<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 March 31, 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 May 2, 1994 was 22,898,398.
<PAGE>2
USLIFE Corporation
INDEX
Page No.
________
Part I - Financial Information:
Consolidated Balance Sheets -
March 31, 1994 and December 31, 1993................... 3
Summary Statements of Consolidated Net Income -
For the Three Months Ended March 31, 1994 and 1993..... 5
Statements of Consolidated Cash Flows -
For the Three Months Ended March 31, 1994 and 1993..... 6
Notes to Financial Statements.......................... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 12
Other Financial Information............................ 22
Part II - Other Information.............................. 23
Signatures............................................... 25
<PAGE>3
<TABLE>
USLIFE Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
March 31, 1994 and December 31, 1993
(Dollar amounts in thousands except per share data)
<CAPTION>
March 31, 1994 December 31, 1993
______________ _________________
<S> <C> <C>
Assets
______
Cash:
On hand and in demand accounts............. $ 49,753 $ 60,321
Restricted funds held in escrow, etc. ..... 3,481 1,040
__________ __________
53,234 61,361
__________ __________
Invested assets (Notes 1 and 2):
Fixed maturities available for sale:
At market (cost, $4,839,846).............. 4,924,296 --
At lower of aggregate amortized cost or
market (market, $5,132,024).............. -- 4,751,681
Equity securities, at market (cost,
March 31, 1994, $9,155; December
31, 1993, $9,234)......................... 8,603 9,205
Mortgage loans............................. 342,860 361,095
Policy loans............................... 283,212 282,090
Real estate................................ 47,119 43,434
Other long term investments................ 7,526 7,534
Short term investments..................... 128,988 68,124
__________ __________
Total invested assets.................... 5,742,604 5,523,163
__________ __________
Total cash and invested assets........... 5,795,838 5,584,524
__________ __________
Deferred policy acquisition costs
(Notes 1 and 2)............................ 709,614 741,927
Other receivables (net)...................... 327,634 310,573
Property and equipment (net of accumulated
depreciation of $35,502 at March 31,
1994 and $34,444 at December 31, 1993)..... 13,503 13,756
Prepaid expenses, deferred charges and
other assets............................ 88,059 89,461
__________ __________
Total assets............................ $6,934,648 $6,740,241
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>4
<TABLE>
USLIFE Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
March 31, 1994 and December 31, 1993
(Dollar amounts in thousands except per share data)
(Continued)
<CAPTION>
March December
31, 1994 31, 1993
__________ __________
<S> <C> <C>
Liabilities and Equity Capital
______________________________
Liabilities:
Future policy benefits................................... $1,455,563 $1,453,457
Policyholder account balances............................ 3,384,975 3,322,265
Supplementary contracts without life contingencies....... 7,265 6,385
Policyholder dividend accumulations...................... 20,140 20,106
Policy and contract claims............................... 157,823 155,629
Other policy and contract liabilities.................... 29,869 28,992
Notes payable............................................ 79,500 65,500
Current maturities of long term debt..................... 100,000 100,000
Long term debt........................................... 349,266 349,235
Federal income taxes (current and deferred).............. 53,043 25,058
Accounts payable and accrued liabilities................. 272,429 234,577
__________ __________
Total liabilities................................... 5,909,873 5,761,204
__________ __________
Deferred income.......................................... 12,703 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, 2,035
shares (December 31, 1993, 2,050 shares)........... 102 103
Preferred stock, undesignated, $1.00 par value;
authorized 10,793,150 shares, issued; none
(December 31, 1993; none).......................... 0 0
Common stock, par value $1.00 per share, authorized
60,000,000 shares, issued: 38,308,941 shares
(December 31, 1993, 38,308,823 shares)............. 38,309 38,309
Paid-in surplus.......................................... 126,099 125,268
Net unrealized gains on securities (Notes 1 and 2)....... 28,438 --
Net unrealized losses on marketable
equity securities (Notes 1 and 2)................... -- (29)
Retained earnings........................................ 1,159,285 1,142,694
__________ __________
1,352,715 1,306,827
Less: Treasury stock, at cost - March 31, 1994:
15,620,449 Common shares; December 31, 1993:
15,650,354 Common shares........................ 339,765 339,825
Deferred compensation............................. 878 973
__________ __________
Total Equity Capital..................................... 1,012,072 966,029
__________ __________
Total liabilities and Equity Capital..................... $6,934,648 $6,740,241
========== ==========
Equity Capital per share (Note 3)........................ $44.10 $42.11
====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE>5
<TABLE>
USLIFE Corporation and Subsidiaries
Summary Statements of Consolidated Net Income (Unaudited)
For the Three Months Ended March 31, 1994 and 1993
(Amounts in thousands except per share)
<CAPTION>
Three Months Ended March 31
____________________________
1994 1993
______ ______
<S> <C> <C>
REVENUES:
Premiums................................................. $ 227,196 $ 225,937
Other considerations..................................... 44,530 41,160
Net investment income.................................... 111,419 109,681
Realized gains (losses) on investments................... 403 (1,018)
Other income............................................. 7,174 7,052
__________ __________
Total revenues........................................ 390,722 382,812
__________ __________
BENEFITS AND EXPENSES:
Benefits to policyholders and beneficiaries.............. 180,262 188,195
Commissions, net of deferred expenses.................... 35,679 32,890
Other expenses and taxes, net of deferred expenses....... 41,466 44,795
Increase in liability for future policy benefits......... 3,682 (2,009)
Interest credited to policyholder account balances....... 46,782 44,549
Amortization of deferred policy acquisition costs........ 37,650 33,855
Interest expense......................................... 7,981 8,871
Dividends to policyholders............................... 923 925
__________ __________
Total benefits and expenses........................... 354,425 352,071
__________ __________
Income from operations before Federal income taxes.......... 36,297 30,741
Provision for income taxes.................................. 12,673 10,279
__________ __________
Net income.................................................. $ 23,624 $ 20,462
========== ==========
Net income per share (Note 4)............................... $ 1.03 $ .90
========== ==========
Dividends per share:
Common................................................... $ .31 $ .30
========== ==========
Preferred Series A....................................... $ 1.125 $ 1.125
========== ==========
Preferred Series B....................................... $ 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 Three Months Ended March 31, 1994 and 1993
(Amounts in Thousands)
<CAPTION>
Three Months Ended March 31
_____________________________
1994 1993
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 23,624 $ 20,462
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in liability for future policy benefits........ 4,385 16,183
Interest credited to policyholder account balances.... 46,782 44,549
Amounts assessed from policyholder account balances... (34,719) (31,594)
Additions to deferred policy acquisition costs........ (40,665) (41,110)
Amortization of deferred policy acquisition costs..... 37,650 33,855
Additions to deferred charges......................... (1,683) (1,443)
Deferred Federal income taxes......................... (5,084) (6,318)
Depreciation and amortization......................... 3,134 3,038
Change in amounts due policyholders................... 3,591 (6,066)
Change in other liabilities and amounts receivable.... 14,084 76,698
Change in restricted cash............................. (2,441) (92)
Change in current Federal income tax liability........ 17,757 16,597
Other, net............................................ 5,995 5,416
___________ ___________
Total adjustments................................ 48,786 109,713
___________ ___________
Net cash provided by operating activities... 72,410 130,175
___________ ___________
Cash flows from investing activities:
Change in policy loans.................................. (1,122) 333
Cost of investments sold, redeemed or matured:
Fixed maturities.................................... 266,720 186,559
Equity securities................................... 79 1,209
Mortgage loan principal receipts.................... 16,135 8,272
Real estate......................................... 487 2,060
Other long term investments......................... 99 1,175
Expenditures for property and equipment................. (844) (603)
Cost of investments purchased:
Fixed maturities.................................... (359,683) (417,707)
Mortgage loans...................................... (2,100) (1,650)
Real estate......................................... (283) (1,161)
Other long term investments......................... (91) (827)
Net purchases of short term investments............. (60,864) (23,831)
Other, net............................................ 3 6
___________ ___________
Net cash used in investing activities....... (141,464) (246,165)
___________ ___________
Cash flows from financing activities:
Issuance of debt securities........................... -- 150,000
Repayment of debt securities.......................... -- (150,000)
Increase in long term debt............................ 31 256
Increase in notes payable............................. 14,000 11,000
Dividends to shareholders............................. (7,033) (6,764)
Acquisition of treasury stock......................... (982) (1,120)
Change in policyholder account balances............... 50,649 110,455
Other, net............................................ 1,821 1,574
___________ ___________
Net cash provided by financing activities... 58,486 115,401
___________ ___________
Net change in cash.................................. (10,568) (589)
Cash at beginning of year............................. 60,321 74,574
___________ ___________
Cash at end of period................................. $ 49,753 $ 73,985
=========== ===========
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 exceeds 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 three months ended March 31, 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 $64.6 million reduction in valuation
allowance for deferred policy acquisition costs, $11.9 million adjustment
of certain policyholder liabilities, and $77.0 million deferred
federal income tax impact............................................... (142,969)
_________
Net unrealized gain on securities at March 31, 1994....................... $ 28,438
=========
</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 March 31, 1994 and December
31, 1993. These securities are carried in the accompanying
balance sheets at market value as of March 31, 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 March 31, 1994 and December 31, 1993. The cost
and market value of the Company's consolidated investments in
Fixed Maturities and Equity Securities at March 31, 1994 and
December 31, 1993 are presented below:
<PAGE>9
<TABLE>
<CAPTION>
Net
Unrealized
Adjusted Gain
Cost Market (Loss)
___________ _________ __________
<S> <C> <C> <C>
March 31, 1994:
Fixed Maturities...................... $4,839,846 $4,924,296 $ 84,450
Equity Securities..................... 9,155 8,603 (552)
__________
83,898
Valuation allowance for deferred
policy acquisition costs relating to
unrealized gain on fixed maturities.. (35,328)
Adjustment of certain policyholder
liabilities relating to unrealized
gain on fixed maturities............. (4,820)
Tax effect............................ (15,312)
__________
Net unrealized gain on securities
included in Equity Capital.......... $28,438
==========
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 March 31, 1994, consolidated invested assets included $187
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 $185
million at March 31, 1994 and, based on market value, represent
less than 3% of consolidated total assets at that date.
Approximately $27 million of these investments (at market,
approximately equal to adjusted cost) are classified as problem
securities at that date and, of that amount, approximately $18
million (at market) represented securities in default at March
31, 1994. Also at March 31, 1994, the book value of mortgage
loans included in consolidated total assets which were 60 days or
more delinquent or in foreclosure was approximately $28 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 March 31, 1994 and December 31, 1993, the number
of such shares used for this purpose was 22.950 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 three month periods ended March 31, 1994 and 1993:
<TABLE>
<CAPTION>
Three Months Ended
March 31
__________________
1994 1993
____ ____
(Shares and Amounts in Thousands
except Per Share data)
<S> <C> <C>
Net income......................................... $ 23,624 $ 20,462
======== ========
Weighted average common shares
outstanding, net of treasury shares.............. 22,661 22,513
Add - common share equivalents of:
Preferred Stock - Series A....................... 39 45
Preferred Stock - Series B....................... 16 17
Outstanding stock options - treasury stock method 206 219
______ ______
Total common shares and common equivalent shares... 22,922 22,794
====== ======
Net income per share............................... $ 1.03 $ .90
====== ======
</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:
March 31, December
1994 31, 1993
_________ _________
(Amounts in Thousands)
Reinsurance receivables - paid claims... $ 12,812 $ 11,914
Other reinsurance recoverable amounts... 123,341 123,009
________ ________
$136,153 $134,923
======== ========
The effect of reinsurance on premiums, other considerations, and
benefits to policyholders and beneficiaries, is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
___________________________
1994 1993
________ ________
(Amounts in Thousands)
<S> <C> <C>
Premiums, before reinsurance ceded......... $243,940 $246,245
Premiums ceded............................. 16,744 20,308
________ ________
Net premiums............................... $227,196 $225,937
======== ========
Other considerations, before reinsurance
ceded................................... $ 48,020 $ 43,602
Other considerations ceded................. 3,490 2,442
________ ________
Net other considerations................... $ 44,530 $ 41,160
======== ========
Benefits to policyholders and beneficiaries,
before reinsurance recoveries............ $196,042 $200,308
Reinsurance recoveries..................... 15,780 12,113
________ ________
Benefits to policyholders and beneficiaries,
net of reinsurance recoveries............ $180,262 $188,195
======== ========
</TABLE>
<PAGE>12
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 quarter of 1994 was $70.7 million.
On a consolidated basis, net cash provided by operating
activities amounted to $72.4 million for the first quarter
of 1994, compared to $130.2 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 $58.3 million in the first
quarter of 1994 versus $53.5 million in the corresponding
1993 period. First quarter 1994 cash flows from operating
activities included $8.0 million from the aggregate change
in liability for future policy benefits and amounts due
policyholders, versus $10.1 million in the corresponding
1993 period, reflecting various factors including timing
fluctuation in claims payments. Interest credited to
policyholder account balances increased to $46.8 million in
the first quarter of 1994 versus $44.5 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>13
approximately $1.7 billion at March 31, 1994 versus $1.5
billion at March 31, 1993, with the balance relating to
universal life insurance contracts. Interest rates paid on
these universal life and individual annuity contracts may be
adjusted periodically by the Company. Subject to any
applicable surrender charges, the Company's universal life
insurance products and individual annuities may be
surrendered by the holder. A cash surrender value, based on
contractual terms, is also available to the policyholder
upon surrender of many of the Company's traditional
individual life insurance policies under which cash values
are accumulated. Such surrenders are influenced by various
factors including economic conditions, available alternative
investment returns, competition for investment and insurance
funds, and perceived financial strength of the insurer.
These contracts are generally supported by the Company's
investment portfolios, which are primarily comprised of
investment grade, publicly traded corporate bonds.
Substantially all of the Company's interest sensitive life
insurance and annuity contracts provide for imposition of a
surrender charge in the event of policy surrender during a
specified initial period commencing with contract inception,
typically ten to fifteen years for universal life insurance
and five to seven years for individual annuities, with the
significance of this charge often subject to reduction over
the applicable period or during the later portion thereof.
The Company's investment portfolios are continually
monitored to determine whether the distribution of
investment maturities is considered appropriate for expected
levels of policy surrenders. The Company's fixed maturity
investments may be sold prior to maturity as part of the
Company's asset / liability management strategy and are
classified as "available for sale." 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 or
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 $3.0 million
in the 1994 period versus $7.3 million in the 1993 period.
The decline of approximately $4 million reflected a lower
level of individual annuity sales during the 1994 period
which, as discussed further below, is also reflected in the
increase in policyholder account balances included in net
cash provided by "financing" activities. Increased
<PAGE>14
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 $58.5 million in the first quarter of 1994
versus $115.4 million in the corresponding 1993 period.
Increases in policyholder account balances amounted to $50.6
million in the first quarter of 1994 versus $110.5 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 $60 million
variance. Reflecting this management action, gross premiums
on single premium annuities for the first quarter of 1994
amounted to $38.9 million versus $94.2 million for the
corresponding 1993 period. Cash flows from financing
activities for the first quarter of 1994 reflect a $14.0
million increase in notes payable, compared to an $11.0
million increase in the 1993 period. These increases in
notes payable related primarily to working capital
requirements. Cash flows from financing activities for the
first quarter of 1993 included refinancing transactions in
which the Company issued $150 million principal amount of
debt securities under a shelf registration statement and
utilized the proceeds 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.
Net cash used in investing activities amounted to $141.5
million in the first quarter of 1994, compared to $246.2
million in the corresponding 1993 period, reflecting the
greater increase in policyholder account balances in the
1993 period. The $266.7 million and $186.6 million
disposals of fixed maturity investments included in cash
flows from investing activities for the first quarter of
1994 and 1993 included, respectively, $112 million and $138
million (at cost) of securities which were called for
redemption by the respective issuers prior to maturity.
Fixed 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.
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 current
rates is discussed under "Results of Operations."
<PAGE>15
At March 31, 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 three banks,
negotiated independently of such lines to take advantage of
more favorable interest rates, in the aggregate amount of
$79.5 million. Also at that date, the Company had available
a bank revolving credit agreement 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 March 31, 1994, the Company had aggregate long term debt
(less current maturities) and Equity Capital ("Total
Capitalization") of $1.361 billion versus $1.315 billion at
December 31, 1993. Equity Capital at March 31, 1994
includes $28.4 million "Net unrealized gains 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. The remainder of the
increase in Total Capitalization, approximately $17.6
million, relates primarily to the increase in Equity Capital
attributed to the Company's $23.6 million net income for the
first quarter less $7.0 million dividends on its common
stock during the period. The Company's $100 million
"Current maturities of long term debt" represents
outstanding borrowings under a revolving credit facility
which requires that all borrowings thereunder must mature no
later than May, 1994. It is anticipated that these
borrowings will be repaid using proceeds from bank revolving
credit facilities which are currently being finalized. The
Total Capitalization of $1.361 billion at March 31, 1994
consisted of $349.3 million long term debt (25.7%) and
$1.012 billion Equity Capital (74.3%). 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 March 31, 1994 includes issues of debt
securities with scheduled maturities of approximately $150
million in 1998, $50 million in 1999, and $150 million in
2000. The terms of the $50 million issue due in 1999
permit repayment prior to the scheduled maturity date
(commencing in June, 1996) at the option of the Company.
While it is currently anticipated that the major portion of
the long term debt will be repaid using bank borrowings or
the net proceeds of debt and/or equity or combination
securities to be issued at future dates, determination of
the timing and amount of such repayments, borrowings and
securities issues will be dependent upon future market
conditions, future cash flows, and other unforeseen
circumstances.
<PAGE>16
Results of Operations
_____________________
Three Months Ended March 31, 1994 compared to
Three Months Ended March 31, 1993
For the three months ended March 31, 1994, net income
amounted to $23.6 million versus $20.5 million for the
comparable period of 1993, an increase of $3.2 million or
15.5%. The $23.6 million net income for the first quarter
of 1994 included net capital gain transactions with an
after-tax impact of $261 thousand, while 1993 period results
included an after-tax charge of $680 thousand from net
capital loss transactions. The net capital gains reported
for the 1994 period reflected $6.0 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 $1.9 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 $7.6 million from disposals of fixed maturity
investments. As discussed under "Financial Condition," a
substantial portion of disposals of fixed maturity
investments during the first quarter 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 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 $360 thousand on
comparative first quarter results as reported.
Excluding the capital gains and losses discussed above,
consolidated after-tax income amounted to $23.4 million for
the first quarter of 1994 versus $21.1 million for the
corresponding 1993 period, an increase of $2.2 million or
10.5%. On a similar basis, after-tax income of the life
insurance subsidiaries increased $1.2 million or 4.0%. This
improvement came primarily from an increase in pre-tax
profits from the individual life and annuity product line
and a reduction in pre-tax losses from "other group health"
coverages, as discussed below. Also on a similar basis,
after-tax corporate charges (including the operating results
of USLIFE's servicing units) amounted to $8.3 million in the
first quarter of 1994 versus $9.3 million for the comparable
1993 period, resulting in a positive comparative impact of
<PAGE>17
approximately $1 million on after-tax consolidated results.
The positive variance reflects the inclusion in first
quarter 1993 results of certain amortization charges
resulting from refinancing of long term debt (as discussed
under "Financial Condition") and the 1994 period benefit
from lower interest costs attributed to the long term debt
refinancing. Subsequently, 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 partially offset the comparative impact of the
first quarter 1993 long term debt refinancing. 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 quarter of 1994
versus the corresponding 1993 period is primarily attributed
to an increase in pre-tax profits from the individual life
and annuity product line and a reduction in pre-tax losses
from "other group health" coverages. A discussion of the
Company's various product lines, excluding the impact of
capital gains and losses which are previously discussed,
follows.
Individual life and annuity pre-tax profits, including
income attributable to capital and surplus, amounted to
$44.7 million for the first quarter of 1994 versus $42.4
million for the corresponding 1993 period. The increase of
$2.2 million or 5.2% reflected favorable mortality
experience and improved voluntary policy termination
experience which, together, more than offset lower gains
from investment income margins.
A pre-tax profit of $581 thousand was reported for credit
life insurance coverages for the first quarter of 1994,
versus $1.6 million in the corresponding 1993 period,
reflecting unfavorable mortality experience during the 1994
period. Credit life insurance business in two key states,
New York and Pennsylvania, contributed to this unfavorable
mortality experience. Since these states require rate
modifications based on experience over a three-year
interval, it is anticipated that the rating formulas should
permit rate adjustments over the next several years that
take into account the current experience.
A pre-tax loss of approximately $500 thousand was reported
for the Company's group life insurance lines of business for
the first quarter of 1994 versus a pre-tax profit of $1.6
million for the corresponding 1993 period, a negative
variance of $2.1 million. The negative variance was
attributed primarily to less favorable results from
<PAGE>18
association group life insurance coverages and certain
specialty coverages, such as mortgage life insurance,
included in the "other group life" line. Pre-tax profits
from employer-employee group life insurance products were
$916 thousand for the 1994 period versus $1.1 million in the
1993 period, reflecting slightly less favorable mortality
experience.
The individual health and disability product line reported a
pre-tax profit of $83 thousand for the 1994 period, versus a
pre-tax loss of $681 thousand for the 1993 period,
reflecting unfavorable morbidity experience during the first
quarter of 1993. This product line consists primarily of
certain specialty products and coverages issued upon
conversion of certain group health insurance products.
Pre-tax profits from the credit disability product line
amounted to $1.6 million for the first quarter of 1994,
versus $531 thousand in the corresponding 1993 period,
reflecting more favorable morbidity experience during the
1994 period.
Total pre-tax income from group health insurance coverages
amounted to $2.3 million for the first quarter of 1994,
consisting of a pre-tax profit of $2.9 million from
employer-employee group health insurance products and a pre-
tax loss of $629 thousand from "other group health"
products, primarily association group health insurance. For
the corresponding 1993 period, a pre-tax profit of $118
thousand was reported for group health insurance coverages,
consisting of a pre-tax profit of $2.0 million from
employer-employee group health insurance products and a pre-
tax loss of $1.9 million from "other group health" products.
The increase in pre-tax income from employer-employee group
health insurance coverages 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-employee group health insurance coverages amounted
to approximately $97 million in the first quarter of 1994
versus $110 million in the corresponding 1993 period, with
the decline of about $13 million or 12% associated with 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,
<PAGE>19
and various health care reform proposals have emerged at the
Federal level. In response to current and anticipated
health insurance reform, the Company announced in December
1993 that it would restrict its sales of new major medical
business to 21 states, including New York, in which it has a
significant amount of in-force business, while continuing
renewals of this business in all states. Also during 1993,
a number of modifications were introduced to the Company's
stand-alone group life, long term disability and dental
insurance products with the goal of increasing the
proportion of business from non-major medical lines. Based
on preliminary analysis, the Company does not currently
anticipate a material adverse impact on its consolidated
operations to result from enacted state legislation or the
actions taken with respect to this line of business. The
Company continues to carefully monitor developments in the
health care reform area and to explore its alternatives, but
cannot predict how legislative changes at the Federal level
will affect its business in the health insurance area unless
and until such changes are adopted. The decrease in the
pre-tax loss for "other group health" products (primarily
association group health) from $1.9 million in the 1993
period to $629 thousand in the 1994 period reflected a
decline in continuing legal expenses attributed to this
line. Legal and other expenses relating to an association
group health marketing organization which declared
bankruptcy, the major contributing factor in the 1993 period
pre-tax loss, 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.
Total revenues of the life insurance subsidiaries in the
1994 period amounted to $385.4 million, an increase of $7.9
million or 2.1% over the same period of 1993, primarily on
increases of $4.7 million (or 1.8%) and $2.1 million (or
2.0%) 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-employee 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 $102 million in
the 1994 period, compared to $94 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 quarter of 1994.
Net investment income of the life insurance subsidiaries
increased $2.1 million, as noted above, reflecting a larger
investment base in the 1994 period. The pre-tax annualized
yield declined from 8.41% in the 1993 period to 7.90% in the
<PAGE>20
first quarter of 1994, as a decline in market interest rates
has resulted in redemptions of higher yielding securities
out of the Company's investment portfolio (see "Financial
Condition") and the reinvestment of proceeds from these
securities, as well as funds provided from operations, at
lower available rates. In this connection, it should be
noted that the Company's 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.
Total benefits and expenses of the life insurance
subsidiaries increased $3.4 million or 1.0% over the same
period of 1993. Benefits to policyholders and beneficiaries
amounted to $180.6 million in the 1994 period, versus $188.5
million in the 1993 period. The decrease reflects various
factors including reduced volume in the employer-employee
group health line relating to policy lapses attributed to
the impact of recent state legislation as previously
discussed and the impact of favorable mortality and
voluntary policy termination experience on individual life
coverages. Interest credited to policyholder account
balances increased $2.2 million (or 5.0%), 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 a partial offsetting factor. Interest rates
credited on the Company's deferred annuity contracts,
exclusive of first year increments on certain products, were
typically at the 5% level during the 1993 period and
slightly below that level during the 1994 period. Interest
rates credited on the Company's universal life insurance
contracts typically ranged from 7.5% to 6.5% during the 1993
period and from 7.0% to 6.0% during the 1994 period. An
increase in future policy benefits of $3.7 million was
recorded for the 1994 period, versus a decrease of $2.0
million for the corresponding 1993 period, with the $5.7
million variance primarily associated with increases in
premiums on traditional individual life and credit insurance
coverages. Amortization of deferred policy acquisition
costs increased to $37.7 million in the 1994 period from
$33.9 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 decline of $466 thousand in commissions,
general expenses, and insurance taxes and licenses reflected
the decrease in employer-employee health insurance premiums
noted earlier as well as the reduced level of legal and
other expenses relating to the "other group health" product
line.
<PAGE>21
At March 31, 1994, consolidated invested assets included
approximately $187 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 $185 million at March 31, 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>22
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 March 31, 1994 and
December 31, 1993, and the consolidated results of operations and
cash flows for the three month periods ended March 31, 1994 and
1993, have been included in the accompanying financial
statements.
<PAGE>23
Part II - Other Information
Item 1. Legal Proceedings
_________________
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 federal court action
entitled USLIFE Savings and Loan Association v. Louis Wilcox, et
al. There have been no material developments in that matter
since the date of that report.
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 federal court action
entitled All American Life Insurance Co. v. Doug Ruedlinger, Inc.
and First Benefits, Inc. and related actions and arbitration
proceedings. There have been no material developments in those
matters since the date of that report.
In April 1991, All American commenced a lawsuit against 11
subscribers to a reinsurance pool when the reinsurers failed to
honor their obligations under the reinsurance agreement.
Approximately $15.8 million of reinsured claims were in dispute.
All American's complaint sought declaratory relief, and damages
for breach of contract and the reinsurers' duty of good faith and
fair dealing (All American Life Insurance Company, et al. v.
Beneficial Life Insurance Company, et al., U.S. District Court
for the District of New Jersey). All of the defendants in the
All American action asserted counterclaims against All American
based upon its alleged failure to properly administer the
reinsured policies. Certain other common law claims were also
asserted. A total of eight of the reinsurers commenced their own
lawsuits against All American, among others, arising out of the
same transactions. Seven of those brought an action entitled
Mutual Benefit Life Insurance Company, et al. v. George G.
Zimmerman, et al., in the U.S. District Court for the District of
New Jersey. The Mutual Benefit complaint sought rescission of
the reinsurance agreement, as well as compensatory and punitive
damages, based upon asserted federal and New Jersey state RICO
claims and other common law claims for relief. All of the
defendants in the Mutual Benefit action also cross-claimed
against each other for contribution or indemnification. An
eighth reinsurer commenced a further lawsuit arising out of the
same transactions, naming All American, among others, as a
defendant (Security Benefit Life Insurance Company v. All
American Life Insurance Company, et al., U.S. District Court for
the District of New Jersey). The Security Benefit complaint
sought only rescission of the reinsurance agreement and
declaratory relief as against All American. Certain of the other
defendants in the Security Benefit action asserted cross-claims
against All American for contribution or indemnification. All of
<PAGE>24
the lawsuits were consolidated in the United States District
Court for the District of New Jersey, Newark Division. All
American has reached settlements with all of the reinsurers. All
direct claims concerning All American in the Mutual Benefit and
Security Benefit actions have been dismissed, and all statutory
cross-claims for contribution or indemnity concerning All
American have been dismissed as well. The only claim remaining
against All American is a claim for contractual indemnification
by a former third-party administrator of All American. The
consolidated actions are currently in the discovery phase and no
date for trial has been set.
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.
Item 5. Other Information
_________________
On March 22, 1994, Robert J. Casper was elected President -
Chief Operating Officer of the life insurance division of
the Company. On April 26, 1994, Gordon E. Crosby, Jr. was
elected, by the Board of Directors, to the additional
position of President of the Company and William A. Simpson
was elected President - Chief Operating Officer of the life
insurance division of the Company. On March 31, 1994, Mr.
Casper was elected Senior Vice President - Marketing.
Item 6. Exhibits and Reports on Form 8-K
________________________________
(b) No reports on Form 8-K were filed on behalf of the
Registrant during the quarter ended March 31, 1994.
<PAGE>25
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)
May 10, 1994 By /s/ Greer F. Henderson
____________________ _____________________________
Date Greer F. Henderson
Vice Chairman and
Chief Financial Officer
