<PAGE>1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1994 or
__________________
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to ____________
Commission file number 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, New York 10038
___________________________________ ___________________
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (212) 709-6000
_______________
NONE
______________________________________________________________________
Former name, former address and former fiscal year, if changed since
last report.
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
_______ _______
The number of shares outstanding of the Registrant's Common Stock as
of November 2, 1994 was 22,823,997.
<PAGE>2
USLIFE Corporation
INDEX
Page No.
________
Part I - Financial Information:
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993............... 3
Summary Statements of Consolidated Net Income -
For the Nine Months and Three Months Ended
September 30, 1994 and 1993............................ 5
Statements of Consolidated Cash Flows -
For the Nine Months Ended September 30, 1994 and 1993.. 6
Notes to Financial Statements.......................... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 13
Other Financial Information............................ 27
Part II - Other Information.............................. 28
Signatures............................................... 30
<PAGE>3
<TABLE>
USLIFE Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
September 30, 1994 and December 31, 1993
(Dollar amounts in thousands except per share data)
<CAPTION>
September 30, 1994 December 31, 1993
__________________ _________________
<S> <C> <C>
Assets
______
Cash:
On hand and in demand accounts............. $ 52,604 $ 60,321
Restricted funds held in escrow, etc. ..... 2,208 1,040
__________ __________
54,812 61,361
__________ __________
Invested assets (Notes 1 and 2):
Fixed maturities available for sale:
At market (cost, $5,125,773).............. 4,936,988 --
At lower of aggregate amortized cost or
market (market, $5,132,024).............. -- 4,751,681
Equity securities, at market (cost,
September 30, 1994, $8,293; December
31, 1993, $9,234)......................... 7,848 9,205
Mortgage loans............................. 314,502 361,095
Policy loans............................... 284,359 282,090
Real estate................................ 48,402 43,434
Other long term investments................ 7,806 7,534
Short term investments..................... 89,608 68,124
__________ __________
Total invested assets.................... 5,689,513 5,523,163
__________ __________
Total cash and invested assets........... 5,744,325 5,584,524
__________ __________
Deferred policy acquisition costs
(Notes 1 and 2)............................ 770,844 741,927
Other receivables (net)...................... 358,360 310,573
Property and equipment (net of accumulated
depreciation of $36,335 at September 30,
1994 and $34,444 at December 31, 1993)..... 12,751 13,756
Prepaid expenses, deferred charges and
other assets............................ 90,035 89,461
__________ __________
Total assets............................ $6,976,315 $6,740,241
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>4
<TABLE>
USLIFE Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
September 30, 1994 and December 31, 1993
(Dollar amounts in thousands except per share data)
(Continued)
<CAPTION>
September December
30, 1994 31, 1993
__________ __________
<S> <C> <C>
Liabilities and Equity Capital
______________________________
Liabilities:
Future policy benefits................................... $1,504,109 $1,453,457
Policyholder account balances............................ 3,567,573 3,322,265
Supplementary contracts without life contingencies....... 7,892 6,385
Policyholder dividend accumulations...................... 20,183 20,106
Policy and contract claims............................... 148,715 155,629
Other policy and contract liabilities.................... 30,411 28,992
Notes payable (Note 6)................................... 223,500 65,500
Current maturities of long term debt..................... 0 100,000
Long term debt........................................... 349,328 349,235
Federal income taxes (current and deferred).............. (52,150) 25,058
Accounts payable and accrued liabilities................. 264,219 234,577
__________ __________
Total liabilities................................... 6,063,780 5,761,204
__________ __________
Deferred income.......................................... 11,208 13,008
__________ __________
Equity Capital:
Preferred stock, $4.50 Series A Convertible, $1.00
par value; authorized and outstanding, 4,758
shares (December 31, 1993, 4,815 shares)........... 476 482
Preferred stock, $5.00 Series B Convertible, $1.00
par value; authorized and outstanding, 2,008
shares (December 31, 1993, 2,050 shares)........... 100 103
Preferred stock, undesignated, $1.00 par value;
authorized 10,793,234 shares, issued; none
(December 31, 1993; none).......................... 0 0
Common stock, par value $1.00 per share, authorized
60,000,000 shares, issued: 38,309,610 shares
(December 31, 1993, 38,308,823 shares)............. 38,310 38,309
Paid-in surplus.......................................... 131,066 125,268
Net unrealized losses on securities (Notes 1 and 2)...... (121,032) --
Net unrealized losses on marketable
equity securities (Notes 1 and 2)................... -- (29)
Retained earnings........................................ 1,194,734 1,142,694
__________ __________
1,243,654 1,306,827
Less: Treasury stock, at cost - September 30, 1994:
15,356,938 Common shares; December 31, 1993:
15,650,354 Common shares........................ 335,208 339,825
Deferred compensation............................. 7,119 973
__________ __________
Total Equity Capital..................................... 901,327 966,029
__________ __________
Total liabilities and Equity Capital..................... $6,976,315 $6,740,241
========== ==========
Equity Capital per share (Note 3)........................ $38.92 $42.11
====== ======
</TABLE>
<PAGE>5
<TABLE>
USLIFE Corporation and Subsidiaries
Summary Statements of Consolidated Net Income (Unaudited)
For the Nine Months and Three Months Ended September 30, 1994 and 1993
(Amounts in thousands except per share)
<CAPTION>
Nine Months Ended September 30 Three Months Ended September 30
______________________________ _______________________________
1994 1993 1994 1993
______ ______ ______ ______
<S> <C> <C> <C> <C>
REVENUES:
Premiums................................................. $ 723,060 $ 698,871 $ 237,166 $ 227,884
Other considerations..................................... 144,885 128,498 52,648 43,898
Net investment income.................................... 342,854 331,675 116,641 111,354
Realized gains (losses) on investments................... 396 3,843 (99) 4,826
Other income............................................. 22,189 24,489 7,431 9,483
__________ __________ __________ __________
Total revenues........................................ 1,233,384 1,187,376 413,787 397,445
__________ __________ __________ __________
BENEFITS AND EXPENSES:
Benefits to policyholders and beneficiaries.............. 544,144 546,261 178,067 176,950
Commissions, net of deferred expenses.................... 103,515 96,086 32,869 31,111
Other expenses and taxes, net of deferred expenses....... 126,971 130,937 41,834 42,025
Increase in liability for future policy benefits......... 53,490 25,411 20,901 7,516
Interest credited to policyholder account balances....... 143,701 136,426 49,231 46,702
Amortization of deferred policy acquisition costs........ 120,879 114,565 42,490 39,939
Interest expense......................................... 25,753 24,174 9,187 8,116
Dividends to policyholders............................... 2,668 2,659 819 814
__________ __________ __________ __________
Total benefits and expenses........................... 1,121,121 1,076,519 375,398 353,173
__________ __________ __________ __________
Income from operations before Federal income taxes.......... 112,263 110,857 38,389 44,272
Provision for income taxes:
Excluding Federal income tax rate cumulative adjustment... 38,965 38,145 12,879 15,756
Federal income tax rate cumulative adjustment............. -- 1,988 -- 1,988
__________ __________ __________ __________
38,965 40,133 12,879 17,744
__________ __________ __________ __________
Net income.................................................. $ 73,298 $ 70,724 $ 25,510 $ 26,528
========== ========== ========== ==========
Net income per share (Note 4)............................... $ 3.18 $ 3.09 $ 1.10 $ 1.16
========== ========== ========== ==========
Dividends per share:
Common................................................... $ .93 $ .90 $ .31 $ .30
========== ========== ========== ==========
Preferred Series A....................................... $ 3.375 $ 3.375 $ 1.125 $ 1.125
========== ========== ========== ==========
Preferred Series B....................................... $ 3.75 $ 3.75 $ 1.25 $ 1.25
========== ========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>6
<TABLE>
USLIFE Corporation and Subsidiaries
Statements of Consolidated Cash Flows (Unaudited)
For the Nine Months Ended September 30, 1994 and 1993
(Amounts in Thousands)
<CAPTION>
Nine Months Ended September 30
______________________________
1994 1993
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 73,298 $ 70,724
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in liability for future policy benefits........ 45,922 38,966
Interest credited to policyholder account balances.... 143,701 136,426
Amounts assessed from policyholder account balances... (107,175) (96,888)
Additions to deferred policy acquisition costs........ (151,525) (143,138)
Amortization of deferred policy acquisition costs..... 120,879 114,565
Additions to deferred charges......................... (4,786) (3,659)
Deferred Federal income taxes......................... (1,466) (15,871)
Depreciation and amortization......................... 9,424 9,173
Change in amounts due policyholders................... (1,192) (22,891)
Change in other liabilities and amounts receivable.... (11,147) 12,684
Change in restricted cash............................. (1,168) (1,126)
Change in current Federal income tax liability........ (10,569) 11,835
Other, net............................................ (4,964) 15,823
___________ ___________
Total adjustments................................ 25,934 55,899
___________ ___________
Net cash provided by operating activities... 99,232 126,623
___________ ___________
Cash flows from investing activities:
Change in policy loans.................................. (2,269) 1,032
Cost of investments sold, redeemed or matured:
Fixed maturities.................................... 687,405 808,222
Equity securities................................... 328 6,483
Mortgage loan principal receipts.................... 41,092 22,845
Real estate......................................... 10,775 8,183
Other long term investments......................... 163 1,326
Expenditures for property and equipment................. (3,418) (3,384)
Cost of investments purchased:
Fixed maturities.................................... (1,058,365) (1,335,637)
Mortgage loans...................................... (9,306) (14,341)
Real estate......................................... (1,013) (2,176)
Other long term investments......................... (93) (1,363)
Net (purchases) or sales of short term investments.. (21,484) 19,853
Other, net............................................ 990 2,370
___________ ___________
Net cash used in investing activities....... (355,195) (486,587)
___________ ___________
Cash flows from financing activities:
Issuance of debt securities........................... -- 300,000
Repayment of debt securities and long term debt....... (99,907) (200,234)
Increase (decrease) in notes payable.................. 158,000 (65,100)
Dividends to shareholders............................. (21,258) (20,332)
Acquisition of treasury stock......................... (1,798) (2,601)
Change in policyholder account balances............... 208,549 348,053
Other, net............................................ 4,660 5,231
___________ ___________
Net cash provided by financing activities... 248,246 365,017
___________ ___________
Net change in cash.................................. (7,717) 5,053
Cash at beginning of year............................. 60,321 74,574
___________ ___________
Cash at end of period................................. $ 52,604 $ 79,627
=========== ===========
See accompanying notes to financial statements.
</TABLE>
<PAGE>7
USLIFE Corporation and Subsidiaries
Notes to Financial Statements
Note 1. Change in Accounting Principles
Effective as of the first quarter of 1994, the Company adopted
Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
entitled "Accounting for Certain Investments in Debt and Equity
Securities." SFAS 115 requires that debt securities which may be
sold as part of the Company's asset/liability management strategy
be classified as "available for sale" and carried at market value
in the Consolidated Balance Sheet, commencing with the date of
adoption of the Statement. The Company's portfolio of debt
securities had been similarly classified as "available for sale"
prior to the adoption of SFAS 115, but was carried at lower of
aggregate amortized cost or market value pursuant to previous
accounting standards. Since the aggregate market value of these
securities exceeded their amortized cost at December 31, 1993,
this classification had no impact on Equity Capital at that date.
The Company's equity securities portfolio had been carried at
market value in accordance with previous accounting standards
prior to the adoption of SFAS 115 and continues to be carried at
market value as required by the Statement.
As required by SFAS 115, the net impact of the initial adjustment
to market value of these securities, less corresponding
adjustments to deferred policy acquisition costs (required where
market value differs from cost for certain securities), certain
policyholder liabilities, and deferred income taxes, was recorded
through a direct credit to "Net unrealized gains (losses) on
securities" included in Equity Capital, as follows:
<TABLE>
<CAPTION>
(Amounts in
Thousands)
<S> <C>
Impact of adoption of SFAS 115:
Unrealized gain on debt securities at January 1, 1994........................ $380,343
Less:
Valuation allowance for deferred policy acquisition costs.................. 99,889
Increase in certain policyholder liabilities............................... 16,706
________
Adjustment to Equity Capital before federal income tax....................... 263,748
Adjustment to deferred federal income tax liability.......................... 92,312
________
Net adjustment to Equity Capital at January 1, 1994.......................... $171,436
========
</TABLE>
SFAS 115 requires that unrealized gains and losses on available-
for-sale securities, other than those relating to a reduction in
value determined to be other than temporary, be recorded as
direct charges and credits to "Net unrealized gains (losses) on
securities" included in Equity Capital. The changes in this
equity account for the nine months ended September 30, 1994 are
as follows:
<PAGE>8
<TABLE>
<CAPTION>
(Amounts in
Thousands)
<S> <C>
Net unrealized gains (losses) on securities:
Net unrealized loss on marketable equity securities at December 31, 1993..... $ (29)
Effect of implementation of SFAS 115 (above)................................. 171,436
Net change during period, net of $98.2 million reduction in valuation
allowance for deferred policy acquisition costs, $21.5 million adjustment
of certain policyholder liabilities, and $157.5 million deferred
federal income tax impact............................................... (292,439)
_________
Net unrealized loss on securities at September 30, 1994................... $(121,032)
=========
</TABLE>
Under both SFAS 115 and previous accounting standards, valuation
reserves (established through income statement charges) are
maintained as an adjustment to cost for investments, including
"available for sale" securities, with a reduction in value
determined to be other than temporary. The cost and market value
of the Company's investments in securities are presented in Note
2 of Notes to Financial Statements herein.
Note 2. Investments
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.
Accordingly, the Company's entire Fixed Maturity portfolio is
classified as "available for sale" at September 30, 1994 and
December 31, 1993. These securities are carried in the
accompanying balance sheets at market value as of September 30,
1994 and at lower of aggregate amortized cost or market value at
December 31, 1993. The Company's investments in preferred stocks
(other than redeemable preferred stocks) and common stocks
("Equity Securities") are carried at market value in the
accompanying balance sheets at September 30, 1994 and December
31, 1993. The cost and market value of the Company's
consolidated investments in Fixed Maturities and Equity
Securities at September 30, 1994 and December 31, 1993 are
presented below:
<PAGE>9
<TABLE>
<CAPTION>
Net
Unrealized
Adjusted Gain
Cost Market (Loss)
___________ _________ __________
<S> <C> <C> <C>
September 30, 1994:
Fixed Maturities...................... $5,125,773 $4,936,988 $(188,785)
Equity Securities..................... 8,293 7,848 (445)
__________
(189,230)
Valuation allowance for deferred
policy acquisition costs relating
to market value adjustment for
certain fixed maturities............. (1,729)
Adjustment of certain policyholder
liabilities relating to market
value adjustment for certain
fixed maturities..................... 4,754
Tax effect............................ 65,173
__________
Net unrealized loss on securities
included in Equity Capital.......... $(121,032)
==========
December 31, 1993:
Fixed Maturities...................... $4,751,681 $5,132,024 $ 380,343
==========
Equity Securities..................... 9,234 9,205 (29)
==========
Net unrealized loss on equity
securities included in Equity Capital $ (29)
==========
</TABLE>
Short term investments are carried at cost, which approximates
market value. 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 estimated net
realizable value.
At September 30, 1994, consolidated invested assets included $227
million (based on adjusted cost) of less than investment grade
corporate securities, based on ratings assigned by recognized
rating agencies and insurance regulatory authorities. Such
investments are carried at their aggregate market value of $221
million at September 30, 1994 and, based on market value,
represent approximately 3% of consolidated total assets at that
date. Approximately $24 million (at market) of these investments
(adjusted cost, approximately $25 million) are classified as
problem securities at that date and, of that amount,
approximately $18 million (at market) represented securities in
default at September 30, 1994. Also at September 30, 1994, the
book value of mortgage loans included in consolidated total
assets which were 60 days or more delinquent or in foreclosure
was approximately $13 million, and the book value of property
<PAGE>10
acquired through foreclosure of mortgage loans was approximately
$32 million.
Note 3. Equity Capital Per Share
Equity Capital per share was determined by dividing total Equity
Capital by the number of common shares and common equivalent
shares outstanding at the end of the period. The number of
common shares and common equivalent shares for this purpose has
been determined on the same basis as that for income per share
(see Note 4 of Notes to Financial Statements), except amounts are
based on the number of shares outstanding at the end of the
period. As of September 30, 1994 and December 31, 1993, the
number of such shares used for this purpose was 23.158 million
and 22.942 million, respectively.
Note 4. 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 period. The weighted average number of common and common
equivalent shares was determined by using the average number of
common shares outstanding during each period, 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. 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 nine and three month periods ended September 30, 1994 and
1993:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30 September 30
__________________ __________________
1994 1993 1994 1993
____ ____ ____ ____
(Shares and Amounts in Thousands
except Per Share data)
<S> <C> <C> <C> <C>
Net income.................................... $ 73,298 $ 70,724 $ 25,510 $ 26,528
======== ======== ======== ========
Weighted average common shares
outstanding, net of treasury shares......... 22,816 22,561
Add - common share equivalents of:
Preferred Stock - Series A.................. 38 44
Preferred Stock - Series B.................. 16 17
Outstanding stock options
- treasury stock method.................. 151 278
______ ______
Total common shares and
common equivalent shares.................... 23,021 22,900
====== ======
Net income per share.......................... $ 3.18 $ 3.09 $ 1.10 $ 1.16
====== ====== ====== ======
</TABLE>
<PAGE>11
Note 5. Reinsurance
The Company's 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.
Amounts paid or deemed to have been paid for reinsurance
contracts are recorded as reinsurance receivables, and 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. 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. Reinsurance
receivable and recoverable amounts included in "Other
receivables" in the accompanying Consolidated Balance Sheets are
as follows:
September December
30, 1994 31, 1993
_________ _________
(Amounts in Thousands)
Reinsurance receivables - paid claims... $ 8,485 $ 11,914
Other reinsurance recoverable amounts... 127,274 123,009
________ ________
$135,759 $134,923
======== ========
The effect of reinsurance on premiums, other considerations, and
benefits to policyholders and beneficiaries, is as follows:
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30 Ended September 30
______________________ ______________________
1994 1993 1994 1993
________ ________ ________ ________
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Premiums, before reinsurance ceded......... $782,283 $757,508 $257,527 $246,072
Premiums ceded............................. 59,223 58,637 20,361 18,188
________ ________ ________ ________
Net premiums............................... $723,060 $698,871 $237,166 $227,884
======== ======== ======== ========
Other considerations, before reinsurance
ceded................................... $155,768 $138,060 $ 56,457 $ 47,435
Other considerations ceded................. 10,883 9,562 3,809 3,537
________ ________ ________ ________
Net other considerations................... $144,885 $128,498 $ 52,648 $ 43,898
======== ======== ======== ========
Benefits to policyholders and beneficiaries,
before reinsurance recoveries............ $585,748 $589,015 $187,984 $193,482
Reinsurance recoveries..................... 41,604 42,754 9,917 16,532
________ ________ ________ ________
Benefits to policyholders and beneficiaries,
net of reinsurance recoveries............ $544,144 $546,261 $178,067 $176,950
======== ======== ======== ========
</TABLE>
<PAGE>12
Note 6. Refinancing Transaction
Notes payable at September 30, 1994 includes $100 million
borrowings under a revolving credit agreement between the Company
and The Bank of New York (as agent) which commenced on May 13,
1994. The credit agreement expires on May 12, 1995, at which
time all borrowings thereunder must mature, subject to extension
of the agreement for a period of 364 days at the option of the
various participating banks and the Company. The credit
agreement 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 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. The proceeds of the initial $100
million borrowing thereunder on May 13, 1994, at an interest rate
of 5.65% for a six-month period, were utilized to repay $100
million maturing bank indebtedness under a previous two-year
revolving credit agreement.
<PAGE>13
USLIFE Corporation
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Financial Condition
___________________
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 for liquidity requirements at the
life insurance subsidiaries, while cash is applied by such
subsidiaries to payment of policy benefits and policy loans,
costs of acquiring new business (principally commissions),
and operating expenses, as well as purchases of new
investments. Excluding the impact of changes in accounts
payable and receivable, which are subject to random
fluctuations from the timing of securities transaction
settlements and similar matters, net cash provided by
operating activities of the life insurance subsidiaries for
the first nine months of 1994 was $135.0 million.
On a consolidated basis, net cash provided by operating
activities amounted to $99.2 million for the first nine
months of 1994, compared to $126.6 million for the
corresponding period of 1993. As indicated above, these
amounts reflect changes in accounts payable and receivable
which are subject to random timing fluctuations. Excluding
the impact of changes in these accounts, net cash provided
by consolidated operating activities amounted to $110.4
million in the first nine months of 1994 versus $113.9
million in the corresponding 1993 period. Cash flows from
operating activities for the first nine months of 1994
included $44.7 million from the aggregate change in
liability for future policy benefits and amounts due
policyholders, versus $16.1 million in the corresponding
1993 period, reflecting various factors including timing
fluctuation in claims payments and increased sales of term
insurance products during the 1994 period. Interest
credited to policyholder account balances increased to
$143.7 million in the first nine months of 1994 versus
$136.4 million in the corresponding 1993 period, reflecting
the increase in policyholder account balances relating to
individual annuities and universal life insurance contracts.
The impact of previous reductions in credited rates of
interest on certain contracts, primarily during 1993, was a
<PAGE>14
partial offsetting factor. As discussed under "Results of
Operations," credited rates of interest on several of the
Company's individual annuity products were increased during
the second and third quarters of 1994, and certain credited
rate increases are scheduled for implementation during the
fourth quarter. The portion of policyholder account
balances relating to individual annuities was approximately
$1.8 billion at September 30, 1994 versus $1.6 billion at
September 30, 1993, with the balance relating to universal
life insurance contracts. Interest rates credited 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." 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. Additions to
<PAGE>15
deferred policy acquisition costs amounted to $151.5 million
in the 1994 period versus $143.1 million in the 1993 period.
The increase reflected increased sales of individual life
and credit insurance products. The impact of a decline in
individual annuity sales was a partial offset. As discussed
further below, this decline in annuity sales is also
reflected in the increase in policyholder account balances
included in net cash provided by "financing" activities.
Amortization of deferred policy acquisition costs was $120.9
million for the 1994 period versus $114.6 million in the
1993 period, with the increase attributed to various factors
including a greater volume of individual annuity contracts
in force. Federal income tax payments amounted to $51.0
million in the first nine months of 1994, versus $44.2
million in the corresponding 1993 period. It is currently
anticipated that approximately $11 million of the amounts
deposited through September 30, 1994 will be applied to
fourth quarter and/or subsequent taxable income.
Net cash flows provided by consolidated financing activities
amounted to $248.2 million in the first nine months of 1994
versus $365.0 million in the corresponding 1993 period.
Increases in policyholder account balances amounted to
$208.5 million in the first nine months of 1994 versus
$348.1 million in the corresponding 1993 period. The $140
million variance was attributed primarily to the decline in
individual annuity sales, with gross premiums on single
premium annuities amounting to $189.7 million for the first
nine months of 1994 versus $288.4 million in the comparable
1993 period. The decline in annuity sales reflects previous
management actions with objectives including diversification
of sales mix and production sources. An increase in the
dollar amount of surrenders of individual annuity contracts,
reflecting the increased volume of these contracts in force,
also contributed to the smaller 1994 period net increase in
policyholder account balances.
Cash flows from financing activities for the first nine
months of 1994 reflect a refinancing transaction in which
the Company borrowed $100 million in May 1994, classified as
notes payable, under a revolving credit agreement commenced
at that time with The Bank of New York (as agent) which
provides for term loan borrowings up to $150 million. The
proceeds of this borrowing were utilized to repay $100
million "current maturities of long term debt" under a
previous two-year revolving credit facility which expired in
May 1994. See Note 6 of Notes to Financial Statements for
further information. The remaining $58 million increase in
notes payable relates primarily to working capital
requirements. Cash flows from financing activities for the
first nine months of 1993 included refinancing transactions
in which the Company issued a total of $300 million
principal amount of debt securities under shelf registration
statements. The proceeds of these issues were utilized in
<PAGE>16
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 $150 million of variable
rate bank debt.
Net cash used in investing activities amounted to $355.2
million in the first nine months of 1994, compared to $486.6
million in the corresponding 1993 period, reflecting the
greater increase in policyholder account balances in the
1993 period. The $687.4 million and $808.2 million
disposals of fixed maturity investments included in cash
flows from investing activities for the first nine months of
1994 and 1993 included, respectively, $192 million and $638
million (at cost) of securities which were called for
redemption by the respective issuers prior to maturity. The
majority of the 1994 period redemptions were experienced
during the first quarter. The remainder of the 1994 period
disposals of fixed maturities came primarily from sales of
certain lower yielding securities with the objective of
reinvestment of proceeds in securities of similar quality,
with higher available interest rates, and sales of certain
securities in accordance with asset/liability management
strategies to maintain an appropriate relationship between
the maturity distribution of investment securities and
prospective future cash flows relating to policyholder
account balances. Substantially all of the proceeds from
fixed maturities sold or redeemed were directed to
investment grade fixed maturity investments. The net impact
of these transactions through September 30, 1994 is not
anticipated to result in a material adverse impact on
consolidated net investment income of the Company.
At September 30, 1994, the Company had lines of credit with
seven banks amounting to $60 million, all of which were
unused. However, at that date, the Company had outstanding
short term borrowings with four banks, negotiated
independently of such lines to take advantage of more
favorable interest rates, in the aggregate amount of $123.5
million, as well as $100 million borrowings under a
revolving credit agreement with The Bank of New York as
discussed above. Also at that date, the Company had
available a revolving credit agreement with Chemical Bank
which provides term loan 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.
At September 30, 1994, the Company had aggregate long term
debt and Equity Capital ("Total Capitalization") of $1.251
billion versus $1.315 billion at December 31, 1993. Equity
Capital at September 30, 1994 reflects a reduction of $121.0
million for "Net unrealized losses on securities" associated
with the Company's first quarter 1994 adoption of FASB
Statement No. 115, "Accounting for Certain Investments in
<PAGE>17
Debt and Equity Securities," as discussed in Note 1 of Notes
to Financial Statements. Excluding the impact of this
adjustment, Equity Capital would have increased
approximately $56 million for the first nine months of 1994,
reflecting the Company's $73.3 million net income partially
offset by $21.3 million dividends paid to shareholders. The
Total Capitalization of $1.251 billion at September 30, 1994
consisted of $349.3 million long term debt (27.9%) and
$901.3 million Equity Capital (72.1%). At December 31,
1993, Total Capitalization of $1.315 billion consisted of
$349.2 million long term debt (26.6%) and $966.0 million
Equity Capital (73.4%). The $349.3 million outstanding long
term debt at September 30, 1994 includes issues of debt
securities with scheduled maturities of approximately $150
million in 1998, $50 million in 1999, and $150 million in
2000. The terms of the $50 million issue due in 1999
permit repayment prior to the scheduled maturity date
(commencing in June, 1996) at the option of the Company.
While it is currently anticipated that the major portion of
the long term debt will be repaid using bank borrowings or
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, borrowings and
securities issues will be dependent upon future market
conditions, future cash flows, and other unforeseen
circumstances.
Results of Operations
_____________________
Nine Months Ended September 30, 1994 compared to
Nine Months Ended September 30, 1993
For the nine months ended September 30, 1994, net income
amounted to $73.3 million versus $70.7 million for the
comparable period of 1993, an increase of $2.6 million or
3.6%. Net income for the first nine months of 1994 and 1993
included net capital gain transactions with an after-tax
impact of $253 thousand and $2.5 million, respectively. The
net capital gains reported for the 1994 period reflected
redemptions of securities by their respective issuers,
primarily during the first quarter, and disposals of
securities in accordance with the Company's asset/liability
management strategies as discussed under "Financial
Condition." The net capital gains reported for the 1993
period reflected $35.4 million pre-tax gains on disposals of
fixed maturity investments, primarily from redemptions,
which were partially offset by pre-tax losses of
approximately $4.9 million from disposal of certain real
estate, mortgage and joint venture investments as well as
additions to valuation reserves for certain investments with
loss exposure. Consolidated net income for the 1993 period
also includes a gain of $1.5 million (after applicable
taxes) from sale of a subsidiary's home office property and
<PAGE>18
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.
Excluding the transactions discussed above (capital gains
and losses, 1993 period recognition of cumulative impact of
income tax rate change, and 1993 period home office property
sale), consolidated after-tax income amounted to $73.0
million for the first nine months of 1994 versus $68.7
million for the corresponding 1993 period, an increase of
$4.3 million or 6.3%. On a similar basis, after-tax income
of the life insurance subsidiaries increased $5.6 million or
5.9%. This increase came primarily from an increase in pre-
tax profits from the individual life and annuity product
line, accompanied by improved results from the credit life
and disability lines and alleviation of certain expenses
which negatively impacted 1993 period group health results
from "association" business, as discussed below. Also on a
similar basis, after-tax corporate charges (including the
operating results of USLIFE's servicing units) amounted to
$27.7 million in the first nine months of 1994, versus $26.4
million reported for the comparable 1993 period, with higher
interest rates applicable to short term borrowings during
the 1994 period a significant factor. 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. In October
1994, the Company's Board of Directors extended its
authorization of this program, for repurchase of up to one
million common shares, through November 1995. Repurchases
may be made, at management's discretion, in the open market
or through negotiated transactions. No repurchases were
made under this program during the nine months ended
September 30, 1994 (or in the corresponding 1993 period).
Subsequently, in October 1994, a total of 140,000 shares
were purchased in various transactions with aggregate cost
of approximately $4.4 million.
As indicated above, the increase in life insurance
subsidiary after-tax income for the first nine months of
1994 versus the corresponding 1993 period is primarily
attributed to an increase in pre-tax profits from the
individual life and annuity product line, accompanied by
improved results from the credit life and disability lines
and certain group health insurance products. A discussion
of the Company's various product lines, excluding the impact
of capital gains and losses and the 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
$139.6 million for the first nine months of 1994 versus
$135.6 million for the corresponding 1993 period. The
increase of $3.9 million came primarily from more favorable
<PAGE>19
mortality and voluntary policy termination (persistency)
experience. Gains from investment income margins for the
first nine months of 1994 approximated the corresponding
1993 period. The impact on these margins from redemptions
of securities by their respective issuers and adjustments of
credited interest rates on certain products by the Company
is discussed below.
Direct written premiums for credit life insurance coverages
increased approximately $10.5 million or 17% versus the
first nine months of 1993. Pre-tax income for these
products amounted to $915 thousand for the first nine months
of 1994, versus an approximate break-even level for the
corresponding 1993 period, with the improvement attributed
primarily to more favorable mortality experience in the 1994
period. It should be noted that pre-tax profits on these
products are anticipated to be realized when currently
written premiums are earned in future periods rather than
during the period of sale.
A pre-tax profit of $3.3 million was reported for the
Company's other life insurance lines of business for the
first nine months of 1994, versus $4.3 million for the
corresponding 1993 period. These lines include employer /
association group life insurance, group mortgage life
insurance, and certain specialty and miscellaneous products.
The negative variance was attributed primarily to less
favorable results from group mortgage life insurance, and
poor 1994 period mortality results on a certain group
accidental death coverage program which has been terminated.
Pre-tax profits from employer / association group life
insurance products were $3.3 million for the 1994 period,
approximately equal to results of the corresponding 1993
period.
Pre-tax profits from the credit disability product line
amounted to $4.7 million for the first nine months of 1994,
versus $2.8 million in the corresponding 1993 period,
reflecting more favorable morbidity experience during the
1994 period.
Total pre-tax income from employer / association group
health insurance coverages amounted to $4.9 million for the
first nine months of 1994, versus $3.2 million for the
corresponding 1993 period. The favorable variance of $1.7
million came primarily from a decrease in legal and other
expenses relating to an association group health marketing
organization which had declared bankruptcy. These expenses,
which were the major contributing factor in a $3.4 million
pre-tax loss for the first nine months of 1993 ascribed to
"association" products included in the employer /
association group health line, were subsequently mitigated.
Residual expenses relating to this matter are not expected
to have a material adverse impact on consolidated results of
<PAGE>20
operations. The improvement in pre-tax earnings also
reflected more favorable morbidity experience during the
1994 period which, together with expense reduction measures,
more than offset the impact of reduced premium income on
this line. Premium income from employer / association group
health insurance coverages amounted to $302 million in the
first nine months of 1994 versus $322 million in the
corresponding 1993 period, with the decline of about $20
million or 6% associated with a higher than anticipated
level of lapses and a lower level of major medical sales
attributed to recent "community rating - open enrollment"
legislation in New York and other states. Since group life
insurance is often sold in conjunction with medical sales,
there was also a negative impact on sales of certain group
life insurance products. The New York legislation,
applicable to insured group medical plans with less than
fifty employees, 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,
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. Also 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.
A pre-tax profit of $589 thousand was reported for the
Company's other health and disability lines of business for
the first nine months of 1994, versus a pre-tax loss of $1.7
million for the corresponding 1993 period. These lines
include group mortgage disability insurance, coverages
issued upon conversion of certain group health insurance
products, and certain specialty and miscellaneous group
health and disability products. The 1993 period pre-tax
loss came primarily from unfavorable morbidity experience on
group mortgage disability insurance and certain specialty
coverages included in this product line, while the $2.3
<PAGE>21
million favorable variance reflected improvements in this
morbidity experience.
Total revenues of the life insurance subsidiaries in the
1994 period amounted to $1.218 billion, an increase of $42.7
million or 3.6% over the same period of 1993, primarily on
increases of $39.8 million (or 4.8%) and $11.5 million (or
3.6%) in premiums and considerations and net investment
income, respectively. Other income decreased $1.9 million,
reflecting the inclusion in 1993 period results of the sale
of a subsidiary's home office property as previously
discussed. The increase in premiums and considerations came
primarily from life insurance products, most significantly
the individual life insurance and annuity product line. A
decrease in employer / association group health 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 $325 million in the 1994
period, compared to $291 million in the 1993 period, with
the increase from both interest sensitive and traditional
products and reflecting a larger base of in-force business
as well as increased sales of traditional life insurance
products during the first nine months of 1994. Net
investment income of the life insurance subsidiaries
increased $11.5 million, as noted above, reflecting a larger
investment base in the 1994 period. The pre-tax annualized
yield declined from 8.31% in the 1993 period to 7.91% in the
first nine months of 1994, as a decline in market interest
rates resulted in redemptions of higher yielding securities
out of the Company's investment portfolio, particularly
during 1993 and into the first quarter of 1994 (see
"Financial Condition") and the reinvestment of proceeds from
these securities, as well as funds provided from operations,
at lower available interest rates. In this connection, it
should be noted that the Company's interest sensitive life
insurance and annuity contracts are subject to periodic
adjustment of credited interest rates which are determined
by management based on factors including available market
interest rates and portfolio rates of return. Investment
income gains represent the spread between interest earned on
the investment portfolio and interest credited to
policyholders. These gains, on certain products, benefited
during 1993 as reductions in credited rates of interest were
implemented at selected dates as contractually permitted
while reductions in investment income arising from bond
redemptions by the respective issuers were experienced over
the course of the year. During the 1994 period, these
investment income gains tended to stabilize rather than
increase, due to realization of the full impact of the
investment income reductions associated with the earlier
redemptions. During the second and third quarters of 1994,
first year credited interest rates offered on several of the
Company's deferred and immediate annuity contracts were
<PAGE>22
increased, with the amount of increase varying based on the
type of contract. Additionally, as of July 1, 1994, the
Company increased credited renewal rates of interest from
4.50% to 4.75%, effective at the anniversary dates of the
affected contracts, for certain annuity products
representing about two-thirds of the Company's deferred
annuities in force at that date. First year rates on these
products were similarly adjusted, commencing at that date.
The credited renewal rate of interest was subsequently
increased from 4.75% to 5.50%, effective in September 1994,
for certain annuity products representing about 20% of the
Company's deferred annuity contracts then in force, and
certain additional rate increases (primarily on selected
annuity products) are scheduled for implementation during
the fourth quarter. The prospective impact of these rate
adjustments on reported results will be dependent upon
various factors including future sales, surrender levels,
and investment portfolio yield.
Total benefits and expenses of the life insurance
subsidiaries increased $41.9 million or 4.1% over the same
period of 1993. Benefits to policyholders and beneficiaries
amounted to $544.6 million in the 1994 period, versus $546.5
million in the 1993 period. The decrease came primarily
from reduced group health insurance volume, particularly in
major medical business, relating to policy lapses attributed
to the impact of recent state legislation as previously
discussed. Interest credited to policyholder account
balances increased $7.3 million (or 5.3%), reflecting the
increased volume of universal life-type and individual
annuity contracts in the 1994 period with the impact of
reductions in credited rates of interest on certain
contracts, primarily during 1993, a partial offsetting
factor. Interest rates credited on the Company's deferred
annuity contracts, exclusive of first year increments on
certain products, were typically at the 5% level during the
1993 period and slightly below that level during the 1994
period. Interest rates credited on the Company's universal
life insurance contracts typically ranged from 7.5% to 6.5%
during the 1993 period and from 7.0% to 6.0% during the 1994
period. An increase in future policy benefits of $53.5
million was recorded for the 1994 period, versus $25.4
million for the corresponding 1993 period, with the $28.1
million variance primarily associated with increases in
premiums on traditional individual life and credit insurance
coverages. Amortization of deferred policy acquisition
costs increased to $120.9 million in the 1994 period from
$114.6 million in the corresponding 1993 period, reflecting
various factors including the increased volume of individual
life and annuity business in force during the 1994 period.
An aggregate increase of $2.1 million or 1.1% was recorded
in commissions, general expenses, and insurance taxes and
licenses. Volume related increases from the individual life
and credit life and disability insurance lines of business
<PAGE>23
were partially offset by decreases associated with reduced
group health insurance volume and alleviation of legal and
other expenses relating to the bankruptcy of an association
group health marketing organization, as discussed above.
At September 30, 1994, consolidated invested assets included
approximately $227 million (based on adjusted cost) 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 $221 million at September 30,
1994 and, based on market value, represent approximately 3%
of consolidated total assets at that date. See Note 2 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 May, 1993, the Financial Accounting Standards Board
(FASB) issued Statement No. 114, "Accounting by Creditors
for Impairment of a Loan." Certain accounting and
disclosure requirements contained in Statement No. 114 were
modified by FASB Statement No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and
Disclosures," issued in October 1994. These Statements must
be adopted by calendar year enterprises no later than
January 1995 and will require a writedown to fair value, as
defined by FASB, 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 these Statements,
they are not anticipated to have a material impact on the
Company's reported financial position or results of
operations.
Three Months Ended September 30, 1994 compared to
Three Months Ended September 30, 1993
For the three months ended September 30, 1994, net income
amounted to $25.5 million versus $26.5 million for the
comparable period of 1993, a decrease of $1.0 million or
3.8%. Capital gains and losses had no material impact on
reported results of operations for the third quarter of
1994, while third quarter 1993 net income included net
capital gain transactions with an after-tax impact of $3.2
million. The 1993 period net capital gains reflected $11.7
million pre-tax gains on disposals of fixed maturity
investments, primarily from redemptions, which were
partially offset by pre-tax losses on disposal of certain
<PAGE>24
real estate investments and by additions to valuation
reserves for certain investments with loss exposure.
Consolidated net income for the third quarter of 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.
Excluding the transactions discussed above (capital gains
and losses, 1993 period recognition of cumulative impact of
income tax rate change, and 1993 period home office property
sale), consolidated after-tax income amounted to $25.6
million for the third quarter of 1994 versus $23.9 million
for the corresponding 1993 period, an increase of $1.7
million or 7.1%. On a similar basis, after-tax income of
the life insurance subsidiaries increased $3.2 million or
10.2%. This increase came primarily from an increase in
pre-tax profits from the individual life and annuity product
line, accompanied by improved results from credit life
insurance coverages. Also on a similar basis, after-tax
corporate charges (including the operating results of
USLIFE's servicing units) amounted to $9.6 million in the
third quarter of 1994, versus $8.0 million for the
comparable 1993 period. The negative variance of $1.5
million reflects various factors including higher interest
rates applicable to outstanding short term debt during the
1994 period.
As indicated above, the increase in life insurance
subsidiary after-tax income for the third quarter of 1994
versus the corresponding 1993 period is primarily attributed
to an increase in pre-tax profits from the individual life
and annuity product line, accompanied by improved results
from credit life insurance coverages. A discussion of the
Company's various product lines, excluding the impact of
capital gains and losses and the subsidiary home office sale
which have been previously discussed, follows.
Individual life and annuity pre-tax profits, including
income attributable to capital and surplus, amounted to
$46.9 million for the third quarter of 1994 versus $43.8
million for the corresponding 1993 period. The increase of
$3.1 million was attributed to improved mortality and
voluntary policy termination (persistency) experience as
well as improved investment income gains.
A pre-tax profit of $1.0 million was reported for the credit
life insurance line in the 1994 period, versus an
approximate break-even level for the corresponding 1993
period, primarily on improved mortality experience.
A pre-tax profit of approximately $2.2 million was reported
for the Company's other life insurance lines of business for
<PAGE>25
the third quarter of 1994 versus $1.7 million for the
corresponding 1993 period, a favorable variance of $578
thousand. These lines include employer/association group
life insurance, group mortgage life insurance, and certain
specialty and miscellaneous products. The variance was
attributed primarily to improved mortality experience on
certain specialty coverages included in this line, and
improved results on the employer / association group life
insurance line reflecting expense reductions.
Pre-tax profits from the credit disability product line
amounted to $1.9 million for the third quarter of 1994,
versus $2.1 million in the corresponding 1993 period,
reflecting less favorable morbidity experience during the
1994 period.
Total pre-tax income from employer / association group
health insurance coverages amounted to $1.1 million for the
third quarter of 1994, versus $1.6 million for the
corresponding 1993 period. The negative variance was
attributed to higher than anticipated lapses and a shortfall
in sales of small group major medical products, associated
with the impact of recent legislation at the state level as
previously discussed.
A pre-tax loss of $211 thousand was reported for the
Company's other health and disability lines of business for
the third quarter of 1994, versus a pre-tax profit of $133
thousand for the corresponding 1993 period. These lines
include group mortgage disability insurance, coverages
issued upon conversion of certain group health insurance
products, and certain specialty and miscellaneous group
health and disability products. The negative variance came
primarily from unfavorable 1994 period morbidity experience
on individual health coverages issued on group conversions
and less favorable results from certain specialty coverages
included in this product line.
Total revenues of the life insurance subsidiaries in the
1994 period amounted to $408.3 million, an increase of $15.4
million or 3.9% over the same period of 1993, primarily on
increases of $17.2 million (or 6.3%) and $5.2 million (or
4.8%) in premiums and considerations and net investment
income, respectively. Other income decreased $1.5 million,
reflecting the inclusion in 1993 period results of the sale
of a subsidiary's home office property as previously
discussed. The increase in premiums and considerations came
primarily from life insurance products, most significantly
the individual life insurance and annuity product line. A
decrease in employer / association group health 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 $112 million in the 1994
<PAGE>26
period, compared to $97 million in the 1993 period, with the
increase from both interest sensitive and traditional
products and reflecting a larger base of in-force business
as well as increased sales of traditional life insurance
products during the third quarter of 1994. Net investment
income of the life insurance subsidiaries increased $5.2
million, as noted above, reflecting a larger investment base
in the 1994 period which more than offset the impact of a
decline in investment yield as discussed above.
Total benefits and expenses of the life insurance
subsidiaries increased $19.5 million or 5.8% over the same
period of 1993. Benefits to policyholders and beneficiaries
amounted to $178.1 million in the 1994 period, versus $177.0
million in the 1993 period, as volume related increases in
benefits on individual life insurance coverages were
essentially offset by a decrease in group health insurance
benefits associated with reduced premium income in that
line. As previously discussed, the latter reduction stems
primarily from major medical business and relates to policy
lapses attributed to the impact of recent state legislation.
Interest credited to policyholder account balances increased
$2.5 million (or 5.4%), reflecting the increased volume of
universal life-type and individual annuity contracts in the
1994 period. An increase in future policy benefits of $20.9
million was recorded for the 1994 period, versus $7.5
million for the corresponding 1993 period, with the $13.4
million variance primarily associated with increases in
premiums on traditional individual life and credit insurance
coverages. Commissions, general expenses, and insurance
taxes and licenses totalled $64.0 million for the third
quarter of 1994, approximately equal to the corresponding
1993 period. Volume related increases in these accounts,
primarily from the individual life and annuity product line,
were essentially offset by a decrease in expenses associated
with reduced premium volume on group health insurance
coverages.
<PAGE>27
OTHER FINANCIAL INFORMATION
The management of USLIFE believes that all adjustments
(consisting only of normal recurring accruals and adjustments)
necessary to present fairly the consolidated financial position
of USLIFE Corporation and subsidiaries as of September 30, 1994
and December 31, 1993, the consolidated results of operations for
the nine and three month periods ended September 30, 1994 and
1993, and consolidated cash flows for the nine month periods then
ended, have been included in the accompanying financial
statements.
<PAGE>28
Part II - Other Information
Item 1. Legal Proceedings
_________________
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 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.
In an order issued on October 25, 1994, the District Court
dismissed the case with leave to reinstate after the United
States Court of Appeals for the Seventh Circuit issues its
decision in a similar case raising the same issues raised by
defendants' motion to dismiss. Because the dismissal was not
with prejudice, the plaintiffs' claims have not finally been
extinguished, but those claims are not presently pending.
Reference is made to Item 1, Legal Proceedings, in Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994
for a description of a federal court action entitled All American
Life Insurance Co. v. Doug Ruedlinger, Inc. and First Benefits,
Inc., and related actions. On September 27, 1994, the Kansas
Supreme Court denied Ruedlinger's petition for review of the
Kansas Court of Appeals' decision in the Guaranty Action awarding
All American final judgment against Ruedlinger personally for an
amount in excess of $2.4 million. There have been no other
material developments in these matters since the date of the
referenced report.
Reference is made to Item 1, Legal Proceedings, in Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1994 for a description of a federal court action entitled All
American Life Insurance Company et al. v. Beneficial Life
Insurance Company, et al. and related actions. There have been no
<PAGE>29
material developments in these matters since the date of that
report.
Reference is made to Item 1, Legal Proceedings, in Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994
for a description of a state court action entitled USLIFE Savings
and Loan Association v. Louis Wilcox, et. al. There have been no
material developments in this matter since the date of that
report.
Item 5. Other Information
_________________
On October 25, 1994, William A. Simpson, CLU, was elected by the
Board of Directors to the position of President and Chief
Executive Officer of USLIFE Corporation, effective January 1,
1995, succeeding Gordon E. Crosby, Jr., who will continue as
Chairman of the Board and the Executive Committee. Mr. Crosby
will also continue to head the Office of the Chairman.
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
Exhibit No.
___________
3 (ii) By-Laws of USLIFE Corporation, as amended and restated
on May 17, 1994 and September 27, 1994, and previously
filed as an exhibit to USLIFE Corporation's Report on
Form 8-K dated October 12, 1994, and incorporated
herein by reference.
4 Amended and Restated Rights Agreement, dated as of
September 27, 1994, between USLIFE Corporation and
Chemical Bank, the successor by merger to Manufacturers
Hanover Trust Company, as Rights Agent, and previously
filed as an exhibit to USLIFE Corporation's Report on
Form 8-K dated October 12, 1994, and incorporated
herein by reference.
27 Financial Data Schedule
(b) A Report on Form 8-K was filed on behalf of the Registrant
on October 12, 1994, reporting the Board of Directors'
approval of the By-Laws of USLIFE Corporation, as amended
and restated on May 17, 1994 and September 27, 1994, and the
Amended and Restated Rights Agreement, dated September 27,
1994, between USLIFE Corporation and Chemical Bank, the
successor by merger to Manufacturers Hanover Trust Company,
as Rights Agent.
<PAGE>30
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
USLIFE Corporation
_____________________________
(Registrant)
November 8, 1994 By /s/ Greer F. Henderson
____________________ _____________________________
Date Greer F. Henderson
Vice Chairman and
Chief Financial Officer
USLIFE Corporation
Form 10-Q for the Quarterly Period Ended September 30, 1994
Exhibit Index
Exhibit Number
Per Item 601 of
Regulation S-K
_______________
3 (ii) By-Laws of USLIFE Corporation, as amended and restated
on May 17, 1994 and September 27, 1994, and previously
filed as an exhibit to USLIFE Corporation's Report on
Form 8-K dated October 12, 1994, and incorporated
herein by reference.
4 Amended and Restated Rights Agreement, dated as of
September 27, 1994, between USLIFE Corporation and
Chemical Bank, the successor by merger to Manufacturers
Hanover Trust Company, as Rights Agent, and previously
filed as an exhibit to USLIFE Corporation's Report on
Form 8-K dated October 12, 1994, and incorporated
herein by reference.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, SUMMARY STATEMENTS OF CONSOLIDATED NET INCOME,
AND NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 30, 1994 OF
USLIFE CORPORATION AND SUBSIDIARIES FILED ON FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES TO FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<DEBT-HELD-FOR-SALE> 4,936,988
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<REAL-ESTATE> 48,402
<TOTAL-INVEST> 5,689,513
<CASH> 54,812
<RECOVER-REINSURE> 8,485
<DEFERRED-ACQUISITION> 770,844
<TOTAL-ASSETS> 6,976,315
<POLICY-LOSSES> 5,071,682
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 179,126
<POLICY-HOLDER-FUNDS> 28,075
<NOTES-PAYABLE> 572,828
<COMMON> 38,310
0
576
<OTHER-SE> 862,441
<TOTAL-LIABILITY-AND-EQUITY> 6,976,315
723,060
<INVESTMENT-INCOME> 342,854
<INVESTMENT-GAINS> 396
<OTHER-INCOME> 167,074
<BENEFITS> 741,335
<UNDERWRITING-AMORTIZATION> 120,879
<UNDERWRITING-OTHER> 256,239
<INCOME-PRETAX> 112,263
<INCOME-TAX> 38,965
<INCOME-CONTINUING> 73,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 73,298
<EPS-PRIMARY> 3.18
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