The Company holds $1,364,100 of notes receivable from affiliates. The notes receivable from affiliates consists of four separate notes. The $700,000 note bears interest at the rate of 1% above the variable per annum rate of interest most recently published by the Wall Street Journal as the prime rate. Interest is payable quarterly with principal due at maturity on May 8, 2006. In February 1996, FCC borrowed an additional $150,000 from
New business production decreased significantly over the last two years. New business production decreased 39% or approximately $2,063,000 when comparing 1998 to 1997. In recent years, the insurance industry as a whole has experienced a decline in the total number of agents who sell insurance products, therefore competition has intensified for top producing sales agents. The relatively small size of our companies, and the resulting limitations, have made it challenging to compete in this area. The Company is currently in a position where it must increase its new business writings or look at measures to reduce costs associated with new business production to a level more in line with the current level of production. In late 1998,
UTG had a net loss of $1,273,000 in 1998 compared to a net loss of $923,000 in 1997. During 1998, the deferred policy acquisition costs impairment resulted in a net loss of $1,551,000 and the notes discount write offs resulted in a net loss of $1,231,000. Exclusive of these two events, the Company would have reported net income of $1,509,000. Lower death benefit claims and reduced operating expenses from 1997 results provided improvements to the 1998 results.
The Company has a sub-contract service agreement with United Trust, Inc. ("UTI") for certain administrative services. Through its facilities and personnel, UTI performs such services as may be mutually agreed upon between the parties. The fees are based on 60% of the fees paid to UII by USA. The Company has incurred $744,000, $1,241,000 and $1,809,000 in service fee expense in 1997, 1996, and 1995, respectively.
The insurance regulatory framework continues to be scrutinized by various states, the federal government and the National Association of Insurance Commissioners ("NAIC"). The NAIC is an association whose membership consists of the insurance commissioners or their designees of the various states. The NAIC has no direct regulatory authority over insurance
A.ORGANIZATION - At December 31, 1998, the affiliates of United Income, Inc. were as depicted on the following organizational chart.
Under the current structure, FCC pays a majority of the general operating expenses of the affiliated group. FCC then receives management, service fees and reimbursements from the various affiliates.
The following information applies to options outstanding at December 31, 1998:
1998 1997 1996 Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding at beginning of year 231 $ 0.47 231 $ 0.47 301 $0.47 Granted 0 0.00 0 0.00 0 0.00 Exercised 0 0.00 0 0.00 (70) 0.47 Forfeited 0 0.00 0 0.00 0 0.00 Outstanding at end of year 231 $ 0.47 231 $ 0.47 231 $ 0.47
In early 1994, UII received $902,300 from the sale of Debentures. The Debentures were issued pursuant to an indenture between the Company and National City Bank (formerly First of America Bank - Southeast Michigan, N.A.), as trustee. The Debentures are general unsecured obligations of UII, subordinate in right of payment to any existing or future senior debt of UII. The Debentures are exchangeable and transferable, and are convertible at any time prior to March 31, 1999 into UII's Common Stock at a conversion price of $25.00 per share, subject to adjustment in certain events. The Debentures bear interest from March 31, 1994, payable quarterly, at a variable rate equal to one percentage point above the prime rate published in the Wall Street Journal from time to time. On or after March 31, 1999, the Debentures will be redeemable at UII's option, in whole or in part, at redemption prices declining from 103% of their principal amount. No sinking fund will be established to redeem Debentures. The Debentures will mature on March 31, 2004. The Debentures are not listed on any national securities exchange or the NASDAQ National Market System.
On a cash basis, UII paid $64,289, $85,155 and $84,027 in interest expense for the years 1998, 1997 and 1996, respectively. UII paid $0, $0 and $0 in federal income tax for 1998, 1997 and 1996, respectively.