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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
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
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
--- ---
Number of shares of Common Stock outstanding as of April 30, 1997 was
16,409,999.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED WISCONSIN SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
ASSETS 1997 1996
------ -------- --------
(In thousands)
Investments:
Bonds available for sale, at market $372,984 $394,615
Bonds held to maturity, at amortized cost 12,949 12,823
-------- --------
Total bonds 385,933 407,438
Stocks, at market 67,500 59,685
-------- --------
Total investments 453,433 467,123
Cash and cash equivalents 39,279 51,146
Receivables:
Due from affiliates 2,243 2,641
Other receivables 79,515 74,167
-------- --------
Total receivables 81,758 76,808
Property and equipment - net 50,182 53,103
Goodwill and other intangibles 150,358 155,458
Other assets 32,335 32,482
-------- --------
Total assets $807,345 $836,120
-------- --------
-------- --------
See Notes to Interim Consolidated Financial Statements
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UNITED WISCONSIN SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------------------------------ -------- --------
(In thousands)
Liabilities:
Medical and other benefits payable $226,577 $240,338
Advance premiums 52,759 51,514
Due to affiliates 77,435 74,005
Other liabilities 86,844 100,820
Debt 55,488 55,788
-------- --------
Total liabilities 499,103 522,465
Shareholders' equity:
Common stock (no par value, $1 stated value,
50,000,000 shares authorized, 16,409,999 and
16,293,995 shares issued and outstanding at
March 31, 1997 and December 31, 1996, respectively) 16,410 16,294
Paid-in capital 183,667 184,019
Retained earnings 108,474 107,073
Unrealized gains (losses) on investments (309) 6,269
-------- --------
Total shareholders' equity 308,242 313,655
-------- --------
Total liabilities and shareholders' equity $807,345 $836,120
-------- --------
-------- --------
See Notes to Interim Consolidated Financial Statements
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UNITED WISCONSIN SERVICES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
March 31,
-------------------
1997 1996
-------- --------
(In thousands, except per share data)
Revenues:
Health services revenues:
Premium revenue $388,608 $261,649
Other revenue 15,843 7,266
Investment results 9,845 12,489
-------- --------
Total revenues 414,296 281,404
Expenses:
Medical and other benefits 310,170 221,439
Operating expenses 92,593 53,678
Profit sharing on joint ventures 845 4,420
Interest expense 2,217 870
Amortization of goodwill and other intangibles 2,441 158
-------- --------
Total expenses 408,266 280,565
-------- --------
Income before income tax expense 6,030 839
Income tax expense 2,660 547
-------- --------
Net income $ 3,370 $ 292
-------- --------
-------- --------
Earnings per common share $ 0.21 $ 0.02
-------- --------
-------- --------
See Notes to Interim Consolidated Financial Statements
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UNITED WISCONSIN SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1997 1996
--------- ---------
(In thousands)
<S> <C> <C>
Operating activities:
Net income $ 3,370 $ 292
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,764 299
Realized investment gains (2,409) (5,115)
Deferred income tax (benefit) expense (1,032) 1,948
Changes in other operating accounts:
Medical and other benefits payable (13,761) 768
Advance premiums 1,245 4,737
Due to/from affiliates 3,828 17,303
Other receivables (5,348) (5,444)
Funds held on behalf of affiliated reinsurers - (5,905)
Other - net (4,572) (3,206)
--------- ---------
Net cash provided by (used in) operating activities (12,915) 5,677
Investing activities:
Purchases of available for sale investments (145,873) (167,525)
Proceeds from sale of available for sale investments 149,443 157,996
Proceeds from maturity of available for sale investments 2,035 25,450
Purchases of held to maturity investments (1,139) (114)
Proceeds from maturity of held to maturity investments 1,005 140
Proceeds from sale of property and equipment 771 -
Additions to property and equipment (672) (418)
Change in investment in unconsolidated affiliates (817) (116)
Change in other investments - (237)
--------- ---------
Net cash provided by investing activities 4,753 15,176
Financing activities:
Cash dividends paid (1,969) (1,512)
Common stock issued for options exercised 709 -
Common stock withheld for taxes on options exercised (945) -
Repayment of debt (300) (10)
Net borrowings under line of credit agreement (1,200) 2,570
Repayment of note with affiliate - (25,000)
--------- ---------
Net cash used in financing activities (3,705) (23,952)
--------- ---------
Cash and cash equivalents:
Decrease during period (11,867) (3,099)
Balance at beginning of year 51,146 38,290
--------- ---------
Balance at end of period $ 39,279 $ 35,191
--------- ---------
--------- ---------
</TABLE>
See Notes to Interim Consolidated Financial Statements
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UNITED WISCONSIN SERVICES, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The accompanying consolidated financial statements
for United Wisconsin Services, Inc. (the Company) have been prepared in
accordance with generally accepted accounting principles. The financial
information included herein 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
results of operations for any interim period are not necessarily indicative
of results for the full year. The unaudited interim consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 1996,
incorporated by reference or included in the Company's Form 10-K, as filed
with the Securities and Exchange Commission.
EARNINGS PER COMMON SHARE - Earnings per common share are computed by
dividing net income by the weighted average number of common shares
outstanding. Weighted average common shares outstanding were 16,337,616 and
12,599,715 for the three months ended March 31, 1997 and 1996, respectively.
RECLASSIFICATIONS - Certain reclassifications have been made to the
consolidated financial statements for 1996 to conform with the 1997
presentation.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
United Wisconsin Services, Inc. (the Company) is a leading provider of
managed health care services and employee benefit products. The Company's
three primary product lines are (i) Health Maintenance Organization (HMO)
products, including Compcare Health Services Insurance Corporation
(Compcare), Valley Health Plan, Inc. (Valley), Unity Health Plans Insurance
Corporation (Unity) and certain point-of-service (POS) and other related
products managed by Compcare and Valley; (ii) small group managed care and
life products sold through American Medical Security Holdings, Inc. (AMS),
which holds the companies held by the Company's former joint venture partner,
American Medical Security Group, Inc., and (iii) specialty managed care
products and services, including dental, life, disability and workers'
compensation products, managed care consulting, electronic claim submission,
pharmaceutical management and managed behavioral health services. These three
product groups represented the following percentages of the Company's health
services revenue for the periods noted.
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
---- ----
(AS A PERCENTAGE OF THE TOTAL)
HEALTH SERVICES REVENUE:
HMO products 28.6% 38.9%
AMS products 64.8 50.8
Specialty managed care products and services 7.5 11.1
Intercompany eliminations (0.9) (0.8)
----- -----
Total 100.0% 100.0%
----- -----
----- -----
Reclassifications have been made to the product line amounts shown above
for 1996 to conform with the 1997 presentation. The life products sold by
AMS are now included in the AMS products category; previously, they were
included with specialty products and services. This reclassification was
made in conjunction with the AMS merger (AMS Merger), as discussed further
below.
The Company's revenues are derived primarily from premiums, while
medical benefits constitute the majority of expenses. Profitability is
directly affected by many factors including, among others, premium rate
adequacy, estimates of medical benefits, health care utilization, effective
administration of benefit payments, operating efficiency, investment returns
and federal and state laws and regulations.
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RESULTS OF OPERATIONS
TOTAL REVENUES
Total revenues for the three months ended March 31, 1997 increased to
$414.3 million from $281.4 million for the three months ended March 31, 1996.
These increases were due primarily to increased health services revenue which
includes premium and other revenue.
HEALTH SERVICES REVENUE -- HMO health services revenue for the three
months ended March 31, 1997 increased 10.6% to $115.7 million from $104.6
million for the three months ended March 31, 1996. Average HMO medical
premium per member for the three months ended March 31, 1997 increased 3.6%
from the same period in the prior year. The average number of HMO medical
members for the three months ended March 31, 1997 increased 6.9% to 277,066
from 259,099 for the three months ended March 31, 1996.
Health services revenue on AMS products for the three months ended March
31, 1997 increased 91.9% to $262.2 million from $136.6 million for the three
months ended March 31, 1996. The increase in AMS health services revenue was
due primarily to the acquisition of the 88% of AMS that the Company did not
already own. Prior to the merger of the Company and AMS effective December
3, 1996, the Company retained 50% of the premium revenue and 50% of the
profit (loss) on small group managed care and life business sold by AMS.
Following the AMS Merger, the Company retained 100% of the health services
revenue and 100% of the profit (loss) on small group managed care and life
business sold by AMS. The additional health services revenue due to the AMS
Merger for the three months ended March 31, 1997 accounted for $136.8 million
of the increase in health services revenue for the three months ended March
31, 1997. Excluding the effects of the AMS Merger, AMS health services
revenue for the three months ended March 31, 1997 decreased 8.2% to $125.4
million from $136.6 million for the three months ended March 31, 1996.
Average medical premium per member increased 13.9% for the three months ended
March 31, 1997, compared with the same period in the prior year. The average
number of small group medical members outstanding decreased 19.0% for the
three months ended March 31, 1997 to 782,122 from 965,343 for the three
months ended March 31, 1996. Major sales initiatives are underway at AMS in
an effort to reverse this membership decline. As part of that effort, AMS
recently announced a strategic alliance with a marketer of medical insurance
to the small group market. Old Northwest Agents, Inc. (ONA) of Minneapolis
will be the exclusive marketer of AMS products in North Carolina, South
Carolina, Mississippi, Arkansas, and Louisiana. AMS and ONA are also
contemplating an expansion into new geographic areas where AMS does not
currently have a presence. See "Expense Ratios - Loss Ratio" for a further
discussion of pricing actions on small group products.
Health services revenue from specialty managed care products and
services for the three months ended March 31, 1997 increased 2.2% to $30.5
million from $29.8 million for the three months ended March 31, 1996. The
increase for the three months ended March 31, 1997 was due primarily to an
increase of $0.8 million in dental premiums, an increase of $0.7 million in
managed behavioral health revenues, an increase of $0.4 million in disability
premiums, all of which were driven by membership increases, and a net
increase of $1.1 million for all other product lines. These increases
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were partially offset by a decrease of $2.3 million in premium assumed under
certain federal and state reinsurance programs.
INVESTMENT RESULTS -- Investment results include investment income and
realized gains (losses) on investments. Investment results for the three
months ended March 31, 1997 decreased 21.2% to $9.8 million from $12.5
million for the three months ended March 31, 1996. Average invested assets
for the three months ended March 31, 1997 decreased 5.8% to $505.1 million
from $536.2 million for the three months ended March 31, 1996, due in part to
a decrease of $7.6 million in unrealized gains (losses) on investments
included in these average invested asset balances. The remainder of the
decrease was due to the realization of fewer investment gains in the first
quarter of 1997, compared with the same period in the prior year. Investment
gains are realized in the normal investment process in response to market
opportunities. Average annual investment yields, excluding net realized
gains, were 5.9% and 5.6% for the three months ended March 31, 1997 and 1996,
respectively.
EXPENSE RATIOS
LOSS RATIO -- The combined medical loss ratio for HMO and AMS products
was 82.0% for the first quarter of 1997 compared with 86.6% for the first
quarter of 1996. In 1997, both the HMO and AMS component medical loss ratios
decreased, as discussed below.
The medical loss ratio for HMO products for the three months ended March
31, 1997 was 88.2%, compared with 90.3% for the same period in 1996. A more
favorable pricing environment in 1997 and improved results from medical
management efforts produced lower loss ratios in the HMO products division.
The medical loss ratio for AMS products for the three months ended March
31, 1997 was 79.0%, compared with 83.7% for the same period in 1996. While
the first quarter normally includes seasonally higher utilization resulting
in a higher than average medical loss ratio, the first quarter medical loss
ratio in 1997 reflects improvements in medical cost trends and pricing
changes achieved by AMS since the first quarter of 1996, which helped to
offset the expected seasonality. AMS continues to re-price its products and
eliminate unprofitable business. Since the second quarter of 1995, the rate
of change in health care costs for insured medical products sold by AMS has
steadily decreased from approximately 14% to approximately 6% currently.
This stability in the rate of inflation has allowed the Company to better
estimate health care costs in the pricing of its products.
OPERATING EXPENSE RATIO - The operating expense ratio includes
commissions, administrative expenses, and premium taxes and other
assessments. The operating expense ratio for HMO products increased slightly
to 9.7% for the first quarter of 1997, compared with 9.5% for the first
quarter of 1996. The operating expense ratio for AMS medical products
decreased to 22.6% for the three months ended March 31, 1997 from 23.8% for
the three months ended March 31, 1996, due primarily to a decrease in
commissions as a percentage of premium revenue. The operating expense ratio
for AMS life products showed a similar decline to 29.7% for the first quarter
of 1997, compared with 31.9% for the same period in the prior year. AMS
products are sold exclusively through independent agents who are
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compensated through commissions. Over time, renewal business has gradually
represented a larger proportion of the total AMS medical business. Since
renewal commissions are typically lower than commissions on new sales, this
has contributed to the decrease in the ratio. AMS also continues to focus on
efforts to improve operating efficiency through process re-engineering.
These steps have reduced AMS' workforce by over 30% in the past year.
Operating expenses related to specialty managed care products and services
increased 22.6% for the three months ended March 31, 1997 to $14.4 million
from $11.7 million for the same period in the prior year. Increases in
operating expenses are tied to health services revenue which increased 10.7%
over the same time period, excluding the impact of the decrease in assumed
premiums related to certain federal and state reinsurance programs. Of the
remaining increase in operating expenses that is not due to growth in health
services revenue, the majority is due to higher expenses related to the
Company's managed behavioral health business.
OTHER EXPENSES
Profit sharing on joint ventures was $0.8 million for the three months
ended March 31, 1997 compared with $4.4 million for the three months ended
March 31, 1996. Of these balances, $0.8 million for both the three months
ended March 31, 1997 and 1996 represented profit sharing expenses related to
the Unity and Valley acquisitions. The remaining $3.6 million for the three
months ended March 31, 1996 was due to investment income and realized
investment gains on funds held by the Company on behalf of an insurance
subsidiary of AMS. Following the AMS Merger, the reinsurance agreement,
which gave rise to this funds held balance, was terminated effective December
31, 1996
Interest expense increased to $2.2 million for the three months ended
March 31, 1997 compared with $0.9 million for the same period in the prior
year. The increase is due primarily to interest expense on the $70.0 million
of borrowings from Blue Cross & Blue Shield United of Wisconsin (BCBSUW) to
fund the cash portion of the consideration for the AMS Merger. In
conjunction with the AMS Merger, the Company also recorded $150.0 million of
goodwill and other intangibles and $22.2 million of related deferred taxes.
Amortization of goodwill and other intangibles for the first quarter of 1997
totaled $2.4 million, including $1.9 million related to the AMS Merger plus
$0.5 million related to other acquisitions, compared with $0.2 million of
amortization expense for the three months ended March 31, 1996.
NET INCOME
Consolidated net income for the three months ended March 31, 1997
increased to $3.4 million or $0.21 per share from $0.3 million or $0.02 per
share for the three months ended March 31, 1996, due primarily to the
improvement in the medical loss ratios for HMO products and AMS medical
products. The results for the first quarter of 1997 also reflect 100% of the
profit on the small group managed care and life business sold by AMS,
compared with 50% in the first quarter of 1996. The Company's effective tax
rate was 44.1% for the three months ended March 31, 1997, compared with 65.2%
for the three months ended March 31, 1996. Excluding the impact of
non-deductible goodwill related to the AMS Merger, the Company's effective
tax rate for the first quarter of 1997 was 39.6%. Deferred tax benefits have
been recognized for identified intangibles related to the AMS Merger.
Non-deductible expenses had a more pronounced effect on the effective tax
rate in the first quarter of 1996 due to the lower level
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of earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of cash flow consist primarily of health services
revenue and investment income. The primary uses of cash include medical and
other benefits and operating expense payments. Positive cash flows are
invested pending future payments of medical and other benefits and other
operating expenses. The Company's investment policies are designed to
maximize yield, preserve principal and provide liquidity to meet anticipated
payment obligations.
Historically, the Company has generated positive cash flow from
operations. For the three months ended March 31, 1997, however, net cash
provided by or used in operating activities amounted to a use of $12.9
million, compared with $5.7 million provided for the three months ended March
31, 1996. The decrease in cash flow is due in part to an increase in paid
claims due to the accelerated timing of claim payments in the first quarter
of 1997 compared with the same period in 1996 and the decrease in medical and
other benefits payable resulting from the membership decline for AMS products
over the past year. Due to periodic cash flow requirements of certain
subsidiaries, the Company made borrowings under its bank line of credit
ranging up to $7.0 million during the first three months of 1997 to meet
short-term cash needs, and no balance was outstanding at March 31, 1997.
The Company's investment portfolio consists primarily of investment
grade bonds and has a limited exposure to equity securities. At March 31,
1997, $385.9 million or 85.1% of the Company's total investment portfolio
was invested in bonds. At December 31, 1996, $407.4 million or 87.2% of the
Company's total investment portfolio was invested in bonds. The bond
portfolio had an average quality rating of Aa3 at December 31, 1996 and a
rating of A1 at March 31, 1997 by Moody's Investor Service, and the majority
of the bond portfolio was classified as available for sale. In accordance
with SFAS No. 115, bonds classified as available for sale are recorded on the
Company's balance sheet at market value. The market value of the total
investment portfolio, which includes stocks and bonds, exceeded amortized
cost by $10.1 million at December 31, 1996 and was less than amortized cost
by $0.3 million at March 31, 1997. Unrealized holding gains and losses on
bonds classified as available for sale are included as a component of
shareholders' equity, net of applicable deferred taxes. The Company has no
investments in mortgage loans, non-publicly traded securities (except for
principal only strips of U. S. Government securities), real estate held for
investment or financial derivatives.
Prior to the AMS Merger the Company owned 12% of the common stock of
AMS, which was recorded at cost of $1.4 million. Effective December 3, 1996,
the Company acquired the remaining 88% interest in AMS that it did not
already own. The acquisition was accomplished through the merger of AMS with
and into the Company pursuant to the terms of an Agreement and Plan of Merger
dated July 31, 1996, by and between AMS, BCBSUW, the Company and the two
principal AMS shareholders (individually and as trustees under a voting trust
for the other AMS shareholders). UWS was the surviving corporation in the
merger. The aggregate consideration for the merger was cash of $71.8
million, including expenses, and $98.7 million representing the market value
of 3,694,280 newly issued shares of Company common stock and options to
purchase Company common stock. Most of the cash
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came from $70.0 million borrowed from BCBSUW, which, after the merger, owns
approximately 38% of the Company's common stock.
In December 1995, United Wisconsin Insurance Company (UWIC) borrowed
$65.0 million from BCBSUW under a Surplus Note Agreement, which was
guaranteed by the Company. The Surplus Note provided UWIC with regulatory
capital needed to replace capital paid to the Company in the form of a
dividend in December 1995. The dividend and Surplus Note were part of a
capital restructuring plan designed to transfer capital from UWIC to United
Wisconsin Life Insurance Company (UWLIC) to support UWLIC's retention of the
AMS medical business beginning in 1996. The Company repaid $25.0 million in
the first quarter of 1996, and the remainder was repaid in the second and
third quarters of 1996.
The Company's anticipated expansion of its business requires capital
levels sufficient to support premium growth. The Company's compound annual
growth rate in premium revenue for the five years ended December 31, 1996 was
28.8%, due principally to the growth of AMS products. While the future rate
of growth is uncertain, growth in premium revenue is expected to continue.
From time to time, the Company makes capital contributions to its
subsidiaries to assist them in maintaining appropriate levels of capital and
surplus for regulatory and rating purposes. Insurance subsidiaries are
required to maintain certain levels of statutory capital and surplus. In
Wisconsin, where a large percentage of the Company's premium is written,
these levels are based upon the amount and type of premiums written and are
calculated separately for each subsidiary. As of March 31, 1997, statutory
capital and surplus for each of these insurance subsidiaries exceeded
required levels.
In compliance with applicable state insurance regulations, certain
insurance subsidiaries have deposited securities with various states
aggregating $6.0 million at March 31, 1997. In addition, HMOs are required
to maintain a deposit with the State of Wisconsin for future assessments for
HMO insolvencies. As of March 31, 1997, the combined deposit for the
Company's consolidated HMOs was $4.7 million. States in which the insurance
subsidiaries are licensed to do business independently establish deposit
requirements. Increases in deposit levels, resulting in the segregation of
certain investments, may adversely affect the Company's liquidity.
The National Association of Insurance Commissioners (NAIC) has adopted
risk-based capital guidelines for both life and health insurers and for
property and casualty insurers. These guidelines currently apply only to
certain of the Company's subsidiaries. Those subsidiaries exceed the company
action level for NAIC risk-based capital guidelines. The NAIC is also
developing risk-based capital guidelines for health organizations, which
would apply to other of the Company's subsidiaries. In addition, the OCI and
other state regulators have the authority to establish capital and surplus
requirements for individual companies and may propose stricter capital and
surplus requirements.
The Company believes that internally generated funds and periodic
borrowings on its bank line of credit will be sufficient to finance planned
growth for the foreseeable future. In the event the Company seeks additional
financing to facilitate long-term growth, the Company believes that such
financing could be obtained through equity offerings, debt offerings,
financings from BCBSUW or other
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bank borrowings, as market conditions may permit or dictate.
FORWARD LOOKING STATEMENTS
This report contains certain forward looking statements with respect to
the financial condition, results of operations and business of the Company.
Such forward looking statements are subject to inherent risks and
uncertainties that may cause actual results to differ materially from those
contemplated by such forward looking statements. Factors that may cause
actual results to differ materially from those contemplated by such forward
looking statements include, among others, rising health care costs, business
conditions and competition in the managed care industry, developments in
health care reform and other regulatory issues.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February 1994, Compcare and BCBSUW filed a lawsuit in U.S. District
Court, Western District of Wisconsin against The Marshfield Clinic
(the "Clinic") and Security Health Plan of Wisconsin, Inc., a
Wisconsin HMO sponsored by the Clinic ("Security"), asserting that the
defendants committed violations of antitrust law through
monopolization of physician services and HMO services in northern and
north central Wisconsin. BCBSUW and Compcare sought: (i) treble
damages to compensate for excessive payments to the Clinic and lost
revenues due to the defendants' anti-competitive actions, as well as
(ii) certain injunctive relief intended to remedy and prevent the
defendants from maintaining their anti-competitive behavior. On
January 4, 1995, a jury found in favor of BCBSUW and Compcare and
awarded damages to BCBSUW and Compcare in the amount of approximately
$48.5 million (after trebling), of which approximately $17.0 million
was allocable to Compcare. On March 22, 1995, the U.S. District
Court, Western District of Wisconsin affirmed the jury's verdict but
reduced the damage award to approximately $16.8 million (after
trebling) of which approximately $15.2 million was allocable to
Compcare. The Court also awarded injunctive relief enjoining the
Clinic from various anti-competitive acts and requiring that the
Clinic contract with Compcare for HMO services on a non-discriminatory
basis. The Clinic and Security filed for appeal with the Seventh
Circuit Court of Appeals.
In May 1995, the Seventh Circuit stayed the injunctive order pending
the Court's ruling on the case. On September 18, 1995, the Seventh
Circuit affirmed the District Court's decision on the per se violation
of dividing the market and ordered another trial to determine the
damages resulting from the violation. The Seventh Circuit reversed
the District Court on the other counts.
On October 2, 1995, BCBSUW and Compcare filed a petition for a
rehearing with the Seventh Circuit. The U.S. Justice Department and
the Federal Trade Commission filed an amici brief in support of BCBSUW
and Compcare.
The Seventh Circuit denied the rehearing Petition but on October 13,
1995, issued amendments to its original decision. On October 18,
1995, BCBSUW and Compcare filed a motion to stay the retrial pending
their Petition for a Writ of Certiorari to the U.S. Supreme Court
which the Seventh Circuit granted. In January 1996, BCBSUW filed a
petition for a Writ of Certiorari ("Petition") with the U.S. Supreme
Court on the reversed counts.
The U.S. Supreme Court denied the Petition in March 1996. The case
was remanded to the District Court for retrial on the issue of damages
for those violations affirmed by the Seventh Circuit and for the entry
of injunctive relief and awarding of attorneys fees. The District
Court found BCBSUW and Compcare's Expert Reports inadmissible and then
dismissed the suit on April 8, 1997. On April 22, 1997, BCBSUW and
Compcare filed a Motion to Amend, requesting that trial be set or, in
the alternative, that nominal damages be granted. If this Motion is
denied, BCBSUW and Compcare may appeal to the Seventh Circuit.
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On April 20, 1995, April 27, 1995 and May 10, 1995, suits against the
Company and certain of its officers were filed in United States
District Court for the Eastern District of Wisconsin on behalf of
purchasers of the Company's common stock between February 7, 1995 and
April 18, 1995. The suits allege that the Company violated federal
securities laws by issuing false and misleading statements regarding
the Company, its financial condition and operations and seek damages
yet to be defined. The suits were subsequently consolidated into one
action. The Company and the individual defendants filed a motion to
dismiss the action in December 1995, which was granted in its entirety
on April 8, 1997. Plaintiffs did not appeal the dismissal.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Service Agreement between BCBSUW and Registrant,
effective January 1, 1997.
10.2 Registrant's Deferred Compensation Plan for Directors.
11 Statement regarding computation of per share earnings.
(See Note 1 of Notes to Interim Consolidated Financial
Statements).
27 Financial Data Schedule
(b) No reports of the Registrant on Form 8-K have been filed
with the SEC during the three months ended March 31, 1997.
15
<PAGE>
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: 5/14/97
-----------------------------
UNITED WISCONSIN SERVICES, INC.
/s/ C. Edward Mordy
------------------------------------------
Vice President and Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
16
<PAGE>
UNITED WISCONSIN SERVICES, INC.
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Document Description Number
- ------ -------------------- ------
10.1 Service Agreement between BCBSUW and Registrant,
effective January 1, 1997. 18
10.2 Registrant's Deferred Compensation Plan for
Directors. 32
11 Statement regarding computation of per share
earnings. (See Note 1 of Notes to Interim
Consolidated Financial Statements).
17
<PAGE>
UNITED WISCONSIN SERVICES, INC.
BOARD OF DIRECTORS MEETING
FEBRUARY 26, 1997
INTERCOMPANY SERVICES AGREEMENT RESOLUTION
WHEREAS, Blue Cross & Blue Shield United of Wisconsin ("BCBSUW") provides
various services to United Wisconsin Services, Inc., and its subsidiaries
(the "Corporation"); and
WHEREAS, the Corporation provides various services to BCBSUW; and
WHEREAS, charges for such services are allocated between BCBSUW and the
Corporation at approximate cost; and
WHEREAS, BCBSUW and the Corporation have documented these cost
allocations and the associated intercompany charges for calendar year 1997 in
the attached Service Agreement; and
WHEREAS, the members of the Board have reviewed the attached Service
Agreement and consider it fair and equitable to both parties;
NOW, THEREFORE, BE IT RESOLVED AS FOLLOWS:
RESOLVED, that the appropriate officers of the Corporation hereby are
authorized and directed to enter into the attached Service Agreement.
FURTHER RESOLVED, that the appropriate officers of the Corporation hereby
are authorized to enter into separate service agreements that implement the
terms and conditions of the attached Service Agreement between any of the
Corporation's subsidiaries or between BCBSUW and any of the Corporation's
subsidiaries.
<PAGE>
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
BOARD OF DIRECTORS MEETING
FEBRUARY 26, 1997
INTERCOMPANY SERVICES AGREEMENT RESOLUTION
WHEREAS, Blue Cross & Blue Shield United of Wisconsin (the "Corporation")
provides various services to United Wisconsin Services, Inc., and its
subsidiaries ("UWS"); and
WHEREAS, UWS provides various services to the Corporation; and
WHEREAS, charges for such services are allocated between the Corporation
and UWS at approximate cost; and
WHEREAS, the Corporation and UWS have documented these cost allocations
and the associated intercompany charges for calendar year 1997 in the
attached Service Agreement; and
WHEREAS, the members of the Board have reviewed the attached Service
Agreement and consider it fair and equitable to both parties;
NOW, THEREFORE, BE IT RESOLVED AS FOLLOWS:
RESOLVED, that the appropriate officers of the Corporation hereby are
authorized and directed to enter into the attached Service Agreement.
FURTHER RESOLVED, that the appropriate officers of the Corporation hereby
are authorized to enter into separate service agreements that implement the
terms and conditions of the attached Service Agreement between any of the
Corporation's subsidiaries or between BCBSUW and any of the Corporation's
subsidiaries.
<PAGE>
SERVICE AGREEMENT
BETWEEN
BLUE CROSS & BLUE SHIELD UNITED OF WISCONSIN
AND
UNITED WISCONSIN SERVICES, INCORPORATED
This Agreement is effective the 1st day of January, 1997 by and between Blue
Cross and Blue Shield United of Wisconsin, a Wisconsin Corporation,
hereinafter referred to as BCBSUW, and United Wisconsin Services,
Incorporated, hereinafter referred to as UWS.
WITNESSETH
In consideration of the mutual covenants and agreements hereinafter set
forth, the parties do hereby and for their successors and assigns agree as
follows:
ARTICLE I: This Service Agreement shall be effective January 1, 1997,
replaces and supersedes all other service agreements, supplements, amendments
and modifications entered into between the parties.
ARTICLE II: In consideration of the payment of charges specified by the
Agreement and its amendment, BCBSUW will provide the service specified in
Article III in connection with UWS' operation and vice versa.
A. BCBSUW will provide the services shown on Exhibit 1 and incorporated
herein by reference to UWS for an estimated fee, the fee being established by
amendment to this Agreement annually. Actual amount to be charged will be
based on various allocations methodologies as specified on Exhibit 1.
B. UWS will provide the services shown on Exhibit 2 and incorporated herein
by reference to Blue Cross for an estimated fee, the fee being established by
amendment to this Agreement annually. Actual amount to be charged will be
based on various allocation methodologies as specified on Exhibit 2.
C. BCBSUW will reimburse UWS on an actual cost basis, as billed for costs
incurred on BCBSUW's behalf, as shown on Exhibit 3.
D. UWS will reimburse BCBSUW on an actual cost basis, as billed, for costs
incurred on UWS' behalf, as specified on Exhibit 4.
ARTICLE IV: The services stated in Article III-A and III-B shall be reported
to UWS via a quarterly report. The amount due BCBSUW and/or UWS will be
approximated each month based on the prior month's actual expense. This
amount shall be adjusted to actual at least annually. The 1997 annual budget
is shown on Exhibit 5.
<PAGE>
ARTICLE V: BCBSUW and UWS mutually agree that this Service Agreement is not
an exclusive one.
ARTICLE VI: This Agreement shall be in effect for one (1) year commencing
January 1, 1997 and ending December 31, 1997, unless terminated in accordance
with the provisions of Article VII. This Agreement shall be automatically
renewed for a period of one (1) year on each succeeding January 1, subject to
negotiation of the rates and allocations shown on the exhibits.
ARTICLE VII: This Agreement or any portion of it may be terminated or
amended by either party upon receipt of a 90-day written notice to the other
party.
ARTICLE VIII, FORCE MAJEURE: Neither of the parties to this Agreement shall
be considered in default in performance of its obligations hereunder if
performance of such obligations is prevented or delayed by an Act of God, or
other circumstances beyond the control of the non-performing party. Time of
performance of either party shall be extended by the time period reasonably
necessary to overcome the effects of such force majeure occurrences.
ARTICLE IX, INTERPRETATION: This Agreement shall be construed in accordance
with the laws of the State of Wisconsin.
ARTICLE X, INTEGRATION: This Agreement, including only modifications or
amendments agreed to in writing and incorporated herein by reference,
expresses the entire understanding and agreement of the parties with
reference to the subject matter hereof, and is a complete and exclusive
statement of the terms of this Agreement, and no representations or
agreements modifying or supplementing the terms of this Agreement be valid
unless in writing, and signed by persons authorized to sign agreements on
behalf of both parties.
Executed at Milwaukee, Wisconsin, this ___ day of _________, 1997
BLUE CROSS & BLUE SHIELD
UNITED OF WISCONSIN
By:
------------------------------------
Authorized Signature
Executed at Milwaukee, Wisconsin, this ___ day of _________, 1997
UNITED WISCONSIN SERVICES, INC.
By:
------------------------------------
Authorized Signature
<PAGE>
Blue Cross & Blue Shield United of Wisconsin
UWS Service Agreement
Article III, Section A, Exhibit 1
1997
Listed below are the various allocation methodologies by operational
unit/specific cost center that will be utilized in 1997.
Subordinate Cost:
- - BCBSUW Regional Vice Presidents
- - Director BCBSUW Administration
- - Regional Operations Administration
- - AVP BCBSUW Finance/Underwriting
- - Director of SE/CHS Operations
- - Director SE FDEE/Nat'l/Govt Operations
- - Director BCBSUW Underwriting
- - S/E Benefits/Provider Administration
Staff Counts:
- - BCBSUW Mail Room
- - Credit Union
- - Office Services
- - Building Services
Time Sheets:
- - BCBSUW Finance (CC #377)
- - Benefit File Coding
- - BCBSUW Regional Provider Services
- - Documentation and Training
- - Contract & Booklet
- - CIS Core Systems
- - Quality Assurance
- - System Development
- - Information Support Services
Fixed Percentages:
- - BCBSUW President
- - BCBSUW Finance (CC #312, #313)
- - BCBSUW Administration (CC #325)
- - BCBSUW Underwriting (CC #338)
Claim Counts:
- - Micrographics
- - Electronic Claim Acquisition
- - Regional Claim Operations
- - Medical/Dental Review
<PAGE>
Blue Cross & Blue Shield United of Wisconsin
UWS Service Agreement
Article III, Section A, Exhibit 1
1997
(Page 2)
Contract Counts
- - MMAC Processing Unit
- - Enrollment Services
- - Regional Office Membership
Premium:
- - Labor Relations
Claims Expense:
- - Provider File Maintenance
Actual Dollars:
- - EDS
- - BCBSSC Implementation
Commission-Based Sales Chargeback - Direct
- - Regional Direct Sales
- - Sales Bonus
- - Meetings and Conference
- - Sales Training
Commission-Based Sales Chargeback - Agency
- - Agency Sales
- - Sales Bonus
- - Meetings and Conference
- - Sales Training
Charges for other functions will be negotiated prior to the performance of
the service.
<PAGE>
Blue Cross & Blue Shield United of Wisconsin
UWS Service Agreement
Article III, Section B, Exhibit 2
1997
Listed below are the various allocation methodologies by operational
unit/specific cost center for charges from UWS that will be utilized in 1997.
Subordinate Costs:
- - VP and CIO
- - VP Legal and General Counsel
- - VP and Chief Actuary
- - Director of Technology Support Services
- - Director Corporate Planning and Reporting
- - Director of Investigation/recovery
Staff Counts:
- - Human Resources/Payroll
- - Corporate Compliance
Time Sheet:
- - Financial Audit
- - Data Management and Reporting
- - UWS Public Relations (except CC #44)
- - Legal staff
- - Actuarial CHS/AMS
- - CIS - UWS
- - Dentacare Quality Assurance
- - Network Management
Fixed Percentages:
- - UWS Finance (CC #720, #721, #722, #723, #742, and #799)
- - UWS Actuarial (CC #735)
- - Compcare Medical Management (CC #262, 263, #266)
- - Director Dentacare
- - Compcare Provider Contracting
Corporate Dollars:
- - UWS CEO
- - Executive VP and COO
- - VP and Chief Actuary
- - VP and CFO
- - Government Relations
- - Cost Allocation
- - Financial Systems
<PAGE>
Miscellaneous:
- - Recovery Services (based on dollars recovered)
- - Financial Investigation (based on dollars recovered)
- - Right Rx (PMPM charges)
Charges for other functions will be negotiated prior to the performance of
the service.
<PAGE>
Blue Cross & Blue Shield United of Wisconsin
UWS Service Agreement
Article III, Section C, Exhibit 3
Charges from UWIC for services performed in conjunction with processing of
joint billed products:
DEPARTMENT SERVICES UNIT OF ALLOCATION
---------- -------- ------------------
Membership Group set-up, Maintenance Division
Membership Membership Maintenance Lives
Info. Services System Update & Reports Lives
Premium Cash MMAC Premium Proc. Actual
Corporate Management Lives
Finance Commission Payments Actual
1997 Charges from Meridian Managed Care, Inc. to BCBSUW for services
performed:
SERVICES RATE
-------- ----
Professional Services:
Medical Director $190 per hour plus travel expenses
Assistant Medical Director $115 per hour plus travel expenses
Medical Consultants $92 per hour plus travel expenses
Health Policy/Pricing $52 per hour plus travel expenses
Util. Mgmt. - Nurse $52 per hour plus travel expenses
Util. Mgmt. - Supervisor $62 per hour plus travel expenses
Hospital Bill Audit $80.00 per hour
2 to 1 Savings Guarantee to be
calculated at year-end on
total BCBSUW insured business
<PAGE>
Utilization Management:
Medcheck I/Advantage - Insured
(Excludes Second Surgical Opinion $2.36 pcpm
Medcheck II/Advantage - Insured
Medcheck Second Surgical Opinion $2.41 pcpm
Prenatal Program - Coalitions $0.62 pcpm
Preferred One $1.35 pcpm
Quality Choice $0.71 pcpm
Insured POS $3.50 pcpm
BCBSUW Group #1 - Self-Insured
(Includes Second Surgical Opinion) $2.41 pcpm
BCBS Design Healthcare Group #1 - POS $3.50 pcpm
Options Plus - Self-Insured
(Includes Second Surgical Opinion) $2.41 pcpm
Homecare Review/Referral $5,500/month
Inpatient Psych Review
admissions at four for-profit
psych hospitals $578/month
Other expenses as services are requested
at an agreed upon rate.
<PAGE>
Blue Cross & Blue Shield United of Wisconsin UWS Service Agreement
Article III, Section D, Exhibit 4
1997
Expenses are paid by BCBSUW on behalf of UWS as a result of a common Trade
payable and Payroll system. At time of payment, expenses are identified as
to "user" area, and are expensed to the specific "users" cost center.
Expenses include, but are not limited to:
Direct Compensation - Salaries/Wages, Bonus, Profit Sharing
Payroll Taxes
Fringe Benefits - Insurance, 401K, Pension
Employee Relations - O.T. Meals, Employee Welfare
Agency help
Travel & Entertainment
Company car - Lease, gas, mileage reimbursement, auto insurance
FF & E - Bldg. rent , Depreciation, Equip. & Furniture rental,
software purchases, minor furniture & Equipment
communications - Telephone usage, postage/freight, forms, supplies,
organization dues
Advertising
Outside Management fees
<PAGE>
BCBSUW AND UWSI
OPERATING EXPENSE ALLOCATIONS
AOP 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
MEDICARE CHS NORTHWOODS
BCBSUW CHSIC RIGHT Rx RxCEL DENTACARE RISK MEDICAID DULUTH HMO
DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS
------- ------- -------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BCBSUW
PRESIDENT 3,529,807 299,530 672 0 11,771 0 6,257 0 0
ADMINISTRATION 4,626,552 974,623 0 0 90,977 10,573 7,089 2,025 1,013
FINANCE 4,916,639 820,128 279 0 35,724 279 0 0 0
UNDERWRITING 1,210,471 94,152 8,444 0 11,526 211 0 0 0
MARKETING 1,699,847 558,134 0 0 5,994 0 0 0 0
AGENCY SALES 573,654 424,660 0 0 27,664 0 0 0 0
DIRECT SALES 0 0 0 0 0 0 0 0 0
HOMETOWN 419,656 26,560 0 0 26,560 0 0 0 0
HOMETOWN AGENCY 143,422 16,298 0 0 19,558 0 0 0 0
SALES BONUS & CONFER 531,859 1,416 0 0 672 0 0 0 0
SOUTHEAST 12,159,744 1,071,199 660 0 160,430 0 36,307 0 0
BCBSUW NON METRO VP 1,263,956 31,516 0 0 0 21,665 0 108,126 108,126
WESTERN 3,325,129 0 0 0 40,017 0 0 242,528 0
NORTHEAST 4,500,042 80,837 0 0 29,438 0 76,986 0 0
NORTH CENTRAL 3,385,306 0 0 0 124,223 15,099 0 0 107,009
SOUTHWEST 3,728,155 281,884 0 0 71,569 3,516 60,656 0 0
OTHER 18,884,631 4,743,269 20,940 181 588,667 7,386 21,172 3,666 1,496
TOTAL BCBSUW 64,898,870 9,424,206 30,995 181 1,244,790 58,729 208,467 356,345 217,644
---------- --------- ------ --- --------- ------ ------- ------- -------
---------- --------- ------ --- --------- ------ ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MANAGED UNITED
VALLEY MERIDIAN CARE UWG UDT UWSI MMS HEARTLAND UNITY TOTAL
DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BCBSUW
PRESIDENT 700 700 1,300 3,109 7,117 0 345,305 1,300 300 4,207,868
ADMINISTRATION 19,241 38,304 72,914 70,526 20,255 0 413,955 26,330 1,216 6,375,593
FINANCE 0 0 0 226 12,667 0 166,198 0 0 5,952,140
UNDERWRITING 0 0 0 0 0 0 0 0 0 1,324,804
MARKETING 0 0 0 0 0 0 0 0 0 2,263,975
AGENCY SALES 18,837 0 3,767 71,885 0 0 0 0 0 1,120,467
DIRECT SALES 0 0 0 0 0 0 0 0 0 0
HOMETOWN 0 0 5,312 53,121 0 0 0 0 531,209 1,062,418
HOMETOWN AGENCY 0 0 0 0 9,779 0 0 0 136,904 325,961
SALES BONUS & CONFER 624 0 0 11,280 2,035 0 1,704 0 156,708 706,298
SOUTHEAST 0 0 0 62,895 1,310 0 82,824 0 0 13,575,369
BCBSUW NON METRO VP 21,665 0 0 2,167 488 0 223,941 0 21,665 1,803,315
WESTERN 255,555 0 0 15,785 295,470 0 0 185 28,497 4,203,166
NORTHEAST 0 0 0 40,574 588 0 37,959 0 23,678 4,790,102
NORTH CENTRAL 0 0 0 38,955 20,171 0 75,175 588 136,682 3,903,208
SOUTHWEST 0 0 0 0 2,504 0 17,582 0 119,510 4,285,376
OTHER 33,772 63,118 192,655 190,941 210,041 6,240 4,377,744 67,716 9,158 29,422,793
TOTAL BCBSUW 350,394 102,122 275,948 561,464 582,425 6,240 5,742,387 96,119 1,165,527 85,322,853
------- ------- ------- ------- ------- ----- --------- ------ --------- ----------
------- ------- ------- ------- ------- ----- --------- ------ --------- ----------
</TABLE>
<PAGE>
BCBSUW AND UWSI
OPERATING EXPENSE ALLOCATIONS
AOP 1997
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
MEDICARE CHS NORTHWOODS
BCBSUW CHSIC RIGHT Rx RxCEL DENTACARE RISK MEDICAID DULUTH HMO
DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS
------- --------- -------- ------- --------- -------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CHSIC
FINANCE 108,061 2,680,191 107,288 75,850 460,049 58,107 236,467 0 15,161
MARKETING 126,911 1,202,396 10,694 0 72,742 1,782 0 0 0
OPERATIONS 864,222 4,237,723 0 864 395,776 17,708 783,728 707 6,184
UNALLOCATED 52,371 957,175 0 0 62,722 0 0 0 0
TOTAL CHSIC 1,151,565 9,077,485 117,982 76,714 991,289 77,597 1,020,195 707 21,345
--------- --------- ------- ------ --------- ------- --------- ------- -------
--------- --------- ------- ------ --------- ------- --------- ------- -------
TOTAL DENTACARE 0 0 0 0 873,405 0 0 0 0
--------- --------- ------- ------ --------- ------- --------- ------- -------
--------- --------- ------- ------ --------- ------- --------- ------- -------
TOTAL RIGHT Rx CHARGE 332,063 412,401
TOTAL RxCEL CHARGE 79,678
MERIDIAN
PRESIDENT
PRESIDENT 8,256 1,201 150 150 375 0 0 0 0
RECOVERY 927,400 392,641 0 0 0 0 0 0 0
TOTAL MERIDIAN 935,656 393,842 150 150 375 0 0 0 0
MERIDIAN MRKT SRVS
VP 0 0 0 0 0 0 0 0 0
SPEC MKTS PROJECT 19,352 7,742 3,871 0 7,742 58,442 0 0 3,871
TELEMARKETING 0 0 0 0 0 0 0 0 0
OPERATIONS (1) 0 0 0 0 629,352 0 0 0
TOTAL MERIDIAN MRKT SRVS 19,351 7,742 3,871 0 7,742 687,794 0 0 3,871
MANAGED CARE
MEDICAL DIRECTOR 208,930 228,497 3,532 3,532 0 39,130 0 0 19,565
D M AND R 291,828 68,417 0 0 0 0 0 0 0
ASST MEDICAL DIREC 293,041 98,092 0 0 0 0 0 0 0
--------- --------- ------- ------ --------- ------- --------- ------- -------
TOTAL MANAGED CARE 793,799 395,006 3,532 3,532 0 39,130 0 0 19,565
UWSI
PRESIDENT 4,515,996 1,364,996 8,371 10,813 163,536 31,205 45,542 12,379 12,233
LEGAL 1,278,316 244,094 0 2,537 15,240 21 24 7 3
FINANCE 3,493,450 1,127,321 46,013 31,295 96,442 22,589 11,982 3,545 4,169
OTHER 58,893 58,491 0 0 2,010 402 2,211 0 0
TOTAL UWSI 9,346,655 2,794,902 54,384 44,645 277,228 54,217 59,759 15,931 16,405
--------- --------- ------- ------ --------- ------- --------- ------- -------
--------- --------- ------- ------ --------- ------- --------- ------- -------
DUE BCBSUW 8,272,641 181 1,244,790 58,729 208,467 356,345 217,644
DUE UWSI SUBSIDIARY 301,068
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MANAGED UNITED
VALLEY MERIDIAN CARE UWG UOT UWSI MMS HEARTLAND UNITY TOTAL
DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS DOLLARS
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CHSIC
FINANCE 91,149 70,568 70,568 0 0 0 1,405 0 0 3,974,864
MARKETING 0 0 0 5,231 0 0 0 0 0 1,419,756
OPERATIONS 1,766 0 7,949 0 0 0 4,010 0 1,766 6,322,403
UNALLOCATED 0 0 0 0 0 0 175 0 0 1,072,443
TOTAL CHSIC 92,915 70,568 78,517 5,231 0 0 5,590 0 1,766 12,789,466
------- --------- --------- --------- ------- --------- --------- ------- --------- ----------
------- --------- --------- --------- ------- --------- --------- ------- --------- ----------
TOTAL DENTACARE 0 121,512 0 0 0 0 0 0 0 994,917
------- --------- --------- --------- ------- --------- --------- ------- --------- ----------
------- --------- --------- --------- ------- --------- --------- ------- --------- ----------
TOTAL RIGHT Rx CHARGE 18,210 0 3,214 765,888
TOTAL RxCEL CHARGE 79,678
MERIDIAN
PRESIDENT
PRESIDENT 300 3,756,194 237,471 750 0 0 0 525 300 4,005,672
RECOVERY 0 77,125 0 0 14,203 0 203,148 0 0 1,614,517
TOTAL MERIDIAN 300 3,833,319 237,471 750 14,203 0 203,148 525 300 5,620,189
MERIDIAN MRKT SRVS
VP 0 0 0 0 0 0 4,930 0 0 4,930
SPEC MKTS PROJECT 0 0 0 28,423 7,742 0 3,953,764 0 0 4,090,949
TELEMARKETING 0 0 0 71,414 0 0 1,367,830 0 0 1,439,244
OPERATIONS 0 0 0 46,620 0 0 2,035,375 0 0 2,711,346
TOTAL MERIDIAN MRKT SRVS 0 0 0 146,457 7,742 0 7,361,899 0 0 8,246,469
MANAGED CARE
MEDICAL DIRECTOR 19,565 7,063 175,522 0 0 0 19,565 0 19,565 744,466
D M AND R 0 42,248 356,200 0 0 0 13,925 0 0 772,618
ASST MEDICAL DIREC 0 20,191 591,017 15,162 2,958 0 880 1,083 0 1,022,424
------- --------- --------- --------- ------- --------- --------- ------- --------- ----------
TOTAL MANAGED CARE 19,565 69,502 1,122,739 15,162 2,958 0 34,370 1,083 19,565 2,539,508
UWSI
PRESIDENT 164,161 206,498 437,771 683,923 17,344 437,472 527,715 345,791 178,816 9,164,562
LEGAL 10,152 7,709 38,317 467,294 7,613 299,570 50,919 17,853 101,549 2,541,218
FINANCE 208,701 176,223 278,342 746,561 90,784 396,644 682,068 263,746 91,310 7,771,185
OTHER 1,206 8,241 46,833 0 201 0 4,422 18,090 0 201,000
TOTAL UWSI 384,220 398,671 801,263 1,897,778 115,942 1,133,686 1,265,124 645,480 371,675 19,677,965
------- --------- --------- --------- ------- --------- --------- ------- --------- ----------
------- --------- --------- --------- ------- --------- --------- ------- --------- ----------
DUE BCBSUW 350,394 561,464 582,425 5,723,036 96,119 1,165,527
DUE UWSI SUBSIDIARY 833,534 517,851 9,340,415
</TABLE>
<PAGE>
UNITED WISCONSIN SERVICES, INC.
DEFERRED COMPENSATION PLAN
FOR DIRECTORS
1. PURPOSE OF PLAN
The purpose of the United Wisconsin Services, Inc. Deferred Compensation
Plan for Directors ("Plan") is to provide a procedure whereby a member of
the Board of Directors of United Wisconsin Services, Inc. ("the Company")
who is not an employee of the Company or any of its subsidiaries
("Director") may defer the payment of all or a specified portion of the
compensation payable to the Director for services as a Director, including
the retainer, meeting fees, and other fees payable in connection with his
or her Board and committee responsibilities ("Fees").
2. ADMINISTRATION
The Plan shall be administered by a committee ("Committee") consisting of
members of the Management Review Committee of the Board of Directors. The
Committee shall have plenary authority in its discretion, but subject to
the express provisions of the Plan, to interpret the Plan, to prescribe,
amend, and rescind rules and regulations relating to it, and to make all
other determinations deemed necessary or advisable for the administration
of the Plan. The determinations of the Committee on the foregoing matters
shall be conclusive and binding on all interested parties.
3. ELECTION TO DEFER
A Director may elect, at any time, to defer payment of all or a specified
portion of any unearned Fees. Such election shall be effective on the
first day of the month following receipt by the Secretary of the Company of
written notice thereof.
4. DIRECTORS' ACCOUNTS
There shall be established for each Director participating in the Plan an
account on the books of the Company, to be designated as such Director's
deferred compensation account ("Account"). All amounts deferred pursuant
to the Plan, together with any further amounts accrued thereon, as
hereinafter provided, shall be held in a designated fund of the Company and
shall be credited to the Director's Account. The Company shall furnish
quarterly or upon request to each participating Director a statement of
such Director's Account.
1
<PAGE>
5. PAYMENT FROM DIRECTORS' ACCOUNTS
At the time a Director elects to participate in the Plan, he or she shall
also make an election, which election shall be irrevocable, except as
hereinafter provided, as to his or her deferral payment terms. Payment
will be made either:
1) in a lump sum as of the end of the quarter in which the Director
terminates his or her relationship with the Company, or
2) in annual installments over 10 years beginning in the year following
the year in which the Director terminates his or her relationship with
the Company or reaches age 65, whichever comes first. When a Director
is to receive the balance of his or her Account in annual
installments, each such annual installment shall be a fraction of the
balance in such Account on the date such annual installment is to be
paid, the numerator of which is one and the denominator of which is
the total number of installments then remaining to be paid.
Payment shall be calculated based upon the value as of the end of the
calendar year and issued during the first quarter of the following year.
6. PAYMENT IN EVENT OF DEATH OR HARDSHIP
If a Director should die before the balance in his or her Account shall
have been paid in full, the balance then remaining shall be paid as soon as
administratively feasible in a lump sum to such Director's estate or to his
or her designated beneficiary or beneficiaries. A Director may designate
one or more beneficiaries (which may be an entity other than a natural
person) to receive any payments to be made upon the Director's death. At
any time, and from time to time, any such designation may be changed or
cancelled by the Director without notice to or the consent of any
beneficiary. Any such designation, change, or cancellation shall be
effective upon receipt by the Secretary of the Company of written notice
thereof. If a Director designates more than one beneficiary, any payments
to such beneficiaries shall be made in equal shares unless the Director has
designated otherwise. If no beneficiary has been named by the Director, or
if the designated beneficiary or beneficiaries shall have predeceased him
or her, or shall no longer exist, the balance shall be paid to the
Director's estate.
The Committee may, at any time, under rules which it may prescribe, direct
the Company to pay a lump sum to a Director all or any portion of the
balance then in the Director's Account, if the Committee finds, in its sole
discretion, that continued deferral of all or any portion of such balance
shall result in a financial hardship to such Director or that such Director
has become disabled. In the case of a then existing election to defer, the
Committee's determination to pay all or any portion of such balance shall
immediately operate as a termination of such election to defer.
2
<PAGE>
7. TERMINATION OF ELECTION TO DEFER
A Director may at any time terminate his or her election to defer payment
of Fees. Such termination shall become effective on the last day of the
month in which written notice thereof is received by the Secretary of the
Company; provided, however, that any balance in the Account of a Director
prior to the effective date of termination of an election to defer shall
not be affected thereby and shall be paid only in accordance with Sections
5 and 6. A Director who has filed a termination of election to defer or
whose election to defer has been terminated in accordance with Section 6
may thereafter again file an election to defer in accordance with Section
3.
8. NONASSIGNABILITY
During a Director's lifetime, the right to the balance in his or her
Account shall not be transferable or assignable. Nothing contained in the
Plan shall create, or be deemed to create, a trust, actual or constructive,
for the benefit of a Director or his or her beneficiary, or shall give, or
be deemed to give, to any Director or his or her beneficiary any interest
in any specific assets of the Company.
9. AMENDMENT
The Board of Directors of the Company may, at any time, without the consent
of the participants, amend, suspend, or terminate the Plan. Subject to any
applicable laws and regulations, no amendment, suspension, or termination
of the Plan shall operate to annul an election already in effect for the
then current calendar year or for any preceding calendar year. Fees shall
continue to be deferred until the end of such current calendar year in
accordance with a Director's then current election; and the balance in the
Director's Account shall continue to be payable in accordance with a
Director's then current election and, until paid, to be measured by a
factor to be determined from time to time by the Committee.
10. GOVERNING LAW
The Plan shall be construed and enforced according to the laws of the State
of Wisconsin, and all the provisions thereof shall be administered
according to the laws of said State.
11. SEVERABILITY OF PROVISIONS
If any of the provisions of the Plan or the application thereof to any
Director shall be held invalid, neither the remainder of the Plan nor its
application to any other Director shall be affected thereby.
12. EFFECTIVE DATE
The Plan shall become effective on December 1, 1995.
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1997 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 372,984
<DEBT-CARRYING-VALUE> 12,949
<DEBT-MARKET-VALUE> 12,895
<EQUITIES> 67,500
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 453,433
<CASH> 39,279
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 807,345
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 52,759
<POLICY-OTHER> 226,577
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 55,488
0
0
<COMMON> 16,410
<OTHER-SE> 291,832
<TOTAL-LIABILITY-AND-EQUITY> 807,345
388,608
<INVESTMENT-INCOME> 9,845
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 15,843
<BENEFITS> 310,170
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 92,593
<INCOME-PRETAX> 6,030
<INCOME-TAX> 2,660
<INCOME-CONTINUING> 3,370
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,370
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
