SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A-1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported: October 23, 1997)
AMERUS LIFE HOLDINGS, INC.
(Exact Name of Registrant as Specified in Charter)
IOWA 0-21459 42-1459712
(State or Other Jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
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
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
INDEX PAGE
- ----- ----
ITEM 7. Financial Statements and Exhibits
Delta Life Corporation Unaudited Consolidated Financial
Statements as of September 30, 1997 and for the nine
months ended September 30, 1997 and 1996. 2
Delta Life Corporation Audited Financial Statements as
of December 31, 1996 and 1995 and for the years ended
December 31, 1996, 1995 and 1994. 6
Unaudited Pro Forma Condensed Consolidated Financial
Information of AmerUs Life Holdings, Inc. and Delta Life
Corporation as of September 30, 1997 and for
the nine months ended September 30, 1997 and the year
ended December 31, 1996. 50
SIGNATURE 56
EXHIBIT
INDEX 56
<PAGE>
ITEM 7.
DELTA LIFE CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(in thousands)
<TABLE>
<S> <C>
ASSETS:
Invested assets:
Fixed maturities $1,475,168
Equity securities 1,250
Purchase option contracts 11,578
Mortgage loans 266,402
Real estate 4,829
Policy loans 37,134
Other investments 616
----------
Total investments 1,796,977
Cash 9,725
Accrued investment income 12,195
Deferred policy acquisition costs 116,016
Other assets 77,919
----------
Total assets 2,012,832
==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Policyowner reserves and policyowners funds 1,841,796
Other liabilities 42,443
Debt 25,800
----------
Total liabilities 1,910,039
----------
STOCKHOLDERS' EQUITY:
Preferred stock 6
Common stock 1,791
Additional paid-in capital 78,387
Retained earnings 20,825
Unrealized appreciation of available-for-sale securities 1,784
----------
Total stockholders' equity 102,793
----------
Total liabilities and stockholders' equity 2,012,832
==========
</TABLE>
<PAGE>
DELTA LIFE CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(in thousands)
<TABLE>
1997 1996
---- ----
<S> <C> <C>
REVENUES:
Premiums and product charges $ 4,912 $ 9,273
Net investment income 95,799 95,152
Realized gains on investments 870 43
Other revenues - 236
------- -------
Total revenues 101,581 104,704
------- -------
BENEFITS AND EXPENSES:
Policyowner benefits 73,758 77,063
Expenses 18,906 17,798
------- -------
Total benefits and expenses 92,664 94,861
------- -------
Income before income tax expense 8,917 9,843
Income tax expense 3,320 3,673
------- -------
Net income $ 5,597 $ 6,170
======= =======
/TABLE
<PAGE>
DELTA LIFE CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(in thousands)
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Cash flows provided (used) in operating activities:
Net Income $ 5,597 $ 6,170
Adjustments to reconcile net income to net
cash provided(used) in operating
activities:
Depreciation 1,423 1,279
Provision for possible loan losses 740 693
Amortization of investments, net 1,815 2,089
Amortization of unearned compensation 78 78
Amortization of net realized capital
gains allocable to policyholders (380) 413
Provision for guaranty fund assessments 300 354
Net gain on sale of investments (1,337) (502)
Changes in operating assets and liabilities:
Policy acquisition costs (3,366) (7,608)
Federal income taxes refundable
and payable 1,998 560
Accrued investment income (496) (197)
Other assets and liabilities (319) (1,379)
Increase in policy liabilities 1,542 3,092
------- -------
Net cash provided (used) in
operating activities 7,595 5,042
------- -------
Cash flows used in investing activities:
Proceeds from principal repayments and
maturities for held-to-maturity debt
securities, mortgages and other
investments 196,597 178,188
Proceeds from principal repayments and
maturities for available-for-sale
debt securities 15,848 17,453
Purchase of investments for held-to-
maturity debt securities,
origination of loans, and purchase
option contracts (231,912) (283,983)
Purchase of available-for-sale
debt securities (33,667) (29,940)
Change in other invested assets (3,496) 7,062
Purchase of property and equipment (3,590) (2,996)
Proceeds from sale of real estate 6 2,677
--------- --------
Net cash used in investing activities (60,214) (111,539)
--------- --------
Cash flows from financing activities:
Net increase in deposits 70,426 97,188
Deposits reinsured (19,261) 54
Preferred stock dividends paid (1,485) (1,732)
Payment of notes payable 4,030 12,540
Proceeds from notes receivable 42 112
Net proceeds from issuance of stock 412 7,248
-------- -------
Net cash provided by financing activities 54,164 115,410
-------- -------
Net increase in cash and cash equivalents 1,545 8,913
Cash and cash equivalents:
Beginning of period 8,180 1,385
-------- --------
End of period $ 9,725 $ 10,298
======== ========
Supplemental disclosure of cash activities:
Interest paid $1,351 $1,155
====== ======
Income taxes paid $1,237 $2,260
====== ======
</TABLE>
<PAGE>
DELTA LIFE CORPORATION
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. 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 the Notes to Financial
Statements. Operating results for the nine months ended September 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 financial statement presentation.
(2) NOTES PAYABLE
Debt consists of the following (in thousands):
<TABLE>
September 30,
1997
----------
<S> <C>
Bank Credit Facility
Fixed rate, 7.65000% at September 30, 1997 $ 5,906
Variable rate, 7.40625% at September 30, 1997 17,294
Variable rate, 7.37500% at September 30, 1997 2,600
-------
$25,800
=======
</TABLE>
For an additional discussion of the terms of the above indebtedness, refer
to the Company's consolidated financial statements as of December 31, 1996.<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Delta Life Corporation
We have audited the accompanying consolidated balance sheets of Delta Life
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Delta Life
Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND, LLP
Memphis, Tennessee
March 13, 1997
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
1996 1995
---- ----
ASSETS
<S> <C> <C>
Investments:
Debt securities available-for-sale, at
fair value $ 438,268 $ 513,718
Debt securities held-to-maturity 999,030 893,189
Equity securities, at cost 1,250 -
Purchased option contracts 8,422 -
Conventional first mortgage loans, net 249,399 233,697
Real estate 4,873 4,757
Policy loans 34,412 33,844
Reverse repurchase agreements 240 2,570
Other investments 144 413
--------- ---------
Total investments 1,736,038 1,682,188
Cash and cash equivalents 8,180 1,385
Accrued investment income 11,699 12,573
Accounts receivable and prepaid expenses 503 378
Mortgage backed securities receivable 1,564 2,010
Refundable federal income taxes 86 1,191
Deferred policy acquisition costs, net 112,650 104,221
Property and equipment, net 5,794 5,381
Ceded reserves and claims 49,070 950
Present value of future profits - 4,623
Other assets 576 1,007
----------- ------------
Total assets $ 1,926,160 $ 1,815,907
=========== ===========
/TABLE
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE> 1996 1995
----- ----
LIABILITIES
<S> <C> <C>
Deposits:
Annuity $1,736,856 $1,619,496
Life 16,092 39,281
Other policy liabilities:
Annuity 17,244 19,852
Life 15 5,416
Accounts payable, accrued expenses and
other liabilities 5,494 6,857
Repurchase agreements 10,940 -
Income taxes payable 46 230
Reserve for guaranty fund assessments 2,588 3,586
Notes payable 22,700 20,400
Deferred federal income taxes 9,153 7,467
--------- ---------
Total liabilities 1,821,128 1,722,585
--------- ---------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock; $.01 par:
Series A, convertible 4 4
Series B, convertible 3 3
Series C, convertible 2 2
Series D, convertible 1 -
Common stock; $1 par:
Class A 1,070 1,012
Class B, convertible 305 305
Additional paid-in capital 79,414 72,231
Retained earnings 24,638 19,572
Notes receivable (389) (460)
Unearned compensation (323) (427)
Net unrealized holding gain on available-for-sale
securities, net of tax of $158 and $550 in 1996
and 1995, respectively 307 1,080
-------- -------
Total stockholders' equity 105,032 93,322
-------- -------
Total liabilities and
stockholders' equity $ 1,926,160 $1,815,907
=========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Investment income:
Interest and dividends $ 127,201 $ 117,730 $ 93,308
Amortization of net realized
capital gains allocable to
policyholders 545 735 1,212
Investment expenses:
Interest credited to deposits 94,705 90,171 71,159
Provision for possible loan losses 929 824 1,007
Interest on bank debt 1,425 1,470 1,268
-------- -------- --------
Net investment income 30,687 26,000 21,086
-------- -------- --------
Premium and other revenue:
Annuity premiums which include
life contingencies 4,709 3,947 2,378
Life insurance premiums 1,251 1,382 1,360
Fee income 4,986 5,119 4,223
Gain on sale of subsidiary 441
Other income 255 334 382
--------- -------- --------
Total premium and
other revenue 11,642 10,782 8,343
--------- -------- --------
Total net investment income,
premium and other revenue 42,329 36,782 29,429
---------- -------- --------
Policy benefits and other expenses:
Death benefits 1,093 1,358 1,125
Annuity benefits 2,412 2,123 2,060
Increase in policy liabilities 3,376 3,284 2,300
General and administrative
expenses 13,709 12,622 10,502
Provision for guaranty fund
assessments 660 2,498 240
Amortization of present value
of future profits 225 1,031 198
Amortization of deferred policy
acquisition costs 8,774 5,690 3,373
------- ------- -------
Total policy benefits and other
expenses 30,249 28,606 19,798
-------- ------- -------
Income before capital gains and
income taxes 12,080 8,176 9,631
Realized capital gains, net 854 137 356
Deferral of net realized capital
gains allocable to
policyholders (741) (23) (289)
------- -------- --------
Income before provision for
income taxes 12,193 8,290 9,698
Provision for income taxes:
Current 2,718 1,494 827
Deferred 1,834 1,594 2,649
------- -------- --------
Net income 7,641 5,202 6,222
Less preferred dividends 2,329 1,919 1,554
------- -------- --------
Net income applicable to
common shares $5,312 $3,283 $4,668
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
Additional
Preferred Common Paid-InRetained Notes
Stock Stock CapitalEarnings Rec.
--------- -------------- ------ -----
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 7 $1,102 $51,903 $11,623 $577
Net unrealized holding gain on
available-for-sale securities,
net of taxes of $66 on
January 1, 1994
Series A and B preferred stock
dividends paid (1,554)
Payments on notes receivable 43
Other (36) 33
Net changes in unrealized holding
loss on available-for-sale
securities, net of taxes of
$1,777 at December 31, 1994
Net income 6,222
------ ----- ------ ------ ------
Balances at December 31, 1994 7 1,102 51,867 16,291 (501)
Issuance of 205,200 shares of
Class A common stock and
205,200 shares of Series C
preferred stock 2 205 19,854
Series A, B and C preferred stock
dividends paid (1,919)
Payments on notes receivable 41
Repurchase of 450 stock options (2)
Issuance of 10,000 shares of
restricted stock 10 510
Amortization of unearned compensation
Net changes in unrealized holding
gain on available-for-sale
securities, net of taxes, of
$2,261 at December 31, 1995
Net income 5,202
----- ------ ------ ------- -----
Balances at December 31, 1995 9 1,317 72,231 19,572 (460)
Issuance of 58,718 shares of Class A
common stock and 58,718 shares of
Series D preferred stock 1 58 7,222
Series A, B, C, and D preferred
stock dividends paid (2,329)
Payments on notes receivable 42
Purchase of 66 shares of Class A
common stock, 98 shares of Series B
preferred stock
Retirement of purchased stock and
cancellation of certain notes
receivable (39) 29
Repurchase of 13,200 stock options (246)
Amortization of unearned compensation
Net changes in unrealized holding
loss on available-for-sale
securities, net of taxes of
$392 at December 31, 1996
Net income 7,641
------- ------- ------- ------ -----
Balances at December 31, 1996 $ 10 $1,375 $79,414 $24,638 $(389)
======= ======= ======= ====== ======
</TABLE>
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
Net Unrealized
Holding
Gain (Loss) on
Available- Stock
Unearned For Sale Treasury holders'
Compensation Securities Stock Equity
-------- ----------- -------- -------
<S> <C> <C> <C> <C>
Balances at December 31, 1993 $64,058
Net unrealized holding gain on
available-for-sale securities,
net of taxes of $66 on
January 1, 1994 $130 130
Series A and B preferred stock
dividends paid (1,554)
Payments on notes receivable 43
Other (3)
Net changes in unrealized holding
loss on available-for-sale
securities, net of taxes of
$1,777 at December 31, 1994 (3,450) (3,450)
Net income 6,222
------ ------- ------- ------
Balances at December 31, 1994 (3,320) 65,446
Issuance of 205,200 shares of
Class A common stock and
205,200 shares of Series C
preferred stock 20,061
Series A, B and C preferred stock
dividends paid (1,919)
Payments on notes receivable 41
Repurchase of 450 stock options (2)
Issuance of 10,000 shares of
restricted stock $(520)
Amortization of unearned compensation 93 93
Net changes in unrealized holding
gain on available-for-sale
securities, net of taxes, of
$2,261 at December 31, 1995 4,400 4,400
Net income 5,202
------- ------- ------ -------
Balances at December 31, 1995 (427) 1,080 93,322
Issuance of 58,718 shares of Class A
common stock and 58,718 shares of
Series D preferred stock 7,281
Series A, B, C, and D preferred
stock dividends paid (2,329)
Payments on notes receivable 42
Purchase of 66 shares of Class A
common stock, 98 shares of Series B
preferred stock $(10) (10)
Retirement of purchased stock and
cancellation of certain notes
receivable 10
Repurchase of 13,200 stock options (246)
Amortization of unearned compensation 104 104
Net changes in unrealized holding
loss on available-for-sale
securities, net of taxes of
$392 at December 31, 1996 (773) (773)
Net income 7,641
------- ------- ------- -------
Balances at December 31, 1996 $(323) $307 $ - $105,032
======= ===== ====== =======
</TABLE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Cash flows provided (used) in operating activities:
Net income $ 7,641 $ 5,202 $ 6,222
Adjustments to reconcile net income to
net cash provided (used) in
operating activities:
Depreciation 1,727 1,175 647
Provision for possible loan losses 929 824 1,007
Amortization of investments, net 3,156 1,994 3,765
Amortization of unearned compensation 104 93 -
Amortization of policy acquisition
costs 8,774 5,690 3,372
Amortization of present value of future
profits, net (331) (643) (1,074)
Amortization of net realized capital
gains allocable to policyholders (545) (735) (1,212)
Deferral of net realized capital gains
allocable to policyholders 741 24 290
Deferred federal income taxes 1,834 1,419 2,671
Provision for guaranty fund assessments 660 2,498 240
Net gain on sale of investments (854) (137) (406)
Gain on sale of subsidiary (441) - -
Changes in operating assets
and liabilities:
Policy acquisition costs (17,743) (21,867)(20,285)
Deferred commitment fees 67 197 4
Federal income taxes refundable
and payable 960 (71) (330)
Accrued investment income (223) (1,109) 1,645
Guaranty fund assessments (1,464) (936) (494)
Other assets and liabilities (1,171) (2,645) 2,901
Increase in policy liabilities 4,111 3,190 2,331
------- ------- -----
Net cash provided (used) in
operating activities 7,932 (5,837) 1,294
------- ------- ------
Cash flows used in investing activities:
Proceeds from principal repayments and maturities
for held-to-maturity debt securities,
mortgages and other investments 164,062 48,871 188,406
Proceeds from principal repayments and
maturities for available-for-sale debt
securities 94,095 115,381 23,679
Proceeds from sales of
available-for-sale debt securities 32,148 35,297 5,659
Purchase of investments for
held-to-maturity debt securities,
origination of loans, and
purchase option contracts (352,229)(277,611)(481,589)
Purchase of available-for-sale debt
securities (90,656)(164,566)(23,531)
Proceeds from sale of subsidiary,
net of cash, dividends, intercompany
balances and transaction expenses 16,067 - -
Payments to acquire company (302)
Purchase of property and equipment (2,044) (2,257) (1,707)
Proceeds from sale of real estate 2,014 - -
------- ------- ------
Net cash used in investing activities (136,543)(244,885)(289,385)
======== ======== ========
/TABLE
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits 177,438 235,243 269,687
Deposits reinsured (49,070) - -
Preferred stock dividends paid (2,329) (1,919) (1,554)
Proceeds from notes payable 11,925 8,000 18,500
Payment of notes payable (9,625) (16,600) -
Proceeds from notes receivable 42 41 40
Net proceeds from issuance of stock 7,281 20,062 -
Purchase of stock options
and treasury stock (256) (2) -
-------- --------- --------
Net cash provided by financing
activities 135,406 244,825 286,673
Net increase (decrease) in cash
and cash equivalents 6,795 (5,897) (1,418)
Cash and cash equivalents:
Beginning of year 1,385 7,282 8,700
-------- ------- -------
End of year $8,180 $ 1,385 $ 7,282
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION, BASIS OF PRESENTATION AND NATURE OF OPERATIONS:
ORGANIZATION
The consolidated financial statements include the accounts of Delta Life
Corporation (the Company) and its wholly-owned subsidiaries, Delta Life and
Annuity Company (DLAC), Delta Mortgage Services, Inc. (DMS), and other
wholly-owned subsidiaries. DLAC includes its wholly-owned subsidiary, Delta
Life Securities, Inc. (DLS). DLAC's consolidated financial statements also
include the results of operations through October 31, 1996 of Shelby Life
Insurance Company (Shelby). Effective October 31, 1996, DLAC sold all of the
outstanding common stock of Shelby (see Note 3). All significant intercompany
balances and transactions have been eliminated in consolidation.
BASIS OF PRESENTATION
The accompanying consolidated financial statements are prepared on the basis of
generally accepted accounting principles. Such accounting principles differ
from statutory reporting practices used by insurance companies in reporting to
state regulatory authorities. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NATURE OF OPERATIONS
The Company is a holding company which specializes in the sale of annuity
insurance products through its principal operating subsidiary, DLAC. DLAC
sells its products through a network of independent agents and is licensed in
48 states. During 1996, sales in Arkansas, California, Tennessee and Texas
composed over
<PAGE>
1. ORGANIZATION, BASIS OF PRESENTATION AND NATURE OF OPERATIONS,
CONTINUED:
NATURE OF OPERATIONS, CONTINUED
half of DLAC's total sales. DLAC's annuity products (fixed premium annuities
and equity indexed annuities) consist primarily of tax sheltered annuities
(TSA's), individual retirement accounts (IRA's) which include initial
investments as well as rollovers, other tax qualified plans including 401(k)
and 401(a) plans and individual non-qualified annuities.
The operating results of companies in the insurance industry have historically
been subject to significant fluctuations due to competition, economic
conditions, interest rates, investment performance, maintenance of insurance
ratings, regulations and taxation, and other factors.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DEBT SECURITIES
In accordance with SFAS 115, Accounting for Certain Investments in Debt and
Equity Securities, the Company's investments have been classified as
held-to-maturity and available-for-sale. Securities classified into the
held-to-maturity category are accounted for at cost, adjusted for
amortization of premiums and discounts, and when necessary, declines in value
considered to be other than temporary. It is management's intention to hold
securities classified as held-to-maturity under all reasonably foreseeable
conditions.
Securities in the available-for-sale category are carried at fair value, with
changes in the fair value being accounted for as a component of stockholders'
equity or included in policyholder account balances. The Company has no
trading account securities.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
CONVENTIONAL MORTGAGE LOANS
Conventional first mortgage loans are carried at amortized cost less an
allowance for possible loan losses.
ALLOWANCE FOR LOAN LOSSES
During 1995, the Company adopted SFAS 114, Accounting by Creditors for
Impairment of a Loan. The impact of adopting SFAS 114 has not been significant
to the Company's consolidated financial statements.
The adequacy of the allowance for credit losses is periodically evaluated by
the Company in order to maintain the allowance at a level that is sufficient to
absorb probable credit losses. Management's evaluation of the adequacy of the
allowance is based on a review of the Company's historical loss experience,
known and inherent risks in the loan portfolio, including adverse circumstances
that may affect the ability of the borrower to repay interest and/or principal,
the estimated value of collateral, current economic conditions and other
pertinent factors. The allowance for credit losses is established through
charges as investment expenses in the form of a provision for possible loan
losses.
REAL ESTATE
Real estate, which is comprised of real estate acquired in settlement of loans
and land acquired for a home office location,
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
REAL ESTATE, CONTINUED
is carried at the lower of cost (carrying value at the date of acquisition) or
net realizable value as determined by management's evaluation and third party
appraisals. Subsequent costs directly related to the completion of
construction or improvement of the real estate are capitalized to the extent
realizable. Gains and losses on the sale of real estate are recognized upon
disposition of the property. Carrying costs, such as maintenance, interest and
taxes are charged to operations as incurred.
POLICY LOANS
Policy loans are recorded at cost.
REVERSE REPURCHASE AGREEMENTS
Securities purchased under reverse repurchase agreements are recorded at cost.
The Company purchases U.S. Government securities under agreements to resell
within one to five days. Due to the short-term nature of the agreements, the
Company does not take possession of such securities.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
remaining maturity of three months or less at the date of purchase to be cash
equivalents, with the exception of reverse repurchase agreements which are
considered an investment.
DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs (principally commissions incurred at policy issuance,
premium taxes and certain sales, issue and
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
DEFERRED POLICY ACQUISITION COSTS, CONTINUED
underwriting expenses) associated with new annuity and life business are
deferred when incurred. The costs accrue interest and are amortized at a
constant rate based on the present value of the estimated gross profits expected
to be realized over the life of the contracts. Estimates of expected gross
profit are evaluated periodically, and the total amortization recorded to date
is adjusted by a charge or credit to current amortization if actual experience
or other evidence suggest that earlier estimates should be revised. The effect
of such changes in estimates was to increase amortization during 1996, 1995 and
1994 by approximately $3,134, $1,940 and $174, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets of five years. Upon sale or retirement, the cost and
related accumulated depreciation are relieved and the resulting gain or loss is
credited or charged to operations. Accumulated depreciation at December 31,
1996 and 1995 amounted to $4,875 and $3,246, respectively.
REINSURANCE
Reinsurance premiums, claims and claim adjustment expenses are accounted for on
a basis consistent with those used in accounting for the original policies
issued and the terms of the reinsurance contracts.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
REVENUE AND POLICY LIABILITIES
Premiums received on annuity and life deposit (investment and universal
life-type contracts) are recorded as deposits into the policyholder's account
balance. Revenue related to these contracts consists of earnings from the
invested deposits and applicable mortality, withdrawal and administrative
charges. These deposits consist of the policyholders' account balances plus
realized and unrealized gains and losses allocated to policyholders. The
policyholders' account balances include amounts deposited by the policyholders
plus interest credited to the policy, less withdrawals by the policyholder and
less any sales, mortality and administrative charges deducted by the Company.
Most of the Company's contracts entitle policyholders to the net statutory
investment earnings rate less a contractual management fee. As realized
capital gains and losses are deferred for statutory purposes these amounts are
not currently credited to policyholders' account balances. However, deposits
include a reserve for realized gains and losses that will be credited to
policyholders over the original estimated lives of the assets sold.
Premiums received on annuity policy liabilities (limited-payment contracts) are
recognized as revenue when received. Policy liabilities are computed using the
present value of future benefits using assumptions as to investment yields,
mortality and expenses at the date of issue.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
REPURCHASE AGREEMENTS
The Company sells U.S. Government securities under repurchase agreements to buy
back such securities within one to five days. Due to the short-term nature of
the agreements, the Company does not relinquish possession of such securities.
These agreements are recorded at cost.
INCOME TAXES
Prior to 1996, the Company and its non-life subsidiaries filed a consolidated
federal income tax return; and DLAC, DLS and Shelby each filed separate federal
income tax returns. For 1996, the Company and all of its consolidated
subsidiaries will file a consolidated federal income tax return.
Deferred income taxes are recognized for the expected future tax consequences of
events that have been included in the financial statements or tax returns.
Additionally, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
FEE INCOME
Fee income is comprised generally of policy fees and withdrawal penalties on
annuity contracts and is recorded as earned.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
PURCHASED OPTION CONTRACTS
Derivative financial instruments, in the form of purchased option contracts, are
utilized by the Company to hedge the anticipated appreciation on its index
linked annuity deposits. These option contracts are recorded at amortized
value. The option contract premium is amortized to guaranteed value over the
life of the option using the straight line method. The guaranteed value is
reset at each anniversary date according to the payoff structure of the option
contract. Amortization of the option premium is recorded as part of interest
income. Gains and losses on option terminations, which are the result of
policy surrenders, are recognized as realized capital gains and losses in the
current period.
The Company's investment in purchased option contracts are initiated within the
guidelines of documented corporate policies and do not create interest rate risk
because income recognized on the option contracts will be offset by expenses on
the deposit liabilities being hedged. The notional amounts of the purchased
option contracts do not represent amounts exchanged with counterparties and thus
are not a measure of the exposure of the Company through its use of option
contracts.
The Company has taken certain steps to minimize credit risk with purchased
option contracts for the unrealized gains in such contracts if the counterparty
is unable to perform under the contract. The counterparties are major financial
institutions with investment grade or better ratings. Additionally, the Company
requires collateral from each counterparty once a predetermined unsecured
threshold amount is exceeded. The fair value of collateral pledged and
deposited at December 31, 1996 was $9,519.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
3. SHELBY LIFE INSURANCE COMPANY:
As a result of the 1994 acquisition of Shelby, the Company established an asset
for the present value of future profits (PVFP) of insurance purchased. PVFP
represents the present value of the anticipated annual profits of the business
in force (principally annuity contracts) on the date of acquisition, net of
purchase accounting adjustments. The PVFP is amortized over the life of the
business in proportion to estimated gross profits for deferred annuities and
gross premiums for traditional life. The portion of PVFP attributable to the
purchase accounting adjustments is amortized over the average remaining term of
the investments purchased and is included in investment income.
Progression of the PVFP for the period ended October 31, 1996 and for the
year ended December 31, 1995 is as follows:
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Beginning balance $ 4,623 $ 3,980
Amortization related to future profits (225) (1,031)
Amortization related to purchase accounting
adjustments 556 1,674
Balance at October 31, 1996, date of sale (4,954)
--------- ---------
Ending balance $ - $ 4,623
========= =========
</TABLE>
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
3. SHELBY LIFE INSURANCE COMPANY, CONTINUED:
Effective October 31, 1996, DLAC closed on a stock purchase agreement for the
sale of all of the common stock of Shelby. The sales price was comprised of
cash of $13,000 and 250,000 shares of restricted stock of the acquiring company
with a value of $1,250. The sale resulted in an after-tax gain of
approximately $290, net of applicable income taxes of $150. Separate financial
information of Shelby as of December 31, 1995 and for the periods
ending October 31, 1996, and December 31, 1995 and 1994 is as follows:
<TABLE>
1995
----
<S> <C>
Total assets $109,849
Total liabilities 96,089
Total stockholder's equity 13,760
</TABLE>
<TABLE>
For the 10 Month
Period Ending
October 31
1996 1995 1994
------------ ---- ----
<S> <C> <C> <C>
Total net investment income, premium
and other revenue $5,826 $7,810 $6,616
Total policy benefits and other expenses 3,430 5,648 4,847
Income before provision for income taxes 2,396 2,162 1,769
Net income 1,486 1,341 1,097
</TABLE>
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
4. INVESTMENT OPERATIONS:
Investment income and net realized gains and losses by class of security
were as follows:
<TABLE>
1996 1995 1994
------------------ ------------------- ----------------
Net Net Net
Investment Realized Investment Realized InvestmentRealized
Income Gains Income Gains Income Gains
-------- ------- --------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Mortgage backed
securities $97,622 $ 2 $87,670 $63,381 $ 9
U.S. Government
obligations 2,376 18 2,255 $116 2,301 66
U.S. Government
guaranteed loans 2,015 11 2,369 2,631
Corporate bonds 2,444 56 4,657 5,362
Conventional first
mortgage loans 22,071 745 20,061 21 18,354 281
Other 673 22 718 1,279
-------- ---- -------- ---- ------- ----
$127,201 $854 $117,730 $137 $93,308 $356
======== ==== ======== ==== ======= ====
</TABLE>
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
4. INVESTMENT OPERATIONS, CONTINUED:
Realized gains and losses on sales of investments were determined using the
specific identification method.
Mortgage backed securities are issued, secured or guaranteed by the U.S.
Government, government agencies or instrumentalities.
During December of 1995, and in accordance with the provisions allowed by the
Financial Accounting Standards Boards, Special Report - a Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities, the Company reclassed approximately $372,000 of
investments, originally purchased and classified as held-to-maturity to
available-for-sale recording a net unrealized gain of approximately $10,630.
The carrying amount of securities and their approximate market values at
December 31, 1996 and 1995 were as follows:
<TABLE>
1996
----------------------------------------
Estimated
Amortized Gross Unrealized Market
Cost Gains Losses Value
--------- ------ ------- --------
<S> <C> <C> <C> <C>
Available-for-Sale:
Mortgage backed securities $338,410 $8,189 $(1,187) $345,412
U.S. Government obligations 38,237 640 (115) 38,762
U.S. Government guaranteed loans 24,548 285 (261) 24,572
Municipal bonds 4,622 27 (46) 4,603
Corporate bonds 24,740 363 (184) 24,919
-------- ------ -------- -------
$430,557 $9,504 $(1,793) $438,268
======== ====== ======== ========
Held-to-maturity:
Mortgage backed securities $999,030 $5,230 $(16,165) $998,095
-------- ------ --------- --------
$999,030 $5,230 $(16,165) $998,095
======== ====== ========= ========
/TABLE
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
4. INVESTMENT OPERATIONS, CONTINUED:
<TABLE>
1995
-----------------------------------------
Estimated
Amortized Gross Unrealized Market
Cost Gains Losses Value
--------- ----- -------- --------
<S> <C> <C> <C> <C>
Available-for-Sale:
Mortgage backed securities $401,096 $12,066 $(1,153) $412,009
U.S. Government obligations 25,811 511 (84) 26,238
U.S. Government guaranteed loans 26,762 492 (4) 27,250
Corporate bonds 47,381 692 (384) 47,689
Foreign government obligations 523 9 532
-------- ------- ------- -------
$501,573 $13,770 $(1,625) $513,718
======== ======= ======= ========
Held-to-maturity:
Mortgage backed securities $882,549 $13,458 $(4,641) $891,366
U.S. Government obligations 10,640 10 (36) 10,614
-------- ------- -------- --------
$893,189 $13,468 $(4,677) $901,980
======== ======= ======== ========
</TABLE>
The amortized cost and estimated market value of debt securities
available-for-sale and held-to-maturity as well as the carrying value of
conventional first mortgage loans at December 31, 1996, by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to prepay obligations with
or without prepayment penalties.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
<TABLE>
4. INVESTMENT OPERATIONS, CONTINUED:
Estimated
Amortized Market
Cost Value
----------- ---------
<S> <C> <C>
Available-for-sale:
Due in one year or less $ 10,556 $ 10,512
Due after one year through five years 27,388 27,853
Due after five years through ten years 67,475 68,599
Due after ten years 325,138 331,304
----------- ----------
$ 430,557 $ 438,268
=========== ==========
Held-to-maturity:
Due after one year through five years $ 1,009 $ 1,029
Due after five years through ten years 19,351 19,896
Due after ten years 978,670 967,170
----------- ----------
$ 999,030 $ 988,095
=========== ==========
Conventional first mortgage loans:
Due after one year through five years $ 5,216
Due after five years through ten years 47,865
Due after ten years 201,458
--------
254,539
Allowance for possible loan losses (3,827)
Deferred commitment fees (1,313)
---------
$ 249,399
==========
</TABLE>
An analysis of the allowance for possible loan losses and losses on real
estate for 1996, 1995 and 1994 is as follows:
<TABLE>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $3,247 $3,052 $2,045
Provision charged to investment
expenses 929 824 1,007
Loans charged off (349) (629) -
------ ------ ------
Balance at end of period $3,827 $3,247 $3,052
====== ====== ======
/TABLE
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
4. INVESTMENT OPERATIONS, CONTINUED:
At December 31, 1996, the Company had repurchase agreements outstanding of
$10,940. These agreements mature on January 2, 1997 and bear interest at 7% to
8%.
Cash, cash equivalents and certain investments of the Company with a carrying
value of approximately $4,169 and $7,097 at December 31, 1996 and 1995,
respectively, were on deposit with various state regulatory agencies.
5. INCOME TAXES:
The components of the provision (benefit) for current and deferred income taxes
is as follows:
<TABLE>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 2,510 $ 1,367 $ 808
State 208 127 19
------- ------ -------
2,718 1,494 827
------- ------ -------
Deferred:
Federal 1,835 1,594 2,637
State (1) - 12
------- ------ -------
1,834 1,594 2,649
------- ------ -------
$ 4,552 $ 3,088 $ 3,476
======= ======= =======
/TABLE
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
5. INCOME TAXES, CONTINUED:
The components of the net deferred tax liability as of December 31, 1996 and
1995 are as follows:
<TABLE> 1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Deposits and policy liabilities $ 24,697 $ 26,299
Allowance for possible loan losses 1,302 1,104
Reserve for guaranty fund assessments 880 1,168
Option amortization 199 -
Capital loss carryforward 307 -
Other 1,652 896
------- -------
29,037 29,467
------- --------
Deferred tax liabilities
Deferred policy acquisition costs (36,225) (33,446)
Present value of future profits - (1,572)
Software costs (254) (1,184)
Net unrealized gain on available-for-sale securities (158) (555)
Other (1,553) (177)
------- --------
(38,190) (36,934)
-------- ---------
Net deferred tax liability $ (9,153) $ (7,467)
========= =========
</TABLE>
Management believes that realization of the above deferred tax assets is more
likely than not primarily due to the reversal of existing taxable temporary
differences. Consequently, no valuation allowance was deemed necessary.
The Company's effective income tax rate varied from the federal statutory
income rate due primarily to state income taxes, net of the federal income tax
benefit.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
5. INCOME TAXES, CONTINUED:
Under pre-1984 life insurance company tax laws, a portion of DLAC's gain from
operations which was not subject to current income taxation was accumulated for
tax purposes in a memorandum account designated as Policyholders' Surplus. The
aggregate accumulation in this account at December 31, 1996, was $1,763. Should
the accumulation in the Policyholders' Surplus account of the life insurance
subsidiary exceed certain stated maximums, or should distributions including
cash dividends be made from DLAC to Delta Life Corporation in excess of
approximately $19,000, such excess would be subject to federal income taxes at
rates then effective. Deferred taxes have not been provided on amounts
designated as Policyholders' Surplus. The Company does not anticipate
involuntarily paying tax on amounts in the Policyholders' Surplus accounts.
6. NOTES PAYABLE:
During 1996, the notes payable to banks were amended to increase the available
line of credit from $37,500 to $40,000. The notes represent a revolving line
of credit which allow for revolving draws and require principal repayments
beginning March 1999 in sixteen equal quarterly installments through December
2002. All borrowings under the notes payable are collateralized by the common
stock of DLAC.
The Company has the option to select a variable rate based on the 30 or 90 day
Eurodollar rate or the banks' base rate. Additionally, the Company may fix the
interest rate on a portion of the loan at negotiated rates with the banks.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
6. NOTES PAYABLE, CONTINUED:
During 1994, $10,500 of the amount outstanding under the notes was fixed at a
rate of 7.65%. Per the agreement, this fixed amount must be repaid in sixteen
equal principal installments of $656 beginning in March 1996. The principal
payments may be redrawn against the available line at current variable rates.
At December 31, 1996, $7,875 of the outstanding fixed rate draw remains, at a
rate of 7.65%. The remaining balance of $14,825 is subject to a variable
interest rate that is currently 7.36719%.
The agreement contains certain restrictive covenants, the most significant of
which requires the Company to maintain a net worth of not less than the
previous years net worth plus 50% of earnings for such year, minimum annual
earnings of $5,500, a percentage of total debt to equity plus allowance for
possible loan losses of not more than 33% and certain interest coverage and
cash flow coverage ratios. Additionally, DLAC must maintain, at all times,
total statutory capital and surplus in excess of 150% of its calculated
National Association of Insurance Commissioners Risk Based Capital, total
statutory capital and surplus (including the Asset Valuation Reserve) to total
assets of 5% and maintain 70% or greater of invested assets in securities
issued, secured or guaranteed by the U.S. Government, government agencies or
instrumentalities, 25% or less of admitted assets in mortgage loans and 30% or
less of admitted assets in investment grade securities of corporations.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
6. NOTES PAYABLE, CONTINUED:
At December 31, 1996, aggregate required principal payments of notes payable
are as follows:
<TABLE>
<S> <C>
1997 $ 2,625
1998 2,625
1999 6,326
2000 3,708
2001 3,708
Thereafter 3,708
-------
$22,700
=======
</TABLE>
7. STOCKHOLDERS' EQUITY:
Information regarding the Company's common stock and preferred stock at
December 31, 1996 is as follows:
<TABLE>
1997
Shares 1996Dividends
Shares Issued and Liquidation Div. Div.Declared
Authorized Outstanding PreferenceRates Paid and Paid
---------- ----------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock:
Class A 15,000,000 1,070,276
Class B, convertible 1,650,000 304,538 $9,669
---------- ---------
16,650,000 1,374,814
========== =========
Preferred Stock:
Series A, convertible 600,000 416,208 $16,648 $2.00 $832 $208
Series B, convertible 700,000 319,704 14,387 2.25 720 180
Series C, convertible 300,000 205,200 10,260 3.00 616 154
Series D, convertible 58,718 58,718 3,670 3.75 161 55
--------- -------- ------ ----
1,658,718 999,830 $2,329 $597
========= ======== ====== ====
</TABLE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
7. STOCKHOLDERS' EQUITY, CONTINUED:
Class B common stock is nonredeemable and maintains a preference over Class A
common stock in liquidation to the extent of $31.75 per share, plus any
dividends accrued and unpaid. Class B common stock carries all the rights
associated with Class A common stock and converts on a one-for-one basis to
Class A common stock automatically upon a public offering of stock.
Series A, B, C and D preferred stock are nonredeemable and maintain preference
over Class A or B common stock to the extent of $40, $45, $50 and $62.50 per
share, respectively, plus any dividends accrued and unpaid. Series A, B and D
preferred stock are convertible at any time on a one-for-one basis into shares
of Class B common stock or if all such shares of Class B common stock have been
converted, then such preferred stock will convert to shares of Class A common
stock. Series C preferred stock is convertible at any time on the basis of
.909 of a share of Class B common stock, or if all such shares of Class B
common stock have been converted, then such preferred stock will convert to
.909 of a share of Class A common stock. Additionally, such preferred stock
shall convert five years from the date of issue.
8. EARNINGS PER SHARE:
Primary and fully diluted earnings per share are computed by dividing net
income by the weighted average number of common shares and common share
equivalents outstanding during the period. Common share equivalents are in the
form of stock options and stock awards which have an effect on 1996, 1995 and
1994 primary and fully diluted earnings per share.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
8. Earnings Per Share, continued
The following table presents earnings per share and weighted average number of
shares outstanding information for the years ended December 31, 1996, 1995 and
1994.
<TABLE>
1996 1995 1994
---- ----- -----
<S> <C> <C> <C>
Earnings per share:
Primary $ 3.13 $ 2.36 $3.30
Fully diluted 3.13 2.33 3.30
Weighted average number of shares
and equivalents outstanding:
Primary 2,442,912 2,200,414 1,883,970
Fully diluted 2,442,912 2,229,972 1,885,104
</TABLE>
9. STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS:
The Company maintained the following stock option plans during 1996, 1995 and
1994.
The 1987 non-qualified stock option plan provides for options to purchase
14,000 shares of the Company's Class A common stock to be granted to directors
and employees of the Company. The options are exercisable only during such
period ending ten years from date of grant contingent upon the continued
relationship by the director or employee with the Company, at an exercise price
to be determined by the Board of Directors which is not less than the fair
market value of the shares at the grant date. The options expire on the tenth
anniversary of the grant date.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
9. STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS, CONTINUED:
The 1989 non-qualified Stock Option Plan, adopted in 1990, provides for options
to purchase 105,000 shares of the Company's Class A Common Stock to be granted
to directors, employees and agents of the Company and its subsidiaries through
February 2, 2000. The options are exercisable one-half on or after the third
anniversary of the grant date and one-half on or after the fourth anniversary,
contingent upon the continued relationship by the participant with the Company,
at exercise prices to be determined by the Board of Directors which is not less
than the fair market value of the shares at the grant date. The term during
which the options shall be in effect shall not be greater than eight years.
The 1993 Long-Term Incentive Plan provides for options to purchase 575,000
shares of the Company's Class A Common Stock to be granted to officers,
directors and agents of the Company and its subsidiaries. Options issued to
the officers are qualified except for options issued to the Chief Executive
Officer. Options issued under the Plan to directors and agents are
non-qualified. The Plan remains in effect until all awards under the Plan have
been satisfied or have expired or otherwise terminated, but no award shall be
granted later than 2003. The options are exercisable 20% per year from date of
grant with 100% being exercisable 5 years from date of grant, at exercise
prices to be determined by the Board of Directors which are not less than the
fair market value of the shares at the date of grant. The options expire on
the seventh anniversary of the date of grant.
In 1993, under the provisions of the 1993 Stock Appreciation Rights Plan, Stock
Appreciation Rights (SAR's) were granted to certain employees at an award price
of $45 per share. The SAR's vest at a rate of 20% per year after the date of
grant and expire 7 years from date of grant. At December 31, 1996 and 1995,
approximately 3,685 and 5,350 SAR's were outstanding, respectively, and 2,211
and 2,140 were exercisable, respectively.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
9. STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS, CONTINUED:
During February 1995, the Board of Directors awarded 10,000 shares of Class A
common stock to the Company's Chief Executive Officer which will vest pro rata
over five years. The compensation expense related to these stock awards
recognized during 1996 and 1995 was $104 and $93, respectively.
Activity under all of the stock option plans and ending option outstanding
balances are as follows:
<TABLE>
Exercise Price
<S> <C> <C> <C> <C> <C>
$13.25 $29.00 $35.00 $40.00 $45.00
January 1, 1994 14,000 30,800 10,600 47,000 104,350
Options issued - - - - -
Options repurchased - - - - -
------ ------ ----- ------ -------
December 31, 1994 14,000 30,800 10,600 47,000 104,350
Options issued - - - - -
Options repurchased - - - - (400)
------ ------ ------ ------ -------
December 31, 1995 14,000 30,800 10,600 47,000 103,950
Options issued - - - - -
Options repurchased - (1,000) (1,100) (1,500)(10,200)
------ ------ ------ ------ -------
December 31, 1996 14,000 29,800 9,500 45,500 93,750
====== ====== ====== ====== ======
Exercisable at
December 31, 1996 14,000 29,800 9,500 45,500 54,750
====== ====== ====== ====== ======
Weighted average
remaining term
(in years) 1 2 3 4 3
======= ======= ====== ====== ======
/TABLE
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
$49.50 $52.00 $62.50 Total
January 1, 1994 206,750
Options issued 80,750 - - 80,750
Options repurchased (1,075) - - (1,075)
------- ------- ------- -------
December 31, 1994 79,675 - - 286,425
Options issued - 101,950 - 101,950
Options repurchased (1,450) - - (1,850)
------ ------ ------ -------
December 31, 1995 78,225 101,950 - 386,525
Options issued - - 85,550 85,550
Options repurchased (4,650) (8,200) (6,200) (32,850)
------ ------ ------ ------
December 31, 1996 73,575 93,750 79,350 439,225
====== ====== ====== ======
Exercisable at
December 31, 1996 29,430 18,750 - 201,730
====== ====== ====== =======
Weighted average
remaining term
(in years) 4 5 6
======= ======= ======
</TABLE>
Options are available for future grant only under the 1993 plan and amount to
249,575 at December 31, 1996.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
9. STOCK OPTION AND STOCK APPRECIATION RIGHTS PLANS, CONTINUED:
The Company applies APB Opinion 25 and related Interpretations in accounting
for its employee stock plans. SFAS 123, Accounting for Stock-Based
Compensation (SFAS 123) was issued and, if fully adopted, changes the methods
for recognition of expense on plans similar to those of the Company. Adoption
of the accounting provisions of SFAS 123 for grants to employees is optional;
however, proforma disclosures as if the Company adopted the expense recognition
requirements under SFAS 123 are required. Accordingly, had compensation cost
for the Company's 1996 and 1995 grants for employee stock-based compensation
plans been determined consistent with SFAS 123, the Company's net income and
net income per share would approximate the proforma amounts below:
<TABLE>
1996 1995
----------------- -----------------
As Pro As Pro
Reported Forma Reported Forma
-------- ------ ------- ------
<S> <C> <C> <C> <C>
Net income $7,641 $7,538 $5,202 $5,098
Net income per share $3.13 $3.09 $2.33 $2.29
</TABLE>
During 1996, the Company adopted the expense recognition requirements of SFAS
123 as it relates to stock option grants to non-employees. Of the total stock
options of 86,050 granted during 1996, non-employee grants amounted to 36,100.
During 1996, the Company recognized compensation cost of approximately $118
related to these grants. The total compensation cost related to non-employee
grants during 1995, had such costs been recorded, would have amounted to
approximately $80. The costs of non-employee grants are included in policy
acquisition costs for 1996.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
9. Stock Option and Stock Appreciation Rights Plans, continued:
For all stock option grants the fair value of each option is estimated on the
grant date using the minimum value model with the following weighted average
assumptions used for grants in 1996 and 1995:
<TABLE>
1996 1995
---- ----
<S> <C> <C>
Dividend yield 0% 0%
Risk-free interest rate 6.30% 5.37%
Expected lives 5 years 5 years
Option minimum value $16.46 $11.99
</TABLE>
The effects of applying SFAS 123 in the pro forma disclosure are not indicative
of future amounts. SFAS 123 does not apply to awards prior to 1995, and
additional awards in future years are anticipated.
10. REINSURANCE:
In the ordinary course of business, both DLAC and Shelby cede reinsurance to
other insurers under various contracts that cover individual risks or entire
classes of business. These arrangements limit the risk arising from large
policies. Reinsurance contracts do not relieve DLAC or Shelby from their
obligations to policyholders. A contingent liability exists for reinsurance
ceded which would become a liability of DLAC or Shelby in the event that any
reinsurer is unable to meet its obligations under the reinsurance agreements.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
10. REINSURANCE, CONTINUED:
DLAC's maximum amount of life insurance retained on any single life contract is
$30. Shelby's maximum retention was $100 of coverage per individual life.
During 1996, DLAC entered into a three year agreement to cede fifty percent of
its index annuity reserves.
As of December 31, 1996 and 1995 and for the years then ended, the impact on
the consolidated financial statements due to all ceded reinsurance agreements
in force during the year was as follows:
<TABLE>
1996 1995
----------------- --------------
DLAC Shelby DLAC Shelby
---- ------ ----- ------
<S> <C> <C> <C> <C>
Premiums $ 49,364 $ 904 $ 80 $1,335
Incurred benefits 190 905 1,062
Commissions and other expenses 4,300 256 334
</TABLE>
At December 31, 1996, ceded reserves of $49,070 were associated with a single
reinsurer. The Company evaluates the financial condition of its reinsurer and
manages all assets related to the ceded business which are held in a trust to
minimize its exposure to significant losses from reinsurer insolvencies.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
11. Commitments and contingencies:
GUARANTEED RATES
The Company assumes investment risk on contracts it issues by guaranteeing the
principal value of policyholders' accounts plus a minimum interest rate. The
first year the policy is in force, the guaranteed interest rate is slightly
lower than the anticipated initial crediting rate. After the first year, the
guaranteed interest rate is either 4% or 3.5% depending upon the particular
contract form. In addition, each year the Company sets an annual guaranteed
interest rate which must be credited for that calendar year to all of the cash
values of annuity contracts currently in force. On January 1, 1997, the
Company established minimum rates for the calendar year 1997 ranging from 3.5%
to 4% depending upon the particular contract form.
MORTGAGE LOAN COMMITMENTS
At December 31, 1996, the Company has outstanding commitments to fund mortgage
loans on real estate. These commitments totaled $4,345 at interest rates
ranging from 8.3% to 8.55%.
INVESTMENT PURCHASE COMMITMENTS
At December 31, 1996, the Company has made commitments to purchase
approximately $12,129 of mortgage backed securities at rates of 6.25% and
7.55%.
OPERATING LEASE
The Company leases office space under an operating lease expiring in January,
1999. At December 31, 1996, minimum rentals due under the lease were as
follows:
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
11. COMMITMENTS AND CONTINGENCIES, CONTINUED:
<TABLE>
Year Amount
---- -----
<S> <C>
1997 $ 646
1998 646
1999 53
------
$1,345
======
</TABLE>
Rent expense related to the operating lease was approximately $615, $552 and
$457, for 1996, 1995 and 1994, respectively.
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with the Chief Executive
Officer and Chief Operating Officer expiring December 31, 2001 and June 30,
1998, respectively. The agreements provide for payment of salary, bonus and
the maximum contribution to the Company's 401(k) profit sharing plan upon
termination of such officers for five years for the Chief Executive Officer and
three years for the Chief Operating Officer. The aggregate commitment should
these employees be terminated is approximately $3,547.
Additionally, the Company has entered into employment agreements with certain
officers which expire December 31, 1997. The agreements are only effective if
employment is terminated as a result of a change in control of the Company as
defined in the agreements.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
11. COMMITMENTS AND CONTINGENCIES, CONTINUED:
INCOME TAXES
During 1995, the Internal Revenue Service (IRS) issued a proposed adjustment
notice primarily related to DLAC's 1992 deduction for the termination of its
reinsurance agreement during that year and certain deductions for internally
developed software for 1991 through 1993. The total adjustments proposed by
the IRS amount to approximately $5,300. The proposed adjustment is currently
being reviewed by an appeals officer. The Company does not believe that this
issue will have a material adverse effect on its consolidated financial
statements.
GUARANTY FUND
Under insurance guaranty fund laws, in most states, insurance companies doing
business therein can be assessed up to prescribed limits for policyholder
losses incurred by insolvent companies. The Company does not believe such
assessments will be materially different from amounts already provided for in
the financial statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
STATUTORY CAPITAL AND SURPLUS
Under Tennessee statute, DLAC is required to maintain certain statutory capital
and surplus amounts and cannot declare dividends which exceed certain criteria.
During 1996 and 1995, DLAC was in compliance with these provisions.
Additionally, the maximum dividend which may be paid to the Company by DLAC in
1997 without prior consent of the Tennessee Commissioner of Insurance is
approximately $8,740.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
12. CONCENTRATION OF RISK:
CREDIT RISK
Approximately $206,907 and $202,359 in 1996 and 1995, respectively, of mortgage
loans on real estate are located in Tennessee, Arkansas, Oklahoma, Florida,
Michigan and Texas. Repayment of these loans is in part dependent upon the
general economic conditions in the respective geographic areas. The maximum
percentage of any one loan to the value of collateral at the origination of the
loan is 75 percent.
The Company has credit-related exposure to its counterparties for their
performance of the option contract; however, that risk is minimized by the
depositing of collateral by the counterparty based on the market value of
outstanding option contracts. Each counterparty is required to deposit
collateral once a predetermined unsecured threshold amount is exceeded. The
threshold is tied to the long-term debt credit ratings of the counterparty.
The collateral consists of United States Treasury securities or cash. At
December 31, 1996, uncollateralized option contracts were approximately $1,141.
REINVESTMENT RISK
At December 31, 1996 and 1995, investments in mortgage backed securities
amounted to approximately $1,344,442 and $1,294,558, respectively, and mortgage
loans on real estate amounted to approximately $249,399 and $233,697,
respectively. Prepayments of the underlying mortgages may shorten the life of
the investment, thereby adversely affecting yield to maturity. Additionally,
prepayments and maturities subject the Company to the risk that the funds may
not be able to be reinvested in instruments with similar yields as those that
matured or prepaid.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
13. SUPPLEMENTAL CASH FLOWS INFORMATION:
Supplemental Disclosures of Cash Flows Information
<TABLE>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 1,686 $ 1,252 $ 1,240
Income taxes $ 1,758 $ 1,565 $ 1,157
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities
As part of the sale of Shelby during 1996, DLAC received 250,000 shares of
restricted stock of the acquiring company with a value of $1,250 (see Note 3).
During February 1995, the Board of Directors awarded 10,000 shares of common
stock Class A to the Company's Chief Executive Officer which will vest prorata
over five years. The unearned compensation amounted to $520.
During 1995, the Company foreclosed mortgages amounting to approximately
$3,400. The properties were transferred to real estate held for sale.
As discussed in Note 4, during 1995 the Company reclassified certain
investments in accordance with the one-time amnesty provisions for SFAS 115
purposes. The 1995 financial statements include the following noncash
adjustments for the one-time reclasses:
<TABLE>
Increase
--------
<S> <C>
Investments $ 10,630
Policy liabilities 9,693
Deferred federal income taxes 319
Stockholders' equity 618
</TABLE>
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
13. SUPPLEMENTAL CASH FLOWS INFORMATION, CONTINUED:
The impact of SFAS 115, other than the one time reclassification mentioned
above, was as follows:
<TABLE>
Increase
(Decrease)
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Investments $(4,427) $8,139 $(7,125)
Policy liabilities (3,262) 2,910 (2,094)
Deferred federal income taxes (392) 1,947 (1,711)
Stockholder's equity (773) 3,782 (3,320)
</TABLE>
14. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS:
Fair values for financial instruments are management's estimate of the values
at which the instrument could be exchanged in a transaction between willing
parties. These estimates are subjective and may vary significantly from
amounts that would be realized in actual transactions. In addition, certain
financial instruments and all non-financial instruments are excluded from the
fair value disclosure requirement of Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosure about Fair Value of Financial Instruments.
Therefore, the fair values presented should not be construed as the underlying
value of the Company.
The carrying amounts reported in the balance sheet for cash and cash
equivalents, accrued investment income, accounts receivable and payable and
mortgage backed securities receivable approximate fair
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
14. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED:
value due to the short-term nature of these instruments. As policy loans
have no stated maturity and are often repaid by account withdrawals or
surrenders, it is not practical to estimate their fair values.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument in which it is possible to estimate that
value and fair value does not approximate carrying value.
DEBT SECURITIES
The fair value of debt securities are determined primarily by reference to a
pricing service or the dealer market.
CONVENTIONAL MORTGAGE LOANS
Management considers the loans to be a homogeneous category consisting
primarily of commercial mortgages. The fair value of conventional first
mortgage loans is estimated by discounting the future cash flows using the
current rates at which loans with similar maturities would currently be
originated by the Company and current estimated prepayment factors.
ANNUITY AND LIFE DEPOSITS
The fair value of these contracts is estimated as the policyholder's net cash
surrender value which the policyholder may withdraw at their option.
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
14. ESTIMATED FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED:
NOTES PAYABLE
As the variable rate portion of the notes payable to bank is a revolving line
of credit at current rates available to the Company, the fair value of the debt
approximates its carrying value. The fair value of the fixed rate portion of
the outstanding balance is based upon the discounted amount of future cash
flows using the Company's incremental rate of borrowing for a similar
liability.
PURCHASED OPTION CONTRACTS
The fair value of purchased option contracts are determined primarily by
reference to the dealer market.
The estimated fair value of the Company's financial instruments at December
1996 and 1995 are as follows:
<TABLE>
1996 1995
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------ --------- -------
<S> <C> <C> <C> <C>
Debt securities $ 1,437,299 $ 1,426,364 $ 1,406,907 $ 1,415,698
Conventional mortgage loans 249,399 259,685 233,697 254,000
Purchased option contracts 8,422 11,369 - -
Annuity deposits 1,736,856 1,669,549 1,619,496 1,548,766
Life deposits 16,092 15,661 39,281 35,644
Notes Payable 22,700 22,720 20,400 20,700
</TABLE>
<PAGE>
DELTA LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(DOLLARS IN THOUSANDS)
15. FUTURE ADOPTION OF RECENTLY ISSUED ACCOUNTING STANDARDS:
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 125 (SFAS 125), Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities, Statement of Financial
Accounting Standards No. 128 (SFAS 128), Earnings per Share, and Statement of
Financial Accounting Standards No. 129 (SFAS 129), Disclosure of Information
about Capital Structure. SFAS 125 provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities. Those standards are based on consistent application of a
financial-components approach that focuses on control. Under this approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. SFAS 125 provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock. SFAS 129 establishes standards for disclosing information about an
entity's capital structure and applies to all entities.
Based upon the current circumstances, the Company believes the impact of these
standards, when adopted on January 1, 1997, will not be material to the
Company's consolidated financial statements.
<PAGE>
AMERUS LIFE HOLDINGS, INC. AND DELTA LIFE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30,
1997
<TABLE>
Pro
Delta Pro Forma for
AmerUs Delta Forma the Delta
Historical HistoricalAdjustments Acquisition
---------- -------------------- -----------
(in millions)
<S> <C> <C> <C> <C> <C>
ASSETS:
Invested assets:
Fixed maturities $2,338.1 $1,475.2 $(3.8) (A) $3,809.5
Equity securities 53.0 1.3 54.3
Purchased option contracts - 11.6 19.3 (A) 30.9
Short-term
investments 24.4 - - 24.4
Investment in
unconsolidated
subsidiary 23.7 - - 23.7
Mortgage loans 303.3 266.4 569.7
Real estate 4.3 4.8 0.1 (A) 9.2
Policy loans 66.3 37.1 - 103.4
Other investments 87.9 0.6 - 88.5
------- ------- ---- -------
Total investments 2,901.0 1,797.0 15.6 4,713.6
Cash - 9.7 - 9.7
Accrued investment
income 40.0 12.2 - 52.2
Deferred policy
acquisition costs 128.5 116.0 (116.0) (D) 128.5
Value of business
acquired 109.0 (A)(B) 109.0
Other assets 63.9 77.9 (6.9) (A) 134.9
Closed Block 1,350.3 - - 1,350.3
Goodwill - - 69.5 (A)(C) 69.5
------- ------- ---- -------
Total assets $4,483.7 $2,012.8 $71.2 $6,567.7
======= ======= ==== =======
</TABLE>
<PAGE>
AMERUS LIFE HOLDINGS, INC. AND DELTA LIFE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30,
1997.
<TABLE>
Pro
Delta Pro Forma for
AmerUs Delta Forma the Delta
Historical Historical Adjustments Acquisition
---------- ---------- ---------- -----------
(in millions)
<S> <C> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Policyowner reserves
and policyowner funds $2,051.6 $1,841.8 $15.8 (A) $3,909.2
Other liabilities 120.6 42.4 (6.6) (A) 156.4
Debt 61.5 25.8 164.8 (A)(E) 252.1
Closed Block liabilities 1,587.1 - - 1,587.1
------ ------- ----- -------
Total liabilities 3,820.8 1,910.0 174.0 5,904.8
Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trust holding
solely Junior Subordinated
Debentures of AmerUs 86.0 - - 86.0
------ ----- ----- -----
SHAREHOLDERS' EQUITY:
Preferred stock - - - -
Common stock 23.2 1.8 (1.8) (A) 23.2
Additional paid-in
capital 51.4 78.4 (78.4) (A) 51.4
Retained earnings 443.6 20.8 (20.8) (A) 443.6
Unrealized
appreciation of
available-for-sale
securities 58.7 1.8 (1.8) (A) 58.7
------- ------- ----- -------
Total shareholders'
equity 576.9 102.8 (102.8) 576.9
------- ------- ----- -------
Total liabilities and
shareholders' equity $4,483.7 $2,012.8 $71.2 $6,567.7
======= ======= ===== =======
</TABLE>
<PAGE>
AMERUS LIFE HOLDINGS, INC. AND DELTA LIFE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
Pro Forma
Delta Pro for the
AmerUs Delta Forma Delta
HistoricalHistoricalAdjust. Acquis.
-------------------------- --------
(In millions, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Premiums and product charges $ 64.2 $ 4.9 - $ 69.1
Net investment income 149.8 95.8 - 245.6
Realized gains on investments 14.5 0.9 - 15.4
Other 2.2 - - 2.2
Contribution from the Closed Block 21.7 - - 21.7
----- ----- ----- -----
Total revenues 252.4 101.6 0.0 354.0
----- ----- ----- -----
BENEFITS AND EXPENSES:
Total policyowner benefits 126.1 73.8 - 199.9
Total expenses 63.5 18.9 6.6 89.0
(B)(F)(G)(H)
Dividends to policyowners 0.8 - - 0.8
----- ----- ----- -----
Total benefits and expenses 190.4 92.7 6.6 289.7
----- ----- ----- -----
Income (loss) before income
tax expense 62.0 8.9 (6.6) 64.3
Income tax expense (benefit) 17.7 3.3 (1.7)(I) 19.3
----- ----- ----- -----
Income (loss) before equity
in earnings of unconsolidated
subsidiary 44.3 5.6 (4.9) 45.0
Equity in earnings of
unconsolidated subsidiary 1.2 1.2
----- ----- ----- -----
Net income (loss) $45.5 $5.6 $(4.9) $46.2
===== ===== ===== =====
Net income per share:
Historical $1.96
====
Pro Forma $1.99
=====
Shares used in the calculation
of net income per share:
Historical and Pro Forma 23,155,989
</TABLE> ==========
<PAGE>
AMERUS LIFE HOLDINGS, INC. AND DELTA LIFE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
Pro Forma
Delta Pro for the
AmerUs Delta Forma Delta
Historical HistoricalAdjust.Acquisition
---------- ---------------- ----------
(in millions, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Premiums and product charges $187.8 $11.0 $198.8
Net investment income 228.7 126.8 355.5
Realized gains on investments 66.0 0.1 66.1
Other 2.7 0.7 3.4
Contribution from the Closed Block 19.9 0.0 19.9
----- ----- ----- -----
Total Revenues 505.1 138.6 - 643.7
----- ----- ----- -----
BENEFITS AND EXPENSES:
Total policyowner benefits 261.9 101.6 363.5
Total expenses 99.9 24.8 11.1 135.8
(B)(F)(G)(H)
Dividends to policyowners 26.3 - - 26.3
----- ----- ----- -----
Total benefits and expenses 388.1 126.4 11.1 525.6
----- ----- ----- -----
Income (loss) before income tax expense 117.0 12.2 (11.1) 118.1
Income tax expense (benefit) 43.8 4.6 (3.1)(I) 45.3
----- ----- ----- -----
Income (loss) before equity
in earnings of unconsolidated
subsidiary and extraordinary
item 73.2 7.6 (8.0) 72.8
Equity in earnings of unconsolidated
subsidiary 1.0 1.0
----- ----- ----- -----
Net income (loss) $74.2 $7.6 $(8.0) $73.8
===== ===== ===== =====
Net income per share:
Historical $3.20
====
Pro Forma $3.18
====
Shares used in the
calculation of net income
per share:
Historical and Pro Forma 23,155,989
==========
</TABLE>
<PAGE>
AMERUS LIFE HOLDINGS, INC. AND DELTA LIFE CORPORATION
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(A) Giving effect to the acquisition of Delta under purchase accounting, the
total purchase cost of Delta was allocated to the assets and
liabilities acquired based on their relative fair values as of the date of
acquisition, with any excess of the total purchase cost over the fair value
of the assets acquired less the fair value of the liabilities assumed
recorded as goodwill. The cost allocations are primarily related to value
of business acquired, investments, and goodwill. Although the final
allocations may differ, the pro forma financial statements reflect
management's best estimate based on currently available information and
the differences between the current and final allocations are not expected
to be material.
The allocation of the purchase price is as follows (in millions):
<TABLE>
<S> <C>
Investments (including cash and
short-term investments) $1,822.3
Receivables and other assets 83.2
Value of business acquired 109.0
Goodwill 69.5
Policyowner reserves and funds (1,857.6)
Debt (25.8)
Other liabilities (35.8)
---------
164.8
Cash Consideration (164.8)
---------
$ -
=========
</TABLE>
The historical components of Delta's shareholders' equity have been
eliminated in accordance with purchase accounting.
(B) Value of the insurance business acquired reflects the estimated fair value
of the business in force and represents the portion of the cost to acquire
the company that is allocated to the value of the right to receive future
cash flows from the insurance contracts existing as of the date of
the acquisition. The value of business acquired is authorized in
proportion to expected future gross profits over a 20 year period and
is based on the average interest crediting rates which range from
approximately 5.6% to 6.0% for 1996 and over the next five years. The
estimated amortization for 1996 and the next five years is as
follows (in millions):
<TABLE>
<S> <C>
1996 $8.6
1997 $8.4
1998 $8.9
1999 $10.2
2000 $11.4
2001 $10.9
</TABLE>
(C) Represents the excess of the total purchase price over the fair value of
the assets acquired less the fair value of the liabilities assumed.
(D) Represents the unamortized balance of deferred policy acquisition costs.
(E) Represents the proceeds of bank borrowings as the source of $164.8 million
used to acquire Delta.
(F) Includes the amortization of goodwill on a straight-line basis over 30
years and the effects of depreciation adjustments related to the
disposition of redundant assets over five year lives (refer to note H for
amounts).
(G) Includes the interest expense on the bank borrowings for the acquisition
of Delta based on an estimated rate of 6.5%, which represents the current
actual borrowing rate of AmerUs (refer to note H for amounts).
(H) The following is a summary of the expense pro forma adjustments related to
Delta for the nine months ended September 30, 1997, and the
year ended December 31, 1996 (in millions):
<TABLE>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Value of business acquired amortization (B) $5.3 $8.6
Historical deferred acquisition costs amortization (D) (7.1) (9.0)
Goodwill amortization (F) 1.7 2.3
Depreciation (F) (1.4) (1.6)
Interest expense for borrowing (G) 8.1 10.8
---- ----
Total $6.6 $11.1
==== =====
</TABLE>
(I) Represents the income tax effect on the pro forma adjustments at an
effective tax rate of 35%.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERUS LIFE HOLDINGS, INC.
By: /s/
---------------------------------
Name: Roger K. Brooks
Title: Chairman, President and
Chief Executive Officer
Date: January 6, 1998
2.1 Agreement and Plan of Merger, dated as of August 13, 1997 and as amended
as of September 5, 1997, among the Registrant, a wholly-owned subsidiary of the
Registrant and Delta Life Corporation (incorporated by reference to the
Registrant's Current Report on Form 8-K dated October 8, 1997).
