<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 June 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 August 2, 1994 was 22,933,369.
<PAGE>2
USLIFE Corporation
INDEX
Page No.
________
Part I - Financial Information:
Consolidated Balance Sheets -
June 30, 1994 and December 31, 1993.................... 3
Summary Statements of Consolidated Net Income -
For the Six Months and Three Months Ended
June 30, 1994 and 1993................................. 5
Statements of Consolidated Cash Flows -
For the Six Months Ended June 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............................................... 36
<PAGE>3
<TABLE>
USLIFE Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
June 30, 1994 and December 31, 1993
(Dollar amounts in thousands except per share data)
<CAPTION>
June 30, 1994 December 31, 1993
_____________ _________________
<S> <C> <C>
Assets
______
Cash:
On hand and in demand accounts............. $ 57,040 $ 60,321
Restricted funds held in escrow, etc. ..... 1,982 1,040
__________ __________
59,022 61,361
__________ __________
Invested assets (Notes 1 and 2):
Fixed maturities available for sale:
At market (cost, $5,020,569).............. 4,917,197 --
At lower of aggregate amortized cost or
market (market, $5,132,024).............. -- 4,751,681
Equity securities, at market (cost,
June 30, 1994, $8,502; December
31, 1993, $9,234)......................... 8,169 9,205
Mortgage loans............................. 331,871 361,095
Policy loans............................... 282,510 282,090
Real estate................................ 46,468 43,434
Other long term investments................ 7,525 7,534
Short term investments..................... 88,917 68,124
__________ __________
Total invested assets.................... 5,682,657 5,523,163
__________ __________
Total cash and invested assets........... 5,741,679 5,584,524
__________ __________
Deferred policy acquisition costs
(Notes 1 and 2)............................ 757,529 741,927
Other receivables (net)...................... 330,262 310,573
Property and equipment (net of accumulated
depreciation of $35,198 at June 30,
1994 and $34,444 at December 31, 1993)..... 13,304 13,756
Prepaid expenses, deferred charges and
other assets............................ 88,957 89,461
__________ __________
Total assets............................ $6,931,731 $6,740,241
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>4
<TABLE>
USLIFE Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
June 30, 1994 and December 31, 1993
(Dollar amounts in thousands except per share data)
(Continued)
<CAPTION>
June December
30, 1994 31, 1993
__________ __________
<S> <C> <C>
Liabilities and Equity Capital
______________________________
Liabilities:
Future policy benefits................................... $1,482,505 $1,453,457
Policyholder account balances............................ 3,481,246 3,322,265
Supplementary contracts without life contingencies....... 7,723 6,385
Policyholder dividend accumulations...................... 20,096 20,106
Policy and contract claims............................... 163,378 155,629
Other policy and contract liabilities.................... 32,674 28,992
Notes payable (Note 6)................................... 210,500 65,500
Current maturities of long term debt..................... 0 100,000
Long term debt........................................... 349,296 349,235
Federal income taxes (current and deferred).............. (20,134) 25,058
Accounts payable and accrued liabilities................. 256,587 234,577
__________ __________
Total liabilities................................... 5,983,871 5,761,204
__________ __________
Deferred income.......................................... 11,967 13,008
__________ __________
Equity Capital:
Preferred stock, $4.50 Series A Convertible, $1.00
par value; authorized and outstanding, 4,815
shares (December 31, 1993, 4,815 shares)........... 482 482
Preferred stock, $5.00 Series B Convertible, $1.00
par value; authorized and outstanding, 2,025
shares (December 31, 1993, 2,050 shares)........... 101 103
Preferred stock, undesignated, $1.00 par value;
authorized 10,793,160 shares, issued; none
(December 31, 1993; none).......................... 0 0
Common stock, par value $1.00 per share, authorized
60,000,000 shares, issued: 38,309,020 shares
(December 31, 1993, 38,308,823 shares)............. 38,309 38,309
Paid-in surplus.......................................... 130,530 125,268
Net unrealized losses on securities (Notes 1 and 2)...... (66,443) --
Net unrealized losses on marketable
equity securities (Notes 1 and 2)................... -- (29)
Retained earnings........................................ 1,176,342 1,142,694
__________ __________
1,279,321 1,306,827
Less: Treasury stock, at cost - June 30, 1994:
15,395,900 Common shares; December 31, 1993:
15,650,354 Common shares........................ 335,936 339,825
Deferred compensation............................. 7,492 973
__________ __________
Total Equity Capital..................................... 935,893 966,029
__________ __________
Total liabilities and Equity Capital..................... $6,931,731 $6,740,241
========== ==========
Equity Capital per share (Note 3)........................ $40.45 $42.11
====== ======
</TABLE>
<PAGE>5
<TABLE>
USLIFE Corporation and Subsidiaries
Summary Statements of Consolidated Net Income (Unaudited)
For the Six Months and Three Months Ended June 30, 1994 and 1993
(Amounts in thousands except per share)
<CAPTION>
Six Months Ended June 30 Three Months Ended June 30
____________________________ ____________________________
1994 1993 1994 1993
______ ______ ______ ______
<S> <C> <C> <C> <C>
REVENUES:
Premiums................................................. $ 485,894 $ 470,987 $ 258,698 $ 245,050
Other considerations..................................... 92,237 84,600 47,707 43,440
Net investment income.................................... 226,213 220,321 114,794 110,640
Realized gains (losses) on investments................... 495 (983) 92 35
Other income............................................. 14,758 15,006 7,584 7,954
__________ __________ __________ __________
Total revenues........................................ 819,597 789,931 428,875 407,119
__________ __________ __________ __________
BENEFITS AND EXPENSES:
Benefits to policyholders and beneficiaries.............. 366,077 369,311 185,815 181,116
Commissions, net of deferred expenses.................... 70,646 64,975 34,967 32,085
Other expenses and taxes, net of deferred expenses....... 85,137 88,912 43,671 44,117
Increase in liability for future policy benefits......... 32,589 17,895 28,907 19,904
Interest credited to policyholder account balances....... 94,470 89,724 47,688 45,175
Amortization of deferred policy acquisition costs........ 78,389 74,626 40,739 40,771
Interest expense......................................... 16,566 16,058 8,585 7,187
Dividends to policyholders............................... 1,849 1,845 926 920
__________ __________ __________ __________
Total benefits and expenses........................... 745,723 723,346 391,298 371,275
__________ __________ __________ __________
Income from operations before Federal income taxes.......... 73,874 66,585 37,577 35,844
Provision for income taxes.................................. 26,086 22,389 13,413 12,110
__________ __________ __________ __________
Net income.................................................. $ 47,788 $ 44,196 $ 24,164 $ 23,734
========== ========== ========== ==========
Net income per share (Note 4)............................... $ 2.08 $ 1.93 $ 1.05 $ 1.03
========== ========== ========== ==========
Dividends per share:
Common................................................... $ .62 $ .60 $ .31 $ .30
========== ========== ========== ==========
Preferred Series A....................................... $ 2.25 $ 2.25 $ 1.125 $ 1.125
========== ========== ========== ==========
Preferred Series B....................................... $ 2.50 $ 2.50 $ 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 Six Months Ended June 30, 1994 and 1993
(Amounts in Thousands)
<CAPTION>
Six Months Ended June 30
____________________________
1994 1993
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 47,788 $ 44,196
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in liability for future policy benefits........ 26,804 42,722
Interest credited to policyholder account balances.... 94,470 89,724
Amounts assessed from policyholder account balances... (70,658) (63,918)
Additions to deferred policy acquisition costs........ (95,099) (93,272)
Amortization of deferred policy acquisition costs..... 78,389 74,626
Additions to deferred charges......................... (3,153) (2,677)
Deferred Federal income taxes......................... (7,809) (14,075)
Depreciation and amortization......................... 6,220 6,212
Change in amounts due policyholders................... 11,738 (16,096)
Change in other liabilities and amounts receivable.... 8,217 35,160
Change in restricted cash............................. (942) (339)
Change in current Federal income tax liability........ (1,606) 15,616
Other, net............................................ 11,773 13,930
___________ ___________
Total adjustments................................ 58,344 87,613
___________ ___________
Net cash provided by operating activities... 106,132 131,809
___________ ___________
Cash flows from investing activities:
Change in policy loans.................................. (420) 215
Cost of investments sold, redeemed or matured:
Fixed maturities.................................... 363,656 515,516
Equity securities................................... 119 6,092
Mortgage loan principal receipts.................... 30,479 14,957
Real estate......................................... 991 3,588
Other long term investments......................... 114 1,297
Expenditures for property and equipment................. (1,883) (1,142)
Cost of investments purchased:
Fixed maturities.................................... (642,878) (895,678)
Mortgage loans...................................... (6,101) (12,619)
Real estate......................................... (626) (1,689)
Other long term investments......................... (105) (1,355)
Net (purchases) or sales of short term investments.. (20,793) 22,726
Other, net............................................ 125 7
___________ ___________
Net cash used in investing activities....... (277,322) (348,085)
___________ ___________
Cash flows from financing activities:
Issuance of debt securities........................... -- 300,000
Repayment of debt securities and long term debt....... (99,939) (200,265)
Increase (decrease) in notes payable.................. 145,000 (77,000)
Dividends to shareholders............................. (14,140) (13,539)
Acquisition of treasury stock......................... (1,787) (1,450)
Change in policyholder account balances............... 135,131 210,823
Other, net............................................ 3,644 3,284
___________ ___________
Net cash provided by financing activities... 167,909 221,853
___________ ___________
Net change in cash.................................. (3,281) 5,577
Cash at beginning of year............................. 60,321 74,574
___________ ___________
Cash at end of period................................. $ 57,040 $ 80,151
=========== ===========
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 six months ended June 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 $98.8 million reduction in valuation
allowance for deferred policy acquisition costs, $19.3 million adjustment
of certain policyholder liabilities, and $128.1 million deferred
federal income tax impact............................................... (237,850)
_________
Net unrealized loss on securities at June 30, 1994........................ $( 66,443)
=========
</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 June 30, 1994 and December
31, 1993. These securities are carried in the accompanying
balance sheets at market value as of June 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 June 30, 1994 and December 31, 1993. The cost
and market value of the Company's consolidated investments in
Fixed Maturities and Equity Securities at June 30, 1994 and
December 31, 1993 are presented below:
<PAGE>9
<TABLE>
<CAPTION>
Net
Adjusted Unrealized
Cost Market Loss
___________ _________ __________
<S> <C> <C> <C>
June 30, 1994:
Fixed Maturities...................... $5,020,569 $4,917,197 $(103,372)
Equity Securities..................... 8,502 8,169 (333)
__________
(103,705)
Valuation allowance for deferred
policy acquisition costs relating
to market value adjustment for
certain fixed maturities............. (1,108)
Adjustment of certain policyholder
liabilities relating to market
value adjustment for certain
fixed maturities..................... 2,593
Tax effect............................ 35,777
__________
Net unrealized loss on securities
included in Equity Capital.......... $( 66,443)
==========
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 June 30, 1994, consolidated invested assets included $201
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 $200
million at June 30, 1994 and, based on market value, represent
less than 3% of consolidated total assets at that date.
Approximately $22 million of these investments (at market,
approximately equal to adjusted cost) are classified as problem
securities at that date and, of that amount, approximately $16
million (at market) represented securities in default at June 30,
1994. Also at June 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 $29 million, and
the book value of property acquired through foreclosure of
mortgage loans was approximately $29 million.
<PAGE>10
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 June 30, 1994 and December 31, 1993, the number of
such shares used for this purpose was 23.139 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 six and three month periods ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
__________________ __________________
1994 1993 1994 1993
____ ____ ____ ____
(Shares and Amounts in Thousands
except Per Share data)
<S> <C> <C> <C> <C>
Net income.................................... $ 47,788 $ 44,196 $ 24,164 $ 23,734
======== ======== ======== ========
Weighted average common shares
outstanding, net of treasury shares......... 22,755 22,532
Add - common share equivalents of:
Preferred Stock - Series A.................. 39 45
Preferred Stock - Series B.................. 16 17
Outstanding stock options
- treasury stock method.................. 171 278
______ ______
Total common shares and
common equivalent shares.................... 22,981 22,872
====== ======
Net income per share.......................... $ 2.08 $ 1.93 $ 1.05 $ 1.03
====== ====== ====== ======
</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:
June 30, December
1994 31, 1993
_________ _________
(Amounts in Thousands)
Reinsurance receivables - paid claims... $ 10,377 $ 11,914
Other reinsurance recoverable amounts... 130,576 123,009
________ ________
$140,953 $134,923
======== ========
The effect of reinsurance on premiums, other considerations, and
benefits to policyholders and beneficiaries, is as follows:
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30 Ended June 30
______________________ ______________________
1994 1993 1994 1993
________ ________ ________ ________
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Premiums, before reinsurance ceded......... $524,756 $511,436 $280,816 $265,191
Premiums ceded............................. 38,862 40,449 22,118 20,141
________ ________ ________ ________
Net premiums............................... $485,894 $470,987 $258,698 $245,050
======== ======== ======== ========
Other considerations, before reinsurance
ceded................................... $ 99,311 $ 90,625 $ 51,291 $ 47,023
Other considerations ceded................. 7,074 6,025 3,584 3,583
________ ________ ________ ________
Net other considerations................... $ 92,237 $ 84,600 $ 47,707 $ 43,440
======== ======== ======== ========
Benefits to policyholders and beneficiaries,
before reinsurance recoveries............ $397,764 $395,533 $201,722 $195,225
Reinsurance recoveries..................... 31,687 26,222 15,907 14,109
________ ________ ________ ________
Benefits to policyholders and beneficiaries,
net of reinsurance recoveries............ $366,077 $369,311 $185,815 $181,116
======== ======== ======== ========
</TABLE>
<PAGE>12
Note 6. Refinancing Transaction
Notes payable at June 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 half of 1994 was $113.6 million.
On a consolidated basis, net cash provided by operating
activities amounted to $106.1 million for the first half of
1994, compared to $131.8 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 $97.9 million in the first
half of 1994 versus $96.6 million in the corresponding 1993
period. First half 1994 cash flows from operating
activities included $38.5 million from the aggregate change
in liability for future policy benefits and amounts due
policyholders, versus $26.6 million in the corresponding
1993 period, reflecting various factors including timing
fluctuation in claims payments. Interest credited to
policyholder account balances increased to $94.5 million in
the first half of 1994 versus $89.7 million in the
corresponding 1993 period, 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
<PAGE>14
approximately $1.8 billion at June 30, 1994 versus $1.5
billion at June 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. Net additions to
deferred policy acquisition costs amounted to $16.7 million
in the 1994 period versus $18.6 million in the 1993 period.
The decline of approximately $2 million reflected a lower
level of individual annuity sales during the 1994 period
which offset the impact of increased sales of individual
life and credit insurance products. As discussed further
below, this decline in annuity sales is also reflected in
<PAGE>15
the increase in policyholder account balances included in
net cash provided by "financing" activities. Increased
amortization of deferred policy acquisition costs during the
1994 period, reflecting various factors including the
greater volume of individual annuity contracts in force as
indicated above, also contributed to the decline in net
additions.
Net cash flows provided by consolidated financing activities
amounted to $167.9 million in the first half of 1994 versus
$221.9 million in the corresponding 1993 period.
Increases in policyholder account balances amounted to
$135.1 million in the first half of 1994 versus $210.8
million in the corresponding 1993 period. Previous
management actions to slow the rate of individual annuity
sales, with objectives including diversification of sales
mix and production sources, was a major factor in the $76
million variance. Reflecting this management action, gross
premiums on single premium annuities for the first half of
1994 amounted to $117.0 million versus $178.8 million for
the corresponding 1993 period. Cash flows from financing
activities for the first half 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 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 $45 million increase in notes payable relates
primarily to working capital requirements. Cash flows from
financing activities for the first half 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 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 $277.3
million in the first half of 1994, compared to $348.1
million in the corresponding 1993 period, reflecting the
greater increase in policyholder account balances in the
1993 period. The $363.7 million and $515.5 million
disposals of fixed maturity investments included in cash
flows from investing activities for the first half of 1994
and 1993 included, respectively, $179 million and $446
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. Fixed maturity disposals during
<PAGE>16
the 1994 period also reflected sales of certain lower
yielding securities with the objective of reinvestment of
proceeds in securities of similar quality, with higher
available interest rates. Substantially all of the proceeds
from fixed maturities sold or redeemed were directed to
investment grade fixed maturity investments. 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 interest rates is discussed under "Results
of Operations."
At June 30, 1994, 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 six banks, negotiated independently of
such lines to take advantage of more favorable interest
rates, in the aggregate amount of $110.5 million. 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 June 30, 1994, the Company had aggregate long term debt
and Equity Capital ("Total Capitalization") of $1.285
billion versus $1.315 billion at December 31, 1993. Equity
Capital at June 30, 1994 reflects a reduction of $66.4
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
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 $36 million for the first half of 1994,
reflecting the Company's $47.8 million net income partially
offset by $14.1 million dividends paid to shareholders. The
Total Capitalization of $1.285 billion at June 30, 1994
consisted of $349.3 million long term debt (27.2%) and
$935.9 million Equity Capital (72.8%). 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 June 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
<PAGE>17
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
_____________________
Six Months Ended June 30, 1994 compared to
Six Months Ended June 30, 1993
For the six months ended June 30, 1994, net income amounted
to $47.8 million versus $44.2 million for the comparable
period of 1993, an increase of $3.6 million or 8.1%. The
$47.8 million net income for the first half of 1994 included
net capital gain transactions with an after-tax impact of
$320 thousand, while 1993 period results included an after-
tax charge of $657 thousand from net capital loss
transactions. The net capital gains reported for the 1994
period reflected $12.6 million pre-tax gains on disposals of
fixed maturity investments, which were essentially offset by
additions to valuation reserves for certain investments with
loss exposure. The net capital losses reported for the 1993
period reflected pre-tax losses of $3.0 million from
disposal of certain real estate and mortgage investments as
well as additions to valuation reserves for certain
investments with loss exposure which, together, more than
offset pre-tax capital gains of approximately $23.7 million
from disposals of fixed maturity investments. As discussed
under "Financial Condition," a substantial portion of
disposals of fixed maturity investments during the first
half of 1994 (and the corresponding 1993 period) related to
securities which were called for redemption by the
respective issuers prior to maturity. It should be noted
that reported net income for the first half of 1993, which
preceded the enactment of the Federal corporate income tax
rate increase from 34% to 35%, reflects Federal income tax
provision at the former, lower rate. It is estimated that
the tax rate increase had a negative impact of approximately
$740 thousand on comparative first half results as reported.
Excluding the capital gains and losses discussed above,
consolidated after-tax income amounted to $47.5 million for
the first half of 1994 versus $44.9 million for the
corresponding 1993 period, an increase of $2.6 million or
5.8%. On a similar basis, after-tax income of the life
insurance subsidiaries increased $2.4 million or 3.8%. This
increase came primarily from an improved results on group
health and credit disability insurance products, accompanied
by an increase in pre-tax profits from the individual life
and annuity product line, as discussed below. Also on a
<PAGE>18
similar basis, after-tax corporate charges (including the
operating results of USLIFE's servicing units) amounted to
$18.2 million in the first half of 1994, approximating the
$18.4 million reported for the comparable 1993 period.
Comparative first half results benefited from lower interest
rates on long term debt resulting from first quarter 1993
refinancings as discussed under "Financial Condition."
Subsequent to these refinancings, 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 this
refinancing offset the comparative impact of the first
quarter 1993 long term debt refinancings. 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 indicated above, the increase in life insurance
subsidiary after-tax income for the first half of 1994
versus the corresponding 1993 period is primarily attributed
to improved results on group health and credit disability
insurance products, accompanied by an increase in pre-tax
profits from the individual life and annuity product line.
A discussion of the Company's various product lines,
excluding the impact of capital gains and losses which are
previously discussed, follows.
Individual life and annuity pre-tax profits, including
income attributable to capital and surplus, amounted to
$92.7 million for the first half of 1994 versus $91.9
million for the corresponding 1993 period. The increase of
$848 thousand reflected favorable mortality experience which
more than offset slightly lower gains from investment income
margins. 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 $6.6 million or 16% versus the first
half of 1993. Pre-tax results for these products were
approximately at break-even level for the first half of both
1994 and 1993. 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 approximately $1.1 million was reported
for the Company's other life insurance lines of business for
the first half of 1994 versus $2.7 million for the
corresponding 1993 period, a negative variance of $1.6
million. These lines include employer / association group
<PAGE>19
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 is being terminated. Pre-tax profits
from employer / association group life insurance products
were $1.8 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 $2.8 million for the first half of 1994, versus
$664 thousand 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 $3.8 million for the
first half of 1994, versus $1.6 million for the
corresponding 1993 period. The favorable variance of
approximately $2 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 $2.7 million first half 1993 pre-tax loss ascribed to
"association" products included in the employer /
association group health line, were subsequently mitigated
as this matter was essentially resolved. Residual expenses
relating to this matter are not expected to have a material
adverse impact on consolidated results of 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 $205 million in the first half of 1994
versus $220 million in the corresponding 1993 period, with
the decline of about $15 million or 7% 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
<PAGE>20
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 $800 thousand was reported for the
Company's other health and disability lines of business for
the first half of 1994, versus a pre-tax loss of $1.8
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 $2.6
million favorable first half variance reflected improvements
in this morbidity experience.
Total revenues of the life insurance subsidiaries in the
1994 period amounted to $809.3 million, an increase of $27.3
million or 3.5% over the same period of 1993, primarily on
increases of $22.7 million (or 4.1%) and $6.2 million (or
2.9%) in premiums and considerations and net investment
income, respectively. 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 $213 million in
the 1994 period, compared to $194 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 half of 1994. Net
investment income of the life insurance subsidiaries
increased $6.2 million, as noted above, reflecting a larger
investment base in the 1994 period. The pre-tax annualized
yield declined from 8.39% in the 1993 period to 7.87% in the
first half of 1994, as a decline in market interest rates
<PAGE>21
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 quarter of 1994, first year
credited interest rates offered on several of the Company's
deferred and immediate annuity contracts were 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
June 30, 1994. First year rates on these products were
similarly adjusted, commencing at that date. 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 $22.4 million or 3.3% over the same
period of 1993. Benefits to policyholders and beneficiaries
amounted to $366.5 million in the 1994 period, versus $369.5
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 $4.7 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
<PAGE>22
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 $32.6
million was recorded for the 1994 period, versus $17.9
million for the corresponding 1993 period, with the $14.7
million variance primarily associated with increases in
premiums on traditional individual life and credit insurance
coverages. Amortization of deferred policy acquisition
costs increased to $78.4 million in the 1994 period from
$74.6 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 $2.2 million or 1.7% 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
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 June 30, 1994, consolidated invested assets included
approximately $201 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 $200 million at June 30, 1994
and, based on market value, represent less than 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." This Statement 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 this Statement, it is not anticipated to have a
material impact on the Company's reported financial position
or results of operations.
<PAGE>23
Three Months Ended June 30, 1994 compared to
Three Months Ended June 30, 1993
For the three months ended June 30, 1994, net income
amounted to $24.2 million versus $23.7 million for the
comparable period of 1993, an increase of $430 thousand or
1.8%. Capital gains and losses had no material impact on
reported results of operations for the second quarter of
1994 or 1993. Pre-tax gains on disposals of fixed maturity
investments, amounting to $6.6 million and $16.1 million in
the 1994 and 1993 periods, respectively, were essentially
offset by additions to valuation reserves for certain
investments with loss exposure and, in the 1993 period, a
pre-tax loss of $1.1 million on disposal of certain real
estate investments. As previously discussed, a substantial
portion of disposals of fixed maturity investments during
the second quarter of 1994 (and the corresponding 1993
period) related to securities which were called for
redemption by the respective issuers prior to maturity.
Disposals during the 1994 period also reflected sales of
certain lower yielding securities with the objective of
reinvestment of proceeds in securities of similar quality
with higher available interest rates. It should be noted
that reported net income for the second quarter of 1993,
which preceded the enactment of the Federal corporate income
tax rate increase from 34% to 35%, reflects Federal income
tax provision at the former, lower rate. It is estimated
that the tax rate increase had a negative impact of
approximately $380 thousand on comparative second quarter
results as reported.
Excluding the capital gains and losses discussed above,
consolidated after-tax income amounted to $24.1 million for
the second quarter of 1994 versus $23.7 million for the
corresponding 1993 period, an increase of $394 thousand or
1.7%. On a similar basis, after-tax income of the life
insurance subsidiaries increased $1.2 million or 3.6%. This
increase came primarily from improved results from the
credit insurance and employer / association lines as well as
group mortgage insurance products. As discussed below, pre-
tax profits from the individual life and annuity product
line declined versus the second quarter of 1993, as the
comparative 1993 period benefited from unusually favorable
mortality experience. Also on a similar basis, after-tax
corporate charges (including the operating results of
USLIFE's servicing units) amounted to $9.9 million in the
second quarter of 1994, versus $9.1 million for the
comparable 1993 period. The negative variance of $776
thousand reflects the impact on interest costs of the
Company's June 1993 refinancing of short term variable rate
bank debt with the proceeds of issuance of its 6.375% Notes
due 2000 as previously discussed, as well as higher interest
rates applicable to outstanding short term debt during the
1994 period.
<PAGE>24
As indicated above, the increase in life insurance
subsidiary after-tax income for the second quarter of 1994
versus the corresponding 1993 period is primarily attributed
to improved results from the credit insurance and employer /
association lines as well as group mortgage insurance
products. A discussion of the Company's various product
lines, excluding the impact of capital gains and losses
which are previously discussed, follows.
Individual life and annuity pre-tax profits, including
income attributable to capital and surplus, amounted to
$48.0 million for the second quarter of 1994 versus $49.4
million for the corresponding 1993 period. The negative
variance of $1.4 million reflected the benefit to second
quarter 1993 results from unusually favorable mortality
experience during that period. Although second quarter 1994
mortality experience was also favorable in comparison to
levels anticipated in product pricing, the gains from this
source were surpassed by those of the comparative 1993
period. Additionally, investment income gains were
approximately equal in the 1994 and 1993 periods, reflecting
the impact of previous redemptions of securities by their
respective issuers as previously discussed.
A pre-tax loss of $678 thousand was reported for the credit
life insurance line in the 1994 period, representing an
improvement of approximately $1 million versus second
quarter 1993 results, primarily on improved mortality
experience. Despite the comparative improvement, mortality
experience did not return to a level sufficient to result in
an overall pre-tax profit for this line during the second
quarter of 1994. Since certain 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 recent experience.
A pre-tax profit of approximately $1.6 million was reported
for the Company's other life insurance lines of business for
the second quarter of 1994 versus $1.1 million for the
corresponding 1993 period, a favorable variance of $492
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 results on the employer /
association group life insurance line, reflecting more
favorable mortality experience in the 1994 period. Poor
1994 period mortality results on a certain group accidental
death coverage program which is being terminated was a
partial offset.
Pre-tax profits from the credit disability product line
amounted to $1.2 million for the second quarter of 1994,
<PAGE>25
versus $133 thousand in the corresponding 1993 period,
reflecting an improvement in morbidity experience versus the
unfavorable experience of the second quarter of 1993.
Total pre-tax income from employer / association group
health insurance coverages amounted to $1.5 million for the
second quarter of 1994, versus $1.2 million for the
corresponding 1993 period. The variance of approximately
$300 thousand was attributed to more favorable morbidity
experience as well as alleviation of legal and other
expenses relating to an association group health marketing
organization which had declared bankruptcy, as previously
discussed.
A pre-tax profit of $786 thousand was reported for the
Company's other health and disability lines of business for
the second quarter of 1994, versus a pre-tax loss of $804
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 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 $1.6
million favorable second quarter variance reflected
improvements in this morbidity experience.
Total revenues of the life insurance subsidiaries in the
1994 period amounted to $423.9 million, an increase of $19.4
million or 4.8% over the same period of 1993, primarily on
increases of $18.0 million (or 6.2%) and $4.1 million (or
3.8%) in premiums and considerations and net investment
income, respectively. 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 period, compared to $101 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 second quarter of 1994.
Net investment income of the life insurance subsidiaries
increased $4.1 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 $19.0 million or 5.4% over the same
<PAGE>26
period of 1993. Benefits to policyholders and beneficiaries
amounted to $185.9 million in the 1994 period, versus $181.0
million in the 1993 period. The increase was primarily
attributed to a volume related increase in benefits on
individual life insurance coverages, which more than offset
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
5.6%), 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. An increase in future policy benefits of
$28.9 million was recorded for the 1994 period, versus $19.9
million for the corresponding 1993 period, with the $9.0
million variance primarily associated with increases in
premiums on traditional individual life and credit insurance
coverages. An aggregate increase of $2.6 million or 4.1%
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 were partially offset by decreases
associated with alleviation of legal and other expenses
relating to the bankruptcy of an association group health
marketing organization, as discussed above.
<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 June 30, 1994 and
December 31, 1993, the consolidated results of operations for the
six and three month periods ended June 30, 1994 and 1993, and
consolidated cash flows for the six month periods then ended,
have been included in the accompanying financial statements.
<PAGE>28
Part II - Other Information
Item 1. Legal Proceedings
_________________
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"). 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
<PAGE>29
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.
On June 24, 1994 the Kansas Court of Appeals unanimously affirmed
that judgment. Ruedlinger has filed a petition for review of the
Court of Appeals decision by the Kansas Supreme Court.
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
<PAGE>30
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 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 (as defined below)
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
<PAGE>31
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 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 totaled 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 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
<PAGE>32
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
totaling 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 totaling 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 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 that $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 malicious
prosecution was reversed. The dismissal of the cause of action
for abuse of process 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
<PAGE>33
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. The appeal is pending.
Reference is made to Part I, Item 3, Legal Proceedings, in
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 for a description of a purported class action
entitled Hoban v. USLIFE Credit Life Insurance Company, All
American Life Insurance Company and Security of America Life
Insurance Company. There have been no material developments in
this matter 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 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
material developments in these matters since the date of that
report.
Item 4. Submission of Matters to a Vote of Security Holders
___________________________________________________
The Annual Meeting of Shareholders of USLIFE Corporation was held
on May 17, 1994 at Schimmel Center, Pace University, New York,
New York. Gordon E. Crosby, Jr., Chairman of the Board, President
and Chief Executive Officer of the Corporation, presided.
The shares represented at the meeting, either in person or by
proxy, amounted to 18,721,545 or approximately 82% of the total
shares of common and preferred stock outstanding as of the record
date of March 31, 1994.
<PAGE>34
The following actions were taken by the shareholders at the
meeting:
<TABLE>
<CAPTION>
AGAINST ABSTENTIONS
OR AND BROKER
FOR WITHHELD NON-VOTES
<S> <C> <C> <C>
Election of Directors:
John W. Riehm 18,487,174 234,371 *
Christopher S. Ruisi 18,407,061 314,484 *
William G. Sharwell 18,483,878 237,667 *
Beryl W. Sprinkel 18,486,367 235,178 *
Approval of Non-Employee Directors'
Stock Option Plan 17,537,688 905,793 278,064
Approval of Annual Incentive Plan 16,337,775 2,067,142 316,628
Approval of Restricted Stock Plan,
as Amended 17,324,326 1,003,268 393,951
Approval of 1991 Stock Option Plan,
as Amended 17,448,006 957,799 315,740
Approval of Book Unit Plan, As Amended 16,956,409 1,349,200 381,735 abstentions
34,201 broker non- votes
Ratification of KPMG Peat Marwick as
the Company's Independent Auditor for
the year 1994 18,535,943 67,863 117,739
* Pursuant to New York law, abstentions and broker non-votes are not counted toward the election of
directors.
</TABLE>
<PAGE>35
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 (i) - Seventh amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as amended,
between USLIFE Corporation and Gordon E. Crosby, Jr.
(ii) - Sixth amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as amended,
between USLIFE Corporation and Greer F. Henderson.
(iii) - Sixth amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as amended,
between USLIFE Corporation and Christopher S. Ruisi.
(iv) - Fourth amendment dated as of May 1, 1994 to an
employment contract dated as of April 16, 1990, as amended,
between USLIFE Corporation and William A. Simpson.
(v) - Sixth amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as amended,
between USLIFE Corporation and A. Scott Bushey.
(vi) - Sixth amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as amended,
between USLIFE Corporation and John D. Gavrity.
(vii) - Sixth amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as amended,
between USLIFE Corporation and Wesley E. Forte.
(b) No reports on Form 8-K were filed on behalf of the
Registrant during the quarter ended June 30, 1994.
<PAGE>36
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)
August 9, 1994 By /s/ Greer F. Henderson
____________________ _____________________________
Date Greer F. Henderson
Vice Chairman and
Chief Financial Officer
<PAGE>1
USLIFE Corporation
Form 10-Q for the Quarterly Period Ended June 30, 1994
Exhibit Index
Exhibit Number
Per Item 601 of
Regulation S-K
_______________
10(i) Seventh amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as
amended, between USLIFE Corporation and Gordon E.
Crosby, Jr.
(ii) Sixth amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as
amended, between USLIFE Corporation and Greer F.
Henderson.
(iii) Sixth amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as
amended, between USLIFE Corporation and Christopher S.
Ruisi.
(iv) Fourth amendment dated as of May 1, 1994 to an
employment contract dated as of April 16, 1990, as
amended, between USLIFE Corporation and William A.
Simpson.
(v) Sixth amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as
amended, between USLIFE Corporation and A. Scott
Bushey.
(vi) Sixth amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as
amended, between USLIFE Corporation and John D.
Gavrity.
(vii) Sixth amendment dated as of May 1, 1994 to an
employment contract dated as of April 1, 1989, as
amended, between USLIFE Corporation and Wesley E.
Forte.
<PAGE>1
Item 6(a) - Exhibit 10(i)
_________________________
SEVENTH AMENDMENT TO EMPLOYMENT AGREEMENT
_________________________________________
This is a Seventh Amendment ("Seventh Amendment") dated as
of May 1, 1994 to an Employment Agreement ("Agreement") dated
April 1, 1989 between USLIFE Corporation, a New York
Corporation ("Employer") and Gordon E. Crosby ("Employee").
THE TERMS of this Seventh Amendment are:
1. Paragraph (2) of the Agreement, as amended by the
First, Second, Third, Fourth, Fifth and Sixth 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 $1,070,000 per
annum during the term of the Agreement, in equal monthly
installments, 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. In
addition, Employee is entitled to participate in the Annual
Incentive Plan adopted by Employer, under which Employee is
entitled to receive a bonus of up to 75% of his "base salary",
as further described in the letter to Employee which is
attached hereto and incorporated by reference herein, if the
applicable performance criteria are satisfied. For the
purposes of the preceding sentence, "base salary" shall mean
Employee's base salary as in effect on January 1 of a given
year, but in no event shall base salary for such purposes be
deemed to exceed Employee's actual base salary as in effect on
January 1, 1994 increased at the rate of 15% per year.
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 Seventh
Amendment, all other provisions of the Agreement, as amended by
the First, Second, Third, Fourth, Fifth and Sixth Amendments,
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Seventh
Amendment to the Agreement on the date first set forth above.
USLIFE Corporation
By: /s/ Christopher S. Ruisi
________________________________
Christopher S. Ruisi
Vice Chairman and Chief
Administrative Officer
/s/ Gordon E. Crosby, Jr.
________________________________
Gordon E. Crosby, Jr.
<PAGE>2
June 8, 1994
Mr. Gordon E. Crosby, Jr.
Chairman of the Board, President
and Chief Executive Officer
USLIFE Corporation
125 Maiden Lane
New York, NY 10038
Dear Gordon:
I am pleased to inform you that you have been selected by the
Executive Compensation and Nominating Committee of USLIFE
Corporation ("Committee") to participate during 1994 in the
Annual Incentive Plan which was approved by the shareholders at
the 1994 Annual Meeting. A copy of the Plan is attached for
your review.
The Plan is intended to provide additional compensation in the
form of an annual cash bonus to key officers of USLIFE and its
subsidiaries tied to the profitability of the company's core
individual lines of business, including individual life and
individual investment contracts. Participation in the Plan is
limited to a very small number of officers who have had, and
who are expected to continue to have, a significant impact on
the company's performance.
The Committee has approved financial performance targets
related to income from USLIFE's core business, as defined in
Section 2(c) of the plan, for 1994. These targets include a
threshold level of $115,760,000 equal to 70% of the average
amount of income earned during 1991 through 1993. If 1994
income is less than this threshold, no bonus payment will be
made to any participant in the Plan.
Assuming actual 1994 income equals $115,760,000, the threshold
level, you will be eligible to receive a bonus equal to 35% of
your base salary, in accordance with Section 5 of the Plan. As
1994 income exceeds the threshold level, your potential bonus
opportunity will also increase up to a maximum award of 75% of
base salary. For each $2,000,000 of income earned in excess of
the threshold income level, your potential bonus award will
increase by 1% of salary. Potential bonus awards at various
levels of income appear in the table below:
<PAGE>3
June 8, 1994
Mr. Gordon E. Crosby, Jr.
Page 2
1994 Income Potential Bonus
($000) as a Percent of Salary
$115,760 35%
$125,760 40%
$135,760 45%
$145,760 50%
$155,760 55%
$165,760 60%
$175,760 65%
$185,760 70%
$195,760 or more 75%
If 1994 income equals an intermediate amount not specifically
shown on the table, your potential bonus will be adjusted up or
down using straight-line interpolation.
When the 1994 financial results for the company's core business
are known, they will be reviewed and certified by the
Committee. The Committee retains the sole discretion to make
awards under the Plan. As detailed in Section 6(b), the
Committee may decide to award a smaller amount than that
indicated solely by 1994 income, or to make no award at all, to
recognize other aspects of company performance or your
individual performance. The Committee's decisions on
individual awards will be communicated to you and any award
payments will be made no later than April 30, 1995.
If you wish to make an election to defer all or a portion of
any incentive award you might earn for 1994, please fill out a
deferral election form and return it to Richard G. Hohn by June
30, 1994.
Sincerely,
/s/ Christopher S. Ruisi
Christopher S. Ruisi
cc: Mr. R. Hohn
<PAGE>1
Item 6(a) - Exhibit 10(ii)
__________________________
SIXTH AMENDMENT TO EMPLOYMENT AGREEMENT
_______________________________________
This is a Sixth Amendment ("Sixth Amendment") dated as of
May 1, 1994 to an Employment Agreement ("Agreement") dated
April 1, 1989 between USLIFE Corporation, a New York
Corporation ("Employer") and Greer F. Henderson ("Employee").
THE TERMS of this Sixth Amendment are:
1. Paragraph (2) of the Agreement, as amended by the
First, Second, Third, Fourth and Fifth 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 $525,000 per
annum during the term of the Agreement, in equal monthly
installments, plus an annual lump sum bonus payment of $25,000,
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. In addition, Employee shall be
entitled to participate in the Annual Incentive Plan adopted by
Employer, under which Employee shall be entitled to receive a
bonus of up to 40% of his "base salary", as further described
in the letter to Employee, which is attached hereto and
incorporated by reference herein, if the applicable performance
criteria are satisfied. For the purposes of the preceding
sentence, "base salary" shall mean Employee's base salary as in
effect on January 1 of a given year, but in no event shall base
salary for such purposes be deemed to exceed Employee's actual
base salary as in effect on January 1, 1994 increased at the
rate of 15% per year.
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 Sixth Amendment,
all other provisions of the Agreement, as amended by the First,
Second, Third, Fourth, and Fifth Amendments, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Sixth
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/ Greer F. Henderson
________________________________
Greer F. Henderson
<PAGE>2
June 8, 1994
Mr. Greer F. Henderson
Vice Chairman and Chief Financial Officer
USLIFE Corporation
3600 Route 66
Neptune, NJ 07754
Dear Greer:
I am pleased to inform you that you have been selected by the
Executive Compensation and Nominating Committee of USLIFE
Corporation ("Committee") to participate during 1994 in the
Annual Incentive Plan which was approved by the shareholders at
the 1994 Annual Meeting. A copy of the Plan is attached for
your review.
The Plan is intended to provide additional compensation in the
form of an annual cash bonus to key officers of USLIFE and its
subsidiaries tied to the profitability of the company's core
individual lines of business, including individual life and
individual investment contracts. Participation in the Plan is
limited to a very small number of officers who have had, and
who are expected to continue to have, a significant impact on
the company's performance.
The Committee has approved financial performance targets
related to income from USLIFE's core business, as defined in
Section 2(c) of the plan, for 1994. These targets include a
threshold level of $115,760,000 equal to 70% of the average
amount of income earned during 1991 through 1993. If 1994
income is less than this threshold, no bonus payment will be
made to any participant in the Plan.
Assuming actual 1994 income falls within the range of
$115,760,000, the threshold level, and $177,137,000, the income
earned by the company's core business during 1993, you will be
eligible to receive a bonus equal to 10% of your annual base
salary, in accordance with Section 5 of the Plan. As 1994
income exceeds 1993 income, your potential bonus opportunity
will also increase up to a maximum award of 40% of base salary.
For each $500,000 of income earned in excess of 1993 income of
<PAGE>3
June 8, 1994
Mr. Greer F. Henderson
Page 2
$177,137,000, your potential bonus award will increase by 1% of
salary. Potential bonus awards at various levels of income
appear in the table below:
1994 Income Potential Bonus
($000) as a Percent of Salary
$177,637 11%
$179,637 15%
$182,137 20%
$184,637 25%
$187,137 30%
$189,637 35%
$192,137 or more 40%
If 1994 income equals an intermediate amount not specifically
shown on the table, your potential bonus will be adjusted up or
down using straight-line interpolation.
When the 1994 financial results for the company's core business
are known, they will be reviewed and certified by the
Committee. The Committee retains the sole discretion to make
awards under the Plan. As detailed in Section 6(b), the
Committee may decide to award a smaller amount than that
indicated solely by 1994 income, or to make no award at all, to
recognize other aspects of company performance or your
individual performance. The Committee's decisions on
individual awards will be communicated to you and any award
payments will be made no later than April 30, 1995.
If you wish to make an election to defer all or a portion of
any incentive award you might earn for 1994, please fill out a
deferral election form and return it to Richard G. Hohn by June
30, 1994.
Again, my congratulations on your selection as a participant in
the Plan. I am sure that you will continue to give your best
efforts toward making 1994 a profitable year for USLIFE
Corporation and its shareholders.
Sincerely,
/s/ Gordon E. Crosby, Jr.
Gordon E. Crosby, Jr.
cc: Messrs. C. Ruisi
R. Hohn
<PAGE>1
Item 6(a) - Exhibit 10(iii)
___________________________
SIXTH AMENDMENT TO EMPLOYMENT AGREEMENT
_______________________________________
This is a Sixth Amendment ("Sixth Amendment") dated as of
May 1, 1994 to an Employment Agreement ("Agreement") dated
April 1, 1989 between USLIFE Corporation, a New York
Corporation ("Employer") and Christopher S. Ruisi ("Employee").
THE TERMS of this Sixth Amendment are:
1. Paragraph (2) of the Agreement, as amended by the
First, Second, Third, Fourth and Fifth 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 $340,000 per
annum during the term of the Agreement, in equal monthly
installments, plus an annual lump sum bonus payment of $30,000,
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. In addition, Employee shall be
entitled to participate in the Annual Incentive Plan adopted by
Employer, under which Employee shall be entitled to receive a
bonus of up to 40% of his "base salary", as further described
in the letter to Employee, which is attached hereto and
incorporated by reference herein, if the applicable performance
criteria are satisfied. For the purposes of the preceding
sentence, "base salary" shall mean Employee's base salary as in
effect on January 1 of a given year, but in no event shall base
salary for such purposes be deemed to exceed Employee's actual
base salary as in effect on January 1, 1994 increased at the
rate of 15% per year.
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 Sixth Amendment,
all other provisions of the Agreement, as amended by the First,
Second, Third, Fourth, and Fifth Amendments, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Sixth
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/ Christopher S. Ruisi
________________________________
Christopher S. Ruisi
<PAGE>2
June 8, 1994
Mr. Christopher S. Ruisi
Vice Chairman and Chief Administrative Officer
USLIFE Corporation
3600 Route 66
Neptune, NJ 07754
Dear Chris:
I am pleased to inform you that you have been selected by the
Executive Compensation and Nominating Committee of USLIFE
Corporation ("Committee") to participate during 1994 in the
Annual Incentive Plan which was approved by the shareholders at
the 1994 Annual Meeting. A copy of the Plan is attached for
your review.
The Plan is intended to provide additional compensation in the
form of an annual cash bonus to key officers of USLIFE and its
subsidiaries tied to the profitability of the company's core
individual lines of business, including individual life and
individual investment contracts. Participation in the Plan is
limited to a very small number of officers who have had, and
who are expected to continue to have, a significant impact on
the company's performance.
The Committee has approved financial performance targets
related to income from USLIFE's core business, as defined in
Section 2(c) of the plan, for 1994. These targets include a
threshold level of $115,760,000 equal to 70% of the average
amount of income earned during 1991 through 1993. If 1994
income is less than this threshold, no bonus payment will be
made to any participant in the Plan.
Assuming actual 1994 income falls within the range of
$115,760,000, the threshold level, and $177,137,000, the income
earned by the company's core business during 1993, you will be
eligible to receive a bonus equal to 10% of your annual base
salary, in accordance with Section 5 of the Plan. As 1994
income exceeds 1993 income, your potential bonus opportunity
will also increase up to a maximum award of 40% of base salary.
For each $500,000 of income earned in excess of 1993 income of
<PAGE>3
June 8, 1994
Mr. Christopher S. Ruisi
Page 2
$177,137,000, your potential bonus award will increase by 1% of
salary. Potential bonus awards at various levels of income
appear in the table below:
1994 Income Potential Bonus
($000) as a Percent of Salary
$177,637 11%
$179,637 15%
$182,137 20%
$184,637 25%
$187,137 30%
$189,637 35%
$192,137 or more 40%
If 1994 income equals an intermediate amount not specifically
shown on the table, your potential bonus will be adjusted up or
down using straight-line interpolation.
When the 1994 financial results for the company's core business
are known, they will be reviewed and certified by the
Committee. The Committee retains the sole discretion to make
awards under the Plan. As detailed in Section 6(b), the
Committee may decide to award a smaller amount than that
indicated solely by 1994 income, or to make no award at all, to
recognize other aspects of company performance or your
individual performance. The Committee's decisions on
individual awards will be communicated to you and any award
payments will be made no later than April 30, 1995.
If you wish to make an election to defer all or a portion of
any incentive award you might earn for 1994, please fill out a
deferral election form and return it to Richard G. Hohn by June
30, 1994.
Again, my congratulations on your selection as a participant in
the Plan. I am sure that you will continue to give your best
efforts toward making 1994 a profitable year for USLIFE
Corporation and its shareholders.
Sincerely,
/s/ Gordon E. Crosby, Jr.
Gordon E. Crosby, Jr.
cc: Messrs. C. Ruisi
R. Hohn
<PAGE>1
Item 6(a) - Exhibit 10(iv)
__________________________
FOURTH AMENDMENT TO EMPLOYMENT AGREEMENT
________________________________________
This is a Fourth Amendment ("Fourth Amendment") dated as of
May 1, 1994 to an Employment Agreement ("Agreement") dated
April 16, 1990 between USLIFE Corporation, a New York
Corporation ("Employer") and William A. Simpson ("Employee").
THE TERMS of this Fourth Amendment are:
1. Paragraph (2) of the Agreement, as amended by the
First, Second and Third 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 $440,000 per
annum during the term of the Agreement, in equal monthly
installments, plus an annual lump sum bonus payment of $45,000,
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. In addition, Employee shall be
entitled to participate in the Annual Incentive Plan adopted by
Employer, under which Employee shall be entitled to receive a
bonus of up to 40% of his "base salary", as further described
in the letter to Employee, which is attached hereto and
incorporated by reference herein, if the applicable performance
criteria are satisfied. For the purposes of the preceding
sentence, "base salary" shall mean Employee's base salary as in
effect on January 1 of a given year, but in no event shall base
salary for such purposes be deemed to exceed Employee's actual
base salary as in effect on January 1, 1994 increased at the
rate of 15% per year.
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 Fourth
Amendment, all other provisions of the Agreement, as amended by
the First, Second and Third Amendments, shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have executed this Fourth
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/ William A. Simpson
________________________________
William A. Simpson
<PAGE>2
June 8, 1994
Mr. William A. Simpson
President and Chief Executive Officer
All American Life Insurance Company
245 South Los Robles
Pasadena, CA 91101
Dear Bill:
I am pleased to inform you that you have been selected by the
Executive Compensation and Nominating Committee of USLIFE
Corporation ("Committee") to participate during 1994 in the
Annual Incentive Plan which was approved by the shareholders at
the 1994 Annual Meeting. A copy of the Plan is attached for
your review.
The Plan is intended to provide additional compensation in the
form of an annual cash bonus to key officers of USLIFE and its
subsidiaries tied to the profitability of the company's core
individual lines of business, including individual life and
individual investment contracts. Participation in the Plan is
limited to a very small number of officers who have had, and
who are expected to continue to have, a significant impact on
the company's performance.
The Committee has approved financial performance targets
related to income from USLIFE's core business, as defined in
Section 2(c) of the plan, for 1994. These targets include a
threshold level of $115,760,000 equal to 70% of the average
amount of income earned during 1991 through 1993. If 1994
income is less than this threshold, no bonus payment will be
made to any participant in the Plan.
Assuming actual 1994 income falls within the range of
$115,760,000, the threshold level, and $177,137,000, the income
earned by the company's core business during 1993, you will be
eligible to receive a bonus equal to 10% of your annual base
salary, in accordance with Section 5 of the Plan. As 1994
income exceeds 1993 income, your potential bonus opportunity
will also increase up to a maximum award of 40% of base salary.
For each $500,000 of income earned in excess of 1993 income of
<PAGE>3
June 8, 1994
Mr. William A. Simpson
Page 2
$177,137,000, your potential bonus award will increase by 1% of
salary. Potential bonus awards at various levels of income
appear in the table below:
1994 Income Potential Bonus
($000) as a Percent of Salary
$177,637 11%
$179,637 15%
$182,137 20%
$184,637 25%
$187,137 30%
$189,637 35%
$192,137 or more 40%
If 1994 income equals an intermediate amount not specifically
shown on the table, your potential bonus will be adjusted up or
down using straight-line interpolation.
When the 1994 financial results for the company's core business
are known, they will be reviewed and certified by the
Committee. The Committee retains the sole discretion to make
awards under the Plan. As detailed in Section 6(b), the
Committee may decide to award a smaller amount than that
indicated solely by 1994 income, or to make no award at all, to
recognize other aspects of company performance or your
individual performance. The Committee's decisions on
individual awards will be communicated to you and any award
payments will be made no later than April 30, 1995.
If you wish to make an election to defer all or a portion of
any incentive award you might earn for 1994, please fill out a
deferral election form and return it to Richard G. Hohn by June
30, 1994.
Again, my congratulations on your selection as a participant in
the Plan. I am sure that you will continue to give your best
efforts toward making 1994 a profitable year for USLIFE
Corporation and its shareholders.
Sincerely,
/s/ Gordon E. Crosby, Jr.
Gordon E. Crosby, Jr.
cc: Messrs. C. Ruisi
R. Hohn
<PAGE>1
Item 6(a) - Exhibit 10(v)
_________________________
SIXTH AMENDMENT TO EMPLOYMENT AGREEMENT
_______________________________________
This is a Sixth Amendment ("Sixth Amendment") dated as of
May 1, 1994 to an Employment Agreement ("Agreement") dated
April 1, 1989 between USLIFE Corporation, a New York
Corporation ("Employer") and A. Scott Bushey ("Employee").
THE TERMS of this Sixth Amendment are:
1. Paragraph (2) of the Agreement, as amended by the
First, Second, Third, Fourth and Fifth 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 $190,800 per
annum during the term of the 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 Sixth Amendment,
all other provisions of the Agreement, as amended by the First,
Second, Third, Fourth, and Fifth Amendments, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Sixth
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/ A. Scott Bushey
________________________________
A. Scott Bushey
<PAGE>1
Item 6(a) - Exhibit 10(vi)
__________________________
SIXTH AMENDMENT TO EMPLOYMENT AGREEMENT
_______________________________________
This is a Sixth Amendment ("Sixth Amendment") dated as of
May 1, 1994 to an Employment Agreement ("Agreement") dated
April 1, 1989 between USLIFE Corporation, a New York
Corporation ("Employer") and John D. Gavrity ("Employee").
THE TERMS of this Sixth Amendment are:
1. Paragraph (2) of the Agreement, as amended by the
First, Second, Third, Fourth and Fifth 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 $250,000 per
annum during the term of the 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 Sixth Amendment,
all other provisions of the Agreement, as amended by the First,
Second, Third, Fourth, and Fifth Amendments, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Sixth
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/ John D. Gavrity
________________________________
John D. Gavrity
<PAGE>1
Item 6(a) - Exhibit 10(vii)
___________________________
SIXTH AMENDMENT TO EMPLOYMENT AGREEMENT
_______________________________________
This is a Sixth Amendment ("Sixth Amendment") dated as of
May 1, 1994 to an Employment Agreement ("Agreement") dated
April 1, 1989 between USLIFE Corporation, a New York
Corporation ("Employer") and Wesley E. Forte ("Employee").
THE TERMS of this Sixth Amendment are:
1. Paragraph (2) of the Agreement, as amended by the
First, Second, Third, Fourth and Fifth 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 $330,000 per
annum during the term of the Agreement, in equal monthly
installments, plus an annual lump sum bonus payment of $20,000,
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 Sixth Amendment,
all other provisions of the Agreement, as amended by the First,
Second, Third, Fourth, and Fifth Amendments, shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties have executed this Sixth
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
