SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended June 30, 2002
Commission File Number 1-8538
ASCENT ASSURANCE, INC.
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(Exact name of Registrant as specified in its Charter)
DELAWARE 73-1165000
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(State of Incorporation) (I.R.S. Employer Identification No.)
110 West Seventh Street, Suite 300, Fort Worth, Texas 76102
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(Address of Principal Executive Offices) (Zip Code)
817-878-3300
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(Registrant's Telephone Number, including Area Code)
N/A
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(Former Name, Address and Former Fiscal Year, if changed since Last Report)
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
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Indicate, by check mark whether the Registrant has filed all reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
YES X NO
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Common Stock - Par Value $.01 6,500,000 Shares Outstanding at July 31, 2002
ASCENT ASSURANCE, INC.
INDEX TO FORM 10-Q
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PART 1 - FINANCIAL INFORMATION Page No.
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Item 1 - Financial Statements
Ascent Assurance, Inc. Condensed Consolidated Balance Sheets at
June 30, 2002 and December 31, 2001 2
Ascent Assurance, Inc. Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 2002 and 2001 3
Ascent Assurance, Inc. Condensed Consolidated Statements of
Comprehensive Income for the Three and Six Months Ended June 30,
2002 and 2001 4
Ascent Assurance, Inc. Condensed Consolidated Statements of Cash Flows
for the Three and Six Months Ended June 30, 2002 and 2001 5
Ascent Assurance, Inc. Consolidated Statement of Changes in Stockholders'
Equity for the Six Months Ended June 30, 2002 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
General 12
Business Overview 12
Forward-Looking Statements 13
Operating Results 14
Financial Condition 17
Liquidity, Capital Resources and Statutory Capital and Surplus 19
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 22
Item 6 - Exhibits and Reports on Form 8-K 23
ASCENT ASSURANCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31,
2002 2001
(Unaudited) (Audited)
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(in thousands, except per share data)
Assets
Investments:
Fixed Maturities:
Available-for-sale, at market value (amortized cost
$99,762 and $90,475) $ 100,484 $ 90,217
Short-term investments 10,265 21,801
Other investments (cost $377 and $1,746) 380 1,883
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Total Investments 111,129 113,901
Cash 1,361 2,337
Accrued investment income 1,608 1,710
Receivables from agents, net of allowance for doubtful
accounts of $4,325 and $4,013 7,111 7,412
Deferred policy acquisition costs 25,743 25,600
Property and equipment, net of accumulated depreciation
of $4,847 and $3,904 4,648 5,436
Other assets 7,287 6,197
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Total Assets $ 158,887 $ 162,593
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Liabilities, Preferred Stock and Stockholders' Equity
Liabilities:
Policy liabilities and accruals:
Future policy benefits $ 60,843 $ 61,571
Claim reserves 32,823 37,202
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Total Policy Liabilities and Accruals 93,666 98,773
Accounts payable and other liabilities 12,442 11,760
Notes payable 18,754 18,603
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Total Liabilities 124,862 129,136
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Redeemable Convertible Preferred Stock 32,225 30,635
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Stockholders' Equity:
Common stock ($.01 par value, 30,000,000 shares authorized;
6,500,000 shares issued) 65 65
Capital in excess of par value 28,067 28,017
Accumulated other comprehensive income (loss) 725 (121)
Retained deficit (27,057) (25,139)
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Total Stockholders' Equity 1,800 2,822
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Total Liabilities, Redeemable Convertible Preferred Stock
And Stockholders' Equity $ 158,887 $ 162,593
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See the Notes to the Condensed Consolidated Financial Statements.
ASCENT ASSURANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
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2002 2001 2002 2001
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(in thousands, except per share data)
Revenues:
Premiums:
First-year $ 5,857 $ 8,543 $ 11,886 $ 16,368
Renewal 22,165 23,398 45,070 47,547
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Total premiums 28,022 31,941 56,956 63,915
Net investment income 1,940 2,294 3,962 4,616
Fee, service and other income 3,131 5,362 6,496 10,971
Net realized (loss) gain on investments (468) 52 (417) 94
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Total revenue 32,625 39,649 66,997 79,596
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Benefits, claims and expenses:
Benefits and claims 19,844 24,558 40,820 49,375
Increase in deferred acquisition costs (207) (1,110) (143) (2,227)
Commissions 4,081 5,538 8,414 11,501
General and administrative expenses 7,283 9,651 14,968 19,753
Taxes, licenses and fees 978 1,290 2,050 2,353
Interest expense on notes payable 615 486 1,216 656
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Total expenses 32,594 40,413 67,325 81,411
Income (loss) before income taxes 31 (764) (328) (1,815)
Federal income tax benefit - - - -
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Net income (loss) $ 31 $ (764) $ (328) $ (1,815)
Preferred stock dividends 805 710 1,590 1,420
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Loss applicable to common stockholders $ (774) $ (1,474) $ (1,918) $ (3,235)
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Basic and diluted loss per common share $ (.12) $ (.23) $ (.30) $ (.50)
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Weighted average shares outstanding:
Basic 6,500 6,500 6,500 6,500
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Diluted 6,500 6,500 6,500 6,500
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See the Notes to the Condensed Consolidated Financial Statements.
ASCENT ASSURANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
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2002 2001 2002 2001
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(in thousands)
Net income (loss) $ 31 $ (764) $ (328) $ (1,815)
Other comprehensive income (loss):
Unrealized holding gain (loss) arising
during period, net of tax 1,938 (452) 429 858
Reclassification adjustment of loss (gain)
on sales of investments included in
net income, net of tax 468 (52) 417 (94)
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Comprehensive income (loss) $ 2,437 $ (1,268) $ 518 $ (1,051)
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See the Notes to the Condensed Consolidated Financial Statements.
ASCENT ASSURANCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
(in thousands)
Cash Flow From Operating Activities:
Net income (loss) $ 31 $ (764) $ (328) $ (1,815)
Adjustments to reconcile net income (loss) to cash
used for operating activities
(Increase) decrease in accrued investment income (132) (180) 102 117
Increase in deferred acquisition costs (207) (1,110) (143) (2,227)
Decrease (increase) in receivables from agents 246 (16) 301 383
Increase in other assets (1,488) (402) (1,090) (914)
Decrease in policy liabilities and accruals (3,013) (2,999) (5,107) (4,840)
Increase (decrease) in accounts payable and other
liabilities 801 (2,147) 682 (2,079)
Other, net 1,427 1,964 2,367 1,899
----------- ----------- ----------- -----------
Net Cash Used For Operating Activities (2,335) (5,654) (3,216) (9,476)
----------- ----------- ----------- -----------
Cash Flow From Investing Activities:
Purchases of fixed maturity investments (11,043) (8,014) (33,907) (12,998)
Sales of fixed maturity investments 9,995 4,367 19,011 13,408
Maturities and calls of fixed maturity investments 1,430 265 4,888 2,644
Sale of equity securities 1,477 - 1,477 -
Net decrease (increase) in short-term and
other investments 782 (4,943) 11,517 (5,322)
Property and equipment purchased (140) (66) (155) (480)
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Net Cash Provided By (Used For) Investing Activities 2,501 (8,391) 2,831 (2,748)
----------- ---------- ----------- -----------
Cash Flow From Financing Activities:
Issuance of notes payable 11 11,305 68 11,305
Repayment of notes payable (319) (239) (659) (450)
Deferred debt costs - (347) - (347)
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Net Cash (Used For) Provided By Financing Activities (308) 10,719 (591) 10,508
----------- ---------- ----------- -----------
Decrease In Cash During Period (142) (3,326) (976) (1,716)
Cash At Beginning Of Period 1,503 4,268 2,337 2,658
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Cash At End Of Period $ 1,361 $ 942 $ 1,361 $ 942
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Supplemental disclosures of cash flow information:
Non-cash items:
Preferred stock dividends $ 805 $ 710 $ 1,590 $ 1,420
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Issuance of notes for payment in kind of interest $ 378 $ 277 $ 742 $ 277
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See the Notes to the Condensed Consolidated Financial Statements.
ASCENT ASSURANCE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands, except share data)
Accumulated
Capital Other Retained Total
Common Stock in Excess Comprehensive (Deficit) Stockholders'
Shares Amount of Par Value Income(Loss) Earnings Equity
Balance at December 31, 2001 6,500,000 $ 65 $ 28,017 $ (121) $ (25,139) $ 2,822
Net loss (328) (328)
Preferred Stock dividend (1,590) (1,590)
Other comprehensive income 846 846
Amortization of unearned compensation 50 50
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Balance at June 30, 2002 6,500,000 $ 65 $ 28,067 $ 725 $ (27,057) $ 1,800
=========== ======= ============ ============= =========== =============
See the Notes to the Condensed Consolidated Financial Statements.
ASCENT ASSURANCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
Ascent Assurance, Inc. ("Ascent"), a Delaware company incorporated in 1982, is
an insurance holding company engaged in the development, marketing, underwriting
and administration of medical expense and supplemental health insurance
products, primarily to self-employed individuals and small business owners.
The Company's revenues result primarily from premiums and fees from the
insurance products sold by its wholly owned subsidiaries National Foundation
Life Insurance Company ("NFL"), Freedom Life Insurance Company of America
("FLICA"), National Financial Insurance Company ("NFIC") and American Insurance
Company of Texas ("AICT", and together with NFL, NFIC and FLICA, collectively,
the "Insurance Subsidiaries") and marketed by NationalCare(R) Marketing, Inc.
("NCM"), also a wholly owned subsidiary. To a lesser extent the Company derives
revenue from (i) tele-survey services, (ii) printing services, and (iii) renewal
commissions for prior year sales of insurance products underwritten by
unaffiliated insurance carriers.
NOTE 2 - ACCOUNTING PRINCIPLES
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include
all of the information and footnotes required by accounting principles generally
accepted in the United States ("GAAP") for complete financial statements.
Financial statements prepared in accordance with GAAP require the use of
management estimates. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. All significant inter-company accounts and transactions have been
eliminated. Certain reclassifications have been made to 2001 amounts in order to
conform to the 2002 financial statement presentation. The financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.
Cash Equivalents. Cash equivalents consist of highly liquid instruments with
maturities at the time of acquisition of three months or less. Cash equivalents
are stated at cost, which approximates market.
Short-Term Investments. Short-term investments are stated at cost, which
approximates market.
Investments. The Company's fixed maturity portfolio is classified as
available-for-sale and is carried at estimated market value. Equity securities
(common and nonredeemable preferred stocks) are also carried at estimated market
value. Changes in aggregate unrealized appreciation or depreciation on fixed
maturity and equity securities are reported directly in stockholders' equity,
net of applicable deferred income taxes and, accordingly, will have no effect on
current operations.
Deferred Policy Acquisition Costs ("DPAC"). Policy acquisition costs consisting
of commissions and other policy issue costs, which vary with and are primarily
related to the production of new business, are deferred and amortized over
periods not to exceed the estimated premium-paying periods of the related
policies. Also included in DPAC is the cost of insurance purchased on acquired
business. The amortization of these costs is based on actuarially estimated
future premium revenues, and the amortization rate is adjusted periodically to
reflect actual experience. Projected future levels of premium revenue are
estimated using assumptions as to interest, mortality, morbidity and withdrawals
consistent with those used in calculating liabilities for future policy
benefits.
Agent Receivables. In the ordinary course of business, the Company advances
commissions on policies written by its general agencies and their agents. Net
agent receivables were approximately $7.1 million and $7.4 million at June 30,
2002 and December 31, 2001, respectively. The Company is reimbursed for these
advances from the commissions earned over the respective policy's life. In the
event that policies lapse prior to the time the Company has been fully
reimbursed, the general agency or the individual agents, as the case may be, are
responsible for reimbursing the Company for the outstanding balance of the
commission advance. The Company routinely establishes a reserve for
uncollectible agents' balances based upon historical experience and projected
commission earnings. As of June 30, 2002 and December 31, 2001, the Company's
allowances for uncollectible commission advances were $4.3 million and $4.0
million, respectively.
Future Policy Benefits. Liabilities for future policy benefits not yet incurred
are computed primarily using the net level premium method including actuarial
assumptions as to investment yield, mortality, morbidity, withdrawals,
persistency and other assumptions which were appropriate at the time the
policies were issued. Assumptions used are based on the Company's experience as
adjusted to provide for possible adverse deviation. Generally, these actuarial
assumptions are fixed and, absent material adverse benefit experience, are not
adjusted.
Claim Reserves. Claim reserves represent the estimated liabilities on claims
reported plus claims incurred but not yet reported. The process of estimating
claim reserves involves the active participation of experienced actuarial
consultants with input from the underwriting, claims, and finance departments.
The inherent uncertainty in estimating claim reserves is increased when
significant changes occur. Changes impacting the Company include: (1) changes in
economic conditions; (2) changes in state or federal laws and regulations,
particularly insurance reform measures; (3) writings of significant blocks of
new business and (4) significant changes in claims payment patterns as a result
of the implementation of a new claims administration system in May 2000. Because
claim reserves are estimates, management monitors reserve adequacy over time,
evaluating new information as it becomes available and adjusting claim reserves
as necessary. Such adjustments are reflected in current operations.
Notes Payable. Notes payable are stated at cost, which approximates market.
Federal Income Taxes. The Company records income taxes based on the asset and
liability approach, which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequence of temporary differences
between the carrying amounts and the tax basis of assets and liabilities. The
tax effect of future taxable temporary differences (liabilities) and future
deductible temporary differences (assets) are separately calculated and recorded
when such differences arise. A valuation allowance, reducing any recognized
deferred tax asset, must be recorded if it is determined that it is more likely
than not that such deferred tax asset will not be realized.
As of June 30, 2002, the Company has reported cumulative pre-tax losses since
March 31, 1999, the date it emerged from Chapter 11 bankruptcy proceedings.
Realization of the Company's deferred tax asset is dependent upon the return of
the Company's operations to profitability. Pre-tax losses during 2000, 2001 and
the first six months of 2002 were principally attributable to adverse claims
experience for certain major medical products. Management believes that such
product losses can be significantly reduced through aggressive rate increase
management. However, projections of future profitability are significantly
discounted when evaluating the recoverability of deferred tax assets and do not
overcome the negative evidence of cumulative losses under GAAP. Accordingly, the
Company has increased its deferred tax asset valuation allowance to fully
reserve all net deferred tax assets as of June 30, 2002 and December 31, 2001.
Earnings Per Share. Under GAAP there are two measures of earnings per share:
"basic earnings per share" and "diluted earnings per share". Basic earnings per
share is computed by dividing income applicable to common shareholders by the
weighted average number of common shares outstanding during the period. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were converted or exercised.
Diluted weighted shares exclude all convertible securities for loss periods. For
the six months ended June 30, 2002 and 2001, stock options of 1,073,350 and
943,600, respectively, that could potentially dilute basic earnings per share in
the future were not included in the computation of diluted earnings per share
because to do so would have been anti-dilutive.
The following table reflects the calculation of basic and diluted EPS:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2002 2001 2002 2001
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(amounts in thousands, except per share amounts)
Net income (loss) $ 31 $ (764) $ (328) $ (1,815)
Preferred stock dividends (805) (710) (1,590) (1,420)
----------- ----------- ----------- -----------
Loss applicable to common shareholders $ (774) $ (1,474) $ (1,918) $ (3,235)
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 6,500 6,500 6,500 6,500
Diluted 6,500 6,500 6,500 6,500
Basic and diluted loss per share $ (.12) $ (.23) $ (.30) $ (.50)
=========== =========== =========== ===========
Recently Issued Accounting Pronouncements. In June 2001, the FASB issued SFAS
142, "Goodwill and Other Intangible Assets". SFAS 142 supersedes APB 17,
"Intangible Assets," and is effective for fiscal years beginning after December
15, 2001. SFAS 142 primarily addresses the accounting for goodwill and
intangible assets subsequent to their initial recognition. SFAS 142 (1)
prohibits the amortization of goodwill and indefinite-lived intangible assets,
(2) requires testing of goodwill and indefinite-lived intangible assets on an
annual basis for impairment (and more frequently if the occurrence of an event
or circumstance indicates an impairment), (3) requires that reporting units be
identified for the purpose of assessing potential future impairments of goodwill
and (4) removes the forty-year limitation on the amortization period of
intangible assets that have finite lives. The Company adopted SFAS 142 on
January 1, 2002 and did not recognize an impairment loss upon adoption. The
Company has no goodwill or indefinite-lived intangible assets. The Company has
identified intangible assets totaling $2.9 million included in deferred policy
acquisition costs representing the estimated present value of future profits of
certain insurance policies acquired prior to March 1999. These assets are
amortized over the premium paying lives of the policies acquired based upon the
present value of the total anticipated future premiums applicable to such
policies. The Company has determined that there is no indication of impairment
related to these assets and that the useful lives assigned to the assets are
appropriate. Going forward, the Company will test these intangibles for
impairment annually or more frequently if the occurrence of an event or
circumstances indicates impairment.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 requires that the fair value of a liability for an
asset retirement obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The associated asset
retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 will be effective for financial statements issued
for fiscal years beginning after June 15, 2002. An entity shall recognize the
cumulative effect of adoption of SFAS No. 143 as a change in accounting
principle. The Company does not expect the adoption of the statement to
materially impact the Company's results of operations and financial position.
In August 2001, the FASB approved SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." The Statement requires that long-lived assets
to be disposed of other than by sale be considered held and used until they are
disposed of. SFAS No. 144 requires that long-lived assets to be disposed of by
sale be accounted for under the requirements of SFAS No. 121. SFAS No. 121
requires that such assets be measured at the lower of carrying amounts or fair
value less cost to sell and to cease depreciation (amortization). SFAS No. 144
requires a probability-weighted cash flow estimation approach in situations
where alternative courses of action to recover the carrying amount of a
long-lived asset are under consideration or a range of possible future cash flow
amounts are estimated. As a result, discontinued operations will no longer be
measured on a net realizable basis, and future operating losses will no longer
be recognized before they occur. Additionally, goodwill will be removed from the
scope of SFAS No. 121. As a result, goodwill will no longer be required to be
allocated to long-lived assets to be tested for impairment. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001, and interim periods within those fiscal years. The adoption
of the statement did not materially impact the Company's results of operations
and financial position.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections".
SFAS No. 145 rescinds SFAS No. 4, which required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in Opinion 30 will now be used to classify those gains and losses. The
provisions of this Statement related to the rescission of SFAS No. 4 shall be
applied in fiscal years beginning after May 15, 2002. SFAS No. 145 amends SFAS
No. 13 to require that certain lease modifications that have economic effects
similar to sale-leaseback transactions be accounted for in the same manner as
sales-leaseback transactions. The provisions of this Statement related to SFAS
No. 13 shall be effective for transactions occurring after May 15, 2002. The
Company does not expect the adoption of the statement to materially impact the
Company's results of operations and financial position.
On June 28, 2002, the FASB voted in favor of issuing SFAS 146, "Accounting for
Exit or Disposal Activities". SFAS 146 addresses significant issues regarding
the recognition, measurement and reporting of costs that are associated with
exit and disposal activities, including restructuring activities that are
currently accounted for pursuant to the guidance that the Emerging Issues Task
Force (EITF) has set forth in the EITF Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)". The scope of SFAS 146
also includes (1) costs related to terminating a contract that is not a capital
lease and (2) termination benefits that employees who are involuntarily
terminated receive under the terms of a one-time benefit arrangement that is not
an ongoing benefit arrangement or an individual deferred compensation contract.
SFAS 146 will be effective for financial statements issued for fiscal years
beginning after December 31, 2002. The Company has not yet determined the impact
of SFAS 146 on results of operations and financial position.
NOTE 3 - PREFERRED STOCK
Dividends on the Company's preferred stock are payable in cash or through
issuance of additional shares of preferred stock, at the Company's option. On
June 28, 2002, preferred stock dividends accrued in the second quarter of 2002
were paid through the issuance of 805 shares of preferred stock.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
In the normal course of its business operations, the Company is involved in
various claims and other business related disputes. In the opinion of
management, the Company is not a party to any pending litigation the disposition
of which would have a material adverse effect on the Company's business,
financial position or its results of operations.
ASCENT ASSURANCE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion provides management's assessment of financial condition
at June 30, 2002 as compared to December 31, 2001 and results of operations for
the three and six months ended June 30, 2002 as compared to the comparable 2001
periods for the Company. This discussion updates the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in the Company's
2001 Report on Form 10-K and should be read in conjunction therewith.
Business Overview. The Company's revenues result primarily from premiums and
fees from the insurance products sold by its wholly owned subsidiaries National
Foundation Life Insurance Company ("NFL"), Freedom Life Insurance Company of
America ("FLICA"), National Financial Insurance Company ("NFIC") and American
Insurance Company of Texas ("AICT", and together with NFL, NFIC and FLICA,
collectively, the "Insurance Subsidiaries") and marketed by NationalCare(R)
Marketing, Inc. ("NCM"), also a wholly owned subsidiary. To a lesser extent the
Company derives revenue from (i) tele-survey services, (ii) printing services,
and (iii) renewal commissions received by the Company for prior year sales of
insurance products for unaffiliated insurance carriers.
The Company's operations are comprised of one segment, Accident and Health
insurance. The principal products currently marketed by NCM and underwritten by
the Insurance Subsidiaries are medical expense reimbursement policies. These
products are designed with flexibility as to benefits, deductibles, coinsurance
and premium payments, which can be adapted to meet regional sales or competitive
needs, as well as those of the individual policyholders. The principal product
groups currently underwritten by the Insurance Subsidiaries are comprehensive
major medical products, hospital/surgical major medical products and
supplemental specified disease products:
o Comprehensive major medical products are generally designed to reimburse
insureds for eligible expenses incurred for hospital confinement, surgical
expenses, physician services, outpatient services and the cost of
medicines.
o Hospital/surgical major medical products are similar to comprehensive major
medical products except that benefits are limited to hospital/surgical
services (services such as routine well care physician visits and
prescription drugs are excluded) and deductibles and coinsurance provisions
are generally higher.
o Supplemental specified disease products include indemnity policies for
hospital confinement and convalescent care for treatment of specified
diseases and "event specific" policies, which provide fixed benefits or
lump sum payments upon diagnosis of certain types of internal cancer or
other catastrophic diseases.
Prior to 1998, the Insurance Subsidiaries also underwrote Medicare Supplement
products designed to provide reimbursement for certain expenses not covered by
the Medicare program. The Insurance Subsidiaries continue to receive premiums on
Medicare Supplement policies sold prior to that date.
Forward-Looking Statements. Statements contained in this analysis and elsewhere
in this document that are not based on historical information are
forward-looking statements and are based on management's projections, estimates
and assumptions. In particular, forward-looking statements can be identified by
the use of words such as "may", "will", "should", "expect", "anticipate",
"estimate", "continue", or similar words. Management cautions readers regarding
its forward-looking statements. The Private Securities Litigation Reform Act of
1995 provides a "safe harbor" for forward-looking statements. Various statements
contained in the Management's Discussion and Analysis of Results of Operation
and Financial Condition, are forward-looking statements. These forward-looking
statements are based on the intent, belief or current expectations of the
Company and members of its senior management team. While the Company believes
that its expectations are based on reasonable assumptions within the bounds of
its knowledge of its business and operations, prospective investors are
cautioned that any such forward-looking statements are not guarantees of future
performance, and involve risks and uncertainties, and that actual results may
differ materially from those contemplated by such forward-looking statements.
Important factors known to management that could cause actual results to differ
materially from those contemplated by the forward-looking statements in this
Report include, but are not limited to:
|X| any limitation imposed on the Company's ability to control the impact of
rising health care costs, especially prescription drugs, and rising medical
service utilization rates through product and benefit design, underwriting
criteria, premium rate increases, utilization management and negotiation of
favorable provider contracts;
|X| the impact of changing health care trends on the Company's ability to
accurately estimate claim and settlement expense reserves;
|X| developments in health care reform and other regulatory issues, including
the Health Insurance Portability and Accountability Act of 1996 ("HIPPA")
and increased privacy regulation, and changes in laws and regulations in
key states where the Company operates;
|X| the Company's ability to meet minimum regulatory capital requirements for
its Insurance Subsidiaries;
|X| the ability of the Company to maintain adequate liquidity for its
non-insurance subsidiary operations including financing by NCM of
commission advances to agents;
|X| default by issuers of fixed maturity investments owned by the Company;
|X| and the loss of key management personnel.
Subsequent written or oral statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the cautionary
statements in this Report and those in the Company's reports previously filed
with the SEC. Copies of these filings may be obtained by contacting the Company
or the SEC.
OPERATING RESULTS
Results of operations for Ascent are reported for the three and six months ended
June 30, 2002 and 2001. (In thousands except insurance operating ratios.)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Premiums $ 28,022 $ 31,941 $ 56,956 $ 63,915
Other 654 970 1,330 1,872
----------- ----------- ----------- -----------
Total insurance operating revenue 28,676 32,911 58,286 65,787
----------- ----------- ----------- -----------
Benefits and claims 19,844 24,558 40,820 49,375
Commissions 3,377 4,690 7,006 9,551
Increase in deferred acquisition costs (207) (1,110) (143) (2,227)
General and administrative expense 5,708 6,714 11,617 13,905
Taxes, licenses and fees 955 1,138 1,977 2,043
----------- ----------- ----------- -----------
Total insurance operating expenses 29,677 35,990 61,277 72,647
----------- ----------- ----------- -----------
Insurance Operating Results (1,001) (3,079) (2,991) (6,860)
----------- ----------- ----------- -----------
Fee and service income 2,477 4,392 5,166 9,099
Fee and service expenses (2,302) (3,937) (4,832) (8,108)
----------- ----------- ----------- -----------
Fee and Service Results 175 455 334 991
----------- ----------- ----------- -----------
Net investment income 1,940 2,294 3,962 4,616
Net realized (loss) gain on investments (468) 52 (417) 94
Interest expense on notes payable (615) (486) (1,216) (656)
----------- ----------- ----------- -----------
Income (Loss) Before Income Taxes 31 (764) (328) (1,815)
Income tax benefit - - - -
----------- ----------- ----------- -----------
Net Income (Loss) $ 31 $ (764) $ (328) $ (1,815)
=========== =========== =========== ===========
Insurance operating ratios*
Benefits and claims 70.8% 76.9% 71.7% 77.3%
Commissions 12.1% 14.7% 12.3% 14.9%
Increase in deferred acquisition costs -0.7% -3.5% -0.3% -3.5%
General and administrative expenses 19.9% 20.4% 19.9% 21.1%
Taxes, licenses and fees 3.4% 3.6% 3.5% 3.2%
*Ratios are calculated as a percent of premium with the exception of the general
and administrative expense ratio which is calculated as a percent of total
insurance operating revenue.
Overview. For the second quarter of 2002, income before income taxes was $31,000
compared to a loss before income taxes of ($764,000) for the corresponding 2001
period. For the first six months of 2002, the pre-tax loss was ($328,000),
compared to a pre-tax loss of ($1.8) million for the six months ended June 30,
2001. Pre-tax results of operations improved for the three and six months ended
June 30, 2002 compared to the corresponding 2001 periods due to improved
insurance operating results that were offset by lower fee and service income and
investment results and increased interest expense.
The $2.1 million and $3.9 million improvement in insurance operating results for
the three and six months ended June 30, 2002 is principally attributable to the
6.1 percentage point and 5.6 percentage point reduction in the benefit and
claims to premium ratio, due to a favorable change in major medical product mix.
Since July 2000, the Company has been marketing a new major medical policy in
all significant marketing regions. This new product was designed to produce a
substantially lower benefits and claims to premium ratio than previously
marketed major medical products.
Fee and service income decreased $280,000 and $657,000 for the three and six
months ended June 30, 2002 principally due to lower sales volumes for
tele-survey and printing operations, as a result of the recent economic
downturn.
Net investment income decreased $354,000 and $654,000 for the three and six
months ended June 30, 2002 compared to the comparable 2001 periods primarily due
to a decline in receivables from agents and lower fixed maturity investment
yields, emphasized by a repositioning of the Company's investment portfolio in
the latter part of 2001. During the second quarter of 2002, the Company recorded
net realized investment losses of $468,000 which were principally due to the
write-down of a WorldCom, Inc. bond investment.
The $129,000 and $560,000 increase in interest expense for the three and six
months ended June 30, 2002 is due to debt financing obtained from Credit Suisse
First Boston Management Corporation in April 2001. Interest expense related to
this financing was $543,000 and $1.1 million for the three and six months ended
June 30, 2002, and included $378,000 and $742,000, respectively, of interest
paid in kind by issuance of additional notes (see "Liquidity, Capital Resources
and Statutory Capital and Surplus").
The following narratives discuss the principal components of insurance operating
results.
Premiums. Premium revenue, in thousands, for each major product line is set
forth below:
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Major medical:
First-year $ 5,605 $ 8,036 $ 11,379 $ 15,376
Renewal 12,025 11,895 24,386 23,983
----------- ----------- ----------- -----------
Subtotal 17,630 19,931 35,765 39,359
----------- ----------- ----------- -----------
Supplemental specified disease:
First-year 95 326 246 584
Renewal 5,633 5,882 11,343 12,043
----------- ----------- ----------- -----------
Subtotal 5,728 6,208 11,589 12,627
----------- ----------- ----------- -----------
Medicare supplement:
First-year - - - -
Renewal 4,140 5,159 8,570 10,592
----------- ----------- ----------- -----------
Subtotal 4,140 5,159 8,570 10,592
----------- ----------- ----------- -----------
Other 524 643 1,032 1,337
----------- ----------- ----------- -----------
Consolidated Premium Revenue $ 28,022 $ 31,941 $ 56,956 $ 63,915
=========== =========== =========== ===========
Total premiums decreased by $3.9 million, or 12.3%, for the second quarter of
2002 and $7.0 million, or 10.9%, for the six months of 2002 as compared to the
corresponding 2001 periods as a result of accelerated lapsing of major medical
products marketed prior to July 2000 and the normal lapsing of supplemental
specified disease and medicare supplement policies. Premiums from the new
comprehensive major medical product, for which marketing began in July 2000,
were $8.1 million and $15.2 million for the three and six months ended June 30,
2002 and $4.5 million and $7.4 million, respectively, for the comparable periods
in 2001. The Company is principally marketing major medical products.
Benefits and Claims. Benefits and claims are comprised of (1) claims paid, (2)
changes in the claim reserves for claims incurred (whether or not reported), and
(3) changes in future policy benefit reserves. The ratio of benefits and claims
to premiums decreased by 6.1 percentage points and 5.6 percentage points for the
three and six months ended June 30, 2002 compared to the comparable periods in
2001 due primarily to the improved mix of major medical products discussed
above. Continued improvement in the Company's benefit and claims to premium
ratio is dependent upon the Company's ability to control the impact of rapidly
rising health care costs on in force business through timely premium rate
increases, utilization management and negotiation of favorable provider
contracts.
Commissions. The commissions to premiums ratio declined by 2.6 percentage points
for the three and six months ended June 30, 2002 as compared to the comparable
2001 periods, due to a higher percentage of renewal premiums to total premiums.
Commission rates on first year premiums are significantly higher than those for
renewal premiums.
General and Administrative Expense. For the three and six months ended June 30,
2002, general and administrative expenses decreased over the comparable 2001
periods by 0.5 percentage points and 1.2 percentage points, respectively, which
improved insurance operating results by approximately $143,000 and $699,000,
respectively. The decrease was due principally to a decrease in the amount of
business in its first year for which expenses are generally greater.
FINANCIAL CONDITION
Investments. The following table summarizes the Company's fixed maturity
securities, excluding short-term investments and certificates of deposit. All of
the Company's fixed maturity securities are classified as available-for-sale and
are carried at estimated market value. Estimated market value represents the
closing sales prices of marketable securities. Investments in the debt
securities of corporations are principally in publicly traded bonds.
June 30, 2002 December 31, 2001
------------------------- -------------------------
Market Market
Fixed Maturity Securities Value % Value %
- ------------------------------------ ----------- ----------- ----------- -----------
(in thousands) (in thousands)
U.S. Government and governmental
agencies and authorities (except
mortgage-backed) $ 10,838 10.8 $ 10,823 12.0
Finance 21,331 21.2 20,307 22.5
Public utilities 7,295 7.3 7,452 8.2
Mortgage-backed 21,267 21.2 10,731 11.9
States, municipalities and political
subdivisions 2,761 2.7 2,226 2.5
All other corporate bonds 36,992 36.8 38,678 42.9
----------- ----------- ----------- -----------
Total fixed maturity securities $ 100,484 100.0 $ 90,217 100.0
=========== =========== =========== ===========
The following table indicates by rating the composition of the Company's fixed
maturity securities portfolio, excluding short-term investments and certificates
of deposit. Ratings are the lower of those assigned by Standard & Poor's and
Moody's, when available, and are shown in the table using the Standard & Poor's
rating scale. Unrated securities are assigned ratings based on the applicable
NAIC's designation or the rating assigned to comparable debt outstanding of the
same issuer. NAIC 1 fixed maturity securities have been classified as "A" (and
above) and NAIC 2 fixed maturity securities have been classified as "BBB".
June 30, 2002 December 31, 2001
------------------------- -------------------------
Composition of Fixed Maturity Market Market
Securities by Rating Value % Value %
- ----------------------------------- ----------- ----------- ----------- -----------
(in thousands) (in thousands)
Ratings
Investment grade:
U.S. Government and agencies $ 30,232 30.1 $ 20,451 22.7
AAA 3,727 3.7 2,180 2.4
AA 6,777 6.8 9,160 10.2
A 37,226 37.0 28,318 31.4
BBB 21,316 21.2 29,723 32.9
Non-Investment grade:
BB 973 1.0 250 0.3
B and below 233 0.2 135 0.1
----------- ----------- ----------- -----------
Total fixed maturity securities $ 100,484 100.0 $ 90,217 100.0
=========== =========== =========== ===========
The scheduled contractual maturities of the Company's fixed maturity securities,
excluding short-term investments and certificates of deposit, at June 30, 2002
and December 31, 2001 are shown in the table below. Expected maturities may
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without penalties.
June 30, 2002 December 31, 2001
------------------------- -------------------------
Composition of Fixed Maturity Market Market
Securities by Maturity Value % Value %
- --------------------------------------- ----------- ----------- ----------- -----------
(in thousands) (in thousands)
Scheduled Maturity
Due in one year or less $ 7,427 7.4 $ 5,909 6.6
Due after one year through five years 23,906 23.8 27,451 30.4
Due after five years through ten years 27,699 27.5 24,165 26.8
Due after ten years 20,185 20.1 21,961 24.3
Mortgage-backed and asset-backed
securities 21,267 21.2 10,731 11.9
----------- ----------- ----------- -----------
Total fixed maturity securities $ 100,484 100.0 $ 90,217 100.0
=========== =========== =========== ===========
Claim Reserves. Claim reserves are established by the Company for benefit
payments which have already been incurred by the policyholder but which have not
been paid by the Company. Claim reserves totaled $32.8 million at June 30, 2002
as compared to $37.2 million at December 31, 2001. The process of estimating
claim reserves involves the active participation of experienced actuarial
consultants with input from the underwriting, claims, and finance departments.
The inherent uncertainty in estimating claim reserves is increased when
significant changes occur. Changes impacting the Company include: (1) changes in
economic conditions; (2) changes in state or federal laws and regulations,
particularly insurance reform measures; (3) writings of significant blocks of
new business and (4) significant changes in claims payment patterns as a result
of the implementation of a new claims administration system in May 2000. Because
claim reserves are estimates, management monitors reserve adequacy over time,
evaluating new information as it becomes available and adjusting claim reserves
as necessary. Such adjustments are reflected in current operations.
Management considers many factors when setting reserves including: (1)
historical trends; (2) current legal interpretations of coverage and liability;
(3) loss payments and pending levels of unpaid claims; and (4) product mix.
Based on these considerations, management believes that adequate provision has
been made for the Company's claim reserves. Actual claims paid may deviate,
perhaps substantially, from such reserves.
Future Policy Benefit Reserves. Future policy benefit reserves are established
by the Company for benefit payments that have not been incurred but which are
estimated to be incurred in the future. Future policy benefit reserves totaled
$60.8 million at June 30, 2002 as compared to $61.6 million at December 31,
2001. Future policy benefit reserves are calculated according to the net level
premium reserve method and are equal to the discounted present value of the
Company's expected future policyholder benefits minus the discounted present
value of its expected future net premiums. These present value determinations
are based upon assumed fixed investment yields, the age of the insured(s) at the
time of policy issuance, expected morbidity and persistency rates, and expected
future policyholder benefits. Except for purposes of reporting to insurance
regulatory authorities and for tax filing, the Company's claim reserves and
policy benefit reserves are determined in accordance with GAAP.
In determining the morbidity, persistency rate, claim cost and other assumptions
used in determining the Company's future policy benefit reserves, the Company
relies primarily upon its own benefit payment history and upon information
developed in conjunction with actuarial consultants and industry data. The
Company's persistency rates have a direct impact upon its policy benefit
reserves because the determinations for this reserve are, in part, a function of
the number of policies in force and expected to remain in force to maturity. If
persistency is higher or lower than expected, future policyholder benefits will
also be higher or lower because of the different than expected number of
policies in force, and the policy benefit reserves will be increased or
decreased accordingly.
In accordance with GAAP, the Company's actuarial assumptions are generally
fixed, and absent materially adverse benefit experience, they are not generally
adjusted. The Company monitors the adequacy of its policy benefit reserves on an
ongoing basis by periodically analyzing the accuracy of its actuarial
assumptions. The adequacy of the Company's policy benefit reserves may also be
impacted by the development of new medicines and treatment procedures which may
alter the incidence rates of illness and the treatment methods for illness and
accident (such as out-patient versus in-patient care) or prolong life
expectancy. Changes in coverage provided by major medical insurers or government
plans may also affect the adequacy of the Company's reserves if, for example,
such developments had the effect of increasing or decreasing the incidence rate
and per claim costs of occurrences against which the Company insures. An
increase in either the incidence rate or the per claim costs of such occurrences
could result in the Company needing to post additional reserves, which could
have a material adverse effect upon its business, financial condition or results
of operations.
LIQUIDITY, CAPITAL RESOURCES AND STATUTORY CAPITAL AND SURPLUS
General. The primary sources of cash for the Company's consolidated operations
are premiums and fees from insurance policies, sales and maturity of invested
assets and investment income while the primary uses of cash are payments of
insurance policy benefits, claims and commissions, and general operating
expenses. Net cash used in operations totaled ($2.3) million and ($3.2) million
for the three and six months ended June 30, 2002, compared to ($5.7) million and
($9.5) million for the comparable 2001 periods, respectively. The decrease in
cash used by operations is principally due to decreases in the cash basis ratio
of benefits and claims to premiums and decreases in commissions and general
operating expenses.
Ascent is a holding company, the principal assets of which consist of the
capital stock of its subsidiaries and invested assets. Ascent's principal
sources of funds are comprised of dividends from its non-insurance subsidiaries.
The Insurance Subsidiaries are precluded from paying dividends without prior
approval of the Texas Insurance Commissioner as the Insurance Subsidiaires'
earned surplus is negative due to statutory losses incurred in recent years.
Ascent's principal uses of cash are for capital contributions to maintain
minimum statutory capital and surplus requirements for the Insurance
Subsidiaries and general and administrative expenses. Ascent funded capital
contributions to the Insurance Subsidiaries totaling approximately $1.8 million
and $16.6 million during the six months ended June 30, 2002 and 2001,
respectively. As of June 30, 2002, Ascent had approximately $795,000 in
unrestricted cash and invested assets.
The statutory losses incurred during recent years resulted from (1) significant
losses for comprehensive major medical products marketed prior to July 2000 due
to higher than expected claims frequency and (2) costs associated with increased
new business production which must be expensed under statutory accounting (for
GAAP, such costs are deferred and amortized as related premiums are recorded).
Adverse claims experience for the previously marketed major medical products in
excess of management's current estimates or adverse claims experience for other
insurance products would require Ascent to make capital contributions to the
Insurance Subsidiaries in excess of those currently projected for 2002.
Additional financing would be required by Ascent in order to make any such
"excess" contributions. As a result, adverse claims experience could have a
material adverse effect on the Insurance Subsidiaries' ability to meet minimum
statutory capital and surplus requirements and maintain new business production
at current levels and therefore, have a material adverse impact on Ascent's
liquidity and capital resources and results of operations.
CSFB Financing. Ascent received debt financing to fund an $11 million capital
contribution to FLICA in April 2001 from Credit Suisse First Boston Management
Corporation, ("CSFB"), which is an affiliate of Special Situations Holdings,
Inc. - Westbridge (Ascent's largest stockholder). The credit agreement relating
to that loan ("CSFB Credit Agreement") provided Ascent with total loan
commitments of $11 million (all of which has been drawn). The loan bears
interest at a rate of 12% per annum and matures in April, 2004. Absent any
acceleration following an event of default, the Company may elect to pay
interest in kind by issuance of additional notes. During the three months ended
June 30, 2002, Ascent issued $378,000 in additional notes for payment of
interest in kind which increased the notes payable balance to CSFB at June 30,
2002 to approximately $12.7 million. The CSFB Credit Agreement provides for a
facility fee of $1.5 million which is payable upon maturity or upon a change in
control, as defined. This facility fee is being accrued as additional interest
payable over the term of the loan.
Ascent's obligations to CSFB are secured, pursuant to a guaranty and security
agreement and pledge agreements, by substantially all of the assets of Ascent
and its subsidiaires (excluding the capital stock and the assets of AICT, FLICA,
NFL, NFIC, NCM, Ascent Funding, Inc. and Ascent Management, Inc., some or all of
which is pledged as collateral for bank financing described below). Ascent's
subsidiaries (other than those listed above) have also guaranteed Ascent's
obligations under the CSFB Credit Agreement. At June 30, 2002, there were no
events of default; however, adverse claims experience in excess of management's
current expectations could result in events of default under the CSFB Credit
Agreement.
Bank Financing. The majority of commission advances to NCM's agents are financed
through Ascent Funding, Inc. ("AFI"), an indirect wholly owned subsidiary of
Ascent. AFI has entered into a Credit Agreement (the "Credit Agreement") with
LaSalle Bank, NA ("LaSalle") which currently provides AFI with a $6.5 million
revolving loan facility, the proceeds of which are used to purchase agent
advance receivables from NCM and other affiliates. As of June 30, 2002, $4.1
million was outstanding under the Credit Agreement. AFI incurs a commitment fee
on the unused portion of the Credit Agreement at a rate of 0.50% per annum.
The Credit Agreement expires June 5, 2003, at which time the outstanding
principal and interest will be due and payable. Under the terms of the Credit
Agreement, agent advances made within six months of the expiration date (after
December 5, 2002) are not eligible for financing. Failure of the Company to
obtain additional renewals of the Credit Agreement could have a material adverse
impact on Ascent's liquidity and capital resources. Lack of adequate financing
would impair the Company's ability to pay competitive commission advances and
reduce new business sales needed to replace the normal lapsing of existing
policies. Therefore, failure by Ascent to maintain new business sales at current
levels would result in declining premium revenue and could have a material
adverse impact on Ascent's results of operations.
AFI's obligations under the Credit Agreement are secured by liens upon
substantially all of AFI's assets. AFI's principal assets at June 30, 2002 are
net agent receivables of $7.1 million and a cash collateral account pledged to
LaSalle of $2.6 million. In addition, Ascent has guaranteed AFI's obligation
under the Credit Agreement, and has pledged all of the issued and outstanding
shares of the capital stock of AFI, NFL, FLICA and NFIC as collateral for that
guaranty (the "Guaranty Agreement"). As of June 30, 2002, there were no events
of default under the Credit or Guaranty Agreements. However, adverse claims
experience in excess of management's current expectations could result in events
of default under the Guaranty Agreement, Credit Agreement and term loan facility
discussed below.
In July 1999, Ascent Management, Inc., ("AMI") received a $3.3 million term loan
facility with LaSalle, proceeds of which were used to fund system replacements
costs. Advances under the term loan facility are secured by substantially all of
AMI's assets and the Guaranty Agreement. Under the terms of the loan, principal
is payable in 60 equal monthly installments beginning January 31, 2000. At June
30, 2002, approximately $1.9 million was outstanding under the term loan
facility.
Preferred Stock. Dividends on Ascent's redeemable convertible preferred stock
(which is 100% owned by Special Situations Holdings, Inc. - Westbridge) may be
paid in cash or by issuance of additional shares of preferred stock, at the
Company's option. On June 28, 2002, preferred stock dividends accrued in the
second quarter of 2002 were paid through the issuance of 805 shares of preferred
stock.
Inflation. Inflation impacts claim costs and overall operating costs and,
although inflation has been lower the last few years, hospital and medical costs
have still increased at a higher rate than general inflation, especially
prescription drug costs. New, more expensive and wider use of pharmaceuticals is
inflating health care costs. The Company will continue to establish premium
rates in accordance with trends in hospital and medical costs along with
concentrated efforts in various cost containment programs. However, there can be
no assurance that these efforts will fully offset the impact of inflation or
that increases in premium rates will equal or exceed increasing health care
costs.
ASCENT ASSURANCE, INC.
- --------------------------------------------------------------------------------
PART II
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 2002, Ascent Assurance, Inc. held its annual meeting of shareholders.
At the meeting, the shareholders elected two directors of the Company.
The shareholders elected John H. Gutfreund and Michael A. Kramer to serve on the
Company's Board of Directors for a three year term expiring in 2005. The
following table reflects the votes cast at the annual meeting:
For Withheld
------------------- -------------------
John H. Gutfreund 6,364,412 2,901
Michael A. Kramer 6,365,249 2,064
Total Votes Cast 6,367,313
Directors whose terms continued and the years in which their term expires are as
follows:
Director Term Expiration
------------------------------ -----------------------------
Richard H. Hershman 2003
Robert A. Peiser 2003
Patrick J. Mitchell 2004
James K. Steen 2004
Paul E. Suckow 2004
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed herewith. Exhibits incorporated by reference
are indicated in the parentheses following the description.
3.1 Second Amended and Restated Certificate of Incorporation of the Company
filed with the Secretary of State of Delaware on March 24, 1999
(incorporated by reference to Exhibit 3.1 to the Company's Form 8-A filed
on March 25, 1999).
3.2 Amended and Restated By-Laws of the Company, effective as of March 24, 1999
(incorporated by reference to Exhibit 3.2 to the Company's Form 8-A filed
on March 25, 1999).
3.3 Amendment to the By-Laws of the Company, effective as of April 5, 2000
(incorporated by reference to Exhibit 3.3 to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2000).
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1
to the Company's Form 8-A filed on March 25, 1999).
4.2 Form of Warrant Certificate, included in the Form of Warrant Agreement
(incorporated by reference to Exhibit 4.2 to the Company's Form 8-A filed
on March 25, 1999).
4.3 Form of Warrant Agreement dated as of March 24, 1999, between the Company
and LaSalle National Bank, as warrant agent (incorporated by reference to
Exhibit 4.3 to the Company's Form 8-A filed on March 25, 1999).
4.4 Form of Preferred Stock Certificate (incorporated by reference to Exhibit
4.4 to the Company's Annual Report on Form 10-K for the year ended December
31, 1998).
10.1 First Amendment to Guaranty Agreement dated as of March 24, 1999 between
Westbridge Capital Corp. in favor of LaSalle National Bank (incorporated by
reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998).
10.2 Registration Rights Agreement dated as of March 24, 1999 between the
Company and Special Situations Holdings, Inc. - Westbridge (incorporated by
reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998).
10.3 1999 Stock Option Plan dated as of March 24, 1999 (incorporated by
reference to the Company's Schedule 14A filed with the Commission on April
30, 1999).
10.4 Installment Note Agreement dated July 20, 1999 between Ascent Management,
Inc. and LaSalle Bank National Association (incorporated by reference to
Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).
10.5 Second Amendment to Credit Agreement dated August 12, 1999 between Ascent
Funding, Inc. and LaSalle Bank National Association (incorporated by
reference to Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999).
10.6 Second Amendment to Guaranty Agreement dated July 20, 1999 between Ascent
Assurance, Inc. and LaSalle Bank National Association (incorporated by
reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999).
10.7 Third Amendment to Guaranty Agreement dated April 17, 2000 between Ascent
Assurance, Inc. and LaSalle Bank National Association (incorporated by
reference to Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000).
10.8 Extension of Employment Agreement, dated as of September 15, 1998, by and
among the Company, Westbridge Management Corp. and Mr. Patrick J. Mitchell
(incorporated by reference to Exhibit 10.8 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000).
10.9 Extension of Employment Agreement, dated as of September 15, 1998, by and
among the Company, Westbridge Management Corp. and Mr. Patrick H. O'Neill
(incorporated by reference to Exhibit 10.9 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000).
10.10Fourth Amendment to Guaranty Agreement dated August 10, 2000 between
Ascent Assurance, Inc. and LaSalle Bank National Association (incorporated
by reference to Exhibit 10.10 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2000).
10.11First Amendment to Pledge Agreement, dated as of November 30, 2000, by and
among Ascent Assurance, Inc. and LaSalle Bank National Association
(incorporated by reference to Exhibit 10.22 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2001).
10.12Fifth Amendment to Guaranty Agreement, dated as of November 30, 2000, by
and among Ascent Assurance, Inc. and LaSalle Bank National Association
(incorporated by reference to Exhibit 10.23 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2001).
10.13Third Amendment to Credit Agreement, dated as of November 30, 2000, by and
among Ascent Funding, Inc. and LaSalle Bank National Association
(incorporated by reference to Exhibit 10.24 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2001).
10.14First Amendment to Security Agreement, dated as of November 30, 2000, by
and among Ascent Management, Inc. and LaSalle Bank National Association
(incorporated by reference to Exhibit 10.25 to the Company's Annual Report
on Form 10-K for the year ended December 31, 2001).
10.15Credit Agreement dated April 17, 2001 between Ascent Assurance, Inc. and
Credit Suisse First Boston Management Corporation (incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K filed April 25, 2001).
10.16Guaranty and Security Agreement dated April 17, 2001 among Foundation
Financial Services, Inc., NationalCare(R)Marketing, Inc., LifeStyles
Marketing Group, Inc., Precision Dialing Service, Inc., Senior Benefits,
L.L.C., and Westbridge Printing Services, Inc. and Credit Suisse First
Boston management Corporation (incorporated by reference to Exhibit 10.2 to
the Company's Form 8-K filed April 25, 2001).
10.17Pledge Agreement dated April 17, 2001 between Ascent Assurance, Inc. and
Credit Suisse First Boston Management Corporation (incorporated by
reference to Exhibit 10.3 to the Company's Form 8-K filed April 25, 2001).
10.18Sixth Amendment to Guaranty Agreement and Waiver dated April 17, 2001
between Ascent Assurance Inc. and LaSalle Bank National Association
(incorporated by reference to Exhibit 10.4 to the Company's Form 8-K filed
April 25, 2001).
10.19Fourth Amendment to Credit Agreement dated April 17, 2001 between Ascent
Funding, Inc. and LaSalle Bank National Association (incorporated by
reference to Exhibit 10.5 to the Company's Form 8-K filed April 25, 2001).
10.20Fifth Amendment to Credit Agreement dated November 27, 2001 between Ascent
Funding, Inc. and LaSalle Bank National Association (incorporated by
reference to Exhibit 10.31 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2001).
10.21Employment Agreement, dated September 16, 2001, by and among the Company,
Ascent Management, Inc., and Mr. Patrick J. Mitchell (incorporated by
reference to Exhibit 10.32 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2001).
10.22Employment Agreement, dated September 16, 2001, by and among the Company,
Ascent Management, Inc., and Mr. Patrick H. O'Neill (incorporated by
reference to Exhibit 10.33 to the Company's Annual Report on Form 10-K for
the year ended December 31, 2001).
10.23Sixth Amendment to Credit Agreement dated May 15, 2002 between Ascent
Funding, Inc. and LaSalle Bank National Association.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 2002.
Form 10-Q
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.
ASCENT ASSURANCE, INC.
/s/ Cynthia B. Koenig
-------------------------------------
Cynthia B. Koenig
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
Dated at Fort Worth, Texas
July 31, 2002