<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996].
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _______________
(COMMISSION FILE NO. 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 identification number)
incorporation or organization)
AMERICAN HERITAGE LIFE BUILDING
1776 AMERICAN HERITAGE LIFE DRIVE
JACKSONVILLE, FLORIDA 32224
(Address of principal executive offices) (Zip Code)
Registrant's telephone number - Area Code 904-992-1776
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $1.00 PER SHARE NEW YORK STOCK EXCHANGE
(Title of Class) (Name of Exchange)
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of Class)
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 March 5, 1998 was approximately $289,515,730.
As of March 5, 1998, there were 27,840,225 shares of Common Stock, par
value $1.00 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated herein by reference:
PROXY STATEMENT DATED MARCH 20, 1998 PART III
(Document) (Where Incorporated)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
No. Description No.
- ---- ----
<S> <C> <C>
1. BUSINESS........................................................ 3
2. PROPERTIES...................................................... 14
3. LEGAL PROCEEDINGS............................................... 14
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 15
5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS............................................. 15
6. SELECTED FINANCIAL DATA......................................... 16
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................. 17
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 22
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................. 45
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 45
11. EXECUTIVE COMPENSATION.......................................... 47
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.................................................. 47
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 47
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K..................................................... 48
SIGNATURES...................................................... 49
</TABLE>
2
<PAGE> 3
ITEM 1. BUSINESS
American Heritage Life Investment Corporation is a holding company
whose principal subsidiaries are American Heritage Life Insurance Company
("AHL") and Columbia Universal Life Insurance Company ("CUL"). (Collectively,
American Heritage Life Investment Corporation and its subsidiaries are the
"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. AHL is
engaged in the business of underwriting life and accident and health insurance
on an individual, group and credit basis. AHL is a leading marketer of life and
supplemental health insurance products through payroll allotment, a specialized
distribution method on which it has focused since its inception. Payroll
allotment is an efficient way to distribute most products to employees on the
job by conveniently deducting the premium from their paychecks. CUL, a
subsidiary of AHL, markets annuity and individual life insurance products and
is currently licensed in 36 states and Puerto Rico.
The Company has reported increased operating earnings for 22
consecutive years and has increased dividends to shareholders for 29
consecutive years. The following chart presents the Company's consolidated
operating earnings for the last ten years. Operating earnings are defined as
net earnings excluding realized investment gains and losses, net of income
taxes, and non-recurring gains related to the sale of home office property.
<TABLE>
<CAPTION>
OPERATING EARNINGS HISTORY
YEAR ENDED OPERATING EARNINGS % INCREASE
- ----------- ------------------ ----------
DECEMBER 31 (IN THOUSANDS) FROM PRIOR YEAR
- ----------- -------------- ---------------
<S> <C> <C>
1988.................................... $10,649 10.5%
1989.................................... 11,920 11.9
1990.................................... 13,409 12.5
1991.................................... 15,019 12.0
1992.................................... 16,739 11.5
1993.................................... 18,945 13.2
1994.................................... 22,334 17.9
1995.................................... 24,174 8.2
1996.................................... 26,759 10.7
1997.................................... 31,058 16.1
</TABLE>
- ------------
The Company's principal subsidiary, AHL, is rated "A (Excellent)" by
A.M. Best, an independent nationally recognized insurance publishing and rating
service and has an insurer claims paying ability rating of "AA" from Standard &
Poor's Insurance Rating Services. A.M. Best ratings for solvent insurance
companies range from "A++ (Superior)" to "D (Very Vulnerable)". An A.M. Best
rating is intended to provide an independent opinion of an insurer's ability to
meet its obligations to policyholders and should not be considered an
investment recommendation. A Standard & Poor's insurance claims paying ability
rating is an assessment of an operating insurance company's financial capacity
to meet obligations under an insurance policy in accordance with its terms.
Standard & Poor's ratings range from "AAA (Extremely strong capacity to meet
contractual policy obligations)" to "D (Default, terms of the obligation will
not be met)." AHL's AA rating, the second highest major rating category,
indicates a very strong capacity to meet contractual policy obligations. At
December 31, 1997, the Company had $1.9 billion of total assets, $252.2 million
of stockholders' equity, and $25.7 billion of gross life insurance volume in
force. Also, approximately 95% of the $923.3 million of debt securities held by
the company had an investment grade ratings.
The executive offices of the Company are located at the American
Heritage Life Building, 1776 American Heritage Life Drive, Jacksonville,
Florida 32224, and the Company's telephone number is (904) 992-1776.
3
<PAGE> 4
BUSINESS STRATEGIES
The Company's objective is to continue its record of increased
operating earnings by following the strategies set forth below:
COMMITMENT TO CORE BUSINESS. The Company's primary focus will
continue to be on its core businesses. Additionally, the Company will
continue to evaluate opportunities to grow from expansion through
strategic alliances and acquisitions of blocks of business and/or
companies that are compatible with the Company's core businesses.
CONCENTRATION ON MARKET NICHE. The Company believes it has a
competitive advantage in workplace marketing based upon its commitment
to provide quality service, its offering of an expanding portfolio of
products, and its development of processes and technology that are
unique to servicing and administering that marketplace.
SYNERGISTIC MARKETING AND STRATEGIC ALLIANCES. The Company's
three marketing areas - ordinary, group and credit - provide
opportunities for cross-selling the Company's products. The Company's
group operations in particular provide the Company's ordinary
operations access to sell workplace marketing products. The Company
also has and is continuing to develop strategic alliances with other
insurers to cross-sell such entities' products and to allow each
entity access to the other's distribution channels.
FOCUS ON EXPENSE CONTROL. The Company believes that its
record of profitable growth has resulted from a combination of revenue
growth and focus on expense control. The Company's ratio of general
insurance expenses to total revenue (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 as compared to industry norms. General insurance expenses as
a percentage of total revenues for the years ended December 31, 1988
through 1997, ranged from a high of 6.2% to a low of 4.9% with a
current level of 5.4% for the year ended December 31, 1997.
ACQUISITIONS
The Company acquired Columbia Universal Life Insurance Company for $44
million in cash effective January 1, 1997. Effective December 31, 1996, the
Company acquired a block of business from Kentucky Home Mutual Life Insurance
Company with approximately $1.8 million of premiums and premium equivalents and
$3.3 million of assets. On June 30, 1997, the Company closed on the acquisition
of Concord General Life Insurance Company for a total consideration of $7.5
million. Effective July 31, 1997, AHLIC acquired ERJ Insurance Group, Inc., a
credit insurance marketing organization. Effective September 30, 1997, the
Company acquired a block of business from Security Life of Denver, a member of
the ING Group, with approximately $14.0 million of premiums. These acquisitions
were reflected in the Company's financial statements at December 31, 1997. Each
of these acquisitions has been accounted for as a purchase and the operating
results from the respective acquisition effective dates are included in the
consolidated statement of earnings. In February 1998, the Company announced the
acquisition of Keystone State Life Insurance Company of Philadelphia,
Pennsylvania, for $10,300,000. The definitive agreement was signed on March 21,
1998 and the transaction is expected to close in June. Keystone has
approximately $40 million in assets and $5 million in insurance revenues.
4
<PAGE> 5
MARKETING AREAS
The Company has three primary marketing areas: ordinary, group and
credit. The following table sets forth the insurance revenues and pre-tax
operating earnings of the three marketing areas for each of the years in the
five year period ended December 31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- ------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INSURANCE REVENUES (1):
Ordinary
Life $ 60,957 $ 42,998 $ 40,173 $ 38,405 $ 37,000
Accident and health 107,261 94,423 83,545 75,588 71,975
-------- -------- -------- -------- --------
Total ordinary $168,218 $137,421 $123,718 $113,993 $108,975
-------- -------- -------- -------- --------
Group
Life $ 9,906 $ 10,482 $ 8,604 $ 7,719 $ 10,350
Accident and health 21,128 24,998 31,321 35,503 42,473
-------- -------- -------- -------- --------
Total group $ 31,034 $ 35,480 $ 39,925 $ 43,222 $ 52,823
-------- -------- -------- -------- --------
Credit
Life $ 32,753 $ 36,650 $ 35,380 $ 29,516 $ 29,183
Accident and health 47,826 48,968 48,228 43,858 36,395
-------- -------- -------- -------- --------
Total credit $ 80,579 $ 85,618 $ 83,608 $ 73,374 $ 65,578
-------- -------- -------- -------- --------
Total $279,831 $258,519 $247,251 $230,589 $227,376
======== ======== ======== ======== ========
INSURANCE REVENUES AND
PREMIUM EQUIVALENTS (1):
Ordinary $241,081 $181,469 $167,328 $161,612 $149,106
Group 223,596 214,933 206,354 167,520 158,188
Credit 173,784 171,209 138,134 116,318 103,113
-------- -------- -------- -------- --------
Total $638,461 $567,611 $511,816 $445,450 $410,407
======== ======== ======== ======== ========
PRE-TAX OPERATING
EARNINGS (2):
Ordinary $ 40,314 $ 35,070 $ 28,935 $ 26,049 $ 21,798
Group 4,608 4,513 7,470 7,323 6,042
Credit 5,604 3,750 2,739 1,754 1,720
-------- -------- -------- -------- --------
Total $ 50,526 $ 43,333 $ 39,144 $ 35,126 $ 29,560
======== ======== ======== ======== ========
</TABLE>
(1)Pursuant to generally accepted accounting principles 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. Insurance revenues do not include cash
deposits from interest-sensitive products. Group and credit insurance revenues
for GAAP reporting purposes do not include premium equivalents for the periods
presented. Group premium equivalents represent the claim costs paid for split
funded or self funded 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. Credit premium equivalents represent reinsured premiums and
earned premium equivalents related to administrative services only business.
(2)Pre-tax operating earnings represent the pre-tax operating earnings of the
respective marketing areas excluding non-insurance related income and expense
and realized investment gains and losses.
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<PAGE> 6
ORDINARY DEPARTMENT
GENERAL. Ordinary operations provide interest-sensitive products
(universal life, single and flexible premium deferred annuities, single premium
immediate annuities, level and decreasing term products and supplemental
accident and health insurance products) to individuals. The largest portion
(78%) for the year ended December 31, 1997) of new annualized sales was
produced through workplace marketing with the remainder produced by a variety
of direct billing methods through individual agents. The Company's strategy in
its ordinary operations is to offer a broader product mix than its competitors
through workplace marketing and to solicit all of the employee base by
targeting direct sales of insurance products to higher income employees in
addition to payroll deduction sales. Recent life insurance studies published by
LIMRA International, a prominent industry market research organization,
indicate that AHL is one of only four life insurance companies that sell in
excess of $40 million of voluntary payroll life and payroll health insurance
premiums per year. To describe the Company's differentiation in the
marketplace, the Company has coined the following descriptive phrase: "AHL -
The Workplace Marketer(R) - the company that serves the life and supplemental
health insurance needs of the American worker - from the lunchroom to the board
room."
Distribution by workplace marketing 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.
The Ordinary Department has been a key component of the strategy and
profit-making ability of the Company since its founding. For the year ended
December 31, 1997, the Ordinary Department accounted for approximately 80% of
the Company's pre-tax operating earnings, which excludes non-operating items
not allocated to the marketing areas.
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,
the Company has increased its market to a majority of the buyer population.
Furthermore, the Company 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.
The Company 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.
PRODUCTS. The Company'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>
<CAPTION>
PAYROLL DEDUCTION PRODUCTS: UPSCALE PRODUCTS:
<S> <C>
Universal Life Universal Life
Term Life Term Life
Annuities Annuities
Cancer Long Term Care
Accident Home Health Care
Disability Income Cancer
Hospital Indemnity
Long Term Care
</TABLE>
New product development is underway to add to our payroll portfolio in
1998. A group voluntary disability income product, a group voluntary term
product and a sickness rider attached to the company's accident product are to
be introduced.
6
<PAGE> 7
It is the general policy of the Company 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 5-20 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 cancer, accident, disability income, long-term care, home
health care and hospital income. Premiums on ordinary policies are payable on a
monthly, quarterly, semi-annual, annual, single or flexible premium basis.
The Company'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/STRATEGIC ALLIANCES. The Company's products are
marketed through the personal producing general agent ("PPGA") system in 49
states. The Company 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. Additionally, AHL's strategic alliance initiative targets life
insurance companies to offer AHL's workplace marketing products through their
existing distribution systems. The interest level expressed by the targeted
companies is high due to several factors, including the promising potential of
workplace marketing, the targeted companies' lack of one or more of the major
components necessary for success in workplace marketing, and the targeted
companies' recognition of AHL as a successful, quality company dedicated and
committed to workplace marketing. The Company presently has strategic alliance
partnerships in place with several life insurance companies which are expected
to provide access to significant distribution systems during 1998 and beyond.
The Ordinary Department's distribution system operates with efficiency
and effectiveness that are consistent with the Company's philosophy as a
service oriented, results driven organization. In addition to the Home Office,
the Company maintains fourteen regional offices located throughout the United
States. The Company has expanded its national presence in 1997 by establishing
additional regional offices in Lacrosse, Wisconsin; Denver, Colorado; Salt Lake
City, Utah; and Concord, New Hampshire. The decision to expand the number of
regional offices was influenced by the Company's desire to fully support the
evolving opportunities developing with strategic alliances and national
accounts. To further support our sales commitment, two new corporate office
executive marketing positions were added. In early 1998, a Vice President of
Special Markets position was created to closely manage our strategic alliance
opportunities.
GROUP DEPARTMENT
GENERAL. Group operations distribute insurance products and related
services to large employers for their employee benefit plans. The Company
provides life, disability, medical and dental insurance programs, which are the
foundation of any employer's package of group benefits. The Company furnishes
all components necessary to effectively manage program costs for the client
companies including a provider network, managed care program and benefits
determination. Group products include group term life insurance, accidental
death and dismemberment, short-term disability, long-term disability, dental
and major medical coverage. In offering these product lines, the Company
provides a wide range of funding vehicles from fully insured to employer funded
products, which the Company tailors
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<PAGE> 8
to the particular needs of its employer clients.
MARKETS. Although the Company's Group Department focuses its efforts
in the southeastern United States, it has clients of national scope. The
Company markets group life and health insurance to corporate employers who have
51 or more employees located in the southeast. The Company 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.
The Company's target market will continue to be corporate employers
with 100 or more lives. Particular emphasis has been 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. With
many multi-thousand life groups, AHL is proficient in the management of
large groups. The products offered by the Company's Group Department complement
the individual life and health products sold through workplace marketing and
provide the Company's agents and brokers and the Company's client companies
with a complete portfolio of products and services.
PRODUCTS. The Company'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, 1997 and
1996, approximately 86% and 83%, respectively, of group business (based on
premiums and premiums equivalents) was written on a self-funded or split funded
basis.
The Company has developed innovative new products and approaches to
controlling and reducing health care costs for its client companies.
Specifically, two areas that continue to enhance the products and services
offered by the Group Department are the AHL Select Provider Network and its
managed care activities. Through the AHL Select Provider Network, the Company's
customers receive preferential pricing from hospitals, physicians, and other
providers of medical services and supplies. At year end 1997, there were 2,048
hospitals and 131,982 physicians included in the AHL Select Provider Network.
The Company's managed care activities, which utilize a professional staff with
diverse medical and clinical backgrounds to assist the Company's insureds`in
obtaining quality medical care, include preadmission certification, prenatal,
cancer, psychiatric, substance abuse, and large care management programs.
The Company will continue to develop products and services to meet
employer/employee needs. As managed care has gained growing acceptance within
the Company's market, the Company has complemented its product line with the
introduction of health maintenance organizations ("HMO") products. Initial
product offerings were made within the North Florida area in 1997.
DISTRIBUTION SYSTEM. The Company's group life and health products are
distributed through its regional group managers working with agents,
consultants, brokers and directly with policyholders.
The Company's strategy of focusing its marketing efforts on the
brokerage and consulting community has resulted in a significant portion of
sales coming from this important business segment. The Company has been
successful in demonstrating the value of its products and services to leading
brokerage firms.
CREDIT DEPARTMENT
GENERAL. Credit operations consist of life, and accident and health
insurance and property coverages offered to consumer debtors, primarily through
banks, automobiles dealers, finance companies and retailers. The Company
currently offers credit insurance products in 44 states and ranks among the top
15 credit life insurance providers in the country. Typically, credit insurance
will pay outstanding loan obligations in the event of an insurance loss. This
coverage is issued on either the single-premium or outstanding loan balance
basis.
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<PAGE> 9
MARKETS AND PRODUCTS. The AHL Credit Department is a full service
credit insurance operation (credit life, credit accident and health insurance)
providing direct and reinsured programs to a broad spectrum of the marketplace
including the bank, automobile dealer, finance and retail markets. The Company
also offers credit property insurance through its wholly-owned subsidiary,
First Colonial Insurance Company. In addition, the Company provides training
and additional products that generate fee income through ERJ Insurance Group,
Inc. ("ERJ") its wholly-owned subsidiary based in Miami Springs, Florida.
The distribution channels used by AHL to market credit products
include direct marketing by regional sales managers, home office based
marketing staff, ERJ-based marketing, and the general agency system. The
Company has expanded its credit insurance marketing activities to include 44
states. As a result, the opportunity for growth is excellent and the Company
anticipates continuing to grow and expand its credit operations.
TECHNOLOGY. The Credit Division's operations are enhanced by
state-of-the art technology. The XYCOR system is an on-line system that allows
all areas of the Credit Department to interact in the administration of the
Credit insurance business. The system allows for simultaneous processing of new
premiums and refunds, agent commissions, reinsurance reporting, account
experience reporting and claims. The system creates processing efficiencies by
minimizing input redundancy, improving access to data and the generation of
error and control reports. It provides marketing support by generating
information that can be used for profitability, trend and exposure analysis.
The system has greatly assisted the Credit Department in attracting and
maintaining accounts and assisting others to manage their blocks of business.
COMPETITION. The credit industry is well established, and is closely
controlled by state regulation. Competition and consolidation activity were
very strong in 1997. Several companies have restricted their marketing and
several major players have withdrawn completely from the market place. These
changes have created opportunities for both new account sales and the
administration of run-off business for companies that have ceased writing
credit insurance. The Company has successfully administered the run-off
business for two companies that had terminated their credit operations and is
currently administering the business of a large automobile credit insurance
company that ceased writing new business in 1995. The Company also has
increased its sales of reinsured business which currently accounts for 68% of
its total credit insurance business. The Company currently administers 143
reinsurance companies compared to 10 in 1990 which, with its tight expense
control, allows it to be very competitive in this market.
FUTURE PLANS. The Company's plans are to continue to expand its markets
geographically. Currently, its business is concentrated in the southeast, but
we have also experienced significant growth in the northwest and southwest in
recent years. New credit sales continue to increase as a result of opening new
accounts and the expansion of existing accounts. Also, there has been an
increase in the sale of reinsured business, including privately-owned
reinsurance companies, which generally provides less risk to the Company at an
acceptable profit margin. The Company has been successful in achieving a
balance in our sources of business from banks, automobile dealers, consumer
finance companies, retailers and miscellaneous sources. In the immediate
future, the Company will concentrate on the finance company, retail, reinsured
automobile markets, and the automobile and bank markets which can be acquired
as a result of training and marketing provided by ERJ.
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 mortgages (residential and commercial). The
Company's current investment strategy includes increasing its investments in
corporate bonds and mortgage loans while decreasing its investments in GNMA's
as they pay down. The Company 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.
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<PAGE> 10
At December 31, 1997 and 1996, the Company had consolidated invested
assets of $1,471.4 million and $1,011.4 million, respectively. The following
tabulation sets forth the categories, amounts and percentages of these
investments.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 % OF TOTAL 1996 % OF TOTAL
------------ ---------- ------------ ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt securities available-for-sale $ 923,287 62.8% $ 521,916 51.6%
Equity securities available-for-sale 36,817 2.5 34,520 3.4
Mortgage loans on real estate 70,697 4.8 53,736 5.3
Investment real estate 482 -- 453 --
Policy loans 407,482 27.7 399,608 39.5
Short-term investments 32,635 2.2 1,216 .2
---------- ----- ---------- -----
Total $1,471,400 100.0% $1,011,449 100.0%
========== ===== ========== =====
</TABLE>
At December 31, 1997, the Company had consolidated debt securities
available-for-sale at an amortized cost of $889.8 million and a fair value of
$923.3 million. The following tabulation sets forth these investments by
Standard and Poor's rating categories.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------
RATING AMORTIZED COST FAIR VALUE
------ -------------- ----------
($ IN THOUSANDS)
<S> <C> <C>
AAA $284,724 $288,724
AA 61,090 63,390
A,A- 207,077 218,154
BBB+, BBB, BBB- 257,145 269,162
BB+ and lower 42,139 43,474
Non-rated 345 354
Private placements 4,755 7,297
-------- --------
Total bonds 857,275 890,555
Redeemable preferred stocks 32,536 32,732
-------- --------
Total debt securities available-for-sale $889,811 $923,287
======== ========
</TABLE>
The amortized cost and estimated fair value of debt securities at
December 31, 1997, by contractual maturity, were as follows. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or repay obligations with or without penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------
AMORTIZED COST FAIR VALUE
-------------- ----------
($ IN THOUSANDS)
<S> <C> <C>
Due in one year or less $ 5,003 $ 5,054
Due after one year through five years 61,709 63,968
Due after five years through ten years 174,827 184,864
Due after ten years 403,550 421,847
Mortgage backed securities 212,186 214,822
Redeemable preferred stocks 32,536 32,732
-------- --------
Total $889,811 $923,287
======== ========
</TABLE>
10
<PAGE> 11
The following tabulation provides information with respect to the
investment results of the Company for the years ended December 31, 1997, 1996
and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
---------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Average invested assets, weighted(1) $1,395,566 $997,599 $923,946
Net investment income 105,392 77,035 70,601
Realized investment gains 466 420 6,003
Change in unrealized investment gains (losses)
on equity and debt securities(2) 13,454 (4,614) 27,664
Ratio of net investment income to weighted
average invested assets(3) 7.55% 7.72% 7.64%
</TABLE>
- --------------
(1) Average invested assets 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."
(2) Unrealized gains and losses are calculated on both equity and debt
securities as prescribed by FAS 115.
(3) Since all securities are carried at fair values for all years
presented, all increases (decreases) in fair value result in a
reduction (increase) of the ratio calculated above.
The amortized cost of non-investment grade bonds (rated below BBB- by
Standard & Poor's Corporation and excluding private placements and non-rated
securities) at December 31, 1997 was $42.1 million with a fair value of $43.5
million. At fair value, these investments represented 2.3% of total
consolidated assets, or 3.0% of invested assets. The Company's holdings of
non-investment grade securities has been limited and will continue to be
minimal in the future.
The Company's mortgage loan portfolio aggregated $70.7 million at
December 31, 1997. There were no non-performing mortgage loans at December 31,
1997.
ADDITIONAL INFORMATION REGARDING INSURANCE OPERATIONS
The following table sets forth the cash premiums and deposits received
by geographic region in the United States for the Company's insurance
subsidiaries for the three years ended December 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1997 1996 1995
---------- ------------ -----------
($ IN THOUSANDS)
<S> <C> <C> <C>
Southeast $261,610 $265,784 $258,408
Southwest 85,952 45,307 43,804
Midwest 22,440 16,204 14,185
Northeast 19,303 12,920 8,220
Northwest 15,596 14,699 12,523
-------- -------- --------
Total $404,901 $354,914 $337,140
======== ======== ========
</TABLE>
11
<PAGE> 12
The following tabulation sets forth the amount of gross life insurance
volume in force by industry segment at December 31, 1997, 1996, and 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C>
Type of Insurance:
Ordinary $13,973 $ 9,759 $ 9,167
Credit 4,549 4,590 4,138
Group 7,163 6,174 5,079
------- ------- -------
Total $25,685 $20,523 $18,384
======= ======= =======
</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., Cigna
Re, General Financial Life Insurance Company, Life Reassurance Corporation of
America, Lincoln National Life Insurance Company, The Phoenix Home Life Mutual
Insurance Company, Reinsurance Group of America, Inc., Southwestern Dealers
Insurance Company, Swiss Re Life & Health America, Inc. and Transamerica
Occidental Life Insurance Company. At December 31, 1997, the aggregate amount
of life insurance volume in force ceded under reinsurance agreements totaled
$5.3 billion (20.7% of the total in force at that date). For the year ended
December 31, 1997, $47.0 million, or 21.1% 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, the Company has reflected reinsurance
receivables 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.
12
<PAGE> 13
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 Insurers Model Act (the "Model Act") was
adopted by the National Association of Insurance Commissioners ("NAIC") in
1993. The main purpose of the Model Act was 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.
The Model Act requires the computation of a risk-based capital amount
which is then compared to a carrier's actual total adjusted capital. The
computation involves applying factors to various financial factors to address
four primary risks: asset risk, insurance underwriting risk, credit risk and
off-balance sheet risk. These standards provide for regulatory intervention
when the percentage of total adjusted capital to authorized control level
risk-based capital is below certain levels.
Based on calculations using the NAIC formula as of December 31, 1997,
all of the Company's insurance subsidiaries exceeded the required level for
RBC.
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, to the effect that life and health insurance company dividends
may be made without prior approval of the Florida Insurance Commissioner 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
13
<PAGE> 14
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.
LITIGATION
The Company's insurance subsidiaries, like other insurance companies,
are currently defendants 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.
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.
OTHER BUSINESS
The non-life insurance operations, excluding AHL, CUL, Concord and
FCIC, 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 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
The Company's insurance subsidiaries, like other insurance companies,
are currently defendants 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.
14
<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, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The high and low sales prices of the Common Stock of the Company, as
reported on the NYSE Composite Tape (ticker symbol: "AHL"), and the cash
dividends paid on the Common Stock during the fiscal years ended December 31,
1996 and 1997 are set out below:
<TABLE>
<CAPTION>
CASH DIVIDENDS
HIGH LOW PAID PER SHARE
------ ------ --------------
<S> <C> <C> <C>
1996:
First Quarter $11.94 $10.25 $.0900
Second Quarter 12.13 9.94 .0900
Third Quarter 10.88 9.50 .0950
Fourth Quarter 13.88 9.89 .0950
1997:
First Quarter $13.75 $11.75 $.0950
Second Quarter 16.50 11.94 .0950
Third Quarter 20.25 16.50 .1000
Fourth Quarter 20.00 17.31 .1000
</TABLE>
As of February 28, 1998, the approximate number of holders of record
of Common Stock was 8,200.
All share and per share amounts have been restated to reflect the
two-for-one stock split in the form of a stock dividend paid March 4, 1998 to
shareholders of record February 18, 1998.
15
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(In thousands except per share amounts)
YEARS ENDED DECEMBER 31 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating earnings $ 31,058 26,759 24,174 22,334 18,945
Basic operating earnings per share
of common stock* 1.13 .97 .88 .81 .76
Diluted operating earnings per share
of common stock* 1.12 .97 .87 .80 .76
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 31,360 27,032 28,075 23,641 19,715
Basic net earnings per share of common stock* 1.14 .98 1.01 .85 .80
Diluted net earnings per share of common stock * 1.13 .98 1.01 .85 .79
- -----------------------------------------------------------------------------------------------------------------------------
Basic weighted average number of
shares outstanding* 27,561 27,567 27,682 27,666 24,780
Diluted weighted average number
of shares outstanding* 27,831 27,711 27,819 27,749 24,844
- -----------------------------------------------------------------------------------------------------------------------------
Cash dividends paid per share* $ .39 .37 .35 .32 .30
- -----------------------------------------------------------------------------------------------------------------------------
Insurance revenues $ 279,831 258,519 247,251 230,589 227,376
Premium equivalents 358,629 309,092 264,565 214,861 183,031
Insurance revenues including
premium equivalents 638,460 567,611 511,816 445,450 410,407
- -----------------------------------------------------------------------------------------------------------------------------
Pre-tax operating profit margin 11.98% 11.75% 11.15% 10.98% 9.52%
After-tax operating profit margin 8.04% 7.97% 7.61% 7.51% 6.50%
Operating return on equity 14.05% 12.83% 12.43% 12.63% 13.83%
Price to operating earnings ratio 15.93 13.53 13.15 11.81 12.42
Year-end closing stock price* $ 18.00 13.13 11.44 9.56 9.44
Debt to total debt and capital ratio 10.61% 28.27% 31.93% 31.37% 29.90%
- -----------------------------------------------------------------------------------------------------------------------------
At December 31:
Total assets $ 1,915,259 1,370,117 1,317,896 1,179,257 1,138,578
AHLIC-obligated mandatorily redeemable
preferred securities 103,500 - - - -
Stockholders' equity 252,223 228,943 219,329 173,360 183,930
Life insurance volume in force 25,685,297 20,523,032 18,384.006 16,815,666 15,601,113
</TABLE>
* Share and per share amounts have been restated for a two-for-one stock split
paid March 4, 1998 to shareholders of record February 18, 1998.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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
subsidiaries, American Heritage Life Insurance Company (AHL) and Columbia
Universal Life Insurance Company (CUL). Following is a discussion of the
significant components of the consolidated results of operations for the years
ended December 31, 1997, 1996 and 1995.
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 1, for 1997, 1996 and 1995,
insurance revenues were $279.8 million, $258.5 million and $247.3 million,
respectively, while total insurance revenues including premium equivalents were
$638.5 million, $567.6 million and $511.8 million, respectively. Because so
much of the Company's business is interest-sensitive and administrative
services only, insurance revenues including premium equivalents are a better
measure of sales and growth.
Ordinary insurance revenues amounted to $168.2 million, $137.4
million and $123.7 million in 1997, 1996 and 1995, respectively. Premiums
including equivalents were $241.1 million, $181.5 million and $167.3 million
for the years ended December 31, 1997, 1996 and 1995, respectively. The
increases in insurance revenues and premiums and premium equivalents in 1997
over 1996 and 1996 over 1995 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. 1997 included $14.1 million of insurance revenues
and $31.5 million of premium equivalents for CUL, without a corresponding
amount in 1996. The increase in individual accident and health sales in 1996
compared to 1995 included for the first time a full year of new long-term care
product sales that increased revenues approximately $5.7 million.
Group insurance revenues in 1997, 1996 and 1995 totaled $31.0 million,
$35.5 million and $39.9 million, respectively. Premiums and premium equivalents
were $223.6 million, $214.9 million and $206.4 million for 1997, 1996 and 1995,
respectively. The decreases in insurance revenues were due to increased sales
of self-funded or split-funded business. The 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 1997, 1996 and 1995 were $80.6 million,
$85.6 million and $83.6 million, respectively. Credit premiums and premium
equivalents amounted to $173.8 million, $171.2 million and $138.1 million for
the years ended December 31, 1997, 1996 and 1995, respectively. The increases
in credit insurance revenues in 1996 and premium and premium equivalents in
1997 and 1996 are a result of geographic expansion, increased sales of
reinsured business, which generally provides less risk to the Company at an
acceptable profit and additional fee income generated from administering the
run-off of credit life and health insurance for another insurance company,
effective June 1996. The decrease in credit insurance revenues from 1996 to
1997 was due to a reduction in sales of retained insured business. The recent
acquisition of ERJ Insurance Group, Inc. (ERJ) has enabled AHL and ERJ to
significantly broaden offerings of credit life insurance, supplemental products
and training services.
Ordinary benefits and claims in 1997, 1996 and 1995 were $144.3
million, $111.0 million and $103.2 million, respectively. 1997 included $25.4
million of benefits and claims from CUL operations. The increase each year was
also 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 1997, 1996 and 1995 totaled $18.3
million, $24.0 million and $25.6 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 expenses for
financial statement purposes.
Credit benefits and claims amounted to $12.6 million, $13.9 million
and $19.8 million in 1997, 1996 and 1995, respectively. These decreases were
due, in part, to a reduction in the change in unearned premiums which is
included in credit benefits and claims. These reductions were also the result
of terminating unprofitable accounts and certain previously fully insured
accounts converting to reinsured accounts.
The Company's major operating costs consist of commissions, payroll,
premium taxes and administrative-related expenditures. General insurance
expenses as a percentage of total income, excluding realized investment gains
(losses) and including premium equivalents, was 5.4% for the year ended
December 31, 1997 and remained constant at 4.9% for the years ended December
31, 1996 and 1995. The
17
<PAGE> 18
increase in 1997 compared to 1996 and 1995 is due to recent acquisitions having
higher expense levels than the Company and additional expenses associated with
new production and technology. Excluding the acquisitions, the 1997 expense
ratio was 5.1%.
Ordinary taxes, commissions and general expenses were $45.4 million,
$33.1 million, $29.4 million for 1997, 1996 and 1995, respectively. The
increase in 1997 is primarily due to CUL expenses of $7.9 million. The increase
each year was also the result of growth in ordinary business. Group taxes,
commissions and general expenses were $13.6 million, $12.3 million, $12.2
million, respectively. These expenses have remained relatively flat due to a
decrease in taxes and commissions offset by an increase in general expenses.
The increases in Group general expenses in 1997, 1996 and 1995 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 $68.4 million, $72.3 million and $65.1 million in 1997, 1996 and
1995, respectively. The decrease in 1997 was attributable to a decrease in
earned commissions due to decreased insurance revenues. The increase in 1996
was primarily due to an increase in commissions earned as a result of increased
insurance revenues and a higher effective commission rate due to increased
contingent commissions as a result of improved claims.
Amortization of deferred acquisition costs and cost of business
acquired was $32.4 million in 1997, $25.6 million in 1996, and $23.7 million in
1995. These increases were primarily due to CUL amortization of $4.1 million in
1997 with no comparable amount in 1996, growth in business in force, and an
increase in lapses of individual health business resulting from the
implementation of rate increases, which increase the write-off of the policies'
deferred acquisition costs.
Non-segmented operating expenses in 1997, 1996 and 1995 were $5.1
million, $3.9 million and $3.4 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 interest rate
charged. Interest expense included in non-segmented operating expenses was $7.7
million, $3.7 million and $3.3 million for 1997, 1996 and 1995, respectively.
These increases were due primarily to additional bank debt outstanding and in
1997 included interest on the FELINE PRIDES.
INCOME TAXES
Income tax expense was up in 1997 compared to 1996 due to an increase
in pre-tax net earnings and a higher effective rate for our newly acquired
companies and down in 1996 compared to 1995 due to a decrease in pre-tax net
earnings including realized gains. The effective tax rates in 1997, 1996 and
1995 were 32.9%, 32.2%, and 32.2%, respectively.
NET INVESTMENT INCOME
Net investment income was $105.4 million, $77.0 million, and $70.6
million for the years ended December 31, 1997, 1996 and 1995, respectively.
These increases were due primarily to CUL net investment income of $25.6
million in 1997 without a comparable amount in 1996, an increase in invested
assets and changes made in the investment portfolio to improve the yield. The
effective yields on invested assets for the years ended December 31, 1997, 1996
and 1995 were 7.55%, 7.72%, and 7.64%, respectively. The decrease in yield from
1996 to 1997 was due to market conditions as well as the acquisition of lower
yielding portfolios through the acquisitions. The increase in yield from 1995
to 1996 was due to changes made in the investment portfolio including a
reduction in lower yielding equity securities, an increase in higher yielding
corporate bonds and mortgage loans, and increased MSP policy loan balances with
a higher average interest rate.
PRE-TAX OPERATING EARNINGS
Ordinary pre-tax operating earnings were $40.3 million, $35.1 million,
and $28.9 million in 1997, 1996 and 1995, 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 and for 1997 CUL's pre-tax
operating earnings of $2.4 million with no comparable amount in 1996.
Group pre-tax earnings were $4.6 million, $4.5 million and $7.5
million in 1997, 1996 and 1995, respectively. The decreases in group pre-tax
operating earnings in 1997 and 1996 compared to 1995 were the results of
reduced margins on certain cases due to the competitive pricing in the group
marketplace on both administrative services only and insured business and
increased health claims on insured cases.
Credit pre-tax operating earnings were $5.6 million, $3.8 million
and $2.7 million in 1997, 1996 and 1995, respectively. The increase in credit
pre-tax operating earnings in 1997 over 1996 and 1996 over 1995 was the result
of terminating certain unprofitable accounts and reducing the commissions paid
on accounts with unsatisfactory margins. Additionally, the Company is
administering the run-off of the credit life and health insurance business for
another insurance company, effective June 1996, which will increase fee income
over a four-year period. The Company is only responsible for administration of
the run-off and has no insurance risk.
OTHER ITEMS
Management is not aware of any pending regulation 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
18
<PAGE> 19
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.
REALIZED INVESTMENT GAINS
Realized investment gains, net were $.5 million for the year ended
December 31, 1997 compared to $.4 million for the year ended December 31, 1996
and $6.0 million for the year ended December 31, 1995. 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company is engaged primarily in the life insurance business. The
principal subsidiaries, AHL and CUL, generate 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, the Company 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 the Company 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, 1997, 1996 and 1995 aggregated $96.7 million, $66.5 million and
$75.8 million, respectively. The increase from 1996 to 1997 was due to an
increase in policyholder account balances as a result of reduction in
surrenders in 1997. The decrease in 1996 from 1995 was due primarily to (1) the
funding of surrenders and maturities of certain ordinary life policies in 1996
and (2) an increase in reinsurance receivables primarily from the increased
sale of credit reinsured accounts.
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.
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.
The amortized cost of high yield bonds at December 31, 1997
aggregated $42.1 million with a market value of $43.5 million. At December 31,
1997 these investments represented only 2.3% of total assets, or 3.0% 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 $9.4 million at December 31,
1997 and decreased $3.4 million at December 31, 1996 for the effect that would
have been recognized had the unrealized gain at December 31, 1997 and 1996 on
debt securities actually been realized.
During 1996 and 1995, consistent with the Company's investment
strategy, certain changes were made in the investment portfolio to improve the
overall investment results. Changes to the investment portfolio in 1996
included sales of GNMA's and purchases of corporate bonds and mortgage loans.
During 1995, the Company sold certain parcels of real estate, reduced common
stock and GNMA holdings, and increased investments in bonds and mortgage loans.
The current investment strategy includes increasing investments in corporate
bonds and mortgage loans while decreasing investments in GNMA's as they pay
down.
The mortgage loan portfolio at December 31, 1997, which aggregated
$70.7 million, consisted of residential mortgages of $2.2 million and
commercial mortgages of $68.5 million (with no concentration in any particular
industry), all of which were first mortgages on properties. There were no
non-performing mortgage loans in the portfolio at December 31, 1997.
Policy loans totaled $407.5 million at December 31, 1997, or 27.7%
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 $357.6 million at
December 31,1997. As discussed earlier, the policy loan feature is an integral
part of the product. MSP policy loans decreased by $13.1 million in 1997 over
1996.
19
<PAGE> 20
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.
SOURCES OF FINANCING
Notes payable to banks at December 31, 1997 were $39.2 million
compared to a balance of $85.5 million at December 31, 1996. The decrease in
bank debt at December 31, 1997 compared to the amount at December 1996
reflected the pay down of bank debt with the proceeds of the securities
offering. The weighted average interest rate on the bank debt at December 31,
1997 was 6.4%.
The Company completed a FELINES PRIDES convertible security offering in
June 1997, resulting in net proceeds of $99.4 million which was used to retire
bank debt of the Company.
ACQUISITIONS
Effective December 31, 1996, the company acquired a block of
business from Kentucky Home Mutual Life Insurance Company with approximately
$1.8 million of premiums and premium equivalents and $3.3 million of assets.
The Company acquired CUL for $44 million in cash effective January 1, 1997. On
June 30, 1997, the Company closed on the acquisition of Concord General Life
Insurance Company (Concord General) for a total consideration of $7.5 million.
Effective July 31, 1997, AHLIC acquired ERJ Insurance Group, Inc., a credit
insurance marketing organization. Effective September 30, 1997, the Company
acquired a block of business from Security Life of Denver, a member of the ING
Group (ING), with approximately $14.0 million of premiums. These acquisitions
were reflected in the Company's financial statements at December 31, 1997.
YEAR 2000
The year 2000 Issue is the result of computer programs written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs or equipment that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in system failures or miscalculations causing disruptions of operations,
including a temporary inability to process transactions or engage in normal
business activities.
The Company has completed an assessment and has in place a Year 2000
compliance plan which includes updates and revisions to existing software, and
the installation of replacement software. The Company's Year 2000 plan is to
ensure that there are no data-related failures associated with computer
hardware, computer software, business equipment, control systems or its
relationships with business partners. The Company has implemented a corporate
project team and is using internal and external resources for testing and
acceptance of software and hardware. The Company has been aggressively
addressing Year 2000 compliance since 1996 and is on schedule to have the
conversion completed according to plan.
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.
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. AHL chose not
to pay any dividends to the Company during 1997 and 1996. A dividend of
approximately $13.2 million, related to AHL's earnings in 1994, was paid to the
Company in 1995. Approximately $25.1 million, related to 1997 earnings of the
insurance subsidiaries, is available to dividend to the Company during 1998
without regulatory approval. The outstanding bank debt of the Company is
serviced through either dividends from its subsidiaries in excess of the amount
required to pay stockholder dividends or by replacement borrowing.
In the fourth quarter of 1997, the Board of Directors of American
Heritage Life Investment Corporation authorized management to repurchase from
time to time up to 500,000 shares (equivalent of 1,000,000 shares after the
two-for-one stock split) of the Company's common stock. At December 31, 1997,
73,800 shares (147,600 shares after the two-for-one stock split) had been
acquired and funded by borrowings of $2.7 million.
Risk-based capital is a tool for insurance regulators to evaluate the
capital of insurers. Based on calculations using the appropriate NAIC formula,
AHL, CUL, Concord, and FCIC exceeded the Risk-Based Capital requirements at
December 31, 1997 and 1996.
20
<PAGE> 21
FORWARD - LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides a "safe harbor" for forward-looking statements to encourage companies
to provide prospective information about their businesses without fear of
litigation so long as those statements are identified as forward-looking and
are accompanied by meaningful cautionary statements identifying important
factors that could cause actual results to differ materially from those
projected in such statements. The Company desires to take advantage of the
"safe harbor" provisions of the Act.
This Annual Report on Form 10-K contains forward-looking
statements, together with related data and projections, about the Company's
projected financial results and its future plans and strategies. However,
actual results and needs of the Company may vary materially from
forward-looking statements and projections made from time to time by the
Company on the basis of management's then-current expectations. The business in
which the Company is engaged involves changing and competitive markets, which
may involve a high degree of risk, and there can be no assurance that
forward-looking statements and projections will prove accurate.
Factors that may cause the Company's actual results to differ
materially from those contemplated or projected, forecast, estimated or
budgeted in such forward-looking statements include among others, the following
possibilities: (i) heightened competition, including the intensification of
price competition, the entry of new competitors, and the introduction of new
products by new and existing competitors; (ii) adverse state and federal
legislation or regulation, including decreases in rates, limitations on premium
levels, increases in minimum capital and reserve requirements, benefit
mandates, limitations on the ability to manage care and utilization, and tax
treatment of insurance products; (iii) fluctuations in interest rates causing a
reduction of investment income or increase in interest expense and in the
market value of interest rate sensitive investments; (iv) failure to obtain new
customers, retain existing customers or reductions in policies in force by
existing customers; (v) higher service, administrative, or general expense due
to the need for additional advertising, marketing, administrative or management
information systems expenditures; (vi) loss or retirement of key executives;
(vii) termination of provider contracts or renegotiation at less cost-effective
rates or terms of payment; (ix) changes in the Company's liquidity due to
changes in asset and liability matching; (x) restrictions on insurance
underwriting based on genetic testing and other criteria; (xi) adverse changes
in the ratings obtained by independent rating agencies; (xii) failure to
maintain adequate reinsurance; (xiii) possible claims relating to sales
practices for insurance products and claim denials and (xiv) adverse trends in
mortality and morbidity.
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
NUMBER
------
(1) FINANCIAL STATEMENTS
<S> <C> <C>
Independent Accountants' Reports, Years ended December 31, 1997, 1996 and 1995............................23
Consolidated Statements of Earnings, Years ended December 31, 1997, 1996, and 1995........................24
Consolidated Balance Sheets, December 31, 1997 and 1996...................................................25
Consolidated Statements of Stockholders' Equity, Years ended December 31, 1997, 1996,
and 1995..................................................................................................26
Consolidated Statements of Cash Flows, Years ended December 31, 1997, 1996 and 1995.......................27
Notes to Consolidated Financial Statements, Years ended December 31, 1997, 1996 and 1995..................28
Quarterly Financial Data..................................................................................37
(2) FINANCIAL STATEMENT SCHEDULES:
I. - Summary of Investment - Other than Investments in Related Parties, December 31, 1997......................38
II. - Condensed Financial Information of Registrant, December 31, 1997 and 1996 and
Years ended December 31, 1997, 1996 and 1995..............................................................39
III.- Supplementary Insurance Information, Years ended December 31, 1997, 1996 and 1995.........................43
IV. - Reinsurance, Years ended December 31, 1997, 1996 and 1995.................................................44
</TABLE>
All other schedules are omitted as the required information is
inapplicable or presented in the consolidated financial statements or related
notes.
22
<PAGE> 23
INDEPENDENT ACCOUNTANTS' REPORTS
The Stockholders and Board of Directors
American Heritage Life Investment Corporation
We have audited the 1997 consolidated financial statements of American
Heritage Life Investment Corporation and subsidiaries as listed in the
accompanying index under Item 8. In connection with our audit of the
consolidated financial statements, we have also audited the 1997 financial
statement schedules as listed in the accompanying index under Item 8. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statements
schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
American Heritage Life Investment Corporation and subsidiaries at December 31,
1997, and the results of their operations and their cash flows for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related 1997 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.
Ernst & Young LLP
February 5, 1998
* * * * * * * * * * *
The Stockholders and Board of Directors
American Heritage Life Investment Corporation
We have audited the 1996 and 1995 consolidated financial statements of
American Heritage Life Investment Corporation and subsidiaries as listed in the
accompanying index under Item 8. In connection with our audits of the
consolidated financial statements, we have also audited the 1996 and 1995
financial statement schedules as listed in the accompanying index under Item 8.
These consolidated financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statements schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
American Heritage Life Investment Corporation and subsidiaries at December 31,
1996, and the results of their operations and their cash flows for each of the
years in the two-year period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also in our opinion, the related
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.
KPMG Peat Marwick LLP
January 29, 1997
23
<PAGE> 24
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
(In thousands except per share amounts)
YEARS ENDED DECEMBER 31 1997 1996 1995
<S> <C> <C> <C>
Income:
Insurance revenues $279,831 258,512 247,251
Net investment income 105,392 77,035 70,601
Other income 1,098 -- --
Realized investment gains, net 466 420 6,003
- ------------------------------------------------------------------------------------------------
Total income 386,787 335,974 323,855
- ------------------------------------------------------------------------------------------------
Benefits, claims and expenses:
Benefits and claims 175,170 148,887 148,581
Underwriting, acquisition and insurance expenses:
Taxes, commissions and general expenses 123,008 117,414 106,399
Amortization of deferred acquisition costs
and cost of business acquired 32,425 25,628 23,744
Other operating expenses 9,454 4,186 3,694
- ------------------------------------------------------------------------------------------------
Total benefits, claims and expenses 340,057 296,115 282,418
- ------------------------------------------------------------------------------------------------
Earnings before income taxes 46,730 39,859 41,437
Income taxes 15,370 12,827 13,362
- ------------------------------------------------------------------------------------------------
Net earnings $ 31,360 27,032 28,075
- ------------------------------------------------------------------------------------------------
Basic net earnings per share of common stock $ 1.14 .98 1.01
Diluted net earnings per share of common stock $ 1.13 .98 1.01
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(In thousands except share and per share amounts)
DECEMBER 31 1997 1996
<S> <C> <C>
ASSETS
Investments:
Debt securities, available-for-sale, at fair value
(amortized cost of $889,811 in 1997 and $512,900 in 1996) $ 923,287 521,916
Equity securities, available-for-sale, at fair value (cost of
$20,329 in 1997 and $21,465 in 1996) 36,817 34,520
Mortgage loans on real estate 70,697 53,736
Investment real estate, at cost 482 453
Policy loans 407,482 399,608
Short-term investments 32,635 1,216
- ------------------------------------------------------------------------------------------------------------
Total investments 1,471,400 1,011,449
- ------------------------------------------------------------------------------------------------------------
Cash 23,261 21,672
Agents' balances and prepaid commissions 35,268 35,730
Premiums receivable 43,196 40,989
Accrued investment income 30,519 24,958
Deferred acquisition costs and cost of business acquired 223,651 173,699
Property and equipment, at cost, less accumulated
depreciation of $15,308 in 1997 and $11,825 in 1996 31,898 28,926
Reinsurance receivables 11,004 13,423
Other assets 45,062 19,271
- ------------------------------------------------------------------------------------------------------------
Total assets $ 1,915,259 1,370,117
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy benefits $ 289,765 203,396
Policyholders' account balances 1,013,602 681,098
Unearned premiums 52,666 52,279
Policy and contract claims 58,484 51,261
- ------------------------------------------------------------------------------------------------------------
Total policy liabilities 1,414,517 988,034
- ------------------------------------------------------------------------------------------------------------
Notes payable to banks 39,192 85,459
Deferred income taxes 46,820 32,344
Other liabilities 59,007 35,337
- ------------------------------------------------------------------------------------------------------------
Total liabilities 1,559,536 1,141,174
- ------------------------------------------------------------------------------------------------------------
AHLIC-obligated mandatorily redeemable preferred securities of subsidiaries
holding solely subordinated debentures of AHLIC 103,500 -
- ------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock of $1.00 par value:
Authorized 35,000,000; issued 14,020,861 in 1997 and 13,967,253 in 1996 14,021 13,967
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 42,528 42,644
Retained earnings 183,852 163,460
Yield enhancement, contract and issuance costs of mandatorily
redeemable preferred securities (9,561) -
Net unrealized investment gains 25,612 12,158
- ------------------------------------------------------------------------------------------------------------
256,452 232,229
Less cost of 142,589 in 1997 and 153,728 in 1996 common shares in treasury 4,229 3,286
- ------------------------------------------------------------------------------------------------------------
Total stockholders' equity 252,223 228,943
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,915,259 1,370,117
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands except share and per share amounts)
YEARS ENDED DECEMBER 31 1997 1996 1995
<S> <C> <C> <C>
Common stock:
Balance at beginning of year $ 13,967 13,933 13,906
Add shares issued on exercise of stock options 32 20 5
Other shares issued (surrendered), net 22 14 22
- --------------------------------------------------------------------------------------------------
Balance at end of year 14,021 13,967 13,933
- --------------------------------------------------------------------------------------------------
Additional paid-in capital:
Balance at beginning of year 42,644 42,215 41,866
Addition (deduction) related to exercise of stock options (658) 112 (54)
Excess over par value on other shares issued 542 317 403
- --------------------------------------------------------------------------------------------------
Balance at end of year 42,528 42,644 42,215
- --------------------------------------------------------------------------------------------------
Retained earnings:
Balance at beginning of year 163,460 148,454 129,406
Add net earnings 31,360 27,032 28,075
Deduct cash dividends declared on common stock
($.40 per share in 1997, $.44 per share in 1996
and $.33 per share in 1995) (10,968) (12,026) (9,027)
- --------------------------------------------------------------------------------------------------
Balance at end of year 183,852 163,460 148,454
- --------------------------------------------------------------------------------------------------
Yield enhancement, contract and issuance costs of mandatorily
redeemable preferred securities:
Balance at beginning of year -00 -00 -00
Issuance of mandatorily redeemable preferred securities (9,561) -00 -00
- --------------------------------------------------------------------------------------------------
Balance at end of year (9,561) -00 -00
- --------------------------------------------------------------------------------------------------
Net unrealized investment gains (losses):
Balance at beginning of year 12,158 16,772 (10,892)
Change during the year 13,454 (4,614) 27,664
- --------------------------------------------------------------------------------------------------
Balance at end of year 25,612 12,158 16,772
- --------------------------------------------------------------------------------------------------
Treasury stock:
Balance at beginning of year 3,286 2,045 926
Add treasury shares purchased (93,213 shares in 1997,
56,451 shares in 1996 and 51,323 shares in 1995) 3,228 1,241 1,119
Less treasury shares issued (104,352 shares in 1997) (2,285) -00 -00
- --------------------------------------------------------------------------------------------------
Balance at end of year 4,229 3,286 2,045
- --------------------------------------------------------------------------------------------------
Total stockholders' equity $ 252,223 228,943 219,329
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
YEARS ENDED DECEMBER 31 1997 1996 1995
<S> <C> <C> <C>
Operating activities:
Net earnings $ 31,360 27,032 28,075
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Provision for depreciation and amortization 2,375 2,613 1,706
Amortization of deferred acquisition costs
and cost of business acquired 32,425 25,628 23,744
Acquisition costs deferred (43,114) (36,018) (33,067)
Change in agents' balances and prepaid commissions 462 3,346 70
Change in premiums receivable (1,963) 878 1,618
Change in accrued investment income (115) (683) (8,072)
Change in reinsurance receivables 4,366 (4,192) 2,500
Change in future policy benefits 14,039 (4,833) 12,576
Change in policyholders' account balances 64,037 45,410 49,147
Change in unearned premiums 72 (1,039) 1,713
Change in policy and contract claims liability 3,922 885 (3,433)
Change in income taxes 2,416 5,846 3,171
Change in unearned investment income 221 (301) (804)
Other, net (13,817) 1,974 (3,110)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 96,686 66,546 75,834
- -------------------------------------------------------------------------------------------------------------
Investing activities:
Sales of debt securities 49,655 14,718 46,210
Maturities of debt securities 62,718 46,109 32,026
Sales of equity securities 3,572 5,968 13,951
Maturities of mortgage loans on real estate 3,927 3,479 2,033
Policy loans paid 78,669 25,372 18,124
Sales of property and equipment and investment real estate 90 17 1,296
Acquisitions, net of cash acquired (45,791) 1,561 6,047
Purchases of debt securities (174,674) (80,010) (121,355)
Purchases of equity securities (537) (5,239) (2,437)
Origination of mortgage loans on real estate (18,534) (27,709) (10,913)
Sales (purchases) of short-term investments, net (27,931) 21,669 (15,188)
Policy loans made (67,323) (48,129) (42,737)
Purchases of property and equipment and investment real estate (4,431) (2,789) (2,030)
Other, net 12,057 (26) --
- -------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (128,533) (45,009) (74,973)
- -------------------------------------------------------------------------------------------------------------
Financing activities:
Net proceeds (paydowns) on borrowings (53,237) (9,535) 10,793
Net proceeds from securities offering 98,478 -- --
Dividends to stockholders (10,968) (12,026) (9,027)
Purchase of treasury stock (3,228) (1,241) (1,119)
Other, net 2,391 2,255 (316)
- -------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 33,436 (20,547) 331
- -------------------------------------------------------------------------------------------------------------
Increase in cash 1,589 990 1,192
Cash at beginning of year 21,672 20,682 19,490
- -------------------------------------------------------------------------------------------------------------
Cash at end of year $ 23,261 21,672 20,682
- -------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 8,292 6,325 5,721
Federal income taxes 9,806 6,550 9,650
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
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 subsidiaries are American
Heritage Life Insurance Company (AHL) and Columbia Universal Life Insurance
Company (Columbia). 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. Columbia, a
subsidiary of AHL, markets annuity and individual life insurance products and
is currently licensed in 36 states and Puerto Rico. First Colonial Insurance
Company, a subsidiary of AHL, markets credit property insurance and is
currently licensed in twelve states. Concord General Life Insurance Company, a
subsidiary of AHL, markets supplemental life and health products through
worksite marketing and is licensed in 15 states. ERJ Insurance Group, Inc., a
subsidiary of AHLIC, is an insurance agency that markets a broad portfolio of
credit products.
(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. 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 in proportion to gross premiums. For interest-sensitive
products, premiums received are recognized as deposits; revenues
consist of surrender, mortality and expense charges; and profits are
recognized in relation to the incidence of expected gross profits.
(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 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 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 modified
as necessary.
(4) Cost of Business Acquired: The value assigned to the insurance in
force of acquired insurance companies at the date of acquisition is
amortized using methods similar to those used for deferred acquisition
costs.
(5) Insurance Liabilities: The liabilities for future policy benefits
for traditional life and accident and health contracts (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) are computed by a net level premium method using
assumptions deemed appropriate at the date of issue (or as of the date
of acquisition for acquired blocks of business). Estimated future
investment yield assumptions range from 3.75% to 8.00%; withdrawals
are based on Company experience; mortality and morbidity from
recognized morbidity and mortality tables are modified for anticipated
company experience, with reasonable provisions for possible future
adverse experience deviations. Policyholders' account balances for
interest-sensitive products represent premiums received plus interest
credited during the contract accumulation period, less contract
charges for mortality and expenses. For the years ended December 31,
1997 and 1996, the
28
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
weighted average interest rates credited to the policyholders' account
balances were 5.46% and 5.37%, respectively; and the related interest
credited to the policyholders' account balances was $52.3 million and
$36.9 million. 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 5-20 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 and redeemable preferred stocks. Investments are 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 and equity
securities available-for-sale 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
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.
Mortgage loans are reported at amortized cost, less an allowance for
possible losses.
(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, other general corporate expenses of AHLIC and insurance agency
expenses.
(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
In 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share. Statement No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods presented
are restated to conform to the Statement 128 requirements.
Per share data, weighted average shares outstanding and shares related
to stock compensation plans have been restated to reflect the two-for-one stock
split in the form of a stock dividend paid March 4, 1998 to shareholders of
record February 18, 1998.
(I) RECLASSIFICATIONS
Certain amounts for 1996 and 1995 have been reclassified to conform
with the presentation adopted in 1997.
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(2) INCOME TAXES
The effective federal income tax rates on earnings before income taxes
(amounts in thousands) were lower than the maximum statutory rates as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
1997 1996 1995
AMT. % AMT. % AMT. %
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax expense $16,356 35 $13,951 35 $14,503 35
Dividends received deduction (316) (1) (324) (1) (448) (1)
Tax exempt interest (7) -- (5) -- (8) --
Credits from oil and gas investments (680) (1) (788) (2) (677) (2)
Other, net 17 -- (7) -- (8) --
- ----------------------------------------------------------------------------------
Effective income
tax expense $15,370 33 $12,827 32 $13,362 32
- ----------------------------------------------------------------------------------
</TABLE>
The components of income tax expense (in thousands) for each of the
three years ended December 31 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------
1997 1996 1995
- ----------------------------------------------------
<S> <C> <C> <C>
Current $ 9,627 9,823 10,127
Deferred 5,743 3,004 3,235
- ----------------------------------------------------
Total $15,370 12,827 13,362
- ----------------------------------------------------
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax liabilities and deferred tax assets at December
31, 1997 and December 31, 1996 (in thousands) were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------
1997 1996
- -------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $27,033 21,320
Unearned investment income 217 299
Other 131 --
- -------------------------------------------------------------
Total deferred tax assets 27,381 21,619
- -------------------------------------------------------------
Deferred tax liabilities:
Deferred acquisition costs 56,356 44,412
Unrealized investment gains on
securities available-for-sale 14,992 6,546
Deferred gain on real estate -- 1,738
Other 2,853 1,267
- -------------------------------------------------------------
Total deferred tax liabilities 74,201 53,963
- -------------------------------------------------------------
Net deferred tax liability 46,820 32,344
Current tax liability 683 100
- -------------------------------------------------------------
Accrued and deferred income taxes $47,503 32,444
- -------------------------------------------------------------
</TABLE>
No valuation allowance was recorded at December 31, 1997 or 1996.
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, 1997, the policyholders' surplus account was
$10.9 million.
(3) INVESTMENTS
For the years ended December 31, 1997, 1996 and 1995, net investment
income (in thousands) was as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Investment income:
Debt securities $ 65,366 41,573 38,676
Equity securities 1,407 809 1,679
Mortgage loans on real estate 5,797 3,657 2,290
Investment real estate 50 54 43
Policy loans 33,341 33,496 30,231
Short-term investments 1,282 2,928 2,776
Other 1,716 4 4
- ----------------------------------------------------------------
Gross investment income 108,959 82,521 75,699
Investment expenses 3,567 5,486 5,098
- ----------------------------------------------------------------
Net investment income $105,392 77,035 70,601
- ----------------------------------------------------------------
</TABLE>
Proceeds from sales and maturities of investments in debt securities
during 1997, 1996 and 1995 were $115.8 million, $59.1 million and $69.3
million, respectively.
Gross gains and losses on those sales, and net gains and losses on
sales of other investments (in thousands), were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Debt securities - gains $ 1,124 794 898
Debt securities - losses (2,620) (2,683) (14,709)
- ------------------------------------------------------------------
Debt securities, net (1,496) (1,889) (13,811)
Equity securities, net 2,046 2,309 13,187
Real estate 30 -- 7,127
Other, net (114) -- (500)
- ------------------------------------------------------------------
Realized investment gains, net $ 466 420 6,003
- ------------------------------------------------------------------
</TABLE>
Stockholders' equity included the following unrealized investment
gains (losses) (in thousands) at December 31:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Equity securities available-for-sale:
Gross unrealized investment gains $ 16,839 13,434 12,068
Gross unrealized investment
losses (351) (379) (542)
- ------------------------------------------------------------------------
16,488 13,055 11,526
- ------------------------------------------------------------------------
Debt securities available-for-sale:
Gross unrealized investment gains 36,276 12,583 23,966
Gross unrealized investment
losses (2,800) (3,567) (2,351)
- ------------------------------------------------------------------------
33,476 9,016 21,615
- ------------------------------------------------------------------------
Gross unrealized investment
gains (losses) 49,964 22,071 33,141
Increase (decrease)in deferred
acquisition costs for interest-
sensitive insurance products (9,360) (3,367) (7,338)
Deferred federal income tax
(benefit) (14,992) (6,546) (9,031)
- ------------------------------------------------------------------------
Net unrealized investment
gains $ 25,612 12,158 16,772
- ------------------------------------------------------------------------
</TABLE>
30
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The amortized cost and fair values of debt securities
available-for-sale by category of securities (in thousands) were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1997:
U.S. government and
government agencies
and authorities $ 61,771 1,321 175 62,917
States, municipalities and
political subdivisions 3,549 254 8 3,795
Foreign governments 2,333 65 -- 2,398
Public utilities 148,556 5,474 60 153,970
Corporate securities 461,416 24,884 915 485,385
Mortgage backed securities 212,186 4,278 1,642 214,822
- -----------------------------------------------------------------------------
Total $889,811 36,276 2,800 923,287
- -----------------------------------------------------------------------------
December 31, 1996:
U.S. government and
government agencies
and authorities $ 17,339 759 80 18,018
States, municipalities and
political subdivisions 345 20 -- 365
Public utilities 53,344 392 285 53,451
Corporate securities 289,076 10,944 155 299,865
Mortgage backed
securities 152,796 468 3,047 150,217
- -----------------------------------------------------------------------------
Total $512,900 12,583 3,567 521,916
- -----------------------------------------------------------------------------
</TABLE>
The amortized cost and fair value of debt securities
available-for-sale (in thousands) at December 31, 1997, 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>
- --------------------------------------------------------------------
AT DECEMBER 31, 1997
- --------------------------------------------------------------------
AMORTIZED FAIR
COST VALUE
- --------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 5,003 5,054
Due after one year through five years 61,709 63,968
Due after five years through ten years 174,827 184,864
Due after ten years 403,550 421,847
Mortgage backed securities 212,186 214,822
Redeemable preferred stocks 32,536 32,732
- --------------------------------------------------------------------
Total $889,811 923,287
- --------------------------------------------------------------------
</TABLE>
The amortized cost of high yield bonds included in debt securities
available-for-sale was $42.1 million with a market value of $43.5 million,
which represented 3.0% of invested assets.
There were no individual investments at December 31, 1997, 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 (in thousands) of the Company's financial
instruments are summarized as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
AT DECEMBER 31, 1997
- ----------------------------------------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
- ----------------------------------------------------------------
<S> <C> <C>
Debt securities $ 923,287 923,287
Equity securities 36,817 36,817
Mortgage loans on real estate 70,697 82,160
Investment real estate 482 2,400
Policy loans 407,482 407,482
Cash and short-term investments 55,896 55,896
- ----------------------------------------------------------------
Total cash and investments $1,494,661 1,508,042
- ----------------------------------------------------------------
Investment type insurance contracts $ 179,489 179,489
Notes payable to banks 39,192 39,192
Mandatorily redeemable
preferred securities 103,500 103,500
- ----------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------
AT DECEMBER 31, 1996
- ----------------------------------------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
- ----------------------------------------------------------------
<S> <C> <C>
Debt securities $ 521,916 521,916
Equity securities 34,520 34,520
Mortgage loans on real estate 53,736 58,786
Investment real estate 453 2,400
Policy loans 399,608 399,608
Cash and short-term investments 22,888 22,888
- ----------------------------------------------------------------
Total cash and investments $1,033,121 1,040,118
- ----------------------------------------------------------------
Notes payable to banks $ 85,459 85,459
- ----------------------------------------------------------------
</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.
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 approximates fair value because the interest rates
charged represent current market rates.
Mandatorily redeemable preferred securities
The carrying amount approximates fair value.
Investment type insurance contracts
The carrying amount approximates fair value.
(5) COST OF BUSINESS ACQUIRED
Under current assumptions, amortization of cost of business acquired,
including accrued interest implicit in the calculation of the amortization, for
the next five years is expected to be as follows (amounts in thousands):
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------
1998 $ 5,216
1999 4,681
2000 4,151
2001 3,678
2002 3,182
- ------------------------------------------------------------------------------
</TABLE>
(6) NOTES PAYABLE TO BANKS
At December 31, 1997, all of the notes payable to banks were
short-term, unsecured and related to advances under $120.0 million lines of
credit ($80.8 million available to be drawn at December 31, 1997) bearing
interest at a rate of 6.375%. The arrangements under the terms of the lines of
credit are reviewed annually for renewal. The Company also has a $75.0 million
line of credit (the entire $75.0 million available to be drawn at December 31,
1997) which is specifically to be used for acquisitions. The loan has a term of
five years and contains certain financial covenants and commitment fees. The
Company was in compliance with the covenants at December 31, 1997.
Interest expense for the years ended December 31, 1997, 1996 and 1995
totaled $4.4 million, $6.1 million and $5.6 million.
(7) MANDATORILY REDEEMABLE PREFERRED SECURITIES
On June 27, 1997, the Company completed the offering of 2.07 million
shares of FELINE PRIDES. Proceeds from the offering of $98.4 million (after
underwriting and other associated costs) were used for the repayment of debt of
the Company. Each unit of FELINE PRIDES pays quarterly interest and yield
enhancement payments of $1.0625 per share, or 8.50%. The Company has recorded
the yield enhancement payments of 1.75% totaling $5.4 million, as a liability
and a reduction to stockholders' equity on the Company's Consolidated Balance
Sheets. The liability is reduced when the yield enhancement payments are paid.
Each FELINE PRIDES consists of a unit with a stated amount of $50
comprised of (a) a stock purchase contract under which (i) the holder will
purchase from the Company on August 16, 2000, a number of shares of common
stock of the Company equal to a specified rate and (ii) the Company will pay
1.75% yield enhancement payments to the holder and (b) beneficial ownership of
a 6.75% trust preferred security representing a preferred undivided interest in
the assets of a Trust. The sole assets of the Trust are a 6.75% subordinated
debenture of the Company due August 16, 2002 with a principal amount of $106.7
million.
(8) 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 AHL's 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.
The reinsurance contracts do not relieve the Company from its
obligation to its policyholders, and it remains liable should any reinsurer be
unable to meet its obligations. 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. In the accompanying financial statements, insurance revenues,
benefits and claims and deferred acquisition costs are reported net of
reinsurance ceded with policy liabilities being reported gross of reinsurance
ceded.
The amount of insurance premiums assumed under reinsurance
agreements for the years ended December 31, 1997, 1996 and 1995 were $4.5
million, $5.8 million and
32
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
$12.6 million, respectively. The amount of insurance premiums ceded under
reinsurance agreements for the years ended December 31, 1997, 1996 and 1995
were $126.6 million, $111.7 million and $97.8 million, respectively. The
amounts of recoveries for benefits paid under reinsurance agreements for the
years ended December 31, 1997, 1996 and 1995 were $108.8 million, $104.0
million and $96.7 million, respectively.
(9) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (amounts in thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for basic and diluted
earnings per share:
Net earnings $ 31,360 27,032 28,075
- ---------------------------------------------------------------------------
Denominator:
Denominator for basic earnings
per share-weighted average
shares 27,561 27,567 27,682
Effect of dilutive securities:
Employee stock options 178 60 55
Restricted stock 92 84 82
- ---------------------------------------------------------------------------
Dilutive potential common shares 270 144 137
- ---------------------------------------------------------------------------
Denominator for diluted earnings
per share-weighted average shares
and assumed conversions 27,831 27,711 27,819
- ---------------------------------------------------------------------------
Basic earnings per share $ 1.14 0.98 1.01
- ---------------------------------------------------------------------------
Diluted earnings per share $ 1.13 0.98 1.01
- ---------------------------------------------------------------------------
</TABLE>
Amounts have been restated to reflect a two-for-one stock split in the
form of a stock dividend paid March 4, 1998 to shareholders of record February
18, 1998.
For additional disclosures regarding employee stock options and
restricted stock, see Note 10.
(10) STOCK COMPENSATION PLANS
At December 31, 1997, the Company had six stock-based compensation
plans, which are described below. The Company applies Accounting Principles
Board Opinion No. 25 "Accounting for Stock issued to Employees" and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its fixed option plans. The compensation that has been
charged against income for the long-term incentive plan stock, employee stock
purchase and agents stock purchase plans (in thousands) was as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------
<S> <C> <C> <C>
Long-term incentive plan stock $547 487 379
Employee stock purchase plan 78 70 66
Agents stock investment plan 13 13 9
- --------------------------------------------------------
</TABLE>
Compensation cost determined pursuant to Financial Accounting Standard
No. 123 "Accounting for Stock-Based Compensation" would not have had a material
effect on the Company's net earnings and earnings per share for 1997 and 1996.
(A) FIXED STOCK OPTION PLANS
The Company has three fixed stock option plans primarily for its
employees. Under the 1980 Stock Option Plan, the Company may grant options to
its employees for up to 600,000 shares of common stock. Under the 1988 Stock
Option Plan, the Company may grant options to its employees for up to 533,333
shares of common stock. Under the 1996 Stock Option Plan, the Company may grant
options to its employees for up to 700,000 shares of common stock. Under all
plans, the exercise price of each option equals the market price of the
Company's stock on the date of grant. Under the 1980 and 1996 Plans, the
option's maximum term is ten years. Under the 1988 Plan, the option's maximum
term is six years. Under the 1980 Plan, options are granted in the first part
of the year and vest in increments of 33% per year beginning one year from date
of grant and continuing for two more years. Under the 1988 Plan and 1996 Plan,
options are granted during the year and vest in increments of 20% per year over
a five year period beginning no less than six months after the grant.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in 1997 and 1996, respectively: dividend
yield of 2.2% and 3.1%; expected volatility of 20% for both years for the 1980
and 1996 Plan options. No options were granted under the 1982 or 1988 plans
during the periods.
33
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of the status of the Company's fixed stock option plans as of
December 31, 1997 and 1996, and changes during the years ended on those dates
is presented below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
FIXED STOCK OPTION PLANS SHARES PRICE SHARES PRICE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1980 PLAN:
Outstanding at beginning
of year 200,822 $10.00 154,222 $ 9.61
Granted 70,424 11.44 46,600 11.32
Exercised (5,596) 9.58 -- --
Forfeited (6,200) 10.95 -- --
- -----------------------------------------------------------------------------------------
Outstanding at end of year 259,450 10.38 200,822 10.00
- -----------------------------------------------------------------------------------------
Options exercisable at year-end 137,606 9.87 87,278 9.86
- -----------------------------------------------------------------------------------------
Weighted average fair value of
options granted during the year $ 3.58 -- $ 3.26 --
- -----------------------------------------------------------------------------------------
1988 PLAN:
Outstanding at beginning
of year 335,000 9.36 335,000 9.36
Granted -- -- -- --
Exercised (243,000) 9.59 -- --
Forfeited (8,000) 8.75 -- --
- -----------------------------------------------------------------------------------------
Outstanding at end of year 84,000 8.75 335,000 9.36
- -----------------------------------------------------------------------------------------
Options exercisable at year-end 12,000 8.75 188,000 9.61
- -----------------------------------------------------------------------------------------
1982 PLAN:
Outstanding at beginning
of year -- -- 54,672 5.57
Granted -- -- -- --
Exercised -- -- (54,672) 5.57
Forfeited -- -- -- --
- -----------------------------------------------------------------------------------------
Outstanding at end of year -- -- -- --
- -----------------------------------------------------------------------------------------
Options exercisable at year-end -- -- -- --
- -----------------------------------------------------------------------------------------
1996 PLAN:
Outstanding at beginning
of year -- -- -- --
Granted 490,000 17.50 -- --
Exercised -- -- -- --
Forfeited -- -- -- --
- -----------------------------------------------------------------------------------------
Outstanding at end of year 490,000 17.50 -- --
- -----------------------------------------------------------------------------------------
Options exercisable at year-end -- -- -- --
- -----------------------------------------------------------------------------------------
Weighted average fair value of
options granted during the year $ 5.47 -- -- --
- -----------------------------------------------------------------------------------------
ALL PLANS:
Outstanding at beginning
of year 535,822 9.60 543,894 9.05
Granted 560,424 16.74 46,600 11.32
Exercised (248,596) 9.58 (54,672) 5.57
Forfeited (14,200) 9.71 -- --
- -----------------------------------------------------------------------------------------
Outstanding at end of year 833,450 14.40 535,822 9.60
- -----------------------------------------------------------------------------------------
Options exercisable at year-end 149,606 9.78 275,278 9.69
- -----------------------------------------------------------------------------------------
Weighted average fair value of
options granted during the year $ 5.23 -- $ 3.26 --
- -----------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------------
NUMBER WEIGHTED-AVG NUMBER WEIGHTED-AVG
EXERCISE OUTSTANDING REMAINING EXERCISABLE EXERCISE
PRICES AT 12-31-97 CONTRACTUAL LIFE AT 12-31-97 PRICE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1980 PLAN
$ 9.25 75,582 7 yr 1 mo 50,338 $ 9.25
9.38 39,494 6 yr 1 mo 39,494 9.38
10.75 33,012 5 yr 1 mo 33,012 10.75
11.31 44,339 8 yr 1 mo 14,762 11.31
11.44 67,028 9 yr 1 mo -- --
- ------------------------------------------------------------------------------------
259,450 137,606 9.87
- ------------------------------------------------------------------------------------
1988 PLAN 8.75 84,000 1 yr 10 mo 12,000 8.75
- ------------------------------------------------------------------------------------
1996 PLAN 17.50 490,000 9 yr 8 mo -- --
- ------------------------------------------------------------------------------------
</TABLE>
(B) LONG-TERM INCENTIVE PLAN
Under the Company's Long-Term Incentive Plan, the restricted stock
feature provides for the grant of common stock to a participating employee. The
number of shares of restricted stock available to be issued in the name of each
participating employee is determined at the beginning of each fiscal year and
is based on the prior year's operating results. Such shares are restricted for
three years and held by the Company in the name of the participating employee,
who has the right to vote and to receive dividends paid on all such shares.
During the years ended December 31, 1997, 1996 and 1995, the Company
granted 34,432, 21,940 and 39,970 shares of restricted stock, respectively.
Under the Company's Long-Term Incentive Plan, the performance units
feature provides for the grant to a participating employee of shares of common
stock based on targeted award levels established for each participating
employee at the beginning of each fiscal year in accordance with a formula
relating to individual levels of performance.
During the years ended December 31, 1997, 1996 and 1995, the Company
granted 11,734, 8,428 and 10,766 shares of common stock related to the
performance units feature, respectively.
(C) EMPLOYEE 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, 702,404 shares had been purchased as of December 31, 1997. During
the years ended December 31, 1997 and 1996, 45,336 shares and 58,662 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
34
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
(D) AGENTS STOCK INVESTMENT PLAN
The Company 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, 86,046 shares had been purchased as
of December 31, 1997. During the years ended December 31, 1997 and 1996, 18,930
shares and 25,904 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 $500 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.
(11) PROFIT SHARING PLAN
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 $1.3 million in 1997 and $1.2 million in 1996 and 1995.
(12) POLICY AND CONTRACT CLAIMS
Activity in the liability for policy and contract claims (in
thousands) at December 31, 1997, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 51,261 50,375 53,309
Less reinsurance recoverables 5,486 3,592 3,142
- -------------------------------------------------------------------------------
Net balance at beginning of year 45,775 46,783 50,167
- -------------------------------------------------------------------------------
Incurred related to:
Current year 148,114 144,248 126,874
Prior years (655) (953) (383)
- -------------------------------------------------------------------------------
Total incurred 147,459 143,295 126,491
- -------------------------------------------------------------------------------
Paid related to:
Current year 122,198 128,137 114,149
Prior years 16,296 16,166 15,726
- -------------------------------------------------------------------------------
Total paid 138,494 144,303 129,875
- -------------------------------------------------------------------------------
Net balance at end of year 54,740 45,775 46,783
Plus reinsurance recoverables 3,744 5,486 3,592
- -------------------------------------------------------------------------------
Balance at end of year $ 58,484 51,261 50,375
- -------------------------------------------------------------------------------
</TABLE>
(13) INDUSTRY SEGMENT INFORMATION
Insurance revenues, total income, and pre-tax operating earnings,
reconciled to net earnings, for the three years ended December 31, 1997 for
each industry segment, Ordinary, Group and Credit, were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
(in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
*Insurance revenues:
Ordinary $ 168,218 137,421 123,718
Group 31,034 35,480 39,925
Credit 80,579 85,618 83,608
- -------------------------------------------------------------------------------
Total insurance revenues $ 279,831 258,519 247,251
- -------------------------------------------------------------------------------
*Total income:
Ordinary $ 262,435 204,749 185,277
Group 36,464 40,801 45,281
Credit 86,566 89,983 87,619
Other non-segmented income
less eliminations 856 21 (325)
Realized investment gains (losses) 466 420 6,003
- -------------------------------------------------------------------------------
Total income $ 386,787 335,974 323,855
- -------------------------------------------------------------------------------
Operating earnings:
*Ordinary - Total income $ 262,435 204,749 185,277
Less deductions:
Benefits and claims 144,323 110,959 103,184
Taxes, commissions and
general expenses 45,373 33,092 29,414
Amortization of deferred
acquisition costs 32,425 25,628 23,744
- -------------------------------------------------------------------------------
Pre-tax operating earnings 40,314 35,070 28,935
- -------------------------------------------------------------------------------
*Group - Total income 36,464 40,801 45,281
Less deductions:
Benefits and claims 18,255 24,013 25,595
Taxes, commissions and
general expenses 13,601 12,275 12,216
- -------------------------------------------------------------------------------
Pre-tax operating earnings 4,608 4,513 7,470
- -------------------------------------------------------------------------------
*Credit - Total income 86,566 89,983 87,619
Less deductions:
Benefits and claims 12,559 13,901 19,802
Taxes, commissions and
general expenses 68,403 72,332 65,078
- -------------------------------------------------------------------------------
Pre-tax operating earnings 5,604 3,750 2,739
- -------------------------------------------------------------------------------
Other - Total income 1,322 441 5,677
Less: Total expenses 5,118 3,915 3,384
- -------------------------------------------------------------------------------
Total other (3,796) (3,474) 2,293
- -------------------------------------------------------------------------------
Earnings before income taxes 46,730 39,859 41,437
Income taxes 15,370 12,827 13,362
- -------------------------------------------------------------------------------
Net earnings $ 31,360 27,032 28,075
- -------------------------------------------------------------------------------
</TABLE>
*Total income, insurance revenues and operating profits are net of reinsurance.
35
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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.
(14) 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 its
insurance subsidiaries during 1998 without prior approval is $25.1 million.
AHLIC's insurance subsidiaries had statutory net operating earnings of
$24.5 million, $20.6 million and $19.0 million and statutory net earnings of
$27.8 million, $22.1 million and $33.9 million for the years ended December 31,
1997, 1996 and 1995, respectively. Total statutory stockholder's equity of the
separate subsidiaries was $196.8 million at December 31, 1997 and $145.0
million at December 31, 1996. At December 31, 1997, pursuant to the insurance
laws of the State of Florida, the minimum capital and surplus required to be
maintained by AHL was approximately $48.5 million.
(15) NEW PRONOUNCEMENTS BY THE FINANCIAL ACCOUNTING STANDARDS BOARD
No pronouncements, otherwise not disclosed, which have been issued by
the Financial Accounting Standards Board will have a significant impact on the
consolidated financial statements of the Company.
(16) 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 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.
(17) ACQUISITIONS
The Company acquired Columbia Universal Life Insurance Company for $44
million in cash effective January 1, 1997. Effective December 31, 1996, the
Company acquired a block of business from Kentucky Home Mutual Life Insurance
Company with approximately $1.8 million of premiums and premium equivalents and
$3.3 million of assets. On June 30, 1997, the Company closed on the acquisition
of Concord General Life Insurance Company for a total consideration of $7.5
million. Effective July 31, 1997, AHLIC acquired ERJ Insurance Group, Inc., a
credit insurance marketing organization. Effective September 30, 1997, the
Company acquired a block of business from Security Life of Denver, a member of
the ING Group, with approximately $14.0 million of premiums. These acquisitions
were reflected in the Company's financial statements at December 31, 1997. Each
of these acquisitions has been accounted for as a purchase and the operating
results from the respective acquisition dates are included in the consolidated
statement of earnings.
If these acquisitions had been in effect since January 1, 1996, 1996
results would have been as follows:
<TABLE>
- ------------------------------------------------------------------------------
<S> <C>
Total income $373.5 million
Net earnings $ 26.7 million
Basic net earnings per share $ .97
Diluted net earnings per share $ .96
- ------------------------------------------------------------------------------
</TABLE>
If the 1997 acquisitions had been in effect at January 1, 1997, the
1997 pro forma results would not have been significantly different from actual
results.
36
<PAGE> 37
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
QUARTERLY FINANCIAL DATA
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
1997
- ----------------------------------------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
------- ------ --------- --------
<S> <C> <C> <C> <C>
Total income $90,374 92,827 102,487 101,099
Net earnings 7,745 7,801 7,684 8,131
Net earnings per share-basic(1) .28 .28 .28 .30
Net earnings per share-diluted(1) .28 .28 .28 .29
- ----------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------
1996
- ----------------------------------------------------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
------- ------ --------- --------
<S> <C> <C> <C> <C>
Total income $80,362 83,010 86,018 86,584
Net earnings 6,729 6,750 6,729 6,824
Net earnings per share - basic(1) .24 .24 .24 .25
Net earnings per share-diluted(1) .24 .24 .24 .25
</TABLE>
(1) Per share amounts have been restated to reflect the two-for-one stock split
in the form of a stock dividend paid March 4, 1998 to shareholders of record
February 18, 1998.
37
<PAGE> 38
SCHEDULE I
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
IN THE
TYPE OF INVESTMENT COST FAIR VALUE BALANCE SHEET
------------------ ---------- ----------- -------------
<S> <C> <C> <C>
Debt securities available-for sale:
Bonds:
United States Government and government agencies
and authorities $ 273,957 $ 277,739 $ 277,739
States, municipalities and political subdivisions 3,549 3,795 3,795
Foreign governments 2,333 2,398 2,398
Public utilities 148,556 153,970 153,970
Convertibles and bonds with warrants attached 714 721 721
All other corporate 428,166 451,932 451,932
Redeemable preferred stock 32,536 32,732 32,732
---------- ---------- ----------
Total debt securities 889,811 923,287 923,287
---------- ---------- ----------
Equity securities available-for-sale:
Common stocks:
Public utilities 490 1,468 1,468
Banks, trust and insurance companies 542 4,654 4,654
Industrial, miscellaneous and all other 18,381 29,749 29,749
Non-redeemable preferred stock 916 946 946
---------- ---------- ----------
Total equity securities 20,329 36,817 36,817
---------- ========== ----------
Mortgage loans on real estate 70,697 70,697
Real estate 482 482
Policy loans 407,482 407,482
Short-term investments 32,635 32,635
---------- ----------
Total investments $1,421,436 $1,471,400
========== ==========
</TABLE>
See Footnote 1(c) on page 29 which sets forth the accounting polices related to
investment.
38
<PAGE> 39
SCHEDULE II
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONDENSED FINANCIAL INFORMATION OR REGISTRANT
The following condensed balance sheets of American Heritage Life
Investment Corporation ("Registrant") as of December 31, 1997 and 1996 and its
condensed statements of earnings and cash flows for the years ended December
31, 1997, 1996 and 1995 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, 1997, 1996 and 1995 are identical to the consolidated
statements of changes in stockholders' equity included elsewhere in this
report, such statements are not repeated in this schedule.
In the years 1997 and 1996, no dividend was paid to the Registrant by
AHL. On December 27, 1995, a dividend of $13,245,264 related to American
Heritage Life Insurance Company's (AHL's) earnings in 1994, was paid from AHL
to the Registrant.
39
<PAGE> 40
SCHEDULE II, CONTINUED
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Cash $ 16 $ 14
Certificate of deposit -- 100
Investment in life insurance subsidiaries, at equity 364,403 274,516
Investment in non-life insurance subsidiaries, at equity 13,351 4,485
Accounts receivable 4,272 5,123
Intercompany accounts 7,550 1,752
Other assets 16,216 11,901
-------- --------
$405,808 $297,891
======== ========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Liabilities:
Notes payable to banks $ 39,192 $ 65,459
Other liabilities 7,692 3,489
---------- ----------
Total liabilities 46,884 68,948
---------- ----------
AHLIC Junior Subordinated Debentures 106,701 --
---------- ----------
Stockholders' equity:
Common stock of $1.00 par value. Authorized 35,000,000
shares; issued 14,020,861 in 1997 and 13,967,253 in 1996 14,021 13,967
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 42,528 42,644
Retained earnings 183,852 163,460
Yield enhancement, contract and issuance costs of
mandatorily redeemable preferred securities (9,561) --
Unrealized investment gains 25,612 12,158
---------- ----------
256,452 232,229
Less cost of 142,589 in 1997 and 153,728 in 1996 common
shares in treasury 4,229 3,286
---------- ----------
Total stockholders' equity 252,223 228,943
---------- ----------
$ 405,808 $ 297,891
========== ==========
</TABLE>
40
<PAGE> 41
SCHEDULE II, CONTINUED
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Income:
Investment income $ 849 $ 364 $ 63
Other income 389 304 304
Realized investment losses (39) -- --
---------- ---------- ---------
Total income 1,199 668 367
Operating expenses 8,207 4,226 3,720
---------- ---------- ---------
Loss before income tax benefits (7,008) (3,558) (3,353)
Income tax benefits (2,396) (1,260) (1,204)
---------- ---------- ---------
Loss before equity in earnings
(loss) of subsidiaries (4,612) (2,298) (2,149)
Equity in net earnings of life
insurance subsidiaries 36,138 29,670 30,565
Equity in net losses of non-life
insurance subsidiaries (166) (340) (341)
---------- ---------- --------
Net earnings $ 31,360 $ 27,032 $ 28,075
========== ========== ========
</TABLE>
41
<PAGE> 42
SCHEDULE II, CONTINUED
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net Earnings $ 31,360 $ 27,032 $ 28,075
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Change in accounts receivable 851 6,326 (10,988)
Change in other assets (4,315) (2,416) 1,247
Change in other liabilities (504) 2,150 (915)
Equity in net earnings of life insurance subsidiaries (36,138) (29,670) (30,565)
Equity in net loss of non-life insurance subsidiaries 166 341 6,341
-------- -------- --------
Net cash provided (used) from operating activities (8,580) 3,763 (12,805)
-------- -------- --------
Investing activities:
Decrease in certificate of deposit 100 0 0
-------- -------- --------
Net cash provided by investing activities 100 0 0
-------- -------- --------
Financing activities:
Dividends from subsidiaries 0 0 13,245
Capital contribution to subsidiaries (45,764) (99) (120)
Increase (decrease) in notes payable to banks (26,267) 10,465 10,794
Net proceeds from securities offering 98,478 0 0
Change in intercompany accounts (5,798) (996) (970)
Dividends to stockholders (10,800) (12,388) (9,390)
Purchase of treasury stock (3,228) (1,241) (1,118)
Excess over par value on shares issued 542 317 403
Other, net 1,319 147 (27)
-------- -------- --------
Net cash provided (used) by financing activities 8,482 (3,795) 12,817
-------- -------- --------
Increase (decrease) in cash 2 (32) 12
-------- -------- --------
Cash at beginning of year 14 46 34
-------- -------- --------
Cash at end of year $ 16 $ 14 $ 46
======== ======== ========
</TABLE>
42
<PAGE> 43
SCHEDULE III
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
($ IN THOUSANDS)
<TABLE>
<CAPTION>
DEFERRED FUTURE POLICYHOLDERS'
ACQUISITION POLICY ACCOUNT UNEARNED
INDUSTRY SEGMENT COSTS BENEFITS BALANCES PREMIUMS
----------------------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Ordinary $223,651 $ 282,568 $1,009,790 $ 7,776
Group 0 7,197 3,812 0
Credit 0 0 0 44,890
Other 0 0 0 0
-------- ---------- ---------- --------
$223,651 $ 289,765 $1,013,602 $ 52,666
======== ========== ========== ========
YEAR ENDED DECEMBER 31, 1996
Ordinary $173,699 $ 196,895 $ 676,744 $ 5,375
Group 0 6,501 4,354 0
Credit 0 0 0 46,904
Other 0 0 0 0
-------- ---------- ---------- --------
$173,699 $ 203,396 $ 681,098 $ 52,279
======== ========== ========== ========
YEAR ENDED DECEMBER 31, 1995
Ordinary $158,250 $ 195,860 $ 629,590 $ 3,360
Group 0 9,228 6,080 0
Credit 0 0 0 49,957
Other 0 0 0 0
-------- ---------- ---------- --------
$158,250 $ 205,088 $ 635,670 $ 53,317
======== ========== ========== ========
<CAPTION>
AMORTIZATION TAXES,
POLICY AND NET BENEFITS OF DEFERRED COMMISSIONS
CONTRACT INSURANCE INVESTMENT AND ACQUISITION AND GENERAL
INDUSTRY SEGMENT CLAIMS REVENUES (C) INCOME (A) CLAIMS COSTS EXPENSES (B)
----------------------- ---------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Ordinary $ 16,866 $ 168,218 $ 94,216 $144,323 $ 32,425 $ 45,373
Group 31,148 31,034 5,430 18,255 0 13,601
Credit 10,470 80,579 4,890 12,559 0 68,403
Other 0 0 856 33 0 (4,369)
-------- ---------- ---------- -------- -------- ---------
$ 58,484 $ 279,831 $ 105,392 $175,170 $ 32,425 $ 123,008
======== ========== ========== ======== ======== =========
YEAR ENDED DECEMBER 31, 1996
Ordinary $ 10,213 $ 137,421 $ 67,328 $110,959 $ 25,628 $ 33,092
Group 29,229 35,480 5,321 24,013 0 12,275
Credit 11,819 85,618 4,365 13,901 0 72,332
Other 0 0 21 14 0 (285)
-------- ---------- ---------- -------- -------- ---------
$ 51,261 $ 258,519 $ 77,035 $148,887 $ 25,628 $ 117,414
======== ========== ========== ======== ======== =========
YEAR ENDED DECEMBER 31, 1995
Ordinary $ 9,537 $ 123,718 $ 61,559 $103,184 $ 23,744 $ 29,414
Group 31,380 39,925 5,356 25,595 0 12,217
Credit 9,458 83,608 4,011 19,802 0 65,078
Other 0 0 (325) 0 0 (310)
-------- ---------- ---------- -------- -------- ---------
$ 50,375 $ 247,251 $ 70,601 $148,581 $ 23,744 $ 106,399
======== ========== ========== ======== ======== =========
</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.
43
<PAGE> 44
SCHEDULE IV
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, 1997
Life insurance volume in force $20,132,475 5,316,974 5,552,822 20,368,323 27.3%
=========== ========== ========== ========== =====
Insurance revenues(a):
Ordinary $ 176,351 10,306 2,173 168,218 1.2%
Group 34,263 5,509 2,280 31,034 7.3%
Credit 191,391 110,812 0 80,579 -%
----------- ---------- ---------- ---------- -----
Total $ 402,005 126,627 4,453 279,831 1.1%
=========== ========== ========== ========== =====
YEAR ENDED DECEMBER 31, 1996
Life insurance volume in force $16,208,820 4,599,978 4,314,210 15,923,052 27.1%
=========== ========== ========== ========== =====
Insurance revenues(a):
Ordinary $ 142,397 6,963 1,987 137,421 1.4%
Group 38,294 6,583 3,769 35,480 10.6%
Credit 183,787 98,169 0 85,618 -%
----------- ---------- ---------- ---------- -----
Total $ 364,478 111,715 5,756 258,519 2.2%
=========== ========== ========== ========== =====
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%
=========== ========== ========== ========== =====
</TABLE>
(a)Includes both life and accident and health premiums and commission and
expense allowances on reinsurance ceded.
44
<PAGE> 45
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
American Heritage Life Investment Corporation (the "Company") retained
Ernst & Young LLP as its independent auditors and replaced KPMG Peat Marwick
LLP effective July 25, 1997. No report of KPMG Peat Marwick LLP on the
financial statements of the Company for either of the past two years contained
an adverse opinion, or disclaimer of opinion, or was qualified or modified as
to uncertainty, audit scope, or accounting principles. Since the engagement of
KPMG Peat Marwick LLP for the Company's two most recent fiscal years and
through the date of replacement, there were no disagreements between the
Company and KPMG Peat Marwick LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure. The
change in independent accountants was approved by the Board of Directors of the
Company. Reference is made to current reports on Forms 8-K and 8-K/A dated
July 25, 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about directors of the Company who are not executive officers,
is contained in the Company's 1998 Proxy Statement, dated March 20, 1998 (the
"Proxy Statement") under the sections entitled "Election of Directors" and
"Executive Compensation and Other Transactions with Management - Other
Transactions and Relationships" which sections are incorporated herein by
reference.
MANAGEMENT
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 and director of
the Company and certain executive officers of AHL, none of whom is related to
each other either by blood or marriage, except W. Ashley Verlander and Chris A.
Verlander, who are father and son, respectively, and A. Dano Davis and Robert D.
Davis, who are first cousins.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
T. O'Neal Douglas....................................... 62 AHL and AHLIC - Chairman of the Board and
Chief Executive Officer, Director
Chris A. Verlander...................................... 50 AHL and AHLIC - Vice Chairman
and Corporate Secretary
C. Richard Morehead..................................... 51 AHL and AHLIC - President
and Chief Operating Officer
John K. Anderson, Jr.................................... 49 AHL and AHLIC - Executive Vice-President,
Treasurer and Chief Financial Officer
David A. Bird .......................................... 41 AHL and AHLIC - Executive Vice-President
and Chief Marketing Officer
Charles C. Baggs........................................ 47 AHL - Senior Vice-President, Administration
James H. Baum........................................... 46 AHL - Senior Vice-President, Group Department
Robert E. Poland........................................ 56 AHL - Senior Vice-President, Agency
Elizabeth A. Mahin...................................... 37 AHL - Senior Vice-President and Chief
Accounting Officer
William J Thomas........................................ 53 AHL - Senior Vice-President, Credit Department
Curtiss S. Sheldon...................................... 56 AHL - Senior Vice-President and Chief Actuary
Edward L. Baker......................................... 62 Director
A. Dano Davis........................................... 52 Director
Robert D. Davis......................................... 66 Director
H. Corbin Day........................................... 60 Director
Radford D. Lovett....................................... 64 Director
W. Ashley Verlander..................................... 78 Director
</TABLE>
45
<PAGE> 46
T. O'NEAL DOUGLAS' principal positions are those of: Chairman of the Board
of Directors of the Company, a position he has held since April, 1994; 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 February, 1990 to April, 1996, he was President
of the Company. From July, 1986 to April, 1994, he was President of AHL. Mr.
Douglas is also a Director of Physicians Sales and Service, Inc.
CHRIS A. VERLANDER'S principal positions are those of: Vice-chairman and
Corporate Secretary of the Company and AHL, which he has held since August,
1997; Director of the Company, a position he has held since July, 1987; Director
of AHL which he has held since April, 1985. Prior to August, 1997, and since
April, 1996 he was President and Chief Operating Officer. Prior to April, 1996,
and since April, 1990, he was Executive Vice President of the Company. 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.
C. RICHARD MOREHEAD'S principal positions are those of President and Chief
Operating Officer of the Company and AHL, which he has held since August, 1997
and Director of AHL, which he has held since July, 1990. Prior to August, 1997
and since April, 1994, he was Executive Vice President of the Company and AHL.
From July, 1996 to August, 1997 he was Treasurer, Chief Financial Officer and
Chief Accounting Officer of the Company and Chief Financial Officer of AHL.
Prior to April, 1994 and since July, 1986, he was Senior Vice President and
Chief Financial Officer of the Company and AHL.
JOHN K. ANDERSON JR'S principal position is that of Executive Vice
President and Chief Financial Officer of the Company and AHL, a position he has
held since August, 1997. Prior to August, 1997 and since December, 1995 he was
Director of the Cancer Insurance Division of AHL. Prior to December, 1995 and
since September, 1993 he was Chief Executive Officer of E.G. Baldwin and
Associates, Inc. in Cleveland, Ohio. Prior to September, 1993 and since August,
1990 he was President and Chief Executive Officer of Capital American Life
Insurance Company in Cleveland, Ohio.
DAVID A. BIRD'S principal position is that of Executive Vice President and
Chief Marketing Officer of the Company and AHL, a position he has held since
August, 1997. Prior to August, 1997 and since September, 1987 he was Senior Vice
President, Agency of AHL.
CHARLES C. BAGGS' 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.
JAMES H. BAUM'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.
ROBERT E. POLAND'S principal position is that of Senior Vice President,
Agency Department of AHL, a position he has held since February, 1998. Prior to
February, 1998 and since April, 1992 he was Vice President of AHL.
ELIZABETH A. 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.
WILLIAM J 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.
CURTISS S. 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.
46
<PAGE> 47
EDWARD L. BAKER has served as a Director since 1994. Mr. Baker has been
Chairman of the Board of Florida Rock Industries, Inc., a construction products
company since February, 1989. Mr. Baker is also a Director of FRP Properties,
Inc., Flowers Industries, Inc. and Regency Realty.
A. DANO DAVIS has served as a Director since June, 1993. Mr. Davis has been
Chairman of the Board and Principal Executive Officer of Winn-Dixie Stores,
Inc., a retail grocery chain, since 1988. Mr. Davis is also a Director of First
Union Corporation, a bank holding company.
ROBERT D. DAVIS has served as a Director since 1968. Mr. Davis has been
Chairman of the Board of D.D.I., Inc., a private investment company, since 1984.
Prior to June, 1990 and since 1988, he was Vice Chairman of the Board of
Winn-Dixie Stores, Inc. Mr. Davis is also a Director of Winn-Dixie Stores, Inc.
H. CORBIN DAY has served as a Director since June, 1993 and has served on
the board of AHL since 1989. Mr. Day has been Chairman of the Board of Jemison
Investment Co., Inc., an investment banking firm since May, 1988. Mr. Day is
also a Director of Blount International, Inc., a construction and manufacturing
company, Hughes Supply, Inc. and Championnn International Corporation.
RADFORD D. LOVETT has served as a Director since 1989. Mr. Lovett has been
Chairman of the Board of Commodores Point Terminal Corp., which operates a
marine terminal, since 1982. Mr. Lovett is also a Director of First Union
Corporation, Winn-Dixie Stores, Inc., Florida Rock Industries, Inc., a
construction products company and FRP Properties, Inc., a trucking and real
estate company.
W. ASHLEY VERLANDER has served as a Director of the Company since its
organization in 1968. He served as Chairman of the Board of the Company from
February, 1990 to April, 1994. He was Chairman of the Board of AHL from July,
1986 to April, 1994.
ITEM 11. EXECUTIVE COMPENSATION
See the section entitled "Executive Compensation and Other Transactions
with Management" of the Proxy Statement which section, except for the
subsections "Compensation Committee Report on Executive Compensation" and
"Shareholder Return Performance Presentation" 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" of the Proxy Statement 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 - Other Transactions and Relationships" of the Proxy Statement
which section is incorporated herein by reference.
47
<PAGE> 48
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)Documents incorporated by reference or filed with this report
(1)Financial Statement - See "Index to Financial Statements and
Schedules" on page 22, Part II of this report.
(2)Schedules - See "Index to Financial Statements and Schedules" on
page 22, Part II of this report.
(3)Exhibits required by Item 601.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
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 February 6, 1996. Incorporated
by reference to Exhibit 3 of a Form 8-K, dated February 6,
1996 (File No. 1-7255).
4 (a) -- Common Stock Certificate of American Heritage Life Investment
Corporation. Incorporated by reference to Exhibit 4 of the
Form 10-K filed by Registrant for the period ended December
31, 1994 (File No. 1-7255).
4 (b) -- Form of Indenture between the Company and The First National
Bank of Chicago, as Trustee. Incorporated by reference to
Exhibit 4(b) of the Registrant's Amendment No. 2 to Form S-3
dated June 23, 1997. (File No. 1-7255).
4 (c) -- Form of Preferred Security. Incorporated by reference to
Exhibit 4(c) of the Registrant's Amendment No. 1 to Form S-3
dated June 3, 1997. (File No. 1-7255).
4 (d) -- Form of Junior Subordinated Debenture. Incorporated by
reference to Exhibit 4(d) of the Registrant's Amendment No. 1
to Form S-3 dated June 3, 1997. (File No. 1-7255).
4 (e) -- Form of Guarantee Agreement with respect to Trust Preferred
Securities. Incorporated by reference to Exhibit 4(e) of the
Registrant's Amendment No. 1 to Form S-3 dated June 3, 1997.
(File No. 1-7255).
4 (f) -- Form of Purchase Contract Agreement, between the Company and
The First National Bank of Chicago, as Purchase Contract
Agent. Incorporated by reference to Exhibit 4(f) of the
Registrant's Amendment No. 1 to Form S-3 dated June 3, 1997.
(File No. 1-7255).
4 (g) -- Form of Pledge Agreement, among the Company, The Chase
Manhattan Bank, as Collateral Agent and The First National
Bank of Chicago, as Purchase Contract Agent. Incorporated
by reference to Exhibit 4(g) of the Registrant's Amendment
No. 1 to Form S-3 dated June 3, 1997. (File No. 1-7255).
4 (h) -- Certificate of Trust of AHL Financing. Incorporated by
reference to Exhibit 4(h) of the Registrant's Form S-3
dated March 28, 1997. (File No. 1-7255).
4 (i) -- Declaration of Trust of AHL Financing. Incorporated by
reference to Exhibit 4(i) of the Registrant's Form S-3
dated March 28, 1997. (File No. 1-7255).
4 (j) -- Form of Supplemental Indenture to Indenture to be used in
connection with issuance of Junior Subordinated Debentures
related to Income PRIDES. Incorporated by reference to
Exhibit 4(j) of the Registrant's Amendment No. 2 to Form
S-3 dated June 23, 1997. (File No. 1-7225).
4 (k) -- Form of Amended and Restated Declaration of Trust of AHL
Financing. Incorporated by reference to Exhibit 4(k) of the
Registrant's Form S-3 dated March 28, 1997. (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. Incorporated by reference to
Exhibit 10(b)(1) of Form 10-K filed by Registrant for the
period ended December 31, 1995 (File No. 1-7255).
(2) -- American Heritage Life Investment Corporation 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). Incorporated by reference to
Exhibit 10(b)(1) of Form 10-K filed by Registrant for period
ended December 31, 1995 (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).
10(d) -- Loan agreement dated February 21, 1997 among and between
American Heritage Life Investment Corporation and Barnett Bank
N.A., SunTrust Bank of North Florida, N.A. and SouthTrust Bank
of Alabama, National Association and related documents.
Incorporated by reference to Exhibit 99(c) of Form 8-K dated
March 3, 1997 (File No. 1-7255).
16(a) -- Letter dated July 28, 1997, from KPMG Peat Marwick LLP to the
Securities and Exchange Commission. Incorporated by reference
to Exhibit 16 of the Registrant's Form 8-K dated July 25,
1997, filed with the Commission on July 29, 1997.
16(b) -- Letter dated August 28, 1997, from KPMG Peat Marwick LLP to
the Securities and Exchange Commission. Incorporated by
reference to Exhibit 16(b) of the Registrant's Form 8-K/A
dated July 25, 1997, filed with the Commission on August 29,
1997.
21 -- Significant Subsidiaries of the Registrant.*
27 -- Financial Data Schedule (for SEC use only)*
</TABLE>
* Previously filed.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended December 31, 1997.
48
<PAGE> 49
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
April 6, 1998 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 and Director April 6, 1998
T. O'Neal Douglas (Principal Executive Officer)
/s/ JOHN K. ANDERSON, JR.
-------------------------------- Executive Vice President and April 6, 1998
John K. Anderson,Jr. Treasurer (Principal Financial
and Accounting Officer)
/s/ C. RICHARD MOREHEAD
-------------------------------- President and Chief April 6, 1998
C. Richard Morehead Operating Officer
/s/ CHRIS A. VERLANDER
-------------------------------- Vice Chairman April 6, 1998
Chris A. Verlander Director
-------------------------------- Director
Edward L. Baker
/s/ A. DANO DAVIS
-------------------------------- Director April 9, 1998
A. Dano Davis
/s/ ROBERT D. DAVIS
-------------------------------- Director April 9, 1998
Robert D. Davis
-------------------------------- Director
H. Corbin Day
/s/ RADFORD D. LOVETT
-------------------------------- Director April 9, 1998
Radford D. Lovett
-------------------------------- Director
W. A. Verlander
</TABLE>
49
