<PAGE>1
_______________________________________________________________________________
_______________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________________ to ____________________
Commission file number 1-5683
USLIFE Corporation
(Exact name of Registrant as specified in its charter)
New York 13-2578598
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 Maiden Lane, New York, N. Y. 10038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 709-6000
_____________________
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
___________________ ______________________
New York Stock Exchange
Common Stock, par value $1 per share Chicago Stock Exchange
Common Stock Purchase Rights Pacific Stock Exchange
_____________________
Securities registered pursuant to Section 12(g) of the Act:
Preferred Stock, $4.50 Preferred Stock, $5.00
Series A Convertible, Series B Convertible,
par value $1 per share par value $1 per share
_____________________
Indicate by check mark 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.......
_____________________
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated herein by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of February 24, 1994 was approximately $877,000,000.
_____________________
The number of shares outstanding of the Registrant's Common Stock as of
February 24, 1994 was 22,661,792.
_______________________________________________________________________________
_______________________________________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE
Specified information in USLIFE Corporation's definitive proxy statement
to be filed within 120 days after the end of USLIFE's fiscal year ended
December 31, 1993 for use in connection with the Annual Meeting of Shareholders
to be held on May 17, 1994, is incorporated by reference in Parts I and III
hereof.
<PAGE>2
Items 1, 6 and 7. - Business; Selected Financial Data; Management's Discussion
and Analysis of Financial Condition and Results of
Operations
USLIFE CORPORATION AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following Selected Financial Data of USLIFE Corporation and
subsidiaries should be read in conjunction with the related notes thereto and
with the financial statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31
______________________________________________________________
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
(Amounts in Thousands except Per Share Statistics)
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Total income........................ $1,600,038 $1,529,452 $1,382,906 $1,235,575 $1,200,223
========== ========== ========== ========== ==========
Income from operations.............. $ 97,157 $ 69,612 $ 74,672 $ 68,714 $ 80,181
Extraordinary charge
relating to litigation............. - - - - (6,526)
Cumulative effect of
accounting change (a).............. - (37,990) - - -
__________ __________ __________ __________ __________
Net income.......................... $ 97,157 $ 31,622 $ 74,672 $ 68,714 $ 73,655
========== ========== ========== ========== ==========
Income per share:(b)
Income from operations.............. $4.25 $3.05 $3.21 $2.85 $3.08
Extraordinary charge
relating to litigation............. - - - - (.25)
Cumulative effect of
accounting change (a).............. - (1.67) - - -
_____ _____ _____ _____ _____
Net income.......................... $4.25 $1.38 $3.21 $2.85 $2.83
===== ===== ===== ===== =====
Dividends Per Common Share........... $1.21 $1.14 $1.07 $ .99 $ .94
===== ===== ===== ===== =====
<CAPTION>
December 31
______________________________________________________________
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets....................... $6,740,241 $6,095,272 $5,329,269 $4,573,347 $4,336,397
========== ========== ========== ========== ==========
Long-term debt..................... $ 349,235 $ 349,439 $ 249,229 $ 349,326 $ 349,433
========== ========== ========== ========== ==========
Redeemable preferred stock......... $ - $ - $ 2,833 $ 3,778 $ 4,722
========== ========== ========== ========== ==========
Equity Capital..................... $ 966,029 $ 890,441 $ 884,436 $ 843,346 $ 844,159
========== ========== ========== ========== ==========
</TABLE>
__________
(a) In December 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." See Notes 1 and 5 of Notes to Financial
Statements for further information.
(b) See Note 1 of Notes to Financial Statements as to calculations of
income per share.
<PAGE>3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity
The liquidity requirements of the Company are met primarily by cash flows
from operations of the life insurance subsidiaries and accumulated funds at the
subsidiary level. These internal sources of liquidity are complemented by such
external sources as available bank lines of credit and revolving credit
agreements and the ability of the Company to utilize capital markets for
intermediate and long-term financing.
Premium and investment income as well as maturities and sales of invested
assets provide the primary sources of cash available at the life insurance
subsidiaries, while cash is applied by such subsidiaries to payment of policy
benefits and loans, costs of acquiring new business (principally commissions),
and operating expenses, as well as purchases of new investments. Net cash
provided from operating activities of the life insurance subsidiaries amounted
to $171.1 million in 1993 versus $122.0 million in 1992. Cash dividends paid
by all consolidated subsidiaries to the parent company amounted to $61.2
million, $47.7 million and $58.2 million in 1993, 1992, and 1991, respectively.
Additionally, during 1993, securities with market value of $21.6 million were
transferred from a life insurance subsidiary to the parent company and
subsequently contributed to another life insurance subsidiary in connection
with the combination of the two subsidiaries' operations. In addition to the
1992 cash dividends, securities with market value of $26.3 million were
transferred from a life insurance subsidiary to the parent company following
the combination of operations of two of the Company's life insurance
subsidiaries. All of the aforementioned cash dividends to the parent company
came from the life insurance subsidiaries. The increase in cash dividends
received in 1993 reflected capital made available at the subsidiary level from
the combination of operations of certain life insurance subsidiaries, and a
portion of the incremental amount received was applied to repay corporate
borrowings. The 1992 decrease in such dividends reflected reduced parent
company cash requirements attributed to various factors including a reduction
in treasury stock purchases. It should be noted that payment of dividends from
the life insurance subsidiaries for application toward liquidity needs at the
parent company level (including overhead costs, interest on indebtedness and
dividends on preferred and common stocks) may require regulatory approval in
cases where such dividends exceed certain guidelines generally based on income
before capital gains and losses and Equity Capital as reported to regulatory
authorities on the basis of statutory accounting practices ("Regulatory
Operating Income" and "Regulatory Equity Capital") and, at a further threshold,
may require payment of additional taxes under provisions of federal income tax
law applicable to life insurance companies. The life insurance subsidiaries
reported Regulatory Operating Income of $88.9 million, $56.6 million and $56.6
million in 1993, 1992 and 1991, respectively and Regulatory Equity Capital of
$549.4 million, $525.3 million and $556.8 million as of December 31, 1993, 1992
and 1991, respectively. In determining the timing and amount of such dividend
payments, management considers, among other factors, insurance industry rating
agency criteria which are based primarily upon the statutory financial position
of life insurance companies. Historically, these self imposed criteria have
been more restrictive in terms of dividend availability than the aforementioned
regulatory or tax considerations. Investment advisory fees paid by the life
insurance subsidiaries, which amounted to $6.4 million in 1993, comprise an
additional source of liquidity at the parent company.
In addition to the liquidity factors at the subsidiary level previously
discussed, cash requirements at the parent company for interest on
indebtedness, dividends on preferred and common stocks, and overhead costs are
a key factor in the Company's overall liquidity situation. For the years ended
December 31, 1993, 1992 and 1991, the aforementioned items totalled $93.4
million, $93.9 million, and $98.4 million, respectively. The decreases in
these cash requirements in 1993 and 1992 came primarily from lower interest
costs attributable to more favorable interest rates applicable to short-term
corporate borrowings and refinancing transactions as discussed below. The
Company's common stock repurchase program was also a factor in its cash
requirements during 1992 and 1991 (see discussion under "Capital Resources").
This program, under which there were no market repurchases of treasury stock
during 1993, was extended by Board action through November 1994 with authority
to repurchase up to one million common shares.
<PAGE>4
On a consolidated basis, net cash provided by operating activities amounted
to $141.8 million, $83.5 million and $77.8 million in 1993, 1992 and 1991
respectively. The 1993 increase in cash provided by operating activities
reflected various factors including an increase in capital gains from disposals
of fixed maturity investments, primarily a result of redemptions prior to
maturity by the respective issuers, and a reduced level of net additions to
deferred policy acquisition costs. The latter reflects a decline in individual
annuity sales prompted by management action to slow the rate of such sales in
late 1992 with objectives including diversification of sales mix and production
sources.
Cash flows from operating activities for 1993 included $53.0 million from the
change in liability for future policy benefits, versus $26.9 million in 1992,
with increased written premiums on credit insurance coverages a contributing
factor. Interest credited to policyholder account balances increased to $183.7
million in 1993 versus $173.5 million in 1992, reflecting the increase in
policyholder account balances relating to individual annuities and universal
life insurance contracts with the impact of reductions in credited rates of
interest on certain contracts a partial offsetting factor as discussed under
"Results of Operations." The portion of policyholder account balances relating
to individual annuities was approximately $1.7 billion at December 31, 1993
versus $1.4 billion at December 31, 1992, with the remainder relating to
universal life insurance contracts. Interest rates paid on these universal
life and individual annuity contracts may be adjusted periodically by the
Company. Subject to any applicable surrender charges, the Company's universal
life insurance products and individual annuities may be surrendered by the
holder. A cash surrender value, based on contractual terms, is also available
to the policyholder upon surrender of many of the Company's traditional
individual life insurance policies under which cash values are accumulated.
Such surrenders are influenced by various factors including economic
conditions, available alternative investment returns, competition for
investment and insurance funds, and perceived financial strength of the
insurer. These contracts are generally supported by the Company's investment
portfolios, which are primarily comprised of investment grade, publicly traded
corporate bonds. Substantially all of the Company's interest sensitive life
insurance and annuity contracts provide for imposition of a surrender charge in
the event of policy surrender during a specified initial period commencing with
contract inception, typically ten to fifteen years for universal life insurance
and five to seven years for individual annuities, with the significance of this
charge often subject to reduction over the applicable period or during the
later portion thereof. The Company's investment portfolios are continually
monitored to determine whether the distribution of investment maturities is
considered appropriate for expected levels of policy surrenders. The Company's
fixed maturity investments may be sold prior to maturity as part of the
Company's asset / liability management strategy and are classified as
"available for sale" as discussed in Note 1 of Notes to Financial Statements.
Adjustments to the investment maturity distribution, if necessary, may also be
accomplished by actions concerning the investment of incoming funds and/or
reinvestment of the proceeds of securities matured or redeemed. The Company
monitors its surrenders on a monthly basis. Any material deviation or emerging
trend is traced to the product line and agency of record, and remedial action
is taken where appropriate. If an acceleration of surrenders of these
contracts were experienced, the cash flow requirements associated with such
surrenders could conceivably require the Company to liquidate a portion of the
underlying security investments prior to maturity, at then-prevailing market
prices. Any additional cash flow requirements would be met through the sources
of liquidity described earlier. Net additions to deferred policy acquisition
costs amounted to $36.1 million in 1993 versus $57.0 million in 1992. The
decline of approximately $21 million reflected a lower level of individual
annuity sales during 1993 which, as discussed further below, is also reflected
in the increase in policyholder account balances included in net cash provided
by "financing" activities.
Current year Federal income tax payments amounted to $60.7 million, $57.3
million and $71.4 million in 1993, 1992 and 1991, respectively. The Company
and certain subsidiaries also made payments to, and received refunds from, the
Internal Revenue Service during 1992 relating to settlement of prior year tax
returns. The total of such payments, less refunds received, amounted to $18.4
million. Since the latter payments and refunds were associated with previously
recorded liabilities, these settlements had no impact on reported results of
operations for 1992. The reduced level of Federal income tax payments relating
to current operations in 1992 as compared to 1991 reflects various factors
including the utilization of an accumulated credit balance arising from
previous tax payments.
<PAGE>5
Net cash used in investing activities amounted to $536.3 million, $726.6
million, and $710.3 million in 1993, 1992 and 1991, respectively. The 1993
decrease resulted primarily from the above-noted decline in individual annuity
sales which, as discussed below, also resulted in a reduced level of increase
in policyholder account balances. The 1992 increase related primarily to
increased volume of individual life insurance and annuity contracts. The
$1.154 billion and $798.7 million disposals of fixed maturity investments
included in cash flows from investing activities for 1993 and 1992 included,
respectively, approximately $928 million and $497 million book value of
securities which were called for redemption by the respective issuers prior to
maturity. Substantially all of the proceeds from fixed maturities sold or
redeemed were directed to investment grade fixed maturity investments.
Purchases of fixed maturity investments in 1993, 1992 and 1991 amounted to
$1.751 billion, $1.550 billion and $1.444 billion, respectively, reflecting
both reinvestment of the proceeds from fixed maturity disposals and investment
of funds corresponding to the increases in policyholder account balances. Pre-
tax net capital gains relating to fixed maturity investments (after impairment
provisions) amounted to $46.9 million, $23.1 million and $11.0 million in 1993,
1992, and 1991, respectively. The Company's investment management policies
include continual evaluation of securities market conditions and circumstances
relating to particular investment holdings which may result in selection of
fixed maturity or other investments for sale prior to maturity. Securities may
also be sold as part of the Company's asset/liability management strategy as
indicated above in response to changes in interest rates, resultant prepayment
risk, and similar factors. The impact of calls of higher yielding securities
out of the investment portfolio and the reinvestment of proceeds from these
securities, as well as funds provided from operations, at lower available
current rates is discussed under "Results of Operations." Valuation reserves
are maintained for investments with a reduction in value determined to be other
than temporary. As also indicated in Note 1 of Notes to Financial Statements,
net unrealized gains on the Company's fixed maturities portfolio, with book
value of $4.8 billion as of December 31, 1993, amount to approximately $380
million at that date. This amount reflects gross unrealized gains of $392
million and gross unrealized losses of $12 million. Based on current
evaluation of the paying status of the Company's fixed maturity investments and
anticipated continuation of the aforementioned investment policies, the sales
of fixed maturity investments and retention of certain securities with current
market value less than book value are not anticipated to result in a material
adverse impact upon investment yield of the life insurance subsidiaries. As
discussed in Note 1 of Notes to Financial Statements, the Company's $361.1
million consolidated investment in mortgage loans as of December 31, 1993 is
characterized by a broad geographical distribution. The Company invests
principally in commercial mortgages which comprise substantially all of the
total investment in mortgages at December 31, 1993. Commercial mortgage
investments are generally made with a loan-to-value ratio not in excess of 75%
and emphasize fully occupied general purpose retail, office and industrial real
estate having broad user appeal on a diversified national basis. Investment in
real estate is limited typically to selected commercial real estate which is
substantially pre-leased or where the prospects of finding a user upon
completion are unusually attractive. As of December 31, 1993 and 1992,
consolidated invested assets included $25.0 million and $29.2 million book
value of real estate acquired through foreclosure, respectively. Consolidated
net investment income for the years ended December 31, 1993 and 1992 included
net charges of approximately $1.2 million and $600 thousand relating to such
properties, respectively. It is the Company's general policy to determine the
estimated net realizable value of foreclosed real estate based upon appraisals
relating to the underlying mortgage loans which are continually reviewed and/or
updated by management based upon market conditions furnished by third party
property managers or brokers. The Company maintains reserves so that these
assets are carried at the lower of cost or estimated net realizable value.
Based on current evaluation of real estate properties held as a result of
foreclosure and anticipated continuation of the Company's policies relating to
disposal of such properties, the retention of these properties until disposal
at terms believed to reflect their estimated net realizable values is not
anticipated to result in a material adverse impact upon consolidated net
investment income or the liquidity of the Company.
<PAGE>6
Net cash flows provided by consolidated financing activities amounted to
$380.3 million, $641.2 million, and $632.5 million in 1993, 1992 and 1991,
respectively. The reduced level of cash flows from financing activities in
1993 reflects the impact of reduced individual annuity sales, as noted above,
on changes in policyholder account balances. The increase in policyholder
account balances amounted to $416.7 million, $647.5 million, and $647.1 million
in 1993, 1992 and 1991, with gross premiums on single premium annuities of
$344.7 million, $524.8 million and $512.1 million in those years, respectively.
Sales of interest sensitive permanent life insurance policies, with new
annualized premiums of $55.8 million, $55.0 million and $53.9 million in 1993,
1992, and 1991, respectively, and the increase in accumulated values on
contracts in force were also factors in the growth in policyholder account
balances. Premium receipts for substantially all of the Company's interest
sensitive individual life and annuity contracts are not included in reported
revenues but are instead directly credited to the liability for policyholder
account balances as required by FASB Statement No. 97.
Cash flows from financing activities for 1993 include refinancing
transactions in which the Company issued a total of $300 million principal
amount of debt securities under shelf registration statements and utilized the
proceeds to repay $200 million long term debt and $100 million short term
variable rate bank debt as discussed under "Capital Resources." Cash flows
from financing activities for 1992 included receipt of $150 million proceeds
from bank borrowing under a credit agreement consummated in May 1992, also
utilized in a refinancing transaction. The $112.4 million decrease in notes
payable included in 1993 cash flows from financing activities reflects the
noted refinancing of short term variable rate bank debt as well as the
application of a portion of dividends received from the life insurance
subsidiaries by the parent company to repay short term bank borrowings as
discussed earlier. The 1992 and 1991 increases in notes payable, amounting to
$23.9 million and $25.4 million, respectively, resulted from short-term
borrowings for general corporate purposes including incremental repurchases of
the Company's common stock under the treasury stock repurchase program.
As of December 31, 1993, the Company had lines of credit with seven banks
amounting to $60 million, all of which was unused. However, at that date, the
Company had outstanding short-term borrowings with three banks, negotiated
independently of such lines to take advantage of more favorable available
interest rates, in the aggregate amount of $65.5 million. Also at that date,
the Company had a bank revolving credit agreement which provides short term
borrowing facilities up to $100 million, under which no borrowings were
outstanding. The Company's short term borrowings were utilized primarily for
working capital requirements.
Capital Resources
Long term debt at December 31, 1993 includes a $150 million non-callable
issue of 6.75% Notes due 1998 and a $150 million non-callable issue of 6.375%
Notes due 2000, both issued in early 1993 under shelf registration statements.
The Company has filed an additional shelf registration statement which, as of
December 31, 1993, permits the issuance of up to $150 million principal amount
of debt securities subject to management's discretion as to timing and amount
of issues thereunder. The proceeds of the 1993 issues were utilized in
connection with the redemption of the Company's $50 million issue of 8.875%
Notes due 1995 and its $100 million issue of 8.375% Notes due 1996, and to
repay $50 million bank debt under a credit facility (which had been classified
as long term debt) and an additional $100 million of short term variable rate
bank debt. The Company's remaining long term debt at December 31, 1993
consists of a $50 million issue of 9.15% Notes due 1999 which permits repayment
at the option of the Company prior to maturity, commencing in 1996. While it
is currently anticipated that the major portion of the long term debt will be
repaid using the net proceeds of debt and/or equity or combination securities
to be issued at future dates, determination of the timing and amount of such
repayments and securities issues will be dependent upon future market
conditions, future cash flows, and other unforeseen circumstances.
<PAGE>7
For the years ended December 31, 1993, 1992 and 1991, respectively,
consolidated interest expense amounted to $32.4 million, $33.8 million, and
$39.2 million, with $26.7 million, $25.9 million, and $28.7 million of such
interest expense relating to long term debt. Dividends paid on the Company's
outstanding stock issues for such years were $27.4 million, $25.8 million, and
$24.8 million, substantially all relating to common stock. The increases in
such dividends reflected increases in common stock dividends per share from
$1.07 in 1991 to $1.14 in 1992 and $1.21 in 1993. The decreases in
consolidated interest expense in 1993 and 1992 resulted primarily from more
favorable interest rates applicable to short-term borrowings and refinancing
transactions as indicated above. The impact of more favorable interest rates
in 1992 as compared to 1991 more than offset the additional interest cost
associated with financing of incremental treasury stock repurchases.
The life insurance subsidiaries enter into standby commitments,
representing contingent obligations to replace certain borrowings in the event
of default by unaffiliated borrowers, in the ordinary course of their
investment operations and, as of December 31, 1993, a subsidiary had an
outstanding standby commitment of $6.8 million. Historically, the life
insurance subsidiaries have not provided permanent financing on the major
portion of such standby commitments.
The Company has outstanding Standby Letters of Credit with two banks
representing contingent obligations to fund various trusts established in
connection with certain employment contracts of management employees, the
Company's Supplemental Retirement Plan, Retirement Plan for Outside Directors,
and Retirement Plan, in the event of a Change in Control (as defined in the
trust agreements), totalling $31 million. Additionally, in connection with the
application by a life insurance subsidiary for an additional state license to
transact business, USLIFE Corporation has agreed to guarantee that subsidiary's
maintenance of the state's minimum capital and surplus requirements (amounting
to $4.4 million as of December 31, 1993) for a ten year period commencing at
the effective date of such license.
Results of Operations
1993 Compared to 1992
For the year ended December 31, 1993, net income amounted to $97.2 million
versus $69.6 million (before a $38.0 million charge for "cumulative effect of
accounting change" as discussed in Note 1 of Notes to Financial Statements) for
1992. The $97.2 million net income for 1993 included net capital gain
transactions with an after-tax impact of $5.5 million, while 1992 results
included an after-tax charge of $1.7 million from similar transactions. The
net capital gains reported for 1993 reflected $54.5 million pre-tax gains on
disposals of fixed maturity investments, which were partially offset by pre-tax
losses of approximately $10.7 million on disposal of certain real estate,
mortgage and joint venture investments and by additions to valuation reserves
for certain investments with loss exposure. The net capital losses reported
for 1992 reflected the disposal of certain real estate investments and
additions to valuation reserves for certain investments with loss exposure
which, together, more than offset pre-tax capital gains of approximately $23.2
million from disposals of fixed maturity investments. As discussed under
"Financial Condition," the major portion of disposals of fixed maturity
investments during 1993 and 1992 related to securities which were called for
redemption by the respective issuers prior to maturity. Consolidated net
income for 1993 also includes a gain of $1.5 million (after applicable taxes)
from sale of a subsidiary's home office property and a charge of $2.0 million
to recognize the cumulative impact of the change in corporate Federal income
tax rates enacted in August 1993 as required by FASB Statement No. 109. In
addition to this charge, it is estimated that the increased rates negatively
impacted second half 1993 net income by approximately $850 thousand. Net
income for 1992 reflects a charge equivalent to $10.6 million on an after-tax
basis to establish a reserve for amounts receivable from an Association Group
Health marketing organization which declared bankruptcy.
<PAGE>8
Excluding the transactions discussed above (capital gains and losses, 1993
recognition of cumulative impact of income tax rate change and home office
property sale, and 1992 charges for "cumulative effect of accounting change"
and receivables), consolidated after-tax income amounted to $92.1 million for
1993 versus $81.9 million for 1992, an increase of $10.2 million or 12.5%. On
a similar basis, after-tax income of the life insurance subsidiaries other than
the aforementioned items increased $8.1 million or 6.9%. The improvement in
life insurance subsidiary results came primarily from an increase in pre-tax
profits from the individual life and annuity product line and a reduction in
pre-tax losses from "other group health" coverages, as discussed below. Also
on a similar basis, after-tax corporate charges (including the operating
results of USLIFE's servicing units) amounted to $34.5 million in 1993 versus
$36.6 million for 1992, resulting in a positive comparative impact of
approximately $2 million on after-tax consolidated results. Results for 1993
benefited from lower interest costs attributable to refinancings of long term
debt and more favorable interest rates applicable to short term corporate
borrowings, as well as capital made available at the corporate level as a
result of the combination of operations of certain life insurance subsidiaries.
In June 1993 the Company utilized the proceeds of its $150 million issue of
6.375% Notes due 2000 to repay short term variable rate bank debt which, at the
time of repayment, had a weighted average interest rate of approximately 3.6%.
The impact of the latter refinancing partially offset the reductions in
interest expense from long term debt refinancing transactions. Corporate
charges reflect, among other factors, interest expense associated with
financing of repurchases of the Company's common stock under the treasury stock
repurchase program.
Pre-tax income of the life insurance subsidiaries for 1993, excluding
capital gains and losses and the subsidiary home office sale as previously
discussed, was $192.9 million. For 1992, pre-tax income of the life insurance
subsidiaries excluding capital gains and losses and the charge for "cumulative
effect of accounting change" was $161.4 million, reflecting the $16.0 million
pre-tax impact of the aforementioned receivables charge. The major portion of
the life insurance subsidiaries' pre-tax income is attributed to the individual
life insurance and annuity product line. A pre-tax profit of $9.3 million was
attributed to all health insurance coverages in 1993, versus a pre-tax loss of
$19.3 million in 1992 which resulted primarily from the receivables charge.
Employer-employee group health insurance coverages, which are generally written
as a corollary to employer-employee group life insurance, accounted for
approximately 86% and 87% of total health insurance premiums in 1993 and 1992,
respectively. Employer-employee group insurance coverages are discussed
further below. The remainder of the Company's health insurance business
consists of credit disability insurance, "other group health" insurance
(primarily association group health), and individual health and disability
coverages. As indicated above, the increase in life insurance subsidiary
after-tax income for 1993 versus 1992 is primarily attributed to an increase in
pre-tax profits from the individual life and annuity product line and a
reduction in pre-tax losses from "other group health" coverages. A discussion
of the Company's various product lines, excluding the impact of capital gains
and losses and the 1993 subsidiary home office property sale which are
previously discussed, follows.
Individual life and annuity pre-tax profits, including income attributable
to capital and surplus, amounted to $177.1 million for 1993 versus $169.3
million for 1992. The increase of $7.8 million or 4.6% reflected favorable
mortality experience during the first nine months of 1993 and a continuation of
gains from investment income margins.
A pre-tax profit of $1.3 million was reported for credit life insurance
coverages for 1993, versus $3.2 million in 1992, reflecting unfavorable
mortality experience during the second and third quarters of 1993. Credit life
insurance business in three key states, Maryland, New York, and Pennsylvania,
contributed to this unfavorable mortality experience. Since these states
require rate modifications based on experience over a three-year interval, it
is anticipated that the rating formulas should permit rate adjustments over the
next several years that take into account the current year experience.
<PAGE>9
Pre-tax profits from the Company's group life insurance lines of business
amounted to $5.2 million for 1993 versus $8.2 million for 1992, a decrease of
$3.0 million. The negative variance was attributed primarily to less favorable
results from association group life insurance coverages and certain specialty
coverages, such as mortgage life insurance, included in the "other group life"
line. Pre-tax profits from employer-employee group life insurance products
were $4.1 million for 1993 versus $4.6 million in 1992, reflecting less
favorable mortality experience in 1993.
The individual health and disability product line reported a pre-tax loss
of $290 thousand for 1993, versus a pre-tax loss of $461 thousand for 1992.
This product line consists primarily of certain specialty products and
coverages issued upon conversion of certain group health insurance products.
Pre-tax profits from the credit disability product line amounted to $5.0
million for 1993, versus $1.9 million in 1992, reflecting more favorable
morbidity experience during 1993.
Total pre-tax income from group health insurance coverages amounted to
$4.6 million for 1993, consisting of a pre-tax profit of $8.9 million from
employer-employee group health insurance products and a pre-tax loss of $4.3
million from "other group health" products, primarily association group health
insurance. For 1992, a pre-tax loss of approximately $4.8 million was reported
for group health insurance coverages (in addition to the aforementioned $16.0
million receivables charge), consisting of a pre-tax profit of $7.3 million
from employer-employee group health insurance products and a pre-tax loss of
$12.0 million from "other group health" products. The increase in pre-tax
income from employer-employee group health insurance coverages reflected more
favorable morbidity experience in 1993 which more than offset the impact of
terminations on a certain block of business affected by recent legislation as
discussed below. Premium income from employer-employee group health insurance
coverages amounted to approximately $425 million for 1993 versus $437 million
for 1992. Premiums charged for these products are subject to periodic rate
adjustments by the Company which considers, among other factors, trends in the
costs of benefits provided in setting such rates. Profitability of these
products is dependent upon various factors including the ability of the Company
to match premiums charged to increases in benefit costs through periodic rate
adjustments and to maintain underwriting standards so that premium charged is
consistent with risk assumed on an overall basis. New York State "community
rating - open enrollment" legislation applicable to insured group medical plans
with less than fifty employees, which became effective as of April 1, 1993,
prohibits the use of individual underwriting techniques for group major medical
business, which is included in the Company's employer-employee group health
product line. The legislation permits carriers to use pre-existing condition
exclusions to protect against adverse selection, but prohibits the use of age
and sex factors in rating, and requires that average rates be used for the
aforementioned plans. All affected in-force business had to be renewed in
accordance with the new requirements as of April 1, 1993, and consequently the
Company suspended new business sales of these products in New York State during
the first quarter to prepare for the renewal process and resumed such sales
effective on the latter date. This process resulted in an unusually high level
of policy lapses and negative impact on premium income during 1993 for the
affected coverages in New York State. Since group life insurance is often sold
in conjunction with these medical sales, there was a similar impact on
employer-employee group life insurance products. In response to current and
anticipated health insurance reform, the Company announced in December 1993
that it would restrict its sales of new major medical business to 21 states,
including New York, in which it has a significant amount of in-force business,
while continuing renewals of this business in all states. Based on preliminary
analysis, the Company does not currently anticipate a material adverse impact
on its consolidated operations to result from the New York legislation or the
actions taken with respect to this line of business. The decrease in the pre-
tax loss for "other group health" products (primarily association group health)
from $12.0 million in 1992 to $4.3 million in 1993 reflected a decline in
expenses attributed to this line as well as improved morbidity experience.
Legal and other expenses relating to the aforementioned marketing organization
bankruptcy was the major contributing factor in the 1993 pre-tax loss,
primarily incurred during the first half of the year, and a significant factor
in the 1992 loss. The 1992 loss for this product line also reflected legal
expenses relating to a reinsurance dispute concerning certain group medical
insurance programs previously written by a subsidiary of the Company, in which
settlements were subsequently reached with the reinsurers involved.
<PAGE>10
Total revenues of the life insurance subsidiaries in 1993 amounted to
$1.583 billion, an increase of $69.0 million or 4.6% over 1992, primarily on
increases of $25.0 million (or 2.3%) and $29.3 million (or 7.3%) in premiums
and considerations and net investment income, respectively. Other income
increased $1.7 million to $18.3 million in 1993, reflecting $2.3 million income
from the sale of a subsidiary's home office property during the third quarter
of 1993. The increase in premiums and considerations came primarily from the
individual life insurance and annuity product line and from increased written
premiums on the Company's credit insurance products. A decrease of $12.8
million in employer-employee group insurance premiums, reflecting the impact of
recent state legislation as discussed above, was a partial offset. Premiums
and other considerations from individual life insurance and annuity products
amounted to $388.1 million in 1993, compared to $366.7 million in 1992, with
the increase from both interest sensitive and traditional products and
reflecting a larger base of in-force business. Although the pre-tax annual
yield on investments declined from 8.76% in 1992 to 8.35% in 1993, net
investment income increased $29.3 million as noted above with a larger
investment base in 1993. This decrease in pre-tax annual yield reflects a
continuing decline in market interest rates which has resulted in calls of
higher yielding securities out of the investment portfolio and the reinvestment
of proceeds from these securities, as well as funds provided from operations,
at lower available current rates. In this connection, it should be noted that
the Company's liability for policyholder account balances, amounting to $3.3
billion at December 31, 1993, relates to interest sensitive life insurance and
annuity contracts that are subject to periodic adjustment of credited interest
rates. Credited interest rates are determined by management based on factors
including available market interest rates and portfolio rates of return.
Interest rates credited on the Company's deferred annuity contracts, exclusive
of first year increments on certain products, typically ranged from 6.8% to
5.0% during 1992 and from 5.0% to 4.5% in 1993. Interest rates credited on the
Company's universal life insurance contracts typically ranged from 8.5% to 6.5%
in 1992 and from 7.5% to 6.0% in 1993, reflecting periodic decreases in these
credited rates during both 1993 and 1992. In the event of future general
increases in market interest rates, the market value of certain of the
Company's investments including its fixed maturity portfolio would be expected
to decrease, and the contribution to the Company's earnings from the difference
between interest earned on investments and interest credited on these products
could be adversely affected, depending on the timing and extent of adjustments
in credited rates of interest on in-force business and in the investment
portfolio in response to such changes.
Total benefits and expenses of the life insurance subsidiaries increased
$22.3 million or 1.6% over 1992, reflecting the inclusion of the $16.0 million
receivables charge in 1992 results. Benefits to policyholders and
beneficiaries amounted to $737.7 million in 1993, versus $740.6 million in
1992. The decrease reflects various factors including reduced volume in the
employer-employee group health line relating to policy lapses attributed to the
impact of recent state legislation as previously discussed and the impact of
favorable mortality and voluntary policy termination experience on individual
life coverages. Interest credited to policyholder account balances increased
$10.2 million (or 5.9%), reflecting the increased volume of universal life-type
and individual annuity contracts in 1993 with the impact of reductions in
credited rates of interest on certain contracts a partial offsetting factor.
An increase in future policy benefits of $39.8 million was recorded for 1993,
versus $34.8 million for 1992, with the $5.0 million variance primarily
associated with the increase in written premiums on credit insurance coverages
as noted above. Amortization of deferred policy acquisition costs amounted to
$151.9 million in 1993 versus $131.8 million in 1992, reflecting various
factors including the increased volume of individual life and annuity business
in force during 1993. Excluding the impact of the 1992 receivables charge, an
aggregate increase of $6.2 million or 2.5% in commissions, insurance taxes and
licenses, and general expenses reflected the increased individual life and
annuity volume, with reduced legal and other expenses relating to the "other
group health" product line a partial offset.
<PAGE>11
At December 31, 1993, consolidated invested assets included approximately
$221 million book value of less than investment grade corporate securities,
based on ratings assigned by recognized rating agencies and insurance
regulatory authorities. Such investments had an aggregate market value of
approximately $232 million at December 31, 1993 and, based on book value,
represent approximately 3% of consolidated total assets at that date. See Note
1 of Notes to Financial Statements for further information. These securities
generally provide higher yields and involve greater risk of loss from borrower
default than investment grade securities because their issuers typically have
higher levels of indebtedness and are more vulnerable to adverse economic
conditions than other issuers. The Company's results of operations
historically have not reflected a material adverse impact from investments in
such securities.
In November, 1992, the Financial Accounting Standards Board (FASB) issued
Statement No. 112, "Employers' Accounting for Postemployment Benefits."
Statement No. 112 must be implemented in 1994. In May, 1993, FASB issued two
additional Statements which will require the Company to adopt new accounting
and reporting standards in preparation of future period financial statements.
Statement No. 114, "Accounting by Creditors for Impairment of a Loan," must be
adopted by calendar year enterprises no later than 1995. Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," will
require most fixed maturity investments to be carried at market value
commencing in 1994. These FASB Statements are discussed in Note 1 of Notes to
Financial Statements.
1992 Compared to 1991
Net income in 1992 amounted to $31.6 million, and was net of a $38.0 million
after-tax charge for "cumulative effect of accounting change" relating to the
adoption of new accounting standards for non-pension postretirement benefits
required by Statement of Financial Accounting Standards No. 106, as discussed
in Note 1 of Notes to Financial Statements. Other than this charge, the
adoption of this Statement as well as the 1992 adoption of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," by means
of restatement had no material impact on reported results of operations for
1992 or 1991. Excluding this charge, after-tax income for 1992 amounted to
$69.6 million, a decrease of $5.1 million or 6.8% as compared to 1991. Net
income for 1992 reflects a charge equivalent to $10.6 million on an after-tax
basis to establish a reserve for amounts receivable from an Association Group
Health marketing organization which declared bankruptcy. Reported results for
1992 include net capital loss transactions with an after-tax impact of
approximately $1.7 million, while 1991 net income included net capital loss
transactions with an after-tax impact of $1.2 million. The 1992 and 1991 net
capital losses reflected the disposal of certain real estate properties and
additions to valuation reserves for certain investments with loss exposure
which, in the aggregate, more than offset gross pre-tax capital gains from
sales of fixed maturity investments amounting to $23.2 million and $19.4
million, respectively. Excluding capital gains and losses, the 1992
receivables charge, and the cumulative effect of accounting change,
consolidated after-tax income for 1992 was $81.9 million, an increase of $6.1
million or 8.0% from the comparable $75.8 million for 1991. On a similar
basis, after-tax results of the life insurance subsidiaries other than the
aforementioned items amounted to $118.5 million in 1992, an increase of $1.7
million or 1.5% versus the comparable $116.8 million in 1991, reflecting
improved results from the individual life and annuity product line. The
improved results for this product line were partially offset by unfavorable
results from "other group health" coverages (primarily association group
health), which as discussed below recorded a pre-tax loss of $12.0 million in
1992 before the $16.0 million pre-tax impact of the receivables charge, versus
a $916 thousand pre-tax loss in 1991. Comparative results from the Company's
other group and credit insurance lines and the individual health and disability
product line also offset the improved individual life and annuity results.
After-tax corporate charges, including the operating results of USLIFE's
servicing units (before capital gains and losses), amounted to $36.6 million in
1992 versus $41.0 million in 1991, resulting in a positive comparative impact
of $4.4 million on after-tax consolidated results. Results for 1992 benefited
from lower interest costs attributed to more favorable interest rates
applicable to short-term corporate borrowings and the $150 million refinancing
in May 1992 as discussed under "Capital Resources", as well as capital made
available at the corporate level from the combination in early 1992 of
operations of two of the Company's life insurance subsidiaries. Corporate
charges in 1991 reflect the inclusion of $903 thousand income of the parent
company (net of related taxes) from sale of the life insurance charter of a
former subsidiary. Corporate charges reflect, among other factors, interest
expense associated with financing of repurchases of the Company's common stock
under the treasury stock repurchase program. As a result of the reduction in
outstanding shares, it is estimated that these transactions had a net positive
impact of approximately 3 cents per share on comparative results.
<PAGE>12
Pre-tax income of the life insurance subsidiaries, excluding capital gains
and losses and the cumulative effect of accounting change relating to FASB
Statement No. 106, amounted to $161.4 million in 1992, reflecting the $16.0
million impact of the aforementioned receivables charge, versus $173.7 million
in 1991. As noted above, life insurance subsidiary pre-tax income benefited in
1992 from improved results on the Company's individual life and annuity product
line, with these improved results offset by unfavorable association group
health results and by comparative results from the Company's other group and
credit insurance lines and the individual health and disability line.
Excluding capital gains and losses, individual life and annuity pre-tax profits
for 1992 amounted to $169.3 million, an increase of $19.7 million or 13.1%
versus 1991. Improved investment income margins, favorable voluntary policy
termination experience, and a positive contribution from mortality results were
the major factors in this increase. A pre-tax loss of $19.3 million, including
the aforementioned $16.0 million charge, was attributed to all health insurance
coverages in 1992, while 1991 results reflected a pre-tax profit of $10.3
million from health insurance coverages. Employer-employee group health
insurance coverages, which are discussed further below, accounted for
approximately 87% and 83% of total health insurance premiums in 1992 and 1991
respectively. An aggregate pre-tax loss of $28.0 million was recorded for
"other group health" products (primarily association group health) in 1992
versus a pre-tax loss of $916 thousand in 1991. The $16.0 million receivables
charge was the major factor in the 1992 loss, with the remainder resulting
primarily from charges to reflect the impact of settlement of a reinsurance
dispute concerning certain group medical insurance programs previously written
by a subsidiary of the Company as well as legal expenses and other costs
relating both to the reinsurance dispute and the marketing organization in
bankruptcy (see Note 9 of Notes to Financial Statements for further
information). Credit insurance pre-tax earnings for 1992 amounted to $5.1
million, a decrease of $2.4 million from 1991 results, reflecting reduced
earned premium and temporary expense increases associated with the combination
of operations of two of the Company's credit insurance subsidiaries. Pre-tax
income from employer-employee group insurance coverages amounted to $11.9
million in 1992 versus $13.2 million in 1991, reflecting less favorable
mortality and morbidity experience. Premium income from these products
amounted to approximately $505 million for 1992 versus $425 million for 1991,
including premiums of $437 million and $361 million from employer-employee
group health coverages, respectively. Pre-tax income from these health
coverages amounted to approximately $7.3 million (or 1.7% of premiums), $8.2
million (or 2.3% of premiums), and $6.8 million (or 2.3% of premiums) in 1992,
1991 and 1990, respectively, with less favorable morbidity experience in 1992.
Results for 1992 reflected a pre-tax loss of $461 thousand from the individual
health and disability product line, compared to a pre-tax profit of $399
thousand for 1991, with the variance primarily from poor morbidity experience
during 1992 on specialty products included in this line. Pre-tax income from
"other group life" products amounted to $2.2 million in 1992, compared to $3.2
million in 1991, reflecting less favorable mortality experience on group
mortgage life insurance coverages included in this product line.
<PAGE>13
Total revenues of the life insurance subsidiaries in 1992 amounted to
$1.514 billion, an increase of $145.6 million or 10.6% compared to 1991,
primarily on increases of $94.7 million (or 9.4%) and $50.9 million (or 14.5%)
in premiums and considerations and net investment income, respectively. The
increase in premiums and considerations came primarily from the Company's
employer-employee group health insurance product line, reflecting increased
volume and the impact of a series of group health rate increases, and from the
individual life insurance product line. Premiums and other considerations from
individual life insurance and annuity products amounted to $366.7 million in
1992, compared to $351.2 million in 1991, with the increase from both interest
sensitive and traditional products and reflecting a larger base of in-force
business. Although the pre-tax annual yield on investments declined from 8.95%
in 1991 to 8.76% in 1992, net investment income increased $50.9 million as
noted above with a larger investment base in 1992. This decrease in pre-tax
annual yield reflected a continuing decline in market interest rates which
resulted in calls of higher yielding securities out of the investment portfolio
and the reinvestment of proceeds from these securities, as well as funds
provided from operations, at lower available rates. In this connection, it
should be noted that the Company's liability for policyholder account balances
relates to interest sensitive life insurance and annuity contracts that are
subject to periodic adjustment of credited interest rates. Interest rates
credited on the Company's deferred annuity contracts, exclusive of first year
increments on certain products, typically ranged from 8.0% to 6.8% during 1991
and from 6.8% to 5.0% in 1992. Interest rates credited on the Company's
universal life insurance contracts typically ranged from 9.0% to 7.7% in 1991
and from 8.5% to 6.5% in 1992, reflecting periodic decreases in these credited
rates during both 1991 and 1992.
Total benefits and expenses of the life insurance subsidiaries increased
$157.8 million or 13.2% compared to 1991, reflecting the impact of the
aforementioned $16.0 million receivables charge. The increase of $53.9 million
(or 7.9%) in benefits to policyholders and beneficiaries reflected an increase
of $61.5 million (or 22.6%) in benefits on employer-employee group health
insurance products, relating primarily to the increased volume on that product
line. A reduced level of surrender benefits on traditional individual life
insurance products in 1992, reflecting improved voluntary termination
experience as noted above, was a partial offset. Interest credited to
policyholder account balances increased $36.0 million (or 26.2%), reflecting
the increased volume of universal life-type and individual annuity contracts in
1992. An increase in liability for future policy benefits of $34.8 million was
recorded in 1992, versus $10.8 million in 1991, reflecting the increased sales
of traditional individual life insurance products in 1992 and an increase in
written premiums on credit insurance products. Excluding the impact of the
aforementioned $16.0 million charge relating to association group health
receivables, an aggregate increase of $27.1 million in commissions, general
expenses, and insurance taxes and licenses reflected the increased volume on
individual life and employer-employee group products as discussed above.
<PAGE>14
BUSINESS
Lines of Business
USLIFE Corporation ("USLIFE"), a New York business corporation formed in
1966, is a life insurance-based holding company whose principal subsidiaries
engage in the life insurance business. Other subsidiaries of USLIFE, engaged
in investment advisory, broker-dealer, real estate, data processing and
administrative operations, provide services to the life insurance companies.
Only life insurance is a reportable industry segment, and the related
information is presented in Note 1 of Notes to Financial Statements.
The following table sets forth total income and income before taxes of the
operations of USLIFE for the indicated subsidiary groups and "corporate
services" for the past five years.
<TABLE>
<CAPTION>
Year Ended December 31
____________________________________________________________________________________________________________
1993 1992 1991 1990 1989
___________________ _____________________ ____________________ ____________________ ____________________
Income Income Income Income Income
Total Before Total Before Total Before Total Before Total Before
Income Taxes Income Taxes (a) Income Taxes Income Taxes Income Taxes
______ ________ ______ _________ ______ ______ ______ ______ ______ ______
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Life Insurance (b). $1,583,197 $206,011 $1,514,233 $159,301 $1,368,592 $171,487 $1,225,047 $168,376 $1,190,875 $179,495
Realty and
Securities
Investment........ 10,622 (2,542) 11,149 (59) 9,364 429 8,001 (167) 8,037 819
Corporate
Services (c)...... 6,219 (51,898) 4,070 (54,905) 4,950 (60,897) 2,527 (64,739) 1,311 (59,818)
__________ ________ __________ ________ __________ ________ __________ ________ __________ ________
Consolidated..... $1,600,038 $151,571 $1,529,452 $104,337 $1,382,906 $111,019 $1,235,575 $103,470 $1,200,223 $120,496
========== ======== ========== ======== ========== ======== ========== ======== ========== ========
</TABLE>
_________
(a) Before cumulative effect of accounting change relating to
postretirement benefits other than pensions. See Notes 1 and 5 of
Notes to Financial Statements for further information.
(b) Before extraordinary charge relating to litigation in 1989.
(c) Reflects corporate interest expense and overhead, and
corporate services to subsidiaries by USLIFE Corporation, USLIFE
Systems Corporation, USLIFE Insurance Services Corporation, and
USLIFE Agency Services, Inc. as well as consolidating adjustments.
Life Insurance
General
In 1993, USLIFE's life insurance business was conducted by four operating
life insurance subsidiaries (the "Life Insurance Subsidiaries"): The United
States Life Insurance Company In The City of New York ("United States Life"),
All American Life Insurance Company ("All American Life"), The Old Line Life
Insurance Company of America ("Old Line Life"), and USLIFE Credit Life
Insurance Company ("USLIFE Credit Life").
The Life Insurance Subsidiaries are all domestic stock insurance
corporations with strong regional identifications. United States Life is the
oldest stock life insurance company in America, having been incorporated in New
York in February, 1850. While authorized to do business in all fifty states
and the District of Columbia, its business is heavily concentrated in New York
and adjacent eastern states. All American Life was incorporated in Illinois in
1950, and is licensed to do business in all states, except New York, and in the
District of Columbia. Approximately 34% of its business in 1993 was derived
from the central and southwestern regions of the United States. Old Line Life,
incorporated in Wisconsin in 1910, is authorized to do business in all states,
except New York, and in the District of Columbia; its business is concentrated
heavily in Wisconsin, California, New Jersey and the north central region of
the United States. USLIFE Credit Life, whose predecessors date from 1890,
derives most of its business from its home state of Illinois and other
midwestern and northwestern states.
<PAGE>15
Types of Insurance Written
The Life Insurance Subsidiaries offer a broad portfolio of individual life
insurance and annuity policies. Also, through United States Life, part of the
sales forces of the Life Insurance Subsidiaries offer group life and health
insurance policies with particular emphasis on small groups. Group life and
health insurance policies are also offered to associations. Several of the
Life Insurance Subsidiaries also offer products designed for funding pension,
profit-sharing and other qualified plans. In addition, through USLIFE Equity
Sales Corp., equity products are available for the noninsurance portion of
these plans. Credit insurance is offered principally through USLIFE Credit
Life.
Individual life policies are offered by all of the Life Insurance
Subsidiaries, except USLIFE Credit Life, on a non-participating and
participating basis. Participating insurance is insurance whereby the
policyholder is entitled to receive policy dividends reflecting the difference
between the premium charged and actual experience, the premium being calculated
to provide a margin over the anticipated cost of insurance protection. On
December 31, 1993, approximately 2.5% of individual life insurance in force was
participating and premiums on participating policies represented 6.8% of
individual life insurance premium income in 1993. See "Participating Policies"
in Note 1 of Notes to Financial Statements. All group business, other than
credit life insurance, is on a non-participating basis but approximately 12% of
such business is subject to experience ratings under which the policyholder may
receive refund credits depending on experience. Substantially all of the
credit life insurance in force is non-participating.
Development
The following tabulations set forth the classes of life insurance in force
at December 31, and the amount of new life insurance paid for and premium
income in each of the years 1989 through 1993.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Life Insurance in Force at December 31:
Individual life...................... $ 75,850,909 $ 70,215,988 $ 65,363,964 $60,517,878 $58,335,637
Credit life.......................... 7,905,294 8,124,861 8,811,313 9,461,784 9,380,287
Group life........................... 26,793,165 25,621,722 23,374,748 20,288,967 22,048,608
Reinsurance assumed(a)............... 14,462,410 11,037,473 10,318,427 8,509,733 6,910,793
____________ ____________ ____________ ___________ ___________
Total in force (a)(b)........... $125,011,778 $115,000,044 $107,868,452 $98,778,362 $96,675,325
============ ============ ============ =========== ===========
New Life Insurance:
Individual life...................... $ 15,094,027 $ 13,842,145 $ 13,657,209 $11,093,989 $11,614,692
Credit life.......................... 4,698,246 3,327,816 3,192,498 3,714,637 3,891,526
Group life........................... 2,474,122 2,433,088 6,628,972 2,361,956 3,747,379
____________ ____________ ____________ ___________ ___________
Total direct new business written... 22,266,395 19,603,049 23,478,679 17,170,582 19,253,597
Reinsurance assumed.................. 5,060 3,644 18,046 10,418 11,427
____________ ____________ ____________ ___________ ___________
Total new business...... $ 22,271,455 $ 19,606,693 $ 23,496,725 $17,181,000 $19,265,024
============ ============ ============ =========== ===========
</TABLE>
<PAGE>16
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Premium Income:
Life Insurance:
Individual(c)................... $ 220,686 $ 207,822 $ 199,968 $ 191,889 $ 190,923
Credit life..................... 56,778 53,555 54,546 64,334 72,799
Group life...................... 178,302 165,897 154,582 140,641 140,236
____________ ____________ ____________ ___________ ___________
Total life.................. 455,766 427,274 409,096 396,864 403,958
____________ ____________ ____________ ___________ ___________
Health Insurance:
Individual health............... 1,302 1,308 1,198 1,075 2,867
Credit disability............... 55,040 52,099 49,407 59,296 67,990
Group health.................... 438,075 452,306 386,373 309,299 274,572
____________ ____________ ____________ ___________ ___________
Total health................ 494,417 505,713 436,978 369,670 345,429
____________ ____________ ____________ ___________ ___________
Total premium income.... $ 950,183 $ 932,987 $ 846,074 $ 766,534 $ 749,387
============ ============ ============ =========== ===========
</TABLE>
_______
(a) Substantially all of the reinsurance assumed represents Servicemen's
Group Life Insurance and Federal Employees' Group Life Insurance.
(b) Includes ceded reinsurance of approximately $8.0 billion at the end of
1989, $8.4 billion at the end of 1990, $8.0 billion at the end of 1991, $8.0
billion at the end of 1992, and $7.5 billion at the end of 1993.
(c) Under the method of accounting required by Statement No. 97 of the
Financial Accounting Standards Board ("SFAS 97") for universal life-type
products and certain annuity contracts, including the Company's deferred
annuity products, premium receipts are not recorded as revenues and,
consequently, are excluded from the premium income data presented herein. See
Note 1 of Notes to Financial Statements for further information.
Additions and Terminations
There follows a tabulation of the Life Insurance Subsidiaries' additions
and terminations by cause for both individual and group and credit life for the
three years ended December 31, 1993:
<PAGE>17
<TABLE>
<CAPTION>
Individual Group and Credit
_______________________________________ ______________________________________
Year Ended December 31 Year Ended December 31
_______________________________________ ______________________________________
1993 1992 1991 1993 1992 1991
____ ____ ____ ____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
In force, January 1............... $70,247,455 $65,388,140 $60,544,452 $44,752,589 $42,480,312 $38,233,910
___________ ___________ ___________ ___________ ___________ ___________
Issued......................... 15,064,328 13,820,341 13,633,659 7,172,368 5,760,904 9,821,470
Reinsurance assumed............ 5,060 3,644 18,046 - - -
Revived........................ 139,475 121,706 135,914 - - -
Additions by dividend.......... 29,699 21,804 23,550 - - -
Increase, net.................. - - - 812,904 710,679 -
___________ ___________ ___________ ___________ ___________ ___________
Total................. 15,238,562 13,967,495 13,811,169 7,985,272 6,471,583 9,821,470
___________ ___________ ___________ ___________ ___________ ___________
Terminated by:
Death.......................... 174,448 146,775 144,360 154,281 149,995 139,462
Maturity....................... 2,748 2,576 2,978 - - -
Expiry......................... 64,116 52,860 65,221 1,969,555 3,021,682 3,485,682
Surrender...................... 1,290,923 1,284,035 1,326,396 7,421 1,466 2,978
Lapse.......................... 6,657,464 6,390,931 6,268,250 1,480,729 1,026,163 1,908,250
Decrease, net.................. 477,916 390,023 458,279 - - 38,696
Conversion..................... 932,499 840,980 701,997 - - -
Reinsurance.................... - - - - - -
___________ ____________ ___________ ___________ ___________ ___________
Total................. 9,600,114 9,108,180 8,967,481 3,611,986 4,199,306 5,575,068
___________ ___________ ___________ ___________ ___________ ___________
Increase (decrease)............... 5,638,448 4,859,315 4,843,688 4,373,286 2,272,277 4,246,402
___________ ___________ ___________ ___________ ___________ ___________
In force, December 31............. $75,885,903 $70,247,455 $65,388,140 $49,125,875 $44,752,589 $42,480,312
=========== =========== =========== =========== =========== ===========
</TABLE>
Universal life insurance represents approximately 37%, 37% and 36% of
total individual life insurance in force at December 31, 1993, 1992 and 1991,
respectively, reflecting the increased marketplace emphasis toward interest
sensitive products. Universal life insurance policies permit the policyholder
to vary the timing and amount of premium payments, within contractual limits.
Premium payments under these policies are credited to the policyholder's
account balance, from which amounts are assessed for risk and administrative
charges. These charges are subject to periodic adjustment by the Company.
Interest is credited to the policyholder's account balance at rates which are
subject to periodic adjustment by the Company. The remainder of the Company's
individual life insurance in force consists primarily of whole life insurance
and term insurance coverages. These contracts generally provide for fixed
premium payments and death benefits. Whole life policies provide insurance
over the entire life of the insured, with the face amount payable only upon the
death of the insured, and typically provide for the accumulation of a surrender
value based on contractual terms which may be payable to the policyholder or
utilized to purchase a different form of insurance in the event that the policy
is terminated prior to death of the insured. Term insurance policies provide
insurance over a specified period of time, with the face amount payable if the
insured dies during the policy term. Inasmuch as term policies generally do
not provide for maturity benefits or accumulation of significant cash surrender
values, premiums per dollar of death benefit are often initially lower than
those of whole life policies. The 1993 and 1992 increases in face value of
individual insurance issued reflect increased sales of both universal and
traditional products as compared to the prior year. The face amount of
individual life insurance terminated, in the aggregate, by lapse and surrender
amounted to $7.9 billion, $7.7 billion, and $7.6 billion in 1993, 1992 and
1991, respectively. The relative consistency of these terminations despite the
greater base of in-force business reflected a continuation of favorable
voluntary policy termination ("persistency") experience. Subject to any
applicable surrender charges, the Company's universal life insurance products
and individual annuities may be surrendered by the holder. A cash surrender
value, based on contractual terms, is also available to the policyholder upon
surrender of many of the Company's traditional individual life insurance
policies under which cash values are accumulated. Such surrenders are
influenced by various factors including economic conditions, available
alternative investment returns, competition for investment and insurance funds,
and perceived financial strength of the insurer. These contracts are generally
supported by the investment portfolios of the Life Insurance Subsidiaries,
which are primarily comprised of investment grade, publicly traded corporate
bonds. Substantially all of the Company's interest sensitive life insurance
and annuity contracts provide for imposition of a surrender charge in the event
of policy surrender during a specified initial period commencing with contract
inception, typically ten to fifteen years for universal life insurance and five
to seven years for individual annuities, with the significance of this charge
often subject to reduction over the applicable period or during the later
portion thereof. The Company's investment portfolios are continually monitored
<PAGE>18
to determine whether the distribution of investment maturities is considered
appropriate for expected levels of policy surrenders. The amortized cost and
estimated market value of the Company's debt security investments, by
contractual maturity, are set forth in Note 1 of Notes to Financial Statements.
As discussed in Management's Discussion and Analysis of Financial Condition and
Results of Operations herein, the Company's fixed maturity investments may be
sold prior to maturity as part of the Company's asset / liability management
strategy and are classified as "available for sale." Adjustments to the
investment maturity distribution, if necessary, may also be accomplished by
actions concerning the investment of incoming funds and/or reinvestment of the
proceeds of securities matured or redeemed. The Company monitors its
surrenders on a monthly basis. Any material deviation or emerging trend is
traced to the product line and agency of record, and remedial action is taken
where appropriate. The aggregate face amount of group and credit insurance
issued in 1991 reflected significant volume of new group term life insurance
sales by United States Life. During 1992 and 1993, subsequent increases in
face amount relating to this business are included in "Increase, net" above in
accordance with regulatory reporting practice. The 1993 increase in aggregate
volume of group and credit insurance issued was primarily attributed to credit
life insurance and reflected various factors including new volume on certain
cases transferred to USLIFE Credit Life from another subsidiary.
Accident and Health Insurance
For the last three years, accident and health insurance operations
produced premium income and income before taxes as follows:
<TABLE>
<CAPTION>
Premium Income Income Before Taxes
______________________________ _______________________________
1993 1992 1991 1993 1992 1991
____ ____ ____ ____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Group................. $438,075 $452,306 $386,373 $ 5,314 $(19,811) $ 7,147
Individual............ 1,302 1,308 1,198 (107) (408) 531
Credit Disability..... 55,040 52,099 49,407 7,551 3,423 3,985
</TABLE>
Group health business has been written traditionally as a necessary
corollary to the sale of group life insurance. The 1992 loss from group health
insurance coverages reflects a pre-tax charge of $16.0 million to establish a
reserve for amounts receivable from an association group health marketing
organization which declared bankruptcy. The remainder of the loss from these
coverages in 1992 resulted primarily from charges to reflect the impact of
settlement of a reinsurance dispute concerning certain group medical insurance
programs previously written by a subsidiary of the Company as well as legal
expenses and other costs relating both to the reinsurance dispute and the
marketing organization in bankruptcy (see Note 9 of Notes to Financial
Statements for further information). New York State "community rating - open
enrollment" legislation applicable to insured group medical plans with less
than fifty employees, which became effective as of April 1, 1993, prohibits the
use of individual underwriting techniques for group major medical business,
which is included in the Company's employer-employee group health product line.
The legislation permits carriers to use pre-existing condition exclusions to
protect against adverse selection, but prohibits the use of age and sex factors
in rating and requires that average rates be used for the aforementioned plans.
Similar legislation is contemplated or has been enacted in various other
states, and various health care reform proposals have emerged at the Federal
level. In response to current and anticipated health insurance reform,
particularly at the state level, the Company announced in December 1993 that it
would restrict its sales of new major medical business to 21 states, including
New York, in which it has a significant amount of in force business, while
continuing renewals of this business in all states. During 1993, a number of
modifications were introduced to the Company's stand-alone group life, long
term disability and dental insurance products with the goal of increasing the
proportion of business from non-major medical lines. Based on preliminary
analysis, the Company does not currently anticipate a material adverse impact
on its consolidated operations to result from enacted state legislation or the
actions taken with respect to this line of business. The Company continues to
carefully monitor developments in the health care reform area and to explore
its alternatives, but cannot predict how legislative changes at the Federal
level will affect its business in the health insurance area unless and until
such changes are adopted.
<PAGE>19
The individual accident and health product line consists primarily of
certain specialty products and coverages issued upon conversion of certain
group health insurance products. The pre-tax loss recorded in 1992 reflected
poor morbidity experience on specialty products included in this line. The
1993 loss was primarily attributed to results on coverages issued upon group
health conversions.
Credit disability insurance is written in conjunction with credit life
insurance and covers the continuation of loan payments to a lender in the event
the borrower becomes disabled. The 1992 decrease in credit disability pre-tax
income reflected a reduced level of earned premium and temporary expense
increases associated with the combination of operations of two of the Company's
credit insurance subsidiaries. The improved results in 1993 reflected more
favorable morbidity experience versus the preceding year.
Investments and Investment Results
Investments are subject to the direction and control of the Boards of
Directors or Executive Committees of each of the respective Life Insurance
Subsidiaries. Many investments are made upon the recommendation of USLIFE
Realty Corporation or USLIFE Real Estate Services Corporation (see "Realty
Investment" below) with respect to real estate and mortgages, and upon the
recommendation of the parent company with respect to securities, all of which
furnish such investment advice to the Life Insurance Subsidiaries. All
investments must comply with applicable insurance laws and regulations, which
prescribe the nature, quality and percentages of various types of investments
which may be made by insurance companies. The major portion of funds available
for investment in recent years has been invested in bonds and redeemable
preferred stocks ("Fixed Maturities"), and in short term investments, including
corporate commercial paper and money market instruments.
Effective December 31, 1992, Fixed Maturities which may be sold prior to
maturity as a result of the Company's investment strategies are considered
available for sale and carried at the lower of aggregate amortized cost or
market value as of the balance sheet date. As discussed below, valuation
reserves are maintained for Fixed Maturities and other investments with a
reduction in value determined to be other than temporary. During the first
quarter of 1994, the Company will adopt Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which will require most of the Company's Fixed Maturity
investments to be carried at market value. Common stocks and non-redeemable
preferred stocks ("Equity Securities") are carried at market. See Note 1 of
Notes to Financial Statements for further information.
The mortgage portfolios of the Life Insurance Subsidiaries at December 31,
1993 had an aggregate principal amount of approximately $386 million and
consisted of approximately 321 loans. The mortgage portfolio of the Life
Insurance Subsidiaries is characterized by a broad geographical distribution,
with approximately 6% of total book value at December 31, 1993 relating to the
New England region of the United States, 16% from the middle-Atlantic states,
23% from the north-central states, 16% from the south-Atlantic states, 10% from
the south-central states, 14% from the mountain states, and 15% from the
Pacific states. Based on book value, approximately 40% of these mortgage loans
at that date are secured by office buildings, 24% by industrial / warehouse
properties, 25% retail, 1% apartments, 2% one to four family residential, and
the remainder secured by hotel / motel, medically oriented, or other specialty
properties. At December 31, 1993, the average principal balance of mortgage
loans contained in the portfolio was $1.2 million, with a weighted average
yield of 9.82% on book value. The average maturity was approximately 7 years.
The largest principal balance of any single mortgage loan at that date was
$12.3 million. The Company regards delinquent mortgage loans to be those on
which interest due is unpaid for 60 days or more or the loan is in foreclosure.
The book value of delinquent mortgage loans amounted to approximately 7.31% and
5.52% of the mortgage loan portfolio at December 31, 1993 and 1992,
respectively. On December 31, 1993 property held as a result of foreclosure of
loans amounted to $25 million.
The bond portfolios of the Life Insurance Subsidiaries at December 31,
1993 were predominantly comprised of investment grade securities (based on
ratings assigned by recognized rating agencies and insurance regulatory
authorities). At December 31, 1993, invested assets of the Life Insurance
<PAGE>20
Subsidiaries included approximately $203 million book value of less than
investment grade corporate securities, based on such ratings. The latter
investments had an aggregate market value of approximately $213 million as of
December 31, 1993 and based on book value, represent approximately 3.1% of
total assets of the Life Insurance Subsidiaries at that date. These securities
generally provide higher yields and involve greater risk of loss from borrower
default than investment grade securities because their issuers typically have
higher levels of indebtedness and are more vulnerable to adverse economic
conditions than other issuers. The results of operations of the Life Insurance
Subsidiaries historically have not reflected a material adverse impact from
investment in such securities. Certain bonds, representing less than 1% of the
total bond portfolio for the Life Insurance Subsidiaries, have defaulted in
interest. Quality ratings of the fixed maturities portfolio of the Life
Insurance Subsidiaries at December 31, 1993 with respect to each National
Association of Insurance Commissioners (NAIC) credit classification, based on
book value, are as follows:
Fixed Maturities
____________________________________________
NAIC Class Book Value
___________ ___________
(Amounts in Thousands)
1.................... $3,037,839
2.................... 1,474,549
__________
Total investment grade.... 4,512,388
__________
3.................... 104,485
4.................... 69,247
5.................... 9,857
6.................... 14,669
__________
Total non-investment grade 198,258
__________
Total..................... $4,710,646
==========
The Company's management of the investment portfolios of the Life
Insurance Subsidiaries includes identification and evaluation of holdings which
are non-performing or have otherwise indicated performance which could imperil
future investment income or recovery of invested amounts. A valuation reserve
is maintained for those investments where a reduction of value is determined to
be other than temporary. In 1993, net additions to the valuation reserve for
fixed maturity investments (on a pre-tax basis) amounted to $7.6 million, and
$25.0 million was added to such reserves relating to real estate, mortgage
loans, and other long term investments. In 1992, net additions to the
valuation reserve for fixed maturity investments (on a pre-tax basis) amounted
to $153 thousand, and $23.0 million was added to such reserves relating to real
estate, mortgage loans, and other long term investments. In 1991, net
additions to the valuation reserve for fixed maturity investments (on a pre-tax
basis) amounted to $8.5 million, and $7.1 million was added to such reserves
relating to real estate and other long term investments. Total pre-tax
portfolio reserves for the Life Insurance Subsidiaries amounted to $125.2
million at December 31, 1993. The Company believes that adequate reserves for
losses have been established.
<PAGE>21
The following table shows the investment results of the Life Insurance
Subsidiaries for the periods indicated.
<TABLE>
<CAPTION>
Cash and Invested Assets Net Yield
At End of Period(1) on Cash Pre-tax
___________________________________ Net and Realized
Year Ended Invested Investment Invested Gains
December 31 Cash Assets Total Income(2) Assets(3) (Losses)(4)
___________ ____ ________ _____ __________ _________ ___________
(Dollar Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
1993.......... $52,179 $5,475,671 $5,527,850 $431,923 8.35% $10,835
1992.......... 64,769 4,966,327 5,031,096 402,579 8.76 (2,100)
1991.......... 72,269 4,286,710 4,358,979 351,671 8.95 (2,235)
</TABLE>
________
(1) Does not include adjustments for net unrealized gains and losses on
marketable equity securities. See Note 1 of Notes to Financial Statements for
further information.
(2) Net investment income is after deduction of investment expenses but
before realized capital gains or losses and federal income taxes.
(3) Calculated on the basis of a formula prescribed by the National
Association of Insurance Commissioners which computes the yield on the mean
asset values during the year.
(4) The 1992 and 1991 net realized losses reflected the disposal of
certain real estate properties and additions to the valuation reserves for
certain investments which, in the aggregate, more than offset $23.3 million and
$19.4 million gross pre-tax capital gains, respectively, from disposals of
fixed maturity investments.
The investment management policies of the Life Insurance Subsidiaries include
continual evaluation of securities market conditions and circumstances relating
to particular investment holdings which may result in selection of fixed
maturity or other investments for sale prior to maturity. Securities may also
be sold as part of the Company's asset / liability management strategy in
response to changes in interest rates, resultant prepayment risk, and similar
factors. The net yield on cash and invested assets declined from 8.95% in 1991
to 8.76% in 1992 and 8.35% in 1993, as a continuing decline in market interest
rates has resulted in calls of higher yielding securities out of the investment
portfolio and the reinvestment of proceeds from these securities, as well as
funds provided from operations, at lower available current rates. In this
connection, it should be noted that the Company's liability for policyholder
account balances, amounting to $3.3 billion and $2.9 billion at December 31,
1993 and 1992, respectively, relates to interest sensitive life insurance and
annuity contracts that are subject to periodic adjustment of credited interest
rates. Credited interest rates are determined by management based on factors
including available market interest rates and portfolio rates of return.
Interest rates credited on the Company's interest sensitive products are
sensitive to changes in interest rates earned on the Company's investments. As
discussed in Management's Discussion and Analysis of "Results of Operations"
herein, the interest rates credited on the Company's deferred annuity and
universal life products have declined in 1991, 1992 and 1993. These declines
generally follow the pattern of declining yields on the assets supporting these
liabilities. As discussed under "Regulation" herein, the Life Insurance
Subsidiaries have complied for statement years 1993 and 1992 with valuation
actuary testing requirements, promulgated by the NAIC, which apply specified
rules to assess the impact of various interest rate scenarios on the adequacy
of assets to meet policyholder liabilities. These tests did not disclose any
failure of the Company's assets to support its policy liabilities under the
NAIC specified testing scenarios.
<PAGE>22
Reserves and Reinsurance
In accordance with applicable law, the Life Insurance Subsidiaries have
set up and carry actuarial reserves to meet their obligations on their various
policies. These reserves are amounts which, together with additions from
premiums to be received and interest on such reserves compounded annually at
certain assumed rates, are calculated to be sufficient to meet the Life
Insurance Subsidiaries' policy obligations as they mature. The liability for
policy benefits relating to cash values of interest sensitive products is
accumulated based on credited rates of interest which are subject to periodic
adjustment. The statutory reserves of the Life Insurance Subsidiaries are
certified by internal actuaries as permitted by state insurance departments and
are not specifically examined by independent actuaries. The Life Insurance
Subsidiaries generally reinsure risks over $1.5 million as well as selected
risks of lesser amounts. See Notes 1 and 10 of Notes to Financial Statements.
Employees and Agents
At December 31, 1993, the Life Insurance Subsidiaries had approximately
1,500 regular employees at their home and regional offices, and individual life
insurance policies were sold principally through approximately 600 agencies
located throughout the United States. As discussed below, services are also
furnished to the Life Insurance Subsidiaries by the Company's Realty
Investment, Securities Investment, and Corporate Services subsidiaries, and by
USLIFE Corporation.
With few exceptions, the general agents and producers of the Life
Insurance Subsidiaries are independent contractors and are compensated on a
commission basis within limitations set by applicable insurance laws. Service
fees and expense reimbursement allowances are paid to general agents, also
within the limitations of applicable insurance laws. A large percentage of
producers also sell for other companies.
Home Offices
The home office of United States Life is located in a portion of a
building at 125 Maiden Lane, New York, New York 10038. In December 1986 United
States Life sold this building and leased back portions of the premises which
are utilized as its principal executive offices as well as the principal
executive offices of USLIFE, USLIFE Equity Sales Corporation, USLIFE Realty
Corporation, USLIFE Advisers, Inc. and an office of USLIFE Systems Corporation.
The leases for space occupied by United States Life and other USLIFE companies
expire in 1996. Present annual base rent for all such companies is $3.7
million, subject to adjustment, tax and escalation clauses. Certain of these
leases provide for renewal options for two successive ten year terms, based on
fair rental value at the time of renewal. The group insurance operations of
United States Life, certain other clerical and administrative units which
provide support services for that company and certain other Life Insurance
Subsidiaries, and several corporate units are located in a building at 3600
Route 66, Neptune, New Jersey 07754. This building is rented under a lease
expiring in 2003 with renewal options for two additional five year terms and a
further option relating to rental of additional office space. The annual base
rent under this lease is approximately $2.3 million, subject to adjustment, tax
and escalation clauses. See Note 8 of Notes to Financial Statements for
further information regarding the Company's lease commitments.
The home office of Old Line Life is located at 707 North Eleventh Street,
Milwaukee, Wisconsin 53233, in a building which it owns. This property is
considered adequate for the purpose used and excess space is rented to others.
The home office of All American Life is located in a portion of a building
at 8501 West Higgins Road, Chicago, Illinois 60631, rented under a lease
expiring in 2001 with a renewal option for an additional five year term. The
annual base rent is approximately $481 thousand and is subject to increases due
to increases in taxes and operating expenses of the building. The offices of
USLIFE Insurance Services Corporation and certain other USLIFE subsidiaries
which provide services to the Life Insurance Subsidiaries are located in a
portion of a building at 1355 River Bend Drive, Dallas, Texas 75247. The space
occupied by the USLIFE companies in the latter premises is rented under a lease
expiring in 1997 providing two successive five year renewal options, with
annual base rent of approximately $810 thousand subject to adjustment and
escalation clauses. The home office of USLIFE Credit Life is located at One
Woodfield Lake, Schaumburg, Illinois 60173, rented under a lease expiring in
2000 with a five year renewal option. The annual base rent under this lease is
approximately $1 million, subject to certain adjustment and escalation clauses.
<PAGE>23
Regulation
The Life Insurance Subsidiaries are subject to regulation and supervision
by the supervisory agency of each state or other jurisdiction in which they are
licensed to do business. These supervisory agencies have broad administrative
powers relating to the granting and revocation of licenses to transact
business, the licensing of agents, the approval of policy forms, premium
levels, the form and content of mandatory financial statements (see "Insurance
Accounting" in Note 1 of Notes to Financial Statements), capital, surplus,
reserve requirements and the types of investments which may be made. The
National Association of Insurance Commissioners ("NAIC") recommended in 1992
certain new regulatory reporting requirements for insurance companies,
including "valuation actuary" and "risk-based capital" requirements. Under the
valuation actuary requirement, the company must provide an actuary's
certification of the adequacy of reserves for future liabilities, taking
account of the assets that support them, under various possible economic
scenarios. As indicated under "Investments and Investment Results," the Life
Insurance Subsidiaries have satisfactorily complied with these requirements for
statement years 1993 and 1992. The risk-based capital requirements, effective
with statement year 1993, require the company to demonstrate that capital and
surplus meet or exceed formula-driven standards based on exposure to specific
categories of risk. Companies that do not meet a standard of at least a 200%
ratio of "Total Adjusted Capital" to "Authorized Control Level Risk-Based
Capital," as defined by regulatory authorities, are identified as candidates
for various levels of regulatory action, ranging from increased surveillance to
state insurance department control. At December 31, 1993, each of the Life
Insurance Subsidiaries exceeded the required risk-based capital ratios, with
each ratio (as defined) in excess of 400%. The Life Insurance Subsidiaries
have not experienced and do not anticipate an adverse impact on their
operations as a consequence of the valuation actuary and risk-based capital
requirements. As specified by the NAIC, Insurance Regulatory Information
System ("IRIS") ratios of certain key statutory data are computed for the Life
Insurance Subsidiaries on an annual basis. These ratios revealed no material
exceptions for statement year 1993. The Life Insurance Subsidiaries may be
required, under the solvency or guaranty laws of the various states in which
they are licensed, to pay assessments up to prescribed limits to fund
policyholder losses or liabilities of insolvent insurance companies. The Life
Insurance Subsidiaries are required to file detailed reports with each
supervisory agency, and their books and records are subject to examination by
each. In accordance with the insurance codes in the states in which they are
domiciled and the rules and practices of the National Association of Insurance
Commissioners, the Life Insurance Subsidiaries are examined periodically by
examiners of the states in which they are domiciled and by representatives (on
an "association" or "zone" basis) of the other states in which they are
licensed to do business. All of the Life Insurance Subsidiaries have been
examined at least as of December 31, 1990.
Annual financial statements prepared in accordance with statutory
accounting practices for each of the Company's Life Insurance Subsidiaries,
filed prior to 1992 with insurance departments in the states where the
Company's Life Insurance Subsidiaries are domiciled or licensed to do business,
required the inclusion of a mandatory securities valuation reserve ("MSVR").
This reserve was designed to stabilize statutory surplus against fluctuations
in the market values of stocks and bonds, according to regulations prescribed
by the NAIC. Commencing with statement year 1992, the NAIC replaced MSVR with
two reserves, the interest maintenance reserve ("IMR") and asset valuation
reserve ("AVR"). The new regulations apply to all invested assets and require
that investment gains and losses resulting from changes in interest rates be
distinguished from gains and losses resulting from changes in creditworthiness.
The IMR captures all investment gains and losses resulting from changes in
interest rates and provides for subsequent amortization of such amounts into
statutory net income on a basis reflecting the remaining lives of the assets
sold. The AVR captures investment gains and losses related to changes in
creditworthiness and will be adjusted each year based on a formula related to
the quality and loss experience of the Company's investment portfolio. The
AVR, unlike the MSVR which was applicable only to fixed maturity and equity
security investments, requires reserves for mortgage loans, other invested
assets and short-term investments. The AVR and IMR are not recorded under
generally accepted accounting principles and consequently have no impact on
reported financial position or results of operations of the Company. The
Company has not experienced any significant adverse impact on its overall
operations as a result of these regulatory accounting changes and, based on the
current composition of the investment portfolios of the Life Insurance
Subsidiaries, the Company does not currently anticipate significant adverse
impact.
<PAGE>24
Most states have enacted legislation or adopted administrative regulations
covering such matters as the acquisition of control of insurance companies and
transactions between insurance companies and the persons controlling them. The
National Association of Insurance Commissioners has recommended model
legislation on these subjects which has been adopted, with variations, by many
states. The nature and extent of the legislation and administrative
regulations now in effect vary from state to state, and in most states they
require administrative approval of the acquisition of control of an insurance
company incorporated in the state, whether by tender offer, exchange of
securities, merger or otherwise, and require the filing of detailed information
regarding the acquiring parties and the plan of acquisition. Every insurance
company which is authorized to do business in the state and is a member of an
"insurance holding company system," other than a company incorporated in
another state subject to substantially similar disclosure requirements and
standards, is generally required to register as such with the insurance
regulatory authorities and file periodic reports concerning its relationships
with the insurance holding company and other affiliates of the holding company.
Material transactions between registered insurance companies and members of the
holding company system are required to be "fair and reasonable" and in some
cases are subject to administrative approval, and the books, accounts and
records of each party are required to be so maintained as to clearly and
accurately disclose the precise nature and details of the transactions. Notice
to or approval by regulatory authorities is frequently required for dividends
paid by insurance companies, and their surplus following any dividend is
required to be reasonable in relation to outstanding liabilities and adequate
for financial needs. See "Insurance Accounting" in Note 1 of Notes to
Financial Statements for further information regarding dividends. Broad
examination and enforcement powers are conferred on regulatory authorities.
Each of the Life Insurance Subsidiaries is required to register as a member of
an insurance holding company system with the insurance supervisory authorities
in at least one state. USLIFE does not presently anticipate that legislation
and regulation such as that described above will materially restrict its
activities.
Acquired Immune Deficiency Syndrome (AIDS), which has received wide
publicity because of its serious public health implications, presents special
concerns to the life insurance industry. Morbidity and mortality risks are
accepted by insurers based on methods of classification designed to
appropriately relate premiums charged to such risks and, in this connection,
steps have been taken toward strengthening the Company's underwriting and
selection process. The Company's own mortality and morbidity experience
reflects no significant adverse impact as a result of any acceleration of AIDS
claims. The Company is continuing to monitor developments in this area but is
necessarily unable to predict the long term impact of this problem on the life
insurance industry generally or on the Company.
Competition
The insurance business is highly competitive, and there are approximately
2,000 stock and mutual companies some of which are larger than the Life
Insurance Subsidiaries (individually and in the aggregate). Although most
insurance companies are stock companies, mutual companies account for
approximately 40% of the life insurance in force in the United States and hold
a still larger percentage of the admitted assets. The Life Insurance
Subsidiaries believe that their premium rates and policies are generally
competitive with those of other life insurance companies.
If the aggregate volume of insurance in force of the Life Insurance
Subsidiaries were considered to be that of one company, such company would have
ranked 19th among the United States companies listed in surveys contained in
the June 21, 1993 edition of the National Underwriter, Life and Health
Insurance Edition. In addition to competition among life insurance companies,
the Life Insurance Subsidiaries also compete increasingly with other financial
institutions such as commercial banks and securities brokerage organizations.
Competition from such financial institutions as well as other insurance
companies is considered by the Life Insurance Subsidiaries in determining the
rates of return to be offered on interest sensitive products. See discussion
under "Additions and Terminations."
<PAGE>25
Realty Investment
USLIFE Realty Corporation; USLIFE Real Estate Services Corporation
USLIFE Realty Corporation ("Realty") was incorporated in 1954. Realty
manages a portfolio of real estate, mortgage loan, and joint venture
investments ($1.0 million at December 31, 1993), enters into mortgage and real
estate standby commitments for fees which may include the receipt of equity
interests and participates in real estate joint ventures relating to properties
being built for investment or sale.
USLIFE Real Estate Services Corporation ("Services") was incorporated in
1969. Services, a subsidiary of Realty, is an approved mortgagee for placement
and servicing of FHA insured mortgages. Services provides investment advice
and management services for the combined mortgage and real estate portfolios of
the Life Insurance Subsidiaries as well as certain other services for the Life
Insurance Subsidiaries, such as originating mortgage loans, arranging standby
commitments for fees and participations in real estate equity developments
which frequently include participation in the profits or ownership of the
underlying enterprises. Investment decisions, both as to overall investment
objectives such as diversification, yield and risk, and as to the specific
investment, remain the responsibility of the individual Life Insurance
Subsidiaries. USLIFE Real Estate Services Corporation also provides services
relating to mortgage portfolios of non-affiliated companies amounting to
approximately $6.1 million at December 31, 1993.
Securities Investment
USLIFE Advisers, Inc.
USLIFE Advisers, Inc. ("Advisers"), a wholly-owned subsidiary of USLIFE,
was incorporated in October 1972 to be the adviser to USLIFE Income Fund, Inc.
("Income Fund"), a closed-end mutual fund sponsored by USLIFE. Income Fund's
primary investment objective is to provide a high level of current income to
its shareholders. Income Fund made a public offering of its securities in
December 1972 and had net assets of approximately $58 million at December 31,
1993. Advisers' services to Income Fund are furnished under an investment
advisory contract which, as required by the Investment Company Act of 1940,
provides that its continuance is subject to specific approval at least annually
by a majority of the Directors of Income Fund, including a majority of its
directors who are not parties to such agreement or interested persons of any
such party, or by vote of the holders of a majority of the outstanding voting
securities of Income Fund, and to termination by either party on 60 days'
notice. In 1993, Advisers earned fees of $400 thousand pursuant to this
contract.
USLIFE Equity Sales Corp.
USLIFE Equity Sales Corp. ("Equity Sales") was incorporated in 1968 as a
wholly-owned subsidiary of USLIFE. It is a member of the National Association
of Securities Dealers, Inc., and Security Investors Protection Corporation and
is registered as a broker-dealer in 49 states and the District of Columbia.
Its principal business is the sale of securities in combination with the life
insurance products of the Life Insurance Subsidiaries.
Approximately 800 registered representatives, almost all of whom are also
licensed insurance agents, are affiliated with Equity Sales and are supervised
by its main office in New York City and by branch offices. Equity Sales works
with the Life Insurance Subsidiaries to recruit and train their agents to
become registered representatives of Equity Sales. Emphasis is placed on the
joint marketing of securities and insurance products.
Corporate Services
The "Corporate Services" category includes the operations of USLIFE
Systems Corporation, USLIFE Agency Services, Inc. and USLIFE Insurance Services
Corporation, each of which furnish services to USLIFE's subsidiaries.
<PAGE>26
USLIFE Systems Corporation, formed in 1971, provides data processing
support and related services to USLIFE and its subsidiaries. USLIFE Agency
Services, Inc., originally established in 1983, arranges for specialty
coverages not underwritten by the Life Insurance Subsidiaries to be marketed in
conjunction with the products of those companies, and provides other marketing-
related services to the Life Insurance Subsidiaries. USLIFE Insurance Services
Corporation, formed in 1986, develops and implements standard administrative
procedures for certain Life Insurance Subsidiaries.
Employees
USLIFE and its subsidiaries employed approximately 2,140 persons at
December 31, 1993.
Item 2. Properties.
Descriptions of properties of USLIFE and its subsidiaries are set forth in
Item 1.
Item 3. Legal Proceedings.
In November 1981 the Company and certain of its subsidiaries filed a third
amended complaint against a former registered representative and certain of his
affiliated companies and individuals and against certain former officers of
USLIFE Savings and Loan Association ("USLIFE Savings", a former subsidiary of
the Company) for indemnification, injunctive relief and accounting (USLIFE
Savings and Loan Association v. Louis Wilcox, et al., Superior Court of the
State of California for the County of Riverside). In the complaint, the
Company, its subsidiaries and USLIFE Savings sought to recover all damages and
losses incurred by them as defendants in actions related to the activities of
the aforementioned former registered representative as well as attorneys' fees
and costs incurred in defending against such actions. In April 1984, defendant
Louis M. Wilcox, a former officer of USLIFE Savings, filed a cross complaint in
this action. Wilcox seeks special damages in the amount of not less than $15
thousand, general damages of $1 million, and punitive damages of $10 million.
In 1986 Wilcox's causes of action for malicious prosecution and abuse of
process were dismissed. In 1989 Wilcox voluntarily dismissed the remainder of
his case and appealed the 1986 decision dismissing his causes of action for
malicious prosecution and abuse of process. On appeal, the dismissal of the
cause of action for abuse of process was reversed. The dismissal of the cause
of action for malicious prosecution was upheld. Trial was scheduled to begin
in June 1993. Pursuant to the Company's request, the case was bifurcated for
trial. In July 1993 the trial court, after hearing evidence on the issue,
without a jury, decided that the Company originally had probable cause to sue
Wilcox. As this was dispositive of Wilcox's claim for malicious prosecution,
the Court dismissed Wilcox's claims against the Company. A judgment in the
Company's favor was entered in late 1993. Wilcox has appealed.
In March 1992, All American Life Insurance Company ("All American") terminated
the right of Doug Ruedlinger, Inc. (the "Managing General Agent" or "DRI") to
sell college medical insurance on behalf of All American. All American had
entered into an arrangement with the Managing General Agent for sales and the
administration of student accident and health policies, embodied in an
Exclusive Agency Agreement. In April 1992, All American terminated the
Managing General Agent's Exclusive Agency Agreement. The Exclusive Agency
Agreement was terminated as a result of the failure of the Managing General
Agent to secure adequate reinsurance as required under that contract, and to
meet other contractual obligations. Subsequent to the termination of the
Exclusive Agency Agreement, the Managing General Agent ceased processing and
paying claims under All American policies, and All American assumed these
functions. The Managing General Agent then commenced arbitration proceedings
against All American before the American Arbitration Association based upon the
termination of the Exclusive Agency Agreement (the "Arbitration Proceeding").
<PAGE>27
All American then commenced an action against the Managing General Agent in the
United States District Court for the District of Kansas (All American Life
Insurance Co. v. Doug Ruedlinger, Inc. and First Benefits, Inc. ("FBI") (the
"Kansas litigation") seeking a Temporary Restraining Order (which was granted),
and damages for breach of contract and breach of fiduciary duty; All American
also secured a preliminary injunction prohibiting the Managing General Agent
from, among other things, collecting premiums, placing any insurance on behalf
of All American, or in any way holding itself out as representing All American.
All American subsequently filed an amended complaint adding corporations and
individuals affiliated with the Managing General Agent as party defendants (the
"Ruedlinger Defendants") and alleging claims ranging from civil RICO violations
to a claim for common law fraud. The Managing General Agent's Errors and
Omissions carrier, Transamerica Insurance Company ("Transamerica"), intervened
in the Kansas litigation to deny coverage for the claims asserted against the
Managing General Agent in the Arbitration Proceeding and the Kansas litigation,
which allegedly fell under the coverage of Transamerica's Errors and Omissions
Policy (the "Policy"). In March 1993, All American entered into an Assignment
Agreement with Merchants National Bank ("Merchants" or, the "Bank") (the
Managing General Agent's former bank). The Bank had asserted a security
interest in premiums and reinsurance recoveries on the policies at issue, and
had intervened in the Kansas litigation seeking to enforce these alleged
security interests. Through the Assignment Agreement, All American purchased
all of the Bank's right, title and interest in and to the Managing General
Agent's assets, as well as the assets of its parent and affiliates, pursuant to
certain loan documents executed by the Managing General Agent and its parent
and affiliates. Pursuant to the terms of the Assignment Agreement, all claims
asserted by All American and the Bank, against each other, were dismissed. By
consent order dated May 25, 1993, the Kansas litigation was stayed by the
Court. The Court in the Kansas litigation lifted the stay in that case solely
to permit All American to file a second amended complaint in that action, which
was identical to the prior pleading except that it set forth an additional
claim against an affiliate of the Managing General Agent, Fund Insurance
Company, Ltd. ("FICL"), based on a promissory note that was assigned to All
American by the Bank under the Assignment Agreement. FICL is a Bermuda
insurance company that was already a defendant in the Kansas litigation, and is
owned by a Kansas corporation known as The Ruedlinger Company, Inc. Among the
loan documents assigned to All American by the Bank pursuant to the Assignment
Agreement was a written guaranty by Douglas O. Ruedlinger ("Ruedlinger"),
guarantying the full indebtedness represented by the loan documents. Prior to
the execution and delivery of the Assignment Agreement, the Bank had commenced
an action against Ruedlinger in the Kansas State Court of Shawnee County,
Merchants National Bank v. Douglas O. Ruedlinger, 92CV1432 based on that
guaranty (the "Guaranty Action"). In April 1993, after the Assignment
Agreement, All American was substituted as plaintiff in that action. All
American then moved for summary judgment, and by Order and Judgment dated
September 15, 1993, the Court awarded All American final judgment against
Ruedlinger personally for an amount in excess of $2.4 million. Ruedlinger has
filed an appeal of that judgment.
The arbitration hearings between All American and the Managing General Agent,
which began in October 1992, and which by January 1993 were substantially
completed (the "Arbitration Proceeding"), were effectively stayed on January
19, 1993, when the Managing General Agent, and its captive third-party
administration affiliate FBI, filed Chapter 11 reorganization bankruptcy
petitions (the "DRI Bankruptcy Cases"). In April 1993, the Bankruptcy Court
converted those bankruptcy reorganization proceedings to Chapter 7 liquidations
and appointed a trustee to administer the debtors' estates (the "DRI Trustee").
All American moved in those bankruptcy proceedings to lift the stay imposed by
the bankruptcy filings to permit the Arbitration Proceeding to be concluded,
which motion was granted by the Court in August 1993.
In December 1993, All American negotiated a settlement with the DRI Trustee and
Transamerica in the DRI Bankruptcy Cases (the "DRI Bankruptcy Settlement").
Under the terms of that settlement, which was approved by the bankruptcy court
at a hearing on December 16, 1993, and later by written order dated January 25,
1994, all claims asserted, or which could have been asserted against All
American by DRI, FBI, the DRI Trustee and Transamerica were dismissed, with
prejudice. In addition, the DRI Trustee consented to the entry of an award in
the Arbitration Proceeding whereby: (i) the arbitrators would find in favor of
All American on all of its claims, including a finding that the termination of
DRI's Exclusive Agency Agreement was proper and for cause; (ii) finding against
DRI on all of its claims; and (iii) further entering a monetary award in All
American's favor against DRI and FBI in the sum of $17 million (the "General
Claim"). Also in connection with the DRI Bankruptcy Settlement, Transamerica
agreed to pay to All American the sum of $200 thousand to settle All American's
<PAGE>28
claim under Transamerica's Policy. As consideration for this payment, All
American agreed to subordinate its claims to all other allowed claims in the
DRI Bankruptcy Cases, and to dismiss and release certain claims against DRI,
FBI, and certain of the Ruedlinger Defendants. Expressly exempted from the
release were claims against FICL, Ruedlinger in the Guaranty Action, Wheatland
and various other entities under the Merchants loan documents, and various
other entities controlled by Ruedlinger.
On or about April 21, 1993, All American filed involuntary bankruptcy petitions
under Chapter 7 against the Managing General Agent's parent corporation,
Wheatland Group Holdings, Inc. ("Wheatland"), and five of its other wholly
owned subsidiaries, which were also affiliates of the Managing General Agent.
Each of the six alleged debtors moved to dismiss the involuntary bankruptcy
petition filed against it, and All American opposed those motions. After a
hearing before the Court on October 12, 1993, by Judgment dated October 25,
1993, the Bankruptcy Court denied the debtors' motions to dismiss, ruling that
All American had properly filed the involuntary bankruptcy petitions against
each of the six debtors. In November 1993, the Court entered orders for relief
under Chapter 7 of the Bankruptcy Code against each of the involuntary debtors,
and appointed a Trustee to administer their estates.
In July 1993, the Judge in an action entitled Sheldon Whitehouse, as Receiver
for United International Insurance Company ("UIIC") v. Douglas O. Ruedlinger,
et al., pending in the United States District Court for the District of Kansas,
92-4255 (RDR), permitted the plaintiff-Receiver to amend his complaint to add
All American as a defendant in that case, and to assert claims against All
American for an accounting and for money damages, which complaint was served on
All American. In that action it is alleged that over $300 thousand in UIIC
premiums were used by FBI to pay All American insured's claims, and that UIIC's
Receiver is entitled to a refund of those funds. All American intends to
vigorously oppose that action. That action has also been stayed pursuant to a
separate consent order issued by the Court. In August 1993, All American filed
a claim in the UIIC receivership action in Rhode Island, in which All American
claimed that $87 thousand of its premiums were used by FBI to pay claims of
UIIC's insureds. The Receiver has taken no position with respect to this
claim.
In December 1993, All American settled all potential claims by or against the
National Federation of State High School Associations (the "Federation"). The
Federation was an insured under a student accident medical payment insurance
policy placed by DRI. The policy provided excess insurance to the Federation
over a 55% self-insured program for the Federation members. All American and
the Federation were involved in a dispute as to when All American's coverage
applied. All American contended that its coverage was excess to the self-
insured program, and the Federation contended that All American's insurance
obligation was primary coverage. The Federation also threatened to bring an
action against All American claiming that, since June 1992, All American had
collected certain premiums directly from Federation insureds and further
alleging that part of those premiums were Federation member dues for the self-
insured program. The Federation threatened to seek an accounting from All
American, and to the extent that DRI was All American's Managing General Agent,
the Federation stated that it would allege that All American was liable to it
for over $1.5 million in Federation dues that were misappropriated by DRI. In
July 1992, All American entered into a standstill agreement with the
Federation, which provided that All American would advance claim payments to
Federation insureds for all claims under both the self-insured program and All
American's insurance policy, subject to the resolution of the coverage dispute.
All American advanced over $750 thousand for such claim payments. In December
1993, All American settled all claims by and against the Federation whereby the
Federation has agreed to pay $100 thousand to All American in installments.
The Federation and All American have agreed to exchange general releases as
part of this settlement.
Starting in June 1991, and through April 1992, DRI filed several claims with
reinsurers of All American's insurance under reinsurance treaties issued for
the school years 1988-1989, 1989-1990, and 1990-1991. As of June 1992, the
outstanding reinsurance claims filed by DRI totalled to approximately $3.5
million. After a preliminary audit of DRI conducted by the reinsurers in
February 1992, the reinsurers informed DRI that they would not pay any further
claims until a full audit was completed. Among the questions raised by the
reinsurers at that audit were (i) whether DRI improperly included a 5% TPA fee
as part of loss adjustment expense when filing the aggregate stop loss claims;
(ii) whether the reinsurance treaties covered illness claims; and (iii) whether
DRI's tack-on premiums should have been included in calculating the premium
<PAGE>29
component of the stop loss policies' attachment point, and the reinsurance
premiums. The reinsurers claim that all three procedures were improper. All
American had demanded payment of these outstanding claims, which is currently
the subject of negotiations between All American and the reinsurers. Certain
of the reinsurers have settled with All American, which when completed, will
represent payments to All American of over $230 thousand. Other reinsurers
have indicated that they will demand the refund of sums previously paid by them
to DRI on certain aggregate claims that the reinsurers contend were improper.
All American submitted claims to the reinsurers for the 1991-1992 year of
account totalling over $3 million on an excess of loss treaty in effect for
this period. These reinsurers, which for the most part were different from the
prior years' reinsurers, denied coverage for the vast majority of the claims
submitted and refused to pay any claims without a thorough audit. All American
has reached settlements with reinsurers possessing over 85% of the
participation interests in this period's treaties by agreeing to rescind these
treaties, which have resulted in premium refund payments to All American
totalling over $900 thousand. All American is continuing to negotiate with the
remaining few reinsurers. All American's likelihood of recovering
significantly more of these reinsurance billings is currently uncertain.
All American has taken a one-time, after-tax charge of $10.6 million to
establish a reserve for amounts receivable from the Managing General Agent.
Management is of the opinion that any additional losses that might be suffered
will not have a material adverse impact on the consolidated Equity Capital of
the Company.
In April 1991, All American commenced a lawsuit against 11 subscribers to a
reinsurance pool when the reinsurers failed to honor their obligations under
the reinsurance agreement. Approximately $15.8 million of reinsured claims
were in dispute. All American's complaint sought declaratory relief, and
damages for breach of contract and the reinsurers' duty of good faith and fair
dealing (All American Life Insurance Company, et al. v. Beneficial Life
Insurance Company, et al., U.S. District Court for the District of New Jersey).
All of the defendants in the All American action asserted counterclaims against
All American based upon its alleged failure to properly administer the
reinsured policies. Certain other common law claims were also asserted. A
total of eight of the reinsurers commenced their own lawsuits against All
American, among others, arising out of the same transactions. Seven of those
brought an action entitled Mutual Benefit Life Insurance Company, et al. v.
George G. Zimmerman, et al., in the U.S. District Court for the District of New
Jersey. The Mutual Benefit complaint sought rescission of the reinsurance
agreement, as well as compensatory and punitive damages, based upon asserted
federal and New Jersey state RICO claims and other common law claims for
relief. All of the defendants in the Mutual Benefit action also cross-claimed
against each other for contribution or indemnification. An eighth reinsurer
commenced a further lawsuit arising out of the same transactions, naming All
American, among others, as a defendant (Security Benefit Life Insurance Company
v. All American Life Insurance Company, et al, U.S. District Court for the
District of New Jersey). The Security Benefit complaint sought only rescission
of the reinsurance agreement and declaratory relief as against All American.
Certain of the other defendants in the Security Benefit action asserted cross-
claims against All American for contribution or indemnification. All of the
lawsuits were consolidated in the United States District Court for the District
of New Jersey, Newark Division. All American has now reached settlements with
all of the reinsurers. All direct claims concerning All American in the Mutual
Benefit and Security Benefit actions have been dismissed. The consolidated
actions are currently in the discovery phase and no date for trial has been
set. All American has moved to dismiss the remaining cross-claims for
contribution or indemnity asserted against it, but that motion has not yet been
decided by the Court.
In June 1993 a purported class action (Hoban v. USLIFE Credit Life Insurance
Company, All American Life Insurance Company and Security of America Life
Insurance Company) was filed in the United States District Court for the
Northern District of Illinois. An Amended Complaint was filed in October 1993.
The Amended Complaint alleges that the defendant companies, all of which are
subsidiaries of USLIFE Corporation, sold single premium credit life and credit
disability insurance policies to second mortgage borrowers in several states.
The Amended Complaint further alleges that some second mortgage loans were paid
off early so that the insureds were legally entitled to refunds for unearned
premiums. The suit seeks damages on behalf of those insureds who did not claim
and therefore did not receive partial refunds of their premiums from the named
defendants. The Amended Complaint also contains claims under the Federal RICO
statute and the Illinois Consumer Fraud Act. Defendants filed a Motion to
Dismiss the Amended Complaint for lack of federal jurisdiction, for failure to
<PAGE>30
allege facts amounting to fraud, and for failure to allege facts amounting to a
RICO violation. Plaintiff has filed a Motion to Certify the Class, which
defendants opposed. Both motions are awaiting decision by the Court.
At this point in time the outcome of these suits is not predictable. However,
in the opinion of management, the ultimate resolution of these suits is not
likely to have a material adverse affect on the consolidated Equity Capital of
the Company.
<PAGE>31
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
USLIFE's Common Stock is traded on the New York, Chicago (formerly
Midwest), Pacific and London Stock Exchanges. Dividends for the years ended
December 31, 1993 and 1992 have been declared and paid to Common Stockholders
at the annual rates of $1.21 and $1.14 respectively (paid quarterly in 1993 and
1992). As of February 24, 1994 there were approximately 8,100 record holders
of the Common Stock. The following table sets forth the high and low sales
prices for the Common Stock as reported in the consolidated transaction system
for each quarterly period during the years indicated.
MARKET PRICE RANGES
(low to high)
1993 1992
____ ____
First quarter...... 36 1/8 - 42 5/8 28 1/8 - 31 7/8
Second quarter..... 35 3/4 - 41 1/2 28 3/8 - 34 3/8
Third quarter...... 39 3/4 - 43 7/8 31 1/8 - 35
Fourth quarter..... 36 1/2 - 45 3/4 29 3/8 - 38 1/4
Market prices have been adjusted as appropriate to reflect the three-for-two
split of the Company's common stock in December 1992.
See "Insurance Accounting" in Note 1 of Notes to Financial Statements and
Management's Discussion and Analysis of "Liquidity" herein, for information
concerning regulatory restrictions upon payment of dividends by the Life
Insurance Subsidiaries to the Company.
Item 8. Financial Statements and Supplementary Data.
See separate Index to Financial Statements and Financial Statement
Schedules on page 44. See Note 15 of Notes to Financial Statements as to
condensed quarterly results of operations.
<PAGE>32
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 10. Directors and Executive Officers of the Registrant.
Executive Officers of the Registrant
The executive officers of USLIFE are listed below. The executive
officers, after their initial election, are elected at USLIFE's annual Board of
Directors meeting to serve, unless removed, until the next such annual meeting,
scheduled for May 1994.
<TABLE>
<CAPTION>
Served as
Name Office Age such since
_____ ______ ____ __________
<S> <C> <C> <C>
Gordon E. Crosby, Jr. Chairman of the Board and Chief 73 (1)
Executive Officer; Chairman of the Board,
USLIFE Corporation Subsidiaries and
USLIFE Income Fund, Inc.
Robert J. Casper President and Chief Operating Officer; 51 5-18-93
Director
Greer F. Henderson Vice Chairman and Chief Financial Officer 62 2-22-83
Christopher S. Ruisi Vice Chairman and Chief Administrative 44 5-18-93
Officer
A. Scott Bushey Executive Vice President-Corporate Planning 63 4-26-88
Arnold A. Dicke Executive Vice President-Product Actuary 52 4-28-92
Wesley E. Forte Executive Vice President-General Counsel 60 5-21-85
John D. Gavrity Executive Vice President-Financial Actuary 53 10-23-91
James M. Schlomann.. Executive Vice President-Financial Operations 45 10-18-93
Richard G. Hohn..... Senior Vice President - Corporate 57 5-19-93
Secretary and Counsel
James B. Lynch, Jr. Senior Vice President-Controller 61 4-2-84
George W. McQueen Senior Vice President-Financial Operations 61 9-28-82
Richard J. Chouinard Senior Investment Officer; President and 61 10-1-80
Director, USLIFE Income Fund, Inc.
Frank J. Auriemmo, Jr. Vice President & Treasurer 52 9-25-84
Ralph J. Cargiulo President and Chief Executive Officer, 59 5-18-93
United States Life
Phillip G. Faulkner President and Chief Executive Officer, 57 6-1-74
USLIFE Real Estate Services Corporation
James A. Griffin President and Chief Executive Officer, 54 10-1-88
Old Line Life
Thomas L. Hendricks President and Chief Executive Officer, 53 4-1-91
USLIFE Systems Corporation and USLIFE
Insurance Services Corporation
James E. Lee President and Chief Executive Officer, 61 1-1-80
USLIFE Credit Life
William A. Simpson President and Chief Executive Officer, All 55 4-16-90
American Life; Director
__________
</TABLE>
(1) Served as Chairman since March 21, 1967. Had been President from
November 11, 1966 to June 14, 1971 and resumed that position from October 15,
1974 to March 1, 1976, from January 24, 1984 to November 17, 1987, and from
December 1, 1988 to May 18, 1993.
<PAGE>33
All of USLIFE's executive officers devote their full time to the business
of USLIFE or its subsidiaries. With the exception of Messrs. Dicke, Hohn,
Schlomann, and Simpson, all of the executive officers of USLIFE have been
employed by USLIFE or one of its subsidiaries or one of their predecessors for
at least five years. Mr. Casper has served as President and Chief Operating
Officer of USLIFE Corporation since May 1993. He also serves as President and
Chief Executive Officer of USLIFE Equity Sales Corporation, and has been a
Director since March 1990. Prior to assumption of his current position, Mr.
Casper served as President and Chief Operating Officer of the life insurance
division of USLIFE Corporation since October 1991 and as President of United
States Life since at least January 1989. Mr. Henderson has served as Vice
Chairman and Chief Financial Officer and a Director since at least January
1989. Mr. Ruisi has served as Vice Chairman and Chief Administrative Officer
since May 1993 and has been a Director since November 1992. Previously, Mr.
Ruisi served as Senior Executive Vice President-Administration since March 1990
and as Executive Vice President-Administration since at least January 1989.
Mr. Bushey has served as Executive Vice President-Corporate Planning since at
least January 1989. Mr. Dicke has served as Executive Vice President - Product
Actuary since April 1992. Previously, he served as Vice President and Actuary
for The Equitable Life Assurance Society since April 1991, and as Consultant
and Actuary with Tillinghast, a Towers Perrin Company, from at least January
1989. Mr. Forte has served as Executive Vice President-General Counsel since
at least January 1989. Mr. Gavrity has served as Executive Vice President-
Financial Actuary since October 1991 and previously served as Executive Vice
President - Chief Actuary since at least January 1989. Mr. Schlomann has
served as Executive Vice President - Financial Operations since October 1993.
He previously served as Senior Vice President and Controller with Frank B. Hall
& Company, Inc., since at least January 1989. Mr. Hohn has served as Senior
Vice President - Corporate Secretary and Counsel since May 1993. He previously
served as Vice President - Corporate Secretary since April 1991. Prior to that
date, he served as consultant to the Life Insurance Council of New York, a
trade association of New York life insurance companies, since April 1990; and
as an attorney in private practice since at least January 1989. Mr. Lynch has
served as Senior Vice President-Controller since at least January 1989. Mr.
McQueen has served as Senior Vice President-Financial Operations since at least
January 1989. Mr. Chouinard, who has served as Senior Investment Officer of
USLIFE since at least January 1989, also serves as President and Chief
Executive Officer of Advisers and President and a Director of Income Fund. Mr.
Auriemmo has served as Vice President and Treasurer since at least January
1989. Mr. Cargiulo has served as President and Chief Executive Officer of
United States Life since May 1993. Previously, he served as President- Chief
Operating Officer of United States Life since October 1991. Prior to that
date, he served as Executive Vice President for individual underwriting and
insurance services of that subsidiary since November 1990 and as Senior Vice
President - Individual Insurance Services of United States Life since at least
January 1989. Mr. Faulkner has served as President and Chief Executive Officer
of USLIFE Real Estate Services Corporation since at least January 1989. Mr.
Griffin has served as President and Chief Executive Officer of Old Line Life
since at least January 1989. Mr. Hendricks has served as President and Chief
Executive Officer of USLIFE Systems Corporation since at least January 1989 and
as President and Chief Executive Officer of USLIFE Insurance Services
Corporation since April 1991. Mr. Lee has served as President and Chief
Executive Officer of USLIFE Credit Life since at least January 1989. Mr.
Simpson has served as President of All American Life since April 1990 and as a
Director since March 1990. He served as President of USLIFE from March 1990 to
October 1991. Previously, Mr. Simpson served as President and Chief Operating
Officer and a member of the board of directors of Transamerica Occidental Life
Insurance Company since at least January 1989.
Information regarding directors of the Registrant is incorporated by
reference to USLIFE Corporation's definitive proxy statement to be filed within
120 days after the end of USLIFE's fiscal year ended December 31, 1993 for use
in connection with the Annual Meeting of Shareholders to be held on May 17,
1994.
Item ll. Executive Compensation.
Information regarding executive compensation is incorporated by reference
to USLIFE Corporation's definitive proxy statement to be filed within 120 days
after the end of USLIFE's fiscal year ended December 31, 1993 for use in
connection with the Annual Meeting of Shareholders to be held on May 17, 1994.
<PAGE>34
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding beneficial ownership of USLIFE's voting securities
by directors, officers, and persons who, to the best knowledge of USLIFE, are
known to be the beneficial owners of more than 5% of any class of USLIFE's
voting securities as of March 31, 1994, is incorporated by reference to USLIFE
Corporation's definitive proxy statement to be filed within 120 days after the
end of USLIFE's fiscal year ended December 31, 1993 for use in connection with
the Annual Meeting of Shareholders to be held on May 17, 1994.
Item 13. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions is
incorporated by reference to USLIFE Corporation's definitive proxy statement to
be filed within 120 days after the end of USLIFE's fiscal year ended December
31, 1993 for use in connection with the Annual Meeting of Shareholders to be
held on May 17, 1994.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1 and 2. Financial Statements and Financial Statement Schedules of
USLIFE and Subsidiaries.
See separate Index to Financial Statements and Financial Statement
Schedules on page 44.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Nos. 33-40793 (filed June 23, 1991), 33-13999 (filed May 11, 1987) and 2-77278
(filed April 30, 1982):
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>35
(a) 3. Exhibits.
3 (i) - Restated Certificate of Incorporation, as amended,
incorporated herein by reference to USLIFE's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
3 (ii) - By-laws, as amended, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended December
31, 1992.
4 (i) - See Exhibit 3(i).
(ii) - Indenture dated as of October 1, 1982 (9.15% Notes due June
15, 1999, 6.75% Notes due January 15, 1998, and 6.375% Notes due
June 15, 2000) incorporated herein by reference to USLIFE's
Registration Statement No. 2-79559 on Form S-3.
Agreements or instruments with respect to long-term debt which
are not filed as exhibits hereto do not in total exceed 10% of
USLIFE's consolidated total assets and USLIFE agrees to furnish
a copy thereof to the Commission upon request.
(iii) - Amended and Restated Rights Agreement, dated as of June 24,
1986 and amended and restated as of January 24, 1989, between
USLIFE Corporation and Manufacturers Hanover Trust Company
(predecessor to Chemical Bank), as Rights Agent, relating to
Common Stock Purchase Rights issued by USLIFE on July 10, 1986,
incorporated herein by reference to USLIFE's Current Report on
Form 8-K dated January 24, 1989.
10 * (i) - 1981 Stock Option Plan, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended
December 31, 1981.
* (ii) - Employment contract dated as of April 1, 1989 between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
* (iii) - First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989 between USLIFE Corporation
and Gordon E. Crosby, Jr., incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (iv) - Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (v) - Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.
* (vi) - Fourth Amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
<PAGE>36
* (vii) - Fifth Amendment dated as of February 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Annual Report on Form 10-K for the year
ended December 31, 1992.
* (viii) - Sixth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (ix) - Employment contract dated as of April 1, 1989 between USLIFE
Corporation and Greer F. Henderson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
* (x) - First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989, between USLIFE Corporation
and Greer F. Henderson, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (xi) - Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Greer F. Henderson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xii) - Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Greer F. Henderson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.
* (xiii) - Fourth Amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Greer F. Henderson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
* (xiv) - Fifth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Greer F. Henderson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (xv) - Employment contract dated as of April 1, 1989 between USLIFE
Corporation and Wesley E. Forte, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
* (xvi) - First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989 between USLIFE Corporation
and Wesley E. Forte, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (xvii) - Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Wesley E. Forte, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xviii)- Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Wesley E. Forte.
* (xix) - Fourth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Wesley E. Forte, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
<PAGE>37
* (xx) - Employment contract dated as of April 1, 1989 between USLIFE
Corporation and John D. Gavrity, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
* (xxi) - First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989 between USLIFE Corporation
and John D. Gavrity, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (xxii) - Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and John D. Gavrity, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xxiii)- Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and John D. Gavrity, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.
* (xxiv) - Fourth Amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and John D. Gavrity, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
* (xxv) - Fifth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and John D. Gavrity, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (xxvi) - Employment contract dated as of April 1, 1989 between USLIFE
Corporation and Christopher S. Ruisi, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
* (xxvii)- First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989 between USLIFE Corporation
and Christopher S. Ruisi, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (xxviii)- Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Christopher S. Ruisi, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xxix) - Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Christopher S. Ruisi, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.
* (xxx) - Fourth Amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Christopher S. Ruisi, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
* (xxxi) - Fifth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Christopher S. Ruisi, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (xxxii)- Employment contract dated as of April 1, 1989 between USLIFE
Corporation and A. Scott Bushey, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
<PAGE>38
* (xxxiii)- First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989 between USLIFE Corporation
and A. Scott Bushey, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (xxxiv)- Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and A. Scott Bushey, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xxxv) - Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and A. Scott Bushey, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.
* (xxxvi)- Fourth Amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and A. Scott Bushey, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
* (xxxvii)- Fifth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and A. Scott Bushey, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
*(xxxviii)- Employment contract dated as of April 16, 1990 between USLIFE
Corporation and William A. Simpson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xxxix)- First Amendment dated as of May 1, 1991 to employment
contract dated as of April 16, 1990 between USLIFE Corporation
and William A. Simpson, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1991.
* (xl) - Second Amendment dated as of May 1, 1992 to employment
contract dated as of April 16, 1990, as amended, between USLIFE
Corporation and William A. Simpson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
* (xli) - Third Amendment dated as of October 1, 1992 to employment
contract dated as of April 16, 1990, as amended, between USLIFE
Corporation and William A. Simpson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992.
* (xlii) - Third Amendment dated as of May 1, 1993 to employment
contract dated as of April 16, 1990, as amended, between USLIFE
Corporation and William A. Simpson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (xliii)- Employment contract dated as of April 1, 1991 between USLIFE
Corporation and Robert J. Casper, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992.
* (xliv) - First amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1991 between USLIFE Corporation
and Robert J. Casper, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992.
* (xlv) - Second Amendment dated as of October 1, 1992 to employment
contract dated as of April 1, 1991, as amended, between USLIFE
Corporation and Robert J. Casper, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992.
<PAGE>39
* (xlvi) - Second Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1991, as amended, between USLIFE
Corporation and Robert J. Casper, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (xlvii)- 1978 Stock Option Plan, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended December
31, 1980.
* (xlviii)- Deferred Compensation Plan, incorporated herein by reference
to USLIFE's Annual Report on Form 10-K for the year ended
December 31, 1980.
* (il) - Book Unit Plan, incorporated herein by reference to USLIFE's
Annual Report on Form 10-K for the year ended December 31, 1980.
(l) - Lease dated as of December 30, 1986 between The United States
Life Insurance Company In the City of New York and RREEF USA
Fund-III for the lease of a portion of 125 Maiden Lane, New
York, New York, incorporated herein by reference to USLIFE's
Annual Report on Form 10-K for the year ended December 31, 1986.
(li) - Amendment to Lease dated August 31, 1988 to Lease dated as of
December 30, 1986 between The United States Life Insurance
Company In the City of New York and RREEF USA Fund-III for the
lease of a portion of 125 Maiden Lane, New York, New York,
incorporated herein by reference to USLIFE's Annual Report on
Form 10-K for the year ended December 31, 1988.
(lii) - Second Amendment to Lease dated November 16, 1988 to Lease
dated as of December 30, 1986 between The United States Life
Insurance Company In the City of New York and RREEF USA Fund-III
for the lease of a portion of 125 Maiden Lane, New York, New
York, incorporated herein by reference to USLIFE's Annual Report
on Form 10-K for the year ended December 31, 1988.
(liii) - Lease dated May 21, 1987 between The United States Life
Insurance Company In the City of New York and Commercial Realty
& Resources Corp. for the lease of premises at the Jumping Brook
Corporate Office Park in Neptune, New Jersey, incorporated
herein by reference to USLIFE's Annual Report on Form 10-K for
the year ended December 31, 1988.
(liv) - February 9, 1989 Amendment to Lease dated May 21, 1987
between The United States Life Insurance Company In the City of
New York and Commercial Realty & Resources Corp. for the lease
of premises at the Jumping Brook Corporate Office Park in
Neptune, New Jersey, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended December
31, 1988.
* (lv) - Retirement Plan for Outside Directors effective February 28,
1989, incorporated herein by reference to USLIFE's Annual Report
on Form 10-K for the year ended December 31, 1988.
* (lvi) - USLIFE Corporation Restricted Stock Plan effective January 1,
1989, incorporated herein by reference to USLIFE's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1989.
<PAGE>40
* (lvii) - Trust Agreement made as of September 25, 1990 among USLIFE
Corporation, Manufacturers Hanover Trust Company (predecessor to
Chemical Bank) and KPMG Peat Marwick (as independent contractor)
establishing a trust to fund certain employment contracts,
incorporated herein by reference to USLIFE's Annual Report on
Form 10-K for the year ended December 31, 1990.
* (lviii)- Trust Agreement made as of September 25, 1990 among USLIFE
Corporation, Manufacturers Hanover Trust Company (predecessor to
Chemical Bank) and KPMG Peat Marwick (as independent contractor)
establishing a trust to fund the USLIFE Corporation Supplemental
Retirement Plan, incorporated herein by reference to USLIFE's
Annual Report on Form 10-K for the year ended December 31, 1990.
* (lix) - Trust Agreement made as of September 25, 1990 among USLIFE
Corporation, Manufacturers Hanover Trust Company (predecessor to
Chemical Bank) and KPMG Peat Marwick (as independent contractor)
establishing a trust to fund the USLIFE Corporation Retirement
Plan for Outside Directors, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended December
31, 1990.
* (lx) - 1991 Stock Option Plan, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended December
31, 1991.
12 - Computations of ratios of earnings to fixed charges.
21 - List of Subsidiaries.
23 - Consent of Independent Certified Public Accountants (see page
41).
99 (i) - Annual Report on Form 11-K of USLIFE Corporation Employee
Savings and Investment Plan for the plan year ended December 31,
1993 (to be filed within 120 days of fiscal year end of Plan).
99 (ii) - Trust Agreement made as of December 6, 1990 among USLIFE
Corporation, Manufacturers Hanover Trust Company (predecessor to
Chemical Bank), and KPMG Peat Marwick (as independent
contractor) establishing a trust to fund the USLIFE Corporation
Retirement Plan, incorporated herein by reference to USLIFE's
Annual Report on Form 10-K for the year ended December 31, 1990.
* Indicates a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K.
No Current Report on Form 8-K has been filed for the last quarter of the
fiscal year ended December 31, 1993.
<PAGE>41
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
USLIFE Corporation:
We consent to the incorporation by reference in Registration Statements
Nos. 33-18287, 33-8489, 33-58944, 33-29934, 33-17126, 33-67344 and 33-9159 on
Form S-3 relative to Debt Securities, and common stock, respectively; the post
effective amendment to Registration Statement No. 33-29934 on Form S-3 relative
to Debt Securities; the post effective amendment to Registration Statement No.
33-9159 on Form S-3 relative to common stock; the post effective amendments to
Registration Statement Nos. 2-93655 and 33-11019 on Form S-3 relative to the
General Agents Incentive Compensation Plan; Registration Statement No. 33-45377
on Form S-3 relative to the United States Life Insurance Company Retirement
Plan for General Agents and Producers; the post effective amendments to
Registration Statement No. 33-17126 relative to Debt Securities; Registration
Statement No. 33-40793 on Form S-3 relative to the 1991 Stock Option Plan; and
the post effective amendment to Registration Statement Nos. 2-63159, 2-32606
and 2-77278 on Form S-8 relative to the Stock Option Plans and Registration
Statement Nos. 2-75011 and 33-13999 on Form S-8 relative to the Employee
Savings and Investment Plan of USLIFE Corporation of our report dated February
22, 1994, relating to the consolidated balance sheets of USLIFE Corporation and
subsidiaries as of December 31, 1993 and 1992 and the related statements of
consolidated income, equity capital, and cash flows for each of the years in
the three-year period ended December 31, 1993 which report appears in this
December 31, 1993 Annual Report on Form 10-K of USLIFE Corporation. Our report
refers to a change in accounting to adopt the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
/s/ KPMG Peat Marwick
KPMG Peat Marwick
March 22, 1994
345 Park Avenue
New York, New York
<PAGE>42
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.
USLIFE Corporation
(Registrant)
Dated: March 22, 1994
By: /s/ Gordon E. Crosby, Jr.
_____________________________
(Gordon E. Crosby, Jr.,
Chairman of the Board and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
_________ _____ ____
<S> <C> <C>
Chairman of the Board
and Chief Executive
Officer (Principal
/s/ Gordon E. Crosby, Jr. Executive Officer) March 22, 1994
____________________________________
(Gordon E. Crosby, Jr.)
President - Chief Operating
/s/ Robert J. Casper Officer; Director March 22, 1994
____________________________________
(Robert J. Casper)
Vice Chairman of the
Board and Chief
/s/ Greer F. Henderson Financial Officer March 22, 1994
____________________________________
(Greer F. Henderson)
Vice Chairman of the
Board and Chief Administrative
/s/ Christopher S. Ruisi Officer March 22, 1994
____________________________________
(Christopher S. Ruisi)
Senior Vice President -
Controller (Principal
/s/ James B. Lynch, Jr. Accounting Officer) March 22, 1994
____________________________________
(James B. Lynch, Jr.)
</TABLE>
<PAGE>43
<TABLE>
<CAPTION>
Signature Title Date
_________ _____ ____
<S> <C> <C>
/s/ Kenneth Black, Jr. Director March 22, 1994
____________________________________
(Kenneth Black, Jr.)
/s/ Austin L. D'Alton Director March 22, 1994
____________________________________
(Austin L. D'Alton)
/s/ Thomas H. Lenagh Director March 22, 1994
____________________________________
(Thomas H. Lenagh)
/s/ Eben W. Pyne Director March 22, 1994
____________________________________
(Eben W. Pyne)
/s/ John W. Riehm Director March 22, 1994
____________________________________
(John W. Riehm)
/s/ Franklin R. Saul Director March 22, 1994
____________________________________
(Franklin R. Saul)
/s/ Robert L. Shafer Director March 22, 1994
____________________________________
(Robert L. Shafer)
/s/ William G. Sharwell Director March 22, 1994
____________________________________
(William G. Sharwell)
/s/ William A. Simpson Director March 22, 1994
____________________________________
(William A. Simpson)
/s/ Beryl W. Sprinkel Director March 22, 1994
____________________________________
(Beryl W. Sprinkel)
/s/ Pinkney C. Walker Director March 22, 1994
____________________________________
(Pinkney C. Walker)
</TABLE>
<PAGE>44
USLIFE CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page
____
Selected Financial Data for the five years ended
December 31, 1993............................................... 2
Independent Auditors' Report...................................... 45
Consolidated balance sheets as of December 31, 1993 and 1992...... 46
Statements of consolidated income for the three years ended
December 31, 1993............................................... 48
Statements of consolidated cash flows for the three years ended
December 31, 1993............................................... 49
Statements of consolidated Equity Capital for the three
years ended December 31, 1993................................... 50
Notes to financial statements..................................... 51
Schedule of the Registrant:
(A) Schedule III - Condensed Financial Information of
Registrant (incorporated in Note 14 of Notes to
Financial Statements)...................................
Schedules of the Registrant and Consolidated Subsidiaries:
(A) Schedule I - Summary of investments-other than
investments in related parties (incorporated in
Note 11 of Notes to Financial Statements)...............
(B) Schedule V - Supplementary insurance information
(incorporated in Note 13 of Notes to Financial
Statements).............................................
(C) Schedule VI - Reinsurance (incorporated in Note 10 of
Notes to Financial Statements)..........................
(D) Schedule IX - Short-term borrowings (incorporated in
Note 2 of Notes to Financial Statements)................
<PAGE>45
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
USLIFE Corporation:
We have audited the accompanying consolidated balance sheets
of USLIFE Corporation and subsidiaries as of December 31, 1993
and 1992, and the related statements of consolidated income,
equity capital, and cash flows for each of the years in the
three-year period ended December 31, 1993. 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 audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of USLIFE Corporation and subsidiaries at
December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the years in the three-year
period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 5 to the consolidated financial
statements, the Company changed its method of accounting for
postretirement benefits other than pensions in 1992 to adopt the
provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions."
/s/ KPMG Peat Marwick
KPMG Peat Marwick
February 22, 1994
345 Park Avenue
New York, New York
<PAGE>46
<TABLE>
USLIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
ASSETS
<CAPTION>
December 31
____________________________
1993 1992
____ ____
(Amounts in Thousands)
<S> <C> <C>
Cash:
On hand and in demand accounts..................... $ 60,321 $ 74,574
Restricted funds held in escrow, etc. ............. 1,040 1,433
__________ __________
61,361 76,007
__________ __________
Invested assets (Notes 1 and 11):
Fixed maturities available for sale, at lower of
aggregate amortized cost or market (market,
1993: $5,132,024; 1992: $4,333,898).............. 4,751,681 4,160,486
Equity securities, at market (cost, 1993:
$9,234; 1992: $19,665)........................... 9,205 19,500
Mortgage loans..................................... 361,095 388,396
Real estate........................................ 43,434 47,080
Policy loans....................................... 282,090 283,884
Other long-term investments........................ 7,534 24,136
Short-term investments............................. 68,124 98,921
__________ __________
Total invested assets................. 5,523,163 5,022,403
__________ __________
Total cash and invested assets........ 5,584,524 5,098,410
__________ __________
Other amounts receivable:
Due and uncollected premiums....................... 52,283 39,760
Investment income due and accrued.................. 117,036 108,446
Reinsurance receivables - paid claims (Note 10).... 11,914 8,276
Other reinsurance recoverable amounts (Note 10).... 123,009 -
Other receivables.................................. 29,448 55,288
__________ __________
333,690 211,770
Less: Reserve for uncollectible receivables........ 23,117 23,370
__________ __________
Net other amounts receivable...... 310,573 188,400
__________ __________
Property and equipment:
Land............................................... 50 87
Buildings and improvements......................... 8,037 11,006
Furniture and equipment............................ 40,113 37,546
__________ __________
48,200 48,639
Less: Accumulated depreciation..................... 34,444 31,677
__________ __________
Net property and equipment........ 13,756 16,962
__________ __________
Deferred policy acquisition costs (Note 1)............. 741,927 705,854
Other assets (Note 1).................................. 89,461 85,646
__________ __________
Total assets...................... $6,740,241 $6,095,272
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>47
<TABLE>
LIABILITIES AND EQUITY CAPITAL
<CAPTION>
December 31
___________________________
1993 1992
____ ____
LIABILITIES (Amounts in Thousands)
<S> <C> <C>
Future policy benefits (Note 1):
Life..................................................... $1,196,265 $1,110,757
Accident and health...................................... 257,192 197,533
Policyholder account balances (Note 1)....................... 3,322,265 2,850,037
Supplementary contracts without life contingencies........... 6,385 4,344
Policyholder dividend accumulations.......................... 20,106 20,180
Policy and contract claims................................... 155,629 169,930
Other policy and contract liabilities........................ 28,992 29,879
Current federal income taxes (Notes 1 and 4)................. (247) (13,268)
Deferred federal income taxes (Notes 1 and 4)................ 25,305 44,943
Notes payable (Note 2)....................................... 65,500 177,900
Current maturities of long-term debt (Note 3)................ 100,000 -
Long-term debt (Note 3)...................................... 349,235 349,439
Accounts payable and accrued liabilities..................... 234,577 247,172
__________ __________
Total liabilities....................... 5,761,204 5,188,846
__________ __________
Deferred income.............................................. 13,008 15,985
__________ __________
Contingent liabilities and commitments (Note 9)
NON-REDEEMABLE PREFERRED STOCKS, COMMON STOCK, and
OTHER SHAREHOLDERS' EQUITY (Notes 1, 4, 6, and 7)
Preferred stock-Series A (authorized and outstanding, 1993:
4,815 shares; 1992: 5,627 shares)........................... 482 563
Preferred stock-Series B (authorized and outstanding, 1993:
2,050 shares; 1992: 2,251 shares)........................... 103 113
Preferred stock-undesignated................................. - -
Common stock (authorized, 1993: 60,000,000 shares; 1992:
40,000,000 shares; issued, 1993: 38,308,823 shares;
1992: 38,255,975 shares).................................... 38,309 38,256
Paid-in surplus.............................................. 125,268 121,491
Net unrealized losses on marketable equity securities........ (29) (165)
Retained earnings............................................ 1,142,694 1,072,898
__________ __________
1,306,827 1,233,156
Less: Treasury stock, at cost................................ 339,825 340,382
Deferred compensation (Note 7)......................... 973 2,333
__________ __________
Total non-redeemable preferred stocks, common stock,
and other shareholders' equity ("Equity Capital").... 966,029 890,441
__________ __________
Total liabilities and Equity Capital................ $6,740,241 $6,095,272
========== ==========
</TABLE>
<PAGE>48
<TABLE>
USLIFE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
For the Three Years Ended December 31, 1993
(Amounts in Thousands except Per Share Data)
<CAPTION>
Year Ended December 31
__________________________________________
1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Premiums:
Life and annuities................................................ $ 455,170 $ 426,621 $ 408,530
Accident and health............................................... 489,136 499,773 431,728
Consideration for supplementary contracts and immediate annuities..... 18,397 24,755 27,284
Other consideration................................................... 153,539 139,383 129,109
Net investment income (Note 12)....................................... 444,646 414,436 361,576
Realized gains (losses) on investments................................ 8,516 (2,580) (1,921)
Other income.......................................................... 30,634 27,064 26,600
__________ __________ _________
Total income............................................. 1,600,038 1,529,452 1,382,906
__________ __________ _________
Death and other benefits.............................................. 737,331 740,926 686,899
Increase in future policy benefits.................................... 39,830 34,792 10,795
Interest credited to policyholder account balances.................... 183,737 173,538 137,580
Amortization of deferred policy acquisition costs..................... 151,851 131,840 130,659
Commissions........................................................... 129,822 125,448 113,284
General expenses...................................................... 134,829 150,298 125,329
Insurance taxes and licenses.......................................... 35,124 30,602 23,972
Interest on notes payable............................................. 5,716 7,897 10,467
Interest on long term debt............................................ 26,676 25,908 28,742
Dividends to policyholders............................................ 3,551 3,866 4,160
__________ __________ _________
Total benefits and expenses.............................. 1,448,467 1,425,115 1,271,887
__________ __________ _________
Income from operations before related income taxes................ 151,571 104,337 111,019
Federal income taxes (Note 4):
Current........................................................... 74,053 63,420 67,423
Deferred.......................................................... (19,639) (28,695) (31,076)
__________ __________ _________
54,414 34,725 36,347
__________ __________ _________
Income before cumulative effect of accounting change.................. 97,157 69,612 74,672
Cumulative effect of accounting change for years prior to 1992, net
of applicable income taxes (Notes 1 and 5)........................ - (37,990) -
__________ __________ _________
Net income............................................................ 97,157 31,622 74,672
Dividends on Series C Preferred Stock................................. - 197 328
__________ __________ __________
Net income applicable to common and common equivalent shares.......... $ 97,157 $ 31,425 $ 74,344
========== ========== ==========
INCOME PER SHARE (Note 1):
Income before cumulative effect of accounting change.............. $ 4.25 $ 3.05 $ 3.21
Cumulative effect of accounting change............................ - (1.67) -
__________ __________ _________
Net income........................................................ $ 4.25 $ 1.38 $ 3.21
========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>49
<TABLE>
USLIFE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
For the Three Years Ended December 31, 1993
(Amounts in Thousands)
<CAPTION>
Year Ended December 31
___________________________________________
1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 97,157 $ 31,622 $ 74,672
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change................ - 57,560 -
Change in liability for future policy benefits........ 53,008 26,946 8,811
Interest credited to policyholder account balances.... 183,737 173,538 137,580
Amounts assessed from policyholder account balances... (130,757) (118,813) (108,624)
Additions to deferred policy acquisition costs........ (187,924) (188,859) (174,795)
Amortization of deferred policy acquisition costs..... 151,851 131,840 130,659
Additions to deferred charges......................... (5,633) (3,077) (7,725)
Deferred federal income taxes (net)................... (19,638) (48,267) (31,098)
Depreciation and amortization......................... 12,668 12,924 11,914
Change in amounts due policyholders................... (25,584) 7,253 19,147
Change in other liabilities and amounts receivable.... (27,694) (3,808) 2,731
Change in investment valuation reserves............... 34,962 23,539 15,557
Change in restricted cash............................. 393 342 527
Other, net............................................ 5,225 (19,255) (1,575)
__________ __________ __________
Total adjustments................................ 44,614 51,863 3,109
__________ __________ __________
Net cash provided by operating activities... 141,771 83,485 77,781
__________ __________ __________
Cash flows from investing activities:
Change in policy loans.................................. 1,794 2,275 (598)
Cost of investments sold, redeemed or matured:
Fixed maturities.................................... 1,154,469 798,718 734,348
Equity securities................................... 10,431 5,861 10,370
Mortgage loan principal receipts.................... 31,955 29,357 26,111
Real estate......................................... 16,025 14,275 18,348
Other long term investments......................... 1,344 649 4,812
Expenditures for property and equipment................. (4,393) (4,879) (7,642)
Cost of investments purchased:
Fixed maturities.................................... (1,751,320) (1,550,072) (1,444,038)
Equity securities................................... - - (5,371)
Mortgage loans...................................... (26,238) (15,006) (30,234)
Real estate......................................... (2,821) (9,578) (2,600)
Other long term investments......................... (1,380) (3,692) (5,508)
Net (purchases) or sales of short term investments.. 30,797 3,799 (9,454)
Other, net............................................ 3,044 1,694 1,132
__________ __________ __________
Net cash used in investing activities....... (536,293) (726,599) (710,324)
__________ __________ __________
Cash flows from financing activities:
Issuance of debt securities (Note 3).................. 300,000 - -
Long term borrowings under credit facility (Note 3)... - 150,000 -
Increase (decrease) in notes payable.................. (112,400) 23,900 25,400
Dividends to shareholders............................. (27,361) (25,818) (24,801)
Acquisition of treasury stock......................... (2,621) (7,256) (17,860)
Repayment of long term debt........................... (200,000) (149,877) (263)
Change in policyholder account balances............... 416,696 647,463 647,129
Other, net............................................ 5,955 2,756 2,944
__________ __________ __________
Net cash provided by financing activities... 380,269 641,168 632,549
__________ __________ __________
Net change in cash.................................. (14,253) (1,946) 6
Cash at beginning of year............................. 74,574 76,520 76,514
__________ __________ __________
Cash at end of year................................... $ 60,321 $ 74,574 $ 76,520
========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>50
<TABLE>
USLIFE CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED EQUITY CAPITAL
For the Three Years Ended December 31, 1993
(Number of Shares and Amounts in Thousands)
<CAPTION>
Year Ended December 31
______________________________________________________________________
Number of Shares Amounts
__________________________________ _________________________________
1993 1992 1991 1993 1992 1991
____ ____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C> <C>
Non-redeemable preferred stocks, common stock, and
other shareholders' equity (Note 6):
Preferred stock, Series A:
Issued, beginning of year....................... 6 6 7 $ 563 $ 642 $ 685
Shares converted................................ (1) - (1) (81) (79) (43)
_______ _______ _______ _________ ________ ________
Issued, end of year............................. 5 6 6 482 563 642
======= ======= ======= ========= ======== ========
Preferred stock, Series B:
Issued, beginning of year....................... 2 2 3 113 120 145
Shares converted................................ - - (1) (10) (7) (25)
_______ _______ _______ _________ ________ ________
Issued, end of year............................. 2 2 2 103 113 120
======= ======= ======= ========= ======== ========
Common stock:
Issued, beginning of year....................... 38,256 25,411 25,348 38,256 25,411 25,348
Options exercised and preferred shares converted 53 100 63 53 100 63
Three-for-two split of common stock............. - 12,745 - - 12,745 -
_______ _______ _______ _________ ________ ________
Issued, end of year............................. 38,309 38,256 25,411 38,309 38,256 25,411
======= ======= ======= ========= ======== ========
Paid-in surplus:
Balance, beginning of year...................... 121,491 130,141 127,937
Options, conversions, and restricted stock plan. 1,469 3,103 1,917
Utilization of treasury shares.................. 2,308 1,021 287
Three-for-two split of common stock............. - (12,774) -
_________ ________ ________
Balance, end of year............................ 125,268 121,491 130,141
========= ======== ========
Net unrealized losses on marketable equity
securities (Note 1):
Balance, beginning of year...................... (165) (13) (3,183)
Net change during year.......................... 136 (152) 3,170
_________ ________ ________
Balance, end of year............................ (29) (165) (13)
========= ======== ========
Retained earnings:
Balance, beginning of year...................... 1,072,898 1,067,094 1,017,223
Net income...................................... 97,157 31,622 74,672
Dividends declared:
Cash:
Preferred stock:
Series A ($4.50 per share)......... (25) (28) (30)
Series B ($5.00 per share)......... (11) (10) (13)
Series C ($3.33 per share)......... - (197) (328)
Common stock (1993, $1.21 per share;
1992, $1.14 per share; 1991, $1.07
per share)............................ (27,325) (25,583) (24,430)
_________ _________ _________
Balance, end of year............................ 1,142,694 1,072,898 1,067,094
========= ========= =========
Treasury stock (Note 6):
Balance, beginning of year...................... 340,382 334,606 317,946
Shares acquired during year .................... 2,621 7,256 17,860
Shares utilized for employee savings and
investment plan, dividend reinvestment plan,
and restricted stock plan...................... (3,178) (1,480) (1,200)
_________ _________ ________
Balance, end of year............................ 339,825 340,382 334,606
========= ========= ========
Deferred compensation (Note 7):
Balance, beginning of year...................... 2,333 4,353 6,863
Deferred compensation arising from awards under
restricted stock plan during year, less
forfeitures.................................... 758 - (490)
Amortization.................................... (2,118) (2,020) (2,020)
_________ _________ ________
Balance, end of year............................ 973 2,333 4,353
========= ========= ========
Total non-redeemable preferred stocks, common stock,
and other shareholders' equity ("Equity Capital")...... $ 966,029 $ 890,441 $884,436
========= ========= ========
See accompanying notes to financial statements.
</TABLE>
<PAGE>51
USLIFE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Changes in Accounting Principles
Effective as of the first quarter of 1993, the Company adopted Statement
of Financial Accounting Standards No. 113 ("SFAS 113"), entitled "Accounting
and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts."
SFAS 113 requires that assets and liabilities relating to reinsured contracts
be reported on a gross basis rather than net of the impact of reinsurance as
permitted under previous accounting standards. The Statement also establishes
guidelines for determining whether risk is transferred under a reinsurance
contract and requires reinsurance contracts which do not qualify under these
guidelines to be accounted for as deposits. As a result of the adoption of
SFAS 113, reinsurance receivables amounting to approximately $135 million are
included in consolidated total assets at December 31, 1993, including
approximately $118 million which would have been offset to various liability
accounts under previous accounting standards. Other than the required gross
presentation of reinsurance assets and liabilities, SFAS 113 did not have a
material impact on the Company's reported financial position or results of
operations. Financial statements of previous years were not restated as a
result of the adoption of SFAS 113. See Note 10 of Notes to Financial
Statements for further information regarding the Company's reinsurance
contracts.
Effective as of January 1, 1992, the Company implemented new accounting
standards for non-pension postretirement benefits required by Statement of
Financial Accounting Standards No. 106 ("SFAS 106"), entitled "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and recognized the
initial liability required by SFAS 106 by means of a one-time charge to net
income for "cumulative effect of accounting change." As required by SFAS 106,
this charge, which amounted to $38.0 million or $1.67 per share, was
retroactively recorded in the first quarter of 1992. See Note 5 of Notes to
Financial Statements for further information regarding non-pension
postretirement benefits.
Also in 1992, the Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS 109"), entitled "Accounting for Income Taxes," and
restated, as appropriate, the financial statements of previous years presented
to retroactively give effect to the accounting standards required by SFAS 109.
See Note 4 of Notes to Financial Statements for further information regarding
Federal income taxes.
Future Accounting Changes
In November 1992, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." Statement No. 112, which must be implemented in
1994, will require advance recognition of non-retirement benefits such as
severance pay and health insurance continuation when certain conditions are
met. The adoption of Statement No. 112 will not have a material impact on the
Company's reported financial position or results of operations.
In May 1993, FASB issued two additional Statements which will require the
Company to adopt new accounting and reporting standards in preparation of
future period financial statements.
Statement No. 114, "Accounting by Creditors for Impairment of a Loan,"
must be adopted by calendar year enterprises no later than 1995 and will
require a writedown to fair value, as defined by the Statement, for certain
mortgage loans and similar investments where impairment results in a change in
repayment terms. Based on current evaluation of the Company's investments that
are covered by this Statement, it is not anticipated to have a material impact
on the Company's reported financial position or results of operations. The
Company has not yet determined the timing of its implementation of Statement
No. 114.
<PAGE>52
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," will require most fixed maturity investments to be carried at
market value commencing in 1994. It is currently anticipated that
substantially all of the Company's fixed maturity investments will be included
in a category established by the Statement that will require the securities to
be valued at market, with changes in market value recognized through equity.
In addition to application of appropriate tax effect, the impact on Equity
Capital from this unrealized appreciation may also be subject to certain
additional adjustments which have not yet been quantified by the Company.
Market value of these securities exceeds adjusted cost by approximately $380
million at December 31, 1993. The Company will adopt Statement No. 115 in the
first quarter of 1994. Adjustments to market value will be required each
quarter following the implementation of Statement No. 115, resulting in both
increases and decreases to Equity Capital.
Basis of Consolidation
The consolidated financial statements include the accounts of USLIFE and
all of its subsidiaries (the "Company"). All subsidiaries are 100 percent
owned. All material intercompany accounts and transactions have been
eliminated.
Segment Information
The only reportable industry segment of the Company is "Life Insurance"
and the related information is presented below:
<TABLE>
<CAPTION>
Year Ended December 31, 1993
_____________________________________________
Non-reportable
segments and
Life consolidating
Insurance adjustments Consolidated
___________ ______________ ____________
(Amounts in Thousands)
<S> <C> <C> <C>
Total income from unaffiliated sources......... $1,581,239 $ 18,799 $1,600,038
Intersegment transfers......................... 1,958 (1,958) 0
__________ __________ __________
Total income...................... $1,583,197 $ 16,841 $1,600,038
========== ========== ==========
Income before taxes............................ $ 206,011 $ (54,440) $ 151,571
========== ========== ==========
Identifiable assets at December 31............. $6,607,606 $ 132,635 $6,740,241
========== ========== ==========
</TABLE>
<PAGE>53
<TABLE>
<CAPTION>
Year Ended December 31, 1992
_______________________________________________
Non-reportable
segments and
Life consolidating
Insurance adjustments Consolidated
___________ ______________ ____________
(Amounts in Thousands)
<S> <C> <C> <C>
Total income from unaffiliated sources......... $1,512,744 $ 16,708 $1,529,452
Intersegment transfers......................... 1,489 (1,489) 0
__________ __________ __________
Total income..................... $1,514,233 $ 15,219 $1,529,452
========== ========== ==========
Income before taxes............................ $ 159,301 $ (54,964) $ 104,337
========== ========== ==========
Identifiable assets at December 31............. $5,958,638 $ 136,634 $6,095,272
========== ========== ==========
<CAPTION>
Year Ended December 31, 1991
_______________________________________________
Non-reportable
segments and
Life consolidating
Insurance adjustments Consolidated
___________ ______________ ____________
(Amounts in Thousands)
<S> <C> <C> <C>
Total income from unaffiliated sources......... $1,367,966 $ 14,940 $1,382,906
Intersegment transfers......................... 626 (626) 0
__________ __________ __________
Total income..................... $1,368,592 $ 14,314 $1,382,906
========== ========== ==========
Income before taxes............................ $ 171,487 $ (60,468) $ 111,019
========== ========== ==========
Identifiable assets at December 31............. $5,219,160 $ 110,109 $5,329,269
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1993 December 31, 1992 December 31, 1991
_____________________ _____________________ _____________________
Income Income Income
Total Before Total Before Total Before
Income Taxes Income Taxes Income Taxes
______ ______ ______ ______ ______ ______
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Life insurance industry segment:
Life insurance.................. $ 925,697 $ 65,909 $ 853,203 $ 54,081 $ 784,677 $ 43,216
Accident and health............. 528,765 12,758 538,192 (16,796) 468,447 11,663
Other........................... 128,735 127,344 122,838 122,016 115,468 116,608
__________ ________ __________ ________ __________ ________
$1,583,197 $206,011 $1,514,233 $159,301 $1,368,592 $171,487
========== ======== ========== ======== ========== ========
</TABLE>
The caption "Other" above consists principally of investment income and
capital gains attributable to Equity Capital.
Investments in Securities
The Company's investments in preferred stocks (other than redeemable
preferred stocks) and common stocks ("Equity Securities") are carried at market
value in the Consolidated Balance Sheets at December 31, 1993, 1992, and 1991
and related valuation allowances, "Net unrealized losses on marketable equity
securities," in the amounts of $29 thousand, $165 thousand, and $13 thousand,
respectively, are included in Equity Capital at those dates. Effective
December 31, 1992, Fixed Maturity investments (including bonds and redeemable
preferred stocks) which may be sold prior to maturity as a result of the
Company's investment strategies are considered available for sale and carried
at the lower of aggregate amortized cost or market value as of the balance
sheet date. The Company's investment management policies include continual
monitoring and evaluation of securities market conditions and circumstances
relating to its investment holdings which may result in the selection of
investments for sale prior to maturity. Securities may also be sold as part of
the Company's asset/liability management strategy in response to changes in
interest rates, resultant prepayment risk, and similar factors. The
reclassification, as of December 31, 1992, of the Company's entire Fixed
Maturity portfolio to the "available for sale" category did not affect reported
net income, and this classification had no impact on Equity Capital at December
31, 1993 or 1992 as the aggregate market value of these securities exceeded
<PAGE>54
their amortized cost at those dates. Valuation reserves are maintained for
investments with a reduction in value determined to be other than temporary.
The cost and market values of the Company's consolidated investments in Fixed
Maturities and Equity Securities at December 31, 1993, 1992 and 1991 are
presented below:
<TABLE>
<CAPTION>
Unrealized
Net Gains Netted
Unrealized Against
Amortized Gains Unrealized
Cost Market (Losses) Loss Amount
___________ ______ ________ ___________
(Amounts in Thousands)
<S> <C> <C> <C> <C>
December 31, 1993:
Fixed Maturities..................... $ 4,751,681 $ 5,132,024 $ 380,343
=========== =========== =========
Equity Securities.................... $ 9,234 $ 9,205 $ (29) $ 1,009
=========== =========== ========= =======
Valuation Allowance for Equity
Securities...................... $ (29)
=========
December 31, 1992:
Fixed Maturities..................... $ 4,160,486 $ 4,333,898 $ 173,412
=========== =========== =========
Equity Securities.................... $ 19,665 $ 19,500 $ (165) $ 1,155
=========== =========== ========= =======
Valuation Allowance for Equity
Securities...................... $ (165)
=========
December 31, 1991:
Fixed Maturities..................... $ 3,408,634 $ 3,532,355 $ 123,721
=========== =========== =========
Equity Securities.................... $ 23,793 $ 23,780 $ (13) $ 1,036
=========== =========== ========= =======
Valuation Allowance for Equity
Securities...................... $ (13)
=========
</TABLE>
At December 31, 1993, consolidated invested assets included approximately
$221 million book value of less than investment grade corporate securities,
based on ratings assigned by recognized rating agencies and insurance
regulatory authorities. Such investments had an aggregate market value of
approximately $232 million at December 31, 1993 and, based on book value,
represent approximately 3.3% of consolidated total assets at that date.
Approximately $28 million book value of these investments are classified as
problem securities at that date and, of that amount, approximately $16 million
represented securities in default at December 31, 1993. Also at December 31,
1993, the book value of mortgage loans included in consolidated total assets
which were 60 days or more delinquent or in foreclosure was approximately $26
million, and the book value of property acquired through foreclosure of
mortgage loans was approximately $25 million.
<PAGE>55
Realized gains on the Company's consolidated investments in Fixed
Maturities and Equity Securities for the three years ended December 31, 1993
are summarized as follows:
<TABLE>
<CAPTION>
Less
Pre-tax Realized Gains Amount
________________________
Allocated to Net
Fixed Equity Participating Tax Realized
Maturities Securities Policyholders Effect Gain
__________ __________ _____________ ________ _________
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
1993................... $ 46,891 $ 897 $ 1,458 $ 16,216 $ 30,114
1992................... 23,094 1,584 1,070 8,027 15,581
1991................... 10,950 1,244 348 4,028 7,818
========= ========= ======== ======== =========
</TABLE>
Pre-tax realized gains shown above reflect provisions for valuation of
certain investments with decline in value determined to be other than
temporary. The cost of securities sold for purposes of determination of
realized gains or losses included in net income is based on the specific
identification method.
Pre-tax realized gains on Fixed Maturities and Equity Securities are
reconciled to consolidated realized gains (losses) on investments as follows:
1993 1992 1991
__________ __________ __________
(Amounts in Thousands)
Realized gains (losses):
Fixed Maturities.............. $ 46,891 $ 23,094 $ 10,950
Equity Securities............. 897 1,584 1,244
__________ __________ __________
47,788 24,678 12,194
Real estate, mortgage loans,
and other investments (a)... (39,272) (27,258) (14,115)
__________ __________ __________
Total......................... $ 8,516 $ (2,580) $ (1,921)
========== ========== ==========
(a) Reflects provisions for valuation to estimated net realizable value for
certain investments.
The amortized cost and estimated market values of the Company's
consolidated investments in debt securities at December 31, 1993 and 1992 are
as follows:
<TABLE>
<CAPTION>
December 31, 1993
_________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
__________ __________ __________ __________
(Amounts in Thousands)
<S> <C> <C> <C> <C>
U. S. Treasury securities and obligations of U.S.
government corporations and agencies........... $ 95,871 $ 4,544 $ 727 $ 99,688
Obligations of states and political subdivisions.. 24,988 821 114 25,695
Debt securities issued by foreign governments..... 178,850 11,794 626 190,018
Corporate securities.............................. 4,471,446 370,509 10,569 4,831,386
Redeemable preferred stocks....................... 48,650 4,795 84 53,361
__________ ________ ________ __________
Total fixed maturities and short term investments
("debt securities").......................... $4,819,805 $392,463 $ 12,120 $5,200,148
========== ======== ======== ==========
Amounts shown in balance sheet:
Fixed maturities.................................. $4,751,681
Short term investments............................ 68,124
__________
Total............................................. $4,819,805
==========
</TABLE>
<PAGE>56
<TABLE>
<CAPTION>
December 31, 1992
_________________________________________________
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
__________ __________ __________ __________
(Amounts in Thousands)
<S> <C> <C> <C> <C>
U. S. Treasury securities and obligations of U.S.
government corporations and agencies........... $ 33,664 $ 2,125 $ 127 $ 35,662
Obligations of states and political subdivisions.. 5,371 73 61 5,383
Debt securities issued by foreign governments..... 101,760 4,379 399 105,740
Corporate securities.............................. 4,062,763 181,022 17,145 4,226,640
Redeemable preferred stocks....................... 55,849 3,739 194 59,394
__________ ________ ________ __________
Total fixed maturities and short term investments
("debt securities").......................... $4,259,407 $191,338 $ 17,926 $4,432,819
========== ======== ======== ==========
Amounts shown in balance sheet:
Fixed maturities.................................. $4,160,486
Short term investments............................ 98,921
__________
Total............................................. $4,259,407
==========
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1993 and 1992, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
______________________ ______________________
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
__________ __________ __________ __________
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Due in one year or less........................... $ 103,855 $ 110,109 $ 119,650 $ 123,836
Due after one year through five years............. 598,737 625,571 336,919 343,407
Due after five years through ten years............ 1,588,909 1,710,259 1,220,459 1,267,935
Due after ten years............................... 2,528,304 2,754,209 2,582,379 2,697,641
__________ __________ __________ __________
Total debt securities............................. $4,819,805 $5,200,148 $4,259,407 $4,432,819
========== ========== ========== ==========
</TABLE>
Proceeds from disposals of investments in debt securities (excluding short
term commercial paper) during 1993, 1992 and 1991 were $1.209 billion, $824.1
million, and $756.1 million, respectively. During 1993, gross gains of $57.9
million and gross losses of $11.0 million were realized on such disposals.
During 1992, gross gains of $41.0 million and gross losses of $17.9 million
were realized on such disposals. During 1991, gross gains of $26.3 million and
gross losses of $15.4 million were realized on such disposals.
Short term investments are carried at cost, which approximates market
value.
Other Investments
Real estate is carried at the lower of depreciated cost or net realizable
value. Depreciation is calculated on a straight line basis with useful lives
varying based on the type of building. Policy loans and mortgages, other than
those with a decline in value determined to be other than temporary, are stated
at the aggregate of unpaid principal balances. Other long term investments are
stated at the lower of cost or their estimated net realizable value.
<PAGE>57
Insurance Accounting
Amounts for the life insurance subsidiaries are reported to regulatory
authorities on the basis of statutory accounting practices and have been
presented herein in conformity with generally accepted accounting principles
("GAAP").
Regulatory after-tax income and after-tax income in accordance with GAAP
of the life insurance subsidiaries for the three years ended December 31, 1993,
and regulatory Equity Capital and Equity Capital in accordance with GAAP of
such subsidiaries at December 31, 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
As Reported As Included in the Company's
on a Consolidated Financial Statements
Regulatory Basis in Accordance with GAAP
______________________________ _________________________________
1993 1992 1991 1993 1992 1991
______ ______ ______ ______ ______ ______
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
After-tax income for the year ended December 31 (a) $ 88,850 $ 56,637 $ 56,595 $ 125,161 $ 107,939 $ 116,793
======== ======== ======== ========== ========== ==========
Equity Capital at December 31...................... $549,388 $525,322 $556,841 $1,375,920 $1,304,349 $1,293,538
======== ======== ======== ========== ========== ==========
</TABLE>
______
(a) Amounts shown exclude after-tax capital gains (losses) of $(1.3) million,
$(15.5) million and $5.0 million on a regulatory basis and $7.1 million, $(1.4)
million, and $(1.4) million on a GAAP basis in 1993, 1992 and 1991,
respectively. GAAP income above also excludes an after-tax charge in 1992 of
$21.5 million for "cumulative effect of accounting change" relating to the
adoption of FASB Statement No. 106 which had no impact on 1992 regulatory net
income. Both regulatory and GAAP after-tax income shown above for 1992 reflect
a charge equivalent to $10.6 million on an after-tax basis relating to
receivables from an Association Group Health marketing organization which
declared bankruptcy.
As a result of the appropriate adjustments, Equity Capital of the life
insurance subsidiaries prepared in accordance with GAAP exceeds that which was
prepared on a regulatory basis by $826.5 million, $779.0 million and $736.7
million, respectively, at December 31, 1993, 1992 and 1991. It should be noted
that the dividend paying capability of the life insurance subsidiaries is
generally limited by income before capital gains and losses and Equity Capital
as reported on a regulatory basis. Notice to or approval by regulatory
authorities is frequently required for dividends paid by insurance companies.
Loans to or advances from the life insurance subsidiaries to the parent company
may also be subject to regulatory approval requirements or limitations. At
December 31, 1993, the portion of the aggregate $1.376 billion Equity Capital
of the life insurance subsidiaries which was not available for transfer to the
parent company by dividend, loan, or advance or available for such transfer
only with approval of a third party ("Restricted Net Assets"), as a result of
the aforementioned regulatory requirements, amounted to $1.308 billion. Cash
dividends paid by all consolidated subsidiaries to the parent company totalled
$61.2 million, $47.7 million and $58.2 million for the years ended December 31,
1993, 1992 and 1991, respectively. Additionally, during 1993, securities with
market value of $21.6 million were transferred from a life insurance subsidiary
to the parent company and subsequently contributed to another life insurance
subsidiary in connection with the combination of the two subsidiaries'
operations. In addition to the 1992 cash dividends, investment securities with
market value of $26.3 million were transferred by dividend from a life
insurance subsidiary to the parent company.
Life Insurance
Deferred Policy Acquisition Costs
The costs of acquiring new business (principally commissions) and certain
costs of issuing policies (such as medical examinations and inspection reports)
and certain agency and marketing expenses, all of which vary with and are
primarily related to the production of new business, have been deferred. For
traditional life insurance policies, these costs are being amortized over the
premium-paying periods of the related policies in proportion to the ratio of
the annual premium revenue to the total anticipated premium revenue.
Anticipated premium revenue was estimated using the same assumptions which were
used for computing liabilities for future policy benefits. For universal life-
type policies, these costs are being amortized over the lives of the policies
in relation to the incidence of gross profits arising principally from
investment, mortality and expense margins. Deferred policy acquisition costs
are reviewed to determine that the unamortized portion of such costs does not
exceed recoverable amounts, after considering anticipated investment income.
<PAGE>58
Details with respect to consolidated deferred policy acquisition costs and
premium income for life insurance and annuities and accident and health
insurance for the three years ended December 31, 1993 are as follows:
<TABLE>
<CAPTION>
Deferred Policy Acquisition Costs
___________________________________
Life and Accident
Annuities and Health Total
_________ __________ _____
(Amounts in Thousands)
<S> <C> <C> <C>
Balance, January 1, 1991...................... $513,725 $ 90,974 $604,699
Additions................................. 132,174 42,621 174,795
Amortization.............................. (88,737) (41,922) (130,659)
________ ________ ________
Balance, December 31, 1991.................... 557,162 91,673 648,835
Additions................................. 141,190 47,669 188,859
Amortization.............................. (88,272) (43,568) (131,840)
________ ________ ________
Balance, December 31, 1992.................... 610,080 95,774 705,854
Additions................................. 141,416 46,508 187,924
Amortization.............................. (108,609) (43,242) (151,851)
________ ________ ________
Balance, December 31, 1993.................... $642,887 $ 99,040 $741,927
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Premium Income
__________________________________________
Life and Annuities Accident and Health
____________________ ____________________
First Year Renewal First Year Renewal
__________ _______ __________ _______
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Year ended December 31
1991....................................... $101,412 $307,118 $144,484 $287,244
1992....................................... 96,042 330,579 203,223 296,550
1993....................................... 101,648 353,522 150,635 338,501
======== ======== ======== ========
</TABLE>
Future Policy Benefits
Liabilities for future policy benefits relating to traditional life
insurance policies have been computed by the net level premium method based on
estimated future investment yield, mortality and termination experience.
Interest rate assumptions for most non-interest sensitive life insurance have
ranged from 2-1/2 to 3-1/2 percent on issues of 1959 and prior, to 5-1/2 to 5-
7/8 percent on issues of 1967 and subsequent years. (On certain products, the
rate ranges as high as 8-3/4 percent.) Mortality has been calculated
principally on an experience multiple applied to select and ultimate tables in
common usage in the industry. Estimated terminations have been determined
principally based on industry tables.
<PAGE>59
Universal Life-Type and Investment Contracts
Revenues for universal life insurance, other interest-sensitive life
insurance, and investment contracts include policy charges for administration
and cost of insurance, and surrender charges assessed against policyholder
account balances during the period. Premiums received on these products are
treated as policyholder deposits rather than revenues. The liability for
policyholder account balances represents the accumulated amounts which accrue
to the benefit of policyholders, and reflects interest credited at rates which
are subject to periodic adjustment. Charges to expense relating to these
policies and contracts include such interest credited as well as benefits
during the period in excess of related policy account balances.
Participating Policies
Participating policies subject to profit limitations approximate 2.4
percent of the individual life insurance in force at December 31, 1993 and 6.5
percent of individual life insurance premium income in 1993. The major portion
of earnings therefrom inures to the benefit of the participating policyholders
and is not available to shareholders. Undistributed earnings payable to
participating policyholders are included as a liability in the Consolidated
Balance Sheets.
All participating policies approximate 2.5 percent of the total individual
life insurance in force at December 31, 1993 and 6.8 percent of individual life
insurance premium income in 1993. The provisions for dividends to
policyholders in the statements of consolidated income include dividends paid
or payable on participating policies.
Liability for Unpaid Claims
The liability for unpaid claims and claim adjustment expenses is based on
the estimated amount payable on claims reported prior to the balance sheet date
which have not yet been settled, claims reported subsequent to the balance
sheet date which have been incurred during the period then ended, and an
estimate (based on prior experience) of incurred but unreported claims relating
to such period.
Liability for Guaranty Fund Assessments
The Company's life insurance subsidiaries may be required, under the
solvency or guaranty laws of the various states in which they are licensed, to
pay assessments up to prescribed limits to fund policyholder losses or
liabilities of insolvent insurance companies. Certain states permit these
assessments, or a portion thereof, to be recovered as an offset to future
premium taxes. Assessments are recognized based on notification of liability
by regulatory authorities, including provision for certain future amounts
payable, and, when subject to credit against future premium taxes and judged to
be recoverable, may be capitalized and amortized on a basis consistent with the
credits to be realized under applicable state law.
Other Assets
Included in other assets is the unamortized portion of goodwill,
representing the excess of cost over the value of net assets acquired in
subsidiary acquisitions accounted for by the purchase method. Such amounts are
being amortized by straight-line basis charges to income over forty year
periods which began at the respective dates of acquisition of the acquired
subsidiaries. Amortization of goodwill amounted to approximately $2 million
for each of the three years ended December 31, 1993.
<PAGE>60
Income Taxes
Deferred income taxes arise as a result of applying enacted statutory tax
rates to the temporary differences between the financial statement carrying
value and the tax basis of assets and liabilities. Such differences result
primarily from amounts capitalized for policy acquisition costs and calculated
for future policy benefit liabilities.
The Company and its subsidiaries file a consolidated Federal income tax
return and have elected to include the life insurance and non-life insurance
subsidiaries in the consolidated tax return. Taxes on income for life
insurance and non-life insurance subsidiaries are recorded in the individual
income accounts of the subsidiaries and are remitted to the Company on a
separate return basis. The provision for taxes in the Statements of
Consolidated Income for the three years ended December 31, 1993 represents the
tax for all companies on a consolidated return basis.
Income Per Share
Income per share was computed by dividing the income applicable to common
and common equivalent shares by the weighted average number of common and
common equivalent shares outstanding during each year. The weighted average
number of common and common equivalent shares was determined by using the
average number of common shares outstanding during each year, net of reacquired
(treasury) shares from the date of acquisition; by converting the shares of the
Series A and Series B Preferred Stock to their equivalent common shares, and by
calculating the number of shares issuable on exercise of those common stock
options with exercise prices lower than the market price of the common stock,
reduced by the number of shares assumed to have been purchased with the
proceeds from the exercise of the options. Income before cumulative effect of
accounting change and net income were adjusted to deduct the dividend
requirements on Series C Preferred Stock for periods when that issue was
outstanding. Fully diluted income per share is the same as income per share
data indicated. The following table sets forth the computations of income per
share for the three years ended December 31, 1993:
<PAGE>61
<TABLE>
<CAPTION>
Year Ended December 31
_________________________________
1993 1992 1991
____ ____ ____
(Shares and Amounts in Thousands
except Per Share Data)
<S> <C> <C> <C>
Income before cumulative effect of accounting change..................... $97,157 $69,612 $74,672
Dividends on Series C Preferred Stock.................................... -- 197 328
_______ _______ _______
Income before cumulative effect of accounting change, applicable
to common and common equivalent shares................................. $97,157 $69,415 $74,344
======= ======= =======
Net income............................................................... $97,157 $31,622 $74,672
Dividends on Series C Preferred Stock.................................... -- 197 328
_______ _______ _______
Net income applicable to common and common equivalent shares............. $97,157 $31,425 $74,344
======= ======= =======
Weighted average common shares outstanding, net of treasury shares....... 22,582 22,449 22,892
Add-Common share equivalents of:
Preferred Stock - Series A............................................ 44 50 52
Preferred Stock - Series B............................................ 17 18 23
Outstanding stock options-treasury stock method....................... 228 206 169
_______ _______ _______
Total common shares and common equivalent shares......................... 22,871 22,723 23,136
======= ======= =======
Per Share:
Income before cumulative effect of accounting change.................. $ 4.25 $ 3.05 $ 3.21
Cumulative effect of accounting change................................ - (1.67) -
_______ _______ _______
Net income............................................................ $ 4.25 $ 1.38 $ 3.21
======= ======= =======
</TABLE>
Statement of Cash Flows
For the years ended December 31, 1993, 1992 and 1991, respectively,
interest paid (net of amounts capitalized) amounted to $32.6 million, $34.7
million, and $39.4 million, and Federal income taxes paid amounted to $60.7
million, $75.7 million and $71.4 million. The major portion of the disposals
of fixed maturity investments relate to securities sold or redeemed prior to
their maturity dates. The $1.154 billion disposals of Fixed Maturity
investments by the Company for the year ended December 31, 1993 included
approximately $928 million book value of securities which were called for
redemption by the respective issuers prior to maturity. The $799 million
disposals of Fixed Maturity investments in 1992 included approximately $497
million of such redemptions.
Financial Instruments and Concentrations of Credit Risk
The Company's investments in Fixed Maturities and Equity Securities are
comprised of a diverse portfolio represented by approximately 600 issuers, with
no issuer accounting for more than 1% of the Company's total investment in
these securities, based on book value, at December 31, 1993.
The Company's investment in mortgage loans at December 31, 1993 is
characterized by a broad geographical distribution, with approximately 6% of
total book value relating to the New England region of the United States, 16%
from the middle-Atlantic states, 23% from the north-central states, 16% from
the south-Atlantic states, 10% from the south-central states, 14% from the
mountain states, and 15% from the Pacific states. Based on book value,
approximately 40% of the Company's mortgage loans at that date are secured by
office buildings, 24% by industrial / warehouse properties, 25% retail, 1%
apartments, 3% one to four family residential, and the remainder secured by
hotel / motel, medically oriented, or other specialty properties.
<PAGE>62
The Company's reinsurance receivables and other recoverable amounts at
December 31, 1993 relate to approximately 160 reinsurers. Two major United
States insurance companies, rated "A" (excellent) and "A+" (superior)
respectively by A. M. Best Company, a recognized insurance rating agency, each
account for approximately 10% of the reinsurance receivable and recoverable
amounts at that date. Other than these companies, no single reinsurer accounts
for more than 6% of total reinsurance receivable and recoverable amounts at
December 31, 1993. The Company monitors the financial condition of its
reinsurers in order to minimize its exposure to loss from reinsurer
insolvencies.
As described in Note 9 of Notes to Financial Statements, a life insurance
subsidiary has an outstanding standby commitment amounting to $6.8 million at
December 31, 1993. The Life Insurance Subsidiaries historically have not
provided permanent financing on the major portion of such commitments. In the
ordinary course of investment operations, the Life Insurance Subsidiaries also
may extend permanent financing commitments for investments in mortgage loans,
with specified closing dates typically within 90 to 120 days after approval and
interest rates and other terms (based on the credit policies utilized for
investments in mortgage loans) determined at the commitment date. There were
no material permanent financing commitments outstanding at December 31, 1993.
Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of the indicated classes of financial instruments:
Cash and Short-term Investments
The carrying amounts of these assets approximate their fair value.
Fixed Maturities and Equity Securities
Fair values are based on quoted market prices or dealer quotes.
Mortgage Loans
The fair value of mortgage loans, other than those which are more than 60
days delinquent or in foreclosure, is estimated by discounting the expected
future cash flows. The rates used for this purpose are the estimated current
rates that would be applied to the loans in a purchase or sale transaction, on
an aggregate or bulk basis grouped by maturity range, considering the
creditworthiness of the borrowers and the general characteristics of the
collateral. For purposes of this calculation, the fair value of loans with
stated interest rates greater than the estimated applicable market rate was
adjusted to reflect the impact of prepayment options or other contractual terms
upon market value. For mortgage loans which are classified as delinquent or
are in foreclosure, fair value is based on estimated net realizable value of
the underlying collateral.
Long-term Debt
The fair value of the Company's long-term debt is estimated based on rates
believed to be currently available to the Company for borrowings with terms
similar to the remaining maturities of the outstanding debt. For outstanding
debt securities with fixed interest rates in excess of current market rates,
repayment on call dates prior to stated maturity was assumed for purposes of
fair value estimation.
<PAGE>63
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
_______________________ _______________________
Carrying Fair Carrying Fair
Amount Value Amount Value
__________ __________ __________ __________
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash:
On hand and in demand accounts.......... $ 60,321 $ 60,321 $ 74,574 $ 74,574
Restricted funds held in escrow, etc. .. 1,040 1,040 1,433 1,433
Short-term investments.................... 68,124 68,124 98,921 98,921
Fixed maturities.......................... 4,751,681 5,132,024 4,160,486 4,333,898
Equity securities......................... 9,205 9,205 19,500 19,500
Mortgage loans............................ 361,095 379,366 388,396 393,742
Long-term debt, including current maturities. 449,235 464,056 349,439 354,933
</TABLE>
In accordance with the requirements of Statement No. 107 of the Financial
Accounting Standards Board, the financial instruments presented above exclude
accounts relating to the Company's insurance contracts and certain other
classes of assets and liabilities. The estimated fair values of the Company's
policy loan assets and its policyholder account balance liabilities relating to
investment contracts at December 31, 1993 and 1992 are not materially different
from the respective carrying values at those dates. No material carrying value
or fair value amounts are ascribed to the Company's outstanding standby
commitments at December 31, 1993 and 1992.
Note 2. Notes Payable
Included in this item are short term borrowings against bank lines of
credit or pursuant to certain bank revolving credit agreements, and other short
term bank borrowings. The Company has lines of credit of $60.0 million with 7
banks and revolving short term credit agreements with two banks which provide
term loan borrowing facilities up to a maximum of $100 million. The lines of
credit provide for annual review and renewal at the option of each bank. The
interest rates and terms of loans under the lines of credit and the revolving
credit agreements are determined bilaterally on the date of borrowing.
Although there are no formal requirements to maintain compensating balances,
the Company has carried balances which generally approximate 5 to 10 percent of
the lines.
The following table sets forth summary information with respect to short
term borrowings of the Company for the three years ended December 31, 1993.
<TABLE>
<CAPTION>
As of December 31 Year Ended December 31
________________________ _______________________________________
Weighted Weighted
Average Maximum Average Average
Amount Interest Amount Amount Interest
Outstanding Rate Outstanding Outstanding(a) Rate(b)
___________ ______ ___________ ______________ _________
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
1993............... $ 65,500 3.7% $ 198,900 $ 142,677 3.9%
============ ==== ============ =========== ====
1992............... $ 177,900 4.2% $ 231,850 $ 169,985 4.5%
============ ==== ============ =========== ====
1991............... $ 154,000 5.6% $ 192,500 $ 152,831 6.7%
============ ==== ============ =========== ====
</TABLE>
<PAGE>64
(a) The average amounts of short term borrowings were computed by
determining the arithmetic average of months' end short term borrowings.
(b) The weighted average interest rates were determined by dividing
interest expense related to short term borrowings by the average amounts of
such borrowings.
Note 3. Long Term Debt
At December 31, 1993 and 1992, consolidated long term debt consists of the
following:
<TABLE>
<CAPTION>
December 31
_________________________
1993 1992
___________ ___________
(Amounts in Thousands)
<S> <C> <C>
9.15 percent nonsubordinated notes due 1999......................... $ 50,000 $ 50,000
6.75 percent nonsubordinated notes due 1998, less unamortized
discount of $261 thousand; effective interest rate 6.80 percent... 149,739 --
6.375 percent nonsubordinated notes due 2000, less unamortized
discount of $504 thousand; effective interest rate 6.44 percent... 149,496 --
8.375 percent nonsubordinated notes due 1996, less unamortized
discount of $478 thousand; effective interest rate 8.55 percent... -- 99,522
8.875 percent nonsubordinated notes due 1995, less unamortized
discount of $83 thousand; effective interest rate 8.97 percent.... -- 49,917
Bank borrowings under credit agreement; current interest rate
4.00 percent at December 31, 1993 and 4.25 percent at
December 31, 1992................................................. 100,000 150,000
_________ _________
449,235 349,439
Less: Current maturities of long term debt.......................... 100,000 --
_________ _________
Total long term debt................................................ $349,235 $349,439
========= =========
</TABLE>
The contractual maturities of the Company's long term debt are as follows:
Parent Company and Consolidated
_______________________________
December 31, December 31,
1993 1992
____________ ____________
(Amounts in Thousands)
1994....................... $100,000 $150,000
1995....................... -- 49,917
1996....................... -- 99,522
1998....................... 149,739 --
1999....................... 50,000 50,000
2000....................... 149,496 --
________ ________
Total............... $449,235 $349,439
======== ========
Current maturities of long term debt at December 31, 1993 is comprised of
$100 million borrowings under a two-year credit agreement between the Company
and the Bank of New York which commenced on May 15, 1992 and provides for term
borrowings in segments of up to six months with interest indexed to the LIBOR
borrowing rate or based on certain alternative interest rates at the option of
the Company. USLIFE Corporation has the option to prepay amounts borrowed
under the credit agreement, in whole or in part, and to reborrow loans
thereunder provided the total amount of outstanding borrowings does not exceed
$150 million. All borrowings under the credit agreement must mature no later
than May 13, 1994. Long term debt at December 31, 1992 includes $150 million
borrowings under this agreement.
<PAGE>65
None of the debt issues of the Company or its subsidiaries are or have
been in default.
Note 4. Federal Income Taxes
Federal income tax expense relating to operations of the Company for 1993,
1992 and 1991 is comprised of the following components:
<TABLE>
<CAPTION>
1993 1992 1991
____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C>
Current tax expense........................................ $ 74,053 $ 63,420 $ 67,423
Deferred tax expense:
Excluding Federal income tax rate cumulative adjustment... (20,961) (28,695) (31,076)
Federal income tax rate cumulative adjustment............. 1,322 -- --
________ ________ ________
(19,639) (28,695) (31,076)
________ ________ ________
$ 54,414 $ 34,725 $ 36,347
======== ======== ========
</TABLE>
The Omnibus Budget Reconciliation Act of 1993, enacted in August 1993,
increased the Federal corporate income tax rate from 34% to 35% retroactively
to January 1, 1993. This rate increase resulted in additional tax expense for
the first half of 1993 amounting to $666 thousand, and the effect of the tax
rate change upon net deferred tax liabilities as required by Statement of
Financial Accounting Standards No. 109 ("SFAS 109") was $1.322 million. In
accordance with SFAS 109, the $1.988 million aggregate catch-up impact of the
rate change was included in Federal income tax expense for the third quarter of
1993.
The significant components of deferred income tax expense for the years
ended December 31, 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C>
Deferral of policy acquisition costs, net
of amortization, for accounting purposes....... $ 12,624 $ 19,387 $ 15,005
Adjustment of future policy benefits for
Federal income tax purposes.................... (12,179) (23,513) (12,532)
Utilization of net operating loss................ 3,279 985 (2,459)
Differences in recognition of capital gains
and losses for tax return purposes and
accounting purposes............................ (14,764) (13,708) (8,010)
Capitalization of policy acquisition costs,
net of amortization, for tax return purposes (12,951) (3,590) (24,002)
Differences between amounts reported for
tax return purposes and statutory
accounting purposes............................ 3,270 (5,726) (110)
Adjustment of prior years' accruals to tax return (424) (2,374) 318
Federal income tax rate cumulative adjustment.... 1,322 -- --
Other, net....................................... 184 (156) 714
________ ________ ________
Total deferred tax expense................ $(19,639) $(28,695) $(31,076)
======== ======== ========
</TABLE>
Total tax expense differs from the amount computed by applying the Federal
income tax rate of 35 percent in 1993 and 34 percent in 1992 and 1991 to income
before tax for the following reasons:
<PAGE>66
<TABLE>
<CAPTION>
1993 1992 1991
____________________ _____________________ _____________________
Amounts Percent Amounts Percent Amounts Percent
in of Pretax in of Pretax in of Pretax
Thousands Income Thousands Income Thousands Income
_________ _______ __________ _______ __________ _______
<S> <C> <C> <C> <C> <C> <C>
Application of Federal income tax rate... $ 53,050 35.0 $ 35,475 34.0 $ 37,746 34.0
Tax exempt interest and dividends
received deduction................ (648) (0.4) (824) (0.8) (1,044) (0.9)
Federal income tax rate change
cumulative adjustment............. 1,322 0.9 -- -- -- --
Other, net.......................... 690 0.4 74 0.1 (355) (0.4)
_________ ____ _________ ____ _________ ____
Actual tax expense.............. $ 54,414 35.9 $ 34,725 33.3 $ 36,347 32.7
========= ==== ========= ==== ========= ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1993 and 1992 are presented below:
December 31
______________________
1993 1992
____ ____
(Amounts in Thousands)
Deferred Tax Assets:
Future policy benefits.......................... $ 129,078 $ 116,176
Tax net operating loss carryforward............. 23,990 26,005
Capital gains and losses........................ 42,678 27,913
Capitalization of policy acquisition costs,
net of amortization, for tax return purposes.. 45,089 32,661
Sale and leaseback transactions................. 2,617 3,390
Allowance for uncollectible receivables......... 2,489 2,833
Resisted claim liability........................ 1,691 1,944
Employee retirement benefits.................... 26,534 27,818
Unearned interest............................... 1,787 1,814
Accrual of interest payable..................... 2,138 513
Other........................................... 5,397 5,393
_________ _________
Total gross deferred tax assets................. 283,488 246,460
Total valuation allowance....................... (16,368) (15,900)
_________ _________
Net deferred tax assets......................... 267,120 230,560
_________ _________
Deferred Tax Liabilities:
Deferral of policy acquisition costs, net of
amortization, for accounting purposes......... (259,674) (239,991)
Basis differences between tax and accounting
for joint ventures............................ (4,266) (4,906)
Basis differences between tax and accounting
for securities................................ (4,672) (4,301)
Depreciation.................................... (5,759) (6,079)
Prepaid expenses................................ (2,403) (2,052)
Differences between tax and accounting
for reinsurance............................... (6,596) (10,366)
Other........................................... (9,055) (7,808)
_________ _________
Total gross deferred tax liabilities............ (292,425) (275,503)
_________ _________
Net deferred tax liability...................... $ (25,305) $ (44,943)
========= =========
The 1993 change in the above valuation allowance is due only to the change
in the Federal income tax rate from 34% to 35%.
<PAGE>67
Federal income tax returns have been examined and settled for all life
insurance subsidiaries and their predecessors through 1980. The consolidated
Federal income tax returns of the Company and non-life insurance subsidiaries
have been examined and settled through 1980. The life-nonlife consolidated
Federal income tax returns of the Company and all subsidiaries have been
examined and settled for 1981 through 1985. The Company believes that its
recorded income tax liabilities are adequate for all open years.
Under the provisions of prior tax law applicable to life insurance
companies, one half of the excess of the gain from operations of a life
insurance company over its taxable investment income was not taxed but was set
aside in a special "Policyholders' Surplus Account". Under provisions of the
Tax Reform Act of 1984, this account is "frozen" as of December 31, 1983 and is
subject to tax under conditions set forth pursuant to prior tax law.
Policyholder Surplus may be taxable at the time of its distribution to the
company's shareholders or under certain other specified conditions. The
Company does not believe that any significant portion of the amount in this
account will be taxed in the foreseeable future. However, should the balance
at December 31, 1993 become taxable, the tax computed at present rates would be
approximately $54.3 million.
At December 31, 1993, the Company has nonlife net operating loss
carryforwards for Federal income tax purposes of approximately $68.5 million
which are available to offset future Federal taxable income, if any, through
2008.
Note 5. Retirement Plans
The Company and its subsidiaries have a qualified noncontributory defined
benefit pension plan covering substantially all employees. Benefits are
generally based on years of service, the employee's compensation during the
last three years of employment, and an average of Social Security covered wage
bases. It is the Company's policy to fund pension costs in accordance with the
requirements of the Employee Retirement Income Security Act of 1974. Based on
such standards, contributions amounting to $4.5 million, $4.2 million and $3.9
million were made for the years ended December 31, 1993, 1992 and 1991,
respectively. Substantially all of the Plan assets are invested in the general
investment account of a life insurance subsidiary of the Company through a
deposit administration insurance contract. As a result of compensation and
benefit limitations under Federal tax law applicable to the Company's qualified
defined benefit pension plan, the "excess" portion of the pension benefits for
certain employees is provided under an unfunded Supplemental Retirement Plan
for which eligibility requirements and certain other provisions were modified
during 1993. Additionally, the Company has an unfunded Retirement Plan for
Outside Directors which provides pension benefits to non-employee Directors of
USLIFE Corporation subject to specified eligibility requirements. Benefits are
based on years of service and the annual retainer at time of retirement.
Pension expense for all of the above pension plans amounted to $5.212
million, $4.774 million and $3.748 million in 1993, 1992 and 1991,
respectively. The net periodic pension cost for these plans in 1993, 1992 and
1991 included the following components:
<TABLE>
<CAPTION>
Year Ended December 31
___________________________________
1993 1992 1991
____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period.... $ 4,842 $ 4,488 $ 3,766
Interest cost on projected benefit obligation....... 6,654 6,003 5,428
Actual return on Plan assets........................ (6,766) (6,161) (5,422)
Net amortization and deferral....................... 482 444 (24)
_______ _______ _______
Net pension cost.................................... $ 5,212 $ 4,774 $ 3,748
======= ======= =======
</TABLE>
The funded status is reconciled to accrued pension cost included in the
Company's consolidated balance sheets as of December 31, 1993 and 1992 as
follows:
<PAGE>68
<TABLE>
<CAPTION>
Qualified Plan Non-Qualified Plans
_____________________ ____________________
1993 1992 1993 1992
____ ____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................ $ 64,838 $ 59,109 $ 14,406 $ 6,555
========== ========= ========== =========
Accumulated benefit obligation....................... $ (66,777) $ (61,013) $ (14,658) $ (6,650)
Effect of projected future compensation levels....... (22,857) (20,342) (1,758) (1,015)
__________ _________ __________ _________
Projected benefit obligation for service rendered
to date............................................ (89,634) (81,355) (16,416) (7,665)
Plan assets at fair value................................ 83,204 75,531 -- --
__________ _________ __________ _________
Funded status............................................ (6,430) (5,824) (16,416) (7,665)
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions 9,164 9,087 1,611 546
Unrecognized portion of initial net (asset) obligation... (7,752) (8,859) 177 199
Unrecognized prior service cost.......................... 1,112 1,268 8,246 1,629
__________ _________ __________ _________
Accrued pension cost recognized in consolidated
balance sheet........................................... $ (3,906) $ (4,328) $ (6,382) $ (5,291)
========== ========= ========== =========
</TABLE>
The unrecognized net asset relating to the qualified pension plan is being
recognized over a 14 year period which began January 1, 1987. The unrecognized
net loss and unrecognized prior service cost relating to the Company's pension
plans are subject to amortization on a straight-line basis over the estimated
average future service period of active employees expected to receive benefits
under the plan. Assumptions used in the actuarial computations for the
Company's pension plans were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
____ ____ ____
<S> <C> <C> <C>
Discount rate..................................... 7.5% 7.5% 7.5%
Rate of increase in compensation levels........... 6.0 6.0 6.0
Expected long-term rate of return on assets....... 7.5 7.5 7.5
</TABLE>
In addition to providing pension benefits, the Company and its subsidiaries
provide certain health care and life insurance benefits to retired employees
under a defined benefit plan. Employees may become eligible for these benefits
if they have accumulated ten years of service and reach normal or early
retirement age while working for the Company. The postretirement benefit plan
contains cost-sharing features such as deductibles and coinsurance, and
contributions of certain retirees are subject to annual adjustment. It is the
Company's current policy to fund these benefits, which are provided through an
insurance contract with a life insurance subsidiary of the Company, on a "pay
as you go" basis.
Effective as of January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." Statement No. 106 requires that an employer's
obligation for non-pension plan benefits provided after retirement be
recognized by income statement charges during the service periods of eligible
employees rather than on a cash basis as permitted by previously established
accounting standards. The Company elected to recognize the initial obligation
under the Statement, representing the present value of future benefits
attributed to service already rendered by eligible employees as of January 1,
1992, by means of a one-time charge to net income for cumulative effect of the
accounting change. This initial obligation, and the consequent charge,
amounted to $57.6 million before applicable taxes. Excluding this one-time
charge, the cost of non-pension postretirement benefits for 1992 was
approximately $2 million. Postretirement benefit costs of approximately $2
million in 1991, which were recorded on a cash basis, have not been restated.
During 1993, the Company's non-pension postretirement benefit program was
modified in several respects, including the establishment of a maximum dollar
cap on amounts to be paid by the Company for future increases in the cost of
retiree health benefits. These plan amendments resulted in an unrecognized
reduction in prior service cost, which is being amortized over the remaining
average service period to full eligibility for benefits of the active
participants. Excess gains or losses are being amortized over the average
remaining service period to full eligibility for benefits of the active
participants.
<PAGE>69
The funded status of the non-pension postretirement benefit program as of
December 31, 1993 and 1992 is reconciled to accrued postretirement benefit cost
as follows:
<TABLE>
<CAPTION>
1993 1992
____ ____
(Amounts in Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees................................. $(18,982) $(36,491)
Fully eligible active plan participants.. (4,893) (8,835)
Other active plan participants........... (7,949) (16,515)
________ ________
Total................................. (31,824) (61,841)
Plan assets.............................. -- --
________ ________
Funded status......................... (31,824) (61,841)
Unrecognized net (gain) or loss.......... (11,752) --
Unrecognized prior service cost.......... (14,329) --
________ ________
Accrued postretirement benefit cost...... $(57,905) $(61,841)
======== ========
</TABLE>
Net periodic postretirement benefit cost for 1993 included the following
components:
(Amounts in Thousands)
Service cost - benefits earned during the year........ $1,068
Interest cost on accumulated postretirement
benefit obligation.................................. 2,198
Net amortization and deferral......................... (1,162)
______
Net periodic postretirement benefit cost.............. $2,104
======
The non-pension postretirement benefit cost for the year 1992 was comprised
primarily of "interest cost." For measurement purposes, a 14 percent annual
rate of increase in the per-capita cost of covered health benefits (ie., health
care cost trend rate) was assumed for 1993; the rate was assumed to decrease
gradually to 6 percent by the year 1997 and remain at that level thereafter.
The assumed health care cost trend rate does not have a significant effect on
the amounts reported in accordance with Statement No. 106 due to the maximum
dollar cap adopted. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1993 by approximately $94
thousand and the aggregate of the service and interest cost components of 1993
net periodic postretirement benefit cost by $7 thousand. The discount rate
used in determining the accumulated postretirement benefit obligation was 7.5%
at both December 31, 1993 and 1992.
<PAGE>70
Note 6. Capital Stock
Non-Redeemable Preferred Stocks
The $4.50 Series A Convertible Preferred Stock ($1.00 par value;
authorized and issued as of December 31, 1993, 4,815 shares; December 31, 1992,
5,627 shares; December 31, 1991, 6,420 shares) is carried at involuntary
liquidating value of $100 per share in the financial statements; is entitled to
cumulative annual dividends of $4.50 per share; may be redeemed in whole or in
part at the option of the Company at $100 per share; and is convertible at any
time into Common Stock at a conversion price which at December 31, 1993 was
$12.49 per share (each share of Series A Stock valued at $100), subject to
adjustment under a formula intended to protect against dilution in certain
events. Holders are entitled to vote together with the Common Stock and Series
B Convertible Preferred Stock as one class on the basis of one vote per share
and to vote as a class upon the election of two directors during any period in
which four quarterly dividends (whether or not consecutive) are in default.
The $5.00 Series B Convertible Preferred Stock ($1.00 par value;
authorized and issued as of December 31, 1993, 2,050 shares; December 31, 1992,
2,251 shares; December 31, 1991, 2,405 shares) is carried at involuntary
liquidating value of $50 per share in the financial statements; is entitled to
cumulative annual dividends of $5.00 per share; may be redeemed in whole or in
part at the option of the Company at $100 per share; and is convertible at any
time into Common Stock at a conversion price which at December 31, 1993 was
$12.51 per share (each share of Series B Stock valued at $100), subject to
adjustment under a formula intended to protect against dilution in certain
events. Voting rights are the same as those of holders of Series A Stock.
The Preferred Stock, undesignated ($1.00 par value; authorized as of
December 31, 1993, 10,793,135 shares, issued none), may be issued by
authorization of the Board of Directors without further approval of
shareholders. The Board has broad powers to fix the terms of such issues
subject to the limit that the aggregate of all amounts which may be paid to
holders of all of the series of Preferred Stock upon the involuntary
liquidation, dissolution or winding up of the Company cannot exceed $100 times
the number of such shares plus accrued unpaid dividends.
Common Stock
The outstanding shares of Common Stock (par value $1.00 per share;
authorized, as of December 31, 1993: 60,000,000 shares; December 31, 1992 and
1991: 40,000,000 shares; issued, including treasury shares, as of December 31,
1993, 38,308,823 shares; December 31, 1992, 38,255,975 shares; December 31,
1991, 38,117,150 shares) entitle each holder to one vote per share in the
election of directors and on all other matters submitted to a vote of
shareholders and to such dividends and distributions as may be declared by the
Board of Directors out of funds legally available. At December 31, 1993,
54,948 shares of Common Stock were reserved for issuance upon conversion of
Preferred Stock. The Company sponsors, through certain of its life insurance
subsidiaries, savings plans for selected general agents and producers (the
"Agents Plans") providing for distribution of Common shares to participants if
specified qualification and vesting requirements are satisfied. As of December
31, 1993, participant interests relating to 5,797 Common shares had vested
under the Agents Plans. On July 10, 1986 the Company issued, to shareholders
of record on that date, one Common Stock Purchase Right (a "Right") for each
share of Common Stock owned on that date. Until the Rights become exercisable
they will be represented by the stock certificates for all outstanding Common
Stock including newly issued shares. Upon the occurrence of certain events
specified in a Rights Agreement dated as of June 24, 1986 and amended and
restated as of January 24, 1989 between the Company and Manufacturers Hanover
Trust Company (predecessor to Chemical Bank) as Rights Agent, the Rights will
become exercisable, separate certificates representing the Rights will be
issued, and each Right will entitle the holder to purchase one half of a share
of the Common Stock for $50.00. Under certain circumstances specified in the
Rights Agreement each Right will entitle the holder to purchase, for one half
of its then market value, publicly traded common stock of any corporation which
acquires the Company; each Right will also entitle the holder, with certain
exceptions specified in the Rights Agreement, to purchase $150.00 worth of the
Common Stock for $75.00. As of December 31, 1993 the Rights had not become
exercisable.
<PAGE>71
The Company also sponsors a Dividend Reinvestment and Stock Purchase Plan
which enables holders of the Company's Common Stock to invest cash dividends
and optional cash payments in additional shares of the Common Stock. In 1993,
1992 and 1991, respectively, 25,689, 29,523 and 34,430 shares of the Common
Stock had been sold pursuant to the Dividend Reinvestment and Stock Purchase
Plan.
Treasury Stock
At December 31, 1993, there were 15,650,354 shares of Common Stock held in
treasury. During 1993, 65,666 Common shares were acquired, at an aggregate
cost of $2.6 million, and 168,811 Common shares, with an aggregate cost of $3.2
million, were utilized for certain employee, director, and agent benefit plans
and for the Dividend Reinvestment and Stock Purchase Plan of USLIFE
Corporation. At December 31, 1992, treasury stock consisted of 15,753,499
Common shares.
Note 7. Stock Options, Book Units and Restricted Stock Plan
In May, 1991, the Company adopted a stock option plan (the "1991 Stock
Option Plan") for key employees to replace the previous stock option plan under
which options could no longer be granted. Under the 1991 Stock Option Plan, a
maximum of 1,050,000 shares of the Company's common stock may be issued upon
the exercise of stock options which may be granted pursuant to the Plan. The
1991 Stock Option Plan also provides for "Reload" options, which are
automatically granted to a participant upon the exercise of an option if the
participant uses previously owned shares to pay for the option shares. Reload
options will be for the number of previously-owned shares delivered upon the
employee's exercise of an option. Under the 1991 Stock Option Plan, the
purchase price of shares subject to each option will be not less than 100% of
their fair market value at the time of the grant of the option. No options may
be granted under the 1991 Stock Option Plan after May 20, 2001.
No option granted under the Company's stock option plans is exercisable in
whole or in part in less than six months from the date of grant. Each option
may be exercisable in one or more installments as provided therein. To the
extent such options are not exercised, installments accumulate to the total
granted and are exercisable in whole or in part at any time during the term of
the option. This term shall be set forth in the option but in no event is an
option exercisable, in whole or in part, after the expiration of ten years from
the date of grant. The 1991 Stock Option Plan provides that in the event of a
Change in Control (as defined in the Plan), all outstanding options granted
under that Plan which have been held for at least six months from the date of
grant shall become immediately exercisable.
As of December 31, 1993, the Company had outstanding options to its
employees (including officers) for purchase of shares of its Common Stock as
follows:
<TABLE>
<CAPTION>
Average
Number of Number of Option Price
Employees Shares Expiration Dates per Share
_________ _________ ________________ ____________
<S> <C> <C> <C>
140 1,038,445 March 27, 1994 - October 26, 2003 $31.10
</TABLE>
<PAGE>72
A summary of activity under all stock option plans for the three years
ended December 31, 1993 is presented below:
<TABLE>
<CAPTION>
Number Option Prices
________________________________
of Aggregate
Shares Per Share (in Thousands)
______ _______________ ______________
<S> <C> <C> <C>
Outstanding, December 31, 1990........ 963,311 $13.75 - $29.50 $23,980
Exercised........................ 87,593 13.75 - 24.08 1,805
Terminated....................... 50,325 13.75 - 29.50 1,235
_________ _______
Outstanding, December 31, 1991........ 825,393 13.75 - 29.50 20,940
Granted.......................... 85,500 29.08 2,487
Exercised........................ 131,375 13.75 - 27.67 2,869
Terminated....................... 14,269 13.75 - 27.67 298
_________ _______
Outstanding, December 31, 1992........ 765,249 15.67 - 29.50 20,260
Granted.......................... 421,500 37.38 - 43.63 15,840
Exercised........................ 138,491 15.67 - 29.50 3,526
Terminated....................... 9,813 15.67 - 37.38 276
_________ _______________ _______
Outstanding, December 31, 1993........ 1,038,445 $18.42 - $43.63 $32,298
========= =============== =======
</TABLE>
As of December 31, 1993, options for 530,483 common shares were
exercisable under all stock option plans at $18.42 to $29.50 per share. At
December 31, 1993, up to 1,585,445 common shares could be issued under the
Company's stock option plans. Common shares may be issued under the Company's
stock option plans from shares in treasury or authorized but unissued shares.
In May, 1976 the Company adopted a Book Unit Plan for certain key
employees. Under the terms of the plan, the Board of Directors may award, at
its sole discretion, one or more units to employees it has selected to become
participants in the plan. No more than 600,000 units shall be outstanding
under the plan at any time. The value of a unit shall be the amount by which
the book value per share, as of its award date, has been increased or decreased
by (a) the sum of the increases or decreases in the book value per share of the
Company's common stock plus (b) dividend equivalents for subsequent years up to
and including its valuation date. Accordingly, approximately $2.1 million,
$1.4 million, and $1.1 million were charged to expense in 1993, 1992, and 1991,
respectively.
A summary of units outstanding under the Book Unit Plan follows:
<TABLE>
<CAPTION>
Number Award Valuation
Year of Grant of Units Date Date
_____________ ________ _____ _________
<S> <C> <C> <C>
1990............................. 155,250 January 1, 1990 December 31, 1994
1992............................. 152,250 January 1, 1992 December 31, 1996
1993............................. 206,500 January 1, 1993 December 31, 1997
_______
Outstanding, December 31, 1993... 514,000
=======
</TABLE>
In May, 1989, the Company adopted a Restricted Stock Plan for certain key
employees. Under the terms of the Plan, a committee of the Board of Directors
may award restricted shares of common stock of the Company, up to an aggregate
maximum of 1,050,000 shares, to designated Participants. The shares, when
awarded, are initially non-transferable and subject to forfeiture in the event
that the Participant ceases to be an employee of USLIFE or any of its
subsidiaries other than by reason of death, permanent disability, retirement,
or certain other specified circumstances. These restrictions generally
terminate with respect to 20% of the number of shares awarded on January 1 of
each of the five calendar years following the year of award, at which time the
appropriate number of unrestricted shares are distributed to the Participant.
For certain awards, restrictions terminate with respect to one-third of the
number of shares awarded on the first, second, and third anniversaries of the
award date, with similar distribution. Upon award of shares under the Plan,
deferred compensation equivalent to the market value of the shares on the award
date is charged to Equity Capital. Such deferred compensation is subsequently
amortized by means of charges to expense over the period during which the
restrictions lapse. During 1993, a total of 18,356 shares were awarded under
the Plan. During 1991, a total of 16,200 previously awarded shares were
forfeited pursuant to the terms of the plan. As of December 31, 1993, there
were 30,356 previously awarded shares outstanding under the Plan as to which
<PAGE>73
the restrictions had not yet lapsed. Expense charges recognized in 1993, 1992
and 1991 relating to these awards amounted to approximately $2.1 million, $2.0
million, and $2.0 million, respectively.
Note 8. Leases
In December, 1986 a subsidiary of the Company sold its home office
building located at 125 Maiden Lane, New York, New York, and leased back
portions of the premises which are utilized as the subsidiary's principal
executive offices as well as the headquarters of the Company and several other
subsidiaries. A $16.9 million portion of the gain arising from the sale and
leaseback transaction (net of related taxes) was deferred and is being
amortized by credits to income in proportion to rental payments made in
accordance with the lease commitments over a ten year period. Additionally,
several subsidiaries lease office space at other locations generally for
periods ranging from five to fifteen years, and certain subsidiaries utilize
leased furniture and office equipment. Certain of the operating leases for
office premises provide for renewal options for periods ranging from five to
twenty years based on fair rental value at time of renewal, and further options
relating to rental of additional office space. The minimum rental commitments
for all such non-cancelable operating leases as of December 31, 1993
approximate $12.6 million in 1994, $12.4 million in 1995, $11.4 million in
1996, $6.6 million in 1997, $5.5 million in 1998, and a total of $18.4 million
from 1999 to 2003. Total rental expense amounted to approximately $13.5
million, $12.4 million, and $12.0 million for the years ended December 31,
1993, 1992 and 1991, respectively.
Note 9. Contingent Liabilities and Commitments
A life insurance subsidiary has an outstanding standby commitment,
representing a contingent obligation to replace certain borrowings in the event
of default by unaffiliated borrowers, amounting to $6.8 million at December 31,
1993. The life insurance subsidiaries historically have not provided permanent
financing on the major portion of such commitments. This commitment, which is
not guaranteed by the parent company, will expire in 1994.
The Company has outstanding Standby Letters of Credit with two banks
representing contingent obligations to fund various trusts established in
connection with certain employment contracts of management employees, the
Company's Supplemental Retirement Plan, Retirement Plan for Outside Directors,
and Retirement Plan, in the event of a Change in Control (as defined in the
trust agreements), totalling $31 million. Additionally, in connection with the
application by a life insurance subsidiary for an additional state license to
transact business, USLIFE Corporation has agreed to guarantee that subsidiary's
maintenance of the state's minimum capital and surplus requirements (amounting
to $4.4 million at December 31, 1993) for a ten year period commencing at the
effective date of such license.
The Company and certain of its subsidiaries are involved in litigation,
which originated in 1981, with a former officer of a former subsidiary of the
Company. Allegations in the former officer's lawsuit include breach of the
covenant of good faith and fair dealing, breach of fiduciary duty, infliction
of emotional distress and malicious prosecution. Judgment was rendered in
favor of the Company. That judgment is being appealed. No contingent loss has
been accrued for this litigation because the amount of loss, if any, cannot be
reasonably estimated, nor is it probable in the opinion of management that the
ultimate outcome of this litigation will result in a liability to the Company
or any of its subsidiaries.
<PAGE>74
In April 1991, All American Life Insurance Company ("All American"), a
life insurance subsidiary of the Company, commenced a lawsuit against 11
subscribers to a reinsurance pool when the reinsurers failed to honor their
obligations under the reinsurance agreement. Certain of the reinsurers also
filed their own lawsuits against All American. Approximately $15.8 million of
reinsured claims were in dispute. All American reached settlements with the 11
reinsurers. There remain pending against All American certain cross claims for
indemnification and contribution by a third party administrator and a
reinsurance intermediary. In the opinion of management the ultimate resolution
of this matter will not result in a material adverse financial impact upon the
Company.
In March 1992, All American terminated the right of a Managing General
Agent to sell college medical insurance on behalf of All American as a result
of the failure of the Managing General Agent to secure adequate reinsurance
under the contract and meet other contractual obligations. All American is
currently involved in litigation with this former Managing General Agent, who
has declared bankruptcy, and All American has taken a charge of $10.6 million
(after applicable taxes) to establish a reserve for amounts receivable from the
Managing General Agent. No contingent loss has been accrued for this
litigation because the amount of additional loss, if any, cannot be reasonably
estimated, nor is it probable in the opinion of management that the ultimate
outcome of this litigation will result in a liability to the Company or any of
its subsidiaries.
In June 1993, a purported class action was filed against three of the
Company's subsidiaries alleging that the class members were entitled to premium
refunds on policies of credit life and disability insurance purchased from the
three subsidiaries. No contingent loss has been accrued for this litigation
because the amount of loss, if any, cannot be reasonably estimated.
In addition to the aforementioned legal proceedings, the Company and its
subsidiaries are parties to various routine legal proceedings incidental to the
conduct of their business. Based on currently available information, in the
opinion of management it is not probable that the ultimate resolution of these
suits will result in a material liability on the part of the Company.
Note 10. Reinsurance
The life insurance subsidiaries reinsure with other companies portions of
the risks they underwrite and assume portions of risks on policies underwritten
by other companies. The life insurance subsidiaries generally reinsure risks
over $1.5 million as well as selected risks of lesser amounts. In this
connection, $7.5 billion, representing 6 percent of total life insurance in
force as of December 31, 1993, was ceded to other carriers. Reinsurance
contracts do not relieve the Company from its obligations to policyholders, and
the Company is contingently liable with respect to insurance ceded in the event
any reinsurer is unable to meet the obligations which have been assumed.
The Company's consolidated financial statements for 1993 reflect the adoption
of Statement of Financial Accounting Standards No. 113 ("SFAS 113"),
"Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts." Pursuant to the standards of SFAS 113, amounts paid for or
recoverable under reinsurance contracts, including amounts previously reported
as a reduction of various liability accounts as permitted under previous
accounting standards, are included in total assets as reinsurance receivable or
recoverable amounts. The cost of reinsurance related to long-duration
contracts is accounted for over the life of the underlying reinsured policies
using assumptions consistent with those used to account for the underlying
policies. Financial statements of previous years were not restated as a result
of the adoption of SFAS 113.
<PAGE>75
The effect of reinsurance on premiums, other considerations, and benefits to
policyholders and beneficiaries, is as follows:
Year Ended
December 31, 1993
_______________________
(Amounts in Thousands)
Premiums, before reinsurance ceded......... $1,021,694
Premiums ceded............................. 77,388
__________
Net premiums............................... $ 944,306
==========
Other considerations, before reinsurance
ceded................................... $166,477
Other considerations ceded................. 12,938
________
Net other considerations................... $153,539
========
Benefits to policyholders and beneficiaries,
before reinsurance recoveries............ $794,640
Reinsurance recoveries..................... 57,309
________
Benefits to policyholders and beneficiaries,
net of reinsurance recoveries............ $737,331
========
A summary of reinsurance activity for the three years ended December 31,
1993 is presented below:
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of Amount
Gross Other From Other Net Assumed
Amount Companies Companies Amount to Net
______ _________ _________ ______ _________
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993
Life insurance in force.............. $110,549,368 $7,516,633 $14,462,410 $117,495,145 12.3%
============ ========== =========== ============ ====
Premiums:
Life insurance.................... $ 458,492 $ 40,728 $ 37,406 $ 455,170 8.2
Accident and health insurance..... 524,448 36,660 1,348 489,136 0.3
____________ __________ ___________ ____________ ____
Total premiums............... $ 982,940 $ 77,388 $ 38,754 $ 944,306 4.1%
============ ========== =========== ============ ====
Year Ended December 31, 1992
Life insurance in force.............. $103,962,571 $7,985,272 $11,037,473 $107,014,772 10.3%
============ ========== =========== ============ ====
Premiums:
Life insurance.................... $ 444,407 $ 46,568 $ 28,782 $ 426,621 6.7
Accident and health insurance..... 536,905 39,006 1,874 499,773 0.4
____________ __________ ___________ ____________ ____
Total premiums............... $ 981,312 $ 85,574 $ 30,656 $ 926,394 3.3%
============ ========== =========== ============ ====
Year Ended December 31, 1991
Life insurance in force.............. $ 97,550,025 $7,989,705 $10,318,427 $ 99,878,747 10.3%
============ ========== =========== ============ ====
Premiums:
Life insurance.................... $ 437,945 $ 58,045 $ 28,630 $ 408,530 7.0
Accident and health insurance..... 474,822 44,661 1,567 431,728 0.4
____________ __________ __________ ____________ ___
Total premiums............... $ 912,767 $ 102,706 $ 30,197 $ 840,258 3.6%
============ ========== ========== ============ ===
</TABLE>
<PAGE>76
The estimated amounts of reinsurance recoverable on paid and unpaid claims
included in the Consolidated Balance Sheets as of December 31, 1993 and 1992
are as follows:
<TABLE>
<CAPTION>
December 31
__________________________________________________________
1993 1992
_____________________________ ___________________________
Paid Unpaid Paid Unpaid
Claims Claims Claims Claims
______ ______ ______ ______
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Life insurance.................... $ 8,460 $ 7,907 $ 2,665 $ 7,704
Accident and health insurance..... 3,454 3,930 5,611 3,985
_________ _________ _________ _________
Total........................ $ 11,914 $ 11,837 $ 8,276 $ 11,689
========= ========= ========= =========
</TABLE>
The amount included in the consolidated balance sheet at December 31, 1993 for
"Other reinsurance recoverable" includes the estimated amounts recoverable on
unpaid claims as indicated above as well as prepaid reinsurance premiums. For
periods prior to 1993, these amounts were netted against the related insurance
liabilities in accordance with previous accounting standards.
<PAGE>77
Note 11. Investment Securities
The investments of the Company at December 31, 1993 are summarized as
follows:
<TABLE>
<CAPTION>
Value based Amount
on market at which
quotations shown in the
at balance balance
Type of Investment Cost sheet date sheet
__________________ ____ __________ ____________
(Amounts in Thousands)
<S> <C> <C> <C>
Bonds and notes:
United States Government and government
agencies and authorities........................... $ 95,895 $ 99,688 $ 95,871
States, municipalities and political sub-divisions.. 25,060 25,695 24,988
Foreign government.................................. 178,894 190,018 178,850
Public utilities.................................... 1,282,262 1,367,189 1,280,753
All other corporate................................. 3,147,271 3,396,073 3,122,569
__________ __________ __________
Total bonds and notes............................. 4,729,382 5,078,663 4,703,031
Redeemable preferred stocks.............................. 48,650 53,361 48,650
__________ __________ __________
Total fixed maturities............................ 4,778,032 5,132,024 4,751,681
__________ __________ __________
Common stocks:
Banks, trust and insurance companies................ 807 558 558
Industrial, miscellaneous and all other............. 1,241 936 936
__________ __________ __________
Total common stocks............................... 2,048 1,494 1,494
Non-redeemable preferred stocks.......................... 7,186 7,711 7,711
__________ __________ __________
Total equity securities........................... 9,234 9,205 9,205
__________ __________ __________
Total fixed maturities and equity securities...... 4,787,266 $5,141,229 4,760,886
__________ ========== __________
Mortgage loans on real estate............................ 387,414 361,095
__________ __________
Real estate:
Investment properties............................... 24,685 18,409
Acquired in satisfaction of debt.................... 38,918 25,025
__________ __________
Total real estate................................. 63,603 43,434
__________ __________
Policy loans............................................. 282,090 282,090
Other long term investments.............................. 66,280 7,534
Short term investments................................... 68,124 68,124
__________ __________
Total invested assets............................. 5,654,777 5,523,163
Cash on hand and in demand accounts...................... 60,321 60,321
Restricted funds held in escrow, etc. ................... 1,040 1,040
__________ __________
Total cash and invested assets.................... $5,716,138 $5,584,524
========== ==========
</TABLE>
Based on book value, assets categorized as "non-income producing" for the
12 months ended December 31, 1993 included in fixed maturities, mortgage loans,
real estate investment properties, and real estate acquired in satisfaction of
debt amounted to $16.3 million, $13.5 million, $4.9 million and $8.9 million,
respectively.
<PAGE>78
Note 12. Net Investment Income
The details of consolidated net investment income for the three years
ended December 31, 1993 follow:
<TABLE>
<CAPTION>
Year Ended December 31
_____________________________
1993 1992 1991
____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C>
Investment income:
Equity securities........................ $ 1,228 $ 1,984 $ 2,026
Mortgage loans........................... 36,313 38,111 41,397
Real estate.............................. 6,456 6,448 6,670
Policy loans............................. 18,495 18,379 17,930
Fixed maturities, short term
investments, and other investments..... 393,181 360,449 305,774
________ ________ ________
Total investment income.............. 455,673 425,371 373,797
________ ________ ________
Investment expenses:
Salaries and wages....................... 818 831 795
Real estate depreciation................. 1,316 1,495 1,619
Real estate repairs, expenses, taxes..... 5,902 5,067 5,081
Taxes (excluding real estate), and
other expenses......................... 2,991 3,542 4,726
________ ________ ________
Total investment expenses............ 11,027 10,935 12,221
________ ________ ________
Net investment income.............. $444,646 $414,436 $361,576
======== ======== ========
</TABLE>
<PAGE>79
Note 13. Supplementary Insurance Information
Supplementary data relating to the life insurance industry segment of the
Company for the three years ended December 31, 1993 is presented below.
<TABLE>
<CAPTION>
Year Ended December 31, 1993 Year Ended December 31, 1992
__________________________________ _____________________________________
Non- Non-
Life Reportable Life Reportable
Insurance Segments and Insurance Segments and
Industry Consolidating Industry Consolidating
Segment Adjustments Consolidated Segment Adjustments Consolidated
__________ _________ __________ _________ ___________ ____________
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Deferred policy
acquisition
costs........ $ 741,927 $ - $ 741,927 $ 705,854 $ - $ 705,854
========== ========= ========== ========== ========= ==========
Future policy
benefits:
Life........... $1,196,265 $ - $1,196,265 $1,110,757 $ - $1,110,757
Accident and
health........ 257,192 - 257,192 197,533 - 197,533
__________ _________ __________ __________ _________ __________
Total......... $1,453,457 $ - $1,453,457 $1,308,290 $ - $1,308,290
========== ========= ========== ========== ========= ==========
Policyholder
account balances
for universal
life-type and
investment
contracts....... $3,322,265 $ - $3,322,265 $2,850,037 $ - $2,850,037
========== ========= ========== ========== ========= ==========
Other policy
claims and
benefits
payable......... $ 211,483 $ (371) $ 211,112 $ 230,235 $ (5,902) $ 224,333
========== ========= ========== ========== ========= ==========
Premium income:
Life........... $ 455,766 $ (596) $ 455,170 $ 427,274 $ (653) $ 426,621
Accident and
health....... 494,417 (5,281) 489,136 505,713 (5,940) 499,773
__________ _________ __________ __________ _________ __________
Total........ $ 950,183 $ (5,877) $ 944,306 $ 932,987 $ (6,593) $ 926,394
========== ========= ========== ========== ========= ==========
Other consider-
ation.......... $ 153,539 $ - $ 153,539 $ 139,383 $ - $ 139,383
========== ========= ========== ========== ========= ==========
Net investment
income......... $ 431,923 $ 12,723 $ 444,646 $ 402,579 $ 11,857 $ 414,436
========== ========= ========== ========== ========= ==========
Realized gains
(losses)....... $ 10,835 $ (2,319) $ 8,516 $ (2,100) $ (480) $ (2,580)
========== ========= ========== ========== ========= ==========
Benefits, claims,
losses and
settlement
expenses........ $ 961,269 $ (371) $ 960,898 $ 948,936 $ 320 $ 949,256
========== ========= ========== ========== ========= ==========
Amortization of
deferred policy
acquisition
costs........... $ 151,851 $ - $ 151,851 $ 131,840 $ - $ 131,840
========== ========= ========== ========== ========= ==========
Other operating
expenses ...... $ 264,066 $ 71,652 $ 335,718 $ 274,156 $ 69,863 $ 344,019
========== ========= ========== ========== ========= ==========
</TABLE>
<PAGE>80
Year Ended December 31, 1991
___________________________________
Non-
Life Reportable
Insurance Segments and
Industry Consolidating
Segment Adjustments Consolidated
__________ _________ __________
Deferred policy
acquisition
costs........ $ 648,835 $ - $ 648,835
========== ========= ==========
Future policy
benefits:
Life........... $1,091,759 $ - $1,091,759
Accident and
health........ 189,585 - 189,585
__________ _________ __________
Total......... $1,281,344 $ - $1,281,344
========== ========= ==========
Policyholder
account balances
for universal
life-type and
investment
contracts....... $2,147,849 $ - $2,147,849
========== ========= ==========
Other policy
claims and
benefits
payable......... $ 223,755 $ (6,675) $ 217,080
========== ========= ==========
Premium income:
Life........... $ 409,096 $ (566) $ 408,530
Accident and
health....... 436,978 (5,250) 431,728
__________ _________ __________
Total........ $ 846,074 $ (5,816) $ 840,258
========== ========= ==========
Other consider-
ation.......... $ 129,109 $ - $ 129,109
========== ========= ==========
Net investment
income......... $ 351,671 $ 9,905 $ 361,576
========== ========= ==========
Realized gains
(losses)....... $ (2,235) $ 314 $ (1,921)
========== ========= ==========
Benefits, claims,
losses and
settlement
expenses........ $ 835,084 $ 190 $ 835,274
========== ========= ==========
Amortization of
deferred policy
acquisition
costs........... $ 130,659 $ - $ 130,659
========== ========= ==========
Other operating
expenses ...... $ 231,362 $ 74,592 $ 305,954
========== ========= ==========
<PAGE>81
Note 14. Condensed Financial Information of Parent Company
<TABLE>
CONDENSED BALANCE SHEETS
PARENT COMPANY
December 31, 1993 and 1992
ASSETS
<CAPTION>
1993 1992
____ ____
(Amounts in Thousands)
<S> <C> <C>
Cash and invested assets:
Cash and certificates of deposit................................................. $ 5,870 $ 5,782
Fixed maturities, other long term investments, and short term investments........ 50,745 58,070
Equity securities................................................................ 87 86
Mortgage loans................................................................... - 1
__________ __________
Total cash and invested assets........................................... 56,702 63,939
Other receivables (net).......................................................... 6,014 4,819
Property and equipment (net)..................................................... 583 621
Prepaid expenses, deferred charges and other assets.............................. 49,442 49,864
Investment in life insurance subsidiaries........................................ 1,375,920 1,304,349
Investment in non-life insurance subsidiaries.................................... 24,058 23,132
__________ __________
Total assets.............................................................. $1,512,719 $1,446,724
========== ==========
LIABILITIES AND EQUITY CAPITAL
LIABILITIES:
Federal income taxes (current and deferred)...................................... $ (19,639) $ (35,639)
Notes payable.................................................................... 65,575 177,975
Current maturities of long-term debt............................................. 100,000 -
Long-term debt................................................................... 349,235 349,439
Accounts payable and accrued liabilities......................................... 51,519 64,508
__________ __________
Total liabilities........................................................ 546,690 556,283
__________ __________
NON-REDEEMABLE PREFERRED STOCKS, COMMON STOCK, AND OTHER SHAREHOLDERS' EQUITY
("EQUITY CAPITAL"):
Preferred stock - Series A....................................................... 482 563
Preferred stock - Series B....................................................... 103 113
Preferred stock-undesignated..................................................... - -
Common stock..................................................................... 38,309 38,256
Paid-in surplus.................................................................. 125,268 121,491
Net unrealized losses on marketable equity securities............................ (29) (165)
Retained earnings................................................................ 1,142,694 1,072,898
__________ __________
1,306,827 1,233,156
Less: Treasury stock, at cost.................................................... 339,825 340,382
Deferred compensation...................................................... 973 2,333
__________ __________
Total Equity Capital......................................................... 966,029 890,441
__________ __________
Total liabilities and Equity Capital..................................... $1,512,719 $1,446,724
========== ==========
</TABLE>
<PAGE>82
<TABLE>
CONDENSED STATEMENTS OF INCOME
PARENT COMPANY
For the Three Years Ended December 31, 1993
<CAPTION>
Year Ended December 31
____________________________________
1993 1992 1991
____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C>
Net investment income................................................... $ 5,243 $ 4,201 $ 3,912
Dividends from subsidiaries (eliminated in consolidation)............... 82,800 74,001 58,201
Realized gains (losses) on investments.................................. 80 (93) (7)
Other income............................................................ 7,760 7,396 7,479
_______ _______ _______
Total income................................................... 95,883 85,505 69,585
_______ _______ _______
General expenses........................................................ 35,506 36,097 35,799
Interest on notes payable............................................... 5,716 7,897 10,932
Interest on long term debt.............................................. 26,676 25,906 28,720
_______ _______ _______
Total expenses................................................. 67,898 69,900 75,451
_______ _______ _______
Income from operations before related income taxes...................... 27,985 15,605 (5,866)
Provision for income taxes.............................................. (18,806) (18,468) (20,359)
_______ _______ _______
Income before cumulative effect of accounting change
and equity in undistributed net income of subsidiaries............... 46,791 34,073 14,493
Cumulative effect of accounting change for years prior
to 1992, net of applicable income taxes.............................. - (12,562) -
Equity in cumulative effect of accounting change relating to
subsidiaries, net of applicable income taxes......................... - (25,428) -
Equity in undistributed income from operations of subsidiaries.......... 50,366 35,539 60,179
_______ _______ _______
Net income.............................................................. $97,157 $31,622 $74,672
======= ======= =======
</TABLE>
<PAGE>83
<TABLE>
STATEMENTS OF CASH FLOWS
PARENT COMPANY
For the Three Years Ended December 31, 1993
<CAPTION>
Year Ended December 31
_________________________________
1993 1992 1991
____ ____ ____
(Amounts in Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 97,157 $ 31,622 $ 74,672
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of accounting change.............................. - 20,979 -
Equity in undistributed net income of subsidiaries.................. (50,366) (10,111) (60,179)
Dividends of securities from subsidiaries........................... (21,603) (26,300) -
Deferred federal income taxes....................................... 2,979 (17,215) (2,577)
Depreciation and amortization....................................... 2,109 2,109 2,159
Change in other liabilities and amounts receivable.................. (14,184) 14,538 12,391
Change in current federal income tax liability...................... 13,021 (14,807) (4,076)
Other, net.......................................................... 716 2,195 2,490
_________ _________ __________
Total adjustments.............................................. (67,328) (28,612) (49,792)
_________ _________ __________
Net cash provided by operating activities................. 29,829 3,010 24,880
_________ _________ __________
Cash flows from investing activities:
Cost of investments sold, redeemed or matured:
Fixed maturities.................................................. 18,038 8,649 4,856
Mortgage loan principal receipts.................................. 1 8 23
Expenditures for property and equipment............................... (232) (335) (124)
Cost of investments purchased:
Fixed maturities.................................................. (15,729) (1,249) (4,700)
Net (purchases) or sales of short term investments................ 5,000 (825) (4,146)
Other, net............................................................ (396) - -
_________ _________ __________
Net cash provided (used) in investing activities.......... 6,682 6,248 (4,091)
_________ _________ __________
Cash flows from financing activities:
Issuance of debt securities......................................... 300,000 - -
Long-term borrowings under credit facility.......................... - 150,000 -
Increase (decrease) in notes payable................................ (112,400) 23,900 17,900
Dividends to shareholders........................................... (27,361) (25,818) (24,801)
Acquisition of treasury stock....................................... (2,621) (7,256) (17,860)
Repayment of long-term debt......................................... (200,000) (150,000) -
Other, net.......................................................... 5,959 2,966 3,111
_________ _________ __________
Net cash used in financing activities..................... (36,423) (6,208) (21,650)
_________ _________ __________
Net change in cash................................................ 88 3,050 (861)
Cash at beginning of year........................................... 5,782 2,732 3,593
_________ _________ __________
Cash at end of year................................................. $ 5,870 $ 5,782 $ 2,732
========= ========= ==========
</TABLE>
<PAGE>84
Note 15. Condensed Quarterly Results of Operations (Unaudited)
The quarterly results of consolidated operations for the two years ended
December 31, 1993 are presented below (in thousands of dollars except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
______________________________________ ______________________________________
March June September December March June September December
31, 1993 30, 1993 30, 1993 31, 1993 31, 1992 30, 1992 30, 1992 31, 1992
________ ________ _________ ________ ________ ________ _________ ________
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total income............................... $382,812 $407,119 $397,445 $412,662 $360,980 $389,828 $387,089 $391,555
Total benefits and expenses................ 352,071 371,275 353,173 371,948 334,470 360,231 357,434 372,980
________ ________ ________ ________ ________ ________ ________ ________
Income from operations
before related income taxes............... 30,741 35,844 44,272 40,714 26,510 29,597 29,655 18,575
Provision for income taxes................. 10,279 12,110 17,744 14,281 8,963 9,879 9,763 6,120
________ ________ ________ ________ ________ ________ ________ ________
Income before cumulative effect of
accounting change......................... 20,462 23,734 26,528 26,433 17,547 19,718 19,892 12,455
Cumulative effect of accounting change..... - - - - (37,990) - - -
________ ________ ________ ________ ________ ________ ________ ________
Net income................................. 20,462 23,734 26,528 26,433 (20,443) 19,718 19,892 12,455
Dividends on Series C Preferred Stock...... - - - - 66 65 66 -
________ ________ ________ ________ ________ ________ ________ ________
Net income applicable to common and
common equivalent shares................. $ 20,462 $ 23,734 $ 26,528 $ 26,433 $(20,509) $ 19,653 $ 19,826 $ 12,455
======== ======== ======== ======== ======== ======== ======== ========
INCOME PER SHARE:
Income before cumulative effect of
accounting change................... $ .90 $ 1.03 $ 1.16 $ 1.16 $ .77 $ .86 $ .88 $ .54
Cumulative effect of accounting
change............................. - - - - (1.67) - - -
________ ________ ________ ________ ________ ________ ________ ________
Net income........................... $ .90 $ 1.03 $ 1.16 $ 1.16 $ (.90) $ .86 $ .88 $ .54
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
EXHIBITS
FILED WITH
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 1993
__________________________________________________
USLIFE Corporation
<PAGE>2
USLIFE Corporation
Index to Exhibits
Exhibit
Number Exhibit
_______ _______
3 (i) - Restated Certificate of Incorporation, as amended,
incorporated herein by reference to USLIFE's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
3 (ii) - By-laws, as amended, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended December
31, 1992.
4 (i) - See Exhibit 3(i).
(ii) - Indenture dated as of October 1, 1982 (9.15% Notes due June
15, 1999, 6.75% Notes due January 15, 1998, and 6.375% Notes due
June 15, 2000) incorporated herein by reference to USLIFE's
Registration Statement No. 2-79559 on Form S-3.
Agreements or instruments with respect to long-term debt which
are not filed as exhibits hereto do not in total exceed 10% of
USLIFE's consolidated total assets and USLIFE agrees to furnish
a copy thereof to the Commission upon request.
(iii) - Amended and Restated Rights Agreement, dated as of June 24,
1986 and amended and restated as of January 24, 1989, between
USLIFE Corporation and Manufacturers Hanover Trust Company
(predecessor to Chemical Bank), as Rights Agent, relating to
Common Stock Purchase Rights issued by USLIFE on July 10, 1986,
incorporated herein by reference to USLIFE's Current Report on
Form 8-K dated January 24, 1989.
10 * (i) - 1981 Stock Option Plan, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended December
31, 1981.
* (ii) - Employment contract dated as of April 1, 1989 between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
* (iii) - First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989 between USLIFE Corporation
and Gordon E. Crosby, Jr., incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (iv) - Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (v) - Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.
* (vi) - Fourth Amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
<PAGE>3
USLIFE Corporation
Index to Exhibits
Exhibit
Number Exhibit
_______ _______
* (vii) - Fifth Amendment dated as of February 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Annual Report on Form 10-K for the year
ended December 31, 1992.
* (viii) - Sixth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Gordon E. Crosby, Jr., incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (ix) - Employment contract dated as of April 1, 1989 between USLIFE
Corporation and Greer F. Henderson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
* (x) - First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989, between USLIFE Corporation
and Greer F. Henderson, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (xi) - Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Greer F. Henderson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xii) - Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Greer F. Henderson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.
* (xiii) - Fourth Amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Greer F. Henderson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
* (xiv) - Fifth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Greer F. Henderson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (xv) - Employment contract dated as of April 1, 1989 between USLIFE
Corporation and Wesley E. Forte, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
* (xvi) - First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989 between USLIFE Corporation
and Wesley E. Forte, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (xvii) - Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Wesley E. Forte, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xviii)- Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Wesley E. Forte.
* (xix) - Fourth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Wesley E. Forte, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
<PAGE>4
USLIFE Corporation
Index to Exhibits
Exhibit
Number Exhibit
_______ _______
* (xx) - Employment contract dated as of April 1, 1989 between USLIFE
Corporation and John D. Gavrity, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
* (xxi) - First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989 between USLIFE Corporation
and John D. Gavrity, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (xxii) - Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and John D. Gavrity, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xxiii)- Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and John D. Gavrity, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.
* (xxiv) - Fourth Amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and John D. Gavrity, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
* (xxv) - Fifth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and John D. Gavrity, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (xxvi) - Employment contract dated as of April 1, 1989 between USLIFE
Corporation and Christopher S. Ruisi, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
* (xxvii)- First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989 between USLIFE Corporation
and Christopher S. Ruisi, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (xxviii)- Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Christopher S. Ruisi, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xxix) - Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Christopher S. Ruisi, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.
* (xxx) - Fourth Amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Christopher S. Ruisi, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
* (xxxi) - Fifth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and Christopher S. Ruisi, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (xxxii)- Employment contract dated as of April 1, 1989 between USLIFE
Corporation and A. Scott Bushey, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989.
<PAGE>5
USLIFE Corporation
Index to Exhibits
Exhibit
Number Exhibit
_______ _______
* (xxxiii)- First Amendment dated as of May 1, 1989 to employment
contract dated as of April 1, 1989 between USLIFE Corporation
and A. Scott Bushey, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1989.
* (xxxiv)- Second Amendment dated as of May 1, 1990 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and A. Scott Bushey, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xxxv) - Third Amendment dated as of May 1, 1991 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and A. Scott Bushey, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1991.
* (xxxvi)- Fourth Amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and A. Scott Bushey, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
* (xxxvii)- Fifth Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1989, as amended, between USLIFE
Corporation and A. Scott Bushey, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
*(xxxviii)- Employment contract dated as of April 16, 1990 between USLIFE
Corporation and William A. Simpson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1990.
* (xxxix)- First Amendment dated as of May 1, 1991 to employment
contract dated as of April 16, 1990 between USLIFE Corporation
and William A. Simpson, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1991.
* (xl) - Second Amendment dated as of May 1, 1992 to employment
contract dated as of April 16, 1990, as amended, between USLIFE
Corporation and William A. Simpson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992.
* (xli) - Third Amendment dated as of October 1, 1992 to employment
contract dated as of April 16, 1990, as amended, between USLIFE
Corporation and William A. Simpson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992.
* (xlii) - Third Amendment dated as of May 1, 1993 to employment
contract dated as of April 16, 1990, as amended, between USLIFE
Corporation and William A. Simpson, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (xliii)- Employment contract dated as of April 1, 1991 between USLIFE
Corporation and Robert J. Casper, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1992.
* (xliv) - First amendment dated as of May 1, 1992 to employment
contract dated as of April 1, 1991 between USLIFE Corporation
and Robert J. Casper, incorporated herein by reference to
USLIFE's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1992.
* (xlv) - Second Amendment dated as of October 1, 1992 to employment
contract dated as of April 1, 1991, as amended, between USLIFE
Corporation and Robert J. Casper, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992.
<PAGE>6
USLIFE Corporation
Index to Exhibits
Exhibit
Number Exhibit
_______ _______
* (xlvi) - Second Amendment dated as of May 1, 1993 to employment
contract dated as of April 1, 1991, as amended, between USLIFE
Corporation and Robert J. Casper, incorporated herein by
reference to USLIFE's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993.
* (xlvii)- 1978 Stock Option Plan, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended December
31, 1980.
* (xlviii)- Deferred Compensation Plan, incorporated herein by reference
to USLIFE's Annual Report on Form 10-K for the year ended
December 31, 1980.
* (il) - Book Unit Plan, incorporated herein by reference to USLIFE's
Annual Report on Form 10-K for the year ended December 31, 1980.
(l) - Lease dated as of December 30, 1986 between The United States
Life Insurance Company In the City of New York and RREEF USA
Fund-III for the lease of a portion of 125 Maiden Lane, New
York, New York, incorporated herein by reference to USLIFE's
Annual Report on Form 10-K for the year ended December 31, 1986.
(li) - Amendment to Lease dated August 31, 1988 to Lease dated as of
December 30, 1986 between The United States Life Insurance
Company In the City of New York and RREEF USA Fund-III for the
lease of a portion of 125 Maiden Lane, New York, New York,
incorporated herein by reference to USLIFE's Annual Report on
Form 10-K for the year ended December 31, 1988.
(lii) - Second Amendment to Lease dated November 16, 1988 to Lease
dated as of December 30, 1986 between The United States Life
Insurance Company In the City of New York and RREEF USA Fund-III
for the lease of a portion of 125 Maiden Lane, New York, New
York, incorporated herein by reference to USLIFE's Annual Report
on Form 10-K for the year ended December 31, 1988.
(liii) - Lease dated May 21, 1987 between The United States Life
Insurance Company In the City of New York and Commercial Realty
& Resources Corp. for the lease of premises at the Jumping Brook
Corporate Office Park in Neptune, New Jersey, incorporated
herein by reference to USLIFE's Annual Report on Form 10-K for
the year ended December 31, 1988.
(liv) - February 9, 1989 Amendment to Lease dated May 21, 1987
between The United States Life Insurance Company In the City of
New York and Commercial Realty & Resources Corp. for the lease
of premises at the Jumping Brook Corporate Office Park in
Neptune, New Jersey, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended December
31, 1988.
* (lv) - Retirement Plan for Outside Directors effective February 28,
1989, incorporated herein by reference to USLIFE's Annual Report
on Form 10-K for the year ended December 31, 1988.
* (lvi) - USLIFE Corporation Restricted Stock Plan effective January 1,
1989, incorporated herein by reference to USLIFE's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1989.
<PAGE>7
USLIFE Corporation
Index to Exhibits
Exhibit
Number Exhibit
_______ _______
* (lvii) - Trust Agreement made as of September 25, 1990 among USLIFE
Corporation, Manufacturers Hanover Trust Company (predecessor to
Chemical Bank) and KPMG Peat Marwick (as independent contractor)
establishing a trust to fund certain employment contracts,
incorporated herein by reference to USLIFE's Annual Report on
Form 10-K for the year ended December 31, 1990.
* (lviii)- Trust Agreement made as of September 25, 1990 among USLIFE
Corporation, Manufacturers Hanover Trust Company (predecessor to
Chemical Bank) and KPMG Peat Marwick (as independent contractor)
establishing a trust to fund the USLIFE Corporation Supplemental
Retirement Plan, incorporated herein by reference to USLIFE's
Annual Report on Form 10-K for the year ended December 31, 1990.
* (lix) - Trust Agreement made as of September 25, 1990 among USLIFE
Corporation, Manufacturers Hanover Trust Company (predecessor to
Chemical Bank) and KPMG Peat Marwick (as independent contractor)
establishing a trust to fund the USLIFE Corporation Retirement
Plan for Outside Directors, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended December
31, 1990.
* (lx) - 1991 Stock Option Plan, incorporated herein by reference to
USLIFE's Annual Report on Form 10-K for the year ended December
31, 1991.
12 - Computations of ratios of earnings to fixed charges.
21 - List of Subsidiaries.
23 - Consent of Independent Certified Public Accountants (included
in USLIFE's Annual Report on Form 10-K for the year ended
December 31, 1993).
99 (i) - Annual Report on Form 11-K of USLIFE Corporation Employee
Savings and Investment Plan for the plan year ended December 31,
1993 (to be filed within 120 days of fiscal year end of Plan).
99 (ii) - Trust Agreement made as of December 6, 1990 among USLIFE
Corporation, Manufacturers Hanover Trust Company (predecessor to
Chemical Bank), and KPMG Peat Marwick (as independent
contractor) establishing a trust to fund the USLIFE Corporation
Retirement Plan, incorporated herein by reference to USLIFE's
Annual Report on Form 10-K for the year ended December 31, 1990.
* Indicates a management contract or compensatory plan or arrangement.
<PAGE>1
ITEM 14(a)3 - EXHIBIT 10 (xviii)
________________________________
THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
_______________________________________
This is a Third Amendment ("Third Amendment") dated as of May 1,
1991 to an Employment Agreement ("Agreement") dated April 1, 1989
between USLIFE Corporation, a New York Corporation ("Employer") and
Wesley E. Forte ("Employee"), which Agreement was first amended on May
1, 1989 by a First Amendment to Employment Agreement ("First
Amendment"), and which Agreement was further amended on May 1, 1990 by
a Second Amendment to Employment Agreement ("Second Amendment").
THE TERMS of this Third Amendment are:
1. Paragraph (2) of the Agreement, as amended by the First and
Second Amendments, is now further amended to read, in its entirety, as
follows:
"(2) Employer will pay Employee for his services under paragraph
(1) of the Agreement at the rate of $315,000 per annum during the term
of Agreement, in equal monthly installments, plus an annual lump sum
bonus payment of $-0-, plus such periodic salary increases and such
additional compensation (if any) as may from time to time be voted by
Employer's Board of Directors and/or the Executive Compensation
Committee or its successor, in the sole and absolute discretion of
said Board and/or Committee. Nothing in this Agreement shall be
construed as precluding merit increases in salary or as barring the
Employee from such fringe benefits as the Employer may grant."
2. Except as specifically amended by this Third Amendment, all
other provisions of the Agreement, as amended by the First and Second
Amendments, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Third Amendment
to the Agreement on the date first set forth above.
USLIFE Corporation
By: /s/ Gordon E. Crosby, Jr.
_______________________________
Gordon E. Crosby, Jr.
Chairman of the Board, President
and Chief Executive Officer
/s/ Wesley E. Forte
_______________________________
Wesley E. Forte
<PAGE>1
<TABLE>
ITEM 14(a)3 - EXHIBIT 12
________________________
Computations of Ratios of Earnings to Fixed Charges
___________________________________________________
<CAPTION>
Year Ended December 31
1993 1992 1991 1990 1989
____ ____ ____ ____ ____
<S> <C> <C> <C> <C> <C>
1. Excluding interest credited to
policyholder account balances:
Income before taxes on income (1) $151,571 $104,337 $111,019 $103,470 $120,496
======== ======== ======== ======== ========
Fixed charges:
Interest expense 32,392 33,805 39,209 43,092 41,985
One-third of all rent expense 4,497 4,123 4,016 3,753 3,705
Total fixed charges (A) 36,889 37,928 43,225 46,845 45,690
_______ _______ _______ _______ _______
Total income before taxes on income 188,460 142,265 154,244 150,315 166,186
and fixed charges (B) ======= ======= ======= ======= =======
Ratio of earnings to fixed charges (B)/(A) 5.11 3.75 3.57 3.21 3.64
==== ==== ==== ==== ====
2. Including interest credited to
policyholder account balances
Income before taxes on income (1) $151,571 $104,337 $111,019 $103,470 $120,496
======== ======== ======== ======== ========
Fixed charges:
Interest credited to policyholder
account balances 183,737 173,538 137,580 104,724 94,057
Interest expense 32,392 33,805 39,209 43,092 41,985
One-third of all rent expense 4,497 4,123 4,016 3,753 3,705
Total fixed charges (A) 220,626 211,466 180,805 151,569 139,747
_______ _______ _______ _______ _______
Total income before taxes on income 372,197 315,803 291,824 255,039 260,243
and fixed charges (B) ======= ======= ======= ======= =======
Ratio of earnings to fixed charges (B)/(A) 1.69 1.49 1.61 1.68 1.86
==== ==== ==== ==== ====
(1) Before cumulative effect of accounting change relating to non-pension
postretirement benefits recorded in first quarter of 1992.
</TABLE>
<PAGE>1
ITEM 14(a)3 - EXHIBIT 21
________________________
USLIFE Corporation
LIST OF SUBSIDIARIES
Percentage
of Ownership
by Registrant
USLIFE Corporation (Registrant)..........................
The United States Life Insurance Company in the
City of New York (New York) (1)....................... 100
All American Life Insurance Company
(Illinois) (1)........................................ 100
The Old Line Life Insurance Company of America
(Wisconsin) (1)........................................ 100
Security of America Life Insurance Company
(Pennsylvania) (1).................................... 100
USLIFE Credit Life Insurance Company
(Illinois) (1)........................................ 100
USLIFE Advisers, Inc. (New York) (1).................... 100
USLIFE Agency Services, Inc. (Illinois) (1)............. 100
USLIFE Equity Sales Corp. (Delaware) (1)................ 100
USLIFE Insurance Services Corporation (Texas) (1)....... 100
USLIFE Realty Corporation (Texas) (1)................... 100
USLIFE Real Estate Services Corporation (Texas) (1)...... 100 (2)
USLIFE Systems Corporation (Delaware) (1)............... 100
The foregoing list of subsidiaries does not include subsidiaries of USLIFE
or subsidiaries of subsidiaries of USLIFE which, if considered in the aggregate
as a single subsidiary, would not constitute a significant subsidiary.
(1) Included in USLIFE's consolidated financial statements.
(2) Wholly-owned subsidiary of USLIFE Realty Corporation.
