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Shareholder Service
April 18, 2008
Dear Shareholder,
The last half of 2007 and continuing into 2008 has been a very challenging time for those companies operating in the financial services industry. We have always stressed quality in both our investment and loan portfolios. Thus, we have avoided investing in sub-prime loans and other exotic investment products, preferring to invest in government agency and high quality corporate securities and loans that are well secured and to borrowers we know and trust. Further, our capital has continued to increase and our Risk-Based Capital is at an all-time high.
As revealed in the accompanying financial statements, our net income was down $1.7 million in 2007. Although we are not satisfied with this performance, I would like to share a few observations we have made that might help you better understand what happened and why we feel 2007 was a good year. For the first time in years, we saw an increase in premium income. This resulted from our acquisition of ACAP at the end of 2006.
Our operating team did a great job in integrating the ACAP operation into UG. They were able to accomplish this while increasing operating expenses only $1.5 million, and ACAP performed right in line with what we had projected.
The biggest obstacle we faced in 2007 was claims, which were up $5.5 million over our 2006 levels, and $1.8 million above our projected level, and hopefully, this trend won’t continue.
Another way to look at our earnings performance is called EBITDA, or earnings before interest, taxes, depreciation and amortization or intangibles. This measure provides a bit more insight as to the cash flow and real value of the business.
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EBITDA |
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2007 |
2006
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2005
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Income before taxes |
$4,074,063 |
$8,027,252 |
$1,899,613 |
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Interest expense |
1,391,427 |
234,125
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0 |
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Depreciation
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1,015,083 |
1,801,507 |
2,206,023 |
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Amortization
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4,462,075 |
3,076,201 |
2,471,984 |
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EBITDA
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$10,942,648 |
$13,139,085 |
$6,577,620
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In looking at this measure, EBITDA was up substantially in 2007 from 2005, but down from 2006. When considering our realized investment gains were $11.4 million in 2006, compared to $5.5 million in 2007 and only $1.4 million in 2005, we feel the operating business has performed very well.
Looking ahead, we continue to seek out opportunities to perform administrative services (TPA) for other life insurance companies. We also plan to continue seeking out opportunities to grow through acquisition of other companies and/or blocks of business.
Finally, we plan to continue repurchasing shares of UTG stock under the stock repurchase program implemented in 2001. Through March 1, 2008, we have purchased over $2.6 million under this program.
As a shareholder, I can assure you that all our interests are best served by maintaining a strong, well-capitalized, low debt company, which we plan to do.
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