<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
[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 0-9924
PROTECTIVE LIFE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2492236
(State of incorporation) (IRS Employer Identification Number)
2801 Highway 280 South
Birmingham, Alabama 35223
(Address of principal executive offices)
(205) 879-9230
(Registrant's telephone number)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
Number of shares of Common Stock, $.50 par value, outstanding as
of May 9, 1995: 14,381,453 shares.
<PAGE>
PROTECTIVE LIFE CORPORATION
INDEX
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements:
Report of Independent Accountants .................................. 2
Consolidated Condensed Statements of Income for the Three
Months ended March 31, 1995 and 1994 (unaudited) .................. 3
Consolidated Condensed Balance Sheets as of March 31, 1995
(unaudited) and December 31, 1994 ................................. 4
Consolidated Condensed Statements of Cash Flows for the Three
Months ended March 31, 1995 and 1994 (unaudited) .................. 5
Notes to Consolidated Condensed Financial Statements
(unaudited) ....................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ................................... 10
PART II. OTHER INFORMATION:
Item 4. Results of Votes of Security Holders ......................... 19
Item 5. Other Events ................................................. 20
Item 6. Exhibits and Reports on Form 8-K ............................. 20
Signature .............................................................. 21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors and Stockholders
Protective Life Corporation
Birmingham, Alabama
We have reviewed the accompanying consolidated condensed balance
sheet of Protective Life Corporation and subsidiaries as of March
31, 1995, and the related consolidated condensed statements of
income and cash flows for the three-month periods ended March 31,
1995 and 1994. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the consolidated condensed
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet as of December
31, 1994, and the related consolidated statements of income,
stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated February 13, 1995, we
expressed an unqualified opinion which contains an explanatory
paragraph regarding the changes in accounting for certain
investments in debt and equity securities in 1993 and
postretirement benefits other than pensions in 1992 on those
consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated condensed
balance sheet as of December 31, 1994, is fairly stated in all
material respects in relation to the consolidated balance sheet
from which it has been derived.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
April 26, 1995 except for Note G,
as to which the date is May 1, 1995
2
<PAGE>
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
REVENUES
Premiums and policy fees (net of reinsurance ceded:
1995 - $62,131; 1994 - $34,126) $ 90,562 $ 89,437
Net investment income 112,663 100,248
Realized investment gains (losses) 2,619 2,297
Other income 4,919 3,562
-------- --------
210,763 195,544
-------- --------
BENEFITS AND EXPENSES
Benefits and settlement expenses (net of reinsurance ceded:
1995 - $44,203; 1994 - $24,111) 123,941 115,876
Amortization of deferred policy acquisition costs 20,333 20,047
Other operating expenses (net of reinsurance ceded:
1995 - $11,269; 1994 - $2,729) 36,917 35,242
-------- --------
181,191 171,165
-------- --------
INCOME BEFORE INCOME TAX AND MINORITY
INTEREST 29,572 24,379
Income tax expense 9,759 7,801
-------- --------
INCOME BEFORE MINORITY INTEREST 19,813 16,578
Minority interest in net income
of consolidated subsidiaries 804 0
-------- --------
NET INCOME $ 19,009 $ 16,578
-------- --------
-------- --------
NET INCOME PER SHARE $ 1.38 $ 1.21
-------- --------
-------- --------
DIVIDENDS PAID PER SHARE $ 0.28 $ 0.26
-------- --------
-------- --------
Average shares outstanding 13,799,961 13,694,896
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
3
<PAGE>
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1995 1994
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities $3,583,485 $3,493,646
Equity securities 44,149 45,005
Mortgage loans on real estate 1,554,640 1,487,795
Investment real estate, net 20,335 20,303
Policy loans 147,258 147,608
Other long-term investments 56,692 48,013
Short-term investments 168,265 59,541
---------- ----------
Total investments 5,574,824 5,301,911
Cash 1,202 4,468
Accrued investment income 57,727 55,637
Accounts and premiums receivable, net 22,909 30,472
Reinsurance receivables 131,725 122,175
Deferred policy acquisition costs 411,810 434,444
Property and equipment, net 37,876 36,323
Other assets 52,306 20,709
Assets held in separate accounts 159,951 124,145
---------- ----------
TOTAL ASSETS $6,450,330 $6,130,284
---------- ----------
---------- ----------
LIABILITIES
Policy liabilities and accruals $1,843,561 $1,797,774
Guaranteed investment contract deposits 2,330,249 2,281,673
Annuity deposits 1,282,139 1,251,318
Other policyholders' funds 142,688 144,461
Other liabilities 134,775 127,873
Accrued income taxes 4,360 (6,238)
Deferred income taxes 9,167 (14,095)
Debt 124,000 98,000
Liabilities related to separate accounts 159,951 124,145
Minority interest in consolidated subsidiaries 55,000 55,000
---------- ----------
TOTAL LIABILITIES 6,085,890 5,859,911
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES - NOTE C
STOCKHOLDERS' EQUITY
Preferred Stock, $1 par value
Shares authorized: 3,850,000; Issued: none
Junior Participating Cumulative Preferred Stock, $1 par value
Shares authorized: 150,000; Issued: none
Common Stock, $0.50 par value
Shares authorized: 80,000,000
Issued: 1995 and 1994 - 15,668,231 7,834 7,834
Additional paid-in capital 96,147 71,295
Net unrealized losses on investments
(net of income tax: 1995 - $(32,335); 1994 - ($57,902)) (60,051) (107,532)
Retained earnings 337,834 322,691
Treasury stock (1995 - 1,286,778 shares; 1994 - 1,954,972 shares) (12,065) (18,323)
Unallocated stock in Employee Stock Ownership Plan
(1995 - 396,902 shares; 1994 - 422,073 shares) (5,259) (5,592)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 364,440 270,373
---------- ----------
$6,450,330 $6,130,284
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
4
<PAGE>
PROTECTIVE LIFE CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 19,009 $ 16,578
Adjustments to reconcile net income to net cash provided by
operating activities:
Net change in deferred policy acquisition costs (1,454) 125
Depreciation expense 1,339 1,007
Deferred income taxes 878 (301)
Accrued income taxes 7,416 2,277
Interest credited to universal life and investment products 67,685 58,460
Policy fees assessed on universal life and investment
products (22,716) (19,089)
Change in accrued investment income and other receivables (2,633) 10,809
Change in policy liabilities and other policyholders' funds
of traditional life and health products 20,304 6,574
Change in other liabilities 5,565 (1,923)
Other (net) 1,618 (7,744)
--------- --------
Net cash provided by operating activities 97,011 66,773
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities and principal reductions of investments
Investments available for sale 42,451 166,705
Other 22,808 88,091
Sale of investments
Investments available for sale 197,797 60,609
Other 1,759 2,249
Cost of investments acquired
Investments available for sale (370,606) (348,025)
Other (61,928) (100,649)
Acquisitions and bulk reinsurance assumptions (7,550) 0
Purchase of property and equipment (2,806) (1,147)
Sale of property and equipment 83 1,204
--------- --------
Net cash used in investing activities (177,992) (130,963)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under line of credit
arrangements and debt 311,800 291,186
Principal payments on line of credit arrangements
and debt (285,800) (292,205)
Dividends to stockholders (3,866) (3,558)
Purchase of treasury stock (3) 0
Change in universal life, annuity, and guaranteed
investment contract product deposits 55,584 60,613
--------- --------
Net cash provided by financing activities 77,715 56,036
--------- --------
DECREASE IN CASH (3,266) (8,154)
CASH AT BEGINNING OF PERIOD 4,468 27,119
--------- --------
CASH AT END OF PERIOD $ 1,202 $ 18,965
--------- --------
--------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest on debt $ (5,512) $(2,703)
Income taxes $ (1,200) $(7,072)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Reissuance of treasury stock to ESOP $ 350 $ 3
Unallocated stock in ESOP $ 333 $ 264
Reissuance of treasury stock $ 81 $ 425
Acquisitions
Assets acquired $ 9,781
Liabilities assumed (3,851)
Reissuance of treasury stock (30,681)
---------
Net $ (24,751)
---------
---------
</TABLE>
SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
5
<PAGE>
PROTECTIVE LIFE CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial
statements of Protective Life Corporation (the "Company") have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the disclosures required
by generally accepted accounting principles for complete
financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary
for a fair presentation have been included. Operating results
for the three month period ended March 31, 1995 are not
necessarily indicative of the results that may be expected for
the year ending December 31, 1995. For further information,
refer to the consolidated financial statements and notes thereto
included in the Company's annual report on Form 10-K for the year
ended December 31, 1994.
NOTE B - ACQUISITION
On March 20, 1995 the Company acquired National Health Care
Systems of Florida, Inc. The purchase price was $38.3 million
and was paid with a combination of the Company's Common Stock
($30.7 million) and cash ($7.6 million). In connection with the
acquisition, the Company reissued 658,229 shares of its Common
Stock previously held as Treasury Stock.
NOTE C - COMMITMENTS AND CONTINGENT LIABILITIES
The Company is contingently liable to obtain a $20 million
letter of credit under indemnity agreements with its directors.
Such agreements provide insurance protection in excess of the
directors' and officers' liability insurance in force at the time
up to $20 million. Should certain events occur constituting a
change in control of the Company, the Company must obtain the
letter of credit upon which directors may draw for defense or
settlement of any claim relating to performance of their duties
as directors. The Company has similar agreements with certain of
its officers providing up to $10 million in indemnification which
are not secured by the obligation to obtain a letter of credit.
Under insurance guaranty fund laws, in most states, insurance
companies doing business therein can be assessed up to prescribed
limits for policyholder losses incurred by insolvent companies.
The Company does not believe such assessments will be materially
different from amounts already provided for in the financial
statements. Most of these laws do provide, however, that an
assessment may be excused or deferred if it would threaten an
insurer's own financial strength.
6
<PAGE>
The Company and its subsidiaries, like other life and health
insurers, from time to time are involved in litigation. To date,
no such lawsuit has resulted in the award of any significant
amount of damages against the Company. Among the litigation
currently pending are two class actions concerning the sale of
credit insurance; with respect to one action a proposed
settlement agreement has been filed with the supervising court
for approval. Although the outcome of any litigation cannot be
predicted with certainty, the Company believes that such
litigation will not have a material adverse effect on the
financial position of the Company.
NOTE D - BUSINESS SEGMENTS
The Company operates predominantly in the life and accident
and health insurance industry. The following table sets forth
total revenues, income (loss) before income tax and minority
interest, and identifiable assets of the Company's business
segments.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
--------------------------------------------
1995 1994
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- -------- --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
TOTAL REVENUES:
Acquisitions $ 47,178 22.4% $ 36,326 18.6%
Financial Institutions 10,555 5.0 22,829 11.7
Group 40,928 19.4 35,491 18.1
Guaranteed Investment
Contracts 48,825 23.2 45,602 23.3
Individual Life 34,243 16.2 29,172 14.9
Investment Products 24,225 11.5 20,898 10.7
Corporate and Other 2,288 1.1 5,083 2.6
Unallocated Realized
Investment Gains (Losses) 2,521 1.2 143 0.1
-------- ----- -------- -----
$210,763 100.0% $195,544 100.0%
-------- ----- -------- -----
-------- ----- -------- -----
INCOME (LOSS) BEFORE INCOME
TAX AND MINORITY INTEREST:
Acquisitions $ 11,635 39.3% $ 8,966 36.8%
Financial Institutions 1,971 6.7 2,316 9.5
Group 2,086 7.1 1,865 7.6
Guaranteed Investment
Contracts 7,872 26.6 9,361 38.4
Individual Life 4,037 13.7 5,042 20.7
Investment Products 2,203 7.4 1,173 4.8
Corporate and Other (2,753) (9.3) (4,487) (18.4)
Unallocated Realized
Investment Gains (Losses) 2,521 8.5 143 0.6
-------- ----- -------- -----
$ 29,572 100.0% $ 24,379 100.0%
-------- ----- -------- -----
-------- ----- -------- -----
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
---------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ------- ---------- -------
(dollars in thousands)
<S> <C> <C> <C> <C>
IDENTIFIABLE ASSETS:
Acquisitions $1,309,199 20.3% $1,282,478 20.9
Financial Institutions 206,398 3.2 215,878 3.5
Group 260,606 4.0 215,997 3.5
Guaranteed Investment
Contracts 2,293,517 35.6 2,211,181 36.1
Individual Life 771,652 12.0 731,026 11.9
Investment Products 1,207,556 18.7 1,162,599 19.0
Corporate and Other 401,402 6.2 311,125 5.1
---------- ----- ---------- -----
$6,450,330 100.0% $6,130,284 100.0%
---------- ----- ---------- -----
---------- ----- ---------- -----
</TABLE>
NOTE E - STATUTORY REPORTING PRACTICES
Financial statements prepared in conformity with generally
accepted accounting principles ("GAAP") differ in some respects
from the statutory accounting practices prescribed or permitted
by insurance regulatory authorities. At March 31, 1995 and for
the three months then ended, the Company's life insurance
subsidiaries had stockholder's equity and net income prepared in
conformity with statutory reporting practices of $314.2 million
and $17.5 million, respectively.
NOTE F - RECENTLY ADOPTED ACCOUNTING STANDARDS
At December 31, 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." For purposes
of adopting SFAS No. 115 the Company has classified all of its
investments in fixed maturities, equity securities, and short-
term investments as "available for sale." As prescribed by SFAS
No. 115, these investments are recorded at their market values
with the resulting net unrealized gain or loss, net of income
tax and a related adjustment to deferred policy acquisition
costs, recorded as an component of stockholders' equity.
8
<PAGE>
The Company's balance sheets at March 31, 1995 and December
31, 1994, prepared on the basis of reporting investments at
amortized cost rather than at market values, are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Total investments $5,676,841 $5,501,064
Deferred policy acquisition costs 402,178 400,724
All other assets 463,697 393,929
---------- ----------
$6,542,716 $6,295,717
---------- ----------
---------- ----------
Deferred income taxes $ 41,502 $ 43,806
All other liabilities 6,076,723 5,874,006
---------- ----------
6,118,225 5,917,812
Stockholders' equity 424,491 377,905
---------- ----------
$6,542,716 $6,295,717
---------- ----------
---------- ----------
</TABLE>
On January 1, 1995 the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" and SFAS No.
118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures". Under the new standards, a loan is
considered impaired, based on current information and events, if
it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. The measurement of
impaired loans is generally based on the present value of
expected future cash flows discounted at the historical effective
interest rate, except that all collateral-dependent loans are
measured for impairment based on the fair value of the
collateral.
Since the Company's mortgage loans are collateralized by
real estate any assessment of impairment is based upon the
estimated fair value of the real estate. Based on the Company's
evaluation of its mortgage loan portfolio the Company does not
expect any material losses on its mortgage loans and therefore
no allowance for losses is required under SFAS No. 114 at
January 1, 1995 or March 31, 1995.
NOTE G - SUBSEQUENT EVENT
On May 1, 1995, the Company's Board of Directors approved a
two-for-one split of the Company's Common Stock in the form of a
100% stock dividend to be distributed on June 1, 1995 to the
stockholders of record as of May 12, 1995. Per share information
included herein has not been restated to reflect the stock split.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Protective Life Corporation provides financial services
through the production, distribution, and administration of
insurance and investment products. Founded in 1907, Protective
Life Insurance Company ("Protective Life") is the Company's
principal operating subsidiary.
Unless the context otherwise requires, the "Company" refers
to the consolidated group of Protective Life Corporation and its
subsidiaries.
RESULTS OF OPERATIONS
PREMIUMS AND POLICY FEES
The following table sets forth for the periods shown the
amount of premiums and policy fees and the percentage change from
the prior period:
<TABLE>
<CAPTION>
PREMIUMS AND POLICY FEES
THREE MONTHS -----------------------------
ENDED AMOUNT PERCENTAGE
MARCH 31 (IN THOUSANDS) INCREASE
------------ -------------- ----------
<S> <C> <C>
1994 $89,437 4.2%
1995 90,562 1.3
</TABLE>
Premiums and policy fees increased $1.1 million or 1.3% in
the first three months of 1995 over the first three months of
1994. Increases in premiums and policy fees from the Group and
Individual Life Divisions represent increases of $3.7 million and
$3.2 million, respectively. The reinsurance of a block of
payroll deduction policies in the second quarter of 1994 resulted
in a $2.5 million increase in premiums and policy fees in 1995.
The reinsurance of a block of policies in the fourth quarter of
1994 resulted in a $6.2 million increase in premiums and policy
fees in 1995. Decreases in older acquired blocks resulted in a
$2.2 million decrease in premiums and policy fees. Premiums and
policy fees from the Financial Institutions Division decreased
$12.8 million in the first quarter of 1995 as compared to the
first quarter of 1994. This resulted from a reinsurance
arrangement begun in the 1995 first quarter whereby a significant
portion of the Division's new sales are being ceded to a
reinsurer.
10
<PAGE>
NET INVESTMENT INCOME
The following table sets forth for the periods shown the
amount of net investment income and the percentage change from
the prior period:
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
THREE MONTHS ------------------------------
ENDED AMOUNT PERCENTAGE
MARCH 31 (IN THOUSANDS) INCREASE
------------ -------------- ----------
<S> <C> <C>
1994 $100,248 23.5%
1995 112,663 12.4
</TABLE>
Net investment income in the first three months of 1995 was
$12.4 million or 12.4% higher than the corresponding period of
the preceding year primarily due to increases in the average
amount of invested assets. Invested assets have increased
primarily due to receiving annuity and guaranteed investment
contract ("GIC") deposits and to acquisitions. Annuity and GIC
deposits are not considered revenues in accordance with generally
accepted accounting principles. These deposits are included in
the liability section of the balance sheet. The reinsurance of
two blocks of policies in 1994 resulted in an increase in net
investment income of $3.5 million in the first three months of
1995.
REALIZED INVESTMENT GAINS
The Company generally purchases its investments with the
intent to hold to maturity by purchasing investments that match
future cash-flow needs. However, the Company may sell any of its
investments to maintain proper matching of assets and
liabilities. Accordingly, the Company has classified its fixed
maturities and certain other securities as "available for sale."
The sales of investments that have occurred have largely
resulted from portfolio management decisions to maintain proper
matching of assets and liabilities.
The following table sets forth realized investment gains for
the periods shown:
<TABLE>
<CAPTION>
THREE MONTHS REALIZED
ENDED INVESTMENT GAINS
MARCH 31 (IN THOUSANDS)
------------ ----------------
<S> <C>
1994 $2,297
1995 2,619
</TABLE>
Realized investment gains for the first three months of 1995
were $0.3 million higher than the corresponding period of 1994.
Recently, rising interest rates have caused market values to fall
below amortized cost for many of the Company's fixed maturity
investments. Therefore, some realized investment losses may be
incurred upon future sales of investments to maintain proper
matching of assets and liabilities. The Company does not
anticipate such realized investment losses will be material.
11
<PAGE>
OTHER INCOME
The following table sets forth other income for the periods
shown:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED OTHER INCOME
MARCH 31 (IN THOUSANDS)
------------- -------------
<S> <C>
1994 $3,562
1995 4,919
</TABLE>
Other income consists primarily of revenues of the Company's
broker-dealer subsidiary, fees from administrative-services-only
types of group accident and health insurance contracts, and
revenues of the Company's wholly-owned insurance marketing
organizations and other small noninsurance subsidiaries. Other
income in the first three months of 1995 was $1.4 million higher
than the corresponding period of 1994. On March 20, 1995, the
Company completed its acquisition of National Health Care Systems
of Florida, Inc. ("NHCS"), a dental health maintenance
organization based in Jacksonville, Florida, known as
"DentiCare". NHCS currently has over 260,000 members located
primarily in Florida, Tennessee, Georgia and Alabama. The
acquisition resulted in a $2.0 million increase in other income
in the first quarter of 1995.
INCOME BEFORE INCOME TAX AND MINORITY INTEREST
The following table sets forth income or loss before income
tax and minority interest by business segment for the periods
shown:
<TABLE>
<CAPTION>
INCOME (LOSS) BEFORE INCOME TAX
AND MINORITY INTEREST
THREE MONTHS ENDED MARCH 31
-------------------------------
(IN THOUSANDS)
BUSINESS SEGMENT 1994 1995
---------------- ------ -------
<S> <C> <C>
Acquisitions $8,966 $11,635
Financial Institutions 2,316 1,971
Group 1,865 2,086
Guaranteed Investment Contracts 9,361 7,872
Individual Life 5,042 4,037
Investment Products 1,173 2,203
Corporate and Other (4,487) (2,753)
Unallocated Realized Investment Gains 143 2,521
------- -------
$24,379 $29,572
------- -------
------- -------
Percentage Increase 41.0% 21.3%
</TABLE>
12
<PAGE>
Pretax earnings from the Acquisitions Division increased
$2.7 million in the first three months of 1995 as compared to the
same period of 1994. Earnings from the Acquisitions Division are
normally expected to decline over time (due to the lapsing of
policies resulting from deaths of insureds or terminations of
coverage) unless new acquisitions are made. As previously
discussed, the Company reinsured two blocks of policies during
1994. These two acquisitions represent $1.7 million of the
increase. Improved results related to Wisconsin National Life
Insurance Company (a company acquired in 1993) represent a $1.0
million increase.
Pretax earnings of the Financial Institutions Division were
$0.3 million lower in the first three months of 1995 as compared
to the same period in 1994 due to an increase in life claims.
Group pretax earnings were $0.2 million higher in the first
three months of 1995 as compared to the first three months of
1994 due to improved earnings from traditional group products
which were partially offset by lower earnings from cancer
products.
The Guaranteed Investment Contract ("GIC") Division had
pretax operating earnings of $7.8 million in the first three
months of 1995 and $6.8 million in the corresponding period of
1994. This increase was due to the growth in GIC deposits placed
with the Company. At March 31, 1995, GIC deposits totaled $2.3
billion compared to $2.1 billion one year earlier. Realized
investment gains associated with this Division in the first three
months of 1995 were $0.1 million, $2.4 million lower than the
same period last year. Total pre-tax earnings were $7.9 million
in the 1995 first quarter compared to $9.4 million for the same
period last year.
Individual Life pretax earnings decreased $1.0 million in the
first three months of 1995 as compared to the first three months
of 1994. At December 31, 1994 the Company reduced certain
statutory policy liabilities for certain term-like products to
be more consistent with current regulatory and industry practice.
This reduced investment income allocated to the Division in the
1995 first quarter by approximately $0.7 million when compared to
the same period in 1994. Additionally, expenses to develop new
marketing ventures were $0.7 million higher in the first three
months of 1995 as compared to the first three months of 1994.
Also reflected in the Division's operating results for the 1995
first quarter is a $0.6 million loss related to the Company's
broker-dealer (previously reported within the Investment Products
Division). These decreases were partially offset by earnings from
a growing amount of business in force.
Investment Products Division pretax earnings were $1.0
million higher in the first three months of 1995 compared to the
same period of 1994. During 1994 the Division completed the
amortization of the deferred policy acquisition costs related to
its book value annuities. Accordingly, 1995 first quarter
earnings were $2.1 million higher due to lower amortization.
This increase was partially offset by higher expenses related to
the Company's variable annuity which was introduced in early
1994, and to increases in other expenses.
The Corporate and Other segment consists of several small
insurance lines of business, net investment income and expenses
not identified with the preceding operating divisions (including
interest on substantially all debt), and the operations of
several small noninsurance subsidiaries. Pretax earnings for
this segment improved $1.7 million in the first three months
13
<PAGE>
of 1995 as compared to the first three months of 1994 due to a
decrease in expenses. Reflected in the decrease in expenses are
$1.2 million of dividends on the Company's Monthly Income
Preferred Securities (the proceeds of which were used to repay
debt) which are reported as minority interest in net income of
consolidated subsidiaries rather than expenses of the Corporate
and Other segment.
Unallocated realized investment gains increased due to
realized investment gains incurred in the first three months of
1995 from sales of investments that occurred to maintain proper
matching of assets and liabilities.
INCOME TAXES
The following table sets forth the effective income tax rates
for the periods shown:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED ESTIMATED EFFECTIVE
MARCH 31 INCOME TAX RATES
------------- -------------------
<S> <C>
1994 32%
1995 33
</TABLE>
The effective income tax rate for 1994 was 32%. Management's
estimate of the effective income tax rate for 1995 is 33%.
NET INCOME
The following table sets forth net income and the net income
per share for the periods shown:
<TABLE>
<CAPTION>
NET INCOME
THREE MONTHS ----------------------------------------
ENDED TOTAL PERCENTAGE
MARCH 31 (IN THOUSANDS) PER SHARE INCREASE
------------ ----------- --------- ----------
<S> <C> <C> <C>
1994 $16,578 $1.21 39.1%
1995 19,009 1.38 14.7
</TABLE>
Compared to the same period in 1994, net income per share in
the first three months of 1995 increased 14.7%, reflecting
improved earnings in the Acquisitions, Group and Investment
Products Divisions and the Corporate and Other segment which were
partially offset by lower earnings in the Financial Institutions,
Guaranteed Investment Contracts, and Individual Life Divisions.
RECENTLY ISSUED ACCOUNTING STANDARDS
In January 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 120, "Accounting and Reporting by Mutual Life
Insurance Enterprises and by Insurance Enterprises for Certain
Long-Duration Participating Contracts." In March 1995, the FASB
issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The Company
anticipates that the impact of adopting SFAS Nos. 120 and 121
will be immaterial.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations usually produce a positive cash
flow. This cash flow is used to fund an investment portfolio to
finance future benefit payments including those arising from
various types of deposit contracts. Since future benefit
payments largely represent long-term obligations reserved using
certain assumed interest rates, the Company's investments are
predominantly in medium and long-term, fixed-rate investments
such as bonds and mortgage loans which provide a sufficient
return to cover these obligations.
Many of the Company's products contain surrender charges and
other features which reward persistency and penalize the early
withdrawal of funds. With respect to such products, surrender
charges are generally sufficient to cover the Company's
unamortized deferred policy acquisition costs with respect to the
policy being surrendered. GICs and certain annuity contracts
have market-value adjustments which protect the Company against
investment losses if interest rates are higher at the time of
surrender as compared to interest rates at the time of issue.
The Company has adopted Statement of Financial Accounting
Standards No. 115, "Accounting For Certain Investments In Debt
And Equity Securities." Accordingly, the Company's investments
in debt and equity securities are reported in the financial
statements at market value, and investments in mortgage loans are
reported at amortized cost. At March 31, 1995, the fixed
maturity investments (bonds, bank loan participations, and
redeemable preferred stocks) had a market value of $3,583.5
million, which is 2.9% below amortized cost (less allowances for
uncollectible amounts on investments) of $3,483.7 million. The
Company had $1,554.6 million in mortgage loans at March 31, 1995.
While the Company's mortgage loans do not have quoted market
values, at March 31, 1995, the Company estimates the market value
of its mortgage loans to be $1,641.0 million (using discounted
cash flows from the next call date) which is 5.6% in excess of
amortized book value. Most of the Company's mortgage loans have
significant prepayment penalties. These assets are invested for
terms approximately corresponding to anticipated future benefit
payments. Thus, market value fluctuations should not adversely
affect liquidity.
At March 31, 1995, delinquent mortgage loans and foreclosed
real estate were 0.4% of assets. Bonds rated less than
investment grade were 1.0% of assets. Additionally, the Company
had bank loan participations that were less than investment grade
representing 3.1% of assets. The Company does not expect these
investments to adversely affect its liquidity or ability to hold
its other investments to maturity. The Company's allowance for
uncollectible amounts on investments was $35.9 million at March
31, 1995.
Policy loans at March 31, 1995 were $147.3 million, a
decrease of $0.4 million from December 31, 1994. Policy loan
rates are generally in the 4.5% to 8.0% range. Such rates at
least equal the assumed interest rates used for future policy
benefits.
The Company believes its asset/liability matching practices
and certain product features provide significant protection for
the Company against the effects of changes in interest rates.
However, approximately one-fourth of the Company's liabilities
relate to products (primarily whole life insurance) the
profitability of which may be affected by changes in interest
rates.
15
<PAGE>
The effect of such changes in any one year is not expected
to be material. Additionally, the Company believes its asset/
liability matching practices provide sufficient liquidity to
enable it to fulfill its obligation to pay benefits under its
various insurance and deposit contracts.
The Company's asset/liability matching practices involve the
monitoring of asset and liability durations for various product
lines; cash flow testing under various interest rate scenarios;
and the continuous rebalancing of assets and liabilities with
respect to yield, risk, and cash flow characteristics. It is the
Company's policy to maintain asset and liability durations within
10% of one another.
A combination of futures contracts and options on treasury
notes are currently being used as hedges for asset/liability
management of certain investments, primarily mortgage loans on
real estate, and liabilities arising from interest-sensitive
products such as GICs and annuities. Realized investment gains
and losses of such contracts are deferred and amortized over the
life of the hedged asset. The Company also uses interest rate
swap contracts to convert certain investments from a variable to
a fixed rate of interest and from a fixed to a variable rate of
interest and to convert its Senior Notes and Monthly Income
Preferred Securities from a fixed rate to a variable rate of
interest.
The Company entered the GIC market in late 1989. Most GIC
contracts written by the Company have maturities of 3 to 5 years.
Prior to 1993, few GIC contracts were maturing because the
contracts were newly written. Beginning in 1993, and continuing
into 1994, GIC contracts began to mature as contemplated when the
contracts were sold. Withdrawals related to GIC contracts were
approximately $700 million during 1994. Withdrawals related to
GIC contracts are estimated to be approximately $600 million in
1995. The Company's asset/liability matching practices take into
account maturing contracts. Accordingly, the Company does not
expect maturing contracts to have an unusual effect on the future
operations and liquidity of the Company.
In anticipation of receiving GIC and annuity deposits, the
life insurance subsidiaries were committed at March 31, 1995 to
fund mortgage loans and to purchase fixed maturity and other long-
term investments in the amount of $374.6 million. The Company's
subsidiaries held $169.2 million in cash and short-term
investments at March 31, 1995. Protective Life Corporation had
an additional $0.2 million in cash and short-term investments
available for general corporate purposes.
While the Company generally anticipates that the cash flows
of its subsidiaries will be sufficient to meet their investment
commitments and operating cash needs, the Company recognizes that
investment commitments scheduled to be funded may from time to
time exceed the funds then available. Therefore, the Company has
arranged sources of credit for its insurance subsidiaries to
utilize to fund investments in such circumstances. The Company
expects that the rate received on its investments will equal or
exceed its borrowing rate. Additionally, the Company may from
time to time sell short-duration GICs to complement its cash
management practices.
At March 31, 1995, Protective Life Corporation had borrowed
$23 million of its $60 million revolving line of credit and an
additional $26 million, all on notes bearing interest rates
averaging 6.4%. The Company's bank borrowings have increased
$26 million since December 31, 1994. Proceeds have been
primarily used to contribute additional statutory capital to the
Company's insurance subsidiaries, and for general corporate
purposes.
On March 20, 1995 the Company acquired National Health Care
Systems of Florida, Inc. In connection with the acquisition, the
Company reissued 658,229 shares of its Common Stock previously
held as Treasury Stock.
On November 7, 1994, the Company's Board of Directors
authorized a program for the repurchase of up to 300,000 shares
of Company Common Stock. No shares have been repurchased under
the program.
Protective Life Corporation's cash flow is dependent on cash
dividends from its subsidiaries, payments on surplus notes,
revenues from investment, data processing, legal, and
16
<PAGE>
management services rendered to the subsidiaries, and investment
income. At December 31, 1994, approximately $196 million of
consolidated stockholders' equity, excluding net unrealized
losses on investments, represented net assets of the Company's
insurance subsidiaries that cannot be transferred in the form of
dividends, loans, or advances to the parent company. In addition,
the states in which the Company's insurance subsidiaries are
domiciled impose certain restrictions on the insurance
subsidiaries' ability to pay dividends to Protective Life
Corporation. Also, distributions, including cash dividends to
Protective Life Corporation from its life insurance subsidiaries,
in excess of approximately $248 million, would be subject to
federal income tax at rates then effective. The Company does not
anticipate involuntarily making distributions that would be
subject to income tax.
For the foregoing reasons and due to the expected growth of
the Company's insurance sales, the Company will retain
substantial portions of the earnings of its life insurance
subsidiaries in those companies primarily to support their future
growth. Because Protective Life Corporation's cash disbursements
have from time to time exceeded its cash receipts, such
shortfalls have been funded through various external financings.
Therefore, Protective Life Corporation may from time to time
require additional external financing.
To give the Company flexibility in connection with future
acquisition opportunities, the Company has registered debt
securities, preferred and common stock of Protective Life
Corporation, and additional preferred securities of PLC Capital
L.L.C., under the Securities Act of 1933 on a delayed (or
"shelf") basis.
A life insurance company's statutory capital is computed
according to rules prescribed by the National Association of
Insurance Commissioners ("NAIC"), as modified by the insurance
company's state of domicile. Statutory accounting rules are
different from generally accepted accounting principles and are
intended to reflect a more conservative view by, for example,
requiring immediate expensing of policy acquisition costs. The
achievement of long-term growth will require growth in the
statutory capital of the Company's insurance subsidiaries. The
subsidiaries may secure additional statutory capital through
various sources, such as internally generated statutory earnings
or equity contributions by the Company from funds generated
through debt or equity offerings.
The NAIC's risk-based capital requirements require insurance
companies to calculate and report information under a risk-based
capital formula. These requirements are intended to allow
insurance regulators to identify inadequately capitalized
insurance companies based upon the types and mixtures of risks
inherent in the insurer's operations. The formula includes
components for asset risk, liability risk, interest rate
exposure, and other factors. Based upon the March 31, 1995
statutory financial reports of the Company's insurance
subsidiaries, the Company's insurance subsidiaries are adequately
capitalized under the formula.
Under insurance guaranty fund laws, in most states,
insurance companies doing business in a participating state can
be assessed up to prescribed limits for policyholder losses
incurred by insolvent companies. The Company does not believe
that any such assessments will be materially different from
amounts already provided for in the financial statements.
A number of civil jury verdicts have been returned against
life and health insurers in the jurisdictions in which the
Company does business involving the insurers' sales practices,
alleged agent misconduct, failure to properly supervise agents,
and
17
<PAGE>
other matters. Some of the lawsuits have resulted in the
award of substantial judgments against the insurers, including
material amounts of punitive damages. In some states, juries
have substantial discretion in awarding punitive damages in
these circumstances. The Company and its subsidiaries, like other
life and health insurers, from time to time are involved in such
litigation. To date, no such lawsuit has resulted in the award
of any significant amount of damages against the Company. Among
the litigation currently pending are two class actions concerning
the sale of credit insurance; with respect to one action a
proposed settlement agreement has been filed with the supervising
court for approval. Although the outcome of any litigation cannot
be predicted with certainty, the Company believes that such
litigation will not have a material adverse effect on the
financial position of the Company.
The Company is not aware of any material pending or
threatened regulatory action with respect to the Company or any
of its subsidiaries.
18
<PAGE>
PART II
Item 4. RESULTS OF VOTES OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on May 1, 1995.
Shares entitled to vote at the Annual Meeting totaled 13,723,244
of which 12,588,653 shares were represented at the meeting
including 37,491 abstentions.
At the Annual Meeting the following 12 directors were
elected. Also shown are the number of shares cast for and
authorization withheld for each nominee.
<TABLE>
<CAPTION>
AUTHORIZATION
FOR WITHHELD
----------- --------------
<S> <C> <C>
William J. Rushton III 12,554,297 34,356
John W. Woods 12,553,895 34,758
William J. Cabaniss, Jr. 12,571,793 16,860
H. G. Pattillo 12,565,952 22,701
Drayton Nabers, Jr. 12,554,953 33,700
Edward L. Addison 12,554,825 33,828
John J. McMahon, Jr. 12,554,055 33,838
A. W. Dahlberg 12,557,295 31,358
John W. Rouse, Jr. 12,571,893 16,760
Robert T. David 12,572,225 16,428
Ronald L. Kuehn, Jr. 12,555,903 32,750
Herbert A. Sklenar 12,551,161 37,492
</TABLE>
With regards to the transaction of such other business as might
properly come before the Annual Meeting or any adjournment
thereof, 1,730,699 shares were cast as authorization withheld,
including abstentions. No other matters came before the Annual
Meeting or any adjournment thereof.
19
<PAGE>
Item 5. OTHER EVENTS
On May 1, 1995, the Board of Directors of Protective Life
Corporation (the "Company") approved a two-for-one split of the
Company's Common Stock ("Common Stock") in the form of a 100%
stock dividend. On June 1, 1995, the stock split will be
effected by the distribution to stockholders of record as of the
close of business on May 12, 1995 of one additional share of
Common Stock for each share issued and outstanding as of the
close of business on the record date.
Under the terms of the Rights Agreement, dated as of July
13, 1987, between the Corporation and AmSouth Bank of Alabama
(formerly AmSouth Bank, N.A.), as Rights Agent (the "Rights
Agreement"), a dividend was declared of one Preferred Share
Purchased right on each share of the Company's Common Stock.
Each Right entitles a stockholder to buy one one-hundredth
(1/100) of a share of Junior Participating Cumulative Preferred
Stock ("Preferred Stock"), subject to certain adjustments. After
the stock split, and pursuant to the adjustment each Right will
become a right to buy, not one one-hundredth (1/100), but one
two-hundredth (1/200), of a share of Junior Participating
Cumulative Preferred Stock. For example, someone who owned one
share of Common Stock with a right to buy one one-hundredth of a
share of Preferred Stock, will immediately after the stock split,
have two shares, each having the right to buy one two-hundredth
of a share of Preferred Stock. The Rights are exercisable only
if a party acquires 20% or more (or offers to acquire 30% or
more) of the Company's outstanding Common Stock. Until the Rights
become exercisable, the Rights will be evidenced by the
certificates for shares of Common Stock; no separate certificates
evidencing the Rights will be issued at this time.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibit 4 - Rights Agreement dated July 13, 1987 between
the Company and AmSouth Bank, as Rights Agent (incorporated
herein by reference to Exhibit 1 to the Company's Form 8-A
filed July 15, 1987).
(b). Exhibit 15 - Letter re: unaudited interim financial statements
(c). Exhibit 27 - Financial data schedule
(d). A report on Form 8-K was filed February 16, 1995, concerning
the Company's 1994 fourth quarter earnings press release.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
PROTECTIVE LIFE CORPORATION
Date: May 12, 1995 /s/ Jerry W. DeFoor
-----------------------------
Jerry W. DeFoor
Vice President and Controller,
and Chief Accounting Officer
(Duly authorized officer)
21
<PAGE>
<PAGE>
Exhibit 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Protective Life Corporation
We are aware that our report dated April 26, 1995, except for Note G,
as to which the date is May 1, 1995, on our review of interim
consolidated financial information of Protective Life Corporation
and subsidiaries for the period ended March 31, 1995, and included
in the Company's quarterly report on Form 10-Q for the quarter then
ended, is incorporated by reference in the Company's registration
statements on Form S-8 and Form S-3. Pursuant to Rule 436(c) under
the Securities Act of 1933, this report should not be considered a
part of the registration statements prepared or certified by us
within the meaning of Sections 7 and 11 of that Act.
COOPERS & LYBRAND L.L.P.
Birmingham, Alabama
April 26, 1995
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Protective Life Corporation and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<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> 3,583,485
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 44,149
<MORTGAGE> 1,554,640
<REAL-ESTATE> 20,335
<TOTAL-INVEST> 5,574,824
<CASH> 1,202
<RECOVER-REINSURE> 131,725
<DEFERRED-ACQUISITION> 411,810
<TOTAL-ASSETS> 6,450,330
<POLICY-LOSSES> 1,743,625
<UNEARNED-PREMIUMS> 99,936
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 142,688
<NOTES-PAYABLE> 124,000
<COMMON> 7,834
0
0
<OTHER-SE> 356,606
<TOTAL-LIABILITY-AND-EQUITY> 6,450,330
90,562
<INVESTMENT-INCOME> 112,663
<INVESTMENT-GAINS> 2,619
<OTHER-INCOME> 4,919
<BENEFITS> 123,941
<UNDERWRITING-AMORTIZATION> 20,333
<UNDERWRITING-OTHER> 36,917
<INCOME-PRETAX> 29,572
<INCOME-TAX> 9,759
<INCOME-CONTINUING> 19,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,009
<EPS-PRIMARY> 1.38
<EPS-DILUTED> 1.38
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
