<PAGE>
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _________ to _________.
Commission file number 0-26652
TRANSPORT HOLDINGS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3595073
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
714 MAIN STREET 76102
FORT WORTH, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (817) 390-8000
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
As of October 31, 1996, there were 1,592,048 shares of the registrant's Class A
Common Stock, $.01 par value, outstanding.
________________________________________________________________________________
<PAGE>
TRANSPORT HOLDINGS INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations. . . . 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . 14
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of Security Holders. . 14
Item 5. Other Information. . . . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 14
<PAGE>
TRANSPORT HOLDINGS INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
(in thousands)
September 30, December 31,
1996 1995
Assets (unaudited) (a) <F1>
----------- -----------
<S> <C> <C>
Fixed maturities available for sale, at market
(cost: 1996 - $476,722; 1995 - $482,626) $ 482,993 $ 518,303
Equity securities, at market
(cost: 1996 - $76; 1995 - $1,850) 1,074 3,473
Mortgage loans on real estate 8,335 9,348
Investment in real estate 301 195
Policy loans 16,886 18,487
Short-term investments 33,831 22,952
Other investments 6,212 4,872
----------- -----------
Total investments 549,632 577,630
Cash and cash equivalents 742 2,198
Accrued investment income 5,704 6,258
Premiums due and unpaid 3,339 4,918
Due from reinsurers 328,564 298,867
Due from agents 3,408 5,332
Value of insurance in force 10,778 12,177
Deferred policy acquisition costs 28,392 29,531
Debt issue costs 3,439 3,738
Other assets 7,868 9,839
----------- -----------
Total assets $ 941,866 $ 950,488
=========== ===========
(Continued)
</TABLE>
1
<PAGE>
TRANSPORT HOLDINGS INC.
Condensed Consolidated Balance Sheets, Continued
<TABLE>
<CAPTION>
(in thousands)
September 30, December 31,
1996 1995
Liabilities and Stockholders' Equity (unaudited) (a) <F1>
----------- -----------
<S> <C> <C>
Notes payable to banks $ 58,250 $ 60,250
Subordinated convertible notes payable 50,000 50,000
Future policy benefits 344,256 315,253
Unearned premiums 34,682 39,961
Policy and contract claims 241,653 229,179
Other policyholder funds 2,802 3,130
Income taxes payable 17,453 28,074
Accrued expenses and other liabilities 18,551 20,546
----------- -----------
Total liabilities 767,647 746,393
Stockholders' equity
Preferred stock, $0.01 par value per share, 2,000,000
shares authorized; shares issued and outstanding:
91,030 at September 30, 1996, 182,060 at December 31,
1995; redemption value: $25,630 at September 30, 1996,
$46,911 at December 31, 1995 22,758 45,515
Class A common stock, $0.01 par value per share,
8,000,000 shares authorized; shares issued and
outstanding: 1,592,048 at September 30, 1996, 1,590,461
at December 31, 1995 16 16
Class B common stock, $0.01 par value per share,
2,000,000 shares authorized, none issued - - - -
Paid in capital 169,732 169,665
Unrealized appreciation of securities, net 4,725 24,245
Retained (deficit) (23,012) (35,346)
----------- -----------
Total equity 174,219 204,095
----------- -----------
Total liabilities and stockholders' equity $ 941,866 $ 950,488
=========== ===========
<FN>
<F1>
(a) Condensed from audited financial statements.
</FN>
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
2
<PAGE>
TRANSPORT HOLDINGS INC.
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Net premium income $ 26,829 $ 51,449 $ 82,451 $ 160,067
Investment income, net of related expenses 9,673 13,668 29,552 39,708
Realized investment gains 20 (449) 334 (80)
Other income 794 - - 1,394 - -
----------- ----------- ----------- -----------
Total revenues 37,316 64,668 113,731 199,695
Benefits and expenses:
Incurred claims and other policy benefits, net 17,040 34,762 54,101 108,479
Commissions 5,933 10,573 17,266 33,728
Capitalization of deferred policy acquisition costs (1,098) (2,838) (3,686) (10,495)
Amortization of deferred policy acquisition costs
and value of insurance in force 2,004 6,837 6,224 18,174
Interest expense and amortization
of debt issue costs 2,238 - - 6,795 - -
Expenses of spin-off and related transactions - - 2,209 - - 2,209
Other operating expenses 2,856 5,959 10,810 19,309
----------- ----------- ----------- -----------
Total benefits and expenses 28,973 57,502 91,510 171,404
----------- ----------- ----------- -----------
Income before tax 8,343 7,166 22,221 28,291
Provision for federal income tax 2,920 3,048 7,777 10,133
----------- ----------- ----------- -----------
Net income $ 5,423 $ 4,118 $ 14,444 $ 18,158
=========== =========== =========== ===========
Earnings per share:
Primary $ 2.88 $ 238.20 a <F2> $ 6.73 $ 3,116.72 a <F2>
=========== =========== =========== ===========
Fully diluted $ 1.68 $ 121.89 b <F3> $ 4.06 $ 1,594.82 b <F3>
=========== =========== =========== ===========
<FN>
<F2>
(a) Primary earnings per share was based on average shares outstanding of 17,288
for the three months ended September 30, 1995 and 5,826 for the nine months
then ended. Earnings per share as if the entire 1,590,461 shares outstanding
after the September 29, 1995 distribution had been outstanding for the entire
period would have been $2.59 for the three months ended September 30, 1995 and
$11.42 for the nine months then ended.
<F3>
(b) Fully diluted earnings per share was based on average shares outstanding of
33,786 for the three months ended September 30, 1995 and 11,386 for the nine
months then ended. Earnings per share as if the entire 3,108,266 shares
outstanding on a fully diluted basis after the September 29, 1995 distribution
had been outstanding for the entire period would have been $1.32 for the three
months ended September 30, 1995 and $5.84 for the nine months then ended.
</FN>
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
3
<PAGE>
TRANSPORT HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(in thousands)
Nine Months Ended
September 30,
1996 1995
----------- -----------
<S> <C> <C>
Operating activities:
Net income $ 14,444 $ 18,158
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of securities (334) 80
Accretion of bond discount or premium (1,562) (1,059)
Amortization debt issue costs 454 - -
Directors fees paid in capital stock 67 - -
Change in assets and liabilities:
Accrued investment income 554 214
Premiums due and unpaid 1,579 1,146
Due from reinsurers (29,697) 12,114
Due from agents 1,924 1,774
Value of insurance in force 1,399 1,847
Deferred policy acquisition costs 1,139 5,831
Other assets 1,972 1,686
Reserves for future policy benefits and claims 35,870 11,778
Income taxes payable (110) (1,849)
Accrued expenses and other liabilities 1,109 (270)
----------- -----------
Net cash provided by operating activities 28,808 51,450
Investing activities:
Sale of fixed maturities 64,251 143,190
Maturity of fixed maturities 5,150 - -
Sale of common stock 2,487 53,170
Sale of preferred stock - - 1,936
Sale of investment in Travelers - - 35,200
Sale of real estate - - 16,585
Sale of mortgage - - 7,000
Purchase of fixed maturities (62,336) (300,359)
Purchase of common stock - - (46,637)
Principal payments on mortgages 1,013 1,508
Principal payments on policy loans 1,601 1,662
Security transactions in course of settlement (3,104) - -
Change in short-term and other invested assets (12,303) 23,652
----------- -----------
Net cash used in investing activities (3,241) (63,093)
Financing activities:
Issuance of long term debt - - 112,000
Debt issue costs - - (3,868)
Dividends paid - - (105,000)
Cost of preferred stock issue - - (466)
Issuance of warrants - - 93
Redemption of preferred stock (24,868) - -
Principal payments on bank debt (2,000) - -
Cost of borrowings capitalized (155) - -
----------- -----------
Net cash used in financing activities (27,023) 2,759
Decrease in cash and cash equivalents (1,456) (8,884)
Cash and cash equivalents at beginning of period 2,198 3,096
----------- -----------
Cash and cash equivalents at end of period $ 742 $ (5,788)
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for taxes $ 7,561 $ 11,982
Interest paid $ 6,696 $ - -
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
TRANSPORT HOLDINGS INC.
Condensed Consolidated Statement of Stockholders' Equity
(unaudited)
(in thousands except share amounts)
<TABLE>
<CAPTION>
Unrealized
appreciation
Preferred Stock Class A Common Stock (depreciation)
Shares Shares Paid in of securities, Retained
Issued Amount Issued Amount Capital net Deficit Total
-------- -------- --------- ------ --------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995 182,060 $ 45,515 1,590,461 $ 16 $ 169,665 $ 24,245 $ (35,346) $ 204,095
Net income 14,444 14,444
Issuance of shares to directors 1,587 0 67 67
Redemption of preferred stock (91,030) (22,757) (2,110) (24,867)
Unrealized investment losses,
net of taxes (19,520) (19,520)
-------- -------- --------- ------ --------- -------------- ---------- ----------
Balance, September 30, 1996 91,030 $ 22,758 1,592,048 $ 16 $ 169,732 $ 4,725 $ (23,012) $ 174,219
======== ======== ========= ====== ========= ============== ========== ==========
<FN>
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
TRANSPORT HOLDINGS INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization
Transport Holdings Inc. (the "Company") was incorporated under the laws of the
State of Delaware. The Company is the sole stockholder of Intermediate Holdings
Inc., a Delaware corporation. Intermediate Holdings Inc. is the sole
stockholder of THD Inc., a Delaware corporation organized in 1996 and TLSD
Inc., a Delaware corporation organized in 1995. THD Inc. is the sole
shareholder of TLIC Life Insurance Company, a Texas life insurance company
organized in 1995. TLIC Life Insurance Company is the sole shareholder of
Transport Life Insurance Company, a Texas life insurance company organized in
1958 and in continuous operation since that time. Transport Life Insurance
Company in turn owns all of the common stock of Continental Life Insurance
Company, a Texas insurance company formed and in continuous operation since
1969, and a wholly owned subsidiary of Transport Life Insurance Company since
1971. TLIC Life Insurance Company, Transport Life Insurance Company, and
Continental Life Insurance Company are principally engaged in the
supplemental life and health insurance business.
These condensed consolidated financial statements include the accounts of the
Company, Intermediate Holdings Inc., THD Inc., TLSD Inc., TLIC Life Insurance
Company, Transport Life Insurance Company, and Continental Life Insurance
Company, which have been combined for all periods presented. All material
intercompany accounts and transactions have been eliminated. Prior to
September 1995, there were no material assets, liabilities, or results of
operations for any of the consolidated companies except Transport Life
Insurance Company and Continental Life Insurance Company.
2. Basis of Presentation
The condensed consolidated financial statements as of and for the three months
and nine months ended September 30, 1996 are unaudited and have been prepared by
the Company pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. The interim financial statements
reflect all adjustments, consisting only of normal recurring adjustments, that
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods.
6
<PAGE>
These financial statements should be read in conjunction with the audited
consolidated financial statements and the notes thereto included in the Annual
Report dated March 22, 1996 and furnished to stockholders of the Company. The
results of operations for the three month and nine month periods ended September
30, 1996 should not be considered indicative of the results to be expected for
the entire year.
3. Earnings Per Share
Substantially all of the Company's Class A Common Stock was issued on September
29, 1995. On April 30, 1996, 1,587 shares of Class A Common Stock were issued
to certain of the Company's directors in payment of directors' fees. Primary
earnings per share was based on the weighted average number of Class A shares
outstanding plus the weighted average number of common stock equivalents
outstanding for stock options granted, using the treasury stock method. Fully
diluted earnings per share was based on the number of shares that would be
outstanding if the $50 million of subordinated convertible notes payable were
converted into Class A shares (if such notes were presently convertible into
Class A shares) and assuming the exercise of outstanding stock options using the
treasury stock method. None of the stock options outstanding were exercisable
at September 30, 1996.
On June 28, 1996, the Company redeemed 91,030 shares of preferred stock then
outstanding at a cost of approximately $25 million. Approximately $2 million
was charged to retained deficit for the excess of the redemption price, as
determined pursuant to the preferred stock certificate, over the carrying value
of the shares redeemed. This excess represented cumulative unpaid dividends on
the preferred stock redeemed for the period from issuance (September 29, 1995)
to redemption.
4. Pending Merger with Conseco, Inc.
On September 26, 1996, the Company announced that it had entered into an
agreement to merge with and into Conseco, Inc. of Carmel, Indiana. Under the
terms of the agreement, each share of the Company's common stock would be
exchanged for the number of shares of Conseco, Inc. common stock determined by
dividing $70 by the average trading price of the Conseco stock for the ten
trading days immediately preceding the second trading day prior to closing (such
number to be not more than 1.8301 nor less than 1.4000). The merger is subject
to stockholder and regulatory approvals.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto found under Part I, Item 1,
along with management's discussion and analysis of financial condition and
results of operations found in the Company's Annual Report dated March 22, 1996.
The Company is principally engaged in the supplemental life and health
insurance business through its operating subsidiaries, TLIC Life Insurance
Company, Transport Life Insurance Company and Continental Life Insurance
Company.
PENDING MERGER WITH CONSECO, INC.
On September 26, 1996, the Company announced that it had entered into an
agreement to merge with and into Conseco, Inc. of Carmel, Indiana. Under the
terms of the agreement, each share of the Company's common stock would be
exchanged for the number of shares of Conseco, Inc. common stock determined by
dividing $70 by the average trading price of the Conseco stock for the ten
trading days immediately preceding the second trading day prior to closing (such
number to be not more than 1.8301 nor less than 1.4000). The merger, which is
subject to stockholder and regulatory approvals, is expected to close before the
end of 1996. Stockholders should read the Proxy Statement / Prospectus which
will be furnished in connection with the notice of a special meeting of
stockholders to vote on the proposed merger.
CHANGE IN CAPITALIZATION
On June 28, 1996, the Company redeemed one half of its preferred stock then
outstanding for cash of $25 million. Pursuant to the terms of the preferred
stock, the redemption price included an amount for accrued but undeclared
dividends on the shares redeemed at a rate of 12% per annum compounded quarterly
since issue. The preferred stock was issued on September 29, 1995. The $2
million excess of the redemption price over the carrying value of the shares
redeemed was charged to retained deficit. In connection with the redemption,
the Company's loan agreements for its bank debt were amended at a cost of $0.2
million. These costs were capitalized and will be amortized over the remaining
life of the bank debt.
RESULTS OF OPERATIONS
OVERVIEW
The Company sold its long term care business effective October 1, 1995.
Results for the third quarter of 1996 as compared to the third quarter of 1995,
and the
8
<PAGE>
first nine months of 1996 as compared to the first nine months of 1995, reflect
a reduction in premiums, benefits, and investment income because of the sale of
this business. In addition, the Company incurred interest expense on bank debt
and the subordinated convertible notes in the first three quarters of 1996.
These notes were issued on September 29, 1995.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
PREMIUM INCOME
Premium income, net of reinsurance, decreased by 48% or $24.6 million to $26.8
million for the three months ended September 30, 1996 as compared to the three
months ended September 30, 1995, principally as a result of the sale of the long
term care business. Long term care insurance premiums were $23.7 million in the
third quarter of 1995 as compared to none in the third quarter of 1996. Cancer
insurance premiums declined $0.5 million or 3% to $17.2 million. The decrease
for cancer insurance premiums is attributable to reduced sales in the past
several years. The Company expects the decline in premium income to continue
for at least six months as a result of the declines in new sales in prior
periods.
New annualized premium for cancer and heart/stoke insurance decreased 38% or
$1.2 million to $1.9 million for the three months ended September 30, 1996 as
compared to the three months ended September 30, 1995. The Company believes
that the factors which resulted in sales declines in 1995, 1994 and 1993 have
continued to impact new annualized premium. These factors include the Company's
cancer insurance marketing agencies process of adjusting to a rate increase
environment and to selling policies with more limited radiation and chemotherapy
benefits.
NET INVESTMENT INCOME
Net investment income decreased by 29% or $4 million to $9.7 million for the
three months ended September 30, 1996 as compared to the three months ended
September 30, 1995. The decrease resulted primarily from lower levels of
invested assets because of the redemption of preferred stock and the sale of the
long term care business. Invested assets were $549 million at September 30,
1996 as compared to $798 million at September 30, 1995, a decrease of $249
million or 31%. In December 1995, the Company transferred $250 million to the
buyer of the long term care business in connection with the sale. On June 28,
1996, the Company used $25 million of invested assets to redeem one half of its
preferred stock then outstanding. During the first quarter of 1996, the Company
sold most of its equity securities and reinvested the proceeds in fixed maturity
securities. Equity securities (at market) were $1.1 million at September 30,
1996 as compared to $3.5 million at December 31, 1995.
9
<PAGE>
Investment income is impacted by, among other things, changes in prevailing
market interest rates and the creditworthiness and period to maturity of the
Company's investments. Investment income in future periods may differ from past
experience as a result of changes in any or all of these factors. Significant
increases or decreases in investment income could correspondingly affect future
results of operations.
OTHER INCOME
Other income was $0.8 million in the three months ended September 30, 1996,
relating to incentive management fees on business the Company administers for a
third party. There was no other income in 1995.
NET CLAIMS AND OTHER POLICY BENEFITS
Benefits decreased by 51% or $17.7 million to $17 million for the three months
ended September 30, 1996 as compared to the three months ended September 30,
1995, primarily as a result of the sale of the long term care business.
Benefits for long term care business were $17.3 million in the third quarter of
1995, and none in the third quarter of 1996. Benefits for cancer insurance
increased by $0.3 million to $10.9 million and benefits for major/catastrophic
hospital insurance decreased by $0.7 million. The provision for benefits is
impacted by the number of policyholders who qualify for benefits, along with the
severity and duration of their claims, as well as the Company's estimates of
future obligations on policies currently in force. Any or all of these factors
may change in the future, causing the provision for benefits to increase or
decrease with a corresponding impact on results of operations.
COMMISSIONS AND DEFERRED POLICY ACQUISITION COSTS
Commissions paid decreased by 44% or $4.6 million to $5.9 million for the three
months ended September 30, 1996 as compared to the three months ended September
30, 1995, primarily as a result of the sale of the long term care business.
Commissions for long term care business declined by $4.5 million as compared to
the third quarter of 1995. Commissions paid on cancer, heart/stroke, and other
accident and health insurance declined by $0.6 million or 10% as a result of
lower new sales. First year commissions capitalized declined $0.9 million and
other capitalized expenses related to the production of new business declined
$0.8 million as a result of the sale of the long term care business and lower
new sales of cancer, heart/stroke, and other accident and health insurance.
Amortization of deferred policy acquisition costs and value of insurance in
force declined by 71% or $4.8 million to $2 million for the three months ended
September 30, 1996 as compared to the three months ended September 30, 1995,
primarily as a result of the sale of the long term care business and the
extinguishment of deferred costs associated with that business upon sale.
10
<PAGE>
INTEREST EXPENSE
Interest expense was $2.2 million for the three months ended September 30,
1996. There was no interest expense in the third quarter of 1995, since the
Company's long term borrowings were funded on the last day of that quarter.
EXPENSES OF SPIN-OFF
In the third quarter of 1995, the Company incurred $2.2 million of expenses in
connection with the spin-off completed on September 29, 1995. There were no
costs associated with the spin-off in the quarter ended September 20, 1996.
OTHER OPERATING EXPENSES
Administrative expenses decreased by 52% or $3.1 million to $2.9 million for
the three months ended September 30, 1996 as compared to the three months ended
September 30, 1995. In the third quarter of 1996, the Company received $1.4
million of expense reimbursements related to long term care insurance for costs
of administering the business on behalf of the buyer and premium tax
reimbursements. The remainder of the decrease resulted primarily from staff
reductions made in connection with the sale of the long term care business.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
PREMIUM INCOME
Premium income, net of reinsurance, decreased by 48% or $77.6 million to $82.4
million for the nine months ended September 30, 1996 as compared to the nine
months ended September 30, 1995, principally as a result of the sale of the long
term care business. Long term care insurance premiums were $74.1 million in the
first nine months of 1995 as compared to none in the first nine months of 1996.
Cancer insurance premiums declined $1.6 million or 3% to $51.7 million. The
decrease for cancer insurance premiums is attributable to reduced sales in the
past several years. The Company expects the decline in premium income to
continue for at least six months as a result of the declines in new sales in
prior periods.
New annualized premium for cancer and heart/stoke insurance decreased 24% or
$2.2 million to $7 million for the nine months ended September 30, 1996 as
compared to the nine months ended September 30, 1995. The Company believes that
the factors which resulted in sales declines in 1995, 1994 and 1993 have
continued to impact new annualized premium. These factors include the Company's
cancer insurance marketing agencies' process of adjusting to a rate increase
environment and to selling policies with more limited radiation and chemotherapy
benefits.
11
<PAGE>
NET INVESTMENT INCOME
Net investment income decreased by 26% or $10.2 million to $29.6 million for
the nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995. The decrease resulted primarily from lower levels of
invested assets because of the redemption of preferred stock and the sale of the
long term care business as discussed previously in the analysis of third quarter
results.
Investment income is impacted by, among other things, changes in prevailing
market interest rates and the creditworthiness and period to maturity of the
Company's investments. Investment income in future periods may differ from past
experience as a result of changes in any or all of these factors. Significant
increases or decreases in investment income could correspondingly affect future
results of operations.
OTHER INCOME
Other income was $1.4 million in the nine months ended September 30, 1996,
relating to incentive management fees on business the Company administers for a
third party. There was no other income in 1995.
NET CLAIMS AND OTHER POLICY BENEFITS
Benefits decreased by 50% or $54.4 million to $54.1 million for the nine months
ended September 30, 1996 as compared to the nine months ended September 30,
1995, primarily as a result of the sale of the long term care business.
Benefits for long term care business were $55.2 million in the first nine months
of 1995, and none in the first nine months of 1996. Benefits for cancer
insurance increased by $0.8 million to $33.8 million and benefits for
major/catastrophic hospital insurance decreased by $2.3 million. The provision
for benefits is impacted by the number of policyholders who qualify for
benefits, along with the severity and duration of their claims, as well as the
Company's estimates of future obligations on policies currently in force. Any
or all of these factors may change in the future, causing the provision for
benefits to increase or decrease with a corresponding impact on results of
operations.
COMMISSIONS AND DEFERRED POLICY ACQUISITION COSTS
Commissions paid decreased by 49% or $16.5 million to $17.3 million for the
nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995, primarily as a result of the sale of the long term care
business. Commissions for long term care business declined by $14.8 million as
compared to the first nine months of 1995. Commissions paid on cancer,
heart/stroke, and other accident and health insurance declined by $1.6 million
or 9% as a result of lower new sales. First year commissions capitalized
declined $4 million and other capitalized expenses related to the production of
new business declined $2.8 million as a result of
12
<PAGE>
the sale of the long term care business and lower new sales
of cancer, heart/stroke, and other accident and health insurance.
Amortization of deferred policy acquisition costs and value of insurance in
force declined by 66% or $12 million to $6.2 million for the nine months ended
September 30, 1996 as compared to the nine months ended September 30, 1995,
primarily as a result of the sale of the long term care business and the
extinguishment of deferred costs associated with that business upon sale.
INTEREST EXPENSE
Interest expense was $6.8 million for the nine months ended September 30, 1996.
There was no interest expense in the first nine months of 1995, since the
Company's long term borrowings were funded on the last day of that period.
OTHER OPERATING EXPENSES
Administrative expenses decreased by 44% or $8.5 million to $10.8 million for
the nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995. In the first nine months of 1996, the Company received $4.3
million of expense reimbursements related to long term care insurance for costs
of administering the business on behalf of the buyer and premium tax
reimbursements. The remainder of the decrease resulted primarily from staff
reductions made in connection with the sale of the long term care business.
EARNINGS PER SHARE
The Company was a wholly owned subsidiary of Travelers Group Inc. until
September 29, 1995. Earnings per share are presented for the three months and
nine months ended September 30, 1995. In both cases, the Company's Class A
Common Stock was outstanding for only one day in the period. Supplemental
disclosure is provided on the face of the condensed consolidated statements of
income as if the Class A Common Stock had been outstanding for the entire
period. Earnings per share are also presented for the quarter and nine months
ended September 30, 1996. For the quarter and nine months, respectively, $0.7
million and $3.6 million of earnings accrued to the benefit of the preferred
stockholder. Primary and fully diluted earnings per share include the effect of
outstanding stock options using the treasury stock method. None of the
Company's stock options outstanding were exercisable at September 30, 1996.
Fully diluted earnings per share also includes the effect on earnings per share
had the subordinated convertible notes been converted into Class A Common
shares. These notes are not presently convertible. They become convertible
into Class B Common stock in September 1996 and into Class A Common stock in
2000 (earlier under certain circumstances).
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
<S> <C>
2.1 Agreement and Plan of Merger dated as of September 25, 1996, by and
between Conseco, Inc. ("Conseco") and the Registrant. (1) <F4>
2.2 First Amendment to Agreement and Plan of Merger dated as of November
7, 1996 by and between Conseco and the Registrant. (6) <F9>
3.1(i) Restated Certificate of Incorporation of the Registrant. (2) <F5>
3.2(i) Certificate of Designation of Series A Cumulative Exchangeable
Preferred Stock of the Registrant. (3) <F6>
3.3(ii) Amended and Restated Bylaws of the Registrant. (2) <F5>
4.1 Form of Class A Common Stock Certificate. (4) <F7>
14
<PAGE>
4.2 Subordinated Convertible Loan Agreement dated as of June 12, 1995,
among the Registrant, Travelers Group Inc. ("Travelers") and the
Lenders named therein (the "Lenders"). (4) <F7>
4.3 Amendment No. 1 to Subordinated Convertible Loan Agreement dated as of
August 7, 1995, among the Registrant, Travelers and the Lenders. (3)
<F6>
4.4 Amendment No. 2 to Subordinated Convertible Loan Agreement dated as of
January 16, 1996, among the Registrant, Insurance Partners, L.P. and
Insurance Partners Offshore (Bermuda), L.P. (5) <F8>
4.5 Form of Series A Note. (4) <F7>
4.6 Form of Series B Note. (4) <F7>
4.7 Preferred Stock Registration Rights Agreement among Travelers and the
Registrant dated as of June 12, 1995. (4) <F7>
4.8 Convertible Debt Registration Rights Agreement among the Registrant
and the Lenders dated as of June 12, 1995. (4) <F7>
4.9 Warrants to purchase Class A Common Stock of the Registrant. (3) <F6>
4.10 Warrant Stock Registration Rights Agreement, dated September 29, 1995,
between the Registrant and The Lasater Children's 1995 GST Exempt
Trusts and The Sharpe Children's 1995 GST Exempt Trusts. (3) <F6>
4.11 Form of Indenture between the Registrant as Issuer and ____________ as
Trustee for the Junior Subordinated Exchange Debentures due 2006. (3)
<F6>
4.12 Pledge Agreement between the Registrant and Insurance Partners
Advisors, L.P. as agent. (2) <F5>
11.1 Schedule of Computation of Earnings Per Share. (6) <F9>
27 Financial Data Schedule. (6) <F9>
_______________________
<FN>
<F4>
(1) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated September 25, 1996, and incorporated herein by reference.
<F5>
(2) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995, and incorporated herein
by reference.
<F6>
(3) Previously filed as an exhibit to the Company's Current Report on Form
8-K dated September 29, 1995, and incorporated herein by reference.
15
<PAGE>
<F7>
(4) Previously filed as an exhibit to the Company's Registration Statement
No. 33-94960 on Form S-1, and incorporated herein by reference.
<F8>
(5) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the year ended December 31, 1995, and incorporated herein by
reference.
<F9>
(6) Filed herewith.
</FN>
</TABLE>
b. Reports on Form 8-K
During the quarter covered by this report, the Company filed a current
report on Form 8-K dated September 25, 1996. The Company reported under
item 7 of Form 8-K that the Company had entered into an agreement and
plan of merger with Conseco, Inc. ("Conseco"), dated as of September 25,
1996, pursuant to which Conseco intends to acquire the Company by
merger.
16
<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.
Transport Holdings Inc.
November 13, 1996 By: /S/ DEBORAH V. GREER
_______________________________
Deborah V. Greer
Vice President and Controller
(Chief accounting officer and duly authorized
officer of registrant)
17
<PAGE>
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF
MERGER (the "FIRST AMENDMENT") is made and entered as of the
7th day of November, 1996 by and between CONSECO, INC., an
Indiana corporation ("CONSECO"), and TRANSPORT HOLDINGS
INC., a Delaware corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, Conseco and the Company are parties to an
Agreement and Plan of Merger, dated as of September 25, 1996
(the "MERGER AGREEMENT");
WHEREAS, Conseco and the Company wish to amend
certain provisions of the Merger Agreement regarding the
exchange offer to be made by Conseco pursuant to the
provisions of the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing
premises and the mutual covenants and agreements hereinafter
set forth, the parties hereto, intending to be legally
bound, hereby agree as follows:
1. DEFINED TERMS. Terms used herein with their
initial letters capitalized and not otherwise defined herein
(including those terms so used and not defined in the
recitals above) shall have the respective meanings given
such terms in the Merger Agreement.
2. AMENDMENT OF SECTION 4.19 OF THE MERGER
AGREEMENT. Section 4.19 of the Merger Agreement is hereby
amended to read in its entirety as follows:
4.19 EXCHANGE OFFER. Conseco shall offer to
exchange, as of the Effective Time, shares of
Conseco Common Stock and cash for the outstanding
Series A Notes and Series B Notes as provided in
this Section 4.19. The number of shares of
Conseco Common Stock offered in exchange for each
$1,000 in principal amount of Series A Notes or
Series B Notes, as applicable, shall be equal to
the product of (i) the quotient (rounded to the
nearest ten-thousandth) of (A) $1,000 divided by
(B) the conversion price of the Series A Notes or
Series B Notes, as applicable, multiplied by (ii)
DAFS02...:\46\77946\0004\0231\AMDN016J.12C
<PAGE>
the "Exchange Ratio". As used in this Section
4.19, "Exchange Ratio" shall be equal to the
quotient (rounded to the nearest ten-thousandth)
of (A) $70.00 divided by (B) the Conseco Share
Price. Notwithstanding the foregoing, no
fractional shares of Conseco Common Stock shall be
issued pursuant to such exchange and, in lieu
thereof, Conseco shall make cash payments in the
manner contemplated by Section 1.9(f) of this
Agreement. The amount of cash payable by Conseco
pursuant to such exchange offer (in addition to
amounts payable in lieu of fractional shares of
Conseco Common Stock) in respect of each $1,000
principal amount of Series A Notes or Series B
Notes, as applicable, shall be equal to the sum of
(i) the "Conversion Payment" (as defined below)
and (ii) an amount equal to the accrued and unpaid
interest on such $1,000 principal amount of Series
A Notes or Series B Notes, as applicable, through
and including the Closing Date. The "Conversion
Payment" in respect of each $1,000 in principal
amount of Series A Notes or Series B Notes, as
applicable, shall be an amount equal to the net
present value of the interest that would have
accrued thereon at the rate of 6% per annum from
and after the Effective Time and through and
including the fourth anniversary of the Effective
Time, based on a discount rate of 7.5% per annum
and assuming semi-annual interest payments on
January 31 and July 31 of each year and that the
remainder of interest would be paid on such fourth
anniversary. Conseco agrees to take such action
as is necessary for the making and consummation of
such exchange and the issuance by it of the shares
of Conseco Common Stock pursuant to such offer,
including filing of a registration statement with
the SEC with respect to the shares of Conseco
Common Stock to be issued in exchange for the
Series A Notes and the Series B Notes, as
applicable. At the Company's option, such
registration shall be either included in the Form
S-4 or filed as a separate registration statement.
If a separate registration statement is filed, the
provisions of this Agreement relating to the Form
S-4 will apply to such separate registration
statement. In addition, Conseco agrees that if
any of the shares of Conseco Common Stock issued
in exchange for the Series A Notes and the Series
2
DAFS02...:\46\77946\0004\0231\AMDN016J.12C
<PAGE>
B Notes, as applicable, shall not be immediately
freely tradeable by the holder thereof, then, at
the request of the holder, Conseco shall, as
promptly as practicable, at Conseco's option,
either (i) acquire such shares directly from such
holder at the then current market price, or (ii)
file and have declared effective a registration
statement on Form S-3 (or other appropriate form)
with the SEC to register such shares for resale by
such holder and use commercially reasonable
efforts to keep such registration statement
effective until such time as such shares become
freely tradeable. For purposes of the preceding
sentence, shares which may be sold at such time
pursuant to Rule 144 (as promulgated by the SEC)
shall be considered "freely tradeable."
3. AMENDMENT OF SECTION 6.2(C) OF THE MERGER
AGREEMENT. Section 6.2(c) of the Merger Agreement is hereby
amended to read in its entirety as follows:
(c) EXCHANGE OFFER. Holders of at least 90% of
the aggregate principal amount of Series A and
Series B Notes shall have accepted the offer made
by Conseco pursuant to Section 4.19 to exchange
such Series A and Series B Notes for shares of
Conseco Common Stock and cash as of the Effective
Time.
4. COUNTERPARTS. This First Amendment may be
executed in one or more counterparts, each of which will be
deemed an original and all of which together will constitute
one and the same instrument.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
3
DAFS02...:\46\77946\0004\0231\AMDN016J.12C
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
executed this First Amendment as of the date and year first
above written.
CONSECO:
CONSECO, INC.
By: /s/ Lawrence W. Inlow
---------------------------
Name: Lawrence W. Inlow
Title: Executive Vice President and
General Counsel
COMPANY:
TRANSPORT HOLDINGS INC.
By: Garland M. Lasater, Jr.
---------------------------
Name: Garland M. Lasater, Jr.
Title: President
4
DAFS02...:\46\77946\0004\0231\AMDN016J.12C
<PAGE>
TRANSPORT HOLDINGS INC.
Exhibit 11.1
Schedule of Computation of Earnings Per Share
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary earnings per share:
Net income $ 5,423 $ 4,118 $ 14,444 $ 18,158
Less: income attributable to preferred stock (747) - - (3,587) - -
----------- ----------- ----------- -----------
Net income for primary earnings per share $ 4,676 $ 4,118 $ 10,857 $ 18,158
=========== =========== =========== ===========
Weighted average common stock and common
stock equivalents outstanding during the period 1,625,276 17,288 1,612,393 5,826
=========== =========== =========== ===========
Primary earnings per share $ 2.88 $ 238.20 a <F10> $ 6.73 $ 3,116.72 a <F10>
=========== =========== =========== ===========
Fully diluted earnings per share:
Net income for primary earnings per share $ 4,676 $ 4,118 $ 10,857 $ 18,158
Plus: interest on convertible subordinated notes,
net of applicable income taxes 691 - - 2,087 - -
----------- ----------- ----------- -----------
Net income for fully diluted earnings per share $ 5,367 $ 4,118 $ 12,944 $ 18,158
=========== =========== =========== ===========
Weighted average number of common shares
outstanding during the period, assuming full dilution 3,188,669 33,786 3,185,451 11,386
=========== =========== =========== ===========
Fully diluted earnings per share $ 1.68 $ 121.89 b <F11> $ 4.06 $ 1,594.82 b <F11>
=========== =========== =========== ===========
<FN>
<F10>
(a) Primary earnings per share was based on average shares outstanding of 17,288
for the three months ended September 30, 1995 and 5,826 for the nine months
then ended. Earnings per share as if the entire 1,590,461 shares outstanding
after the September 29, 1995 distribution had been outstanding for the entire
period would have been $2.59 for the three months ended September 30, 1995 and
$11.42 for the nine months then ended.
<F11>
(b) Fully diluted earnings per share was based on average shares outstanding of
33,786 for the three months ended September 30, 1995 and 11,386 for the nine
months then ended. Earnings per share as if the entire 3,108,266 shares
outstanding on a fully diluted basis after the September 29, 1995
distribution had been outstanding for the entire period would have been $1.32
for the three months ended September 30, 1995 and $5.84 for the nine months
then ended.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
The schedule contains summary financial information extracted from Form 10-Q for
the period ended September 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 482,993
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,074
<MORTGAGE> 8,335
<REAL-ESTATE> 301
<TOTAL-INVEST> 549,632
<CASH> 742
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 28,392
<TOTAL-ASSETS> 941,866
<POLICY-LOSSES> 344,256
<UNEARNED-PREMIUMS> 34,682
<POLICY-OTHER> 241,653
<POLICY-HOLDER-FUNDS> 2,802
<NOTES-PAYABLE> 108,250
22,758
0
<COMMON> 16
<OTHER-SE> 151,445
<TOTAL-LIABILITY-AND-EQUITY> 941,866
82,451
<INVESTMENT-INCOME> 29,552
<INVESTMENT-GAINS> 334
<OTHER-INCOME> 1,394
<BENEFITS> 54,101
<UNDERWRITING-AMORTIZATION> 6,224
<UNDERWRITING-OTHER> 24,390
<INCOME-PRETAX> 22,221
<INCOME-TAX> 7,777
<INCOME-CONTINUING> 14,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,444
<EPS-PRIMARY> 6.73
<EPS-DILUTED> 4.06
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
