Standard Management Announces Year End 2002 Results
Friday February 21, 4:48 pm ET
INDIANAPOLIS, Feb. 21 -- Standard Management Corporation (Nasdaq: SMAN - News; the "Company", "Standard Management", or "SMAN"; www.SMAN.com ) reported record sales from continuing operations in 2002 of $598.8 million, up 86% from prior year, and $.01 per diluted share of income before cumulative effect of accounting change for goodwill impairment.
Year In Review
Sales from continuing operations increased 86% to $598.8 million Sale of International Operations resulted in a net gain of $6.9 million, or $.87 per diluted share
Cash proceeds from the sale of the International Operations of $25 million were primarily used to fund continued growth in our operating subsidiaries and to reduce debt
Net realized investment losses were $6.9 million, or $.87 per diluted share primarily resulting from write-downs in collateralized debt obligations and securities in the energy and telecom sectors
Operating income was reduced by $.82 per diluted share due to accelerated amortization of deferred acquisition costs of $.64 per diluted share and reserve strengthening of $.18 per diluted share Net income was reduced by $1.2 million, or $.15 per diluted share related to change in accounting principle resulting from the adoption of FAS No. 142 "Goodwill and Other Intangible Assets"
Chairman's Comments
Ronald D. Hunter, Standard Management chairman, stated, "During 2002, we experienced significant growth in our domestic life insurance operations with sales increasing by over 86%, while our asset base increased by over 46%. Our commitment to growing our annuity business was further enhanced by contributing an additional $15 million in capital to Standard Life Insurance Company of Indiana. Our top line grew to record levels, and the bottom line was challenged due to industry-wide issues associated with a volatile bond market and record level default rates.
"The past year also saw us capitalize on a previous investment by selling our international operations. This transaction allowed us to not only create a new subsidiary -- U.S. Health Services Corporation -- but also enabled us to fund current growth in our insurance operations," continued Mr. Hunter.
"We believe that U.S. Health Services is positioned to serve as a delivery system for pharmaceutical products in both retail and institutional markets," Mr. Hunter further stated.
Operating Earnings from Continuing Operations
For the quarter ended December 31, 2002, the company reported operating income from continuing operations of $.7 million, or $.09 per diluted share, compared to $.6 million, or $.08 per diluted share for the prior year fourth quarter. Current quarter earnings were reduced by $.09 per diluted share of operating expenses corresponding to the development of our new U. S. Health Services Corporation subsidiary, and $.04 per diluted share related to severance costs.
For the year ended December 31, 2002, the Company reported an operating loss from continuing operations of $.9 million, or $.12 per diluted share, compared to operating income of $5.0 million, or $.64 per diluted share in 2001. Impacting 2002 were charges of $.64 per diluted share from the accelerated amortization of deferred acquisition costs on fixed annuity products, $.18 per diluted share for a reserve strengthening adjustment, $.11 associated with the write-off and legal costs related to the recovery of agency receivable balances, $.14 per diluted share of operating expenses corresponding to the development of our new U. S. Health Services Corporation subsidiary, and $.04 per diluted share related to severance costs, partially offset by a $.32 per diluted share tax benefit over the prior year.
Sale of International Operations - Discontinued Operations
In 2002, we sold our International Operations which consisted of 100% of the shares in Premier Life (Luxembourg) S. A. and the portfolio of Premier Life (Bermuda) Ltd. to Winterthur Life, a division of Credit Suisse Group, resulting in a gain from sale of discontinued operations of $6.9 million, or $.87 per diluted share.
With the $25 million in net cash proceeds from the sale, the Company made capital contributions of $15 million to Standard Life Insurance Company of Indiana, repaid $3.75 million of debt, and retained the remaining $6.25 million for general corporate purposes.
The operating results for the International Operations prior to the sale were $1.1 million or $.13 per diluted share and are reported as operating income from discontinued operations.
Net Income
For the quarter ended December 31, 2002, the Company reported net income of $1.4 million, or $.18 per diluted share compared to a net loss of $2.5 million, or $.32 per diluted share for 2001. During the quarter the Company reported net realized investment gains of $.7 million or $.09 per diluted share.
For the year ended December 31, 2002, the Company reported a net loss of $1.1 million, or $.14 per diluted share compared to net income of $1.8 million, or $.23 per diluted share for 2001. During 2002, the Company reported net realized investment losses of $6.9 million or $.87 per diluted share. The majority of the losses were attributable to write-downs on the value of collateralized debt obligations due to the continued high default rates, and weaknesses in the energy and telecommunication sectors. The net loss for 2002 also included operating income from discontinued operations of $1.1 million, or $.13 per diluted share, and gain from sale of discontinued operations of $6.9 million, or $.87 per diluted share.
Also occurring in 2002, was a charge of $1.2 million, or $.15 per diluted share resulting from the write-off of goodwill from the adoption of FAS No. 142 "Goodwill and Other Intangible Assets". This charge was recorded as a "cumulative effect of accounting change for goodwill impairment".
Premium Deposits
For the year ended December 31, 2002, premiums collected from continuing operations were $598.8 million compared to 2001's results of $322.5 million, an increase of 86%.
Assets
Total assets from continuing operations increased 46% to $1.72 billion at December 31, 2002, up from $1.18 billion at year-end 2001.
Shareholders' Equity/Book Value
Shareholders' equity excluding unrealized investment gains and losses was $76.0 million at December 31, 2002, up from $74.1 million at December 31, 2001. Diluted book value per share excluding unrealized investment gains and losses was $9.62 per share at December 31, 2002, compared to $9.37 at December 31, 2001.
Shareholders' equity as reported on the consolidated balance sheet was $87.7 million at December 31, 2002 compared to $70.2 million at December 31, 2001. Diluted book value per share was $11.10 at December 31, 2002 compared to $8.87 at December 31, 2001.
Operating earnings from continuing operations for 2002 differ from net income by net realized investment gains and losses net of taxes, amortization of deferred acquisition costs related to those gains and losses net of tax, if applicable, operating income from discontinued operations, gain from the sale of discontinued operations, and cumulative effect of accounting change for goodwill impairment. Operating earnings from continuing operations for 2001 differ from net income by net realized investment gains and losses net of taxes, amortization of deferred acquisition costs related to those gains and losses net of tax, if applicable, and operating income from discontinued operations.
The Company determines operating earnings as explained above and includes non-recurring items that the Company believes are not indicative of overall operating trends. While these items may be significant components in understanding and assessing the Company's consolidated financial performance, the Company believes that the presentation of operating earnings enhances the understanding of its results of operations by highlighting earnings attributable to the normal, recurring operations of its business. However, operating earnings are not a substitute for net income determined in accordance with GAAP.
Premium deposits collected include premiums received from interest- sensitive annuities and other financial products, which are not reported as revenues under generally accepted accounting principles.
Standard Management is a financial holding company headquartered in Indianapolis, IN. Information about the company can be obtained by calling the Investor Relations Department at 317-574-5221 or via the Internet at sman.com .
STANDARD MANAGEMENT CORPORATION (NASDAQ: SMAN - News)
(Unaudited, dollars in thousands, except per share amounts)
CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Three Months Ended Year to Date
December 31 December 31
2002 2001 2002 2001
RESULTS OF OPERATIONS
Premium deposits (A):
Continuing Operations
(Domestic sales) $150,594 $96,623 $598,782 $322,473
Discontinued Operations
(International sales) --- 12,476 32,384 74,364
Total $150,594 $109,099 $631,166 $396,837
Revenues from continuing
operations $19,699 $15,366 $66,431 $66,770
Operating income (loss)
from continuing operations $669 $592 $(933) $4,980
Net realized investment
gains (losses) 683 (2,974) (6,925) (4,766)
Income (loss) from
continuing operations 1,352 (2,382) (7,858) 214
Operating income (loss) from
discontinued operations --- (114) 1,068 1,566
Net income (loss) before gain
from sale of discontinued
operations and cumulative
effect of accounting change 1,352 (2,496) (6,790) 1,780
Gain from sale of
discontinued operations --- --- 6,872 ---
Income (loss) before
cumulative effect of
accounting change 1,352 (2,496) 82 1,780
Cumulative effect of
accounting change for
goodwill impairment --- --- (1,212) ---
Net income (loss) 1,352 (2,496) (1,130) 1,780
Preferred stock dividends --- --- --- (318)
Earnings available to
common shareholders $1,352 $(2,496) $(1,130) $1,462
PER SHARE DATA (Diluted)
Operating income (loss)
from continuing operations $0.09 $0.08 $(0.12) $0.64
Net realized investment
gains (losses) 0.09 (0.39) (0.87) (0.61)
Income (loss) from
continuing operations 0.18 (0.31) (0.99) 0.03
Operating income (loss)
from discontinued
operations --- (0.01) 0.13 0.20
Net income (loss) before
gain from sale of
discontinued operations
and cumulative effect
of accounting change 0.18 (0.32) (0.86) 0.23
Gain from sale of
discontinued operations --- --- 0.87 ---
Income (loss) before
cumulative effect of
accounting change 0.18 (0.32) 0.01 0.23
Cumulative effect of
accounting change for
goodwill impairment --- --- (0.15) ---
Net income (loss) 0.18 (0.32) (0.14) 0.23
Preferred stock dividends --- --- --- (0.04)
Earnings available to
common shareholders $0.18 $(0.32) $(0.14) $0.19
Weighted average shares
outstanding 7,659,871 7,546,482 7,623,690 7,545,889
Weighted average shares
outstanding (Diluted) 7,696,218 7,778,004 7,938,554 7,765,378
December 31 December 31
BALANCE SHEET 2002 2001
(Audited)
Assets from continuing
operations $1,715,147 $1,183,323
Assets from discontinued
operations --- 430,330
Total assets $1,715,147 $1,613,653
Senior and subordinated
debt $13,000 $19,100
Trust preferred securities 20,700 20,700
Shareholders' equity:
Excluding unrealized
gain (loss) on
securities 75,995 74,115
As reported 87,734 70,189
Book value per share
(Diluted) (B):
Excluding unrealized
gain (loss) on
securities $9.62 $9.37
As reported 11.10 8.87
(A) Continuing Operations (Domestic sales) represent premium deposits
collected from interest-sensitive annuities and other financial
products. Discontinued Operations (International sales) represent
premium deposits on unit-linked contracts generating fee-based
income. These deposits are not reported as revenues under generally
accepted accounting principles.
(B) Considers conversion of options and warrants using the treasury
stock method and stock price as of respective balance sheet date |
