DEFA14A 1 feb04filing.txt FOURTH QUARTER & FULL YEAR 2001 FINANCIAL RESULTS SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- SCHEDULE 14A (RULE 14a-101) SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ___) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [X] Soliciting Material Pursuant to Rule 14a-12 AMERICAN MEDICAL SECURITY GROUP, INC. (Name of Registrant as Specified in Its Charter) N/A (Name of Person(s) Filing Proxy Statement, if Other Than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: (2) Aggregate number of securities to which transaction applies: (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): (4) Proposed maximum aggregate value of transactions: (5) Total fee paid: [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: 1 [American Medical Security Group, Inc. Logo] -------------------------- [For more information contact: Cliff Bowers, NEWS RELEASE Vice President, Corporate Communications, for Immediate Release (920) 661-2766, Gary Guengerich, Executive -------------------------- Vice President & CFO, (920) 661-2486] American Medical Security Group Reports Fourth Quarter & Full-Year 2001 Financial Results o Net income of $0.30 per share in 4th quarter; exceeds expectations o Full-year income per share of $0.70, before nonrecurring item o Company increases guidance for 2002 o Health segment loss ratio improves for fifth consecutive quarter o Cash flow positive in quarter, full year GREEN BAY, Wis. -- February 4, 2002 -- American Medical Security Group, Inc. (NYSE:AMZ)(AMS), today reported net income of $4.3 million or $0.30 per share for the fourth quarter of 2001. That compares to net income of $0.1 million or $0.01 per share in the fourth quarter of 2000, and $3.5 million or $0.25 per share in the third quarter of 2001. For the full-year 2001, the company reported income of $10.0 million or $0.70 per share excluding a $0.41 nonrecurring litigation charge in the first quarter. That compares to net income of $2.7 million or $0.18 per share for the year 2000. AMS' income and income per share have improved in each of the last five quarters. More Ad One "AMS began to realize its strong potential in 2001," said Samuel V. Miller, AMS Chairman & Chief Executive Officer. "Our positive results, particularly in the last half of the year, reflect the culmination of aggressive rate action over several quarters, a redefinition of our markets and strong expense control." According to Miller, these actions have particularly benefited AMS' smallgroup business which is now experiencing a significant turnaround following two years of depressed performance. "We've made great strides in improving our profitability. Now, in light of the positive reception for our new products, the addition of an industry veteran as Chief Marketing Officer, and an improving competitive climate, we hope to begin growing membership and revenues again in the second half of the year, while maintaining our margins," Miller said. 2 MEMBERSHIP & REVENUE During 2000 and 2001, AMS addressed rising health claim costs by increasing premiums and exiting certain unprofitable markets. As anticipated, these actions led to a decline in membership and revenues but improved the company's loss ratio and profitability. Total health segment membership was 557,716 at the end of 2001 compared to 687,863 at the end of 2000. For the fourth quarter of 2001, total revenues were $208 million, compared to $240 million in the same period of 2000. Total revenues were $877 million for full-year 2001, versus $990 million for the prior year. The decline in revenues for both the fourth quarter and full-year 2001 reflect declining membership and a higher proportion of individual MedOne business, partially offset by increased premiums. MedOne membership increased slightly in the fourth quarter of 2001, and also continued to grow as a percentage of the company's overall business. MedOne membership for the fourth quarter of 2001 represented 45% of AMS' total membership, compared to 43% for the third quarter of 2001 and 34% for the fourth quarter of 2000. More Ad Two In January 2002, Tim O'Keefe was named AMS Senior Vice President & Chief Marketing Officer. He has more than 12 years of executive management experience with a number of companies in the health insurance field. A key focus for O'Keefe will be the successful rollout of the company's new small group, individual, dental and short-term medical products. Agent reaction to the new products in states where they have been introduced has been very positive, and quote requests are up significantly. HEALTH SEGMENT LOSS RATIO The company's health segment loss ratio has declined for the fifth consecutive quarter. In the fourth quarter of 2001, the health loss ratio was 68.9% compared to 71.3% in the third quarter of 2001 and 76.4% for the fourth quarter of 2000. For the full-year 2001, the health segment loss ratio was 72.6% compared to 77.2% for 2000. The improvement results from AMS' premium increases surpassing increases in claim costs, and, to a lesser degree, a change in the company's product mix. "The improvement in our loss ratio has surpassed our expectations in the past two quarters," said Gary D. Guengerich, Executive Vice President & Chief Financial Officer. "We believe this positive trend will moderate but continue into 2002." 3 HEALTH SEGMENT EXPENSE RATIO The company's health expense ratio for the fourth quarter of 2001 was 28.0% versus 27.0% in the third quarter of 2001 and 24.7% in the fourth quarter of 2000. The increases primarily reflect lower premiums and a product mix change driven by growth in the MedOne business. The MedOne business has higher selling and administrative expenses but lower claim costs than the small group product. COMBINED RATIO The total health segment loss ratio plus the expense ratio, or the combined ratio, improved to 96.9% in the fourth quarter of 2001, compared to 98.3% in the third quarter of 2001, and 101.1% in the fourth quarter of 2000. More Ad Three CASH FLOW & BALANCE SHEET Cash flow provided by operations was $17.1 million in the fourth quarter of 2001 and $17.6 million for the full year, a reflection of the increasing profitability of the company. The company expects cash flow for 2002 to significantly exceed that of 2001. AMS had a book value per share of $16.30 and a tangible book value per share of $8.85 at the end of the fourth quarter of 2001. That compares to $15.77 and $8.24 at the end of the fourth quarter of 2000. EARNINGS GUIDANCE "We are increasing our earnings guidance for 2002 based on our significantly improved financial performance in the past two quarters," Guengerich said. "While there may be material upside potential beyond these estimates, our guidance is based on rapidly emerging positive trends, tempered by the inherent variables in our business." The company currently projects that its earnings per share will be approximately $0.30 for the first quarter of 2002 and between $1.15 and $1.25 for full-year 2002. The full-year amount includes approximately $0.17 per share resulting from the nonamortization of goodwill from the adoption of FASB Statement No. 142, "Goodwill and Other Intangible Assets." OTHER NEWS On January 29, 2002, Blue Cross and Blue Shield United of Wisconsin, a wholly owned subsidiary of Cobalt Corporation, and a holder of 45% of the outstanding shares of AMS, filed with the company notice of its intent to nominate four persons for election to the AMS Board of Directors at the 2002 annual meeting of AMS shareholders. 4 Cobalt had previously made a 13D filing in which it stated it was considering submitting such nominations and was also looking at alternative methods of disposing of its shares of AMS. The company has been engaged in discussions with Cobalt concerning how to address Cobalt's need to dispose of its shares in a manner that is favorable to all of the company's shareholders. More Ad Four American Medical Security Group, through its operating subsidiaries, markets health care benefits and insurance products to small businesses, families and individuals. Insurance products of American Medical Security Group are underwritten by United Wisconsin Life Insurance Company. The company serves customers nationwide through partnerships with professional, independent agents and quality health care providers. It provides medical and dental coverage for 557,716 members. # # # # # The full-year 2001 income reported in the text of this document excludes the effect of the first quarter 2001 litigation charge. Including the charge, full-year 2001 GAAP net income is $4.2 million or $0.29 per share. The company's balance sheet and statement of income which reconcile the 2001 pro forma income to GAAP net income follow. AMS will host a conference call to discuss its financial results and strategic plans on Tuesday, February 5, 10:00 a.m. (Central Time). Interested parties may listen to the conference call live via the Investor Section of the company's website at AMSchoices.com. The call will be archived at the same site beginning a few hours after the live webcast. Listen-only access to the live conference call is also available by dialing 719-457-2620. (Confirmation number 449192). The directors and executive officers of American Medical Security Group, Inc. ("AMS") and certain other persons may be deemed to be participants in solicitation by AMS of proxies from its shareholders in connection with AMS' 2002 Annual Meeting of Shareholders. Information concerning such participants was filed by AMS with the Securities and Exchange Commission (the "SEC") on January 22, 2002. SHAREHOLDERS OF AMS ARE ADVISED TO READ AMS' PROXY STATEMENT IN CONNECTION WITH ITS SOLICITATION OF PROXIES FROM ITS SHAREHOLDERS WHEN IT BECOMES AVAILABLE, BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. Shareholders of AMS and other interested parties may obtain, free of charge, copies of AMS' proxy statement, and any other documents filed by AMS with the SEC, at the SEC's Internet web site at www.sec.gov. When available, definitive proxy statements and other documents may also be obtained by contacting AMS: Cliff Bowers, American Medical Security Group, Inc., P.O. Box 19032, Green Bay, WI 54307-9032. (920) 661-2766 More Ad Five Cautionary Statement: Some of the statements contained in this press release are "forward-looking" statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Generally, forward-looking statements express expectations for or about the future, rather than historical fact. Forward-looking statements are subject to inherent risks and uncertainties that may cause actual results or events to differ materially from those contemplated by such statements. Such risks and uncertainties include, among others, unexpected increases in medical costs; increased utilization of prescription drugs or medical services resulting from bioterrorism concerns or otherwise; the Company's ability to predict rising health care costs and adequately price its products; the Company's ability to increase its agent distribution force, generate new sales, sell new products and retain existing customers; changes in the Company's relationships with key agents that sell its products; the Company's ability to control expenses during a time of declining revenue and membership; legislative and regulatory matters, including the effects of health care or other legislation or regulation, delays in regulatory approvals, and regulatory action resulting from market conduct activity; general business conditions, including competitive practices and demand for the Company's existing and new products; development of and changes in claims reserves; rating agency policies and practices; general economic conditions, including the effect of changes in interest rates on the Company's 5 investment portfolio; the outcome of commercial or other litigation; and other factors that may be referred to in American Medical Security Group, Inc.'s reports filed with the Securities & Exchange Commission from time to time. Forward-looking statements made in this release express expectations only as of the date they are made. The Company does not undertake any obligation to update or revise such statements as a result of new information or future events. 6 American Medical Security Group, Inc. Condensed Consolidated Statements Of Income (Unaudited)
Three Months Ended Twelve Months Ended December 31, December 31, ---------------------- ----------------------- 2001 2000 2001 2000 (In thousands, except per share data) Revenues: Insurance premiums $ 198,158 $ 230,666 $ 838,672 $ 951,071 Investment income 4,244 4,618 17,443 19,007 Realized investment gain (loss) 60 (123) (779) (325) Other revenue 5,207 4,945 21,285 20,112 ---------------------- ----------------------- Total revenues 207,669 240,106 876,621 989,865 Expenses: Medical and other benefits 135,188 174,397 601,942 724,613 Selling, general and administrative 61,945 63,085 248,742 251,767 Interest expense 570 915 2,877 3,584 Amortization of goodwill and intangibles 908 946 3,628 3,785 ---------------------- ----------------------- Total expenses 198,611 239,343 857,189 983,749 Income before income taxes and non-recurring item 9,058 763 19,432 6,116 Income tax expense 4,713 637 9,407 3,447 ---------------------- -----------------------_ Income before non-recurring item 4,345 126 10,025 2,669 Non-recurring item, net of tax -- -- 5,850 -- Net income $ 4,345 $ 126 $ 4,175 $ 2,669 ====================== ======================= Income before non-recurring item per share: Basic $ 0.31 $ 0.01 $ 0.71 $ 0.18 Diluted $ 0.30 $ 0.01 $ 0.70 $ 0.18 Net income per share: Basic $ 0.31 $ 0.01 $ 0.30 $ 0.18 Diluted $ 0.30 $ 0.01 $ 0.29 $ 0.18
7 American Medical Security Group, Inc. Condensed Consolidated Balance Sheets (Unaudited)
December 31, December 31, 2001 2000 --------------------------- (In thousands) ASSETS Investments: Securities available for sale, at fair value: Fixed maturities $ 269,753 $ 262,428 Equity securities-preferred 722 2,368 Fixed maturity securities held to maturity, at amortized cost 4,286 4,320 Trading securities, at fair value 517 260 --------------------------- Total investments 275,278 269,376 Cash and cash equivalents 24,975 15,606 Other assets: Property and equipment, net 33,381 32,451 Goodwill and other intangibles, net 103,934 107,562 Other assets 35,447 46,928 --------------------------- Total other assets 172,762 186,941 --------------------------- Total assets $ 473,015 $ 471,923 =========================== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Medical and other benefits payable $ 135,504 $ 145,310 Advance premiums 16,737 17,568 Payables and accrued expenses 28,032 25,902 Notes payable 40,058 41,258 Other liabilities 23,284 20,708 --------------------------- Total liabilities 243,615 250,746 Shareholders' equity: Common stock 16,654 16,654 Paid-in capital 187,927 187,956 Retained earnings 40,470 36,295 Accumulated other comprehensive gain (loss) 1,903 (3,948) Treasury stock (17,554) (15,780) --------------------------- Total shareholders' equity 229,400 221,177 --------------------------- Total liabilities and shareholders' equity $ 473,015 $ 471,923 ===========================
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