<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
the Securities Exchange Act of 1934
For Quarter Ended March 31, 1996 Commission File Number 1-7255
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
Florida 59-1219710
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1776 American Heritage Life Drive, Jacksonville, Florida 32224
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (904) 992-1776
Former name, former address and former fiscal year, if changed since last report
N/A
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Number of registrant's shares of common stock outstanding at
April 30, 1996
13,840,225
<PAGE> 2
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
---------------- -----------------
<S> <C> <C>
ASSETS
Investments:
Debt securities, available-for-sale, at fair
value (cost of $514,326,942 in 1996 and
$493,813,866 in 1995) $ 520,855,804 515,428,786
Equity Securities, available-for-sale, at
fair value (cost of 24,141,495 in 1996
and $23,209,058 in 1995) 35,875,039 34,734,980
Mortgage loans on real estate 34,439,961 29,506,184
Investment real estate, at cost 386,397 375,204
Policy loans 374,301,384 376,672,196
Short-term investments 9,143,139 22,885,597
-------------- -----------
Total Investments 975,001,724 979,602,947
Cash 21,328,204 20,681,707
Agents' balances and prepaid commissions 38,943,723 39,077,008
Premiums receivable 43,042,597 41,816,329
Accrued investment income 29,928,253 24,274,265
Deferred acquisition costs 164,977,173 158,250,346
Property and equipment, at cost,
less accumulated depreciation 28,153,283 27,829,804
Reinsurance receivables 10,202,643 9,230,940
Other assets 17,499,781 17,132,578
-------------- -------------
$1,329,077,381 1,317,895,924
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy benefits $ 197,653,930 205,087,735
Policyholders' account balances 648,187,209 635,670,066
Unearned premiums 53,544,690 53,317,152
Policy and contract claims 47,789,140 50,375,445
-------------- -------------
Total policy liabilities 947,174,969 944,450,398
Notes payable to banks, short-term 75,974,000 74,994,000
Notes payable to banks, long-term 20,000,000 20,000,000
Deferred income taxes 28,384,018 28,882,185
Other liabilities 40,663,791 30,240,111
-------------- -------------
Total liabilities 1,112,196,778 1,098,566,694
-------------- -------------
Stockholders' equity:
Common stock of $1 par value. Authorized
20,000,000 shares; issued 13,961,107 in
1996 and 13,933,206 in 1995 13,961,107 13,933,206
Additional paid-in capital 42,632,294 42,214,787
Retained earnings 152,697,662 148,454,353
Net unrealized investment gains (losses) 10,307,827 16,772,078
-------------- -------------
219,598,890 221,374,424
Less cost of 126,670 in 1996 and 97,277
in 1995 common shares in treasury 2,718,287 2,045,194
-------------- -------------
Total stockholder's equity 216,880,603 219,329,230
$1,329,077,381 1,317,895,924
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Income:
Insurance revenues $61,186,767 56,358,842
Net investment income 19,070,025 16,399,468
Realized investment gains, net 105,472 2,167,401
----------- ----------
Total Income 80,362,264 74,925,711
----------- ----------
Benefits, claims and expenses:
Benefits and claims 35,929,040 33,390,834
Underwriting, acquisition and insurance expenses:
Taxes, commissions and general expenses 27,175,559 23,733,923
Amortization of deferred acquisition costs 6,402,798 5,884,763
Other operating expenses 954,324 879,219
----------- ----------
Total benefits, claims and expenses 70,461,721 63,888,739
----------- ----------
Earnings before income taxes 9,900,543 11,036,972
3,171,400 3,579,200
Income taxes ----------- ----------
Net earnings $ 6,729,143 7,457,772
=========== ==========
Net earnings per share of common stock $ 0.49 0.54
=========== ==========
Dividends declared per share $ 0.18 0.11
=========== ==========
Average number of shares outstanding 13,833,356 13,878,071
=========== ==========
</TABLE>
See accompanying notes to consolidted financial statements.
2
<PAGE> 4
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Common stock:
Balance at beginning of period $ 13,933,206 13,905,794
Other shares issued 27,901 27,502
------------ ------------
Balance at end of period 13,961,107 13,933,296
------------ ------------
Additional paid-in capital:
Balance at beginning of period 42,214,787 41,866,379
Excess over par value on shares issued 317,029 459,795
Net change on exercise of stock options 100,478 (24,588)
------------ ------------
Balance at end of period 42,632,294 42,301,586
------------ ------------
Retained earnings:
Balance at beginning of period 148,454,353 129,406,469
Add net earnings 6,729,143 7,457,772
------------ ------------
155,183,496 136,864,241
Deduct cash dividends declared on common stock - $.18
per share in 1996 and $.11 per share in 1995 (2,485,834) (1,528,867)
------------ ------------
Balance at end of period 152,697,662 135,335,374
------------ ------------
Net unrealized investment gains (losses):
Balance at beginning of period 16,772,078 (10,892,295)
Change during the period (6,464,251) 16,183,435
------------ ------------
Balance at end of period 10,307,827 5,291,140
------------ ------------
Treasury stock:
Balance at beginning of period 2,045,194 926,732
Add treasury shares purchased (29,393 shares in 1996
and 12 shares in 1995) 673,093 215
------------ ------------
Balance at end of period 2,718,287 926,947
------------ ------------
Total stockholders' equity $216,880,603 195,934,449
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
STATEMENTS OF CONSOLIDATED CASH FLOW
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Operating activities:
Net earnings $ 6,729,143 7,457,772
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Change in agents' balances and prepaid commissions 133,285 179,099
Change in premiums receivable (1,226,268) 1,878,367
Change in accrued investment income (5,653,988) (6,956,191)
Change in reinsurance receivables (971,703) 1,720,826
Amortization of deferred acquisition costs 6,402,798 5,884,763
Acquisition costs deferred (8,196,138) (8,043,199)
Change in future policy benefits (7,433,805) 1,505,983
Change in policyholders' account balances 12,517,143 6,697,166
Change in unearned premiums 227,538 (694,922)
Change in policy and contract claims (2,586,305) 357,968
Change in income taxes 2,882,533 3,431,372
Provision for depreciation and amortization 791,224 184,465
Change in unearned investment income (128,859) (594,059)
Other, net 756,881 (1,432,781)
----------- -----------
Net cash provided by operating activities 4,243,479 11,576,629
----------- -----------
Investing activities:
Sales of debt securities 1,232,425 31,619,160
Maturities of debt securities 6,979,940 3,917,106
Sales (purchases) of short-term investments, net 13,742,458 6,250,948
Sales of equity securities 67,573 1,034,138
Maturities of mortgage loans on real estate 1,251,223 341,698
Policy loans paid 9,540,257 4,196,967
Purchases of debt securities (28,809,912) (54,491,603)
Purchases of equity securities (1,410,763) (1,362,110)
Origination of mortgage loans on real estate (6,185,000) (1,650,000)
Policy loans made (7,169,445) (4,364,389)
Purchases and additions of property and equipment
and investment real estate (715,142) (800,394)
Other, net 9,617,756 5,762,234
----------- -----------
Net cash used by investing activities (1,858,630) (9,546,245)
----------- -----------
Financing activities:
Change in notes payable to banks, net 980,000 193,000
Dividends to stockholders (2,485,834) (1,528,867)
Other, net (232,518) (298,463)
----------- -----------
Net cash provided by financing activities (1,738,352) (1,634,330)
----------- -----------
Increase in cash 646,497 396,054
Cash, beginning of period 20,681,707 19,490,055
----------- -----------
Cash, end of period $21,328,204 19,886,109
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(UNAUDITED)
(1) The accompanying consolidated financial statements, which are unaudited,
in the opinion of management, include all adjustments necessary to present
fairly the consolidated results of operations and financial position of
the Company for the periods indicated. However, certain information and
note disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
omitted. It is suggested that these consolidated financial statements be
read in conjunction with the consolidated financial statements, schedules
and notes thereto included in the Company's Form 10-K for the year ended
December 31, 1995.
(2) The financial statements of the Company's life insurance operations,
primarily the operations of American Heritage Life Insurance Company, have
been included in the consolidated financial statements on the basis of
generally accepted accounting principles.
(3) Earnings per share of common stock were based on the weighted average
number of shares outstanding during each period, excluding treasury
shares. Options outstanding to purchase common stock had no significant
dilutive effect on earnings per share.
(4) Current accrued income taxes were included in other liabilities in the
amount of $100,000 at March 31, 1996 and December 31, 1995 in the
accompanying consolidated balance sheets.
(5) AHL, like other insurance companies, is currently a defendant in lawsuits
that involve claims for punitive, exemplary or other extracontractual
damages, which are for amounts substantially in excess of the actual
damages sought. Management considers such litigation regrettably to be of
the type to which insurance companies are usually and customarily
subjected in the ordinary course of business and to date 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.
5
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIODS ENDED MARCH 31, 1996 COMPARED TO
PERIODS ENDED MARCH 31, 1995
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). Significant changes in the
components of the consolidated results of operations for the comparative
periods are presented below.
Insurance revenues for reporting purposes pursuant to generally accepted
accounting principles (GAAP) include only the mortality, expense and surrender
charges for interest-sensitive products. Insurance revenues do not include
group and credit premium equivalents and cash deposits from interest-sensitive
products. Insurance revenues for the three-months ended March 31, 1996 were
$61.2 million, an increase of 8.6% from the $56.4 million for the same period
in 1995. This increase was due primarily to an increase in ordinary and credit
accident and health insurance revenues.
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 a reinsurance/administrative services only basis, in
which only the fees charged are included in insurance revenues for GAAP
purposes, it is necessary to evaluate insurance revenues including premium
equivalents. Including premium equivalents of $60.8 million and $56.4 million
for the three months ended March 31, 1996 and 1995, respectively, insurance
revenues, including premium equivalents, were $122.0 million and $112.7
million, up 8.2% in 1996. These increases are primarily due to an increase in
ordinary and group insurance revenues including premium equivalents.
For the three months ended March 31, 1996, net investment income was $19.1
million, an increase of 16.3% over the $16.4 million reported for the same
period in 1995. This increase in net investment income for the three months
ended March 31, 1996 compared to the same period in 1995 was due primarily to:
(1) an increase in invested assets, (2) an increase in Management Security Plan
(MSP) policy loan interest due to an increase in the average rate charged and
increased policy loan balances (see page 8 for discussion regarding MSP loans)
and (3) changes made to the investment portfolio to improve the overall
investment results. The effective yield on invested assets for the three
months ended March 31, 1996 was 7.80% compared to 7.54% for the same period in
1995.
6
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIODS ENDED MARCH 31, 1996 COMPARED TO
PERIODS ENDED MARCH 31, 1995
RESULTS OF OPERATIONS (CONTINUED)
Realized investment gains for the three months ended March 31, 1996 were $.1
million compared to $2.2 million for the same period in 1995. The realized
investment gains for the three months ended March 31, 1995 included a one time
unusual gain on the sale of a parcel of undeveloped property with no comparable
amount in 1996.
Benefits and claims were $35.9 million for the three months ended March 31,
1996 up 7.6% from the $33.4 million for the same period in 1995. The increase
for the three months ended March 31, 1996 versus 1995 was due primarily to
increased ordinary benefits, including increased interest credited to
policyholder account balances, an increase in mortality experience and an
increase in unearned premium for long term care business which is included in
benefits and claims for financial statement purposes.
Taxes, commissions and general expenses aggregated $27.2 million for the first
three months of 1996 versus $23.7 million for the first three months of 1995,
or an increase of 14.5%. This increase was primarily due to an increase in
commissions on credit business as a result of increased insurance revenues.
Pursuant to GAAP, the initial costs directly associated with selling,
underwriting and processing ordinary insurance are deferred and amortized over
the premium-paying period of the related policies for traditional products.
For interest-sensitive products, these costs are amortized over the lives of
the policies in relation to the present value of estimated gross profits from
surrender charges and investment, mortality and expense margins. These costs
increase as the amount of sales and insurance in force increase. The charge to
earnings for acquisition costs of ordinary insurance is comprised of two
components: (1) the amortization of costs for policies which remain in force
and (2) the write-off of unamortized costs related to policies which are
terminated. For the three months ended March 31, 1996 the amortization of
deferred acquisition costs was $6.4 million compared to $5.9 million for the
comparable period in 1995, or an increase of 8.8%. These increases in
amortization expense were primarily due to the growth of business in force, and
surrenders of ordinary life business which increased the write-off of the
policies' deferred acquisition costs.
For the three months ended March 31, 1996, other operating expenses totalled
$1.0 million compared to $.9 million for the same period in 1995, or an
increase of 8.5%. These increases were due primarily to an increase in
interest expense as a result of an increase in the amount of average
outstanding bank debt and an increase in interest rates.
Income taxes decreased 11.4% for the three months ended March 31, 1996 from the
same period in 1995, primarily as a result of a decrease in net earnings and a
lower effective tax rate. For the three months ended March 31, 1996 and 1995
the effective tax rate was 32.0% and 32.4%, respectively. This decrease in the
effective tax rate is primarily due to higher realized gains for the three
months ended March 31, 1995, which are taxed at a rate of 35%.
7
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIODS ENDED MARCH 31, 1996 COMPARED TO
PERIODS ENDED MARCH 31, 1995
LIQUIDITY AND CAPITAL RESOURCES
The Company is engaged primarily in the life insurance business. The principal
subsidiary, AHL, generates major sources of cash flow from premiums collected
for traditional insurance products, deposits and policy charges for interest-
sensitive products and investment income attributable to its life insurance
operations and associated investment portfolio. This results in a significant
portion of the Company's assets being liquid. Such assets are made up of cash,
short-term investments and readily marketable securities.
As an insurer, AHL is required to maintain substantial liabilities for future
policy benefits and policyholders' account balances. Since premiums and
deposits received in anticipation of such benefits are investable funds, it is
expected that AHL will continue to increase its investment portfolio using cash
flow from operations.
The decrease in net cash provided by operating activities for the three months
ended March 31, 1996 compared to the same period in 1995 was due primarily to:
(1) funding the surrenders of certain ordinary life policies and (2) an
increase in premiums and reinsurance receivables in 1996 versus 1995.
The Company's policy loans are a higher percentage of invested and total assets
than industry norm as a result of a significant block of Management Security
Plan (MSP) business. The MSP product is an interest-sensitive, deferred
compensation/executive benefit-type product with the policy loan feature being
an integral part of the product. A market rate of interest is charged on the
policy loans and a predetermined built-in spread is achieved between the
interest rate charged on the policy loans and the interest rate credited on the
loaned funds. Accordingly, all MSP policy loans are completely collateralized
by the underlying policyholders' account balances. All policy loans are funded
out of cash provided by operating activities and do not represent a significant
restriction on the Company's liquidity.
At March 31, 1996, the fair value of the Company's debt and equity security
portfolio aggregated $556.7 million compared with an amortized cost of $538.5
million, or an unrealized gain of $18.2 million. At December 31, 1995, the
fair value of the portfolio aggregated $550.2 million compared with an
amortized cost of $517.0 million, or an unrealized gain of $33.2 million. This
change in the unrealized gain is primarily due to changes in market conditions.
8
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERIODS ENDED MARCH 31, 1996 COMPARED TO
PERIODS ENDED MARCH 31, 1995
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's amortized cost of high yield bonds (rated below BBB by Standard &
Poor's Corporation and excluding non-rated and private placements) at March
31, 1996 aggregated $29.8 million with a market value of $30.9 million. At
market value, these investments represented 2.3% of total assets, or 3.2% of
total invested assets. Such holdings were not material to invested assets nor
is it expected that any subsequent gains or losses on these securities would be
material to the operations of the Company.
AHLIC is a holding company, and its liquidity is largely dependent on the
ability of its subsidiaries, primarily AHL, to pay dividends and on external
financings. As a result, AHLIC borrows on an interim basis through lines of
credit with its major banks to cover any short-term cash requirements which
may occur. The increase in bank debt at March 31, 1996 compared to the amount
at December 31, 1995 reflected the cash needs for the holding company including
stockholder dividends and interest expense on outstanding debt.
9
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
AHL, like other insurance companies, is currently a defendant in
lawsuits that involve claims for punitive, exemplary or other
extracontractual damages, which are for amounts substantially in
excess of the actual damages sought. Management considers such
litigation regrettably to be of the type to which insurance
companies are usually and customarily subjected in the ordinary
course of business and to date the settlement 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.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule (for SEC proposes only)
(b) A Form 8-K report was filed on February 14, 1996 including
the following items.
Item 5. Other Events
- Amendment of the By-Laws
Item 7. Financial Statements and Exhibit
- By-Laws of American Heritage Life Investment
Corporation, as amended and restated, dated
February 6, 1996.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto authorized.
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
Date 05/14/96 /s/ W. Michael Heekin
-------- -------------------------------------------------
W. Michael Heekin, Senior Vice President and
Corporate Secretary (Authorized Officer)
Date 05/14/96 /s/ C. Richard Morehead
-------- -------------------------------------------------
C. Richard Morehead, Executive Vice President and
Chief Financial Officer (Principal Financial and
Accounting Officer)
10
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 520,855,804
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 35,875,039
<MORTGAGE> 34,439,961
<REAL-ESTATE> 386,397
<TOTAL-INVEST> 975,001,724
<CASH> 21,328,204
<RECOVER-REINSURE> 10,202,643
<DEFERRED-ACQUISITION> 164,977,173
<TOTAL-ASSETS> 1,329,077,381
<POLICY-LOSSES> 197,653,930
<UNEARNED-PREMIUMS> 53,544,690
<POLICY-OTHER> 47,789,140
<POLICY-HOLDER-FUNDS> 648,187,209
<NOTES-PAYABLE> 95,974,000
0
0
<COMMON> 13,961,107
<OTHER-SE> 202,919,496
<TOTAL-LIABILITY-AND-EQUITY> 1,329,077,381
61,186,767
<INVESTMENT-INCOME> 19,070,025
<INVESTMENT-GAINS> 105,472
<OTHER-INCOME> 0
<BENEFITS> 35,929,040
<UNDERWRITING-AMORTIZATION> 6,402,798
<UNDERWRITING-OTHER> 27,175,559
<INCOME-PRETAX> 9,900,543
<INCOME-TAX> 3,171,400
<INCOME-CONTINUING> 6,729,143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,729,143
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
<RESERVE-OPEN> 50,375,445
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
