<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, 1997
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, 1997
----- --------------------------------
Common Stock, par value $1.00 a share 13,006,553 shares
This document is comprised of 17 pages.
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<PAGE>
ACORDIA, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C>
CONSOLIDATED BALANCE SHEETS,
MARCH 31, 1997 AND DECEMBER 31, 1996.................... 1
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996........................... 2
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND YEAR ENDED
DECEMBER 31, 1996....................................... 3
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND 1996.............. 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............. 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS...................................... 7
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS..................................... 12
ITEM 2. CHANGES IN SECURITIES................................. 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES....................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS... 12
ITEM 5. OTHER INFORMATION..................................... 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...................... 12
SIGNATURES............................................................... 13
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE........................... 14
EXHIBIT 27 - FINANCIAL DATA SCHEDULE..................................... 15
</TABLE>
<PAGE>
ACORDIA, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31 DECEMBER 31
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,599 $ 14,116
Cash and cash equivalents held in 74,826 68,642
a fiduciary capacity
Premiums receivable, less
allowance for doubtful accounts
(1997 - $3,069; 1996 - $3,095) 96,079 118,489
Accounts receivable, less
allowance for doubtful accounts
(1997 - $299; 1996 - $762) 47,961 48,173
Accrued investment income 1,576 1,324
Deferred income taxes 4,377 3,357
Prepaid and other current assets 7,735 9,032
---------- -----------
Total current assets 246,153 263,133
Securities available-for-sale held in a
fiduciary capacity, at fair value 47,718 47,877
Other assets:
Cash escrow 3,515 8,478
Furniture, equipment and leasehold
improvements, less
accumulated depreciation 41,509 42,272
Goodwill and other intangible
assets, less accumulated
amortization 377,455 365,737
Other assets 18,190 18,065
------------ -----------
Total assets $734,540 $745,562
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Premiums due insurance companies $200,050 $211,777
Accounts payable 2,216 970
Accrued payroll and related
liabilities 12,248 22,774
Income taxes payable 10,682 5,628
Other liabilities and accrued
expenses 39,575 45,736
Current portion of long-term debt 40,891 40,508
------------ -----------
Total current liabilities 305,662 327,393
Long-term debt, less current portion 136,743 136,167
Other long-term liabilities, less
current portion 58,084 49,215
Deferred income taxes 27,826 30,388
------------ -----------
Total liabilities 528,315 543,163
Stockholders' equity:
Common stock, par value $1 per
share:
Authorized 100,000,000 shares;
issued and outstanding
(1997 - 13,006,553; 1996 -
12,990,389) 13,006 12,990
Additional paid-in capital 44,925 44,660
Stock warrants 10,000 10,000
Net unrealized (losses) gains on
securities (342) 198
Retained earnings 138,636 134,551
------------ -----------
Total stockholders' equity 206,225 202,399
------------ -----------
Total liabilities and stockholders'
equity $734,540 $745,562
============ ===========
See accompanying notes.
</TABLE>
1
<PAGE>
ACORDIA, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Commissions and fees $ 163,138 $ 162,230
Investment income 1,622 1,617
Other 1,005 833
----------- -----------
Total revenues 165,765 164,680
Operating expenses:
Employee compensation and benefits 90,523 89,445
Other 53,149 52,948
----------- -----------
143,672 142,393
----------- -----------
Operating income 22,093 22,287
Other expenses:
Interest 3,048 2,439
Amortization of goodwill and other
intangibles 6,778 6,309
----------- -----------
Income before income taxes 12,267 13,539
Income taxes 5,581 6,228
------------ -----------
Net income $ 6,686 $ 7,311
============ ===========
Earnings per share $0.50 $0.51
============ ===========
Weighted average shares outstanding 13,395,004 14,360,941
============ ===========
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, 1996 13,961,741 $13,962 $ 72,073 $10,000 $ 360 $115,680
Issuance of stock for Company
plans 164,695 165 3,736 -- -- --
Purchase and retirement of stock (1,136,047) (1,137) (31,149) -- -- --
Net income -- -- -- -- -- 29,888
Dividends paid ($0.80 per share) -- -- -- -- -- (11,017)
Decrease in net unrealized losses
on securities available-for-
sale, less taxes of $104 -- -- -- -- (162) --
---------- ------- -------- ------- ----- --------
Balance at December 31, 1996 12,990,389 12,990 44,660 10,000 198 134,551
Issuance of stock for Company
plans 16,164 16 265 -- -- --
Net income -- -- -- -- -- 6,686
Dividends paid ($0.20 per share) -- -- -- -- -- (2,601)
Decrease in net unrealized gains
on securities available-for-
sale, less taxes of $106 -- -- -- -- (540) --
---------- ------- -------- ------- ----- --------
Balance at March 31, 1997 -
(unaudited) 13,006,553 $13,006 $ 44,925 $10,000 $(342) $138,636
========== ======= ======== ======= ===== ========
See accompanying notes.
</TABLE>
3
<PAGE>
ACORDIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 6,686 $ 7,311
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 10,521 10,047
Deferred income taxes (3,479) (1,351)
Losses on receivables 307 212
Loss on sale of furniture and
equipment 212 5
Changes in operating assets and
liabilities, net of
effect of purchases of
subsidiaries:
Premiums receivable 24,667 32,105
Accounts receivable 2,925 127
Accrued investment
income (252) (23)
Other assets 1,180 1,229
Premiums due insurance
companies (22,320) (30,945)
Accounts payable and
accrued liabilities (14,724) (10,832)
Income taxes payable 5,055 6,299
--------- ---------
Net cash provided by operating
activities 10,778 14,184
INVESTING ACTIVITIES:
Furniture, equipment and leasehold
improvement additions (3,980) (6,779)
Proceeds from sales of furniture and
equipment 883 461
Purchases of subsidiaries, net of cash
acquired and cash escrow (2,830) (5,021)
--------- ---------
Net cash used in investing activities (5,927) (11,339)
FINANCING ACTIVITIES:
Proceeds from borrowings -- 9,000
Payments on borrowings (3,048) (10,060)
Issuance of stock for Company plans 1,105 1,212
Purchase and retirement of stock (824) (404)
Dividends paid (2,601) (2,797)
--------- ---------
Net cash used in financing activities (5,368) (3,049)
--------- ---------
Net decrease in cash and cash
equivalents (517) (204)
Cash and cash equivalents at beginning
of period 14,116 11,160
--------- ---------
Cash and cash equivalents at end of
period $ 13,599 $ 10,956
========= =========
See accompanying notes.
</TABLE>
4
<PAGE>
ACORDIA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1997
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, 1997, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
NOTE 2 -- CHANGE IN ACCOUNTING METHOD
- ---------------------------------------
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact is expected to result in an increase
in primary earnings per share for the quarters ended March 31, 1997 and 1996 of
$0.01 per share. The impact of Statement 128 on the calculation of fully
diluted earnings per share for these quarters is not expected to be material.
NOTE 3 -- ACQUISITIONS
- -------------------------
During the first quarter of 1997, the Company made several acquisitions at an
aggregate cost, including future contingent payments, of approximately $19.3
million. The excess of the total acquisition cost over the net assets acquired
of approximately $18.9 million was assigned to goodwill and other intangible
assets. At March 31, 1997, the cash escrow represents funds on deposit to fund
future obligations related to prior acquisitions.
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 4 -- RELATED PARTIES
- ----------------------------
Beginning in October 1995, Anthem Insurance Companies, Inc. ("Anthem") Board of
Directors authorized the purchase of up to two million shares of the Company's
common stock. Purchases have been made from time to time in the open market at
prevailing prices or in privately negotiated transactions. Since October 1995,
Anthem has purchased 481,500 shares of the Company's common stock resulting in
Anthem's ownership increasing to 67% as of March 31, 1997. Anthem has informed
5
<PAGE>
the Company that Anthem has suspended its Company stock purchases pending the
outcome of their strategic review. Approximately 42% of the Company's revenues
during the three months ended March 31, 1997 are related to insurance products
placed with Anthem and its wholly owned insurance affiliates.
NOTE 5 -- CONTINGENCIES
- --------------------------
The Company and its subsidiaries are parties to various lawsuits that have
arisen in the normal course of business. In the opinion of management, none of
these proceedings, either individually or in the aggregate, if determined
adversely to the Company or any of its subsidiaries, would have a material
adverse effect on the Company and its subsidiaries or their ability to carry on
their business as currently conducted.
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.
NOTE 6 -- OTHER MATTERS
- -------------------------
In January 1997, the Company announced that its review of the 1997 business plan
has led to a decision to undertake a strategic review to assess the changes
occurring in the health care industry and the potential implication of those
changes on the Company's relationship with Anthem. The Company has been
informed by Anthem that Anthem is similarly undertaking its own strategic
review, which includes an analysis of its business relationship with and
investment in the Company. Anthem has retained Credit Suisse First Boston to
assist Anthem in this analysis. Anthem has also informed the Board that no
decision has as yet been made by Anthem as to what, if any, changes it believes
should be made with respect to its business relationship with and investment in
the Company. As part of the reevaluation process, Anthem has asked Credit
Suisse First Boston to explore the possible sale of the Company's property and
casualty brokerage business and the possible reorganization of the Company's
health business.
The Company is well aware of intensifying competitive pressures in the health
care industry and Anthem's need to reduce administrative and marketing costs
associated with its health care business. Because of the high percentage of the
Company's revenues derived from the sale and servicing of Anthem life and health
insurance products, it is inevitable that industry forces affecting Anthem will
also affect the Company. The Company is working closely with Anthem so that
each company may develop a plan which accomplishes each company's strategic
objectives and delivers stockholder value. The Company has established a
special committee of all independent directors to evaluate any proposals made by
or involving Anthem.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED MARCH 31, 1997
- ---------------------------------
Operating income for the three months ended March 31,1997, was $22.1 million, a
decrease of 1 percent from operating income of $22.3 million for the comparable
period in 1996. Net income for the three months ended March 31, 1997, was $6.7
million, a decrease of 9 percent from net income of $7.3 million for the
comparable period in 1996. Total stockholders' equity was $206.2 million at
March 31, 1997, compared to $202.4 million at December 31, 1996.
REVENUES
Total revenues for the three months ended March 31, 1997, were $165.8 million,
an increase of 1% over revenues of $164.7 million for the comparable period in
1996.
Total related party revenues were $70.3 million and $69.5 million for the three
months ended March 31, 1997 and 1996, respectively.
Commissions and Fees
Commissions and fees for the three months ended March 31, 1997 were $163.1
million, an increase of 1% over commissions and fees of $162.2 million for the
comparable period in 1996. Operations reassumed by Anthem Insurance Companies,
Inc. ("Anthem") during 1996 accounted for a decrease of approximately $10.8
million, net of a cancellation fee of $3.0 million (see below). New
acquisitions accounted for an increase of approximately $6.7 million while
dispositions accounted for a decrease of approximately $4.4 million. The
remaining increase of $9.4 million resulted primarily from net new business.
In July 1996, the Company assumed virtually all of the existing wholesale
marketing and distribution functions for Anthem products nationwide while Anthem
reassumed and consolidated certain administrative functions previously performed
by the Company outside of the midwest region. Subsequently, in January 1997,
Anthem and the Company, as a part of strategic developments within Anthem,
decided that the wholesale marketing and distribution functions for Anthem
products nationwide, outside of the midwest region, should be performed by
Anthem. Anthem has agreed to pay the Company a one-time cancellation fee of $6
million. One-half of this fee was paid during the first quarter of 1997 with
the remainder to be paid during the second quarter.
Investment Income
Investment income and net realized investment gains, in aggregate, were $1.6
million for both three month periods ended March 31, 1997 and 1996. 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 5.0% and 5.1% for
the three months ended March 31, 1997 and 1996, respectively.
7
<PAGE>
Other Revenues
Other revenues include revenues from consulting services, gains and losses on
the sale of fixed assets and other miscellaneous items. Such revenues were $1.0
million and $0.8 million for the three months ended March 31, 1997 and 1996,
respectively.
EXPENSES
- --------
Total operating expenses for the three months ended March 31, 1997, were $143.7
million, an increase of 1% over operating expenses of $142.4 million for the
comparable period in 1996.
Reimbursements to Anthem pursuant to an intercompany services agreement were
$12.0 million and $15.5 million for the three months ended March 31, 1997 and
1996, respectively. The decrease is primarily due to transition employees
leased from Anthem during 1996. In 1997, these individuals became employees of
the Company.
Employee Compensation and Benefits
Employee compensation and benefits costs for the three months ended March 31,
1997, were $90.5 million, an increase of 1% over employee compensation and
benefits of $89.4 million for the comparable period in 1996. Operations
reassumed by Anthem during 1996 accounted for a decrease of approximately $7.8
million. New acquisitions accounted for an increase of approximately $3.5
million while dispositions accounted for a decrease of approximately $2.2
million. The remaining increase of $7.6 million was principally due to
increased benefits costs and the expansion of existing operations.
Other Operating Expenses
Other operating expenses for the three months ended March 31, 1997, were $53.1
million as compared to expenses of $52.9 million for the three months ended
March 31, 1996. Operations reassumed by Anthem during 1996 accounted for a
decrease of approximately $4.5 million. New acquisitions accounted for an
increase of $1.0 million while dispositions accounted for a decrease of
approximately $1.4 million. The remaining increase of $5.1 million was
primarily due to costs associated with the expansion of existing operations.
Interest Expense and Amortization of Goodwill and Other Intangible Assets
Interest expense for the three months ended March 31, 1997 and 1996,
respectively, was $3.0 million and $2.4 million. Interest expense increased due
to additional borrowings, made during the fourth quarter of 1997, under the
revolving credit agreement. These borrowings were used to fund the repurchase
of 1,078,500 shares of the Company's common stock.
Acquisitions made subsequent to March 31, 1996, resulted in additional goodwill
and other intangible assets. Such increases, less the effect of certain assets
being fully amortized, caused amortization expense to increase to $6.8 million
for the three months ended March 31, 1997 compared to $6.3 million for the
comparable period in 1996.
8
<PAGE>
Income Taxes
The Company's effective income tax rates for the three months ended March 31,
1997 and 1996, were 45.5% and 46%, respectively. Income taxes include both
federal and state income taxes. The effective tax rates are higher than the
U.S. statutory rate of 35 percent primarily due to U.S. state and local income
taxes and to the non-deductibility of certain expenses, including meals and
entertainment and amortization of goodwill and other intangible assets related
to prior and current year acquisitions.
FINANCIAL CONDITION
- -------------------
During 1997, cash flow generated from operations and funds available under the
revolving credit agreement were 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 existing credit agreement will be sufficient to
fund the liquidity needs of the Company. Cash generated from operating
activities was $10.8 million and $14.2 million for the three months ended March
31, 1997 and 1996, 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.
The Company maintains a $150 million revolving credit agreement with a syndicate
of banks. 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
agreement does not restrict the payment of dividends. On November 18, 1996, the
revolving credit agreement was amended to permit an additional $30.8 million of
borrowings to fund the repurchase of 1,078,500 shares of the Company's common
stock. This portion of the revolving credit agreement matures in November 1997.
As of March 31, 1997, long-term debt, excluding the current portion due, totaled
$136.7 million, which compares to $136.2 million at December 31, 1996.
Borrowings under the revolving credit agreement were $124.0 million at March 31,
1997 and December 31, 1996.
Capital expenditures were $4.0 million and $6.8 million for the three months
ended March 31, 1997 and 1996, respectively. The decrease primarily resulted
from additional leasehold improvements made as a result of certain existing
company offices expanding into additional space in 1996.
Net cash flow used in financing activities totaled $5.4 million and $3.0 million
for the three months ended March 31, 1997 and 1996, respectively.
On January 31, 1996, the Board of Directors increased the quarterly dividend by
11% to $0.20 per share of common stock. 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
9
<PAGE>
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 $24.6 million
and $22.1 million at March 31, 1997 and December 31, 1996, respectively.
OUTLOOK
- -------
In January 1997, the Company announced that its review of the 1997 business plan
has led to a decision to undertake a strategic review to assess the changes
occurring in the health care industry and the potential implication of those
changes on the Company's relationship with Anthem. The Company has been
informed by Anthem that Anthem is similarly undertaking its own strategic
review, which includes an analysis of its business relationship with and
investment in the Company. Anthem has retained Credit Suisse First Boston to
assist Anthem in this analysis. Anthem has also informed the Board that no
decision has as yet been made by Anthem as to what, if any, changes it believes
should be made with respect to its business relationship with and investment in
the Company. As part of the reevaluation process, Anthem has asked Credit
Suisse First Boston to explore the possible sale of the Company's property and
casualty brokerage business and the possible reorganization of the Company's
health business. The process is continuing.
The Company is well aware of intensifying competitive pressures in the health
care industry and Anthem's need to reduce administrative and marketing costs
associated with its health care business. Because of the high percentage of the
Company's revenues derived from the sale and servicing of Anthem life and health
insurance products, it is inevitable that industry forces affecting Anthem will
also affect the Company. The Company is working closely with Anthem so that
each company may develop a plan which accomplishes each company's strategic
objectives and delivers stockholder value. The Company has established a
special committee of all independent directors to evaluate any proposals made by
or involving Anthem.
Since its inception in 1989, the Company has derived a significant percentage of
its revenues and profits from providing marketing and administrative services
for or on behalf of Anthem and its affiliates. Many administrative functions
are those related to claims processing. Due to market driven pressures, over
time the claims processing function is expected to become more standardized and
automated and be less of a differentiating, value added service for the
Company's clients. In anticipation of these changes, the Company has initiated
plans to improve efficiencies and consolidate certain of these functions. In
February 1997, the Company and Anthem announced the planned consolidation of
their claims processing sites in Indiana, Kentucky and Ohio into one central
site located in Indiana. The consolidation of the Indiana sites is virtually
complete. The consolidation of the Kentucky sites is scheduled for the third
and fourth quarters of 1997. The schedule for the consolidation of the Ohio
sites is under development.
Acquisitions have been an important historical part of the Company's strategy to
become a 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 current 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 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 the Company's current judgment as
to the near term future of its business, such risks and uncertainties could
10
<PAGE>
cause actual results to differ from the above statements. Factors which could
cause actual results to differ include the following: the Company's
relationship with Anthem, 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 and other risks.
11
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are parties to various lawsuits that have
arisen in the normal course of business. In the opinion of management, none of
these proceedings, either individually or in the aggregate, if determined
adversely to the Company or any of its subsidiaries, would have a material
adverse effect on the Company and its subsidiaries or their ability to carry on
their business as currently conducted.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on May 13, 1997. The
following is a summary of the matters voted on at that meeting.
(a) Election of Directors to serve three year terms ending at the Company's 2000
annual meeting:
Nominee Votes For Votes Against
------- --------- -------------
Birch E. Bayh 12,553,752 5,038
Catherine E. Dolan 12,555,852 2,938
James B. Stradtner 12,555,852 2,938
Frank C. Witthun 12,553,777 5,013
(b) Ratification of appointment of Ernst & Young LLP as the Company's principal
independent auditors:
Votes For 12,555,444
Votes Against 1,925
Abstained 1,421
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.
12
<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: 5/14/97 /s/ Keith A. Maib
- ----------------------------------- ------------------------------
Keith A. Maib
Executive Vice President and
Chief Financial Officer
13
<PAGE>
EXHIBIT 11
ACORDIA, INC.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1997 1996
-------- --------
<S> <C> <C>
PRIMARY
- -------
Average number of common shares
outstanding 13,000 14,005
Net effect of dilutive stock options
and warrants - based on the
treasury stock method of using
average market price 395 356
------- -------
Total average number of common shares
outstanding 13,395 14,361
======= =======
Net income $ 6,686 $ 7,311
======= =======
Earnings per share $ 0.50 $ 0.51
======= =======
FULLY DILUTED
- -------------
Average number of common shares
outstanding 13,000 14,005
Net effect of dilutive stock options
and warrants - based on the
treasury stock method of using
the period-end price if higher
than average market price 531 524
------- -------
Total average number of common shares
outstanding 13,531 14,529
======= =======
Net income $ 6,686 $ 7,311
======= =======
Earnings per share $ 0.49 $ 0.50
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 13599
<SECURITIES> 47718
<RECEIVABLES> 144040
<ALLOWANCES> 3368
<INVENTORY> 0
<CURRENT-ASSETS> 246153
<PP&E> 84328
<DEPRECIATION> 42819
<TOTAL-ASSETS> 734540
<CURRENT-LIABILITIES> 305662
<BONDS> 0
0
0
<COMMON> 13006
<OTHER-SE> 193219
<TOTAL-LIABILITY-AND-EQUITY> 734540
<SALES> 163138
<TOTAL-REVENUES> 165765
<CGS> 0
<TOTAL-COSTS> 90523
<OTHER-EXPENSES> 59620
<LOSS-PROVISION> 307
<INTEREST-EXPENSE> 3048
<INCOME-PRETAX> 12267
<INCOME-TAX> 5581
<INCOME-CONTINUING> 6686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6686
<EPS-PRIMARY> .50
<EPS-DILUTED> .49
</TABLE>
