<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
================================
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ---------------- to -----------------
Commission file number 0-21459
AmerUs Life Holdings, Inc.
-----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Iowa 42-1459712
- ------------------------------------------------------------------------------
(State of other jurisdiction of IRS employer identification no.)
incorporation or organization)
699 Walnut Street, Des Moines, Iowa 50309-3948
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (515) 362-3600
- ------------------------------------------------------------------------------
Former name, former address and formal fiscal year, if changed since last report
Indicate by check [x] 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 [ ]
The number of shares outstanding of each of the registrant's classes of common
stock on November 9, 1998 was as follows:
Class A, Common Stock 25,687,149 shares
Class B, Common Stock 5,000,000 shares
Exhibit index - Page -- ___
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
Page No.
<S> <C>
Part I - Financial Information ...................................................................... 3
Item 1. Consolidated Financial Statements .......................................................... 3
Consolidated Balance Sheets September 30, 1998
(Unaudited) and December 31, 1997 .......................................................... 3
Consolidated Statements of Income (Unaudited) - For the Nine Months
Ended September 30, 1998 and 1997 and the
Three Months Ended September 30, 1998 and 1997 ............................................. 5
Consolidated Statement of Comprehensive Income
(Unaudited) - For the Nine Months Ended September 30, 1998
and 1997 and the Three Months Ended September 30, 1998
and 1997 ................................................................................... 6
Consolidated Statements of Cash Flows (Unaudited) -
For the Nine Months Ended September 30, 1998 and 1997 ...................................... 7
Notes to Consolidated Financial Statements
(Unaudited) ................................................................................ 8
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition .............................................. 15
Part II - Other Information ......................................................................... 37
Item 1. Legal Matters .............................................................................. 37
Item 6. Exhibits and Reports on Form 8-K ........................................................... 38
Signatures .......................................................................................... 39
Exhibit Index ....................................................................................... 40
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars In thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Assets
Investments:
Securities available-for-sale at fair value:
Fixed maturity securities $ 6,513,412 $ 6,851,427
Equity securities 78,652 61,480
Short-term investments 62,233 12,595
Securities held for trading purposes at
fair value
Fixed maturity securities 3,788 22,955
Equity securities 830 --
Mortgage loans on real estate 539,070 462,473
Real estate 445 8,670
Policy loans 110,852 117,865
Other investments 302,443 158,073
----------- -----------
Total investments 7,611,725 7,695,538
Cash 99,987 58,081
Accrued investment income 85,330 84,713
Premiums and fees receivable 3,195 3,445
Reinsurance receivables 4,380 6,203
Deferred policy acquisition costs 167,313 118,896
Value of business acquired 245,194 266,014
Investment in unconsolidated subsidiaries 28,385 26,849
Goodwill 217,874 220,250
Property and equipment 23,197 22,863
Other assets 363,856 359,308
Closed block assets 1,466,627 1,391,848
----------- -----------
Total assets $10,317,063 $10,254,008
=========== ===========
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Liabilities and Stockholders' Equity
Liabilities
Policy reserves and policyowner funds:
Future life and annuity
policy benefits $ 7,057,809 $ 7,074,444
Policyowner funds 107,650 89,641
------------ ------------
Total 7,165,459 7,164,085
Accrued expenses 40,668 39,095
Dividends payable to policyowners 832 1,575
Policy and contract claims 14,539 4,548
Income taxes payable 14,043 12,753
Deferred income taxes 11,424 16,914
Other liabilities 118,056 111,180
Debt 141,149 266,435
Closed block liabilities 1,691,701 1,623,432
------------ ------------
Total liabilities 9,197,871 9,240,017
------------ ------------
Company obligated mandatorily redeemable preferred capital securities of
subsidiary trusts holding solely junior subordinated
debentures of the Company 230,963 86,000
Stockholders' equity
Preferred stock, no par value,
20,000,000 shares authorized,
none issued -- --
Common stock, Class A, no par value,
180,000,000 shares authorized 1998;
75,000,000 shares authorized 1997;
27,036,178 shares issued and
outstanding in 1998; 29,734,918
shares issued and outstanding in 1997) 27,036 29,735
Common stock, Class B, no par value,
50,000,000 shares authorized;
5,000,000 shares issued and
outstanding 5,000 5,000
Paid in capital 311,745 383,686
Accumulated other comprehensive income 51,778 55,747
Retained earnings 492,917 453,823
Unearned compensation (247) --
------------ ------------
Total stockholders' equity 888,229 927,991
------------ ------------
Total liabilities and
stockholders' equity $ 10,317,063 $ 10,254,008
============ ============
</TABLE>
<PAGE> 5
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
--------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums $ 61,368 $ 33,522 $ 22,642 $ 12,594
Universal life and annuity
product charges 54,287 34,332 20,035 10,921
Net investment income 375,991 149,774 115,997 50,548
Realized gains (losses)
on investments 2,390 14,510 (8,393) 4,987
Contribution from the
Closed Block 24,036 21,652 7,200 8,242
------------ ------------ ------------ ------------
518,072 253,790 157,481 87,292
------------ ------------ ------------ ------------
Benefits and expenses:
Policyowner benefits 334,590 129,716 115,304 42,718
Underwriting, acquisition, and
insurance expenses 56,180 35,514 17,731 13,076
Amortization of deferred policy
acquisition costs on policies
purchased or produced 38,848 16,767 8,160 5,794
Dividends to policyowners 1,619 835 909 661
------------ ------------ ------------ ------------
431,237 182,832 142,104 62,249
------------ ------------ ------------ ------------
Income from operations 86,835 70,958 15,377 25,043
Interest expense 19,617 8,941 7,007 2,980
------------ ------------ ------------ ------------
Income before income tax expense
and equity in earnings of
unconsolidated subsidiary 67,218 62,017 8,370 22,063
Income tax expense 19,271 17,694 1,952 6,108
------------ ------------ ------------ ------------
Income before equity in earnings
of unconsolidated subsidiary 47,947 44,323 6,418 15,955
Equity in earnings of unconsolidated
subsidiary 1,535 1,174 444 520
------------ ------------ ------------ ------------
Net income $ 49,482 $ 45,497 $ 6,862 $ 16,475
============ ============ ============ ============
Earnings per common share
Basic $ 1.44 $ 1.96 $ 0.20 $ 0.71
Diluted $ 1.43 $ 1.96 $ 0.20 $ 0.71
============ ============ ============ ============
Weighted average Common
Shares outstanding
Basic 34,393,079 23,155,989 33,726,221 23,155,989
Diluted 34,695,353 23,155,989 33,951,365 23,155,989
</TABLE>
<PAGE> 6
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30, Ended September 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 49,482 $ 45,497 $ 6,862 $ 16,475
Other comprehensive income
(loss), net of tax:
Unrealized gains on securities:
Unrealized holding gains arising
during period (net of deferred tax of
$(464)and $(16,973)for the nine months
ended and $1,711 and $(16,296)
for the three months ended) 861 31,522 (3,178) 30,264
Less: reclassification adjustment
for gains included in net income
(net of deferred tax of $4,858
and $5,407 for nine months ended
and $(428)and $1,625 for three
months ended) (4,830) (8,110) 342 (2,595)
-------- -------- -------- --------
Other comprehensive income (loss) (3,969) 23,412 (2,836) 27,669
-------- -------- -------- --------
Comprehensive income $ 45,513 $ 68,909 $ 4,026 $ 44,144
======== ======== ======== ========
</TABLE>
<PAGE> 7
AMERUS LIFE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
----------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 49,482 $ 45,497
Adjustments to reconcile net income to net
cash provided by operating activities:
Policyowner assessments on
universal life and annuity products (54,287) (30,741)
Interest credited to
policyowner account balances 139,185 78,954
Realized investment (gains) (2,390) (14,510)
Change in:
Accrued investment income (617) (9,206)
Reinsurance ceded receivables 1,823 (147)
Deferred policy acquisition costs (54,385) (18,163)
Liabilities for future policy benefits 125,312 (18,738)
Policy and contract claims
and other policyowner funds 9,991 (1,648)
Income taxes:
Current 1,685 9,362
Deferred (5,716) (4,262)
Other, net 66,797 8,886
Change in Closed Block assets
and liabilities, net 80,917 98,599
----------- -----------
Net cash provided by operating activities 357,797 143,883
----------- -----------
Cash flows from investing activities:
Purchase of fixed maturities
available for sale (2,627,327) (900,920)
Maturities, calls, and principal
reductions of fixed maturities
available for sale 2,930,021 873,469
Purchase of equity securities (227,377) (45,511)
Proceeds from sale of equity securities 207,928 54,624
Proceeds from repayment and sale
of mortgage loans 82,091 35,252
Purchase of mortgage loans (166,573) (112,768)
Proceeds from sale of real estate
and other invested assets 43,658 --
Purchase of real estate and other
invested assets (170,731) 10,628
Change in policy loans, net 7,014 (1,112)
Tax on capital gains 15,545 6
Other assets, net (178,839) 89,067
Change in Closed Block investments, net (73,383) (71,180)
----------- -----------
Net cash used in investing
activities (157,973) (68,445)
----------- -----------
Cash flows from financing activities:
Deposits to policyowner account balances 608,860 92,685
Withdrawals from policyowner
account balances (850,562) (180,519)
Change in debt, net 24,161 (126,854)
Purchase of treasury stock (74,952) --
Change in checks drawn in excess of
bank balance -- 1,040
Initial public offering of common stock -- 55,027
Dividends to shareholders (10,388) (4,631)
Issuance of company-obligated
mandatory redeemable
capital securities 144,963 86,000
----------- -----------
Net cash used in financing activities (157,918) (77,252)
----------- -----------
Net (decrease) increase in cash 41,906 (1,814)
Cash at beginning of period 58,081 1,814
----------- -----------
Cash at end of period $ 99,987 $ --
=========== ===========
Supplemental disclosure of cash activities:
Interest paid $ 15,289 $ 7,781
=========== ===========
Income taxes paid $ 26,706 $ 26,235
=========== ===========
</TABLE>
<PAGE> 8
AMERUS LIFE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. All adjustments were of a
normal recurring nature, unless otherwise noted in Management's Discussion and
Analysis and the Notes to Financial Statements. Operating results for the three
months and nine months ended September 30, 1998 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1998. For
further information and for capitalized terms not defined in this 10-Q, refer to
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
SFAS No. 130
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," and restated prior years' financial statements to conform
to the reporting standard. SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components in a full set of general-
purpose financial statements. Comprehensive income includes all changes in
shareholders' equity during a period except those resulting from investments by
owners and distributions to owners. The adoption of SFAS No. 130 resulted in
revised and additional disclosures but had no effect on the financial position,
results of operations, or liquidity of the Company.
SFAS No. 131
On January 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes standards for the way that public businesses report information
about operating segments in financial statements. Operating segments are
components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and assess performance. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating
<PAGE> 9
segment performance and deciding how to allocate resources to segments. The
provisions of SFAS No. 131 are of a reporting nature and have no impact on the
financial position or results of operations of the Company, as the life
insurance and annuity operation is the Company's only business segment.
SFAS No. 132
In February 1998, the FASB adopted SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 is effective for
fiscal years beginning after December 31, 1997. SFAS No. 132 standardizes
employers' disclosures about pension and other postretirement benefits, requires
additional information on changes in the benefit obligations and fair values of
plan assets to facilitate financial analysis, and eliminates certain irrelevant
disclosures. The Company is currently evaluating the necessary changes to its
related disclosures.
SOP No. 98-1
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This SOP provides
guidance for determining whether costs of software developed or obtained for
internal use should be capitalized or expensed as incurred. In the past, the
Company has expensed such costs as they were incurred. This SOP is also
effective for fiscal years beginning after December 15, 1998. The Company is
currently evaluating the financial impact as well as the changes to its related
disclosures.
SFAS No. 133
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 defines derivative instruments
and provides comprehensive accounting and reporting standards for the
recognition and measurement of derivative and hedging activities (including
certain instruments embedded in other contracts). It requires derivatives to be
recorded in the Consolidated Balance Sheet at fair value and establishes
criteria for hedges of changes in the fair value of assets, liabilities or firm
commitments, hedges of variable cash flows of forecasted transactions, and
hedges of foreign currency exposures of net investments in foreign operations.
Changes in the fair value of derivatives not meeting specific hedge accounting
criteria would be recognized in the Consolidated Statement of Operations. SFAS
No. 133 is effective for all fiscal quarters of all years beginning after June
15, 1999. The Company is evaluating SFAS No. 133 and has not determined its
effect on the consolidated financial statements.
<PAGE> 10
Certain amounts in the 1997 financial statements have been reclassified
to conform to the 1998 financial statement presentation.
EARNINGS PER COMMON SHARE
The Company adopted the provisions of SFAS 128 "Earnings per Share" at
December 31, 1997, which had no effect on the Company's previously reported
earnings per share information. Basic earnings per share of common stock are
computed by dividing net income by the weighted-average number of common shares
outstanding during the period. Diluted earnings per share assumes the issuance
of common shares applicable to stock options and warrants calculated using the
treasury stock method.
(2) CLOSED BLOCK
Summarized financial information of the Closed Block balance sheet as
of September 30, 1998 and December 31, 1997 and statements of income for the
nine months and three months ended September 30, 1998 and 1997 are as follows
(in thousands):
Assets:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ ------------------
(Unaudited)
<S> <C> <C>
Fixed maturity securities, at fair value $1,104,796 $1,053,066
Short-term investments, at fair value 5,368 660
Policy loans 179,066 168,368
Other investments 20,802 591
Cash 102 21
Accrued investment income 14,381 12,617
Premiums and fees receivable 2,833 3,591
Deferred policy acquisition costs 128,814 143,765
Other assets 10,465 9,169
---------- ----------
$1,466,627 $1,391,848
========== ==========
Liabilities:
Future life and annuity policy benefits $1,496,218 $1,448,725
Policyowner funds 7,449 6,786
Accrued expenses 2,540 5,980
Dividends payable to policyowners 149,218 135,985
Policy and contract claims 5,607 5,966
Other liabilities 30,669 19,990
---------- ----------
$1,691,701 $1,623,432
========== ==========
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues and Expenses:
Insurance premiums $ 147,250 $ 153,610
Universal life and annuity
product charges 10,531 10,762
Net investment income 87,486 81,384
Realized gains on investments 8,587 (192)
Policyowner benefits (147,988) (155,116)
Underwriting, acquisition, and
insurance expenses (4,196) (4,096)
Amortization of deferred policy
acquisition costs on policies produced (20,598) (20,357)
Dividends to policyowners (57,036) (44,343)
--------- ---------
Contribution from the Closed Block
before income taxes $ 24,036 $ 21,652
========= =========
</TABLE>
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 1998 September 30, 1997
------------------ ------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues and Expenses:
Insurance premiums $ 47,318 $ 48,616
Universal life and annuity
product charges 3,265 3,878
Net investment income 30,147 27,106
Realized gains on investments 410 797
Policyowner benefits (48,616) (49,857)
Underwriting, acquisition, and
insurance expenses (1,310) (1,275)
Amortization of deferred policy
acquisition costs on policies produced (7,780) (6,246)
Dividends to policyowners (16,234) (14,777)
-------- --------
Contribution from the Closed Block
before income taxes $ 7,200 $ 8,242
======== ========
</TABLE>
<PAGE> 12
(3) DEBT AND CAPITAL SECURITIES
Debt consists of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Federal Home Loan Bank community investment
long-term advances with a weighted
average interest rate of 5.7%
at September 30, 1998 $ 16,149 $ 16,435
Revolving credit agreement -- 250,000
Senior Notes bearing interest at
6.95% due June 2005 125,000 --
-------- --------
$141,149 $266,435
======== ========
</TABLE>
On June 16, 1998, the Company issued $125,000,000 of 6.95% senior notes
due June 15, 2005. The proceeds of the offering were utilized to pay down
amounts owing under the revolving credit agreement and the commitment under that
credit facility was reduced from $250 million to $150 million.
Capital Securities consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
AmerUs Capital I 8.85% Capital
Securities Series A due
February 1, 2007 $ 86,000 $ 86,000
AmerUs Capital II 7.00% Adjustable
Conversion-rate Equity Security
Units due July 27, 2003 144,963 --
-------- --------
$230,963 $ 86,000
======== ========
</TABLE>
In August 1998, the Company completed the public offering of 4,592,900
<PAGE> 13
units of 7% Adjustable Conversion-rate Equity Security Units through a
wholly-owned subsidiary trust, AmerUs Capital II. The unit price was $31.5625
with net proceeds to the Company of $141,121,904. Each unit consists of a
forward common stock purchase contract and a quarterly income preferred security
bearing interest at 6.86% and due July 27, 2003. The Company is obligated to
mandatorily redeem the capital securities on July 27, 2003.
For an additional discussion of the terms of the other above indebtedness
and capital securities, refer to the Company's consolidated financial statements
as of December 31, 1997.
(4) FEDERAL INCOME TAXES
The effective income tax rate for the period ending September 30, 1998
was lower than the prevailing corporate rate primarily as a result of earned low
income housing and historic rehabilitation credits which totaled $3.8 million
and $.9 million for nine months and three months ended September 30, 1998,
respectively.
(5) COMMITMENTS AND CONTINGENCIES
AmerUs Life Insurance Company ("AmerUs Life") and its joint venture
partner are contingently liable in the event the joint venture, Ameritas
Variable Life Insurance Company ("AVLIC"), cannot meet its policyholder
obligations. At September 30, 1998, AVLIC had statutory assets of $1,597.3
million, liabilities of $1,553.2 million, and surplus of $44.1 million.
(6) RELATED PARTY TRANSACTIONS
AmerUs Life has a master agreement of purchase and sale with AmerUs
Home Equity, and previously had a similar arrangement with AmerUs Bank, whereby
AmerUs Life agrees to purchase whole loans from AmerUs Home Equity from time to
time. AmerUs Life also has a loan servicing agreement with AmerUs Home Equity
and previously had a similar agreement with AmerUs Bank, whereby AmerUs Home
Equity acts as servicer of the loans and receives a servicing fee ranging from
50 to 58 basis points of the outstanding principal balances of the loans. During
the nine months ended September 30, 1998, AmerUs Life purchased loans with a
total outstanding principal balance of $138.8 million at a $8.5 million premium
from either AmerUs Home Equity or AmerUs Bank. Both agreements with AmerUs Bank
were terminated on July 31, 1998. AmerUs Home Equity is a wholly-owned
subsidiary of AmerUs Group Co.
<PAGE> 14
(7) ACQUISITIONS
On October 23, 1997, the Company acquired all of the outstanding
capital stock of Delta Life Corporation ("Delta") in exchange for cash of
approximately $165 million. The acquisition was accounted for using the purchase
method of accounting with goodwill of $69.4 million established which is being
amortized on a straight-line basis over 30 years.
On December 19, 1997, the Company acquired AmVestors Financial
Corporation in a stock exchange valued at approximately $350 million. The
acquisition was accounted for using the purchase method of accounting with
goodwill of $152.9 million established which is being amortized on a
straight-line basis over 30 years.
<PAGE> 15
AmerUs Life Holdings, Inc. September 30, 1998
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CAUTIONARY STATEMENT
Cautionary Statement for purposes of the Safe Harbor Provisions of the
Private Securities Litigation Reform Act of 1995. All statements, trend analyses
and other information contained in this report relative to markets for the
Company's products and trends in the Company's operations or financial results,
as well as other statements including words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend," and other similar expressions,
constitute forward-looking statements under the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to known and
unknown risks, uncertainties and other factors which may cause actual results to
be materially different from those contemplated by the forward- looking
statements. Such factors include, among other things: (1) general economic
conditions and other factors, including prevailing interest rate levels and
stock market performance, which may affect the ability of the Company to sell
its products, the market value of the Company's investments and the lapse rate
and profitability of policies; (2) the Company's ability to achieve anticipated
levels of operational efficiencies and cost-saving initiatives and to meet cash
requirements based upon projected liquidity sources; (3) customer response to
new products, distribution channels and marketing initiatives; (4) mortality,
morbidity, and other factors which may affect the profitability of the Company's
insurance products; (5) changes in the Federal income tax laws and regulations
which may affect the relative tax advantages of some of the Company's products;
(6) increasing competition in the sale of insurance and annuities; (7)
regulatory changes or actions, including those relating to regulation of
insurance products and of insurance companies; (8) ratings assigned to the
Company's insurance subsidiaries by independent rating organizations such as
A.M. Best Company ("A.M. Best"), which the Company believes are particularly
important to the sale of annuity and other accumulation products; (9) the
Company's ability to successfully complete its year 2000 remediation efforts and
(10) unanticipated litigation. There can be no assurance that other factors not
currently anticipated by management will not also materially and adversely
affect the Company's results of operations.
Overview
The Company is a holding company engaged through its subsidiaries in
the business of marketing, underwriting and distributing a broad range of
individual life insurance and annuity products to individuals and small
businesses in 49 states, the District of Columbia and the US Virgin Islands. The
Company's primary product offerings consist of whole life, universal life and
term life
<PAGE> 16
insurance policies and fixed annuities. Since April 1, 1996 the Company has been
a party to the Ameritas Joint Venture with Ameritas Life Insurance Corp.,
through which it markets fixed annuities and sells variable annuities and
variable life insurance products.
In accordance with GAAP, universal life insurance premiums and annuity
deposits received are reflected as increases in liabilities for policyowner
account balances and not as revenues. Revenues reported for universal life and
annuity products consist of policy charges for the cost of insurance,
administration charges and surrender charges assessed against policyowner
account balances. Surrender benefits paid relating to universal life insurance
policies and annuity products are reflected as decreases in liabilities for
policyowner account balances and not as expenses. Amounts for interest credited
to universal life and annuity policyowner account balances and benefit claims in
excess of policyowner account balances are reported as expenses in the financial
statements. The Company receives investment income earned from the funds
deposited into account balances by universal life and annuity policyowners, the
majority of which is passed through to such policyowners in the form of interest
credited.
Premium revenues reported for traditional life insurance products are
recognized as revenues when due. Future policy benefits and policy acquisition
costs are recognized as expenses over the life of the policy by means of a
provision for future policy benefits and amortization of deferred policy
acquisition costs.
The costs related to acquiring new business, including certain costs of
issuing policies and certain other variable selling expenses (principally
commissions), defined as deferred policy acquisition costs, are capitalized and
amortized as an expense primarily in proportion to expected profits or margins
from such policies. This amortization is adjusted when current or estimated
future gross profits or margins on the underlying policies vary from previous
estimates. For example, the amortization of deferred policy acquisition costs is
accelerated when policy terminations are higher than originally estimated or
when investments supporting the policies are sold at a gain prior to their
anticipated maturity. Death and other policyowner benefits reflect exposure to
mortality risk and fluctuate from period to period based on the level of claims
incurred within insurance retention limits. The profitability of the Company is
primarily affected by expense levels, interest spread results (i.e., the excess
of investment earnings over the interest credited to policyowners) and
fluctuations in mortality, persistency and other policyowner benefits. The
Company has the ability to mitigate adverse experience through adjustments to
credited interest rates, policyowner dividends or cost of insurance charges.
Sales
The following table sets forth information regarding the Company's
sales activity by product:
<PAGE> 17
<TABLE>
<CAPTION>
Sales Activity by Product
For the Nine For the Three
Months Ended Months Ended
September 30, September 30,
------------------------ -------------------------
($ in thousands) 1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Individual life insurance:
Participating whole life $ 13,008 $ 12,409 $ 4,534 $ 3,806
Universal life 7,297 5,789 2,972 2,123
Term life 4,576 3,302 1,482 1,546
-------- -------- -------- --------
Total life insurance (A) $ 24,881 $ 21,500 $ 8,988 $ 7,475
======== ======== ======== ========
Annuities (B) $564,944 $ 37,515 $175,213 $ 11,904
======== ======== ======== ========
</TABLE>
(A) Direct first year annualized premiums
(B) Direct collected premiums
Life insurance sales as measured by annualized premiums increased by
$3.4 million, or 15.7%, for the nine months, and increased by $1.5 million, or
20.2%, for the three months ended September 30, 1998, from the same periods in
1997. As a result of the introduction of new term products during the first
quarter of 1997 and the introduction of three new term plans in January, 1998,
sales of term life insurance products during the first nine months of 1998
increased by $1.3 million or 38.6%, from the same period in 1997 and were nearly
level for the third quarter with the same period in 1997. Sales of universal
life insurance increased by $1.5 million and by $0.8 million for the nine months
and three months ended September 30, 1998, respectively, from the same periods
in 1997. Increased sales of universal life are attributable to the introduction
of a new second-to-die universal life product during the third quarter of 1997.
Sales of participating whole life insurance increased during the third quarter
of 1998 and for the first nine months of 1998 are 4.8% higher than the first
nine months of 1997. The large growth in annuity sales for the nine months and
three months ended September 30, 1998 is attributable to acquisitions in the
fourth quarter of 1997. Annuity sales for the first nine months of 1998 include
$69.6 million and $465.8 million from Delta Life Corporation ("Delta") and
AmVestors Financial Corporation ("AmVestors"), respectively. Annuity sales for
the quarter ended September 30, 1998 include $24.4 million and $143.5 million
from Delta and AmVestors, respectively.
Premium Receipts
The following table sets forth the Company's collected premiums,
including collected premiums associated with the Closed Block, for the periods
indicated:
<PAGE> 18
<TABLE>
<CAPTION>
Collected Premiums by Product
For the Nine Months Ended For the Three Months Ended
September 30, September 30,
------------------------- --------------------------
($ in thousands) 1998 1997 1998 1997
--------- ------------ --------- -------------
<S> <C> <C> <C> <C>
Direct individual life premiums collected:
Traditional life:
First year & single $ 60,097 53,850 $ 20,795 $ 18,009
Renewal 129,373 124,778 42,400 41,075
--------- --------- --------- ---------
Total 189,470 178,628 63,195 59,084
--------- --------- --------- ---------
Universal life:
First year & single 13,757 10,366 5,024 3,374
Renewal 55,303 56,013 17,895 18,428
--------- --------- --------- ---------
Total 69,060 66,379 22,919 21,802
--------- --------- --------- ---------
Total direct life 258,530 245,007 86,114 80,886
Reinsurance assumed 770 1,292 362 478
Reinsurance ceded (11,065) (9,739) (5,642) (4,813)
--------- --------- --------- ---------
Total individual life,
net of reinsurance 248,235 236,560 80,834 76,551
--------- --------- --------- ---------
Direct annuity premiums collected:
Individual 563,362 37,515 174,686 11,904
Group 1,582 -- 527 --
--------- --------- --------- ---------
Total annuities 564,944 37,515 175,213 11,904
Reinsurance ceded (1,205) (336) (147) (55)
--------- --------- --------- ---------
Total annuities, net
of reinsurance 563,739 37,179 175,066 11,849
--------- --------- --------- ---------
Other collected premiums, net
of reinsurance (508) 14 (149) (105)
--------- --------- --------- ---------
Total collected premiums,
net of reinsurance $ 811,466 $ 273,753 $ 255,751 $ 88,295
========= ========= ========= =========
</TABLE>
<PAGE> 19
Annuity premiums, net of reinsurance, for the nine months and three
months ended September 30, 1998, include $534.4 million and $167.9 million,
respectively, from Delta and AmVestors, in the aggregate.
Life Insurance and Annuities in Force
The following table sets forth information regarding the Company's life
insurance and annuities in force for each date presented:
<TABLE>
<CAPTION>
Life Insurance and Annuities in Force
As of September 30,
-------------------------
($ in thousands) 1998 1997
----------- -----------
<S> <C> <C>
Individual life insurance:
Traditional life
Number of policies 255,003 251,208
GAAP life reserves $ 1,530,802 $ 1,280,065
Face amounts $19,116,000 $17,464,000
Universal life
Number of policies 115,667 118,043
GAAP life reserves $ 887,720 $ 843,770
Face amounts $12,136,000 $12,043,000
Total life insurance
Number of policies 370,670 369,251
GAAP life reserves $ 2,418,522 $ 2,123,835
Face amounts $31,252,000 $29,507,000
Annuities:
Number of policies 186,079 50,904
GAAP reserves $ 6,115,594 $ 1,267,211
Group life insurance:
Number of lives 12,184 29,781
Face amounts $ 243,000 $ 878,000
</TABLE>
Included in the September 30,1998 annuity amounts are approximately 150,000
policies and $5.0 billion of GAAP reserves from Delta and AmVestors. The Company
sold substantially all of its group life business as of July 1, 1996 and is no
longer actively marketing this line of business.
<PAGE> 20
Adjusted Operating Income
The following table reflects net income adjusted to eliminate certain
items (net of applicable income taxes) which management believes are not
necessarily indicative of overall operating trends. For example, net realized
capital gains or losses on investments, excluding gains or losses on convertible
debt which are considered core earnings, are eliminated. Different items are
likely to occur in each period presented and others may have different opinions
as to which items may warrant adjustment. The adjusted operating income shown
below does not constitute net income computed in accordance with GAAP.
<TABLE>
<CAPTION>
For the Nine Months Ended For the Three Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
(In thousands, except per share amounts)
Net income $ 49,482 $ 45,497 $ 6,862 $ 16,475
Net realized (gains) losses
on investments (A) 3,580 (9,307) 7,003 (3,567)
Amortization of deferred policy
acquisition costs due to
realized gains or losses (B) (913) 595 (1,754) 43
-------- -------- -------- --------
Adjusted operating income $ 52,149 $ 36,785 $ 12,111 $ 12,951
======== ======== ======== ========
Adjusted operating income per common share (C):
Basic $ 1.52 $ 1.59 $ 0.36 $ 0.56
Diluted $ 1.50 $ 1.59 $ 0.36 $ 0.56
</TABLE>
(A) Represents non-core realized gains or losses on investments adjusted
for income taxes on such amounts. Realized gains may vary widely
between periods. Such amounts are determined by management's timing of
individual transactions and do not necessarily correspond to the
underlying operating trends.
(B) Represents amortization of deferred policy acquisition costs related to
non-core realized gains or losses adjusted for income taxes on such
amount.
(C) Basic adjusted operating income per common share for the nine months
ended and three months ended September 30, 1998 is calculated using
34.4 million and 33.7 million weighted average shares of common stock
outstanding, respectively. Diluted adjusted operating income per common
share for the nine months ended September 30, 1998 is calculated using
34.7 million weighted average shares outstanding. Diluted adjusted
operating income per common share for the three months ended September
30, 1998 is calculated
<PAGE> 21
using 34.0 million weighted average shares of common stock outstanding.
The basic and diluted adjusted operating income per common share for
the nine months and three months ended September 30, 1997 is calculated
using 23.2 million shares of common stock outstanding.
The Closed Block
The Closed Block was established on June 30, 1996. Insurance policies
which had a dividend scale in effect as of June 30, 1996 were included in the
Closed Block. The Closed Block was designed to provide reasonable assurance to
owners of insurance policies included therein that, after the Company's
reorganization, assets would be available to maintain the dividend scales and
interest credits in effect prior to the Company's reorganization if the
experience underlying such scales and credits continues.
The contribution to the operating income of the Company from the Closed
Block is reported as a single line item in the income statement. Accordingly,
premiums, product charges, investment income, realized gains or losses on
investments, policyowner benefits and dividends attributable to the Closed
Block, less certain minor expenses including amortization of deferred policy
acquisition costs, are shown as a net number under the caption the "Contribution
from the Closed Block." This results in material reductions in the respective
line items in the income statement while having no effect on net income. The
expenses associated with the administration of the policies included in the
Closed Block and the renewal commissions on these policies are not charged
against the Contribution from the Closed Block, but rather are grouped with
underwriting, acquisition and insurance expenses. Also, all assets allocated to
the Closed Block are grouped together and shown as a separate item entitled
"Closed Block Assets." Likewise, all liabilities attributable to the Closed
Block are combined and disclosed as the "Closed Block Liabilities."
<PAGE> 22
RESULTS OF OPERATIONS
NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
A summary of the Company's revenues follows:
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
--------------------- ----------------------
($ in thousands) 1998 1997 1998 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Insurance premiums
Traditional life insurance premiums $ 35,586 $ 20,218 $ 13,342 $ 7,753
Immediate annuity and
supplementary contract
premiums 25,535 13,196 9,216 4,801
Other premiums 247 108 84 40
--------- --------- --------- ---------
Total insurance premiums 61,368 33,522 22,642 12,594
Universal life product charges 34,721 33,601 11,440 10,598
Annuity product charges 19,566 731 8,595 323
--------- --------- --------- ---------
Total product charges 54,287 34,332 20,035 10,921
Net investment income 375,991 149,774 115,997 50,548
Realized gains on investments 2,390 14,510 (8,393) 4,987
Contribution from the Closed Block 24,036 21,652 7,200 8,242
--------- --------- --------- ---------
Total revenues $ 518,072 $ 253,790 $ 157,481 $ 87,292
========= ========= ========= =========
</TABLE>
Insurance premiums and product charges increased by $47.8 million, or
70.4%, for the nine months and increased by $19.2 million, or 81.7%, for the
three months ended September 30, 1998 from the same periods in 1997. Included in
the 1998 increases were $29.4 million and $12.9 million of insurance premiums
and product charges from Delta and AmVestors combined, for the nine month and
three month periods, respectively. Insurance premiums increased by $27.8 million
for the nine month period and by $10.0 million for the three month period ended
September 30, 1998, compared to the same periods ended September 30, 1997.
Included in the increased insurance premiums in 1998 were $10.8 million and $4.5
million in aggregate from Delta and AmVestors for the nine months and three
months ended September 30, 1998, respectively. Traditional life insurance
premiums increased by $15.4 million for the nine months and increased by $5.6
<PAGE> 23
million for the three months as a result of continued growth in renewal premiums
on traditional life insurance policies not included in the Closed Block (as
defined below), and increased sales in 1998 for both periods. Immediate annuity
deposits and supplementary contract premiums were $12.3 million higher for the
nine months and $4.4 million higher for the three months ended September 30,
1998 compared to the same periods in 1997, with $10.4 million and $4.4 million
in aggregate from Delta and AmVestors included in the 1998 nine month and three
month periods, respectively. The increased premiums, exclusive of Delta and
AmVestors, for the nine month period were primarily due to higher sales of
immediate annuities.
Universal life product charges increased by $1.1 million and by $.8
million for the nine months and three months ended September 30, 1998,
respectively, in large part due to increased cost of insurance charges primarily
as a result of the normal aging of the block of business.
Annuity product charges increased by $18.8 million and by $8.3 million
for the nine months and three months ended September 30, 1998, respectively, due
to the inclusion of $18.5 million and $8.3 million of annuity product charges in
aggregate from Delta and AmVestors for the 1998 nine month and three month
periods, respectively.
Net investment income increased by $226.2 million for the nine months
and increased by $65.4 million for the three months ended September 30, 1998
from the same periods in 1997. These increases resulted from the additional
investment income generated by Delta and AmVestors of $241.0 and $78.1 million,
on a combined basis, for the nine and three month periods ended September 30,
1998, respectively. The impact of the acquisitions was partially offset by
decreases in net investment income at AmerUs Life due to a decrease in average
invested assets (excluding market value adjustments and the Closed Block) and
lower investment yields during the respective periods. Average invested assets
at AmerUs Life as of September 30, 1998 decreased by approximately $111 million
from year end 1997. The decrease in average invested assets was primarily due to
the continued decline in deferred annuity reserves at AmerUs Life as
substantially all new sales of deferred annuities are made through Ameritas
Variable Life Insurance Company. Investment yields at AmerUs Life declined from
7.13% for the nine months ended September 30, 1997 to 6.82% for the nine months
ended September 30, 1998. The decline in value on hedge funds and long-term
private partnership investments accounted for 36 basis points of the decline. In
the absence of the decline in value of these alternative investments, the
investment yield of the core portfolio would have increased 5 basis points to
7.18%.
Net investment income included a decline in value from hedge funds and
long-term investment partnerships of $5.9 million and $9.5 million for the nine
months and three months ended September 30, 1998, respectively. Partially
offsetting these declines were call premiums of $3.6 million and $1.3 million
for the nine month and three month periods ending September 30, 1998,
respectively.
<PAGE> 24
Realized gains on investments were $2.4 million for the first nine
months of 1998 with realized (losses) of $8.4 million for the third quarter of
1998, compared to realized gains of $14.5 million and $5.0 million, for the nine
months and three months ended September 30, 1997, respectively. The third
quarter 1998 realized losses were the result of a $6.6 million loss from the
liquidation of certain emerging market investments and an increase of $1.0
million in the allowance for losses on mortgage loans. Unrealized gains on the
portfolio increased by more than $40 million to a total of $214.5 million during
the third quarter of 1998. Gains on the convertible debt securities considered
to be a part of core operating earnings were $7.9 million and $2.4 million for
the nine months and three months ended September 30, 1998, respectively.
The level of realized gains is subject to fluctuation from period to
period depending on the prevailing interest rate and economic environment and
the timing of the sale of investments.
The Contribution from the Closed Block was $24.0 million and $7.2
million for the nine months and three months ended September 30, 1998,
respectively. The following table sets forth the operating results of the Closed
Block for the periods indicated.
<TABLE>
<CAPTION>
For the Nine For the Three
Months Ended Months Ended
September 30, September 30,
--------------------- -----------------------
($ in thousands) 1998 1997 1998 1997
---------- --------- --------- -----------
<S> <C> <C> <C> <C>
Revenues
Insurance premiums $ 147,250 $ 153,610 $ 47,318 $ 48,616
Product charges 10,531 10,762 3,265 3,878
Net investment income 87,486 81,384 30,147 27,106
Realized gains (losses)
on investments 8,587 (192) 410 797
--------- --------- --------- ---------
Total revenues $ 253,854 $ 245,564 $ 81,140 $ 80,397
Benefits and expenses
Policyowner benefits 147,988 155,116 48,616 49,857
Underwriting, acquisition and
insurance expenses 4,195 4,096 1,309 1,275
Amortization of deferred policy
costs 20,598 20,357 7,780 6,246
Dividends to policyowners 57,037 44,343 16,235 14,777
--------- --------- --------- ---------
Total benefits and expenses 229,818 223,912 73,940 72,155
--------- --------- --------- ---------
Contribution from the Closed Block $ 24,036 $ 21,652 $ 7,200 $ 8,242
========= ========= ========= =========
</TABLE>
<PAGE> 25
Closed Block insurance premiums decreased by $6.4 million for the nine
months and by $1.3 million for the three months ended September 30, 1998. The
decrease in insurance premiums is consistent with the reduction of the Closed
Block's life insurance in force that is expected to continue over the life of
the block. Net investment income for the Closed Block increased by $6.1 million
for the nine months and by $3.0 million for the three months ended September 30,
1998 due primarily to an increase in average invested assets (excluding market
value adjustments).
Realized gains on investments of the Closed Block were $8.8 million
higher for the nine months and $0.4 million lower for the three months ended
September 30, 1998 as compared to the same periods in 1997. The level of
realized gains is subject to fluctuation from period to period depending on the
prevailing interest rate and economic environment and the timing of the sale of
investments.
Closed Block policyowner benefits decreased by $7.1 million and $1.2
million for the nine months and three months ended September 30, 1998,
respectively, primarily due to the reduction of life reserves which is
consistent with the reduction of the Closed Block's life insurance in force that
is expected over the life of the block. The amortization of deferred policy
acquisition costs for the Closed Block increased by $0.2 million for the nine
months and increased by $1.5 million for the three months ended September 30,
1998. Deferred policy acquisition costs are generally amortized in proportion to
gross margins, including realized capitalized gains. Increased gross margins in
the Closed Block in 1998 for both the nine month and three month periods
resulted in increased amortization of deferred policy acquisition costs in 1998.
Closed Block dividends to policyowners increased by $12.7 million for
the nine months and by $1.5 million for the three months ended September 30,
1998. The increase for the nine month period was primarily due to the increase
in the deferred dividend liability resulting from increased realized capital
gains and lower policyowner benefits during the period, while the increase for
the three month period was primarily due to the normal aging of the block of
business.
<PAGE> 26
A summary of the Company's policyowner benefits follows:
<TABLE>
<CAPTION>
For the Nine For the Three
Months Ended Months Ended
September 30, September 30,
--------------------- -----------------------
($ in thousands) 1998 1997 1998 1997
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Traditional life insurance
Death benefits $ 2,643 $ 1,032 $ 1,603 $ 333
Change in liability for
future policy benefits
and other policy
benefits 23,130 14,555 8,842 4,854
--------- --------- --------- ---------
Total traditional life
insurance benefits 25,773 15,587 10,445 5,187
Universal life insurance
Death benefits in excess of
cash value 12,582 14,284 4,906 4,189
Interest credited on policyowner
account balances 26,534 24,623 8,962 7,938
Other policy benefits 2,122 2,417 (116) 795
--------- --------- --------- ---------
Total universal life
insurance benefits 41,238 41,324 13,752 12,922
Annuities
Interest credited to deferred
annuity account balances 220,292 45,281 72,979 14,756
Other annuity benefits 46,204 27,078 17,977 9,842
--------- --------- --------- ---------
Total annuity benefits 266,496 72,359 90,956 24,598
Miscellaneous benefits 1,083 446 151 11
--------- --------- --------- ---------
Total policyowner benefits $ 334,590 $ 129,716 $ 115,304 $ 42,718
========= ========= ========= =========
</TABLE>
Total policyowner benefits increased by $204.9 million for the nine
months and increased by $72.6 million for the three months ended September 30,
1998 from the same periods in 1997. Included in policyowner benefits were $200.7
million for the nine months and $69.3 million for the three months in the
aggregate from Delta and AmVestors primarily consisting of interest credited to
deferred annuity account balances. Traditional life insurance benefits increased
by $10.2 million for the nine month period and increased by $5.3 million for the
three month period primarily due to the continued growth of traditional life
insurance business in force not included in the Closed Block.
Universal life insurance benefits decreased by $0.1 million for the
nine months ended September 30, 1998 from the same period in 1997 primarily as a
<PAGE> 27
result of decreased death benefits as a result of lower mortality, largely
offset by increased interest credited on account values. Universal life
insurance benefits increased by $0.8 million for the three months ended
September 30, 1998 from the same period in 1997 primarily as a result of
increased death benefits as a result of higher mortality.
Annuity benefits increased by $194.1 million for the nine months and by
$66.4 million for the three months ended September 30, 1998 from the same
periods in 1997. Included in the nine month and three month 1998 amounts were
$198.2 million and $68.7 million, respectively, of aggregate annuity benefits
for Delta and AmVestors. In the aggregate, interest rates being credited to all
annuity portfolios within the Company have decreased 17 basis points from year
end 1997. The annuity portfolios have decreased from $6.13 billion in account
value at December 31, 1997 to $6.12 billion at September 30, 1998. The increase
in other annuity benefits for the nine months and three months ended September
30, 1998 from the same periods in 1997 is primarily due to the inclusion of
Delta's and AmVestors' activity related to immediate annuity and supplementary
contract business.
A summary of the Company's expenses follows:
<TABLE>
<CAPTION>
For the Nine For the Three
Months Ended Months Ended
September 30, September 30,
----------------------- -----------------------
($ in thousands) 1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commission expense, net of
deferrals $ 7,927 $ 6,415 $ 2,340 $ 2,334
Other underwriting, acquisition and
insurance expenses, net of
deferrals 48,253 29,099 15,391 10,742
Amortization of deferred policy
acquisition costs on policies
purchased or produced 38,848 16,767 8,160 5,794
---------- ---------- ---------- ----------
Total expenses $ 95,028 $ 52,281 $ 25,891 $ 18,870
========== ========== ========== ==========
</TABLE>
Commission expense, net of deferrals increased by $1.5 million for the
nine months and was level for the three months ended September 30, 1998 compared
to the same periods a year ago. Included in the 1998 amounts were $1.0 million
for the nine month period and $0.4 million for the three month period of
commission in aggregate from Delta and AmVestors.
<PAGE> 28
Other underwriting, acquisition and insurance expenses, net of
deferrals, increased by $19.2 million and $4.6 million for the nine months and
three months ended September 30, 1998, respectively. Expenses exclusive of Delta
and AmVestors were $0.2 million higher for the nine months and $1.1 million
lower for the three months ended September 30, 1998. Lower employee benefit and
postretirement costs along with higher consulting in the third quarter of 1997,
were responsible for the favorable expense results in 1998. These lower expenses
were partially offset by Year 2000 initiatives and the establishment of a $1.2
million litigation reserve for a proposed settlement of a class action lawsuit.
See Part II, Item 1. Legal Matters for a discussion of this proposed settlement.
The amortization of deferred policy acquisition costs on policies
purchased or produced increased by $22.1 million for the nine months and
increased by $2.4 million for the three months ended September 30, 1998, from
the same periods in 1997. Included in the 1998 amounts were $23.4 million for
the nine months and $8.5 million for the three months ended September 30, 1998,
including amortization of policies purchased of $21.9 million and $7.9 million
for the respective periods, for Delta and AmVestors combined. Deferred policy
acquisition costs are generally amortized in proportion to gross margins,
including realized capital gains or losses. For the three months ended September
30, 1998, reduced gross margins at AmerUs Life due to lower realized capital
gains, lower investment margins, and lower mortality margins resulted in reduced
amortizations in 1998 for the quarter, largely offsetting the higher
amortizations in 1998 reflected through the first six months.
Income from operations increased by $15.9 million to $86.8 million for
the nine months and decreased by $9.7 million to $15.4 million for the three
months ended September 30, 1998, respectively, with the acquisitions of Delta
and AmVestors resulting in a $33.1 million and $8.3 million increase for the
respective periods in 1998. Reduced investment income and realized losses were
primarily responsible for the decrease in income from operations, exclusive of
Delta and AmVestors for the nine months and for the three months ended September
30,1998 compared to the same periods a year ago. Excluding Delta and AmVestors,
realized gains through nine months of 1997 were $14.5 million compared to
realized losses of $4.6 million for the first nine months of 1998. Realized
gains for the three month period ended September 30,1997 were $5.0 million
compared to realized losses of $9.8 million for the third quarter of 1998.
Interest expense increased by $10.7 million to $19.6 million for the
nine months and by $4.0 million to $7.0 million for the three months ended
September 30, 1998. The increased interest expense in both periods was primarily
due to increased debt levels resulting from the 1997 fourth quarter acquisitions
of Delta and AmVestors.
<PAGE> 29
Income tax expense increased by $1.6 million to $19.3 million for the
nine months and decreased by $4.2 million for the three months ended September
30, 1998 as compared to the same periods in 1997. The effective tax rate for the
nine month period of 1998 was 28.7% compared to 28.5% for the same period in
1997. The favorable effective tax rate is due to tax credits generated on
affordable housing and historic rehabilitation investments. Tax credits were
$3.8 million and $.9 million for the nine months and three months ended
September 30, 1998, respectively.
Net income increased by $4.0 million to $49.5 million for the nine
months and decreased by $9.6 million to $6.9 million for the three months ended
September 30, 1998 compared to the same periods in 1997, with the acquisitions
of Delta and AmVestors adding $21.8 million and $5.5 million in the 1998
respective periods. Net income exclusive of Delta and AmVestors decreased for
the nine months and three months ended September 30, 1998 due to lower realized
gains, lower investment earnings and higher interest expense than for the same
periods in 1997.
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
THE COMPANY
The Company's cash flows from operations consist of dividends from
subsidiaries, if declared and paid, interest income on loans and advances to its
subsidiaries (including a surplus note issued to the Company by AmerUs Life),
investment income on assets held by the Company and fees which the Company
charges its subsidiaries and certain other of its affiliates for management
services, offset by the expenses incurred for debt service, salaries and other
expenses.
The Company intends to rely primarily on dividends and interest income from
its life insurance subsidiaries in order to make dividend payments to its
shareholders. The payment of dividends by its life insurance subsidiaries is
regulated under various state laws. Under Iowa law, AmerUs Life and Delta Life
and Annuity Company ("Delta Life") may pay dividends only from the earned
surplus arising from their respective businesses and must receive the prior
approval of the Iowa Commissioner to pay any dividend that would exceed certain
statutory limitations. The current statutory limitation is the greater of (i)
10% of the respective company's policyowners' surplus as of the preceding year
end or (ii) the net gain from operations for the previous calendar year. Iowa
law gives the Iowa Commissioner broad discretion to disapprove requests for
dividends in excess of these limits. Based on this limitation and 1997 results,
AmerUs Life and Delta Life would be able to pay approximately $58 million and $8
million, respectively, in dividends in 1998 without obtaining the Iowa
Commissioner's approval. The payment of dividends by American Investors Life
Insurance Company, Inc. ("American") and Financial Benefit Life Insurance
Company ("FBL") (together "AmVestors' Subsidiaries") is regulated under Kansas
law, which has statutory limitations similar to those in place in Iowa. During
the first nine months of 1998, AmerUs Life paid the Company $40 million in
dividends. In July 1998, AmVestors Subsidiaries paid $27.3 million in dividends.
Based upon the cumulative limitations, the Company's subsidiaries could pay an
estimated $26 million in additional dividends in 1998 without obtaining
regulatory approval.
On October 23, 1997, the Company entered into a $250 million revolving
credit facility with a syndicate of lenders (the "Bank Credit Facility") to be
used to replace its then existing revolving credit facility, to finance the
acquisition of Delta, to finance permitted mergers and acquisitions and for
other general corporate purposes. The Bank Credit Facility was secured by a
<PAGE> 31
pledge of approximately 49.9% of the outstanding common stock of AmerUs Life,
100% of the outstanding common stock of Delta and a $50 million 9% surplus note
payable to the Company by AmerUs Life. The Company completed a $125 million
senior note offering in June 1998, of which the proceeds were utilized to pay
down the revolving credit facility. As a result, the commitment under the
facility was reduced to $150 million and all collateral was released. As of
September 30, 1998, there was no outstanding loan balance under the facility.
The Bank Credit Facility provides for typical events of default and covenants
with respect to the conduct of the business of the Company and its subsidiaries
and requires the maintenance of various financial levels and ratios. Among other
covenants, the Company (a) cannot have a leverage ratio greater than 0.35:1.0 or
an interest coverage ratio less than 2.5:1.0, (b) is prohibited from paying cash
dividends on its common stock in excess of an amount equal to 3% of its
consolidated net worth as of the last day of the preceding fiscal year, and (c)
must cause certain of its life insurance subsidiaries to maintain certain
ratings from A.M. Best and certain levels of adjusted capital and surplus and
risk-based capital.
The Company may from time to time review other potential acquisition
opportunities. The Company anticipates that funding for any such acquisition may
be provided from available cash resources, from debt or equity financing or
stock-for-stock acquisitions. In the future, the Company anticipates that its
liquidity and capital needs will be met through interest and dividends from its
life insurance subsidiaries, accessing the public equity and debt markets
depending upon market conditions, or alternatively from bank financing.
During the third quarter of 1998, the Company purchased 2,711,000
shares of common stock for the treasury for a total cost of $74.9 million.
LIFE INSURANCE SUBSIDIARIES
The cash flows of the Company's life insurance subsidiaries consist
primarily of premium income, deposits to policyowner account balances, income
from investments, sales, maturities and calls of investments and repayments of
investment principal. Cash outflows are primarily related to withdrawals of
policyowner account balances, investment purchases, payment of policy
acquisition costs, payment of policyowner benefits, income taxes and current
operating expenses. Life insurance companies generally produce a positive cash
flow from operations, as measured by the amount by which cash flows are adequate
to meet benefit obligations to policyowners and normal operating expenses as
they are incurred. The remaining cash flow is generally used to increase the
asset base to provide funds to meet the need for future policy benefit payments
and for writing new business.
<PAGE> 32
Management anticipates that funds to meet its short-term and long-term
capital expenditures, cash dividends to shareholders and operating cash needs
will come from existing capital and internally generated funds. Management
believes that the current level of cash and available-for-sale and short-term
securities, combined with expected net cash inflows from operations, maturities
of fixed maturity investments, principal payments on mortgage-backed securities
and its insurance products, will be adequate to meet the anticipated short-term
cash obligations of the Company's life insurance subsidiaries.
The Company and its subsidiaries generated cash flows from operating
activities of $357.8 million and $143.9 million for the nine months ended
September 30, 1998 and 1997, respectively. Excess operating cash flows were
primarily used to increase the Company's fixed maturity investment portfolio.
Matching the investment portfolio maturities to the cash flow demands of
the type of insurance being provided is an important consideration for each type
of life insurance product and annuity. The Company continuously monitors
benefits and surrenders to provide projections of future cash requirements. As
part of this monitoring process, the Company performs cash flow testing of its
assets and liabilities under various scenarios to evaluate the adequacy of
reserves. In developing its investment strategy, the Company establishes a level
of cash and securities which, combined with expected net cash inflows from
operations, maturities of fixed maturity investments and principal payments on
mortgage-backed securities, are believed adequate to meet anticipated short-term
and long-term benefit and expense payment obligations. There can be no assurance
that future experience regarding benefits and surrenders will be similar to
historic experience since withdrawal and surrender levels are influenced by such
factors as the interest rate environment and the claims-paying and financial
strength ratings of the Company's life insurance subsidiaries.
The Company takes into account asset-liability management considerations in
the product development and design process. Contract terms for the Company's
interest-sensitive products include surrender and withdrawal provisions which
mitigate the risk of losses due to early withdrawals. These provisions generally
do one or more of the following: limit the amount of penalty-free withdrawals,
limit the circumstances under which withdrawals are permitted, or assess a
surrender charge or market value adjustment relating to the underlying assets.
The following table summarizes liabilities for interest-sensitive life products
and annuities by their contractual withdrawal provisions at September 30, 1998
(dollars in millions):
<PAGE> 33
<TABLE>
<S> <C>
Not subject to discretionary withdrawal $ 367.2
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (A) 4,041.0
Market value adjustments 1,263.5
----------
Subtotal 5,304.5
----------
Subject to discretionary withdrawal without adjustments 1,387.9
----------
Total $ 7,059.6
==========
</TABLE>
(A) Includes $1,299.9 million of liabilities with a contractual surrender
charge of less than five percent of the account balance.
Through its membership in the Federal Home Loan Bank ("FHLB") of Des
Moines, AmerUs Life is eligible to borrow on a line of credit available to
provide it additional liquidity. Interest is payable at a current rate at the
time of any advance. As of September 30, 1998, AmerUs Life had a $25.0 million
open secured line of credit against which there were no borrowings. In addition
to the line of credit, AmerUs Life has long-term advances from the FHLB
outstanding of $16.1 million at September 30, 1998.
The Company's life insurance subsidiaries may also obtain liquidity through
sales of investments or borrowings collateralized by their investment
portfolios. The Company's investment portfolio as of September 30, 1998 had a
carrying value of $8.9 billion, including Closed Block investments. As of
September 30, 1998, fixed maturity securities were $7.6 billion, or 85.4% of
invested assets, with public and private fixed maturity securities constituting
$7.2 billion, or 94.7%, and $399.2 million, or 5.3%, of total fixed maturity
securities, respectively.
At September 30, 1998, the statutory surplus of AmerUs Life, Delta Life,
American and FBL were approximately $278.6 million, $86.3 million, $103.7
million and $29.7 million, respectively. The Company believes that these levels
of statutory capital are more than adequate as each life insurance subsidiary's
risk-based capital is significantly in excess of required levels.
In the future, in addition to their cash flows from operations and
borrowing capacity, the life insurance subsidiaries would anticipate obtaining
their required capital from the Company as the Company will have access to the
public debt and equity markets.
<PAGE> 34
The Company does not believe that inflation has had a material effect
on its consolidated results of operations.
Interest rate changes may have temporary effects on the sale and
profitability of the annuities and life insurance products offered by the
Company. For example, if interest rates rise, competing investments (such as
annuities or life insurance products offered by the Company's competitors,
certificates of deposit, mutual funds, and similar instruments) may become more
attractive to potential purchasers of the Company's products until the Company
increases the interest rate credited to owners of its annuities and life
insurance products. In contrast, as interest rates fall, the Company attempts to
adjust its credited rates to compensate for the corresponding decline in
reinvestment rates. The Company monitors interest rates and sells annuities and
life insurance policies that permit flexibility to make interest rate changes as
part of its management of interest spreads. However, the profitability of the
Company's products is based upon persistency, mortality and expenses, as well as
interest rate spreads.
The Company manages its investment portfolio in part to reduce its
exposure to interest rate fluctuations. In general, the market value of its
fixed maturity portfolio increases or decreases in an inverse relationship with
fluctuations in interest rates, and net investment income increases or decreases
in a direct relationship with interest rate changes.
The Company has developed an asset/liability management approach with
separate investment portfolios for major product lines such as traditional life,
universal life and annuities. Investment policies and strategies have been
established based on the specific characteristics of each product line. The
portfolio investment policies and strategies establish asset duration, quality
and other guidelines. The Company utilizes analytical systems to establish an
optimal asset mix for each line of business. The Company seeks to manage the
asset/liability mismatch and the associated interest rate risk through active
management of the investment portfolio. Financial, actuarial, investment,
product development and product marketing professionals work together throughout
the product development, introduction and management phases to jointly develop
and implement product features, initial and renewal crediting strategies, and
investment strategies based on extensive modeling of a variety of factors under
a number of interest rate scenarios.
Inforce reserves and the assets allocated to each segment are modeled
on a regular basis to analyze projected cash flows under a variety of economic
scenarios. The result of this modeling is used to modify asset allocation,
investment portfolio duration and convexity and renewal crediting strategies.
The Company invests in CMOs as part of its basic portfolio strategy, but uses
other types of derivatives only as a hedge against the effects of interest rate
fluctuations or to synthetically alter the investment characteristics of
specific assets.
<PAGE> 35
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate the date value "2000." Many existing application software products
were designed to accommodate only a two digit date position which represents the
year (e.g., the number "95" is stored on the system and represents the year
1995). As a result, the year 1999 (i.e., "99") is the maximum date value many
information technology ("IT") systems will be able to process accurately.
The Company formed a year 2000 working group to address potential
problems posed by this development to assure that the Company is prepared for
the year 2000. The Company's overall year 2000 compliance initiatives include
the following components: (i) assessment of all business critical systems
(business critical systems includes computer and embedded systems); processes
and external interfaces and dependencies; (ii) remediation or upgrading of
business critical systems; (iii) testing of both modified and updated systems as
well as integrated systems testing; (iv) implementation of modified and updated
systems; and (v) contingency planning.
The Company has made significant progress in accomplishing the
necessary modifications and conversions to deal with Year 2000 issues. The Year
2000 Project has four main components: IT Systems, Non-IT Systems, Business
Partners and Contingency Planning.
The IT Systems Project has been organized into three phases as follows:
inventory, remediation/replacement and integrated testing. The inventory phase
is complete. Because mainframe systems are a major part of our Year 2000
Project, work on these systems began in 1996. Mainframe remediation efforts are
more than 75% complete, and this work is scheduled for completion in the first
quarter of 1999. Work on personal computer and network systems began in early
1998, and the remediation/replacement phase for these systems is about 50%
complete. This work is scheduled for completion in the second quarter of 1999.
The Company has been testing individual systems as part of its remediation
effort, and is planning to begin full system integration testing in the fourth
quarter of 1998. Completion is scheduled for the end of the second quarter of
1999.
Non-IT Systems include administrative systems such as faxes and phone
systems. Facilities also contain non-IT systems such as elevators, heating and
cooling systems and security systems. Work on these embedded systems began in
1998; this project is more than 50% complete. The scheduled completion date is
the second quarter of 1999.
All entities with which the Company does business are part of the
Business Partners component of the Year 2000 Project. The Company has completed
an inventory of business partners, and has identified the significance of
various partners to the Company's business. Correspondence has been initiated
with business partners to ascertain their Year 2000 readiness, and plans are
being made for actions to be taken based on responses received. These actions
<PAGE> 36
will vary depending on the level of significance each business partner has to
the Company and its subsidiaries. This project is scheduled for completion in
the second or third quarter of 1999.
Despite efforts to address all Year 2000 needs in a timely and
effective manner, there are risks that the time frames set forth above may not
be met and that some Year 2000 effects may cause operational difficulties for
the Company. Some causes of these risks are the potential for unanticipated
complications in making Year 2000 modifications, the possibility of oversights
in the remediation process, and the difficulty of hiring and retaining IT
personnel in the current business environment. While the Company does not expect
any such operational difficulties to be material, the potential for these
occurrences cannot be fully assessed at this time. For these reasons, the
Company is in the process of developing contingency plans to cover the risk of
non-compliance due to Year 2000 failures in Company systems or those of its
business partners. Contingency Planning will include an identification of
critical business processes and development of alternative methods of carrying
them out in the event of any system failure. This effort is scheduled for
completion in the third quarter of 1999.
During the second quarter of 1998 the Company engaged an independent IT
consulting firm to review its Year 2000 Project plans, priorities and processes.
This review considered the Company's efforts as compared to industry "best
practices." This review verified the appropriateness of the Company's Year 2000
Project and provided additional direction for its continuation.
Total estimated costs associated with Year 2000 modifications and
conversions are in a range of $5 to $7 million. These costs are expensed as
incurred. Through September 30, 1998, the Company has incurred $2.5 million in
Year 2000 expenses to date, and $2.8 million since the beginning of the Year
2000 Project.
<PAGE> 37
PART II - OTHER INFORMATION
ITEM 1. LEGAL MATTERS.
The Company, AmerUs Life and their direct and indirect majority
shareholders AmerUs Group and American Mutual Holding Company ("collectively
"AmerUs"), are defendants in a class action lawsuit, Bhat v. AmerUs Life
Insurance Company, which was filed in December 1996 in the United States
District Court for the Northern District of California. The complaint, as
amended in 1998, alleges that the defendants breached the terms of certain
universal life policies, breached certain other duties owed to policyowners
and violated RICO in setting their cost of insurance rates and credited
interest rates. These allegations include a claim that the defendants passed
an increase in corporate income taxes (known as the deferred acquisition
cost, or DAC, tax) through to owners of those policies. The plaintiff, an
insured under a universal life policy issued by AmerUs Life, seeks unspecified
actual and punitive damages and injunctive relief on behalf of himself and all
similarly situated policyowners of AmerUs Life with universal life insurance
policies. AmerUs denies the allegations contained in the complaint, including
the existence of a legitimate class. An earlier companion case filed in the
same court in June 1996 was dismissed in October 1997. This litigation has
been vigorously defended by AmerUs Life.
The parties have engaged in settlement negotiations and have agreed to
a nationwide class settlement of certain contract and related issues for a
substantial block of the Company's life insurance policies. A final definitive
agreement has not been reached, and certain issues remain unresolved. Even if
such an agreement is reached, the court will have to approve its terms. Should
a settlement satisfactory to the Company not be reached or not be approved,
the Company would continue to vigorously defend against the claims asserted.
Due to the potential that a settlement may be reached in this case, the
Company has incurred a charge to income for the first nine months of 1998.
Based upon its current estimates of the costs associated with the settlement,
the Company has established a reserve of $1.2 million.
In recent years, numerous life insurance companies have been named as
defendants in class action lawsuits related to life insurance pricing and
sales practices. A number of these lawsuits have resulted in substantial
settlements. In September 1998, AmerUs Life was named as a defendant in
another such purported class action lawsuit asserting claims related to
pricing practices on a substantial block of its policies. Given the uncertain
nature of litigation, the early stage of this litigation and the limited
amount of current information, the outcome of this action cannot be predicted
with certainty at this time. However, AmerUs Life believes that the claim is
without merit and that in any case the ultimate outcome of this litigation
will not be material.
<PAGE> 38
Despite the Company's vigorous defense of these class action lawsuits
or other future proceedings and its denial of any wrongdoing, there can be no
assurance that the outcome of this type of lawsuit will not have a material
adverse effect on the Company's results of operations.
In the ordinary course of business, the Company and its subsidiaries
are also engaged in certain other litigation, none of which management
believes is material to the Company's results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits included as part of this report is set forth in the
Exhibit Index which immediately precedes such exhibits and is hereby
incorporated by reference herein.
(b) The following report on Form 8-K was filed during the quarter ended
September 30, 1998:
(i) None.
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATED: November 12, 1998 AMERUS LIFE HOLDINGS, INC.
By /s/ Roger K. Brooks
--------------------------------
Chairman, President and Chief
Executive Officer
By /s/ Michael G. Fraizer
--------------------------------
Senior Vice President -
Controller and Treasurer
(Principal Accounting Officer)
<PAGE> 40
AMERUS LIFE HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
10.72 Consent dated as of May 20, 1998 to the Credit Agreement
dated as of October 23, 1997 among the Registrant, Various
Lender Institutions, the Co-Arrangers and The Chase
Manhattan Bank, as Administrative Agent.
10.73 First Amendment dated as of May 30, 1997 to the Credit
Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase
Manhattan Bank, as Administrative Agent.
10.74 Second Amendment dated as of June 22, 1998 to the Credit
Agreement dated as of October 23, 1997 among the Registrant,
Various Lender Institutions, the Co-Arrangers and The Chase
Manhattan Bank, as Administrative Agent.
10.75 Second Consent and Amendment dated as of October 2, 1998 to
the Credit Agreement dated as of October 23, 1997 among the
Registrant, Various Lender Institutions, the Co-Arrangers
and The Chase Manhattan Bank, as Administrative Agent.
10.76 MIP Deferral Plan dated as of September 1, 1998.
11 Computation of Earnings per Share.
27 Financial Data Schedule.
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and therefore
have been omitted.
<PAGE> 1
EXHIBIT 10.72
CONSENT TO CREDIT AGREEMENT
CONSENT (this "Consent"), dated as of May 20, 1998, among AMERUS LIFE
HOLDINGS, INC., an Iowa corporation (the "Borrower"), the various Banks from
time to time party to the Credit Agreement referred to below, BANK ONE, INDIANA,
NA and ABN AMRO BANK, N.V., as Co-Arrangers, and THE CHASE MANHATTAN BANK, as
Administrative Agent. All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings provided such terms in the
Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks, the Co-Arrangers and the Administrative
Agent are parties to a Credit Agreement, dated as of October 23, 1997 (as
amended, modified or supplemented to the date hereof, the "Credit Agreement");
WHEREAS, the Borrower desires to repurchase a certain amount of publicly
held shares of its Class A Common Stock in connection with one or more Trust
Preferred Offerings and/or the issuance of Permitted Subordinated Debt
Securities, and such repurchase is not otherwise allowable under the Credit
Agreement;
WHEREAS, subject to the terms and conditions set forth herein, the Banks
desire to permit the Borrower to repurchase such shares; and
WHEREAS, subject to the terms and conditions set forth below, the parties
hereto agree as follows.
NOW, THEREFORE, it is agreed:
1. Notwithstanding anything to the contrary contained in Sections 7.02 or
7.07 of the Credit Agreement, during the fiscal year ended December 31, 1998,
the Borrower may purchase up to a maximum amount of $75,000,000 of publicly held
shares of its Class A Common Stock so long as it has, at the time of any such
purchase, received net proceeds from Trust Preferred Offerings and/or the
issuance of Permitted Subordinated Debt Securities in an amount equal to or
greater than the aggregate purchase price for all shares purchased or to be
purchased pursuant to this paragraph 1 on or prior to such date; provided, that
(x) the Borrower may purchase in the aggregate not more than $20,000,000 of such
shares in anticipation of any such Trust Preferred Offering or issuance of any
such Permitted Subordinated Debt Securities without having received the proceeds
thereof as required above, and (y) 50% of all proceeds received from any such
issuances of Permitted Subordinated Debt Securities are applied as a mandatory
prepayment as required by Section 2.03(c) of the Credit Agreement.
2. In order to induce the Banks to enter into this Consent, the Borrower
hereby represents and warrants that (i) all representations and warranties
contained in Section 5 of the Credit Agreement are true and correct in all
material respects on and as of the Consent Effective Date (as defined below),
both before and after giving effect to the Consent (unless such
<PAGE> 2
representations and warranties relate to a specific earlier date, in which case
such representations and warranties shall be true and correct as of such earlier
date) and (ii) there exists no Default or Event of Default on the Consent
Effective Date, both before and after giving effect to this Consent.
3. This Consent is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
4. This Consent may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Borrower and the Administrative Agent.
5. THIS CONSENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.
6. This Consent shall become effective on the date (the "Consent Effective
Date") when each Credit Party and the Required Banks shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of facsimile transmission) the same to the
Administrative Agent at its Notice Office.
7. From and after the Consent Effective Date, all references in the Credit
Agreement and each of the Credit Documents to the Credit Agreement shall be
deemed to be references to the Credit Agreement as amended hereby.
* * *
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of this
Consent to be duly executed and delivered as of the date first above written.
AMERUS LIFE HOLDINGS, INC.
By
------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
Individually and as Administrative
Agent
By /s/ Peter Platten
------------------------------------
Name: Peter Platten
Title: Vice President
BANK ONE, INDIANA, NA, Individually
and as a Co-Arranger
By
------------------------------------
Name:
Title:
ABN AMRO BANK N.V., Individually and
as a Co-Arranger
By
------------------------------------
Name:
Title:
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of this
Consent to be duly executed and delivered as of the date first above written.
AMERUS LIFE HOLDINGS, INC.
By
------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
Individually and as Administrative
Agent
By
------------------------------------
Name:
Title:
BANK ONE, INDIANA, NA, Individually
and as a Co-Arranger
By /s/ William I. Deeck
------------------------------------
Name: William I. Deeck
Title: Senior Vice President
ABN AMRO BANK N.V., Individually and
as a Co-Arranger
By
------------------------------------
Name:
Title:
<PAGE> 5
BANK OF MONTREAL
By /s/ John T. Mead, Jr.
------------------------------------
Name: John T. Mead, Jr.
Title: Director
BANK OF TOKYO MITSUBISHI TRUST COMPANY
By
------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By
------------------------------------
Name:
Title:
CIBC INC.
By
------------------------------------
Name:
Title:
<PAGE> 6
BANK OF MONTREAL
By
------------------------------------
Name:
Title:
BANK OF TOKYO MITSUBISHI TRUST COMPANY
By
------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By /s/ Arnaud Collin du Bocage
------------------------------------
Name: Arnaud Collin du Bocage
Title: Executive Vice President
and General Manager
CIBC INC.
By
------------------------------------
Name:
Title:
<PAGE> 7
BANK OF MONTREAL
By
------------------------------------
Name:
Title:
BANK OF TOKYO MITSUBISHI TRUST COMPANY
By
------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By
------------------------------------
Name:
Title:
CIBC INC.
By /s/ Gerald Girardi
------------------------------------
Name: Gerald Girardi
Title: Executive Director
CIBC Oppenheimer Corp. AS AGENT
<PAGE> 8
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH
By /s/ Robert P. Donahue
------------------------------------
Name: Robert P. Donahue
Title: Vice President
By /s/ George T. Ferguson, IV
------------------------------------
Name: George T. Ferguson, IV
Title: Assistant Vice President
FIRST UNION NATIONAL BANK
By
------------------------------------
Name:
Title:
FLEET NATIONAL BANK
By
------------------------------------
Name:
Title:
MELLON BANK, N.A.
By
------------------------------------
Name:
Title:
<PAGE> 9
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH
By
------------------------------------
Name:
Title:
By
------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By /s/ George Woolsey
------------------------------------
Name: George Woolsey
Title: Vice President
FLEET NATIONAL BANK
By
------------------------------------
Name:
Title:
MELLON BANK, N.A.
By
------------------------------------
Name:
Title:
<PAGE> 10
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH
By
------------------------------------
Name:
Title:
By
------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By
------------------------------------
Name:
Title:
FLEET NATIONAL BANK
By /s/ David A. Bosselait
------------------------------------
Name: David A. Bosselait
Title: Vice President
MELLON BANK, N.A.
By
------------------------------------
Name:
Title:
<PAGE> 11
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH
By
------------------------------------
Name:
Title:
By
------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By
------------------------------------
Name:
Title:
FLEET NATIONAL BANK
By
------------------------------------
Name:
Title:
MELLON BANK, N.A.
By /s/ Susan M. Whitewood
------------------------------------
Name: Susan M. Whitewood
Title: Vice President
<PAGE> 12
NATIONSBANK OF TEXAS, N.A.
By /s/ D. Keith Thompson
------------------------------------
Name: D. Keith Thompson
Title: Vice President
NORWEST BANK IOWA, NATIONAL
ASSOCIATION
By
------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By
------------------------------------
Name:
Title:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By
------------------------------------
Name:
Title:
<PAGE> 13
NATIONSBANK OF TEXAS, N.A.
By
------------------------------------
Name:
Title:
NORWEST BANK IOWA, NATIONAL
ASSOCIATION
By /s/ Diane S. Ramsey
------------------------------------
Name: Diane S. Ramsey
Title: Vice President
ROYAL BANK OF CANADA
By
------------------------------------
Name:
Title:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By
------------------------------------
Name:
Title:
<PAGE> 14
NATIONSBANK OF TEXAS, N.A.
By
------------------------------------
Name:
Title:
NORWEST BANK IOWA, NATIONAL
ASSOCIATION
By
------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By /s/ V. Abdelmessih
------------------------------------
Name: V. Abdelmessih
Title: Senior Account Manager
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By
------------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.73
[CONFORMED COPY]
FIRST AMENDMENT TO ALHI CREDIT AGREEMENT
FIRST AMENDMENT (the "Amendment"), dated as of May 30, 1997, among AMERUS
LIFE HOLDINGS, INC., a corporation organized under the laws of the State of
Iowa (the "Borrower"), each of the financial institutions party hereto (each a
"Bank" and, collectively, the "Banks"), and THE CHASE MANHATTAN BANK, as
Administrative Agent for the Banks (in such capacity, the "Administrative
Agent"). All capitalized terms used herein and not otherwise defined shall
have the respective meanings provided such terms in the Credit Agreement
referred to below.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Administrative Agent are parties
to a Revolving Credit and Term Loan Agreement dated as of December 11, 1996 (as
amended and modified to the date hereof, the "Credit Agreement");
WHEREAS, the parties to the Credit Agreement wish to amend the Credit
Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. The definition of "Fixed Charges" contained in Section 1.1 of the
Credit Agreement is hereby amended to read in its entirety as follows:
"Fixed Charges" means the sum of (a) all dividends paid in
respect of preferred equity of the Borrower plus (b) all interest
and principal payments on Indebtedness for Money Borrowed of the
Borrower (other than prepayments of principal on the Loans
pursuant to this Agreement).
2. In order to induce the Banks to enter into this Amendment, the
Borrower represents and warrants that (x) no Default or Event of Default exists
on the Amendment Effective Date (as defined below) after giving effect to this
Amendment and (y) each of the representations and warranties contained in
Article IV of the Credit Agreement is true and correct in all material respects
on the Amendment Effective Date (after taking into account changes permitted by
the Loan Documents) after giving effect to this Amendment (it being understood
and agreed that any representation or warranty
<PAGE> 2
which by its terms is made as of a specified date shall be required to be true
and correct in all material respects only as of such date).
3. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Loan Document.
4. This Amendment may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Administrative Agent.
5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.
6. This Amendment shall become effective on the date (the "Amendment
Effective Date") when the Borrower and the Required Banks shall have signed a
copy hereof (whether the same or different copies) and shall have delivered
(including by way of telecopier) the same to the Administrative Agent.
7. From and after the Amendment Effective Date, all references in the
Credit Agreement and each of the Loan Documents to the Credit Agreement shall
be deemed to be references to such Credit Agreement as amended hereby.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.
AMERUS LIFE HOLDINGS, INC.
By /s/ Michael G. Fraizer
-----------------------------------
Title: Senior Vice President and
Controller / Treasurer
By /s/ Joseph K. Haggerty
-----------------------------------
Title: Senior Vice President and
General Counsel
-2-
<PAGE> 3
THE CHASE MANHATTAN BANK,
individually and as Administrative
Agent
By /s/ Peter Platten
-------------------------------
Title: Vice President
FLEET NATIONAL BANK
By /s/ David A. Bosselait
-------------------------------
Title: Vice President
DRESDNER BANK AG,
NEW YORK BRANCH
AND GRAND CAYMAN BRANCH
By /s/ Thomas J. Nadramia
-------------------------------
Title: Vice President
By /s/ John W. Sweeney
-------------------------------
Title: Vice President
<PAGE> 4
BANK OF TOKYO
MITSUBISHI TRUST
COMPANY
(NEW YORK)
By /s/ Ned Komar
-------------------------------
Title: Vice President
BANK OF MONTREAL
(CHICAGO)
By /s/ Robert C. Meyer
-------------------------------
Title: Director
BANK ONE,
INDIANAPOLIS, N.A.
By /s/ Peter S. Little
-------------------------------
Title: Vice President
MELLON BANK
(PITTSBURGH)
By /s/ Sally J. Schurko
-------------------------------
Title: Vice President
<PAGE> 5
BOATSMEN'S BANK IOWA
(DES MOINES)
By /s/ Jeff A. Sims
-------------------------------
Title: Vice President
NORWEST BANK IOWA,
NATIONAL
ASSOCIATION
By /s/ Diane S. Ramsey
-------------------------------
Title: Assistant Vice President
<PAGE> 1
EXHIBIT 10.74
SECOND AMENDMENT TO ALHI CREDIT AGREEMENT
SECOND AMENDMENT (this "Amendment"), dated as of June 22, 1998, among
AMERUS LIFE HOLDINGS, INC., an Iowa corporation (the "Borrower"), the various
Banks from time to time party to the Credit Agreement referred to below, BANK
ONE, INDIANA, NA and ABN AMRO BANK, N.V., as Co-Arrangers, and THE CHASE
MANHATTAN BANK, as Administrative Agent. All capitalized terms used herein and
not otherwise defined herein shall have the respective meanings provided such
terms in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks, the Co-Arrangers and the Administrative
Agent are parties to a Credit Agreement, dated as of October 23, 1997 (as
amended, modified or supplemented to the date hereof, the "Credit Agreement");
WHEREAS, the Borrower desires to issue a certain amount of unsecured,
fixed-rate subordinated debt securities to a business trust, which will
concurrently issue preferred equity securities to the public;
WHEREAS, the Borrower desires that such transactions and future similar
transactions be permitted as Trust Preferred Offerings pursuant to Section
7.04(o) of the Credit Agreement;
WHEREAS, subject to the terms and conditions set forth herein, the Banks
desire to permit the Borrower to consummate such transactions as Trust
Preferred Offerings; and
WHEREAS, subject to the terms and conditions set forth below, the parties
hereto agree as follows;
NOW, THEREFORE, it is agreed:
1. Section 9 of the Credit Agreement is hereby amended by (i) deleting
therefrom the definitions of "Trust Preferred Offering" and "Trust Preferred
Related Debt Securities" and (ii) inserting therein in the appropriate
alphabetical order the following new definitions:
"1998 Offering" shall mean, collectively, a transaction involving the sale
of Trust Preferred Related Debt Securities of the Borrower to a Delaware
statutory business trust which constitutes a Subsidiary of the Borrower and
the concurrent sale by such Subsidiary of preferred equity securities, which
transaction shall be consummated substantially on terms and conditions
reflected in the June 8, 1998 filing with the SEC of the Prospectus
Supplement to Prospectus in connection with the AmerUs Life Holdings, Inc.
and AmerUs Capital II Adjustable Convertible-Rate Equity Security Units.
<PAGE> 2
"Trust Preferred Offering" shall mean (i) the Initial Offering, (ii) the
1998 Offering and (iii) any subsequent issuance of Trust Preferred Related
Debt Securities by the Borrower to a business trust, together with the
concurrent issuance by such trust of preferred equity securities, so long as
such Trust Preferred Related Debt Securities and preferred equity securities
contain the following terms: (x) a term of not less than five (5) years, (y)
the ability to defer principal and interest for a period no longer than the
term of such Trust Preferred Related Debt Securities and (z) the relative
rights and priorities of the holders of Trust Preferred Related Debt
Securities shall be no greater than those provided for in the Initial
Offering or the 1998 Offering."
"Trust Preferred Related Debt Securities" shall mean unsecured,
fixed-rate subordinated debt issued or to be issued by the Borrower in
connection with any Trust Preferred Offering, provided that such Indebtedness
issued after the Effective Date, and the agreements and other documents
entered into by the Borrower and/or any of its Subsidiaries in connection
therewith shall contain terms and conditions (including, without limitation,
with respect to the obligor and guarantors, if any, in respect of such
Indebtedness, amortization schedules, interest rates (including pay-in-kind
provisions) (subject to normal fluctuations and changes in methods of
interest calculations), covenants, defaults, remedies and subordination
provisions) not materially less favorable to the Borrower or the Banks than
the terms and conditions of the Trust Preferred Related Debt Securities
issued in connection with the Initial Offering or the 1998 Offering.
2. In order to induce the Banks to enter into this Amendment, the Borrower
hereby represents and warrants that (i) all representations and warranties
contained in Section 5 of the Credit Agreement are true and correct in all
material respects on and as of the Amendment Effective Date (as defined below),
both before and after giving effect to this Amendment (unless such
representations and warranties relate to a specific earlier date, in which case
such representations and warranties shall be true and correct as of such
earlier date) and (ii) there exists no Default or Event of Default on the
Amendment Effective Date, both before and after giving effect to this
Amendment.
3. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
4. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Administrative Agent.
5. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.
2
<PAGE> 3
6. This Amendment shall become effective on the date (the "Amendment
Effective Date") when the Borrower and the Required Banks shall have signed a
counterpart hereof (whether the same or different counterparts) and shall have
delivered (including by way of facsimile transmission) the same to the
Administrative Agent at its Notice Office.
7. From and after the Amendment Effective Date, all references in the
Credit Agreement and each of the Credit Documents to the Credit Agreement shall
be deemed to be references to the Credit Agreement as amended hereby.
* * *
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of this
Amendment to be duly executed and delivered as of the date first above written.
AMERUS LIFE HOLDINGS, INC.
By /s/ Michael G. Fraizer
-------------------------------------
Name: Michael G. Fraizer
Title: Senior Vice President &
Controller/Treasurer
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By
-------------------------------------
Name:
Title:
BANK ONE, INDIANA, NA, Individually and
as a Co-Arranger
By
-------------------------------------
Name:
Title:
ABN AMRO BANK N.V., Individually and as a
Co-Arranger
By
-------------------------------------
Name:
Title:
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of this
Consent to be duly executed and delivered as of the date first above written.
AMERUS LIFE HOLDINGS, INC.
By
-------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By /s/ Peter Platten
-------------------------------------
Name: Peter Platten
Title: Vice President
BANK ONE, INDIANA, NA, Individually and
as a Co-Arranger
By
-------------------------------------
Name:
Title:
ABN AMRO BANK N.V., Individually and as a
Co-Arranger
By
-------------------------------------
Name:
Title:
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of this
Consent to be duly executed and delivered as of the date first above written.
AMERUS LIFE HOLDINGS, INC.
By
-------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By
-------------------------------------
Name:
Title:
BANK ONE, INDIANA, NA, Individually and
as a Co-Arranger
By /s/ Kent W. Abernathy
-------------------------------------
Name: Kent W. Abernathy
Title: Vice President
ABN AMRO BANK N.V., Individually and as a
Co-Arranger
By
-------------------------------------
Name:
Title:
<PAGE> 7
BANK OF MONTREAL
By Richard W. Camm
-------------------------------------
Name: Richard W. Camm
Title: Managing Director
BANK OF TOKYO MITSUBISHI TRUST
COMPANY
By
-------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By
-------------------------------------
Name:
Title:
CIBC INC.
By
-------------------------------------
Name:
Title:
<PAGE> 8
BANK OF MONTREAL
By
-------------------------------------
Name:
Title:
BANK OF TOKYO MITSUBISHI TRUST COMPANY
By /S/ J. Beckwith
-------------------------------------
Name: J. BECKWITH
Title: Vice President
BANQUE NATIONALE DE PARIS
By
-------------------------------------
Name:
Title:
CIBC INC.
By
-------------------------------------
Name:
Title:
<PAGE> 9
BANK OF MONTREAL
By
-------------------------------------
Name:
Title:
BANK OF TOKYO MITSUBISHI TRUST COMPANY
By
-------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By /s/ Arnaud Collin du Bocage
-------------------------------------
Name: Arnaud Collin du Bocage
Title: E.V.P. and General Manager
CIBC INC.
By
-------------------------------------
Name:
Title:
<PAGE> 10
BANK OF MONTREAL
By
-------------------------------------
Name:
Title:
BANK OF TOKYO MITSUBISHI TRUST COMPANY
By
-------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By
-------------------------------------
Name:
Title:
CIBC INC.
By /s/ Gerald Girardi
-------------------------------------
Name: GERALD GIRARDI
Title: EXECUTIVE DIRECTOR
CIBC Oppenheimer Corp., AS AGENT
<PAGE> 11
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By /s/ Robert P. Donohue
-------------------------------------
Name: ROBERT P. DONOHUE
Title: VICE PRESIDENT
By /S/ Lloyd C. Stevens
-------------------------------------
Name: LLOYD C. STEVENS
Title: VICE PRESIDENT
FIRST UNION NATIONAL BANK
By
-------------------------------------
Name:
Title:
FLEET NATIONAL BANK
By
-------------------------------------
Name:
Title:
MELLON BANK, N.A.
By
-------------------------------------
Name:
Title:
<PAGE> 12
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By
-------------------------------------
Name:
Title:
By
-------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By
-------------------------------------
Name:
Title:
FLEET NATIONAL BANK
By /s/ David A. Bosselait
-------------------------------------
Name: David A. Bosselait
Title: Vice President
MELLON BANK, N.A.
By
-------------------------------------
Name:
Title:
<PAGE> 13
DRESDNER BANK AG, NEW YORK BRANCH AND
GRAND CAYMAN BRANCH
By
-------------------------------------
Name:
Title:
By
-------------------------------------
Name:
Title:
FIRST UNION NATIONAL BANK
By
-------------------------------------
Name:
Title:
FLEET NATIONAL BANK
By
-------------------------------------
Name:
Title:
MELLON BANK, N.A.
By /S/ Susan M. Whitewood
-------------------------------------
Name: SUSAN M. WHITEWOOD
Title: VICE PRESIDENT
<PAGE> 14
NATIONSBANK OF TEXAS, N.A.
By /s/ D. Keith Thompson
-------------------------------------
Name: D. KEITH THOMPSON
Title: VICE PRESIDENT
NORWEST BANK IOWA, NATIONAL ASSOCIATION
By
-------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By
-------------------------------------
Name:
Title:
SUNTRUST BANK, CENTRAL FLORIDA, NATIONAL
ASSOCIATION
By
-------------------------------------
Name:
Title:
<PAGE> 15
NATIONSBANK OF TEXAS, N.A.
By
-------------------------------------
Name:
Title:
NORWEST BANK IOWA, NATIONAL ASSOCIATION
By /s/ Diane S. Ramsey
-------------------------------------
Name: Diane S. Ramsey
Title: Vice President
ROYAL BANK OF CANADA
By
-------------------------------------
Name:
Title:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By
-------------------------------------
Name:
Title:
<PAGE> 16
NATIONSBANK OF TEXAS, N.A.
By
-------------------------------------
Name:
Title:
NORWEST BANK IOWA, NATIONAL ASSOCIATION
By
-------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By /s/ Vivian Abdelmessith
-------------------------------------
Name: Vivian Abdelmessith
Title: Senior Manager
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By
-------------------------------------
Name:
Title:
<PAGE> 17
NATIONSBANK OF TEXAS, N.A.
By
-------------------------------------
Name:
Title:
NORWEST BANK IOWA, NATIONAL ASSOCIATION
By
-------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By
-------------------------------------
Name:
Title:
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By L. Scott Harrison
-------------------------------------
Name: L. SCOTT HARRISON
Title: CORPORATE BANKING OFFICER
<PAGE> 1
EXHIBIT 10.75
SECOND CONSENT AND AMENDMENT TO CREDIT AGREEMENT
SECOND CONSENT AND AMENDMENT (this "Consent"), dated as of October 2, 1998,
among AMERUS LIFE HOLDINGS, INC., an Iowa corporation (the "Borrower"), the
various Banks from time to time party to the Credit Agreement referred to below,
BANK ONE, INDIANA, NA and ABN AMRO BANK, N.V., as Co-Arrangers, and THE CHASE
MANHATTAN BANK, as Administrative Agent. All capitalized terms used herein and
not otherwise defined herein shall have the respective meanings provided such
terms in the Credit Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Banks, the Co-Arrangers and the Administrative
Agent are parties to a Credit Agreement, dated as of October 23, 1997 (as
amended, modified or supplemented to the date hereof, the "Credit Agreement")
and the Consent to Credit Agreement, dated as of May 20, 1998 (the "First
Consent");
WHEREAS, the Borrower desires to make open market repurchases of its
publicly held shares of Class A Common Stock not otherwise permitted under the
terms of the Credit Agreement or the First Consent;
WHEREAS, subject to the terms and conditions set forth herein, the Banks
are willing to consent to such repurchases:
NOW, THEREFORE, the parties hereto agree as follows:
1. So long as no Default or Event of Default exists or results therefrom,
in addition to all purchases of Class A Common Stock of the Borrower permitted
pursuant to the First Consent, and notwithstanding anything to the contrary
contained in Sections 7.02 or 7.07 of the Credit Agreement, at any time prior
to December 31, 1998, the Borrower may engage in open market cash purchases of
up to $25,000,000 in the aggregate of its publicly held Class A Common Stock.
2. In order to induce the Banks to enter into this Consent, (i) the
Borrower hereby represents and warrants that (x) all representations and
warranties contained in Section 5 of the Credit Agreement are true and correct
in all material respects on and as of the Second Consent Effective Date (as
defined below), both before and after giving effect to the Consent (unless such
representations and warranties relate to a specific earlier date, in which case
such representations and warranties shall be true and correct as of such
earlier date) and (y) there exists no Default or Event of Default on the Second
Consent Effective Date, both before and after giving effect to this Consent and
(ii) hereby agrees with the Banks that Section 5 of the Credit Agreement is
hereby amended by inserting at the end thereof the following new Section 5.24:
<PAGE> 2
5.25 Year 2000.
Any reprogramming required to permit the proper functioning, in and
following the year 2000, of (i) the Borrower's and its Subsidiaries'
computer systems and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which the
Borrower's or its Subsidiaries' systems interface) and the testing of all
such systems and equipment, as so reprogrammed, will be completed by
September 30, 1999, in each case to the extent required to avoid the
occurrence of a Default, Event of Default or a Material Adverse Effect.
The cost to the Borrower and its Subsidiaries of such reprogramming and
testing and of the reasonably foreseeable consequences of year 2000 to
the Borrower and its Subsidiaries (including, without limitation,
reprogramming errors and the failure of others' systems or equipment)
will not result in a Default, Event of Default or a Material Adverse
Effect. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management
information systems of the Borrower and its Subsidiaries are and, with
ordinary course upgrading and maintenance, will continue for the term of
this Agreement to be, sufficient to permit the Borrower to conduct its
business without giving rise to a Material Adverse Effect.
3. This Consent is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
4. This Consent may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Administrative Agent.
5. THIS CONSENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.
6. This Consent shall become effective on the date (the "Second Consent
Effective Date") when each Credit Party and the Required Banks shall have
signed a counterpart hereof (whether the same or different counterparts) and
shall have delivered (including by way of facsimile transmission) the same to
the Administrative Agent at its Notice Office.
7. From and after the Second Consent Effective Date, all references in the
Credit Agreement and each of the Credit Documents to the Credit Agreement shall
be deemed to be references to the Credit Agreement after giving effect to this
Consent.
* * *
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of this
Consent to be duly executed and delivered as of the date first above written.
AMERUS LIFE HOLDINGS, INC.
By
------------------------------------
Name: Joseph K. Haggerty
Title: Senior Vice President
and General Counsel
THE CHASE MANHATTAN BANK,
Individually and as Administrative Agent
By
------------------------------------
Name: Peter Platten
Title: Vice President
BANK ONE, INDIANA, NA, Individually and
as a Co-Arranger
By
------------------------------------
Name: Peter S. Little
Title: Vice President
ABN AMRO BANK N.V., Individually and as a
Co-Arranger
By
------------------------------------
Name:
Title:
<PAGE> 4
BANK OF MONTREAL
By
------------------------------------
Name:
Title:
BANK OF TOKYO MITSUBISHI TRUST
COMPANY
By
------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By
------------------------------------
Name: Mr. Arnaud Collindu Bocage
Title: EVP and General Manager
CIBC INC.
By
------------------------------------
Name:
Title:
<PAGE> 5
DRESDNER BANK AG, NEW YORK
BRANCH AND GRAND CAYMAN
BRANCH
By
------------------------------------
Name: Robert P. Donohue
Title: Vice President
By
------------------------------------
Name: George T. Ferguson, IV
Title: Associate
FIRST UNION NATIONAL BANK
By
------------------------------------
Name: T. L. Stitchberry
Title: Senior Vice President
FLEET NATIONAL BANK
By
------------------------------------
Name: David A. Bosselait
Title: Vice President
MELLON BANK, N.A.
By
------------------------------------
Name: Karen E. McConomy
Title: Assistant Vice President
<PAGE> 6
NATIONSBANK OF TEXAS, N.A.
By
------------------------------------
Name:
Title:
NORWEST BANK IOWA, NATIONAL ASSOCIATION
By
------------------------------------
Name: Diane S. Ramsey
Title: Vice President
ROYAL BANK OF CANADA
By
------------------------------------
Name: Marek Ulanicki
Title: Manager
SUNTRUST BANK, CENTRAL FLORIDA,
NATIONAL ASSOCIATION
By
------------------------------------
Name: Darryl J. Weaver
Title: First Vice President
<PAGE> 1
Exhibit 10.76
Exhibit A
AmerUs Group
MIP Deferral Plan
September 1, 1998
Section 1. General Purpose of Plan; Definitions.
The name of this plan is the AmerUs Group MIP Deferral Plan (the "Plan"). The
purpose of the Plan is to enable the respective management employees of AmerUs
Group Co. (the "Company") and its Subsidiaries to participate in the long-term
success of the Company by investing in the performance of the stock of AmerUs
Life Holdings, Inc.
For purposes of the Plan, the following terms shall be defined as set forth
below:
a. "Board" means the Boards of Directors of the Company and its
Subsidiaries.
b. "Code" means the Internal Revenue Code of 1986, as amended.
c. "Committee" means the Human Resources Committee of the Board. If at any
time there is no Committee, the functions of the Committee specified in
the Plan shall be exercised by the Board.
d. "Commission" means the Securities and Exchange Commission, or any
successor thereto.
e. "Company" means AmerUs Group Co. a corporation organized under the laws
of the State of Iowa, or any successor corporation.
f. "Deferred Amount" means the amount of bonus elected by a Participant to
be deferred under the Plan, as described in Section 4 of the Plan.
g. "Disability" means total and permanent disability, as determined under
the long term disability program of the Company and any of its
Subsidiaries.
h. "Employer Match" means the contribution of Stock Units calculated using a
predetermined percentage of the Stock Units purchased with a Participant's
Deferred Amount.
i. "Exchange Act" means the Securities and Exchange Act of 1934, as amended.
j. "Fair Market Value" means, as of any given date, the closing price of the
Stock on such date on the New York Stock Exchange.
k. "MIP Payment Date" means the date on which bonuses under the Management
Incentive Plan of the Company are paid.
<PAGE> 2
l. "Non-Employee Director" means a director who is a "non-employee director"
under Rule 16b-3 under Section 16 of the Exchange Act and is an "outside
director" under Section 1.162-27(e)(3) of the regulations promulgated
under the Code.
m. "Participant" means an employee of the Company or any Subsidiary who is
eligible for participation in the Plan under Section 3 of the Plan and who
elects to participate in the Plan under Section 4 of the Plan.
n. "Plan" means this MIP Deferral Plan.
o. "Restricted Period" means, with respect to a particular Stock Unit, the
period determined by the Committee during which such Stock Unit may not be
cashed out, which period shall be no shorter than the period beginning on
the MIP Payment Date on which the Stock Unit is purchased and end on the
third successive MIP Payment Date thereafter.
p. "Retirement" means "normal retirement" or "early retirement," as those
terms are defined in the All*AmerUs Savings & Retirement Plan.
q. "Stock" means the Class A Common Stock of the Company.
r. "Stock Unit" means an equivalent unit comparable to a share of the Stock.
s. "Subsidiary" means any corporation in an unbroken chain of corporations
beginning with the Company if each of the corporations (other than the
last corporation in the unbroken chain) owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
voting stock in one of the other corporations in the chain.
Section 2. Administration.
The Plan shall be administered by the Committee, which shall at all times
consist of not less than two Non-Employee Directors.
The Committee shall have the power and authority to grant eligible employees
Stock Units pursuant to the terms of the Plan.
In particular, the Committee shall have the authority:
a. To determine the terms and conditions, not inconsistent with the terms of
the Plan, of any award granted under the Plan.
b. To determine the percentage to be used for determining the Employer Match
to be granted with respect to Stock Units granted under the Plan and to
notify Participants of the same.
2
<PAGE> 3
c. To adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall, from time to time, deem
advisable, to interpret the terms and provisions of the Plan (and any
agreements relating thereto) and to otherwise supervise the administration
of the Plan.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and
Participants.
Section 3. Eligibility.
Officers and other key and high performing employees of the Company and its
Subsidiaries who are eligible to receive bonuses under the Management Incentive
Plan of the Company are eligible to participate in the Plan.
Section 4. Election.
Each officer and employee of the Company and its Subsidiaries who is eligible
to participate in the Plan may elect to defer up to the lesser of (i) fifty
percent (50%) of the next bonus he or she may receive under the Management
Incentive Plan of the Company or (ii) $100,000. Such Deferred Amount shall be
used by the Participant to purchase Stock Units, as described in Section 6 of
the Plan. Such election shall be made annually no later than such date as the
Committee shall determine.
Section 5. Employer Match.
Subject to Section 6(f), at the end of a Restricted Period, the Company and its
Subsidiaries shall grant an Employer Match with respect to the related Stock
Units originally purchased by each Participant. The Employer Match shall be
determined annually by the Committee.
Section 6. Stock Units.
Stock Units purchased under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
a. Purchase Date. A Participant shall purchase Stock Units on the first MIP
Payment Date following the election by such Participant to participate
in the Plan.
b. Price of Stock Units. The price per share of Stock Units under the Plan
shall be determined on the MIP Payment Date but shall not be less than
the Fair Market Value of the Stock on that date. Stock Units may only be
purchased with Deferred Amounts.
c. Restricted Period. No Stock Unit may be cashed out during its Restricted
Period; provided, however, that in the event of the death, Disability,
Retirement or termination of a Participant,
3
<PAGE> 4
the Stock Units of such Participant may be cashed out as described in
Sections 6(f) or 6(g) of the Plan.
d. Cash Out. On the first business day following the end of a Restricted
Period for particular Stock Units, such Stock Units, together with the
related Employer Match, shall be cashed out by each Participant. Upon
cashing a Stock Unit, a Participant shall be entitled to receive up to,
but not more than, an amount in cash or shares of Stock equal in value to
the Fair Market Value of one share of Stock on the first business day
following the end of the Restricted Period. Payment to Participants shall
be made within ten days of the end of the Restricted Period. The
Committee has the right to determine the form of payment any Participant
shall receive for cashing out.
e. Non-Transferability of Stock Units. No Stock Unit shall be transferable
by a Participant other than by will or by the laws of descent and
distribution, and all Stock Units shall be cashable, during the
Participant's lifetime, only by the Participant. The Committee shall have
the discretionary authority, however, to grant Stock Units which would be
transferable to members of a Participant's immediate family, including
trusts for the benefit of such family members and partnerships in which
such family members are the only partners. In exercising such
discretionary authority, the Committee may take into account whether the
granting of such transferable Stock Units would require registration with
the Commission under a form other than Form S-8. A transferred Stock Unit
may be cashed out by the transferee only to the extent that the
Participant would have been able to cash out such Stock Unit had the Stock
Unit not been transferred.
f. Termination of Employment. Notwithstanding anything in the Plan to the
contrary, unless otherwise determined by the Committee at grant, if a
Participant's employment with the Company or any Subsidiary is voluntarily
or involuntarily terminated, the Stock Units purchased by such Participant
shall be deemed vested, and such Participant shall be entitled to a cash
payout with respect to only such Stock Units. The Participant shall cease
to have any right to receive an Employer Match as of the date of the
termination of his/her employment, and shall have no further rights under
the Plan.
g. Terms of Cash Out Upon Termination of Employment. Except as set forth in
Section 6(f) of the Plan, all of the terms relating to the cash out,
cancellation or other disposition of a Stock Unit and Employer Match upon
the termination of the employment of a Participant by the Company or a
Subsidiary, or upon the Disability, Retirement, death of a Participant
shall be determined by the Committee.
h. Changes in Stock. In the event of a change in the number of outstanding
shares of Stock by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares, the number of Stock Units issued to each Participant shall be
correspondingly adjusted to the extent appropriate to reflect such stock
dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares.
4
<PAGE> 5
Section 7. Taxes.
The Company shall be entitled, if the Committee deems it necessary or
desirable, to withhold the amount of any withholding or other tax required by
law to be withheld or paid by the Company with respect to any Stock Units
issuable under the Plan, and the Company may defer cashing out any Stock Unit
unless the Company is indemnified to its satisfaction against any liability for
any tax. The amount of withholding or tax payment shall be determined by the
Committee or its delegate and shall be payable by a Participant at such time as
the Committee determines. A Participant may satisfy his or her tax-withholding
obligation by the payment of cash to the Company or in any other manner
determined by the Committee. The Committee shall be authorized, in its sole
discretion, to establish such rules and procedures relating to withholding
methods as it deems necessary or appropriate.
Section 8. Amendments and Termination.
The Committee may amend, alter or discontinue the Plan, but no amendment,
alteration or discontinuation shall be made which would impair the right of a
Participant without his or her consent.
The Committee may amend the terms of any Employer Match theretofore granted,
prospectively, but no amendment shall impair the rights of any Participant
without his or her consent.
Section 9. Unfunded Status of the Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
Participant by the Company, nothing set forth in the Plan shall give any such
Participant any rights that are greater than those of a general creditor of the
Company. In its sole discretion the Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Stock or payments in lieu thereof with respect to awards hereunder;
provided, however, that the existence of such trusts or other arrangements is
consistent with the unfunded status of the Plan.
Section 10. General Provisions.
All certificates for shares of Stock delivered under the Plan shall be subject
to such stock transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations and other requirements of the
Commission, any stock exchange upon which the stock is listed, and any
applicable federal or state securities law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
Section 11. Effective Date of Plan.
The Plan shall be effective on the date that the Committee approves it.
5
<PAGE> 1
AMERUS LIFE HOLDINGS, INC.
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, 1998 September 30, 1998
---------------------------- ---------------------------------
Number Per Number Per
Net of Share Net of Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ---------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basis EPS
Net Income $49,482 34,393 $ 1.44 $ 6,862 33,726 $ 0.20
Effect of dilutive
securities
Option -- 220 (0.01) -- 145 --
Warrants -- 82 -- -- 80 --
Stock appreciation rights -- -- -- -- -- --
------- ------ -------- ------- ------ --------
Diluted EPS $49,482 34,695 $ 1.43 $ 6,862 33,951 $ 0.20
======= ====== ======== ======= ====== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<DEBT-HELD-FOR-SALE> 6,513,412
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 78,652
<MORTGAGE> 539,070
<REAL-ESTATE> 445
<TOTAL-INVEST> 7,611,725
<CASH> 99,987
<RECOVER-REINSURE> 4,380
<DEFERRED-ACQUISITION> 167,313
<TOTAL-ASSETS> 10,317,063
<POLICY-LOSSES> 7,057,809
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 14,539
<POLICY-HOLDER-FUNDS> 107,650
<NOTES-PAYABLE> 141,149
230,963
0
<COMMON> 34,747
<OTHER-SE> 853,482
<TOTAL-LIABILITY-AND-EQUITY> 10,317,063
115,655
<INVESTMENT-INCOME> 375,991
<INVESTMENT-GAINS> 2,390
<OTHER-INCOME> 0
<BENEFITS> 334,590
<UNDERWRITING-AMORTIZATION> 38,848
<UNDERWRITING-OTHER> 56,180
<INCOME-PRETAX> 67,218
<INCOME-TAX> 19,271
<INCOME-CONTINUING> 49,482
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,482
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 1.43
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
