<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, 1995 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, 1995 was 22,920,949.
<PAGE>2
USLIFE Corporation
INDEX
Page No.
________
Part I - Financial Information:
Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994................... 3
Summary Statements of Consolidated Net Income -
For the Three Months Ended March 31, 1995 and 1994..... 5
Statements of Consolidated Cash Flows -
For the Three Months Ended March 31, 1995 and 1994..... 6
Notes to Financial Statements.......................... 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 11
Other Financial Information............................ 21
Part II - Other Information.............................. 22
Signatures............................................... 23
<PAGE>3
<TABLE>
USLIFE Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
March 31, 1995 and December 31, 1994
(Dollar amounts in thousands except per share data)
<CAPTION>
March 31, 1995 December 31, 1994
______________ _________________
<S> <C> <C>
Assets
______
Cash:
On hand and in demand accounts............. $ 55,460 $ 51,878
Restricted funds held in escrow, etc. ..... 1,841 1,653
__________ __________
57,301 53,531
__________ __________
Invested assets (Notes 1 and 2):
Fixed maturities available for sale, at
market (cost, March 31, 1995, $5,334,122;
December 31, 1994, $5,190,230)............ 5,267,180 4,937,867
Equity securities, at market (cost,
March 31, 1995, $5,580; December
31, 1994, $5,344)......................... 4,985 4,583
Mortgage loans............................. 306,625 319,618
Policy loans............................... 281,633 283,088
Real estate................................ 33,616 41,688
Other long term investments................ 7,491 7,400
Short term investments..................... 103,502 129,335
__________ __________
Total invested assets.................... 6,005,032 5,723,579
__________ __________
Total cash and invested assets........... 6,062,333 5,777,110
__________ __________
Deferred policy acquisition costs
(Note 2)................................... 760,139 793,145
Other receivables (net)...................... 345,498 331,035
Property and equipment (net of accumulated
depreciation of $38,393 at March 31, 1995
and $37,367 at December 31, 1994).......... 11,989 11,953
Prepaid expenses, deferred charges and
other assets............................ 90,191 91,019
__________ __________
Total assets............................ $7,270,150 $7,004,262
========== ==========
See accompanying notes to financial statements.
</TABLE>
<PAGE>4
<TABLE>
USLIFE Corporation and Subsidiaries
Consolidated Balance Sheets (Unaudited)
March 31, 1995 and December 31, 1994
(Dollar amounts in thousands except per share data)
(continued)
<CAPTION>
March December
31, 1995 31, 1994
__________ __________
<S> <C> <C>
Liabilities and Equity Capital
______________________________
Liabilities:
Future policy benefits................................... $1,548,301 $1,531,996
Policyholder account balances............................ 3,687,623 3,641,393
Supplementary contracts without life contingencies....... 9,202 8,329
Policyholder dividend accumulations...................... 20,221 20,178
Policy and contract claims............................... 153,106 155,048
Other policy and contract liabilities.................... 31,302 31,265
Notes payable............................................ 216,000 196,500
Long term debt........................................... 349,392 349,360
Federal income taxes (current and deferred).............. (12,500) (69,018)
Accounts payable and accrued liabilities................. 272,706 250,577
__________ __________
Total liabilities................................... 6,275,353 6,115,628
__________ __________
Deferred income.......................................... 9,694 10,746
__________ __________
Equity Capital:
Preferred stock, $4.50 Series A Convertible, $1.00
par value; authorized and outstanding, 4,484
shares (December 31, 1994, 4,653 shares)........... 448 465
Preferred stock, $5.00 Series B Convertible, $1.00
par value; authorized and outstanding, 1,868
shares (December 31, 1994, 2,003 shares)........... 93 100
Preferred stock, undesignated, $1.00 par value;
authorized 10,793,648 shares, issued; none
(December 31, 1994; none).......................... 0 0
Common stock, par value $1.00 per share, authorized
60,000,000 shares, issued: 38,312,919 shares
(December 31, 1994, 38,310,490 shares)............. 38,313 38,310
Paid-in surplus.......................................... 132,741 131,823
Net unrealized losses on securities (Note 2)............. (67,649) (156,248)
Retained earnings........................................ 1,226,824 1,210,078
__________ __________
1,330,770 1,224,528
Less: Treasury stock, at cost - March 31, 1995:
15,439,847 Common shares; December 31, 1994:
15,493,148 Common shares........................ 339,416 339,972
Deferred compensation............................. 6,251 6,668
__________ __________
Total Equity Capital..................................... 985,103 877,888
__________ __________
Total liabilities and Equity Capital..................... $7,270,150 $7,004,262
========== ==========
Equity Capital per share (Note 3)........................ $42.69 $38.15
====== ======
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, 1995 and 1994
(Amounts in thousands except per share)
<CAPTION>
Three Months Ended March 31
____________________________
1995 1994
______ ______
<S> <C> <C>
REVENUES:
Premiums................................................. $ 232,736 $ 227,196
Other considerations..................................... 57,884 44,530
Net investment income.................................... 120,338 111,419
Realized gains on investments............................ 397 403
Other income............................................. 7,474 7,174
__________ __________
Total revenues........................................ 418,829 390,722
__________ __________
BENEFITS AND EXPENSES:
Benefits to policyholders and beneficiaries.............. 180,527 180,262
Commissions, net of deferred expenses.................... 37,402 35,679
Other expenses and taxes, net of deferred expenses....... 45,557 41,466
Increase in liability for future policy benefits......... 16,106 3,682
Interest credited to policyholder account balances....... 50,953 46,782
Amortization of deferred policy acquisition costs........ 40,983 37,650
Interest expense......................................... 9,671 7,981
Dividends to policyholders............................... 861 923
__________ __________
Total benefits and expenses........................... 382,060 354,425
__________ __________
Income from operations before Federal income taxes.......... 36,769 36,297
Provision for income taxes.................................. 12,479 12,673
__________ __________
Net income.................................................. $ 24,290 $ 23,624
========== ==========
Net income per share (Note 4)............................... $ 1.05 $ 1.03
========== ==========
Dividends per share:
Common................................................... $ .33 $ .31
========== ==========
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, 1995 and 1994
(Amounts in Thousands)
<CAPTION>
Three Months Ended March 31
_____________________________
1995 1994
____ ____
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 24,290 $ 23,624
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in liability for future policy benefits........ 14,200 4,385
Interest credited to policyholder account balances.... 50,953 46,782
Amounts assessed from policyholder account balances... (39,131) (34,719)
Additions to deferred policy acquisition costs........ (52,831) (40,665)
Amortization of deferred policy acquisition costs..... 40,983 37,650
Additions to deferred charges......................... (851) (1,683)
Deferred Federal income taxes......................... (1,468) (5,084)
Depreciation and amortization......................... 3,116 3,134
Change in amounts due policyholders................... (1,359) 3,591
Change in other liabilities and amounts receivable.... 5,743 14,084
Net realized capital gains............................ (397) (403)
Change in restricted cash............................. (188) (2,441)
Change in current Federal income tax liability........ 10,278 17,757
Other, net............................................ (1,439) 895
___________ ___________
Total adjustments................................ 27,609 43,283
___________ ___________
Net cash provided by operating activities... 51,899 66,907
___________ ___________
Cash flows from investing activities:
Change in policy loans.................................. 1,455 (1,122)
Proceeds from investments sold, redeemed or matured:
Fixed maturities.................................... 102,780 272,701
Equity securities................................... 116 112
Mortgage loan principal receipts.................... 18,708 16,135
Real estate......................................... 7,980 181
Other long term investments......................... 627 99
Expenditures for property and equipment................. (1,084) (844)
Cost of investments purchased:
Fixed maturities.................................... (247,092) (359,683)
Mortgage loans...................................... (5,706) (2,100)
Real estate......................................... (496) (283)
Other long term investments......................... -- (91)
Net sales or (purchases) of short term investments.. 25,833 (60,864)
Other, net............................................ 1,214 (202)
___________ ___________
Net cash used in investing activities....... (95,665) (135,961)
___________ ___________
Cash flows from financing activities:
Increase in notes payable............................. 19,500 14,000
Dividends to shareholders............................. (7,544) (7,033)
Acquisition of treasury stock......................... (890) (982)
Change in policyholder account balances............... 34,380 50,649
Other, net............................................ 1,902 1,852
___________ ___________
Net cash provided by financing activities... 47,348 58,486
___________ ___________
Net change in cash.................................. 3,582 (10,568)
Cash at beginning of year............................. 51,878 60,321
___________ ___________
Cash at end of period................................. $ 55,460 $ 49,753
=========== ===========
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 January 1, 1995, the Company adopted Statement of
Financial Accounting Standards No. 114 ("SFAS 114"), entitled
"Accounting by Creditors for Impairment of a Loan," as modified
by FASB Statement No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures."
These Statements require a writedown to fair value, as defined by
Statement No. 114, for certain mortgage loans and similar
investments where impairment results in a change in repayment
terms. The adoption of these Statements did not have a material
impact on the Company's reported financial position or results of
operations.
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" and is carried in the
accompanying balance sheets at market value. The Company's
investments in preferred stocks (other than redeemable preferred
stocks) and common stocks ("Equity Securities") are also carried
at market value in the accompanying balance sheets. Unrealized
gains and losses on "available for sale" securities, except those
relating to a reduction in value determined to be other than
temporary, are recorded as direct charges or credits to "Net
unrealized gains (losses) on securities" included in Equity
Capital. The cost and market value of the Company's consolidated
investments in Fixed Maturities and Equity Securities at March
31, 1995 and December 31, 1994 are presented below:
<PAGE>8
<TABLE>
<CAPTION>
Net
Adjusted Unrealized
Cost Market Loss
___________ _________ __________
(Amounts in Thousands)
<S> <C> <C> <C>
March 31, 1995:
Fixed Maturities......................... $5,334,122 $5,267,180 $ (66,942)
Equity Securities........................ 5,580 4,985 (595)
__________
(67,537)
Adjustment of deferred policy acquisition
costs relating to market value
adjustment for certain fixed maturities (39,033)
Adjustment of certain policyholder
liabilities relating to market value
adjustment for certain fixed maturities 2,495
Tax effect............................... 36,426
__________
Net unrealized loss on securities
included in Equity Capital............. $ (67,649)
==========
December 31, 1994:
Fixed Maturities......................... $5,190,230 $4,937,867 $(252,363)
Equity Securities........................ 5,344 4,583 (761)
__________
(253,124)
Adjustment of deferred policy acquisition
costs relating to market value
adjustment for certain fixed maturities 5,821
Adjustment of certain policyholder
liabilities relating to market value
adjustment for certain fixed maturities 6,921
Tax effect............................... 84,134
__________
Net unrealized loss on securities
included in Equity Capital............. $(156,248)
==========
</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, 1995, consolidated invested assets included $235
million (at market, approximately equal to adjusted cost) of less
than investment grade corporate securities, based on ratings
assigned by recognized rating agencies and insurance regulatory
authorities. Based on market value, these securities represent
3% of consolidated total assets at that date. Approximately $7
million of these investments (at market; adjusted cost $8
million) are in default at March 31, 1995. Also at March 31,
1995, the book value of mortgage loans included in consolidated
total assets which were 60 days or more delinquent or in
foreclosure was approximately $11 million, and the book value of
property acquired through foreclosure of mortgage loans was
approximately $24 million.
<PAGE>9
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, 1995 and December 31, 1994, the number
of such shares used for this purpose was 23.076 million and
23.010 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, 1995 and 1994:
<TABLE>
<CAPTION>
Three Months Ended
March 31
__________________
1995 1994
____ ____
(Shares and Amounts in Thousands
except Per Share data)
<S> <C> <C>
Net income......................................... $ 24,290 $ 23,624
======== ========
Weighted average common shares
outstanding, net of treasury shares.............. 22,845 22,661
Add - common share equivalents of:
Preferred Stock - Series A....................... 37 39
Preferred Stock - Series B....................... 15 16
Outstanding stock options - treasury stock method 152 206
______ ______
Total common shares and common equivalent shares... 23,049 22,922
====== ======
Net income per share............................... $ 1.05 $ 1.03
====== ======
</TABLE>
<PAGE>10
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
1995 31, 1994
_________ _________
(Amounts in Thousands)
Reinsurance receivables - paid claims... $ 8,637 $ 8,865
Other reinsurance recoverable amounts... 129,090 128,252
________ ________
$137,727 $137,117
======== ========
The effect of reinsurance on premiums, other considerations, and
benefits to policyholders and beneficiaries, is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31
___________________________
1995 1994
________ ________
(Amounts in Thousands)
<S> <C> <C>
Premiums, before reinsurance ceded......... $250,796 $243,940
Premiums ceded............................. 18,060 16,744
________ ________
Net premiums............................... $232,736 $227,196
======== ========
Other considerations, before reinsurance
ceded................................... $ 61,914 $ 48,020
Other considerations ceded................. 4,030 3,490
________ ________
Net other considerations................... $ 57,884 $ 44,530
======== ========
Benefits to policyholders and beneficiaries,
before reinsurance recoveries............ $192,942 $196,042
Reinsurance recoveries..................... 12,415 15,780
________ ________
Benefits to policyholders and beneficiaries,
net of reinsurance recoveries............ $180,527 $180,262
======== ========
</TABLE>
<PAGE>11
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 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 and
amounts due policyholders, all of which are subject to
random fluctuations from the timing of securities
transaction settlements, claims payments and similar
matters, net cash provided by operating activities of the
life insurance subsidiaries for the first quarter of 1995
was $57.7 million.
On a consolidated basis, net cash provided by operating
activities amounted to $51.9 million for the first quarter
of 1995, compared to $66.9 million for the corresponding
period of 1994. As indicated above, these amounts reflect
changes in accounts that are subject to random timing
fluctuations. Excluding the impact of changes in these
accounts, net cash provided by consolidated operating
activities amounted to $47.5 million in the first quarter of
1995 versus $49.2 million in the corresponding 1994 period.
First quarter 1995 cash flows from operating activities
included $14.2 million from the change in liability for
future policy benefits, versus $4.4 million in the
corresponding 1994 period, reflecting increased sales of
term insurance and single premium immediate annuities in the
first quarter of 1995.
Interest credited to policyholder account balances increased
to $51.0 million in the first quarter of 1995 versus $46.8
million in the corresponding 1994 period, reflecting the
increase in policyholder account balances relating to
<PAGE>12
individual annuities and universal life insurance contracts.
The portion of policyholder account balances relating to
individual annuities was approximately $1.8 billion at March
31, 1995 versus $1.7 billion at March 31, 1994, 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
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.
<PAGE>13
Net additions to deferred policy acquisition costs amounted
to $11.8 million in the 1995 period versus $3.0 million in
the 1994 period. The increase of approximately $9 million
came primarily from greater individual life insurance sales
in the 1995 period. New annualized premiums for traditional
individual life products (primarily term insurance)
increased $5.4 million or 49% over the corresponding 1994
period, while sales of interest-sensitive life insurance
products increased $4.4 million or 32% over that period.
Net cash used in investing activities amounted to $95.7
million in the first quarter of 1995, compared to $136.0
million in the corresponding 1994 period. The decrease
reflected a greater level of individual annuity surrenders
during the first quarter of 1995 which reduced the increase
in policyholder account balances. The increase in
policyholder account balances amounted to $34.4 million in
the first quarter of 1995, versus $50.6 million in the
corresponding 1994 period, despite the aforementioned
increase in interest sensitive life insurance sales which
was accompanied by an increase of about $8 million in
individual annuity gross deposits. The impact of these
sales results was offset by an increase in individual
annuity surrender benefits from $38 million in the 1994
period to $65 million in the first quarter of 1995,
reflecting factors including a greater volume of annuity
contracts in force and increased interest rates available to
consumers on certain alternative investments. It should be
noted that the major portion of these surrenders resulted in
imposition of a surrender charge by the Company as
contractually permitted and consequently, these surrenders
did not have an adverse impact upon first quarter 1995
consolidated results of operations.
The $102.8 million and $272.7 million disposals of fixed
maturity investments included in cash flows from investing
activities for the first quarter of 1995 and 1994 included,
respectively, $19 million and $112 million (at cost) of
securities which were called for redemption by the
respective issuers prior to maturity. Fixed maturity
disposals 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, and sales of certain non-performing
securities. Substantially all of the proceeds from fixed
maturities sold or redeemed were directed to investment
grade fixed maturity investments.
Net cash flows provided by consolidated financing activities
amounted to $47.3 million in the first quarter of 1995
versus $58.5 million in the corresponding 1994 period,
reflecting the smaller 1995 period increase in policyholder
account balances discussed above.
<PAGE>14
Cash flows from financing activities for the first quarter
of 1995 reflect a $19.5 million increase in notes payable,
compared to a $14.0 million increase in the 1994 period.
These increases in notes payable related primarily to
working capital requirements.
At March 31, 1995, 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 four banks,
negotiated independently of such lines to take advantage of
more favorable interest rates, in the aggregate amount of
$66.0 million. The Company's remaining short term
borrowings at March 31, 1995 consisted of $150 million
outstanding under a revolving credit agreement with The Bank
of New York. In April 1995, the term of the latter
agreement was extended to April 1996.
Also at March 31, 1995, 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. In February 1995, the term of
this agreement was extended to February 1997.
The Company's short term borrowings are utilized primarily
for working capital requirements.
Long term debt at March 31, 1995 includes a $150 million
non-callable issue of 6.75% Notes due 1998 and a $150
million non-callable issue of 6.375% Notes due 2000. The
Company has filed a shelf registration statement which
permits the issuance of up to $150 million principal amount
of debt securities subject to management's discretion as to
timing and amount of issues thereunder. The Company's
remaining long term debt at March 31, 1995 consists of a $50
million issue of 9.15% Notes due 1999 which permits early
repayment at the option of the Company, commencing in 1996.
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.
Consolidated interest expense increased to $9.7 million in
the first quarter of 1995 from $8.0 million in the
corresponding 1994 period, primarily as a result of an
increase of more than 250 basis points in interest rates
applicable to the Company's short term borrowings.
Dividends paid on the Company's outstanding stock issues
<PAGE>15
amounted to $7.5 million in the first quarter of 1995 versus
$7.0 million in the first quarter of 1994, reflecting the
increase in common stock quarterly dividends per share from
31 cents to 33 cents in late 1994.
Results of Operations
_____________________
Three Months Ended March 31, 1995 compared to
Three Months Ended March 31, 1994
For the three months ended March 31, 1995, net income
amounted to $24.3 million versus $23.6 million for the
comparable period of 1994, an increase of $666 thousand or
2.8%.
Net income for the first quarter of 1995 and 1994 included
net capital gain transactions with an after-tax impact of
$258 thousand and $261 thousand, respectively. Capital
gains and losses during the first quarter of 1995 reflect
disposals of non-performing securities with adjusted cost of
approximately $12 million, as well as several real estate
properties that were acquired through foreclosure, with
aggregate cost of approximately $12 million. Since reserves
had been previously recorded to recognize the reduction in
value of these investments, these disposals did not have a
material impact on current reported results. The net
capital gains reported for the 1994 period reflected $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.
Excluding the capital gains and losses discussed above,
consolidated after-tax income amounted to $24.0 million for
the first quarter of 1995 versus $23.4 million for the
corresponding 1994 period, an increase of $669 thousand or
2.9%. On a similar basis, after-tax income of the life
insurance subsidiaries increased $2.5 million or 8.0%. Also
on a similar basis, after-tax corporate charges (including
the operating results of USLIFE's servicing units) amounted
to $10.2 million in the first quarter of 1995 versus $8.3
million for the comparable 1994 period, resulting in a
negative comparative impact of approximately $2 million on
after-tax consolidated results that partially offset the
improvement in life insurance subsidiary results.
The improvement in life insurance subsidiary results came
primarily from increases in pre-tax profits from the
individual life and annuity product line and
employer/association group life insurance products,
<PAGE>16
partially offset by less favorable results from the credit
life insurance and group health insurance lines.
The negative variance in corporate charges reflected
increased interest expense at the corporate level. The
Company's consolidated interest expense, which increased to
$9.7 million in the first quarter of 1995 from $8.0 million
in the corresponding 1994 period, relates to borrowings at
the parent company level for general corporate purposes
including treasury stock repurchases. As discussed under
"Financial Condition," an increase of more than 250 basis
points in interest rates applicable to the Company's short
term borrowings was the primary cause of the increase in
interest expense for the first quarter.
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
$49.4 million for the first quarter of 1995 versus $44.7
million for the corresponding 1994 period. The increase of
$4.8 million or 10.7% reflected contributions from major
sources of profit including mortality experience, investment
income and expense absorption.
A pre-tax loss of $565 thousand was reported for credit life
insurance coverages for the first quarter of 1995, versus a
pre-tax profit of $581 thousand in the corresponding 1994
period. The negative variance of $1.1 million came
primarily from poor mortality experienced in a number of
large accounts during the first quarter of 1995 that
previously had favorable experience. Management believes
that the current period experience represents a random
adverse fluctuation.
Pre-tax profits from the Company's group life insurance
lines of business amounted to $1.8 million for the first
quarter of 1995, versus a pre-tax loss of approximately $500
thousand for the corresponding 1994 period, for a positive
variance of $2.3 million. Pre-tax income from
employer/association group life insurance products increased
approximately $1.7 million, from $179 thousand in the first
quarter of 1994 to $1.9 million in the 1995 period, on
improved mortality experience. A favorable variance of
about $600 thousand from the Company's other group life
insurance lines, including mortgage life insurance and
specialty coverages, accompanied the improved
employer/association group life results.
The Company's group health insurance lines of business
reported a pre-tax loss of approximately $600 thousand for
the first quarter of 1995 versus a pre-tax profit of $2.3
<PAGE>17
million for the corresponding 1994 period. The negative
variance of $2.9 million was primarily attributed to the
employer/association health insurance line, which reported a
pre-tax loss of $381 thousand for the 1995 period versus a
pre-tax profit of $2.3 million a year ago.
Premium revenues on employer/association health insurance
products declined from $98 million in the first quarter of
1994 to $92 million in the 1995 period, with the decline
primarily attributed to small group major medical cases.
Since the major portion of the Company's major medical
business has consisted primarily of "indemnity" coverages, a
shift in market emphasis to managed care products arising
from legislation in New York and New Jersey resulted in a
reduction of new sales as well as erosion of business in
force. The Company's decision in late 1993 to restrict
major medical sales to states where it has a significant
amount of in-force business also contributed to the decline
in revenues.
Although the Company has initiated expense reduction
measures to alleviate the impact of reduced group health
revenues, the revenue decline outpaced reductions in
overhead and other expenses during the first quarter,
resulting in a reported pre-tax loss. Continuing this
strategy of expense reduction, the Company is in process of
consolidating its claims offices. Although this action is
expected to result in certain transition costs prior to
realization of intended cost savings, it is not anticipated
to have a material adverse impact on consolidated results of
operations for the year 1995. The Company has refined its
"ancillary" group products, such as long-term disability and
dental insurance, with goals including an increase in the
proportion of group business from non-major medical lines,
and is introducing new managed care products and networks in
several states with the objective of improving its
competitive position.
Total revenues of the life insurance subsidiaries in the
1995 period amounted to $413.7 million, an increase of $28.3
million or 7.3% over the same period of 1994, primarily on
increases of $18.0 million (or 6.6%) and $8.7 million (or
8.1%) in premiums and considerations and net investment
income, respectively.
The increase in premiums and considerations came primarily
from the individual life insurance and annuity product line.
Premiums and other considerations from individual life
insurance and annuity products amounted to $120 million in
the 1995 period, compared to $102 million in the 1994
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 during the first
quarter of 1995.
<PAGE>18
Net premium income on credit life and disability products
increased $2.6 million to $29.0 million in the first quarter
of 1995, primarily on increased written premium for credit
disability products. As previously discussed, the decrease
in employer/association group health insurance premiums
reflected the impact of reduced sales and erosion of
business in force on small-group major medical cases.
Net investment income of the life insurance subsidiaries
increased $8.7 million, as noted above, reflecting a larger
investment base in the 1995 period. The pre-tax annualized
yield was 7.92% in the 1995 period as compared to 7.90% in
the first quarter of 1994. While interest rates available
on investment securities have fluctuated in recent quarters,
they were generally higher during the first quarter of 1995
than the corresponding 1994 period. 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 $25.0 million or 7.4% over the same
period of 1994.
Benefits to policyholders and beneficiaries amounted to
$180.5 million in the 1995 period, approximately equal to
the $180.6 million reported for the first quarter of 1994.
An increase of $1.4 million or 18.3% in death benefits on
credit life insurance, reflecting the previously discussed
mortality fluctuation, was accompanied by volume related
increases in benefits for individual life insurance products
and various other lines. However, these increases were
essentially offset by a $6.7 million decrease in
employer/association group health benefits reflecting the
decline in volume on that line.
Interest credited to policyholder account balances increased
$4.2 million (or 8.9%) over the first quarter of 1994. This
increase reflected the greater volume of universal life-type
and individual annuity contracts in the 1995 period as well
as increases in rates of interest offered, initiated during
the second half of 1994, on substantially all of the
Company's deferred annuities. Increases in renewal rates of
interest on these annuities became effective January 1, 1995
or are effective at contract anniversary, based on type of
contract.
Interest rates credited on the Company's deferred annuity
contracts, exclusive of first year increments on certain
products, typically ranged from 4.5% to 4.8% during the 1994
period and from 4.8% to 5.5% during the 1995 period,
<PAGE>19
depending on type of contract and period of issue. The
prospective impact of rate adjustments for interest
sensitive products on reported results will be dependent
upon future sales, surrender levels, and investment
portfolio yield. Interest rates credited on the Company's
universal life insurance contracts typically ranged from
6.0% to 7.0% during both the 1994 and 1995 periods.
An increase in future policy benefits of $16.1 million was
recorded for the 1995 period, versus $3.7 million for the
corresponding 1994 period, with the $12.4 million variance
primarily associated with the increase in premiums on
traditional individual life insurance coverages.
Amortization of deferred policy acquisition costs increased
to $41.0 million in the 1995 period from $37.7 million in
the corresponding 1994 period, reflecting various factors
including the increased volume of individual life and
annuity business in force during the 1995 period.
An aggregate increase of $5.3 million or 7.9% in
commissions, general expenses, and insurance taxes and
licenses reflected increased volume in the individual life
insurance and annuity product line as well as the increased
premium income on credit life and disability insurance
products.
At March 31, 1995, consolidated invested assets included
approximately $235 million (at market) of less than
investment grade corporate securities, based on ratings
assigned by recognized rating agencies and insurance
regulatory authorities. These investments represent about
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 March, 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121,
entitled "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The Statement
requires that long-lived assets such as property and
equipment, and certain intangible assets, be reviewed for
impairment when events or changes in circumstances indicate
that the carrying amount may not be recoverable. When
recoverability standards specified in the Statement are not
met, a writedown of the covered assets may be required. The
Statement does not apply to various classes of assets
including the Company's investment securities and deferred
<PAGE>20
policy acquisition costs, which will continue to be
evaluated based on previously established accounting
standards. Statement No. 121 must be adopted by calendar
year enterprises no later than 1996. Due to the recent
issuance of this Statement, the Company has not yet
completed its analysis of the prospective impact, if any, of
these accounting standards on its reported financial
position and results of operations.
<PAGE>21
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, 1995 and
December 31, 1994, and the consolidated results of operations and
cash flows for the three month periods ended March 31, 1995 and
1994, have been included in the accompanying financial
statements.
Certain prior year amounts have been reclassified to conform to
current year presentation.
<PAGE>22
Part II - Other Information
Item 1. Legal Proceedings
_________________
On March 1, 1995, a purported class action (Grant, et. al. v.
USLIFE Credit Life Insurance Company and Security of America Life
Insurance Company) was filed in the Chancery Division, Circuit
Court of Cook County, Illinois. The Complaint alleges that the
defendant companies, which are subsidiaries of USLIFE
Corporation, sold single premium credit life and credit
disability insurance policies to second mortgage borrowers and
that when some second mortgage loans were prepaid defendants
failed to refund unearned premiums to insureds. The Complaint
contains claims for damages for fraud, unfair and deceptive acts
and practices, breach of contract, conversion and unjust
enrichment, and seeks compensatory and punitive damages, and
costs. No contingent loss has been accrued for this litigation
because the amount of loss, if any, cannot be reasonably
estimated.
Item 6. Exhibits and Reports on Form 8-K
________________________________
(a) Exhibits
Exhibit No.
___________
27 Financial Data Schedule
<PAGE>23
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, 1995 By /s/ Greer F. Henderson
____________________ _____________________________
Date Greer F. Henderson
Vice Chairman and
Chief Financial Officer
USLIFE Corporation
Form 10-Q for the Quarterly Period Ended March 31, 1995
Exhibit Index
Exhibit Number
Per Item 601 of
Regulation S-K
_______________
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS, SUMMARY STATEMENTS OF CONSOLIDATED NET
INCOME, AND NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH
31, 1995 OF USLIFE CORPORATION AND SUBSIDIARIES FILED ON FORM 10-Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
AND NOTES TO FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000102420
<NAME> WALTER BRUECKNER
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 5,267,180
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<EQUITIES> 4,985
<MORTGAGE> 306,625
<REAL-ESTATE> 33,616
<TOTAL-INVEST> 6,005,032
<CASH> 57,301
<RECOVER-REINSURE> 8,637
<DEFERRED-ACQUISITION> 760,139
<TOTAL-ASSETS> 7,270,150
<POLICY-LOSSES> 5,235,924
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 184,408
<POLICY-HOLDER-FUNDS> 29,423
<NOTES-PAYABLE> 565,392
<COMMON> 38,313
0
541
<OTHER-SE> 946,249
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232,736
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<INCOME-CONTINUING> 24,290
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