The following selected consolidated financial data as of and for each of the five years in the period ended December 31, 2000 have been derived from the audited Consolidated Financial Statements of the Company. The following data should be read in conjunction with the Consolidated Financial Statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein.
expenses relating to corporate operations, goodwill amortization, realized gains or losses on sale of investments and the AMLI operations. Net investment income is allocated to the Insurance segment based on policy liabilities. The interest rate for the allocation is based on a high credit quality investment portfolio with a duration consistent with the duration of the segment's policy liabilities.
On March 17, 2000 the Board of Directors of UICI determined, after a thorough assessment of the unit's prospects, that the Company would exit from its United CreditServ sub-prime credit card business. In September 2000, the Company completed the sale of substantially all of United CreditServ's non-cash assets, and in January 2001 the Company completed the voluntary liquidation of UCNB, in accordance with the terms of a plan of voluntary liquidation approved by the OCC. Accordingly, the United CreditServ unit has been reflected as a discontinued operation for financial reporting purposes for all periods presented.
Through 1999, United CreditServ marketed its credit card programs and access to a credit card through the American Fair Credit Association LLC ("AFCA"), an independent membership association that provided credit education programs and other benefits, and American Credit Educators LLC ("ACE"), which marketed credit education materials and had a marketing agreement with UCNB to solicit credit card applications. AFCA applicants were required to meet certain requirements (including payment of initiation and monthly membership fees) in order to become members of AFCA, and, in order to obtain a credit card, to meet underwriting criteria established by UCNB.
Reflecting the terms of the Company's then-pending sale of its United CreditServ business, during the quarter ended June 30, 2000 the Company recorded an additional pre-tax loss, and correspondingly increased the liability for loss on the disposal of the discontinued operation, in the amount of $36.0 million ($23.4 million net of tax). Accordingly, for the full year 2000, the Company reported a loss from discontinued operations in the amount of $36.0 million pre-tax ($23.4 million net of tax).
During the year ended December 31, 2000, the discontinued operation incurred a loss from operations in the amount of approximately $131.9 million, which loss was charged to the liability for loss on disposal. At December 31, 2000, the remaining assets of the discontinued operations in the amount of $54.3 million (consisting of cash and short-term investments in the amount of $27.8 million and other assets in the amount of $26.5 million) were reclassified to cash and other assets, respectively, on the Company's consolidated balance sheet, and the remaining liabilities of the discontinued operations in the amount of $53.0 million (consisting of notes payable in the amount of $4.3 million and other liabilities in the amount of $48.6 million) were reclassified to notes payable and other liabilities, respectively, on the Company's consolidated balance sheet.
At December 31, 1999, UCNB had $290.0 million of certificates of deposits outstanding, and UCNB held approximately $110.5 million in cash, cash equivalents and short term U.S. Treasury securities. Following the sale of the Company's United CreditServ unit in September 2000, UCNB prepaid all of its remaining certificates of deposit then-outstanding in the amount of approximately $79.0 million, and all such deposit liabilities were discharged as of October 23, 2000. Following the prepayment of all deposit liabilities of UCNB, at December 31, 2000 UCNB held cash, cash equivalents and U.S. Treasury securities in the amount of $26.0 million.
On January 29, 2001, UCNB surrendered to the OCC its national bank charter and distributed to a wholly-owned subsidiary of UICI the residual assets of UCNB, including available cash and cash equivalents in the amount of approximately $26.0 million.
As part of the plan of liquidation, and in accordance with the terms of the June 2000 Consent Order issued by the OCC against UICI, UICI expressly assumed all liabilities of UCNB, including contingent liabilities associated with pending and future litigation. In addition, on January 29, 2001, the OCC terminated the Consent Orders issued against UCNB in February 2000 and June 2000 and the June 2000 Consent Order issued against UICI's United CreditServ subsidiary. The OCC substantially modified the June 2000 Consent Order issued with respect to UICI to eliminate all restrictive provisions except a reconfirmation of UICI's obligation to assume all liabilities of UCNB. Finally, the OCC formally acknowledged the termination by UICI of the liquidity and capital assurances agreement, which formerly provided that, upon demand by UCNB, UICI would assure the liquidity and capital adequacy of UCNB.
During 2000 the Company held a significant investment interest in HealthAxis.com, Inc. ("HealthAxis.com"), a provider of Internet-enabled, integrated proprietary software applications that address the workflow and processing inefficiencies embedded in the healthcare insurance industry. HealthAxis.com, through its proprietary web-enabled enrollment and plan administration applications, provides Internet enrollment and online access to claims data. These software applications increase the efficiency of a client's interaction with other participants by eliminating paper-based processes and improving the client's ability to share data with plan members and other industry participants. HealthAxis.com's clients include large insurance carriers, Blue Cross and Blue Shield organizations, third party administrators, self-funded employers, and other industry participants. HealthAxis.com also provides systems integration, technology management and data capture services to its clients.
The Company's interest in HealthAxis.com was derived from the January 7, 2000 merger (the "Insurdata Merger") of Insurdata Incorporated (formerly a wholly-owned subsidiary of UICI) with and into HealthAxis.com, the sole operating subsidiary of HealthAxis, Inc. (formerly Provident American Corporation) ("HAI") (HAXS:Nasdaq). HealthAxis.com formerly was a web-based retailer of health insurance products and related consumer services. During 1999 and in advance of the Insurdata Merger, Insurdata transferred to UICI the net assets of Insurdata Administrators (a division of Insurdata engaged in the business
The Company has accounted for its investment in HealthAxis.com (and intends to account for its investment in HAI) utilizing the equity method and has recognized its ratable share of HealthAxis.com's income and loss (computed prior to amortization of goodwill recorded by HealthAxis.com in connection with the Insurdata Merger). At December 31, 2000, the Company's carrying value of its investment in HealthAxis.com was $18.4 million, representing its carryover investment in Insurdata plus the Company's investment in shares of HealthAxis.com acquired prior to the Insurdata Merger ($5.0 million of preferred stock) and its investment in the HAI convertible subordinated debentures, all as reduced by the Company's cost of the shares of HealthAxis.com sold in March 2000 and by the Company's equity in the losses of HealthAxis.com for the year ended December 31, 2000 in the amount of $15.6 million.
AMS has continued to incur significant operating losses. In the years ended December 31, 2000 and 1999, AMS incurred operating losses in the amount of $24.6 million and $19.9 million, respectively. Included in operating results for the years ended December 31, 2000 and 1999 were pre-tax gains from the sale of student loans in the amount of $7.8 million and $7.4 million, respectively.
AMS has engaged Lehman Brothers Inc. and Bank of America Securities Inc. to assist AMS in evaluating various strategic alternatives, including a possible sale of AMS.
UICI reported 2000 revenues and income from continuing operations of $1.051 billion and $29.1 million ($0.61 per share fully diluted), respectively, compared to 1999 revenues and income from continuing operations of $1.013 billion and $33.3 million ($0.70 per share fully diluted), respectively. The Company generated total 2000 net income in the amount of $5.7 million ($0.12 per share fully diluted), compared to a net loss of $(145.9) million ($(3.05) per share fully diluted) in 1999, reflecting a loss in 2000 and 1999 from discontinued operations in the amount of $(23.4) million ($(0.49) per share fully diluted) and $(179.1) million ($(3.75) per share fully diluted), respectively.
As discussed further below, AMS's 2000 operating results reflected, in part, a reduction in operating income as a result of reduced yields on AMS's student loan portfolio, which resulted from the acquisition of higher cost student loans in 1998 and 1999. AMS also incurred significant non-recurring expenses associated with, among other things, the management transition effected in January 2000, the relocation of AMS's headquarters, the write-off of facilities development costs and previously capitalized costs incurred in connection with AMS's Internet strategy, and the previously announced closure of the San Diego loan origination center. AMS has engaged Lehman Brothers Inc. and Bank of America Securities Inc. to assist AMS in evaluating various strategic alternatives, including a possible sale of AMS.
For the quarter ended December 31, 2000, the Company reported a loss from continuing operations of $(6.1) million, or $(0.13) per share fully diluted, compared to a loss of $(4.2) million, or $(0.09) per share fully diluted, for the corresponding period in 1999. In the fourth quarter of 2000, the Company's Insurance Segment reported operating income of $13.5 million, which included an operating loss at the Company's Special Risk unit in the amount of ($6.1) million. Operating profits at the Company's Insurance Segment were offset by a $(12.4) million operating loss reported at AMS for the quarter ended December 31, 2000 and special compensation expense in the amount of $(4.8) million pre-tax associated with modifications to the Company's executive stock purchase program. See Note O of Notes to Consolidated Final Statements.
Reflecting the terms of the Company's then-pending sale of its United CreditServ business, during the quarter ended June 30, 2000 the Company recorded an additional pre-tax loss, and correspondingly increased the liability for loss on the disposal of the discontinued operation, in the amount of $36.0 million ($23.4 million net of tax). Accordingly, for the full year 2000, the Company reported a loss from discontinued operations in the amount of $36.0 million pre-tax ($23.4 million net of tax). During the year ended December 31, 2000, the discontinued operation incurred a loss from operations in the amount of approximately $131.9 million, which loss was charged to the liability for loss on disposal.
Life premiums and other considerations. Life premiums and other considerations decreased to $40.6 million in 2000 from $46.4 million in 1999, a decrease of $5.8 million, or 13%. This decrease resulted from reduced premiums and other considerations from closed blocks of life and annuity business.
Other fee income. Other fee income decreased to $110.4 million in 2000 from $122.9 million in 1999, a decrease of $12.5 million. The decrease was due to the sale of National Motor Club ("NMC") in July 2000. NMC generated $19.4 million and $24.6 million in other fee income (primarily membership fees) for the seven month period ended July 2000 and for the full year 1999, respectively.
Other income. Other income decreased to $2.3 million in 2000 from $3.5 million in 1999, a decrease of $1.2 million. The decrease in other income is due to the sale of the Special Risk's managing general underwriter in September 2000.
Loss on sale of investments. The Company recognized losses on sale of investments of $411,000 in 2000 compared to $367,000 in 1999. The amount of realized gains or losses on the sale of investments is a function of interest rates, market trends and the timing of sales. Losses are more likely during periods of increasing long-term interest rates. In addition, due to decreasing long-term interest rates in 2000, the net unrealized investment loss on securities classified as "available for sale," reported in accumulated other comprehensive income as a separate component of stockholders' equity and net of applicable income taxes, was $9.5 million at December 31, 2000, compared to $30.4 million at December 31, 1999.
Underwriting, acquisition and insurance expenses. Underwriting, acquisition and insurance expenses increased to $250.4 million in 2000 from $243.4 million in 1999, an increase of $7.0 million or 3%. The increase was primarily due to increased technology costs.
Other expenses. Other expenses increased to $117.1 million in 2000 from $114.3 million in 1999, an increase of $2.8 million. The increase was primarily due to the increased costs of AMS's student loan originations.
Depreciation. Depreciation expense increased to $14.1 million in 2000 from $13.8 million in 1999, an increase of $300,000.
Interest expense. Interest expense on corporate borrowings increased to $13.6 million in 2000 from $7.4 million in 1999, an increase of $6.2 million. The increase was due primarily to the increased level of borrowings outstanding during 2000. Interest expense on student loan obligations increased to $101.6 million in 2000 from $57.5 million in 1999, an increase of $44.1 million. The increase was due primarily to AMS's increased student loan origination volume.
Operating Income. Income from continuing operations before federal income taxes ("operating income") increased to $62.9 million in 2000 from $50.9 million in 1999. Operating income (loss) for each of the Company's segments and divisions was as follows:
Self Employed Agency Division ("SEA"). The SEA Division reported operating income of $70.9 million in 2000 compared to $50.4 million in 1999. Revenue for the SEA Division decreased to $566.4 million for the year ended in 2000 from $566.8 million in 1999, a decrease of $400,000. The increase in operating income was primarily attributable to improved loss ratios on the Company's managed care products, continued success in directing a larger portion of new sales to more traditional, higher margin, indemnity products, and increased productivity of the Company's dedicated agent field force. The decrease in revenues was attributable to the decrease in premiums from the coinsurance business, which was offset by the continued success in new business sales from the Company's CMA and UGA dedicated agency field forces.
OKC Division. Operating income for the OKC Division decreased to $13.1 million in 2000 from $17.4 million in 1999, a decrease of 25%. The decrease in operating income was attributable to several factors. The OKC Division's life insurance claim benefits increased over claim benefits in the corresponding period of the prior year. The Company believes that the higher level of claims in the life business was due to normal variations in the business for the closed life blocks. An additional loan reserve was established for the student loans made by the College Fund Life unit on its life insurance product. Credit disability insurance claim reserves were increased based on claims experience, and a reserve for bad debts on premium receivables was established. Operating income for the workers compensation line of business decreased as a result of lower premium rates, which has been occurring in this product line in Oklahoma for the past two years. Revenue for the OKC Division decreased to $92.4 million in 2000 from $94.1 million in 1999, a decrease of $1.7 million, or 2%.
Investment in HealthAxis.com, Inc. The Company accounts for its investment in HealthAxis.com utilizing the equity method and, accordingly, recognizes its ratable share of HealthAxis.com's income and loss (computed prior to amortization of goodwill recorded by HealthAxis.com in connection with the Insurdata Merger). The Company's equity in the loss of HealthAxis.com for 2000 was $15.6 million. HealthAxis.com continues to incur operating losses attributable to significant marketing, development and other start-up expenses. HealthAxis.com also incurred losses in 2000 in connection with the sale of its retail web site and related assets. The Company's share of such losses ($(2.5) million) is included in the Company's equity in losses for 2000.
Goodwill amortization. Goodwill amortization decreased to $6.2 million in 2000 from $6.3 million in 1999, a decrease of $100,000. This decrease in goodwill amortization was attributable to the sale of NMC in July 2000, the assets of which included approximately $36.1 million in goodwill. This decrease was offset by the increase of goodwill amortization from the AMS acquisition in July 1999, resulting in a full year of amortization in 2000, compared to five months of amortization in 1999.
Academic Management Services Corp. ("AMS"). AMS incurred an operating loss of $(24.6) million in 2000, compared to an operating loss of $(19.9) million in 1999 (in each case exclusive of goodwill amortization and other expenses at the parent-company level). Revenue for AMS increased to $154.3 million in 2000 from $104.6 million in 1999. Set forth below is a summary comparative statement of operations for AMS:
The increases in 2000 in interest income and interest expense associated with student loans, as well as the increase in the provision for loan loss, resulted primarily from higher average carrying amount of student loans held during the year compared to 1999. In 2000, AMS originated approximately $776.1 million principal amount of new loans, purchased approximately $2.5 million principal amount of student loans in the secondary market, and sold approximately $779.8 million principal amount of loans. In 1999, AMS originated approximately $671.2 million principal amount of new loans, purchased approximately $401.0 million principal amount of student loans in the secondary market, and sold approximately $391.0 million principal amount of loans. Including principal payments and capitalization and amortization of deferred loan origination costs, student loans decreased approximately $166.0 million in 2000, as compared to an increase of approximately $628.0 million during 1999. During 2000, an increase in prevailing interest rates had a negative effect on the cost of financing AMS's student loan portfolio. The spread between the weighted average interest rate earned on student loans (before amortization of deferred loan origination costs) and the rate incurred on student loan indebtedness (before amortization of debt issue costs) for the quarters ended March 31, June 30, September 30 and December 31, 2000, was approximately 2.06%, 2.12%, 1.72% and 1.88%, respectively,
The increases in depreciation expense and amortization of goodwill also resulted primarily from the inclusion of Academic Management Services Inc.'s tuition payment program business and its acquisition cost for a full year in 2000, compared to five months in 1999. Amortization of goodwill associated with the acquisition of this business was $2.4 million in 2000 compared to $1.0 million in 1999.
1999 results from continuing operations were impacted by several significant adjustments taken in the fourth quarter, including (a) a $5.0 million accrual for professional fees, (b) a write off of previously capitalized software and system development costs in the amount of $2.3 million at the Company's Student Insurance Division, (c) a strengthening of insurance reserves associated with the Company's Special Risk operations in the amount of $3.5 million, and (d) a write off in the amount of $9.0 million to adjust AMS's student loan balance.
Health premiums. Health premiums decreased to $690.2 million in 1999 from $747.3 million in 1998, a decrease of $57.1 million, or 8%. The decrease in health premiums for the year resulted primarily from decreased premiums in the self employed market, which was due to the negative impact on new sales and recruiting efforts of rate increases implemented starting in 1998.
Benefits, claims, and settlement expenses. Benefits, claims, and settlement expenses decreased to $514.6 million in 1999 from $586.0 million in 1998, a decrease of $71.4 million, or 12%. The decrease was primarily due to the decline in premium sales and a decrease in loss ratio in the SEA Division.
Underwriting, acquisition and insurance expenses. Underwriting, acquisition and insurance expenses decreased to $243.4 million in 1999 from $270.9 million in 1998, a decrease of $27.5 million or 10%. The decrease was primarily due to the decline in new policy sales.
Depreciation and amortization. Depreciation and amortization increased to $20.1 million in 1999 from $15.9 million in 1998, an increase of $4.2 million. The increase is primarily due to increased goodwill amortization as a result of the AMS Investment Group, Inc. acquisition by AMS.
Self Employed Agency Division ("SEA"). The SEA Division reported operating income of $50.4 million in 1999 compared to a loss of $4.8 million in 1998. Revenue for the SEA Division decreased to $566.8 million for the year ended in 1999 from $610.1 million in 1998, a decrease of 7%. The increase in operating income was the result of continued success on directing a larger portion of new sales to traditional indemnity products and the improved loss ratio on the PPO products. The decrease in revenues was attributable to the negative impact of rate increases, imposed beginning in 1998, on new sales and recruiting efforts.
OKC Division. Operating income for the OKC Division decreased to $17.4 million in 1999 from $20.4 million in 1998, a decrease of 15%. The decrease in operating income was due to lower profit margins in the workers compensation business and the write off of additional deferred acquisition costs due to lower persistency in the College Fund Life Division. Revenue for the OKC Division decreased to $94.1 million in 1999 from $98.8 million in 1998, a decrease of 5%. The decrease in revenue was the result of lower revenues on the closed blocks of life policies and decreased premium in the workers compensation business.
National Motor Club. Operating income for the National Motor Club was $3.2 million in 1999 compared to $5.1 million in 1998. The decrease in operating income was primarily attributable to the write off in 1999 of additional deferred acquisition costs. Revenue for the twelve months ended December 31, 1999 was $27.8 million compared to $27.3 million for the twelve months ended December 31, 1998.
United CreditServ generated revenues from interest income, credit card fees and other fee income in the amount of $227.4 million and $123.2 million in 1999 and 1998, respectively. United CreditServ incurred an operating loss of $145.3 million in 1999 compared to an operating profit of $43.5 million in 1998. The significant operating loss in 1999 was due primarily to increases in the reserves for credit card loan losses and the write off of the $35.9 million purchase price of the UMMG minority interest, both of which were attributable to the unprofitable performance of its ACE credit card product. The Company believes that such operating losses were due primarily to inadequate attention to ACE collections during much of 1999, inefficiencies associated with administrative and operating systems conversions during a period of significant increases in card issuance volumes, mis-pricing of the ACE product, and the failure of the AFCA credit card portfolio performance to be sufficiently predictive of the performance of the ACE credit card loan portfolio. The Company has also recorded a pre-tax estimated loss on disposal of United CreditServ in the amount of $130.0 million. See "Liquidity and Capital Resources".
GLBA provides that there is no federal preemption of a state's insurance related privacy laws if the state law is more stringent than the privacy rules imposed under GLBA. Accordingly, state insurance regulators or state legislatures will likely adopt rules that will limit the ability of insurance companies, insurance agents and brokers and certain other entities licensed by state insurance regulatory authorities to disclose and use non-public information about consumers to third parties. These limitations will require the disclosure by these entities of their privacy policies to consumers and, in some circumstances, will allow consumers to prevent the disclosure or use of certain personal information to an unaffiliated third party. Pursuant to the authority granted under GLBA to state insurance regulatory authorities to regulate the privacy of nonpublic personal information provided to consumers and customers of insurance companies, insurance agents and brokers and certain other entities licensed by state insurance regulatory authorities, the National Association of Insurance Commissioners has recently promulgated a new model regulation called Privacy of Consumer Financial and Health Information Regulation. Some states are expected to issue this model regulation before July 1, 2001, while other states must pass certain legislative reforms to implement new state privacy rules pursuant to GLBA. In addition, GLBA requires state insurance regulators to establish standards for administrative, technical and physical safeguards pertaining to customer records and information to (a) ensure their security and confidentiality, (b) protect against anticipated threats and hazards to their security and integrity, and (c) protect against unauthorized access to and use of these records and information. However, no state insurance regulators have yet issued any final regulations in response to such security and confidentiality requirements. The privacy and security provisions of GLBA will significantly affect how a consumer's nonpublic personal information is transmitted through and used by diversified financial services companies and conveyed to and used by outside vendors and other unaffiliated third parties.
The federal Health Insurance Portability and Accountability Act of 1996 ("HIPAA") contains provisions requiring mandatory standardization of certain communications between health plans (including health insurance companies), electronic clearinghouses and health care providers who transmit certain health
UICI is currently reviewing the potential impact of the HIPAA privacy regulations on its operations, including its information technology and security systems. The Company cannot at this time predict with specificity what impact (a) the recently adopted final HIPAA rules governing the privacy of individually-identifiable health information and (b) the proposed HIPAA rules for ensuring the security of individually-identifiable health information may have on the business or results of operations of the Company. However, these new rules will likely increase the Company's burden of regulatory compliance with respect to our life and health insurance products and other information-based products, and may reduce the amount of information the Company may disclose and use if the Company's customers do not consent to such disclosure and use. There can be no assurance that the restrictions and duties imposed by the recently adopted final rules on the privacy of individually-identifiable health information, or the proposed rule on security of individually-identifiable health information, will not have a material adverse effect on UICI's business and future results of operations.
Historically, the Company's primary sources of cash have been premium revenues from policies issued, investment income, fees and other income, deposits to fund the credit card receivables, and borrowings to fund student loans. The primary uses of cash have been payments for benefits, claims and commissions under those policies, operating expenses and the funding of credit card receivables and student loans. Net cash used in operations totaled $22.7 million in 2000 and $58.3 million in 1999. Net cash provided by operations totaled $140.5 million in 1998. The Company's insurance subsidiaries invest a substantial portion of these funds, pending payment of the subsidiaries' pro rata share of future benefits and claims.
During the year ended December 31, 2000, the losses at United CreditServ had a material adverse effect upon the liquidity and cash flow of the Company. During 2000, UICI contributed to United CreditServ an aggregate of $171.3 million in cash. In addition, on June 28, 2000, the Company funded an $8.0 million principal prepayment owing on its bank credit facility, on June 1, 2000 the Company made a mandatory principal payment on its senior notes outstanding in the amount of $4.0 million, and effective July 27, 2000 the Company prepaid $6.0 million owing to an affiliated lender (see Note M to Notes to Consolidated Financial Statements). UICI at the holding company level funded these cash contributions and other cash needs with the proceeds of the sale of investment securities, a borrowing from a third party in the amount of $24.0 million funded in July 2000, approved sales of assets from the parent company to the Company's regulated insurance company subsidiaries completed in June and July 2000 generating cash proceeds in the aggregate amount of approximately $26.2 million, dividends in the amount of $19.0 million paid during the six months ended June 30, 2000 from CLICO, the sale to The MEGA Life and Health Insurance Company of CLICO for $19.0 million in July 2000, cash proceeds in the amount of $21.8 million from the disposition of its National Motor Club unit completed in July 2000, and cash on hand.
UICI currently estimates that, through December 31, 2001, the holding company will have operating cash requirements in the amount of approximately $85.3 million. The Company currently anticipates that these cash requirements at the holding company level will be funded by cash on hand, cash received from interest income, anticipated tax refunds, dividends from domestic and offshore insurance companies and tax
At December 31, 2000 and 1999, the Company (excluding indebtedness of Academic Management Services Corp.) had outstanding long and short term indebtedness in the amount of $66.8 million and $120.6 million, respectively. Giving effect to the prepayment of indebtedness with the proceeds of the January 2001 liquidation of UCNB, at March 5, 2001 the Company (excluding indebtedness of Academic Management Services Corp.) had short and long term indebtedness outstanding in the amount of $35.8 million.
In May 1999, the Company entered into a $100.0 million unsecured credit facility (the "Bank Credit Facility") with a group of commercial banks. Amounts outstanding under the Bank Credit Facility initially bore interest at an annual rate of LIBOR plus 75 basis points (0.75%). At December 31, 1999, the Company had fully drawn on the Bank Credit Facility, of which $50.0 million was used to repay $50.0 million of debt outstanding under the Company's prior bank facility and $50.0 million was used to fund the UMMG and AMS acquisitions (completed in May 1999 and July 1999, respectively) and current operations. Effective December 31, 1999, the interest rate on amounts outstanding under the Bank Credit Facility was increased to LIBOR plus 100 basis points (1.00%).
accruing but not payable until the earlier to occur of full prepayment of the Lender LLC Loan or January 1, 2002, and (c) was mandatorily prepayable monthly to the extent of 1% of the original outstanding principal balance of the Amended Lender LLC Loan. The security interest in all remaining collateral previously pledged to secure payment of the Lender LLC Loan and indebtedness outstanding under the bank credit facility (including all investment securities and shares of the Company's National Motor Club unit) was released in full.
In addition to scheduled principal payments totaling $3.5 million made during the course of 2000, on October 20, 2000, the Company prepaid the unsecured tranche of the Amended Lender LLC Loan in the amount of $12.5 million. In addition, on November 2, 2000, the Company prepaid an additional $17.4 million of the unsecured tranche and $17.6 million of the secured tranche. Accordingly, at December 31, 2000, the Company had no indebtedness outstanding under the unsecured tranche and $19.0 million outstanding under the secured tranche of the Amended Lender LLC Loan.
Effective October 1, 2000, the Company's AMS subsidiary amended the terms of its unsecured term loan facility (under which, at December 31, 2000, $21.3 million of indebtedness was outstanding) to eliminate all financial covenants. In connection with the amendment of the facility, the Company agreed to unconditionally guarantee the payment when due of such indebtedness. Since December 31, 2000, AMS has made one additional quarterly payment of $2.5 million and has one additional quarterly payment of $2.5 million due, with the $16.3 million balance due June 30, 2001.
of $6.0 million, $3.0 million and $2.9 million in 1998, 1997 and 1996, respectively. On December 31, 1999, the Company sold for cash at par $10.0 million principal amount of such participating interests to Ronald L. Jensen (the Company's Chairman). See Note M of Notes to Consolidated Financial Statements. All of such securitizations were prepaid utilizing a portion of the cash proceeds of the sale of the non-cash assets of the Company's United CreditServ credit card unit completed in September 2000.
A liquidity and capital assurances agreement, dated May 15, 1998, between UICI and UCNB provided that, upon demand by UCNB, UICI would purchase certificates of deposit issued by UCNB to assure sufficient liquidity to meet UCNB's funding demands and would contribute capital to UCNB sufficient for UCNB to comply with its stated policy of maintaining a total (Tier I and Tier II) risk-based capital ratio of at least 12%. In connection with the liquidation of UCNB completed in January 2001, the OCC formally acknowledged the termination by UICI of the liquidity and capital assurances agreement.
AMS's student loan portfolio decreased from $1.307 billion at December 31, 1999 to $1.126 billion at December 31, 2000. However, the time-weighted average carrying amount of student loans held by AMS during 2000 exceeded the time-weighted average carrying amount of student loans held by AMS during 1999.
In March 1998, AMS entered into a master repurchase agreement and credit facility with a financial institution, the obligations under which are partially (approximately $13.0 million at December 31, 2000) guaranteed by the Company. The repurchase agreement provides for the purchase of student loans by the financial institution, and the financial institution may put the student loans back to AMS on the last day of each month. AMS, in turn, has the right to require the financial institution to repurchase the student loans on such date, with the interest rate on the credit facility reset on such date. The credit facility provides for up to $150.0 million of financing and may be increased subject to monthly confirmations. The credit facility had an outstanding balance of $113.4 million and $318.8 million at December 31, 2000 and 1999, respectively, and bears interest at a variable annual rate of LIBOR plus 75 basis points (7.4% at December 31, 2000). The credit facility has a term of one year and is secured by student loans originated under the Federal Family Education Loan Program ("FFELP"), which are guaranteed by the federal government or alternative loans guaranteed by private guarantors. The financial institution may value the loans at any time and require AMS to repay any amount by which the market value of the loans is less than the amount required by the credit facility.
On June 11, 1999, an AMS special purpose financing subsidiary sold, in a private placement transaction, $319.5 million principal amount of Auction Rate Student Loan-Backed Notes at an initial interest rate of 5.038%. The notes were sold in two tranches (Class A-1 and Class A-2) and mature in November 2022. At December 31, 2000, the outstanding balance on the notes was $290.0 million bearing interest at a weighted annual composite rate of 6.922%. The notes received a "AAA" credit rating from Standard & Poor's and Fitch IBCA and an "Aaa" rating from Moody's Investor Services. The outstanding balance of the Notes at December 31, 2000 and 1999 was $290.0 million and $317.8 million, respectively.
legal final maturity in April 2009. The $57.5 million Class A-2 and $57.5 million Class A-3 notes were structured as auction rate notes with an initial interest rate of 6.38%. The interest rate on these notes is reset quarterly pursuant to auctions conducted by Lehman Brothers and BancAmerica Securities. Legal final maturity of the A-2 and A-3 notes is July 2027. Lehman Brothers and BancAmerica Securities were the initial purchasers of all three classes of notes. At December 31, 2000, the outstanding balance of the notes was $313.1 million bearing interest at a weighted annual composite rate of 7.0%. All three classes of notes received AAA/Aaa/AAA ratings from Standard & Poor's, Moody's and Fitch IBCA respectively.
Set forth below is a summary of the Company's investments by category at December 31, 2000 and 1999:
Included in the fixed maturity portfolio is a concentration of mortgage-backed securities such as collateralized mortgage obligations and mortgage-backed pass-throughs. To limit its credit risk, the Company
invests in mortgage-backed securities that are rated investment grade by the public rating agencies. The Company's mortgage-backed securities portfolio is a conservatively structured portfolio that is concentrated in the less volatile tranches, in the form of planned amortization classes, sequential payment and commercial mortgage-backed securities. The Company's objectives are to minimize prepayment risk during periods of declining interest rates and minimize duration extension risk during periods of rising interest rates. The Company has less than 1% of its investment portfolio invested in the more volatile tranches.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation". Interpretation No. 44 provides guidance on twenty practice issues regarding the application of APB Opinion No. 25, Accounting for Stock Issued to Employees. The FASB focused on interpreting rather than completely overhauling APB 25's intrinsic value framework. The Interpretation is effective July 1, 2000, and is to be applied prospectively to all new awards, modifications to outstanding awards, and changes in employee status after that date, with certain exceptions. Because the FASB decided that the Interpretation should be applied prospectively from July 1, 2000 except for certain events, no