UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 AND 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-16867
UNITED TRUST GROUP, INC.
(Exact name of registrant as specified in its charter)
ILLINOIS 37-1172848
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5250 SOUTH SIXTH STREET
P.O. BOX 5147
SPRINGFIELD, IL 62705
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (217) 241-6300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock as of August
1, 2002, was 3,489,929.
UNITED TRUST GROUP, INC. AND SUBSIDIARIES
(The "Company")
TABLE OF CONTENTS
Part 1. Financial Information................................................3
ITEM 1. FINANCIAL STATEMENTS...............................................3
Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001.....3
Consolidated Statements of Operations for the three and
six months ended June 30, 2002 and 2001...................................4
Consolidated Statement of Changes in Shareholders'
Equity for the six months ended June 30, 2002.............................5
Consolidated Statements of Cash Flows for the six months
ended June 30, 2002 and 2001..............................................6
Notes to Consolidated Financial Statements................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........18
PART II. OTHER INFORMATION..................................................19
ITEM 1. LEGAL PROCEEDINGS.................................................19
ITEM 2. CHANGE IN SECURITIES..............................................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............19
ITEM 5. OTHER INFORMATION.................................................19
ITEM 6. EXHIBITS..........................................................19
SIGNATURES....................................................................21
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED TRUST GROUP, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
-------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
ASSETS 2002 2001 *
------------------ ------------------
Investments:
Fixed maturities at amortized cost
(market $70,854,992 and $77,725,410) $ 68,311,514 $ 75,005,395
Investments held for sale:
Fixed maturities, at market
(cost $105,030,168 and $97,584,094) 107,335,329 98,628,440
Equity securities, at market
(cost $4,122,887 and $3,937,812) 4,942,004 3,852,716
Mortgage loans on real estate at amortized cost 24,347,747 23,386,895
Investment real estate, at cost,
net of accumulated depreciation 17,600,947 18,226,451
Policy loans 13,638,718 13,608,456
Short-term investments 480,513 581,382
------------------ ------------------
236,656,772 233,289,735
Cash and cash equivalents 11,788,043 15,477,348
Accrued investment income 2,836,973 3,002,860
Reinsurance receivables:
Future policy benefits 33,374,123 33,776,688
Policy claims and other benefits 3,821,278 4,042,779
Cost of insurance acquired 24,485,419 33,666,336
Deferred policy acquisition costs 2,733,703 3,107,919
Costs in excess of net assets purchased,
net of accumulated amortization 0 345,779
Property and equipment,
net of accumulated depreciation 2,325,621 2,459,117
Income taxes receivable, current 218,972 215,865
Other assets 2,730,238 139,245
------------------ ------------------
Total assets $ 320,971,142 $ 329,523,671
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits $ 235,605,188 $ 236,449,241
Policy claims and benefits payable 2,515,669 2,781,920
Other policyholder funds 1,228,717 1,255,990
Dividend and endowment accumulations 12,725,453 13,055,024
Income taxes payable:
Deferred 11,575,092 13,569,523
Notes payable 4,260,359 4,400,670
Other liabilities 6,349,776 5,465,896
------------------ ------------------
Total liabilities 274,260,254 276,978,264
------------------ ------------------
Minority interests in consolidated subsidiaries 0 7,771,793
------------------ ------------------
Shareholders' equity:
Common stock - no par value, stated value $.02 per share
Authorized 7,000,000 shares - 3,492,644 and 3,549,791 shares issued
after deducting treasury shares of 132,383 and 75,236 69,853 70,996
Additional paid-in capital 42,377,761 42,789,636
Retained earnings 2,203,951 1,004,238
Accumulated other comprehensive income 2,059,323 908,744
------------------ ------------------
Total shareholders' equity 46,710,888 44,773,614
------------------ ------------------
Total liabilities and shareholders' equity $ 320,971,142 $ 329,523,671
================== ==================
* Balance sheet audited at 12/31/01.
UNITED TRUST GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
---------------- ----------------- ----------------- -----------------
Revenues:
Premiums and policy fees $ 4,955,669 $ 5,499,579 $ 9,949,896 $ 10,833,322
Reinsurance premiums and policy fees (567,385) (730,771) (1,284,751) (1,510,063)
Net investment income 3,287,608 3,931,677 6,595,086 7,946,102
Realized investment gains, net 6,731 243,163 11,427 12,594
Other income 216,352 61,703 420,358 151,631
---------------- ----------------- ----------------- -----------------
7,898,975 9,005,351 15,692,016 17,433,586
Benefits and other expenses:
Benefits, claims and settlement expenses:
Life 5,082,676 5,346,928 10,411,490 10,323,613
Reinsurance benefits and claims (1,033,159) (711,403) (2,059,992) (1,305,682)
Annuity 305,121 293,203 573,796 567,254
Dividends to policyholders 255,361 264,582 519,811 545,850
Commissions and amortization of deferred
policy acquisition costs 193,590 222,912 496,111 753,355
Amortization of cost of insurance acquired 385,098 398,898 771,195 797,870
Operating expenses 1,649,134 1,768,758 3,179,567 3,282,873
Interest expense 61,394 97,806 133,604 136,420
---------------- ----------------- ----------------- -----------------
6,899,215 7,681,684 14,025,582 15,101,553
Income before income taxes, minority interest
and equity in earnings of investees 999,760 1,323,667 1,666,434 2,332,033
Income tax expense (119,226) (112,269) (203,106) (703,442)
Minority interest in income of
consolidated subsidiaries (157,855) (236,106) (263,615) (309,441)
---------------- ----------------- ----------------- -----------------
Net income $ 722,679 $ 975,292 $ 1,199,713 $ 1,319,150
================ ================= ================= =================
Basic earnings per share from continuing
operations and net income $ 0.21 $ 0.27 $ 0.34 $ 0.34
================ ================= ================= =================
Diluted earnings per share from continuing
operations and net income $ 0.21 $ 0.27 $ 0.34 $ 0.34
================ ================= ================= =================
Basic weighted average shares outstanding 3,500,212 3,647,828 3,514,246 3,909,991
================ ================= ================= =================
Diluted weighted average shares outstanding 3,500,212 3,647,828 3,514,246 3,909,991
================ ================= ================= =================
UNITED TRUST GROUP, INC.
AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
For the six months ended June 30, 2002 (Unaudited)
------------------------------------------------------------------------------------------------------------------------
Common stock
Balance, beginning of year $ 70,996
Issued during year 0
Purchase treasury shares (1,143)
------------------
Balance, end of period 69,853
------------------
Additional paid-in capital
Balance, beginning of year 42,789,636
Issued during year 0
Purchase treasury shares (411,875)
------------------
Balance, end of period 42,377,761
------------------
Retained earnings
Balance, beginning of year 1,004,238
Net income 1,199,713 $ 1,199,713
------------------ ------------------
Balance, end of period 2,203,951
------------------
Accumulated other comprehensive income
Balance, beginning of year 908,744
Other comprehensive income
Unrealized holding gain on securities
net of minority interest and
reclassification adjustment 1,150,579 1,150,579
------------------ ------------------
Comprehensive income $ 2,350,292
==================
Balance, end of period 2,059,323
------------------
Total shareholders' equity, end of period $ 46,710,888
==================
UNITED TRUST GROUP, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
------------------------------------------------------------------------------------------------------------
Six Months Ended
June 30, June 30,
2002 2001
--------------- --------------
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income $ 1,199,713 $ 1,319,150
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Amortization/accretion of fixed maturities 192,955 39,442
Realized investment gains, net of losses (11,427) (12,594)
Policy acquisition costs deferred (43,000) (99,000)
Amortization of deferred policy acquisition costs 417,216 563,289
Amortization of cost of insurance acquired 771,195 797,870
Amortization of costs in excess of net
assets purchased 0 45,000
Depreciation 293,227 196,467
Minority interest 263,615 309,441
Change in accrued investment income 165,887 144,871
Change in reinsurance receivables 624,066 489,389
Change in policy liabilities and accruals (1,280,403) (1,181,770)
Charges for mortality and administration of
universal life and annuity products (4,412,958) (4,788,391)
Interest credited to account balances 2,803,906 2,992,195
Change in income taxes payable 178,053 739,561
Change in other assets and liabilities, net (1,189,807) (983,461)
--------------- --------------
Net cash provided by (used in) operating activities (27,762) 571,459
Cash flows from investing activities:
Proceeds from investments sold and matured:
Fixed maturities held for sale 8,770,000 11,750,000
Fixed maturities matured 13,248,311 24,409,028
Equity securities 0 1,240,967
Mortgage loans 3,390,918 8,332,743
Real estate 613,473 860,362
Policy loans 1,365,716 1,653,223
Short-term 100,869 2,054,528
--------------- --------------
Total proceeds from investments sold and matured 27,489,287 50,300,851
Cost of investments acquired:
Fixed maturities held for sale (21,753,580) (39,140,907)
Fixed maturities (3,053,805) (801,481)
Equity securities (185,075) (91,925)
Mortgage loans (4,351,770) (6,341,425)
Real estate (127,386) (244,745)
Policy loans (1,395,977) (1,282,560)
Short-term 0 (1,122,131)
--------------- --------------
Total cost of investments acquired (30,867,593) (49,025,174)
Purchase of property and equipment (14,965) (60,627)
Sale of property and equipment 0 201,064
--------------- --------------
Net cash provided by (used in) investing activities (3,393,271) 1,416,114
Cash flows from financing activities:
Policyholder contract deposits 5,286,775 5,944,290
Policyholder contract withdrawals (3,864,468) (5,116,607)
Purchase of stock of affiliates 0 (21,600)
Proceeds from line of credit 1,350,000 0
Purchase of treasury stock (413,018) (1,046,833)
Payments from FCC merger (1,137,250) 0
Payments of principal on notes payable (1,490,311) 0
--------------- --------------
Net cash used in financing activities (268,272) (240,750)
--------------- --------------
Net increase (decrease) in cash and cash equivalents (3,689,305) 1,746,823
Cash and cash equivalents at beginning of period 15,477,348 15,065,076
--------------- --------------
Cash and cash equivalents at end of period $ 11,788,043 $ 16,811,899
=============== ==============
UNITED TRUST GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1 Basis of Presentation
The accompanying consolidated financial statements have been prepared by United
Trust Group, Inc. ("UTG") and its consolidated subsidiaries ("Company") pursuant
to the rules and regulations of the Securities and Exchange Commission. Although
the Company believes the disclosures are adequate to make the information
presented not be misleading, it is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto presented in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission for the year ended December 31,
2001.
The information furnished reflects, in the opinion of the Company, all
adjustments (which include only normal and recurring accruals) necessary for a
fair presentation of the results of operations for the periods presented.
Operating results for interim periods are not necessarily indicative of
operating results to be expected for the year or of the Company's future
financial condition.
At June 30, 2002, consolidated subsidiaries of United Trust Group, Inc. were as
depicted on the following organizational chart. In addition, this document may
at times refer to Jesse Correll and his affiliated entities who own a majority
of UTG's outstanding common stock. See note 9 to the consolidated financial
statements regarding the June 12, 2002 merger of First Commonwealth Corporation
("FCC") into UTG.
2. INVESTMENTS
At June 30, 2002 and December 31, 2001, fixed maturities and fixed maturities
held for sale represented 74% of total invested assets, respectively. As
prescribed by the various state insurance department statutes and regulations,
the insurance companies' investment portfolio is required to be invested in
investment grade securities to provide ample protection for policyholders. The
Company does not invest in so-called "junk bonds" or similar investments. As of
June 30 2002, the carrying value of fixed maturity securities in default as to
principal or interest was immaterial in the context of consolidated assets or
shareholders' equity. The investments held for sale are carried at market value,
with changes in market value directly charged to shareholders' equity. To
provide additional flexibility and liquidity, the Company has categorized almost
all fixed maturity investments acquired since 2000 as available for sale.
3. NOTES PAYABLE
At June 30, 2002 and December 31, 2001, the Company had $4,260,359 and
$4,400,670 in long-term debt outstanding, respectively. The debt is comprised of
the following components:
6/30/2002 12/31/2001
------------- -------------
Subordinated 20 yr. Notes $ 401,562 $ 514,674
Other notes payable 3,108,797 3,885,996
Line of credit 750,000 0
------------- -------------
$ 4,260,359 $ 4,400,670
============= =============
A. Subordinated debt
The subordinated debt was incurred June 16, 1992 as a part of the acquisition of
the now dissolved Commonwealth Industries Corporation. These notes bear interest
at the variable rate of 1% under prime per annum (paid quarterly). At June 30,
2002 the 1% under prime variable rate was 3.75%. In May 2002 a principal payment
of $113,112 was made on the subordinated debt. Subsequent to June 30, 2002, the
balance of the subordinated debt was retired with a $401,562 principal payment
made on July 9, 2002.
B. Other notes payable
The other notes payable were incurred in April 2001 to facilitate the repurchase
of common stock owned primarily by James E. Melville and Larry E. Ryherd, two
former officers and directors of UTG, and members of their respective families.
These notes bear interest at the fixed rate of 7% per annum (paid quarterly)
with payments of principal to be made in five equal annual installments, the
first principal payment of which, in the amount of $777,199, was made on March
31, 2002.
The collective scheduled principal reductions on these notes for the next five
years is as follows:
Year Amount
-------- -----------
2002 $ 0
2003 777,199
2004 777,199
2005 777,199
2006 777,200
C. Lines of Credit
On November 15, 2001, UTG was extended a $3,300,000 line of credit from the
First National Bank of the Cumberlands located in Livingston, Tennessee. The
First National Bank of the Cumberlands is owned by Millard V. Oakley, who is a
Director of UTG. The line of credit will expire one-year from the date of issue.
The interest rate on the line of credit is variable and indexed to be the lowest
of the U.S. prime rates as published in the money section of the Wall Street
Journal, with any interest rate adjustments to be made monthly. At June 30,
2002, the Company had outstanding borrowings of $750,000 attributable to this
line of credit. Subsequent to June 30, 2002, an additional draw was taken in the
amount of $250,000. The draws on this line of credit are being used to
facilitate the payments due to the former shareholders of FCC as a result of,
the June 12, 2002 merger of FCC with and into UTG, as further described in note
9 to the consolidated financial statements.
On April 1, 2002, UTG was extended a $5,000,000 line of credit from an
unaffiliated third party, Southwest Bank of St. Louis. The line of credit will
expire one-year from the date of issue. The line was sought to provide UTG with
additional liquidity for current operations and the growth of its business.
Borrowings under the line of credit will bear interest at the rate of 0.25% in
excess of Southwest Bank of St. Louis' prime rate. As collateral for any draws
under the line of credit, the former FCC, which has now merged into UTG, pledged
100% of the common stock of its insurance subsidiary UG. At June 30, 2002, UTG
had no borrowings attributable to this line of credit. Subsequent to June 30,
2002, a draw was taken in the amount of $400,000 to facilitate the repurchase of
UTG common stock as it becomes available, as further described in note 4 to the
consolidated financial statements.
Borrowings made on the aforementioned lines of credit are expected to be repaid
before year-end 2002, using a proposed dividend payment to UTG from its
insurance subsidiary UG.
4. CAPITAL STOCK TRANSACTIONS
A. Stock Repurchase Program
On June 5, 2001, the board of directors of UTG authorized the repurchase from
time to time in the open market or in privately negotiated transactions of up to
$1 million of UTG's common stock. Repurchased shares under the program will be
available for future issuance for general corporate purposes. Through July 31,
2002, UTG has spent $561,673 in the acquisition of 79,931 shares of its common
stock under this program.
B. Earnings Per Share Calculations
Earnings per share are based on the weighted average number of common shares
outstanding during each period, retroactively adjusted to give effect to all
stock splits, in accordance with Statement of Financial Accounting Standards No.
128. At June 30, 2002 and June 30, 2001 diluted earnings per share were the same
as basic earnings per share since the UTG had no dilutive instruments
outstanding.
C. Officer and Director Stock Purchase Program
On March 26, 2002, the Board of Directors of UTG adopted, and on June 11, 2002,
the shareholders of UTG approved, the United Trust Group, Inc. Employee and
Director Stock Purchase Plan. The plan's purpose is to provide employees and
directors of UTG and its subsidiaries an opportunity to invest in shares of UTG
common stock. The plan will be administered by the Board of Directors of UTG,
and is expected to begin in the third quarter of 2002.
A total of 400,000 shares of common stock may be purchased under the plan,
subject to appropriate adjustment for stock dividends, stock splits or similar
recapitalizations resulting in a change in shares of UTG. The plan is not
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code.
5. COMMITMENTS AND CONTINGENCIES
The insurance industry has experienced a number of civil jury verdicts which
have been returned against life and health insurers in the jurisdictions in
which the Company does business involving the insurers' sales practices, alleged
agent misconduct, failure to properly supervise agents, and other matters. Some
of the lawsuits have resulted in the award of substantial judgments against the
insurer, including material amounts of punitive damages. In some states, juries
have substantial discretion in awarding punitive damages in these circumstances.
The Company cannot predict the effect that these lawsuits may have on the
Company in the future.
Under the insurance guaranty fund laws in most states, insurance companies doing
business in a participating state can be assessed up to prescribed limits for
policyholder losses incurred by insolvent or failed insurance companies.
Although the Company cannot predict the amount of any future assessments, most
insurance guaranty fund laws currently provide that an assessment may be excused
or deferred if it would threaten an insurer's financial strength. Mandatory
assessments may be partially recovered through a reduction in future premium tax
in some states. The Company does not believe such assessments will be materially
different from amounts already provided for in the financial statements, though
the amount of any future assessments cannot be predicted with any degree of
certainty.
The State of Florida began an investigation of industrial life insurance
policies in the fall of 1999 regarding policies with race-based premiums. This
investigation has quickly spread to other states and to other types of small
face amount policies and was expanded to consider the fairness of premiums for
all small policies including policies which did not have race-based premiums.
The NAIC historically has defined a "small face amount policy" as one with a
face amount of $15,000 or less. Under current reviews, some states have
increased this amount to policies of $25,000 or less. These states are
attempting to force insurers to refund "excess premiums" to insureds or
beneficiaries of insureds based on a prior settlement. The Company's insurance
subsidiaries have no race-based premium products, but do have policies with face
amounts under the above-scrutinized limitations. The outcome of this issue could
be dramatic on the insurance industry as a whole as well as the Company itself.
The Company will continue to monitor developments regarding this matter to
determine to what extent, if any, the Company may be exposed.
On November 20, 1998, First Southern Funding ("FSF"), an entity controlled by
UTG's Chairman and Chief Executive Officer, Jesse T. Correll, and certain of its
affiliates acquired 929,904 shares of common stock of UTG from UTG and certain
UTG shareholders. As consideration for the shares, FSF paid UTG $10,999,995 and
certain shareholders of UTG $999,990 in cash. Included in the stock acquisition
agreement is an earnings covenant whereby UTG warrants UTG and its subsidiaries
and affiliates will have future earnings of at least $30,000,000 for a five-year
period beginning January 1, 1998. Such earnings are computed based on statutory
results excluding inter-company activities such as inter-company dividends plus
realized and unrealized gains and losses on real estate, mortgage loans and
unaffiliated common stocks. At the end of the covenant period, an adjustment is
to be made equal to the difference between the then market value and statutory
carrying value of real estate still owned that existed at the beginning of the
covenant period. Should UTG not meet the covenant requirements, any shortfall
will first be reduced by the actual average tax rate for UTG for the period,
then will be further reduced by one-half of the percentage, if any, representing
UTG's ownership percentage of the insurance company subsidiaries. This result
will then be reduced by $250,000. The remaining amount will be paid by UTG in
the form of UTG common stock valued at $15.00 per share with a maximum number of
shares to be issued of 500,000, though there is no limit on the number of shares
that can be transferred to the extent that there are legal fees, settlements,
damage payments or other losses as a result of certain legal actions taken. The
price and number of shares shall be adjusted for any applicable stock splits,
stock dividends or other recapitalizations. At June 30, 2002, the Company had
total earnings of $16,512,582 applicable to this covenant. With less than
one-year remaining on the covenant, it appears highly unlikely that UTG will
meet the earnings requirements, resulting in UTG being required to issue
additional shares to FSF or its assigns. Combining current results with
management's expectation for the remainder of 2002, it appears probable at this
time that UTG will be required to issue 500,000 shares of its common stock at
December 31, 2002 to satisfy this covenant.
On June 10, 2002 UTG and Fiserv Life Insurance Solutions ("Fiserv LIS") of Cedar
Rapids, Iowa formed an alliance between their respective organizations to
provide third party administration (TPA) services to insurance companies seeking
business process outsourcing solutions. (See note 11 to the consolidated
financial statements). In connection with this alliance UTG paid a license fee
to use "ID3" which is a software system owned by Fiserv LIS to administer an
array of life, health and annuity products in the insurance industry. UTG
additionally contracted with Fiserv LIS to provide datacenter operations for
business administered by UTG on the "ID3" system. UTG intends to convert its
existing business to "ID3" as soon as practical. UTG has committed to a
five-year contract regarding the maintenance and data center operations through
Fiserv LIS. UTG projects these costs to be approximately $420,000 per year once
fully converted to the "ID3" system.
David A. Morlan, individually and on behalf of all others similarly situated v.
Universal Guaranty Life Ins., United Trust Assurance Co., United Security
Assurance Co., United Trust Group, Inc. and First Commonwealth Corporation,
(U.S. Court of Appeals for the Seventh Circuit, Appeal No. 01-3795)
As previously reported in UTG's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001 and Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 2002, on April 26, 1999, the above lawsuit was filed by
David Morlan and Louis Black in the Southern District of Illinois against
Universal Guaranty Life Insurance Company ("UG") and United Trust Assurance
Company ("UTAC") (merged into UG in 1992). After the lawsuit was filed, the
plaintiffs, who were former insurance agents, amended their complaint, dropped
Louis Black as a plaintiff, and added United Security Assurance Company
("USAC"), UTG and FCC as defendants. The plaintiffs are alleging that they were
employees of UG, UTAC or USAC rather than independent contractors. The
plaintiffs are seeking class action status and have asked to recover various
employee benefits, costs and attorneys' fees, as well as monetary damages based
on the defendants' alleged failure to withhold certain taxes.
On September 18, 2001, the case was dismissed without prejudice because Morlan
lacked standing to pursue the claims against defendants. The plaintiffs appealed
the dismissal of the case to the United States Court of Appeals for the Seventh
Circuit. Subsequent to the end of this reporting period, on July 26, 2002 the
Seventh Circuit ruled in favor of the plaintiffs and directed the district court
to reinstate the class action. The Company is petitioning the court for a
rehearing on this appeal.
In addition to the appeal, a second action was filed entitled; Julie Barrette
Ahrens, David Dzuiban, William Milam, Dennis Schneiderman, individually and on
behalf of all others similarly situated v Universal Guaranty Life, United Trust
Assurance Company, United Security Assurance Company, (United States District
Court for the Southern District of Illinois.; Case No: 01-4314-JPG).
The Company continues to believe that it has meritorious grounds to defend both
the original and related lawsuit, and it intends to defend the cases vigorously.
It believes that the defense and ultimate resolution of these lawsuits should
not have a material adverse effect upon the business, results of operations or
financial condition of the Company. Nevertheless, if the plaintiffs' lawsuits
were to be successful, it is likely that such resolution would have a material
adverse effect on the Company's business, results of operations and financial
condition. At June 30, 2002, the Company maintains a liability of $250,906 to
cover estimated legal costs associated with the defense of this matter.
UTG and its subsidiaries are named as defendants in a number of general legal
actions arising as a part of the ordinary course of business relating primarily
to claims made under insurance policies. Those actions have been considered in
establishing the Company's liabilities. Management is of the opinion that the
settlement of those actions will not have a material adverse effect on the
Company's financial position or results of operations.
6. Other Cash Flow Disclosure
On a cash basis, the Company paid $132,318 and $136,850 in interest expense
during the first six months of 2002 and 2001, respectively. The Company paid
$15,290 and $22,013 in federal income tax during the first six months of 2002
and 2001, respectively. At June 30, 2002, the Company sold $1,850,000 in fixed
maturity investments for which the cash had not yet been received. The
receivable for these securities is included in the line item "Other assets" on
the consolidated balance sheet.
7. CONCENTRATION OF CREDIT RISK
The Company maintains cash balances in financial institutions that at times may
exceed federally insured limits. The Company maintains its primary operating
cash accounts with First Southern National Bank, an affiliate of UTG, and its
largest shareholder, Chairman and CEO, Jesse Correll. The Company holds
approximately $5,000,000 for which there are no pledges or guarantees outside
FDIC insurance limits. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on cash
and cash equivalents.
8. COMPREHENSIVE INCOME
Tax
Before-Tax (Expense) Net of Tax
June 30, 2002 Amount or Benefit Amount
---------------------------------------------- ---------------- ----------------- ---------------
Unrealized holding gains during
period $ 1,771,811 $ (620,134) $ 1,151,677
Less: reclassification adjustment
for gains realized in net income (1,689) 591 (1,098)
---------------- ----------------- ---------------
Net unrealized gains (619,543)
1,770,122 1,150,579
---------------- ----------------- ---------------
Other comprehensive income $ 1,770,122 $ (619,543) $ 1,150,579
================ ================= ===============
9. MERGER OF UNITED TRUST GROUP, INC. AND FIRST COMMONWEALTH CORPORATION
On May 21, 2002, at a special meeting of shareholders, the shareholders of FCC,
then an 82% owned subsidiary of UTG, voted on and approved that certain
Agreement and Plan of Reorganization and related Plan of Merger, each dated as
of June 5, 2001, between UTG, and FCC (collectively, the "Merger Agreement"),
and the merger contemplated thereby in which FCC would be merged with and into
UTG, with UTG being the surviving corporation of the merger. The merger became
effective on June 12, 2002. Pursuant to the terms and conditions of the Merger
Agreement, each share of FCC stock outstanding at the effective time of the
merger (other than shares held by UTG or shares held in treasury by FCC or by
one of its subsidiaries) was at such time automatically converted into the right
to receive $250 in cash per share.
In the merger, UTG acquired the remaining common shares (approximately 18%) of
FCC that UTG did not own prior to the effective time of the merger.
The purchase price in the merger is comprised of the following components:
Investments $ 41,475,198
Cash and cash equivalents 2,020,960
Accrued investment income 493,609
Reinsurance receivables 6,784,813
Cost of insurance acquired (1,371,740)
Property and equipment 424,217
Other assets 314,974
------------------
Total assets 50,142,031
Policy liabilities and accruals (45,981,006)
Income taxes payable - current and deferred 1,063,735
Notes payable (1,958,373)
Other liabilities (786,387)
------------------
Net purchase price $ 2,480,000
==================
The following table summarizes certain unaudited operating results of UTG as
though the merger transaction had taken place at the beginning of the reporting
periods ending on June 30, 2002 and December 31, 2001, respectively.
June 30, 2002 December 31, 2001
-------------------- --------------------
Total revenues $ 15,656,056 $ 33,329,372
Total benefits and other expenses $ 14,025,582 $ 28,912,280
Operating income $ 1,630,474 $ 4,417,092
Net Income $ 1,164,053 $ 3,274,486
Basic earnings per share $ 0.33 $ 0.86
Diluted earnings per share $ 0.33 $ 0.86
10. PROPOSED CHARTER SALES OF SUBSIDIARIES
The Charter of APPL is currently being marketed for sale through an outside
broker. The Company intends to proceed with an assumption reinsurance
transaction whereby all of the policies in force of APPL would be assumed by UG,
an Ohio domiciled company. As a precursor, to a possible sale of its Charter,
APPL was redomesticated from the State of West Virginia to the State of Ohio,
effective June 1, 2002. The foregoing potential transactions will be subject to
any required regulatory approvals and clearances.
The Charter of ABE, is also currently being marketed for sale through an outside
broker. Should the charter be sold, the Company would like to proceed with an
assumption reinsurance transaction whereby most or all of the policies in force
of ABE would be assumed by UG. The management of ABE and UG have no time
constraints or necessity for completion of this transaction. Should a buyer for
the ABE Charter be located, the transaction would be subject to any required
regulatory approvals and clearances.
11. UTG ALLIANCE WITH FISERV LIS
On June 10, 2002 UTG and Fiserv LIS formed an alliance between their respective
organizations to provide third party administration (TPA) services to insurance
companies seeking business process outsourcing solutions. Fiserv LIS will be
responsible for the marketing and sales function for the alliance, as well as
providing the operations processing service for UTG. UTG will staff the
administration effort. To facilitate the alliance, UTG plans to convert its
existing business and TPA clients to "ID3", a software system owned by Fiserv
LIS to administer an array of life, health and annuity products in the insurance
industry. Fiserv LIS is a unit of Fiserv, Inc. (Nasdaq: FISV) which is an
independent, full-service provider of integrated data processing and information
management systems to the financial industry, headquartered in Brookfield,
Wisconsin.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this section is to discuss and analyze the Company's consolidated
results of operations, financial condition and liquidity and capital resources.
This analysis should be read in conjunction with the consolidated financial
statements and related notes that appear elsewhere in this report. The Company
reports financial results on a consolidated basis. The consolidated financial
statements include the accounts of UTG and its subsidiaries at June 30, 2002.
Cautionary Statement Regarding Forward-Looking Statements
---------------------------------------------------------
Any forward-looking statement contained herein or in any other oral or written
statement by the Company or any of its officers, directors or employees is
qualified by the fact that actual results of the Company may differ materially
from any such statement due to the following important factors, among other
risks and uncertainties inherent in the Company's business:
1. Prevailing interest rate levels, which may affect the ability of the
Company to sell its products, the market value of the Company's investments
and the lapse ratio of the Company's policies, notwithstanding product
design features intended to enhance persistency of the Company's products.
2. Changes in the federal income tax laws and regulations which may affect the
relative tax advantages of the Company's products.
3. Changes in the regulation of financial services, including bank sales and
underwriting of insurance products, which may affect the competitive
environment for the Company's products.
4. Other factors affecting the performance of the Company, including, but not
limited to, market conduct claims, insurance industry insolvencies,
insurance regulatory initiatives and developments, stock market
performance, an unfavorable outcome in pending litigation, and investment
performance.
Results of Operations
---------------------
(a) Revenues
Premiums and policy fee revenues, net of reinsurance premiums and policy fees,
decreased 7% when comparing the first six months of 2002 to the same period in
2001, and decreased 8% for the second quarter comparison. The Company currently
writes little new business. A majority of the new business currently written is
universal life insurance. Collected premiums on universal life and interest
sensitive products is not reflected in premiums and policy revenues because
accounting principles generally accepted in the United States of America
requires that premiums collected on these types of products be treated as
deposit liabilities rather than revenue. Unless the Company acquires a block of
in-force business or significantly increases its marketing of traditional
business, management expects premium revenue to continue to decline at a rate
consistent with prior experience.
During 2001, the Company implemented a conservation effort in an attempt to
improve the persistency rate of Company policies. Several of the customer
service representatives of the Company have become licensed insurance agents,
allowing them to offer other products within the Company's portfolio to existing
customers. Additionally, stronger efforts have been made in policy retention
through more personal contact with the customer including telephone calls to
discuss alternatives and reasons for a customer's request to surrender their
policy. Previously, the Company's agency force was primarily responsible for
conservation efforts. With the decline in the number of agents, the Company's
ability to reach these customers diminished, making conservation efforts
difficult. The conservation efforts described above are relatively new, but
early results are generally positive. Management will continue to monitor these
efforts and make adjustments as seen appropriate to enhance the future success
of the program. The Company is currently exploring the introduction of a new
product to be specifically used by the licensed customer service representatives
as an alternative for the customer in the conservation efforts. The new product
has yet to be marketed as of June 30, 2002. Introduction and the success of the
new product will depend on the product competitiveness and profitability. Net
investment income decreased 17% when comparing the first six months of 2002 to
the same period in 2001, and decreased 16% for the second quarter comparison.
The national prime rate ranged from a high of 9.50% to a low of 6.75% during the
first six months of 2001, and was 4.75% during the first six months of 2002.
This resulted in lower earnings on short-term funds as well as on longer-term
investments acquired.
The Company's investments are generally managed to match related insurance and
policyholder liabilities. The comparison of investment return with insurance or
investment product crediting rates establishes an interest spread. The Company
monitors investment yields, and when necessary adjusts credited interest rates
on its insurance products to preserve targeted interest spreads, ranging from 1%
to 2%. It is expected that monitoring of the interest spreads by management will
provide the necessary margin to adequately provide for associated costs on the
insurance policies the Company currently has in force and will write in the
future. At the March 2001 Board of Directors meeting, the Boards of the
insurance subsidiaries lowered crediting rates one-half percent on all products
that could be lowered. With this reduction, the vast majority of the Company's
rate-adjustable products are now at their guaranteed minimum rates, and as such,
cannot be lowered any further. These adjustments were in response to continued
declines in interest rates in the marketplace. Policy interest crediting rate
changes become effective on an individual policy basis on the next policy
anniversary. All of the Company's rate-adjustable products are now at their
guaranteed minimum rates. The guaranteed minimum crediting rates on these
products range from 3% to 5.5%.
The Company had realized investment gains of $11,427 in the first six months of
2002 compared to net realized investment gains of $12,594 for the same period in
2001. The realized gains in 2002 consist of a $6,078 gain on bonds and a $5,349
gain on common stocks. Several significant items comprised the net realized gain
in 2001. Net realized gains of $210,587 were attributable to real estate sales,
primarily properties formerly owned by APPL in West Virginia, with offsetting
net realized losses on bonds of $58,820, common stocks of $62,140 and the sale
of certain mortgage loans of $77,033. A quarterly comparison shows realized
investment gains of $6,731 for the quarterly period ended June 30, 2002, and
$243,163 for the same period in 2001. The large net realized gain during the
second quarter of 2001 is attributable to the Company's sale of certain common
stock holdings. It should be noted that the Company sold a significant common
stock holding at a realized loss of approximately $330,000 in the first quarter
of 2001 which resulted in the subsequent net realized loss in common stock for
the first six months of 2001.
On June 1, 2001, the Company began performing administrative work as a third
party administrator ("TPA") for an unaffiliated life insurance company. The
business being administered is a closed block with approximately 260,000
policies, a majority of which are paid up. The Company receives monthly fees
based on policy in force counts and certain other activity indicators such as
number of premium collections performed. During the first six months of 2002,
and during the second quarter of 2002, the Company received $231,535, and
$106,900 for this work, respectively. These TPA revenue fees are included in the
line item "other income" on the Company's consolidated statements of operations.
The Company intends to pursue other TPA arrangements, and has recently entered
into an alliance with Fiserv Life Insurance Solutions (Fiserv LIS), to provide
TPA services to insurance companies seeking business process outsourcing
solutions. Fiserv LIS will be responsible for the marketing and sales function
for the alliance, as well as providing the datacenter operations. UTG will staff
the administration effort. Although still in its early stages, management
believes this alliance with Fiserv LIS positions the Company to generate
additional revenues by utilizing the Company's strengths, current excess
capacity, and efficient, customer oriented, administrative services.
(b) Expenses
Benefits, claims and settlement expenses net of reinsurance benefits and claims,
decreased 7% in the first six months of 2002 compared to the same period in
2001, and decreased 11% for the second quarter comparison. Death benefit claims
were approximately $154,000 and $165,000 less in the first six months of 2002
and for the second quarter of 2002 as compared to the same periods in 2001,
respectively. Although death claims were less than the prior periods, there were
a few high face amount death claims in 2002, which the Company had reinsured, to
limit any potential liability in excess of $125,000 per life. Consequently, the
reinsurance benefits and claims received, increased accordingly. Policy claims
vary from year to year and therefore, fluctuations in mortality are to be
expected and are not considered unusual by management. The reserve decreases on
interest sensitive business in force is due to the reduction of interest
crediting rates and decrease in death benefit claims. Reserves continue to
increase on in-force policies as the age of the insureds increases.
Commissions and amortization of deferred policy acquisition costs decreased 34%
for the first sixth months of 2002 compared to the same period in 2001, and
decreased 13% for the second quarter comparison. The most significant factor in
the decrease is attributable to the Company paying fewer commissions, since the
company writes very little new business and renewal premiums on existing
business continue to decline. Another factor of the decrease is attributable to
normal amortization of the deferred policy acquisition costs asset. The Company
does review the recoverability of the asset based on current trends and known
events compared to the assumptions used in the establishment of the original
asset. No impairments were recorded in either of the periods reported.
(c) Net income
The Company had a net income of $1,199,713 in the first six months of 2002
compared to net income of $1,319,150 for the same period in 2001 and net income
of $722,679 in the second quarter of 2002 as compared to $975,292 for the second
quarter of 2001. The decrease in net income can be attributed to declining
premium revenues and a significant decrease in net investment income which was
partially offset by a collective net decrease in expenses the most significant
of which was the offset to net claim expenses.
Financial Condition
-------------------
Total shareholders' equity increased approximately $1,900,000 at June 30, 2002
compared to December 31, 2001. The increase was attributable to net income of
approximately $1,200,000 and unrealized gains on investments of approximately
$1,100,000, partially offset by the effect of purchasing treasury shares which
amounted to approximately $400,000.
Investments represent approximately 74% and 71% of total assets at June 30, 2002
and December 31, 2001, respectively. Accordingly, investments are the largest
asset group of the Company. The Company's insurance subsidiaries are regulated
by insurance statutes and regulations as to the type of investments that they
are permitted to make and the amount of funds that may be used for any one type
of investment. In light of these statutes and regulations, the majority of the
Company's investment portfolio is invested in high quality, low risk
investments.
The Company does not own any "junk bonds" or similar investments. As of June 30,
2002, the carrying value of fixed maturity securities in default as to principal
or interest was immaterial in the context of consolidated assets or
shareholders' equity of the Company. The Company has identified securities it
may sell and classified them as "investments held for sale". Investments held
for sale are carried at market, with changes in market value charged directly to
shareholders' equity. To provide additional flexibility and liquidity, the
Company has categorized almost all fixed maturity investments acquired since
2000 as available for sale.
Liquidity and Capital Resources
-------------------------------
The Company has three principal needs for cash - the insurance companies'
contractual obligations to policyholders, the payment of operating expenses and
the servicing of its long-term debt. Cash and cash equivalents as a percentage
of total assets were approximately 4% and 5% as of June 30, 2002, and December
31, 2001, respectively. Fixed maturities as a percentage of total invested
assets were approximately 74% as of June 30, 2002 and December 31, 2001.
Future policy benefits are primarily long-term in nature and therefore, the
Company's investments are predominantly in long-term fixed maturity investments
such as bonds and mortgage loans which provide sufficient return to cover these
obligations. The Company has the ability and intent to hold these investments to
maturity; consequently, the Company's investment in long-term fixed maturities
held to maturity is reported in the financial statements at their amortized
cost. The investments held for sale are carried at market value, with changes in
market value directly charged to shareholders' equity. To provide additional
flexibility and liquidity, the Company has categorized almost all fixed maturity
investments acquired since 2000 as available for sale.
Many of the Company's products contain surrender charges and other features
which reward persistency and penalize the early withdrawal of funds. With
respect to such products, surrender charges are generally sufficient to cover
the Company's unamortized deferred policy acquisition costs with respect to the
policy being surrendered.
Net cash provided by (used in) operating activities was $(27,762) and $571,459
for the six month periods ending June 30, 2002 and June 30, 2001, respectively.
The net cash provided by operating activities plus net policyholder contract
deposits after the payment of policyholder withdrawals equaled $1,394,545 for
the first six months of 2002 and $1,399,142 for the same period in 2001.
Management utilizes this measurement of cash flows as an indicator of the
performance of the Company's insurance operations, since reporting regulations
require cash inflows and outflows from universal life insurance products to be
shown as financing activities when reporting on cash flows.
Net cash provided by (used in) investing activities was $(3,393,271) and
$1,416,114, for the six month periods ending June 30, 2002 and June 30, 2001,
respectively. The most significant aspect of cash provided by (used in)
investing activities are the fixed maturity transactions. Fixed maturities
account for 80% and 81% of the total cost of investments acquired in the first
six months of 2002 and for the same period in 2001, respectively. The Company
has not directed its investable funds to so-called "junk bonds" or similar
investments.
Net cash provided by (used in) financing activities was $(268,272) and
$(240,750) for the six month periods ending June 30, 2002 and June 30, 2001,
respectively. Policyholder contract deposits decreased 11% in the first six
months of 2002 compared to the same period in 2001. Policyholder contract
withdrawals decreased 25% in the first six months of 2002 of 2002 compared to
the same period in 2001. In addition, as of June 30, 2002, the Company had
purchased $413,018 in treasury stock under its stock repurchase program, and
paid former FCC shareholders $1,137,250 pursuant to the merger of FCC with and
into UTG on June 12, 2002.
At June 30, 2002, the Company had a total of $4,260,359 in long-term debt
outstanding. $3,108,797 is debt relating to the April 2001 purchase by UTG of
the common stock owned primarily by James E. Melville and Larry E. Ryherd, two
former officers and directors of the Company, and members of their respective
families. Future principal payments of $777,199 are due annually over the next
four years at an interest rate of 7% per annum (annual payments due April 12).
Other debt of $401,562 bears interest at a floating rate of 1% below prime (paid
quarterly) with no principal payments due until its maturity in 2012. Subsequent
to June 30, 2002, this debt was retired with a $401,562 principal payment made
on July 9, 2002. As of June 30, 2002 the Company had borrowings of $750,000 on a
line of credit from the First National Bank of the Cumberlands at a floating
rate equal to prime which is currently 4.75%. Subsequent to June 30, 2002, an
additional draw was taken in the amount of $250,000. The draws on this line of
credit are being used to facilitate the payment due to former FCC shareholders,
following the June 12, 2002 merger of FCC with and into UTG. The amount of such
payments was just slightly over $1,000,000 as of July 31, 2002. As of June 30,
2002 the Company had no outstanding borrowings attributable to a line of credit
from Southwest Bank of St. Louis. Borrowings under this line of credit will bear
interest at the rate of .25% in excess of Southwest Bank of St. Louis' prime
rate. Subsequent to June 30, 2002, a draw was taken in the amount of $400,000 to
facilitate the repurchase of shares of UTG common stock under UTG's stock
repurchase program, as such shares become available. Management believes overall
sources of cash available are more than adequate to service the Company's debt.
These sources include current cash balances of UTG, expected future operating
cashflows and repayment of affiliate receivables held by UTG. Borrowings made on
the aforementioned lines of credit are expected to be repaid using a proposed
dividend payment to UTG from the Company's insurance subsidiary UG.
UTG is a holding company and pays the operating expenses for itself and its
subsidiaries. Funds required to meet its expenses, are primarily provided
through the receipt of management fees from its subsidiaries. At June 30, 2002,
substantially all of the consolidated shareholders' equity represents net assets
of its subsidiaries and receivables from its subsidiaries. The Company's
insurance subsidiaries have maintained adequate statutory capital and surplus
and have not used surplus relief or financial reinsurance, which have come under
scrutiny by many state insurance departments. The payment of cash dividends to
shareholders is not legally restricted. However, the state insurance department
regulates insurance company dividend payments where the company is domiciled.
UTG is the parent of UG. UG's dividend limitations are described below.
Ohio domiciled insurance companies such as UG require five days prior
notification to the insurance commissioner for the payment of an ordinary
dividend. Ordinary dividends are defined as the greater of: a) prior year
statutory earnings or b) 10% of statutory capital and surplus. For the year
ended December 31, 2001, UG had a statutory gain from operations of $2,212,215.
At December 31, 2001, UG's statutory capital and surplus amounted to
$16,105,265. Extraordinary dividends (amounts in excess of ordinary dividend
limitations) require prior approval of the insurance commissioner and are not
restricted to a specific calculation. UG paid an ordinary dividend of $800,000
to UTG through the former FCC in April 2002.
Management believes the overall sources of liquidity available will be
sufficient to satisfy the Company's financial obligations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk relates, broadly, to changes in the value of financial instruments
that arise from adverse movements in interest rates, equity prices and foreign
exchange rates. The Company is exposed principally to changes in interest rates,
which affect the market prices of its fixed maturities available for sale and
its variable rate debt outstanding. The Company's exposure to equity prices and
foreign currency exchange rates is immaterial. The information presented below
is in U.S. dollars, the Company's reporting currency.
Interest rate risk
The Company could experience economic losses if it were required to liquidate
fixed income securities available for sale during periods of rising and/or
volatile interest rates. The Company attempts to mitigate its exposure to
adverse interest rate movements through a staggering of the maturities of its
fixed maturity investments and through maintaining cash and other short term
investments to assure sufficient liquidity to meet its obligations and to
address reinvestment risk considerations.
Tabular presentation
The following table provides information about the Company's long term debt that
is sensitive to changes in interest rates. The table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
The Company has no derivative financial instruments or interest rate swap
contracts.
------------------------------------------------------------------------------------------------------------------
June 30, 2002
------------------------------------------------------------------------------------------------------------------
Expected maturity date
------------------------------------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Total Fair value
------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ -------------
Long term debt
------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ -------------
Fixed rate 0 777,199 777,199 777,199 777,200 0 3,108,797 3,250,204
------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ -------------
Avg. int. rate 0 7.0% 7.0% 7.0% 7.0% 0 7.0%
------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ -------------
Variable rate 750,000 0 0 0 0 401,562 1,151,562 1,093,486
------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ -------------
Avg. int. rate 4.75% 0 0 0 0 3.75% 4.40%
------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ -------------
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
See the Morlan and related case discussion in note 5 to the consolidated
financial statements, which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the Annual Meeting of Shareholders held on June 11, 2002, the following
matters were submitted to the shareholders of UTG and voted on as indicated:
1. To elect nine directors to serve for a term of one year and until their
successors are elected and qualified:
--------------------------- --------------- ---------------- ---------------
DIRECTOR FOR WITHHELD AGAINST
--------------------------- --------------- ---------------- ---------------
John S. Albin 2,556,428 22,977 366
--------------------------- --------------- ---------------- ---------------
Randall L. Attkisson 2,555,578 22,977 1,216
--------------------------- --------------- ---------------- ---------------
Jesse T. Correll 2,556,010 22,977 784
--------------------------- --------------- ---------------- ---------------
Ward F. Correll 2,556,550 22,977 244
--------------------------- --------------- ---------------- ---------------
Thomas F. Darden 2,556,062 22,977 732
--------------------------- --------------- ---------------- ---------------
Millard V. Oakley 2,556,508 22,977 286
--------------------------- --------------- ---------------- ---------------
William W. Perry 2,556,122 22,977 672
--------------------------- --------------- ---------------- ---------------
James P. Rousey 2,555,578 22,977 1,216
--------------------------- --------------- ---------------- ---------------
Robert W. Teater 2,556,232 22,977 562
--------------------------- --------------- ---------------- ---------------
2. To approve and adopt the UTG Employee and Director Stock Purchase Plan:
For 2,387,828
Against 55,296
Abstain 27,085
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit Number Description
3.1 Articles of Incorporation of UTG and all amendments thereto.
3.2 Bylaws of UTG and all amendments thereto.
4.1 UTG's Agreement pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K with
respect to long-term debt instruments.
10.1 United Trust Group, Inc. Employee and Director Stock Purchase Plan
(incorporated by reference to Appendix A to the Definitive Proxy statement
on Schedule 14A filed by UTG on May 9, 2002) (Commission No. 000-16867).
99.1 Certificate of Jesse T. Correll, Chief Executive Officer and Chairman of
the Board of UTG, as required pursuant to 18 U.S.C. Section 1350
99.2 Certificate of Theodore C. Miller, Chief Financial Officer, Senior Vice
President and Corporate Secretary of UTG, as required pursuant to 18 U.S.C.
Section 1350
(B) REPORTS ON FORM 8-K
On May 22, 2002, UTG filed a report dated May 21, 2002 on Form 8-K under item 5
"Other Events", relating to the proposed merger of FCC with and into UTG, which
the respective shareholders of FCC voted on and approved on May 21, 2002.
On June 10, 2002, UTG filed a report dated June 10, 2002 on Form 8-K under item
9 "Regulation FD Disclosure" announcing the formation of an alliance with FISERV
LIS to provide business process outsourcing.
On June 13, 2002, UTG filed a report dated June 12, 2002 on Form 8-K under item
5 "Other Events and Regulation FD Disclosure" relating to the press release
announcing that the merger of FCC with and into UTG became effective on June 12,
2002.
ITEMS 2, 3, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED
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 thereunto duly authorized.
UNITED TRUST GROUP, INC.
------------------------
(Registrant)
Date: August 12, 2002 By /s/ Randall L. Attkisson
Randall L. Attkisson
President, Chief Operating Officer
and Director
Date: August 12, 2002 By /s/ Theodore C. Miller
Theodore C. Miller
Senior Vice President
and Chief Financial Officer
