<PAGE> 1
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[X] ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1995 Commission File No. 1-7255
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No fee required)
For the transition period from ________ to ________
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-1219710
- ------------------------------------------------------ -------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer identification number)
incorporation or organization)
American Heritage Life Building
1776 American Heritage Life Drive
Jacksonville, Florida 32224
- ------------------------------------------------------- -------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number - Area Code 904-992-1776
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of Class Name of Exchange
- ------------------------------------------------------- ----------------------------------------------
Common Stock, Par Value $1.00 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
------------------
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on February 29, 1996 was approximately $154,451,163.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class Outstanding at February 29, 1996
----- --------------------------------
<S> <C>
Common Stock, Par value $1.00 per share 13,833,786 Shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference:
<TABLE>
<CAPTION>
Document Where Incorporated
- ------------------------------------------------------- ----------------------------------------------
<S> <C>
Annual report to shareholders
for the year ended December 31, 1995 Part II
Proxy statement dated March 22, 1996 Part III
</TABLE>
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
NO. NO.
<S> <C> <C>
1. BUSINESS 1
2. PROPERTIES 12
3. LEGAL PROCEEDINGS 12
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED 16
STOCKHOLDER MATTERS
6. SELECTED FINANCIAL DATA 16
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 16
CONDITION AND RESULTS OF OPERATIONS
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON 16
ACCOUNTING AND FINANCIAL DISCLOSURE
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 27
11. EXECUTIVE COMPENSATION 27
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 27
AND MANAGEMENT
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 27
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 28
SIGNATURES 29
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
American Heritage Life Investment Corporation, (the "Company"), a Florida
corporation founded on September 27, 1968, is a holding company whose principal
subsidiary is American Heritage Life Insurance Company ("AHL"), a Florida life
insurance company. AHL was organized on September 11, 1956 and is presently
authorized to do business as a life insurance company in all states, other than
New York, and in the District of Columbia, U.S. Virgin Islands and Puerto Rico.
The total number of employees of the Company at December 31, 1995 was 538. AHL
is engaged in the business of underwriting life and accident and health
insurance on an individual, credit and group basis. First Colonial Insurance
Company, ("FCIC"), a Florida credit property insurance company and a
wholly-owned subsidiary of AHL, was organized in 1987. Hereinafter, AHL and
FCIC are sometimes referred to as the "Insurance Companies."
The Company has reported increased operating earnings for 20 consecutive
years and has increased dividends to shareholders for 26 consecutive years. In
addition, the Company had more than $18.3 billion of gross life insurance
volume in force, and $1.318 billion of assets at December 31, 1995. Management
believes that these results were achieved by a combination of constantly
monitoring the operations and focusing on expense control. Expense control and
productivity are key ingredients in achieving the increased operating earnings.
The Company's ratio of expenses to total revenues, including premium
equivalents, (defined for this purpose as including premiums, premium
equivalents and investment income and excluding realized investment gains and
losses) has been recognized as being low based on industry averages. For the
years ended December 31, 1991 through 1995, general insurance expenses as a
percentage of total revenues, including premium equivalents, ranged from 6.2%
to 4.9%. For the years ended December 31, 1991 through 1995, operating
earnings per employee for each such year increased from $30,342 to $44,932.
There can be no assurance that the Company will continue to experience this
level of growth in the future.
1
<PAGE> 4
MARKETING AREAS
The Company has three primary marketing areas: ordinary, group and
credit. The following table sets forth the insurance revenues, insurance
revenues and premium equivalents and pre-tax operating earnings of the three
marketing areas for each of the years in the five year period ended December
31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Insurance revenues (1):
Ordinary
Life $ 40,173 38,405 37,000 35,753 33,308
Accident and health 83,545 75,588 71,975 65,464 53,609
--------- ------- ------- ------- -------
Total ordinary 123,718 113,993 108,975 101,217 86,917
-------- ------- ------- ------- -------
Group
Life 8,604 7,719 10,350 10,832 13,865
Accident and health 31,321 35,503 42,473 48,325 59,120
-------- ------- ------- ------- -------
Total group 39,925 43,222 52,823 59,157 72,985
-------- ------- ------- ------- -------
Credit
Life 35,380 29,516 29,183 25,053 19,554
Accident and health 48,228 43,858 36,395 26,635 16,415
--------- ------- ------- ------- -------
Total credit 83,608 73,374 65,578 51,688 35,969
--------- ------- ------- ------- -------
Total $ 247,251 230,589 227,376 212,062 195,871
========= ======= ======= ======= =======
Insurance revenues and premium
equivalents (1):
Ordinary $ 167,328 161,612 149,106 138,241 148,414
Group 206,354 167,520 158,188 163,701 177,187
Credit 138,134 116,318 103,113 93,027 73,811
--------- ------- ------- ------- -------
Total $ 511,816 445,450 410,407 394,939 399,412
========= ======= ======= ======= =======
Pre-tax operating earnings:
Ordinary $ 28,935 26,049 21,798 17,322 15,826
Group 7,470 7,323 6,042 5,269 4,528
Credit 2,739 1,754 1,720 2,969 2,848
--------- ------- ------- ------- -------
Total $ 39,144 35,126 29,560 25,560 23,202
========= ======= ======= ======= =======
</TABLE>
- ------------------------
(1) Insurance revenues include only the fees charged for interest-sensitive
and administrative services only business and do not include group and
credit premium equivalents and cash deposits from interest-sensitive
products. Thus it is necessary to evaluate insurance revenues including
premium equivalents.
Ordinary insurance revenues for reporting purposes pursuant to generally
accepted accounting principles include only the cost of insurance, expense
and surrender charges for interest-sensitive products. Revenues do not
include cash deposits from interest-sensitive products. Group and credit
insurance revenues do not include premium equivalents for the periods
presented. Group premium equivalents represent the claim costs paid for
minimum premium and self funded type plans which are paid with
policyholder funds as opposed to being paid by the Company. Under
indemnity type plans offered by the Company, claims are considered in
determining the premiums to be paid by the policyholder. For self funded
or split funded type plans, the Company pays the claim costs with
policyholder funds and such amounts are not included in the premiums paid
to the Company. Credit premium equivalents represent the claim costs paid
on administrative services only business.
2
<PAGE> 5
ORDINARY DEPARTMENT
GENERAL. Ordinary operations provide interest-sensitive products (universal
life, single and flexible premium deferred annuities and excess-interest whole
life), single premium immediate annuities, level and decreasing term products
and supplemental accident and health insurance products to individuals.
The largest portion (77.7% for the year ended December 31, 1995) of
new annualized sales was produced on a payroll allotment basis with the
remainder produced by a variety of direct billing methods through individual
agents. AHL's strategy in its ordinary operations is to offer a broader
product mix than its competitors in the payroll allotment area and to solicit
all of the employee base by targeting direct sales of insurance products to
higher income employees in addition to payroll allotment sales. Although the
Company knows of no independent study of the types of insurance products
offered in the industry, AHL believes it is one of the few life insurance
companies in the United States to offer a broad range of both life and accident
and health insurance products on a payroll allotment basis.
Distribution by payroll allotment requires a sophisticated data
processing capability which the Company has developed over the years. The
Company believes it has sufficient data processing capacity to accommodate
future growth for the foreseeable future without any significant additional
capital expenditures.
BACKGROUND. The Ordinary Department has been a key component of the strategy
and profit-making ability of AHL since its founding. For the year ended
December 31, 1995, the Ordinary Department accounted for approximately 74% of
the Company's pre-tax operating earnings, which excludes non-operating items
not allocated to the marketing areas.
Initially, ordinary operations consisted only of life insurance
products. In the mid-1970's, ordinary health insurance products were
introduced into the product portfolio in response to the Company's increasing
sales opportunities and successes in the payroll allotment market niche.
More recently, AHL has begun to target a complementary market to its
payroll allotment marketing efforts. This market was developed in response to
the personal life insurance needs of the owners, executives, officers, and
managers of its payroll allotment client companies. AHL has broadened its
strategic marketing mission to include this adjunct market niche in addition to
the more traditional "rank and file worker" market addressed by the other
payroll allotment marketing life insurance companies. As part of its focus,
AHL also redirected its upscale sales efforts from the more traditional
"kitchen table approach" to a strategy of making those upscale sales at the
workplace.
To describe its differentiation in the marketplace, AHL has coined a
descriptive phrase: "AHL--The Workplace Marketer(R) -- The Company that serves
the life and health insurance needs of the American Worker--from the lunchroom
to the board room."
MARKETS. Many ordinary life insurance companies focus on the upscale market
consisting of those individuals earning $80,000 or more. However, this target
market constitutes a small percentage of the buyer population. By targeting
the entire workplace, including the lower income worker earning under $40,000
per year and the middle income worker earning $40,000-$80,000 per year, AHL has
increased its market to a majority of the buyer population. Furthermore, AHL
offers a multiple product line of life and supplemental health products, rather
than the more narrow product mix offered by some other companies, thereby
increasing its marketing opportunities.
AHL believes that by targeting a much larger market and offering the
workplace market a full range of life and supplemental health products results
in a stronger marketing strategy.
3
<PAGE> 6
PRODUCTS. AHL's strategy is to price its products at levels competitive with
those of comparable products in the market, so long as they will provide an
acceptable profit margin. Set forth below are the primary products offered:
<TABLE>
<S> <C>
PAYROLL ALLOTMENT PRODUCTS: UPSCALE PRODUCTS:
Universal Life Universal Life
Interest-Sensitive Whole Life Excess Interest Whole Life
Term Life Term Life
Annuities Annuities
Cancer/Dread Disease
Accident
Disability Income
Hospital Indemnity including a
Supplemental Health Options Plan
</TABLE>
It is the general policy of AHL to declare the interest rate to be
credited on funds received from interest-sensitive products monthly with such
rates being guaranteed for one year for both first year and renewal funds
during a particular month. All interest-sensitive products are subject to
surrender charge provisions which vary depending upon the particular type of
policy. For universal life-type policies, the surrender charges generally
range over a period of 10-20 years at varying rates, depending upon the plan of
insurance. For annuities, the surrender charges generally range over a period
of 7-10 years with charges varying from 1% to 10% of the accumulated fund value
over the surrender charge period.
All ordinary accident and health products are guaranteed renewable,
with periodic rate increases permitted due to adverse claims experience with
the approval of the respective state insurance department. Major health
products include specified disease (e.g., cancer, heart/stroke), accident,
disability income, long-term care and hospital income. Premiums on ordinary
policies are payable on a monthly, quarterly, semi-annual, annual, single or
flexible premium basis.
AHL's current practice dictates that unless the need for a medical
examination is indicated by the age and amount applied for or by an
investigation, the majority of ordinary life insurance is written without
requiring a medical examination in amounts up to $250,000 on applicants aged
0-35; up to $150,000 on applicants aged 36-40; up to $99,999 on applicants aged
41-50; up to $49,999 on applicants up to age 60. Somewhat higher limits are
permitted for certain agents with home office approval. A blood chemistry
profile is generally required for insurance amounts of $100,000 and greater.
DISTRIBUTION SYSTEM. AHL's products are marketed through the personal
producing general agent ("PPGA") system in 49 states. AHL has found the PPGA
system to be an efficient distribution system. These agents are not
exclusively AHL producers but may write business for several insurance
companies. Each PPGA's compensation is based only upon production. Although
the Company knows of no independent study of cost of sales in the ordinary
insurance industry, AHL believes that it has an efficient employee-based field
support network and that its cost of sales is relatively low by industry
standards.
AHL has 10 regional directors, 11 regional office coordinators and 17
regional sales managers located throughout the continental United States,
recruiting, training, licensing, serving, and motivating AHL's over 6,800
agents. The home office agency department is comprised of a staff of 23
people, including a senior vice president and four marketing vice presidents.
4
<PAGE> 7
GROUP DEPARTMENT
MARKETS. Although AHL's Group Department currently operates in 15 states, it
has clients of national scope. AHL's primary market for group life and health
insurance is corporate employers who have more than 100 employees located in
the southeast. Employer groups range in size from 100 to over 40,000
employees. The Company targets employers with 500 to 5,000 employees. AHL has
focused on an integrated approach to manage benefits. With health care being a
locally delivered product, it is important to establish close relations with
providers and client companies. AHL furnishes all components necessary to
effectively manage program costs including a provider network, managed care
program and benefits adjudication.
PRODUCTS. AHL's group products include group term life insurance, accidental
death and dismemberment, short-term disability, long-term disability, dental,
and major medical coverage. A wide range of funding vehicles, including fully
insured, split funding and self-funded products, are sold within these product
lines. For the years ended December 31, 1995 and 1994, approximately 81% and
74%, respectively, of group business (based on premiums and premiums
equivalents) was written on a self-funded or split funded basis.
DISTRIBUTION SYSTEM. AHL's group life and health products are distributed
through its regional group managers working with agents, consultants, brokers
and directly with policyholders. As health care has consumed a greater portion
of employers' operating costs, responsibility for managing the programs has
shifted from the personnel function to the financial function. Often this is
accomplished without the assistance of an agent on an ongoing basis.
Accordingly, AHL works with large corporations on a direct basis and with those
brokers who have clients in the marketplace.
AHL's strategy of focusing its marketing efforts on the brokerage and
consulting community resulted in a significant portion of sales coming from
this important business segment. AHL has been successful in demonstrating the
value of its products and services to leading brokerage firms.
ADMINISTRATIVE SERVICES ONLY VERSUS RETAINED BUSINESS. AHL's group business
has responded to the market by offering more products which allow employers to
share more of the risk for the financing of their health benefit programs.
There has been a shift in AHL's block of business from traditionally funded
products to split funded products and administrative services only products
which may be purchased with or without specific and aggregate stop-loss
coverage. The impact of this in the financial statement presentation has been
a reduction in traditional premium levels offset by an increase in premium
equivalents.
MARKET NICHE. AHL's target market will continue to be corporate employers with
100 or more lives. Particular emphasis will be placed on direct marketing to
those employers having a home office or regional presence within the
southeastern United States employing between 500 and 5,000 employees. The
products offered by AHL's Group Department complement the individual life and
health products sold on a payroll deduction basis and provide AHL agents and
brokers and AHL's client companies with a complete portfolio of products and
services.
MARKETING PLANS AHL will continue to develop products and services to meet
employer/employee needs. As managed care has gained growing acceptance within
AHL's market, AHL has decided to complement its product line with the
introduction of HMO products. Development is underway.
5
<PAGE> 8
CREDIT DEPARTMENT
MARKETS AND PRODUCTS. AHL is a full service credit insurance operation (credit
life and credit accident and health insurance) providing direct and reinsured
programs to a broad spectrum of the marketplace. In addition, credit related
property insurance coverage through its wholly-owned subsidiary, FCIC, is
offered. AHL has expanded its credit insurance marketing activities to include
34 of the 50 states.
Credit operations consist of life and accident and health insurance
coverages offered to consumer debtors, chiefly through banks, automobiles
dealers, finance companies and retailers. Typically, this insurance will pay
outstanding loan obligations in the event of an insured loss. This coverage is
issued on either the single-premium or outstanding loan balance basis. Credit
life is sold on a reducing or level-term basis and is available on a
single-life or, if permitted by state law, on a joint-life basis where the
related loan is co-signed. Credit accident and health insurance will normally
only be written in conjunction with credit life insurance. The maximum term is
generally 10 years for credit life insurance and five to six years for credit
accident and health insurance. The maximum issue age for credit life and
credit accident and health insurance is 71 and 66, respectively. All of the
foregoing terms and limits are subject to statutory requirements which may vary
in individual states from those specified above.
FCIC's products are designed to address the additional needs of the
clients of the Credit Department. Collateral protection coverage is marketed
to financial institutions and installment floater and vendor's single interest
coverage are marketed to consumer finance companies and retail dealers. In
addition, unemployment insurance is offered where permitted. FCIC is currently
licensed in 12 states.
The credit insurance industry is well established and is closely
controlled by state regulation. Competition is still very strong even though
there has been some retrenchment in the industry. Several companies have
restricted their marketing and several major providers have withdrawn
completely from the marketplace, which management believes has provided
significant opportunities for both new account sales and the administration of
runoff business for companies that have ceased writing credit insurance.
DISTRIBUTION SYSTEM. The distribution channels used by AHL and FCIC include
direct marketing by regional sales managers and the general agency system.
Additionally, FCIC has an assistant vice president for its credit property
insurance who works with and through the regional sales managers. AHL and FCIC
do not employ direct mail or other mass solicitation- type marketing.
6
<PAGE> 9
INVESTMENTS
The Company's investment objective is to earn a favorable return on
invested assets in excess of contractual obligations through a diversified
portfolio of high-quality, income-producing assets including primarily bonds,
preferred stocks, common stocks and to some extent mortgages (residential and
commercial). Our current investment strategy includes increasing our
investments in corporate bonds and mortgage loans while decreasing our
investments in GNMA's on a gradual basis. AHL carefully matches the investment
portfolio's assets with its policy liabilities. A positive investment spread
has been attained for all products. The maturity of the investment portfolio
is monitored so that the Company will be able to fund its future expected cash
obligations.
At December 31, 1995 and December 31, 1994, the Company had
consolidated invested assets of $979,602,947 and $845,729,426, respectively.
The following tabulation sets forth the categories, amounts and percentages of
these investments.
<TABLE>
<CAPTION>
% OF % OF
DECEMBER 31, 1995 TOTAL DECEMBER 31, 1994 TOTAL
----------------- ------- ----------------- ------
<S> <C> <C> <C> <C>
Debt securities available-for-sale $515,428,786 52.6% $412,746,726 48.8%
Equity securities available-for-sale 34,734,980 3.6 52,476,038 6.2
Mortgage loans on real estate 29,506,184 3.0 20,625,877 2.5
Investment real estate 375,204 - 1,022,985 .1
Policy loans 376,672,196 38.5 351,160,060 41.5
Short-term investments 22,885,597 2.3 7,697,740 .9
------------ ----- ------------ -----
Total $979,602,947 100.0% $845,729,426 100.0%
============ ===== ============ =====
</TABLE>
At December 31, 1995, the Company had consolidated debt securities
available-for-sale at an amortized cost of $493,813,866 and a fair value of
$515,428,786. The following tabulation sets forth these investments by
Standard and Poor's rating categories.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1995
AMORTIZED FAIR
RATING COST VALUE
------------------------------- ---------------------- ----------------------
<S> <C> <C>
AAA $214,395,411 $215,707,562
AA 17,530,900 17,991,300
A,A- 76,580,054 82,353,400
BBB+, BBB, BBB- 117,680,946 126,089,188
BB+ and lower 29,139,831 32,817,380
Non-rated 1,884,944 1,832,600
Private placements 7,841,820 9,969,357
------------- ------------
Total bonds 465,053,906 486,760,787
Redeemable preferred stocks 28,759,960 28,667,999
------------- ------------
Total debt securities
available-for-sale $ 493,813,866 $515,428,786
============= ============
</TABLE>
7
<PAGE> 10
The amortized cost and estimated fair value of debt securities at
December 31, 1995, by contractual maturity, were as follows. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or repay obligations with or without penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
-------------- --------------
<S> <C> <C>
Due in one year or less $ 5,616,792 $ 5,729,284
Due after one year through five years 7,610,743 8,433,999
Due after five years through ten years 135,888,071 146,812,594
Due after ten years 119,447,770 129,429,412
GNMA's 196,490,530 196,355,498
Redeemable preferred stocks 28,759,960 28,667,999
------------ ------------
Total $493,813,866 $515,428,786
============ ============
</TABLE>
The following tabulation provides information with respect to the
investment results of the Company for the years ended December 31, 1995, 1994
and 1993:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993
---------- ---------- ----------
($ in thousands)
<S> <C> <C> <C>
Average invested assets, weighted (1) $923,946 $848,012 $800,974
Net investment income 70,601 66,706 63,875
Realized investment gains 6,003 2,011 1,184
Change in unrealized investment
gains (losses) on equity
and debt securities (2) 27,664 (24,919) (11,263)
Ratio of net investment income
to weighted average invested
assets (3) 7.64% 7.87% 7.97%
</TABLE>
- --------------------
(1) Average invested assets for 1995 and 1994 are calculated using fair values
for all securities as required by Financial Accounting Standard No. 115
(FAS 115), "Accounting for Certain Investments in Debt and Equity
Securities." In 1993 equity securities were carried at fair value and debt
securities were carried at cost.
(2) The change in unrealized investment gains (losses) includes gains and
losses on equity securities only in 1993. In 1995 and 1994, unrealized
gains and losses are calculated on both equity and debt securities as
prescribed by FAS 115.
(3) Since equity securities are carried at fair values for all years presented,
and debt securities are reported at fair value for 1995 and 1994, all
increases (decreases) in fair value result in a reduction (increase) of the
ratio calculated above.
At December 31, 1995, U.S. Treasury obligations and GNMA's, both of
which are secured by the full faith and credit of the United States Government,
aggregated at fair value $203,177,693 or 40.0% of the total bond portfolio of
$508,285,787 (including short-term bonds of $21,525,000). The amortized cost
8
<PAGE> 11
of non-investment grade bonds (rated below BBB- by Standard & Poor's
Corporation and excluding private placements and non-rated securities) at
December 31, 1995 was $30,152,831 with a fair value of $32,817,380. At fair
value, these investments represented 2.5% of total consolidated assets, or 3.4%
of invested assets. The Company's holdings of non- investment grade paper has
been limited and will continue to be minimal in the future.
The Company's mortgage loan portfolio aggregated $29,506,184 at
December 31, 1995. There were no non-performing mortgage loans at December
31, 1995. The Company holds no collateralized mortgage obligations or
derivative securities.
ADDITIONAL INFORMATION REGARDING INSURANCE OPERATIONS
The following table sets forth the cash premiums and deposits received
(in thousands) by geographic region in the United States for the Insurance
Companies for the three years ended December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Southeast $258,408 $252,531 $225,220
Southwest 43,804 41,863 45,478
Midwest 14,185 13,007 17,704
Northeast 8,220 6,934 9,897
Northwest 12,523 8,586 5,300
-------- -------- --------
Total $337,140 $322,921 $303,599
======== ======== ========
</TABLE>
The following tabulation sets forth the amount of gross life insurance
volume in force by industry segment at December 31, 1995, 1994, and 1993:
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------
TYPE OF INSURANCE 1995 1994 1993
------------------------------ ---------- ---------- ----------
($ in millions)
<S> <C> <C> <C>
Gross life insurance volume in force:
Ordinary $ 9,167 $ 8,282 $ 7,727
Credit 4,138 3,578 2,972
Group 5,079 4,956 4,902
------- ------- -------
Total $18,384 $16,816 $15,601
======= ======= =======
</TABLE>
REINSURANCE
It is the general practice of the life insurance industry to reinsure
portions of life and accident and health insurance risks with other companies.
The maximum amount of ordinary insurance which AHL generally retains on any one
life currently insured under ordinary policies is $100,000 for policies issued
prior to July 1, 1994 and $200,000 for policies issued subsequent to July 1,
1994, with reductions for certain substandard, military and older age risks.
The major portion of reinsurance ceded on a GAAP basis is under agreements with
American United Life Insurance Company, Barnett Banks Insurance, Inc., General
Financial Life Insurance Company, Life Reassurance Corporation, Lincoln
National Life Insurance Company, Reassurance Company of Hanover, Reinsurance
Group of America, Inc., Southwestern Dealers Insurance Company and Transamerica
Occidental Life Insurance Company. At December 31, 1995, the
9
<PAGE> 12
aggregate amount of life insurance volume in force ceded under reinsurance
agreements totaled $3,836,741,000 (20.9% of the total in force at that date).
For the year ended December 31, 1995, $41,507,117, or 20.3% of the total
accident and health insurance premiums written, were reinsured.
Pursuant to GAAP and the terms and conditions of the reinsurance
agreements with the reinsurers which provide for an effective transfer of risk
to the reinsurer, the Company has taken credit in its consolidated financial
statements for the portion ceded to the respective reinsurer.
Management reviews the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities or economic characteristics of the reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies. All receivables
due from the reinsurers have been settled in a timely manner.
GOVERNMENT REGULATION
The Company and its insurance subsidiaries are subject to regulation
and supervision by the states in which the insurance subsidiaries transact
business. The laws of the various states establish regulatory agencies with
broad administrative powers to grant and revoke licenses to transact business,
regulate rates on certain business prior to use, establish reserve
requirements, determine the form and content of required statutory financial
statements, determine the reasonableness and adequacy of statutory capital and
surplus and prescribe the types of permitted investments and the maximum
concentrations of certain classes of investments. As part of their routine
regulatory oversight process, approximately once every three years state
insurance departments conduct periodic detailed examinations of the books,
records and accounts of insurance companies domiciled in their states.
Further, insurance companies are subject to market conduct examinations by
state insurance regulators. Such examinations are not conducted according to
any fixed schedule.
Insurance companies are required to file detailed annual and quarterly
statements with the state insurance regulators in each of the states in which
they do business, and their business and accounts are subject to examination by
such agencies at any time. State insurance receivership laws, rather than
federal bankruptcy laws, govern the liquidation or rehabilitation of insurance
companies.
This insurance regulation and supervision is designed primarily to
ensure the financial stability of insurance companies and to protect
policyholders rather than shareholders or general creditors.
FINANCIAL REGULATION
The Risk-Based Capital for Life and/or Health Insurers Model Act (the
"Model Act") was adopted by the National Association of Insurance Commissioners
("NAIC") in 1992. A similar model act was adopted for property and casualty
insurance companies in 1994. The main purpose of these model acts is to
provide a tool for insurance regulators to evaluate the capital of insurers
with respect to the risks assumed by them and determine whether there is a need
for possible corrective action.
These model acts provide for four different levels of regulatory
action, each of which may be triggered if an insurer's Total Adjusted Capital
is less than a corresponding "level" of Risk Based Capital ("RBC"). A modified
phase-in test is triggered if an insurer's Total Adjusted Capital is less than
200% of its "Authorized Control Level RBC" (as defined in the Model Act), or
less than 250% of its Authorized Control Level RBC and the insurer has a
negative trend ("the Company Action Level"). At the Company Action Level, the
insurer must submit a comprehensive plan to the regulatory authority which
discusses proposed corrective actions to improve its capital position. The
"Regulatory Action Level" is triggered if an insurer's Total Adjusted Capital
is less than 150% of its Authorized Control Level RBC. At the
10
<PAGE> 13
Regulatory Action Level, the regulatory authority will perform a special
examination of the insurer and issue an order specifying corrective actions
that must be followed. The "Authorized Control Level" is triggered if an
insurer's Total Adjusted Capital is less than 100% of its Authorized Control
Level RBC, and at that level the regulatory authority is authorized (although
not mandated) to take regulatory control of the insurer. The "Mandatory
Control Level" is triggered if an insurer's Total Adjusted Capital is less than
70% of its Authorized Control Level RBC, and at that level the regulatory
authority must take regulatory control of the insurer. Regulatory control may
lead to rehabilitation or liquidation of an insurer.
Based on calculations using the NAIC formula as of December 31, 1995,
AHL and FCIC exceeded the required level for RBC at such time.
DIVIDEND REGULATION
The Company is a legal entity separate and distinct from its
subsidiaries. As a holding company with no other significant business
operations, its primary sources of cash to meet its obligations are borrowings,
dividends and other payments from its insurance subsidiaries.
The Company's insurance subsidiaries are subject to various regulatory
restrictions on the maximum amount of payments, including dividends and other
distributions, that they may make to the Company without obtaining prior
regulatory approval. As a Florida domiciled insurance company, AHL is subject
to Florida law, effective June 8, 1993, to the effect that life and health
insurance company dividends may be made without prior Florida Insurance
Commissioner's approval if the dividend is equal to or less than the greater
of: (a) 10% of AHL's surplus as to policyholders derived from realized net
operating profits on its business and net realized capital gains; or (b) AHL's
entire net operating profits and realized net capital gains derived during the
immediately preceding calendar year, if AHL will have surplus as to
policyholders equal to or exceeding 115% of the minimum required statutory
surplus as to policyholders after the dividend is paid.
If insurance regulators determine that payment of a dividend or any
other payment to an affiliate (such as a payment under a tax allocation
agreement or for employee or other services or pursuant to a surplus debenture)
would, because of the financial condition of the paying insurance company or
otherwise, be hazardous to such insurance company's policyholders or creditors
or to certain other parties, the regulators may block payment of such dividends
or such other payment to the affiliates that would otherwise be permitted
without prior approval.
CHANGE OF CONTROL REGULATION
The states in which the Company's insurance subsidiaries are domiciled
have enacted legislation or adopted administrative regulations affecting the
acquisition of control of insurance companies as well as transactions between
insurance companies and persons controlling them. Most states require
administrative approval of the acquisition of control of an insurance company
incorporated in the state or the acquisition of control of an insurance holding
company whose insurance subsidiary is incorporated in the state. In Florida,
the acquisition of 5% of such shares is generally deemed to be the acquisition
of "control" for the purpose of the holding company statutes and requires not
only filing of detailed information concerning the acquiring parties and the
plan of acquisition, but also administrative approval prior to the acquisition.
11
<PAGE> 14
COMPETITION
The life insurance industry is highly competitive. The competitors of
the Company consist of both stock and mutual companies, and in many instances
they have been in business for longer periods of time and may have greater
financial resources than the Company. However, management of the Company
believes that its policies are generally competitive with similar types of
policies being offered by other insurers doing business in the jurisdictions in
which they operate.
In addition to the more than 1,800 life insurance companies which are
competitors of the Company, there are banks and other financial institutions
that could be permitted to sell life insurance products directly, thereby
increasing competition even more. However, there are a number of unresolved
regulatory issues related to the authority of banks located in the Company's
major marketing areas to compete directly with the Company in the sale of life
insurance products, including interest-sensitive products.
OTHER BUSINESS
The non-life insurance operations, excluding AHLIC, consisted
primarily of intercompany operations which are eliminated in consolidation and
accordingly did not contribute materially to consolidated operating earnings.
ITEM 2. PROPERTIES
AHL and its subsidiaries own 29.77 acres in a suburban area of
Jacksonville, Florida, upon which it completed construction in August, 1994 of
an eight story home office building containing approximately 140,000 square
feet and a two story annex building of approximately 20,000 square feet. AHL
and its affiliates relocated to this new home office building effective August
29, 1994.
AHL also owns a 92 space parking lot in downtown Jacksonville, Florida
and one parcel of vacant land located in suburban Jacksonville, consisting of
approximately 32 acres.
ITEM 3. LEGAL PROCEEDINGS
AHL, like other insurance companies, is currently a defendant in
lawsuits that involve claims for punitive, exemplary or other extra contractual
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 the settlements of such claims of this nature
have not been material to the financial position of the Company. 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.
12
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
quarter ended December 31, 1995.
EXECUTIVE OFFICERS OF REGISTRANT
The following tabulation is a list of the names and ages as well as
the position held for the past five years by each executive officer of the
Company and certain executive officers of AHL, none of whom is related to each
other either by blood or marriage.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
T. O'Neal Douglas 60 Chairman of the Board, President and Chief Executive Officer (a)
Chairman and Chief Executive Officer (b)
Chris A. Verlander 48 Executive Vice President (a)
President (b)
C. Richard Morehead 49 Executive Vice-President, Treasurer and Chief Financial Officer (a) (b)
Chief Accounting Officer (a)
Charles C. Baggs 45 Senior Vice-President, Administration (b)
James H. Baum 44 Senior Vice-President Group Department (b)
David A. Bird 39 Senior Vice-President Agency Department (b)
W. Michael Heekin 43 Senior Vice-President, General Counsel and Corporate Secretary (a) (b)
Elizabeth A. Mahin 35 Senior Vice-President and Chief Accounting Officer (b)
William J Thomas 51 Senior Vice-President Credit Department (b)
Curtiss S. Sheldon 54 Senior Vice-President and Chief Actuary (b)
(a) AHLIC (b) AHL
</TABLE>
Mr. Douglas' principal positions are those of: Chairman of the Board
of Directors of the Company, a position he has held since April, 1994;
President and Chief Executive Officer of the Company, a position he has held
since February, 1990; Director of the Company, a position he has held since
July, 1987; Director of AHL, a position he has held since January, 1984; Chief
Executive Officer of AHL, a position he has held since February, 1990; and
Chairman of AHL, a position he has held since April, 1994. From July, 1986 to
April, 1994 he was President of AHL. From July, 1986 to February, 1990, he was
Executive Vice President of the Company. From April, 1985 to July, 1986 he was
Executive Vice President of AHL. From December, 1983 to April, 1985, he was
Senior Vice President of AHL.
13
<PAGE> 16
Mr. Chris A. Verlander's principal positions are those of: Executive
Vice President of the Company, which he has held since April, 1990; Director of
the Company, a position he has held since July, 1987; Director of AHL which he
has held since April, 1985 and President of AHL, which he has held since April,
1994. Prior to April, 1994 and since April, 1990 he was Executive Vice
President of AHL. Prior to April, 1994 and since September, 1985, he was
Corporate Secretary of the Company and AHL. Prior to April, 1990 and since
1984, he was Senior Vice President of the Company and AHL. Prior to 1984 and
since 1979, he was Vice President of AHL.
Mr. Morehead's principal positions are those of Executive Vice
President of the Company and AHL, which he has held since April, 1994,
Treasurer and Chief Financial Officer and Chief Accounting Officer of the
Company and Chief Financial Officer of AHL, which he has held since July, 1986
and Director of AHL, which he has held since July, 1990. Prior to April, 1994
and since July, 1986, he was Senior Vice President of the Company and AHL.
Prior to July, 1986 and since 1983, he was a partner in the accounting firm of
Peat, Marwick, Mitchell & Co. (now KPMG Peat Marwick LLP) and had been
affiliated with that firm since 1976.
Mr. Bagg's principal position is that of Senior Vice President of AHL,
a position he has held since December, 1990. Prior to December, 1990 and since
November, 1988 he was Vice President of AHL. Prior to November, 1988 and since
May, 1987 he was Assistant Vice President of AHL. From February, 1985 until
May, 1987 he was employed by AHL in a non-officer capacity.
Mr. Baum's principal position is that of Senior Vice President, Group
Department, of AHL, which position he has held since September, 1987. Prior to
September, 1987 and since December, 1986, he was Vice President and Group
Actuary of AHL.
Mr. Bird's principal position is that of Senior Vice President, Agency
Department of AHL, which he has held since May, 1994. Prior to May, 1994 and
since January, 1994 he was Vice-President of AHL. Prior to 1994 and since
1987, he was a Regional Director of AHL.
Mr. Heekin's principal positions are those of Senior Vice President,
Corporate Secretary and General Counsel of the Company, which he has held since
April, 1994; Senior Vice President and General Counsel of AHL, which he has
held since March, 1993; and Corporate Secretary of AHL, which he has held since
April, 1994. Prior to March, 1993 and since August, 1991, he was engaged by
the Florida State Insurance Department as the Deputy Receiver of Guarantee
Security Life Insurance Company in Receivership in Jacksonville, Florida.
Prior to August, 1991 and since July, 1991, he was engaged by the Florida State
Insurance Department as the Deputy Supervisor of Guarantee Security Life
Insurance Company. Prior to July, 1991 and since October, 1988, Mr. Heekin was
Associate Dean of Florida State University College of Law in Tallahassee,
Florida.
Ms. Mahin's principal position is that of Senior Vice President and
Chief Accounting Officer of AHL, which she has held since April, 1994. Prior
to April, 1994 and since August, 1990 she was Vice President and Controller of
AHL. Prior to August, 1990 and since April, 1989 she was Assistant Vice
President and Assistant Controller of AHL. From July, 1988 until April, 1989
she was employed by AHL in a non-officer capacity.
Mr. Thomas' principal position is that of Senior Vice President of
AHL, a position he has held since July, 1995. Prior to July, 1995 and since
April, 1990, he was Vice President of AHL. Prior to April, 1990 and since May,
1987, he was Assistant Vice President of AHL. From December, 1986 until May,
1987, he was employed by AHL in a non-officer capacity.
Mr. Sheldon's principal position is that of Senior Vice President and
Chief Actuary of AHL, which he has held since August, 1993. Prior to August,
1993 and since June, 1978 he was with Southern Farm Bureau Life Insurance
Company, serving as vice president and chief actuary since February, 1987.
14
<PAGE> 17
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers to file with the Securities and
Exchange Commission ("SEC") and the New York Stock Exchange initial reports of
ownership and reports of changes in ownership of the Shares. Executive
officers and directors are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company and written representations that no other
reports were required during the fiscal year ended December 31, 1995, all
Section 16(a) filing requirements applicable to its executive officers and
directors were complied with, except for two Form 4 reports reflecting an
indirect interest in 4,030 shares acquired in April, 1995, by two trusts of
which Mr. A. Dano Davis is a trustee. Such transaction was reported on the
trust's Form 4s for June, 1995.
15
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
See the Section entitled "Quarterly Stock Prices and Dividends" on
page 29 of the Registrant's 1995 Annual Report to Shareholders, which is
enclosed, which section is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
See "Selected Financial Data" on page 17 of this document.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See "Management's Discussion and Analysis" commencing on page 13 of
the Registrant's 1995 Annual Report to Shareholders which is enclosed, which
discussion and analysis is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Consolidated Statements of Earnings," "Consolidated Balance
Sheets," "Consolidated Statements of Stockholders' Equity," "Consolidated
Statements of Cash Flows," "Notes to Consolidated Financial Statements,"
"Independent Auditors' Report" and "Quarterly Financial Data," on pages 17
through 29 of the Registrant's 1995 Annual Report to Shareholders which is
enclosed, which statements and data are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE.
16
<PAGE> 19
SELECTED FINANCIAL DATA
CONSOLIDATED SUMMARY OF EARNINGS
(In thousands except per share amounts and number of shares)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993 1992 1991
- ----------------------- ------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Income:
Insurance revenues $ 247,251 230,589 227,376 212,062 195,871
Net investment income 70,601 66,706 63,875 59,721 54,535
Realized investment gains, net 6,003 2,011 1,184 237 89
------------- ------------ ------------ ------------ -----------
Total income 323,855 299,306 292,435 272,020 250,495
------------- ------------ ------------ ------------ -----------
Benefits, claims and expenses:
Benefits and claims 148,581 146,146 159,335 155,722 147,706
Underwriting, acquisitions and
insurance expenses:
Taxes, commissions and general expenses 106,399 95,326 82,298 71,012 64,953
Amortization of deferred acquisition costs 23,744 20,758 20,091 19,450 14,601
Other operating expenses 3,694 2,413 1,806 1,685 1,211
------------- ------------ ------------ ------------ -----------
Total benefits claims and expenses 282,418 264,643 263,530 247,869 228,471
------------- ------------ ------------ ------------ -----------
Earnings before income taxes 41,437 34,663 28,905 24,151 22,024
Income taxes 13,362 11,022 9,190 7,255 6,946
------------- ------------ ------------ ------------ -----------
Net earnings $ 28,075 23,641 19,715 16,896 15,978
------------- ------------ ------------ ------------ -----------
Net earnings per share of common stock $ 2.02 $ 1.71(2) 1.59(2) 1.42 1.27
------------- ------------ ------------ ------------ -----------
Weighted average number of shares outstanding 13,882,041 13,855,297 12,399,070 11,902,790 11,860,313
------------- ------------ ------------ ------------ -----------
Cash Dividends Declared Per Share(1) $ .65 $ .70 .59 .56 .53
------------- ------------ ------------ ------------ -----------
At December 31:
Total Assets $ 1,317,896 $ 1,179,257 1,138,578 1,016,984 892,595
------------- ------------ ------------ ------------ -----------
Notes Payable to Banks, Long-Term $ 20,000 20,000 - 50,000 -
------------- ------------ ------------ ------------ -----------
</TABLE>
(1) 1994 includes $.055 dividend declared December 30, 1994, paid February 24,
1995 to shareholders of record February 13, 1995.
(2) As a result of the 1,872,045 additional shares outstanding from the public
stock offering completed in October, 1993, net earnings per share of
common stock were diluted for the years ended December 31, 1993 and
subsequent.
17
<PAGE> 20
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
<S> <C> <C>
(1) Financial Statements Number
------
Independent Auditors' Report - Years ended December 31,
1995, 1994 and 1993 *
Consolidated Statements of Earnings, Years ended
December 31, 1995, 1994 and 1993 *
Consolidated Balance Sheets, December 31, 1995 and 1994 *
Consolidated Statements of Stockholders' Equity, Years
ended December 31, 1995, 1994 and 1993 *
Consolidated Statements of Cash Flows, Years ended
December 31, 1995, 1994 and 1993 *
Notes to Consolidated Financial Statements, Years ended
December 31, 1995, 1994 and 1993 *
(2) Financial Statement Schedules:
Independent Auditors' Report 19
I. - Summary of Investments - Other than Investments
in Related Parties, December 31, 1995 20
III. - Condensed Financial Information of Registrant 21
V. - Supplementary Insurance Information, Years ended
December 31, 1995, 1994 and 1993 25
VI. - Reinsurance, Years ended December 31, 1995, 1994
and 1993 26
</TABLE>
All other schedules are omitted as the required information is inapplicable or
presented in the consolidated financial statements or related notes.
*Incorporated by reference.
18
<PAGE> 21
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
American Heritage Life Investment Corporation:
Under date of January 29, 1996, we reported on the consolidated balance sheets
of American Heritage Life Investment Corporation and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1995, as contained in the 1995 annual
report to stockholders. These consolidated financial statements and our report
thereon are incorporated by reference in the annual report on Form 10-K for the
year 1995. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related financial statement
schedules listed in the accompanying index. These financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.
As discussed in note 1 to the aforementioned consolidated financial statements,
during the year ended December 31, 1994, the Company adopted the provisions of
the Financial Standard Board's Statement of Financial Accounting Standard No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
KPMG PEAT MARWICK LLP
Jacksonville, Florida
January 29, 1996
19
<PAGE> 22
SCHEDULE I
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
FAIR IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
- -------------------------------------- ------------- ------------ -------------
<S> <C> <C> <C>
Debt securities available-for sale:
Bonds:
United States Government and
government agencies and
authorities $ 210,422,603 $211,617,564 $211,617,564
States, municipalities and
political subdivisions 345,000 372,600 372,600
Public utilities 33,173,518 34,033,555 34,033,555
Convertibles and bonds with
warrants attached 2,736,309 2,763,000 2,763,000
All other corporate 218,376,476 237,974,068 237,974,068
Redeemable preferred stock 28,759,960 28,667,999 28,667,999
------------- ------------ ------------
Total debt securities 493,813,866 $515,428,786 515,428,786
------------- ============ ------------
Equity securities available-for-sale:
Common stocks:
Public utilities 489,945 720,000 720,000
Banks, trust and insurance
companies 3,192,880 5,413,193 5,413,193
Industrial, miscellaneous and
all other 19,526,233 28,601,787 28,601,787
------------- ------------ ------------
Total equity securities 23,209,058 $ 34,734,980 34,734,980
------------- ============ ------------
Mortgage loans on real estate 29,506,184 29,506,184
Real estate 375,204 375,204
Policy loans 376,672,196 376,672,196
Short-term investments 22,885,597 22,885,597
------------- ------------
Total investments $ 946,462,105 $979,602,947
============= ============
</TABLE>
See Footnote 1(c) to the Consolidated Financial Statements on page 22 of the
Annual Report to Shareholders which sets forth the accounting policies related
to investments.
20
<PAGE> 23
SCHEDULE III
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
The following condensed balance sheets of American Heritage Life Investment
Corporation ("Registrant") as of December 31, 1995 and 1994 and its condensed
statements of earnings and cash flows for the years ended December 31, 1995,
1994 and 1993 should be read in conjunction with the notes to consolidated
financial statements included elsewhere in this report. Since the Registrant's
condensed statements of changes in stockholders' equity for the years ended
December 31, 1995, 1994 and 1993 are identical to the consolidated statements
of changes in stockholders' equity included elsewhere in this report, such
statements are not repeated in this schedule.
On December 27, 1995, a dividend of $13,245,264 related to American Heritage
Life Insurance Company's (AHL's) earnings in 1994, was paid from AHL to the
Registrant. In the years 1994 and 1993, no dividends were paid to the
Registrant by AHL.
21
<PAGE> 24
SCHEDULE III, CONTINUED
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ ------------ ------------
<S> <C> <C>
Cash $ 46,174 $ 34,220
Certificate of deposit 100,000 100,000
Investment in life insurance
subsidiaries, at equity 249,370,749 204,265,884
Investment in non-life insurance
subsidiaries, at equity 4,454,226 4,433,485
Accounts receivable 11,449,111 460,999
Intercompany accounts 756,600 0
Other assets 9,485,563 10,732,903
------------ ------------
$275,662,423 $220,027,491
============ ============
Liabilities and Stockholders's Equity
- -------------------------------------
Liabilities:
Notes payable to banks $ 54,994,000 $ 44,200,000
Other liabilities 1,339,193 2,254,845
Intercompany accounts 0 213,031
------------ ------------
Total liabilities 56,333,193 46,667,876
------------ ------------
Stockholders' equity:
Common stock of $1.00 par value.
Authorized 20,000,000 shares in 1995 and 1994;
issued 13,933,206 in 1995 and 13,905,794 in 1994 13,933,206 13,905,794
Preferred stock:
Convertible of $10.00 par value.
Authorized 500,000 shares; none issued 0 0
Non-convertible of $10.00 par value.
Authorized 500,000 shares; none issued 0 0
Additional paid-in capital 42,214,787 41,866,379
Retained earnings 148,454,353 129,406,469
Unrealized investment gains (losses) 16,772,078 (10,892,295)
------------ ------------
221,374,424 174,286,347
Less cost of 97,277 in 1995 and 45,954
in 1994 common shares in treasury 2,045,194 926,732
------------ ------------
Total stockholders' equity 219,329,230 173,359,615
------------ ------------
$275,662,423 $220,027,491
============ ============
</TABLE>
22
<PAGE> 25
SCHEDULE III, CONTINUED
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Income:
Investment income $ 62,678 14,120 28,788
Other income 304,200 307,111 304,200
Realized loss - - (78,003)
------------ ----------- -----------
Total income 366,878 321,231 254,985
Operating expenses 3,719,580 2,429,137 1,857,680
------------ ----------- -----------
Loss before income tax benefits (3,352,702) (2,107,906) (1,602,695)
Income tax benefits (1,203,700) (780,500) (596,400)
------------ ----------- -----------
Loss before equity in earnings (loss)
of subsidiaries (2,149,002) (1,327,406) (1,006,295)
Equity in net earnings of life insurance
subsidiaries 30,565,760 25,320,502 21,003,611
Equity in net losses of non-life
insurance subsidiaries (341,372) (352,194) (282,687)
------------ ----------- -----------
Net earnings $ 28,075,386 23,640,902 19,714,629
============ =========== ===========
</TABLE>
23
<PAGE> 26
SCHEDULE III, CONTINUED
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
--------------- -------------- --------------
<S> <C> <C> <C>
Operating activities:
Net earnings $ 28,075,386 23,640,902 19,714,629
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Change in accounts receivable (10,988,112) (138,117) (310,434)
Change in other assets 1,247,340 (1,270,691) (1,166,096)
Change in other liabilities (915,652) 1,082,606 (1,351,669)
Equity in net earnings of life
insurance subsidiaries (30,565,760) (25,320,502) (21,003,611)
Equity in net loss of non-life
insurance subsidiaries 341,372 352,194 282,687
Other 0 0 239,856
--------------- -------------- --------------
Net cash used from operating
activities (12,805,426) (1,653,608) (3,594,638)
--------------- -------------- --------------
Financing activities:
Dividends from subsidiaries 13,245,264 0 0
Capital contribution to subsidiary (120,000) (240,000) 0
Increase (decrease) in notes payable
to banks 10,794,000 11,720,000 10,379,000
Change in intercompany accounts (969,631) (170,635) (443,417)
Dividends to stockholders (9,389,613) (10,061,465) (7,770,638)
Purchase of treasury stock (1,118,462) (2,229) (317,596)
Excess over par value on shares issued 402,718 405,830 1,689,488
Other, net (26,896) 3,321 61,361
--------------- -------------- --------------
Net cash provided by
financing activities 12,817,380 1,654,822 3,598,198
--------------- -------------- --------------
Increase (decrease) in cash 11,954 1,214 3,560
Cash at beginning of year 34,220 33,006 29,446
--------------- -------------- --------------
Cash at end of year $ 46,174 34,220 33,006
=============== ============== ==============
</TABLE>
24
<PAGE> 27
SCHEDULE V
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
INDUSTRY SEGMENT DEFERRED FUTURE POLICYHOLDERS' POLICY AND
- ---------------------------- ACQUISITION POLICY ACCOUNT UNEARNED CONTRACT
Year ended December 31, 1995 COSTS BENEFITS BALANCES PREMIUMS CLAIMS
- ---------------------------- --------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Ordinary $158,250,346 195,859,984 629,589,633 3,360,538 9,537,431
Group 0 9,227,751 6,080,433 0 31,380,088
Credit 0 0 0 49,956,614 9,457,926
Other 0 0 0 0 (309,722)
------------ ----------- ------------ ---------- ----------
$158,250,346 205,087,735 635,670,066 53,317,152 50,375,445
============ =========== =========== ========== ==========
Year ended December 31, 1994
- ----------------------------
Ordinary $162,867,773 183,043,220 570,024,695 1,677,180 8,198,767
Group 0 9,468,534 6,511,065 0 36,376,975
Credit 0 0 0 49,927,086 8,733,157
Other 0 0 0 0 (215,082)
------------ ----------- ------------ ---------- ----------
$162,867,773 192,511,754 576,535,760 51,604,266 53,308,899
============ =========== =========== ========== ==========
Year ended December 31, 1993
- ----------------------------
Ordinary $146,332,710 175,251,348 525,186,003 1,698,586 8,800,490
Group 0 9,092,255 6,105,984 0 39,978,241
Credit 0 0 0 45,179,106 7,635,993
Other 0 0 0 0 (175,626)
------------ ----------- ------------ ---------- ----------
$146,332,710 184,343,603 531,291,987 46,877,692 56,414,724
============ =========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
AMORTIZATION TAXES,
INDUSTRY SEGMENT NET BENEFITS OF DEFERRED COMMISSIONS
- ---------------------------- INSURANCE INVESTMENT AND ACQUISITION AND GENERAL
Year ended December 31, 1995 REVENUES INCOME(A) CLAIMS COSTS EXPENSES (B)
- ---------------------------- --------- ------------ ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Ordinary 123,718,289 61,559,101 103,183,528 23,744,359 29,414,331
Group 39,924,809 5,356,427 25,595,022 0 12,216,464
Credit 83,608,031 4,011,351 19,801,846 0 65,077,894
Other 0 (325,514) 0 0 (309,722)
----------- ---------- ----------- ---------- -----------
247,251,129 70,601,365 148,580,396 23,744,359 106,398,967
=========== ========== =========== ========== ===========
Year ended December 31, 1994
- ----------------------------
Ordinary 113,993,333 57,477,827 95,637,818 20,757,868 29,026,850
Group 43,221,583 5,657,542 29,093,520 0 12,462,165
Credit 73,373,760 3,846,885 21,414,613 0 54,052,460
Other 0 (275,761) 0 0 (215,082)
----------- ---------- ----------- ---------- -----------
230,588,676 66,706,493 146,145,951 20,757,868 95,326,393
=========== ========== =========== ========== ===========
Year ended December 31, 1993
- ----------------------------
Ordinary 108,974,989 55,724,809 94,240,229 20,090,573 28,571,495
Group 52,822,594 4,979,433 39,503,583 0 12,256,743
Credit 65,578,092 3,379,675 25,591,565 0 41,645,832
Other 0 (209,141) 0 0 (175,626)
----------- ---------- ----------- ---------- -----------
227,375,675 63,874,776 159,335,377 20,090,573 82,298,444
=========== ========== =========== ========== ===========
</TABLE>
(a) Allocated to the industry segment based on required liabilities for future
policy benefits.
(b) Allocated on functional cost basis unless specifically identifiable with
industry segment.
(c) Includes only cost of insurance, 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.
25
<PAGE> 28
SCHEDULE VI
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
REINSURANCE
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CEDED TO ASSUMED PERCENTAGE
GROSS OTHER FROM OTHER NET OF AMOUNT
AMOUNT COMPANIES COMPANIES AMOUNTS ASSUMED TO NET
------------ --------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
- ----------------------------
Life insurance volume in force $ 15,016,456 3,836,741 3,367,550 14,547,265 23.1%
============ ========== ========== =========== =====
Insurance revenues(a):
Ordinary $ 119,182 5,756 10,292 123,718 8.3%
Group 44,602 6,989 2,312 39,925 5.8%
Credit 168,677 85,081 12 83,608 .1%
------------ ---------- ---------- ----------- -----
Total $ 332,461 97,826 12,616 247,251 5.1%
============ ========== ========== =========== =====
Year Ended December 31, 1994
- ----------------------------
Life insurance volume in force $13,818,345 3,284,122 2,997,321 13,531,544 22.2%
=========== ========== ========== =========== =====
Insurance revenues(a):
Ordinary $ 120,009 6,016 0 113,993 -
Group 51,534 8,502 190 43,222 .4%
Credit 129,880 59,475 2,969 73,374 4.0%
------------ ---------- ---------- ----------- -----
Total $ 301,423 73,993 3,159 230,589 1.4%
============ ========== ========== =========== =====
Year Ended December 31, 1993
- ----------------------------
Life insurance volume in force $12,543,890 2,898,107 3,057,223 12,703,006 24.1%
=========== ========== ========== =========== =====
Insurance revenues(a):
Ordinary $ 114,646 5,671 0 108,975 -
Group 57,766 8,033 3,090 52,823 5.8%
Credit 113,301 47,723 0 65,578 -
------------ ---------- ---------- ----------- -----
Total $ 285,713 61,427 3,090 227,376 1.4%
============ ========== ========== =========== =====
</TABLE>
(a) Includes both life and accident and health premiums and commission and
expense allowances on reinsurance ceded.
26
<PAGE> 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the section entitled "Election of Directors" on page 1 of the
Registrant's Proxy Statement dated March 22, 1996 which section is incorporated
herein by reference.
See the section entitled "Executive Officers of Registrant" on page
13, Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
See the section entitled "Executive Compensation and Other
Transactions with Management" beginning on page 6 of the Registrant's Proxy
Statement dated March 22, 1996, which section is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the sections entitled "Election of Directors" and "Principal
Shareholders" which commence on pages 1 and 22, respectively, of the
Registrant's Proxy Statement dated March 22, 1996, which sections are
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section entitled "Executive Compensation and Other
Transactions with Management" beginning on page 6 of the Registrant's Proxy
Statement dated March 22, 1996, which section is incorporated herein by
reference.
27
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed with this report
(1) Financial Statements
See "Index to Financial Statements and Schedules" on page 16,
Part II of this report.
(2) Schedules
See "Index to Financial Statements and Schedules" on page 16,
Part II of this report.
(3) Exhibits
Number Description
------ -----------
3(a) Amended and Restated Articles of Incorporation of
American Heritage Life Investment Corporation dated
February 9, 1995. Incorporated by reference to
Exhibit 3(a) of the Form 10-K filed by Registrant for
the period ended December 31, 1994 (File No. 1-7255).
(b) By-Laws of American Heritage Life Investment
Corporation as amended and restated, dated April 28,
1994. Incorporated by reference to Exhibit 3 of a
Form 8-K, dated April 29, 1994 (File No. 1-7255).
4 Common Stock Certificate of American Heritage Life
Investment Corporation. Incorporated by reference to
Exhibit 4 of the Form 10-K filed by the Registrant for
the period ended December 31, 1994 (File No. 1-7255).
10(a)(1) American Heritage Life Investment Corporation, 1988
Stock Option Plan, as Amended and Restated.
Incorporated by reference to Exhibit 3(a) of
the Form 10-K filed by Registrant for the
period ended December 31, 1994 (File No. 1-7255).
(a)(2) American Heritage Life Investment Corporation 1980
Stock Option Plan, as Amended and Restated.
Incorporated by reference to Exhibit 3(a) of
the Form 10-K filed by Registrant for the
period ended December 31, 1994 (File No. 1-7255).
(a)(3) American Heritage Life Investment Corporation 1996
Stock Option Plan. Incorporated by reference to
Exhibit II of Registrant's Proxy Statement dated March
22, 1996. (File No. 1-7255).
10(b)(1) American Heritage Life Investment Corporation Amended
and Restated Annual Incentive Plan.
(2) American Heritage Life Insurance Company Long-Term
Incentive Plan. Incorporated by reference to Exhibit
I of Registrant's Proxy Statement dated March 22, 1996
(File No. 1-7255).
10(c)(1) Senior Corporate Officers Management Security Plan of
American Heritage Life Investment Corporation and
Subsidiaries. Incorporated by reference to Exhibit
10(c)(1) of Form 10-K filed by Registrant for the
period ended December 31, 1993 (File No. 1-7255).
(2) Officers Management Security Plan of American Heritage
Life Investment Corporation and Subsidiaries.
Incorporated by reference to Exhibit 10(c)(2) of Form
10-K filed by Registrant for the period ended December
31, 1993 (File No. 1-7255).
13 Annual Report to Shareholders for the year ended
December 31, 1995.
21 Significant Subsidiary of the Registrant - American
Heritage Life Insurance Company (organized in the
State of Florida)
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended December 31,
1995.
28
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
Date: March 29, 1996 By: /s/ T. O'Neal Douglas
------------------------------------------
T. O'Neal Douglas
Its Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ T. O'Neal Douglas Chairman, President and Director
- -------------------------------------- (Principal Executive Officer)
T. O'Neal Douglas
/s/ C. Richard Morehead Executive Vice President and
- -------------------------------------- Treasurer (Principal
C. Richard Morehead Financial and Accounting Officer)
/s/ Chris A. Verlander Executive Vice President
- -------------------------------------- Director
Chris A. Verlander
/s/ Edward L. Baker Director
- --------------------------------------
Edward L. Baker
/s/ A. Dano Davis Director March 29, 1996
- --------------------------------------
A. Dano Davis
/s/ Robert D. Davis Director
- --------------------------------------
Robert D. Davis
/s/ H. Corbin Day Director
- --------------------------------------
H. Corbin Day
/s/ Radford D. Lovett Director
- --------------------------------------
Radford D. Lovett
/s/ W. A. Verlander Director
- --------------------------------------
W. A. Verlander
</TABLE>
29
<PAGE> 1
EXHIBIT 10(b)(1)
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
AMENDED AND RESTATED ANNUAL INCENTIVE PLAN
I. PURPOSE OF THE PLAN
The purpose of the Annual Incentive Plan (the "Plan") of American Heritage Life
Investment Corporation (the "Company") is to provide officers of the Company
and its subsidiaries with financial incentives to exert their maximum efforts
on behalf of the Company and its subsidiaries. By rewarding officers with
additional cash compensation when significant financial goals have been
achieved, the Company believes that the Plan will promote increased personal
interest in the welfare of the Company by those primarily responsible for its
continued growth and profitability.
II. EFFECTIVE DATE
The Plan became effective on the first day of the 1992 fiscal year and is
amended and restated as of February 6, 1996. The Plan will continue in effect
until and unless terminated by the Board of Directors or its Executive
Committee (the "Board") or the Company's Compensation Committee.
III. DEFINITIONS
1. "Base Compensation" is the fixed portion of officers'
compensation. It specifically excludes any amounts paid
pursuant to the Annual or the Long-Term Incentive Plans.
2. "Committee" means the Compensation Committee of the Board of
Directors of the Company as such Committee may be constituted
from time to time. The Committee shall consist of at least
two (2) members of the Board selected by the Board, all of
whom shall be outside directors within the meaning of Section
162(m)(4)(c)(i) of the Internal Revenue Code of 1986 (the
"Code"), and the selection of persons for participation in the
Plan, decisions concerning the timing, pricing and amount of
any grant pursuant to the Plan to such a person, and (to the
extent required in order to qualify for the performance-based
remuneration exception under Section 162(m) of the Code) all
other decisions under the Plan shall be made by a vote of at
least a majority of such members.
3. "Plan Year" means the fiscal year of the Company.
<PAGE> 2
4. "Participant" means any employee designated by the
Compensation Committee to participate in the Plan.
5. "Retirement" shall be defined as the first day of the month
following the month in which the Participant attains his or
her 65th birthday.
6. "Disability" shall be defined as when a Participant becomes
totally disabled before attaining his or her 65th birthday and
if such total disability continues for more than three months.
It does not include disability that is either intentionally
self-inflicted or caused by illegal or criminal acts of the
Participant.
7. "Threshold Performance" means the minimum performance level at
which awards are funded.
IV. ELIGIBILITY AND PARTICIPATION
In general, corporate officers will participate in one or more Plan elements.
The Committee, at its discretion may exclude one or more officers from
participation in the Plan.
An employee shall become eligible to participate on the first day of the fiscal
year immediately subsequent to the employee's appointment as an officer or is
selected by the Committee as the case may be.
V. ADMINISTRATION; POWERS AND DUTIES OF THE COMMITTEE
1. ADMINISTRATION. The Committee shall be responsible for the
administration of the Plan. The Committee is authorized to
interpret the Plan, to prescribe, amend, and rescind rules and
regulations relating to the Plan, to provide for conditions
and assurances deemed necessary or advisable to protect the
interests of the Company, and to make all other determinations
necessary or advisable for the administration of the Plan, but
only to the extent not contrary to the express provisions of
the Plan. Determinations, interpretations, or other actions
made or taken by the Committee pursuant to the provisions of
the Plan shall be final and binding and conclusive for all
purposes and upon all persons whomsoever. The Committee may
delegate ministerial tasks to such persons (including
Employees) as it deems appropriate. A majority of the members
of the Committee shall constitute a quorum. All
determinations of the Committee shall be made by a majority of
its members. Any decision or determination
2
<PAGE> 3
reduced to writing and signed by all of the members of
the Company Committee shall be fully effective as if it has
been made by a majority voice at a meeting duly called and
held. The transactions contemplated by the Plan are intended
to qualify for the performance-based remuneration exception
under Section 162(m) of the Code. The Committee may from time
to time make amendments to the Plan as it, in its sole
discretion, determines are necessary in order to preserve such
exception under such section or other similar section which
might be in effect.
2. AMENDMENT, MODIFICATION, AND TERMINATION OF THE PLAN. The
Committee may at any time terminate, and from time to time may
amend or modify the Plan, except that no amendment shall
increase the amount of an award payable to a Participant or
class of Participants and except that no such termination
shall be effective with respect to the Plan Year in which it
occurs.
VI. DETERMINATION OF PERFORMANCE MEASURES AND GOALS
Before the beginning of each Plan Year, the President & CEO shall propose the
criteria and performance goals upon which Company and individual performance
will be based. In the initial Plan Year, the corporate criterion as set forth
in table in Section VII below is growth in operating income. The criteria for
Business Units as set forth in table in Section VII below are percent growth in
premium and equivalent revenues and Business Unit Operating Income.
The Committee must approve the Company and individual criteria and performance
goals.
Under normal business conditions, the criteria and performance levels
established prior to the Plan Year will not be altered or revised once they
have been approved. However, unusual conditions may warrant a reexamination of
such criteria and performance levels. Unusual conditions include, but are not
limited to, extraordinary gains and losses, acquisitions or dispositions of
significant operating units and other nonrecurring events. Revision of Company
performance goals are subject to approval of the Committee. Revision of
business unit criteria or performance goals are subject to approval by the
Committee.
VII. AWARD OPPORTUNITIES
Target opportunities represent levels paid if the predetermined performance
levels are exactly achieved. Actual awards can range from 0% to 150% of the
target
3
<PAGE> 4
awards, and will be based on how performance during the Plan Year compares to
the predetermined performance levels.
Except for the President/CEO, performance will be measured on at least two
organization levels:
- Company
- Business Unit (Ordinary, Credit or Group)
- Individual Performance
<TABLE>
<CAPTION>
DISTRIBUTION OF TOTAL OPPORTUNITY
CORPORATE CORPORATE BUSINESS UNIT INDIVIDUAL
- ------------------------------ ----------- --------------- ------------
<S> <C> <C> <C>
Chairman of the Board - President 100% - -
- -----------------------------------------------------------------------------------------------------------------------
Executive Vice President and
Corporate SVPs 70% - 30%
- -----------------------------------------------------------------------------------------------------------------------
Most Business Unit SVPs 20% 60% 20%
- -----------------------------------------------------------------------------------------------------------------------
Corporate VPs 60% - 40%
- -----------------------------------------------------------------------------------------------------------------------
Business Unit VPs 15% 60% 25%
- -----------------------------------------------------------------------------------------------------------------------
Corporate AVPs 50% - 50%
- -----------------------------------------------------------------------------------------------------------------------
Business Unit AVPs 10% 60% 30%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The performance of each level will be evaluated independently.
Note that award opportunities will be available in any given year only to the
extent that:
- there are sufficient statutory earnings to pay dividends, and
- GAAP operating earnings exceed threshold levels.
4
<PAGE> 5
VIII. PAYMENT OF AWARDS
Except as provided in the following paragraph, all awards made under the Plan
shall be paid to Participants within 30 days after the date on which
consolidated financial statements of the Company for the Plan Year have been
prepared and the independent certified public accountants for the Company have
completed their exam.
IX. CHANGES IN EMPLOYEE STATUS
When a Participant's employment is terminated; voluntarily or involuntarily,
prior to the last day of the Plan Year, for reasons other than death,
retirement or disability, the Participant forfeits all rights to awards under
the Plan. Participants terminating after the end of the Plan Year but prior to
payment of awards are entitled to all awards earned.
Termination during the Plan Year for reasons of death, retirement or disability
will result in a prorata payment based on the number of full months of
employment during the Plan Year divided by twelve.
X. RIGHTS OF EMPLOYERS
Nothing in the Plan shall interfere with or limit in any way the right of the
Company to terminate any Participant's employment at any time nor confer upon
any Participant any right to continue in the employ of the Company.
5
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 earnings are primarily attributable to its principal
subsidiary, American Heritage Life Insurance Company (AHL). Following is a
discussion of the significant components of the consolidated results of
operations for the years ended December 31, 1995, 1994 and 1993.
INSURANCE OPERATIONS
Insurance revenues 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.
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. As demonstrated in the table on page 12, for 1995, 1994, and 1993,
insurance revenues were $247.3 million, $230.6 million, and $227.4 million,
respectively, while total insurance revenues including premium equivalents were
$511.8 million, $445.5 million, and $410.4 million, respectively. Because so
much of the Company's business is interest sensitive and administrative
services only, insurance revenues including premium equivalents is a better
measure of sales and growth.
Ordinary insurance revenues amounted to $123.7 million, $114.0 million and
$109.0 million, in 1995, 1994 and 1993, respectively. Premiums including
premium equivalents, were $167.3 million, $161.6 million and $149.1 million for
the years ended December 31, 1995, 1994 and 1993, respectively. The increases
in revenues and premiums and premium equivalents in 1995 over 1994 and 1994
over 1993 were due primarily to increased policy charges on interest-sensitive
products due to increased sales, increased sales of individual accident and
health plans, and rate increases on certain cancer/dread disease plans. The
increase in individual accident and health sales in 1995 compared to 1994
included a new long-term care product and a supplemental hospital indemnity
product that in the aggregate increased revenues approximately $4.6 million.
Group insurance revenues in 1995, 1994 and 1993 totaled $39.9 million,
$43.2 million and $52.8 million, respectively. In 1995 and 1994, a majority of
the new group cases were written on a self-funded or split-funded basis where
only the fees charged are included in insurance revenues for financial
statement purposes. Including premium equivalents related to this business,
premiums and premium equivalents were $206.4 million, $167.5 million and $158.2
million for 1995, 1994 and 1993, respectively. These increases in premiums and
premium equivalents included the sales to larger group cases that were sold on
a self-funded basis.
Credit insurance revenues for 1995, 1994 and 1993 were $83.6 million,
$73.4 million and $65.6 million, respectively. Credit premiums and premium
equivalents amounted to $138.1 million, $116.3 million and $103.1 million for
the years ended December 31, 1995, 1994 and 1993, respectively. Credit
insurance revenues and premiums and premium equivalents increased during these
periods as a result of geographic expansion and increased sales of reinsurance,
which generally provides less risk to the Company at an acceptable profit
margin.
Ordinary benefits and claims in 1995, 1994 and 1993 were $103.2 million,
$95.6 million and $94.2 million, respectively. The increase each year was the
result of growth in first year and renewal business, increased interest
credited to policyholder account balances and some increase in mortality and
morbidity experience.
Group benefits and claims in 1995, 1994 and 1993 totaled $25.6 million,
$29.1 million and $39.5 million, respectively. Group benefits have been reduced
as a result of the Managed Care Program, the AHL Select Provider Network and
new cases written on a self-funded or split-funded basis where claims are not
included in the Company's benefits and claims expense for financial statement
purposes.
Credit benefits and claims amounted to $19.8 million, $21.4 million and
$25.6 million in 1995, 1994 and 1993, respectively. These decreases were due to
a reduction in the change in unearned premiums which is included in credit
benefits and claims. These reductions are the result of terminating
unprofitable accounts in 1994 and 1995.
The Company's major operating costs consist of commissions, payroll,
premium taxes and administrative-related expenditures. During 1995, 1994 and
1993, management took certain actions and reduced the annualized level of
general insurance expenses. Such actions consisted primarily of cost reductions
in home office administrative areas, including certain personnel, travel,
telephone, supplies and data processing expenses. Additionally, during 1995 and
1994, general expenses have been reduced as the result of the Company's move to
a new home office building in the third quarter of 1994 which reduced expenses
by approximately one million dollars on an annual basis.
13
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONTINUED
Expenses as a percentage of total income excluding realized investment
gains (losses) and including premium equivalents decreased from 5.8% for the
year ended December 31, 1993 to 4.9% for the year ended December 31, 1995. This
reduction demonstrates that the Company has been able to control the level of
general insurance expenses which in turn has been a significant factor in our
steady growth in operating earnings.
Ordinary taxes, commissions and general expenses were $29.4 million, $29.0
million and $28.6 million for 1995, 1994 and 1993, respectively. The increase
each year was primarily the result of growth in ordinary business. Group taxes,
commissions and general expenses were $12.2 million, $12.5 million and $12.3
million, respectively. The decrease in 1995 versus 1994 included a decrease in
taxes and commissions offset by an increase in general expenses. The decrease
in commissions and taxes was the result of reduced premiums. The increase in
1994 compared to 1993 was primarily the result of increased general expenses.
The increases in general expenses in 1995 and 1994 were due to growth in
business, administration of larger group cases and the implementation of a new
local area network group system. Credit taxes, commissions and general expenses
were $65.1 million, $54.1 million and $41.6 million in 1995, 1994 and 1993,
respectively. The increase each year was primarily due to an increase in
commissions earned as a result of increased insurance revenues and, for 1995
and 1994, a higher effective commission rate.
Amortization of deferred acquisition costs was $23.7 million in 1995,
$20.8 million in 1994 and $20.1 million in 1993. The increase in amortization
expenses was primarily due to growth in business in force, and an increase in
lapses of individual health business resulting from the implementation of rate
increases, which increased the write-off of the policies' deferred acquisition
costs.
Non-segmented operating expenses in 1995, 1994 and 1993 were $3.4 million,
$2.2 million and $1.6 million, respectively. These expenses primarily relate to
non-life insurance operations, including interest expense. Interest expense is
a function of the average debt outstanding and the interest rate charged.
Interest expense included in non-segmented operating expenses was $3.3 million,
$2.0 million and $1.4 million for 1995, 1994 and 1993, respectively. These
increases were due primarily to additional bank debt outstanding in 1995 and
1994 and an increase in interest rates in 1995.
INCOME TAXES
Income tax expense was up in 1995 compared to 1994 and in 1994 compared to
1993 due to increased earnings and an increase in the effective tax rate on net
earnings to 32.2% in 1995 and 31.8% in 1994 and 1993.
NET INVESTMENT INCOME
Net investment income was $70.6 million, $66.7 million and $63.9 million
for the years ended December 31, 1995, 1994 and 1993, respectively. These
increases were due primarily to an increase in invested assets, changes made in
the investment portfolio to improve the yield and additional investment income
from the proceeds of the public stock offering completed in October, 1993. The
effective yield on invested assets for the year ended December 31, 1995 was
7.64% compared to 7.87% for the year ended December 31, 1994 and 7.97% for the
year ended December 31, 1993. These reductions in yield were primarily the
result of declining interest rates during 1995 and 1994.
PRE-TAX OPERATING EARNINGS
Ordinary pre-tax operating earnings were $28.9 million, $26.0 million and
$21.8 million in 1995, 1994 and 1993, respectively. The increase each year was
primarily due to growth in insurance revenues and investment income, less
normal growth in benefits and claims, and expenses.
Group pre-tax operating earnings were $7.5 million, $7.3 million and $6.0
million in 1995, 1994 and 1993, respectively. The increase in group pre-tax
operating earnings over this time period reflects the overall increased
profitability in the business, including necessary rate actions on certain
cases, the terminations of certain unprofitable cases and the movement of cases
from insured to self-funded plans, which provides less volatility in financial
results to the Company.
Credit pre-tax operating earnings were $2.7 million, $1.8 million and $1.7
million in 1995, 1994 and 1993, respectively. In 1993 and 1994, the Company
experienced deterioration in the profit margins on certain new and existing
accounts. During 1995, the Company experienced an improvement in the operating
results of the credit operations. Actions taken to improve the operating
results of the Credit Department included terminating unprofitable accounts and
reducing the commissions paid on accounts with unsatisfactory margins which
impacted operations
in 1995.
OTHER ITEMS
Management is not aware of any pending regulations from the various state
insurance departments that would have a significant impact on the Company's
operations.
The Company's legal department includes a compliance area headed by an
officer who is a lawyer with regulatory experience. The compliance area reviews
and approves marketing material, policy filings and other areas which are the
subject of market conduct compliance requirements of the various state
insurance departments.
14
<PAGE> 3
REALIZED INVESTMENT GAINS
Realized investment gains, net were $6.0 million for the year ended
December 31, 1995 compared to $2.0 million for the year ended December 31, 1994
and $1.2 million for the year ended December 31, 1993. The realized investment
gains for the respective periods were primarily the result of adjustments made
in the investment portfolio to increase the yield on invested assets less
recognizing any decline in value other than temporary in the value of certain
investments. The 1995 realized investment gains also included realized gains
on real estate reduced by realized losses on the settlement of litigation,
aggregating approximately $3,200,000.
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.
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.
OPERATING ACTIVITIES
The net cash provided by operating activities for the years ended December
31, 1995, 1994 and 1993 aggregated $75.8 million, $48.5 million and $73.9
million, respectively. The increase in 1995 from 1994 and the decrease from
1993 to 1994 were due primarily to (1) the funding in 1994 of the termination
of certain premium deposit accounts amounting to $16.4 million with no
comparable reductions in 1995 or 1993 and (2) an increase in accrued investment
income and a related decrease in unearned investment income due to changing
policy loan interest on certain plans from in advance to in arrears during 1994
discussed in the following paragraph.
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' accounts 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.
INVESTMENTS
The Company's balance sheet contains a high ratio of liquid assets. Such
assets are made up of cash, short-term investments and readily marketable
securities.
At December 31, 1995, U. S. Treasury obligations and GNMA's at market
value aggregated $203.2 million, or 40.0% of the total bond portfolio of $508.3
million.
The amortized cost of high yield bonds at December 31, 1995 aggregated
$30.2 million with a market value of $32.8 million. At December 31, 1995 these
investments represented only 2.5% of total assets or 3.4% of invested assets.
Financial Accounting Standard No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", requires that securities classified as
available-for-sale be reported at fair value and the related unrealized gain or
loss, net of deferred income taxes, be reported as a separate component of
stockholders' equity. Additionally, pursuant to GAAP, deferred acquisition
costs for interest-sensitive products, decreased $7.3 million at December 31,
1995 and increased $10.1 million at December 31, 1994 for the effect that would
have been recognized had the unrealized gain/loss at December 31, 1995 and 1994
on debt securities actually been realized.
During 1995 and 1994, consistent with the Company's investment strategy,
certain changes were made in the investment portfolio to improve the overall
investment results. During 1995, the Company sold certain parcels of real
estate, reduced common stock and GNMA holdings, and increased investments in
bonds and mortgage loans. These changes will result in increased future
investment earnings. The current investment strategy includes increasing
investments in corporate bonds and mortgage loans while decreasing investments
in GNMA's on a gradual basis.
The mortgage loan portfolio at December 31, 1995, which aggregated $29.5
million, consisted of residential mortgages of $1.5 million and commercial
mortgages of $28.0 million (with no concentration in any particular industry),
all of which were first mortgages on properties located in the Southeast. There
were no non-performing mortgage loans in the portfolio at December 31, 1995.
The Company holds no collateralized mortgage obligations or derivative
securities.
15
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONTINUED
Policy loans totaled $376.7 million at December 31, 1995, or 38.5% of
total invested assets. The significant amount of policy loans was attributable
to the policy loans associated with the MSP executive deferred compensation
plan offered by the Company which aggregated $348.6 million at December 31,
1995. As discussed earlier, the policy loan feature is an integral part of the
product. MSP policy loans increased by approximately $24.9 million in 1995 over
1994.
The Company's investment strategy is to earn a favorable return on its
investments in excess of rates for which the Company is contractually obligated
to its policyholders. To achieve this policy, the Company maintains an
asset/liability matching program, monitoring the investment spread achieved on
each product. Targeted investment spreads have been maintained for all products
despite fluctuations in interest rates and an overall compression of market
rates.
NOTES PAYABLE TO BANKS
Notes payable to banks at December 31, 1995 were $95.0 million compared to
a balance of $84.2 million at December 31, 1994. The increase in bank debt at
December 31, 1995 compared to the amount at December 31, 1994 reflected the
cash needs of the Company, including stockholder dividends, interest expense on
outstanding debt and federal income taxes.
The notes payable to banks at December 31, 1995 and 1994 included $40.0
million related to two separate $20.0 million investment purchases where the
Company is earning a positive spread on the invested assets acquired less the
interest paid on the bank debt. These two loans mature in January, 1996 and
June, 1997. The loan that matured in January, 1996 was repriced on a short-term
basis at an interest rate of 5.8%. Under the terms of the note agreements, the
Company may choose to pay off or renew the debt obligations at the Company's
option, depending upon economic conditions at the respective maturity dates.
The weighted average interest rate on the remaining $55.0 million of bank debt
at December 31, 1995 was 6.26%.
OTHER
The Company is a holding company; and its liquidity is largely dependent
on the ability of its subsidiaries, primarily AHL, to pay dividends and on
external financing. In addition, the Company charges its subsidiaries a
management fee to cover its basic operating expenses.
On October 4, 1993, the Company closed on its public stock offering with
1,872,045 common shares sold which resulted in net proceeds of $33.5 million.
This amount was contributed as additional capital to AHL on October 13, 1993.
The amount of dividends that AHL can pay to the Company is limited by
regulatory restriction to an annual amount equal to the greater of 10% of AHL's
statutory surplus, or its prior year's statutory gain from operations plus net
realized capital gains on a noncumulative basis if AHL will have surplus as to
policyholders equal to or exceeding 115% of the minimum required statutory
surplus as to policyholders after the dividend is paid. A dividend of
approximately $13.2 million, related to AHL's earnings in 1994, was paid to the
Company in 1995. AHL chose not to pay any dividends to the Company during 1994
and 1993. Approximately $33.1 million, related to 1995 earnings, is available
to dividend to the Company during 1996 without regulatory approval. The
outstanding bank debt of the Company is serviced through either dividends from
AHL in excess of the amount required to pay stockholder dividends or by
replacement borrowing.
In the fourth quarter of 1995, the Board of Directors of American Heritage
Life Investment Corporation authorized management to repurchase from time to
time up to 300,000 shares of the Company's common stock. At December 31, 1995,
51,300 shares had been acquired and funded by borrowings of $1,118,030.
The Risk-Based Capital for Life and/or Health Insurers Model Act was
adopted by the National Association of Insurance Commissioners (NAIC) in 1992.
A similar act was adopted for property and casualty insurance companies in
1994. The main purpose of these model acts is to provide a tool for insurance
regulators to evaluate the capital of insurers. Based on calculations using the
appropriate NAIC formula, AHL and FCIC exceeded the Risk-Based Capital
requirements at December 31, 1995 and 1994.
16
<PAGE> 5
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
Years Ended December 31 1995 1994 1993
============================================================================================
<S> <C> <C> <C>
Income:
Insurance revenues $247,251,129 230,588,676 227,375,675
Net investment income 70,601,365 66,706,493 63,874,776
Realized investment gains, net 6,002,693 2,011,089 1,183,827
- -------------------------------------------------------------------------------------------
Total income 323,855,187 299,306,258 292,434,278
- -------------------------------------------------------------------------------------------
Benefits, claims and expenses:
Benefits and claims 148,580,396 146,145,951 159,335,377
Underwriting, acquisition and insurance expenses:
Taxes, commissions and general expenses 106,398,967 95,326,393 82,298,444
Amortization of deferred acquisition costs 23,744,359 20,757,868 20,090,573
Other operating expenses 3,693,979 2,413,444 1,805,555
- -------------------------------------------------------------------------------------------
Total benefits, claims and expenses 282,417,701 264,643,656 263,529,949
- -------------------------------------------------------------------------------------------
Earnings before income taxes 41,437,486 34,662,602 28,904,329
Income taxes 13,362,100 11,021,700 9,189,700
- -------------------------------------------------------------------------------------------
Net earnings $ 28,075,386 23,640,902 19,714,629
- -------------------------------------------------------------------------------------------
Net earnings per share of common stock $ 2.02 1.71 1.59
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 6
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31 1995 1994
==============================================================================================
<S> <C> <C>
Investments:
Debt securities, available-for-sale, at fair value
(amortized cost of $493,813,866
in 1995 and $450,670,196 in 1994) $ 515,428,786 412,746,726
Equity securities, available-for-sale, at fair value (cost of
$23,209,058 in 1995 and $35,583,745 in 1994) 34,734,980 52,476,038
Mortgage loans on real estate 29,506,184 20,625,877
Investment real estate, at cost 375,204 1,022,985
Policy loans 376,672,196 351,160,060
Short-term investments 22,885,597 7,697,740
- ----------------------------------------------------------------------------------------------
Total investments 979,602,947 845,729,426
- ----------------------------------------------------------------------------------------------
Cash 20,681,707 19,490,055
Agents' balances and prepaid commissions 39,077,008 39,146,576
Premiums receivable 41,816,329 43,434,693
Accrued investment income 24,274,265 16,197,251
Deferred acquisition costs 158,250,346 162,867,773
Property and equipment, at cost, less accumulated
depreciation of $10,337,104 in 1995 and $9,717,228 in 1994 27,829,804 27,294,320
Reinsurance receivables 9,230,940 11,730,734
Other assets 17,132,578 13,366,322
- ----------------------------------------------------------------------------------------------
$1,317,895,924 1,179,257,150
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 7
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994
======================================================================================
<S> <C> <C>
Policy liabilities:
Future policy benefits $205,087,735 192,511,754
Policyholders' account balances 635,670,066 576,535,760
Unearned premiums 53,317,152 51,604,266
Policy and contract claims 50,375,445 53,308,899
- --------------------------------------------------------------------------------------
Total policy liabilities 944,450,398 873,960,679
- --------------------------------------------------------------------------------------
Notes payable to banks, short-term 74,994,000 64,201,000
Notes payable to banks, long-term 20,000,000 20,000,000
Deferred income taxes 28,882,185 16,559,755
Other liabilities 30,240,111 31,176,101
- --------------------------------------------------------------------------------------
Total liabilities 1,098,566,694 1,005,897,535
- --------------------------------------------------------------------------------------
Stockholders' equity:
Common stock of $1.00 par value:
Authorized 20,000,000 shares; issued
13,933,206 in 1995 and 13,905,794 in 1994 13,933,206 13,905,794
Preferred stock:
Convertible of $10.00 par value:
Authorized 500,000 shares; none issued - -
Non-convertible of $10.00 par value:
Authorized 500,000 shares; none issued - -
Additional paid-in capital 42,214,787 41,866,379
Retained earnings 148,454,353 129,406,469
Net unrealized investment gains (losses) 16,772,078 (10,892,295)
- --------------------------------------------------------------------------------------
221,374,424 174,286,347
Less cost of 97,277 in 1995 and 45,954 in 1994 common
shares in treasury 2,045,194 926,732
- --------------------------------------------------------------------------------------
Total stockholders' equity 219,329,230 173,359,615
$1,317,895,924 1,179,257,150
======================================================================================
</TABLE>
19
<PAGE> 8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
=========================================================================================================
<S> <C> <C> <C>
Common stock:
Balance at beginning of year $13,905,794 13,880,278 7,948,186
Add par value of shares issued pursuant to
stock splits in the form of stock dividends - - 3,997,564
Shares issued in connection with stock offering - - 1,872,045
Add shares issued on exercise of stock options 5,147 2,002 -
Other shares issued (surrendered), net 22,265 23,514 62,483
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 13,933,206 13,905,794 13,880,278
- ---------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of year 41,866,379 41,482,746 8,134,187
Excess over par value of shares issued in connection
with stock offering - - 31,659,071
Deduction related to exercise of stock options (54,310) (22,197) -
Excess over par value on other shares issued 402,718 405,830 1,689,488
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 42,214,787 41,866,379 41,482,746
- ---------------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 129,406,469 115,464,920 107,199,755
Add net earnings 28,075,386 23,640,902 19,714,629
Deduct cash dividends declared on common stock
($.65 per share in 1995, $.70 per share in 1994
and $.59 per share in 1993) (9,027,502) (9,699,353) (7,419,662)
Deduct par value of shares issued pursuant to
stock splits in the form of stock dividends - - (3,997,564)
Deduct cash dividend in lieu of issuance of fractional
shares related to stock splits - - (32,238)
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 148,454,353 129,406,469 115,464,920
- ---------------------------------------------------------------------------------------------------------
Net unrealized investment gains (losses):
Balance at beginning of year (10,892,295) 14,026,745 25,290,094
Unrealized gain upon adoption of FAS 115 at beginning of year - 3,855,293 -
Change during the year 27,664,373 (28,774,333) (11,263,349)
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 16,772,078 (10,892,295) 14,026,745
- ---------------------------------------------------------------------------------------------------------
Treasury stock:
Balance at beginning of year 926,732 924,503 606,907
Add treasury shares purchased (51,323 shares in 1995,
127 shares in 1994 and 14,428 shares in 1993) 1,118,462 2,229 317,596
- ---------------------------------------------------------------------------------------------------------
Balance at end of year 2,045,194 926,732 924,503
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity $219,329,230 173,359,615 183,930,186
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 9
<TABLE> CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
YEARS ENDED DECEMBER 31 1995 1994 1993
=============================================================================================================
<S> <C> <C> <C>
Operating activities:
Net earnings $28,075,386 23,640,902 19,714,629
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Change in agents' balances and prepaid commissions 69,568 (1,685,089) (7,956,578)
Change in premiums receivable 1,618,364 (1,118,525) (4,809,336)
Change in accrued investment income (8,072,512) (10,106,418) (589,258)
Change in reinsurance receivables 2,499,794 (4,373,374) 64,557
Amortization of deferred acquisition costs 23,744,359 20,757,868 20,090,573
Acquisition costs deferred (33,066,762) (27,154,051) (29,078,713)
Change in future policy benefits 12,575,981 8,168,151 7,598,510
Change in policyholders' account balances 49,146,959 45,243,773 51,772,423
Change in unearned premiums 1,712,886 4,726,574 13,402,925
Change in policy and contract claims liability (3,433,454) (3,105,825) 507,683
Change in income taxes 3,170,493 5,764,326 (2,894,285)
Change in unearned investment income (803,546) (16,237,325) 2,909,032
Provision for depreciation and amortization 1,706,197 1,907,688 2,417,991
Other, net (3,109,884) 2,079,649 797,801
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 75,833,829 48,508,324 73,947,954
- -------------------------------------------------------------------------------------------------------------
Investing activities:
Sales of debt securities 46,209,384 32,102,680 187,784,357
Maturities of debt securities 32,025,829 65,018,991 118,636,008
Sales of equity securities 13,951,296 2,576,814 31,259,998
Maturities of mortgage loans on real estate 2,032,781 2,019,204 2,881,949
Policy loans paid 18,124,136 18,564,952 14,629,461
Sales of property and equipment and investment real estate 1,296,141 13,057 3,095,381
Acquisition of block of business 6,046,744 - -
Purchases of debt securities (121,355,196) (104,742,062) (384,145,735)
Purchases of equity securities (2,436,944) (5,817,667) (14,996,857)
Origination of mortgage loans on real estate (10,913,088) (4,727,270) (6,804,150)
Sales (purchases) of short-term investments, net (15,187,857) (5,038,954) 713,011
Policy loans made (42,736,849) (35,055,135) (56,819,388)
Purchases of property and equipment and investment real estate (2,029,702) (13,062,743) (10,321,292)
Other, net - (3,115,871) 2,994,427
- -------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (74,973,325) (51,264,004) (111,092,830)
- -------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds received from stock offering - - 33,531,116
Net proceeds from short-term borrowings 10,793,000 11,720,000 10,379,000
Dividends to stockholders (9,027,502) (9,699,353) (7,419,662)
Purchase of treasury stock (1,118,462) (2,229) (317,596)
Other, net (315,888) 1,242,166 1,855,202
- -------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 331,148 3,260,584 38,028,060
- -------------------------------------------------------------------------------------------------------------
Increase in cash 1,191,652 504,904 883,184
Cash at beginning of year 19,490,055 18,985,151 18,101,967
- -------------------------------------------------------------------------------------------------------------
Cash at end of year $20,681,707 19,490,055 18,985,151
- -------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 5,721,054 4,039,768 3,569,560
Federal income taxes 9,650,000 4,800,000 10,100,000
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts of
American Heritage Life Investment Corporation (AHLIC) and its subsidiaries. All
significant intercompany accounts have been eliminated in consolidation. The
term "Company" as used herein includes AHLIC and its subsidiaries.
AHLIC is a holding company whose principal subsidiary is American Heritage
Life Insurance Company (AHL). AHL is licensed to do business as a life
insurance company in 49 states, Puerto Rico, the District of Columbia and the
U.S. Virgin Islands. It markets life and accident and health insurance on an
individual, group and credit basis through licensed agents and brokers. First
Colonial Insurance Company, a subsidiary of AHL, markets credit property
insurance and is currently licensed in twelve states.
(B) BASIS OF PRESENTATION
The accompanying consolidated financial statements are presented on the
basis of generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Such principles differ in some respects from those followed in preparing
statutory reports filed with various insurance departments for AHL. Under GAAP:
(1) Insurance Revenue and Expense Recognition: For traditional insurance
products, premiums, benefits and expenses are reported in a manner which
results in the recognition of profits over the life of the policies. For
interest-sensitive products, premiums received are recognized as deposits;
revenues consist of surrender, mortality and expense charges; and profits are
recognized as earned.
(2) Investments: Bonds and redeemable preferred stocks, which are classified
as debt securities available-for-sale, are stated at fair value.
(3) Deferred Acquisition Costs: The costs (principally commissions) of
acquiring traditional life, interest-sensitive products and accident and
health contracts, certain expenses of the policy issue and underwriting
department, and certain agency expenses, all of which vary with and are
primarily related to the production of new business, have been deferred.
Deferred acquisition costs of traditional life and accident and health
contracts are being amortized over the premium payment period of the related
policies using the same assumptions as were used for computing liabilities for
future policy benefits, together with appropriate expense assumptions. For
interest-sensitive life products, deferred acquisition costs are being
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. Assumptions used for estimating the related gross profits are
evaluated regularly (at least annually) and amortization is appropriately
modified.
(4) Insurance Liabilities: The liabilities for future policy benefits (which
represent the excess of the present value of future benefits to be paid on
behalf of or to policyholders over the present value of future net premiums,
except for interest-sensitive products) are computed by a net level premium
method using estimated future investment yields from 3.75% to 8.00%;
withdrawals based on Company experience; mortality, and morbidity from
recognized morbidity and mortality tables modified for anticipated company
experience, with reasonable provisions for possible future adverse experience
deviations. Policyholders' account balances represent premiums received plus
interest credited during the contract accumulation period, less contract
charges for mortality and expenses. For the years ended December 31, 1995 and
1994, the weighted average interest rates credited to the policyholders'
account balances were 6.28% and 5.64%, respectively; and the related interest
credited to the policyholders' account balances was $35,208,675 and
$30,575,168. The surrender charge provisions for interest-sensitive policies
vary depending upon the type of policy. For universal life-type policies, the
surrender charges generally range over a period of 10-20 years at varying
rates depending upon the plan of insurance. For annuities, the surrender
charges generally range over a period of 7-10 years with charges varying from
1% to 10% of the accumulated fund value over the surrender charge period.
(C) VALUATION OF CERTAIN INVESTMENTS
Debt securities are investments which mature at a specified future date
more than one year after they were issued. Equity securities include common
stocks. During the year ended December 31, 1994, the Company adopted the
provisions of Financial Accounting Standard Board's Statement of the Financial
Accounting Standard No. 115, "Accounting for Investments in Certain Debt and
Equity Securities." Under these provisions, investments are required to be
categorized as (1) held to maturity, (2) available-for-sale, or (3) trading.
All debt and equity securities have been classified by the Company as
available-for-sale and are stated at fair value. Unrealized gains or losses, on
debt securities and equity securities available-for-sale in 1995 and 1994 and
equity securities in 1993, resulting from fluctuations in fair values were
recorded, net of deferred income taxes and adjustments to the deferred
acquisition costs for interest-sensitive insurance products, directly to a
22
<PAGE> 11
separate component of stockholders' equity. Realized investment gains or
losses are calculated on the basis of specific identification and include
writedowns on those investments where the decline in value below its cost or
amortized cost is considered to be other than temporary.
Policy loans are carried at the actual amount loaned to the policyholder.
No policy loans are made for amounts in excess of the cash surrender value of
the related policy. Accordingly, in all instances, the policy loans are fully
collateralized by the related liability for future policy benefits for
traditional insurance policies and by the policyholders' account balance for
interest-sensitive policies.
(D) PROPERTY AND EQUIPMENT
Depreciation of property and equipment is computed on the straight-line
method over the estimated useful lives of the respective assets.
(E) POLICY AND CONTRACT CLAIMS
Accruals are provided to cover the cost of reported
claims not paid and for claims incurred but not reported to the Company. The
accruals are computed based on historical claims experience modified for
variations in expected
future benefits.
(F) OTHER OPERATING EXPENSES
Other operating expenses include primarily interest expense related to
bank borrowings and other general corporate expenses of AHLIC.
(G) INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized
in income tax expense in the period that includes the enactment date.
(H) EARNINGS PER SHARE
Earnings per share of common stock are based on the weighted average
number of shares outstanding during each year, excluding treasury shares.
Options outstanding to purchase common stock had no significant dilutive effect
on earnings per share.
(I) RECLASSIFICATIONS
Certain amounts for 1994 and 1993 have been reclassified to conform with
the presentation adopted in 1995.
(2) INCOME TAXES
The effective federal income tax rates on earnings before income taxes
were lower than the maximum statutory rates as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
1995 1994 1993
Amt.(*) % Amt.(*) % Amt.(*) %
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax expense $14,503 35 $12,132 35 $10,117 35
Dividends received deduction (448) (1) (570) (2) (337) (1)
Tax exempt interest (8) - (13) - (13) -
Credits from oil and gas investments (677) (2) (523) (1) (574) (2)
Other, net (8) - (4) - (3) -
- ----------------------------------------------------------------------------------------------------
Effective income
tax expense $13,362 32 $11,022 32 $9,190 32
- ----------------------------------------------------------------------------------------------------
</TABLE>
*Presented in thousands.
Deferred income taxes reflect the impact of temporary differences between
the financial statement and tax basis carrying values of assets and
liabilities. The temporary differences that gave rise to significant portions
of the deferred tax liability and the effect on deferred income tax expense of
changes in those temporary differences for the years ended December 31, 1995,
1994 and 1993 (in thousands) were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Excess of GAAP earnings over statutory
earnings of life insurance operations $ 3,571 6,248 2,915
Difference in tax and statutory policy
liabilities (450) (1,494) (13)
Unearned investment income 149 4,683 (247)
Deferred acquisition costs tax (2,573) (2,157) (2,481)
Deferred gain on real estate 2,286 - -
Miscellaneous items, net 252 (338) 596
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred income tax expense $ 3,235 6,942 770
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The components of income tax expense for each of the three years ended December
31, 1995 (in thousands) follow:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $10,127 4,080 8,420
Deferred 3,235 6,942 770
- --------------------------------------------------------------------------------------------------------------------------------
Total $13,362 11,022 9,190
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax liabilities and deferred tax assets at December
31, 1995 and December 31, 1994 (in thousands) were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
1995 1994
- ----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $23,081 26,806
Unrealized investment losses on
securities available-for-sale - 3,812
Unearned investment income 400 524
Other 304 -
Less: Valuation allowance - (3,812)
- ----------------------------------------------------------------
Total deferred tax assets 23,785 27,330
- ----------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs 41,350 43,160
Unrealized investment gains on
securities available-for-sale 9,031 -
Deferred gain on real estate 2,286 -
Other - 730
- ----------------------------------------------------------------
Total deferred tax liabilities 52,667 43,890
- ----------------------------------------------------------------
Net deferred tax liability 28,882 16,560
Current tax liability (asset) 100 (505)
- ----------------------------------------------------------------
Accrued and deferred income taxes $28,982 16,055
- ----------------------------------------------------------------
</TABLE>
23
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
No valuation allowance was recorded at December 31, 1995. At December 31,
1994, a deferred tax valuation allowance of $3,812,265 was established on
deferred tax assets associated with the unrealized investment losses on
securities available-for-sale.
Prior to 1985, certain life insurance company income was not subject to
federal income tax until distributed. For tax purposes such income was
accumulated in a memorandum "policyholders' surplus account" and taxed upon
distribution. At December 31, 1995, the policyholders' surplus account was
$8,772,071.
(3) INVESTMENTS
For the years ended December 31, 1995, 1994 and 1993, net investment income
was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Debt securities $38,675,897 37,386,736 35,930,897
Equity securities 1,679,445 1,745,996 1,853,458
Mortgage loans on real estate 2,289,602 1,920,979 1,477,090
Investment real estate 42,885 52,204 541,976
Policy loans 30,230,887 27,553,970 26,408,929
Short-term investments 2,776,262 2,854,880 2,678,327
Other 4,200 8,607 96,087
- ----------------------------------------------------------------------------------------------------------
Gross investment income 75,699,178 71,523,372 68,986,764
Investment expenses 5,097,813 4,816,879 5,111,988
- ----------------------------------------------------------------------------------------------------------
Net investment income $70,601,365 66,706,493 63,874,776
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from sales and maturities of investments in debt securities
during 1995, 1994 and 1993 were $69,288,549, $97,220,363 and $310,534,483,
respectively. Gross gains and losses on those sales, and net gains and losses
on sales of other investments, were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities - gains $ 897,439 2,578,320 4,442,290
Debt securities - losses (14,708,841) (2,305,110) (5,484,171)
- -------------------------------------------------------------------------------
Debt securities, net (13,811,402) 273,210 (1,041,881)
Equity securities, net 13,186,845 1,749,675 2,224,838
Real estate 7,127,250 (11,796) ( 7,914)
Other, net (500,000) - 8,784
- -------------------------------------------------------------------------------
Realized investment gains, net* $ 6,002,693 2,011,089 1,183,827
- -------------------------------------------------------------------------------
</TABLE>
* Included for 1995 in realized investment gains, net were realized losses
related to the settlement of certain litigation, aggregating approximately
$3,200,000.
Stockholders' equity included the following unrealized investment gains
(losses) at December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity securities available-for-sale:
Gross unrealized investment gains $12,068,045 18,717,048 22,162,722
Gross unrealized investment losses (542,123) (1,824,755) (583,127)
- -----------------------------------------------------------------------------------------------------------
11,525,922 16,892,293 21,579,595
- -----------------------------------------------------------------------------------------------------------
Debt securities available-for-sale:
Gross unrealized investment gains 23,965,535 2,033,609 -
Gross unrealized investment losses (2,350,615) (39,957,079) -
- -----------------------------------------------------------------------------------------------------------
21,614,920 (37,923,470) -
- -----------------------------------------------------------------------------------------------------------
Gross unrealized investment
gains (losses) 33,140,842 (21,031,177) 21,579,595
Increase (decrease)in deferred
acquisition costs for interest-
sensitive insurance products (7,337,628) 10,138,882 -
Deferred federal income tax
(benefit) (9,031,136) - (7,552,850)
- -----------------------------------------------------------------------------------------------------------
Net unrealized investment
gains (losses) $16,772,078 (10,892,295) 14,026,745
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The change in unrealized depreciation on debt securities for the year
ended December 31, 1993 was $10,016,287.
The amortized cost and fair values of debt securities available-for-sale
by category of securities were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1995:
Obligations of U.S.
government corpora-
tions and agencies $ 13,932,073 1,329,993 - 15,262,066
Obligations of state
and local governments 345,000 27,600 - 372,600
Corporate securities 283,046,263 21,105,333 712,974 303,438,622
GNMA's 196,490,530 1,502,609 1,637,641 196,355,498
- ----------------------------------------------------------------------------------
Total $493,813,866 23,965,535 2,350,615 515,428,786
- ----------------------------------------------------------------------------------
December 31, 1994:
Obligations of U.S.
government corpora-
tions and agencies $ 5,645,467 428,433 147,607 5,926,293
Obligations of state
and local governments 345,000 37,950 - 382,950
Corporate securities 226,154,428 1,495,267 20,378,534 207,271,161
GNMA's 218,525,301 71,959 19,430,938 199,166,322
- ----------------------------------------------------------------------------------
Total $450,670,196 2,033,609 39,957,079 412,746,726
- ----------------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of debt securities available-for-sale at
December 31, 1995, by contractual maturity, were as follows. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or repay obligations with or without penalties.
24
<PAGE> 13
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
DECEMBER 31, 1995
--------------------------
AMORTIZED FAIR
COST VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 5,616,792 5,729,284
Due after one year through five years 7,610,743 8,433,999
Due after five years through ten years 135,888,071 146,812,594
Due after ten years 119,447,770 129,429,412
GNMA's 196,490,530 196,355,498
Redeemable preferred stocks 28,759,960 28,667,999
- -------------------------------------------------------------------------
Total $493,813,866 515,428,786
- -------------------------------------------------------------------------
</TABLE>
The amortized cost of high yield bonds included in debt securities
available-for-sale was $30,152,831 with a market value of $32,817,380, which
represented 3.4% of invested assets.
There were no individual investments at December 31, 1995, other than U.S.
government securities, which exceeded 10% of the Company's stockholders'
equity.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are summarized
as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Debt securities $ 515,428,786 515,428,786
Equity securities 34,734,980 34,734,980
Mortgage loans on real estate 29,506,184 35,569,633
Investment real estate 375,204 2,400,000
Policy loans 376,672,196 376,672,196
Cash and short-term investments 43,567,304 43,567,304
- -------------------------------------------------------------------------------------------------
Total cash and investments $1,000,284,654 1,008,372,899
Notes payable to banks $ 94,994,000 94,994,000
=================================================================================================
AT DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
- -------------------------------------------------------------------------------------------------
Debt securities $412,746,726 412,746,726
Equity securities 52,476,038 52,476,038
Mortgage loans on real estate 20,625,877 22,813,189
Investment real estate 1,022,985 5,600,000
Policy loans 351,160,060 351,160,060
Cash and short-term investments 27,187,795 27,187,795
- -------------------------------------------------------------------------------------------------
Total cash and investments $865,219,481 871,983,808
- -------------------------------------------------------------------------------------------------
Notes payable to banks $ 84,201,000 84,201,000
- -------------------------------------------------------------------------------------------------
</TABLE>
These fair values were determined as follows:
Debt securities
The fair value and carrying value of debt securities were estimated based
on bid prices published in financial newspapers or bid quotations received from
securities dealers.
Equity securities
The fair value and carrying value of equity securities, other than private
placements, were based on bid prices published in financial newspapers. For
private placements, cost has been determined to approximate fair value.
Mortgage loans on real estate
For residential mortgage loans, fair value was estimated using quoted
market prices for securities backed by similar loans. The fair value of
commercial loans was estimated by discounting expected future cash flows using
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
Investment in real estate
The fair value of real estate was calculated using estimated market
values.
Policy loans
The fair value of policy loans approximates the book value, as interest
rates charged for a majority of the policy loans are updated to current market
rates on an annual basis.
Cash and short-term investments
The carrying amount approximates fair value because of the short maturity
of these instruments.
Notes Payable to Banks
The carrying amount estimates fair value because the interest rates
charged approximate current market rates.
(5) NOTES PAYABLE TO BANKS
Short-term notes payable to banks at December 31, 1995, of which all were
unsecured, related to advances under $100,000,000 lines of credit ($25,006,000
available to be drawn at December 31, 1995) bearing interest at rates ranging
from 4.85% to 8.00%. The arrangements under the terms of the lines of credit
are reviewed annually for renewal. Debt of $40,000,000, of which $20,000,000 is
long-term and secured, matures in 1996 and 1997 and relates to the acquisition
of $40,000,000 of GNMA's, which were financed at interest rates of 4.85% and
6.10% and provide a positive interest spread between the rate earned on the
GNMA's and the respective borrowing rate.
Interest expense for the years ended December 31, 1995, 1994 and 1993
totaled $5,555,271, $4,016,637 and $3,569,676, respectively, of which
$3,311,939, $2,020,545 and $1,413,993, respectively, were included in other
operating expenses and $2,243,332, $1,996,092 and $2,155,683, respectively,
related to the purchase of the GNMA's discussed above which reduced net
investment income.
(6) REINSURANCE
In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid by
ceding insurance to other insurance companies or reinsurers under excess
coverage and co-insurance contracts. The maximum risk generally retained on
ordinary life insurance on any one insured is $100,000 for policies issued
prior to July 1, 1994 and $200,000 on policies issued subsequent to July 1,
1994. The amount retained on group and credit life insurance is generally
$50,000. Generally, income from reinsurance arrangements is recognized in a
manner similar to the income recognition on the underlying policy contracts.
25
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONTINUED
A contingent liability exists for that portion of the policies reinsured
in the event that the reinsuring companies are unable to pay their share of any
resulting claims as reinsurance contracts do not relieve the Company from its
obligations to its policyholders. The Company evaluates the financial condition
of its reinsurers and monitors concentrations of credit risk arising from
similar geographic regions, activities, or economic characteristics of the
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies.
The amount of insurance premiums assumed and ceded under reinsurance
agreements for the year ended December 31, 1995 was $12,616,191 and
$97,826,310, respectively. For the year ended December 31, 1994 the amount
assumed and ceded was $3,159,171 and $73,993,254, respectively. The amounts of
recoveries for benefits paid under reinsurance agreements for the years ended
December 31, 1995 and 1994 were $96,660,625 and $70,936,685, respectively.
(7) EMPLOYEES AND AGENTS BENEFIT PLANS
(a) STOCK OPTIONS
The Company has three stock option plans primarily for its employees.
Under the plans, options are granted to purchase shares of AHLIC's common stock
at per share prices of not less than 100% of fair market value at date of
grant.
At December 31, 1995, options to purchase 271,947 shares (94,443 shares
exercisable) were outstanding at option prices ranging from $11.13 to $21.50
per share (aggregate $4,919,154). In addition, options to purchase 322,055
shares were available for future grant.
At December 31, 1994, options to purchase 291,561 shares (72,919 shares
exercisable) were outstanding at option prices ranging from $11.13 to $21.50
per share (aggregate $5,174,927). In addition, options to purchase 319,775
shares were available for future grant.
In 1995, 41,984 shares were granted at an option price of $18.50 per
share. In 1994, 24,612 shares were granted at an option price of $18.75 per
share. In 1993, 19,779 shares were granted at an option price of $21.50 per
share and 120,000 shares were granted at an option price of $17.50 per share.
In 1995, 17,334 shares were exercised at $11.13 per share. In 1994, 1,334
shares were exercised at $11.13 per share and 5,334 shares at $9.38 per share.
In 1993, no shares were exercised.
(b) PROFIT SHARING
The Company has a trusteed profit sharing plan for the exclusive benefit
of eligible employees. The Company's annual contribution to the plan is equal
to the lesser of 10% of consolidated earnings as defined or 10% of qualifying
compensation paid to participants. The annual contributions amounted to
$1,171,350 in 1995, $1,110,520 in 1994 and $1,076,758 in 1993. The total return
to participants in 1995 was 10.87%. The average annual return to participants
for the last ten years was 9.45%.
(c) STOCK PURCHASE PLAN
The Company maintains a stock purchase plan under which its employees and
directors and those of its subsidiaries can purchase shares of its common stock
in the open market through an unaffiliated plan administrator. Pursuant to the
plan, 299,203 shares had been purchased as of December 31, 1995. During the
years ended December 31, 1995 and 1994, 29,512 shares and 31,802 shares,
respectively, were purchased pursuant to the plan. This plan provides for
monthly payroll and directors' fees purchases up to $1,500, with the employer
making a monthly percentage contribution for the account of each participant,
based upon their purchases, as follows: (a) 25% of amounts from $5 through $25,
(b) 20% of amounts in excess of $25 through $50, and (c) 15% of amounts in
excess of $50 through $1,500.
The Company also maintains a stock purchase plan under which its agents
can purchase shares of its common stock in the open market through an
unaffiliated plan administrator. Pursuant to the plan, 20,606 shares had been
purchased as of December 31, 1995. During the years ended December 31, 1995 and
1994, 10,448 shares and 10,158 shares, respectively, were purchased pursuant to
the plan.The plan provides for monthly deductions from commissions payable by
participating subsidiaries of the Company to their participating agents with a
minimum monthly deduction of $1,000 and maximum of $2,000. The participating
subsidiary contributes, at the time of each purchase, an amount equal to five
percent (5%) of its agent's deduction for purchases from commissions payable.
(8) POLICY AND CONTRACT CLAIMS
Activity in the liability for policy and contract claims at December 31,
1995, 1994 and 1993 (in thousands) is summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $53,309 56,415 55,907
Less reinsurance recoverables 3,142 2,096 2,925
- -----------------------------------------------------------
Net balance at beginning of year 50,167 54,319 52,982
- -----------------------------------------------------------
Incurred related to:
Current year 126,874 118,065 127,163
Prior years (383) (1,130) (813)
- -----------------------------------------------------------
Total incurred 126,491 116,935 126,350
- -----------------------------------------------------------
Paid related to:
Current year 114,149 101,868 106,711
Prior years 15,726 19,219 18,302
- -----------------------------------------------------------
Total paid 129,875 121,087 125,013
- -----------------------------------------------------------
Net balance at end of year 46,783 50,167 54,319
Plus reinsurance recoverables 3,592 3,142 2,096
- -----------------------------------------------------------
Balance at end of year $50,375 53,309 56,415
- -----------------------------------------------------------
</TABLE>
26
<PAGE> 15
(9) INDUSTRY SEGMENT INFORMATION
Insurance revenues, total income, and pre-tax operating earnings,
reconciled to net earnings, for the three years ended December 31, 1995 for
each industry segment, Ordinary, Group and Credit, were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
(in thousands) 1995 1994 1993
<S> <C> <C> <C>
*Insurance revenues:
Ordinary $123,718 113,993 108,975
Group 39,925 43,222 52,823
Credit 83,608 73,374 65,578
---------------------------------------------------------------
Total insurance revenues $247,251 230,589 227,376
---------------------------------------------------------------
*Total income:
Ordinary $185,277 171,471 164,700
Group 45,281 48,879 57,802
Credit 87,619 77,221 68,958
Other non-segmented income
less eliminations (325) (276) (209)
Realized investment gains (losses) 6,003 2,011 1,184
---------------------------------------------------------------
Total income $323,855 299,306 292,435
---------------------------------------------------------------
Operating earnings:
*Ordinary - Total income $185,277 171,471 164,700
Less deductions:
Benefits and claims 103,184 95,637 94,240
Taxes, commissions and
general expenses 29,414 29,027 28,571
Amortization of deferred
acquisition costs 23,744 20,758 20,091
---------------------------------------------------------------
Pre-tax operating earnings 28,935 26,049 21,798
---------------------------------------------------------------
*Group - Total income 45,281 48,879 57,802
Less deductions:
Benefits and claims 25,595 29,094 39,503
Taxes, commissions and
general expenses 12,216 12,462 12,257
---------------------------------------------------------------
Pre-tax operating earnings 7,470 7,323 6,042
---------------------------------------------------------------
*Credit - Total income 87,619 77,221 68,958
Less deductions:
Benefits and claims 19,802 21,415 25,592
Taxes, commissions and
general expenses 65,078 54,052 41,646
---------------------------------------------------------------
Pre-tax operating earnings 2,739 1,754 1,720
---------------------------------------------------------------
Other - Total income 5,677 1,735 975
Less: Total expenses 3,384 2,198 1,630
---------------------------------------------------------------
Total other 2,293 (463) (655)
---------------------------------------------------------------
Earnings before income taxes 41,437 34,663 28,905
Income taxes 13,362 11,022 9,190
---------------------------------------------------------------
Net earnings $28,075 23,641 19,715
---------------------------------------------------------------
</TABLE>
* Total income, insurance revenues and operating profits are net of reinsurance.
Total income includes net investment income which is allocated to the
industry segments based on required liabilities for future policy benefits and
policyholders' account balances.
A majority of the Company's assets consists of investments and cash which
are not identified with a specific operation. Accordingly, it is not possible
to separate assets, capital expenditures, and depreciation by industry segment.
(10) STOCKHOLDER'S EQUITY AND NET EARNINGS
The payment of dividends to AHLIC by AHL is subject to the regulation of
the State of Florida Department of Insurance. A dividend may be made without
prior Florida Insurance Commissioner's approval if the dividend is equal to or
less than the greater of: (a) 10% of AHL's surplus as to policyholders derived
from realized net operating profits on its business and net realized capital
gains; or (b) AHL's entire net operating profits and realized net capital gains
derived during the immediately preceding calendar year, if AHL will have
surplus as to policyholders equal to or exceeding 115% of the minimum required
statutory surplus as to policyholders after the dividend is paid. As a result
of such restrictions, the maximum dividend which could be paid to AHLIC by AHL
during 1996 without prior approval is $33.1 million.
AHLIC's insurance subsidiaries had statutory net operating earnings of
$18,998,530, $13,466,184 and $11,702,137 and statutory net earnings of
$33,940,756, $14,135,172 and $13,744,398 for the years ended December 31, 1995,
1994 and 1993, respectively. Statutory stockholder's equity of such
subsidiaries was $134,527,656 at December 31, 1995 and $139,250,736 at December
31, 1994. At December 31, 1995, pursuant to the insurance laws of the State of
Florida, the minimum capital and surplus required to be maintained by AHL was
approximately $43.4 million.
(11) NEW PRONOUNCEMENTS BY THE FINANCIAL ACCOUNTING STANDARDS BOARD
No pronouncements which have been issued by the Financial Accounting
Standards Board have or will have a significant impact on the consolidated
financial statements of the Company.
(12) CONTINGENT LIABILITIES
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 to in the ordinary
course of business and to date the settements of such claims of this nature
have not been material to the financial position of the Company. 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.
27
<PAGE> 1
EXHIBIT 21
SIGNIFICANT SUBSIDIARY OF THE REGISTRANT
American Heritage Life Insurance Company (organized in the State of Florida)
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 515,428,786
<DEBT-CARRYING-VALUE> 515,428,786
<DEBT-MARKET-VALUE> 515,428,786
<EQUITIES> 34,734,980
<MORTGAGE> 29,506,184
<REAL-ESTATE> 375,204
<TOTAL-INVEST> 979,602,947
<CASH> 20,681,707
<RECOVER-REINSURE> 9,230,940
<DEFERRED-ACQUISITION> 158,250,346
<TOTAL-ASSETS> 1,317,895,924
<POLICY-LOSSES> 205,087,735
<UNEARNED-PREMIUMS> 53,317,152
<POLICY-OTHER> 50,375,445
<POLICY-HOLDER-FUNDS> 635,670,066
<NOTES-PAYABLE> 94,994,000
0
0
<COMMON> 13,933,206
<OTHER-SE> 205,396,024
<TOTAL-LIABILITY-AND-EQUITY> 1,317,895,924
247,251,129
<INVESTMENT-INCOME> 70,601,365
<INVESTMENT-GAINS> 6,002,693
<OTHER-INCOME> 0
<BENEFITS> 148,580,396
<UNDERWRITING-AMORTIZATION> 23,744,359
<UNDERWRITING-OTHER> 106,398,967
<INCOME-PRETAX> 41,437,486
<INCOME-TAX> 13,362,100
<INCOME-CONTINUING> 28,075,386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,075,386
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.02
<RESERVE-OPEN> 50,167,000
<PROVISION-CURRENT> 126,874,000
<PROVISION-PRIOR> (383,000)
<PAYMENTS-CURRENT> 114,149,000
<PAYMENTS-PRIOR> 15,726,000
<RESERVE-CLOSE> 46,783,000
<CUMULATIVE-DEFICIENCY> 0
</TABLE>