UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 18, 2003
UICI
(Exact name of registrant as specified in its charter)
Delaware 001-14953 75-2044750
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(State or other jurisdiction of (Commission File (IRS Employer
incorporation or organization) Number) Identification No.)
9151 Grapevine Highway, North Richland Hills, Texas 76180
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 255-5200
Not Applicable
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(Former name or former address, if changed since last report)
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 18, 2003, UICI (the "Company" NYSE: UCI) completed the
previously announced sale of its Academic Management Services Corp. ("AMS") unit
to SLM Corporation (NYSE: SLM). AMS, based in Swansea, MA, markets, originates,
funds and services primarily federally guaranteed student loans and provides
student tuition installment payment plans.
The sale of AMS to Sallie Mae generated net cash proceeds to UICI of
approximately $27.8 million. At closing, UICI also received uninsured student
loan assets formerly held by AMS' special purpose financing subsidiaries with a
face amount of approximately $44.3 million (including accrued interest). The
fair value of the uninsured loans is expected to be significantly less than the
face amount of the loans.
As part of the transaction, Sallie Mae agreed to assume responsibility
for liquidating and terminating the remaining special purpose financing
facilities through which AMS previously securitized student loans.
Reflecting the terms of the then-pending AMS transaction, UICI had
previously announced that it had recorded, in the three and nine months ended
September 30, 2003, a pre-tax loss (classified as a loss from discontinued
operation and consisting of an estimated loss upon disposal of AMS and AMS'
operating results in the periods) in the amount of $(77.5) million ($(66.9)
million net of tax) and $(75.3) million ($(65.6) million net of tax),
respectively. The Company classified AMS as a discontinued operation for
financial reporting purposes at the end of the third quarter.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
Not applicable
(b) Pro forma financial information. The following unaudited Pro
Forma Condensed Consolidated Financial Statements are included
with this report:
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2003 F-1
Pro Forma Condensed Consolidated Statements of Income (Loss)
Year ended December 31, 2002 ..................................... F-2
Nine months ended September 30, 2003 ............................. F-3
The unaudited Pro Forma Condensed Consolidated Balance Sheet of the
Company as of September 30, 2003, reflects the financial position of the Company
after giving effect to the disposition of the Company's Academic Management
Services Corp to SLM Corporation as discussed in Item 2, as if such disposition
took place on September 30, 2003. The unaudited Pro Forma Condensed Consolidated
Statements of Income (Loss) for the fiscal year ended December 31, 2002 and the
nine months ended September 30, 2003 give effect to the disposition of Academic
Management Services Corp. as if such disposition occurred on January 1 of the
respective period presented.
The unaudited Pro Forma Condensed Financial Statements have been
prepared by the Company based upon assumptions deemed proper by it. The
unaudited Pro Forma Condensed Consolidated Financial Statements presented herein
are shown for illustrative purposes only and are not necessarily indicative of
the future financial position or future results of operations of the Company, or
of the
2
financial position or results of operations of the Company that would have
actually occurred had the sale been consummated on the date indicated. The
unaudited Pro Forma Condensed Consolidated Financial Statements should be read
in conjunction with the historical financial statements and related notes of the
Company.
(c) Exhibits
10.85 -- Stock Purchase Agreement, dated October 29, 2003, between UICI
and SLM Corporation, contemplating the sale by UICI, and the
purchase by SLM Corporation, of all issued and outstanding
shares of Academic Management Services Corp.
10.86 -- Amendment to Stock Purchase Agreement, dated November 18,
2003, between UICI and SLM Corporation
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995:
Certain statements set forth herein or incorporated by reference herein
from the Company's filings that are not historical facts are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act.
Actual results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, the Company's ability to maintain adequate
liquidity to satisfy its obligations; changes in general economic conditions,
including the performance of financial markets, and interest rates; competitive,
regulatory or tax changes that affect the cost of or demand for the Company's
products; health care reform; the ability to predict and effectively manage
claims related to health care costs; and reliance on key management and adequacy
of claim liabilities.
The Company's future results will depend in large part on accurately
predicting health care costs incurred on existing business and upon the
Company's ability to control future health care costs through product and
benefit design, underwriting criteria, utilization management and negotiation of
favorable provider contracts. Changes in mandated benefits, utilization rates,
demographic characteristics, health care practices, provider consolidation,
inflation, new pharmaceuticals/technologies, clusters of high-cost cases, the
regulatory environment and numerous other factors are beyond the control of any
health plan provider and may adversely affect the Company's ability to predict
and control health care costs and claims, as well as the Company's financial
condition, results of operations or cash flows. Periodic renegotiations of
hospital and other provider contracts coupled with continued consolidation of
physician, hospital and other provider groups may result in increased health
care costs and limit the Company's ability to negotiate favorable rates. In
addition, the Company faces competitive and regulatory pressure to contain
premium prices. Fiscal concerns regarding the continued viability of
government-sponsored programs such as Medicare and Medicaid may cause decreasing
reimbursement rates for these programs. Any limitation on the Company's ability
to increase or maintain its premium levels, design products, implement
underwriting criteria or negotiate competitive provider contracts may adversely
affect the Company's financial condition or results of operations.
The Company's insurance subsidiaries are subject to extensive
regulation in their states of domicile and the other states in which they do
business under statutes that typically delegate broad regulatory, supervisory
and administrative powers to state insurance departments and agencies. State
insurance departments have also periodically conducted and continue to conduct
financial and market conduct examinations and other inquiries of UICI's
insurance subsidiaries. State insurance regulatory agencies have authority to
levy monetary fines and penalties resulting from findings made during the course
of such examinations and inquiries. Historically, the Company's insurance
subsidiaries have from
3
time to time been subject to such regulatory fines and penalties. While none of
such fines or penalties individually or in the aggregate have to date had a
material adverse effect on the results of operations or financial condition of
the Company, the Company could be adversely affected by increases in regulatory
fines or penalties an/or changes in the scope, nature and/or intensity of
regulatory scrutiny and review.
The Company provides health insurance products to consumers in the
self-employed market in 44 states. A substantial portion of such products is
issued to members of various independent membership associations that endorse
the products and act as the master policyholder for such products. The two
principal membership associations in the self-employed market for which the
Company underwrites insurance are the National Association for the Self-Employed
("NASE") and the Alliance for Affordable Services ("AAS"). The associations
provide their membership with a number of endorsed benefits and products,
including health insurance underwritten by the Company. Subject to applicable
state law, individuals generally may not obtain insurance under an association's
master policy unless they are also members of the associations. UGA agents and
Cornerstone agents also act as field service representatives on behalf of the
associations, in which capacity the agents act as enrollers of new members for
the associations and provide field support services, for which the agents
receive compensation. Specialized Association Services, Inc. (a company
controlled by the adult children of the Chairman of the Company) provides
administrative and benefit procurement services to the associations, and a
subsidiary of the Company sells new membership sales leads to the enrollers and
video and print services to the associations and to Specialized Association
Services, Inc. In addition to health insurance premiums derived from the sale of
health insurance, the Company receives fee income from the associations,
including fees associated with the enrollment of new members, fees for
association membership marketing and administrative services and fees for
certain association member benefits. The agreements with these associations
requiring the associations to continue as the master policyholder and to endorse
the Company's insurance products to their respective members are terminable by
the Company and the associations upon not less than one year's advance notice to
the other party.
Articles in the press have been critical of association group coverage. In
December 2002, the National Association of Insurance Commissioners (NAIC)
convened a special task force to review association group coverage, and the
Company is aware that selected states are reviewing the laws and regulations
under which association group policies are issued. The Company has also recently
been named a party to several lawsuits challenging the nature of the
relationship between the Company's insurance companies and the associations that
have endorsed the insurance companies' health insurance products. While the
Company believes it is providing association group coverage in full compliance
with applicable law, changes in the relationship between the Company and the
membership associations and/or changes in the laws and regulations governing
so-called "association group" insurance (particularly changes that would subject
the issuance of policies to prior premium rate approval and/or require the
issuance of policies on a "guaranteed issue" basis) could have a material
adverse impact on the financial condition, results of operations and/or business
of the Company.
UICI press releases and other company information are available at UICI's
website located at www.uici.net.
4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UICI
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(Registrant)
Date November 24, 2003. By /s/ Mark D. Hauptman
------------------------------
Mark D. Hauptman
Vice President and Chief
Financial Officer
5
UICI
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
(IN THOUSANDS)
(UNAUDITED)
PRO FORMA
HISTORICAL ADJUSTMENTS (a) PRO FORMA
------------ ---------------- ------------
Assets
Securities Available for Sale ............. $ 1,300,583 $ -- $ 1,300,583
Other investments ......................... 123,806 -- 123,806
------------ ---------------- ------------
Total Investments ....................... 1,424,389 -- 1,424,389
Other Assets .............................. 551,681 40,308 (b) 591,989
AMS assets held for sale .................. 1,910,245 (1,910,245) --
------------ ---------------- ------------
Total Assets ............................ $ 3,886,315 $ (1,869,937) $ 2,016,378
============ ================ ============
Liabilities and Stockholders' Equity
Policy liabilities ........................ $ 1,109,158 $ -- $ 1,109,158
Other liabilities ......................... 323,454 2,881 326,335
AMS liabilities held for sale ............. 1,872,818 (1,872,818) --
------------ ---------------- ------------
3,305,430 (1,869,937) 1,435,493
Other equity .............................. 242,260 -- 242,260
Retained earnings ......................... 338,625 -- 338,625
------------ ---------------- ------------
Stockholders' equity .................... 580,885 -- 580,885
------------ ---------------- ------------
Total Liabilities and Stockholders' Equity $ 3,886,315 $ (1,869,937) $ 2,016,378
============ ================ ============
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Notes to Pro Forma Condensed Consolidated Balance Sheet:
(a) To eliminate the assets and liabilities included in the balance sheet of
AMS as of September 30, 2003 and record the net proceeds from the
consummation of the sale.
(b) Represents cash proceeds generated by the Company from the sale of AMS in
the amount of $27.8 million and uninsured student loan assets of AMS
retained by the Company in the sale.
F-1
UICI
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2002
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA)
RECLASSIFICATION PRO FORMA
HISTORICAL ADJUSTMENTS (a) ADJUSTMENTS (b) PRO FORMA
------------ ---------------- ---------------- -----------
Revenues:
Premiums .................................................... $ 1,212,744 $ (149) $ -- $ 1,212,595
Other income ................................................ 266,237 (1,926) (101,203) 163,108
------------ ---------------- ---------------- -----------
Total revenues ....................................... 1,478,981 (2,075) (101,203) 1,375,703
Benefits and Expenses:
Benefits, claims and settlement expenses .................... 774,569 (77) -- 774,492
Underwriting, acquisition and insurance expenses ............ 428,408 (8,902) -- 419,506
Other expenses .............................................. 201,570 (749) (95,876) 104,945
------------ ---------------- ---------------- -----------
Total expenses ....................................... 1,404,547 (9,728) (95,876) 1,298,943
------------ ---------------- ---------------- -----------
Income from continuing operations before federal income taxes .. 74,434 7,653 (5,327) 76,760
Federal income taxes ........................................... 23,080 2,679 (53) 25,706
------------ ---------------- ---------------- -----------
Income from continuing operations .............................. 51,354 4,974 (5,274) 51,054
Discontinued operations ........................................ 653 (4,974) -- (4,321)
------------ ---------------- ---------------- -----------
Income before cumulative effect of accounting change ........... 52,007 -- (5,274) 46,733
Cumulative effect of accounting change ......................... (5,144) -- -- (5,144)
------------ ---------------- ---------------- -----------
NET INCOME ..................................................... $ 46,863 $ -- $ (5,274) $ 41,589
============ ================ ================ ===========
NET INCOME PER DILUTED SHARE ................................... $ 0.96 $ 0.85
============ ===========
Average Shares Outstanding ..................................... 48,857 48,857
----------
Notes to Pro Forma Condensed Consolidated Statement of Income for the Year Ended
December 31, 2002:
(a) To reclassify the results of its former Senior Market Division to
Discontinued Operations. The Company classified its Senior Market
Division as a discontinued operation for financial reporting purposes
at the end of the second quarter of 2003.
(b) To eliminate the results of operations of AMS for the year.
F-2
UICI
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA
HISTORICAL ADJUSTMENTS (a) PRO FORMA
------------ ---------------- ------------
Revenues:
Premiums .......................................................... $ 1,159,226 $ -- $ 1,159,226
Other income ...................................................... 136,272 -- 136,272
------------ ---------------- ------------
Total revenues ............................................ 1,295,498 -- 1,295,498
Benefits and Expenses:
Benefits, claims and settlement expenses ......................... 753,297 -- 753,297
Underwriting, acquisition and insurance expenses ................. 402,857 -- 402,857
Other expenses ................................................... 67,159 -- 67,159
------------ ---------------- ------------
Total expenses ............................................ 1,223,313 -- 1,223,313
------------ ---------------- ------------
Income from continuing operations before federal income taxes ........ 72,185 72,185
Federal income taxes ................................................. 24,876 -- 24,876
------------ ---------------- ------------
Income from continuing operations .................................... 47,309 -- 47,309
Discontinued operations .............................................. (72,716) 65,608 (7,108)
------------ ---------------- ------------
NET INCOME (LOSS) ................................................... $ (25,407) $ 65,608 $ 40,201
============ ================ ============
NET INCOME (LOSS) PER DILUTED SHARE .................................. $ (0.53) $ 0.84
============ ============
Average Shares Outstanding ........................................... 47,977 47,977
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Notes to Pro Forma Condensed Consolidated Statement of Income (Loss) For the
Nine Months Ended September 30, 2003:
(a) To eliminate the results of operations of AMS for the nine months ended
September 30, 2003.
F-3
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.85 -- Stock Purchase Agreement, dated October 29, 2003,
between UICI and SLM Corporation, contemplating the
sale by UICI, and the purchase by SLM Corporation, of
all issued and outstanding shares of Academic
Management Services Corp.
10.86 -- Amendment to Stock Purchase Agreement, dated
November 18, 2003, between UICI and SLM Corporation