-----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, AOuhuzYyFFEawuAF4RA/WhCNBtMIr3vhTPNFWheNOjLR3Xnk9D7cWc3LEbhqSXPM YNShUbJXYNfVU0ug3nF7Bw== 0000950152-03-009353.txt : 20031106 0000950152-03-009353.hdr.sgml : 20031106 20031106115840 ACCESSION NUMBER: 0000950152-03-009353 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20031105 ITEM INFORMATION: ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20031106 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: 03981452 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 l04019ae8vk.txt CERES GROUP, INC. 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): November 5, 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 November 5, 2003. ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION. On November 5, 2003, Ceres Group, Inc. issued a press release regarding earnings for the third 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: November 6, 2003 EX-99.1 3 l04019aexv99w1.txt EX-99.1 PRESS RELEASE Exhibit 99.1 CERESNEWSCERESNEWSCERESNEWSCERESNEWSCERESNEWS [CERES GROUP LOGO] NEWSCERESNEWSCERESNEWSCERESNEWSCERESNEWSCERES 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 STRONG THIRD QUARTER RESULTS CLEVELAND, OH, NOVEMBER 5, 2003 FOR THE QUARTER: o Net operating income of $4.1 million ($0.12 per share), excluding $0.1 million from net realized investment gains o Net income of $4.2 million ($0.12 per share) o Senior Segment pre-tax earnings of $4.9 million o Medical Segment pre-tax earnings of $2.3 million FOR THE NINE MONTHS: o Net operating income of $11.4 million ($0.33 per share), excluding $0.9 million ($0.03 per share) from net realized investment gains, $2.7 million ($0.08 per share) related to a decrease in the valuation allowance for deferred taxes, and $3.6 million ($0.11 per share) from discontinued operations o Net income of $18.5 million ($0.54 per share) o Senior Segment pre-tax earnings of $13.2 million o Medical Segment pre-tax earnings of $7.8 million Ceres Group, Inc. (NASDAQ: CERG) today reported net operating income of $4.1 million ($0.12 per share), excluding $0.1 million from net realized investment gains for the third quarter ended September - -------------------------------------------------------------------------------- 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 30, 2003. This compares to net operating income of $2.9 million ($0.08 per share) for the third quarter of 2002, excluding $1.4 million ($0.04 per share) from net realized investment gains and $3.1 million ($0.09 per share) from discontinued operations. Net income was $4.2 million ($0.12 per share) in the third quarter of 2003, compared to $7.3 million ($0.21 per share) in 2002. For the first nine months of 2003, the company posted net operating income of $11.4 million ($0.33 per share), excluding $0.9 million ($0.03 per share) from net realized investment gains, $2.7 million ($0.08 per share) related to a decrease in the valuation allowance for deferred taxes, and $3.6 million ($0.11 per share) from discontinued operations. This compares to net operating income of $0.3 million ($0.01 per share) for the first nine months of 2002, excluding $1.1 million ($0.03 per share) from net realized investment gains, $1.5 million ($0.05 per share) from a special charge related to the retirement of the company's former CEO, and $5.2 million ($0.15 per share) from discontinued operations. Net income was $18.5 million ($0.54 per share) for the first nine months of 2003, compared to $5.0 million ($0.15 per share) in 2002. "I am encouraged by our strong third quarter results and confident that we are on track to exceed our goals for the year," said Tom Kilian, president and chief executive officer of Ceres. "Earnings in both of our business segments remain positive, sales in our Senior Segment are improving, and we continue to efficiently manage our expenses to remain in line with our existing revenue base." "Our Senior Segment continues to produce consistent results while our selective marketing approach has improved the profitability of our Medical Segment," Kilian said. "As we finish the year and move into 2004, our management team remains focused on niche marketing in our Medical Segment and growing our Senior Segment." SEGMENT RESULTS Ceres reports its financial results in two primary business segments: Senior and Medical. For all periods presented, the segment results exclude the discontinued 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 $4.9 million, compared to $4.7 million in the third quarter of 2002. For the nine months, the Senior Segment pre-tax profit totaled $13.2 million, compared to $12.9 million for the first nine months of 2002. Benefits, claims, losses and settlement expenses in the Senior Segment were $32.2 million, compared to $31.2 million in the third quarter of 2002. The Senior Segment benefit and claims loss ratio was 74.1%, compared to 74.0% in the third quarter of 2002. For the nine months, the Senior Segment benefits, claims, losses and settlement expenses were $96.6 million, compared to $95.4 million, with the benefit claims loss ratio at 75.1% and 74.9%, respectively. "The programs we implemented to improve our Senior Segment sales are showing positive results," Kilian said. "Sales for our cornerstone product, Medicare supplement, increased compared with the same quarter a year ago as well as the second quarter of this year. We will maintain our ongoing commitment to expand this segment of our business by focusing on markets where our products are most competitive, pursuing marketing relationships with select distributors, and recruiting new agents." MEDICAL SEGMENT (CATASTROPHIC AND COMPREHENSIVE MEDICAL PLANS) Ceres Group, Inc. Page 3 The pre-tax profit for the quarter was $2.3 million, compared to a pre-tax profit of $2.6 million in the third quarter of 2002. For the first nine months, the Medical Segment pre-tax profit totaled $7.8 million, compared to a pre-tax loss of $8.3 million for the first nine months of 2002. Benefits, claims, losses and settlement expenses in the Medical Segment were $53.3 million, compared to $66.3 million in the third quarter of 2002. The Medical Segment benefit and claims loss ratio was 73.5%, compared to 73.1% in the third quarter of 2002. For the nine months, the Medical Segment benefits, claims, losses and settlement expenses were $174.6 million, compared to $222.9 million in 2002, with the benefit claims loss ratio at 73.8% and 80.2%, respectively. "Our Medical Segment results have been positive for the past year," Kilian added. "Our selective marketing approach, which focuses on states with the greatest profit potential, has positively impacted our profitability in this challenging market. Additionally, we continue to refine our products, evaluate pricing, and work with select distributors to ensure stable, predictable results." OUTLOOK "For the balance of the year and into 2004, we will continue our business strategy of capitalizing on the opportunities in our core businesses," Kilian said. "I am pleased with our accomplishments so far this year which include a stronger balance sheet and stable earnings in both of our business segments. This substantially improved financial position gives us the platform we need to expand our Senior Segment and enhance the profitability of our Medical Segment. We have made a great deal of progress, and I am optimistic about the company's outlook going forward." Based on the positive results for the first nine months of 2003, the company's prospects for improved profitability in the Senior Segment, and ongoing profitability in its Medical Segment, the company is raising its financial guidance for the current year. The company now expects to achieve net operating income per diluted share of approximately $0.44 for 2003, versus the previous guidance of $0.42 per diluted share. Net operating income excludes certain items that, in the opinion of management, are not indicative of overall operating trends. For 2003, net operating income excludes the impact of net realized investment gains, the reduction in the deferred tax valuation allowance, and the results of discontinued operations. In addition, for 2004, based on the company's prospects for growth in the Senior Segment and continued profitability in its Medical Segment, the company expects to achieve net operating income per diluted share of $0.53, an increase of approximately 20% over 2003. A conference call with management regarding third quarter results is scheduled for 10:00 a.m. (Eastern), Thursday, November 6, 2003. To listen to the live conference call over the Internet, go to www.ceresgp.com or http://www.firstcallevents.com/service/ajwz392622889gf12.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 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------------- ------------------------------ 2003 2002 2003 2002 --------------- -------------- ------------ -------------- REVENUES Premiums, net Medical $ 72,593 $ 90,702 $236,754 $277,793 Senior and other 43,439 42,102 128,698 127,462 --------- --------- -------- -------- Total premiums, net 116,032 132,804 365,452 405,255 Net investment income 6,588 5,779 18,572 18,544 Net realized gains 184 2,102 1,330 1,657 Fee and other income 6,758 7,311 20,496 23,474 Amortization of deferred reinsurance gain 355 478 1,431 2,354 --------- --------- -------- -------- 129,917 148,474 407,281 451,284 --------- --------- -------- -------- BENEFITS, LOSSES AND EXPENSES Benefits, claims, losses and settlement expenses Medical 53,327 66,315 174,632 222,909 Senior and other 32,200 31,163 96,604 95,434 --------- --------- -------- -------- Total benefits, claims, losses and settlement expenses 85,527 97,478 271,236 318,343 Selling, general and administrative expenses 35,663 42,106 111,071 133,481 Net (deferral) amortization and change in acquisition costs and value of business acquired 1,756 1,938 4,813 (4,312) Interest expense and financing costs 291 490 1,026 1,536 Special charge - - - 2,381 --------- --------- -------- -------- 123,237 142,012 388,146 451,429 --------- --------- -------- -------- Income (loss) from continuing operations before federal income taxes and minority interest 6,680 6,462 19,135 (145) Federal income tax expense 2,430 2,253 4,197 102 --------- --------- -------- -------- Income (loss) from continuing operations after tax and before minority interest 4,250 4,209 14,938 (247) Minority interest 50 (10) 30 (37) --------- --------- -------- -------- INCOME (LOSS) FROM CONTINUING OPERATIONS 4,200 4,219 14,908 (210) --------- --------- -------- -------- Discontinued operations Income from operations of Pyramid Life (less tax expense of $0, $1,674, $3,223 and $2,867, respectively) - 3,078 5,732 5,244 Loss on sale of Pyramid Life (less tax benefit of $0 and $79, respectively) - - (2,149) - --------- --------- -------- -------- INCOME FROM DISCONTINUED OPERATIONS - 3,078 3,583 5,244 --------- --------- -------- -------- NET INCOME $ 4,200 $ 7,297 $ 18,491 $ 5,034 ========= ========= ======== ======== BASIC EARNINGS PER SHARE Continuing operations $ 0.12 $ 0.12 $ 0.43 $ - Discontinued operations - 0.09 0.11 0.15 --------- --------- -------- -------- Net income $ 0.12 $ 0.21 $ 0.54 $ 0.15 ========= ========= ======== ======== DILUTED EARNINGS PER SHARE Continuing operations $ 0.12 $ 0.12 $ 0.43 $ - Discontinued operations - 0.09 0.11 0.15 --------- --------- -------- -------- Net income $ 0.12 $ 0.21 $ 0.54 $ 0.15 ========= ========= ======== ======== Basic weighted average shares outstanding 34,340 34,034 34,291 33,968 Diluted weighted average shares outstanding 34,395 34,034 34,310 33,968
Ceres Group, Inc. Page 5 CERES GROUP, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) In this press release, the company presented net operating income and net operating income per share, which is a non-GAAP financial measure. Management believes that this measure of profitability provides a meaningful presentation of the underlying earnings of the company's operations. Net operating income and net operating income per share exclude certain items that, in the opinion of management, are not indicative of overall operating trends. For the periods presented, net operating income and net operating income per share exclude the results of the discontinued operations of Pyramid Life Insurance Company (a subsidiary that was sold on March 31, 2003), realized gains on the sale of investments, reductions to the valuation allowance for deferred taxes, and special charges. The following is a reconciliation to the most directly comparable GAAP financial measure:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- -------------------------------- 2003 2002 2003 2002 ------------- -------------- -------------- -------------- Net operating income $ 4,080 $ 2,853 $ 11,353 $ 261 Net realized gains 184 2,102 1,330 1,657 Income taxes on net realized gains (1) (64) (736) (466) (580) Special charge - - - (2,381) Income tax benefit on special charge (1) - - - 833 Reduction to the valuation allowance for deferred taxes - - 2,691 - ---------- ----------- ---------- --------- Net income (loss) from continuing operations $ 4,200 $ 4,219 $ 14,908 $ (210) ========== =========== ========== ========= PER SHARE DATA (DILUTED) Net operating income per share $ 0.12 $ 0.08 $ 0.33 $ 0.01 Net realized gains, net of tax (1) - 0.04 0.03 0.03 Special charge, net of tax (1) - - - (0.05) Reduction to the valuation allowance for deferred taxes - - 0.08 - ---------- ----------- ---------- --------- Net income (loss) per share from continuing operations $ 0.12 $ 0.12 $ 0.43 $ - ========== =========== ========== =========
(1) Taxes on net realized gains and special charges is based upon a 35% effective tax rate for all periods. Note: Certain amounts may not total due to rounding of individual components. Ceres Group, Inc. Page 6 CERES GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31, 2003 2002 ------------ ----------- (UNAUDITED) ASSETS Investments $ 477,668 $ 397,103 Cash and cash equivalents 40,518 32,118 Reinsurance receivable 144,342 170,075 Assets of Pyramid Life - 157,774 Deferred acquisition costs 70,254 74,891 Value of business acquired 13,085 16,084 Goodwill and licenses 14,097 14,243 Other assets 20,620 25,193 ------------ ----------- TOTAL ASSETS $ 780,584 $ 887,481 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Policy liabilities and benefits accrued $ 509,868 $ 512,003 Deferred reinsurance gain 9,760 11,037 Other policyholders' funds 19,073 23,610 Debt 12,192 25,003 Liabilities of Pyramid Life - 102,457 Other liabilities 46,817 45,847 ------------ ----------- TOTAL LIABILITIES 597,710 719,957 Stockholders' equity 182,874 167,524 ------------ ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 780,584 $ 887,481 ============ =========== Equity per common share: After accumulated other comprehensive income (1) $ 5.33 $ 4.89 Before accumulated other comprehensive income (1) 5.04 4.51 Book value per share excluding goodwill and licenses 4.91 4.48
- --------- (1) Accumulated other comprehensive income relates primarily to the net unrealized gain (loss) on available-for-sale securities. Ceres Group, Inc. Page 7 CERES GROUP, INC. AND SUBSIDIARIES INDUSTRY SEGMENT DATA (EXCLUDING OPERATIONS OF PYRAMID LIFE INSURANCE COMPANY) UNAUDITED (IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------------- -------------------------------------- 2003 2002 2003 2002 ----------------- ------------------ ------------------ ------------------ MEDICAL Revenues Net premiums $ 72,593 $ 90,702 $ 236,754 $ 277,793 Investment income, realized gains 1,312 2,460 4,591 6,263 Other income 4,934 7,446 16,956 23,974 --------------- --------------- --------------- ---------------- 78,839 100,608 258,301 308,030 --------------- --------------- --------------- ---------------- Expenses Benefits and claims 53,327 66,315 174,632 222,909 Other operating expenses 23,180 31,677 75,918 93,412 --------------- --------------- --------------- ---------------- 76,507 97,992 250,550 316,321 --------------- --------------- --------------- ---------------- Segment profit (loss) before federal income taxes and minority interest $ 2,332 $ 2,616 $ 7,751 $ (8,291) =============== =============== =============== ================ SENIOR AND OTHER Revenues Net premiums $ 43,439 $ 42,102 $ 128,698 $ 127,462 Investment income, realized gains 5,345 5,311 14,980 13,606 Other income 2,173 343 4,965 1,854 --------------- --------------- --------------- ---------------- 50,957 47,756 148,643 142,922 --------------- --------------- --------------- ---------------- Expenses Benefits and claims 32,200 31,163 96,604 95,434 Other operating expenses 13,885 11,905 38,801 34,578 --------------- --------------- --------------- ---------------- 46,085 43,068 135,405 130,012 --------------- --------------- --------------- ---------------- Segment profit before federal income taxes and minority interest $ 4,872 $ 4,688 $ 13,238 $ 12,910 =============== =============== =============== ================ CORPORATE AND OTHER Revenues Investment income, realized gains $ 115 $ 110 $ 331 $ 332 Other income 6 - 6 - --------------- --------------- --------------- ---------------- 121 110 337 332 --------------- --------------- --------------- ---------------- Expenses Interest and financing expenses 291 490 1,026 1,536 Other operating expenses 354 462 1,165 1,179 Special charges - - - 2,381 --------------- --------------- --------------- ---------------- 645 952 2,191 5,096 --------------- --------------- --------------- ---------------- Segment loss before federal income taxes and minority interest $ (524) $ (842) $ (1,854) $ (4,764) =============== =============== =============== ================ INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST $ 6,680 $ 6,462 $ 19,135 $ (145) =============== =============== =============== ================ Medical loss ratio 73.5% 73.1% 73.8% 80.2% Senior loss ratio 74.1% 74.0% 75.1% 74.9% Overall loss ratio 73.7% 73.4% 74.2% 78.6%
Ceres Group, Inc. Page 8 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 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), ADVERSE OUTCOMES IN LITIGATION, 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. ###
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