-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EQ2YfNdc/2+jr1SY+UoPtAD9ShoOBXgaaHpLxBVi2j1jRXA2RMWdxWtarAJCcBU1 r/VpPp7hsvivAaLNkjBu3A== 0000950152-03-007391.txt : 20030807 0000950152-03-007391.hdr.sgml : 20030807 20030807092911 ACCESSION NUMBER: 0000950152-03-007391 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030806 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20030807 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERES GROUP INC CENTRAL INDEX KEY: 0000215403 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 341017531 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-08483 FILM NUMBER: 03827752 BUSINESS ADDRESS: STREET 1: 17800 ROYALTON RD CITY: STRONGSVILLE STATE: OH ZIP: 44136 BUSINESS PHONE: 2165722400 MAIL ADDRESS: STREET 1: 17800 ROYALTON RD CITY: STRONGSVILLE STATE: OH ZIP: 44136 FORMER COMPANY: FORMER CONFORMED NAME: CENTRAL RESERVE LIFE CORP DATE OF NAME CHANGE: 19920703 8-K 1 l02551ae8vk.txt CERES GROUP, INC. 8-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (date of earliest event reported): August 6, 2003 CERES GROUP, INC. (Exact Name of Registrant as Specified in Charter) DELAWARE 0-8483 34-1017531 (State or Other Jurisdiction (Commission File Number) (I.R.S. Employer of Incorporation) Identification Number) 17800 ROYALTON ROAD, CLEVELAND, OHIO 44136 (Address of principal executive offices) (440) 572-2400 (Registrant's telephone number, including area code) ITEM 7. EXHIBITS. Exhibit 99.1 Press Release, dated August 6, 2003. ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On August 6, 2003, Ceres Group, Inc. issued a press release regarding earnings for the second quarter of 2003. A copy of the press release is attached hereto as Exhibit 99.1. 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. CERES GROUP, INC. /s/ Kathleen L. Mesel ---------------------------- By: Kathleen L. Mesel Its: Corporate Secretary Dated: August 7, 2003 EX-99.1 3 l02551aexv99w1.txt EXHIBIT 99.1 Exhibit 99.1 CERESNEWSCERESNEWSCERESNEWSCERESNEWSCERESNEWS [CERES LOGO] CERESNEWSCERESNEWSCERESNEWSCERESNEWSCERESNEWS CERESNEWSCERESNEWSCERESNEWSCERESNEWSCERESNEWS FOR FURTHER INFORMATION: David I. Vickers, Chief Financial Officer (440) 878-2941 Gayle M. Vixler, Senior Vice President (440) 572-8848 CERES GROUP REPORTS SECOND QUARTER RESULTS FOR THE QUARTER: - - Net income of $6.9 million ($0.20 per share), including $0.4 million ($0.01 per share) from net realized investment gains and $2.7 million ($0.08 per share) related to a decrease in the valuation allowance for deferred taxes - - Senior Segment pre-tax earnings of $5.9 million - - Medical Segment pre-tax earnings of $1.4 million FOR THE SIX MONTHS: - - Net income of $14.3 million ($0.42 per share), including $0.7 million ($0.02 per share) from net realized investment gains, $3.6 million ($0.11 per share) from discontinued operations, and $2.7 million ($0.08 per share) related to a decrease in the valuation allowance for deferred taxes - - Senior Segment pre-tax earnings of $8.4 million - - Medical Segment pre-tax earnings of $5.4 million Cleveland, OH, August 6, 2003---Ceres Group, Inc. (NASDAQ: CERG) today reported net income of $6.9 million ($0.20 per share), including $0.4 million ($0.01 per share) from net realized investment gains and $2.7 million ($0.08 per share) related to a decrease in the valuation allowance for deferred taxes, for the second quarter ended June 30, 2003. This compares to a net loss of $3.8 million ($0.11 per share) for the second quarter of 2002. For the first six months of 2003, the company posted net income of $14.3 million ($0.42 per share), including $0.7 million ($0.02 per share) from net realized investment gains, $3.6 million ($0.11 per share) from discontinued operations, and $2.7 million ($0.08 per share) related to a decrease in the valuation allowance for deferred taxes. This compares to a net loss of $2.3 million ($0.07 per share) for the first six months of 2002. - -------------------------------------------------------------------------------- Ceres Group, Inc. - 17800 Royalton Road - Cleveland, Ohio 44136 (440) 572-2400 - (800) 643-2474 - Fax (440) 878-2959 - www.ceresgp.com Ceres Group, Inc. Page 2 In the second quarter, the company recorded a tax benefit of $0.3 million related to a reduction in the deferred tax valuation allowance of approximately $2.7 million. As a result of the improved profitability of certain subsidiaries in the company's Medical Segment, valuation allowances on a portion of the net operating loss carryforwards were no longer necessary. At June 30, 2003, the company maintains a full valuation allowance with respect to deferred tax assets established on the remaining net operating loss carryforwards of approximately $5.7 million. The company believes that a continued pattern of earnings in the Medical Segment will result in future reductions in the remaining valuation allowance. "Our second quarter results were strong and indicate that we are making good progress toward our goals," said Tom Kilian, president and chief executive officer of Ceres. "We saw positive earnings in both of our business segments, we continued to control expenses which track to our current revenue base, and we maintained a solid balance sheet. "In short, the programs we put in place to improve profitability have been successful," Kilian said. "Our Senior Segment remains at a consistent profit level on a stable revenue base. Our Medical Segment continues to undergo a planned reduction of our inforce block by concentration in states and on marketing programs which have a higher degree of profitability potential. "For the rest of the year, we will continue to manage our business through selective marketing in our Medical Segment and an ongoing focus on expanding our Senior Segment," Kilian said. SEGMENT RESULTS Ceres reports its financial results in two primary business segments: Senior and Medical. For all periods presented, the segment results exclude the operations of Pyramid Life Insurance Company, which was sold March 31, 2003. SENIOR SEGMENT (MEDICARE SUPPLEMENT, LONG-TERM CARE, DENTAL, LIFE INSURANCE AND ANNUITIES) The pre-tax profit for the quarter was $5.9 million, compared to $5.2 million in the second quarter of 2002. For the six months, the Senior Segment pre-tax profit totaled $8.4 million, compared to $8.2 million for the first six months of 2002. Overall, senior sales were flat compared to the first quarter of this year. Benefits, claims, losses and settlement expenses in the Senior Segment were $30.6 million, compared to $30.5 million in the second quarter of 2002. The Senior Segment benefit and claims loss ratio was 72.2%, compared to 71.5% in the second quarter of 2002. For the six months, the Senior Segment benefits, claims, losses and settlement expenses were $64.4 million, compared to $64.3 million, with the benefit claims loss ratio at 75.5% and 75.3%, respectively. "We are continuing to refine our marketing strategy to bolster sales in this segment," Kilian said. "Rate competition on our Medicare supplement plans remains a primary concern for us. To address this, we are identifying and focusing our efforts on specific markets where our products are more competitive. In addition, we are expanding our market reach through recruiting programs and by pursuing marketing relationships with selected distributors." MEDICAL SEGMENT (CATASTROPHIC AND COMPREHENSIVE MEDICAL PLANS) The pre-tax profit for the quarter was $1.4 million, compared to a pre-tax loss of $12.6 million in the second quarter of 2002. For the first six months, the Medical Segment pre-tax profit totaled $5.4 Ceres Group, Inc. Page 3 million, compared to a pre-tax loss of $10.9 million for the first six months of 2002. As planned, medical sales continued to decline in the quarter due to the company's niche marketing strategy. Benefits, claims, losses and settlement expenses in the Medical Segment were $58.8 million, compared to $82.7 million in the second quarter of 2002. The Medical Segment benefit and claims loss ratio was 74.4%, compared to 89.7% in the second quarter of 2002. For the six months, the Medical Segment benefits, claims, losses and settlement expenses were $121.3 million, compared to $156.6 million in 2002, with the benefit claims loss ratio at 73.9% and 83.7%, respectively. "As proven by our last four profitable quarters, our strategy has been successful in stabilizing results in the volatile major medical market," Kilian said. "Along with other companies in this market, we have redesigned our products to place more responsibility on the consumer for routine medical expenses through higher deductibles and coinsurance levels. We believe this cost shifting results in more knowledgeable healthcare consumers, which is expected to have a positive effect on our nation's still high medical cost inflation rate. "We will continue to utilize the marketing selectivity which has created our profitable turnaround of this block of business by focusing on states, products and producers with the greatest profit potential. At the same time, we will explore opportunities for steady, predictable and long-term growth in selected markets by evaluating our products, pricing and distribution channels." OUTLOOK "In the second half, our management team will continue to execute our business plan of concentrating on profitable growth in our core markets, and we remain committed to increasing our revenues and controlling expenses," Kilian added. Based on the first six months' positive results, the company's prospects for improved profitability and growth in the Senior Segment, and ongoing profitability in its Medical Segment, the company expects to achieve its previously stated earnings guidance of approximately $0.42 per diluted share from continuing operations for 2003, or $0.21 per diluted share from continuing operations in the second half of 2003. This guidance excludes the positive impact of net realized investment gains, the reduction in the deferred tax valuation allowance, and the earnings from discontinued operations. A conference call with management regarding second quarter results is scheduled for 10:00 a.m. (Eastern), Thursday, August 7, 2003. To listen to the live conference call over the Internet, go to www.ceresgp.com or http://www.firstcallevents.com/service/ajwz386369250gf12.html at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available after the call. FINANCIAL TABLES TO FOLLOW Ceres Group, Inc. Page 4 CERES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------------- ------------------------------ 2003 2002 2003 2002 --------------- -------------- ------------ -------------- REVENUES Premiums, net Medical $ 79,042 $ 92,212 $ 164,161 $ 187,091 Senior and other 42,402 42,690 85,259 85,360 ------------ ----------- ---------- ------------ Total premiums, net 121,444 134,902 249,420 272,451 Net investment income 6,460 6,308 11,984 12,765 Net realized gains (losses) 562 (561) 1,146 (445) Fee and other income 7,396 8,196 13,738 16,163 Amortization of deferred reinsurance gain 419 838 1,076 1,876 ------------ ----------- ---------- ------------ 136,281 149,683 277,364 302,810 ------------ ----------- ---------- ------------ BENEFITS, LOSSES AND EXPENSES Benefits, claims, losses and settlement expenses Medical 58,799 82,681 121,305 156,594 Senior and other 30,604 30,522 64,404 64,271 ------------ ----------- ---------- ------------ Total benefits, claims, losses and settlement expenses 89,403 113,203 185,709 220,865 Selling, general and administrative expenses 37,228 46,006 75,408 91,375 Net (deferral) amortization and change in acquisition costs and value of business acquired 2,656 (1,907) 3,057 (6,250) Interest expense and financing costs 306 516 735 1,046 Special charge -- -- -- 2,381 ------------ ----------- ---------- ------------ 129,593 157,818 264,909 309,417 ------------ ----------- ---------- ------------ Income (loss) from continuing operations before federal income taxes and minority interest 6,688 (8,135) 12,455 (6,607) Federal income tax expense (benefit) (253) (2,682) 1,767 (2,151) ------------ ----------- ---------- ------------ Income (loss) from continuing operations after tax and before minority interest 6,941 (5,453) 10,688 (4,456) Minority interest (10) (13) (20) (27) ------------ ----------- ---------- ------------ INCOME (LOSS) FROM CONTINUING OPERATIONS 6,951 (5,440) 10,708 (4,429) ------------ ----------- ---------- ------------ Discontinued operations Income from operations of Pyramid Life (less tax expense of $0, $888, $3,223 and $1,193, respectively) -- 1,649 5,732 2,166 Loss on sale of Pyramid Life (less tax benefit of $0 and $79, respectively) (39) -- (2,149) -- ------------ ----------- ---------- ------------ INCOME (LOSS) FROM DISCONTINUED OPERATIONS (39) 1,649 3,583 2,166 ------------ ----------- ---------- ------------ NET INCOME (LOSS) $ 6,912 $ (3,791) $ 14,291 $ (2,263) ============ =========== ========== ============ BASIC EARNINGS (LOSS) PER SHARE Continuing operations $ 0.20 $ (0.16) $ 0.31 $ (0.13) Discontinued operations -- 0.05 0.11 0.06 ------------ ----------- ---------- ------------ Net income (loss) $ 0.20 $ (0.11) $ 0.42 $ (0.07) ============ =========== ========== ============ DILUTED EARNINGS (LOSS) PER SHARE Continuing operations $ 0.20 $ (0.16) $ 0.31 $ (0.13) Discontinued operations -- 0.05 0.11 0.06 ------------ ----------- ---------- ------------ Net income (loss) $ 0.20 $ (0.11) $ 0.42 $ (0.07) ============ =========== ========== ============ Basic weighted average shares outstanding 34,297 33,968 34,267 33,912 Diluted weighted average shares outstanding 34,320 33,968 34,272 33,912
Ceres Group, Inc. Page 5 CERES GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2003 2002 ------------------- ----------------- (UNAUDITED) ASSETS Investments $ 475,065 $ 397,103 Cash and cash equivalents 40,499 32,118 Reinsurance receivable 147,489 170,075 Assets of Pyramid Life -- 157,774 Deferred acquisition costs 72,937 74,891 Value of business acquired 14,790 16,084 Goodwill and licenses 14,097 14,243 Other assets 22,935 25,193 --------------- ------------- TOTAL ASSETS $ 787,812 $ 887,481 =============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Policy liabilities and benefits accrued $ 515,037 $ 512,003 Deferred reinsurance gain 10,116 11,037 Other policyholders' funds 18,614 23,610 Debt 12,962 25,003 Liabilities of Pyramid Life -- 102,457 Other liabilities 46,533 45,847 --------------- ------------- TOTAL LIABILITIES 603,262 719,957 Stockholders' equity 184,550 167,524 --------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 787,812 $ 887,481 =============== ============= Equity per common share: After accumulated other comprehensive income (1) $5.38 $4.89 Before accumulated other comprehensive income (1) 4.92 4.51 Book value per share excluding goodwill and licenses 4.96 4.48
- --------- (1) Accumulated other comprehensive income relates primarily to the net unrealized gain (loss) on available-for-sale securities. Ceres Group, Inc. Page 6 CERES GROUP, INC. AND SUBSIDIARIES INDUSTRY SEGMENT DATA UNAUDITED (IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------------- -------------------------------------- 2003 2002 2003 2002 ----------------- ------------------ ------------------ ------------------ MEDICAL Revenues Net premiums $ 79,042 $ 92,212 $ 164,161 $ 187,091 Investment income, realized gains (losses) 1,627 1,811 3,279 3,803 Other income 5,531 8,219 12,022 16,528 --------------- --------------- --------------- ---------------- 86,200 102,242 179,462 207,422 --------------- --------------- --------------- ---------------- Expenses Benefits and claims 58,799 82,681 121,305 156,594 Other operating expenses 25,961 32,139 52,738 61,735 --------------- --------------- --------------- ---------------- 84,760 114,820 174,043 218,329 --------------- --------------- --------------- ---------------- Segment profit (loss) before federal income taxes and minority interest $ 1,440 $ (12,578) $ 5,419 $ (10,907) =============== =============== =============== ================ SENIOR AND OTHER Revenues Net premiums $ 42,402 $ 42,690 $ 85,259 $ 85,360 Investment income, realized gains (losses) 5,296 3,828 9,635 8,295 Other income 2,284 815 2,792 1,511 --------------- --------------- --------------- ---------------- 49,982 47,333 97,686 95,166 --------------- --------------- --------------- ---------------- Expenses Benefits and claims 30,604 30,522 64,404 64,271 Other operating expenses 13,507 11,608 24,916 22,673 --------------- --------------- --------------- ---------------- 44,111 42,130 89,320 86,944 --------------- --------------- --------------- ---------------- Segment profit before federal income taxes and minority interest $ 5,871 $ 5,203 $ 8,366 $ 8,222 =============== =============== =============== ================ CORPORATE AND OTHER Revenues Investment income, realized gains (losses) $ 99 $ 108 $ 216 $ 222 --------------- --------------- --------------- ---------------- Expenses Interest and financing expenses 306 516 735 1,046 Other operating expenses 416 352 811 717 Special charges -- -- -- 2,381 --------------- --------------- --------------- ---------------- 722 868 1,546 4,144 --------------- --------------- --------------- ---------------- Segment loss before federal income taxes and minority interest $ (623) $ (760) $ (1,330) $ (3,922) =============== =============== =============== ================ INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST $ 6,688 $ (8,135) $ 12,455 $ (6,607) =============== =============== =============== ================ Medical loss ratio 74.4% 89.7% 73.9% 83.7% Senior loss ratio 72.2% 71.5% 75.5% 75.3% Overall loss ratio 73.6% 83.9% 74.5% 81.1%
Ceres Group, Inc. Page 7 ABOUT CERES GROUP Ceres Group, Inc., through its insurance subsidiaries, provides a wide array of health and life insurance products through two primary business segments. Ceres' Medical Segment includes major medical health insurance for individuals, families, associations and small businesses. The Senior Segment includes senior health, life and annuity products for Americans age 55 and over. To help control medical costs, Ceres also provides medical cost management services to its insureds. Ceres' nationwide distribution channels include independent agents and QQLink, its electronic distribution system. For more information, visit www.ceresgp.com. THIS NEWS RELEASE CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY. FORWARD-LOOKING STATEMENTS ARE STATEMENTS OTHER THAN HISTORICAL INFORMATION OR STATEMENTS OF CURRENT CONDITION. IN LIGHT OF THE RISKS AND UNCERTAINTIES INHERENT IN ALL FUTURE PROJECTIONS, THE INCLUSION OF FORWARD-LOOKING STATEMENTS HEREIN SHOULD NOT BE REGARDED AS REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED. MANY FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS, INCLUDING, AMONG OTHERS, FAILURE TO ACCURATELY PREDICT CLAIMS LIABILITIES, RISING HEALTHCARE COSTS, BUSINESS CONDITIONS AND COMPETITION IN THE HEALTHCARE INDUSTRY, DEVELOPMENTS IN HEALTHCARE REFORM AND OTHER REGULATORY ISSUES (INCLUDING FAILURE TO MEET STATUTORY CAPITAL REQUIREMENTS), ABILITY TO DEVELOP AND ADMINISTER COMPETITIVE PRODUCTS, PERFORMANCE OF OUR REINSURERS AND FAILURE TO COMPLY WITH FINANCIAL AND OTHER COVENANTS IN OUR LOAN AGREEMENTS, AND THE FAILURE TO SUCCESSFULLY IMPLEMENT THE BUSINESS PLANS FOR THE COMPANY AND ITS SUBSIDIARIES. THIS REVIEW OF IMPORTANT FACTORS SHOULD NOT BE CONSTRUED AS EXHAUSTIVE. INVESTORS AND OTHERS SHOULD REFER TO CERES' FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2002, AND ITS QUARTERLY REPORTS ON FORM 10-Q AND OTHER PERIODIC FILINGS, FOR A DESCRIPTION OF THE FOREGOING AND OTHER FACTORS. CERES UNDERTAKES NO OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. ### -----END PRIVACY-ENHANCED MESSAGE-----