SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 AND 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996 Commission File No. 0-18540
UNITED INCOME, INC.
(Exact Name of Registrant as specified in its Charter)
Ohio 37-1224044
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 5147, Springfield, Illinois 62705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (217) 786-4300
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
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
Registrant's classes of common stock, as of the latest practicable
date.
Shares outstanding at July 31, 1996:
19,886,572
Common stock, no par value per share
<PAGE>
UNITED INCOME, INC.
(the "Company")
INDEX
Part I: Financial Information
Balance Sheets as of June 30, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . 3
Statements of Operations for the six months and three
months ended June 30, 1996 and 1995 . . . . . . . . . . . . 4
Statements of Cash Flows for the six months
ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . 12
Part II: Other Information
Signatures . . . . . . . . . . . . . . . . . . . . . . . .18
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED INCOME, INC.
<TABLE>
Balance Sheet
June 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 299,551 $ 364,370
Mortgage loans 178,984 182,206
Notes receivable from affiliate 864,100 714,100
Accrued interest income 28,151 7,040
Property and equipment (net of accumulated
depreciation $106,653 and $102,208) 7,613 12,058
Investment in affiliates 12,101,787 11,985,958
Other assets (net of accumulated
amortization $127,503 and $108,995) 101,782 120,290
Total assets $ 13,581,968 $ 13,386,022
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities and accruals:
Convertible debentures $ 902,300 $ 902,300
Indebtedness of affiliate 90,976 87,869
Other liabilities 2,259 40,722
Total liabilities 995,535 1,030,891
Shareholders' equity:
Common stock - no par value, stated value
.033 per share. 33,000,000 shares
authorized, 22,423,572 issued in 1996,
22,423,572 issued in 1995 739,977 739,977
Additional paid-in capital 14,633,455 14,633,455
Unrealized depreciation ofinvestments held
for sale of affiliate (55,198) (236)
Accumulated deficit (2,648,080) (2,934,344)
Total shareholders' equity 12,670,154 12,438,852
Common stock in treasury, at cost
(2,537,000 shares) (83,721) (83,721)
Total shareholders' equity 12,586,433 12,355,131
Total liabilities and
shareholders' equity $ 13,581,968 $ 13,386,022
</TABLE>
See accompanying notes.
3
<PAGE>
UNITED INCOME, INC.
Statement of Operations
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 3,793 $ 3,726 $ 7,466 $ 8,714
Interest income from
affiliates 20,717 17,387 38,795 35,941
Service agreement income
from affiliates 459,454 529,411 996,058 1,034,529
Other income from
affiliates 51,130 36,478 76,402 78,102
535,094 587,002 1,118,721 1,157,286
Expenses:
Management fee to
affiliate 425,672 483,677 847,635 920,718
General expenses 14,514 23,951 66,318 70,215
Interest expense 20,865 22,676 42,295 44,161
461,051 530,304 956,248 1,035,094
Income before provision
for income taxes and
equity income of investees 74,043 56,698 162,473 122,192
Equity in income (loss)
of investees (23,248) (587,479) 123,791 (515,221)
Net income (loss) $ 50,795 $ (530,781) $ 286,264 $ (393,029)
Net income (loss)
per common share $ 0.00 $ (0.03) $ 0.01 $ (0.02)
Average common shares
outstanding 19,886,572 19,886,572 19,886,572 19,886,572
</TABLE>
See accompanying notes.
4
<PAGE>
UNITED INCOME, INC.
Statement of Cash Flows
<TABLE>
June 30, June 30,
1996 1995
<S> <C> <C>
Decrease in cash and cash equivalents
Cash flows from operating activities:
Net income (loss) $ 286,264 $ (393,029)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 22,953 28,033
Accretion of discount on mortgage loans (330) 0
Equity in gain (loss) of investees (123,791) 515,221
Changes in assets and liabilities:
Change in accrued investment and
interest income (21,111) (1,641)
Change in indebtedness of affiliates 3,107 12,058
Change in other liabilities (38,463) (15,095)
Net cash provided by operating activities 128,629 145,547
Cash flows from investing activities:
Capital contribution to investee (47,000) (23,500)
Purchase of investments in affiliates 0 (17,296)
Issuance of notes receivable affiliate (150,000) 0
Payments received on mortgage loans 3,552 2,094
Purchase of mortgage loan 0 (126,000)
Net cash used in investing activities (193,448) (164,702)
Net decrease in cash and cash equivalents (64,819) (19,155)
Cash and cash equivalents at beginning of period 364,370 230,266
Cash and cash equivalents at end of period $ 299,551 $ 211,111
</TABLE>
See accompanying notes.
5
<PAGE>
UNITED INCOME, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared by United
Income, Inc. (the "Company") pursuant to the rules and regulations
of the Securities and Exchange Commission. Although the Company
believes the disclosures are adequate to make the information
presented not be misleading, it is suggested that these
consolidated financial statements be read in conjunction with the
consolidated financial statements and the notes thereto presented
in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission for the year ended December 31,
1995.
The information furnished reflects, in the opinion of the Company,
all adjustments (which include only normal and recurring accruals)
necessary for a fair presentation of the results of operations for
the periods presented. Operating results for interim periods are
not necessarily indicative of operating results to be expected for
the year or of the Company's future financial condition.
At June 30, 1996, the affiliates of United Income, Inc., were as
depicted on the following organizational chart.
6
<PAGE>
ORGANIZATIONAL CHART
AS OF JUNE 30, 1996
United Trust, Inc. ("UTI") is the ultimate controlling company.
UTI owns 53% of United Trust Group ("UTG") and 30% of United
Income, Inc. ("UII"). UII owns 47% of UTG. UTG owns 72% of First
Commonwealth Corporation ("FCC"). FCC owns 100% of Universal
Guaranty Life Insurance Company ("UG"). UG owns 100% of United
Security Assurance Company ("USA"). USA owns 84% of Appalachian
Life Insurance Company ("APPL") and APPL owns 100% of Abraham
Lincoln Insurance Company ("ABE").
7
<PAGE>
2. STOCK OPTION PLANS
The Company has a stock option plan under which certain directors,
officers and employees may be issued options to purchase up to
450,000 shares of common stock at $.915 per share. Options become
exercisable at 25% annually beginning one year after date of grant
and expire generally in five years. In November 1992, 149,100
option shares were granted. At June 30, 1996, options for 149,100
shares were exercisable and options for 300,900 shares were
available for grant. No options have been exercised during 1996.
On January 15, 1991, the Company adopted an additional Non-
Qualified Stock Option Plan under which certain employees and sales
personnel may be granted options. The plan provides for the
granting of up to 600,000 options at an exercise price of $.033 per
share, and the options generally expire five years from the date of
grant. Options for 146,000 shares of common stock were granted in
1991, and options for 19,000 shares were granted in 1993. All
options granted have been exercised. No options were exercised
during 1996. At June 30, 1996, no options were exercisable and
options for 435,000 were available for grant.
3. LEGAL PROCEEDINGS OF AFFILIATES
During the third quarter of 1994, UG became aware that certain new
insurance business was being solicited by certain agents and issued
to individuals considered to be not insurable by Company standards.
These policies had a face amount of $22,700,000 and represent 1/2
of 1% of the insurance in force. Management's analysis indicates
that the expected death claims on the business in force to be
adequately covered by the mortality assumptions inherent in the
calculation of statutory reserves. Nevertheless, management has
determined it is in the best interest of the Company to repurchase
as many of the policies as possible. As of June 30, 1996, there
remained approximately $5,700,000 of the original face amount which
have not been settled. The Company will continue its efforts to
repurchase as many of the policies as possible and regularly
apprise the Ohio Department of Insurance regarding the status of
this situation. Through June 30, 1996, the Company spent a total
of $3,358,000 for the repurchase of these policies and for the
defense of related litigation.
The Company is currently involved in the following litigation:
Freeman v. Universal Guaranty Life Insurance Company
(U.S.D.C.,N.D.Ga, 1994, 1-94-CV-2593-RCF); Armstrong v. Universal
Guaranty Life Insurance Company and James Melville (Circuit Court
of Davidson county, Tenn., 1994, 94C3720); Ridings v. Universal
Guaranty Life Insurance Company and James Melville (Circuit Court
of Davidson County, Tenn., 1994, 94C3720); Ridings v. Universal
Guaranty Life Insurance Company and James Melville (Circuit Court
of Davidson County, Tenn., 1994, 94C3221).
Four general agents of UG filed independent suits against UG in the
latter part of September or early October 1994. Kathy Armstrong
(3-94-1085), another general agent, filed her suit on November 16,
1994. All of the suits allege that the plaintiff was libeled by
statements made in a letter sent by UG. The letter was sent to
persons who had been issued life insurance policies by UG as the
result of policy applications submitted by the five agents. Mr.
Melville is a defendant in some of the suits because he signed the
letter as president of UG.
In addition to the defamation count, Mr. Freeman alleges that UG
also breached a contract by failing to pay his commissions for
policies issued. Mr. Freeman claims unpaid commissions of $65,000.
In the libel claim, Mr. Freeman claims compensatory damages of over
$5,000,000, punitive damages of over $3,000,000, costs, and
litigation expenses. The other plaintiffs request the award of
unspecified compensatory damages and punitive (or special) damages
as well as costs and attorney's fees. UG has filed Answers to all
of these suits asserting various defenses and, where appropriate,
counterclaims. The Freeman suit went to trial in April 1996. The
jury awarded Mr. Freeman $365,000 in general damages and $700,000
in punitive damages. In May 1996, UG filed an appeal. The Company
believes the ultimate settlement of these lawsuits will not have a
material impact on the financial statements and intends to defend
these suits vigorously.
8
<PAGE>
Jeffrey Ploskonka, Keith Bohn and Paul Phinney v. Universal
Guaranty Life Insurance Company (Circuit Court of the Seventh
Judicial Circuit Sangamon County, Illinois Case No.: 95-L-0213)
On March 9, 1995 a lawsuit was filed against Universal Guaranty
Life Insurance Company on behalf of three insureds and a potential
class of other insureds. The Plaintiffs allege that UG violated
the insurance contract in attempting to cancel life insurance
contracts. Additionally, the Plaintiffs assert violations of
Illinois law alleging vexations and unreasonable insurance
practices, breach of duty of good faith and fair dealing, and that
Illinois consumer fraud laws have been violated. The Plaintiffs
seek unspecified compensatory damages, injunctive relief,
attorneys' fees, statutory damages in an amount up to $25,000.00,
punitive damages of $1,000,000.00, and other equitable relief. UG
filed an Answer to this lawsuit in May 1995, asserting various
defenses and reserving the right to assert counterclaims. UG has
also filed motions to dismiss certain allegations and claims made
in the lawsuit. UG believes it has no liability to any of the
plaintiffs, or other potential class members, and intends to defend
the lawsuit vigorously. In June 1995, the court conditionally
certified a class of non-settling insureds. This suit is currently
in the discovery stage, with a trial date set for late October.
The Company and its subsidiaries are named as defendants in a
number of legal actions arising primarily from claims made under
insurance policies. Those actions have been considered in
establishing the Company's liabilities. Management and its legal
counsel are of the opinion that the settlement of those actions
will not have a material adverse effect on the Company's financial
position or results of operations.
The number of insurance companies that are under regulatory
supervision has increased, and that increase is expected to result
in an increase in assessments by state guarantee funds to cover
losses to policyholders of insolvent or rehabilitated companies.
Those mandatory assessments may be partially recovered through a
reduction in future premium taxes in some states. For all
assessment notifications received, the Company has accrued for
those assessments.
4. SUMMARIZED FINANCIAL INFORMATION OF UNITED TRUST GROUP, INC.
The following provides summarized financial information for the
Company's 50% or less owned affiliate:
9
<PAGE>
The following procides summarized financial information for the Company's
47% owned affiliate:
UNITED TRUST GROUP, INC.
AND SUBSIDIARIES
<TABLE>
June 30, December 31,
1996 1995
ASSETS
<S> <C> <C>
Total investments $ 243,133,923 $ 244,815,985
Cash and cash equivalents 16,057,523 12,024,668
Reinsurance receivables 50,496,761 53,115,987
Cost of insurance acquired 11,678,042 11,436,728
Value of agency force acquired 6,324,513 6,485,733
Other assets 27,663,043 27,556,921
Total assets $ 355,353,805 $ 355,436,022
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilites $ 263,745,674 $ 261,796,945
Notes payable 20,360,332 21,463,328
Deferred income taxes 15,343,177 16,100,283
Other liabilities 5,044,229 5,478,001
Total liabilities 304,493,412 304,838,557
Minority interests in consolidated
subsidiaries 13,986,474 13,881,640
SHAREHOLDERS' EQUITY
Common stock no par value.
authorized 10,000 shares - 100
shares issued 45,826,705 45,726,705
Unrealized depreciation of investments
in stocks (117,442) (501)
Accumulated deficit (8,835,344) (9,010,379)
Total shareholders' equity 36,873,919 36,715,825
Total liabilities and
shareholders' equity $ 355,353,805 $ 355,436,022
</TABLE>
10
<PAGE>
The following provides summarized financial information for the Company's
47% owned affiliate:
UNITED TRUST GROUP, INC.
AND SUBSIDIARIES
<TABLE>
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Premiums and other
considerations $ 8,514,175 $ 9,507,694 $ 16,995,686 $ 18,211,026
Net investment income 3,930,487 3,849,212 7,904,894 7,706,774
Other (257,585) (790,515) (198,811) 34,068
12,187,077 12,566,391 24,701,769 25,951,868
Benefits, claims and
settlement expenses 7,083,803 9,113,933 13,612,563 17,211,763
Commissions, DAC, cost
of insurance acquired
and agency force
amortizations 2,298,549 2,860,032 4,866,470 5,311,062
Operating and interest
expenses 3,072,535 2,742,174 6,689,195 6,191,236
12,454,887 14,716,139 25,168,228 28,714,061
Net income (loss) before
income taxes and minority
interest (267,810) (2,149,748) (466,459) (2,762,193)
Credit for income taxes 182,695 375,087 794,885 1,105,930
Minority interest in
(income)loss of
consolidated
subsidiaries (8,525) 469,062 (153,391) 446,272
Net income (loss) $ (93,640) $ (1,305,599) $ 175,035 $ (1,209,991)
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this section is to discuss and analyze the Company's
financial condition, changes in financial condition and results of
operations which reflect the performance of the Company. The
information in the financial statements and related notes should be
read in conjunction with this section.
At June 30, 1996 and December 31, 1995, the balance sheet reflects
UII's 47% equity interest in United Trust Group, Inc. ("UTG"). The
statements of operations and statements of cash flows presented
include UII and UII's equity share of UTG.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal need for cash is the payment of operating
expenses and interest on its convertible debentures. The Company
currently has $300,000 in cash and cash equivalents. The Company
holds two mortgage loans at June 30, 1996. Additionally, the
Company holds notes receivable from affiliates of $864,000. There
were no financing activities in the current or prior period
presented. Further sources of capital resources will be dependent
upon dividends received from UTG.
The payment of cash dividends to shareholders by UTG is not legally
restricted. At June 30, 1996, substantially all of consolidated
shareholders' equity of UTG represents net assets of its
subsidiaries. UTG has no daily operations of its own. Before
consolidation of its subsidiaries, UTG holds approximately
$10,040,000 in notes receivable and possesses liabilities of
$10,040,000 in the form of notes payable. These notes contain
identical terms. Additionally, UTG has an investment in
subsidiaries of $37,000,000 and cash of $51,000. Management
believes the financial position of UTG is sufficient to meet its
future needs.
The payment of cash dividends to shareholders by UII is not legally
restricted. UG's dividend limitations are described below.
Ohio domiciled insurance companies require five days prior
notification to the insurance commissioner for the payment of an
ordinary dividend. Ordinary dividends are defined as the greater
of: a) prior year statutory earnings or b) 10% of statutory
capital and surplus. For the year ended December 31, 1995, UG had
a statutory gain from operations of $3,252,000. At December 31,
1995, UG statutory capital and surplus amounted to $7,274,000.
Extraordinary dividends (amounts in excess of ordinary dividend
limitations) require prior approval of the insurance commissioner
and are not restricted to a specific calculation as to amount.
Management believes that the overall sources of liquidity available
to the Company will be sufficient to satisfy its financial
obligations.
RESULTS OF OPERATIONS
YEAR-TO-DATE 1996 COMPARED TO 1995:
(a) Revenues:
The Company's primary source of revenues is derived from service
fee income which is provided via a service agreement with USA. The
service agreement between UII and USA is to provide USA with
certain administrative services. The fees are based on a
percentage of premium revenue of USA. The percentages are applied
to both first year and renewal premiums at different rates.
12
<PAGE>
Interest income from affiliates is from notes receivable from an
affiliate. The notes, representing debt of FCC, carry interest at
a rate of 1% over prime as published in the Wall Street Journal,
payable quarterly. Principal is due upon maturity, with $700,000
due on May 8, 2006, and $150,000 due on June 1, 1999.
Interest income is derived from two mortgage loans and from cash
and cash equivalents. The mortgage loans are first position
mortgage loans in good standing.
(b) Expenses:
The Company's source of expenses is derived from salaries, wages
and employee benefits, professional fees and other operating
expenses associated with the services to be provided by the Company
pursuant to the service agreement between the Company and USA.
Effective September 1, 1990, the Company entered into a sub-
contract service agreement with United Trust, Inc. ("UTI") for
certain administrative services. Through its facilities and
personnel, UTI performs such services as may be mutually agreed
upon between the parties. The fees are based on a percentage of
the fees paid to UII by USA. The Company has incurred $848,000 and
$921,000 in service fee expense in the first six months of 1996 and
1995, respectively.
Interest expense of $43,000 and $44,000 was incurred in the first
six months of 1996 and 1995, respectively. The interest expense is
directly attributable to the convertible debentures. The
Debentures bear interest at a variable rate equal to one percentage
point above the prime rate published in the Wall Street Journal
from time to time.
(c) Equity in income or (loss) of Investees:
Equity in income or (loss) of investees represents UII's 47% share
of net income or (loss) of UTG for the first six months of 1996 and
1995. Following is a discussion of the more significant operating
result differences of UTG for the first six months 1996 compared to
1995.
Premium income, net of reinsurance premium, decreased 8% when
comparing the first six months of 1996 to the same period one year
ago. The decrease is primarily attributed to the reduction in new
business production and the change in products marketed. In 1995,
the Company has streamlined the product portfolio, as well as
restructured the marketing force. The decrease in first year
premium production is directly related to the Company's change in
distribution systems. The Company has changed its focus from
primarily a broker agency distribution system to a captive agent
system. Business written by the broker agency force in recent
years did not meet Company expectations. With the change in focus
of distribution systems, most of the broker agents were terminated.
The change in marketing strategy from traditional life insurance
products to universal life insurance products had a significant
impact on new business production. As a result of the change in
marketing strategy the agency force went through a restructure and
retraining process. Cash collected from the universal life and
interest sensitive products contribute only the risk charge to
premium income; however, traditional insurance products contribute
all monies received to premium income. One factor that has had a
positive impact on premium income is the improvement of
persistency. Persistency is a measure of insurance in force
retained in relation to the previous year.
13
<PAGE>
Other considerations, net of reinsurance, increased 10% compared to
one year ago. Other considerations consists of administrative
charges on universal life and interest sensitive life insurance
products. The insurance in force relating to these types of
products continues to increase as marketing efforts are focusedon
universal life insurance products.
Life benefits, net of reinsurance benefits and claims, decreased
24% when comparing the first six months of 1996 to the sameperiod
one year ago. The decrease is primarily due to the decrease in
mortality. Mortality decreased approximately $1,100,000 in the
first six months of 1996 when compared to 1995. The decrease can
also be attributed to the decrease in first year premium
production. Another factor that has caused life benefitsto
decrease is that during 1994, the Company lowered itscrediting
rates on interest sensitive products in response to financial
market conditions. This action will facilitate the appropriate
spreads between investment returns and credited interest rates. It
takes approximately one year to fully realize a change in credited
rates since a change becomes effective on each policy's next
anniversary. Please refer to discussion of net investmentincome
for analysis of interest spreads.
(d) Net income:
The Company recorded net income of $286,000 for the first six
months of 1996 compared to a net loss of ($393,000) for the same
period one year ago. Net income is attributed primarily tothe
operating results of the Company's 47% equity interest in UTG.
SECOND QUARTER 1996 COMPARED TO 1995:
(a) Revenues:
The Company's source of revenues is derived from service feeincome
which is provided via a service agreement with USA. Theservice
agreement between UII and USA is to provide USA with certain
administrative services. The fees are based on a percentage of
premium revenue of USA. The percentages are applied to both first
year and renewal premiums at different rates.
Interest income from affiliates is from notes receivable from an
affiliate. The notes, representing debt of FCC, were acquiredfrom
outside third parties in December 1993, and carry interest at a
rate of 1% above prime. The Company received an additional note
receivable for $150,000 during first quarter 1996 with thesame
affiliate. Interest is calculated at a rate of 1% above prime and
is received quarterly.
Net investment income is derived from two mortgage loans andfrom
cash and cash equivalents. The mortgage loans are firstposition
mortgage loans in good standing.
(b) Expenses:
The Company's source of expenses is derived from salaries, wages
and employee benefits, professional fees and other operating
expenses associated with the services to be provided by theCompany
pursuant to the service agreement between the Company and USA.
Effective September 1, 1990, the Company entered into a sub-
contract service agreement with United Trust, Inc. ("UTI") for
certain administrative services. Through its facilities and
personnel, UTI performs such services as may be mutually agreed
upon between the parties. The fees are based on a percentageof
the fees paid to UII by USA. The Company has incurred $426,000and
$484,000 in service fee expense to UTI in the second quarter of
1996 and 1995, respectively.
14
<PAGE>
Interest expense of $21,000 and $23,000 was incurred in the second
quarter of 1996 and 1995, respectively. The interest expense is
directly attributable to the convertible debentures. The
Debentures bear interest at a variable rate equal to onepercentage
point above the prime rate published in the Wall Street Journal
from time to time.
(c) Equity in income or (loss) of Investees:
Equity in income or (loss) of investees represents UII's 47% share
of net income or (loss) of UTG for the second quarter of 1996 and
1995. Following is a discussion of the more significant operating
result differences of UTG for second quarter 1996 compared to1995.
Premium income, net of reinsurance premium, decreased 4% when
comparing second quarter of 1996 to second quarter of 1995. The
decrease is primarily attributed to the reduction in newbusiness
production and the change in products marketed. In 1995, the
Company streamlined the product portfolio, as well as restructured
the marketing force. The decrease in first year premiumproduction
is directly related to the Company's change in distribution
systems. The Company has changed its focus from primarily abroker
agency distribution system to a captive agent system. Business
written by the broker agency force in recent years did not meet
Company expectations. With the change in focus of distribution
systems, most of the broker agents were terminated.
The change in marketing strategy from traditional life insurance
products to universal life insurance products had a significant
impact on new business production. As a result of the change in
marketing strategy the agency force went through a restructureand
retraining process. Cash collected from the universal lifeand
interest sensitive products contribute only the risk charge to
premium income; however, traditional insurance productscontribute
all monies received to premium income. One factor that has had a
positive impact on premium income is the improvement of
persistency. Persistency is a measure of insurance in force
retained in relation to the previous year.
Other considerations, net of reinsurance, increased 7% compared to
one year ago. Other considerations consists of administrative
charges on universal life and interest sensitive life insurance
products. The insurance in force relating to these types of
products continues to increase as marketing efforts are focusedon
universal life insurance products.
Life benefits, net of reinsurance benefits and claims, decreased
25% when comparing second quarter of 1996 to the same periodone
year ago. The decrease is primarily due to the decrease in
mortality. Mortality decreased approximately $781,000 in the
second quarter of 1996 when compared to the second quarter of 1995.
The decrease can also be attributed to the decrease in firstyear
premium production. Another factor that has caused lifebenefits
to decrease is that during 1994, the Company lowered its crediting
rates on interest sensitive products in response to financial
market conditions. This action will facilitate the appropriate
spreads between investment returns and credited interest rates. It
takes approximately one year to fully realize a change in credited
rates since a change becomes effective on each policy's next
anniversary. Please refer to discussion of net investment income
for analysis of interest spreads.
(d) Net income:
The Company recorded net income of $51,000 for second quarterof
1996 compared to a net loss of ($531,000) for the same periodone
year ago. Net income is attributed primarily to theoperating
results of the Company's 47% equity interest in UTG.
15
<PAGE>
FINANCIAL CONDITION
The Company owns 47% equity interest in UTG which controlstotal
assets of approximately $355,000,000. Summarized financial
information of UTG are shown in note 4 of this filing.
FUTURE OUTLOOK
Factors expected to influence life insurance industry growth
include: 1) competitive pressure among the large number of
existing firms; 2) competition from financial service companies,
as they seek to expand into insurance products; 3) customers'
changing needs for new types of insurance products; 4) customers'
lack of confidence in the entire industry as a result of the recent
highly visible failures; and 5) uncertainty concerning the future
regulation of the industry. Growth in demand for insurance
products will depend on demographic variables such as income
growth, wealth accumulation, populations and workforce changes.
16
<PAGE>
PART II. OTHER INFORMATION
Omitted as the required information is inapplicable.
17
<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.
UNITED INCOME, INC.
(Registrant)
Date August 9, 1996 By /s/ Thomas F. Morrow
Thomas F. Morrow, Chief Operating
Officer and Vice Chairman
Date August 9, 1996 By /s/ James E. Melville
James E. Melville, Chief Financial
Officer and Senior Executive Vice
President
18
<PAGE.
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