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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
June 12, 1997
(Date of Report)
Commission File Number 0-19506
UNITED WISCONSIN SERVICES, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1431799
(State of Incorporation) (I.R.S. Employer
Indentification No.)
401 WEST MICHIGAN STREET, MILWAUKEE, WISCONSIN 53203-2896
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 226-6900
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro forma financial information.
HISTORICAL AND PRO FORMA UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Effective December 3, 1996, United Wisconsin Services, Inc. (UWS) acquired the
88% of American Medical Security Group, Inc. (AMSG) that it did not previously
own. The acquisition was accomplished through the merger of AMSG with and into
UWS pursuant to the terms of an Agreement and Plan of Merger dated July 31, 1996
(the Merger). UWS is the surviving corporation in the Merger. The consolidated
results of operations of UWS include the results of operations of AMSG
subsequent to the date of acquisition. The consolidated balance sheet of UWS as
of December 31, 1996 includes AMSG.
The following historical and pro forma unaudited condensed consolidated
statements of income for UWS and its subsidiaries illustrate the effect of the
Merger on the statement of income for the year ended December 31, 1996, as
though the Merger had occurred on January 1, 1996. Adjustments to arrive at the
pro forma consolidated amounts are based on the purchase method of accounting,
including estimates of the approximate fair values of the assets and liabilities
of AMSG. The pro forma adjustments and the assumptions on which they are based
are described in the accompanying Notes to Historical and Pro forma Unaudited
Condensed Consolidated Financial Statements.
The pro forma unaudited condensed consolidated statements of income are not
necessarily indicative of the consolidated results of operations which would
have been reported had the Merger occurred on the dates indicated or which may
be reported in the future. Furthermore, no effect has been given in the
historical and pro forma unaudited condensed consolidated statements of income
for operating and synergistic benefits that may be realized through the
combination of the entities.
The historical and pro forma unaudited condensed consolidated statements of
income should be read in conjunction with the historical consolidated financial
statements of UWS and AMSG.
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UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES
HISTORICAL AND PRO FORMA UNAUDITED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended
For the year ended For the eleven months December 31, 1996
December 31, 1996 ended November 30, 1996 ------------------
------------------ ----------------------- Pro forma
UWS AMSG Pro forma Note Condensed
Historical Historical Adjustments Ref. Consolidated
------------------ ----------------------- -------------- ---- ------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Premium revenue $1,089,134 $509,352 ($1,880) 2 $1,596,606
Other revenue 30,567 250,843 (219,592) 3 61,818
Investment income 30,614 12,380 (12,881) 4 30,113
Realized investment gains 12,996 0 0 12,996
------------------ ----------------------- -------------- ------------------
Total revenues 1,163,311 772,575 (234,353) 1,701,533
Expenses:
Medical and other benefits 897,582 407,829 (7,418) 5 1,297,993
Commission expenses 72,165 58,698 0 130,863
Administrative expenses 142,932 313,510 (219,323) 6 237,119
Premium taxes and other assessments 14,141 10,166 0 24,307
Interest and profit sharing on
joint ventures 13,606 0 (10,739) 4 2,867
Interest expense on debt 4,325 762 5,235 7 10,322
Amortization of goodwill and
other intangibles 1,511 0 8,387 8 9,898
------------------ ----------------------- -------------- ------------------
Total expenses 1,146,262 790,965 (223,858) 1,713,369
Income (loss) before income tax ------------------ ----------------------- -------------- ------------------
expense (benefit) 17,049 (18,390) (10,495) (11,836)
Income tax expense (benefit) 6,846 (5,400) (3,868) 9 (2,422)
------------------ ----------------------- -------------- ------------------
Net income(loss) $10,203 ($12,990) ($6,627) ($9,414)
------------------ ----------------------- -------------- ------------------
------------------ ----------------------- -------------- ------------------
Earnings(loss) per common share $0.79 10 ($0.58)
------------------ ------------------
------------------ ------------------
</TABLE>
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American Medical Security Group, Inc.
Historical Unaudited Consolidated Statement of Cash Flows
Eleven
months ended
November 30, 1996
-----------------
(In Thousands)
OPERATING ACTIVITIES
Net loss ($12,990)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for depreciation and amortization 11,107
Loss on sale of property and equipment 67
Equity in loss of unconsolidated affiliates 3,376
Deferred income tax benefit (1,611)
Changes in operating accounts:
Unearned premium reserves 4,046
Insurance claim reserves (5,306)
Receivables and other assets 28,121
Other liabilities (26,665)
------------------
Net cash provided by operating activities 145
INVESTING ACTIVITIES
Purchase of other invested assets (399)
Purchase of investment securities (2,015)
Maturity of investment securities 1,816
Investments in subsidiaries (4,351)
Proceeds from sale of property and equipment 12
Purchase of property and equipment (6,429)
------------------
Net cash used in investing activities (11,366)
FINANCING ACTIVITIES
Payments on notes payable (4,165)
Proceeds from issuance of notes payable 11,936
Dividends paid on preferred stock (675)
------------------
Net cash provided by financing activities 7,096
------------------
Net decrease in cash and cash equivalents (4,125)
Cash and cash equivalents at beginning of period 18,929
------------------
Cash and cash equivalents at end of period $14,804
------------------
------------------
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United Wisconsin Services, Inc. and Subsidiaries
Notes to Historical and Pro Forma Unaudited Condensed
Consolidated Financial Statements
1. General
The accompanying historical consolidated statement of income for UWS for
the year ended December 31, 1996 has been derived from UWS' consolidated
financial statements which have been audited by UWS' independent auditors. The
accompanying historical consolidated statement of income and statement of cash
flows for AMSG for the eleven months ended November 30, 1996 have been prepared
in accordance with generally accepted accounting principles. The financial
information included herein for AMSG has been prepared by management without
audit by independent certified public accountants. The unaudited financial
statements include all adjustments and accruals consisting only of normal
recurring accrual adjustments which are, in the opinion of management, necessary
for a fair presentation of the consolidated financial position and results of
operations for the interim periods.
The pro forma unaudited condensed consolidated statements of income reflect
the Merger as though it occurred on January 1, 1996. The Merger has been
accounted for as a purchase transaction. Certain reclassifications have been
made to the AMSG historical consolidated financial statements to conform to UWS'
presentation. No effect has been given in the pro forma unaudited condensed
consolidated statements of income for operating and synergistic benefits that
may be realized through the combination of the entities.
Prior to the Merger, UWS owned 12% of the common stock of AMSG, and through
reinsurance agreements with an insurance subsidiary of AMSG, UWS retained 50% of
the health and life business sold by AMSG on the books of certain insurance
subsidiaries of UWS. Under the terms of the Merger Agreement, UWS purchased the
remaining 88% of AMSG's common stock for cash of $71.8 million, including
expenses, and $98.7 million representing the market value of 3,694,280 newly
issued shares of UWS common stock and options to purchase UWS common stock.
Following the Merger, UWS records 100% of the health and life business sold by
AMSG.
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2. Premium Revenue
Pro forma adjustments to premium revenue consist of the following:
Eleven
months ended
November 30,
1996
------------
(in 000's)
Elimination of intercompany
insurance premiums for AMSG
employees $ (896)
Elimination of intercompany
billing fees (984)
--------
$ (1,880)
--------
--------
3. Other Revenue
Pro forma adjustments to other revenue consist of the following:
Eleven
months ended
November 30,
1996
------------
(in 000's)
Elimination of intercompany
third-party administration (TPA)
and commission revenues recorded
by AMSG's TPA subsidiary
(see Note 6) $(212,107)
Elimination of intercompany
revenue recorded by other
subsidiaries of AMSG (7,485)
--------
$(219,592)
--------
--------
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4. Investment Income
Pro forma adjustments to investment income consist of the following:
Eleven
months ended
November 30,
1996
------------
(in 000's)
Elimination of interest
and profit sharing on
joint ventures $ (10,739)
Elimination of investment
income recorded by subsidiaries
of UWS and AMSG as partners
in a real estate partnership (554)
Elimination of dividend income
recorded by a subsidiary of
UWS on AMSG preferred stock (656)
Elimination of investment income
(computed based on historical
rates of return) on investment
of cash used to repay AMSG's bank
debt and to finance certain
expenses of the Merger (932)
--------
$ (12,881)
--------
--------
Prior to the Merger, UWS held funds on behalf of AMSG, and credited
investment income and realized gains or losses to AMSG on the funds held balance
at UWS' average portfolio rate. The pro forma adjustments eliminate the
investment income recorded by AMSG and the related expense recorded by UWS as
interest and profit sharing on joint ventures.
5. Medical and Other Benefits
Pro forma adjustments to medical and other benefits consist of the
following:
Eleven
months ended
November 30,
1996
------------
(in 000's)
Elimination of intercompany
claims expenses related to
insurance for AMSG employees $ (277)
Elimination of intercompany
claims expenses recorded
by UWS for managed care
services provided by AMSG (7,141)
--------
$ (7,418)
--------
--------
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6. Administrative Expenses
Pro forma adjustments to administrative expenses consist of the following:
Eleven
months ended
November 30,
1996
------------
(in 000's)
Elimination of intercompany
administrative expenses
recorded by AMSG's TPA
subsidiary (see Note 3) $(212,107)
Amortization of adjustments
to tangible assets and
liabilities resulting from
the Merger (3,242)
Other adjustments, net (3,974)
--------
$(219,323)
--------
--------
7. Interest Expense on Debt
Pro forma adjustments to interest expense on debt consist of the following:
Eleven
months ended
November 30,
1996
------------
(in 000's)
Interest expense on debt to
finance the Merger $ 4,524
Elimination of interest expense
on repaid AMSG bank debt (762)
Recording of interest expense
on mortgage payable related
to a real estate partnership
owned by subsidiaries of
UWS and AMSG 1,473
--------
$ 5,235
--------
--------
The interest rate on the debt incurred to finance the Merger is equal to
the London Interbank Offered Rate plus 1.25%, adjusted quarterly, which is 7.05%
based upon current rates. Each 0.25% increase in the floating rate would
decrease annual pro forma consolidated net income by $114,000 or $0.01 per
common share.
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8. Amortization of Goodwill and Other Intangibles
Pro forma adjustments to amortization of goodwill and other intangibles
consist of the following:
Eleven
months ended
November 30,
1996
------------
(in 000's)
Amortization of goodwill
and other intangibles
resulting from the Merger $ 8,387
--------
--------
Goodwill and other intangibles resulting from the Merger
are amortized on a straight-line basis over lives ranging
from 3 to 40 years.
9. Income Tax Expense (Benefit)
Pro forma adjustments to income tax expense (benefit)
consist of the following:
Eleven
months ended
November 30,
1996
------------
(in 000's)
Tax benefit related to pro forma
adjustments, net $ (3,868)
--------
--------
10. Earnings (Loss) per Common Share
Pro forma earnings (loss) per common share is based upon the weighted
average number of common shares outstanding during the respective periods,
including the 3,694,280 common shares issued in connection with the Merger.
Since the pro forma condensed consolidated financial statements reflect a net
loss for the year ended December 31, 1996, common stock equivalents are not
considered in the pro forma calculation of earnings (loss) per share since they
would be anti-dilutive.
The weighted average number of common shares used in the computation of pro
forma earnings (loss) per common share is as follows:
Weighted average shares prior to merger 12,599,715
Shares issued in connection with the merger 3,694,280
----------
16,293,995
----------
----------
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Net income (loss) included in the computation of pro forma earnings (loss)
per common share is summarized as follows:
(in 000's)
Historical net income of UWS for the year
ended December 31, 1996 $ 10,203
Historical net loss of AMSG for the eleven
months ended November 30, 1996 (12,990)
Pro forma adjustments:
Amortization of goodwill and other
intangibles (Note 8) (8,387)
Amortization of adjustments to tangible
assets and liabilities resulting from
the Merger (Note 6) 3,242
Interest expense on new debt (Note 7) (4,524)
Elimination of dividend income recorded by
UWLIC on AMS preferred stock (Note 4) (656)
Elimination of investment income on investment
of cash used to repay AMSG's bank debt and
to finance certain expenses of the Merger
(Note 4) (932)
Elimination of interest expense on repaid
AMSG bank debt (Note 7) 762
Tax benefit related to proforma adjustments,
net (Note 9) 3,868
--------
Pro forma consolidated net loss $ (9,414)
--------
--------
Pro forma net loss per
common share $ (0.58)
--------
--------
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SIGNATURE
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.
DATE: 6/12/97
-----------------------------------
UNITED WISCONSIN SERVICES, INC.
/s/ C. Edward Mordy
------------------------------------------
Vice President and Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
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