<PAGE>
================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 1-11446
--------------
ACORDIA, INC.
-------------
(Exact Name of Registrant as
----------------------------
specified in its charter)
Delaware 31-1278880
- - ----------------- ---------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
120 Monument Circle
Indianapolis, Indiana 46204
---------------------------------
(Address of principal executive offices)
(Zip Code)
(317) 488-6666
--------------------------------------
(Registrant's telephone number, including area code)
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 _______
-------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of March 31, 1996
----- --------------------------------
Common Stock, par value $1.00 a share 13,996,893 shares
This document is comprised of 16 pages.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
ACORDIA, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
CONSOLIDATED BALANCE SHEETS,
MARCH 31, 1996 AND DECEMBER 31, 1995.................... 1
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995........................... 2
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND YEAR ENDED
DECEMBER 31, 1995....................................... 3
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1996 AND 1995.............. 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................. 6
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................... 11
ITEM 2. CHANGES IN SECURITIES................................. 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................... 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS... 11
ITEM 5. OTHER INFORMATION..................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................... 11
SIGNATURES............................................................... 12
EXHIBIT (11) - COMPUTATION OF EARNINGS PER SHARE......................... 13
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEETS
ACORDIA, INC.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31 DECEMBER 31
1996 1995
---------- -----------
ASSETS
- - ------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,956 $ 11,160
Cash and cash equivalents held in 72,401 71,612
a fiduciary capacity
Premiums receivable, less
allowance for doubtful accounts
(1996 - $3,298; 1995 - $3,967) 119,780 149,639
Accounts receivable, less
allowance for doubtful accounts
(1996 - $480; 1995 - $421) 42,609 42,481
Accrued investment income 1,088 1,066
Deferred income taxes 3,870 1,515
Prepaid and other current assets 7,790 8,572
--------------------------
Total current assets 258,494 286,045
Securities available-for-sale held in a 48,230 49,866
fiduciary capacity, at fair value
Other assets:
Cash escrow 6,639 6,562
Furniture, equipment and leasehold
improvements, less
accumulated depreciation 44,478 41,577
Goodwill and other intangible 351,575 340,199
assets, less accumulated
amortization
Other assets 12,332 12,202
--------------------------
Total assets $721,748 $736,451
==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Current liabilities:
Premiums due insurance companies $220,071 $248,546
Accounts payable 3,069 2,291
Accrued payroll and related 12,022 15,479
liabilities
Income taxes payable 6,901 505
Other liabilities and accrued 48,213 51,777
expenses
Current portion of long-term debt 9,784 15,053
--------------------------
Total current liabilities 300,060 333,651
Long-term debt, less current portion 138,663 131,551
Other long-term liabilities, less 36,382 34,238
current portion
Deferred income taxes 29,734 24,936
--------------------------
Total liabilities 504,839 524,376
Stockholders' equity:
Common stock, par value $1 per
share:
Authorized 100,000,000 shares;
issued and outstanding
(1996 - 13,996,893; 1995 -
13,961,741) 13,997 13,962
Additional paid-in capital 72,846 72,073
Stock warrants 10,000 10,000
Net unrealized gains
(losses) on securities (128) 360
Retained earnings 120,194 115,680
--------------------------
Total stockholders' equity 216,909 212,075
--------------------------
Total liabilities and stockholders'
equity $721,748 $736,451
==========================
</TABLE>
See accompanying notes.
1
<PAGE>
ACORDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXPECT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1995
--------------------
<S> <C> <C>
Revenues:
Commissions and fees $ 162,230 $ 130,543
Investment income 1,617 1,701
Net realized investment gains -- 100
Other 833 278
------------------------
Total revenues 164,680 132,622
Operating Expenses:
Employee compensation and benefits 89,445 70,469
Other 52,948 41,378
------------------------
142,393 111,847
------------------------
Operating profit 22,287 20,775
Interest expense 2,439 2,095
Amortization of goodwill and other 6,309 5,554
intangibles ------------------------
Income before income taxes 13,539 13,126
Income taxes 6,228 5,907
------------------------
Net income $ 7,311 $ 7,219
========================
Earnings per share $0.51 $0.50
========================
Weighted average shares outstanding 14,360,941 14,492,668
========================
See accompanying notes.
</TABLE>
2
<PAGE>
ACORDIA, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NET
UNREALIZED
GAINS
COMMON STOCK ADDITIONAL (LOSSES)
------------
NUMBER OF PAID-IN STOCK ON RETAINED
SHARES PAR VALUE CAPITAL WARRANTS SECURITIES EARNINGS
--------- --------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 13,871,331 $13,871 $69,840 $10,000 $(1,823) $102,142
Issuance of stock for Company
plans 90,410 91 2,233 -- -- --
Net income -- -- -- -- -- 23,582
Dividends paid ($0.72 per share) -- -- -- -- -- (10,044)
Decrease in net unrealized losses
on securities available-for-
sale, less taxes of $230 -- -- -- -- 2,183 --
------------------------------------------------------------------
Balance at December 31, 1995 13,961,741 13,962 72,073 10,000 360 115,680
Issuance of stock for Company
plans 35,152 35 773 -- -- --
Net income -- -- -- -- -- 7,311
Dividends paid ($0.20 per share) -- -- -- -- -- (2,797)
Decrease in net unrealized gains
on securities available-for-
sale, less taxes of $223 -- -- -- -- (488) --
Balance at March 31, 1996 -
------------------------------------------------------------------
(unaudited) 13,996,893 $13,997 $72,846 $10,000 $ (128) $120,194
==================================================================
See accompanying notes.
</TABLE>
3
<PAGE>
ACORDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1996 1995
------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,311 $ 7,219
Adjustments to reconcile net income to
net cash
provided by operating
activities:
Depreciation and amortization 10,047 8,447
Deferred income taxes (1,351) (590)
Losses on receivables 212 295
Loss on sale of furniture 5 6
and equipment
Changes in operating assets
and liabilities, net of
effect of purchases of
subsidiaries:
Premiums receivable 32,105 20,711
Accounts receivable 127 (3,163)
Accrued investment (23) 276
income
Other assets 1,229 (2,087)
Premiums due insurance (30,945) (17,302)
companies
Accounts payable and (10,832) (16,482)
accrued liabilities
Income taxes payable 6,299 633
------------------------
Net cash provided by (used in) 14,184 (2,037)
operating activities
INVESTING ACTIVITIES:
Furniture, equipment and leasehold (6,779) (4,152)
improvement additions
Proceeds from sales of furniture and 461 3,976
equipment
Purchases of subsidiaries, net of cash
acquired and
cash escrow (5,021) (6,480)
------------------------
Net cash used in investing activities (11,339) (6,656)
FINANCING ACTIVITIES:
Proceeds from borrowings 9,000 13,813
Payments on borrowings (10,060) (5,008)
Issuance of stock for Company plans 808 1,540
Dividends paid (2,797) (2,506)
------------------------
Net cash (used in) provided by (3,049) 7,839
financing activities ------------------------
Net (decrease) in (204) (854)
cash and cash equivalents ------------------------
Cash and cash equivalents at beginning 11,160 13,374
of period ------------------------
Cash and cash equivalents at end of $ 10,956 $ 12,520
period ========================
See accompanying notes.
</TABLE>
4
<PAGE>
ACORDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1996
NOTE 1 -- BASIS OF PRESENTATION
- - ----------------------------------
The accompanying unaudited consolidated financial statements of Acordia, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1996, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
Reclassification
- - ----------------
Certain prior year balances have been reclassified to conform with the current
year presentation.
NOTE 2 -- ACQUISITIONS
- - -------------------------
During the first quarter of 1996, the Company made acquisitions at an aggregate
cost, including future contingent payments, of approximately $15,879,000. The
excess of the total acquisition cost over the net assets acquired of
approximately $20,048,000 was assigned to goodwill and other intangible assets.
At March 31, 1996, the cash escrow represents funds on deposit to fund future
obligations related to a 1995 acquisition.
All of these acquisitions have been accounted for as purchases, and the net
assets and results of operations are included in the Company's consolidated
financial statements from the respective purchase dates.
NOTE 3 -- RELATED PARTIES
- - ----------------------------
During October 1995 and March 1996, the Company entered into agreements with
Community Insurance Company ("CIC") and affiliates to perform
certain marketing services in connection with CIC's insurance products in select
geographic and demographic markets. CIC has been an affiliate of the Company
since CIC's parent company's merger with Anthem Insurance Companies, Inc.
("Anthem"), formerly known as Associated Insurance Companies, Inc., in
October 1995. CIC and the Company are continuing to have discussions
concerning other similar arrangements. There can be no assurance that the
Company will agree with CIC to perform such services, nor any assurance
concerning the terms under which the Company would agree to perform such
services.
NOTE 4 -- CONTINGENCIES
- - --------------------------
The Company and its subsidiaries are subject to numerous claims and lawsuits
that arise in the ordinary course of business. Some of these cases are being
litigated in jurisdictions which have judicial precedence and evidentiary rules
which are generally believed to favor individual plaintiffs against corporate
defendants. The damages that may be claimed in such cases can be substantial,
but are often covered by insurance. Accruals for these claims and lawsuits have
been provided to the extent that losses are deemed probable and are estimatable.
On April 17, 1996, National Benefits Consultants, LLC ("plaintiff") filed suit
in California Superior Court against one of the Company's operating
subsidiaries, as well as Anthem, an affiliated company. The suit alleges breach
of an engagement letter allegedly entered into among the parties. Plaintiff
seeks actual damages in excess of $100 million, as well as additional
unspecified damages and punitive damages. Management believes that it has
meritorious defenses to this lawsuit and will vigorously defend it, as well as
pursue all of its legal rights and remedies against the plaintiff and others.
Although the ultimate outcome of these suits cannot be ascertained and
liabilities in indeterminate amounts may be imposed on the Company or its
subsidiaries, on the basis of present information, and advice received from
counsel, it is the opinion of management that the disposition or ultimate
determination of such claims and lawsuits will not have a material adverse
effect on the consolidated financial position of the Company.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- - ---------------------
Operating profit for the three months ended March 31, 1996, was $22.3 million,
an increase of seven percent over operating profit of $20.8 million for the
comparable period in 1995. Net income for the three months ended March 31,
1996, was $7.3 million, an increase of one percent over net income of $7.2
million for the comparable period in 1995. Total stockholders' equity was $216.9
million at March 31, 1996, compared to $212.1 million at December 31, 1995.
REVENUES
Total revenues for the three months ended March 31, 1996, were $164.7 million,
an increase of 24% over revenues of $132.6 million for the comparable period in
1995.
Total related party revenues were $65.0 million and $52.9 million for the three
months ended March 31, 1996 and 1995, respectively. The net increase was
primarily attributable to the new business relationships with CIC.
Commissions and Fees
Commissions and fees for the three months ended March 31, 1996 were $162.2
million, an increase of 24% over commissions and fees of $130.5 million for the
comparable period in 1995. Acquisitions accounted for approximately $16.2
million of the increase. The remaining increase of approximately $15.5 million
resulted primarily from net new business, the establishment of new business
relationships with Community Insurance Company ("CIC") and growth
in contingent commissions from unaffiliated carriers.
Investment Income
Investment income and net realized investment gains were $1.6 million
and $1.8 million for the three months ended March 31, 1996 and 1995,
respectively. Investment income consists primarily of interest earned on
premiums and claims collected and held prior to being remitted to insurers and
clients. Such funds are held in a fiduciary capacity. Net investment yield was
approximately 5.1% and 5.8% for the three months ended March 31, 1996 and 1995,
respectively.
Other Revenues
Other revenues include revenues from marketing and consulting services, gains
and losses on the sale of fixed assets and other miscellaneous items. Such
revenues were $0.8 million and $0.3 million for the three months ended March 31,
1996 and 1995, respectively.
EXPENSES
- - --------
Total operating expenses for the three months ended March 31, 1996, were $142.4
million, an increase of 27% over operating expenses of $111.8 million for the
comparable period in 1995. The majority of the increase was due to
acquisitions and expansion of existing operations.
6
<PAGE>
Total related party other operating expenses were $16.1 million and $9.4 million
for the three months ended March 31, 1996 and 1995, respectively. The increase
was primarily attributable to the new business relationships with
CIC.
Employee Compensation and Benefits
Employee compensation and benefits costs for the three months ended March 31,
1996, were $89.4 million, an increase of 27%, over employee compensation and
benefits of $70.5 million for the comparable period in 1995. Acquisitions
accounted for approximately $10.0 million of the increase. The remaining
increase of $8.9 million was principally due to the expansion of existing
operations, including the new business relationships with CIC.
Other Operating Expenses
Other operating expenses for the three months ended March 31, 1996, were $52.9
million, an increase of 28% over other operating expenses of $41.4 million for
the comparable period in 1995. Acquisitions accounted for the majority of this
increase with the remaining costs associated with the expansion of existing
operations, including the new business relationships with CIC.
Interest Expense and Amortization of Goodwill and Other Intangible Assets
Interest expense for the three months ended March 31, 1996 and 1995,
respectively, was $2.4 million and $2.1 million. Interest expense increased due
to additional borrowings under the revolving credit agreement. These
borrowings were used to finance acquisitions and the general needs of the
Company.
Acquisitions made subsequent to March 31, 1995, resulted in an additional $39.8
million of goodwill and other intangible assets. Such increases, less the effect
of certain assets being fully amortized, caused amortization expense to increase
to $6.3 million for the three months ended March 31, 1996 compared to $5.6
million for the comparable period in 1995.
Income Taxes
The Company's effective income tax rates for the three months ended March 31,
1996 and 1995, were 46.0% and 45.0%, respectively. Income taxes include both
federal and state income taxes. The increase in the effective tax rate was due
primarily to an increase in non-deductible goodwill and other intangible assets
related to prior and current year acquisitions.
FINANCIAL CONDITION
- - -------------------
During 1996, cash flow generated from operations and funds available under the
revolving credit agreement were more than sufficient to fund the operating and
capital expenditure requirements of the Company. The Company's business is not
capital intensive. The Company anticipates that cash flow from operations and,
if necessary, borrowings under its credit agreement will be sufficient to fund
the liquidity needs of the Company. Cash generated/(used) from operating
activities was $14.2 million and $(2.0) million for the three months ended March
31, 1996 and 1995, respectively.
The Company maintains a high quality investment portfolio consisting of
securities which the Company believes to be readily marketable. There are no
derivatives in the portfolio.
7
<PAGE>
The Company maintains a $150 million revolving credit agreement with NationsBank
and a syndicate of banks. Pursuant to a 1995 agreement with the lenders, the
revolving credit agreement matures in November 1998, and with the consent of the
lenders it may be extended for an additional term of one year. The revolving
credit agreement requires the Company to maintain certain financial ratios and
comply with certain other covenants. Additionally, the cost of funds increases
and decreases with the Company's debt leverage. The covenants do not restrict
the payment of dividends.
As of March 31, 1996, long-term debt, excluding the current portion due, totaled
$138.7 million, which compares to $131.6 million at December 31, 1995.
Borrowings under the revolving credit agreement were $124.0 million at March 31,
1996 and $118.0 million at December 31, 1995.
Capital expenditures were $6.8 million and $4.2 million for the three months
ended March 31, 1996 and 1995, respectively. The increase primarily resulted
from additional leasehold improvements made as a result of certain existing
company offices expanding into additional space.
Net cash flow (used in)/provided by financing activities totaled $(3.0) million
and $7.8 million for the three months ended March 31, 1996 and 1995,
respectively.
On January 31, 1996, the Board of Directors increased the quarterly dividend by
11% to $0.20 per share of common stock per annum. The dividend had previously
been increased by 20% to $0.18 per share of common stock per annum on February
6, 1995. The Company intends to continue to pay quarterly dividends.
Other long-term liabilities primarily consist of future payments relating to
contractual agreements negotiated with the previous owners of acquired
businesses, deferred lease incentives and other liabilities not due within one
year including liabilities relating to the Company's retirement and employee
benefit plans. The future contingent payments to the previous owners of acquired
businesses are generally based upon the amount of net commission income
generated from the books of business acquired. These amounts were $20.2 million
and $19.8 million at March 31, 1996 and December 31, 1995, respectively.
OUTLOOK
- - -------
On October 19, 1995, Anthem announced that its Board of Directors had
authorized the purchase of up to one million shares of the Company's common
stock. Purchases are made from time to time in the open market at prevailing
prices or in privately negotiated transactions, resulting in Anthem's ownership
increasing to 62% as of March 31, 1996. Approximately 40% of the Company's
revenues during the three months ended March 31, 1996 are related to insurance
products placed with Anthem and its wholly owned insurance affiliates.
In October 1995 and March 1996, the Company entered into agreements with CIC and
affiliates to perform certain marketing services in connection with CIC's
insurance products in select geographic and demographic markets. CIC has been an
affiliate of the Company since the merger of CIC's parent company with Anthem in
October 1995. CIC and the Company are continuing to have discussions concerning
other similar arrangements. There can be no assurance that the Company will
agree with CIC to perform such services, nor any assurance concerning the terms
in which the Company would agree to perform such services.
In the fourth quarter of 1995, the Company entered into a new marketing
arrangement with its affiliated insurance carriers. As part of this arrangement,
Acordia received all accrued contingent commissions earned in prior years which
related to the profitability of the health business placed with its affiliates
by the Company.
8
<PAGE>
Based on this new arrangement, the Company will not receive contingent
commissions related to the health business with its affiliated carriers but will
receive increased revenues from new business which will not be contingent upon
underwriting results. As a result of this arrangement, the Company does not
expect any significant change in income.
Since the Company's inception, acquisitions have played an important part in its
strategy to become the most significant full-service insurance broker to mid-
market companies in targeted areas. The Company is regularly engaged in
discussions with third parties regarding potential acquisitions but has no
commitments or agreements which individually or in the aggregate would be
material. No assurances can be given with respect to the likelihood or financial
or business effect of any possible future acquisition.
The Company has continued to grow despite persistent softness in the property
and casualty insurance market and uncertainty about the effects of national and
state health care reform initiatives. The underwriting capacity of property and
casualty insurance companies has continued to expand, increasing competition and
decreasing premium rates, thereby reducing related commissions and fees.
As the Company's customers switch from traditional health insurance to managed
health care, commission income and traditional third party administration income
may decline. However, the Company expects to receive increased fee and brokerage
income. The Company does not anticipate that the conversion from traditional
insurance to managed health care systems will result in a material change in
income.
The Company's revenues from its third party administration and health insurance
brokerage business are related to the amount of administrative services
performed and to premiums written. These revenues are affected by the cyclical
nature of the underwriting results of the health insurance industry. Moreover,
the Company intends to focus in the future more on marketing and brokering
health insurance and less on the claims transaction aspect of the administrative
services.
In July 1995, the State of Kentucky legislature passed a comprehensive health
care reform bill. The new legislation, which was effective January 1, 1996,
created a statewide voluntary health care purchasing alliance ("the Alliance").
Membership in the Alliance is mandatory for state workers, public school
employees and voluntary for employees of state universities, counties and
cities. An operating subsidiary of the Company is a third party administrator
for Anthem products offered through the Alliance. The Company expects that this
legislation will result in increased sales for the Company's group health self
insured products and possibly lower sales for individual health products. The
Company does not expect the legislation to materially affect operating results.
Many other states where the Company does business have already initiated various
healthcare reforms, and many more are considering them. In these states and
elsewhere, the Company has joined with providers and has developed needed
information systems to manage costs and is providing clients with managed care
products, services and advice.
The Company is unaware of any current recommendations by regulatory authorities
that could have a material effect on liquidity, capital resources or operations
of the Company.
During the latter part of 1995 and first quarter of 1996, the Company
consolidated several operating subsidiaries to enhance operating and marketing
efficiencies and to strengthen management. No material charges were incurred nor
are expected as a result of these consolidations.
9
<PAGE>
In 1995, the Company and Anthem, as a part of their continuing strategic
initiatives, began a project with the assistance of an outside consultant to
look at ways to reduce their administrative expenses. The Company believes that
the probable long-term outcome of this effort will be to reduce administrative
cost through the introduction of enabling technology in the Company's core
health administrative processes, the consolidation of claims processing sites,
the increased use of automation in the Company's property and casualty brokerage
business and the outsourcing or elimination of non value-added services (mail
rooms, data entry, etc.). The Company and Anthem believe that these changes and
improved efficiencies will be necessary in order for our products to remain
competitive over the next several years.
As part of these efforts to improve efficiencies and to consolidate
functions, Anthem and Acordia have agreed that Acordia will assume virtually all
of the wholesale distribution functions for Anthem products nationwide.
Additionally, Anthem will reassume and consolidate certain administrative
functions, currently being performed by the Company outside of the midwest
region. These changes will be phased in over the next 12 to 18 months and are
not expected to materially change the Company's results of operations.
The statements under "Outlook" and the other statements which are not historical
facts are forward looking. Such statements involve a number of risks and
uncertainties. While the statements represent Acordia's current judgment as to
the near term future of its business, such risks and uncertainties could cause
actual results to differ from the above statements. Factors which could cause
actual results to differ include the following: the effect of economic
conditions, cyclicality of property and casualty and health insurance markets,
the impact of competitive products and pricing, product development,
technological difficulties, the results of financing efforts, the effect of the
Company's accounting policies, unanticipated regulatory changes having the
effect of lowering prices and other risks.
10
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are subject to numerous claims and lawsuits
that arise in the ordinary course of business. Some of these cases are being
litigated in jurisdictions which have judicial precedence and evidentiary rules
which are generally believed to favor individual plaintiffs against corporate
defendants. The damages that may be claimed in such cases can be substantial,
but are often covered by insurance. Accruals for these claims and lawsuits have
been provided to the extent that losses are deemed probable and are estimatable.
On April 17, 1996, National Benefits Consultants, LLC ("plaintiff") filed suit
in California Superior Court against one of the Company's operating
subsidiaries, as well as Anthem, an affiliated company. The suit alleges breach
of an engagement letter allegedly entered into among the parties. Plaintiff
seeks actual damages in excess of $100 million, as well as additional
unspecified damages and punitive damages. Management believes that it has
meritorious defenses to this lawsuit and will vigorously defend it, as well as
pursue all of its legal rights and remedies against the plaintiff and others.
Although the ultimate outcome of these suits cannot be ascertained and
liabilities in indeterminate amounts may be imposed on the Company or its
subsidiaries, on the basis of present information, and advice received from
counsel, it is the opinion of management that the disposition or ultimate
determination of such claims and lawsuits will not have a material adverse
effect on the consolidated financial position of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
During the first quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders, through the solicitation of proxies
of otherwise.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Exhibit (11) - Computation of earnings per share
During the first quarter of the fiscal year covered by this report, no report on
Form 8-K was filed.
11
<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.
ACORDIA, INC.
(Registrant)
Date: May 15, 1996 /s/ Patrick M. Sheridan
- - ----------------------------------- -------------------------------------
Patrick M. Sheridan
Executive Vice President and
Chief Financial Officer
Date: May 15, 1996 /s/ Robert S. Schneider
- - ----------------------------------- -------------------------------------
Robert S. Schneider
Senior Vice President and
Controller
12
<PAGE>
EXHIBIT 11
ACORDIA, INC.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31
1996 1995
-------------
<S> <C> <C>
PRIMARY
Average number of common shares 14,005 13,932
outstanding
Net effect of dilutive stock options
and warrants - based on
the treasury stock method of using 356 561
average market price ---------------
Total average number of common shares 14,361 14,493
outstanding ===============
Net income $ 7,311 $ 7,219
================
Earnings per share $ 0.51 $0.50
================
FULLY DILUTED
Average number of common shares 14,005 13,932
outstanding
Net effect of dilutive stock options
and warrants - based on
the treasury stock method of using
the period-end market
price if higher than average 524 N/A
market price ---------------
Total average number of common shares 14,529 N/A
outstanding ===============
Net income $ 7,311 $ N/A
================
Earnings per share $ 0.50 $ N/A
================
</TABLE>
N/A - Not applicable as average market price for the quarter ended March 31,
1995 was higher than the ending market price at March 31, 1995.
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 83357
<SECURITIES> 48230
<RECEIVABLES> 162389
<ALLOWANCES> 3778
<INVENTORY> 0
<CURRENT-ASSETS> 258494
<PP&E> 44645
<DEPRECIATION> 38167
<TOTAL-ASSETS> 721748
<CURRENT-LIABILITIES> 300060
<BONDS> 148447
0
0
<COMMON> 13997
<OTHER-SE> 202912
<TOTAL-LIABILITY-AND-EQUITY> 721748
<SALES> 162230
<TOTAL-REVENUES> 164680
<CGS> 0
<TOTAL-COSTS> 142181
<OTHER-EXPENSES> 6309
<LOSS-PROVISION> 212
<INTEREST-EXPENSE> 2439
<INCOME-PRETAX> 13539
<INCOME-TAX> 6228
<INCOME-CONTINUING> 7311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7311
<EPS-PRIMARY> .51
<EPS-DILUTED> .50
</TABLE>
