<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------
FORM 10-Q/A
----------------------------
- -----------------------------------------------------
(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999 Commission File Number 0-26788
THE GUARANTEE LIFE COMPANIES INC.
(Exact Name of the Registrant as Specified in its Charter)
Delaware 47-0785066
(State of Incorporation) (I.R.S. Employer Identification Number)
8801 Indian Hills Drive, Omaha, Nebraska 68114
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number: (402) 361-7300
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 [_]
Shares of common stock outstanding as of: August 4, 1999: 9,263,954
================================================================================
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1999 1998
------ ----------------- --------------
Invested assets: (unaudited)
<S> <C> <C>
Fixed maturities:
Available-for-sale, at fair value (amortized cost: $869,962 and $865,597)...... $861,075 $888,363
Held-to-maturity, at amortized cost (fair value: $140,890 and $158,341)........ 139,699 147,180
------------ -------------
1,000,774 1,035,543
Equity securities, at fair value (cost:$25,284 and $20,643)......................... 27,722 23,835
Mortgage loans, net................................................................. 108,310 103,736
Policy loans........................................................................ 32,270 31,767
Investment real estate, net......................................................... 3,178 3,211
Other invested assets, net.......................................................... 41,865 54,970
Closed Block invested assets........................................................ 303,967 314,108
------------ -------------
Total invested assets.................................................................... 1,518,086 1,567,170
Cash and cash equivalents................................................................ 31,969 23,794
Accrued investment income................................................................ 14,197 13,900
Recoverable from reinsurers.............................................................. 91,962 95,511
Accounts receivable, net................................................................. 23,817 19,641
Deferred policy acquisition costs........................................................ 146,375 144,844
Property, plant and equipment, net....................................................... 19,445 19,929
Other assets ............................................................................ 11,252 12,607
Closed Block other assets................................................................ 14,685 16,224
Separate account assets.................................................................. 101,685 78,629
------------ -------------
Total assets ............................................................................ $1,973,473 $1,992,249
============ =============
Liabilities and Shareholders' Equity
------------------------------------
Future policy benefits................................................................... $180,556 $178,133
Policyholder account balances............................................................ 793,281 795,820
Policy and contract claims............................................................... 74,315 68,701
Other policyholder funds................................................................. 47,035 43,751
Unearned premium revenue................................................................. 12,046 13,149
Payable to reinsurers.................................................................... 6,443 8,670
Notes payable............................................................................ 115,000 112,500
Other liabilities........................................................................ 30,241 54,846
Closed Block liabilities................................................................. 381,099 386,933
Discontinued operations, net............................................................. 19,453 21,075
Separate account liabilities............................................................. 101,685 78,629
------------ -------------
Total liabilities........................................................................ 1,761,154 1,762,207
------------ -------------
Shareholders' equity:
Common stock $0.01 par value; 30,000,000 shares authorized, 10,315,785 shares
issued .......................................................................... 103 103
Additional paid-in capital.......................................................... 200,890 201,255
Treasury stock, at cost (1,067,385 shares and 1,087,124 shares) .................... (24,450) (25,054)
Retained earnings................................................................... 40,925 33,962
Net unrealized investment gain (loss)............................................... (5,149) 19,776
------------ -------------
Total shareholders' equity............................................................... 212,319 230,042
Commitments and contingencies............................................................ - -
------------ -------------
Total liabilities and shareholders' equity............................................... $1,973,473 $1,992,249
============ =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Direct and assumed premiums and policyholder assessments.............. $117,599 $96,445 $230,100 $184,650
Reinsurance premiums.................................................. (19,026) (20,468) (37,121) (38,093)
------------ ------------- ------------ ------------
Net premiums and policyholder assessments............................. 98,573 75,977 192,979 146,557
Investment income, net................................................ 20,841 17,351 42,291 33,491
Realized investment gains/(losses) ................................... (1,308) 409 (1,073) 528
Other Income ......................................................... 8 - 1,779 -
Contribution from Closed Block........................................ 1,558 405 2,294 1,607
------------ ------------- ------------ ------------
Total revenues........................................................ 119,672 94,142 238,270 182,183
------------ ------------- ------------ ------------
Policyholder benefits:
Direct and assumed benefits........................................... 94,777 75,322 183,758 142,344
Reinsurance recoveries................................................ (16,799) (16,866) (31,168) (29,899)
------------ ------------- ------------ ------------
Net policyholder benefits............................................. 77,978 58,456 152,590 112,445
------------ ------------- ------------ ------------
Expenses:
Policy acquisition costs.............................................. 12,441 11,970 28,555 24,898
Other insurance operating expense..................................... 22,072 19,854 44,542 40,425
------------ ------------- ------------ ------------
Total expenses........................................................ 34,513 31,824 73,097 65,323
------------ ------------- ------------ ------------
Income from continuing operations before income taxes................. 7,181 3,862 12,583 4,415
------------ ------------- ------------ ------------
Income tax expense.................................................... 2,513 1,352 4,404 1,545
------------ ------------- ------------ ------------
Net income from continuing operations................................. 4,668 2,510 8,179 2,870
------------ ------------- ------------ ------------
Net income (loss) from discontinued operations........................ 28 (27) 79 (29)
------------ ------------- ------------ ------------
Net income............................................................ $4,696 $2,483 $8,258 $2,841
============ ============= ============ ============
Basic Earnings per share:
Weighted average shares outstanding.............................. 9,242,644 8,958,436 9,236,960 8,906,122
============ ============= ============ ============
Net income from continuing operations............................ $0.51 $0.28 $0.89 $0.32
============ ============= ============ ============
Net income from discontinued operations.......................... - - - -
============ ============= ============ ============
Net income....................................................... $0.51 $0.28 $0.89 $0.32
============ ============= ============ ============
Diluted Earnings per share:
Weighted average shares outstanding.............................. 9,361,073 9,259,900 9,333,209 9,204,097
============ ============= ============ ============
Net income from continuing operations............................ $0.50 $0.27 $0.88 $0.31
============ ============= ============ ============
Net income from discontinued operations.......................... - - - -
============ ============= ============ ============
Net income....................................................... $0.50 $0.27 $0.88 $0.31
============ ============= ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net income............................................................. $4,696 $2,483 $8,258 $2,841
Other comprehensive income, net of tax:
Unrealized appreciation (depreciation) of invested assets......... (14,612) 5,039 (25,136) 3,478
Less reclassification adjustment for gains (losses) included in
net income........................................................ (117) 409 (211) 528
------------- ------------ ----------- ------------
(14,495) 4,630 (24,925) 2,950
------------- ------------ ----------- ------------
Comprehensive income................................................... $(9,799) $7,113 $(16,667) $5,791
============= ============ =========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
----------- ------------
<S> <C> <C>
Net cash provided (used) by operating activities............................................... ($8,928) ($8,921)
----------- ------------
Cash flows from investing activities:
Purchase of fixed maturities................................................................ (153,159) (122,857)
Sales, maturities, calls and principal reductions of fixed maturities....................... 154,930 146,414
Sale of equity securities and short-term investments........................................ 13,692 1,843
Purchase of mortgage loans.................................................................. (7,225) (10,250)
Proceeds from repayment of mortgage loans................................................... 2,651 4,267
Change in Closed Block invested assets...................................................... 10,141 (1,253)
Payment for purchase of Westfield Life Insurance Company, net.............................. - (90,863)
Other, net.................................................................................. (4,715) 11,147
----------- ------------
Net cash provided (used) by investing activities.......................................... 16,315 (61,552)
----------- ------------
Cash flows from financing activities:
Deposits to policyholder account balances................................................... 40,772 32,620
Withdrawals from policyholder account balances.............................................. (41,792) (33,703)
Purchase of treasury stock.................................................................. - (3,150)
Options exercised........................................................................... 604 661
Proceeds from issuance of notes payable.................................................... 10,000 125,000
Principal payments on long term debt....................................................... (7,500) (40,000)
Shareholder dividends...................................................................... (1,296) (1,238)
----------- ------------
Net cash provided by financing activities................................................. 788 80,190
----------- ------------
Net increase in cash and cash equivalents...................................................... 8,175 9,717
Cash and cash equivalents at beginning of period............................................... 23,794 8,608
----------- ------------
Cash and cash equivalents at end of period..................................................... $31,969 $18,325
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(1) Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements
include The Guarantee Life Companies Inc. and its direct and indirect
wholly-owned subsidiaries. These financial statements have been prepared in
conformity with generally accepted accounting principles for interim
financial information and reflect all adjustments (consisting only of
normal recurring items) which are, in the opinion of management, necessary
to present fairly the financial position and results of operations for the
periods presented.
Operating results for the three and six month periods ended June 30, 1999
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. These financial statements and notes thereto
should be read in conjunction with the audited consolidated financial
statements for the fiscal year ended December 31, 1998, contained in
Guarantee Life's annual report on Form 10-K for the year ended December 31,
1998.
(2) Investments
Fixed maturities at June 30, 1999 (in thousands) are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies............ $97,456 $211 $1,746 $95,921
Obligations of states and political subdivisions.. 15,027 927 - 15,954
Debt securities issued by foreign governments..... 8,433 10 216 8,227
Corporate securities.............................. 479,779 8,009 14,380 473,408
Mortgage-backed securities........................ 197,124 1,807 2,963 195,968
Other asset-backed securities..................... 72,143 272 818 71,597
-------------- -------------- --------------- --------------
869,962 11,236 20,123 861,075
Equity securities................................. 25,284 3,771 1,333 27,722
-------------- -------------- --------------- --------------
$895,246 $15,007 $21,456 $888,797
============== ============== =============== ==============
Held-to-maturity:
Corporate securities.............................. 114,974 4,887 1,102 118,759
Mortgage-backed securities........................ 14,206 - 2,020 12,186
Other asset-backed securities..................... 10,519 - 574 9,945
-------------- -------------- --------------- --------------
$139,699 $4,887 $3,696 $140,890
============== ============== =============== ==============
</TABLE>
(3) Closed Block
Summarized condensed financial information of the Closed Block (in thousands) is
as follows:
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1999 1998
------ -------------- --------------
<S> <C> <C>
Invested assets:
Fixed maturities:
Available-for-sale, at fair value (amortized cost: $225,306 and $210,935) ..... $223,877 $220,603
Held-to-maturity, at amortized cost (fair value: $35,454 and $48,460).......... 35,283 44,595
-------------- --------------
259,160 265,198
Policy loans........................................................................ 44,807 46,217
Other invested assets, net.......................................................... - 2,693
-------------- --------------
Total invested assets.................................................................... 303,967 314,108
Cash and cash equivalents................................................................ 2,260 2,000
Accrued investment income................................................................ 1,949 2,367
Deferred policy acquisition costs........................................................ 9,475 10,476
Other assets............................................................................. 1,001 1,381
-------------- --------------
Total Closed Block assets................................................................ $318,652 $330,332
============== ==============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
Liabilities 1999 1998
----------- -------------- --------------
<S> <C> <C>
Life future policy benefits............................................................... $297,964 $300,254
Policyholder account balances for annuity contracts....................................... 905 885
Policy and contract claims................................................................ 448 839
Other policyholder funds.................................................................. 72,015 71,966
Dividends payable to policyholders........................................................ 7,126 7,052
Deferred income taxes..................................................................... (500) 3,384
Other liabilities......................................................................... 3,141 2,553
-------------- --------------
Total Closed Block liabilities............................................................ $381,099 $386,933
============== ==============
</TABLE>
Condensed statements of income for the Closed Block for the three and six months
ended June 30 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums and policyholder assessments, net of reinsurance. $4,667 $4,962 $9,524 $10,198
Investment income, net.............................................. 5,210 5,328 10,904 10,961
Realized investment gains........................................... 888 620 888 631
Other income........................................................ 5 2 6 4
------------- ----------- ----------- ------------
Total revenues...................................................... 10,770 10,912 21,322 21,794
------------- ----------- ----------- ------------
Policyholder benefits and expenses:
Total policyholder benefits, net of reinsurance..................... 5,184 5,158 10,583 11,264
Policy acquisition costs............................................ 496 574 1,134 1,013
Other insurance operating expense................................... 1,024 2,007 2,044 2,114
------------- ----------- ----------- ------------
Total benefits and expenses......................................... 6,704 7,739 13,761 14,391
Dividends to policyholders.......................................... 2,508 2,768 5,267 5,796
------------- ----------- ----------- ------------
Contribution from the Closed Block.................................. $1,558 $405 $2,294 $1,607
============= =========== =========== ============
</TABLE>
The Closed Block includes only those revenues, benefits, expenses, and dividends
resulting from the policies which were included in the Closed Block on December
26, 1995, the effective date of Guarantee Life Insurance Company's conversion to
a stock life insurance company. The pre-tax income of the Closed Block is
reported as a single line item, Contribution from Closed Block, in Guarantee
Life's condensed consolidated statements of income. Income tax expense
applicable to the Closed Block is reflected as a component of income tax
expense.
The excess of Closed Block liabilities over Closed Block assets as of June 30,
1999 represents the estimated future contribution from Closed Block, which will
be recognized in Guarantee Life's statements of income over the period the
underlying policies and contracts remain in force.
If, over the period the Closed Block remains in existence, the actual cumulative
contribution is greater than the expected cumulative contribution, only such
expected contribution will be recognized in Guarantee Life's statements of
income. The excess will be paid to Closed Block policyholders as additional
policyholder dividends. Alternatively, if the actual cumulative contribution is
less than the expected cumulative contribution, only such actual contribution
will be recognized in Guarantee Life's statements of income. However, dividends
will be changed in the future, to increase actual contributions until the actual
cumulative contributions equal the expected cumulative contributions.
(4) Earnings per common share
Basic earnings per share of common stock have been computed on the basis of the
weighted average number of shares of common stock outstanding. Diluted earnings
per share is based on the weighted average number of shares and common stock
equivalents outstanding. The Company's common stock equivalents relate to common
stock options.
(5) Restricted common shares
Effective May 31, 1998, The Guarantee Life Companies Inc. acquired Westfield
Life Insurance Company (Westfield). As partial consideration, 371,402 shares of
previously authorized, but unissued, common stock were issued. These shares have
a restriction on transfer and are restricted from sale for a period of two
years. They are also restricted for five years from sale to any party who owns
two percent or more of Guarantee Life's issued and outstanding common stock at
the time of transfer or who would own two percent or more after transfer. These
shares also have restricted voting rights. For a period of five years all
restricted shares of common stock will be voted in concurrence with the
recommendation of the Board of Directors of Guarantee Life in matters submitted
to the shareholders of Guarantee Life for vote or consent.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis of the consolidated financial condition and results
of operations of Guarantee Life should be read in conjunction with the condensed
consolidated financial statements and the notes thereto included herein.
Forward-looking Statements
This Form 10-Q report contains certain forward-looking statements. All
forward-looking statements are inherently uncertain as they are based on various
management expectations and assumptions concerning future events and they are
subject to numerous known and unknown risks and uncertainties which could cause
actual results to differ materially from those projected. Such statements
reflect the current view of Guarantee Life with respect to future events and are
subject to certain risks, uncertainties and assumptions, including the business
factors described in Guarantee Life's annual report on Form 10-K for the year
ended December 31, 1998. Should one or more of such risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as believed, estimated or
expected.
Operating Results for the Three and Six Months Ended June 30, 1999 and 1998
The following table presents the consolidated results of operations
combined with the results of operations of the Closed Block. As part of the
conversion to a stock life insurance company in 1995, Guarantee Life Insurance
established a Closed Block to provide for dividends on certain policies that
were in force on December 26, 1995 (the "Effective Date"). After the Effective
Date, the operating results from the Closed Block are reported on one line,
Contribution from Closed Block, in the consolidated statements of income.
Management's discussion and analysis addresses the combined results of
operations unless noted otherwise.
Combined Results of Operations(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------
1999 1998 1999 1998
--------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Premiums and policyholder assessments, net................... $103,240 $80,939 $202,503 $156,755
Investment income, net....................................... 26,051 22,679 53,195 44,452
Realized investment gains.................................... (420) 1,029 (185) 1,159
Other income ................................................ 13 -- 1,785 --
--------------- ------------ ------------ -----------
Total revenues.................................................... 128,884 104,647 257,298 202,366
Benefits and expenses:
Policyholder benefits, net of reinsurance.................... 83,162 63,614 163,173 123,709
Expenses..................................................... 36,028 34,396 76,267 68,439
Dividends to policyholders................................... 2,513 2,775 5,275 5,803
--------------- ------------ ------------ -----------
Total policyholder benefits, expenses............................. 121,703 100,785 244,715 197,951
--------------- ------------ ------------ -----------
Income from continuing operations before income taxes............. 7,181 3,862 12,583 4,415
Income taxes...................................................... 2,513 1,352 4,404 1,545
--------------- ------------ ------------ -----------
Net income from continuing operations............................. $4,668 $2,510 $8,179 $2,870
=============== ============ ============ ===========
Net income excluding realized gains............................... $4,941 $1,841 $8,299 $2,116
=============== ============ ============ ===========
</TABLE>
Investment Income, Net. Net investment income increased $3.3 million, or
14.9%, and $8.7 million, or 19.7%, for the three and six month periods ended
June 30, 1999 over 1998 due primarily to the acquisition of Westfield on May 31,
1998. The 1998 results reflect only one month of activity for Westfield while
the 1999 results reflect three and six months of activity for the quarter and
six months ended June 30, 1999, respectively.
8
<PAGE>
Insurance Operations--Employee Benefits Division(EBD)
The following table sets forth the results of operations for Guarantee
Life's Employee Benefits Division for the three and six months ended June 30,
1999 and 1998 (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------
1999 1998 1999 1998
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums........................................... $55,132 $50,728 $108,667 $99,921
Reinsurance premiums ........................................ (985) (1,359) (2,268) (2,489)
--------------- ------------ ------------ -----------
Net earned premiums.......................................... 54,147 49,369 106,399 97,432
Investment income, net....................................... 3,496 3,340 6,505 5,880
Realized investment gains(losses)............................ (406) 113 (317) 429
--------------- ------------ ------------ -----------
Total revenues.................................................... 57,237 52,822 112,587 103,741
Benefits and expenses:
Gross policyholder benefits.................................. 40,462 38,257 76,667 72,781
Recoveries from reinsurers .................................. (1,772) (1,755) (1,746) (1,929)
--------------- ------------ ------------ -----------
Net benefits................................................. 38,690 36,502 74,921 70,852
Acquisition costs and operating expenses..................... 17,818 18,224 35,775 38,232
--------------- ------------ ------------ -----------
Total policyholder benefits and expenses.......................... 56,508 54,726 110,696 109,084
--------------- ------------ ------------ -----------
Income from continuing operations before income taxes............. $729 $(1,904) $1,891 $(5,343)
=============== ============ ============ ===========
</TABLE>
EBD provides group non-medical products including term life, accidental
death and dismemberment, short-term disability, long-term disability (LTD), and
dental; and voluntary (worksite marketed) products.
EBD net earned premiums increased $4.8 million, or 9.7%, for the second
quarter of 1999 over 1998 and $9.0 million, or 9.2%, for the six months ended
June 30, 1999 over 1998. The greatest increases in net earned premiums occurred
in the life, dental, and LTD product lines. Life net earned premiums increased
$1.4 million, or 9.4%, and $2.5 million, or 8.5%, for the three and six month
periods ended June 30, 1999 over 1998. Dental net earned premiums increased $1.4
million, or 8.7%, and $3.0 million, or 9.1%, for the three and six month periods
ended June 30, 1999 over 1998. LTD net earned premiums increased $1.7 million,
or 16.6%, and $3.1 million, or 15.1%, for the three and six month periods ended
June 30, 1999 over 1998. These increases were the result of continued new sales
growth in excess of policy terminations. The increase in LTD net earned premiums
is also attributable to a decrease in reinsurance premiums which changed from
5.9% to 2.5% of direct LTD earned premiums effective April 1, 1999, as Guarantee
Life Insurance increased its retention limits.
EBD net benefits increased $2.2 million, or 6.0%, for the second quarter of
1999 over 1998 and $4.1 million, or 5.7%, for the six months ended June 30, 1999
over 1998. This increase is caused by higher premium volumes, particularly in
the life and LTD lines of business, offset by more favorable dental and LTD loss
ratios. The life loss ratio has increased slightly for the six months ended June
30, 1999 over 1998 due particularly to a greater number of large claims in 1999;
however, management does not believe there are significant trends associated
with this increase. Life net benefits increased $1.7 million, or 17.3%, and $2.0
million, or 9.8%, for the three and six month periods ended June 30, 1999 over
1998. LTD net benefits increased $0.7 million, or 9.2%, and $1.6 million, or
11.1%, for the three and six month periods ended June 30, 1999 over 1998. These
increases for the quarter ended June 30, 1999 were partially offset by a
decrease in dental net benefits of $0.3 million, or 2.2%, over second quarter
1998; however, dental net benefits increased $0.6 million, or 2.1%, for the six
month period ended June 30, 1999 over 1998.
EBD expenses decreased $0.4 million, or 2.2%, and $2.5 million, or 6.4%,
for the three and six month periods ended June 30, 1999 over 1998. This decrease
was due to continued improvement of operating unit expenses as a result of
technology, improved training, internal efforts to reduce expenses and avoid
costs, and a higher deferral of costs associated with the acquisition of new
business which will be amortized over the estimated life of the associated new
policies.
9
<PAGE>
Insurance Operations--Group Special Markets Division(GSM)
The following table sets forth the results of operations for Guarantee
Life's Group Special Markets Division for the three and six months ended June
30, 1999 and 1998 (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------
1999 1998 1999 1998
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums........................................... $39,282 $28,496 $76,195 $53,701
Reinsurance premiums ........................................ (13,922) (15,635) (26,831) (29,164)
--------------- ------------ ------------ -----------
Net earned premiums.......................................... 25,360 12,861 49,364 24,537
Investment income, net....................................... 693 411 1,297 1,051
Realized investment gains(losses)............................ (63) (3) (63) 76
--------------- ------------ ------------ -----------
Total revenues.................................................... 25,990 13,269 50,598 25,664
Benefits and expenses:
Gross policyholder benefits.................................. 33,570 19,609 64,240 37,600
Recoveries from reinsurers .................................. (12,092) (12,719) (22,638) (23,736)
--------------- ------------ ------------ -----------
Net benefits................................................. 21,478 6,890 41,602 13,864
Acquisition costs and operating expenses..................... 3,355 3,878 9,072 7,660
--------------- ------------ ------------ -----------
Total policyholder benefits and expenses.......................... 24,833 10,768 50,674 21,524
--------------- ------------ ------------ -----------
Income from continuing operations before income taxes............. $1,157 $2,501 $(76) $4,140
=============== ============ ============ ===========
</TABLE>
GSM provides specialty medical products including excess loss insurance,
medical reimbursement insurance for business executives, and group non-medical
products typically sold in conjunction with the excess loss insurance.
GSM net premiums increased $12.5 million, or 97.2%, and $24.8 million, or
101.2%, for the three and six month periods ended June 30, 1999 over 1998. The
design of the medical reimbursement product was changed so that the product is
an experience rated retro premium product in which the insured pays a fixed
premium initially and experience rated premiums vary based on actual paid
claims. The design change was implemented January 1, 1999 and resulted in
premiums, claims, and commissions being accounted for and reported on a gross
basis. Prior to 1999 and with the previous design of this product, premiums
were accounted for and reported net of claims and commissions, similar to
minimum premium plans. As a result, medical reimbursement net earned premiums
increased $14.7 million and $25.8 million for the three and six month periods
ended June 30, 1999 over 1998.
The increases in the medical reimbursement net premiums were partially
offset by decreases in excess loss and life net premiums. Excess loss net
premiums decreased $0.8 million, or 16.7%, for the three months ended June 30,
1999 over 1998 and were consistent for the six months ended June 30, 1999 over
1998. Life net premiums decreased $0.9 million, or 19.9%, and $1.1 million, or
11.0%, for the three and six month periods ended June 30, 1999 over 1998. In
the second half of 1998, excess loss underwriting guidelines were strengthened;
therefore, the amount of excess loss business written decreased. Since a
considerable amount of life business is sold in conjunction with excess loss,
the decrease in sales of excess loss contributed to a decrease in life premiums
as well.
GSM net benefits increased $14.6 million, or 211.7%, and $27.7 million, or
200.1%, for the three and six month periods ended June 30, 1999 over 1998. Due
to the design change of the medical reimbursement product, net benefits for this
product increased $14.3 million and $24.8 million for the three and six month
periods ended June 30, 1999 over 1998. Excess loss net benefits decreased $0.4
million, or 9.7%, and increased $2.5 million, or 31.0%, for the three and six
month periods ended June 30, 1999 over 1998.
The deterioration in loss is attributable to both the excess loss and
medical reimbursement product lines. Loss ratios for excess loss in 1999 have
been adversely affected by 1997 and 1998 experience. With the design change of
the medical reimbursement product, premiums and claims are accounted for on a
gross basis; therefore, the loss ratio exceeds 85.0% for both the three and six
months ended June 30, 1999. In 1998, premiums for the medical reimbursement
product were reported net of claims and commissions resulting in no loss
ratio.
GSM net results from continuing operations decreased $1.3 million, or
53.7%, and $4.2 million, or 101.8%, for the three and six months ended June 30,
1999 over 1998. The primary cause of the decrease for the three months is the
combination of the lower premium volume for the life product line and slightly
higher benefits and expenses for the same product line as compared to the three
months ended June 30, 1998. The decline in profitability for the six months is
primarily attributable to higher loss ratios for the excess loss product line.
Excess loss results in the first half of 1999 were adversely affected by
experience resulting from 1997 and 1998 policy years. Due to the adverse
experience which emerged in 1998, the underwriting standards and procedures were
strengthened.
Insurance Operations--Individual Division
The following table sets forth the results of operations for Guarantee
Life's Individual Division for the three and six months ended June 30, 1999 and
1998 (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------
1999 1998 1999 1998
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums........................................... $27,894 $22,241 $54,867 $41,373
Reinsurance premiums ........................................ (4,161) (3,532) (8,127) (6,587)
--------------- ------------ ------------ -----------
Net earned premiums.......................................... 23,733 18,709 46,740 34,786
Investment income, net....................................... 21,581 19,160 44,673 36,952
Realized investment gains(losses)............................ 81 962 359 740
Other income................................................. -- -- 1,750 --
--------------- ------------ ------------ -----------
Total revenues.................................................... 45,395 38,831 93,522 72,478
Benefits and expenses:
Gross policyholder benefits.................................. 25,979 22,648 53,747 43,261
Recoveries from reinsurers .................................. (2,985) (2,427) (7,098) (4,269)
--------------- ------------ ------------ -----------
Net benefits................................................. 22,994 20,221 46,649 38,992
Acquisition costs and operating expenses..................... 11,370 10,516 26,186 20,043
Dividends to policyholders................................... 2,513 2,775 5,275 5,803
--------------- ------------ ------------ -----------
Total policyholder benefits and expenses.......................... 36,877 33,512 78,110 64,838
--------------- ------------ ------------ -----------
Income from continuing operations before income taxes............. $8,518 $5,319 $15,412 $7,640
=============== ============ ============ ===========
</TABLE>
10
<PAGE>
Effective May 31, 1998, The Guarantee Life Companies Inc. acquired
Westfield from Ohio Farmers Insurance Company. Westfield's results of operations
are included in Guarantee Life's consolidated results beginning June 1, 1998.
Net premiums and policyholder assessments increased $5.0 million, or 26.9%,
for the quarter ended June 30, 1999 over 1998 and $12.0 million, or 34.4%, for
the six months ended June 30, 1999 over 1998. The three and six month periods
ended June 30, 1998 contain only one month of results for Westfield (as
indicated above) due to the acquisition effective May 31, 1998. Therefore,
Westfield accounts for $4.1 million and $10.7 million of the increases in net
premiums and policyholder assessments for the three and six month periods ended
June 30, 1999 over 1998. The remaining increases for both the quarter and the
six months ended June 30, 1999 are a result of increased premium volumes for
Guarantee Life Insurance products.
Other income increased $1.75 million for the six month period ended June
30, 1999 over 1998. The increase relates to a $1.75 million death benefit on a
director's policy for which PFG was the beneficiary. The increase for the
quarter and the remaining increase for the six months is the result of increased
sales volume of Guarantee Life Insurance and AGL term life products.
Individual net policyholder benefits increased $2.8 million, or 13.7%, for
the quarter ended June 30, 1999 over 1998 and $7.7 million, or 19.6%, for the
six months ended June 30, 1999 over 1998. This increase is due to the Westfield
acquisition which accounts for $3.7 million and $10.3 million of the increase
for the quarter and six months ended June 30, 1999 over 1998. These increases
are partially offset by a decrease of $0.4 and $1.9 million in claims at
Guarantee Life Insurance and a decrease of $0.5 and $0.7 million in claims at
AGL for the three and six month periods ended June 30, 1999, respectively.
Individual expenses increased $0.9 million, or 8.1%, and $6.1 million, or
30.6%, for the three and six month periods ended June 30, 1999 over 1998. This
increase relates partially to the increase in operating expenses for Westfield
of $2.1 million in the second quarter and $4.3 million for the first six months
of 1999 as compared to the one month included in 1998 results. Guarantee Life
Insurance Individual Division expenses decreased $1.2 million for the quarter
and increased $0.2 million for the six months ended June 30, 1999 over 1998. The
decrease for the quarter relates almost entirely to the allocation of Guarantee
Life Insurance corporate expenses as corporate expenses were overallocated to
the Individual Division during the first quarter of 1999. Therefore, in second
quarter 1999, a correction was made to properly state the allocated expenses for
the six months ended June 30, 1999. PFG expenses increased $0.5 million for the
quarter and $2.6 million for the six months ended June 30, 1999 over 1998. The
increases at PFG for both the quarter-to-date and year-to-date June 30, 1999
expenses over the same periods in 1998 are attributable to a write-off of
goodwill and allocation of management expenses from Guarantee Life Insurance.
Policyholder dividends decreased $0.3 million, or 9.4%, and $0.5 million,
or 9.1%, for the three and six month periods ended June 30, 1999 over 1998,
reflecting a reduced dividend scale.
Corporate Administration
The three business segments of Guarantee Life share a common need for
various services such as finance and accounting, investment management, agent
licensing and commissions, legal and compliance, and marketing. In an effort to
operate efficiently, these functions are consolidated in the area of corporate
administration ("Corporate"). Corporate's operations include the cost of these
services provided to all of Guarantee Life, as well as those services provided
to its shareholders.
Virtually all costs associated with providing the above services are
allocated to the segments and are reflected in their operating results, with the
exception of debt costs and the costs associated with shareholder services.
Revenues for Corporate consist almost entirely of investment income and realized
gains or losses.
The following table sets forth the results of operations of Corporate for
the three and six months ended June 30, 1999 and 1998 (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------
1999 1998 1999 1998
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Total revenues.................................................... $262 $(275) $591 $483
Gross policyholder benefits....................................... 1 1 1
Total expenses.................................................... 3,485 1,778 5,234 2,504
--------------- ------------ ------------ -----------
Income before taxes............................................... $(3,223) $(2,054) $(4,644) $(2,022)
=============== ============ ============ ===========
</TABLE>
Total expenses increased $1.7 million, or 96.0%, for the quarter ended June
30, 1999 over 1998 and $2.7 million, or 109.0%, for the six months ended June
30, 1999 over 1998. These increases are attributable primarily to the interest
expense associated with the outstanding debt, as $90.0 million was issued in
conjunction with the Westfield acquisition.
11
<PAGE>
Regulatory Issues
On June 3, 1999 Guarantee Life received notice from the Kansas City office
of the U.S. Department of Labor (the "Department") that it was conducting an
investigation with respect to employee benefit plans of Guarantee Life and its
clients pursuant to Section 504(a)(1) of the Employee Retirement Income Security
Act of 1974 ("ERISA"), to determine whether any person has violated or is about
to violate any provision of Title I of ERISA. Guarantee Life and certain of its
employee benefit plan clients are subject to ERISA in connection with, among
other things, certain policies sold by Guarantee Life's Employee Benefits and
Group Special Markets Divisions. The notice included subpoenas requesting that
certain documents and records be provided to the Department. Guarantee Life
intends to cooperate fully with the Department.
No claims or charges have been asserted against Guarantee Life as a result
of the investigation and the Department states that its investigation should not
be construed as an indication that any violations of ERISA have occurred or as a
reflection upon any persons involved. Management believes that Guarantee Life's
business practices comply in all material respects with ERISA and that the
investigation will not have a material adverse effect on its business, financial
condition, or results of operations.
Liquidity and Capital Resources
The Guarantee Life Companies Inc.'s ability to pay dividends to its
stockholders and meet its obligations, including debt service and operating
expenses, depends primarily upon receiving sufficient funds from its
subsidiaries. The payment of dividends by Guarantee Life Insurance, AGL (a
wholly owned subsidiary of PFG, Inc.), and Westfield are subject to restrictions
set forth in the insurance laws and regulations of Nebraska and Pennsylvania.
Under state law, Guarantee Life Insurance, AGL, and Westfield may pay, within a
twelve-month period, dividends only from the earned surplus arising from its
business and must receive the prior approval of the state departments to pay a
dividend if such dividend would exceed the greater of (i) 10% of statutory
capital and surplus as of the preceding year end and (ii) the net statutory gain
from operations for the previous calendar year. State law gives the Department
of Insurance broad discretion to disapprove requests for dividends in excess of
these limits.
In December 1998, the Board of Directors of Westfield declared and paid a
$20 million extraordinary distribution of excess capital to the Holding Company.
The State of Nebraska approved this transaction. In September 1998, AGL's Board
of Directors declared and paid a $2.4 million dividend to PFG, Inc. In 1999,
Guarantee Life insurance can declare a dividend of up to $12.5 million without
permission from the Nebraska Department of Insurance. AGL can declare a dividend
of up to $1.9 million without permission from the Pennsylvania Department of
Insurance. Westfield cannot declare a dividend in 1999 without permission from
the Nebraska Department of Insurance.
Guarantee Life increased its outstanding debt obligations by $1.25 million
to $115.0 million during the three months ended June 30, 1999. The total
obligation consists of $75.0 million under the Company's Senior Secured Term
Loan ("Term Loan") and $40.0 million under the Company's Revolving Credit
Facility.
Management believes that the current amortization of the Term Loan ($3.75
million per quarter) and a lack of significant and sustained improvement in
earnings, particularly in EBD, could create a liquidity constraint at the
Holding Company beyond 1999 unless other actions are taken. As reported in the
Statement of Cash Flows, the net cash flow from operating activities for the six
months ended June 30, 1999 was negative. The sale of equity securities and
short-term investments was used to fund this negative cash flow. Actions to
alleviate liquidity constraints could include, but are not limited to, the
issuance of long-term debt securities, reinsurance, or other financing
alternatives. Management believes these sources will provide sufficient
liquidity for the Holding Company to meet its future obligations.
Year 2000 Issues
Guarantee Life recognizes the significance and technological impact that
the Year 2000 (Y2K) challenge will have on organizations world-wide and has
established a comprehensive plan to achieve compliance. Our overall goal is to
ensure that we continue to provide quality products and services with no
interruption to our customers. Overall Y2K renovation and certification efforts
are nearly complete across the company. Any remaining open items are reviewed on
a weekly basis with senior management. We also continue to focus not only on our
internal systems, but also whether or not our key business partners, vendors,
and suppliers will be compliant in the next millennium.
While Y2K-related work had been in process much earlier, formal project
organization and impact assessment activities began in November 1996. A
separate, dedicated corporate team was put in place in March 1997 to lead our
compliance efforts and provide guidance and support to our specific Y2K projects
across the company. Using standard project methodology and management processes,
Guarantee Life is taking a phased approach towards Y2K compliance. Five major
phases have been identified for this effort: Impact Assessment, Infrastructure &
Methods, Renovation, Certification and Implementation.
12
<PAGE>
Impact Assessment
During the assessment phase, mission critical applications impacted were
identified and a high-level budget was developed and approved. The total cost of
Y2K compliance is estimated at approximately $2.9 million through 2000. This
represents approximately 7% of the total Information Technology (IT) budget over
this time period. The Y2K-related expenses incurred by year are as follows:
1997 $ 800,000
1998 $ 1,062,000
1999 (through 6/30) $ 312,000
Correction of the Y2K issues is a high priority project and other
lower-priority IT projects have been deferred due to Y2K efforts. However, the
company does not believe the deferral of other IT projects has had a material
effect on financial condition or results of operations. The Company's IT staff
has continued to work on other high priority projects concurrent with the Y2K
project.
Infrastructure
Progress of Guarantee Life's core information technology infrastructure and
application areas is measured for the mainframe, midrange and client/server
environments. Over 250 third party application packages and over 130 custom
applications and external interfaces have been inventoried and are being tracked
for compliance.
Renovation
IT Systems - A renovation strategy was defined for each of our mission
----------
critical applications. In some cases, it was decided to upgrade vendor supplied
software with Y2K-compliant releases. In other cases, decisions were made to
replace software altogether taking advantage of new functionality. For most
in-house developed applications, modifications are being made to ensure
compliance.
Several of our policy administration and claims processing applications
have either been renovated through vendor-supplied upgrades or replaced with
packages that we believe, based on our testing, are Y2K-compliant. Most of the
system replacements had been planned and were merely accelerated due to the Y2K
issues. In the Individual Division significant model office testing has been
conducted to ensure compliance and the updated systems have been put into
production successfully. We believe that all Y2K issues have been addressed and
completed with respect to all mission critical applications in EBD and GSM. The
existing mainframe administration and claims systems were renovated in 1998 for
contingency purposes. We will continue to perform quality assurance testing of
our key systems throughout 1999.
Our existing general ledger and accounts payable applications were replaced
in 1997 with a new vendor-supplied package that we believe, based on our
testing, is Y2K-compliant. Human Resource administration and payroll systems
were successfully upgraded in 1998. These systems and our vendor-supplied
Investment systems have been tested and are believed to be Y2K-compliant. Other
smaller, non-critical applications will either be renovated or replaced in 1999.
Less than ten of these applications remain to be addressed.
Each of our major operating platforms has been upgraded. A complete
inventory of data center hardware and software has been completed and assessed.
Test environments are in place on each platform. A separate network lab is
available for testing business software and end user computing applications.
Over 98% of the applications have been tested to date. In addition, our imaging
and fax software were upgraded successfully in April 1998. Three final mainframe
system software upgrades remain and are planned for completion in early August
1999. All home office workstations have been upgraded. Less than ten workstation
upgrades remain, all of which will be completed in the third quarter 1999.
PFG's core administrative systems were developed to accommodate a
four-digit year. The operating system software was upgraded in 1998. Key
application systems and infrastructure will continue to undergo further
certification testing in 1999. To-date, no Year 2000-related issues have been
uncovered through this testing. Final verification of all tests is expected to
be completed by August 1999. Other software/hardware components and business
partners' compliance status are currently being validated. It was discovered
that an upgrade of the voice mail system is needed and will be completed by
September 1999. Existing Westfield Life business is administered through a third
party administrator, who has indicated their primary system is Y2K-compliant.
New business is administered on the Guarantee Life Individual administrative
system at the home office, which was renovated in June 1998.
Non-IT Systems - All of our major suppliers and vendors providing services
--------------
related to our facilities have been contacted. Our telephone switch has been
tested and appears to be Y2K-compliant. The voice mail system was upgraded and
tested for Y2K compliance in May 1998. Call accounting software was also
upgraded in October 1998. Our elevators are not impacted by the year 2000. Our
security and climate control software applications passed rollover tests in
March 1999. We have contacted our telecommunications, gas, water and electric
13
<PAGE>
utility companies regarding their Y2K compliance status. They have all
communicated that their renovation efforts are in progress and will be completed
by the year 2000.
Certification
Recognizing that over fifty percent of the effort on Y2K projects is spent
in the testing phases, Guarantee Life is committed to ensuring that our
remediation efforts go through thorough unit, integration, regression and
end-to-end testing. A testing tool was purchased specifically for this effort.
To-date, rollover tests (i.e. changed the CPU date past 2000) have been
performed on our network servers, AS/400, mainframe and HP UNIX platforms. A
Y2K-specific rollover test was successfully conducted at our Business Recovery
test site in December 1998. Plans have been established to continue testing
business cycles using significant dates (e.g. 12/31/1999, 2/29/2000) on all of
our platforms in 1999.
Completing our Internal Remediation
Our Impact Assessment and Infrastructure & Methods phases are completed.
Ninety percent of the Renovation and Certification phases are complete.
Additional certification testing (e.g. of third-party providers' systems), final
workstation upgrades and final business partner risk assessment and contingency
planning is ongoing duing 1999.
Guarantee Life is actively monitoring the compliance programs of its key
business partners, vendors and suppliers. Over 345 business partners have been
inventoried and are being tracked for compliance. Significant progress was made
this past quarter in testing with our key business partners. There are several
tests remaining due to partner test schedules. All critical interface testing is
scheduled to be complete in the third quarter.
The team is particularly focusing on assessing any Y2K risk associated with our
key administrative and marketing arrangements. In particular, we continue to
work with a major third-party administrator to ensure that they have appropriate
plans.
Risks and Business Contingency Planning
Guarantee Life believes that its most reasonably likely worst case Y2K
scenario will include these elements: (1) one or more of Guarantee Life's
third-party providers will be unable to provide the services expected, and (2)
one or more parts of Guarantee Life's processing software will operate
incorrectly. At this time, we are unable to estimate the potential loss of
revenue due to such a scenario. Guarantee Life believes that its testing of its
critical hardware and software will reveal any significant Y2K problems, that
such problems will be capable of remediation, and that Guarantee Life's software
and hardware will perform substantially as planned when Year 2000 processing
begins.
Guarantee Life will continue to evaluate situations where indicators point
to a potential risk of failure. In these cases, contingency plans are being
developed to identify alternative strategies. We have leveraged our existing
business recovery plan to develop a Y2K-specific contingency plan, identifying
proactive measures and specific contingencies for the transition to the Year
2000. A Y2K Event Team has been established and a Command Center will be put in
place at the end of the year. Specific policies have been communicated across
the company regarding availability of support resources during this period. Our
Y2K contingency plan is expected to be finalized in August 1999. A "mock" Y2K
test will be held in October 1999 to validate these plans.
The foregoing Y2K discussion contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
Guarantee Life expects to substantially complete programming changes,
remediation and testing of systems and the impact of the redeployment of
existing staff, are based on management's best current estimates, which were
derived utilizing numerous assumptions about future events, including the
continued availability of certain resources, representations received from third
party service providers and other factors. However, there can be no guarantee
that these estimates will be achieved, and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to identify and cover all
relevant computer systems, results of Y2K testing, adequate resolution of Y2K
issues by businesses or other third parties who are service providers,
suppliers, customers of Guarantee Life, unanticipated system costs, the need to
replace hardware, the adequacy of and ability to implement contingency plans and
similar uncertainties. The "forward-looking statements" made in the foregoing
Y2K discussion speak only as of the date on which such statements are made, and
Guarantee Life undertakes no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such statement is
made or to reflect the occurrence of unanticipated events.
14
<PAGE>
New Accounting Pronouncements
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be implemented on January 1,
2000, and included in Guarantee Life's December 31, 2000 financial statements.
SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities and measure them at fair value. The
accounting for changes in the fair value of a derivative will be determined by
the intended use of the derivative. Early implementation of SFAS 133 would have
resulted in an insignificant change in net income. In June 1999, the FASB issued
SFAS 137, deferring SFAS 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
There have been no material changes in reported market risks faced by
Guarantee Life since the end of the most recent fiscal year end.
PART 11 - OTHER INFORMATION
ITEMS 1, 2, 3, and 5 are either inapplicable or are answered in the
negative and are omitted pursuant to the instructions to Part II.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders (the "Annual Meeting") was
held on May 13, 1999. One matter was voted upon at the Annual Meeting and the
results are shown below.
Election of Directors. The following directors were re-elected:
---------------------
Withhold Authority
Director For to Vote for Nominee Term
-------- --- ------------------- ----
C. R. Bob Bell 5,793,878 147,186 3 years
Thomas T. Hacking 5,795,628 145,436 3 years
A. J. Scribante 5,789,336 151,728 3 years
Directors whose terms of office continued after the Annual Meeting:
Robert D. Bates
Theodore C. Cooley
Lee M. Gammill, Jr.
James M. McClymond
Bernard W. Reznicek
Janice D. Stoney
William F. Welsh II
Further information regarding the election of directors is contained in the
Company's proxy statement dated April 12, 1999.
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) The following exhibits are being filed pursuant to Item 6(a) of Form 10-Q.
10(w) Amendment to Employment Agreement of Robert D. Bates
10(x) Guarantee Life Insurance Company Deferred Compensation Plan, as
amended and restated effective as of December 1, 1996
10(y) Amendment to the Guarantee Life Insurance Company Deferred
Compensation Plan
10(z) Amendment No. 2 to the Guarantee Life Insurance Company Deferred
Compensation Plan
10(aa) Guarantee Life Insurance Company Board of Directors Deferred
Compensation Plan, as amended and restated effective as of
December 1, 1996
10(bb) Amendment to the Guarantee Life Insurance Company Board of
Directors Deferred Compensation Plan
10(cc) Amendment No. 2 to the Guarantee Life Insurance Company Phantom
Stock Plan
15
<PAGE>
10(dd) Amendment No. 6 to The Guarantee Life Companies Inc. Long-Term
Incentive Plan
10(ee) Amendment to The Guarantee Life Companies Inc. Executive
Severance Plan
10(ff) Stock Option Early Exercise Incentive Program
10(gg) Third Revised Exhibit A to The Guarantee Life Companies Inc.
and Guarantee Life Insurance Company Executive Severance Plan
27 Financial Data Schedule
------------------------------------------------------------------------
(b) Guarantee Life did not file any reports on Form 8-K during the quarter
ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
THE GUARANTEE LIFE COMPANIES INC.
Date: November 23, 1999
/s/ WILLIAM L. BAUHARD
----------------------
William L. Bauhard
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 861,075
<DEBT-CARRYING-VALUE> 139,699
<DEBT-MARKET-VALUE> 140,890
<EQUITIES> 27,722
<MORTGAGE> 108,310
<REAL-ESTATE> 3,178
<TOTAL-INVEST> 1,518,086
<CASH> 31,969
<RECOVER-REINSURE> 91,962
<DEFERRED-ACQUISITION> 146,375
<TOTAL-ASSETS> 1,973,473
<POLICY-LOSSES> 254,871
<UNEARNED-PREMIUMS> 12,046
<POLICY-OTHER> 793,281
<POLICY-HOLDER-FUNDS> 47,035
<NOTES-PAYABLE> 115,000
0
0
<COMMON> 103
<OTHER-SE> 212,216
<TOTAL-LIABILITY-AND-EQUITY> 1,973,473
192,979
<INVESTMENT-INCOME> 42,291
<INVESTMENT-GAINS> (1,073)
<OTHER-INCOME> 4,073
<BENEFITS> 152,590
<UNDERWRITING-AMORTIZATION> 28,555
<UNDERWRITING-OTHER> 44,542
<INCOME-PRETAX> 12,583
<INCOME-TAX> 4,404
<INCOME-CONTINUING> 8,179
<DISCONTINUED> 79
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<CHANGES> 0
<NET-INCOME> 8,258
<EPS-BASIC> .89
<EPS-DILUTED> .88
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