-----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, JhFyobLhRgSxZaXKKST6L2ZIsfe2d0gDfPuflP7TcPM0sAvoeZHeG/gtq9ZT9iBI aZT52NHAG7nNK3ASEefdCg== 0000912057-97-020176.txt : 19970613 0000912057-97-020176.hdr.sgml : 19970613 ACCESSION NUMBER: 0000912057-97-020176 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970612 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970612 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED WISCONSIN SERVICES INC /WI CENTRAL INDEX KEY: 0000878897 STANDARD INDUSTRIAL CLASSIFICATION: HOSPITAL & MEDICAL SERVICE PLANS [6324] IRS NUMBER: 391431799 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13154 FILM NUMBER: 97622958 BUSINESS ADDRESS: STREET 1: 401 W MICHIGAN ST CITY: MILWAUKEE STATE: WI ZIP: 53203-2896 BUSINESS PHONE: 4142266900 8-K 1 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 June 12, 1997 (Date of Report) Commission File Number 0-19506 UNITED WISCONSIN SERVICES, INC. (Exact name of registrant as specified in its charter) WISCONSIN 39-1431799 (State of Incorporation) (I.R.S. Employer Indentification No.) 401 WEST MICHIGAN STREET, MILWAUKEE, WISCONSIN 53203-2896 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (414) 226-6900 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (b) Pro forma financial information. HISTORICAL AND PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Effective December 3, 1996, United Wisconsin Services, Inc. (UWS) acquired the 88% of American Medical Security Group, Inc. (AMSG) that it did not previously own. The acquisition was accomplished through the merger of AMSG with and into UWS pursuant to the terms of an Agreement and Plan of Merger dated July 31, 1996 (the Merger). UWS is the surviving corporation in the Merger. The consolidated results of operations of UWS include the results of operations of AMSG subsequent to the date of acquisition. The consolidated balance sheet of UWS as of December 31, 1996 includes AMSG. The following historical and pro forma unaudited condensed consolidated statements of income for UWS and its subsidiaries illustrate the effect of the Merger on the statement of income for the year ended December 31, 1996, as though the Merger had occurred on January 1, 1996. Adjustments to arrive at the pro forma consolidated amounts are based on the purchase method of accounting, including estimates of the approximate fair values of the assets and liabilities of AMSG. The pro forma adjustments and the assumptions on which they are based are described in the accompanying Notes to Historical and Pro forma Unaudited Condensed Consolidated Financial Statements. The pro forma unaudited condensed consolidated statements of income are not necessarily indicative of the consolidated results of operations which would have been reported had the Merger occurred on the dates indicated or which may be reported in the future. Furthermore, no effect has been given in the historical and pro forma unaudited condensed consolidated statements of income for operating and synergistic benefits that may be realized through the combination of the entities. The historical and pro forma unaudited condensed consolidated statements of income should be read in conjunction with the historical consolidated financial statements of UWS and AMSG. 2 UNITED WISCONSIN SERVICES, INC. AND SUBSIDIARIES HISTORICAL AND PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data)
For the year ended For the year ended For the eleven months December 31, 1996 December 31, 1996 ended November 30, 1996 ------------------ ------------------ ----------------------- Pro forma UWS AMSG Pro forma Note Condensed Historical Historical Adjustments Ref. Consolidated ------------------ ----------------------- -------------- ---- ------------------ Revenues: Premium revenue $1,089,134 $509,352 ($1,880) 2 $1,596,606 Other revenue 30,567 250,843 (219,592) 3 61,818 Investment income 30,614 12,380 (12,881) 4 30,113 Realized investment gains 12,996 0 0 12,996 ------------------ ----------------------- -------------- ------------------ Total revenues 1,163,311 772,575 (234,353) 1,701,533 Expenses: Medical and other benefits 897,582 407,829 (7,418) 5 1,297,993 Commission expenses 72,165 58,698 0 130,863 Administrative expenses 142,932 313,510 (219,323) 6 237,119 Premium taxes and other assessments 14,141 10,166 0 24,307 Interest and profit sharing on joint ventures 13,606 0 (10,739) 4 2,867 Interest expense on debt 4,325 762 5,235 7 10,322 Amortization of goodwill and other intangibles 1,511 0 8,387 8 9,898 ------------------ ----------------------- -------------- ------------------ Total expenses 1,146,262 790,965 (223,858) 1,713,369 Income (loss) before income tax ------------------ ----------------------- -------------- ------------------ expense (benefit) 17,049 (18,390) (10,495) (11,836) Income tax expense (benefit) 6,846 (5,400) (3,868) 9 (2,422) ------------------ ----------------------- -------------- ------------------ Net income(loss) $10,203 ($12,990) ($6,627) ($9,414) ------------------ ----------------------- -------------- ------------------ ------------------ ----------------------- -------------- ------------------ Earnings(loss) per common share $0.79 10 ($0.58) ------------------ ------------------ ------------------ ------------------
3 American Medical Security Group, Inc. Historical Unaudited Consolidated Statement of Cash Flows Eleven months ended November 30, 1996 ----------------- (In Thousands) OPERATING ACTIVITIES Net loss ($12,990) Adjustments to reconcile net loss to net cash provided by operating activities: Provision for depreciation and amortization 11,107 Loss on sale of property and equipment 67 Equity in loss of unconsolidated affiliates 3,376 Deferred income tax benefit (1,611) Changes in operating accounts: Unearned premium reserves 4,046 Insurance claim reserves (5,306) Receivables and other assets 28,121 Other liabilities (26,665) ------------------ Net cash provided by operating activities 145 INVESTING ACTIVITIES Purchase of other invested assets (399) Purchase of investment securities (2,015) Maturity of investment securities 1,816 Investments in subsidiaries (4,351) Proceeds from sale of property and equipment 12 Purchase of property and equipment (6,429) ------------------ Net cash used in investing activities (11,366) FINANCING ACTIVITIES Payments on notes payable (4,165) Proceeds from issuance of notes payable 11,936 Dividends paid on preferred stock (675) ------------------ Net cash provided by financing activities 7,096 ------------------ Net decrease in cash and cash equivalents (4,125) Cash and cash equivalents at beginning of period 18,929 ------------------ Cash and cash equivalents at end of period $14,804 ------------------ ------------------ 4 United Wisconsin Services, Inc. and Subsidiaries Notes to Historical and Pro Forma Unaudited Condensed Consolidated Financial Statements 1. General The accompanying historical consolidated statement of income for UWS for the year ended December 31, 1996 has been derived from UWS' consolidated financial statements which have been audited by UWS' independent auditors. The accompanying historical consolidated statement of income and statement of cash flows for AMSG for the eleven months ended November 30, 1996 have been prepared in accordance with generally accepted accounting principles. The financial information included herein for AMSG has been prepared by management without audit by independent certified public accountants. The unaudited financial statements include all adjustments and accruals consisting only of normal recurring accrual adjustments which are, in the opinion of management, necessary for a fair presentation of the consolidated financial position and results of operations for the interim periods. The pro forma unaudited condensed consolidated statements of income reflect the Merger as though it occurred on January 1, 1996. The Merger has been accounted for as a purchase transaction. Certain reclassifications have been made to the AMSG historical consolidated financial statements to conform to UWS' presentation. No effect has been given in the pro forma unaudited condensed consolidated statements of income for operating and synergistic benefits that may be realized through the combination of the entities. Prior to the Merger, UWS owned 12% of the common stock of AMSG, and through reinsurance agreements with an insurance subsidiary of AMSG, UWS retained 50% of the health and life business sold by AMSG on the books of certain insurance subsidiaries of UWS. Under the terms of the Merger Agreement, UWS purchased the remaining 88% of AMSG's common stock for cash of $71.8 million, including expenses, and $98.7 million representing the market value of 3,694,280 newly issued shares of UWS common stock and options to purchase UWS common stock. Following the Merger, UWS records 100% of the health and life business sold by AMSG. 5 2. Premium Revenue Pro forma adjustments to premium revenue consist of the following: Eleven months ended November 30, 1996 ------------ (in 000's) Elimination of intercompany insurance premiums for AMSG employees $ (896) Elimination of intercompany billing fees (984) -------- $ (1,880) -------- -------- 3. Other Revenue Pro forma adjustments to other revenue consist of the following: Eleven months ended November 30, 1996 ------------ (in 000's) Elimination of intercompany third-party administration (TPA) and commission revenues recorded by AMSG's TPA subsidiary (see Note 6) $(212,107) Elimination of intercompany revenue recorded by other subsidiaries of AMSG (7,485) -------- $(219,592) -------- -------- 6 4. Investment Income Pro forma adjustments to investment income consist of the following: Eleven months ended November 30, 1996 ------------ (in 000's) Elimination of interest and profit sharing on joint ventures $ (10,739) Elimination of investment income recorded by subsidiaries of UWS and AMSG as partners in a real estate partnership (554) Elimination of dividend income recorded by a subsidiary of UWS on AMSG preferred stock (656) Elimination of investment income (computed based on historical rates of return) on investment of cash used to repay AMSG's bank debt and to finance certain expenses of the Merger (932) -------- $ (12,881) -------- -------- Prior to the Merger, UWS held funds on behalf of AMSG, and credited investment income and realized gains or losses to AMSG on the funds held balance at UWS' average portfolio rate. The pro forma adjustments eliminate the investment income recorded by AMSG and the related expense recorded by UWS as interest and profit sharing on joint ventures. 5. Medical and Other Benefits Pro forma adjustments to medical and other benefits consist of the following: Eleven months ended November 30, 1996 ------------ (in 000's) Elimination of intercompany claims expenses related to insurance for AMSG employees $ (277) Elimination of intercompany claims expenses recorded by UWS for managed care services provided by AMSG (7,141) -------- $ (7,418) -------- -------- 7 6. Administrative Expenses Pro forma adjustments to administrative expenses consist of the following: Eleven months ended November 30, 1996 ------------ (in 000's) Elimination of intercompany administrative expenses recorded by AMSG's TPA subsidiary (see Note 3) $(212,107) Amortization of adjustments to tangible assets and liabilities resulting from the Merger (3,242) Other adjustments, net (3,974) -------- $(219,323) -------- -------- 7. Interest Expense on Debt Pro forma adjustments to interest expense on debt consist of the following: Eleven months ended November 30, 1996 ------------ (in 000's) Interest expense on debt to finance the Merger $ 4,524 Elimination of interest expense on repaid AMSG bank debt (762) Recording of interest expense on mortgage payable related to a real estate partnership owned by subsidiaries of UWS and AMSG 1,473 -------- $ 5,235 -------- -------- The interest rate on the debt incurred to finance the Merger is equal to the London Interbank Offered Rate plus 1.25%, adjusted quarterly, which is 7.05% based upon current rates. Each 0.25% increase in the floating rate would decrease annual pro forma consolidated net income by $114,000 or $0.01 per common share. 8 8. Amortization of Goodwill and Other Intangibles Pro forma adjustments to amortization of goodwill and other intangibles consist of the following: Eleven months ended November 30, 1996 ------------ (in 000's) Amortization of goodwill and other intangibles resulting from the Merger $ 8,387 -------- -------- Goodwill and other intangibles resulting from the Merger are amortized on a straight-line basis over lives ranging from 3 to 40 years. 9. Income Tax Expense (Benefit) Pro forma adjustments to income tax expense (benefit) consist of the following: Eleven months ended November 30, 1996 ------------ (in 000's) Tax benefit related to pro forma adjustments, net $ (3,868) -------- -------- 10. Earnings (Loss) per Common Share Pro forma earnings (loss) per common share is based upon the weighted average number of common shares outstanding during the respective periods, including the 3,694,280 common shares issued in connection with the Merger. Since the pro forma condensed consolidated financial statements reflect a net loss for the year ended December 31, 1996, common stock equivalents are not considered in the pro forma calculation of earnings (loss) per share since they would be anti-dilutive. The weighted average number of common shares used in the computation of pro forma earnings (loss) per common share is as follows: Weighted average shares prior to merger 12,599,715 Shares issued in connection with the merger 3,694,280 ---------- 16,293,995 ---------- ---------- 9 Net income (loss) included in the computation of pro forma earnings (loss) per common share is summarized as follows: (in 000's) Historical net income of UWS for the year ended December 31, 1996 $ 10,203 Historical net loss of AMSG for the eleven months ended November 30, 1996 (12,990) Pro forma adjustments: Amortization of goodwill and other intangibles (Note 8) (8,387) Amortization of adjustments to tangible assets and liabilities resulting from the Merger (Note 6) 3,242 Interest expense on new debt (Note 7) (4,524) Elimination of dividend income recorded by UWLIC on AMS preferred stock (Note 4) (656) Elimination of investment income on investment of cash used to repay AMSG's bank debt and to finance certain expenses of the Merger (Note 4) (932) Elimination of interest expense on repaid AMSG bank debt (Note 7) 762 Tax benefit related to proforma adjustments, net (Note 9) 3,868 -------- Pro forma consolidated net loss $ (9,414) -------- -------- Pro forma net loss per common share $ (0.58) -------- -------- 10 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. DATE: 6/12/97 ----------------------------------- UNITED WISCONSIN SERVICES, INC. /s/ C. Edward Mordy ------------------------------------------ Vice President and Chief Financial Officer (Principal Financial Officer and Chief Accounting Officer) 11 -----END PRIVACY-ENHANCED MESSAGE-----