6,666 8,047
Annuities 15,869 17,213 26,894 31,991
-------- -------- -------- --------
Total LifeUSA 19,120 21,163 33,560 40,038
Allianz Life:
Life:
First year 595 851 1,169 1,764
Single and renewal 530 573 1,071 1,138
-------- -------- -------- --------
Total Life 1,125 1,424 2,240 2,902
Annuities 23,648 10,436 39,707 20,092
-------- -------- -------- --------
Total Allianz Life 24,773 11,860 41,947 22,994
Lapse policy chargebacks (244) (91) (479) (283)
-------- -------- -------- --------
Total commissions and expense allowances, net $ 43,649 $ 32,932 $ 75,028 $ 62,749
======== ======== ======== ========
</TABLE>
- ------------------------------
The above table includes commissions and expense allowances related to LifeUSA
policies that have been ceded by LifeUSA to the Reinsurers and service fees
related to policies produced by LifeUSA agents for Allianz Life.
The Company pays a lapse policy chargeback to the Reinsurers when a life
insurance policy that has been ceded lapses before the end of 15 months. The
chargeback paid for each policy is equal to the excess of the allowances
received over the premiums received.
Reference is made to Note 2 (Reinsurance) to the December 31, 1996 consolidated
financial statements for further details regarding the Company's reinsurance
agreements.
BENEFITS AND EXPENSES. Total benefits and expenses were $83.1 million and $68.5
million in the second quarter of 1997 and 1996, respectively, and $154.3 million
and $134.7 million for the first six months of 1997 and 1996, respectively. The
increases in total benefits and expenses of 21% for the quarter and 15% for the
first six months were primarily due to growth in and maturity of annuities in
force and the Company's national advertising campaign.
<PAGE>
Increases in interest credited to policyholder account values of 10%, or $2.4
million, and other benefits to policyholders of 19%, or $900,000, in the second
quarter of 1997 compared to the second quarter of 1996, were primarily due to
growth of annuities in force. For the first six months of 1997 compared to 1996,
interest credited increased 9%, or $4.4 million, and other benefits to
policyholders increased 12%, or $1.1 million, for the same reason.
Amortization of deferred policy acquisition costs increased 10%, or $700,000, in
the second quarter of 1997 as compared to 1996 and 9%, or $1.0 million, for the
first six months of 1997 compared to 1996. This reflects the combination of an
increase in gross profits due to a growing, more mature block of in force
business, partially offset by a reduced impact of the amortization of deferred
policy acquisition costs generated by the net realized gains on investments
described above. Utilizing the actual policy experience and appropriate
assumptions for future periods, these models indicate that deferred policy
acquisition costs are fully recoverable.
Commissions to agents increased 33%, or $6.4 million, in the second quarter of
1997 compared to 1996 and 20%, or $7.2 million, for the first six months of 1997
compared to 1996. These increases were due to an increase in total collected
premiums and deposits discussed above and a change in the mix of deferred
annuity products sold, both of which were partially offset by the decline in
collected first year life premiums which receive the highest commission rates
paid by LifeUSA.
Taxes, licenses and fees increased 24% in the second quarter of 1997 compared to
1996 due to premium taxes on increased collected premiums and deposits. Taxes,
licenses and fees decreased 17%, or $400,000, through the first six months of
1997 compared to 1996. This decrease was primarily due to recoveries in the
first quarter of 1997 of guaranty fund assessments and state income taxes paid
in 1996.
Operating expenses increased 32%, or $4.0 million, in the second quarter of 1997
compared to 1996 and 25%, or $6.2 million, for the first six months of 1997
compared to 1996. These increases were primarily due to the growth of LifeUSA's
annuity in force business and expenditures for a national advertising and sales
promotion campaign launched during the first quarter of 1997 and substantially
completed by June 30, 1997.
Income taxes were $3.4 million in the second quarter of 1997 and $3.3 million in
the second quarter of 1996. For the first six months, income taxes increased 6%,
or $400,000, in 1997 compared to 1996. The effective income tax rates for the
first six months of 1997 and 1996 were 37.8% and 36.8%, respectively.
NET INCOME. Net income was $5.3 million and $5.7 million in the second quarter
of 1997 and 1996, respectively. Earnings per share was $.23 and $.25 in the
second quarter of 1997 and 1996, respectively, which represents a decrease of 8%
and includes an increase in total common and common equivalent shares of 1.2
million since the second quarter of 1996. Net income was $10.5 million and $10.3
million ($.45 and $.46 per share) for the first six months of 1997 and 1996,
respectively.
<PAGE>
The following table summarizes the operating highlights for the three months and
six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
Three months ended June 30,
-----------------------------------------------
1997 1996
-------------------- --------------------
Income EPS Income EPS
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Consolidated net income and earnings per share $ 5,331 $0.23 $ 5,666 $0.25
Adjustments to arrive at consolidated net operating income (1):
Net realized losses on investments - - 2 0.00
Tax liability for prior years' activity 700 0.03 - -
Charges for state guaranty fund assessments 54 0.00 167 0.01
-------- ----- -------- -----
Consolidated net operating income and earnings per share 6,085 0.26 5,835 0.26
Impact of expenses associated with 1997 national
advertising campaign 1,174 0.05 - -
-------- ----- -------- -----
Consolidated net operating income and earnings per share
excluding impact of expenses associated with national
advertising campaign $ 7,259 $0.31 $ 5,835 $0.26
======== ===== ======== =====
Six months ended June 30,
-----------------------------------------------
1997 1996
-------------------- --------------------
Income EPS Income EPS
-------- ----- -------- -----
Consolidated net income and earnings per share $ 10,476 $0.45 $ 10,287 $0.46
Adjustments to arrive at consolidated net operating income (1):
Net realized gains on investments (293) (0.01) (385) (0.02)
Tax liability for prior years' activity 700 0.03 - -
Charges (credits) for state guaranty fund assessments (56) 0.00 334 0.02
-------- ----- -------- -----
Consolidated net operating income and earnings per share 10,827 0.47 10,236 0.46
Impact of expenses associated with 1997 national
advertising campaign 1,954 0.08 - -
-------- ----- -------- -----
Consolidated net operating income and earnings per share
excluding impact of expenses associated with national
advertising campaign $ 12,781 $0.55 $ 10,236 $0.46
======== ===== ======== =====
</TABLE>
- ---------------------------
(1) Consolidated net operating income equals net income, excluding, net of
related income taxes: (i) net realized gains (losses) on investments and
the corresponding increases (decreases) in amortization of deferred
policy acquisition costs and other benefits to policyholders (ii) tax
liability for prior years' activity and (iii) charges (credits) for state
guaranty fund assessments.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Through June 1997, the Company's primary sources of cash were (i) service fees
received by the Company for business produced by LifeUSA's agents for Allianz
Life, (ii) management fees from LifeUSA, (iii) proceeds remaining from the $30
million convertible subordinated debenture purchased by Allianz Life in February
1995, (iv) interest earned on invested assets, (v) a dividend of $2.5 million
paid by LifeUSA in the first quarter of 1997, and (vi) issuance of shares upon
exercise of common stock options. A substantial portion of the Company's
operating expenses is attributable to services provided to LifeUSA, such as
employees, data processing, facilities and supplies, which are reimbursed by
LifeUSA through management fees. LifeUSA is expected to have sufficient cash to
provide reimbursement through 1997, based on currently anticipated life
insurance and annuity sales and on the continuation of acceptable reinsurance
arrangements. LifeUSA's ability to pay dividends in the future is subject to
compliance with Minnesota insurance laws and regulations.
The Company has entered into an agreement with two of its Reinsurers which
provides a long-term line of credit in the amount of $50 million. Funds drawn
against the line of credit can be used to fund certain investments and
acquisitions which the Company may make, capital contributions to LifeUSA or
capital expenditures. On July 15, 1997, the Company borrowed $5.0 million under
this line of credit. The Company has no other borrowings under this agreement.
The Company's cash needs consist of (i) potential capital contributions to
LifeUSA to permit increases in sales volume and retention or assumption of new
life insurance and annuity business produced by LifeUSA agents and to provide
LifeUSA sufficient capital and surplus to maintain adequate capital ratios, (ii)
commission advances to agents, (iii) payment of interest on the Company's
convertible subordinated debentures and borrowings under the line of credit,
(iv) operating expenses, including expenses in connection with the efforts to
increase the production of LifeUSA's existing agents and expand the size of
LifeUSA's field force, and (v) investments in and additional purchase payments
to marketing organizations expected to increase premium production volume for
LifeUSA. Management believes that the combination of (i) the statutory profits
generated by LifeUSA on the mature business which it has retained or assumed,
(ii) the $3 million in proceeds that remained at June 30, 1997 from the $30
million convertible subordinated debenture issued to Allianz Life in February
1995, (iii) the availability of $45 million under the $50 million line of credit
from two of its Reinsurers, (iv) cash generated by operations, and (v) dividends
from LifeUSA, will provide sufficient capital resources to support the capital
needs of LifeUSA and meet all the Company's cash needs in the ordinary course of
business through 1997, based on currently anticipated life insurance and annuity
sales and on the continuation of the current level of net retention and
acceptable reinsurance arrangements. Investments by the Company in additional
marketing organizations may require additional capital during 1997.
For LifeUSA to retain or assume life insurance and annuity business, LifeUSA
must maintain a sufficient level of statutory capital and surplus as established
by the regulatory authorities in the jurisdictions where LifeUSA is licensed to
do business. As LifeUSA retains and assumes business, it is required to expense
commissions and other policy issuance costs for statutory accounting purposes
and to establish statutory reserves for policy benefits, thereby creating a
statutory loss and reducing statutory surplus in the first year of the policy.
The anticipated profits from the retained or assumed business are realized over
the remaining period that the policies are in force. The maturity of LifeUSA's
retained and assumed business first produced statutory net income during 1995.
LifeUSA produced a statutory net income of $6.8 million during the first six
months of 1997 compared to $6.9 million during the first six months of 1996. As
a result, the Company did not make capital contributions to LifeUSA during the
first six months of 1997. As of June 30, 1997, LifeUSA had statutory capital and
surplus for regulatory purposes
<PAGE>
of $90.3 million compared to $87.3 million at December 31, 1996. Assuming
continuation of the current level of net retention and the expected level of
life insurance and annuity business produced by LifeUSA agents, LifeUSA expects
to continue to satisfy statutory capital and surplus requirements for 1997
primarily through statutory profits on its mature block of retained inforce
business. In the future the Company may alter the level of its retention and
assumption of new business depending upon future levels of production, capital
needs and availability of alternative financing.
The Company has developed a strategy to generate additional premium production
from LifeUSA's existing agents and from new production sources by making loans
to or investing in marketing organizations and by recruiting new marketing
organizations to sell its products. The amount of any loan or investment relates
to the revenue currently generated by the marketing organization and the
projected increase in business produced for LifeUSA by the marketing
organization. To date, the Company has made loans to marketing organizations
that accounted for 35% of the Company's life insurance and annuity production
during the first six months of 1997. The loans include incentives of possible
interest and principal forgiveness for achieving increased production.
In August 1996, LifeUSA Marketing acquired Tax Planning Seminars, a national
marketing organization that had been contracted with LifeUSA for seven years. In
addition, LifeUSA Marketing acquired an equity interest in Creative Marketing
International Corporation (CMIC) in November 1996, Personalized Brokerage
Services, Inc. (PBS) in May 1997 and Ann Arbor Annuity Exchange (AAAE) in July
1997. CMIC and PBS are national marketing organizations that had not been
contracted previously with LifeUSA; AAAE's 1996 production with LifeUSA was not
significant. The CMIC, PBS and AAAE acquisition agreements contain certain
provisions which could require LifeUSA Marketing to purchase part or all of the
remaining equity interests.
In addition, during the first quarter of 1997, LifeUSA signed marketing
agreements with 15 national marketing organizations to market LifeUSA life
insurance and annuity products for the first time. There can be no assurances
that the Company's premium volume or income will be enhanced by the loans to or
investments in marketing organizations or by the contracting of new national
marketing organizations.
REGULATORY ENVIRONMENT. LifeUSA is subject to regulation in the 49 states in
which it is authorized to do business. The laws of these states establish
supervisory agencies with administrative powers related to granting and revoking
licenses to transact business, approving the form and content of policies,
reviewing the advertising and illustration of policies, licensing agents,
establishing reserve requirements and regulating the type and amount of
investments. Such regulations are primarily intended to protect policyholders.
The Company is also regulated in several states as an insurance holding company.
The insurance regulatory framework has been placed under increased scrutiny by
various states and by the National Association of Insurance Commissioners
(NAIC). Regulatory initiatives such as risk-based capital standards have been
undertaken to identify inadequately capitalized companies and to reduce the risk
of company insolvencies. The NAIC has established risk-based capital standards
to determine the capital requirements of a life insurance company based upon the
risks inherent in its operations. These standards continue to be reviewed by the
NAIC. LifeUSA's percentage of actual total adjusted capital to authorized
control level risk-based capital is well in excess of regulatory requirements.
The NAIC has also considered changes in the model laws for nonforfeiture values
of life insurance and deferred annuity products. Since 1994, LifeUSA has made
presentations to and had discussions with the Life/Health Actuarial Task Force
of the NAIC, which is responsible for developing new model laws and regulations
which affect statutory
<PAGE>
actuarial items and nonforfeiture values. LifeUSA demonstrated that its two-tier
products use longer term, higher yielding investments to provide higher
retirement values to policyholders, while decreasing disintermediation and
solvency risks to LifeUSA. Although it is possible that the NAIC may adopt new
model laws addressing nonforfeiture values in the future, such adoption is not
currently anticipated to have a significant impact on LifeUSA.
NAIC committees are also considering a new annuity illustration model
regulation, a new approach to statutory valuation of liabilities (reserves) and
regulations for equity-indexed products. The Company is monitoring these
developments and no significant impact is anticipated at this time.
In December 1995, the NAIC passed a model regulation for disclosure in life
insurance policy illustrations. A number of states either have adopted the model
regulation whose effective date is January 1, 1997 or are in the process of
adopting the model regulation. LifeUSA has already completed the certification
process required by the model regulation. This regulation has not had and is not
anticipated to have a significant impact on LifeUSA.
Insurance laws also require LifeUSA to file detailed periodic reports with the
regulatory agencies in each of the states in which it writes business, and these
agencies may examine LifeUSA's business and accounts at any time. Under NAIC
rules, one or more of the regulatory agencies will periodically examine LifeUSA,
normally at three-year intervals, on behalf of the states in which LifeUSA is
licensed. During 1996, the Minnesota Department of Commerce conducted a
triennial examination of LifeUSA for the three years ended December 31, 1995.
The Company expects to receive the final examination report in the near future
and has not been made aware of any issues or recommendations that will be
material individually or in the aggregate.
In April 1996, the B++ (Very Good) rating initially assigned LifeUSA in June
1994 was reaffirmed by the A.M. Best Company. The A. M. Best Company assigns the
B++ rating to companies which, in its opinion, have achieved very good overall
performance when compared to the standards established by the A. M. Best
Company. B++ companies have a good ability to meet their obligations to
policyholders over a long period of time.
In December 1996, Standard & Poor's assigned LifeUSA an initial claims-paying
ability rating of BBB+ (Adequate). Standard & Poor's assigns the BBB+ rating to
insurers which, in its opinion, offer adequate financial security, but capacity
to meet policyholder obligations is susceptible to adverse economic and
underwriting conditions.
<PAGE>
INVESTMENTS. As of June 30, 1997, the Company had cash, cash equivalents and
fixed maturity investments on a consolidated basis totaling $2.01 billion,
including $7.5 million in restricted deposits with state insurance authorities
regulating LifeUSA. The following table summarizes the amortized cost, carrying
and fair values of each investment category held at June 30, 1997 (dollars in
thousands):
<TABLE>
<CAPTION>
Amortized % of Carrying % of Fair % of
Cost Total Value Total Value Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 42,735 2.14% $ 42,735 2.13% $ 42,735 2.12%
Government Treasury and Agency notes and bonds 104,447 5.23 105,620 5.27 108,938 5.40
Mortgage pass throughs 40,050 2.00 40,844 2.04 40,844 2.02
Agency Collateralized Mortgage Obligations:
CMO -- Sequentials 5,697 0.29 5,697 0.28 5,683 0.28
CMO -- PACs 615,985 30.83 615,807 30.69 619,292 30.70
CMO -- ADs 23,511 1.18 23,511 1.17 23,894 1.18
CMO -- TACs 11,999 0.60 11,999 0.60 12,858 0.64
Investment grade corporate securities:
AAA+ to AAA- 36,758 1.84 36,902 1.84 37,797 1.87
AA+ to AA- 151,297 7.57 150,138 7.49 150,410 7.45
A+ to A- 515,365 25.79 518,841 25.87 520,877 25.82
BBB+ to BBB- 450,256 22.53 453,643 22.62 454,292 22.52
Non investment grade corporate securities - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total cash and invested assets $1,998,100 100.00% $2,005,737 100.00% $2,017,620 100.00%
========== ========== ========== ========== ========== ==========
</TABLE>
As part of its asset and liability management practices, LifeUSA manages
investments and credited interest rates to produce a net investment spread
consistent with priced-for expectations. As of June 30, 1997, the weighted
average credited interest rate for deferred annuities and life insurance
policies was 5.00% and the weighted average yield on the assets backing
liabilities was 7.44%. As of December 31, 1996, this weighted average credited
interest rate was 5.00% and the weighted average yield on the assets backing
liabilities was 7.48%. Investment income from the assets backing liabilities
exceeded interest credited to policyholders by $13.8 million during the first
six months of 1997. The investment portfolio is managed primarily by allocating
new cash flows into investments which have yield, maturity and other
characteristics suitable for LifeUSA's expected policyholder liabilities.
Consistent with LifeUSA's asset and liability management practices, as of June
30, 1997, the effective duration of LifeUSA's fixed income securities was 5.83
years, compared to 5.88 years as of December 31, 1996.
The percentage of the total market value of the Company's portfolio that was
comprised of investment grade corporate obligations was 58% at June 30, 1997.
With each corporate security acquisition, LifeUSA's external managers perform a
comprehensive analysis of the credit implications and outlook of the issuing
corporation and industry. Ongoing procedures for monitoring and assessing any
potential deterioration or downgrade in credit quality are also in place. The
Company's guidelines for the acquisition of corporate securities do not allow
the purchase of securities that are rated below investment grade by Moody's
Investors Service and Standard & Poor's Corporation.
The remainder of the Company's portfolio is comprised of government and
government agency obligations. Government and government agency obligations are
primarily held in the form of Planned Amortization Class (PAC) Collateralized
Mortgage Obligations (CMOs), the most conservative type of CMO issued. These
CMOs are specifically structured to provide the highest degree of protection
against swings in repayments caused
<PAGE>
primarily by changes in interest rates and have virtually no risk of default.
These securities are well-suited to fund the payment of the liabilities they
support.
Currently, the decision of the asset type in which to invest is dictated by
market conditions and relative values within the respective markets at the time
of purchase. Management believes that these asset types will allow the Company
to maintain high quality, consistent yields and proper maturities for the
overall portfolio.
As of June 30, 1997, the Company held 46%, or $902.5 million, of the total
market value of its fixed maturity investments as available for sale. The
Company believes that this percentage is a prudent level that will allow enough
liquidity to meet any adverse cash flow experience. The Company continues to
classify a significant portion of its investment securities as held to maturity
based on its intent to hold such securities to maturity. A key feature of
LifeUSA's products is the provision of bonuses to encourage terminating
policyholders to withdraw their funds over settlement periods lasting at least
five years. Policyholders taking cash settlements do not receive the bonuses.
This feature allows the Company to hold a significant amount of assets to
maturity. Insurance regulations require LifeUSA to perform an asset adequacy
analysis each year to determine if the assets are sufficient to fund future
obligations. The Company's asset adequacy analysis indicates that the assets are
sufficient to fund future obligations. The Company continually monitors and
modifies the allocation of new assets between held to maturity and available for
sale as deemed prudent based on the continuing analysis of cash flow projections
and liquidity needs.
At June 30, 1997, the Company's shareholders' equity and book value per share
were $186.2 million and $8.60, respectively, compared to $172.6 million and
$8.23, respectively, at December 31, 1996. Excluding the effect of the net
unrealized gain on fixed maturity investments - available for sale reported as a
separate component of shareholders' equity in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the
Company's shareholders' equity and book value per share were $184.4 million and
$8.52, respectively, at June 30, 1997, compared to $169.3 million and $8.07,
respectively, at December 31, 1996.
* * * *
Statements other than historical information contained in this Report are
considered forward-looking and involve a number of risks and uncertainties. In
addition to the factors discussed in this Report, there are other factors that
could cause actual results to differ materially from expected results including,
but not limited to, development and acceptance of new products, impact of
changes in federal and state regulation, dependence upon key personnel, changes
in interest rates generally and credited rates on the new business retained or
assumed by LifeUSA, the level of premium production, competition and other risks
described from time to time in the Company's Securities and Exchange Commission
filings, including but not limited to the Form 10-K, copies of which are
available from the Company without charge.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date of this Report, the Company is not involved in any material legal
proceeding.
ITEM 2. CHANGES IN SECURITIES
During the period covered by this Report, the constituent instruments defining
the rights of the holders of the common stock were not materially modified, nor
were the rights evidenced by the common stock materially limited or qualified by
the issuance or modification of any other class of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the period covered by this Report, there has been no material default
with respect to any indebtedness of the Registrant or its subsidiary.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on April 14, 1997. Proxies
for the meeting were solicited pursuant to Regulation 14 of the Securities
Exchange Act of 1934. The following matters were voted upon at the meeting:
<TABLE>
<CAPTION>
Votes Votes Votes Broker
For Abstained Against Non-Vote
---------- --------- --------- --------
<S> <C> <C> <C> <C>
1) To elect the following persons as Directors:
Hugh Alexander 18,600,988 1,032,878 -- --
Jack H. Blaine 18,601,007 1,032,859 -- --
Margery G. Hughes 18,601,007 1,032,859 -- --
Barbara J. Lautzenheiser 18,601,007 1,032,859 -- --
Robert W. MacDonald 18,600,432 1,033,434 -- --
Daniel J. Rourke 18,599,853 1,034,013 -- --
Ralph Strangis 18,600,737 1,033,129 -- --
Donald J. Urban 18,600,917 1,032,949 -- --
Mark A. Zesbaugh 18,600,233 1,033,633 -- --
2) To increase the number of shares of the
Company's Common Stock reserved for
issuance under the Stock Option Plan by
1,000,000 shares to 4,000,000 shares 14,919,043 533,117 3,927,297 254,409
3) To ratify the appointment of Ernst & Young
LLP as the independent auditors for the
Company for the year 1997 19,527,935 41,783 64,148 --
</TABLE>
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
(11) Statement of computation of per share earnings
(27) Financial data schedule (electronic filing only)
(b) None.
<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.
Life USA HOLDING, INC.
(Registrant)
Date: August 12, 1997
/s/ Mark A. Zesbaugh
-----------------------------
Mark A. Zesbaugh
Executive Vice President
Chief Financial Officer
EXHIBIT 11
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
Life USA HOLDING, INC.
(Dollars in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding and to be issued 21,541,905 20,815,668 21,462,447 20,590,362
Neteffect of dilutive stock options and warrants having
exercise prices less than the average market price
of the common stock using the treasury stock method 423,851 133,335 367,536 135,901
Common equivalent shares assuming conversion
of convertible subordinated debentures 2,423,399 2,400,000 2,423,399 2,400,000
----------- ----------- ----------- -----------
Total common and common equivalent shares 24,389,155 23,349,003 24,253,382 23,126,263
=========== =========== =========== ===========
Net income $ 5,331 $ 5,666 $ 10,476 $ 10,287
Add convertible subordinated debenture interest,
net of federal income tax effect 218 218 435 435
----------- ----------- ----------- -----------
Adjusted net income $ 5,549 $ 5,884 $ 10,911 $ 10,722
=========== =========== =========== ===========
Per common and common equivalent share amount $ .23 $ .25 $ .45 $ .46
=========== =========== =========== ===========
FULLY DILUTED
Average shares outstanding and to be issued 21,541,905 20,815,668 21,462,447 20,590,362
Neteffect of dilutive stock options and warrants
having exercise prices less than the greater of
the average or the end of period market price of
the common stock using the treasury stock method 648,079 157,655 478,572 148,055
Common equivalent shares assuming conversion
of convertible subordinated debentures 2,423,399 2,400,000 2,423,399 2,400,000
----------- ----------- ----------- -----------
Total common and common equivalent shares 24,613,383 23,373,323 24,364,418 23,138,417
=========== =========== =========== ===========
Net income $ 5,331 $ 5,666 $ 10,476 $ 10,287
Add convertible subordinated debenture interest,
net of federal income tax effect $ 218 $ 218 $ 435 $ 435
----------- ----------- ----------- -----------
Adjusted net income $ 5,549 $ 5,884 $ 10,911 $ 10,722
=========== =========== =========== ===========
Per common and common equivalent share amount $ .23 $ .25 $ .45 $ .46
=========== =========== =========== ===========
</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> 902,487
<DEBT-CARRYING-VALUE> 1,060,515
<DEBT-MARKET-VALUE> 1,072,398
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,989,418
<CASH> 42,735
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 222,183
<TOTAL-ASSETS> 4,622,231
<POLICY-LOSSES> 4,281,027
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 13,072
<NOTES-PAYABLE> 36,030
0
0
<COMMON> 216
<OTHER-SE> 185,942
<TOTAL-LIABILITY-AND-EQUITY> 4,622,231
0
<INVESTMENT-INCOME> 69,584
<INVESTMENT-GAINS> 1,234
<OTHER-INCOME> 100,350
<BENEFITS> 63,325
<UNDERWRITING-AMORTIZATION> 14,029
<UNDERWRITING-OTHER> 76,986
<INCOME-PRETAX> 16,828
<INCOME-TAX> 6,352
<INCOME-CONTINUING> 10,476
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,476
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
