<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
the Securities Exchange Act of 1934
For Quarter Ended March 31, 1995 Commission File Number 1-7255
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-1219710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1776 American Heritage Life Drive, Jacksonville, Florida 32224
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (904) 992-1776
Former name, former address and former fiscal year, if changed since last
report
N/A
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 registrant's shares of common stock outstanding at
April 30, 1995
13,887,330
<PAGE> 2
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994
---------------- -----------------
<S> <C> <C>
ASSETS
Investments:
Debt securities, available-for-sale, at fair
value (cost of $469,619,840 in 1995 and
$450,670,196 in 1994) $ 453,211,769 412,746,726
Equity securities, available-for-sale, at
fair value (cost of $35,666,196 in 1995
and $35,583,745 in 1994) 54,715,409 52,476,038
Mortgage loans on real estate 21,934,179 20,625,877
Investment real estate, at cost 1,033,210 1,022,985
Policy loans 351,327,482 351,160,060
Short-term investments 1,446,792 7,697,740
-------------- -------------
Total investments 883,668,841 845,729,426
Cash 19,886,109 19,490,055
Agents' balances and prepaid commissions 38,967,477 39,146,576
Premiums receivable 41,556,326 43,434,693
Accrued investment income 23,153,442 16,197,251
Deferred acquisition costs 160,386,435 162,867,773
Property and equipment, at cost,
less accumulated depreciation 27,556,197 27,294,320
Reinsurance receivables 10,009,908 11,730,734
Other assets 14,419,357 13,366,322
-------------- -------------
$1,219,604,092 1,179,257,150
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy benefits $ 194,017,737 192,511,754
Policyholders' account balances 583,232,926 576,535,760
Unearned premiums 50,909,344 51,604,266
Policy and contract claims 53,666,867 53,308,899
-------------- -------------
Total policy liabilities 881,826,874 873,960,679
Notes payable to banks, short-term 84,394,000 64,201,000
Notes payable to banks, long-term - 20,000,000
Deferred income taxes 22,211,779 16,559,755
Other liabilities 35,236,990 31,176,101
-------------- -------------
Total liabilities 1,023,669,643 1,005,897,535
-------------- -------------
Stockholders' equity:
Common stock of $1 par value. Authorized
20,000,000 shares; issued 13,933,296 in
1995 and 13,905,794 in 1994 13,933,296 13,905,794
Additional paid-in capital 42,301,586 41,866,379
Retained earnings 135,335,374 129,406,469
Net unrealized investment gains (losses) 5,291,140 (10,892,295)
-------------- -------------
196,861,396 174,286,347
Less cost of 45,966 in 1995 and 45,954
in 1994 common shares in treasury 926,947 926,732
-------------- -------------
Total stockholders' equity 195,934,449 173,359,615
-------------- -------------
$1,219,604,092 1,179,257,150
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
------------------------------------
1995 1994
---- ----
<S> <C> <C>
Income:
Insurance revenues 56,358,842 54,123,432
Net investment income 16,399,468 16,349,229
Realized investment gains
2,167,401 327,421
---------- ----------
Total income 74,925,711 70,800,082
---------- ----------
Benefits, claims and expenses:
Benefits and claims 33,390,834 34,016,205
Underwriting, acquisition and insurance expenses:
Taxes, commissions and general expenses 23,733,923 22,122,661
Amortization of deferred acquisition costs 5,884,763 5,680,265
Other operating expenses 879,219 500,008
---------- ----------
Total benefits, claims and expenses 63,888,739 62,319,139
---------- ----------
Earnings before income taxes 11,036,972 8,480,943
Income taxes 3,579,200 2,707,400
---------- ----------
Net earnings 7,457,772 5,773,543
========== ==========
Net earnings per share of common stock 0.54 0.42
========== ==========
Dividends declared per share 0.11 0.15
========== ==========
Average number of shares outstanding 13,878,071 13,845,160
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------- ------------
<S> <C> <C>
Common stock:
Balance at beginning of period $ 13,905,794 13,880,278
Other shares issued 27,502 20,006
------------ -----------
Balance at end of period 13,933,296 13,900,284
------------ -----------
Additional paid-in capital:
Balance at beginning of period 41,866,379 41,482,746
Excess over par value on shares issued 459,795 330,761
Net change on exercise of stock options (24,588) (13,569)
------------ -----------
Balance at end of period 42,301,586 41,799,938
------------ -----------
Retained earnings:
Balance at beginning of period 129,406,469 115,464,920
Add net earnings 7,457,772 5,773,543
------------ -----------
136,864,241 121,238,463
Deduct cash dividends declared on common stock - $.11
per share in 1995 and $.15 per share in 1994 (1,528,867) (2,077,730)
------------ -----------
Balance at end of period 135,335,374 119,160,733
------------ -----------
Net unrealized investment gains (losses):
Balance at beginning of period (10,892,295) 14,026,745
Unrealized gain upon adoption of FAS 115 at
beginning of period 0 3,855,293
Change during the period 16,183,435 (14,707,56)
------------ -----------
Balance at end of period 5,291,140 3,174,470
------------ -----------
Treasury stock:
Balance at beginning of period 926,732 924,503
Add treasury shares purchased (12 shares in 1995 and
-0- shares in 1994) 215 0
------------ -----------
Balance at end of period 926,947 924,503
------------ -----------
Total stockholders' equity $195,934,449 177,110,922
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOW
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Operating activities:
Net earnings $ 7,457,772 5,773,543
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Change in agents' balances and prepaid commissions 179,099 (44,667)
Change in premiums receivable 1,878,367 (1,144,847)
Change in accrued investment income (6,956,191) (1,379,732)
Change in reinsurance receivables 1,720,826 (2,719,648)
Amortization of deferred acquisition costs 5,884,763 5,680,265
Acquisition costs deferred (8,043,199) (7,334,527)
Change in future policy benefits 1,505,983 1,282,878
Change in policyholders' account balances 6,697,166 730,150
Change in unearned premiums (694,922) 919,604
Change in policy and contract claims 357,968 (3,350,572)
Change in income taxes 3,431,372 2,133,267
Provision for depreciation and amortization 184,465 526,903
Change in unearned investment income (594,059) (4,621,237)
Other, net (1,432,781) 2,799,362
----------- -----------
Net cash provided (used) by operating activities 11,576,629 (749,258)
----------- -----------
Investing activities:
Sales of debt securities 31,619,160 25,696,462
Maturities of debt securities 3,917,106 28,606,326
Sales (purchases) of short-term investments, net 6,250,948 (3,174,938)
Sales of equity securities 1,034,138 17,550
Maturities of mortgage loans on real estate 341,698 642,377
Policy loans paid 4,196,967 3,629,617
Purchases of debt securities (54,491,603) (47,466,166)
Purchases of equity securities (1,362,110) (1,198,323)
Origination of mortgage loans on real estate (1,650,000) (1,967,494)
Policy loans made (4,364,389) (6,157,709)
Purchases and additions of property and equipment (800,394) (3,405,388)
Other, net 5,762,234 4,074,820
----------- -----------
Net cash used by investing activities (9,546,245) (702,866)
----------- -----------
Financing activities:
Change in notes payable to banks, net 193,000 3,085,000
Dividends to stockholders (1,528,867) (2,077,730)
Other, net (298,463) 338,576
----------- -----------
Net cash provided (used) by financing activities (1,634,330) 1,345,846
----------- -----------
Increase (decrease) in cash 396,054 (106,278)
Cash, beginning of period 19,490,055 18,985,151
----------- -----------
Cash, end of period $19,886,109 18,878,873
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(UNAUDITED)
(1) The accompanying consolidated financial statements, which are unaudited,
in the opinion of management, include all adjustments necessary to present
fairly the consolidated results of operations and financial position of
the Company for the periods indicated. However, certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted. It is suggested that these consolidated financial statements be
read in conjunction with the consolidated financial statements, schedules
and notes thereto included in the Company's Form 10-K for the year ended
December 31, 1994.
(2) The consolidated financial statements of the Company's life insurance
operations, primarily the operations of American Heritage Life Insurance
Company, have been included in the consolidated financial statements on
the basis of generally accepted accounting principles.
(3) Earnings per share of common stock were based on weighted average number
of shares outstanding during each period, excluding treasury shares.
Options outstanding to purchase common stock had no significant dilutive
effect on earnings per share.
(4) Current accrued income taxes were included in other liabilities in the
amount of $250,000 at March 31, 1995 and a current accrued income tax
benefit of $505,200 was included in other assets at December 31, 1994 in
the accompanying consolidated balance sheets.
(5) Certain 1994 figures have been reclassified to conform with the 1995
presentation.
(6) AHL, like other insurance companies, is currently a defendant in lawsuits
that involve claims for punitive, exemplary or other extracontractual
damages, which are for amounts substantially in excess of the actual
damages sought. Management considers such litigation regrettably to be of
the type to which insurance companies are usually and customarily
subjected in the ordinary course of business and to date no such claims of
this nature against AHL have resulted in material losses. Certain of
these cases are in Alabama where the frequency of large punitive damage
awards bearing absolutely no relation to actual damages awarded by juries
is alarming. During the current fiscal year, the number of outstanding
suits against the Company in Alabama has increased. In the opinion of
management, based on the currently ascertained facts of the pending
litigation, which the Company intends to vigorously defend, the ultimate
resolution of such litigation should not be material to the financial
position of the Company.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIOD ENDED MARCH 31, 1995 COMPARED TO
PERIOD ENDED MARCH 31, 1994
RESULTS OF OPERATIONS
American Heritage Life Investment Corporation ("AHLIC") and subsidiaries (the
"Company") are engaged primarily in the life insurance business. The Company's
consolidated net earnings are primarily attributable to its principal
subsidiary, American Heritage Life Insurance Company ("AHL"). Significant
changes in the components of the consolidated results of operations for the
comparative periods are presented below.
Insurance revenues for reporting purposes pursuant to generally accepted
accounting principles (GAAP) include only the mortality, expense and surrender
charges for interest-sensitive products. Insurance revenues do not include
group and credit premium equivalents and cash deposits from interest-sensitive
products. Insurance revenues for the three-months ended March 31, 1995 were
$56.4 million, an increase of 4.1% from the $54.1 million for the same period
in 1994. This increase was due primarily to an increase in ordinary and credit
accident and health insurance revenues partially offset by a reduction in group
insurance revenues, as a majority of the new group cases were written on a
self-funded or split-funded basis.
As a result of more of the ordinary life business being interest-sensitive, the
group business being on a self-funded or split-funded basis and the credit
business being written on an administrative services only basis, in which only
the fees charged are included in insurance revenues for GAAP purposes, it is
necessary to evaluate insurance revenues including premium equivalents.
Including premium equivalents of $56.4 million and $48.7 million for the three
months ended March 31, 1995 and 1994, respectively, insurance revenues,
including premium equivalents, were $112.7 million and $102.8 million, up 9.7%
in 1995. This increase is primarily due to an increase in group and credit
insurance revenues including premium equivalents.
For the three months ended March 31, 1995, net investment income was $16.4
million, an increase of .3% over the $16.3 million reported for the same period
in 1994. This increase in net investment income for the three months ended
March 31, 1995 compared to the same periods in 1994 was due primarily to: (1)
an increase in invested assets and (2) certain changes made in the equity
security and fixed maturity portfolios during 1995 and 1994 to improve
investment results. The effective yield on invested assets for the three
months ended March 31, 1995 was 7.54% compared to 7.65% for the same period in
1994.
6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIOD ENDED MARCH 31, 1995 COMPARED TO
PERIOD ENDED MARCH 31, 1994
RESULTS OF OPERATIONS (CONTINUED)
Realized investment gains for the three months ended March 31, 1995 were $2.2
million compared to $.3 million for the same period in 1994. Included in
realized investment gains for the quarter ended March 31, 1995 was the gain on
the sale of a parcel of undeveloped property offset by the sale of certain
securities, the proceeds of which were reinvested in order to improve the
investment results.
Benefits and claims were $33.4 million for the three months ended March 31,
1995 down 1.8% from the $34.0 million for the same period in 1994. This
decrease was due primarily to lower group claims expense as a result of: (1)
the Group Department's Managed Care Program and AHL Select Provider Network,
which provide reduced medical costs for group client companies and (2) more
group cases have been written on a self-funded basis where no claim expense is
recorded by the Company.
Taxes, commissions and general expenses aggregated $23.7 million for the first
three months of 1995 versus $22.1 million for the first three months of 1994,
or an increase of 7.3%. This increase was primarily due to an increase in
credit commissions as a result of increased insurance revenues and a higher
effective commission rate.
Pursuant to generally accepted accounting principles, the initial costs
directly associated with selling, underwriting and processing ordinary
insurance are deferred and amortized over the premium-paying period of the
related policies for traditional products. For interest-sensitive products,
these costs are amortized over the lives of the policies in relation to the
present value of estimated gross profits from surrender charges and investment,
mortality and expense margins. These costs increase as the amount of sales and
insurance in force increase. The charge to earnings for acquisition costs of
ordinary insurance is comprised of two components - the amortization of costs
for policies which remain in force plus the write-off of unamortized costs
related to policies which are terminated. For the three months ended March 31,
1995 the amortization of deferred acquisition costs was $5.9 million compared
to $5.7 million for the comparable period in 1994, or an increase of 3.6%. The
increase in amortization expense was primarily due to the growth in business.
For the three months ended March 31, 1995, other operating expenses totalled
$.9 million, an increase of 75.8% compared to $.5 million for the same period
in 1994. This increase was due primarily to an increase in interest expense as
a result of an increase in the amount of average outstanding bank debt and an
increase in interest rates.
Income taxes increased 32.2% for the three months ended March 31, 1995 from the
same period in 1994, primarily as a result of the increase in earnings. For
the three months ended March 31, 1995 and 1994 the effective tax rate was 32.4%
and 31.9%, respectively. The increase in the effective tax rate is primarily
due to higher realized gains for the three months ended March 31, 1995, which
are taxed at a rate of 35%.
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIOD ENDED MARCH 31, 1995 COMPARED TO
PERIOD ENDED MARCH 31, 1994
LIQUIDITY AND CAPITAL RESOURCES
The Company is engaged primarily in the life insurance business. The principal
subsidiary, AHL, generates major sources of cash flow from premiums collected
for traditional insurance products, deposits and policy charges for interest-
sensitive products and investment income attributable to its life insurance
operations and associated investment portfolio. This results in a significant
portion of the Company's assets being liquid. Such assets are made up of cash,
short-term investments and readily marketable securities.
As an insurer, AHL is required to maintain substantial liabilities for future
policy benefits and policyholders' account balances. Since premiums and
deposits received in anticipation of such benefits are investable funds, it is
expected that AHL will continue to increase its investment portfolio using cash
flow from operations.
The increase in net cash provided by operating activities for the three months
ended March 31, 1995 compared to the same period in 1994 was due primarily to:
(1) the funding in 1994 of the termination of certain premium deposit accounts
with no comparable reduction in 1995; (2) an increase in accrued investment
income and a related decrease in unearned investment income discussed below;
and (3) an increase in group accident and health claim reserves.
The Company's policy loans are a higher percentage of invested and total assets
than industry norm as a result of a significant block of Management Security
Plan (MSP) business. The MSP product is an interest-sensitive, deferred
compensation/executive benefit-type product with the policy loan feature being
an integral part of the product. A market rate of interest is charged on the
policy loans and a predetermined built-in spread is achieved between the
interest rate charged on the policy loans and the interest rate credited on the
loaned funds. Accordingly, all MSP policy loans are completely collateralized
by the underlying policyholders' account balances. All policy loans are funded
out of cash provided by operating activities and do not represent a significant
restriction on the Company's liquidity. During 1994, the Company changed the
payment method of interest on these loans from in advance to in arrears, which
decreased unearned investment income and increased accrued investment income.
At March 31, 1995, the fair value of the Company's debt security and equity
security portfolio aggregated $507.9 million compared with an amortized cost of
$505.3 million, or an unrealized gain of $2.6 million. At December 31, 1994,
the fair value of the portfolio aggregated $465.2 million compared with an
amortized cost of $486.3 million, or an unrealized loss of $21.1 million. This
change in the unrealized gain is primarily due to market fluctuations as a
result of interest rate changes and the sale of certain securities, the
proceeds of which were reinvested in order to improve investment results.
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIOD ENDED MARCH 31, 1995 COMPARED TO
PERIOD ENDED MARCH 31, 1994
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's amortized cost of high yield bonds (rated below BBB by Standard &
Poor's Corporation and excluding non- rated and private placements) at March
31, 1995 aggregated $34.5 million with a market value of $33.4 million. At
market value, these investments represented 2.7% of total assets, or 3.8% of
total invested assets. Such holdings were not material to invested assets nor
is it expected that any subsequent gains or losses on these securities would be
material to the operations of the Company.
AHLIC is a holding company, and its liquidity is largely dependent on the
ability of its subsidiaries, primarily AHL, to pay dividends and on external
financings. As a result, AHLIC borrows on an interim basis through lines of
credit with its major banks to cover any short-term cash requirements which
may occur. The increase in bank debt at March 31, 1995 compared to the amount
at March 31, 1994 reflected the cash needs for the holding company including
stockholder dividends, interest expense on outstanding debt and the payment of
Federal income taxes.
9
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
AHL, like other insurance companies, is currently a defendant in
lawsuits that involve claims for punitive, exemplary or other
extracontractual damages, which are for amounts substantially in
excess of the actual damages sought. Management considers such
litigation regrettably to be of the type to which insurance
companies are usually and customarily subjected in the ordinary
course of business and to date no such claims of this nature
against AHL have resulted in material losses. Certain of these
cases are in Alabama where the frequency of large punitive damage
awards bearing absolutely no relation to actual damages awarded by
juries is alarming. During the current fiscal year, the number of
outstanding suits against the Company in Alabama has increased. In
the opinion of management, based on the currently ascertained facts
of the pending litigation, which the Company intends to vigorously
defend, the ultimate resolution of such litigation should not be
material to the financial position of the Company.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule (for SEC purposes only)
(b) None
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
Date 5/12/95 /s/ W. Michael Heekin
------------------------ --------------------------------------------
W. Michael Heekin, Senior Vice President and
Corporate Secretary (Authorized Officer)
Date 5/12/95 /s/ C. Richard Morehead
------------------------ --------------------------------------------
C. Richard Morehead, Executive Vice
President and Chief Financial Officer
(Principal Financial and Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 453,211,769
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 54,715,409
<MORTGAGE> 21,934,179
<REAL-ESTATE> 1,033,210
<TOTAL-INVEST> 883,668,841
<CASH> 19,886,109
<RECOVER-REINSURE> 10,009,908
<DEFERRED-ACQUISITION> 160,386,435
<TOTAL-ASSETS> 1,219,604,092
<POLICY-LOSSES> 194,017,737
<UNEARNED-PREMIUMS> 50,909,344
<POLICY-OTHER> 53,666,867
<POLICY-HOLDER-FUNDS> 583,232,926
<NOTES-PAYABLE> 84,394,000
<COMMON> 13,933,296
0
0
<OTHER-SE> 182,001,153
<TOTAL-LIABILITY-AND-EQUITY> 1,219,604,092
56,358,842
<INVESTMENT-INCOME> 16,399,468
<INVESTMENT-GAINS> 2,167,401
<OTHER-INCOME> 0
<BENEFITS> 33,390,834
<UNDERWRITING-AMORTIZATION> 5,884,763
<UNDERWRITING-OTHER> 23,733,923
<INCOME-PRETAX> 11,036,972
<INCOME-TAX> 3,579,200
<INCOME-CONTINUING> 7,457,772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,457,772
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
<RESERVE-OPEN> 53,309,000
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
